LAS VEGAS — The tumbling economy smacked Glitter Gulch with a multi-pronged assault, but $162-million Community One FCU continues to serve its 21,500 members as best it can despite slipping into undercapitalized status.
That's the message from Jerrold Rosen, VP of marketing, who told Credit Union Journal the key is to continue to try to move forward, despite difficulties. As is the case with many troubled CUs, Community One had to write down the corporate assessment and impairment in the first quarter, and in addition it lost capital in its corporate credit union, WesCorp.
"The Las Vegas valley is hitting the recession a little bit worse than other places," Rosen declared. "We are a community-chartered credit union, so our membership is widely varied. First construction and real estate were hit, then casino jobs, then retail - it is affecting everyone.
"As people suffer in the community, so do we," he continued. "We experience the good times with the community, but we suffer the bad times, also. No one plans on being behind on their loans, but if they lose their jobs, it impacts our bottom line."
That impact is clear in Community One's March 2009 5300 Report. A staggering allowance for loan losses of more than $6.6 million caused its net income before the NCUSIF stabilization expense to be just $553,577. A stabilization hit of more than $1.3 million pushed the CU to negative net income of $795,070 and dropped its net worth ratio to 2.0 % ("Significantly Undercapitalized").
Rosen said Community One's management is taking several steps to address problems. Attempts are being made to reduce operational expenses as much as possible, as evidenced by the fact the CU closed three of its branches beginning in December 2008.
"But we did not take away from our membership," he insisted. "We may have reduced our physical bricks and mortar, but we've increased our convenience factor by stressing shared branching, home banking and by adding a 24-hour, bilingual call center where members can perform pretty much anything except a cash transaction."
Other operational cost-cutting steps include renegotiation of branch leases, a review of vendor contracts, "and we are looking at everywhere we are spending money to find alternatives to reduce expenses," Rosen said. "Anything that is in our control. The economy as a whole impacts our members, but that is outside our control."
Community One's management is "very proud" of the fact lending continues in earnest, Rosen said.
"We are not cutting back in any way; we are working with our members as best as we can. We are working to expand our relationship with our CUDL auto dealers. We are making products and services available to our members. We have a lending campaign that says: 'We have money to lend, just tell us how much you need.'"
The CU did not get involved in subprime lending, Rosen pointed out, but with home prices down in the Las Vegas area and interest rates near record lows, mortgage payments sometimes are lower than rents. Therefore, Community One is telling it members the present is a great opportunity to purchase a home.
"The equity issues might be a little tight, but that doesn't apply to everybody," he assessed. "There are good properties out there with sufficient equity to do home equity loans or debt consolidation. We are out there and trying to help our members as best we can. We've increased our mortgage capabilities to include FHA and VA mortgage loans, which we couldn't do before."
Rosen's synopsis of Community One's mortgage lending efforts dovetail with advice to credit unions from Daniel Penrod, industry analyst for the California and Nevada CU Leagues. Penrod is one of many who have pointed out credit unions stayed conservative and stuck to their standards during the housing boom and avoided making exotic loans.
"And now they are showing what a vast difference that makes," Penrod said. "Credit unions will be one of the leaders in helping the economy get back on its feet, because up to now they have been one of the few stabilizing sources."
The most critical role for CUs is continuing to lend, Penrod continued. He said it does not matter if the price of a home is low, if someone cannot get a mortgage, the house is not going to sell.
"Same for cars," Penrod said. "Credit unions' standards are the same as they were 10 years ago. Other institutions had a knee-jerk reaction - some changed their internal definition of 'subprime' from (a FICO of) 630 all the way up to 680 or even 700 at some places. That chokes off a significant portion of the population. Those mid-range buyers are the ones who are going to bring the market back. It will not be the high end, it will be the middle class. That is who credit unions should be targeting, and in most instances, are targeting."
Asked for what might lie ahead Rosen's first response was, "No one has a crystal ball."
"We have to be realistic — first and foremost is protecting our members and the safety of their assets," he said. "We will look at all viable options in the future based on what is best for the membership and for the credit union."
As for the 2% net worth ratio, Rosen said, "We didn't get in this position overnight, so we won't resolve it overnight. We have a net worth restoration plan, but it will be a good 24 months. It will be up to the economy to shorten or delay that plan.
"We are trying to do what we can to move us forward and to continue to provide products and services to our members without any disruption," he added. "We are here to protect our members, and that is what a credit union is all about."
