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RIVERSIDE, Calif.-Altura Credit Union continued funding its Allowance for Loan Losses in the third quarter, but with defaults trending down it is now counting on the conservative approach to pay off in 2011.

Mark Hawkins, president and CEO of the $781-million CU, said it had $38 million in its ALL as of Sept. 30, the highest amount it has ever had, along with 6.5% of its loans, which he characterized as "very high."

"We have put more money in the Allowance for Loan Losses in the last nine months than in any prior period, but our losses are subsiding," he said. "Our net worth ratio is 5.38% as of the end of September. Total capital-net worth plus allowance-is higher than it has ever been, and we feel good about that."

Altura's third quarter was, "all things considered, not too bad," Hawkins continued. He said the NCUSIF charge in September was $919,000, which forced Altura to record an $852,000 loss for the month. The CU made money in August and its management believes it will make money in October. Net income for 2010 through September was a loss of $5.7 million, including $1.8 million in NCUA charges.

"The year will end up OK, nothing great," he assessed. "Based on our audit of 2009, we saw the market was improving but not improving dramatically. As we are pretty deep into 2010, we wanted to take a conservative approach with our allowance. If things keep going the way we think they are, there will be plenty of time to start returning some of that money but we are not going to rush to do that."

Since May, loan losses have been less than expected every month except July, and Hawkins said it appears as if November will be good, also.

"The trend is good but we would like to see a little bit more. There is no advantage to start pulling back [money from ALL] between now and the end of the year."

Altura recently announced a branch consolidation, as it closed one of its two branches in the desert city of Hemet, Calif. Hawkins said the move was prompted by an expiring lease and added it should be the final branch closure after the CU shuttered two offices and converted another to an ATM-only location over the last two years.

Riverside is in the heart of the "Inland Empire" region of Southern California, which has endured high unemployment and a steep drop in housing prices-even compared to the rest of the Golden State. Hawkins said home prices are continuing to come off the bottom, which he hopes will lead to a "more robust" recovery in 2012.

'Conditions Have Stabilized'

"What we have seen in this marketplace is conditions have stabilized. We have 14.8% unemployment, which is lower than earlier this year. It suggests we have come back from the recession. We don't expect things to grow quickly, but we think the trends will continue to be positive. As we go into 2011 we think unemployment will continue to subside even further. If we are right, we will continue to see things slowly improve and right now, slow improvement suits me just fine as long as there is no further decline and we don't see that."

Loan demand continues to be "very, very slow." Hawkins said Altura's members have been heavily impacted by the recession and the CU is not seeing any loan demand at all. Loan production was higher in 2010 than in 2009, and management is projecting 2011 will be very similar to 2010.

"Historically, November through March is our slowest time of the year, so we are not expecting much in the next few months," he said.

In an effort to stir up loan demand Altura offered a series of auto pre-approvals from April through August, which Hawkins said helped its auto portfolio be substantially higher this year than last. "With the downturn auto lending has withered on the vine, but we expect a pickup in 2011. But we don't expect a substantial improvement, that won't come until 2012."

Cutting Expenses

Altura has made numerous cuts to expenses since the recession hit, Hawkins said. From 2007 to where management expects to end the year in 2010, compensation has declined 30%, benefit costs have declined 44%, travel and conference expenses are down 83%, operational costs are down 14%, marketing has seen a budget cut of 59%, professional and outside costs are down 8%, and interest on borrowed money is down 99%.

"Overall, we have seen our costs decline 41% over the last four years, a total of $26 million," he said. "It has caused a lot of discomfort, obviously, but we did what we had to do and the benefits are there. We think we have weathered the biggest hit and hope consumer demand will begin to pick up and there will be a slow return to something more prosperous in 2012. We think we are poised for that with a smaller balance sheet and will be just fine."

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