Credit Unions are Thriving While Other Lenders are Barely Surviving

/PRNewswire-USNewswire/ -- One by one, as the big "money center" banks stagger and fail, Americans hold their breath and clutch their statements, wondering if their institution will be the next victim.

During these difficult economic times, consumers look for a financial institution to trust, and for many Americans, that will mean joining a credit union.

As consumers read about banks dying each day they worry about where and how they will find the funds to purchase or refinance a home in this new economy. But for many they have a surprising alternative to banks -- credit unions.

Credit unions are among the few financial institutions that have mortgage money to lend to struggling consumers while at the same time operating for the benefit of their members. For the most part, credit unions will not be included with the growing list of financial institutions paying large salary bonuses to executives or throwing large parties at the expense of the financial institution or the American taxpayers.

"Credit unions never made the kind of risky loans banks made," explained Fred Becker, CEO of the National Association of Federal Credit Unions (NAFCU) based in Arlington, Virginia. He points to the industry's most recent numbers on loan defaults, which show loans originated at credit unions are defaulting at a rate less than half that of loans made by institutions insured by the Federal Deposit Insurance Corp. (FDIC), meaning banks.

Richard Maxstadt, SVP/COO of CUC Mortgage agrees. "We take our direction from our credit-union members," said Maxstadt, "Credit unions as a rule are conservative in their lending. Our loans tend to be plain vanilla, primarily 20- and 30-year fixed rate," he said, adding: "Too many consumers forget that credit unions do make mortgages."

In addition, the soon to open Realtor FCU, will be the first Internet-based credit union -- without branches -- serving a nationwide, single association, the National Association of Realtors.

"Many of the nation's largest CUs are experiencing substantial increases in mortgage loan volume as millions of homeowners seek to lock in lower rates through refinancing their existing loans," stated ACUMA Chairman, John Reed, President/CEO of the Main Savings FCU in Hampden, ME. "This is just another example of how America's credit unions are seizing the incredible opportunity in the current lending markets."

Most consumers are unaware they can join a credit union and apply for a mortgage loan. Even a large percentage of the more than 87 million Americans currently members of credit unions do not understand the benefits. There is a credit union available for anyone who wants to join.

One hundred years ago the nation's oldest credit union opened its doors in New Hampshire and successfully weathered world wars and the Great Depression without once closing its doors. With that kind of track record, common in the credit union movement, major media outlets like the New York Times, Wall Street Journal and NBC/Universal can't help but take a new interest in this potential sleeping giant as a means for coming to the rescue of the slumping American housing market.

"Being the best kept secret for mortgage loans is not the distinction we desire or deserve. We have thousands of sound and trustworthy financial institutions ready to help American homeowners or those pursing the American dream of homeownership" said Bob Dorsa, ACUMA President.

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Advance America Announces Settlement in Georgia and the Closing of 24 Centers in New Hampshire

/PRNewswire-FirstCall/ -- Advance America, Cash Advance Centers, Inc. (NYSE:AEA) today announced that it has settled a class action lawsuit in Georgia that resolves all claims against the Company in connection with originating, marketing, or servicing any loan in that state. The settlement, which does not involve any finding of wrongdoing, requires final approval from the State Court of Cobb County, Georgia. The Company had previously suspended operations in Georgia during 2004.

If approved, the settlement will require the Company to make a minimum payment of approximately $2.0 million from which (1) a settlement pool will be established to pay claims; and (2) attorney fees and other costs related to the litigation and settlement administration will be paid. The value of individual claims will vary between $30 and $90. If claims made plus costs exceed $2.0 million, then the Company will be required to pay additional funds into the settlement pool up to an aggregate cap of $3.7 million. If claims made plus applicable costs are less than the minimum payment, the court will distribute the balance of the minimum payment to a charitable organization of the court's choosing. If claims made plus costs are greater than the cap, then claims will be prorated so as not to exceed the cap. The Company has reserved approximately $2.0 million for this settlement, which will result in a charge against earnings in the fourth quarter of 2008.

