Florida Profile Second Quarter 2011 As an affiliate with the League of Southeastern Credit Unions (LSCU), we are pleased to provide you with this profile that contains background economic and financial information to assist your credit union. All affiliated credit unions should have already received their Customized Performance Report for the second quarter. If you have not received your report, please contact Bill Berg, vice president of regulatory affairs and he will resend it. You can reach Bill at 866.231.0545 x1028 or bill.berg@lscu.coop
May. The more it costs consumers to fill up their gas tanks, the less they have to spend on consumer items.
According to the National Bureau of Economic Research (NBER) the Great Recession, the longest-lasting recession the U.S. has experienced since World War II ended in June 2009. The NBER, is a panel of academic economists that dates the beginnings and ends of recessions. The bureau said the recession lasted 18 months, starting in December 2007. The longest prior postwar recessions occurred from 1973 to 1975 and from 1981 to 1982 – each lasting 16 months.
5.) Emerging markets such as China (which buy our heavy equipment and luxury goods) are putting on the growth brakes over concerns about inflation. Their concerns have been exacerbated by the Fed’s money supply policy known as quantitative easing.
3.) Housing prices continue their downward spiral which makes more homeowners underwater and tamps down consumer spending. 4.) The European debt crisis! Various countries Portugal, Ireland, Italy, Greece, and Spain (PIIGS) are scaling back promises they have made to their citizens.
6.) State and local governments have been cutting about 25,000 jobs each month. This sector of the job market normally adds about 20,000 jobs per month and adding reductions by the Postal Service require private industry to add about 50,000 jobs per month for the economy to just stay even.
However, the recovery has been slower than in the past and job creation has been at a significantly lower pace than in past recoveries. There are many unemployed or underemployed people. Until the unemployment and underemployment rates decrease, the anxiety that many consumers have will continue causing them to hold back on spending. Since consumer spending accounts for about 70 percent of the nation’s gross domestic product (GDP), the recovery will continue to sputter along. Household spending remains constrained and faces strong headwinds that include a weak labor market, modest income growth, lower housing wealth, and tight credit. We should expect a long, slow recovery because the household sector's balance sheets are in such poor shape.
Gross Domestic Product 4 2 0 -2 -4 -6 -8 -10 Q2/08 Q4/08 Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
The chart, on the right, tracks the GDP, not only clearly shows the magnitude of the Great Recession, but illustrates the weakness in the economy during 2011.
Despite the weak recovery, improvement in credit union financial results is occurring. This follows two of the most difficult years ever for credit unions – 2008 and 2009.
There have been several worldwide and domestic economic events that have caused this slow growth patch. 1.) The earthquake and Tsunami in Japan created disruptions to the supplies of many items used in the world economy. 2.) The Arab Spring created upheavals in the oil markets. Gasoline, which was selling for a little over $3 a gallon at the end of 2010, had risen to more than $4 a gallon by
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Florida Profile Second Quarter 2011 Most significant, was the further improvement in credit union earnings during the second quarter. Despite the continuing assessments from the National Credit Union Administration (NCUA), Florida’s credit unions made a collective 58 basis points (bp) of Return on Average Assets (ROAA).
home prices, delinquent loans-to-loans, and net chargeoffs. Florida's high unemployment is a deterrent to those thinking about relocating to the state. This slows down population growth and new residential home construction, resulting in higher unemployment for the construction and associated service industries. Less demand for housing ultimately increases home foreclosures. The result is that Florida has experienced a net flow reduction of nearly 200,000 residents annually.
Although this is smaller than the 90 bp to 100 bp that many credit unions became accustomed to before the Great Recession, it represents a marked improvement from the 8 bp earned during 2010 and the negative earnings of the previous two years. A significant contributor to the earnings improvement was the large 107 bp decline in the provision for loan-loss expense from 203 bp in 2010, to 96 bp.
