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Alabama Profile First Quarter 2010 Will it be a gradual U? This is the most likely scenario because consumers have collectively realized that they need to rebuild net worth the old-fashioned way – saving by spending less. De-leveraging will continue to occur because consumers receive fewer attractive low-interest rate credit offers in their mailbox as compared to several years ago.

As an affiliate with the League of Southeastern Credit Unions, we are pleased to provide you with this Profile that contains background economic and financial information that may be of assistance for your credit union. All affiliated credit unions should have already received their Customized Performance Report for the first Quarter. If you haven’t received your report, please contact Bill Berg, vice president of regulatory affairs and he will resend it.

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 because they are depressed 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 which keeps the unemployment rate bumping in the nine to ten percent area for most of 2010.

In the last profile, it was mentioned that the Great Recession was over. It has become increasingly clear that the recovery has been a jobless one and 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 is such a large part (two thirds to three fourths) of the nation’s gross domestic product (GDP), the recovery will continue to sputter along. What will the recovery look like?

There are several economic indicators that are important for Alabama’s credit unions to track; unemployment rate, home prices, delinquent loans to loans, and net charge offs.

Will it be a classic V? This is highly unlikely. Because so many jobs were lost during the Great Recession, many economists and the LSCU believe it will take several years for the economy to rebuild lost jobs.

Alabama’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.

Could it be a W? A double dip is possible and becomes likely if there are significant external events (i.e. Iraq, Iran, Afghanistan, North Korea, oil spill in the Gulf, etc.) that cause consumer confidence to weaken. It may also come from regulatory overkill. For example, increased regulations are easier to pay for during good economic times when credit unions have a larger, positive ROAA. It is much more difficult to pay during the worst economy in several generations. A second credit crisis could occur if small businesses are unable to secure credit. This is why the LSCU and CUNA have been actively involved in encouraging Congress to raise member business lending restrictions for credit unions. Also, the massive federal budget deficit will at some point start to crowd out private business borrowers.

Alabama’s unemployment rate through 2008 was below the national average. Starting in 2009, it now exceeds the national average. The chart on the next page demonstrates that the spread of Alabama’s unemployment rate, when compared to the national employment rate, has actually increased from the fourth quarter’s 2009 rate of 0.9 percent to 1.3 percent for the first quarter of 2010.

Any external shock, anything that goes wrong, could cause this fragile economic recovery to change because consumers are more cautious than ever. This Report is brought to you by the League of Southeastern Credit Unions. Address questions, comments, or suggestions to bill.berg@lscu.coop

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Alabama Profile First Quarter 2010 Quarterly house price indexes (HPI) are reported for the nation, the nine U.S. Census divisions, the fifty states and the District of Columbia. The HPI for each geographic area is estimated using repeated observations of housing values for individual singlefamily residential properties on which at least two mortgages were originated and subsequently purchased by either Freddie Mac or Fannie Mae since January, 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.

Unemployment Rates Alabama

USA 13.0% 11.0% 9.0% 7.0% 5.0%

1/ 10 Q

4/ 09 Q

3/ 09 Q

2/ 09 Q

1/ 09 Q

4/ 08 Q

3/ 08 Q

Q

2/ 08

3.0%

LSCU peer states, (Georgia and Mississippi), have generally experienced lower growth in real estate prices and have not fallen as much as the national average. The trends indicate that the rate of decline in all three states and the U.S. is dramatically slowing down. In Alabama, prices actually showed some slight gains in the fourth quarter. However, given the strong headwinds facing the real estate market – high unemployment rates, levels of delinquency, levels of foreclosures, and other properties that have been held off the market from reentering; we are unlikely to see rapid improvement in the real estate arena. The worst is clearly behind us, but expect the real estate market to be bumpy for the next several years.

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.

Real Estate Prices USA

Alabama

Georgia

Mississippi

15.00%

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.

10.00% 5.00%

09 -4

09 -1

08 -2

07 -3

06 -4

06 -1

05 -2

04 -3

-5.00%

03 -4

03 -1

0.00%

-10.00% -15.00%

The affect of these events is likely to have a chilling result in the real estate market for the next several years.

The following seven graphs have been developed from downloading and analyzing current and historical Call Report Data from the NCUA. The last page of this profile contains fourth quarter national and Alabama statistics and ratios as well as historical information for Alabama going back to 2005. There is also a breakdown into four asset-size ranges so you can review your credit union’s performance compared with your Alabama peers.

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).

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Alabama Profile First Quarter 2010 After seven consecutive quarters of growth in delinquent loans to loans, the national rate finally showed a drop of six basis points (bp). Alabama’s credit unions showed much better improvement in decreasing by twenty four bp. 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 the corner may have been turned.

