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Hello, this is Samantha Shares.

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This episode covers N C U A's
2025 Supervisory Priorities.

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The following is an audio version
of Letter to Credit Unions 25-CU-01.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
Forty years of National Credit

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Union Administration experience.

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We assist our clients with N C
U A so they save time and money.

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If you are worried about a recent,
upcoming or in process N C U A

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examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

00:00:41.600 --> 00:00:47.200
Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

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And now the Supervisory Priority Letter.

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Dear Boards of Directors and
Chief Executive Officers:

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This letter outlines the N C U A's
supervisory priorities and other updates

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to the agency's 2025 examination program.

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Our priorities focus on the areas
posing the highest risk to credit union

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members, the credit union industry,
and the National Credit Union Share

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Insurance Fund (Share Insurance Fund).

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There continued to be signs of
financial stress on credit union

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balance sheets during 2024.

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Aggregate loan performance began
to deteriorate in 2022, and the

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trend has continued through 2024.

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The overall loan delinquency rate is
currently at its highest point since

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year-end 2013, while the rolling 12-month
net charge-off rate is at its highest

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point since the second quarter of 2012.

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Additionally, the return on average
assets continues to experience pressure

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from the interest rate environment and
provision for loan and lease loss expense.

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Even considering these trends, the credit
union system remains stable and relatively

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resilient against economic disruptions.

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With that economic landscape in
mind, below are the N C U A's primary

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areas of supervisory focus for 2025.

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Supervisory Priorities for 2025

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Credit Risk

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Credit risk will remain a
supervisory priority for 2025.

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Loan growth moderated during
2024 while overall delinquencies

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and charge-offs increased.

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Most notably, the performance
within credit card portfolios has

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deteriorated much more rapidly than
other aspects of federally insured

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credit union loan portfolios.

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The current delinquency rate and
rolling 12-month net charge-off rate

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for credit card loans both exceed the
peak that was reached during the global

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financial crisis fifteen years ago.

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Used vehicle loan performance
has also materially deteriorated.

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The delinquency rate and rolling
12-month net charge-off rates for

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used vehicle loans are currently
at the highest levels on record.

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To address these matters, N C U A
examiners will continue to review

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your credit union's lending and
related risk-management practices.

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This priority will include reviewing the
sufficiency of your loan underwriting

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standards, collection programs,
Allowance for Credit Losses reserves,

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charge-off practices, management and
board reporting, and management of

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any concentrations of credit risk.

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To the extent possible, examiners
will also review your credit

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union's third-party risk-management
practices when lending, servicing, or

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collection functions are outsourced.

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Moreover, it is important for your
credit union to work with borrowers

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encountering financial difficulties.

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These efforts are consistent with the
credit union system's statutory mission

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of meeting the credit and savings needs of
members, especially those of modest means.

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Accordingly, examiners will assess your
credit union's modification and workout

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strategies for borrowers experiencing
financial difficulty, including assessing

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whether your credit union's efforts were
reasonable and conducted with proper

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controls and management oversight.

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For more resources, refer to
the Examiner's Guide and the

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following Letters to Credit Unions:

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23-CU-05, Commercial Real Estate
Loan Accommodations and Workouts

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23-CU-04, Update to Interagency Policy
Statement on Allowances for Credit Losses

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14-CU-08, Home Equity Lines of Credit
Nearing Their End-of-Draw Period

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10-CU-03, Concentration Risk

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09-CU-19, Evaluating Residential Real
Estate Loan Modification Programs

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07-CU-13, Evaluating
Third Party Relationships

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03-CU-01, Loan Charge-off Guidance

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91-CU-120, Interest Rate
Adjustment Errors for A R M Loans

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Balance Sheet Management and
Risk to Earnings and Net Worth

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Credit unions are exposed to various risks
affecting their earnings and net worth.

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Among the most significant are
credit, liquidity, and market risk.

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These risks are tied to the institution's
ability to manage its financial assets

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and liabilities and have a direct
effect on earnings and net worth.

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For credit unions, the primary market
risk element is interest rate risk.

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Interest rate changes can affect
the income credit unions generate

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from their lending and funding
activities, which can affect the credit

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union's ability to build net worth.

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Loan losses can also diminish a
credit union's earnings and net worth.

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Over the last few years, the rising
interest rate environment increased

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some credit unions' cost of funds
faster than the returns on loans and

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investments, squeezing the net interest
margin—a key driver of earnings.

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In 2023 and 2024, this increase in funding
costs put pressure on earnings until loan

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and investment returns could catch up.

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If interest rates continue to
decline, higher yielding loans

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and investments are prone to
prepayment, which could accelerate

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as rates drop, reducing interest
income from longer-duration assets.

