A Little Luck Plays A Role

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SUNNYVALE, Calif.-There are not many areas in the Golden State that have escaped a free fall in home prices and the resulting domino effect on consumers' wallets, but Rick Heldebrant says his credit union is "lucky" to be where it is.

Star One is a $5.3-billion CU that serves Santa Clara County, just south of San Francisco. It posted net income through Q3 of $45.3 million, including charges of $4.3-million for the NCUSIF and $4.6-million for corporate stabilization. Its third quarter net income was approximately $13.7 million.

But don't look for Heldebrant to take credit for the positive numbers.

"Sometimes it is better to be lucky than smart," he told Credit Union Journal. "The luck part for us is our housing prices did not drop as much as other places. When prices were going up we did not feel any pressure to chase loan volume so we did not take on any funny loans. Bakersfield and L.A. dropped 50%, but around here it was 15%. We had some members in Sacramento and the Central Valley and we saw some losses there, but we didn't have the huge losses as in some other places."

Unemployment in Santa Clara County remains "pretty bad," Heldebrant said, noting the state is at 12% while the county is 11%. "Both are worse than the national rate and have been there for the last 12 months. These are the worst numbers since 1992."

Star One's delinquencies and charge-offs are up compared to its 2008 levels, but Heldebrant said the numbers are "not terrible" and his CU is "not getting the hit on provision for loan losses as bad as other places.

"Delinquencies ran up in 2009 but have been flat this year-things are just working through. Until 2008 we had never seen a real estate charge-off and now we are seeing a number of them."

Total loan volume has grown approximately 10% this year, but the news is mixed. Consumer loans shrank about 8%, in part because car sales are down and dealers are "stealing financing at the dealership," he said. Real estate lending has been growing, up about 12%, as many members are refinancing with lower rates. Star One has seen "some" purchase mortgages," he added.

"We have not had many special loan promos. Real estate volume has sucked all the air out of the room for everything else. We are offering the lowest rates we've ever seen on mortgages and it has swamped the real estate department with volume we've never seen before."

Not Much 'Fancy Stuff'

Star One opened a new branch two months ago, making a total of five, in a good location just blocks away from two large malls. "It has good parking and accessibility, and there are lots of members and potential members around there. In just two months it is bringing in 70 members per month. We would like to get to 100 or 120, but for two months that is pretty good.

"We don't do a whole lot of fancy stuff, our product line is pretty vanilla," he continued. "No mutual funds or business loans, we just have one checking account. The big thing for us has been the rate environment. We normally have a really high rate on our savings account but that is hard to do. Investment rates are low. We have maintained a good ROA because the rates of our loans outstanding are earning well, as is our laddered investment portfolio. Over the next three years those will be replaced with lower rates."

Looking forward the Q4 and 2011, Heldebrant said the economic predictions he has heard and seen are "pretty dismal."

"Locally, unemployment will take three years to go under 9%. We expect to continue to have charge-offs, plus the corporate charges we will have to live with. I expect the pressure to continue on credit unions."

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