U.S. Bank Earnings Rise on Stronger Lending

A report released Thursday by FDIC showed that federally insured institutions earned $40.2 billion and increased loan and lease balances by $178.5 billion (to $8.1 trillion) in the second quarter.

The boost in lending was the largest quarterly increase since the fourth quarter of 2007.

FDIC attributed the rise in earnings to a nearly $2 billion drop in loan-loss provisions and a $1.5 billion decline in noninterest expenses.

"We also saw a large decline in the number of problem banks," said the agency's chairman, Martin Gruenberg.

According to the report, the number of problem banks fell for the 13th consecutive quarter. With 354 problem banks, there are now 60 percent fewer than there were at the height of the financial crisis.

Fewer banks are also failing. Seven FDIC-insured institutions failed in the second quarter, compared to 12 in the second quarter of 2013, the report stated. "However, challenges remain," Gruenberg said.

One of those challenges is that industry revenue has been under pressure from narrow net-interest margins and less mortgage-related income. In other words, banks are continuing to have trouble bolstering revenues in an economy defied by low interest rates.

Somewhat related, higher-risk loans to leveraged commercial borrowers are on the rise, a phenomenon that has raised Gruenberg's concern. Gruenberg also is concerned about interest-rate risk, as more banks are extending asset maturities.

"These issues are matters of ongoing supervisory attention," Gruenberg said. "Nonetheless, on balance, results from the second quarter reflect a stronger banking industry and stronger community banks."

Chief among the good news is a 3 percent rise in commercial and industrial and auto loans, as well as in credit card balances.  Residential mortgage loans also rose, by 1.2 percent in the second quarter.

Still, while encouraging, the pace was not good enough to make 2014 a more profitable year for banks overall. According to the report, when combined with Q1 numbers, 2014's first half saw net income down 1.4 percent compared to the first half of 2013.