FDIC Q2 Data Shows Hope on the Horizon

The first reliable health check for blood pressure — the mercury sphygmomanometer — was invented in 1896 by the Italian doctor Scipione Riva-Rocci. His device, with its inflatable arm cuff and mercury column, marked the beginning of routine and non-invasive blood pressure measurement. Just as medical professionals use vital signs to assess patient health, financial analysts and supervisory authorities rely on a set of indicators to gauge the “vital signs” of a bank’s financial health, like those published by the Federal Deposit Insurance Corporation (FDIC) in its quarterly banking profile. For Q2 2025, the FDIC reported data on 4,421 banks, including 3,982 community banks — a decrease of 38 community banks from the previous quarter. This change reflects banks transitioning into or out of community bank status, as well as mergers and acquisitions. Yet, the overall report indicates that community banks remain financially strong and are navigating challenging economic conditions effectively. Here are some key takeaways from the report.1. Profitability has improved significantly.

 

Source: FDIC Q2 2025 Community Bank Charts and Data
Community banks’ profitability is showing signs of strength. Higher margins, rising interest and noninterest income, and improving ROA all point to healthier earnings capacity. Importantly, revenue growth is outpacing expense growth, suggesting profitability gains are not just rate-driven but also operational. With NIM approaching pre-pandemic averages, it looks like earnings resilience has largely returned to its historical baseline.2. Asset quality remains sound. 

Community bank asset quality is sound and improving in most areas, with fewer delinquent loans. However, while significantly lower than the industry, the modest but persistent increase in charge-offs — especially in CRE — suggests there may be some issues bubbling under the surface.3. Loan growth is strong, but deposits — while still growing — are losing momentum.
 

Source: FDIC Q2 2025 Community Bank Charts and Data

Community banks are outperforming the industry in loan growth YoY, especially in CRE and residential mortgages. However, deposit growth slowed down in Q2, lagging the industry and raising potential funding challenges. If loan growth continues to outpace deposit inflows, community banks may face pressure on margins and greater exposure to interest rate risk.4. Capital positions are strong. 

Community banks’ capital positions improved in Q2, boosting their resilience against credit, interest rate, and liquidity risks, while also supporting continued lending growth.5. Unrealized losses are trending down.

Securities portfolios are in a healthier position than a year ago, with significantly lower unrealized losses. This eases capital and liquidity pressures, giving institutions more balance sheet flexibility. Although the absolute level of unrealized losses ($41.3B) remains elevated by historical standards, most institutions are well capitalized, reducing the risk that these losses will be realized across the board.Community banks are demonstrating resilience in the current economic environment. With rising profitability, sound asset quality, robust loan growth, and strong capital positions, they are well-positioned to support their customers. Although challenges remain, the sector’s overall health suggests that community banks can continue to navigate uncertainty effectively, maintaining their critical role in the US financial system.