Joe Brancucci, EVP of CU Results, CU Strategic Planning
Managing a credit union’s balance sheet is complex and employs many different actions. In my discussions with many credit unions recently, I have discovered that a number of these individual actions have in some way either put the balance sheet in unexpected interest rate or credit stress or have undermined a key initiative of the credit union.
Let me tell you what I’m seeing—and what needs to change.
Delinquencies Are Climbing—and Balance Sheets Are Feeling It
Let’s start with the facts: Loan defaults are on the rise. According to the NCUA, the 60-day-plus delinquency rate for credit unions jumped to 0.98% at the end of Q4 2024, up 15 basis points from a year earlier. Auto loans, in particular, are seeing significant trouble. Nearly 5% of all auto debt is now more than 90 days late. And in the subprime space, 6.6% of borrowers are 60+ days behind on payments. Credit card charge-offs hit a 13-year high in Q1 2025, and the ripple effect from student and personal loans adds more strain.
We have found that many credit unions are using outdated credit models that do not reflect current risk trends. A number also use arbitrary loan pricing not based on risk identified by model performance but by competitive or ‘feel good’ pricing. There is limited use of trended, AI-assisted, and alternative credit models.
Bottom line: Members are under stress. That stress becomes a problem for credit unions if they’re not prepared. Some credit unions stop lending when the credit challenges get overwhelming, which only compounds the issue. Managing through appropriate pricing and then monitoring credit criteria performance versus predicted performance provides an opportunity to adjust underwriting or pricing and continue lending. Curtailing lending to specific credit tiers or entirely should never be a course of action. A credit union that does not lend is like a supermarket without food.
The Risk in Real Estate and Commercial Loans
We’re seeing a lot of balance sheet issues, particularly with credit unions buying participations in commercial loans or jumbo mortgages.
Some credit unions I’ve met with are heavily involved in real estate lending, especially in high-cost markets. That’s a challenging game if you don’t have a strategy to offset the risk. First, putting fixed-rate loans or very large loans on the balance sheet can put a lot of stress on the credit union and might force it to stop lending to its members. Second, for CDFI credit unions, adding these loans might adversely affect their ability to remain CDFI certified. For every $1 million in unqualified CDFI loans, it takes $2.5 million in qualified loans to offset them.
Commercial real estate could have the same adverse effect. The CRE loan delinquency rate (minus unfunded commitments) was 85 basis points in Q4, up from 24 bps a year before. Additionally, NCUA reported the net charge-off ratio jumped from 19 pbs at year-end 2023 to 85 bps at the end of 2024. Multifamily loan defaults are up, too.
If you’ve invested heavily in these spaces without a clear plan, now’s the time to reassess.
Loan Portfolio Risk Management: Where Many Credit Unions Miss the Mark
These issues aren’t just about loans that might go bad or actions that adversely affect the credit union. We see credit unions making decisions outside of lending that directly impact their financials. They’re reacting to market shifts, trying to chase yield or growth, and straying farther from their true mission and purpose.
The real underlying problem is that too many credit unions are unsure of who they are, who they want to serve, and what their mission is. The decisions they make do not necessarily take into account the long-term effect. For example, if liquidity is depleted by making or purchasing loans out of the market area, then lending to members will be curtailed. If loan pricing is not accurate, a credit union’s margins may be affected, and the credit union’s ability to have a positive return-to-member will be squeezed.
There are a number of CDFI credit unions that are only profitable based on the grants they receive. That is not a sustainable business model because there is uncertainty about whether a grant will be received or not. But there is a more important issue: Why are a credit union’s margins so out of whack that its survival depends on outside funding? Grants should offset losses for riskier lending to allow the credit union to serve a broader segment of the market – not be a new income source.
Outside Pressures Are Making Things Even Harder
Some credit unions are now dealing with the fallout from member deportations, and that will increase. They’ve got cars sitting on their lots, not because of defaults alone—but because the borrower isn’t even in the country anymore. Those losses hurt your bottom line, capital and ability to lend. And if you can’t bring in deposits or make safe loans, your growth stops cold.
Tariffs may make new vehicles unaffordable to the average household. That will increase demand for used vehicles, probably forcing used vehicle values upward (remember the COVID spike in used vehicle pricing).
These are complex problems, but they’re made worse when there is no clear roadmap that aligns with your strategic objectives and mission.
There Are Bright Spots
Some credit unions are thriving—not because they’re bigger or better funded – but because they know who they are.
Look at Fort Randall. They’re a small credit union doing big things. Why? Because they focus on their core mission and their community and have built a profitable, sustainable model around that. That’s what strategic clarity looks like.
Read Joe’s previous article: Fort Randall FCU Is Why Credit Unions Deserve Their Tax-Exempt Status
It’s not magic—it’s discipline. And it’s available to any credit union willing to pause and get intentional.
What We Need to Do Now
Credit unions can’t afford to be reactive anymore, surviving on a strategy of hope. The latest data from Q1 2025 makes that painfully clear. Delinquencies are up. Risk is growing. And balance sheets are starting to crack under the weight of well-intentioned, short-term decisions that have adverse effects on the long term.
What we need is a holistic approach that looks at lending, capital, member needs, deposit strategy and long-term sustainability as one interconnected system—not a series of disconnected tactics.
If we keep operating on ‘what looks good this week,’ we’ll continue wasting time and resources. Small credit unions especially don’t have time to waste. Every decision matters.
Grants, lending, partnerships—these are all tools. But without a solid strategy tying them together, they’ll never deliver the results credit unions seek.
So, let’s stop chasing shiny objects and start building lasting results. And always remember, our currency is the member. Building appropriately priced, well-designed and executed products and services will attract and retain our most valuable asset—our members. Focusing on our members will help stabilize the loan portfolio.