In Vegas, Smaller Losses, 'Things Less Bad'

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LAS VEGAS-In a town that prides itself on over-the-top promotion, a bland assessment of the local economy may turn out to be the best news in many months.

Brad Beal, CEO of Nevada FCU, has adopted the words of an analyst friend of his as his new mantra: "Things are less bad." "Which I suppose is different from good, but we have seen some stabilization in the local economy in the last six to eight months," he said. "The indicators are bouncing around in a narrow range, which has allowed us to catch up. We watch unemployment and residential real estate values most closely, and we watch gaming revenue a little bit as an indication of what tourists are spending. Visitor numbers are up, but people are not spending as much as they used to."

Nevada Federal has seen delinquencies decline for seven straight months. Not counting modifications, at July 30 the $718-million CU's delinquency ratio was 3.1%, which, again, is "less bad" Beal noted wryly. "The good news is 90% of our modifications are performing. Charge-offs are still creeping up a little bit, which is a trailing indicator."

As a result, NFCU posted a loss of $2.8 million for the first half of 2010 (including its assessment for the corporate stabilization of $877,424). That number compares with the $32 million loss it endured in 2009. "We have seen no real signs of an upturn yet," Beal reported. "The local economy is going to be slugging it out for a long period of time. It largely depends on the national economy and when tourists are more willing to come to Las Vegas and spend more than they are now, so we will lag the national recovery. We are projecting a very long, slow and very gradual improvement. The underlying fundamentals are still pretty strong, but it will take a while."

Daniel Penrod, industry analyst for the California and Nevada CU Leagues, largely agreed with Beal, noting that because Nevada is gaming-reliant, it requires recovery in other regions of the country and the world to help it out. "There were weekender California visitors for many years, but with California struggling those visits are less frequent or not at all," Penrod noted. "Conventions have slowed down and there are fewer international visitors. Unfortunately, Nevada's economic growth cannot be done internally. Right now I don't know of any crystal ball that can even give a guesstimate because in many areas of the country we thought were recovering are hitting a plateau with the end of stimulus dollars."

In nearby Boulder City, $485-million Boulder Dam CU is scratching back from its loss of $2.3 million in 2009. In the first half of 2010 it lost $574,000.

William Ferrence, manager of Boulder Dam CU, told CU Journal it continues to add "substantial amounts" to its Allowance for Loan Losses, thanks to a depressed housing market. "The good news is we are maintaining a 9% capital ratio despite those losses," he said. "Those are not necessarily losses-we are accounting for those in the way regulators want us to, but we don't think things will end up that bad. Our goal is to have an 8% or 9% capital ratio, and we've been at 9% all year."

According to Ferrence, the "real reason" for BDCU's losses is not foreclosures or repossessions; it is its excess funds earning a mere 1%. "Our return on investment is so paltry, it is having a bigger effect on us than anything," he declared. "We have $260 million that is only earning 1%. If we were earning 3% on our investments we would be making money."

Boulder Dam CU is privately insured by American Share Insurance. Ferrence said his CU lost its paid-in capital in WesCorp, and ASI had an assessment in 2009, but it did not have to contribute to the NCUA corporate assessment earlier this year.

Las Vegas-based Clark County CU also is insured by ASI. Its 2009 loss was $25.3 million, which it managed to reduce to $4.1 million in the first two quarters of 2010. CCCU CEO Wayne Tew sounded a similar note when asked if there are any signs of recovery. "It is not getting worse but it is not getting a lot better," Tew said. "We are not seeing loan demand pick up, because consumers are leery of purchasing. We see a lot of paydown of debt, people paying off their credit cards. Defaults have leveled off and delinquencies are improved in car loans and consumer loans. Delinquencies peaked in February this year and have gone down month by month. It indicates to us we have worked through a lot of the real problems. We are hopeful we might start making money toward the end of this year after 18 months of not making any money."

Clark County CU has reduced its contributions to ALL in 2010 versus 2009, Tew noted, adding outside of ALL his credit union is profitable from operations. "It is a big positive to see delinquency drop. For the most part, people who lost work have already lost work. People who have jobs are paying their bills, they just aren't taking out new loans. I don't think the unemployment rate is going to go a lot higher, so we do not anticipate more people defaulting on their loans."

Nevada FCU's Beal said he does not fear a "double-dip" recession because, "It is hard to see a double dip in Nevada when we never really saw a recovery. We are planning to stay the same for another year at least. For us that is not bad. Our net worth ratio is 6.4% and has been for a while. We have $24 million set aside for bad loans against a $15 million delinquency. That is a lot of money set aside for our portfolio size and our delinquency. That should help us later in the year."

Boulder Dam CU's Ferrence agreed, stating bluntly, "Recovery in Southern Nevada is not happening."

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