Even the owner of the tiniest shop knows this feeling: The shelves are full of brand-new inventory, but buyers are slow to take advantage, even after some aggressive price-cutting.
Credit unions across Nevada find themselves in a similar boat these days. Inventory, which for them is money available to loan, has been pouring into credit unions for the past six months as worried consumers sock away cash in checking and savings accounts.
Finding borrowers who are willing to pay a little interest for the use of that money, however, has proven to be a challenge. And interest rates on loans are so low these days that credit unions struggle to maintain a reasonable spread between the pittance they pay depositors and the slightly greater pittance that they charge borrowers.
Increasing Deposits and Spending Cuts
The Credit Union League of Nevada says deposits statewide reached $5.4 billion by the middle of this year, an increase of 17 percent from year-earlier numbers and the highest figure on record.
Earlier in the year, before the pandemic hit, Credit League analysis found that most deposit growth at credit unions had been the result of new members. But today’s rapid growth represents increased savings among existing members.
More than $100 million in new deposits, for instance, poured into Clark County Credit Union (CCCU) this year, and the credit union’s deposits now stand 17 percent higher than a year ago.
Matt Kershaw, CCCU president and CEO, says members cut back discretionary spending on travel and entertainment, sharply boosting savings instead. Those who worked from home saved money they might otherwise have spent on clothes, commuting and workday lunches. Even some of those who lost their jobs managed to save a portion of their unemployment compensation.
Share deposits at Great Basin Federal Credit Union, meanwhile, have been growing at a 33 percent annualized clip since February, says Jennifer Denoo, president and chief executive officer of the Reno-based institution.
Some of that growth, Denoo says, comes from the credit union’s decision to provide loan deferrals to worried consumers. Even though members may not have had an immediate need to defer loan repayments to buy groceries, they grabbed the opportunity and used the money to build savings in case they lost jobs.
When credit union members cut spending, the effects of their decisions rippled far. Great Basin, for instance, felt a pinch from a 50 percent decrease in income from fees such as checking account overdraft charges or the interchange income that’s generated by use of credit and debit cards.
“These both are a direct result of members spending less during COVID-19,” Denoo says.
Looking to Loan
The torrent of new deposits began slowing this autumn, Kershaw says, but credit unions now find themselves with the need to get a lot of cash to work.
“We need loans,” says Mike Campion, southern Nevada director of branches for SCE Federal Credit Union. “We want loans.”
The Credit Union League says loans at Nevada credit unions totaled $3.4 billion at mid-year. While that’s a record high, the 9 percent year-over-year growth in lending didn’t soak up nearly all the new deposits that poured into credit unions.
New-car loans declined significantly, the league says, although lending for used cars held fairly steady as the combination of lower sticker prices and low interest rates made pre-owned vehicles increasingly attractive. Credit card and homeequity loans also slumped.
If nothing else, consumers stopped borrowing simply because they couldn’t get out to buy the sorts of things that they ordinarily would be financing through their credit union, says Thayne Shaffer, chief information and risk officer of America First Credit Union. Headquartered in a suburb of Ogden, Utah, America First has 15 branches in Nevada. “Lending has definitely been a challenge,” Shaffer says.
Mortgage lending took up some of the slack as credit union members took advantage of historic low interest rates. Business lending, too, provided support for some credit unions.
As the pandemic brought office closures and shortened hours, Greater Nevada Credit Union quickly trained branch office employees to handle SBA Payroll Protection Program (PPP) lending through Greater Commercial Lending, a subsidiary of the credit union headquartered at Carson City. “PPP has been huge for us,” says Danny DeLaRosa, the credit union’s chief development officer.
By the end of the third quarter, Greater Commercial Lending had funded more than 5,900 PPP loans totaling $583 million in 49 states, the District of Columbia and three U.S. territories. The total includes about $137 million and 2,100 loans to small businesses in Nevada.
Greater Commercial Lending even brokered the first agricultural loan in the country through the USDA CARES Act, a federal response to the pandemic. The Carson City credit union arranged a $2.3 million loan to a farm in Ellsworth, Iowa.
Despite the struggles faced by many Nevada businesses, Clark County Credit Union saw steady growth of its business lending portfolio in recent months.
“While the current economy has been hard for many of our business members, there are businesses doing very well or even excelling during this time,” says Kershaw. “A good example of those who have done well are facilities for youth sports since schools haven’t allowed organized sports.”
Other niche lending markets also have done well — most notably, lending on recreational vehicles. “We’ve had tremendous growth in the RV segment of our portfolio,” says America First’s Shaffer, who thinks consumers who couldn’t take traditional vacation trips this year instead opted for recreational vehicles.
Then, too, not all credit union members stopped borrowing. Campion notes that even when unemployment rates in Las Vegas skyrocketed to nearly 30 percent this spring, more than two-thirds of consumers still had jobs. Once they could get into dealership showrooms, they still were buying and borrowing for cars and pickup trucks. “There has been a segment of consumers that were not affected by all this,” Campion says.
Pent-up demand for new vehicles also is reflected in improving loan volume at Greater Nevada, DeLaRosa says. “Loans are coming back really strong right now,” he says.
