NEW YORK–The net charge-off ratio at the nation’s 20 largest credit unions has surged to a decade high, according to a new analysis from S&P Global Market Intelligence.
“U.S. credit unions are grappling with a rapidly rising level of problem loans, in a similar fashion to their banking brethren,” the company said in a new report. “In contrast to banks, however, the credit union industry reported slower loan growth in the fourth quarter of 2023.”
The Findings
Among the key findings in the S&P Global analysis of the 20 largest credit unions:
- The net charge-off (NCO) ratio for credit unions was 0.77% in the fourth quarter of 2023, 16 basis points higher sequentially and representing the peak since the first quarter of 2012. “The majority of the $670.9 million quarterly jump in NCOs was from used vehicles and unsecured credit cards,” S&P Global said. “NCOs for used vehicles were up 36.1%, or $219.4 million. Unsecured credit card NCOs increased 30.5%, or $222.7 million.”
- Among the 20 largest credit unions by total assets at year-end 2023, Tysons, Va.-based Pentagon FCU had the highest ratio of NCOs to average loans of 3.19%, as well as the highest quarter-over-quarter increase of 72 basis points. The used vehicle segment fueled the increase at PenFed, the company said.
- Even with escalating NCOs, credit unions reported a spike in loans that are delinquent for at least 60 days. The delinquent loan ratio was 0.83%, as of Dec. 31, 2023, up 11 basis points from the previous quarter and representing a tie for the highest ratio in the last nine years. Used vehicle loans comprised 27.2% of total delinquent loans and were responsible for 23.4% of the quarterly increase.
- In the top-20 group, Raleigh, N.C.-based State Employees CU had the highest delinquency ratio at 2.25%. North Liberty, Iowa-based GreenState CU experienced the most dramatic increase, at 55 basis points, the company said.
A Different Metric
“Another metric to monitor is loans that are delinquent for one to two months, which is not part of the delinquency ratio calculation,” S&P Global stated. “That balance ramped up 42.8% quarter over quarter to $17.63 billion at the end of 2023. Used vehicle loans represented about one-third of those earliest-stage delinquencies.”
Balance Sheet Changes
When looking to the overall credit union balance sheet, S&P Global reported:
- Total loans and leases across the industry rose just 0.8% from Sept. 30, 2023, which was the most diminutive growth rate since the first quarter of 2021.
- Used vehicle loans declined 0.5%, ending a streak of 50 consecutive quarterly increases.
- Credit unions also cut their balances of new vehicle loans by 0.7%, discontinuing a 10-quarter upward trend. Areas of growth included junior-lien one- to four-family, member business and credit card.
Market Growth
According to the new report, a “handful of the largest credit unions, led by Tukwila, Wash.-based Boeing Employees' CU (BECU) attained more than 2% loan growth. BECU trimmed its used vehicle lending portfolio while adding to its book of one- to four-family real estate loans, S&P Global stated.
“On the other hand, loans at GreenState were down 3.3% quarter over quarter,” according to S&P Global. “The credit union slashed its balances for used vehicle loans and new vehicle loans 14.3% and 10.2%, respectively.”
In addition, the new analysis found that following two quarters of contraction, credit union total shares and deposits were up 0.3% in the fourth quarter of 2023.
The growth was from share certificates with a maturity of less than one year going up 15.4% to $385.11 billion, the report noted.
Loan-to-Share Ratios
“Despite reporting 3.6% deposit growth, GreenState and San Jose, Calif.-based First Technology FCU still have relatively high ratios of loans to deposits: 105% for the former and 98% for the latter. The industry aggregate was 85% at Dec. 31, 2023,” S&P Global stated. “San Diego County CU was at the other end of the spectrum. The San Diego-based institution decreased its deposits by 3.3% quarter over quarter, but its loans-to-deposits ratio of 72% was the lowest among the 20 largest credit unions.”
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