By Ray Birch
LAS VEGAS—The pandemic hit this city hard and even resulted in WestStar Credit Union losing a little money last year. The CEO’s reaction: he calls 2020 the CU’s “best year.”
Rick Schmidt, CEO of the $250-million credit union, said he chose those words for what they represent—that the credit union did its job in what was one of the most challenging periods for a financial institution.
“I have been here 11 years, and 2020 will probably go down as the most successful year in the history of WestStar,” Schmidt said. “We did what we were supposed to do for our members and our staff—we stood up for them: We eliminated fees and we stood up for members everywhere we could, loan deferrals and much more…They needed our help. And no one was laid off.”
The credit union lost $80,467 in 2020, after reporting $1.2 million in net income in 2019.
“Forget the fact we didn't make any money, didn't make any profits. Forget the fact that our loan portfolio didn't grow and we lost some members,” said Schmidt. “By every standard metric it was a horrible year. But we did what we were supposed to do as a credit union and served our members. And the fact that we've been prudent managers of our members’ money meant we had more than enough capital (10.41% year-end 2020) and more than enough resources to be able to withstand this crisis without having to take Draconian steps, like closing branches and laying people off.”
Initially, when the pandemic struck in March of 2020, Schmidt acknowledged he was very concerned for the future of the credit union and its members. With the majority of its members working in Las Vegas’ entertainment and hospitality industries, Schmidt was unsure how the members would make it out the other side of the health crisis.
But Schmidt said that day is drawing near when Las Vegas will completely come back from the empty streets, vacant hotels and slot machines with arms sitting idle.
“On the first day of June, our state’s governor, Steve Sisolak, said we were 100% reopened, and at that point most of the properties, and certainly MGM and Caesars, started moving aggressively to reopen,” Schmidt explained. “But what ‘reopened’ really means right now is still undefined. I know reopened may not mean 100% of the hotel rooms are available…But every day of the week more things are opening up...However, the big shows here are still in a reopening process.”
The Right Kind of Light
Nevertheless, Schmidt said he can clearly see the “light at the end of the tunnel,” and it’s not a train “heading in our direction.”
Through the dedicated efforts of WestStar, government stimulus and increased unemployment benefits, and members not overlooking what WestStar has done for them over the years, the credit union dodged what at first looked like it was that runaway locomotive heading its way, said Schmidt.
As was the case with many credit unions, WestStar’s ALLL account was well overfunded last year, and the funds it needed to allocate from its provisions were minimal. Schmidt said he is very thankful for that fortunate result given the grave concerns he had for the credit union in the Las Vegas economy.
“Surprisingly, our delinquencies are the lowest they've ever been in the history of the credit union—11 to 12 basis points,” Schmidt said.
The Other Mask?
He noted deferrals could mask the true state of delinquencies, and that examiners would have discussed the deferral agreements in put in place in detail had the agreements been reached in any year other than a pandemic year.
Rick Schmidt
“Obviously, those kinds of things don't apply in this scenario, and our deferral situation has now worked itself out well,” said Schmidt. “We have less than 25 members today who are still in deferral.”
WestStar, Schmidt said, had almost one-third of its consumer loan portfolio in forbearances last year and the same percentage for its mortgage loans.
“We’re down to less than 2% of the people who asked for a forbearance who are still in deferral status,” he said. “Just a fraction.”
Schmidt attributed WestStar’s good fortune to loyal members and for the savings many borrowers have stockpiled.
“With all the stimulus money, our assets have grown by a third,” he said.
Schmidt noted WestStar could have posted a profit in 2020 had it decided to reverse out some of the ALLL reserves.
“But we took a very conservative approach, saying, ‘Why reverse any of those funds out last year just for the sake of showing a positive number?’” Schmidt explained.
Schmidt contends, too, the CU’s lending policies—hardened by the Great Recession, which also hit Nevada hard as one of the “sand states”—had WestStar in a better position to withstand this latest downturn.
A Challenge from the Board
“Since I started in 2010, we have taken a very conservative approach to our underwriting for mortgages,” Schmidt explained. “Early on the board asked me to do an analysis of our mortgage portfolio and what might happen to it if property values sharply declined.”
The CEO said the portfolio could withstand a 20% to 25% drop in home values before experiencing significant stress.
“Through the pandemic, what we have seen is quite the converse,” he said. “It's counterintuitive that the real estate market in Las Vegas is probably too strong, and that it has been one of the true bright spots in the midst of all this. I think Las Vegas is one of the 15 or 20 fastest-appreciating markets in the country, which makes no sense given what's going on here.”
Schmidt said he hopes he is not being naïve in believing there are no significant problems lurking in the mortgage portfolio. Instead, he thinks where the real potential for problems lies is in the indirect impact from members who are renting.
“What happens as the moratorium on evictions goes away and landlords start evicting people who have not paid the rent for 18 months,” asked Schmidt. “Even with all the money the federal government is throwing their way, people won’t have enough to pay 18 months of back rent…There could be a ripple effect from this.”
The Signs of Recovery
Schmidt said he believes the Las Vegas economy won’t fully come back until the major conventions return to this city and the major entertainment shows, such as Cirque du Soleil and Celine Dion, start raising the curtain again.
“We have had some small conventions come back, but nothing like the National Rodeo Finals that brings hundreds of thousands of people to this city,” he said. “The pace of vaccinations will have an impact as well.”
One sign of recovery Schmidt is closely looking for are member deposits beginning to flow back out.
“That, to me, is a strong sign things are getting back to normal and that people feel better about spending more of their money and feel comfortable going out and doing more things,” he said. “That’s a sign people believe things are going to be OK here in Las Vegas.”