Loans at our nation’s federally-insured credit unions grew by $194 billion (or 16.2%) over the 12 month period ending June 30, 2022. That marks the largest increase in at least 20 years.
Provisions for potential losses on those were bolstered by 154%. That seems curious since the delinquency rate rose by just 2 basis points and is still quite low at 0.48%. But there is a reason. Two reasons, in fact.
The first is that credit unions were overly optimistic a year ago. Year-to -date provisions at June 30, 2021 were 86% lower than at the same time in 2020. You’ve heard of “too little, too late”; this was “too much, too soon”. A correction was in order.
Add to that the fact that, like banks, early delinquencies (loans between two and six months in arrears) have increased by 43.6% since last June. Also, similar to banks, longer term delinquencies were down. Loans six to twelve months past due were down by 10.6% and those more than 12 months past due were down, 17% in this case. The spike in short term delinquencies overshadows those improvements though, as it is a foreshadow of things to come.
The $194 billion increase in loans propelled total assets up 8.1% ($159 billion) over a year ago. Investments aided the growth, rising 7% ($30 billion). However, because of a change in reporting instructions, cash was down $74 billion, almost 28% from a year ago. This may look bad, but it’s not. Until last quarter, “cash” included investments that were maturing within three months of the reporting period. Now cash means cash (either cash on hand or cash on deposit), nothing more.
We are concerned about the rise in credit card delinquencies—from 77 basis points a year ago to 1.07% now. Delinquent auto loans posted a small increase as well (14 basis points) but are still just 0.45%.
The number of federally-insured credit unions dropped to 4,853 at June 30th (from 5,029 a year ago). The number with low-income designations also declined—from 2,649 to 2,620. While there may be fewer, they are beefier, adding 5.4 million members and $140 billion (8.1%) in shares/deposits during the 12 month period. Although, insured shares rose by just $110 billion (7%). That’s $30 billion uninsured! Hmm.
We know there are a number of circumstances that can put a person over the insured deposit limit at a bank or credit union (sale of a house or other asset, legal settlements or lump sum payouts of any kind) but we encourage our readers to avoid it if at all possible. If you can’t avoid it altogether, then minimize the amount of time you have uninsured funds. The amount of time it takes to redistribute is well worth the peace of mind it can bring.
But, speaking of beefing up, the 55 federally-insured credit unions listed on page 7 each experienced at least 25% growth (year-over-year) in assets based on June 30, 2022 financial data. To eliminate de novos, each was established prior to 2013 and has at least $1.5 million in total assets.
There are now 412 federally-insured credit unions with assets exceeding $1 billion; that’s up from 392 a year ago. These credit unions reported loan growth of 19.6% and membership growth of 8% over the year. Seven of these credit unions can be found on page 7, including 5-Star Pentagon FCU, McLean, VA. Also known as PenFed, this credit union is second in size only to 5-Star Navy FCU, Vienna, VA.
PenFed’s growth has been aided by acquisitions in recent years. However, the two “rescues” it made in the most recent 12 months hardly qualify. It’s most recent acquisition was that of 1-Star NMA FCU, Virginia Beach, VA on February 1, 2022. This “undercapitalized” credit union added about $63.5 million in assets and 7,700 new members.
Prior to that, on July 1, 2021 Defense Logistics FCU, Picatinny Arsen, NJ failed and was taken over by regulators. Pentagon Federal received a portion of the $446,000 that was left in assets at the failed credit union. After the addition of its 200 members, we think it is safe to say that the majority of PenFed’s growth, at least in the past year, has been organic in nature.
Credit Unions with assets between $100 million and $1 billion also reported asset and membership growth. Those with assets less than $100 million reported declines in both. That makes the accomplishment of the 25 page 7 credit unions that have less than $100 million in assets even more impressive.
For more information, all credit union and bank star-ratings and reports are now available with second quarter 2022 financial data. Simply visit www.bauerfinancial.com.