Stories from the Trenches: Patelco, GTE Post Positive 2010 First Quarter Results

Patelco and GTE manage expenses and asset quality to earn their way back.

Difficult decisions have helped San Francisco’s $3.7 billion dollar credit union to fight back. Patelco Credit Union launched into a new year with renewed vigor, posting an impressive $16 million turnaround from 2009 in the firstquarter.

The economic challenges of the previous two years had barraged balance sheets nationwide. Patelco was no exception. As consumers around the country looked to reprioritize their spending, Patelco itself took a hard look at the best strategy to forge through.

By shifting its focus from being a price leader to improving spread, the credit union increased its netinterest margin to 3.49% from 2.93%. This change helped reverse the loss of nearly $7 million in 2009 to a positive bottom line of $9.4 million in 2010.

Lower provision and operating expenses were factors in the turnaround, along with lower loan losses. A March 31 net worth ratio of 9.3% positions Patelco as looking to lend, especially with $1.5 billion in investments.

We continue to eliminate redundant expenses, says Scott Waite, chief financial officer.

Additionally, by targeting credit driven individuals with cross-selling opportunities, Patelco is looking to grow loans within its member base. Finally, over the past quarter loan modification eased some asset quality concerns.

We can handle delinquency if we keep growing loans, says Waite, adding thatalthough $29 million in restructured loans currently are reportable as delinquent, $23 million of those modified are current and performing.

The core earnings ratio, a measure of the credit union’s primary business model, reached 2.28%, which prior to NCUSIF stabilization expense, leavesit roughly $400,000 ahead of budget, says Waite.

FDIC Reacts To Improving Outlook With Less Bank Failures Expected
Thursday’s Financial Times highlighted recent FDICpredictions regarding expected bank failures — data that demonstrates a visible symbol of growing faith and confidence in the financial system.

Credit quality has improved relative to what we were expecting in the first quarter, says Keefe, Bruyette & Woods analyst Fred Cannon in the article, reacting to the strengthening credit environment.

GTE Federal Credit Union Back on Track for a Steady 2010
With nearly 188,000 members, GTE Federal Credit Union ($1.6 B, Tampa, FL) has also climbed over barriers to its success. In the first quarter with a roughly $7 million dollarturnaround, GTE posted its first positive quarterly net income– approximaely $63,000– inmore thantwo years. The credit union’s commitment to providing members credit in an atmosphere dominated by uncertainty has carrieditthrough this turnaround.

Sand State credit unions face some uncertainties in the future but with leaders like Patelco,North Island,and GTE posting positive gains in the first quarter, credit unions will benefitas regional economies rebound.

April 26, 2016

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