CA and NV’s 3Q CU Trends Continue Prior Quarter’s Momentum

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Annualized loan and deposit trends for California and Nevada credit unions at the end of third-quarter 2020 were nearly identical to the prior quarter: residential mortgages, loans to businesses, and consumer and business deposits continued their steep climb higher, according to data compiled by the California and Nevada Credit Union Leagues.

The July-to-September 2020 period reveals how credit unions sprang into action serving existing and new members in unique ways as the COVID-19 pandemic continued its toll on the economy, businesses, workers, and households. In both states, the industry’s total loans and total deposits hit record highs despite home equity/HELOC, credit card, and new automobile lending continuing their significant declines.

Used auto loans were the only category registering barely-negative growth in many regions across California and Nevada, or zero percent change in some cases.

Nearly all credit unions extended a variety of financial relief options to members needing it the most during that quarter, mostly in mortgage and new/used auto loan extensions (as well as originating pandemic-related emergency loans to help households bridge financial/economic gaps). While a large portion of current loan relief deferments granted by credit unions and other types of lenders due to COVID-19’s impact on the economy are coming back into normal lender servicing, a noticeable number remain in forbearance, deferral, or the loan modification stage.

Local YOY Snapshots: Members, Loans, Deposits
In California, credit union membership, loans, and deposits reached record high levels by Sept. 30, 2020 compared to the year-ago period — 12.8 million members, $147 billion in loans, and $209 billion in deposits. Click each of the 10 regions 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 373,000 (not seen since 2009), while loans and deposits hit records ($3.4 billion and $5.5 billion respectively) compared to the year-ago period. Click each of the three regions for a local synopsis: Nevada, Northern Nevada, and Southern Nevada.

Statewide YOY Trends: Members, Loans, and Deposits
Credit union membership in California (290 locally headquartered credit unions) was already hitting new records coming into early and mid-2020. In Nevada (15 locally headquartered credit unions), membership rose significantly but is still below its previous historical record from 2008. The third 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 other credit unions, did not stop.
  • Homeowners and vehicle owners looking to refinance their loans as interest rates remain in historically record-low territory aided the inflow of some consumers becoming new members, as well as emergency loans offered throughout the COVID-19 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, although not quite as much as the prior quarter (second quarter) since by the third quarter much of these funds allocated by Congress were already depleted.

Total credit union lending in California and Nevada — having already reached record territory for several quarters on end — was starting to taper off in early 2020. But it got a kickstart in springtime due to COVID-19’s effect on lower interest rates (stimulating mortgage demand) and a surge in federal emergency lending to businesses (congressional PPP loan-grants). The third quarter of 2020 showed that:

  • 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 continued their descent even lower and homeowners refinanced into new mortgages with lower monthly interest expense. The positive impact of this one category cannot be overstated.
  • Business loan growth (includes landlord real estate loans) in many regions helped as PPP lending was facilitated to local business owners seeking payroll/employee cost relief, although not at the same pace as the prior quarter (second quarter).
  • The fact that used auto loan growth did not decline as much as other loan categories (depending on the region), or in some cases experienced zero percent change, also helped bolster and 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 to some buyers during the economic slowdown.
  • Three loan categories declined significantly as local/state government pandemic shutdowns and/or restrictions halted economic activity: home equity/HELOC, credit card, and new automobile lending.

Total credit union deposits in California and Nevada were already hitting record highs for many consecutive quarters going into mid-2020 due to new members joining credit unions and existing members increasing their savings. The third 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 percent. The impact deposits are having on declining loan-to-deposit ratios for all regions (loan-to-share) is significant, making the industry more liquid than before the pandemic.
  • This increase in consumer deposits came from less spending and more savings by many existing members and even new members, as well as federal monies received by workers who were suddenly unemployed and qualified for extended/continued unemployment insurance payments and additional emergency pandemic unemployment insurance payments. Additionally, many congressional stimulus funds deposited in the prior quarter (second quarter) were not completely spent as of late September 2020.

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