NEW YORK — U.S. credit unions with more than $1 billion in assets entered 2026 with improving earnings momentum, following what a new report described as a turning point for credit unions in 2025.
According to a new Kroll Bond Rating Agency (KBRA) report, margin recovery last year helped restore core earnings capacity after a period of funding pressure. The agency said improving deposit dynamics, favorable repricing of earning assets and more balanced loan and deposit growth contributed to a rebound in profitability.
At the same time, KBRA noted the industry is transitioning to a more normalized credit environment, with asset quality softening from unusually strong post-pandemic levels. The pressure has been most evident in consumer portfolios, particularly in auto and unsecured lending, while broader balance sheet performance has remained stable.
Elevated Credit Costs
Elevated credit costs continued to weigh on overall performance, KBRA said, though it added that capital levels across the sector remain strong and provide a cushion for potential losses as well as flexibility for strategic initiatives.
Looking ahead to the second half of 2026, KBRA said it expects net interest margin performance to remain supportive, but with more modest expansion as asset yields stabilize and funding costs continue to reprice. Sustained earnings growth will depend increasingly on disciplined funding strategies, expense control and prudent credit risk management, the agency said.
Key Takeaways
According to KBRA, key takeaways from the report include:
- Earnings improved in 2025, driven by net interest margin expansion, favorable asset repricing and easing funding pressures, although higher provision expenses offset part of the gains
- Asset quality continued to normalize, with stress concentrated in consumer lending portfolios, while overall loss trends showed signs of moderating
- Capital levels remained a core strength, supporting loss absorption, internal capital generation and strategic flexibility
- Consolidation activity remained steady, with larger credit unions acting as primary acquirers as institutions pursued scale and growth, while credit union-bank acquisitions continued to play a more selective role.
The full report can be found here.
