Loan Growth and Portfolio Shift — Q4 2025

Loan Growth and Portfolio Shift

The Growth Picture

After decelerating through most of 2024 (bottoming at 0.17% QoQ in 1Q24), loan growth reaccelerated through 2025, climbing from 0.85% in 1Q25 to 1.97% in 4Q25. The recovery coincides with the NIM expansion documented in the earnings analysis — wider margins make lending more profitable, encouraging originators to compete more aggressively. Origination volume has followed: FY2025 originations totaled $610B, up 15.1% from $530B in FY2024.

The 4Q25 growth rate of 1.97% ranks 22nd out of 39 quarters with QoQ data — strong but not exceptional by historical standards. The 2Q23 reading of 2.21% remains the dataset high, reached during a period of aggressive lending that has since contributed to the delinquency deterioration visible in the asset quality data.

The Size Divide

The divergence across asset-size cohorts is striking and persistent. The $1B–$10B cohort — which holds $1.32T in assets, more than half the system total — posted 2.66% QoQ loan growth, the fastest of any tier. The over-$10B cohort grew 1.31%, a slower pace that likely reflects portfolio concentration limits and more conservative underwriting at the largest institutions.

At the other end, credit unions under $100M contracted 0.33% — extending a secular trend of lending market share consolidation. These institutions face structural headwinds: limited product breadth, higher per-loan origination costs, and field-of-membership constraints that limit growth opportunities. The mid-tiers ($100M–$500M at 0.80%, $500M–$1B at 1.49%) are growing but lagging the system average.

The Composition Shift

The aggregate growth numbers mask a structural rotation in what credit unions are lending on. Over the 12-quarter window, the portfolio has shifted meaningfully from consumer to real estate:

The residential real estate share of the portfolio has grown steadily, driven primarily by home equity lending. Junior liens (HELOCs and second mortgages) expanded 62% over the window as homeowners with record equity and high-rate first mortgages chose to borrow against their homes rather than refinance. New vehicle loans, meanwhile, have declined 8.7% as rate sensitivity dampened demand and indirect lending competition intensified. Used vehicle balances are essentially flat, and credit card balances — while growing — remain a small share of total loans.

This rotation has three implications:

1. Earnings duration extends. Real estate loans have longer maturities and slower prepayment speeds than consumer loans, meaning today's originations will generate interest income for 10–30 years rather than 3–7. This supports NII stability but locks in today's spreads for longer.

2. Credit loss timing slows. Consumer loan losses surface quickly (6–12 months from delinquency to charge-off). Real estate losses take 18–36 months to work through foreclosure, forbearance, and disposition. The industry's credit loss cycle will lengthen as the RE share grows.

3. Interest rate sensitivity increases. A portfolio weighted toward fixed-rate first mortgages and adjustable-rate HELOCs behaves differently under rate moves than one dominated by shorter-term consumer paper.

Loans and Liquidity

The loans-to-assets ratio dipped slightly to 70.69% from 70.97% in 3Q25, as share growth of 2.64% outpaced loan growth for the first time since 1Q25. The year-end deposit surge — a typical seasonal pattern — eased the funding picture: borrowings declined to $79.0B from $84.1B, the lowest level since early 2024, as institutions used deposit inflows to reduce wholesale funding.

The loans-to-assets ratio remains elevated by historical standards (it was 60.88% as recently as 4Q21) but is no longer climbing. The largest credit unions continue to run the tightest liquidity at 73.3%, while institutions under $100M sit at 52.3%.

Growth, Quality, and the Feedback Loop

The loan growth story cannot be read in isolation from the asset quality story. The quarters with the fastest growth in the dataset — 2Q22 through 4Q22, when QoQ rates ranged from 3.68% to 6.61% — are the vintages now driving the delinquency deterioration. Loans originated in a high-rate, high-demand environment with loosened credit standards take 12–24 months to season, and the current delinquency wave tracks that timeline precisely.

The 4Q25 growth reacceleration raises the question: is this round of lending being done more carefully? The answer will not be visible in the data for another year. What is visible now is that the over-$10B cohort — which is growing at 1.31%, below the system average — already carries a 1.49% delinquency ratio, 46 bps above the system mean. Growth and quality are inversely correlated across cohorts: the fastest growers ($1B–$10B at 2.66%) carry moderate delinquency (0.85%), while the cohort with the highest delinquency (over-$10B) has pulled back on growth.

This self-correction — slower growth at institutions already experiencing stress — is a healthy signal. Whether it holds through 2026, when margin pressure and competitive dynamics may incentivize reaching for volume, will be a key question for the next several quarters.