As with most sectors in the financial industry, Nevada credit unions are in the midst of change. COVID accelerated multiple trends credit unions were already experiencing, many of which are tied to the growing preference of customers to use mobile banking and the resulting drop in branch visits and necessary cyber security upgrades.
“It’s been really interesting,” said Diana Dykstra, president and CEO of the California and Nevada Credit Union Leagues.
“Credit unions are nimble,” she said. “Local credit unions understand what’s going on in their community and they will adjust quickly, because there are not a lot of layers. They understand the market and make the changes that make a difference, whether that’s hours we’re open, different technologies or products that consumers want.”
Now more than two-and-a-half years removed from the beginning of the COVID pandemic, industries are still trying to wrap their heads around the permanent changes to society. Credit unions are no different.
“I never expected COVID or the ramifications and what our new normals are,” Dykstra said. “That’s where we’re all sitting today, what is that new normal.”
A Predictable Year
Heading into 2022, Fiserv, a financial technology services firm, released a report looking at the upcoming year for credit unions. The third paragraph jumps right into the predicted rise in interest rates. Those of course have come, with consumer prices rising 9.1 percent over the year ended June 30, according to the U.S. Bureau of Labor Statistics. It was the largest increase in 40 years.
The rise in interest rates actually is predicted to help credit unions, suggesting new mortgages will draw a younger crowd to nonbank operators offering more frictionless experiences.
Multiple credit union executives shared experiences with Nevada Business Magazine that track closely to Fiserv’s three trends expected in 2022: challenges of attracting and retaining staff, evolving branch services and changing generational needs.
The first challenges is easing, said Jim Hunting, president and CEO of Sierra Pacific Credit Union. “There was a drought most of the year and now people all of a sudden are answering job requests and we’ve hired three people in the last couple of weeks after spinning our wheels,” Hunting said.
Dykstra said staffing shortages were significant during the height of the pandemic and the “Great Resignation.” That is already easing, however, she said.
“There are a lot of working-class people trying to figure out how to back into the workplace, so we need to try to figure out how we play a role in that,” Dykstra said. The other two trends could pose challenges for the foreseeable future.
Evolving Branches
Fiserv subsidiary Raddon recently found the banking industry has continued to see branches close since 2008. Not all branches are going away, as customers still desire face-to-face contact with bankers occasionally.
“We’re seeing a shift in people appreciating being able to talk to somebody,” Hunting said. “People are very comfortable doing transactions and research online, but as they get into purchases, they’re uncertain about or opening accounts, they want to talk to somebody. It’s not that the branch is dying, the transactions are going online. It’s like the Charles Schwab model, there is a limited number of actual offices, but customers want to have somewhere to go.”
The shift in branch service also speaks to the adjusting to generational needs. The pandemic helped quickly adapt older populations to the technology needed for mobile banking, helping them realize branch visits are not needed for most transactions.
Curiously, however, younger generations are moving toward the big banks, according to Raddon. Approximately 74 percent of millennials primarily bank at major financial institutions. That is largely because of the perceived technological superiority the big banking companies hold on credit unions and smaller regional banks, according to Raddon. Millennials, more so than Gen X and Baby Boomers, want tools to monitor spending, budget and financial wellness metrics.
Hunting said credit unions now largely have access to the same Fintech tools many large banks utilize, and it is just about getting the message out to prospective customers. While large banks can invest billions a year in technology upgrades, many of the same services are out there for credit unions, Hunting said, just maybe with a little less specialization in artificial intelligence and analytics.
Regardless of how much credit unions might trail big banks Dykstra said the transition for the smaller institutions is happening at light speed.
“[Branch visits declining] had was a silver lining because consumers realized they can do more as they convert digitally. It’s really been a boon of technology, it probably took five years and turned it to six months, it was very, very fast.”
Strange Times for Payments
When the pandemic hit, like the rest of the world, Great Basin Credit Union President and CEO Jennifer Denoo had no idea how COVID would begin to shape life, work or otherwise. Denoo said the credit union quickly became sensitive to its members and responded to short-term credit and payment extensions. Worrying about potential unemployment upticks, Great Basin expected an uptick in delinquencies.
“In reality, what we experienced is some of the lowest delinquency rates in years,” she said. “Savings balances grew tremendously, over 30 percent for Great Basin. I believe this is the result of a combination of stimulus money and consumers driving less, eating out and traveling less and overall hunkering down. We also learned to just be resilient and flexible.”
During the first quarter of 2022, delinquencies nationally were down across the U.S., according to the National Credit Union Association. That came as total assets of federally insured credit unions were up 8.7 percent year-over-year to $2.12 billion.
The story is a bit different as executives peer into the future. The few positives from the pandemic are fading and fears of a recession are rearing their head. As stimulus money fades into a distant memory and inflation hits price tags, Hunting said late payments and delinquencies are rising now after seeing similar trends as Denoo during the height of the pandemic.