Commenting on the settlement, the Company's Vice President of Legal and Regulatory Affairs, Tom Newell, said, "Advance America possesses a strong culture of legal and regulatory compliance and the Company will continue to aggressively defend its products and services against these types of claims. However, a settlement like this one makes good business sense and brings value to our stakeholders by assuring certainty of outcome and eliminating continuing legal costs in a geographic market where we no longer conduct business. We are pleased to have reached a favorable result."

Separately, the Company also announced today that it plans to close the 24 centers it operated in the State of New Hampshire. The decision to close the centers in New Hampshire comes after approval of legislation that went into effect on January 1, 2009 that effectively prohibits the offering of the cash advance product in that state, and follows the Company's previously announced decision to discontinue offering its line of credit product in New Hampshire as a result of an agreement with the state's Bank Commissioner.

Commenting on the closure of its centers in New Hampshire, Advance America's President and Chief Executive Officer, Ken Compton, said, "The recent law that went into effect in New Hampshire imposed a 36% annual percentage rate cap on payday loans, resulting in an effective ban of the industry there. Unfortunately, eliminating the payday loan product as an option does not eliminate the need for short-term credit in New Hampshire, it simply eliminates a sensible financial choice for thousands of hardworking people, and forces them into higher cost alternatives such as fees for bounced checks or late payments and risky loans from unregulated internet lenders. We are disappointed that a majority of legislators and Governor Lynch chose to take away a viable, regulated short-term credit option from New Hampshire residents and put hundreds of employees out of work, particularly during a period of broad economic instability."

For the twelve months ended December 31, 2008, total revenues and center gross profit generated from the Company's operations in New Hampshire, were approximately $8.1 million and $3.4 million, respectively. The Company estimates that the costs associated with closing its operations in New Hampshire will be approximately $1.2 million, $0.7 million of which will be recognized during the fourth quarter of 2008.

After the closings in New Hampshire, the Company will operate approximately 2,800 centers and 79 limited licensees in 32 states, Canada, and the United Kingdom.

Finally, due in part to these previously mentioned charges, and primarily due to government affairs expenditures related to ballot initiatives in Ohio and Arizona, which are not deductible for tax purposes, the Company expects to have a higher effective tax rate for 2008 than in prior years. The Company expects its effective tax rate for the full year 2008 to be 46.6%, approximately 340 basis points higher than the effective tax rate reported for the first nine months of 2008.

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First BanCorp Clarifies Mistaken Identity with FirstBank Financial Services of Georgia

(BUSINESS WIRE)--First BanCorp (the “Corporation”) (NYSE:FBP) announced today that it has no relation, business, commercial or otherwise with FirstBank Financial Services of Georgia.

On Friday, February 6, 2009, FirstBank Financial Services, McDonough, GA was closed by the Georgia Department of Banking and Finance. Subsequently, the Federal Deposit Insurance Corporation (FDIC) was named Receiver.

Luis M. Beauchamp, Chairman and CEO of First BanCorp stated, “We want to reassure our investors and our customers that First BanCorp and its subsidiary banks FirstBank and FirstBank Florida have no relation or connection whatsoever with FirstBank Financial Services with operations in Georgia.”

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What You Need To Know About Dependents And Exemptions

(SPM Wire) It's that time of year again, when having dependents is a good thing for your wallet.

Before you claim all those dependents on your tax return, however, you need to make sure you're doing so correctly.

Here are some of the top things you'll need to know, from the experts at the IRS:

Dependents may be required to file their own tax return. Even though you are a dependent on someone else's tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.

Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.

Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.

Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you're filing a separate return, you may claim the exemption for your spouse only if he or she had no gross income, are not filing a joint return and were not the dependent of another taxpayer.

Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if he or she files a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

For more information on dependents and exemptions, including whether or not you or your dependent needs to file a tax return, read IRS Publication 501, entitled "Exemptions, Standard Deduction, and Filing Information" and available online at www.IRS.gov.

