When comparing Nevada credit unions’ key financial indicators against other states as of June 30, the results aren’t good. Nevada’s 0.40% return on average assets, 2.5% loan delinquency and negative 11% loan growth are among the worst performance numbers in the country. However, compared with two years ago, those numbers are positive proof the recession didn’t permanently tarnish credit unions in the Silver State.
Take the $693 million One Nevada Credit Union, for example. The Las Vegas-based institution reported an ROA of 0.17% as of June 30. That number is a far cry from the previous industry standard of 100 basis points, but as President/CEO Brad Beal said, “At least it’s in the black.”
Just two years ago, the One Nevada’s second-quarter numbers included negative 0.73% ROA, a 4.95% loan delinquency figure and a 5.66% charge-off ratio. Charge-offs were still around 4% as of June 30, but delinquencies have fallen to 2.51%, on pace with the state average.
Although the tourism-based Nevada economy is still weak, it has stabilized, Beal said. And, One Nevada has worked its way through the bad loans in its portfolio and is left with relatively high-quality loans.
“In terms of ROA, we’re putting away less in provisions for loan losses,” Beal said. Although the credit union’s $6.6 million year-to-date June 30 loan-loss provision is “pretty heavy,” he said it’s $2 million lower than the $8.6 million it had set aside one year prior. And, both numbers pale in comparison to the $23.7 million the then-Nevada FCU put into loan-loss provisions as of June 30, 2009.
Nevada Credit Union League Chief Economist Dwight Johnston said considering what Nevada credit unions have been through, they’ve weathered the storm well.
“The thing that jumps out to me are capital ratios,” Johnston said. He noted that some large, struggling credit unions have distorted the average, but statewide Nevada credit unions reported around 11% net worth as of June 30.
“That’s pretty close, historically, to what they’ve always run,” he said, “and that speaks well to how they’ve managed through it.”
There’s still work to be done managing through the recession in Nevada, Johnston said, because construction provided such an economic boost in the state, and the sector won’t return to the levels seen in the boom years.
However, he said, the worst has passed. Most credit unions in Nevada, like One Nevada, have worked their way through the weak links in the loan portfolio and can look forward to less aggressive loan-loss reserves in the future. Investors are buying up the state’s glut of foreclosed homes, although the economist said he’s concerned the new owners won’t gain the cash flow they’re expecting from renters.
Online retailers, including Amazon and Zappos, have facilities in Las Vegas and are supplying jobs. However, those positions aren’t well-suited for the throngs of construction workers that make up the state’s current 12% unemployment rate.
“Talk about a retraining effort,” Johnston said, noting that Las Vegas may see a continued decline in population.
Occupancy rates for hotels on The Strip are high, Beal said, running in the 90% range. However, tourism has not completely bounced back because tourists aren’t spending nearly as much once they arrive in Las Vegas.
Members aren’t spending money either. Nevada’s negative 11% 12-month loan growth is the worst in the country. One Nevada reported negative 8% loan growth as of June 30, as members have little demand for new consumer loans, and the credit union hit its business loan cap when it shrunk its assets.
“We haven’t made any business loans for a couple of years now,” Beal said, noting that investors are snapping up commercial real estate at historically low prices. “We would make those loans if we had the room to do so, but we would be pretty selective about it.”
The only lending action One Nevada is seeing these days is in refinancing auto and mortgage loans.
“We’re kind of recycling the existing business out there since there’s not much new business,” Beal said, “but it has given us the opportunity to attract some new members.”
Since the federal government’s Home Affordable Refinance Program eliminated loan-to-value limits last fall, One Nevada has been buried in HARP 2.0 refinance applications, Beal said.
“We’ve done almost $60 million in HARP refis in the last two months, compared to about $150 million during all of last year,” Beal said. “HARP 2.0 has been extremely good for homeowners in Nevada and our credit union.”
HARP 2.0 has been so popular in Nevada, Beal said that after two weeks marketing mortgage refis, the credit union stopped pitching the program.
“At some point, we will reinstitute some marketing for it because some consumers are still unaware of their options. But for the moment, we aren’t doing any marketing at all and still writing that stuff like crazy,” Beal said.
The credit union isn’t keeping any of the refinanced mortgages on its balance sheet, selling them all to Fannie Mae but earning noninterest income off the deals, he said.
Elko, Nev., located in the northeast corner of the state, has been relatively immune from the economic downfall suffered in the population centers of Las Vegas and Reno. In fact, according to Elko Federal Credit Union President/CEO Kelly Buckner, the mining community is experiencing an economic boom thanks to record high gold prices.
The area is largest producer of gold in the country, and one of the top four in the world, he said. The gold boom has had a big impact on the $117 million credit union’s financials, which buck the statewide trend. As of June 30, EFCU reported 0.32% delinquencies to total loans, and a jaw-dropping low 0.06% charge-off ratio. ROA was 0.73%, and net worth, market share, membership and deposits are all growing at a healthy pace so far this year.
However, like everywhere else in the country, Buckner said he’s having difficulty making new loans. EFCU reported a negative 5.74% loan growth rate as of June 30 and continues to battle a shrinking loan-to-share ratio.
With an eye toward the future, Buckner said EFCU is currently investigating its options to start making member business loans after receiving “a lot of requests from members who own small businesses, need financing and know the credit union can provide it safely and soundly.”
EFCU also recently signed on with CU Direct Lending, he said, hoping the partnership will generate more auto loan business.