Q4 Banking Trends: Strong Net Income, Rising Deposits, Lower Unrealized Losses

The FDIC recently released the Quarterly Banking Profile for the 4^th quarter of 2025. This dense report provides a comprehensive view of the U.S. banking system and the changes in 4^th quarter – both the wins and the losses.

Banking leaders and treasury managers can use the data provided by the FDIC as a gauge of credit availability and the stability of financial institutions. The report is vast and time-consuming to review, so we have summarized the key points to save you time.

Net Income Declined for the Quarter but Remains Healthy

The banking industry reported net income of $77.7 billion in the 4th quarter, which marked a 2.0% reduction from the previous quarter. Historical context, summarized by the chart below, reveals that Q4 net income was the 2^nd highest in nearly 3 years – with the exception being the rapid acceleration in Q3.

The quarterly decline was driven by higher noninterest expense, which includes operational costs and other expenses that are not associated with interest payments. Additionally, applicable income taxes rose, further trimming the bottom line.

While costs and taxes rose for the quarter, there were also positive signs for the “core” functions of banking – lending and deposit taking. Net interest income increased by 2.2%, which is the difference between revenue from interest-bearing assets, like loans, and the expenses associated with interest-bearing liabilities, like deposits. The wide margin between interest received and interest paid was one reason the FDIC concluded that “the banking industry had a strong quarter.”

Loan Balances Rose at Fastest Pace in Nearly 3 Years

Total loan balances increased by $267.8 billion, a quarterly growth rate of 2.0%. On an annualized basis, loan balances grew at 5.9% – the fastest pace in 11 quarters.

As shown by the chart below, loan growth has increased for 7 straight quarters, and the acceleration in the 4^th quarter represented a particularly significant increase.

Loan growth in the 4^th quarter was driven by loans to non-depository institutions, which usually consist of credit lines to finance or private equity firms. Credit card balances also rose notably for the quarter, which helped to bolster loan growth.

Asset Quality Remained “Generally Favorable”

The FDIC described asset quality in the 4^th quarter as “generally favorable.” However, both the Past-Due and Nonaccrual [PDNA] and net charge-off rates increased for the quarter as shown by the chart below.

The industry-wide PDNA rate rose by 0.07 percentage points to 1.56%. Even with the quarterly increase, the overall PDNA rate remains well below the pre-pandemic average of 1.94%.

Some types of loans had PDNA rates above their pre-pandemic averages, including non-owner-occupied commercial real estate [CRE], multifamily CRE, auto, and credit card loans. These portfolios have trended above pre-pandemic PDNA rates for several quarters.

The industry-wide net charge-off rate increased by 0.1 percentage points to 0.63%. This rate measures the percentage of loans a bank deems uncollectable. Net charge-off rates remain 0.15 percentage points above the pre-pandemic average, driven by stress in the auto and credit card sectors.

Deposits Rose for a Sixth Consecutive Quarter

Domestic deposits at U.S. banks rose by $318.3 billion, or 1.8%, marking the 6^th consecutive quarter of increase. The growth was driven by a significant increase in uninsured deposits of $214.7 billion. These are deposits above the $250,000 per bank limit, which means they do not qualify for FDIC protection.

As the graph below shows, deposits grew at the fastest pace in 4 years during the 4^th quarter.

Deposit levels are important to banks because they represent a large portion of assets that are available to lend. Business leaders also monitor deposit levels, because they influence the rate that banks pay for cash. In short, banks that are flush with cash are less likely to raise the rates they pay depositors, when compared to banks that need deposits.

Unrealized Losses Fell To 3-Year Low

Unrealized losses on held-to-maturity and available-for-sale securities fell by $31.0 billion to $306.1 billion in the 4^th quarter, representing a decline of 9.2%. This change brought unrealized losses to their lowest level since Q1 2022, as illustrated by the chart below.

Unrealized losses made headlines in 2023 when they were believed to have contributed to the failures of Silicon Valley Bank and Signature Bank. When these banks were forced to sell assets and realize the losses, turmoil ensued.

While unrealized losses among FDIC member banks have steadily declined since 2023, the figure remains elevated compared to historical averages. The FDIC wrote that unrealized losses will “remain matters of ongoing supervisory attention.”

The FDIC Appears Well-Prepared to Combat Potential Threats to the Banking System

The FDIC’s 4^th quarter report suggests a rosy picture for the banking industry, but recent bouts of banking turmoil have shown just how quickly things can change. Fortunately, the FDIC reported a manageable number of troubled banks and an increasing reserve fund in the 4^th quarter.

The Number of “Problem Banks” Remains Within a Normal Range

The number of banks on the “Problem Bank List,” which have the highest risk ratings, rose from 57 in the 3^rd quarter to 60 in the 4^th quarter. The percentage of problem banks relative to total banks was 1.4%, a slight increase from the 1.3% rate in the 3^rd quarter. However, the FDIC states that the current ratio of problem banks is well within the normal range of 1 – 2% typically seen during a non-crisis period.

The chart below shows that the Problem Bank List remains relatively small compared to the tumultuous period surrounding the 2008 financial crisis.

No FDIC-member banks failed in the 4^th quarter, despite growth in the Problem Bank List. In fact, 2025 as a whole had the smallest losses from bank failures since 2022, as measured by total assets of failed banks.

The DIF Balance Rose in the 4^th Quarter

The value of the Deposit Insurance Fund [DIF] rose by $3.7 billion to $153.9 billion. The growth was primarily driven by assessment revenue from member banks, but it was also supplemented by returns from investing the funds.

The DIF represents the pool of funds that the FDIC can access to reimburse insured deposits in the event of a bank failure. As the chart below shows, this fund has grown steadily over the past several years.

With a manageable number of problem banks and a robust DIF, the FDIC appears well-positioned to respond to potential threats in the banking sector. Such an event seems unlikely in the short term given the upbeat nature of the FDIC’s report, though a sudden change is always a possibility.

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