Quarterly Pulse — Q2 2025

System at a Glance

Capital Adequacy

Asset Quality

The seasonal pattern in delinquency — a Q1 dip driven by tax refund cures followed by steady deterioration through year-end — is intact, but the year-over-year trajectory is what matters: each quarter's reading is higher than the same quarter a year earlier. The 30–59 day early-stage bucket dropped sharply from $18.5B in 1Q25 to $14.2B in 2Q25, but this isn't curing — 60+ day balances rose from $13.3B to $15.3B over the same period, meaning early-stage loans are migrating deeper into later aging buckets rather than resolving. The 360+ day bucket continued its slow accumulation to $1.5B, indicating that the most impaired balances are not being charged off at a pace sufficient to clear the pipeline.

Allowance coverage tells a parallel story. ACL / delinquent loans 60+ fell to 145% from 164% in Q1 — the seasonal Q1 bounce has fully reversed as the delinquent denominator grew back while reserves held steady. ACL / total loans held flat at 1.31% despite the 1.80% loan growth, meaning new originations are diluting the coverage ratio without a corresponding reserve build. Annualized provision expense (CLE) edged up to 0.57% of average assets from 0.56% — a minimal response to the 11 bps quarterly increase in delinquency. The gap between credit deterioration and provisioning pace is a tension that will either resolve through higher provision charges in coming quarters or surface as an ACL adequacy concern in examination.

Earnings

The NIM improvement continues to draw from both sides of the spread. Cost of funds declined to 1.81% of average assets (annualized), down from 1.83% in Q1 — extending the downward trend that began after the 1.90% peak in Q4 2024. With the seasonal deposit surge now behind, the funding cost relief is shifting from volume-driven (Q1's deposit inflow) to rate-driven (maturing high-rate certificates rolling into lower replacement rates).

The earnings picture is bifurcated by size. The $500M–$1B tier is the relative underperformer at 61 bps ROAA, squeezed between the margin advantages of larger institutions and the cost discipline of smaller ones. The over-$10B cohort posts 79 bps despite carrying the highest delinquency — a function of scale-driven fee income and NIM advantages from larger, more diversified balance sheets.

Loan Growth & Composition

The system-wide loans-to-assets ratio ticked up to 70.63%, continuing its multi-year climb. The acceleration in loan growth is broad-based, which distinguishes it from prior quarters where growth was concentrated in the largest institutions. Whether this reflects genuine demand recovery or a loosening of underwriting standards in a competitive rate environment bears monitoring — particularly as delinquency ratios are simultaneously rising.

Liquidity

The Q1 liquidity cushion is being consumed. Borrowing reliance ticked up to 3.97% from 3.87% as institutions added $2.7 billion in wholesale funding to support loan growth that deposit inflows couldn't match. The cash buffer — cash and deposits as a share of total assets — dropped 105 bps to 9.43%, unwinding much of the Q1 seasonal improvement. The largest credit unions run the highest loans-to-assets ratios at 73%, while institutions under $100M sit at 53%.

If loan demand remains strong while deposit growth stalls near the 0.22% QoQ pace of this quarter, the funding gap will widen. Credit unions will need to draw down investment portfolios, increase borrowings, or compete more aggressively on deposit rates — each of which either compresses liquidity buffers, raises funding costs, or both. The speed of this reversal — from the healthiest liquidity reading in the dataset in Q1 to a clearly tightening position in Q2 — underscores how quickly the seasonal deposit cushion dissipates when loan origination pipelines are running at full capacity.

Standardized Data Table — Q2 2025

Key CAMELS-aligned metrics by asset-size cohort for the quarter ending June 30, 2025. Income-based ratios annualized from 6-month YTD figures. Growth rates are single-quarter (QoQ).

Notable Moves This Quarter

• Pressure: Delinquency approaching 1% — The system-wide 60+ day delinquency ratio hit 0.90%, the highest in the 10-quarter dataset. The over-$10B cohort's 1.25% is now 35 bps above the system average. Year-over-year, every asset tier is showing deterioration.
• Watch: Loan growth broad-based and accelerating — The 1.80% QoQ expansion is the strongest in the dataset and spans all five cohorts. Strong loan demand concurrent with rising delinquency is a combination that warrants underwriting scrutiny.
• Watch: Deposit growth stalling — Shares grew just 0.22% QoQ, well below the 1.80% loan growth. If this divergence persists, funding pressure will build — particularly for institutions already running elevated loans-to-assets ratios.
• Favorable: NIM recovery extending — NIM rose to 3.28% from 3.24%, the sixth consecutive quarterly increase since the 2.97% trough in 4Q23. The margin recovery is now well-established, though the benefit to bottom-line earnings is being partially offset by rising provision expense.