Declines in loan-loss provisions and non-interest expenses boosted the overall bottom line of FDIC-insured banks during the second quarter of 2014.
"We saw further improvement in the banking industry during the second quarter," FDIC Chairman Martin J. Gruenberg said in a statement. "Net income was up, asset quality improved, loan balances grew at their fastest pace since 2007 and loan growth was broad-based across institutions and loan types. We also saw a large decline in the number of problem banks."
Commercial banks and savings institutions posted aggregate net income of $40.2 billion in the second quarter, up $2 billion, or 5.3 percent, from $38.2 billion in the same period last year.
More than half, or 57.5 percent, of the 6,656 insured institutions had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable during the second quarter fell to 6.8 percent from 8.4 percent a year earlier.
Total loan and lease balances inched up 2.3 percent to $8.1 trillion for the largest quarterly increase since the fourth quarter of 2007. Asset quality indicators improved as banks charged off $9.9 billion in uncollectible loans during this quarter, down $4.1 billion or 29.5 percent from the year-ago period.
The average return on assets (ROA) rose slightly to 1.07 percent in the second quarter from 1.06 percent a year earlier. The average return on equity (ROE) rose from 9.46 percent to 9.54 percent.
However, the industry still faces challenges in spite of those improvements. In his statement, Gruenberg also said the banking industry was under pressure from narrow margins and lower mortgage-related income, and he expressed concerns about interest-rate risk at institutions that have been extending asset maturities and about banks that have increased higher-risk loans to leveraged commercial borrowers.
While banks reported strong loan growth along with those declines in loan-loss provisions and non-interest expenses, FDIC-insured banks also reported that lower income from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in noninterest income.
Noninterest income from the sale, securitization and servicing of mortgages was $3.7 billion, or 42.5 percent lower than a year ago. One- to four-family residential real estate loans originated and intended for sale during the quarter were $290.6 billion, or 63.9 percent, lower than the year-ago period, as higher interest rates reduced the demand for mortgage refinancing.
Realized gains on securities sales also declined, as higher medium- and long-term interest rates reduced the market values of fixed-rate securities. Banks reported $770 million in pretax income from realized gains in the second quarter, a decline of $601 million, or 43.8 percent, from the second quarter of 2013.
