Banks Making Money

IN 2 0 0 6: II Q, FDIC - Earnings Set New Record for Fifth Time in Last Six Quarters

Strong commercial and consumer loan demand outweighed the disadvantages of rising interest rates and a flat yield curve, enabling insured commercial banks and savings institutions to continue to post record profits in the second quarter. The quarterly net income of $38.1 billion was $1.2 billion (3.2 percent) higher than the previous record set in the first quarter, and $3.7 billion (10.9 percent) higher than the second quarter of 2005, when trading revenues at large institutions were especially weak. The improvement in net income compared to year-earlier levels came from higher non-interest income ($6.7 billion or 12.1 percent higher), and from increased net interest income, which was up by $4.4 billion, or 5.4 percent. Much of the improvement in non-interest income came from a rebound in trading revenues (up $2.2 billion, or 90.1 percent), and servicing fees (up $1.4 billion, or 46.7 percent). Due to lower gains on sales of securities and other assets (down $2.0 billion, or 87.8 percent), and higher non-interest expenses (up $3.3 billion, or 4.0 percent), the year-over-year improvement in quarterly earnings was limited. Loan-loss provisions were only slightly changed from a year earlier, declining by $17 million (0.3 percent). The average return on assets (ROA) was 1.34 percent, unchanged from both the first quarter of 2006 and the second quarter of 2005. While industry earnings continue to grow, many institutions are struggling with the flat yield curve environment. Only 56.6 percent of all institutions reported higher quarterly net income than a year ago, and fewer than half of all institutions (48.7 percent) had higher ROAs than in the second quarter of 2005... (continued)

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