The financial crisis that ripped through most of the countryduring the past four years had left  Iowa virtuallyunscathed. Earlier this summer, unemployment was relatively low,home prices were stable and farm incomes were on the rise. Iowacredit unions reported one of the nation's highest returnon average assets during first-quarter 2012, according to theNCUA's Quarterly U.S. Map Review.

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But now, with the worst drought since 1936 bearing down on theHawkeye State, the first  quarter's annualized 112 basispoints worth of ROA could quickly evaporate.

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RELATED NEWS: ObamaBacks Low-Income CU Expansion in DroughtPackage
RELATED NEWS: Drought-Stricken Farmers Helped by CreditUnions

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“The future for many of our members is very bleak right now,”said Denny Siemers, president/CEO of the $15 million Town andCountry Credit Union in Harlan, Iowa. “We live in the heart of farmcountry where a good crop helps the entire community and a bad cropcauses considerably less expenditures throughout the county. Rightnow, as in so many communities across the country, the drought willbe costing everyone dearly.”

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Town and Country recently moved into a larger and more modernbuilding after posting a 3.11% ROA during first-quarter 2012.

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“We are fortunate that our loans to shares are so high comparedto our peers,” Siemers said. “We try our best to provide the bestpossible rates in town.” 

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Siemers said that his credit union continuously markets to thecommunity through the newspaper, community involvement, radio,cable television and monthly newsletters.

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“We have a solid reputation in the community,” he added. “Ibelieve this helps our bottom line.”

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Siemers credits risk-based lending with helping his numbers.

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“I know this [risk-based lending] isn't the true credit unionmentality,” he said. “But we are still providing great rates andservice to our membership. Noninterest income and keeping our staffnumbers as low as possible has helped [ROA] as well.”

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But Siemers worries about his members who are affected by damageand losses caused by drought and excessive heat.

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“Fortunately in our area right now, the crops can be still savedif we get some rain soon, but the yields will be down considerablyfrom our record last year,” he said. “Only time will tell thesenext 60 days how everything turns out.”

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To offer the state some relief, in early August, AgricultureSecretary Tom Vilsack announced two new pieces of disasterassistance for farmers and ranchers impacted by the nation'sworsening drought, which included Iowa. During the 2012 crop year,USDA has designated 1,584 unduplicated counties across 32 states asdisaster areas–1,452 due to drought–making all qualified farmoperators in the areas eligible for low-interest emergencyloans.

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“Responding to my request, crop insurance companies indicatedthat producers can forgo interest penalties to help our nation'sfarm families struggling with cash flow challenges,” said Vilsack,the former Governor of Iowa. “The administration intends tocontinue helping those who farm or ranch and live and work in ruralAmerica through this period of hardship.”

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Ottumwa, Iowa, where the $398 million Community 1st Credit Unionis located, is not on the Department  of Agriculture'slist of disaster areas.

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As a result, Chief Financial Officer Jim Holle is a little moreoptimistic.

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“The economy of Iowa is primarily agricultural driven,” he said.“To continue to grow, Iowa as a whole will need to be able toattract and support additional and diverse industries. Theinfrastructure is in place, so it's now just a matter of being ableto communicate the value of the educated workforce and the workethic of the Iowa population to businesses looking tolocate.” 

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Holle attributes his second-quarter ROA of 74 basis points tothe credit union's growth.

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“There were two new branches and a call center added in 2011 andanother branch in 2012,” he said. “These operations expansionscreate a temporary drag on earnings, but all are currently oncourse to contribute positively to earnings. We also aggressivelyfunded the [loan loss] allowance during the fourth quarter of2011.”

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Loan delinquency and charge-offs have decreased over last yearfor Community 1st, and Holle sees this as a positive sign for hismembers and community charter.

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“The economic indicators in our area suggest that the economicdecline is decreasing and is flattening,” he said. “While that isnot necessarily economic improvement, the reduction of the speed ofthe decline is an improvement. I believe that we are going tocontinue to bounce along the bottom for a while longer, and thenslowly improve.”

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In the Fort Dodge area, the retail center for north centralIowa, the drought is not immediately affecting the $155 millionCitizens Community Credit Union, either. However, the creditunion is located in an agriculturally dependent area, sothe drought has the potential to adversely impact membership,President/CEO Sean Hanley said.

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“Our membership has been primarily moderate-income, blue-collarindividuals,” Hanley said. “I think the economic crisis opened manyconsumer eyes in the world of financial institutions. We havedefinitely seen an addition in our demographic to include higherincome, white-collar individuals.” 

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The credit union's 1.63% ROA exceeds peer averages due to strongloan demand and a loan to shares ratio of more than 87%. Risk-basedpricing also contributes to ROA, he said.

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“CCCU is a well-known indirect lender,” Hanley said, “and ourused auto loans are our most popular.”

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Citizens' loan delinquency and charge-offs havedecreased over last year, and Hanley feels that this is a signthings are improving.

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“Businesses are expanding again, as opposed to the last coupleof years where most businesses had a bunker mentality,” Hanleysaid. “This helps the local and state economy tremendously.” 

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