US Banks Report Higher Q1 Profits Despite Rising Unrealized Investment Losses
US banks reported $80.5B in net income for Q1 2026, up 3.6% from the prior quarter, according to the FDIC's quarterly banking profile released this week.
Noninterest income at larger institutions drove the gain, rising $5.0B, or 5.8%, from Q4 2025.
Higher noninterest expenses and lower net interest income partially offset those gains.
The industry's return on assets came in at 1.26%, up 2 basis points from the prior quarter and up 10 basis points from a year earlier.
Annual loan growth reached 7.1%, the fastest pace since Q1 2023, while total loan and lease balances rose 1.6% from Q4 2025.
Commercial and industrial loans and loans to nondepository financial institutions led the quarterly increase in dollar terms.
Domestic deposits grew for the seventh straight quarter, rising $389.7B, or 2.1%, during the period.
Community banks kept pace, with net income up 3.9% quarter-over-quarter on lower provision and noninterest expenses.
Unrealized Losses Climb on Mortgage Rate Spike
The net interest margin narrowed 8 basis points to 3.31%, as the yield on earning assets fell faster than the cost of funds.
Unrealized losses on investment securities grew 6.2% from Q4 2025 to $325.1B. A rise in 30-year mortgage rates in March reduced the value of mortgage-backed securities.
Provision expense totaled $21.4B, up 2.3% from the prior quarter. From a year earlier, it fell 4.6%.
The overall past-due and nonaccrual rate edged down to 1.53%. Stress persisted in credit card, auto, multifamily commercial real estate, and non-owner-occupied commercial real estate portfolios.
"These issues will remain matters of ongoing supervisory attention," FDIC Chair Travis Hill said.
The number of banks on the FDIC's problem bank list fell by six to 54, representing 1.3% of all insured institutions. That sits within the historical normal range of 1% to 2%.
One bank failed during the quarter, while three new banks opened.
The Deposit Insurance Fund balance rose $3.6B to $157.4B. The reserve ratio ticked up 1 basis point to 1.43%.
Bloomberg Intelligence forecasts that net interest margin momentum has likely stalled as prospects for Federal Reserve rate cuts fade. Competition for deposits and lending could push funding costs higher.