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S&P 500 Dividends Projected to Decline 13.3% in 2009; Worst Annual Decline Since World War II

/PRNewswire/ -- Standard & Poor's Index Services announced today that it expects 2009 S&P 500 dividends to decline 13.3%, the worst annual decline since 1942 when dividends fell 16.9%. The $24.60 dividend rate translates into an expected $214.66 billion in payments for S&P 500 companies in 2009 versus the $28.39, or $247.9 billion, paid in 2008.

"Given the current economic climate and growing concern over dividend cuts, dividend increases for the S&P 500 companies are expected to slow in 2009," says Howard Silverblatt, Senior Index Analyst at Standard & Poor's. "Unless companies believe that their financial future will improve, their need to conserve cash will outweigh their desire to pay dividends."

Standard & Poor's Index Services also announced today that it is decreasing the indicated dividend rate on the S&P 500 from $27.35 to $24.90.

"Due to recent events, including potential congressional action that might limit dividend payments, we are reducing the indicated dividend rate on the S&P 500," continues Silverblatt. "Standard & Poor's expects the indicated rate to decline further during the year as the full economic impact is felt by companies, and then move upward as corporate confidence leads to higher future commitments."

Standard & Poor's Index Services data shows that sixty-two S&P 500 companies decreased their dividends in 2008 by an aggregate $40.6 billion with forty-eight of the decreases coming from Financials ($37 billion). Over the previous five years (2003-2007), there were only 12 dividend decreases in the Financials sector amounting to $5.1 billion.

So far in 2009, fourteen issues (nine of which are Financials) have decreased their dividend rate by over $13.5 billion. "Actual January dividend payments for the S&P 500 were down 23.9%, which speaks to the Q4 decreases, the $13.5 billion cuts year-to-date speaks to future payments," warns Silverblatt.

While dividend decreases and warnings are now prevalent in sectors, Financials remain the primary (but not only) concern. At the end of 2007, 96.7% of the Financials paid cash dividends, accounting for 29.1% of the dividend payments. Currently 84.5% pay, accounting for 15.0% of the dividends.

"The bottom line is that investors need to do a lot more homework than in years past as the prospect for future dividends remains extremely cautious," continues Silverblatt. "On former President Ronald Reagan's 98th birthday, his words still ring true today, Trust but Verify."

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Firms' Drastic Actions Dim Long-Term Economic Prospects

Corporations are taking drastic actions, including cancelling investments, scaling back projects, drawing on lines of credit and selling assets, in response to financial constraints resulting from the current credit crisis. This is according to new research from Duke University’s Fuqua School of Business and the University of Illinois at Urbana-Champaign that makes direct comparisons between companies’ operating plans and self reports regarding their current financial health.

In December 2008, Professors John Graham and Campbell Harvey of Duke, and Professor Murillo Campello of the University of Illinois at Urbana-Champaign, surveyed the chief financial officers of 1,275 firms in the U.S., Europe and Asia regarding their outlooks for their companies and the economy in general. The study was part of a larger survey conducted jointly with CFO magazine.

In order to objectively assess firms’ financial constraints, the team asked CFOs to report whether their businesses had been directly affected by the cost or availability of external financing. Of 569 U.S. firms surveyed, 59 percent (or 325 of the respondents) said that they were directly affected by credit constraints.

“We normally assess whether or not firms’ access to capital is constrained via a retrospective review of financial statements,” said Graham, the D. Richard Mead Professor of Finance at Fuqua and Co-Director of the Duke Center for Finance. “To our knowledge, this is the first research to directly assess limitations on firms’ access to funds. Having this information helps us learn more about how companies make investment and financing decisions, and in this case, revealed some startling details about the way corporations are responding to the crisis.”

“Companies are in survival mode,” said Campbell Harvey, the J. Paul Sticht Professor of International Business at Fuqua. “Slashing profitable projects to conserve cash feeds into additional unemployment. More importantly, the credit constraints rob the economy of future growth opportunities. That is, if these projects were completed in years to come, they would generate profits and additional employment opportunities. But, sadly, this is a future these projects will never see. This is a less well-known consequence of the credit crisis.”

