SAN FRANCISCO — As credit union leaders from across the U.S. flock here for CUNA's America's Credit Union Conference this week, they will find most San Francisco Bay Area CU executives with big smiles on their faces.
Dwight Johnston, chief economist for the California Credit Union League, told Credit Union Journal an ongoing technology boom is having a "big impact" on the greater San Francisco marketplace.
"A lot of IPOs and a ton of money have fueled a lot of growth," Johnston said. "With the job market doing so well, it is a golden time up there for credit unions. Most of the credit unions had a really good first quarter. Mortgages are a highlight, but they have been successful on the auto side as well."
Diana Dykstra, president and CEO of the California and Nevada CU Leagues, has a lengthy family and personal history in San Francisco. Her parents are natives of "The City," as many locals fondly refer to the nation's 14th largest metropolis.
She began her career here with Bank of America in the 1970s, then became a senior vice president for The Golden 1 CU, based less than 90 miles away in Sacramento, the California state capital. She later was an SVP for Patelco CU and spent six years as president and CEO of SF Fire Credit Union, before moving to the helm of the league.
"People think of San Francisco as a big city, but it is only 7 miles by 7 miles. It is a small big city," she explained, adding the population of San Francisco proper is less than 1 million. "Bank of America was born and raised there, and then Wells Fargo came there. As a marketplace, San Francisco is really dominated by the big national banks. But if you go out into the greater Bay Area there are some regional banks that have market share."
The Big 3: Housing, Mortgages, Housing
The 800-lb. gorilla of any discussion of the San Francisco marketplace is the ultra-expensive housing market.
The median price for a home in the San Francisco metro area was $815,000 in a recent study, which found only 13.3% of homes could be purchased comfortably by households earning the median income of $100,000.
In 2013 28.9% of median income households could buy a median-priced home — a rather sharp drop in a short amount of time.
According to Johnston, in the nine-county area that makes up the Bay Area, several areas are at or above all-time highs for housing prices, especially as the house in question gets close to the heart of the "Silicon Valley," a technology hub that generally coincides with Santa Clara County but also includes cities on the east side of the Bay.
"Jumbo mortgages, which are location specific, make up 57% of mortgages in the Bay Area," he said. "Some buyers are able to put down huge down payments."
In May, 28% of mortgages booked in the Bay Area had an adjustable rate. Johnston said this was because buyers were striving for affordability, plus some people "just like staying with the adjustable game because it has been rewarding for so long."
"It is a little scary, given what happened a few years ago, but conditions are different now," he said. "People are putting more than 20% down in many cases, which takes pressure off the appraisal coming in just right, and qualifications are tight."
In California the overall unemployment rate is 7.8%, but San Francisco metro is down to 4.3%, Sunnyvale is at 5%, and even Oakland is 5.9%.
"When you look at those unemployment rates, they are impressive," said Johnston. "Job growth is strong, and tech jobs tend to be higher paying so wages have gone up in the area. Available housing supply is very low, so sellers are seeing multiple offers for anything remotely reasonably priced."
Nationally, big companies are investing in capital spending. Johnston said much of that will go into technology spending, which will further support the tech industry.
Still, Johnston said, not every CU is benefiting. Some small credit unions are still struggling because they are not writing mortgages.
"Several large credit unions in Alameda County are doing well. Nationally, first mortgages make up 42% of credit union loan portfolios. In California it is 52%, but in Alameda County mortgages are 62%."
San Francisco is an "interesting market" in which to operate a credit union, Dykstra noted. She added that Bank Transfer Day was a "very big event with a lot of ire."
"Several credit unions really benefited from Bank Transfer Day, and you continue to see member growth as people look for something different."
As CEO of SF Fire CU (currently $952 million in assets), Dykstra quickly learned the local media market is "really, really expensive." Its marketing strategy, in essence, was to focus on helping members through operating hours as well as products and services.
"Word of mouth really drove us adding share of wallet," she recalled. "We spent no money on outside advertising, but spent money on improving products and services and delivery systems. We never got discouraged when what we were doing did not immediately change the world."
Finding A Niche
San Francisco FCU, Dykstra continued, is pursuing a similar strategy — finding what the CU does right and do it better than anybody else. San Francisco Federal has taken the lead on taxi medallion lending, she noted.
"That is what any credit union in a big market needs to do," she said. "The small credit unions in San Francisco are doing well by limiting themselves by geography. Northeast Credit Union in San Francisco does amazing things on the low-income side, while in Berkeley Cooperative Center CU does great work, too. Delancey Street Credit Union helps give people a second chance.
"Many credit unions in the Bay Area do a great job serving a niche in their pocket. Every area is completely different. Credit unions know their individual areas, so they can adjust their products and services," she added.
Some small CUs in the Bay Area are struggling and some are doing great, as in any region, Dykstra assessed. "In this economy things are tough because margins are tight. Smaller credit unions are figuring out how to band together and share expenses."
