System Signals — Q3 2025
Signal 1: At Its Current Pace, Delinquency Would Cross 1% Next Quarter
The 60+ day delinquency ratio rose to 0.95%, up 4 bps in the quarter. The over-$10B cohort reached 1.36%, now 41 bps above the system average and the highest of any tier.
We read the same structural forces at work: used-vehicle negative equity, consumer-lending stress in the largest credit unions' portfolios, and late-stage delinquency aging in place. The cohort divergence widened in the quarter, with the largest institutions deteriorating faster than the system.
At the current pace, the Q4 reading would exceed 1.00%, a round number that marks no particular level of risk. We read the aging profile as the more useful measure, and it indicates the charge-off acceleration is still ahead.
What to watch
- Pressure: The 1% threshold — the Q4 reading will determine whether the system crosses this watched mark
- Pressure: Cohort spread — if the over-$10B gap widens past 50 bps, concentration risk becomes the dominant story
- Watch: Non-accrual balances — the bridge between delinquency and charge-offs; rising non-accruals confirm the aging thesis
Signal 2: NIM Expansion Is Effectively Over
NIM edged up to 3.33% (annualized), a second small gain after Q2's, and we read the margin as having reached a plateau.
We read the asset-yield repricing cycle as essentially complete. New production yields are at or below the portfolio average for most loan categories, while deposit costs keep rising slowly and steadily. On that reading, the spread between asset repricing and liability repricing has closed.
This is the plateau we flagged in Q2. At 3.33%, NIM is high by historical standards, but its rise has slowed. With that tailwind exhausted, the earnings outlook depends on loan volume and expense discipline rather than on a widening spread.
What to watch
- Pressure: Q4 NIM direction — a flat or negative reading would confirm the expansion is over
- Watch: Interest expense — the lagging indicator that determines whether NIM plateaus or compresses
- Favorable: Non-interest income — any offset to margin pressure would have to come from fee revenue; watch for a turn here
Signal 3: Earnings Improve as the Margin Outruns Provisioning
Nine-month ROAA reached 0.80% (annualized), up 11 bps year-over-year, so the earnings recovery is still building. Net interest income grew 12.8% year-over-year while provision expense rose 5.4%, and provision as a share of net interest income eased to about 17.5% from 18.7% a year earlier.
Provisioning, for now, takes a shrinking share of the margin, so we read the vulnerability as lying ahead. The margin behind this recovery has reached a plateau (Signal 2), while the delinquency pipeline that should eventually demand higher provisions is still building (Signal 1). ROAA turns down when those two lines cross, a flat margin meeting rising credit costs, and that has not happened yet.
The cohort detail is consistent with a cautious reading: every asset tier posted a positive ROAA, from 0.68% at the $500M–$1B tier to 0.84% at the over-$10B tier.
What to watch
- Watch: Provision-to-NII trajectory — it eased this year; a reversal as the delinquency pipeline converts to losses would be the clearest sign the recovery is rolling over
- Watch: Q4 full-year ROAA — the cleanest comparison point (not annualized); compare to 2024
- Pressure: Margin–credit crossover — the quarter NIM stops rising while provisions climb is when ROAA turns down
- ROAA is annualized from nine months; the full-year Q4 figure, which is not annualized, is the cleaner comparison.
- The delinquency threshold the report watches is arbitrary, and that Q4 crosses it is an extension of the current pace.
- The report names used-vehicle negative equity, consumer lending and late-stage aging as the forces behind delinquency; it shows no figure for any of them.
- That asset repricing is complete is argued from the margin's shrinking increments; the report shows no loan yield or deposit cost.