KBRA Financial Intelligence

Mortgage Rates Reach 2025 Low as Residential Lending Lags

By KFI Staff

Per Freddie Mac’s Primary Mortgage Market Survey, the average interest rate on a 30-year fixed mortgage fell to a 2025 low of 6.56% in the final week of August. That drop capped a third consecutive monthly decline in mortgage rates and marked the second largest year-to-date. KBRA Financial Intelligence (KFI) noted that persistently high mortgage rates have likely deterred prospective buyers, many of whom may be postponing purchases in anticipation of more favorable borrowing conditions.

Call reports available on KFI’s bank and credit union data platform show that mortgage borrowing at U.S. banks remained relatively steady over the past year but continued to trail total loan growth in each of the last four quarters through 2Q 2025. While total loans held by U.S. banks increased by a two-year high of 4% in the latest quarter, mortgage lending has risen just 1.7%.

Among nearly 4,400 U.S. commercial and savings banks reporting residential mortgage holdings in 2Q 2025, the average residential mortgage delinquency rate was 1.52%. That is down 14 basis points (bps) from 1Q 2025, tying the largest quarter-over-quarter (QoQ) decline in four years. However, that delinquency rate remained slightly above the five-year moving average (MA) of 1.5% for a third straight quarter.

Softness in home sales is contributing to home purchase price declines across each of the past three months to July, according to Federal Housing Finance Agency (FHFA) data. That can largely be chalked up to a surge in home inventory on the market, which is up more than 15% over the last year and reached its highest since May 2020, during the COVID lockdown, according to the National Association of Realtors (NAR). In late July, KFI noted that a particularly steep increase in newly built home inventory could further dampen activity among homebuilders and lower demand for residential construction and development loans.

KFI also highlighted the housing market’s critical role in determining the trajectory of inflation via the shelter components of key inflation gauges, and consequently its importance in determining the Federal Reserve’s approach to further monetary easing. The shelter component of the Consumer Price Index (CPI), which represents roughly one-third of the index’s total weight, experienced its smallest year-over-year increase since 2021 in July. If shelter continues its path of steady disinflation in the coming months, it may partially offset any upward price pressures emanating from other goods and services.

August 2025 M&A

Lexington, Kentucky’s $1.5 billion UK Federal Credit Union (KFI Score: B) announced in an August 1 press release that it will acquire $80.3 million Cove Federal Credit Union (KFI Score: B) in Edgewood, Kentucky. The deal of undisclosed value is expected to close in 2Q 2026.

Premier Holdings, Ltd., parent company of Rock Valley, Iowa’s $716.4 million Premier Bank (KFI Score: B), announced on August 4 that it will acquire $53.9 million Adrian State Bank (KFI Score: B-), a subsidiary of Adrian, Minnesota’s Adrian Building Corp. The deal of undisclosed value is expected to be completed in early 2026.

Cincinnati, Ohio-based First Financial Bancorp. (NASDAQ: FFBC) (KFI Score: B), parent of $18.5 billion First Financial Bank (KFI Score: B) announced in an August 11 press release that it will acquire Chicago, Illinois’ BankFinancial Corp. (NASDAQ: BFIN) and its $1.4 billion commercial bank subsidiary, BankFinancial, N.A. (KFI Score: B). The all-stock transaction, worth $142 million, is expected to close in 4Q 2025.

Ephrata, Pennsylvania-based Ephrata National Bank (KFI Score: B) announced in an August 13 press release that the $2.2 billion bank will acquire $222 million Elkton, Maryland-based Cecil Bank (KFI Score: B) in an all-cash transaction valued at $30.8 million. The deal is expected to close in 1Q 2026.

Elkins, West Virginia-based Citizens Bank of West Virginia, Inc. (KFI Score: B) announced in an August 18 press release that the $682 million bank will acquire $68 million Thomas, West Virgina-based Miners and Merchants Bank (KFI Score: B-) for an undisclosed price. The deal is expected to close in 1H 2026.

Marlborough, Massachusetts-based Saint Mary’s Credit Union (KFI Score: B-) announced in an August 18 press release that the $1 billion credit union will acquire $140 million Framingham, Massachusetts-based MetroWest Community Federal Credit Union (KFI Score: B-) for an undisclosed price. The deal is expected to close in early 2026.

Portsmouth, Virginia-based TowneBank (NASDAQ: TOWN) (KFI Score: B+) announced in an August 19 press release that the $18.3 billion bank will acquire $2.4 billion Raleigh-based Dogwood State Bank (KFI Score: B) in an all-stock transaction valued at $476.2 million. The deal is expected to close in early 2026.

Perryville, Missouri-based Reliable Community Bancshares (KFI Score: B), parent company of $3.1 billion The Bank of Missouri (KFI Score: B+), announced in an August 20 press release that the company will acquire Clayton, Missouri-based M1 Bancshares and its bank subsidiary $1.2 billion M1 Bank (KFI Score: B) for an undisclosed price. The expected close date of the deal was also not disclosed.

Hunt Valley, Maryland-based Point Breeze Credit Union (KFI Score: B) announced in an August 29 press release that the $968 million credit union will acquire $43 million Towson, Maryland-based Central Credit Union of Maryland (KFI Score: B) for an undisclosed price. The deal is expected to close in early 2026.

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