Because the flow of new residents has slowed, Florida has experienced a dramatic increase in unemployment in businesses that depend on new construction – county building permits, concrete companies, plumbers, electricians, sheetrock installers, roofers, etc. Many of these workers have suffered reduced hours and layoffs. This has caused Florida’s unemployment rate, which until 2007 was below the national average, to exceed the national average since then. The Unemployment Rates chart demonstrates how the spread of Florida’s unemployment rate, when compared to the national rate, has been narrowing and dropping for the past three quarters.
A surprise in the data is the positive savings growth rate of 2.6 percent. During 2010, savings balances declined by 0.8 percent as members used their savings balances to pay down loans rather than to build savings balances. In 2011, loan balances declined 2.8 percent following a dismal 6.5-percent decline during 2010. Improvements in unemployment numbers must be taken with a grain of salt. The unemployment formula divides the unemployed by total workers. This equation excludes people who have stopped looking, and people who are underemployed. As the recovery continues to gain traction and previously unemployed people find jobs, those reductions are offset by gains as unemployed and underemployed individuals become counted in the unemployed group in the numerator. This should keep the unemployment rate bumping in the 8 to 9 percent area for most of 2011 and 2012.
Because Florida has no personal state income tax, only taxes on sales and property, Florida has shifted most taxes onto the people coming in, whether new residents or tourists. The slower growth in conjunction with diminished tourism because of the Great Recession has greatly affected Florida’s revenues. Florida’s population growth will pick up when the economy improves, although probably at a lower level for several years. Baby boomers will start retiring in large numbers, and Florida will continue to attract immigrants from Latin America. But with declining birth rates and other states aggressively competing to attract retirees, maintaining a constant flow of new Floridians will become increasingly more difficult.
There are several economic indicators that are important for Florida credit unions to track; unemployment rate,
Unemployment Rates USA
Florida
13.0%
It’s not just in Florida, according to the National Governors Association, state governments will struggle with revenue at least until 2012, maybe longer. State governments have taken measures to cut expenses and raise taxes and fees. Like consumers, the states aren't spending. Since 1978, states have only had negative revenue once, in 1983. Then the Great Recession became a game changer for state governments. There were five consecutive quarters of negative revenue.
8.0%
3.0%
2
Florida Profile Second Quarter 2011 Despite increases during the past three quarters, total state revenues are still down about 9 percent in 2010 when compared to 2008.
values for individual single-family residential properties on which at least two mortgages were originated and subsequently purchased by either Freddie Mac or Fannie Mae since 1975. The use of repeat transactions on the same physical property units helps to control differences in the quality of the houses comprising the sample used for statistical estimation. For this reason, the HPI is described as a “constant quality” house price index.
In real estate, two events will pose a drag on real estate recovery going forward: 1.) The commercial real estate (CRE) market has not felt the affects of the real estate meltdown to the same degree as the residential lending market. Most residential loans are chopped into securities and sold. As the value of those securities declined, financial institutions have had to reduce the value of those investments by marking them to market. Lenders with commercial construction loans on the books generally keep them on their books and will soon have to decide whether to “extend and pretend,” or write the loan off. With the banking industry facing commercial real estate losses in the $200 to $300 billion range, bank regulators are encouraging delay (pretend) and extend to avoid any additional big hits to the FDIC’s already empty insurance fund.
Three of the sand states, (Florida, California, and Arizona), had equal or higher growth in real estate prices than the rest of the U.S. until 2006 and 2007. The trend indicates that the rate of decline in all three states and the U.S., has dramatically slowed down. However, given the strong headwinds facing the real estate market – high unemployment rates, high levels of delinquency, high levels of foreclosures and other properties that have been held off from re-entering the market, we are unlikely to see rapid improvement in the real estate arena. The worst seems to be behind us, but unfortunately we still have not found the bottom of the real estate market. California had two consecutive quarters of very small (but positive) price appreciation while housing prices nationally, in Florida, Arizona, and in California continues to fall.
2.) A significant percentage of homes have more debt than their market value. In some markets this has led to people walking away from their homes (strategic default or foreclosure). With the number of homes underwater it is inevitable that losses in the real estate arena will continue. This will be a drag on the recovery in the real estate market. Houses have been overvalued for about 10 years. The effect of these events is likely to have a chilling result in the real estate market for the next several years.
