A few weeks ago, we covered the ongoing decline in the provision for loan losses, a factor boosting many credit unions’ bottom lines. Those gains, though, are reliant on improving asset quality, which has continued through the second quarter. With roughly 6,200 credit unions having reported second quarter data, both the delinquency and net charge-off ratios posted strong improvements from the first quarter to the second quarter.
Delinquency for these FirstLook credit unions fell to 1.58%, down 4 basis points from the March rate of 1.62% and 10 basis points from the year prior rate of 1.68%. So far, credit unions posted stronger improvements in charge-offs as the net charge-off ratio fell 5 basis points since the first quarter and 19 basis points from a year prior to 0.93%.
First mortgages continue to be the largest component of the delinquent loan portfolio, comprising 57.0% of all outstanding delinquent loans. This is an increase from March levels of 55.3%. The increase in composition was due to the overall shrinking of delinquent loans, rather than an increase in the delinquency rate. One key reason for the sustained higher rate of delinquency in first mortgages is credit unions’ willingness to modify members’ mortgages. The first mortgage delinquency rate did decline slightly to 2.19% from 2.21% in March. These FirstLook credit unions hold $7.9 billion in modified first mortgage loans.
All other loan categories posted declines in their respective delinquency rates, with credit cards noting the largest decline, being down 16 basis points to 1.20%. Indirect loans posted the lowest delinquency rate, one under 1.0%, coming in at 0.89%.