Mid-Year ALM Risk Check: Aligning with NCUA’s 2025 Supervisory Priorities

NCUA’s 2025 Focus on Balance Sheet Risk: A Mid-Year Look at Credit Union ALM Readiness

As 2025 progresses, the NCUA is placing clear emphasis on the connection between rising credit losses, compressed net interest margins, and balance sheet vulnerabilities. Delinquency and charge-off rates remain elevated, while margin pressure from elevated funding costs and operating expenses is testing many credit unions’ ability to maintain sustainable earnings and net worth.

Interest rate risk remains a primary area of supervisory concern. After several quarters of aggressive rate movements, institutions face challenges on both ends of the curve: rising costs on funding and the threat of accelerated prepayments on higher-yielding assets should rates fall. The NCUA expects credit unions to actively manage these dynamics with credible ALM models.

This post is intended as a guide to help credit unions evaluate their current position against examiner expectations, outline key supervisory focus areas, and provide practical suggestions for strengthening risk oversight and preparing for Q3 and Q4 regulatory examinations.

Why Mid-Year ALM Review Matters

Credit conditions in 2025 have continued to evolve, with elevated delinquency and charge-off rates now firmly established in several major lending segments. Credit card and used auto portfolios, in particular, are experiencing record-level stress. At the same time, many credit unions are grappling with compressed net interest margins as deposit costs remain elevated and asset yields struggle to keep pace.

In this environment, the NCUA has made a clear shift in supervisory focus. Examiners are placing greater emphasis on real-world execution rather than the presence of formal policies alone. Institutions are expected to demonstrate that they are actively monitoring their balance sheets, adjusting assumptions based on recent performance, and engaging in timely discussions at both the management and board levels.

Asset/liability management is a dynamic process that requires regular updates, scenario testing, and integration across earnings, liquidity, and capital planning. Credit unions that conduct a focused mid-year review can identify gaps, refresh their models, and take meaningful action ahead of their next examination.

What Examiners Are Looking for Now

Examiners expect asset/liability management practices to reflect current conditions rather than outdated assumptions. This begins with interest rate risk (IRR) modeling. Institutions should ensure their models incorporate current rate environments, including the possibility of declining interest rates and the potential for accelerated prepayments. Static and dynamic simulations should be updated regularly and grounded in actual portfolio performance.

Liquidity risk management is also receiving increased scrutiny. Examiners are reviewing whether stress tests reflet realistic, near-term challenges such as unexpected deposit outflows, reduced asset runoff, or the need to fund unfunded commitments. Results should be clearly documented, and contingency funding plans should include actionable strategies.

In terms of capital planning, the focus has shifted to sustainability. Examiners are reviewing whether credit unions are accounting for ongoing margin compression, elevated operating costs, and rising credit losses in their capital projections. Forward-looking analysis is essential.

Finally, governance remains a central theme. Examiners want to see evidence of board and ALCO oversight, including regular reporting on margin trends, liquidity coverage, and net worth projections. Risk-based triggers and decision points should be well defined and actively used.

Key Questions to Ask Internally

As credit unions work through the second half of the year, leadership teams should evaluate whether current ALM practices reflect recent developments and align with examiner expectations. A focused internal review can help identify area that require adjustment before the next exam cycle.

Consider the following questions:

• Have we updated our interest rate risk and liquidity scenarios this quarter to reflect the latest economic conditions and balance sheet trends?
• Are we actively monitoring changes in funding costs, and have those changes been incorporated into our pricing assumptions and margin forecasts?
• Do our earnings and capital plans accurately capture the pressures we have seen so far this year, including higher provision expenses and tighter spreads?
• Has the board been fully briefed on the institution’s current ALM position, including key risks, scenario results, and any adjustments made in response?

Answering these questions with confidence and supporting documentation will help ensure that the credit union is prepared not only for supervisory review but also for ongoing operational and strategic decision-making.

Takeaway: Use the Second Half to Strengthen

The second half of the year provides a critical window for credit unions to take control of their ALM process before the next round of regulatory scrutiny. Many of the risks that examiners are focusing on such as rising delinquencies, interest rate sensitivity, margin compression, and liquidity strain, are already showing up in balance sheet performance. Addressing these issues proactively positions your institution to manage both supervisory expectations and operational uncertainty more effectively.

Waiting until the examination begins to identify and respond to gaps in modeling, stress testing, or governance limits the opportunity to demonstrate control and responsiveness. A mid-year review enables leadership teams to evaluate how current risk management practices align with what regulators want to see and make timely adjustments. It also supports stronger board-level engagement by delivering clear, updated reporting that reflects current realities rather than outdated assumptions.

By identifying pressure points and documenting action steps now, your credit union can enter the second half of 2025 with a stronger understanding of its risk position and a clearer path to meeting both regulatory and strategic goals.

Call to Action: Strengthen Your ALM and Broader Risk Oversight Now

As the NCUA increases its focus on execution and outcomes, credit unions must ensure their ALM programs are both effective and well-documented. Our team offers tailored support to help institutions meet this challenge head-on.

We provide services across several core areas:

• Asset/Liability Management (ALM):
We provide outsourced ALM analyses that measure and report interest rate, liquidity, and credit risk on a fully integrated basis, providing our clients with a best-in-class solution and powerful tools to manage their business.

• Current Expected Credit Loss (CECL):
We provide predictive, outsourced CECL reporting, developed from detailed analysis of granular cohorts, through a complete peak-to-trough business cycle.

• Mergers & Acquisitions (M&A):
We have performed more than 600 merger-related valuations under the purchase accounting rules issued in 2009.

• Fair Value:
We offer the fair value services to support our primary lines of business, including mortgage banking derivatives (IRLCS), fair value footnotes, and business valuations (ESOPS).

• Valuation of Loan Servicing:
We provide servicing valuations to more than 400 clients and serve more community financial institutions than any other firm. We offer a comprehensive set of services, including valuations of servicing backed by residential mortgages, SBA 7(A) loans, and commercial loans.

If your team is preparing for a Q3 or Q4 exam, or simply wants a second set of eyes on your risk management framework, we’re here to help.

Contact us to schedule a conversation or learn more about our services.

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