“Stimulus money is going away, and as that dries up, people aren’t as well off as they thought,” Hunting said. “Rents continue to be difficult, that eats up cash and food and energy costs on top of that and I think people are running more thin than normal.”
Dykstra said there are a lot of resources going into figuring out how to help customers during these inflationary periods.
Dabble in Business
Historically, credit unions are not heavily involved in commercial business. That is starting to change. Hunting said Sierra Pacific Credit Union was “robustly” involved in commercial lending last year, albeit not competing with large banks. Hunting said the deals are mostly $3 million and under.
Despite having a Las Vegas presence, Hunting said the bulk of the commercial dealings are up north. “We saw a lot of Silicon Valley investor money coming up here and redirecting investments away from California,” he said. “I would expect that to continue.”
Snapshot
The 15 credit unions located in Nevada across eight counties gained 7,600 new members during the second quarter of 2022, according to a recently released report from the Nevada Credit Union League. Those new members helped the Nevada credit unions hit an all-time high of 386,000 members, besting the previous record of 383,000 in 2008.
Likewise, loans grew 9 percent to an all-time high of $3.8 billion with a loan-to-deposit ration of 54 percent. First mortgages reached another peak of $1.3 billion, surpassing 2008’s $1.2 billion total. New and used auto loans and home equity line of credit and home equity loans all rose greater than 10 percent in the quarter as well. Business loans bumped up 14 percent to $556 million, the top end of a wide range of fluctuations between 2007 and 2022 — $128 million to $556 million.
Total deposits jumped 10 percent to $7.1 billion, with a prior historical peak of $3.7 billion in 2009. Checking accounts, saving accounts and money market accounts all hit record heights as well, $1.7 billion, $3.5 billion and $1.4 billion, respectively. Certificates of deposits dropped 15 percent to $292 million, off the record high of $977 million in 2008. IRA and Keogh accounts also declined, albeit 1 percent, to $220 million from the $352 million record in 2009. Credit union operating costs were $91 million in the quarter, with approximately 1,250 employees at the 15 organizations.
Equal Coverage
The Nevada Credit Union League also announced a partnership with the Cities for Financial Empowerment Fund this summer, which encourages credit unions in Nevada to offer “Bank On” certified deposit accounts. Those accounts can help unbanked and underbanked consumers help solidify their financial lives. The accounts can help underserved customers save money, build credit history and facilitate transactions.
“Bank On certification signals to local Bank On coalitions, elected officials, and community organizations that these accounts are affordable, safe, and fully functional,” Cities for Financial Empowerment Fund President and CEO Jonathan Mintz said in a release. “We’re proud to partner with the Nevada Credit Union League to encourage even more credit unions to join the almost 250 institutions already offering a certified account, and bring more vulnerable consumers into the financial mainstream so they can thrive.”
Changes Coming
In the financial world, regulatory changes are a necessary evil. Fortunately, executives in the Nevada credit union industry do not seem overly concerned with many potential changes at the moment. They also are happy to be in regular talks with the powers that be, which can help them weather any storm better.
“We’ve got overly excited regulators and legislators trying to address things that impact credit unions,” Dykstra said.
Dykstra said federal regulators have their hands in a lot of things, and while most are well-meaning, they are not proportional. While doing away with junk fees might make sense for some larger banks, it might not mean the same for the smaller credit unions, she said.
“We’re community banks, our fee structures are different, a lot of this stuff is complex and not necessary to apply to credit unions,” she said. “We’re owned by our members and accountable to our members.”
Hunting said there are an increase of “arcane things” like additional audits on how loan decisions are made. “There are things that don’t seem like they’re very germane to what most people do, but we have to go through a process of being audited on it and making sure that we do it correctly,” he said.
Denoo said regulatory alterations are “always well-intentioned but always attached to unintended consequences.” She expects some form of crackdown on overdraft fees in the future.
“While many of these fees have been egregious over the years, there are several financial institutions that charge a fair amount for a very much valued service to our members,” Denoo said. “If there is restrictions on overdraft, it could impact consumers access to money when they need it most. I do believe in fairness, and my hope is that all consumers can gain financial strength and independence they desire.”
Denoo also mentioned Visa late fees, which could have a similar impact on consumers who are in need of a little support. A change like that could also lead to higher loan rates and lower savings rates.
The increasingly watchful eyes are likely hoping to avoid a major financial collapse, similar to one from less than two decades ago, still fresh in most memories. Still those increased regulations can be a major drag on small credit unions.
“There is increased scrutiny, but it’s not hostile necessarily, all of us throughout the industry are getting questions and having to document things that don’t make sense for a straightforward operation like us, $180 million, 22 people,” Hunting said.
