U.S. banks posted their highest profitability since 2021 in the second quarter of 2026, with annualized quarterly returns on average assets climbing to 1.30%, according to a banking analytics report released by the Federal Reserve Bank of St. Louis. The analysis, covering the quarter that ended June 30, shows the banking industry sustained strong expansion while maintaining stable credit quality and adequate capital cushions above regulatory minimums.
The industry's aggregate assets grew 2% from the previous quarter and 8% year-over-year to reach $33.3 trillion. Total loans, including those held for sale, made up the biggest portion of bank balance sheets, expanding by $291 billion during the quarter to $14.6 trillion. Trading assets and other holdings showed consistent growth, while cash reserves decreased slightly. Investment security portfolios stayed nearly unchanged, rising just 0.4% over the three-month period. Profitability in the second quarter rose from 1.17% in the first quarter, supported by improving net interest income, though the average net interest margin for banks held relatively steady at 3.24%, compared with 3.22% in the prior quarter. Noninterest income reached its highest point since 2021, driven particularly by growth in investment advisory fees, underwriting fees, and trading revenue that has continued for several quarters. Credit card delinquencies totaled 2.85% of total loans, while auto loan delinquencies reached 3.71%, even as delinquency rates fell across commercial real estate, commercial and industrial, residential real estate, and agricultural loan portfolios. Net charge-offs improved to 0.57% of average loans from 0.59% in the first quarter.
The report finds that nonaccrual loans and loans 30 days or more past due declined modestly in the second quarter to 1.46% of total loans, consistent with recent levels. According to the analysis, elevated auto loan and credit card delinquencies as a share of total loans "may indicate consumer stress," even as overall credit quality remained stable. The report notes that noninterest expenses, primarily driven by personnel costs and other spending, were flat in the quarter, while provision expenses for loan-loss reserves stayed modest.
The elevated consumer loan delinquencies suggest potential financial pressure on households, even as commercial borrowers showed improving repayment patterns. Banks' liquidity position remained steady, with the loan-to-deposit ratio increasing to 75.6% in the second quarter from 74.7%, though this ratio remains lower than levels seen just before the COVID-19 pandemic. The funding mix shifted modestly toward wholesale sources—including Federal Home Loan Banks borrowings, brokered deposits, and federal funds purchased—rising to 23.0% of total assets from 22.6% in the prior quarter. Capital ratios edged lower, with the leverage capital ratio declining to 7.99% from 8.10% and the Common Equity Tier 1 capital ratio falling slightly to 12.66% from 12.68%. The report notes that capital distributions totaled $71.5 billion in the second quarter, down $13.0 billion from the first quarter, but these distributions have increased significantly over the past three years, contributing to modest erosion in capital ratios despite strong profitability. Banks maintained adequate buffers above regulatory minimums, positioning the industry to absorb potential losses while continuing to support lending and economic activity.