LOS ANGELES — It's taken six long years, but credit unions in the Golden and Silver States finally have something to celebrate when they gather here this week for their annual meeting: momentum.
"You have to like momentum," said Dwight Johnston, chief economist for the California and Nevada Credit Union Leagues, noting that the long climb out of the recession was "so slow for so long." However, in the last year, he noted it has "finally started to feel like a real economic recovery," rather than just a stock market rally. "Technically it has been a six-year recovery, but it really is more like a two- or three-year recovery."
California and Nevada were "lagging the nation" in actually putting together a recovery worthy of the name for a long time, Johnston continued. But in the last year they have caught up in growth rates on loans and deposits.
"Obviously, delinquency rates in the two states were way above the national average for a long time, but now they are below the national average," he reported. "Credit unions have some room to make some headway."
From an economic perspective California is doing "very well," Johnston appraised. In August California added 44,000 new payroll jobs, which he said is higher than average.
"For the last year and a half growth has been doing well, especially higher-paying jobs such as high-tech jobs. In the San Francisco Bay Area unemployment is very low due to the technology sector's growth."
'Reach'
Diana Dykstra, president and CEO of the CCUL and NCUL, said the mood has changed in the two states, as no longer are credit unions in scramble mode. Instead of talking about "digging out" or pondering the best ways to collect on delinquent accounts, management teams now are asking "what is next?"
"That is why our conference is appropriately named, Reach,'" Dykstra said. "Things are getting a lot better in California and Nevada. California is again leading the national averages in many categories. We are happy the bad times are behind us and that credit unions are enjoying success."
But there are still challenges, Dykstra emphasized. She noted there is a "whole new demographic reality" as the baby boomers who "fueled our growth for the last 40 years are retiring, paying down debt, not buying a new car every few years, and not trading up houses."
"There is a new, younger demographic that is looking for something that matches their social mission — doing good, being local," she assessed. "Everything credit unions do resonates with that demographic, and those people could be what fuels our growth for the next 40 years. But they do not always know the credit union story. There is an opportunity, but in a survey last year 71% of Gen Y did not know what a credit union was."
In that same vein, Dykstra noted Gen Y does not respond to the same messaging methods that have worked so well in reaching the current generation — including direct mail and print ads.
"They are much more into word of mouth and social networking," Dykstra related. "These kids watched their parents lose their house, or not have enough saved for retirement. They are looking for a trusted partner. Credit unions need to do more to reach out, do more financial education, offer financial planning — really anything that helps create a positive financial future. The kids of baby boomers know they have to do something different, and we can show them that path."
News Flash: Johnston Optimistic
According to Johnston, it is important to remember the economy is global now, with potential woes overseas serving as a possible anchor on what finally are good times in the U.S.
"So while I am optimistic about the continued prospects for America's recovery, there are risks of a slowdown elsewhere that could drag us down," he cautioned.
With that said, Johnston, a well-known pessimist, said, "Overall, prospects are really bright for the next year. The numbers are better and better. I am ever-mindful of risks, especially in Asia — because Asia impacts us more than Europe now — but as long as Asia does not go down a lot, we are in great shape for the rest of this year and into next year."
What does all this mean for CUs? Johnston said they are trying to make more loans, "as they always are," and they are seeing success. He said the auto lending side is "strong." Mortgage volume is down compared to the refinancing activity seen last year, but he noted credit unions are up to 8.4% market share of new mortgage originations.
"That is up from 6.8% one year ago," he said. "Originations have fallen as refis are down, but credit unions have picked up market share as they have concentrated on purchase mortgages."
A big factor in the improving mortgage market, Johnston said, is California and Nevada no longer have the "overhang" of the foreclosure pipeline, thanks to Wall Street investors.
"I am just looking for stability in housing. The frenzied comeback ended June 2013," he said. "Since then, home prices have not changed a lot. Some areas are up a little more, but stability is fine."
For the rest of 2014, Johnston expects home price appreciation in California and Nevada will be no more than 4% to 8%, maybe on the low end of that range in 2015. Housing affordability is near the long-term trend lines, which he characterized as a "good" development.
Over the next 18 months Johnston will be closely watching what happens globally, and interest rates. The two items are related, he noted.
"You could make a case where rates have a very wide range of possibilities. If global weakness develops, we could be right back at historic lows. But if the economy improves, rates could rise sharply. Credit unions need to be prepared for a wide range of interest rate scenarios," he advised.
If rates do start rising, Johnston predicted deposit rates will start getting attention again and there might be a lot more competitive market than the past few years.
"Credit unions will need to have liquidity plans for the rate environment. You can never overlook the risks, but right now things are looking really good," Johnston said.
Dykstra's outlook on the California/Nevada economy was similar. She said there still are "challenges" in both states, "even though the financial picture is looking better."
"There still are pockets where the recovery is not doing as well," she said. "Housing prices are still 30% below peak in some areas in both states. Where you live defines how you feel about the robustness of the recovery."
New Social Media Avenues
The two leagues are focused on an initiative that started in 2014 and will be full throttle in 2015 — social media, Dykstra reported. While the Leagues already have an active presence on Facebook, Twitter and LinkedIn, she said they are looking to "find a voice" in other areas.
"We have developed videos that explain the credit union difference," she said.
The campaign's slogan is, "We own our bank," she said, adding the leagues are looking to exploit YouTube and other avenues that will allow them to "tell the credit union story in a fun, funny way that will resonate with people."
"We also will use videos to teach people how to make better financial decisions," she said. "This is consumer advocacy to help people understand the complex financial services market."
On the regulatory and legislative side, Dykstra said the CCUL and NCUL are "fighting dragons every day." For example, Nevada's legislature meets every other year, and will convene in February 2015. The NCUL hopes to introduce a data security bill that protects consumers in Nevada, she said.
"I am optimistic about 2015 and where credit unions are going to go," Dykstra declared. "Rising interest rates is something a lot of people are talking about, but as long as rates rise steadily, not rapidly, it is something that will help us."
