Stability Returns to Sand State Credit Unions
Credit unions in Florida, Nevada, Arizona and California have made major strides in overcoming the effects of the Great Recession, and statistics and executives from those states suggested the experience left a lasting impact on their approach to lending and operations.
The Great Recession officially ran from December 2007 to June 2009 and took place in the wake of the burst housing bubble, according to the National Bureau of Economic Research. While the Recession ended in the summer of 2009 from a data perspective, its effects lingered in varying degrees, depending on the location.
In general, southern and western states, which experienced the largest increases in home values and took on more debt leading up to the Great Recession, experienced greater and deeper downturns during the slump, according to a 2012 study from The Rockefeller Foundation and Yale University Professor Jacob Hacker.
The study found Florida, Georgia, Alabama, Mississippi, Arkansas and California experienced the worst economic losses from 2008 to 2010, while Vermont, Connecticut, New Hampshire, Rhode Island, Massachusetts and Maine were hit with fewer losses.
Researchers found the size and vitality of its housing market prior to the downturn was not the only factor leading to a particular state's hardship – other factors, including its poverty rate, number of college graduates and unemployment rate, also played roles.
The release of post-Recession numbers painted a stark portrait of how badly credit unions in the hardest hit states suffered.
The League of Southeastern Credit Unions, for example, reported that its states’ credit unions ended 2009 with an average return on assets of -.23%. In addition, the percentage of delinquent loans hit an average of 3.12%; average loans charged off stood at 2.14% and the average net worth ratio ended the year at 9.52%.
However, the LSCU reported that by Q1 2015, Florida credit unions’ average net worth had climbed to 10.81% and their average ROA to .82%. Delinquent loans had fallen to .93% and net charge offs hit .60%. And full time employees moved from 12,349 in 2009 to 13,046 in Q1 2015.
LSCU Vice President of Communications Mike Bridges credited the state's expanding economy for much of the growth, pointing out that the U.S. Census Bureau had identified seven Florida metropolitan areas as among the fastest growing in the U.S. He also noted that Florida credit unions’ average ROA moved from negative to positive in 2010 and has been climbing ever since.
Suncoast Credit Union's President/CEO, Tom Doherty, also credited the rising Florida economy for helping the $6.37 billion, Tampa, Fla.-based cooperative turn the corner from 2009's number to its current one.
According to the NCUA, the credit union closed 2009 with a net worth ratio of 6.09%, a delinquent loan ratio of 5.02%, a charge off ratio of 3.15% and an ROA of -1.36%. By the first quarter of 2015, Suncoast had achieved a net worth ratio of 9.02%, a delinquent loan ratio of 1.46%, a charge off ratio of 0.43% and an ROA of 1.30.
“Absolutely, the economy is key to everything,” Doherty explained. “We made it through by cutting back where we could and cutting net spending, but we strove not to close branches or lay off staff,” Doherty added.
Suncoast concentrated on improving efficiency and keeping branches open; it also hired staff to ensure the credit union would be positioned to grow once the recession passed, he explained.
“We believed, we hoped, that we would be able to climb out of it,” he said, “but we couldn't tell when and we wanted to be ready when our members needed us.”
However, while Suncoast pulled through, Doherty stressed that it pulled through as a different credit union. Now, Suncoast employs data a good deal more while underwriting and pricing loans than it did previously, Doherty explained. The use of data helped the credit union obtain a more reliable risk profile for its lending, and allows it to price loans more fairly as well as better manage the loans over their entire terms.
Suncoast also moved to firmly embrace its role as a community chartered financial cooperative, dropping its previous federal charter as Suncoast Schools and becoming just Suncoast, as well as obtaining its designation as a low-income credit union and recognition as the nation's largest community development financial institution.
“This was something we had been aiming toward for a while, but the downturn got in our way and delayed our shift,” Doherty said. “The CDFI recognition in 2014 was an indication we were back on track.”
