Cash Cow: Bank, credit union deposits explode up to 48%

Early last spring, TBA Credit Union was averaging about $65,000 a month in deposits from unemployment benefits.

Between April and August, that number jumped to $3 million a month as thousands of newly laid-off people deposited their jobless benefits.

Overall, TBA deposits are up 20% as of September.

“We’ve had growth like we’ve never had in the past,” said TBA Credit Union President and Chief Executive Officer Karen Browne.

TBA is far from alone. Credit unions and banks throughout the region have seen an explosion of business and consumer deposits, with much of the increase a result of federal stimulus payments, enhanced unemployment benefits and other coronavirus pandemic-related factors.

And they expect deposit growth to continue as consumers and businesses conserve cash in an increasingly uncertain economy.

“It’s in part a flight to safety because of the COVID pandemic,” said Norm Plumstead, president and CEO of Honor Bank.

Deposits at commercial banks operating in Grand Traverse County jumped from $2.4 billion as of June 30 last year to $3.1 billion on the same date this year, according to a Federal Deposit Insurance Corp. report — a 29% increase.

Deposit growth at local banks had been essentially flat over the past several years.

The National Credit Union Administration, which insures credit union deposits, does not publish a similar report.

Financial institution deposits here mirror a national trend. U.S. consumers saved 33.6% of their disposable income in April, the highest rate in at least 60 years, according to the St. Louis Federal Reserve.

That rate has since fallen to 14.3% in September, but it’s still higher than at any time since May 1975 when the economy was emerging from a deep recession.

“People just saved the money. I think nobody knew what was going to happen this spring,” said Scot Zimmerman, community president at TCF Bank in Traverse City.

Deposits in Grand Traverse County at TCF grew from $492 million in 2019 to $540.5 this year, a 10 percent increase.

“From a consumer perspective, people weren’t eating out as much, taking vacations or getting haircuts. After a few months of these behaviors, cash balances grew,” said Autumn Gillow, vice president of commercial banking at local market leader Fifth Third Bank in Traverse City.

Fifth Third also saw business deposits rise as companies reduced capital expenditures and spent less on replenishing inventories, she said.

The bank’s deposits in Grand Traverse County grew from $547.2 million in 2019 to $810.1 million this year as of June 30, a 48% jump.

Consumer deposit accounts at local banks and credit unions swelled as the federal government pumped $2 trillion into the U.S. economy through the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Most Americans received $1,200 stimulus checks under the CARES Act. Workers who lost their jobs had their state unemployment benefits federally supplemented by $600 a week through the end of July. That money was deposited directly into consumer bank and credit union accounts.

In addition, more than $275 million was pumped into businesses in the Grand Traverse region earlier this year through the federal Paycheck Protection Program, which offered loan forgiveness to companies that kept workers on payrolls. Some of the increase in deposits was a result of businesses at least temporarily banking a portion of those loans.

“Those funds are in some cases parked in accounts waiting for forgiveness,” Plumstead said.

In spite of skyrocketing jobless rates over the summer, many consumers in jobs that allowed them to work from home were largely untouched financially by the pandemic and willing to take on debt.

“We saw record loan numbers in June and July,” said Andy Kempf, president and CEO of 4Front Credit Union. “It’s tapered off a bit, but it’s still high.”

Kempf said 4Front issued a lot of what he called “toy loans” for boats, motor homes and off-road vehicles purchased by consumers anxious to roam after spending much of the spring locked down in their homes.

4Front attracted more than $150 million in new deposits this year to fund those loans. Its deposits rose from $483 million at the end of 2019 to $635 million on Oct. 31, a 31% increase.

“It’s been a phenomenal deposit year,” Kempf said.

Independent Bank in Traverse City saw a similar demand for indirect consumer loans to boat and RV dealers.

“Boats and motor homes — these are items we saw sitting on lots for a long time. All of a sudden in June and July the inventory is gone,” said Tom Ranville, Independent’s Traverse City market president.

Many vehicle and boat manufacturers were shut down during the early months of the coronavirus pandemic and have been struggling to restore full production. Dealers have been unable to adequately replace inventory and, as a result, are “sitting on cash,” Ranville said.

Independent Bank boosted deposits in Grand Traverse County from $186.3 million in 2019 to $220.9 million as of June 30, a 19% increase.

Ranville said some of that increase was a result of his bank capturing new business customers with cash management tools that the former Traverse City State Bank, which Independent acquired in 2018, lacked.

Dan Druskovich, regional president at Benzie County-based State Savings Bank, said his institution also has won new deposit and loan customers since the 2018 opening of a full-service branch in Traverse City. The bank’s treasury management team, headed since September 2019 by Molly VanderHorn, also has brought in large-dollar deposits from businesses and municipalities, he said.

State Savings Bank’s deposits in Grand Traverse County have nearly doubled, from $15.9 million in 2019 to $31.1 million this year.

Despite the worst public health crisis in a century, bank and credit union leaders say the local economy has held up surprisingly well.

“When Gov. (Gretchen) Whitmer allowed travel here in the late spring, that really gave a boost to our local economy,” Plumstead said.

But he and others remain cautious, largely because of uncertainty over COVID. A CARES Act provision that extended unemployment benefits eligibility from 26 to 39 weeks ends on Dec. 31.

Many economists and the Federal Reserve say Congress needs to pass another stimulus program to keep the economy from falling into a lengthy recession.

Such a program would continue to boost bank and credit union deposits. But some local bankers and credit union leaders are planning for a potentially weaker economy in 2021, mainly because of uncertainties related to the pandemic.

“That’s what scares me the most,” Ranville said. “There’s just no crystal ball for that.”