How Strategy Shapes Credit Union Loan Portfolios

Improving your balance sheet isn’t just a best practice—it’s a survival strategy. But as I talk with credit union leaders across the country, I’m seeing a troubling pattern: too many are flying without a clear, cohesive plan. And it’s showing up in the loan portfolio.

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. Bottom line: Members are under stress. That stress becomes a problem for credit unions if they’re not prepared.

Participations Add Pressure

We've seeing a lot of balance sheet issues lately, particularly with credit unions buying participations in commercial loans or jumbo mortgages.

Some credit unions 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. Putting fixed rate loans or very large loans on the balance sheet can put a lot of stress on the credit union and makes it harder to loan to members.  And if that credit union is a CDFI, the addition of these loans might adversely affect its ability to remain certified: for every $1 million in unqualified CDFI loans, it takes $2.5 million in qualified Target Market loans to offset them.  

Commercial real estate isn't immune, either. Delinquencies rose from 24 to 85 basis points year-over-year, and multifamily loan defaults are increasing. If you’ve gone into these areas without a clear plan, it’s time to rethink your position.

The Real Problem: Missing the Strategic Big Picture

It’s not about bad loans—it’s about bad planning. Many credit unions are reacting to market conditions, chasing short-term gains rather than building long-term value. Some CDFIs rely on grants to be profitable. That’s not wise or sustainable; in fact, it’s a sign that the margins (and strategy) are out of whack. Grants should support your strategy, not be your strategy.

Without a solid roadmap it’s hard to navigate challenges, whether they’re predictable ones or totally unforeseen. For instance, some credit unions are now holding repossessed vehicles not just because of defaults but also because borrowers have been deported. These unexpected losses hit capital hard and stall growth.

Purpose-Driven Strategy

There are credit unions thriving in this environment—not because they’re the biggest, but because they are clear. Take Fort Randall: they’re a small credit union doing big things. They focus on their core mission and their community and built a profitable, sustainable model around that. That’s what strategic clarity looks like. With discipline, that’s available to any credit union willing to pause and get intentional.

Our Currency is the Member

The Q1 data makes it clear: Risk is rising, and balance sheets are straining. Credit unions must adopt a holistic, mission-aligned strategy that connects lending, capital, deposits and member needs. Tools like grants, partnerships and loan products are only effective when part of a cohesive plan.

Let’s 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 the most valuable asset we have – our members. Focusing on the members will help to stabilize the loan portfolio. 

Read the complete article on The Credit Union Connection, or check out our case study on Fort Randall.