- Key insight: Banks made $80.5 billion in the first quarter, with the rate of lending at its fastest pace in years.
- Supporting data: The net interest margin industry-wide fell by 8 basis points to 3.31%
- Expert quote: "We've had several consecutive quarters of very favorable banking conditions, but at the same time we're always mindful of risks." — Federal Deposit Insurance Corp. Chair Travis Hill.
Banks made stronger earnings and continued to lend more in the first quarter of 2026, though net interest margins compressed and unrealized losses on securities grew, according to the Federal Deposit Insurance Corp's latest Quarterly Banking Profile released Wednesday.
The FDIC's first-quarter report showed that the industry enjoyed generally favorable asset quality and continued to see deposit growth. But at the same time, capital ratios declined somewhat due to growth in balance sheets outpacing capital. The agency also said the Deposit Insurance Fund reserve ratio — the fund's balance relative to total insured deposits system-wide — rose to 1.43%, above the statutory minimum of 1.35%.
"We've had several consecutive quarters of very favorable banking conditions, but at the same time we're always mindful of risks," FDIC Chair Travis Hill said in a press conference announcing the report.
FDIC insured institutions reported $80.5 billion in net income in the first quarter, up $2.8 billion, or 3.6%, from the prior quarter and up $10.1 billion, or 14.3%, from a year earlier. The quarterly increase was driven primarily by a $5 billion hike in noninterest income at big banks, though gains were partially offset by higher noninterest expenses and lower net interest income.
The industry's return on assets ratio rose to 1.26% in the first quarter from 1.23% in the fourth quarter of 2025 and 1.16% from Q1 2025. More than half of firms, or 55.2%, saw higher quarterly earnings from the prior quarter.
Net operating revenue, which combines net interest income and noninterest income, increased $3.4 billion, or 1.2%, from the prior quarter to reach $282.7 billion. Noninterest income rose 5.8% on stronger trading revenue and gains on loan sales, while net interest income fell $1.6 billion, or 0.8%, as industry-wide interest income dropped faster than interest expenses.
The industry's net interest margin declined 8 basis points from the previous quarter to 3.31%. According to the FDIC, the decline stemmed from "yield on earning assets falling at a faster rate relative to the cost of funds."
Banks' noninterest expenses increased by $2.5 billion, or 1.6%, from the prior quarter and increased $10.6 billion, or 7.1%, from a year earlier, to a total of $159.8 billion. The quarterly increase was driven largely by higher salaries and employee benefits, which rose $4.5 billion, or 6%.
Provision expense was $21.4 billion in total during the quarter, up $475.2 million, or 2.3%, from the previous quarter yet still down $1 billion, or 4.6%, from the same quarter last year. The agency said provision expenses overtook total net charge-offs during the quarter.
Asset quality metrics remained relatively stable overall. The industry's past-due and nonaccrual loan rate declined 3 basis points from the prior quarter to settle at 1.53%. Credit card and auto loan delinquency rates, down 7 and 42 basis points in the first quarter respectively, improved on a "seasonal basis," while delinquencies tied to residential and commercial real estate loans increased modestly.
Unrealized losses on securities increased in Q1 from the fourth quarter last year. Unrealized losses totaled $325.1 billion in the first quarter, up $19 billion, or 6.2%, from the prior quarter, though still down 21.3% from a year earlier. The FDIC said rising mortgage rates in March reduced the value of mortgage-backed securities banks held.
"The 30-year mortgage rate remained relatively flat during the first two months of the quarter but rose in March, decreasing the value of mortgage-backed securities reported by banks and increasing unrealized losses," the FDIC noted in a release.
The banking industry reported total assets of $26.1 trillion in the first quarter, up $888 billion, or 3.5%, from the previous quarter and up $1.6 trillion, or 6.6%, from Q1 2025. Growth was driven by higher balances in trading accounts, loans and leases, and deposits.
Total loan and lease balances increased $215 billion, or 1.6%, from the prior quarter to $13.7 trillion. Commercial and industrial lending posted the largest portion of the increase, rising $96.2 billion, or 4%.
Annual loan growth accelerated to 7.1% in the first quarter, representing the industry's fastest yearly pace since the second quarter of 2023.
Domestic deposits increased $389.7 billion, or 1.2%, which was the seventh consecutive quarterly increase. Estimated uninsured domestic deposits rose $233.5 billion, or 2.9%, driving much of the increase.
Capital ratios declined modestly. The Tier 1 risk-based capital ratio fell 18 basis points from the prior quarter to 13.91%. The industry leverage ratio dropped 11 basis points to 9.15%.
The number of problem banks, or those with a CAMELS composite rating of four or five, declined by a net six during the quarter to 54 institutions, with three additions and nine removals, a normal noncrisis level according to the FDIC.
The Deposit Insurance Fund balance rose $3.6 billion during the quarter to $157.4 billion. The reserve ratio increased 1 basis point to 1.43%.
The total number of banks dropped by 60 during the quarter to 4,278. Three new banks opened during this period, while 54 institutions merged with other banks, six firms were sold to nonbanks and one bank
