Capital and Other Key Measures Part 1

 

Capital and Other Key Measures

According to the Trends Report, the credit union industry’s average loan net charge-off rate fell to 0.26% in the fourth quarter, from 0.35% one year earlier.

“The loan charge-off rate is the lowest in over a generation and is below its ‘natural’ long-run rate of 0.5%. In other words, 50 cents of every $100 of credit union loans are normally charged off each year,” CUNA Mutual stated. “The charge-off rate is low due to credit union loan forbearance programs, stimulus checks, enhanced unemployment benefits and unemployment concentrated in low-wage service sector jobs. The charge-off rate typically exhibits a quarterly seasonal pattern whereby the loan charge-off rate rises by 0.05% in the fourth quarter and then declines over the next three quarters. That seasonal pattern may not happen this year due to abnormally low levels.”

Meanwhile, the Trends Report shows the credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.46% in February from the 0.52% reported one year earlier. A delinquency rate around 0.75% is considered the “natural delinquency rate,” or the rate due to idiosyncratic life events (divorce, large medical expense, job loss), not due to the business cycle.

Credit Unions & Members

Credit union membership growth slowed significantly during the first two months of 2022, adding 290,000 new memberships versus the 847,000 reported in the first two months of 2021, the Trends Report found.

It added that in percentage terms, credit union memberships rose 0.15% in February, 0.29% year-to-date, and 3.7% during the last 12 months. Memberships grew at a 3.4% seasonally adjusted annual rate in February, down from 3.8% in February 2021.

“The ending of the COVID-19 pandemic is expected to keep credit union membership growth over 3% during the next few years. Americans typically join credit unions to obtain credit. With loan growth expected to be 8% this year and 7% in 2023, membership growth is expected to remain around its long-run average of 3.5% in 2022 and 2023,” the Trends Report analysis states. “Americans also join credit unions when they obtain a job at a business with an associated credit union. With millions of Americans expected to gain jobs this year, this avenue of membership growth will be strong. And finally, the decline in membership growth in 2020 was due to a decline in indirect auto lending. New indirect auto lending is expected to rise again in 2022 and 2023, which will bring in new members.”