Alaska: Boom or Bust? It’s a Matter of Perspective
Alaska credit unions led the country with 92% reporting positive ROAA during the first quarter, according to the NCUA’s Quarterly U.S. Map Review.
But even with a statewide average of 106 basis points of profit and 6.5% year-over-year loan growth, credit unions located in the largest state in the U.S. report they are still coming up short on loans.
The state's credit unions have plenty of money to lend and are intent on finding qualified borrowers; but, they are experiencing a lower demand than usual for consumer loans.
For the $129 million Spirit of Alaska Credit Union, whose members are professors, teachers, students and staff of learning institutions located north of the Alaska Range, loan growth was around 5% last year. That may sound good in the lower 48, but it’s a lower than usual number for that credit union.
“Alaska has had a boom-or-bust type economy for most of its history,” said Lynne Pohlman, vice president of human resources for the Fairbanks credit union. “We are continuing to work towards a more stable business cycle. We’re always a bit behind what’s going on in the lower 48, so we’re feeling a slowdown and various businesses are cutting staff. However, the housing market has remained stable throughout the recession and continues to be stable.”
Spirit of Alaska reported a 0.81% ROAA during the first quarter, higher than the peer average of 0.59%, which Pohlman credited to interest income, non-interest income and cutting expenses. Staff was cut by attrition, and Pohlman said the credit union raised some fees and instituted new fees. Member reaction to the new fees was “a non-event,” she said.
"We surveyed the local competition and remain about the middle of the market for fees," Pohlman said.
The credit union also raised loan rates and tightened underwriting, thanks to increased NCUA examiner focus on Troubled Debt Restructuring loans.
"They require so much more documentation that this type of loan has become very burdensome and time consuming," Pohlman said about TDRs. As a result, Spirit of Alaska tightened underwriting standards to avoid what it calls “Member Assist” loans.
The economic factors affecting members at Spirit of Alaska are similar to those facing all credit unions across the state: oil prices, mining activity and mineral prices, and military budget issues. Although many Spirit of Alaska members are educators, layoffs in the sector are not as common as in the lower 48 because Alaska is in relatively sound financial health. But, that doesn't mean everything is cool with Alaska's economy.
"If businesses continue to cut workers, there will be fewer children in the schools and layoffs will follow," Pohlman said. "We monitor the current economic indicators very closely."
Alaska’s economy is more volatile than most of the other states due to its dependence upon the energy sector, but Alaska’s unemployment rate is one of the best in the nation at 6.9%, according to the most recent report from the U.S. Department of Labor.
“The economy is a lot better off than what most Alaskans think it is,” said Scott Ambrose, a professor of economics at University of Alaska, Anchorage. “There’s a lot of controversy over the structure of Alaska oil taxes, which generate up to 90% of state revenue, but the Alaska economy is stable and getting stronger every month.”
A 2011 study by the University of Alaska and Northern Economics examining the economic impact of several producing oil fields in the Arctic Ocean shows the state can expect to earn $162 million annually if the trans-Alaska pipeline flows at full capacity.
That money would come mostly from a lower tariff and additional corporate income taxes. The state could gain $144 million in additional revenues to add to the $162 million, but only with new taxes or new production on state land, including the creation of a natural gas pipeline, the study shows.
“That sounds like a lot of money but it isn’t really,” Ambrose said. “The income is a drop in the bucket for a state with a $12 billion budget. If the $162 million was paid to every Alaskan through their Permanent Fund dividend, each resident would receive just $250 a year. We pocketed more than four times that amount last year from our dividend checks.”
The $5 billion Alaska USA Federal Credit Union reported above-average ROAA at 1.15% during the first quarter, with a delinquency rate of 1.2% and annualized loan growth of 6.44%.
“The loan growth is primarily from indirect auto loans, our primary loan product for the last 20 years,” said Dan McCue, senior vice president, Corporate Administration. “Loan growth year over year as of May 2012 was 10.9%. The strong auto loan growth is attributed to the recovery of the auto industry and Alaska USA’s expansion of its dealer network in the markets it serves.”
Alaska USA FCU is the largest financial institution – bank or credit union – in the state with 60 branches in Alaska, California and Washington state. Alaska USA entered the Washington market in 1983 through a merger.
Today, Alaska USA has 22 branches in western Washington which has led to strong growth in deposits, loans and membership, McCue said.
Alaska USA purchased five branches in Southern California’s High Desert area and the deposit accounts assigned to them from the $715 million Arrowhead Credit Union in June 2009, prior to Arrowhead’s conservatorship, to complement Alaska USA’s existing branch network in the region.
“The members in the High Desert region have assimilated well with the transition to Alaska USA,” McCue said. “This is reflected in the consistent double digit grow for deposits and consumer loans.”
Alaska USA has recorded somewhat lower loan losses, lower accruals for corporate stabilization expense and steady revenue from the credit union and its subsidiaries, McCue said. However, the credit union’s delinquency ratio was 1.20% as of March 31, up from 1.01% one year prior.
McCue said the delinquency ratio had fallen to 1.13% as of May 31, which is lower than the current peer average, but higher than historical norms.
The economic outlook for 2012 and 2013 is looking good again in Alaska, but not everyone living in the state are convinced.
“People are still shell-shocked,” Ambrose said. “It’s going to take time for everyone to feel confident enough again to really start buying the big stuff. But really, who can blame them?”