Credit unions are becoming an increasingly important source of loans for small businesses, a development that’s particularly welcome to credit union executives vexed by the need to put massive flows of new deposits to profitable use. At the middle of this year, small business loans at the 15 credit unions headquartered in Nevada stood at $640 million, a 63 percent increase from a year earlier, reports the Nevada Credit Union League.
That figure, which includes commercial real estate loans to landlords, accounts for more than 18 percent of the loans on the books of the state’s credit unions, and it marks a nine-fold increase over the low-water mark of $68 million during the past 15 years. The growth in business lending extends across the state, the Credit Union League found.
In southern Nevada, the eight locally headquartered credit unions had $318 million in business loans on their books at the middle of this year. That’s a healthy 25 percent increase in the past year. But the growth in commercial lending in booming northern Nevada was nothing short of explosive — a one-year increase of 131 percent, bringing total commercial loan portfolios to $322 million at the region’s seven locally headquartered credit unions.
A significant part of the growth in northern Nevada was driven by Greater Nevada Credit Union, a $1.6 billion (assets) organization headquartered at Carson City. According to Wally Murray, president and chief executive officer of Greater Nevada, the credit union and its commercial lending unit, Greater Commercial Lending, spotted an opportunity to provide U.S. Small Business Administration’s Paycheck Protection Program (PPP) to small businesses.
In the early days of the pandemic, Greater Nevada became the largest credit union provider of PPP loans in the nation —9,100 loans totaling more than $737 million. It also was among the largest providers of USDA CARES Act loans, which delivered pandemic relief to businesses in rural markets.
Although the Paycheck Protection Program ended in May, it provided the credit union with reams of data about the unmet financial needs of small businesses and created relationships with small-business borrowers that are continuing as the pandemic winds down. At the same time that it created some new opportunities in commercial lending, the pandemic also demanded that credit union loan officers take a new look at some of their outstanding loans.
“We’ve had a reasonably good couple of years in the commercial real estate lending segment, despite some of the problems that current and prospective landlords have faced,” said Paul Parrish, president and CEO of One Nevada Credit Union, a $1 billion (assets) credit union headquartered in Las Vegas.
Now, as lenders better understand the long-term economic impacts of the pandemic, Parish indicated the credit union’s staff is taking greater care to understand how different types of commercial properties will fare in the new environment and the types of tenants they need to attract to stay successful. The growing importance of commercial lending also demands more extensive business-lending skills at credit unions.
One example is, although Clark County Credit Union has offered business banking services for more than 15 years, it has grown its portfolio of business and commercial loans — construction loans, real estate loans, lines of credit, equipment financing, business acquisitions — significantly in recent years. That, in turn, has demanded recruitment of staff members with commercial-lending skills to join the consumer-focused lenders of past years.
“Expanding into the commercial loan world requires the right type of expertise,” said Matt Kershaw, president and CEO of the Las Vegas-based Clark County Credit Union whose assets crossed the $1 billion threshold this year. “Hiring a solid group of employees with real experience, who understand the ins and outs of commercial lending, how to write covenants, how to negotiate pricing and loan terms and how to handle loans if situations change, has made all the difference.” Kershaw also noted that his team’s ability to offer quick turnarounds on business requests requires skilled, confident lending teams and is a point of pride for leadership at the credit union.
The growing ties between credit unions and businesses aren’t limited to lending and business checking accounts. Greater Nevada, for instance, partnered with the Nevada Mining Association to offer services and financial education tailored to meet the needs of the association’s members. Similarly customized programs are offered to first responders and educators.
Pandemic Drives Deposits
The growth in business lending is soaking up some of the huge growth in deposits since the start of the pandemic. In the past year alone, the Credit Union League said credit-union deposits grew by 20 percent, hitting a record $6.5 billion on June 30. To put that number into some context, it’s double the figure from 10 years ago.
“We have seen a flood of deposits come in as our members have shown discipline in saving much of the stimulus payments and reducing their spending at the same time,” said Kershaw.
Government stimulus payments drove massive deposit growth at One Nevada Credit Union, too. “We’ve grown about 30 percent in less than twelve months, and about 85 percent of those deposits are still sitting here,” Parrish said.
Even though those savings continue to pay exceptionally low interest rates, credit union executives still need to get them to work through income-generating loans, which they said has been tough.
Scott Arkills, president and CEO of Silver State Schools Credit Union, noted that homes and autos — two big-ticket items often financed by credit union loans — have been in short supply as the economy revives after the post-pandemic. Statewide, the Credit Union League reported new-car loans at credit unions fell by 7 percent in the past year, dipping to $377 million. That’s a level that hadn’t been seen since 2018 and reflects supply chain issues that beset the new-car business.
Credit-card lending, meanwhile, fell by 8 percent. The $69 million that credit union members had outstanding on their charge cards at the middle of this year was the lowest since 2014.
