By Ray Birch
LAS VEGAS—Like a gambler who’s lived through a hard bust, one credit union here isn’t ready to bet the house now that better cards are coming its way.
This Southern Nevada economy, once considered a shining example of consumer excess and the dangers of easy money and loose underwriting standards, was emblematic of the recession and at the front of the line among “sand states.”
Now the market is in a resurgence and is coming back at a pace ahead of most national averages.
Glitter Gulch showed a gross metro product that was up 1% in Q2 over Q1, better than the 0.8% national average. Unemployment dropped by 0.9%, besting a countrywide drop of 0.6%. Home prices, as well, advanced 2% against a U.S. gain of 1.3%. Only job growth (0.3%) failed to outpace national levels (0.5%). Schools locally are groaning under the weight of overcapacity as families have streamed into the area.
The good hand being dealt here, not long after the bust, has One Nevada CU managing the business somewhat differently these days—eyeing expansion opportunities and revving up marketing again, but casting a cautious eye forward with the difficult past still in the rearview mirror.
CEO Brad Beal said the economic resurgence here is not being driven by gamblers back with deep pockets, but instead by more broad-based progress, particularly within tourism.
“We are seeing the tourism industry reinvent itself again with less emphasis on gaming, and more emphasis on retail, dining and entertainment. There, too, is a greater focus on middle-market consumers,” said Beal. “The local economy is finally showing solid signs of recovery—we are seeing people make big purchases again and borrowing. Real estate is gaining strength. Lots of positive signs.”
Brad Beal, One Nevada
One-Third Of Homes Still Underwater
Not surprisingly for a town at the heart of “The Hangover,” the market has recession hangovers of its own, such as one-third of the homes still underwater in Clark County. “But that is half what it used to be three to four years ago. Still, there will be an ongoing level of foreclosures and short sales.”
The unemployment rate in the upper 6% range is among the highest in the country, Beal pointed out. “But again, that is much better than 14%, where we stood not too long ago.”
The economic improvements are boosting CU earnings significantly, noted Beal. One Nevada’s balance sheet has gone from red numbers showing $4.2 million in losses in 2010 and $4.8 million the following year, to black numbers reflecting $6.5 million in 2013 and $3.3 million through June of this year. Assets have climbed back from $666 million in 2012 to $722 million.
But how the credit union responds to the improving times has been tempered by the bad, and Beal thinks it’s a wise lesson learned.
“We want to participate fully in the recovery, so we are heavily marketing our key products like auto loans, credit cards and first mortgages, which are leading to good growth in our portfolios. The other side of the coin: We are optimistic, but cautiously optimistic,” said Beal.
Beal said One Nevada wants to keep net worth and liquidity high “on the outside chance some sort of economic reversal occurs. We think that is unlikely, but we have not totally ruled that out. With that in the back of our mind, we are trying to keep our balance sheet very flexible.”
Capital is more than 10.5%, up from a low of 8.75% during the recession. Beal said rebuilding capital is a key for the credit union and that the current number, while comfortable for One Nevada, is going to grow.
“During the bust, we dropped from 13.5% capital down to below 9%. That was a big drop and we went through some bucks,” said Beal. “We are of the mindset that you can never have too much capital. After we treat our members fairly, giving them great rates and service, everything left over goes to building capital.”
The CU has not forgotten the tough choices it made not that many years ago. “We had layoffs, closed branches, froze salaries, eliminated bonuses, froze 401K contributions . . . We cut and slashed expenses everywhere we could.”
The credit union also asked large depositors to take their money out to keep its capital level from sliding further. “Those were challenging times.”
Today One Nevada is not actively seeking deposits.
“But we do want checking accounts for the interchange revenue,” said Beal. “We are not interested in attracting any kind of significant deposits because we just don’t have sufficient loan demand. Capital and liquidity are always the two keys.”
Comeback At Correct Pace
Beal observed that the Las Vegas economy is coming back at the right pace, saying the rollercoaster ride here has gone from boom to bust to “not bad.”
“We don’t want the economy to come back to where it was during the boom,” said Beal. “That was too much growth way too fast.”
The meteoric rise in housing prices here led One Nevada in 2007 to tighten mortgage underwriting standards. “We saw the bubble forming—a 40% increase in real estate values within a year, and we said that can’t be sustained.”
One Nevada has since returned to its standard underwriting. It has also restored employee benefits and raises.
“We are not afraid of expansion and investing in our future,” said Beal. “Maybe the biggest thing that has changed at One Nevada, as I already explained, is that in back of our minds we are now ready for anything, and we have to have flexibility in the balance sheet. That thinking will likely be with is for a long time to come.”
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