Reading the NCUA Annual Report the Way It Deserves to Be Read

Every year the National Credit Union Administration publishes its Annual Report, and every year most of us skim the executive summary, nod at the headline numbers, and move on. That is a mistake. The Annual Report is one of the best tools we have for stepping back from our own institution and asking what the broader movement is actually doing — and where it is quietly vulnerable. This week on With Flying Colors, I discuss this and much more with Mike Macchiarola of Olden Lane.

Read carefully, the most recent report tells a story that is more nuanced than the headline ratios suggest. The system is healthy, but the tone is cautious — and rightly so.

Strong Numbers, Softer Foundations

Start with what looks good. Total credit union assets stand at roughly $2.43 trillion, up modestly from the prior year. Return on assets has recovered to 79 basis points, up from 63 the year before. Net worth is healthy at around 11.3%. Membership sits at 144.7 million.

Those numbers would reassure any casual observer. The problem is what sits underneath them.

Some of that net worth is not organic. Employee Retention Tax Credit dollars and capital injected through the Emergency Capital Investment Program are still sitting in retained earnings. Net income in recent years was meaningfully boosted by these programs, and those boosts are one-time in nature. The underlying earnings engine of the industry is weaker than the surface numbers suggest.

The average credit union has also become larger — average asset size per credit union rose roughly 10% year over year. That is not because credit unions are organically growing faster. It is because the ones disappearing from the system are disproportionately on the smaller end, which mechanically lifts the average for everyone still standing.

The Middle Is Shrinking

Here is the most sobering data point in the report. The median credit union — the one sitting at the exact middle of the distribution — has posted negative member growth for six consecutive quarters.

That is not a recession-era blip. That is a structural trend. And it tracks with a related reality: new membership per branch has roughly halved since the second quarter of 2023, while the cost to acquire a new member has roughly doubled — from around $400 to approaching $900.

The math problem is visible. Credit unions are spending more to add fewer members, while competitors with no branches and a fundamentally different cost base are growing members by double-digit percentages annually.

The Demographic Question

Layered on top of the growth problem is a demographic one. The average credit union member is 53 years old. The average U.S. resident is 38 and a half. Baby boomers — ages 62 to 79 — now account for roughly 39% of credit union members, up from 28% a decade ago. That is a member base increasingly concentrated in drawdown years, not accumulation years, and decreasingly representative of where new household formation is happening.

Meanwhile, only about 10% of people who opened a new deposit account in the past year opened it at a credit union, down from roughly 16% a few years earlier. The next generation of deposit relationships is being formed — they are just not being formed at us.

The Bigness Question

None of this is distributed evenly. Credit unions under $500 million in total assets represent 73% of the industry by count, but only 13% of the industry's assets. At the other end, the 21 credit unions with more than $10 billion in assets hold 25% of the movement's assets.

Every key financial ratio in the report improves with size. Operating expense ratios are lower at larger institutions. Loan-to-share ratios are higher. Return on assets is stronger. Dividend rates paid to members are more competitive. That is not an ideological claim; it is what the numbers show.

The practical implication is not that small credit unions should disappear. It is that every credit union — of any size — needs to honestly assess whether it is delivering competitive value to its members, and whether its current scale and cost structure allow it to keep delivering that value a decade from now.

How to Use This

The Annual Report is most useful when you read it not as a report card on NCUA but as a set of trend lines that apply directly to your institution. The age of your members, your acquisition cost, your loan-to-share, your operating expense, your growth rate against the relevant peer group — all of those numbers matter more than the national averages. The averages tell you the weather. Your own numbers tell you whether you are dressed for it.

Read the report twice. Once for the headlines. Once for what is sitting underneath.