CA and NV Credit Union Trends: What’s Really Going On?

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An abundance of new lending in credit union mortgages and business loans is being met with an even higher level of incoming deposits, according to second quarter 2020 data compiled by the California and Nevada Credit Union Leagues. It means the industry’s total loans and deposits hit record highs in both states as COVID-19 inflicted economic pain on many households and businesses. But why?

Beneath the surface, local credit unions’ balance sheets were hit by a confluence of events that many industry leaders have never experienced. A very mixed picture of both negative and positive trends in loan categories were in play from the April-to-June period, even as headline year-over-year lending grew handsomely, deposits skyrocketed, and membership reached new highs in nearly every region.

(Scroll down to view trends for all 13 local regions in California and Nevada)

Where Do CUs Go From Here?
Could California and Nevada credit unions experience the same mixed-but-positive results in the third quarter of this year and maybe even the fourth?

It’s quite possible according to Sonoma State University Economist and Redwood CU Board Member Robert Eyler. Given today’s low interest rates which stimulate new loan and refinance demand, as well as the possibility of more congressional/fiscal stimulus feeding into growing deposits, the current record highs could stretch a bit further.

“The deferred loan payments and other stop-gap measures that credit unions are implementing delay both revenues and delinquencies,” Eyler said. “We might be OK going into late 2020 and early 2021, but by then the monthly pace of our jobs recovery numbers would need to improve so we don’t eventually hit the negative effects of continued long-term, higher-than-average unemployment.”

He said the challenge is to make sure most homeowner forbearance/deferment issues don’t eventually turn into foreclosure problems over several months that somewhat resemble what the economy suffered during the Great Recession of 2007 – 2009. A large portion of current COVID-19 related mortgage forbearances and deferments granted by many lenders are coming back into normal monthly-lender servicing, yet a great majority remain in forbearance, and still others have entered into loan modifications (not necessarily the best of outcomes either).

“This recession is playing out more like a typical bad one, which suggests some sort of housing pain may still be coming in the future,” Eyler said.

CA and NV Regional Snapshots
In California, credit union membership, loans, and deposits reached record high levels by June 30, 2020 — 12.8 million members, $148 billion in loans, and $202 billion in deposits. Click each region for a local synopsis: Bay Area, California, Central Coast, Central Valley, Greater Napa Valley, Northern California, Sacramento County, San Diego Region, Southern California, and Ventura County.

In Nevada, membership rose to 371,000 (not seen since 2010), while loans and deposits hit records ($3.4 billion and $5.4 billion respectively). Click each region for a local synopsis: Nevada, Northern Nevada, and Southern Nevada.

Members, Loans, Deposits: Annualized Trends
Credit union membership in California (291 locally headquartered credit unions) was already hitting new records coming out of late 2019 and early 2020. In Nevada (15 locally headquartered credit unions), membership rose significantly but is still below its previous historical record from 2008. The second quarter of 2020 revealed that:

  • This trend, driven by “new” consumers choosing credit unions to be their financial services provider and existing members becoming new members of additional credit unions, did not stop.
  • Homeowners and vehicle owners looking to refinance their loans as interest rates plummeted nearly overnight aided the inflow of some consumers becoming new members, as well as emergency loans offered throughout the pandemic.
  • Small business owners scrambling for Paycheck Protection Program (PPP) forgivable loans issued by the U.S. Small Business Administration and the Treasury Department also played a role in new membership.

Total credit union lending in California and Nevada, having already reached record territory for several quarters on end, was starting to taper off coming out of late 2019 and early 2020 as the economy entered its late stages of record growth with extremely low unemployment. The second quarter of 2020 showed:

  • First mortgages of all types (fixed rate, adjustable, etc.) were the main sub-drivers of the much larger total/headline loan growth as mortgage rates plummeted and homeowners refinanced into new mortgages with lower interest rates. The positive impact of this one category cannot be overstated.
  • Business loan growth (includes landlord real estate loans) in many regions helped as PPP loans were facilitated to local business owners seeking payroll/employee cost relief.
  • The fact that used auto loan growth either held steady or did not decline as much as other loan categories (depending on the region) also helped bolster or buffer total/headline lending trends. Used vehicle prices relative to new autos, combined with very low interest rates, are making pre-owned cars and trucks relatively much more attractive during the economic slowdown.
  • Three loan categories declined significantly as the pandemic-forced government shutdown halted economic activity: new autos, credit cards, and HELOC/home equity loans (combined category).

Total credit union deposits in California and Nevada were already hitting record highs for many consecutive quarters coming out of late 2019 and early 2020 due to new members joining credit unions (not from consumers increasing their savings). The second quarter of 2020 demonstrated that:

  • Checking and savings accounts mostly saw the highest growth rates. In many cases the regional percentage increase was between 20 – 30 percent, with some areas hitting 40 – 50 percent. The impact deposits are having on declining loan-to-deposit ratios for all regions (aka loan-to-share) is significant, essentially making the industry more liquid than before the pandemic.
  • This increase in consumer deposits came from: less spending and more savings by many members; delayed IRS tax payments for some (due to a federal payment deadline extension into July); federal monies received by workers who were suddenly unemployed and qualified for additional emergency pandemic unemployment insurance; and households that received stimulus transfers/checks by Congress.

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