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Bank Profits Improving: FDIC

NEW YORK ( TheStreet) -- The Federal Deposit Insurance Corp. on Tuesday reported that profitability for the nation's banks and thrifts continued to improve during the second quarter, as the number of "problem banks" declined.

The FDIC reported that combined U.S. banks and thrifts earned $28.8 billion during the second quarter, which was an increase of $7.9 billion from the second quarter of 2010, and was "the eighth consecutive quarter that industry earnings have improved year-over-year," although it was "the smallest such improvement in the past seven quarters."

This points to a probable decline in the release of loan loss reserves, which has padded earnings for so many banks over the past several quarters.

At the holding company level, JPMorgan Chase (JPM - Get Report) reported net income of $5.4 billion during the second quarter, boosted by a $1.2 billion reserve release. For Citigroup (C - Get Report), second-quarter earnings of $3.3 billion were helped by a $2.2 billion decline in loan loss reserves. Wells Fargo's (WFC - Get Report) second-quarter net income of $3.9 billion reflected a $1.1 billion decline in reserves, while Bank of America's (BAC - Get Report) $8.8 billion second-quarter loss was somewhat mitigated by a $2.5 billion decline in loan loss reserves.

The FDIC said the industry's loan-loss provisions -- additions to reserves to cover expected loan losses -- totaled $19 billion during the second quarter, which was a 53% decline from a year earlier, although it was "the smallest year-over-year decline in the past five quarters."

The banking industry's return on assets for the second quarter was 0.85%, improving from 0.63% a year earlier, mainly reflecting the lowering of credit costs, as the faced several revenue challenges.

As TheStreet discussed in its 10 Banks with Solid Revenue, the industry's net operating revenue saw a year-over-year decline for a second straight quarter, amid narrowing net interest margins and continued weak loan demand.

The industry's aggregate net interest margin -- the difference between a bank's yield on loans and investments and its average cost for deposits and wholesale borrowings - declined to 3.61% during the second quarter, from 3.76% a year earlier, with nine of the 10 largest U.S. banks showing declines.

Second-quarter noninterest income pressures included loan servicing fees, which declined by $1.5 billion from a year earlier, and service charges on deposit accounts, which declined $1.3 billion year-over-year. Total noninterest income for the second quarter was $58.4 billion, down 2% from the second quarter of 2010. Meanwhile, noninterest expenses climbed 6% year-over-year, to $103.8 billion in the second quarter.
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