The earnings of banks insured by Federal Deposit Insurance Corporation (FDIC) reported $42.2 billion earnings for the second quarter, an increase of 23 percent compared with the same period a year earlier when the bank industry was affected negatively by credit derivatives losses.

Federal Deposit Insurance Corporation FDIC

FDIC insured banks’ earnings rose due to non-interest income

According to the FDIC, the bank’s earnings in the second quarter rose due to increase in non-interest income and declining loan loss expenses. This is the 16th consecutive quarter for FDIC insured banks to record year-over-year earnings increases, and the second consecutive quarter for the bank industry to reach a new nominal high.

The FDIC said the quarterly return on assets (ROA) climbed from 0.99 percent a year ago to $1.17, but the rate is still lower than 1.27 percent industry average in the years 2000 to 2006. The corporation said that 53.8 percent of all the banks posted higher net income during the period compared to last year. The percentage of banks with negative second quarter profits were only 8.2 percent, the lowest rate since the third quarter in 2006.

Operating revenue of the insured banks

The net operating revenue (the sum of net interest income plus total non-interest income) increased by 3 percent, or $4.9 billion, to $170.6 billion. During the quarter, the non-interest income went up by 11.1 percent, or $6.7 billion, and income from trading increased by 238.3 percent, or $5.1 billion. The net gains on sales of loans and other assets were $1.9 billion, up by 63.7 percent. However, the net interest income dropped by $1.8 billion, or 1.7 percent, due to the rapid decline of interest income from loans and other investments.

During the period, banks allocated $8.6 billion in provision for loans. The amount set aside was $5.6 billion, or 39.6 percent, lower from last year, and the lowest quarterly provision since the third quarter of 2006. The total non-interest expense was $1.4 billion.

According to the FDIC, the banks reported the lowest level of loan losses since 2007. The total net loan and lease charge-offs were $14.2 billion for the quarter, a decline of 30.7 percent, or $6.3 billion, year-over-year. The corporation noted that residential real estate loans were the primary driver for the overall decline in loan losses. During the quarter, charge-offs of home equity lines of credit were 1.7 percent, or $1.1 billion, below the level last year.

Improvements in loans

For the 13th consecutive month, non-current loans improved across all major loan categories. The amount of loans in non-accrual status dropped by 8.3 percent, or $21.7 billion, and non-current first lien mortgage loans dropped 8.2 percent, or $13.3 billion. The percentage of total loans and leases declined to 3.09 percent, the lowest level since 4Q 2008.

The banking industry’s reserves for loan losses also improved for the 13th consecutive quarter after declining by 4.1 percent, or $6.4 billion. Lower securities resulted in a drop in banks’ equity capital by 0.9 percent, or $14 billion.

The FDIC reported that the total assets of the bank industry fell by 0.1 percent, or $14.8 billion, while total loan balances increased by 1 percent, or $73.8 billion. The total liabilities of insured banks dropped by $457 million, while Federal Home Loan Bank (FHLB) advances rose 11.6 percent, or $38.2 billion. The number of banks filing quarterly call reports fell from 7,019 to 6,940.