Looking For Income From Alternative Sources

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SACRAMENTO, Calif.-With loan demand and consumer spending both down, The Golden 1 is looking for alternative sources of income, including investments.

The strategy appears to be working, as net income through Q3 was $40.5 million, even with an $8.2-million charge for corporate stabilization and a September NCUSIF hit of $7.6 million. Donna Bland, newly named as president and CEO of the $7.3-billion CU, said its ROA before the $15 million in assessments was 1% year to date.

Bland has been with Golden 1 for 16 years, most recently as CFO. She took over for Teresa Halleck in July when Halleck moved to San Diego County CU.

Net income for the third quarter was $24.6 million, with Bland noting the figure got a boost from a dramatic scaling back in its contribution to its Allowance for Loan Losses.

"Delinquencies and charge-offs are both declining, meaning our ALL is now reflecting more current trends," she said. "In the third quarter we put a little more than $2-million in ALL, compared to $38-million last year just for the third quarter."

In the first quarter of 2010 Golden 1's ALL contribution was $32 million, followed by $11 million in Q2.

"Charge-offs are at levels not seen since 2008, so the allowance requirement is declining," she continued. "We had charge-offs of $8-million to $9-million per month in 2009, but we are now below $5 million."

Meanwhile, the Sacramento market is slowly improving, Bland said, which is allowing its members to make payments. "We are definitely seeing an improvement in trends. Slow growth and a slow recovery is better than what we were experiencing in 2009. Our financials are improving because margins are better."

Mortgage Lending Bright

Overall loan demand remains weak, Bland reported, other than first mortgage refinancing, as members take advantage of lower rates. However, she warned, it may be some time before consumers turn into spenders again, in part due to an inability to tap home equity to fuel spending.

"This is the new normal and we have to recognize times are different," she declared. "Not only do we need to increase our loans, we need to grab more marketshare than before. There is less A paper out there."

Loan promotions in Q3 included auto loan refinancing on loans that were financed elsewhere, which Bland said is a recognition that not as many people are buying cars. Members were offered a "nice rate" plus a 90-day deferral."We know we cannot be passive, so we do outbound calls and follow up with all members that become pre-approved on loans. We make sure employees embrace and understand our products. They need to understand the value so they recommend."

Rethinking Investments

With lending weak and not strong rebound being projected, Bland said The Golden 1 took a "strong look" its investment portfolio. Whereas its previous strategy assumed it needed a certain cash flow to fund lending, it was able to take some investment gain on maturing investments and then move further out on the yield curve with new investments. It sold $100 million worth of investments that were slated to mature this year and booked a $1.5 million gain.

Today, acknowledged Bland, rates are significantly below where they were when the sale was executed in March and April. "We continue to look for opportunities to invest, including State of California Revenue Anticipation Notes, which will generate a little over $200,000 in a 26-day period this month."

Golden 1 attempted to make a splash in its local market with state budget loans to those impacted during California's budget impasse. "We distinguished ourselves from the competition because many banks dropped out. We brought in many accounts because the state threatened to take employee pay to minimum wage. We offered to fund the difference between the minimum wage check and their regular checks, with the expectation they would pay it back when the budget was passed. We received a lot of positive feedback on our Facebook site."

On the positive side, while expense management remains a focus (its expense ratio os 2.05%), Bland said The Golden 1 has been able to reinstate some of the cutbacks that have affected staff.

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