Golden 1 Is Steering A Conservative Course To Get Back In Black

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SACRAMENTO, Calif.-Although there are positive stirrings in the economy, management at The Golden 1 CU is continuing to plot a conservative course through the icebergs-as evidenced by the dramatic funding of its Allowance For Loan Losses.

Teresa Halleck, CEO of the $7.8-billion CU, said she does not expect jobs to come rushing back into Golden 1's service area, and she is wary of external factors that may torpedo the recovery, but overall she has a postive outlook as the CU continues to post strong earnings.

Credit Union Journal: The Golden 1 lost $23.1 million last year but reported $192,000 in net income for the first quarter of 2010. Is this the start of a turnaround? Or just a temporary blip caused by accounting rules?
Halleck: During the first quarter of 2010, Golden 1 set aside an additional $13.3 million in reserves for our Allowance for Loan Losses to proactively provide additional cushioning for the year. If management had instead budgeted to only fund our Allowance for Loan Losses at the minimum requirement, we would have reported nearly $13.5 million in net income for the first quarter instead of only $191,000. So, our positive net earnings are not the result of any accounting blips and, in fact, would have been significantly higher had we not wanted to start the year off with a very well-funded Allowance for Loan Loss reserve.

While management believes there are signs of economic stabilization in our markets, this conservative action provides the credit union additional room for loan charge-offs during the rest of this year.

These actions reflect optimism coupled with healthy skepticism of the economy. We see signs an economic rebound has begun, but remain uncertain whether that rebound will consistently grow and strengthen or hit a few more potholes on the long road of economic recovery.

CUJ: How much of the improved numbers are due simply to the fact the economy is turning around?
Halleck: In our primary markets within California it appears the lower-priced tier of housing, $300,000 and under, has stabilized to a large degree. This has been evidenced by investor purchases coupled with first-time homebuyer activity. The upper market real estate tiers, especially homes in the $750,000 and higher price ranges, remain very soft.

While the economy in general continues to appear weak with consumers still in a cost-containment mode, the CU has seen a slowing in loan delinquency increases. While we anticipated 2010 would continue to see steep increases in loan delinquencies and subsequent charge-offs, we have instead seen a slowing in those trends. Since our original projections included higher loan delinquencies and charge-offs based on the real estate market trends visible last fall, we are pleased that the situation is currently better than originally anticipated.

Our positive earnings through May 2010 were $12.7 million, as both April and May were very strong months. While we do not yet have June month-end results, we would anticipate Golden 1 will end the second quarter with positive quarterly results as well as positive year-to-date results. This is despite the news that our June financials will need to include an $8.7 million expense for NCUA's announcement of a 13.4 basis point assessment for the Corporate Credit Union Stabilization Fund.

CUJ: What steps did Golden 1 take during the recession to control the things it could control?
Halleck: Cost-reduction efforts began in late 2008 and continued through 2009 and into this year. A large cost savings to the credit union was realized from renegotiating contracts in addition to review of our telecommunications expense. These reductions occurred over time as opportunities arose through management's proactive negotiation efforts in advance of contract renewal dates.

We also were able to shift our service hours to achieve savings-without notable complaints from members-and achieve later service hours at some locations for added member convenience. In addition, all employee wages were frozen Jan. 1, 2009, and the 401(k) match of 3% was suspended. However, the 3% 401(k) contribution Golden 1 gives every employee (with immediate vesting) was continued despite these difficult times.

Approximately 27 positions were eliminated before mid-2009, and others were eliminated thereafter as production areas continued to lack volume to support previous staffing levels. In addition to these staffing reductions, positions that opened due to turnover were highly-scrutinized and only refilled for mission-critical positions.

CUJ: What do you project for the rest of 2010?
Halleck: Absent further impact to our primary market areas, we anticipate the economy will continue to slowly improve. With the consumer real estate market beginning to strengthen, albeit slowly, we anticipate our loan delinquency trends will remain elevated but not spike compared to current conditions.

We are fortunate to not have business loans at this time, given current projections that business loan delinquencies and charge-offs are likely to continue to increase over the next year or so.

The Sacramento region and the Central Valley do not appear to be headed for job expansion in the near future and the state of California continues to grapple with significant budget issues, as do our counties and cities. As a result, we anticipate a very slow recovery that may remain fragile in nature for an extended period of time.

Nonetheless, current data indicates Golden 1 will end the year with positive net income and we are optimistic that this is the beginning of the long-awaited economic rebound. Even if it takes years for this region to recover, every day we continue to achieve success in our efforts we are rewarded in knowing our efforts continue to reap benefits for the credit union and our members and we are all one day closer to the ultimate goal of full economic recovery in California.

Editor's Note: This interview with Teresa Halleck took place prior to the announcement she would be leaving Golden 1 CU to take the helm at San Diego County CU.

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