Two days ago CNBC host Kelly Evans in her periodic column The Exchange offered the following observations (excerpts):
“Owning real estate in the “sun belt” has probably been one of the greatest money-making opportunities of the past twenty or thirty years. And Covid, and the rise of remote work, has only accelerated all of that.
“Or has it? The San Francisco Fed just put out a new study suggesting that it could be the “End of an Era” for the snow-belt-to-sun-belt migration which has been the distinctive feature of U.S. population shifts over the past 50 years. Their argument? The South is getting too hot.
“It may sound like a reach, but their data on population shifts is worth considering. It shows many more parts of the sun belt losing population from 2010 through 2020 than in prior decades. Places in particular like Western Texas and Louisiana. (Although Florida–experiencing an influx of New Yorkers in recent years–remains an exception.)
“The U.S. population is starting to migrate away from areas increasingly exposed to extreme heat days,” the researchers write, “toward historically colder areas, which are becoming more attractive as extreme cold days become increasingly rare.” Cities like Baton Rouge, Jackson (Mississippi), Shreveport, Garland (Texas); and Long Beach (California) stand out as seeing population declines both pre- and post-pandemic, according to Census figures.
“Even Phoenix’s population growth has been slowing. By last year, it grew just 0.4%–a quarter of the growth rate it enjoyed pre-pandemic. Houston saw big declines in 2021. . .
“The Midwest could be a big beneficiary of a re-shift. “Markets that are more affordable, that are enjoying 80-degree summers while other people are boiling, might become a lot more attractive–like Cleveland,” real estate expert Ivy Zelman says, which could be one market in particular to watch.
“On top of the heat and storms, sun belt populations are also grappling with issues like soaring home insurance premiums (in Florida), or flood insurance premiums (in Louisiana). Real estate prices have also risen significantly in recent years, negating a big part of the cost savings in relocating from the north.
“And you know what? New Jersey (where author Kelly lives) is lovely, actually. The towns are small and walkable. Errands are all pretty close. The hospital I had my kids at was seven minutes away. Some towns even pick up your trash from the backyard! And being close to Manhattan is a pretty nice perk. Last year was the first year since 2010 that the state actually saw positive net migration.
“If by some twist of fate this continues, parts of the country that were previously left for dead might be the biggest economic beneficiaries in years to come.”
Strategic Assumptions Turned Upside Down
A significant credit union advantage has been their local roots. This is partly a function of the field of membership and initial sponsor support; partly the limits of capital; but mostly because this market focus and knowledge created a major strategic advantage over much larger, often out-of-area competitors.
Local meant being part of the community with loyalty passed down through generations. Then multiple economic shocks and changing regulatory options provided credit unions opportunities to move beyond their historical boundaries. Select employee groups, multiple counties and even whole states defined new market potential.
After the financial crisis in 2008/09 some credit unions began to seek out of state expansions to diversify beyond their local economy into more appealing growth markets.
A major focus was the sunbelt states, especially Florida. Florida has no state income tax, strong growth, favorable weather and is a retirement destination for credit union executives from the colder states in the northeast and Midwest.
Since 2015, investments via bank purchases, mergers and some new branches have been made by out of state credit unions. Here is a current estimate of the totals of this activity in Florida by the home state of these “foreign” credit union expansions:
Florida’s Out of State Credit Union Branches
| CUs | Branches | |
| AL | 2 | 6 |
| CA | 3 | 11 |
| GA | 2 | 2 |
| ID | 1 | 1 |
| IL | 1 | 2 |
| MI | 2 | 26 |
| MN | 2 | 2 |
| MO | 1 | 3 |
| NC | 1 | 8 |
| NY | 2 | 2 |
| PA | 1 | 1 |
| TX | 2 | 7 |
| VA | 3 | 36 |
Totals 23 107
These 107 branches are 10% of the 1,045 credit union locations in the state.
Some of these locations undoubtedly serve existing FOM’s such as Navy, Pentagon, and Walt Disney World. But many represent investments to diversify from cold weather states to warmer climes as in the case of the 26 Michigan branches.
In Nevada, 25 credit unions manage 120 branches. Of these totals, 11 credit unios are from out of state and manage 50 of the in-person locations. Mountain American based in Utah has the most branches in the state.
Now Climate Change
While the economic outlook, warmer weather and personal tax advantages may cause Florida and Nevada to appear as attractive expansion opportunities, managing a single branch or small system away from the home office market is a challenge. The network effects from expansion in adjacent markets are lacking. There is no brand awareness or legacy reputation in these new locations. Any existing members may live in the area only temporarily.
Are these out of state, diversification outposts hundreds or thousands of miles from a credit union’s primary service area worth it? What is the ROA of these investments?
Might more stable and innovative future growth now be in areas around major cities in the northeast and midwest such as Detroit, Cleveland, Toledo, Buffalo. Grand Rapids, Milwaukee? Will local and national infrastructure investment and less extreme climate now make these THE future growth markets?
Is a compilation of “odd lot” branches around the country via mergers or occasional bank purchases a coherent strategy or merely ambition ungrounded by reality?