For One Las Vegas CU, It Isn't Luck That's Helping To Turn Things Around
LAS VEGAS — A credit union for gaming employees knows a thing or two about a losing streak.
For $135-million WestStar Credit Union, 2008 and 2009 were about as bad a run as any have seen in this town. In 2008 WestStar's net loss was $6.3 million. In 2009 it lost $7.2 million, including $1.2 million in NCUSIF stabilization expense.
Adding to its woes, longtime CEO Dan Paulson, who also served as chairman of the Nevada CU League, resigned in October 2009.
WestStar operated under an interim CEO until April 2010, when Rick Schmidt was hired. But before he could take the reins, WCU posted a $1.3-million Q1 2010 loss.
At a time when things looked bleak, Schmidt offered a one-way vision-look forward, not back. "When I came on board there was a lot of turmoil on the staff with the previous CEO gone and VP of lending gone," he recalled. "The interim CEO had a short-term outlook, just trying to get things fixed. I had to put together a three-year strategic plan to get a longer-term outlook."
Schmidt told the staff there are 15 to 20 levers employees and management can pull to improve WestStar's bottom line. If it has 10 programs that can generate $5,000 or $10,000 apiece, it can get into the black, he predicted.
"No one thing is going to heal us, but we can get back to what credit unions are about," he said at the time. "We need to be engaging our members to be their primary financial institution. This credit union has traditionally done a good job of getting members on board, but not being the primary financial institution. And we needed to expand the lending relationship."
The economy has been an ongoing "disaster" for every institution in the state of Nevada, but Schmidt said WestStar made some "strategic mistakes" before his arrival.
"I'm not trying to point fingers at anyone from the past, but some of the programs got away from traditional credit union values. Things were tried that didn't work out the way they should have," he said. "I have tried to get the team to stop looking backward and move forward by doing what is right for our members and our people."
That philosophy seems to be working. For 2010, WestStar's net loss excluding NCUA premiums was $1,129,052. It paid $158,055 to the NCUSIF and $176,301 to the corporate stabilization fund, meaning including assessments its 2010 net loss was $1,463,408.
Schmidt pointed out virtually the entire loss for 2010, $1.3 million of it, took place in the first quarter.
"From our basic operations, April 2010 to December, without assessments we would have made a profit," he said, giving credit to everyone on staff, from the frontline tellers to the collections team. "I am proud of everybody to get so far so fast. From losing $13 million in two years, then $1.3 million in the first quarter, to losing $100,000 the rest of the year. That is a pretty dramatic change."
What changed? Schmidt said when he started it was clear that WestStar needed to light a fire under lending. There had been two staff reductions that wiped out lending expertise, so he hired a new VP of loan operations and revamped underwriting.
"We retrained the staff to get them wanting to do loans, seeking out opportunities and selling the process," he said.
Still, despite the challenges from the struggling Las Vegas economy, over the final three quarters of 2010 WestStar was underwriting as much as $1.2 million in loans per month. Schmidt said on one hand it is nice to see lending volume increase 500% compared to the bad stretch of 2008-09, but for an institution its size "we need to double or triple that."
"We had to jump start the lending process, and we had to make sure we had the right people in place on the collections side. Las Vegas is the leader in foreclosures, so managing the back end of the portfolio is huge. We want to be compassionate with our members, but we need to get payment on our loans. We are working with members to keep them in their homes through modifications."
Other changes: a renewed emphasis on indirect lending to bring in more auto loans, and new credit card products.
WestStar has reduced delinquency by two-thirds in just nine months: from 6% in April 2010 to 1.79% at the end of December. That is still higher than the national average, but Schmidt said compared to others in Nevada it is doing better than most of the credit unions in the state.
"We are proud of the effort the collections team has put into getting our members square. The key thing is even though we charged off a lot, we are not adding new delinquencies to the system. When I got here we were repossessing eight to 10 cars per month; now that is down to one or two. Foreclosures have declined. Our portfolio has stabilized, which has helped our recovery."
WestStar is not out of the woods yet, Schmidt allowed, and the Las Vegas economy has yet to approach anything near the boom years, but he is pleased to note that the severe decline has stopped. He sees some positive signs locally in that business is coming back, the hotels are hiring and there are pockets where home prices are improving.
"People are feeling slightly better. As those things continue to improve, financial institutions such as WestStar will see things get better. We will move slowly and deliberately on reducing our allowance for loan losses until we are 100% confident the portfolio is stable."
ALL has been a popular topic when discussing improving credit union bottom lines in Q4 2010, and WestStar is no exception. Its provision for loan losses in 2010 was half of what it was in 2009, and the budget calls for another 50% cut from 2010 to 2011.
"As long as we keep provision under control, that is huge," Schmidt assessed. "Our business is making money. We are making more than our expenses. We won't have a 2.0 ROA any time soon, but in this economy that is a pretty good accomplishment."
Schmidt said he and his management team "are not naïve," and know there will be bumpy months and repos. But as long as the CU shows improvement quarter over quarter and year after year, "that is a good thing."
"Our goal is to have a positive 2011. Our budget calls for a small loss for the year, but we are cautiously optimistic we will be able to outperform that and post a small profit. Vegas is very dependent on the recovery of the rest of the national economy. As long as the rest of the country wants to come to Vegas and share that good feeling, we will continue to mend."
Last year, the focus was on "fixing things," Schmidt said. In 2011, WestStar is focused on growing, including adding a branch location. The credit union has seen a decline in membership over the past two years, and Schmidt wants to reverse that trend.
"The second half of 2011 will be a foundation for 2012 being a great year for WestStar Credit Union," he declared.