PRAIRIE VILLAGE, Kan.–Calling 2025 a “great year for being a well-run credit union,” one industry consultant credited an unusual set of circumstances that helped many CUs, while also stating that those that experienced no margin improvement last year likely never will.
By “well-run,” Mike Higgins, of Mike Higgins & Associates, said he’s referring to credit unions that are “productive at their core. Those that have economy of operations (not economy of scale, but effective operations). Scale does not guarantee economy, and efficiency is not effective operations. I’m talking about those credit unions who have the most output (loans, shares, and non-interest income) per dollar of input (non-interest expense),” Higgins said in a statement.
2025 was a banner year for CUs, Higgins explained, due to a rate environment in which asset yields rose and the cost of funds fell, even though under mot conditions those two metrics move in the same direction.
“…2025 was an unusual year. Yield on earning assets increased 16 bps in 2025 and cost of funds declined 11 bps,” Higgins stated. “The result, the highest industry net interest margin in 20 years!!!”
Three Main Reasons
Higgins said there were three main reasons that contributed to the unusual scenario:
- Loans made at the tail end of the era of low rates are rolling off and new loans have been put on the books at much higher rates. “In fact, despite the Fed lowering rates off their recent highs, loan yields today are still over 125 basis points higher than 2020.
- When the “Fed” lowers rates, as they have done recently, non-maturity funding sources reprice downward almost immediately. :Furthermore, maturity deposits are rolling off at 12-to-18-month highs and are being renewed at much lower rates,” he wrote.
- Finally, rates have not fallen enough to make refinancing attractive.
“So, if you were productive, you had record levels of earnings in 2025. Enjoy it for now,” Higgins said. “It was a fantastic year, but reversion to the mean is likely to occur.”
A Lesson from Elf
There is a flip side, however, said Higgins.
“If you are not productive, then to quote Will Ferrell in Elf when he realizes that Santa at Gimbels department store is not the real Santa: ‘You sit on a throne of lies!’” he observed. “Why would I say this? Because a record net interest margin is propping up your ROA right now. That will not last, and you will be exposed. It’s time to get your ship in order. Do it while you can. You might say, ‘Mike, our efficiency ratio is stellar, so that means we are productive.’ False. Net interest margin (i.e., net interest income) is the largest component of the efficiency ratio calculation, and as I just shared with you, margin is at an all-time high.”
Trends Worth Noting
For those CUs where net interest margin did not improve in 2025, Higgins quoted a CFO who observed, “If you did not see margin improvement this year, you never will.”
Looking to the asset quality front, Higgins refrained from making any predictions about the future, but did point to the following:
- Net charge-offs this quarter were 82 bps, an increase of eight bps over last quarter.
- Non-accruals (loans sitting on the doorstep of net charge-offs) this quarter were 72 bps, an increase of six bps over last quarter.
- Delinquent loans 60+ days (loans 30 days away from being non-accrual) are at 103 bps, an increase of 8 bps over last quarter.
- Operating profit (replacing provision expense with actual net charge-offs) this quarter was 74 bps, a decline of 15 bps versus last quarter due to the aforementioned higher loan losses and non-interest expense growing faster than net revenue.
