Post-pandemic changes in consumer spending habits and the use of nontraditional banking options may be to blame for a decline in deposits at some financial institutions, industry leaders here say.

“We have seen a decline in deposits and a gain in lending,” says Charlotte Nemec, president and CEO at Spokane-based Canopy Credit Union. “That’s a little different than what we thought we’d be dealing with back in October of last year. I would’ve never thought I would be searching for deposits at this point.”

From September 2022 through June 2023, Canopy has had a net decline of $4 million in deposits and a net increase of $19 million in loans, Nemec says.

“We’re just really trying to keep an eye on trying to figure out where (our members) are taking the money to,” Nemec says. “Are they pulling out? Are they just spending it? Or are they taking it to another financial institution—are they chasing rates?”

Nemec speculates that people are spending more money and depositing less into banks and credit unions.

“I think a big part of the outflow of our deposits is people either spending a lot more money because of inflation, or they’re spending the excess that they had saved because of COVID,” she says.

Consumers were able to save more money during the pandemic, which caused an increase in deposits in 2020 and 2021, Nemec says.

“They weren’t going anyplace, they didn’t have anything to spend money on, a lot of people still worked,” Nemec says. “For me, I didn’t have the expensive gas, I didn’t have to keep up with a wardrobe of any sort. … People had put a lot of money away and you saw that we had an influx in deposits during that time.”

Canopy isn’t the only financial institution experiencing a decline in deposits, Nemec contends. She says the large outflow of deposits is more widespread than just the Spokane area.

“We’re not alone, and I do think it’s happening nationally,” Nemec says.

Although Spokane Valley-based Numerica Credit Union’s total shares and deposits have grown from September 2022 through June 2023, according to NCUA data, Travis Simpson, chief retail and digital officer at Numerica, says he has noticed other institutions experiencing a decline in deposits.

“I think industrywide there’s been a reduction in deposits,” Simpson says. “Over the past few years, there was quite a bit of stimulus money in the market, and that caused some increase in deposits across different financial organizations. Now, just as we expected, that influx is slowing down.”

Most organizations have now seen some signs of stability regarding that trend, Simpson says.

Nontraditional banking options also may be to blame for the downturn, Nemec says. Tech giant Apple offers some banking services now, and Nemec says some people keep their money in their Venmo accounts, rather than depositing it at a traditional bank or credit union.

“Sometimes you just can’t compete,” Nemec says. “I can’t compete with a fintech that is offering a 7% rate on a checking account, for example.”

Financial technology companies often are able to offer higher return rates because they don’t have the overhead expenses that traditional banks and credit unions have, Nemec says.

Mike Wilson, CEO at Spokane-based RiverBank, says decreases in deposits can have a negative impact on customers who are seeking loans.

“As interest rates have gone up, some people have moved money out of local banks into money market mutual funds or treasuries to get paid a certain interest rate,” Wilson says. “Local and regional banks are really the financial institutions that lend money to individuals and companies in our area that are looking to invest in their companies, to buy real estate, to buy other businesses, to purchase inventory.”

A lack of deposits can place limitations on a financial institution’s lending operations, he says.

“When deposits leave the local banking system, it tightens up which loans will be considered by local banks, and it can cause banks to focus more on deposit efforts than the lending side,” Wilson says.

RiverBank has experienced a rise in deposits recently, though Wilson says he has seen other institutions rein in their lending appetite due to the deposit environment.

Despite Canopy’s loans increasing from September 2022 through June 2023, Nemec says there has been a decrease in loan demand in the second quarter this year, compared with the first quarter. She says she expects that demand to taper off, especially if the Federal Reserve raises rates again.

Nemec doesn’t expect Canopy will have to cut back on lending at any point due to the recent decrease in deposits, she says.

To combat the declining deposit numbers and compete in the market, Canopy has implemented specials on term shares—which Nemec refers to as certificate of deposit, or CD, accounts, because more people are familiar with that language—and increased the rates on checking accounts, Nemec says.

“We have a six-month CD at 5% and a checking account that’s paying 4%, so we’re trying to be competitive,” she says.

Canopy also has an 18-month term-share special, she says.

Despite the deposit woes carrying into this year, Canopy did have an increase in deposits for the month of July, Nemec says. She credits the term share specials and checking account rates for that increase last month.

In addition to offering specials to bring in more deposits, Nemec says Canopy has to show members the value of being part of a local credit union, which she says offers high levels of support and service, as well as financial education.

“I would love to see people keep their money here in our local institutions rather than putting it into the Apples and Amazons of the world,” Nemec says.