WASHINGTON — The banking industry earned $28.8 billion in the second quarter thanks once again to lower provisions for loan losses, and a regulatory watch list of troubled banks shrank for the first time in nearly five years.
The Federal Deposit Insurance Corp.'s "Quarterly Banking Profile" showed many positive signs for the industry. Net income was nearly 38% higher than a year earlier, registering the eighth straight quarter with year-over-year earnings growth. Total loans rose 0.9% in the quarter to $7.3 trillion, the first such increase in three years.
Nearly 60% of all institutions had better quarterly earnings than a year earlier, and the 15% of unprofitable institutions was the lowest level since the first quarter of 2008.
Meanwhile, the Deposit Insurance Fund was in the black for the first time since the middle of 2009.
"The latest data indicate that banks have continued to make gradual but steady progress in recovering from the financial market turmoil and severe recession that unfolded from 2007 through 2009," Martin Gruenberg, the FDIC's acting chairman, said in a prepared statement for the report's release.
Yet the report indicated the industry still has ground to cover in terms of growth. Net operating revenue was lower than a year earlier for the second straight quarter. Net interest income declined by 1.7% to $105.9 billion, as some of the largest banks reported lower asset yields. Noninterest income declined by 1.9% from a year earlier to $58.4 billion.
Gruenberg said despite the "modest improvement" in lending, "we also saw continued weakness in revenues, and we are mindful that earnings growth cannot be sustained indefinitely only by reducing loss provisions."
"Lack of revenue growth limits the pace of earnings improvement," he said.
Loss provisions fell 53% from the second quarter of 2010 to $19 billion, the seventh consecutive such decline, and banks reported "sizable declines in noncurrent loans," the FDIC said. Noncurrent loans fell 6.5% from the first quarter to $319 billion.
But perhaps the most favorable indicators were in the area of failed-bank costs and projections. The agency's "problem" list of institutions at risk of failure fell for the first time since the third quarter of 2006. The list contained 23 fewer institutions than it did in the first quarter, totaling 865. Assets of institutions on the list fell by 6% to $372 billion. And as the FDIC has received assessment income and lowered its projections for future failures, the DIF registered its first positive balance since June 30, 2009. The balance stood at $3.9 billion at the end of the second quarter, and the ratio of insurance reserves to insured deposits was 0.06%.
"Assessment income and fewer expected bank failures are behind the growth in the fund balance," Gruenberg said.