- Key insight: Banks earned $90.1 billion in the second quarter as lending picked up and asset quality remained healthy overall.
- Supporting data: Loan balances rose 6.8% from a year earlier and domestic deposits increased for the eighth consecutive quarter.
- Expert quote: "We had solid earnings this quarter once again. This is now several quarters of very robust loan growth after previously tepid loan growth, which I think overall is indicative of strong economic conditions in the country." — Federal Deposit Insurance Corp. Chair Travis Hill.
Banks had strong earnings and robust lending in the second quarter of 2026, with asset quality improving and domestic deposits increasing for the eighth consecutive quarter, according to the Federal Deposit Insurance Corp.'s latest Quarterly Banking Profile issued Tuesday.
The industry made $90.1 billion in net income in the second quarter, an increase of $9.7 billion, or 12%, from the prior quarter and $20.1 billion — or 28.7% — from the same period last year.
The industry's overall return on assets increased to 1.37%. At the same time, capital ratios declined as asset growth outpaced capital accumulation, and unrealized losses on securities — which topped $326.7 billion overall — rose $1.6 billion, or 0.5% from the first quarter. Even so, unrealized losses were down 17.4% from a year prior.
"We had solid earnings this quarter once again," said FDIC Chair Travis Hill. "This is now several quarters of very robust loan growth after previously tepid loan growth, which I think overall is indicative of strong economic conditions in the country."
The FDIC attributed the relative jump in net income to a $5.5 billion increase in revenue banks made from trading and charging consumers fees, securities gains, higher net interest income and a decline in provision expenses. Those gains were somewhat counteracted by a $4.4 billion increase in noninterest expenses.
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Sixty-nine percent of institutions reported higher net income in the second quarter. The industry's interest margin also ticked up 1 basis point to 3.32%, as yields on earning assets rose slightly faster than funding costs.
Banks experienced broad revenue gains, with net operating revenue rising 3.8% from the first quarter. Expenses rose in tandem, however, with noninterest expenses up 2.8% from the first quarter and 10% from a year earlier. Provision expense moved in the opposite direction, dropping 10% from the prior quarter and 35.8% from a year earlier to reach $19.3 billion.
Asset quality also remained relatively healthy. Past-due and nonaccrual loans decreased by 9 basis points from the first quarter to 1.44%, while the industry's net charge-off rate decreased to 0.57%. The number of problem loans went down across several lending categories, including commercial real estate, credit cards, commercial and industrial lending and residential mortgages.
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Banks also expanded their balance sheets in Q2, with the total industry assets totaling $26.5 trillion. Loans — which grew 1.8% from the first quarter to $13.9 trillion — were a prominent driver of this expansion, rising 6.8% from a year earlier.
Lending to nonbanks and loans tied to securities purchases saw the largest nominal dollar increases. Domestic deposits also rose 0.8% for the quarter, marking the eighth quarterly increase in a row.
Much of the deposit growth came, however, from uninsured deposits, which increased 3.8% from the prior quarter.
Growth in revenue and loans ate away at industrywide capital, as assets grew faster than unborrowed equity. The industry's Tier 1 risk-based capital ratio fell 17 basis points to 13.75%, while the leverage ratio declined by roughly the same amount to 8.98%. This comes as the FDIC, Office of the Comptroller of the Currency and Federal Reserve last fall
The overall number of distressed "problem" banks decreased by seven to settle at 47 institutions, or 1.1% of the industry. This is well within the FDIC's "normal range" between 1 to 2 percent for non-crisis periods.
The total number of banks also fell in Q2. The FDIC reported 41 fewer banks during the quarter leaving the overall number of FDIC-insured firms at 4,238 after 36 bank mergers, four banks were sold to nonbanks, four banks opened and one failed.