Real Estate Prices USA
Florida
California
Arizona
25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% -20.00% -25.00% -30.00%
The rule-of-thumb is that consumers can afford a house valued at two and one-half to three times their income. The median household income is $55,000 per year, but the median home price had been running about $212,000 – above what the median household could afford. The market appears to have stabilized some now, and the median home price has dropped to $170,000. The Office of Federal Housing Enterprise Oversight (OFHEO) estimates and publishes quarterly house price indexes for single-family, detached properties using data on conventional conforming mortgage transactions obtained from the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).
The following seven graphs have been developed by downloading and analyzing current and historical Call Report Data from the NCUA. The last page of this profile contains second quarter national and Florida statistics. Additionally, other ratios as well as historical information for Florida going back to 2007 are included. There is also a breakdown into four asset-size ranges so you can review your credit union’s performance compared with your Florida peers.
Quarterly house price indexes (HPI) are reported for the nation, the nine U.S. Census divisions, the 50 states, and the District of Columbia. The HPI for each geographic area is estimated using repeated observations of housing
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Florida Profile Second Quarter 2011 The current levels of delinquent loans-to-loans ratio and net charge-offs to loans ratios make it difficult for long term successful credit union operations but both are improving, which is a welcome sign.
Delinquent loans-to-loans, nationally stabilized during 2010 and are now 24 bp lower than during the fourth quarter of 2009. Florida’s credit unions have mirrored the national drop and have seen a reduction of 32 bp during the same period. These rates are still too high and must also be judged with net charge-offs, but these reductions, after many quarters of steady increases, are a welcome sign that we’ve turned the corner.
Florida credit unions have been below the national average in each of the past 11 quarters. Nationally, credit unions ROAA increased by 26 bp from December 2010. Florida credit unions collectively improved their ROAA by 50 bp and have greatly narrowed the gap when compared to the national numbers.
Delinquent Loans to Loans USA
Florida
4.00%
ROAA
3.00%
USA
Florida
Q4/09
Q2/10
0.80%
2.00%
0.60%
1.00%
0.40%
0.00%
0.20% 0.00%
Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
-0.20% -0.40% Q2/09
The net charge-off rate nationally has declined by 26 bp since the fourth quarter of 2009. Florida’s credit unions have exceeded the national drop and are now 119 bp lower during the same period. Florida’s rate is still too high, but is headed in the right direction after two very tough years.
Q2/11
New and used car loans have shown negative growth for Florida credit unions during the past 12 quarters. During those 12 quarters the national rate has been better (either a smaller decline or an increase). It is typical during challenging economic times for members to retain cars longer than normal until economic conditions improve. Because the average car loan lasts around 30 months, a great deal of the decline in auto lending in Florida can be attributed to loans being paid off and not replaced immediately by other car loans. There has been an increase of $30 million in used car lending, but it was more than offset by loan payoffs in new car lending.
Net Charge-Offs USA
Q4/10
Florida
2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
Auto Loan Growth USA Florida 0.020%
The asset quality improvements in delinquent loans to loans and net charge-offs to loans are impressive. This is especially true when you consider that loans (the denominator in these metrics) have dropped $2.6 billion during this same time which (all other things being equal) would cause these numbers to rise!
0.000% -0.020% -0.040% -0.060% Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
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Florida Profile Second Quarter 2011 Real estate lending has been one of the main drivers of Florida's credit union earnings for the past decade. Unfortunately, Florida’s real estate market has been in a free fall for the past several years. Florida credit unions have had negative growth in 10 of the past 11 quarters.
Florida credit unions experienced positive savings’ growth during 2011. Because of high levels of unemployment and a very weak economy, 2010 saw negative savings’ growth. Florida credit unions have had smaller savings’ growth rates, or more negative numbers than the national numbers for the past 14 quarters. As the economy improves, expect to see more robust savings’ growth as members put their savings in federally insured accounts. All recessions since World War II have been shorter than the Great Recession. Previously, the economy bounced back quickly. The recent economic crisis has shaken consumer confidence as nearly every assumption about safe places to put money for growth has been turned upside down.
