"That has a very pleasant bottom line impact," he said.

Dan Desmond, president/CEO of the $792 million TruWest Credit Union, agreed that decreases in provisions have had the greatest impact on Arizona's ROA numbers.

"There are a couple of credit unions in Arizona that are doing pretty good, that have had positive loan growth and ROA, but I would guess probably 60% to 75% of the state's ROA is due to provisions," Desmond said. He said his Tempe-based credit union's 0.86% ROA for first-quarter 2012 is representative of that.

"If you backed out the amount of ROA that's due to provisions, I would say the ROA component just from operations isn't that great," he said. "Don't get me wrong, it's positive, but a fair amount of ROA is due to provisions."

Desmond said he expects ROA to fall among Arizona credit unions over the next six to 10 months, at which time ROA will represent returns from operational income.

Charge-offs among Arizona credit unions has fallen from a high of 3.95% in March 2010 to 1.93% in March 2012–an improvement, but still historically high. And Arizona rates among the highest in the country in delinquencies, one of four key indicators mapped by the NCUA, at 2.7% of total loans during first-quarter 2012. That's nearly double the national average of 1.4%, and the third worst delinquency numbers among states. However, it's a far cry from Arizona's delinquency peak in June 2010 at 5.27% of total loans.

Not only have TruWest's delinquencies and charge-offs decreased, but the types of loans in default have also shifted, Desmond said. In the beginning of the recession, charge-offs and delinquencies were mostly from auto lending, unsecured loans and credit cards. But, around 2010 to 2011, mortgages and home equity loans led loan defaults.

"Today, while people would say the recession is over, I'd say perhaps it is, because our charge- offs and delinquencies for autos and credit cards are lower today than they were prior to recession," he said. "But the charge-offs we do have continue to come from real estate secured or commercial loans. The components have changed dramatically. But, overall, they are considerably less."

Credit unions in Arizona also boosted ROA by reducing expenses, said Scott Earl, president of the Mountain West Credit Union Association.

"They've experienced enormous belt tightening over last three to four years," Earl said. "Closed branches, reduced services, layoffs…you name it. They looked for every possible place to cut expenses, and that's paying dividends for them now."

According to NCUA financial performance reports, operating expense to average assets has decreased among Arizona credit unions, from a high of 6% in March 2009, when ROA bottomed out at negative 4.16%, to just 4.08% in March 2012.

Dunham said the austerity measures at his Phoenix-based credit union included the shuttering of two branches, the elimination of shared branching for members, drastic cuts to his marketing budget, a four-year pay freeze and discontinued 401K contributions for employees.

"Anything you could find to squeeze out, you squeezed out," Dunham said about the reality for Arizona credit unions over the past few years.

Loan demand has also picked up in Arizona, but like delinquencies, the state still has a ways to go. With negative 5.6% 12-month loan growth, Arizona is second only to Nevada in claiming the worst loan growth in the country.

"We run indirect auto lending program for credit unions, and the 2012 May numbers over last year's are almost double in volume, and almost double in total number of loans," Earl said. "That shows a couple of things. Credit unions are starting to lend, and consumers are starting to buy again."

Desmond said loan demand has picked up at TruWest, the result of improved consumer confidence and employment, as well as a more aggressive effort by the credit union to engage with auto lenders for indirect lending business and better loan pricing. TruWest is also experiencing growth in member business lending and mortgage refinancing.

"It's been nicely balanced for us," he said of loan growth.

All three men agree that Arizona's economy is slowly but surely recovering. The construction and retiree-based economy was hit with a double whammy during the recession, as construction ground to a halt and baby boomers delayed retirement.

"Historically, growth has fueled the economy here, but after all the speculation and overbuilding, that stopped altogether," Dunham said. However, he said the housing market is starting to work through a backlog of foreclosed homes, with some lower-priced Phoenix neighborhoods reporting homes are only staying on the market for an average of one month before finding a buyer.

"All of the old sayings about Arizona, like 'you don't have to shovel sunshine', will hold true once again," Dunham said about the sand state's future.

Desmond said his colleagues feel like the pressure is off from regulators now that profitability is returning to Arizona credit unions. However, he said Arizona credit union CEOs are cautiously optimistic, and he's worried that the potential for a double-dip recession still lingers.

Earl said he attended a CEO roundtable recently in Arizona and said CEO attitudes are more positive than they were one year ago.

"They feel like we've turned the corner, and we are pretty well-positioned for the future," he said. 

This is the first in a series of articles examining the health of the industry in each state.