Balance Sheet Management in 2026: Prioritize, Plan, Lower Risk
The National Credit Union Administration (NCUA) has released its Supervisory Priorities for 2026. Not surprisingly, in response to the current downward trend in interest rates, the NCUA is emphasizing the importance of strengthening credit union balance sheets. As Warren Buffett wisely stated, "Risk comes from not knowing what you're doing." This mindset is particularly relevant as credit unions face heightened uncertainty and the need to strengthen their balance sheet management frameworks.
As credit unions prepare not only for their upcoming regulatory examinations, but also for effective ongoing balance sheet management, there are several key areas to focus on that will help successfully navigate the evolving economic landscape, which the NCUA will be especially focused on in the coming year.
Lending
Credit unions are expected to experience below-average loan growth throughout 2026. The combination of reduced loan origination volumes and persistent rate declines is expected to result in margin compression. Additionally, the recent increase in loan delinquencies is putting further pressure on earnings and overall profitability. It is essential for credit unions to scrutinize underwriting standards and collection practices to safeguard portfolio quality. Fortifying loan monitoring systems along with proactive management of at-risk accounts are also recommended to address emerging rises to delinquencies.
Liquidity
With liquidity conditions becoming increasingly tight and heightened competition for deposits intensifying pressure on funding, comprehensive liquidity management practices are critical. Credit unions must thoughtfully conduct liquidity forecasting to identify and address potential shortfalls. In addition, comprehensive liquidity stress testing remains a foundational tool for ensuring access to secondary sources of liquidity. Strategic management of the investment portfolio and wise use of borrowing arrangements can further support liquidity resiliency.
Market Risk Sensitivity
The recent decline in market rates has provided temporary relief regarding long-term valuation sensitivity. Many credit unions have successfully extended asset cash flows and secured favorable yields on both loans and investments, which has helped to mitigate margin compression and extend asset repricing in falling rate environments. However, as cash flow begins to reprice at lower rates in the coming year, downward pressure on margins will intensify. Continuing to monitor and manage interest rate risk remains essential in both static and dynamic balance sheets. Institutions should regularly conduct scenario analyses to assess the impacts of potential future rate movements.
Earnings
The compressed margins, slowing lending opportunities and increased credit quality concerns all culminate in earnings. Balance sheet management to protect earnings will continue to be critical for effective management to protect capital. Regulators will be paying particular attention to earnings this year as their focus narrows to the risk to falling rates. Maintaining disciplined loan pricing strategies will be vital to manage returns. In addition, credit unions should remain vigilant with deposit pricing and marketing strategies, particularly as members are presented with an increasing array of deposit alternatives in the marketplace. Ongoing evaluation of product offerings and member engagement strategies can help retain and attract core deposits.
As credit unions navigate the challenges posed by a lower rate environment, reinforcing sound balance sheet management, maintaining robust liquidity monitoring and focusing on sustainable profitability will be essential. Proactive planning in 2026 to protect earnings aligns with the NCUA’s supervisory expectations and will position credit unions for success in the coming year. As Buffet’s insight reminds us, remaining informed and prepared at every level of the organization is key to effectively managing uncertainty and risk.
Melissa Scott serves as Vizo Financial’s vice president of ALM services. In this role, she is responsible for managing and providing ALM reporting, modeling, validation and consulting services to credit unions. She is also responsible for providing ongoing training, support and education for ALM users, management and their board of directors. She also holds the designation of certified public accountant (CPA) and is a member of the North Carolina Association of Certified Public Accountants.