California and Nevada CU Financials Document 2007's Economic Downturn
RANCHO CUCAMONGA, Calif. -- The California and Nevada Credit Union Leagues' latest WestScan economic report, which compares year-end 2007 statistics to those of 2006, provides ample evidence of last year's economic downturn on credit union balance sheets.
In California, return on assets was cut in half, down from 0.79% in 2006 to 0.40% in 2007. The culprit was loan losses. Provisions increased drastically to $658.5 million, up from $454 million for year-end 2006. Additionally, delinquencies-to-total loans nearly doubled, and net charge offs were up roughly 50%, from 0.41% in 2006 to 0.58% for 2007. One silver lining in the profitability stats was that gross income-to-average assets actually increased slightly last year.
Nevada credit unions turned a decent profit in 2007, earning 0.75% ROA and posting an overall 50 basis point increase in capital ratio. In contrast to California, Nevada provisions didn't increase much--up only $2.5 million over 2006 numbers, to $22.5 million. However, delinquencies exceeded 1%, more than doubling 2006 numbers, and hinting at possible losses to come.
League economic analyst Daniel Penrod said many credit unions took generous provisions during the fourth quarter to ensure a successful buffer against potential 2008 loan losses. Penrod said he thinks things will look up in 2008, especially toward the end of the year.
Credit unions "see the economy is still struggling, and along with it, members are likely to have a rough time, so rather than waiting for it, they took most of their provisions in the fourth quarter, and will take a little more in the first and second quarters of 2008," he said.
Despite the real and anticipated losses, loans haven't dried up completely. Both states experienced loan growth not far off pace of historical norms: California grew 4.88% and Nevada 3.97%.
"The 4%-5% range is a normal loan growth pace," Penrod said. "During the boom periods, some credit unions were seeing up to 18% annual loan growth. We got kind of spoiled, so now 5% seems like we're cut in half, if not one-third, but instead of raising red flags, people in the know realize this is right. It's where we need to be to have sustainable growth."
Fixed mortgages, home equity and credit cards led the growth, making up for the unpopularity of adjustable-rate first mortgages and new auto loans; although Nevada bucked the trend and recorded 5.5% growth in adjustable rate first deeds.
Deposit growth in California slowed to 2.92% in 2007, with growth in certificates of deposit, money market accounts and IRAs offsetting drops in share savings and share drafts. Nevada credit unions actually shrank their deposits overall last year, recording a nearly 1% reduction. As in the Golden State, losses in share savings and share drafts fueled the reduction in the Silver State, too.
Investment statistics reveal that at least a few Nevada chief financial officers regret investing in securities, as available for sale securities lost $68.7 million and held-to-maturity securities lost $60.5 million. Corp-orates have benefited from the securities scandals: Nevada credit unions increased their membership capital at corporates by nearly 24% during the year and gave the aggregates more investment business, too.
Membership increased in both states, though growth was weak: 1.64% in California and 0.30% in Nevada.