Dear Boards of Directors and Chief Executive Officers:
This letter outlines the NCUA’s supervisory priorities and other updates to the agency’s 2025 examination program. Our priorities focus on the areas posing the highest risk to credit union members, the credit union industry, and the National Credit Union Share Insurance Fund (Share Insurance Fund).
There continued to be signs of financial stress on credit union balance sheets during 2024. Aggregate loan performance began to deteriorate in 2022, and the trend has continued through 2024. The overall loan delinquency rate is currently at its highest point since year-end 2013, while the rolling 12-month net charge-off rate is at its highest point since the second quarter of 2012. Additionally, the return on average assets continues to experience pressure from the interest rate environment and provision for loan and lease loss expense. Even considering these trends, the credit union system remains stable and relatively resilient against economic disruptions.
With that economic landscape in mind, below are the NCUA’s primary areas of supervisory focus for 2025.
Supervisory Priorities for 2025
Credit Risk
Credit risk will remain a supervisory priority for 2025. Loan growth moderated during 2024 while overall delinquencies and charge-offs increased. Most notably, the performance within credit card portfolios has deteriorated much more rapidly than other aspects of federally insured credit union loan portfolios. The current delinquency rate and rolling 12-month net charge-off rate for credit card loans both exceed the peak that was reached during the global financial crisis fifteen years ago. Used vehicle loan performance has also materially deteriorated. The delinquency rate and rolling 12-month net charge-off rates for used vehicle loans are currently at the highest levels on record.
To address these matters, NCUA examiners will continue to review your credit union’s lending and related risk-management practices. This priority will include reviewing the sufficiency of your loan underwriting standards, collection programs, Allowance for Credit Losses reserves, charge-off practices, management and board reporting, and management of any concentrations of credit risk. To the extent possible, examiners will also review your credit union’s third-party risk-management practices when lending, servicing, or collection functions are outsourced.
Moreover, it is important for your credit union to work with borrowers encountering financial difficulties. These efforts are consistent with the credit union system’s statutory mission of meeting the credit and savings needs of members, especially those of modest means.1 Accordingly, examiners will assess your credit union’s modification and workout strategies for borrowers experiencing financial difficulty, including assessing whether your credit union’s efforts were reasonable and conducted with proper controls and management oversight.
For more resources, refer to the Examiner’s Guide and the following Letters to Credit Unions:
- 23-CU-05, Commercial Real Estate Loan Accommodations and Workouts
- 23-CU-04, Update to Interagency Policy Statement on Allowances for Credit Losses
- 14-CU-08, Home Equity Lines of Credit Nearing Their End-of-Draw Period
- 10-CU-03, Concentration Risk
- 09-CU-19, Evaluating Residential Real Estate Loan Modification Programs
- 07-CU-13, Evaluating Third Party Relationships
- 03-CU-01, Loan Charge-off Guidance
- 91-CU-120, Interest Rate Adjustment Errors for ARM Loans
Balance Sheet Management and Risk to Earnings and Net Worth
Credit unions are exposed to various risks affecting their earnings and net worth.2 Among the most significant are credit, liquidity, and market risk. These risks are tied to the institution’s ability to manage its financial assets and liabilities and have a direct effect on earnings and net worth.
For credit unions, the primary market risk element is interest rate risk. Interest rate changes can affect the income credit unions generate from their lending and funding activities, which can affect the credit union’s ability to build net worth. Loan losses can also diminish a credit union’s earnings and net worth.
Over the last few years, the rising interest rate environment increased some credit unions’ cost of funds faster than the returns on loans and investments, squeezing the net interest margin—a key driver of earnings. In 2023 and 2024, this increase in funding costs put pressure on earnings until loan and investment returns could catch up. If interest rates continue to decline, higher yielding loans and investments are prone to prepayment, which could accelerate as rates drop, reducing interest income from longer-duration assets. For the last several quarters, net interest margins have only slightly exceeded operating expenses. Any increase in operating expenses or further decline in loan performance could put earnings and net worth at risk.
In evaluating your credit union’s earnings and net worth risk-management frameworks, examiners will weigh the current and prospective sources of earnings and the composition of net worth relative to your credit union’s approved plans and thresholds. This approach will help examiners focus on trends in earnings and develop a better understanding of concentration risks for both earnings and net worth. Also, examiners will continue to consider the current and prospective sources of liquidity compared to funding needs to determine the adequacy of your credit union’s liquidity risk-management framework. Examiners will review your credit union’s policies, procedures, risk limits, and evaluate the adequacy of your credit union’s risk-management framework relative to its size, complexity, and risk profile.
Liquidity resources and guidance can be found in the NCUA’s Examiner’s Guide and the Liquidity Risk Resources webpage.
For interest rate risk-related resources, refer to the Examiner’s Guide and the following regulatory guidance:
- Letter to Credit Unions 22-CU-09, Updates to Interest Rate Risk Supervisory Framework
- Supervisory Letter 22-01, Updates to Interest Rate Risk Supervisory Framework
Earnings resources and guidance can be found in the NCUA’s Examiner’s Guide and the following Letters to Credit Unions:
- 09-CU-23, Reviewing Adequacy of Earnings
- 06-FCU-04, Evaluation of Earnings
For resources on net worth and capital adequacy, refer to the following NCUA Regulatory and Compliance Resources pages:
Cybersecurity
Cybersecurity remains a top supervisory priority as cyberattacks against all industries, including credit unions and the vendors they use, become more frequent and sophisticated. The risk of a cybersecurity incident rises as dependence on networks and technology increases. A loss or compromise in confidentiality, integrity, or availability of systems or information may lead to fraud, as well as financial and reputational loss. It is thus crucial for your credit union to manage its information security programs and continuity of operations plans proactively, and to conduct ongoing due diligence of your critical service providers.
