Delinquencies and charge-offs both jumped significantly for credit unions in the second quarter as households wrestled with the increasing cost of living.
The delinquency rate at federally insured credit unions was 63 basis points in the second quarter, up 15 basis points, or 31%, compared with the second quarter of 2022, according to data compiled by the National Credit Union Administration.
Two consumer lending lines seem especially problematic.
The credit card delinquency rate rose to 154 basis points from 107 basis points one year earlier, and the auto loan delinquency rate increased 22 basis points over the year to 67 basis points in the second quarter.
"Unsecured consumer loans and credit cards have shown the biggest impact for us thus far," said Chris Smith, chief financial officer of
The $387 million-asset credit union had $3 million in loans that were 30 to 59 days delinquent on its books at the end of the second quarter, a 2% increase compared to a year earlier, according to call report data.
More troubling for Land of Lincoln are charge-offs, which were up 111% year over year in the quarter to nearly $798,000.
Smith said charge-offs, especially related to unsecured loans, remain a focus in the credit union's weekly asset-liability committee meetings and monthly special asset committee meetings.
"[We] connect with our borrowers at the first sign of slow payment activity," Smith said. "The impact of higher interest rates on consumer loans is challenging many families. Our team is what helps to keep our delinquencies manageable."
Across the industry, the net charge-off ratio for all federally insured credit unions was 53 basis points in the second quarter of 2023, up 24 basis points compared with the same period a year earlier, according to the recently released
Banks are facing similar challenges. Loan
Gerber Federal Credit Union in Fremont, Michigan, had $437,000 in loans that were 30 to 59 days delinquent on its books at the end of the second quarter, a 6% increase compared with a year earlier, according to call report data.
The $229 million-asset credit union also saw loan charge-offs climb 87% year over year to nearly $195,000.
John Buckley Jr., Gerber's president and CEO, said credit card balances have risen of late because members are not paying down their cards as quickly.
The increase in delinquencies and higher card balances are both related, Buckley said, as member savings have dried up from the COVID-19 stimulus days and inflation has made everything more expensive.
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Smith from Land of Lincoln said the credit union has more than 40 certified financial counselors on staff and provides free financial counseling in all of its markets, to members and to the community-at-large.
He said part of the rise in charge-offs can be attributed to a return to normal.
"During COVID, charge-offs were at historical lows across the industry. Today our charge-off rates are comparable to calendar year 2019. It is our belief that the 111% increase reflects the normalization of charge-off activity, which we are seeing across the industry."
During the NCUA's September board meeting, Chairman Todd Harper said the agency is seeing rising levels of risk within the system.
"We also see signs of emerging credit risk, especially among families with increasingly stressed household budgets and the post-pandemic uncertainties in the commercial real estate market. These risks are playing out in rising delinquency rates for various loan types, including auto loans and credit cards," Harper said.
