Samantha: Hello, this is Samantha Shares.
This episode covers Semiannual Risk Perspective from the National
Risk Committee, Fall 2025.
The following is an audio version of that document.
This podcast is educational and is not legal advice.
We are sponsored by Credit Union Exam Solutions Incorporated, whose
team has over two hundred and forty years of National Credit
Union Administration experience.
We assist our clients with N C U A so they save time and money.
If you are worried about a recent, upcoming, or in process N C U A
examination, reach out to learn how they can assist at Mark Treichel dot com.
Also check out our other podcast called With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the document.
The strength of the federal banking system remains sound.
Balance sheets remain satisfactory, with high capital and liquidity ratios
positioned to absorb potential stress.
Lower funding costs, moderate loan growth, and modest expense growth contributed to
the satisfactory earnings performance.
Investment portfolio unrealized losses fell to half of amounts reported in two
thousand twenty three given the rate environment and strategic repositioning.
Net interest margin generally expanded throughout the federal banking system
and non maturity and term deposit costs reset in line with lower rates.
Commercial and retail loan portfolio delinquencies, loss rates, and noncurrent
and classified levels remain manageable.
Liquidity remains sound.
Deposit levels, net of brokered deposits, continued to increase during the first
half of two thousand twenty five.
Contingent liquidity sources are satisfactory and expanding.
Noncurrent loan rates for the federal banking system slightly increased
from the prior year but remain well below their long term average.
Cyber threats remain a concern.
The Office of the Comptroller of the Currency has observed an increase in
threats posed by foreign state sponsored actors and sophisticated cybercriminal
groups targeting the financial sector.
These actors continue to target financial institutions due to the sensitive
nature of financial data and the critical role of banks in the economy.
Financial innovation presents banking opportunities.
The financial industry is in the midst of a change in the nature and delivery
of financial products and services.
Innovation brings risks, but so too does a lack of innovation.
A lack of investment in new technologies, products, and services
may present material risks to long term bank performance and the
viability of institutions that are slow, reluctant, or unable to evolve.
The Office of the Comptroller of the Currency seeks to foster a regulatory
environment that enables banks to advance their businesses and client interests
while managing financial risks and operating in a safe and sound manner.
Commercial and retail loan portfolio delinquencies, loss rates, and
noncurrent and classified levels remain manageable across most loan categories.
Multifamily commercial real estate experienced the most weakening in credit
performance from the prior year, with noncurrent loan rates above their nineteen
ninety one to twenty nineteen average.
This increase was driven by an outlier and not a systemic decline in loan quality.
For community banks, noncurrent rates were little changed from
historically low levels of a year ago and remained below historical
averages across all loan categories.
Total loan balances for the federal banking system were nearly four
percent higher from a year ago.
Loan growth was supported by property loans such as residential real
estate and nonfarm nonresidential commercial real estate, as well as
multifamily commercial real estate.
Banks reported tighter underwriting standards for commercial and
industrial loans, reflecting a more uncertain economic outlook.
Slowing economic growth and higher input prices could compress margins
in some manufacturing sectors, particularly for companies with higher
leverage or weaker margins that cannot pass rising costs on to customers.
Banks also reported tighter underwriting standards and weaker
demand for commercial real estate loans and residential mortgage loans.
Where banks saw weaker demand for commercial and industrial loans, this was
attributed to lower customer investment in plants and equipment and decreased
financing needs for inventories.
While prudent, tightening credit standards could result in higher
refinance risk for marginal borrowers.
Risks in income producing commercial real estate portfolios vary by
property type and geography.
Hospitality and industrial commercial real estate are showing signs of
weakening amid lower demand, while retail properties remain resilient.
Office properties are experiencing mixed results as supply growth
has tapered, but demand remains sensitive to macroeconomic conditions.
Demand for multifamily commercial real estate continues to grow, and
vacancies are declining in many markets.
Market risk in the federal banking system is generally satisfactorily managed.
Net interest margin expanded at many banks due to increasing
asset yields and decreasing term and non maturity deposit costs.
Liquidity remains sound.
Unrealized investment portfolio losses remain elevated and exposed to
higher yields along the United States Treasury yield curve, but represent
about half of what was reported during two thousand twenty three.
Some banks chose to reposition their portfolios by selling lower yielding
securities, realizing the loss, and reinvesting at market yields.
The financial industry is in the midst of significant technological innovation.
Banks of all sizes are exploring ways to leverage artificial intelligence.
Some banks are deploying sophisticated models to improve credit underwriting,
detect fraud in real time, and personalize customer experience.
Generative artificial intelligence use cases have largely been internal
facing, focusing on improving employee efficiencies, coding,
call center agent assistance, employee knowledge base support, and
document creation and summarization.
Appropriate governance and risk management are essential to mitigate
potential risks when implementing artificial intelligence systems.
The United States economy remains generally resilient,
demonstrated by stable and positive corporate earnings performance
and continued consumer spending.
The economy experienced modest gross domestic product growth in the first
half of two thousand twenty five, with a first quarter contraction
followed by a second quarter rebound.
Job creation has slowed, but the unemployment rate has remained
low by historical standards.
Market participants anticipate further federal funds rate cuts.
Banks remain well positioned to absorb stress, with capital ratios and
liquidity high by historical standards.
This concludes the document.
If your credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and we thank you for listening.