System Signals — Q1 2025
Signal 1: Delinquency Fell Seasonally but Remains Above a Year Earlier
The 60+ day delinquency ratio dropped to 0.80% from Q4 2024's 0.97%, an 18 bps fall that follows the usual first-quarter pattern. We read the dip as mechanical: IRS refunds arrive in February and March, borrowers catch up on missed payments, and 30–60 day balances cure before they migrate to 60+, particularly in consumer lending. It recurs every year.
Against the previous first quarter, the ratio is higher. Q1 2025's 0.80% is 2 bps above Q1 2024's 0.78%, so the seasonal trough has stopped falling, though it is not yet ratcheting sharply higher, and on that comparison the underlying credit trend is no longer improving. The largest credit unions continue to carry the heaviest delinquency: the over-$10B cohort sits at 1.13%, well above the 0.80% system figure.
What to watch
- Pressure: Q2 delinquency rebound — if it exceeds Q2 2024's level, the floor is ratcheting, not just holding
- Watch: Late-stage aging — the share of delinquency in the 360+ day bucket; the back end of the pipeline is the leading indicator
- Watch: Used vehicle values — collateral for the most stressed segment; further depreciation widens the negative-equity trap
Signal 2: NIM Recovery Continues, But ROAA Stalls
NIM expanded to 3.24% (annualized), up 24 bps year-over-year and extending the recovery off the 2023 trough. ROAA (annualized) was 0.67%, essentially flat against a year ago.
Net interest income rose 11% year-over-year, which we read as asset yields repricing higher while the most expensive deposit vintages rolled off. The rest of the income statement absorbed the margin gain: fee and other non-interest income fell about 7% year-over-year and operating expense rose 6%. Provision expense, up less than 4%, was a minor factor.
We read the earnings recovery as narrow. It rests on the margin alone while falling fee income and rising costs pull the other way, and a flat ROAA on a rising margin raises a question of earnings quality that lies in fees and costs, not in credit.
What to watch
- Watch: Fee income & operating leverage — non-interest income is shrinking while costs rise; until that turns, margin gains keep leaking out before they reach ROAA
- Favorable: Q1 annualization noise — the Q1 figure is a single quarter multiplied by 4, which amplifies one-quarter moves; Q2 will show whether the trend holds
Signal 3: Deposits Surge, But the Funding Mix Is Shifting
Shares and deposits grew 3.5% in the quarter, the strongest quarterly growth in over a year. Borrowings declined to $87.4 billion from $96.5 billion.
We read the deposit growth as seasonal Q1 inflows (tax refunds, bonus payments) together with continued demand for share certificates. Borrowings are down 34% year-over-year, continuing the wholesale deleveraging that began in mid-2024, as institutions used deposit inflows to pay down FHLB advances.
The funding picture improved, though we read the improvement as seasonal: deposit growth typically slows or stalls in Q2. Whether the system can fund continued loan growth from retail deposits alone, or will need to borrow again, remains open.
What to watch
- Watch: Q2 deposit growth — if it falls below 0.5%, the funding gap reopens
- Watch: Certificate competition — share-certificate rates vs. regular-share rates; the cost driver for funding expense
- Pressure: Borrowings reversal — any uptick in wholesale funding would signal the deleveraging cycle is over
- NIM and ROAA are annualized from a single quarter, which amplifies one-quarter moves.
- That the delinquency floor has stopped falling rests on one year-over-year comparison of first quarters.
- The causes the report names, tax-refund curing and deposit repricing among them, are its reading of system figures; it does not test them.