Times still lean for Inland credit unions, but signs of improvement expected
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Though the worst is past, local and regional credit union experts say the nonprofit cooperatives have begun 2010 much the same way they ended 2009: bracing for more tough months ahead as the Inland economy slowly recovers.
Inland credit unions generally remain well-capitalized. But in the most recent quarter, the largest of the member-owned co-ops continued to bolster regulator-mandated loan-loss reserves, as well as write off prior bad loans.
Those reserve additions count against net income. As a result, according to the National Credit Union Administration, San Bernardino-based Arrowhead Credit Union finished 2009 with a net loss of $44.5 million; while Riverside-headquartered Altura and Moreno Valley-based Visterra each posted a net loss of just over $10.4 million.
Agency figures indicate that a tough 2009 took a generally small toll on the co-ops' respective asset bases, with Altura's down 3.3 percent from the prior year, Arrowhead's down 0.2 percent and Visterra's down 1.3 percent.
Credit union leaders said defaults on auto and home loans generally trended downward in the latest quarter. But big challenges still ahead include reviving Inland loan demand, which generates income but remains stagnant as members avoid taking on new debt.
Much will depend on whether the local employment situation improves, or whether the region sees another spike in home foreclosures as adjustable-rate mortgages reset to higher interest rates.
For example, Visterra CEO Robert Cameron said the co-op does not do adjustable-rate home mortgage loans. But in the past year it dealt with a number of defaults on home equity loans and lines of credit taken out by members.
"Even if they have their first loan on their house with Bank of America, for instance, if they default on that primary loan, they're probably going to default on the (home equity loan)," Cameron said.
With property values down, demand for those equity loans is also low, he said.
Altura CEO Mark Hawkins said demand for all kinds of loans will likely remain flat for the rest of this year.
"People are doing what's right for them -- they want to have safety and cash on hand for their families, because they're still worried about where things are heading," Hawkins said. "Realistically we're looking at 2011 before we see significant improvement, though we're hoping we'll start seeing some good signs this summer."
At Arrowhead Credit Union, CEO Larry Sharp said delinquencies on auto loans, which were a large problem in the first half of 2009, have generally been declining since mid-2009. However, items such as repossessed recreational vehicles have taken longer than cars to resell, in order for the co-op to recover loan losses.
Daniel Marciante, Arrowhead's chief financial officer, said the co-op continues to build assets and deposits while retaining members. Its loan loss reserves remain far larger than the amount of loans that have had to be written off recently, and like other local co-ops it will keep the cautionary cushion in place in the months ahead, he said.
Representatives of the California Credit Union League, which represents co-ops in California and Nevada, said Friday that credit unions have money to lend, but consumers are in more of a savings mood than a borrowing mood, which will suppress co-ops' lending income for the foreseeable future.
Chris Collver, senior research analyst for the league, said national indicators point to 2010 being a better year than 2009 for the co-ops, with loan growth of 7 percent versus 4 percent last year. However, growth rates will likely be slower for California communities hit hardest by the recession, including the Inland and Central Valley regions.
Reach Lou Hirsh at 951-368-9559 or lhirsh@PE.com
Credit Union Results
The three largest Inland credit unions reported net losses in the fourth quarter of 2009, as they boosted precautionary loan-loss reserves and write-offs, which count against net income. Figures as of Dec. 31:
Altura (Riverside): $10.4 million loss
Arrowhead (San Bernardino): $44.5 million loss
Visterra (Moreno Valley): $10.4 million loss
SOURCE: National Credit Union Administration
