WASHINGTON–In remarks to credit union leaders gathered here, NCUA Chairman Todd Harper reviewed what he said deserves attention in the latest credit union data, while NCUA Board Member Rodney Hood took a longer-term view based on his tenure with the agency.
Speaking to NAFCU’s Congressional Caucus, Harper touched on the release last week of credit union performance data for the second quarter of 2023, which CUToday.info reported here and here, reiterating his views the numbers are good but the view is “cautious.”
“For example, the industry’s aggregate net worth ratio grew to 10.63%, which represents an increase of 21 basis points over last year, and a recovery of 61 basis points from the pandemic’s low,” Harper said. “And, at the end of the second quarter, we recorded a 12.6% year-over-year increase in the number of credit union loans. While that figure lags slightly behind what we observed during the previous four quarters, it indicates a continuing trend of healthy loan growth.
A Billion-Dollar Trend
Harper told the meeting another upward trend that shows no signs of slowing down is the number and size of large and very large credit unions, with Q2 data showing 421 CUs of more than $1 billion in assets. All told, those CUs have $1.7 trillion in assets, or more than three out of every four dollars within the system.
The “warning signs” in the data, said Harper, include an economic slowdown and “growing stress within the system because of interest rate and liquidity risk, as well as “growing signs of credit risk emerging, especially in the commercial real estate market and among families with increasingly stressed household budgets.”
Rising Delinquencies
In addition, the Q2 data show rising delinquency rates for various loan types, including auto loans and credit cards. The delinquency rate at federally insured credit unions was 63 basis points in the second quarter of 2023, up 15 basis points compared with the second quarter of 2022, Harper said, also pointing to growing charge-offs.
Tale of Two Takeaways
“So, what should we make of this good news-bad news picture of the second quarter data?” Harper asked. “For me, the biggest takeaway is that we are seeing the tale of two types of credit union members, both of which represent risks that credit unions must manage. The first type are the savers who have shifted deposits to share certificates to take advantage of better rates, which can expose credit unions to greater interest rate and liquidity risks. And the second type are the members with growing financial stress, many of whom are on the wrong side of the higher delinquency rates in credit cards and auto loans. With this rising household financial strain, credit unions must carefully manage their credit risks going forward and consider early intervention to prevent a delinquency from becoming a charge-off.”
Harper urged CUs to “remain prudent and proactive in managing interest rate risk and the related risks to capital, asset quality, earnings, and liquidity.”
Hood: The Longer-Term Perspective
Meanwhile, in his remarks to Congressional Caucus, NCUA Board Member Rodney Hood,
who has served two terms on the NCUA board, including as chairman, and whose term is currently expired, said his career has given him an “unusually broad perspective on the state of the industry.”
He reflected that in 2008, when Hood was vice chairman, the global financial crisis was underway, and that today when he hears from people expressing concerns about the uncertainty of the economic outlook, he is reminded that the good news is “that while we may see some turbulence, we’re on much steadier ground today.”
“Moreover, that previous experience on the Board showed me how remarkably resilient our credit union system can be when faced with a historic challenge, Hood told the meeting. “That’s a fact I’ve seen illustrated repeatedly – especially in the 2008 crisis, and again during the 2020 pandemic emergency – when credit unions have stood up to a challenge and emerged standing strong, with the safety and soundness of the system intact. So, I have a great deal of confidence in the credit union system’s ability to endure any stresses that come your way.”
‘Share Your Stories’
Hood urged credit unions to “share your stories” while in meetings on Capitol Hill.
“From my own perspective, as a member of the NCUA Board, I spend virtually all of my time focusing on industry issues: weighing potential regulatory actions, studying economic data, examining trends in financial services, and so forth,” he said. “And yet some of the most compelling data I receive are the stories I hear from the people working out in the field – people just like you -- when I travel around the country to meet with credit union leaders, or attend an industry association conference, or talk to credit union members about the difference your institutions have made in their lives.”
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