Earnings: ROA, NIM and Expense Pressure

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In this episode, Mark Treichel is joined by Steve Farrar, Todd Miller, and Dennis Bauer for their quarterly review of the National Credit Union Administration call report data. The group walks through the Q4 2025 numbers across each component of the CAMEL framework, discussing what the data is showing, where the risks are building, and what credit union leaders should be paying attention to heading into 2026.

TOPICS COVERED

Capital

The industry net worth ratio stands at approximately 11.28%, down slightly from 11.35% at the end of Q3 2025 but up from 11.2% at year-end 2024. Only 59 credit unions are below the 7% well-capitalized threshold. GAAP net worth has improved nearly 200 basis points over the past two years as unrealized investment losses continue to recover. Community bank core capital ratios are comparable at approximately 11.05%.

Asset Quality – Investments

Credit unions have been extending investment maturities in a flat yield curve environment, with dollars growing in the three-year, five-year, and ten-year buckets. The spread between a three-year and ten-year investment is only about 14 basis points. Combined with growth in mortgage and commercial loans, balance sheet duration is extending on multiple fronts simultaneously.

Asset Quality – Loans

Industry delinquency crossed 1% for the first time in a decade. Non-owner occupied residential real estate delinquency jumped from approximately 62 basis points to 141 basis points. Commercial real estate, construction and development, and student loan categories also showed meaningful increases. Auto loan balances actually declined in 2025 — a rare occurrence. Allowance coverage of delinquency declined from 140% at Q3 to 131% at year-end. Community bank charge-off rates were 0.21%, compared to 0.78% for credit unions. The group discusses the regional nature of credit stress and how national averages can mask concentrated problems in specific geographies.

Earnings

Return on assets improved approximately 16 basis points year-over-year, driven by a 27-basis-point improvement in net interest margin. Net interest margin appears to have peaked — up only one basis point from Q3 to Q4. The efficiency ratio improved to approximately 69-70%. Operating expenses have grown at 7% or more for at least three consecutive years, with salary and benefits (nearly half of all operating expenses) up roughly 8% annually in 2024 and 2025. About 11.7% of credit unions were unprofitable in 2025, compared to approximately 5% of community banks. Seventeen credit unions over $1 billion reported losses.

Liquidity and Membership

Deposit growth ran at approximately 5%, while membership growth fell to just 2% — the lowest level in roughly a decade. Certificate of deposit growth is decelerating as rates fall, with money market and share draft accounts growing faster. Approximately 80% of CDs are expected to reprice in 2026. Wholesale funding was repaid, improving borrowing capacity.

NCUA and the Broader Environment

The group discusses National Credit Union Administration staffing reductions and what that means for examination priorities. With limited resources, the focus will necessarily concentrate on asset quality and concentration risk. Mark raises the pending change to the CAMEL 1 designation and calls for the agency to communicate that change publicly to stakeholders. CAMEL rating distribution improved modestly, with a $155 billion reduction in assets held in CAMEL 3-rated institutions.

GUESTS

Steve Farrar – Former National Credit Union Administration examiner, problem case officer, and VP of the Central Liquidity Facility; now with Credit Union Exam Solutions

Todd Miller – Former Director of Special Actions, National Credit Union Administration Western Region; now with Credit Union Exam Solutions

Dennis Bauer – Former CFO and EVP of Ideal Credit Union (St. Paul, MN); former National Credit Union Administration examiner; now with Credit Union Exam Solutions