In 2025, examiners will continue to use the information security examination procedures to assess whether your credit union has implemented robust information security programs to safeguard both members and the credit union itself.
The NCUA will continue to support credit unions’ voluntary use of the Automated Cybersecurity Evaluation Toolbox to assess their cybersecurity maturity. For access to more cybersecurity information and resources, including detailed information on examination procedures, credit unions are encouraged to visit the NCUA’s Cybersecurity Resources webpage. These resources provide valuable insights and guidance to help your credit union strengthen its cybersecurity stance and stay abreast of the latest developments.
As a reminder, your federally insured credit union is required to report cyber incidents to the NCUA within 72 hours after you reasonably believe a reportable cyber incident has occurred. This reporting includes notifying the NCUA if a third-party provider experiences a cyber incident affecting your credit union. More information can be found in NCUA Letter to Credit Unions 23-CU-07, Cyber Incident Notification Requirements. Your credit union is also encouraged to reference Appendix B to Part 748 – Guidance on Response Programs for Unauthorized Access to Member Information and Member Notice for guidance on cyber incident response.
The NCUA urges your credit union’s board of directors to prioritize cybersecurity as a top oversight and governance responsibility, as outlined in NCUA Letter to Credit Unions 24-CU-02, Board of Director Engagement in Cybersecurity Oversight.
Consumer Financial Protection
The NCUA will continue to prioritize reviewing compliance with consumer financial protection laws and regulations during every federal credit union examination. In addition to reviewing any areas specific to your credit union identified during the risk-focused examination scoping process, in 2025 examiners will, in particular, assess your credit union’s compliance with the following consumer financial protection areas:
- Overdraft programs. Examiners will continue a review of credit union overdraft programs, including policies, procedures, disclosures, fees, account statements, member complaints, internal reviews, and websites.
- Fair lending. Examiners will assess policies and practices for identifying and mitigating potential discrimination in residential real estate valuation practices.
- Home Mortgage Disclosure Act and Regulation C. Examiners will evaluate compliance with Home Mortgage Disclosure Act data collection and reporting policies and practices, including transaction testing, for credit unions above the reporting threshold.
- Military Lending Act. Examiners will review compliance with the Military Lending Act requirements, including policies and procedures, compliance management systems, and checking and monitoring for military status.
- Electronic Fund Transfer Act and Regulation E. Examiners will assess policies and procedures related to payments and error resolution.
Other Updates
Exam Updates
In 2025, the NCUA will update its exam flexibility initiative to provide an extended exam cycle for credit unions over $1 billion in assets where the NCUA rated the credit union a CAMELS composite 1 or 2 with no change in CEO since the last examination. These institutions will now be eligible for a 12- to 16-month exam cycle. Additionally, the extended exam cycle for eligible federal credit unions will be shortened from 14 to 20 months to 14 to 18 months.3
The agency will continue conducting the defined scope Small Credit Union Exam Program in most federal credit unions with assets of $50 million or less, and risk-focused examination procedures for all other credit unions. Examiners will continue to perform examination and supervision activities onsite and offsite, as appropriate.
While new programs and evolving risks related to third parties, technology, and cybersecurity may receive additional attention, your credit unions is encouraged to review and maintain fundamental controls over lending, recordkeeping, and internal controls.
The NCUA also encourages your credit union to remain aware of changing Bank Secrecy Act, anti-money laundering, and countering the financing of terrorism regulatory requirements, as the federal financial institution regulators and the Financial Crimes Enforcement Network continue to implement the Anti-Money Laundering Act of 2020.
Minority Depository Institution (MDI) Preservation Program
The NCUA recognizes the important role that MDIs play in the credit union system and in the daily lives of the members they serve across the country. The NCUA is committed to supporting the ongoing success of MDIs, including the need to support some MDIs more or differently than other credit unions. Examinations will consider the unique strategies and member needs of MDI credit unions.
Additionally, the NCUA will continue to offer customized support to credit unions with less than $100 million in assets and MDIs of all asset sizes through its Small Credit Union and MDI Support Program. The NCUA recognizes the value these institutions bring to members in underserved communities by offering access to safe, fair, and affordable financial products and services. If eligible, your credit union can request assistance through your examiner, regional office, or the Office of Credit Union Resources and Expansion. This assistance may be used to support the board, supervisory committee, or managers with a variety of credit union needs.
Conclusion
The NCUA will continue to evolve and improve its methods to supervise and support credit unions. We are committed to productive communication, adopting innovations, such as recording official meetings (exit conferences and joint conferences), and implementing efficient practices in our exam program. Our primary objectives—ensuring a safe and sound credit union system and protecting credit union members—can only be fulfilled when we adapt to the ever-changing economic and technological landscape.
Please contact your NCUA examiner or regional office if you have any questions about the NCUA’s supervisory priorities for 2025.
Sincerely,
/s/
Todd M. Harper
Chairman
Footnotes
1 Pub. L. 105–219, § 2, Aug. 7, 1998, 112 Stat. 913.
2 Net worth is also sometimes referred to as “capital,” and is assessed as part of the Capital Adequacy CAMELS component rating.
3 See the NCUA’s Exam Flexibility Initiative webpage for more information about which credit unions are eligible for an extended examination cycle.