Is there any hope for New Jersey credit unions?
A confluence of factors and trends seem to be keeping New Jersey credit unions down.
The Garden State routinely ranks near the bottom in key metrics tracked by the National Credit Union Administration for a variety of reasons, including the fact that credit unions are still grappling with fallout from the financial crisis.
But credit union executives can take some strategic steps to boost their market share, experts said.
In the second quarter, median credit union assets in New Jersey fell by 1.7% from a year earlier, while this figure was up 1.7% nationally, according to data from NCUA. Additionally, the state recorded the biggest drop in median shares and deposits at 2.4% and had the highest delinquency rate and lowest median annualized return on average assets, according to NCUA.
The housing market is one of the underlying factors that cause these struggles, said David Frankil, CEO of the New Jersey Credit Union League. New Jersey has been at the forefront of foreclosure prevention measures, and many credit unions aid homeowners who are in danger of eviction or foreclosure. Affinity Federal Credit Union, for instance, offers affordable mortgage modifications and deeds-in-lieu of foreclosure.
Yet, these options designed to help members restore financial stability generate an unfortunate and opposite effect for credit unions, Frankil said. It becomes more complicated for the foreclosure process to conclude, prolonging the sale of abandoned properties that can benefit creditors and credit unions, he added.
New Jersey has the second highest foreclosure rate in the U.S. with one out of every 1,192 housing units being foreclosed on, according to data by RealtyTrac, the Irvine, Calif.-based real estate information company.
When NJCUL moved into the current neighborhood in 2016, there were three foreclosures, which drove down values of adjacent properties. The trade group bought a house for roughly the same price as it was sold for in 2005, Frankil said.
“You've got these zombie homes in a neighborhood, and they had an impact on the price in the subdivision,” Frankil said. “We’re still dealing with some of those troubled houses and legacy assets from an economic downturn that many other states have moved on. That has been a persistent drag on not just the housing market here, but also on the balance sheets of many credit unions.”
Technology disruption also aggravates the environment facing small and mid-sized credit unions in New Jersey, said Howard Bufe, CEO of CU Evolition, a financial consulting firm in Cross Roads, Texas. They struggle to generate earnings to support consumer expectations for technology, whether it is a mobile app or digital banking that millennials are looking for, Bufe said.
There is also the transient nature of some parts of the state that can create headaches for credit unions, said Bill Kennedy, who is now chief financial officer at SecurityPlus Federal Credit Union in Baltimore but spent four years as CFO at Jersey Shore Federal Credit Union in Northfield, N.J. He explained that, in his experience, tourists flock to South Jersey for the summer and then leave at the end of the season, and because so much of that work is service-oriented, it doesn’t result in steady income for the credit unions there.
Compounding the problem is that the state is bookended by two of the nation’s largest and most competitive banking markets: New York City to the north and Philadelphia to the south.
“Where we were, the shore, nobody lives there,” he said. “It was all second homes and stuff like that. It was all folks from Philly and New York coming down."
Kennedy added that the merger of the Pennsylvania and New Jersey credit union leagues could help raise the fortunes of some Garden State CUs. The Pennsylvania Credit Union Association and the New Jersey Credit Union League announced earlier this year they would merge and will operate under the name CrossState Credit Union Association once the deal is completed.
“My general thoughts are that the combo will create some economies of scale, which will most probably create the environment to make more of a difference,” he said.
In fact, NJCUL’s merger with PCUA has already brought additional opportunities to both parties, said Michael Wishnow, senior vice president of marketing and communications at the Pennsylvania Credit Union Association. One program that has been implemented in New Jersey by PCUA is compliance consultancy, which helps small and mid-sized credit unions to meet the requirements of complicated regulations and laws. PCUA also has a strong audit program that they hope to bring to New Jersey.
That said, the NCUA’s data can be somewhat misleading, especially for a state home to many smaller institutions, Wishnow said.
As of June 30, only two credit unions in New Jersey — Affinity Federal Credit Union and Merck Employees Federal Credit Union — were above the $1 billion mark in assets, according to data by iBanknet Financial Reports Center.
“When you have a lot of small credit unions, the median sometimes can make the picture look a bit worse than it otherwise would be,” Wishnow said. “Pennsylvania, New Jersey or throughout the country, credit unions above about $500 million are doing pretty well. If below $50 million, it really is an uphill battle.”
Still, New Jersey credit unions can leverage strategies such as consolidation and remarketing to grow, said Jeffrey Marsico, executive vice president of the Kafafian Group, a consulting firm in Bethlehem, Pa. A smaller credit union merging into a larger entity would help give it “more resources to attract employees and money to spend on technology,” he added.
To solidify market penetration, credit unions also need to upgrade their marketing approach. For financial institutions, the basic product set has not changed dramatically from services such as savings accounts, certificates of deposit, and auto and home loans, Marsico said.
However, the distribution of those products and the technology embedded in them continue to evolve. One such example is remarketing, which means sending targeting ads to consumers’ social media networks based on their previous internet actions tracked by cookies in their phones or laptops.
“Remarketing allows customers to see a compelling offer from your financial institution in their social media stream,” Marsico said. “Many large institutions have already employed this strategy, and credit unions need to lever a more sophisticated marketing approach to get members to be aware of what they can offer.”
Aaron Passman contributed to this report.