ROAA USA

Alabama

1.00% 0.50% 0.00% -0.50% -1.00% -1.50% Q3/08

Delinquent Loans to Loans USA

Q1/09

Q3/09

Q1/10

Alabama

2.00%

New and used car loans have been up and down for Alabama's credit unions during the past eight quarters. It is typical during challenging economic times for members to retain cars longer than normal until economic conditions improve. Also, automobiles are being built better and are lasting longer than in the past. And, the government's cash for clunkers program removed many used cars from the marketplace causing prices of the remaining inventory of used cars to remain stable or increase. Alabama's credit unions have outperformed U.S. credit unions in six of the past eight quarters.

1.50% 1.00% 0.50% 0.00% Q1/08

Q3/08

Q1/09

Q3/09

Q1/10

Nationally, after seven consecutive quarters of increases, the net charge-off rate declined but it was only by one bp. Alabama’s credit unions seem to have hit a plateau of around 0.94 - 0.95 percent. While this is a higher rate than credit union leadership would like, it is twenty five bp lower than the national rate.

Auto Loan Growth USA

Net Charge Offs USA

Alabama

0.020% 0.010% 0.000% -0.010% -0.020% -0.030%

Alabama

1.50% 1.00%

Q3/08

Q1/09

Q3/09

Q1/10

0.50% 0.00% Q1/08

Q3/08

Q1/09

Q3/09

Real estate lending has been a significant driver of Alabama's credit union earnings for the past decade. Alabama's credit unions have outperformed U.S. credit unions in seven of the past eight quarters.

Q1/10

The current levels of delinquent loans-to-loans ratio and net charge-offs to loans ratios makes it difficult for long term successful credit union operations. Nationally, credit unions improved their ROAA from the previous quarter by twenty nine bp. Alabama’s credit unions have outperformed credit unions nationally for the past nine quarters and were twenty one bp better during the current quarter.

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Alabama Profile First Quarter 2010 Savings Growth

Real Estate Loan Growth USA

USA

Alabama

Alabama

8.00%

5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00%

6.00% 4.00% 2.00% 0.00%

Q3/08

Q1/09

Q3/09

-2.00%

Q1/10

Q3/08

Membership growth has been up and down over the past few years. However, Alabama's credit unions have grown faster than the national numbers in six of the past eight quarters.

Q3/09

Q1/10

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, the volatility, as evidenced by triple digit gains or losses, has caused many investors to wait on the sidelines.

Membership Growth USA

Q1/09

Alabama

1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% -2.00%

Real estate, like the stock market, historically seemed to go in one direction. Many speculators purchased real estate with the expectation of selling the following year for a ten to twenty percent profit.

Q3/08 Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10

Alabama's credit unions, because of high levels of unemployment and a very weak economy, have generally mirrored savings growth of U.S. credit unions over the past nine quarters. However, the first quarter of 2010 showed a surprisingly sharp drop in savings. Alabama’s credit unions have had higher savings growth or smaller decreases than the national numbers in seven of the past nine quarters. As the economy improves, expect to see more robust savings growth as members, who feel less secure about their jobs, social security, homes, and retirement accounts, increase their savings in federally insured accounts. Most recessions during the past thirty years 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 around.

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Alabama Profile First Quarter 2010 USA Demographic Information

Alabama Credit Unions

Mar 10

Mar 10

2009

2008

Alabama CU Asset Groups

2007

2006

<$6Mil

$6-18

$18-100

>$100

Number of CUs

7,651

133

134

140

148

154

39

28

36

29

Average Assets ($mil)

118.9

112.0

107.9

93.2

81.9

73.2

2.9

11.8

40.4

448.0

Total Assets ($mil)

909,842

14,893

14,455

13,052

12,122

11,277

115

330

1,455

12,993

Total Loans ($mil)

573,537

7,625

7,716

7,324

6,884

6,526

69

187

809

6,561

Total Savings ($mil)

784,155

13,061

12,650

11,278

10,447

9,773

95

271

1,265

11,429

91,488

1,753

1,783

1,721

1,679

1,635

29

59

208

1,457

FT Employees

222,879

4,129

4,099

4,161

3,984

3,775

60

122

539

3,408

PT Employees

31,300

391

412

446

472

493

33

20

59

279

Total Members (thous)

Growth Rates Total Assets

1.5%

3.0%

10.7%

7.7%

7.5%

4.5%

Total Loans

-1.2%

-1.2%

5.4%

6.4%

5.5%

5.8%

These growth rates are from the previous December's call report data.

