Credit card charge-offs were elevated in the third quarter of 2023 for the largest credit unions in the country — in some cases significantly — as consumers struggled with rising inflation and evaporating savings.
The top 10 largest credit unions in the U.S. by assets all saw a year-over-year
In many cases the increase was substantial.
For example, $168.4 billion-asset
The NCUA will release its comprehensive quarterly data for the entire industry in mid December.
Credit card charge-offs for the $17.1 billion
"Our members are facing inflationary and economic pressures and the increase in charge-offs is reflective of this environment," Johnson said. "Members will see relief as economic stressors begin to improve in 2024."
As that occurs, Suncoast's losses will ease, Johnson said.
Elevated charge-offs are simply a "sign of the times," said Tim Scholten, founder and president of the credit union and community bank consultancy Visible Progress.
Inflation has eaten through consumers' budgets, and the problems have been exacerbated by increased interest rates and larger minimum payments, he said.
"It shouldn't be a surprise," Scholten said. "I have seen many organizations planning for this scenario."
And even more consumers could begin to struggle, due to ongoing layoffs in financial services and other sectors, Scholten said. For example,
"My opinion is that we are in the early stages of a trend leading us into 2024," Scholten said. "It appears that earnings will be further challenged in the quarters ahead with pressure on deposit rates continuing."
Some smaller credit unions have been able to avoid a huge uptick in charge-offs by keeping a close eye on the credit-score composition in their portfolios.
That has been a huge factor for Nutmeg State Financial Credit Union in Rocky Hill, Connecticut, said President and CEO John Holt.
The $566 million-asset credit union had $242,000 in charge-offs through the third quarter compared to $238,000 a year earlier.
"We've seen a decline in the average credit card balance for members with higher credit scores, while balances increased for members with lower credit scores," Holt said. "Nutmeg manages risk by approving smaller limits for those with fragile or insufficient credit, keeping the monthly payment manageable."
If a member needs help to make their monthly payment, Nutmeg contacts them early and often to work with them and find a solution, he said.
Holt added that it is typical to see more challenges to credit quality in the fourth quarter; as more people turn to credit cards for purchases, charge-offs will likely increase.
"Our credit policy will impact how large of an issue it may become," Holt said.
Vincent Hui, managing director at Cornerstone Advisors, agreed with the prediction credit delinquencies will continue to rise before leveling off as many economists
At the same time, many consumers have drawn down their savings, which means that they have less cushion on spending.
"Credit cards are usually one of the first consumer credits to be impacted, before auto loans and mortgages," Hui said. "I would expect charge-offs to rise, but it's unclear how much. A lot will depend on unemployment and economic conditions."