The team found that firms that are not experiencing financial constraints have been able to maintain a steady level of cash reserves, while constrained firms have burned through an average of 20 percent of their cash holdings. A comparison of firms’ use of lines of credit during the crisis revealed that constrained firms have drawn on their lines of credit in a precautionary fashion more often than other companies. Moreover, a surprising 17 percent of constrained firms have drawn on their lines of credit out of fear that their banks will limit access to credit in the future.

“This is a frightening trend,” said Harvey. “Yes, credit is limited, but firms that hoard funds right now, instead of using them for investments and operations, are directly contributing to the downward spiral of the economy.”

The researchers also found that nearly all (86 percent) of financially constrained firms report that they are unable to pursue value-enhancing projects because their access to funds from the capital markets is limited.

“Because a financial crisis drains credit from the financial markets, we get the unfortunate result that financial markets matter most for corporate investment precisely when they fail,” the authors write.

“This is shocking” said Campello, the I.B.E. Professor of Finance at the University of Illinois. “In the classroom, we often teach that companies can borrow or lend freely to pursue all positive net present value projects. In stark contrast, we find that in reality, the financial crisis is causing firms to drift far from value-maximizing choices.”

Indeed, Campello, Graham, and Harvey found that 56 percent of constrained companies reported that they would cancel investments when external funding is limited, compared with 30 percent of unconstrained firms. Among constrained firms that cannot use internal cash reserves to fund investments, 71 percent reported that they would cancel investments. CFOs of constrained firms report that they will significantly reduce spending on R&D, marketing, capital expenditures, employment and dividends.

The researchers also found an increase in corporate sales of assets in order to raise cash, with 70 percent of constrained firms, and 37 percent of unconstrained firms, selling more assets than before the credit crisis.

“It may be that some companies are finally cleaning house and shedding unproductive assets because of the downturn,” said Graham. “However, an increase of this magnitude, combined with reduced access to credit, implies that firms are also selling productive assets as an alternative to other sources of capital."

Although many of the figures cited in this release reflect the effects of the credit crisis on U.S. firms, the team found that financially constrained firms in Europe and Asia are taking many of the same actions as their counterparts in the U.S.

Campello, Graham, and Harvey’s full paper “The Real Effects of Financial Constraints: Evidence from a Financial Crisis,” is available via SSRN at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1318355.

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Georgia Tech College of Management Financial Analysis Lab Releases Latest Report

In the latest report from the Georgia Tech Financial Analysis Lab, located in the College of Management, Professor Charles Mulford warns of increased tax payment risks to capital-intensive companies. He identifies companies that may be facing increased taxes from a reduction in capital spending that may arise from the slowing economy.

According to the report, firms that reduce their capital spending could see increased tax payments.

Mulford says the situation is part of the consequences of deferred tax liabilities. The risks occur when capital expenditures are reduced, resulting in reductions in deferred tax liabilities. Income taxes, which were deferred in previous periods, come due, resulting in higher tax payments.

Such increased tax payments may occur during difficult economic times as companies respond to slack demand by reducing capital spending.

“Cash flow is the lifeblood of any company,” said Mulford. “During a recession, investors and creditors become understandably concerned about the ability of companies to generate cash. Unexpected increases in tax payments, which can arise as companies reduce their capital spending, can threaten cash flow and hurt corporate financial well being.”

The lab conducted research using 2007 data to identify capital-intensive firms with significant deferred tax liabilities. The report then splits these firms into two groups: firms with increasing capital expenditures and deferred tax liabilities and firms with decreasing capital expenditures and deferred tax liabilities.

According to Mulford, all of the firms could be at risk for increased tax payments during an extended period of reduced capital expenditures. However, the firms in the latter group are more likely to have higher tax payments. Investors may not be expecting such high tax payments, especially during a recession.

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