According to numbers released Monday by the Federal Deposit Insurance Corporation, the US banking industry’s quarterly profitability rebounded sharply, jumping 13.5% to $79.3 billion in the third quarter of 2025.
The agency ascribed the increase to a combination of higher non-interest income and a reduction in loss-provision charges, which had hampered industry performance in the previous period.
Those levels had been high in the second quarter, related to the merger between Capital One and Discover Financial, completed at the time.
In pushing back merger-related pressures, banks can also decrease their reserves for potential loan losses, which helps overall profitability.
The FDIC stated that the higher earnings were mostly due to an increase in non-interest income expense, as well as banks incurring lower loss provision expenses.
While earnings did beat expectations, regulators noted that the sector is still working through heightened stress in some areas of lending.
While broader conditions are still solid, delinquency rates in areas like commercial real estate, auto finance and credit card lending are much higher than historical norms.
But the agency points out that even as broader financial indicators improve, these segments of the market remain closely watched.
Persistent loan stress remains a risk factor
In particular, the FDIC still see non-owner-occupied commercial real estate as an ongoing concern. In the third quarter, those entities also reported a 4.18% past-due rate in that category for banks with more than $250 billion in assets.
Although better than the 4.99% high hit 12 months earlier, it is still well above the 0.59% pre-COVID long-run average, highlighting the extent to which commercial property markets are still struggling to find their feet.
The overall past-due rate in the industry was unchanged at 1.49% of total loans across all loan types. The figure is below the pre-pandemic average of 1.94%, providing some comfort that overall credit quality appears manageable even as segments encounter stress.
According to the FDIC, stable capital positions and abundant liquidity available to banks still provide significant buffers against future losses.
“The banking industry continued to have strong capital and liquidity levels, which support lending and protect against potential losses,” acting FDIC Chairman Travis Hill stated in prepared remarks posted alongside the data.
Deposits rise for fifth straight quarter
The deposit funding of banks also witnessed sustained positive developments. Industry-wide deposits grew for the fifth straight quarter, buoyed by $88.6 billion in new uninsured deposits, a 1.1% quarter-over-quarter uptick.
The increase in uninsured deposits indicates that large depositors are starting to regain confidence in the banking system after a turbulent few years.
The FDIC said the number of “problem banks”, those with low supervisory ratings, declined by two during the quarter, bringing the total to 57.
Even though the number of problem banks is arguably the most closely watched metric by regulators, the marginal decrease in this figure reflects a degree of stabilisation amongst the more endemic loss institutions.
Meanwhile, there was still sector consolidation taking place. During the three months, 42 US banks were sold or merged, driving the total number of US banks down.
The agency did not elaborate on the transactions behind those reductions, but the trend is consistent with macro structural changes in the banking industry, where many institutions have been driven toward combination by scale, technology investment, and funding costs.
Industry outlook steady but watchful
Taken together, the third-quarter data show a banking sector that remains lucrative and well-capitalised while nevertheless facing pressure in certain lending markets.
The increase in net income, combined with increased deposits and a decreased number of troubled banks, demonstrates that the sector has maintained significant resilience.
Still, the FDIC’s emphasis on commercial real estate, auto, and credit card delinquencies suggests that credit performance will remain a critical variable in coming quarters.
With large banks continuing to report past-due rates far above pre-pandemic levels in certain categories, authorities are likely to maintain careful control even if broader indicators improve.
The combination of reducing provision expenditures, consistent liquidity, and controllable overall credit conditions offered a favourable backdrop for banks in the third quarter.
If that momentum carries forward will depend in part on how fast stressed loan sectors stabilise and if deposit flows stay supportive in the months ahead.
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