State’s largest credit union could be profitable next year, CEO says
Dave Rhamy, president of Silver State Schools Credit Union, inside the board room of their building in Las Vegas Monday, December 28, 2009.
The reinstated chief executive of Silver State Schools Credit Union said Monday that the credit union is poised to expand by issuing more loans once it finalizes a deal to receive a cash infusion this week.
In an interview with the Las Vegas Sun, Dave Rhamy said the Las Vegas-based credit union — Nevada’s largest with 79,000 members — isn’t in danger of failing, is losing less money and should return to profitability in 2010.
Rhamy said the credit union isn’t in jeopardy, even though its reserves have dipped from a high of $80 million to $54 million at the end of the third quarter. Rhamy said those reserves could dip to $50 million once fourth quarter losses are calculated.
The year-to-date losses stood at $35.8 million at the end of the third quarter and should increase by less than $7 million in the fourth quarter, which is a much lower pace than the $10 million to $15 million in losses during the first three quarters, he said.
Losses will be lower in the first quarter, and it’s possible the credit union might be marginally profitable, said Rhamy, who gave his interview days before the Nevada Financial Institutions Division and a private insurer may announce a plan to bolster its finances with a cash infusion.
Counting mortgage and auto delinquencies, the total amount in delinquent loans on Silver States’s books is about $51 million, which is close to the credit union’s reserve levels.
The credit union has about $230 million in outstanding car loans with about $9 million of that delinquent, Rhamy said.
The credit union has $501 million in mortgages, of which $42 million is delinquent, Rhamy said.
Despite that amount of delinquencies, Rhamy said the mortgage losses would be about $14.3 million if they went to foreclosure because of money the credit union would recover on mortgage insurance and the value of what the homes would sell for, he said.
“We are encouraged that if we should have to go to foreclosure, the losses are going to be low,” Rhamy said.
In addition, the 8 percent mortgage delinquency rate is overstated and is closer to 4 percent to 5 percent because loan modifications are classified as delinquent, Rhamy said.
There have been about $30 million in loan modifications, which includes cutting interest rates on a temporary basis or extending terms. That doesn’t mean they will go into foreclosure, he said.
“We believe people should stay in their homes,” Rhamy said. “It is best for Nevada and for the neighborhoods if people stay in their homes as opposed to foreclosing on them and cutting things off and having to deal with the foreclosures and very low residual values.”
Rhamy said one concern he has is that banking regulators are starting to enforce a new standard of a 100 percent reserve on delinquent accounts -- but he has seen no indication that will be the case.
“We are nowhere near being closed,” Rhamy said. “The state hasn’t said we are going to close you down or we are near that. We are probably, based on historical trackings, probably $30 million worth of losses from the threat of being closed.”
If his projections are correct, Rhamy said Silver State would see net income of $6 million to $8 million in 2010. That’s based on not knowing what’s going to happen with the economy and the long-term plans the credit union puts in effect, he said.
Rhamy wouldn’t disclose how much assistance the credit union might get from American Share Insurance, which insures each credit union account up to $250,000. He said the cash influx would be used to fund car loans and mortgages to generate more revenue for the credit union. Making an extra $10 million to $15 million in loans, for example, could generate an extra $2 million a year in revenue, he said.
Credit unions are member-owned and don’t have stock or other sources of capital other than earnings.
“This is the best way for the long-term health of the organization – to get in money and use that as opposed to cutting,” Rhamy said.
The 59-year-old credit union’s membership is down about 2,000 in the past year, Rhamy said. It caters to teachers and other school district employees in Southern Nevada and Northern Nevada.
News stories on losses at the credit union have had an impact on membership size, but Rhamy said losses have been minimal so far. Still, there are concerns that the elderly will be afraid and that figure will grow.
“We are talking about 40, 50 or 60 people because of the publicity that have closed their membership,” Rhamy said. “Because of what’s out there, there is some fear and concern because it is really unfounded. The perceptions are exaggerated. It is escalating. We are getting a lot more calls.”
The credit union had been profitable until 2009, Rhamy said. It made $6.1 million in 2006, $4.8 million in 2007 and about $40,000 in 2008. The credit union generates more than $1 million of income a month before it covers any losses in reserves, Rhamy said.
The credit union doesn’t do commercial or construction loans or have a credit card portfolio -- instead focusing on car loans and mortgages, Rhamy said.
“There has been no drastic change for us to grab market share or some big expansion move or anything like that,” Rhamy said. “I would say 90 to 95 percent of this is the economy. ... Given the fact that all financial institutions are losing money, it is not anything we did or didn’t do. The worse sin we committed was geography. The perception was that homes were overvalued and needed to be corrected.”
The credit union has been helped in that the education community it serves hasn’t been as hard-hit by job losses, Rhamy said. The loss of income in the household by other family members losing their jobs has made it harder for them to make their car and mortgage payments, he said.
“That delinquency rose fairly quickly in the last six to eight months,” Rhamy said. “We saw some of it coming because (in 2008) we started seeing the delinquency build up in the car loans, and we knew it would shift to the mortgages after that.”
Rhamy said it’s not a case of making risky subprime loans and lending money to risky borrowers who had to have a credit score of 680 or above to qualify for a mortgage. That doesn’t mean, however, there aren’t risks, he said.
“One thing we need to do as a credit union is take risks,” Rhamy said. “We are here to serve all of the members and not just serve people who are rich or middle income. We also serve the school bus drivers and cafeteria workers that don’t make that high of wage. … But the problem loans are basically gone. We didn’t go crazy on mortgages to being with.’’
Rhamy, who has held his position since 1999, agreed to return to his job last week, less than a week after resigning to pursue a career in law.
Rhamy said he left after a discussion between the seven-member board, regulators and management team. He said there was some sentiment that someone had to pay a price for what happened, but he said he choose to leave on his own, albeit reluctantly.
“I said I am CEO. I am responsible for what goes on here. If it will calm people down by a change in leadership, I didn’t want to, but I accepted it,” Rhamy said.
After his departure, however, Rhamy said those parties told him that it was not in the best interest of the credit union because of the negative publicity it generated and concerns raised. He was asked to return and agreed.
The financial workout plan was conceived in part as a way to reassure credit union members and to build back reserves by making loans, Rhamy said. It is a much more attractive option than cutting branches or staff, he said.
“We do have money to lend, but because the capital position is as low as it is, we are reluctant to do so,” Rhamy said. “This is a time to bulk up and strengthen the organization.”
Rhamy said the credit union remains a strong model because it is consumer oriented. More banks have failed in Nevada than credit unions, and those credit unions that failed did so because of exposure to construction and other commercial loans, he said.
Silver State Schools Credit Union switched its insurance to ASI more than five years ago upon a vote by members, Rhamy said. They chose that route because ASI insured $250,000 per account versus the National Credit Union Administration, an independent federal agency, which insured $100,000 per person at the time.
Silver State pays 1 percent of its $750 million in deposits in an ASI fund whose interest payments are used to provide the insurance.
Rhamy said if Silver State had remained a member of NCUA, it would have had to pay a $2.5 million premium to that insurance fund in addition to the 1 percent.
Rhamy said recent comments by NCUA Chairwoman Deborah Matz that ASI-insured credit unions were at risk may have been a move to scare people and get rid of its private competition. Matz maintained ASI doesn’t have the funds to pay all depositors if one of its big credit unions fails — claims disputed by ASI.
By Brian Wargo lasvegassun.com