Profits up 27 percent at Alabama credit unions Premium content from Birmingham Business Journal - by Antrenise Cole, Staff
Date: Friday, June 24, 2011, 5:00am CDT Credit unions in Alabama recorded a 27 percent boost in profits in the first quarter of this year. Like their banking counterparts, credit unions tout setting aside less money for sour loans as the main reason for increased earnings. Net income for the state’s federally insured credit unions was $31.2 million for the quarter that ended March 30, compared to $24.5 million during the same period the year before, according to data from the National Credit Union Administration. Three quarters of improvement in credit unions’ earnings can be attributed to setting aside less money in provisions for loan losses, said Patrick La Pine, president and CEO of the League of Southern Credit Unions. Alabama credit unions also are seeing fewer delinquent loans and fewer net charge-offs, or loans that credit unions no longer collect on and are removed from their balance sheets. The total aggregated delinquent loans for credit unions in Alabama were $89.7 million, a 4.6 percent dip from the $94.1 million at the end of the first quarter of the previous year. Net charge-offs shrunk 32 percent to $12.3 million in the first quarter, compared to $18.2 million the same time the year before. “Earnings are continuing to improve, while delinquencies and net charge-offs continue to fall, which are all good trends,” La Pine said. “We are all hopeful that the worst is behind us. The rest of the year really depends on what happens in the general economy and overall consumer confidence.” La Pine said credit unions have continued to face challenges with low loan demand and low investment yields. However, he said if consumer confidence picks up, loan demand will pick up, which will further reduce delinquencies and charge-offs while improving income. Among those reporting a jump in profits in the first quarter was America's First Federal Credit Union, the second largest credit union in the Birmingham metro area. It reported a $1.9 million profit for the first quarter of this year, up 116 percent from the $863,947 the credit union
earned during the first quarter of the previous year. Officials with America’s First didn’t return calls by press time. Not all credit unions in the Birmingham-metro area reported higher profits for the first quarter. Legacy Community Credit Union, the fourth largest credit union in the area, had a net income of $473,240 at the end of the quarter, an 11 percent dip from the $531,203 reported during the same period the year before. However, Joseph McGee, president and CEO of Legacy Community, said in light of the current economic environment, he was pleased with the credit union’s performance for the first quarter. McGee said a protracted low-rate environment and consumer deleveraging – a voluntary act of eliminating debt – led to the downturn in net income. The economy is Legacy Community’s biggest challenge, McGee said. “If we can see an improvement in the economy and consumer confidence, I think it would bode very well for all of the financial institutions,” he said. Mutual Savings Credit Union, the fifth largest credit union in the Birmingham metro area, had a net income of $196,888 for the first quarter of this year, down 38.9 percent compared to the $322,058 the credit union earned during the first quarter of the previous year. Mutual Savings CFO Kendall Speed said this may look bleak, but he believes the credit union is well positioned to begin growing again in the near future. Even though the credit union was released from conservatorship in 2010, it still has to achieve a federal mandate of having a capital ratio of 7 percent or greater. To do this, the credit union has purposely been shrinking its balance sheet by controlling its loans and share deposits to help increase capital ratio, which was above 6.7 percent at the end of May, Speed said. As a result, Mutual Savings has $25 million less in loans on its books as of March 31, compared to March 31, 2010, which immediately impacted interest income. In addition, it has earned less investment income because its longer-held investments are maturing and it is reinvesting at lower rates, Speed said. acole@bizjournals.com | (205) 443-5630