Asset Quality Under Pressure — Q4 2025

Asset Quality Under Pressure

Key Metrics — Latest Quarter

The 1% Threshold

The industry 60+ day delinquency ratio climbed 50 basis points (bps) from 0.52% in 1Q23 to 1.02% in 4Q25, crossing the 1.00% mark for the first time in this 12-quarter window. In dollar terms, total delinquent loans rose from $8.09B as of 3/31/2023 to $17.76B as of 12/31/2025 — a 119% increase that outpaced loan portfolio growth over the same period.

The sawtooth pattern visible in the trend — a dip each first quarter followed by a steady climb through year-end — is a well-understood seasonal artifact: tax refund receipts cure some early-stage delinquencies in Q1, while year-end charge-off activity removes the most impaired balances from the delinquent pool. But the year-over-year trajectory cuts through the seasonality: each Q4 peak has been materially higher than the prior year (0.83% at 12/31/2023 → 0.97% at 12/31/2024 → 1.02% at 12/31/2025), confirming a sustained upward trend rather than a one-time normalization.

Aging in Place

The delinquency problem is not just getting larger — it is getting older. While the 30–59 day bucket (early-stage, not included in the 60+ day ratio) expanded to $19.98B by 4Q25, the deepest aging categories grew faster in relative terms. Loans 360+ days past due rose from $0.69B in 1Q23 to $1.76B in 4Q25 — a 155% increase — indicating that troubled loans are aging in place rather than being resolved through workout, restructuring, or charge-off.

The 90–179 day and 180–359 day buckets tell a similar story: 90–179 day balances nearly doubled from $3.59B to $6.97B, and the 180–359 day bucket roughly doubled from $1.24B to $2.46B. This pattern — rising inflows at the front end combined with slower resolution at the back end — produces a compounding effect on total delinquent balances and signals that current loss mitigation and collection capacity may be lagging the pace of borrower distress.

Used Vehicles: The Dominant Consumer Driver

Within the consumer non-RE segment, used vehicle loans are the single largest contributor to 60+ day delinquency at $3.64B in 4Q25 — representing 42% of all consumer non-RE delinquent balances. Credit card delinquency follows at $1.90B (22%), with new vehicle loans at $0.98B (11%). Student loan and Payday Alternative Loan (PAL I and PAL II) delinquency remain small and relatively stable, contributing $0.08B and $0.01B, respectively.

The concentration in used vehicles is not surprising given the loan characteristics: longer terms (often 72–84 months), elevated rates (reflecting both risk tier and the post-2022 rate environment), and rapid asset depreciation that pushes borrowers into negative equity early in the loan term. This combination limits borrower options — refinancing is difficult when the loan balance exceeds collateral value, and voluntary surrender or sale leaves a deficiency balance. For credit unions with outsized indirect used vehicle portfolios, this dynamic creates sustained loss pressure that will likely persist until the vintage matures or the vehicles are repossessed and liquidated.

All three major consumer categories — used vehicle, new vehicle, and credit card — have grown steadily across the 12-quarter window, showing no sign of plateauing as of 12/31/2025.

The Charge-Off Pipeline

Year-to-date net charge-offs reached $13.22B as of 12/31/2025, up from $13.06B in FY2024 and $9.57B in FY2023. While the year-over-year increase moderated between FY2024 and FY2025 (1.3% vs. the 36% jump from FY2023 to FY2024), the absolute level remains elevated, and the flattening partly reflects the denominator effect of a larger loan portfolio rather than a true improvement in loss rates.

Gross charge-offs totaled $16.00B in FY2025, up from $15.56B in FY2024. Recoveries grew from $2.51B to $2.78B — a favorable development, but the recovery rate (recoveries as a share of gross charge-offs) remained essentially flat at 17.4%, indicating that the industry is not recapturing a larger share of its losses even as collection efforts presumably scale.

The YTD sawtooth pattern in the chart below reflects the cumulative nature of these figures: they reset each January and accumulate through December. Comparing Q4-to-Q4 (full-year) figures provides the cleanest year-over-year signal.

The combined view — delinquent balances plus year-to-date net charge-offs — captures the full credit stress picture in a single measure. Delinquency is a point-in-time snapshot that understates cumulative losses already recognized through charge-off; adding back YTD net charge-offs corrects for this. The combined figure reached $30.98B at 12/31/2025, compared to $29.19B a year prior — confirming that total credit stress continues to expand even as the delinquency-only measure shows slower growth.

The Non-Accrual Signal

Non-accrual loans — those where the credit union has ceased recognizing interest income due to doubt about collectibility — rose from $5.91B as of 3/31/2023 to $12.43B as of 12/31/2025, a 110% increase. Unlike the 60+ day delinquency measure, non-accrual balances exhibit minimal seasonal volatility: the line climbs with near-monotonic consistency, reflecting the absorbing nature of this classification. Loans enter non-accrual status and tend to remain there until they are either charged off or restructured — they rarely cure back to performing status.

The non-accrual trend reinforces and sharpens the signal from the aging bucket analysis: troubled loans are not resolving quickly. The 360+ day delinquency bucket is growing, non-accrual is growing, and both are accelerating — a combination that typically precedes elevated charge-off activity in subsequent quarters. For credit unions evaluating ACL adequacy under CECL (Current Expected Credit Losses), the trajectory of non-accrual balances is a direct input to lifetime loss estimation and warrants careful review against current reserve levels.