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For the last several quarters, net
interest margins have only slightly

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exceeded operating expenses.

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Any increase in operating expenses or
further decline in loan performance

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could put earnings and net worth at risk.

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In evaluating your credit union's
earnings and net worth risk-management

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frameworks, examiners will weigh
the current and prospective sources

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of earnings and the composition of
net worth relative to your credit

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union's approved plans and thresholds.

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This approach will help examiners focus
on trends in earnings and develop a

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better understanding of concentration
risks for both earnings and net worth.

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Also, examiners will continue to
consider the current and prospective

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sources of liquidity compared to
funding needs to determine the

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adequacy of your credit union's
liquidity risk-management framework.

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Examiners will review your credit union's
policies, procedures, risk limits, and

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evaluate the adequacy of your credit
union's risk-management framework relative

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to its size, complexity, and risk profile.

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Liquidity resources and guidance can be
found in the N C U A's Examiner's Guide

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and the Liquidity Risk Resources webpage.

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For interest rate risk-related resources,
refer to the Examiner's Guide and

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the following regulatory guidance:

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Letter to Credit Unions
22-CU-09, Updates to Interest

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Rate Risk Supervisory Framework

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Supervisory Letter 22-01, Updates to
Interest Rate Risk Supervisory Framework

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Earnings resources and guidance
can be found in the N C U A's

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Examiner's Guide and the following
Letters to Credit Unions:

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09-CU-23, Reviewing Adequacy of Earnings

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06-FCU-04, Evaluation of Earnings

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For resources on net worth and capital
adequacy, refer to the following N C U A

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Regulatory and Compliance Resources pages:

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Risk-Based Capital

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Capital Planning & Stress Testing

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Net Worth Ratio & Prompt Corrective Action

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Cybersecurity

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Cybersecurity remains a top supervisory
priority as cyberattacks against all

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industries, including credit unions
and the vendors they use, become

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more frequent and sophisticated.

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The risk of a cybersecurity
incident rises as dependence on

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networks and technology increases.

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A loss or compromise in confidentiality,
integrity, or availability of systems

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or information may lead to fraud, as
well as financial and reputational loss.

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It is thus crucial for your credit
union to manage its information

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security programs and continuity of
operations plans proactively, and

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to conduct ongoing due diligence
of your critical service providers.

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In 2025, examiners will continue to use
the information security examination

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procedures to assess whether your credit
union has implemented robust information

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security programs to safeguard both
members and the credit union itself.

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The N C U A will continue to support
credit unions' voluntary use of the

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Automated Cybersecurity Evaluation Toolbox
to assess their cybersecurity maturity.

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For access to more cybersecurity
information and resources, including

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detailed information on examination
procedures, credit unions are

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encouraged to visit the N C U A's
Cybersecurity Resources webpage.

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These resources provide valuable insights
and guidance to help your credit union

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strengthen its cybersecurity stance and
stay abreast of the latest developments.

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As a reminder, your federally insured
credit union is required to report

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cyber incidents to the N C U A within
72 hours after you reasonably believe a

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reportable cyber incident has occurred.

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This reporting includes notifying
the N C U A if a third-party

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provider experiences a cyber
incident affecting your credit union.

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More information can be found in N C
U A Letter to Credit Unions 23-CU-07,

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Cyber Incident Notification Requirements.

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Your credit union is also encouraged
to reference Appendix B to Part

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748 – Guidance on Response Programs
for Unauthorized Access to Member

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Information and Member Notice for
guidance on cyber incident response.

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The N C U A urges your credit union's
board of directors to prioritize

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cybersecurity as a top oversight
and governance responsibility, as

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outlined in N C U A Letter to Credit
Unions 24-CU-02, Board of Director

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Engagement in Cybersecurity Oversight.

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Consumer Financial Protection

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The N C U A will continue to
prioritize reviewing compliance

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with consumer financial protection
laws and regulations during every

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federal credit union examination.

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In addition to reviewing any areas
specific to your credit union identified

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during the risk-focused examination
scoping process, in 2025 examiners

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will, in particular, assess your credit
union's compliance with the following

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consumer financial protection areas:

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Overdraft programs.

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Examiners will continue a review of
credit union overdraft programs, including

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policies, procedures, disclosures, fees,
account statements, member complaints,

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internal reviews, and websites.

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Fair lending.

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Examiners will assess policies and
practices for identifying and mitigating

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potential discrimination in residential
real estate valuation practices.

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Home Mortgage Disclosure
Act and Regulation C.

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Examiners will evaluate compliance
with Home Mortgage Disclosure

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Act data collection and reporting
policies and practices, including

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transaction testing, for credit
unions above the reporting threshold.

