After Big Losses, Some CUs Are Bouncing Back

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SAN FRANCISCO-Some credit unions in the Golden State that reported substantial losses during 2009 have begun moving into the black in 2010.

In Nevada, however, many continue to report negative earnings, but those losses are significantly smaller.

In this issue, Credit Union Journal launches a "Back in Black" series examining what credit unions are doing to improve their balance sheets, the lessons learned from the past two years, and what strategies are being deployed for the years ahead.

One example is $3.7-billion Patelco CU, headquartered here, which lost $14.6 million in 2009 but bounced back with $9.4 million in net income for Q1. President and CEO Ken Burns said the momentum continued as Patelco realized another $5 million in earnings in April, followed by $2.5 million in May. In Sacramento, The Golden 1 CU managed $192,000 in net income in Q1 after a $23.1-million loss for 2009. Bay FCU in Capitola posted $9.9 million in red numbers for 2009, but reported $703,000 in net income for the first quarter. In San Diego, North Island CU posted earnings of $11.2 million for the first quarter, after the$1.4 billion credit union had a 2009 net loss of $52.3 million.

In Nevada the "good" news was less bad news for a group of credit unions that had been bathing in red ink. Silver State Schools CU, Las Vegas, cut its losses for the first quarter to $8.5 million, from almost $51 million in 2009. Two other Las Vegas-based credit unions saw similar results: Nevada FCU reported a $1.1-million Q1 loss after a $32 million loss last year, and Clark County CU had a $726,000 first quarter loss after a $25.3-million 2009 loss. In Carson City, Greater Nevada FCU had a $762,000 loss for the quarter after a $10.9-million loss for 2009.

Daniel Penrod, senior industry analyst for the California and Nevada CU Leagues, said it is necessary to separate the Golden and Silver states because of their disparate economies.

"There are credit unions that have been struggling for a little while now. No one is seeing a bounce; it will be very gradual," he said. "We would love to see positive numbers across the board, but instead we will see the bad numbers slow, get level, then inch forward."

How quickly any recovery goes will be regional, Penrod continued. In California, he reported, there has been "flattening" on a broad basis and even a few upticks.

"There is some movement in California in terms of economic improvement and job growth, but the indicators are subtle. We don't know if the differences are thanks to government programs or fundamentals. Some of the government programs have subsidized auto or home sales. Now that those are expired, we will know how much growth is organic, or if we will be tracking on a flat level. We will be watching the numbers very closely over the next several months to see what the trends are. The next three to six months will be very telling."

Of course, the economy is something out of the direct control of any CU. Credit unions in California and Nevada from member job losses and resulting charge-offs. The housing meltdown has seen some price stabilization in recent months, and "some growth" in consumer spending, which he said is an encouraging sign, Penrod noted.

"The fact people have more confidence about putting their money into purchases is good. Savings is increasing in some states. In Nevada deposits are down in the first quarter thanks to outward migration as unemployment persists. A number of job seekers are leaving the state. For California credit unions savings went up in the first quarter; for banks it declined. In economic terms savings is future spending, meaning the recovery down the line should be strong."

Employment Seen As Key

Given that many credit unions are employer based, Penrod said employment numbers the most critical indicator going forward.

"The more people that get jobs, the more that are eligible to join credit unions," he assessed. "Unemployment in Nevada is 13.7%; in California it is 12.3%. The unemployment numbers are likely to be counterintuitive because it does not reflect those not working. As the employment picture improves the numbers might get worse as more people get back into the marketplace. The numbers are going to lag the actual situation."

Looking to the second half, Penrod believes a slow and more methodical recovery is the best for sustainability.

"A double-dip recession is not likely, given some of the strengths we have seen in the economy. Barring a catastrophic event, it is not likely. In Nevada, there is still some pain in the pump. It was later to get into the housing and economic downturns, so it will lag coming out as well."

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