First mortgages showed some signs of growth — up 8 percent to a statewide total of $1.5 billion — even as potential buyers often were frustrated by short inventories of homes for sale. And now the hot residential market also shows signs of cooling, Parrish said. “It has forced us to diversify our business programs and expand our member offerings, which we view as a positive,” said Arkills.
Along with enhanced business-lending programs, his credit union has either launched, or substantially enhanced, cash-reward credit and debit cards, home equity loans and lines of credit. As consumers regain their footing in the post-pandemic economy, they’re subtly shifting their borrowing.
“The low-interest rate climate, that started pre-pandemic, created a high demand for consumers to refinance their assets,” said Murray. “While that is still the case, the trend over the last 12 months has shifted toward leveraging equity, by using products such as home equity lines of credit.”
Home equity loans — including home equity lines of credit — rose 16 percent in the past year to stand at $203 million at Nevada’s credit unions. According to the Credit Union League, that’s a figure that hadn’t been reached since 2012, even though it’s still well short of the $415 million in home equity loans on credit unions’ books in 2006, right before the housing market collapse at the start of the Great Recession.
Rapid Technological Adoption
While the pandemic sparked big changes in the savings-and-lending business of credit unions, longer-lasting changes may be reflected in the speed at which they are adopting new technology. At Clark County Credit Union, for instance, video banking was in the works before the arrival of COVID-19, said Kershaw, but the credit union put additional resources into making the technology available to loan officers and new account teams in all its branches. “The pandemic has made it even more clear that you can do business with the credit union anywhere you live, with the right technology in place,” he added.
“We have had to adapt,” Murray said. “While it has been sometimes a challenge to do so, it has also caused us to move forward in some very exciting ways.” Innovative uses of technology, for instance, create opportunities to serve traditionally under-banked groups such as low-income households or people with credit challenges who otherwise can’t find financial services tailored to their needs Murray added.
Technology also creates operational efficiencies, said Parrish. “Some of the automation we’ve implemented, along with our members’ increasing use of our electronic banking tools, has created some additional resource availability that we’ll be able to parlay into improved service for our membership,” he said.
In some instances, technology may help credit unions deal with the staff-recruitment challenges that face employers of all types across the nation. The labor market, Parrish said, changed, almost overnight.
Like other organizations, One Nevada now finds itself balancing employees’ expectations about working from home with its need to maintain its workplace culture.
Murray, however, sees opportunity in “The Great Resignation” that has seen millions of people decide to change careers after the pandemic. He mentioned Greater Nevada thinks it’s well-positioned — good income, good benefits, the opportunity to do meaningful work — to attract talented employees who are leaving jobs elsewhere.
Online Vs. Brick and Mortar
As credit union members increasingly handle their financial transactions online, the future of brick-and-mortar branch locations becomes a bigger issue.
Although Clark County Credit Union, for instance, doesn’t have plans for any new branches, Kershaw noted the brick-and-mortar branch office isn’t going away. He added that the extinction of branch offices has been predicted ever since the advent of the automated teller machine nearly five decades ago. However, credit union members still want face-to-face contact with their financial advisors. He expects that routine credit union services such as deposits will continue to move online, allowing employees in branch locations to deal with more complex financial questions and resolution of problems. “I don’t believe branches are going away any time in the near future,” he said.
Arkills also believes that the future of credit unions involves both online offerings and physical locations, and transactions in both segments have been increasing substantially at Silver State Credit Union. “We have some geographical areas of opportunity for future expansion that we would like to explore if the opportunity arises, but what Silver State Schools Credit Union really will look to do is to make its branches more efficient and effective,” said Arkills. “We will look to right-size the branches and utilize a mixture of technology and people to provide the very best service experience available to our members.”
About three quarters of the members of One Nevada Credit Union were active users of electronic banking services before the arrival of COVID-19, according to Parrish, He said the credit union already was shifting its strategy about physical locations before the pandemic. “Physical locations will continue to be important to us, but our branches have become more like technical support and financial wellbeing advice centers for our members instead of old factories that pump out high volumes of manual deposits and withdrawals,” he said.
Peaceful Regulatory Climate
The regulatory environment remains relatively calm, said Arkills, in large measure because federal lawmakers have been focused on the infrastructure bill. But, credit union officials are keeping a close eye on the changing leadership of the federal Consumer Financial Protection Bureau.
“There are indications that the agency will likely be looking to become more activist in the near future,” said Murray.
The federal agency generally targets very large financial institutions, but its rules frequently sweep up community-based institutions as well. Even though credit unions increasingly offer services and customer technology similar to those of commercial banks, their not-for-profit status as member-owned financial cooperative continues to put them in a different target group. “Even though we may look just like a bank, our mission and how we go about realizing our mission’s objectives continue to be quite different from a bank,” said Parrish.
