FDIC’s Q1 2025 Banking Profile: Solid at a Glance, But Look Again

The FDIC published its quarterly banking profile for Q1 2025 yesterday. While the report looks "solid" on the surface, once you dive in a bit, the data is not as encouraging..

The banking industry turned in a “good quarter” by the numbers:

• Earnings up

• ROA at 1.16%

• Deposit growth continues

• Only one bank failed

…but if you’ve spent time around balance sheets and risk models, you know that headlines can be deceiving.

Earnings: up, but.....

Q1’s profit boost came mostly from non-interest income and mark-to-market gains. Overall NII was slightly down for the quarter.

Community banks: Continue to perform better, but also with cracks...

They posted a 10% earnings bump, and even expanded their net interest margins. But reserve coverage is slipping, and CRE exposure remains an issue. 

CRE: The elephant in every loan review room.

Multifamily and non-owner-occupied CRE continue to flash red - especially at the biggest banks. Some Past-Due and Non-Accrual rates are 8x pre-pandemic levels. Large banks can absorb the hit. Smaller ones? Let’s just say this is not the part of the stress test you want to fail.

Loan growth: technically positive, basically flat.

Total loans were up just 0.5%. In an inflationary, higher-rate environment, that's a pretty soft showing. Demand is likely slowing and underwriting is tightening.

Unrealized losses: better - but not for long.

Falling long-term rates helped trim paper losses by $67B. But rates have rebounded since quarter-end. Those markups? Might already be gone.

So what’s the big picture?

The system’s not cracking - but the edges are fraying.

CRE’s not done hurting.

Deposit pressures are easing for now.

NIM compression and modest loan growth suggest more conservative balance sheets are ahead.

Risk buffers may not be keeping up with actual portfolio risk.

If you’re in risk, finance, or exec leadership, now’s the time to double-check the narrative your ALM and credit models are telling you. Are they calibrated for what’s coming - or for what’s already passed?

Sometimes the story isn’t in the numbers. It’s in the direction they’re quietly heading.