Quarterly Banking Profile: Banks’ Net Income Rises in Second Quarter

FDIC-insured banks and savings institutions earned $43.6 billion in the second quarter, up 1.4 percent from the industry’s earnings a year before, the FDIC said today. The rise in net earnings was largely driven by a $5.2 billion increase in net interest income and a $981 million decline in expenses for litigation reserves at a few large banks, the agency said.

“The second quarter was a solid one for banks as lending rose sharply to meet increased demand,” said ABA Chief Economist James Chessen. “With interest rates still far below normal, loan demand was strong practically across the board. While loan growth was a key earnings driver, non-interest income also played an important role, boosted by a strong increase in trading revenue.”

Total loans increased in the second quarter to total more than $9 trillion, with total loan balances increasing by $181.9 billion, up 6.7 percent from a year prior. Residential mortgages rose 2.2 percent, while real estate loans secured by nonfarm residential real estate properties rose by 2.1 percent and credit card balances grew by 3.1 percent. The FDIC report also noted an increase in loan-loss provisions in response to rising levels of troubled loans to industrial borrowers, particularly in the energy sector.

Community banks earned $5.5 billion in net income during the second quarter, up 9 percent from the same time last year. The proportion of banks that were unprofitable in the second quarter fell from 5.8 percent in 2015 to land at 4.5 percent – the lowest level since the first quarter of 1998.

Banks also saw capital levels increase in the second quarter. Across the industry, capital rose to $1.87 trillion, a 5 percent increase over last year. According to the FDIC report, the number of institutions on the problem bank list dropped from 165 to 147, and the Deposit Insurance Fund balance rose to $77.9 billion during the quarter.