U.S. banks made more money in the first three months of 2026. But their profit from lending narrowed, and the value of their bond holdings remained under pressure.
The Federal Deposit Insurance Corporation, or FDIC, released its quarterly report on bank performance. The numbers show a mixed picture: higher earnings driven by big banks, but stress in some areas.
The quarterly report covers more than 4,000 FDIC-insured institutions and provides a snapshot of the banking industry's financial health. While the headline profit figure was bolstered by strong noninterest income at the largest banks, the underlying trend in net interest margins remains a concern as the cost of deposits continues to rise. The FDIC pointed out that the net interest margin, the gap between interest earned on loans and paid on deposits, shrank a little in the quarter.
Return on assets - a measure of profit as a share of total assets - came in at 1.26 percent. That was up 2 basis points from the prior quarter and up 10 basis points from a year earlier.
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Most of the earnings gain came from a large rise in noninterest income at bigger banks. Noninterest income includes fees, trading revenue, and other sources outside of lending. This boost was partly offset by higher noninterest expense and a small drop in net interest income.
Net interest income declined $1.6 billion, or 0.8 percent, from the prior quarter. Noninterest income rose $5.0 billion, or 5.8 percent. Noninterest expense increased $2.5 billion, or 1.6 percent.
Net income at community banks climbed 3.9% from the prior quarter, aided by reduced provision and noninterest costs. Their pretax return on assets stood at 1.42% in Q1 2026, increasing 7 basis points quarter over quarter and 26 basis points from a year earlier.
Credit quality remained generally favorable. The provision expense for credit losses, the money banks set aside for bad loans, increased 2.3 percent from the prior quarter but declined 4.6 percent year over year.
Overall asset quality stayed favorable, though the FDIC is closely tracking ongoing softness in some loan portfolios. Unrealized losses on securities continued at high levels. Capital and liquidity remained robust across the industry, providing a cushion against losses and supporting lending activity.
The FDIC said, "We will keep watching several areas of weakness, which we continue to monitor closely." Strong capital and liquidity levels are expected to support lending and cushion against potential losses.
The banking industry has navigated a prolonged period of higher interest rates, which has squeezed net interest margins even as loan demand held up. Hefty unrealized losses on bond holdings remain a concern, but most institutions hold those securities to maturity, limiting immediate impact. Community banks have shown particular resilience, leaning on lower operating costs and prudent provisioning to sustain profitability. The FDIC's broad outlook notes that while aggregate profits are healthy, divergent performance between large and small banks warrants continued vigilance.
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