The nation's banks are headed in the right direction. Earlier today, the FDIC released its quarterly banking profile, a comprehensive look at the roughly 7,000 institutions that it insures. The news was good virtually across the board. What follows are five charts depicting the most important trends in the industry.
1. Profits are increasing
FDIC-insured banks, which represent the vast majority of depository institutions in the United States, earned $42.2 billion in the second quarter of this year. This was $7.8 billion, or 22.6%, more than the same quarter last year. And it was the 16th consecutive quarter that earnings rose on a year-over-year basis.
The undisputed leaders in this regard were megabanks JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC), which notched record earnings of $6.5 billion and $5.6 billion, respectively. Both figures were leaps and bounds above the same quarter last year.
2. Fees outweighed a loss of interest income
Thanks to the Federal Reserve's third round of quantitative easing, interest rates were at historic lows for roughly half of the quarter -- that is, until the central bank intimated that it may soon begin to allow long-term rates to rise. As a result, net interest income declined across the industry by $1.8 billion, or 1.7%, on a year-over-year basis. The good news is that this drop was more than offset by an additional $6.7 billion in noninterest income, led by a $5.1 billion increase in income from trading.
The mid-Atlantic lender BB&T (NYSE:BBT) provides a case in point. Its net interest income fell to $1.415 billion in the quarter compared to $1.422 billion in the first three months of the year. But this was offset by $45 million more in noninterest income.
3. Loan loss provisions continue to fall
Every quarter, banks set aside a set amount of money to cover future loan losses. In the early stages of the crisis, these numbers were astronomical. In 2009, for example, Bank of America (NYSE:BAC) reserved a staggering $48.6 billion for expected losses stemming principally from residential mortgages.
But since then, these figures have come down. And in the most recent quarter, the industry recorded only $8.6 billion in loan loss provisions, amounting to a 39.6% year-over-year decrease.
4. Loan losses dropped to the lowest level in six years
In addition to lower loan loss provisions, the industry as a whole also reported an impressive reduction in actual loan losses. Net loan and lease losses for the three months ended June 30 came in at $14.2 billion. That was $6.3 billion, or 30.7%, less than the same period in 2012.
5. Equity dropped across the board
The one piece of somewhat disappointing, if not wholly unexpected, news was that equity capital declined by $14 billion across the industry. While rising interest rates, which started higher at the end of May, are good for a bank's net interest margin, they wreak havoc on the value of securities that banks hold in their investment portfolios.
For example, Citigroup (NYSE:C) saw its other comprehensive income decline by nearly $3 billion, from a negative $17 billion in the first quarter to a negative $19.9 billion in the second quarter. And while U.S. Bancorp (NYSE:USB) wasn't hit as hard, it too suffered a decline in OCI of more than $300 million. In both cases, the losses offset otherwise accretable earnings at the institutions.
John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.