U.S. banking institutions that are insured by the Federal Deposit Insurance Corp. (FDIC) earned an aggregate net income of $43.0 billion in the second quarter of 2015, up $2.9 billion from a year ago, according to the FDIC's Quarterly Banking Profile released Wednesday.
The $43.0 billion second quarter profits, the highest quarterly income on record, was mostly driven by a $3.6 billion rise in net operating revenue, the FDIC said.
The FDIC's net operating revenue rose 2.1 percent from a year ago to $172.9 billion as loan growth raised revenues for most banks in the second quarter. Net interest increased by 2.3 percent compared to the second quarter of 2014, while noninterest income was 1.9 percent higher. Servicing income increased 63.9 percent and trading income fell 14.1 percent.
The report also noted that community bank earnings increased 12 percent from a year earlier to $5.3 billion. Net operating revenue also rose 8.0 percent from a year ago to $22.3 billion at community banks.
More than half of the FDIC's 6,348 insured institutions reported year-over-year growth in quarterly earnings, while the portion of banks that experienced no profit fell from 6.8 percent last year to 5.6 percent, the lowest since the first quarter of 2005.
"On balance, the industry—and community banks in particular—experienced another positive quarter."
The FDIC reported that loan growth within banks remained steady in the second quarter with total loan and lease balances rising $185 billion. Over the last year ending June 30, loans and leases increased $437.8 billion. At community banks, loan balances rose 2.7 percent during the second quarter of 2015 and increased 8.8 percent during the past 12 months.
However, net interest margins faced some heavy pressures, with the average net interest margin rising to 3.06 percent in the second quarter from 3.02 percent in the first quarter. Average margins at community banks were 3.57 percent in the second quarter, up from 3.54 percent in the first quarter.
“Lending grew strongly in nearly every category, with a total increase exceeding $430 billion over the last year. Business loans were up more than $137 billion year over year and real estate lending has picked up steam," said James Chessen, ABA chief economist. "With the economy growing stronger and higher interest rates on the horizon, many businesses have determined that there’s no time like the present to borrow and kick expansion plans into high gear. Even with Fed action, interest rates will remain incredibly low by historic standards. We expect borrowing to remain elevated in the third quarter amid low interest rates, improving confidence and a stable economy.”
Gruenberg also pointed out that low interest rates continue to present challenges to banks, causing banks to acquire higher-yielding, longer-term assets, which has left banks more vulnerable to rising interest rates.
"The industry experienced a continuation of positive trends observed over recent quarters," Gruenberg said. "However, the banking industry continues to face challenges. Revenue growth has lagged behind asset growth, as exceptionally low interest rates put downward pressure on net interest margins. On balance, the industry—and community banks in particular—experienced another positive quarter."