) -- U.S. banks and thrifts earned $34.5 billion during the second quarter for the industry's twelfth consecutive quarter of improved performance, according to a Federal Deposit Insurance Corp. report issued Tuesday.

The second-quarter results compared to earnings of $35.3 billion during the first quarter, and $28.5 billion during the first quarter of 2011.

Banks continued to see their earnings boosted by releases of loan loss reserves, which declined by $6.7 billion, to $176.5 billion. The FDIC said that over 54% of banks had actually increased reserves during the second quarter, while 38% reduced their loan loss reserves, "but the reductions were concentrated among larger institutions, and added up to more than the additions."

Even with the continued release of reserves, the FDIC said that "the larger drop in noncurrent loan balances during the quarter meant that the industry's 'coverage ratio' of reserves to noncurrent loans inched up from 60 percent to 60.4 percent between March 31 and June 30."

According to data supplied by Thomson Reuters Bank Insight, 17 of the nation's 19 banks with total assets exceeding $100 billion released loan loss reserves during the second quarter. The exceptions were

Capital One, NA

(held by

Capital One Financial

(COF) - Get Report

), which increased its quarter-end allowance for loan and lease losses by $565 million, as a result of the parent company's purchase of


(HSBC) - Get Report

U.S. credit card portfolio, and also the main domestic commercial banking subsidiaries of HSBC and

Goldman Sachs

(GS) - Get Report

, which each made small additions to reserves.

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  • JPMorgan Chase's (JPM) - Get Report main banking subsidiary JPMorgan Chase Bank, NA, saw its allowance for loan losses decline by $1.40 billion during the second quarter. The company's smaller credit card subsidiary Chase Bank USA, NA saw released $644.4 million in reserves. JPMorgan Chase Bank NA's ratio of nonperforming assets (excluding government-guaranteed loan balances and properties) to total assets was 1.31% as of June 30, improving from 1.33% the previous quarter, according to Thomson Reuters Bank Insight, while the bank's loan loss reserves covered 55.88% of nonperforming loans. For Chase Bank USA, NA, the nonperforming assets ratio was 8.05%, while reserves covered437.07% of nonperforming loans, as of June 30.
  • Citibank, NA -- the main banking subsidiary of Citigroup (C) - Get Report -- saw its loan loss reserves decline by $1.23 billion during the second quarter. The bank's nonperforming assets ratio was 0.93% as of June 30, improving from 1.02% the previous quarter. Loan loss reserves covered 141.05% of nonperforming loans as of June 30.
  • Bank of America (BAC) - Get Report main subsidiary Bank of America, NA released $1.17 billion in reserves during the second quarter. The bank's ratio of nonperforming assets to total assets was 2.20% as of June 30, improving from 2.36% the previous quarter. Reserves covered 35.17% of nonperforming loans. Bank of America's FIA Card Services, NA subsidiary released $670 million in loan loss reserves during the second quarter, with a June 30 nonperforming assets ratio of 1.57%, improving from 1.79% at the end of the first quarter. FIA's reserves covered 5.70% of total loans as of June 30.
  • Wells Fargo Bank, NA -- the main banking subsidiary of Wells Fargo (WFC) - Get Report -- released $454 million in reserves during the first quarter. The bank's nonperforming assets ratio improved to 2.64% as of June 30, from 2.85% the previous quarter, and reserves covered 33.71% of nonperforming loans. On the holding company level, Wells Fargo continues to out-earn the other members of the "big four" U.S banking club, with operating returns on average assets ranging between ranging from 1.26% to 1.40% over the past five quarters, according to data supplied by Thomson Reuters Bank Insight. JPMorgan Chase is in second place, with operating ROA ranging from 0.68% to 0.99% over the past five quarters.

The FDIC reported that net charge-offs -- loan losses less recoveries -- declined to $20.5 billion during the second quarter, from $21.8 billion during the first quarter, and $28.9 billion, during the second quarter of 2011. The agency said that "the year-over-year improvement was led by a $2.2 billion (24.6 percent) decline in credit card charge-offs, a $1.5 billion (25.3 percent) decline in charge-offs of residential mortgage loans, and a $1.2 billion (51.5 percent) drop in real estate construction loan charge-offs." Over half of the nation's banks and thrifts reported declines in loan losses.

The industry continued to see margin pressure during the second quarter, as short-term rates remained near zero -- meaning that banks had already enjoyed most of the decline in funding costs -- while long-term rates continued to decline, as the

Federal Reserve

purchased long-term securities. This pressure may be mitigated to a certain extent for the third quarter, as mortgage rates have begun to rise.

The industry's aggregate net interest margin -- the average yield on loans and investments, less the average cost for deposits and wholesale borrowings -- narrowed to 3.46% during the second quarter, from 3.52% the previous quarter, and 3.61% a year earlier.

A very bright note for the industry was that total loans and leases grew by $102 billion, or 1.4%, during the second quarter, with commercial and industrial loans increasing by $48.9 billion, or 3.6%; while residential mortgage loans increased by $16.6 billion, or 0.9%; and credit card balances grew by $14.7 billion, or 2.3%. The industry's total loans and leases grew by 2.7% year-over-year, to $7.513 trillion, as of June 30.

There were 732 "problem institutions" as of June 30, according to the FDIC, declining from 772 the previous quarter, and 865 a year earlier. During the second quarter, 15 banks and thrifts failed.

Illustrating the difficult environment for raising money, gaining state or federal approval for a new banking charter, and operating a small community bank in the face of myriad new regulatory requirements, the FDIC said that "this is the fourth quarter in a row in which no new charters have been added," and that "it has been more than six quarters since the last time a new charter was created other than to absorb a failed bank."


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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.