Credit quality metrics worsened in the third quarter across U.S. credit unions, with net charge-off and delinquent loan ratios on the rise, according to S&P Global Market Intelligence data.

Credit quality deterioration

NCOs as a percentage of average loans increased for the fourth-straight quarter. The NCO ratio was 0.34% in the third quarter, up 5 basis points from the previous quarter and representing the highest level since the fourth quarter of 2020. Despite the recent upturn, the NCO ratio still is well below the 15-year high of 1.32% set in the final quarter of 2009.

The ratio of delinquent loans to total loans was 0.53% at Sept. 30, up 5 basis points from June 30 and up 11 basis points from March 31. The 15-year peak is 1.83% at the end of 2009.

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Most of the largest credit unions reported higher NCOs and delinquencies in the third quarter. Vienna, Va.-based Navy FCU, which has three times more assets than any other credit union, experienced some credit quality deterioration. Its NCO ratio was up 5 basis points, while its delinquency ratio increased 14 basis points. The third-largest credit union by total assets, Tysons, Va.-based Pentagon FCU, saw its NCO and delinquency ratios increase by 14 bps and 20 bps, respectively.

San Antonio-based Security Service FCU and Bethpage, N.Y.-based Bethpage FCU were credit outliers. Both institutions reported lower NCO and delinquency ratios in the third quarter.

Balance sheet growth

Quarterly growth in total loans and leases was higher than growth in total shares and deposits for the sixth-straight quarter. Similar to the second quarter, the gap between the balance sheet growth metrics was substantial in the third quarter, with loans and leases up 5.0% and shares and deposits inching up just 0.1%. The ratio of loans and leases to shares and deposits jumped to 78.35% at Sept. 30, the highest level since March 31, 2020.

Chicago-based Alliant CU stood out for growth on the asset side of its balance sheet. Loans and leases increased 15.8% quarter over quarter. On a year-over-year basis, the growth was 47.9%. The primary driver has been the one- to four-family segment. Commercial loans and lines of credit backed by real estate also made a significant contribution to the overall growth.

Acquisitions boosted Anchorage, Alaska-based Alaska USA FCU and North Liberty, Iowa-based GreenState CU, both of which grew shares and deposits 7.8% quarter over quarter. Much of Alaska USA's growth came from the acquisition of Spokane, Wash.-based Global CU, while GreenState's growth was fueled by its acquisition of Freeport, Ill.-based Midwest Community Bank. GreenState's proposed acquisition of Omaha, Neb.-based Premier Bank fell through in August, but the credit union still expects to expand into Nebraska and could pursue bank acquisitions in other states.