The financial crisis that ripped through most of the country during the past four years had left the state of Iowa virtually unscathed.
Earlier this summer, unemployment was relatively low, home prices were stable and farm incomes were on the rise.
But now, with the worst drought since 1936 bearing down on the Hawkeye state, the first quarter’s annualized 112 basis points worth of ROA could quickly evaporate.
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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 and Country Credit Union in Harlan, Iowa. “We live in the heart of farm country where a good crop helps the entire community and a bad crop causes considerably less expenditures throughout the county.
“Right now, as in so many communities across the country, the drought will be costing everyone dearly.”
Town and Country recently moved into a larger and more modern building after posting a 3.11% ROA during the first quarter of this year.
“We are fortunate that our loans to shares are so high compared to our peers,” Siemers said. “We try our best to provide the best possible rates in town.”
Siemers said that his credit union continuously markets to the community through the newspaper, community involvement, radio, cable television and monthly newsletters.
“We have a solid reputation in the community,” he added. “I believe this helps our bottom line.”
Siemers also credits risk-based lending with helping his numbers.
“I know this (risk-based lending) isn't the true credit union mentality,” he said. “But we are still providing great rates and service to our membership. Non-interest income and keeping our staff numbers as low as possible has helped (ROA) as well.”
But Siemers worries about his members who are affected by damage and losses caused by drought and excessive heat.
“Fortunately in our area right now, the crops can be still saved if we get some rain soon, but the yields will be down considerably from our record last year,” he said. “Only time will tell these next 60 days how everything turns out.”
To offer the state some relief, in early August, Agriculture Secretary Tom Vilsack announced two new pieces of disaster assistance for farmers and ranchers impacted by the nation's worsening drought, which included Iowa.
During the 2012 crop year by August, the USDA had designated 1,584 unduplicated counties across 32 states as disaster areas—1,452 due to drought—making all qualified farm operators in the areas eligible for low-interest emergency loans.
“Responding to my request, crop insurance companies indicated that producers can forego interest penalties to help our nation's farm families struggling with cash flow challenges,” said Vilsack, the former governor of Iowa. “The administration intends to continue helping those who farm or ranch and live and work in rural America through this period of hardship."
Ottumwa, Iowa, where the $398 million Community 1st Credit Union is located, is not on the Department of Agriculture’s list of disaster areas.
There, CFO Jim Holle is a little more optimistic.
“The economy of Iowa is primarily agricultural driven,” he said. “To continue to grow, Iowa as a whole will need to be able to attract and support additional and diverse industries. The infrastructure is in place so it’s now just a matter of being able to communicate the value of the educated workforce and the work ethic of the Iowa population to businesses looking to locate.” Holle attributes his second quarter ROA of 74 basis points to the credit union’s growth.
“There were two new branches and a call center added in 2011, and another branch in 2012,” he said. “These operations expansions create a temporary drag on earnings, but all are currently on course to contribute positively to earnings. We also aggressively funded the (loan loss) allowance during the fourth quarter of 2011.”
Loan delinquency and charge offs have decreased over last year for Community 1st and Holle saw this as a positive sign for his members and community charter.
“The economic indicators in our area suggest that the economic decline is decreasing and is flattening,” he said. “While that is not necessarily economic improvement, the reduction of the speed of the decline is an improvement.
“I believe that we are going to continue to bounce along the bottom for a while longer, and then slowly improve.”
In the Fort Dodge area, the retail center for north-central Iowa, the drought is not immediately affecting the $155 million Citizens Community Credit Union, either. However, the credit union is located in an agriculture-dependent area, so the drought has the potential to adversely impact membership, President/CEO Sean Hanley said.
“Our membership has been primarily moderate-income, blue-collar individuals,” Hanley said. “I think the economic crisis opened many consumer eyes in the world of financial institutions. We have definitely seen an addition in our demographic to include higher-income, white-collar individuals.”
The credit union’s 1.63% ROAA exceeds peer averages due to strong loan demand and a loan to shares ratio of more than 87%. Risk-based pricing also contributes to ROA, Hanley said.
“CCCU is a well-known indirect lender,” Hanley said, “and our used auto loans are our most popular.”
Citizens Community’s loan delinquency and charge offs have decreased over last year and Hanley feels that this is a sign things are improving.
“Businesses are expanding again, as opposed to the last couple of years where most businesses had a “bunker” mentality,” Hanley said. “This helps the local and state economy tremendously.”