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Military Lending Act.

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Examiners will review compliance
with the Military Lending Act

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requirements, including policies
and procedures, compliance

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management systems, and checking
and monitoring for military status.

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Electronic Fund Transfer
Act and Regulation E.

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Examiners will assess policies
and procedures related to

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payments and error resolution.

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Other Updates

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Exam Updates

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In 2025, the N C U A will update its
exam flexibility initiative to provide

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an extended exam cycle for credit
unions over $1 billion in assets where

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the N C U A rated the credit union a
CAMELS composite 1 or 2 with no change

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in C E O since the last examination.

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These institutions will now be eligible
for a 12- to 16-month exam cycle.

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Additionally, the extended exam
cycle for eligible federal credit

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unions will be shortened from 14
to 20 months to 14 to 18 months.

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The agency will continue conducting
the defined scope Small Credit Union

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Exam Program in most federal credit
unions with assets of $50 million or

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less, and risk-focused examination
procedures for all other credit unions.

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Examiners will continue to perform
examination and supervision activities

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onsite and offsite, as appropriate.

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While new programs and evolving risks
related to third parties, technology,

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and cybersecurity may receive additional
attention, your credit unions is

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encouraged to review and maintain
fundamental controls over lending,

00:12:04.000 --> 00:12:05.600
recordkeeping, and internal controls.

00:12:05.600 --> 00:12:12.000
The N C U A also encourages your credit
union to remain aware of changing Bank

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Secrecy Act, anti-money laundering, and
countering the financing of terrorism

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regulatory requirements, as the federal
financial institution regulators

00:12:19.200 --> 00:12:23.200
and the Financial Crimes Enforcement
Network continue to implement the

00:12:23.200 --> 00:12:25.200
Anti-Money Laundering Act of 2020.

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Minority Depository Institution
(M D I) Preservation Program

00:12:28.400 --> 00:12:35.600
The N C U A recognizes the important
role that M D Is play in the credit union

00:12:35.600 --> 00:12:41.200
system and in the daily lives of the
members they serve across the country.

00:12:41.200 --> 00:12:48.000
The N C U A is committed to supporting
the ongoing success of M D Is, including

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the need to support some M D Is more or
differently than other credit unions.

00:12:54.000 --> 00:12:57.200
Examinations will consider the
unique strategies and member

00:12:57.200 --> 00:13:00.000
needs of M D I credit unions.

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Additionally, the N C U A will
continue to offer customized support

00:13:04.800 --> 00:13:11.200
to credit unions with less than $100
million in assets and M D Is of all

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asset sizes through its Small Credit
Union and M D I Support Program.

00:13:16.400 --> 00:13:21.600
The N C U A recognizes the value
these institutions bring to members

00:13:21.600 --> 00:13:26.000
in underserved communities by offering
access to safe, fair, and affordable

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financial products and services.

00:13:27.600 --> 00:13:32.000
If eligible, your credit union can
request assistance through your examiner,

00:13:32.000 --> 00:13:36.400
regional office, or the Office of
Credit Union Resources and Expansion.

00:13:36.400 --> 00:13:41.600
This assistance may be used to support the
board, supervisory committee, or managers

00:13:41.600 --> 00:13:44.400
with a variety of credit union needs.

00:13:44.400 --> 00:13:44.800
Conclusion

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The N C U A will continue to
evolve and improve its methods to

00:13:50.400 --> 00:13:52.400
supervise and support credit unions.

00:13:52.400 --> 00:13:55.600
We are committed to productive
communication, adopting innovations,

00:13:55.600 --> 00:13:59.200
such as recording official meetings
(exit conferences and joint

00:13:59.200 --> 00:14:02.800
conferences), and implementing
efficient practices in our exam program.

00:14:02.800 --> 00:14:07.600
Our primary objectives—ensuring a safe and
sound credit union system and protecting

00:14:07.600 --> 00:14:12.400
credit union members—can only be fulfilled
when we adapt to the ever-changing

00:14:12.400 --> 00:14:14.000
economic and technological landscape.

00:14:14.000 --> 00:14:19.600
Please contact your N C U A examiner
or regional office if you have

00:14:19.600 --> 00:14:24.400
any questions about the N C U A's
supervisory priorities for 2025.

00:14:24.400 --> 00:14:26.000
This concludes the letter.

00:14:26.000 --> 00:14:32.000
If your Credit union could use assistance
with your exam, reach out to Mark Treichel

00:14:32.000 --> 00:14:35.200
on LinkedIn, or at mark Treichel dot com.

00:14:35.200 --> 00:14:39.200
This is Samantha Shares and
we Thank you for listening.