Total Savings

2.7%

3.2%

12.2%

8.0%

6.9%

3.8%

Total Members

0.3%

-1.7%

3.6%

2.5%

2.7%

1.9%

Earnings (bp) Yield on Total Assets

5.04

4.84

5.95

6.41

6.04

5.52

6.44

5.12

5.14

4.78

-Dividend/Interest Cost

-1.39

-1.56

-2.63

-3.09

-2.65

-2.07

-1.15

-1.41

-1.55

-1.56

+Fee and Other Income

0.73

0.97

1.23

1.18

1.16

1.03

0.55

1.19

1.22

0.94

-Operating Expense

-3.09

-3.08

-3.33

-3.35

-3.29

-3.18

-4.48

-3.98

-3.81

-2.97

-Loss Provisions

-0.83

-0.50

-0.47

-0.36

-0.29

-0.40

-0.84

-0.41

-0.54

-0.49

0.46

0.67

0.75

0.79

0.97

0.90

0.52

0.51

0.46

0.70

Delinquent Loans/Loans

1.77%

1.28%

1.21%

1.08%

1.02%

1.05%

4.45%

1.68%

1.72%

1.18%

Net Charge Offs/Loans

1.20%

0.95%

0.71%

0.52%

0.48%

0.61%

1.69%

1.13%

0.97%

0.94%

=Net Income (ROA) Asset Quality

Other Ratios (%) Avg Shares/Member

$

8,571

$

7,452

$

6,553

$

6,223

$

5,978

$

5,870

$ 3,254

$ 4,605

$ 6,079

$

Avg Loan Bal/Member

$

6,269

$

4,351

$

4,255

$

4,100

$

3,992

$

3,845

$ 2,354

$ 3,173

$ 3,887

$

7,847 4,504

Travel & Conf/Thous Assets

25.8%

23.0%

39.6%

41.0%

41.5%

40.6%

32.2%

26.7%

43.0%

20.5%

SD Penetration

43.7%

42.7%

41.3%

41.0%

38.6%

40.2%

9.7%

27.1%

37.0%

44.7%

Members/Branch

4,281

4,307

4,002

3,923

3,892

3,903

748

1,638

2,477

5,873

Employees/Thousand Mbrs Cash/Assets

2.61

2.47

2.55

2.51

2.46

0.84%

1.35%

1.43%

1.21%

1.22%

2.39 10.25%

2.62

2.24

2.73

2.44

0.88%

1.64%

1.97%

1.28%

Investment Yield

2.00%

2.28%

3.74%

4.52%

4.09%

3.45%

1.15%

1.48%

1.85%

2.35%

Loan Yield

6.16%

6.41%

6.63%

6.81%

6.58%

6.24%

9.51%

7.58%

7.18%

6.25%

Net Worth Ratio

9.90%

11.18%

12.09%

12.27%

12.38%

11.92%

16.60%

17.27%

12.55%

10.82%

Loan Distribution Loans/Assets

63.0%

57.2%

56.1%

56.8%

57.9%

57.1%

60.0%

56.7%

55.6%

50.5%

Credit Cards/Total Loans

6.0%

5.7%

5.8%

6.0%

5.6%

5.6%

0.9%

0.5%

2.6%

6.3%

Other Unsec Loans/Total Lns

4.4%

5.8%

6.2%

6.5%

6.4%

6.7%

20.5%

11.6%

8.8%

5.1%

Total Unsec Lns/Total Lns

10.4%

11.5%

12.0%

12.4%

12.0%

12.3%

21.3%

12.1%

11.4%

11.4%

New Automobile/Total Loans

12.5%

14.5%

18.3%

19.9%

20.4%

20.1%

21.0%

21.5%

14.1%

14.3%

Used Automobile/Total Loans

17.3%

26.6%

24.7%

25.3%

27.0%

28.7%

38.0%

28.6%

30.2%

26.0%

Total Car Loans/Total Loans

29.8%

41.1%

43.0%

45.2%

47.4%

48.8%

59.0%

50.1%

44.3%

40.2%

1st Mtg Loans/Total Lns

38.6%

33.3%

31.0%

27.9%

26.6%

25.7%

10.4%

24.5%

32.1%

33.9%

2nd Mtg Loans/Total Lns

16.1%

8.4%

8.6%

8.9%

8.0%

7.5%

2.0%

5.0%

5.2%

8.9%

Ttl Real Estate Lns/Total Lns

54.7%

41.7%

39.6%

36.9%

34.6%

33.1%

12.4%

29.5%

37.3%

42.9%

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/10Q1AL  

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