NCUA's Harper Concerned by Recent Drops in Auto Loans & Savings
Credit unions remain ‘resilient’ overall, but conditions are worsening for some.
NCUA Chairman Todd Harper said Thursday he is concerned about deteriorating loan quality and low originations, especially for autos, but said some improvement in these areas for credit unions could be expected if the Feds lower interest rates.
Harper and other NCUA executives spoke with reporters Thursday with the NCUA’s release of its full set of second-quarter data and summary report.
As reported earlier, net income was $4.1 billion in the three months ending June 30, or an annualized return of 0.71% of average assets, down from 0.77% a year earlier and up from 0.66% in the previous quarter.
Like the first quarter, earnings were held back by high charges for expected loan losses, but they were boosted as net interest margins rose from 3.00% in the first quarter to 3.06% in the second quarter, based on NCUA data pulled from Callahan’s Peer Suite.
But Harper said the results aren’t even, and conditions are worsening at some credit unions.
“The overall credit union system remains largely stable in its performance and is proving to be relatively resilient against potential economic disruptions,” Harper said. “However, we are seeing growing signs of concern in loan performance, capital, and earnings across the system and at specific institutions.”
Harper cited:
- Slow savings growth. Insured shares and deposits were $1.76 trillion on June 30, up just 2.1% from a year earlier. Moreover, savings fell 0.6% from March 31 to June 30 — the when historical and seasonal trends would have predicted growth of 0.7%. The drop in insured shares was the biggest three-month drop since the third quarter of 2013.
- A steady rise in delinquencies. The 60-day-plus delinquency rate was 0.84% on June 30, up from 0.63% a year earlier and 0.78% on March 31. “In fact, the delinquency rate is the highest since 2014, one decade ago,” Harper said.
- Slow loan growth. Credit unions held $1.62 trillion in loans on June 30, up 3.6% from a year earlier. “But quarterly loan growth was much lower than what should be expected based on historic data trends,” he said.
- Auto lending that “continues to significantly underperform.” The balance was $490.1 billion on June 30, which has fallen steadily each quarter since 2023’s second quarter and is now down 1.5% from a year ago. “These back-to-back quarterly declines were the first since 2011.”
“Moreover, auto loan delinquencies are up by 16 basis points year-over-year to 83 basis points,” he said. “We must watch this trend closely.”
Harper said the results reflect members in different situations. Some are doing well and chasing high-interest term savings, which is driving up credit union interest costs. Others have seen their household budgets shrink in recent years as they burned off pandemic-era cash. Some earned higher credit scores during the pandemic, allowing them to borrow money they are now having more trouble paying back.
“Rising balances on secondary home loans, credit cards, and payday alternative loans are all signs of household financial stress,” Harper stated.
If the Fed begins cutting interest rates this year, as expected, Harper said it would benefit many of these members by making loans more affordable and revive the moribund mortgage refinance market.
“And credit unions will increases their lending, which is a good thing,” he said.
Kelly Lay, NCUA’s director of examination and insurance, said credit unions will be slow to recover on savings costs because of the relatively high proportion now in certificates and other longer-term accounts.
And Chief Economist Andy Leventis said refinancings will also mean credit union loan yields will fall.
“We’ve got an interesting period ahead if rates do decline as they’re expected to,” Leventis said.