The Mountain West Credit Union Association provided fewer numbers about Arizona's credit unions than the LSCU did in regard to Florida's credit unions during the downturn, however, the MWCUA reported that the number of credit unions in Arizona dropped from 53 at the end of 2009 to 44 at the end of 2014. Credit union member numbers dropped as well by roughly 150,000 (1.58 million to 1.44 million), but the total number of assets rose by roughly $1.5 million, from $12.7 million to $14.2 million.
The $1.48 billion, 133,000-member Vantage West Credit Union, headquartered in Tucson, Ariz., represented a bit of what credit unions in the state have seen and done in the years following 2009.
According to the NCUA, in December 2009, Vantage West CU had a net worth ratio of 9.54%, a delinquency ratio of 2.12%, a charge off ratio of 2.69% and a return on average assets of 0.04%. By the end of March 2015, the credit union's net worth rose to 11.79%, its delinquency ratio dropped to 0.73%, its charge off ratio moved down to 0.78% and its ROA rose to 1.05%.
Vantage West CU president/CEO Robert Ramirez declared the credit union had faced the downturn with the determination to advance – not retreat – in order to be prepared for when the economy began growing again.
“In December 2008, I had to go to the board with bad news and good news,” Ramirez said. “The bad news was that we had lost $10 million. The good news was that I had a plan for how to earn it back, to return to profitability, in 2009.”
Ramirez said from the beginning, Vantage West CU had seen the futility in trying to cut its way to prosperity, an opinion that its regulators had not always shared, Ramirez explained. Not only had the credit union refrained from closing branches and laying off staff, Ramirez made sure Vantage West CU paid its staff well and continued to plan and build branches.
“The point was to focus on member value and keep building the brand on member value,’ Ramirez said.
The credit union used technology to emphasize efficiency and cut costs around procedures and processes that did not add to member value, he said.
Perhaps the greatest shifts in the collective size and value of credit unions took place in Nevada and California, according to records kept by the California and Nevada Credit Union Leagues. Both California and Nevada credit unions moved from a deep contraction in 2009 and back to better financial health this year, according to the numbers.
According to the league data, drawn from NCUA and CUNA data, Nevada credit unions saw every loan and deposit category, on average, shrink in 2009. Credit cards, unsecured loans, new and used automobile loans, first and second mortgage loans, home equity loans and member business loans all showed negative numbers in 2009, as did growth rates for share drafts, share certificates, IRAs, money market funds and regular shares.
Moreover, loans stayed down. On average, Nevada credit unions did not see a return to lending growth until 2013, when credit card portfolios grew by a meager 2.5%. Unsecured loans grew by 4.1% the same year, as did used automobile loans, by 7.1%.
Deposits grew in 2010 as share accounts picked up by 7.0% that year, but even in March 2015, IRA portfolios still shrank by 3.9%; in addition, home equity loans continued to shrink, moving down by 9.5%.
This translated to an average net worth of 7.4% in 2009, as the delinquency ratio hit 5.77%, the charge off ratio hit 3.91% and ROA contracted to negative 3.17%.
But by 2015, almost all the loans and deposits had begun to grow again, average net worth had moved to 10.0%, delinquencies had dropped to 1.13%, charge offs fell to 0.42% and ROA grew to 1.24%.
Things were much the same in California, only not quite as alarming. All categories of credit union loans in California, on average, shrank in 2009, but by comparison, deposit growth remained strong. Loans also recovered more quickly on average for California credit unions, showing positive numbers in credit cards and auto loans in 2011, according to league data.
Just as in Nevada, 2009 closed with California credit unions, on average, having a net worth ratio of 9.1%. Delinquencies hit 2.49%, charge offs hit 1.85% and ROA, on average, was at negative 0.47%. By March 2015, average net worth hit 11.0%, delinquencies fell to 0.50%, charge offs dropped to 0.27% and ROA, on average, climbed to 0.82%.