Third quarter data indicate overall stabilizing asset quality, in contrast to FDIC-insured institutions. Reportable delinquency for the credit union industry (loans more than 60 days late) increased 10 basis points from June to September of this year. FDIC-insured institutions posted a 59 basis point increase during the same period. Additionally, delinquency in particular segments significantly slowed. There was no reported increase in indirect loan delinquency, for example, as the rate remained constant at 1.39 percent from the second to the third quarter of this year.
Card Delinquency and Charge-offs by Peer Group Reflect Differing Strategies
One-to-two month delinquency closely follows reportable delinquency across peer groups. This is expected in the card portfolio, as the turnaround and collection time is shorter than for larger loan amounts. Credit cards historically have the highest charge-off rates due to, on average, lower average delinquent balances compared to the cost of continued collection against the account.
The number of delinquent loans, a new data field in the third quarter 5300 call report, allows for the calculation of average delinquent balances. Delinquent accounts have an expected higher average balance than the total card portfolio balance. As of September 30, 2009, the average balance of a card account more than 60 days delinquent was $5,301, roughly twice the average credit card balance of $2,615.
Credit unions with more than $250 million in assets are more aggressive in charging off delinquent accounts than credit unions under $250 million in assets. Mortgage delinquency increased at a faster rate than credit card delinquency, so credit unions with larger mortgage portfolios may have been focusing on members' overall debt load and modifying mortgages.
Quarterly Change in Card Delinquency and Charge-offs Indicate Stabilization Across Most Peer Groups
When compared by credit union peer group, credit card asset quality significantly changed this quarter. Credit unions in the $50M - $100M peer group reported no increase in delinquency for credit cards, yet the charge-off rate dropped by 45 basis points. The $500M - $1B group delinquency rate dropped by 36 basis points, but the credit unions in that group were more aggressive in charging off delinquent accounts. When totaled, reportable card delinquency slightly increased in the United States while charge-offs slightly decreased.
As we move through the holiday season and into the first quarter, credit unions might again see increases in card delinquency. Yet the impetus would be holiday spending rather than unexpected unemployment, a near novel concept after the past two years. Same-store sales reported an annual 2.6 percent increase in the week ended December 5. With the New Year, credit unions with liquidity might encourage members to transfer balances from high-rate cards. In the post-CARD act environment, with national lenders increasing rates, slashing credit lines and increasing fees prior to final implementation dates, credit unions maintain a competitive advantage in offering fixed-rate, low-fee credit cards.
Sources: Callahan & Associates Peer 2.0 Software, FDIC's Quarterly Banking Profile