Credit unions improved their asset quality in the second quarter but also remained diligent in reserving against future losses. According to FirstLook data in Callahan & Associates’ Peer-to-Peer software, industry delinquency and net charges-offs declined for the second quarter in a row. Delinquency dropped another three basis points to 1.73% at the end of June; net charge-offs declined two basis points to 1.16%.
At the same time, the coverage ratio, or the measure of the allowance account to total reportable delinquency, increased. It is up 352 basis points since March 30 and up an incredible 972 basis points since year end. As of June 30, the industry’s coverage ratio stands at 93.74%, meaning the industry has collectively reserved enough to cover almost 94 cents on the dollar for every loan currently delinquent.
But this recession has not affected all regions of the country to the same degree. How are credit unions faring in different areas of the United States? Download a table showing the same three data points discussed above for all 50 states and the District of Columbia. See the snapshot below.
In summary, 12 states, including California and Nevada, have a coverage ratio of greater than 100% at June 30 and 44 states and the District of Columbia increased their coverage ratio since year-end 2009. Delinquency fell in 37 states and DC, and the net charge-off ratio declined in 33 states.
As the economy continues to improve, credit unions might start to reassess their provision expense. Large banks including JP Morgan and Bank of America are already releasing billions of dollars from their allowance account. Is it time for credit unions to step down their provision expense?