If this year has taught banking consumers anything, it’s how fast the rug can be swiped from under them. A string of deposit runs in the spring’s regional banking crisis pulled at mass confidence from high-flying, fast-rising financial institutions, and set the stage for local financial players to gain back market share because of shaken customers.
Customers who looked over a financial cliff’s edge – that is, before the Federal Deposit Insurance Corp.’s intervention – felt the erosion of agency over their own assets. Credit unions now pitch themselves as one of the few remaining financial institutions where customers have voting power in risk management.
In a tumultuous period of banking shake ups, credit unions not only weathered this year’s storm but emerged stronger, with several mapping aggressive expansion past their San Fernando Valley roots.
Two of the biggest credit unions in the area, Wescom Credit Union in Pasadena and California Credit Union in Glendale, have now branched their footprint beyond the Southern California region into the central coast. Logix Federal Credit Union in Valencia, the largest credit union in Los Angeles County, expanded its lead over other local institutions by adding $600 million to its $9 billion asset base, according to last year’s total financial statement.
Credit unions are nonprofit financial cooperatives owned and controlled by their members, often promoting themselves as alternatives to large banks by offering individual consumers better rates on auto and home loans and more personalized customer service. While many began as employer-based charters in the early 20th century, many in the Southern California region have evolved to geographic-based charters set and regulated by the California Department of Financial Protection and Innovation.
California Credit Union, which has three branches in the San Fernando Valley, announced its expansion into Ventura and San Bernadino counties in conjunction with its conversion to a community-based charter this summer. The state-recognized change means membership qualification broadened to include anyone who lives, works, attends school or has a business where its branches are located. Total membership has grown 14% as of the end of October.
According to Steve O’Connell, the credit union’s president and chief executive, the financial institution has seen an influx of deposits this year amid a competitive interest rate environment. California Credit Union total assets near the $5 billion mark, due in part to a 4.5% bump in deposits so far this year.
In September Wescom, already a community-based charter, announced a merger with the Seaside-based Central Coast Federal Credit Union inorganically bringing in nearly 15,000 members to its quarter of a million-person customer base on top of its 6% organic membership growth. This marked the fourth credit union merger in the Southern California region this year alone.
Higher bar for growth
Inorganic growth for credit unions is markedly different from those in the traditional banking sector, reflecting how member-based operational models set different parameters for growth and expenditures.
Unlike banks traded on public markets, where mergers are pitched as profit maximizers to shareholders, credit union mergers require the approval throughout the chain of command in a cooperative, right down to membership votes. According to Keith Pipes, executive vice president and chief operating officer of Wescom, the merger must prove it will spur value for existing members and sustain its community value pitch.
“It’s a process that takes time and it’s going to take some people identifying commonality and mutual benefits of merging,” Pipes said.
Wescom has cycled through a number of mergers in its 109-year history, evolving from a part of the Pacific Bell telecom company to $6 billion in assets.
California Credit Union also went through its own stage of inorganic growth, merging with the San Diego-based North Island Credit Union in 2017 to expand beyond serving California public or private school employees. The move brought together two billion-dollar operations to cement California Credit Union in the County’s top five credit unions by assets.
Wescom’s merger is scheduled for approval by the second quarter of next year. The combined entity will allow its resources to revamp Central Coast’s technical infrastructure – an offering Pipes and other credit union executives say is the key differentiator for credit unions not only maintaining a member base but attracting younger audiences in a competitive digital banking environment.
Keeping tech’s pace
Local credit unions have increasingly invested in what they dub “seamless” online and mobile banking services – the kind where a loan applicant can become a member in the same process.
While physical branch expansion is legally required to allow members from certain geographies, it’s the digital difference that can be the decider for the 20-somethings still growing their net worth.
In an age where neobanks and financial tech platforms are fundraising on serving the underbanked, credit unions must target the same audience lacking traditional banking experience by matching investments in user interface and experience design.
O’Connell said California Credit Union’s average member age is 53, a number that has ticked down slightly over the past decade after launching a new homeowner program and partnering with large military bases in Southern California.
“There’s really a (digital) demand for some of the youngsters because they’re more transient,” O’Connell said. “The digital experiences is where we’ve been investing a lot of our money in to make sure that we’re able to compete with the other commercial banks.”
While members may ultimately slow merger processes, credit unions ensure member onboarding works at the opposite pace. To keep up with ventures enabling peer-to-peer payments over text message or credit-building fintech startups, credit unions must go beyond local ethos and cut tedious membership apps online to ensure online customers don’t search for an easier option in the next tab on their web browser.
“We try to make the process very seamless, you are applying for the loan, but at the same time you become a member,” Pipes said. “The distinctions between those two approaches are becoming less and less, and the key is to make it easy to be accessible the way our members want to do business with us.”
Despite encroaching competition from both Silicon Valley and players in the decentralized finance space, data from the Credit Union National Association shows national credit union membership has grown nearly 36% over the past decade, from 92 million members in 2012 to 125 million Americans this year.
O’Connell says this year’s interest squeeze on its margins has affected net income margins, members are still lending with the credit union across consumer and commercial banking. While California Credit Union is down 20% this year on loans, O’Connell emphasized its membership satisfaction and the credit union’s history weathering economic cycles like this offer security for consumers left jaded by the rapid rise and fall of larger competitors.
“During these times of uncertainty, we always want to be there for our members,” O’Connell said. “We’re not cutting our muscle. We’re still delivering the products and services we always have.”