The Lay Of the Land

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ONTARIO, Calif.-What a difference a year makes.

When credit unions from California and Nevada were gathering for their 2009 Annual Meeting and Convention in Las Vegas in November of 2009, CEOs were stressed about continuing high unemployment and low home values squeezing their members'wallets, and the resulting income statements showed the stress was well-placed. This year, the annual meeting moves to the Disneyland Resort, Anaheim, Calif., and while the event may not be the Happiest Place on Earth, it's not the worst, either.

The official recession is many months in the past, but with some areas of the Golden and Silver states continuing to record unemployment of 13% or even 14%, the term "recovery" does not yet apply. Home prices no longer are in free fall mode, but "appreciation" and "equity" are words little used these days. Auto lending continues to be slow and consumers are paying off their credit cards rather than making new purchases.

Virtually every CEO Credit Union Journal spoke with for this special report reported weak loan demand. When discussing their local marketplace conditions, most expressed relief that the worst appeared to be over, but there was little optimism for improvement any time soon.

Not All Bad News

Despite the gloom in many areas, some CUs were able to post healthy numbers after two years of bleeding red ink. Star One, a $5.3-billion CU that serves Santa Clara County, just south of San Francisco, posted net income through Q3 of $45.3 million, despite NCUA assessments totaling nearly $8.9 million. Golden 1's net income through Q3 was $40.5 million, including $15.8 million in assessments. San Diego County CU's net income through the first three quarters was $43.3 million, after paying two assessments for $10.8 million.

In some cases, "less bad" is good, such as Clark County CU in Las Vegas, which had the smallest quarterly loss in a long time in Q3, $826,000.

"We don't like the negative number but we like the trending," said Clark County CU CEO Wayne Tew. "Our year-to-date loss through Sept. 30 was $4.9 million, which compares to $25 million in 2009, so we think $4.9 million is pretty good."

Daniel Penrod, senior industry analyst for the California and Nevada CU Leagues, said it is still necessary to look at the two states in different lights due to the differences in their economies. California recently passed a budget after a long impasse, so there no longer is the possibility of the state having to issue warrants to pay employees or vendors-"which is a nice thing," he said. "It adds stability to not have that linger."

Penrod said he sees "some pockets of growth" in California, especially the coastal regions. The Bay Area, Los Angeles, Orange County, and San Diego in particular, "are starting to see stability and areas of improvement. Slowly coming around is real success, given the state of the national and global economy because we are not likely to see huge jumps at this point. Slow, stable growth is what is going to move us forward."

Away from the coast is where the gloom lingers, Penrod said. The "Inland Empire" region of Southern California and the Central Valley, home to the state capital of Sacramento as well as one of the most productive agricultural areas in the country, are still experiencing "more difficulties" in terms of unemployment, real estate and the overall economy.

"Those regions are either heavy in agriculture or logistics and warehousing, so they are very dependent on those industries," he assessed. "Because of this they are struggling more because they have their eggs in one basket, where the other areas have more diverse economies."

Existing home sales in California showed a 10% bump, but prices remained stagnant, which Penrod said is consistent with what has been happening for several months now. He said home prices are flattening as foreclosures are continuing to have an impact on the market, especially pricing.

Employment also shows differences by region. The Golden State as a whole is at 12.5%, whereas Los Angeles and Orange County are a point to a point-and-a-half lower and the inland areas are a couple points higher.

California still faces a budget deficit going forward because the budget that was passed was not balanced. "Given the economic issues, there will continue to be a shortfall for the next year," he warned.

Nevada Still Struggling

The Silver State is still dealing with uncertainty in the housing market, which Penrod said has yet to settle. Gaming revenue has not returned to prior levels, which he predicted is going to impact employment and the overall psychological feeling in the state that it might not be through with the recession quite yet.

"While California is dependant on the international market to bring goods in and out of the country, Nevada is dependant on being an international gaming destination. Because the recession is global, the numbers are still down and international visitors will not offset the lack of domestic tourism."

The Nevada housing market still is taking a heavy toll from foreclosures. Because of that, Penrod said pricing and volume are still going to be impacted.

"Given unemployment in the state is about 14.5% it is difficult to get a mortgage without a job now that it is not 2004," he said with a rueful glance back to loose lending standards. "Even those with a job might be hesitant to buy a house given how fragile the state's economy is-they worry they might be the next casualty. This is not unique to Nevada, as we are seeing this in the four sand states.

"Nevada remains reliant on gaming, meaning it will have to look outside the state for signs of life," he continued. "The job diversity is not there to withstand this significant downturn in gaming."

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