High unemployment has been tough on Nevada credit unions and will continue to be the biggest challenge facing the industry as 2010 unfolds.
"Credit unions weren't involved in making the exotic loans that led to the economic crisis, but clearly they've been impacted," says Bill Cheney, president and chief executive officer of the California & Nevada Credit Union League. "The challenge for credit unions will be to manage existing loan portfolios, minimize losses and continue to make credit available for qualified buyers."
Last year ended with 31 credit union failures and 140 bank failures nationwide. Here in Nevada four credit unions became insolvent three in the Las Vegas area and one in northern Nevada and were acquired by credit unions headquartered out of state.
United Federal Credit Union of St. Joseph, Mich., acquired Clearstar Financial Credit Union in Reno last fall after Clearstar's board requested that state regulators declare their institution insolvent. Weakened auto loans led to the credit union's financial woes. As job losses grew, delinquencies followed.
Nationwide, delinquent loans as a percentage of total loans by federally insured credit unions rose from 1.37 percent at year-end 2008 to 1.68 percent at the end of the third quarter last year, although the rate of increase slowed, says the National Credit Union Administration, which supervises federal credit unions. Net charge-offs to average loans grew from 0.85 percent to 1.17 percent.
Still, delinquencies and net charge-offs remain lower than bank norms, according to the U.S. Credit Union Profile's third quarter 2009 results. Credit union net worth remained above 10 percent, and membership and lending grew nationwide in the third quarter despite the tough economy.
"Credit unions have done a good job in an environment they did not create," says Dennis Flannigan, president and CEO of Great Basin Federal Credit Union.
Loan volume fell at many credit unions, but deposits remained stable or grew last year. "If people had money, they were saving it," says Lynn Lundahl, Nevada regional president of United Federal Credit Union.
Some credit unions are in better shape than others. While those that got into sub-prime auto lending in northern Nevada are hurting, Sierra Pacific Federal Credit Union is sitting pretty. Its deposits grew by 12 percent and loan volume increased 26 percent last year over 2008, far above national averages.
Before the downturn Sierra Pacific was chided for being too conservative and having too much capital, says President and CEO Jim Hunting. But that conservative stance paved a smooth path through the recession. "It wasn't any great forecasting skill. We just kept to our model," he says.
All credit unions tightened their belts last year, and some closed branches and reduced staff to cut costs. Nevada credit union employment dropped by 10 percent to 1,309 employees in 2009 from 1,461 employees in 2008, according to the latest figures from the California & Nevada Credit Union League.
Great Basin Federal Credit Union kept some vacant employee positions open, for instance, and it closed a branch at Iron Horse Shopping Center and laid off six people.
A big agenda item for credit unions this year is working out troubled loans.
Flannigan says Great Basin is modifying 10 to 15 auto loans a month.
"We're willing to do it, and wanting to do it," he says. "We don't want the car."
Lundahl says in December alone, United Federal Credit Union worked out loans and cut delinquencies by more than half.
Nationwide credit unions can expect more loans to go sour. Overall loan delinquency rates will rise to 1.8 percent in 2010 from 1.67 percent in 2009, and net charge-offs will rise to 1.19 percent to 1.2 percent, Credit Union National Association economists say. Bankruptcies and charge-offs rise after recessions because people have exhausted their savings by the time recovery begins.
Nevada credit union executives expect a slow recovery, but already they're seeing some bright spots, and some are even expanding.
Sierra Pacific Credit Union, which recently opened a branch at St. Mary's, plans to expand its membership groups and its commercial lending. The credit union got into the commercial sector three years ago in response to member inquiries. Now that credit is difficult to come by through banks, Hunting sees even more opportunity.
United Federal Credit Union in Nevada also plans to get into small-business lending. As Clearstar, the credit union was too small to do commercial loans. But United Federal has the resources to serve small businesses, Lundahl says.
The credit union is also opening a new education branch this year, staffed by student interns from the Academy of Arts Careers and Technology, and it will reopen its corporate branch in March, which was closed in December 2008. Lundahl also sees hope in an uptick of lending activity in November and December.
"United Federal Credit Union wants to be a key player in this economy," Lundahl says. "We're very excited 2010 is here. We're ready to rock and roll."
Credit unions have also garnered good press from consumer advocates, just as big banks drew criticism, and some are seeing a boost in membership as a result.
Kellie George, United Federal's local business development manager, says she noticed growing interest from prospective members after the bailout of large banks and following media attention on bank profits from overdraft fees.
What else is in store for 2010?
The Credit Union National Association projects savings growth will slow to 8 percent, after savings balance growth of 12 percent in 2009. Loan growth will rise to 5 percent, below the five-year average of 8.5 percent, and capital-to-asset ratios, will drop to 9.3 percent. Credit unions will see a modest boost in earnings due to rising net interest margins, cost containments and lower loan loss provisions, the association says.
Hunting says he expects credit unions will face some difficult financial issues, and there might be more consolidations, but most credit unions will work through the issues and come out well.
Lundahl acknowledges the Nevada economy has a long way to go toward full recovery, but she expects the community will start feeling a difference in the second half of this year. "Nevada has survived before, and it will continue to do that and succeed."
