US Banks Post $79.3 Billion Q3 Profit as Interest Income Swells
FDIC report shows a 13.5% quarterly profit jump, but a one-time accounting gain masks underlying credit quality concerns in some loan portfolios.
The U.S. banking industry reported a robust third quarter, with aggregate net income for FDIC-insured institutions surging by 13.5% to $79.3 billion, driven by strong interest income and a significant drop in funds set aside for potential loan losses.
The data, released Monday in the Federal Deposit Insurance Corporation's Quarterly Banking Profile, paints a picture of a sector capitalizing on a favorable interest rate environment. Net interest income grew by $7.6 billion, or 4.2%, from the previous quarter. The industry’s average net interest margin (NIM) — a key metric of lending profitability — expanded by 9 basis points to 3.34%, surpassing its pre-pandemic average.
A primary driver of the headline profit number was a steep $9.2 billion (30.7%) decline in provision expenses. However, the FDIC noted this decrease was largely attributable to a one-time accounting adjustment following Capital One’s acquisition of Discover Financial Services, rather than a broad-based improvement in credit expectations across the sector.
"While the industry remains on strong footing, the story is more nuanced than the bottom-line number suggests," noted one analyst. The industry's return on assets (ROA), another measure of profitability, rose to 1.27% for the quarter.
Overall loan and lease balances continued to expand, growing by $159 billion, or 1.2%, from the prior quarter. Domestic deposits also rose for the fifth consecutive quarter, increasing by $92.2 billion. This systemic stability extended to smaller lenders, with community banks reporting an impressive 9.9% quarterly profit increase to $8.4 billion.
Despite the strong headline figures, the FDIC report highlighted persistent stress in specific credit portfolios. Past-due and nonaccrual rates for loans tied to commercial real estate, auto financing, and credit cards remained above pre-pandemic averages, signaling potential headwinds if economic conditions worsen.
Analysts offered a mixed outlook for the sector heading into 2026. Analysts at Barclays expressed optimism for mid-sized banks, citing positive commentary from executives on borrower health and benign credit conditions. They see an improving regulatory environment and potential M&A activity as further tailwinds.
However, a report from Deloitte cautioned that 2026 could be a "defining year," as macroeconomic uncertainty, persistent inflation, and increased competition from nonbank entities test bank revenues and profitability. While strong capital levels provide a buffer, the firm anticipates that banks will face pressure to defend margins and diversify income streams.
For now, the sector's health appears solid, with the FDIC's Deposit Insurance Fund (DIF) balance growing by $4.8 billion to $150.1 billion. The reserve ratio, which measures the fund against total insured deposits, increased by 4 basis points to 1.40%, indicating a healthy cushion to protect depositors.