By Ray Birch
LAS VEGAS—One credit union whose membership has been hit particularly hard by the pandemic-induced economic crisis says it's still “wait and see” whether big cuts will need to be made to keep the CU in business.
Rick Schmidt, CEO of $215-million WestStar CU, told CUToday.info there's too much yet to be determined related the pandemic, including how long the health crisis persists and how deeply the CU’s members—largely employed by Las Vegas’ gaming, hotel and entertainment industries—are affected.
Schmidt told CUToday.info the losses his credit union has suffered due to the crisis—from helping out members with forbearances, fee waivers and more—are much less than he expected when the lockdowns first went into effect in March. At that time, CUToday.info reported, Schmidt was expressing concerns for the future of the organization with more than 50% of its membership employed in the gaming, hotel and entertainment industries.
“If we reach the point where losses force us to make big cuts in areas of the credit union, we will have to do that,” said Schmidt. “I've said this all along the way, that the organization has to prosper before individual members can prosper.”
Schmidt said should WestStar suffers losses losses in the seven figures during 2020, it will have little choice but to make some very difficult decisions. Last quarter WestStar reported a $246,444 loss, according to Call Report data.
“God help us if we see those kinds of losses, like a couple million dollars,” said Schmidt. “But so far we're nowhere near that level. Our capital is intact—we're at a 10.5% net worth ratio. In fact, I am surprised—I am more optimistic about the future of our members and the credit union now than I was in March or April.”
Responsible Behavior
What is giving Schmidt that increased confidence now is the behavior of residents in Las Vegas, whom he said have been paying attention to keeping others safe, the attitudes of members who now are seeking less help than in March, and loan losses that have been well below expectations.
“Everywhere I go people are wearing masks and paying attention to what’s going on,” said Schmidt. “Our allowance account has doubled since March; just shy of a million dollars we have added since the pandemic began. But I was expecting we were going to be adding a million dollars a month for the first three or four months of this crisis. I thought we were going to be in a much worse situation.”
Schmidt said he had also anticipated there would be a massive run-up in unsecured debt, as people would be “borrowing everything they could to put money under their mattress or in a bank account somewhere, should they file bankruptcy and can’t pay us back. But that has not happened.”
A Change in Members
Members’ attitudes toward needing assistance, too, have changed since March, according to Schmidt.
“I know our members got really scared at the outset of the pandemic,” he said. “And we said we’ll do whatever we can to help you. But most of them have then said, ‘Thank you very much for that initial help, but we are good now.’ But how long will this attitude from our members continue? I don’t know. I guess it might depend on how quickly we get a vaccine and this health crisis ends.”
Schmidt also pointed out unemployment numbers in Las Vegas have come down to 15% from a high of 33% a few months ago. He also said many of the local entertainment properties—hotels and casinos—have reopened. But there is a caveat to the numbers, as Schmidt believes some of the lowering of unemployment numbers is due to workers coming back to partial employment, as casinos and hotels are not seeing the weekday business prior to the pandemic.
“I'm getting a sense, however, there's a huge underemployment number—people who used to work 40 hours a week are now working 15,” he said.
Looking for Cost Savings
Like many credit unions, Schmidt said he and his executive team have mulled over where Weststar Credit Union could find some expense savings.
“Right now, we’re not thinking about big cuts, but we’re making sure we’re toeing the line on expenses, so no unnecessary expenses,” he said. “Obviously, travel is limited. With contracts that are coming up for renewal we need to consider do we need the same level of service, or are there alternatives? Can we negotiate, get some lower costs? We had some projects in play prior to the pandemic that have now been delayed, which has saved us a good amount of money. For example, we were changing our consumer lending platform, moving away from our legacy system. We also have had some staff leave and we have not refilled those positions, especially branch positions since branch traffic is down. We don't need as many tellers or support staff…”
Rick Schmidt
Avoiding ‘Draconian’ Cuts
“Draconian” cuts are not something Schmidt feels are wise right now, for more reasons than the credit union is not suffering the losses it had expected.
“What if we start making major cuts and the next day a vaccine is developed? I cut too much into the meat and into the bone for short-term problems that may not be as much of a long-term problem as we thought…,” Schmidt said. “I could cut entire branches, which would be the easiest way to reduce expenses, but it would also be the most difficult thing in terms of keeping my membership. So is the cure worse than disease?”
Schmidt added WestStar may have to eventually consider turning down new deposits if another round of stimulus is issued, as deposits have been flowing in. The CU’s net worth ratio has dropped more than one percentage point in the second quarter (10.72%) since the end of March.