Credit unions feeling pinch

While two Nevada banks have gone belly up this year, no Nevada credit unions have failed or been forced into a merger because of financial woes. But Nevada credit unions are starting to see what one chief executive calls a "scary number" in the nonperforming loan category.

Credit unions, nonprofit organizations owned by their members, are feeling pain as the Southern Nevada economy spirals lower with job layoffs, home foreclosures and car repossessions.

"We just look at this as a time to hunker down, get lean and mean, and ride out the storm," said Tony Mook, chief executive of Cumorah Credit Union. "We've put the money aside for a rainy day for a long time. I think right now it's raining."

While some credit unions struggle, Nevada Federal Credit Union, Clark County Credit Union, Boulder Dam Credit Union and several smaller credit unions get four out of five stars for safety and soundness at Bankrate.com, a financial analysis company, as of June 30. Five is the best rating.

Silver State Schools Credit Union is the state's biggest credit union with $1 billion in assets and 81,000 and members, including many of the state's teachers and college educators.

Dave Rhamy, chief executive of Silver State, acknowledged that the $728,000 in net income for the first nine months is slim for a financial institution of Silver State's size.

"It seems like it's creeping toward zero," Rhamy said. Silver State reports $81 million in net worth to provide as a cushion to losses.

It's been hard to make a profit with loans going bad, and Silver State reported $28 million in loans that are past due two months or longer, not counting $29.7 million in loans that are overdue for less than two months.

"The delinquency number is a scary number," but not in the context of credit union collateral on loans, Rhamy said. "It's a big delinquency number, but it doesn't translate into a loss."

While Silver State's financial statement doesn't show appraised values for collateral, its real estate loans are mostly mortgages on homes that could be sold for more than 95 percent of the amount owed, Rhamy said.

Also, most nonreal estate loans are secured by autos that could be sold for an average of 50 cents on the dollar, he said.

As a result, Rhamy said the "worst case" scenario would cause a loss of $6 million to $7 million.

Silver State charged off $4.2 million in loans during the first nine months of the year.

Declining home prices, however, pose a risk for Silver State in particular, because more than half of its $918.4 million in loans are mortgages.

The credit union is considering selling some of its home loans to Fannie Mae to generate cash, Rhamy said.

Bankrate.com gives Silver State two stars, the next to the lowest rating for safety and soundness, based on its numbers for the first six months of the year. Bankrate has not updated its analysis for the third quarter.

Rhamy said Bankrate gives Silver State a low rating in part because of its net worth, but the CEO figures school teachers are a low credit risk because they typically have stable employment.

Cumorah Credit Union has $173 million in assets and serves 15,000 members of the Church of Jesus Christ of Latter-day Saints around the state.

It reported a $1.97 million loss for the first nine months of the year, compared to a loss of $293,000 for all of last year. The percentage of total loans that are delinquent ballooned to 3.93 percent from 0.89 percent at the end of last year.

CEO Mook hopes to reduce the loan delinquency rate to 2 percent by the end of the year by resolving two delinquent, million-dollar home loans. He expects one to be brought current but anticipates another may be foreclosed with a resulting loss of potentially $200,000.

Cumorah reports $14.19 million in net worth, or 8.18 percent of total assets.

Mook, who has worked in credit unions since 1976, said the current downturn is worse than any he's seen, with the exception of the years of "stagflation" -- low growth and soaring interest rates -- during President Carter's term.

Of the federally insured credit unions, Community One Federal Credit Union is the only one rated below "well capitalized," a measure of financial strength. The National Credit Union Administration rated Community One "adequately capitalized." It had a net worth equal to 6.77 percent of total assets at the end of September, well below the 11.63 percent average of its peers.

Community One lost $1.83 million in the first nine months this year, up from a loss of $265,000 for the same period last year.

The $160 million-asset credit union serves 22,000 members. Delinquent loans represented 3.27 percent of total loans, more than double the 1.19 percent average of similar institutions.

The credit union makes business loans but reports that business loans accounted for $2 million of $4.8 million in delinquent loans on Sept. 30.

"Unfortunately, the economy is hurting all the credit unions, and we're feeling it as well," said Jerrold Rosen, vice president of marketing for Community One. "We're trying to be as proactive as we can in taking measures to reduce expenses ... (while) still taking care of our members' needs."

The $176 million-asset Westar Federal Credit Union promises "star treatment" to 32,000 members, most of them in the gaming industry, but its financial results have dimmed as struggling casinos have laid off workers.

"Whenever you have people losing their jobs and things like that, it's going to affect their ability to make (loan) payments," said Chief Financial Officer Dick Holtzclaw.

The credit union lost $4.7 million during the first three quarters of the year, compared to net income of $1.3 million a year ago.

Its return on average assets, a measure of net income, ran a negative 3.5 percent, compared to a positive 0.47 percent for similar size credit unions. That partly stems from Weststar's practice of being more aggressive in identifying bad loans and setting aside reserves for them, Holtzclaw said.

Its loan charge-offs ran 2.32 percent of average loans, more than three times the level of peers.

The CFO pointed out that Westar's net worth registered at 13.46 percent, compared to 11.63 percent for peers in the business and the 7 percent minimum to be considered well capitalized.

"We do have a cushion (net worth) to allow us to operate in a safe and sound manner for the benefit of the consumer," Holtzclaw said. "The credit standards we have put in place are already pretty tight to begin with."

Ensign Federal Credit Union, which serves 8,000 members of the Church of Latter-day Saints of the Las Vegas North Stake, lost $3.09 million in the first nine months of the year, contrasting $273,000 in profit for the same period last year.

The $127 million-asset credit union reported that delinquent loans represented 6.27 percent of total loans, more than five times the average of its peers.

Ensign has a high concentration of real estate loans. Almost 79 percent of its loans were for real estate, which has been losing value in the last couple of years because of the Southern Nevada housing bust.

The credit union held $15.5 million in business loans to members. The loan category has proved treacherous, because the credit union reported that business loans accounted for $2.5 million of $6.3 million in delinquent loans.

Ensign Chief Executive Diane Whitaker didn't return calls for comment.

Times are tough for credit unions in Nevada generally. Net income for Nevada credit unions plunged to $1.2 million annualized in the first half of this year from $37 million for 2007, according to the credit union league.

Historically, Nevada credit unions have had loan delinquencies of 0.5 percent or lower, said Daniel Penrod, industry analyst at the California and Nevada Credit Union Leagues.

At the end of the second quarter, delinquencies ran 1.5 percent. Banks and other financial institutions, Penrod said, "would kill for these kinds of ratios."

Credit unions results have suffered as members with mortgage loan problems fell behind on payments for auto and other loans, Penrod said. Auto loans provided a key source of income for credit unions, and auto sales have been falling.

Penrod fears credit union auto lending will dwindle if automakers start offering low-interest and no-interest loans.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.