Much of the negative numbers can be attributed to a variety of factors such as: weak population growth, high unemployment, overall weakness in the real estate markets, and the desire for credit unions to limit their exposure in the real estate market because of losses attributable to foreclosed real estate or expected from real estate.
Real Estate Loan Growth USA
Florida
Savings Growth
1.00%
USA
Florida
Q4/09
Q2/10
4.00%
0.00%
3.00%
-1.00%
2.00% 1.00%
-2.00%
0.00%
Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
-1.00% -2.00% Q2/09
One of the very brightest spots for Florida credit unions has been in Member Business Lending (MBL). During the past four years (since 2007), MBLs are up $200.6 million or 24.4 percent.
Q2/11
The stock market for many investors always seemed to be on an upward trend. In 1980, the Dow Jones Industrial Average (DJIA) was in the 800s. By 2001, the DJIA was hovering just under 11,000. Then the 9/11 attacks occurred, and the DJIA dropped to 8,000 by 2003. Over the next four years, it climbed to a new high of 13,930 in 2007. The Great Recession took nearly half the value out of the stock market and this average had retreated to 7,062 in 2009 (where it was at in 1996). Since this recent low, increasing volatility, as evidenced by triple digit gains or losses, has caused many investors to wait on the sidelines. At the close of the second quarter, the DJIA was 12,414.
Membership has been up in six of the last 10 quarters. Florida credit union membership grew 0.3 percent during 2011.
Membership Growth USA
Q4/10
Florida
1.00% 0.50% 0.00% -0.50%
To access economic profiles for Florida, visit the LSCU’s Economic Data and Research page under the Compliance and Operational Support tab at our website below. This page has economic research from CUNA and the Filene Research Institute as well as valuable credit union econometric data for Florida. www.lscu.coop
-1.00% -1.50% Q2/09
Q4/09
Q2/10
Q4/10
Q2/11
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Florida Profile Second Quarter 2011 USA Demographic Information
June 11
Florida Credit Unions 2010
Florida CU Asset Groups <$14.9
$14.9-47
$47-140
Number of CUs
7,386
174
176
179
185
195
42
43
45
44
Average Assets ($mil)
129.3
248.3
238.7
238.0
224.7
210.4
6.3
29.2
83.1
864.2
Total Assets ($mil)
954,758
43,199
42,015
42,595
41,575
41,026
263
1,254
3,657
38,025
Total Loans ($mil)
571,499
25,623
26,364
28,205
29,238
29,017
124
627
1,953
22,919
Total Savings ($mil)
823,156
37,387
36,447
36,744
34,937
35,044
218
1,072
3,229
32,867
92,254
4,545
4,533
4,562
4,550
4,550
48
166
457
3,874
FT Employees
223,660
11,823
11,850
12,349
12,832
13,014
111
462
1,354
9,896
PT Employees
31,508
1,083
1,083
1,013
1,091
1,079
27
52
110
894
Total Members (thous)
June 11
2009
2008
2007
>$140
Growth Rates Total Assets
3.0%
2.8%
-1.4%
2.5%
1.3%
3.2%
Total Loans
-0.2%
-2.8%
-6.5%
-3.5%
0.8%
5.9%
These growth rates are from the
Total Savings
3.2%
2.6%
-0.8%
5.2%
-0.3%
3.5%
previous December's call report data.
