SUNNYVALE, Calif.-The news from the housing market appears to be nearly all bad, but one credit union is hanging its successful hat on real estate loans.
Star One CU, which serves Santa Clara County from its base here, has posted remarkable numbers in many areas, including 12-month member growth of 5%. Rick Heldebrant, the $3.8-billion credit union's CEO, said real estate lending has been the key. Year-t- date through October, Star One has $918 million in total loan dollars. For all of 2007, the CU did $470 million in loans.
"One, we're good, and two, we're lucky," Heldebrant told Credit Union Journal when asked the secret to Star One's success. "The real estate volume was incredible for us. We've never had a year like this."
Timing played a role, he explained. Star One had just switched to Prime Alliance for loan processing, "and then there was what went on with the marketplace," he recalled. "In our area, mortgage brokers who were doing a lot of business did not have lenders to go to. Anecdotally, we have heard brokers or people who use brokers had no one else to turn to, and we've already had really good pricing anyway. As Countrywide pulled back, as WaMu pulled back, we were able to pick up market share."
Located in the San Francisco Bay Area, Star One CU is in one of the most expensive real estate markets in the country, Heldebrant continued. Despite the fact home prices have fallen from their peaks a few years ago, it is a lot more expensive than other areas.
"In many places back East, $250,000 buys a very big, nice house," he said. "Here, $425,000 is the average first deed we get. Our group was ready and we handled the volume fabulously."
Other than real estate lending, "We probably are like everyone else-we are really flat on consumer loans," Heldebrant reported. "Car loans are off because of the car sales market. The good news is we never chased subprime loans-we were living within our means-so when that market imploded, we did not get hurt."
According to Heldebrant, Star One also benefits from the fact its legacy members are "really good about repaying us." He said the CU's charge offs and delinquencies remain low. "Not low compared to last year, but compared to 2002-2003, after the dot com boom busted, we are not as high as then."
Callahan's First Look Program reported Star One as having posted phenomenal asset growth and ROA, which Heldebrant said is slightly misleading due to various factors. Callahan said Star One had 108.5% growth in the third quarter compared to Q3 2007, and ROA of 1.43%.
"Our asset growth is a little bit overstated by Callahan's, because it includes borrowed money," he explained. "We grew 11% annualized by assets, but 2% by savings, which is flat for us. We borrowed a lot of money to make real estate loans. We borrow longer-term funds rather than selling off mortgages as our way of managing interest rate risk."
Star One is "very different from other credit unions," he insisted. Its main account is a savings account, which generally pays Fed Funds. With the Fed Funds rate down to 1%, Star One now is paying 3.05% APY.
"We do a lot of investments and obviously a lot of real estate loans. Our ROA depends on interest rates. When the Fed cut rates last year, our ROA zoomed up. It looks great this year, it looked bad last year-quite frankly it all evens out over time. I don't take bows in front of my board when ROA is up, because I don't want them to beat me up when ROA is down. We are going to price things properly over time and loans will pay off, and eventually things will get better."
Heldebrant attributed Star One's 12-month member growth of 5% to hard work by the staff and loyalty by its members. He said the credit union executed a small merger with a 700-member credit union that helped member growth slightly, but he doesn't count those "merged dollars."
"We serve one county in California, Santa Clara County, with four braches," he said. "We go out into the geographic area around our branches and let people know we have convenient locations. I've seen the numbers, and we retain members longer than most credit unions. We do a lot of things to get members to trust us, and there are things we don't do to make sure they trust us. We don't have separate savings and money market accounts. I don't think it is fair to pay one account a lot, or new money a lot. We understand longtime members have helped us, so we want to be fair to them. We give members incentive to stay by not having funny pricing and forcing them to be rate conscious.
"The longer someone stays a member, the more likely they are to having savings with us, checking with us-it becomes a virtuous cycle."
