Asset quality is improving at credit unions as delinquency and charge-offs turn the corner in this post-recession economy. Further, stronger allowances and positive trends in the one-to-two month delinquency rate signify credit unions have less to fear from potential loan losses in 2010. According to Callahan & Associates’ FirstLook program, which includes data from 98% of the industry by assets as of March 31, 2010, the delinquency and net charge off rates fell 6 basis points – to 1.76% – and 2 basis points – to and 1.19% – respectively.
Decelerating delinquency and net charge-off rates through 2009 means the first quarter results are likely a turning point in asset quality rather than a one-quarter hiccup. Further, this quarter-over-quarter decline signifies a return to seasonal asset quality trends.
Credit Unions Return to Seasonal Asset Quality Trends*
* Quarterly change in delinquency and net charge-off rates expressed in basis points. Source: Callahan’s Peer-to-Peer Software
This seasonal trend disappeared as the country entered the recession, leading to seven consecutive quarters of delinquency growth and eleven quarters of growth for the net charge-off rate. The return to seasonal trends signifies a return to normalcy, perhaps the strongest sign of stabilization. The net charge-off rate typically jumps at year-end as credit unions clean their balance sheets for the New Year, leading to a first-quarter dip in delinquency.