Along with aggressive promotions on auto lending, Great Basin Credit Union invested some of its surging deposits in loan pools on the secondary market, Denoo says. The result was a 16 percent annualized growth in total loans, which put about half its new deposits to work as earning assets.
Some credit union executives worry privately that the imbalance of deposits and loans — particularly at southern Nevada institutions —may draw the attention of examiners from the National Credit Union Administration, which guarantees the deposits at a majority of the institutions.
But the rise in deposits and low demand for loans at credit unions isn’t just a phenomenon in Nevada, says Diana Dykstra, president and chief executive officer of the Nevada Credit Union League. It’s occurring across the country. So far, Dykstra says, federal regulators understand the impact of COVID-19 on credit unions’ balance sheets, and the credit union league isn’t worried about possible regulatory action.
In the meantime, most credit unions are working to entice borrowers the oldfashioned way. They’ve cut interest rates, then cut them again. Others are taking a longer view.
SCE’s longer-term strategy to build loan growth, for instance, involves creation of a new cadre of credit-ready borrowers. That’s a big issue, Campion says, because the credit scores of many Nevada consumers took a hard hit with this spring’s job losses and business closures.
The credit union’s “Credit Builder Loan” is a key element in its strategy to rebuild consumers’ borrowing capacity. It works like this: SCE loans money to a consumer. The consumer puts the cash in a savings account and makes monthly payments to repay the loan. As the loan is repaid, the credit union reports the borrower’s payment history to credit bureaus, allowing the consumer to build positive credit.
In another approach, SCE this summer launched educational programs to help consumers who borrowed from payday lenders during the pandemic’s worst days and now need help getting out of a deepening hole of debt. Those credit-building and educational programs aren’t just good business, Campion says. They’re part of credit unions’ core mission of providing financial education to their members.
Having weathered a little more than six months of business in a time of pandemic, credit union executives now are making plans to deal with more uncertainty in 2021.
“Overall, we don’t know what we don’t know because this crisis, as well as the post-crisis period, is unprecedented,” says Dykstra at the Credit Union League.
The questions faced by credit union leaders aren’t small in scope. “A major challenge in the next couple of years is the uncertainty of the economic future not only for our state but for our nation,” says Denoo. “Will interest rates remain low? Will home values decline? How will continued unemployment and underemployment influence delinquencies? All of these unknowns make it challenging to project budgets and capital expenditures.”
As credit union managers make educated guesses about which segments of their loan portfolios will grow or contract, Dykstra sees one likely scenario: Lower total growth in lending will be combined with tighter margins on those loans as interest rates remain low. The impact of that combination on credit unions’ top-line revenue would pressure operational expenses and could erode retained earnings.
Another big factor in credit union budgets, she says, will be the amount of relief they provide to hard-pressed borrowers through mortgage forbearance or extensions on consumer loans.
“Credit unions are keen on managing these cost pressures as they proactively find creative ways to continue serving members during today’s slow recovery in the economy and labor market,” she says. Credit union executives wonder, too, if some of the operational changes brought by the pandemic will become permanent.
SCE, for instance, opened a long-closed drive-through lane at one of its branches during the pandemic shutdowns. Now Campion wonders if drive-through banking will make a permanent return.
The same questions surround staffing needs. As consumers turn increasingly to digital solutions and ATMs, Campion wonders about the best mix of skills in SCE’s branches.
America First, meanwhile, had developed a pandemic plan a decade ago — back when SARS was the big worry — and the credit union had face masks, hand sanitizer and other supplies on hand last spring when almost everyone else in the country was scrambling.
Credit Unions also moved quickly to strengthen digital solutions. Now executives are thinking hard about further uses of technology to better meet members’ needs and control costs, Shaffer says.
Recruitment of new staff is easier, for instance, in a remote work environment. Highly skilled remote workers can be recruited from almost anywhere, not just from locations within commuting distance of America First locations.
“The pandemic has given us permission to question a lot of things that we never questioned before,” Shaffer says. “It’s given us an opportunity to re-think how we are doing things.”
But reliance on digital tools has opened the door to digital crooks as well. Kershaw says his credit union continues to devote substantial attention to battling fraud — online and traditional scams that target the credit union as well as individual members. Phishing frauds in which online crooks impersonate a financial institution to trick customers into providing personal data has become particularly troublesome as perpetrators become more sophisticated in their approach, he says.
Reliance on digital tools also worries credit-union executives who fear that their organizations will lose the close contact with members that’s long been a source of pride. Greater Nevada, with a branch network stretching from Reno to West Wendover, has seen a growing number of new members who moved from urban areas to rural Nevada, says DeLaRosa. Now they need the credit union to provide robust digital service — not always available in rural areas — as well as a culture of highly personal service.
Answers to all these questions will continue to unfold throughout 2021. “The longer-term health, societal, workforce, banking, and economic impacts of COVID-19 started showing up only a couple of months ago,” Dykstra says. “The Nevada League and its credit unions will be learning from the pandemic’s impact on a daily and weekly basis.”