Total Members
0.5%
0.3%
-0.6%
0.3%
0.0%
0.4%
FT Employees
0.2%
-0.2%
-4.0%
-3.8%
-1.4%
2.3%
Earnings (bp) Yield on Total Assets -Dividend/Interest Cost +Fee and Other Income
4.65
4.83
5.73
5.59
6.46
6.56
4.53
4.80
4.49
4.87
-0.99
-0.82
-1.13
-1.73
-2.77
-3.18
-0.63
-0.68
-0.71
-0.84
0.70
0.96
1.12
1.10
1.20
1.16
1.06
1.04
1.26
0.93
-Operating Expense
-3.10
-3.43
-3.61
-3.34
-3.55
-3.50
-4.83
-4.31
-4.22
-3.31
-Loss Provisions
-0.51
-0.96
-2.03
-1.85
-1.62
-0.62
-0.18
-0.43
-0.50
-1.03
0.75
0.58
0.08
-0.23
-0.28
0.42
-0.05
0.42
0.32
0.62
Delinquent Loans/Loans
1.59%
2.80%
3.16%
3.12%
2.12%
1.35%
1.86%
1.81%
2.04%
2.90%
Net Charge Offs/Loans
0.95%
1.85%
2.21%
2.14%
1.56%
0.62%
0.79%
0.95%
1.40%
1.92%
=Net Income (ROA) Asset Quality
Other Ratios (%) Avg Shares/Member
$
8,923
$
8,226
$
8,041
$
8,054
$
7,678
$
7,702
$ 4,533
$ 6,458
$ 7,064
$
8,484
Avg Loan Bal/Member
$
6,195
$
5,637
$
5,816
$
6,182
$
6,425
$
6,378
$ 2,574
$ 3,774
$ 4,273
$
5,916
Travel & Conf/Thous Assets
28.3%
28.9%
25.1%
26.5%
40.6%
45.9%
18.4%
35.1%
42.6%
27.4%
SD Penetration
44.8%
54.7%
55.0%
54.7%
54.7%
51.9%
22.6%
39.7%
48.0%
56.5%
Members/Branch
4,305
4,893
4,879
5,155
4,815
4,983
1,048
2,157
2,406
6,289
2.60
2.72
2.73
2.82
2.94
2.98
2.58
2.94
3.08
2.67
0.87%
1.03%
1.00%
0.93%
1.01%
1.04%
1.30%
1.75%
1.58%
0.96%
Employees/Thousand Mbrs Cash/Assets Investment Yield
1.62%
1.49%
1.84%
2.41%
4.01%
5.04%
1.23%
1.41%
1.37%
1.51%
Loan Yield
5.84%
6.01%
6.28%
6.23%
6.53%
6.46%
7.49%
7.21%
6.39%
5.94%
10.16%
9.74%
9.68%
9.52%
10.61%
11.08%
16.06%
13.42%
10.12%
9.53%
Net Worth Ratio Loan Distribution Loans/Assets
59.9%
59.3%
62.7%
66.2%
70.3%
70.7%
47.2%
50.0%
53.4%
60.3%
Credit Cards/Total Loans
6.2%
9.0%
9.2%
8.8%
8.3%
7.9%
3.4%
8.9%
5.7%
9.3%
Other Unsec Loans/Total Lns
4.3%
3.5%
3.5%
3.4%
3.5%
3.5%
14.2%
9.6%
5.6%
3.1%
Total Unsec Lns/Total Lns
10.6%
12.5%
12.7%
12.2%
11.8%
11.3%
17.6%
18.5%
11.3%
12.4%
New Automobile/Total Loans
10.5%
13.2%
14.1%
16.9%
18.8%
21.7%
22.6%
15.7%
13.7%
13.0%
Used Automobile/Total Loans
18.3%
17.3%
16.7%
16.0%
16.0%
16.9%
28.5%
26.5%
25.4%
16.2%
Total Car Loans/Total Loans
28.8%
30.4%
30.7%
33.0%
34.8%
38.6%
51.1%
42.3%
39.1%
29.3%
1st Mtg Loans/Total Lns
40.4%
38.9%
38.0%
35.7%
33.7%
31.1%
15.0%
23.7%
28.3%
40.3%
2nd Mtg Loans/Total Lns
14.8%
14.1%
14.6%
15.2%
15.5%
14.9%
9.9%
9.3%
15.0%
14.2%
Ttl Real Estate Lns/Total Lns
55.2%
52.9%
52.6%
50.8%
49.2%
46.0%
24.9%
33.0%
43.3%
54.5%
6