FDIC-insured commercial banks and savings institutions earned an aggregate profit of $21.6 billion in the second quarter of 2010, a sharp improvement from the $4.4 billion in losses recorded in the second quarter of 2009. This is the industry’s best quarterly earnings since the third quarter of 2007. Despite the improvement, earnings remain below historical norms.


The number of institutions on the FDIC’s “Problem List” rose from 775 to 829, but the total assets of problem institutions declined from $431 billion to $403 billion. Problem institutions are those considered at risk of failure. Forty-five insured institutions failed during the second quarter.


One in five institutions reported a net loss for the quarter, compared with 29% a year earlier. The average return on assets (ROA) rose to 0.65%, from negative 0.13% a year ago.


“Nearly two out of every three banks are reporting better year-over-year earnings,” FDIC Chairman Sheila Bair said in a press release. “As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend.”


Earnings were driven by lower provisions for loan losses, which were $40.3 billion in the quarter, down from $67.4 billion a year earlier. The industry’s ratio of reserves to total loans and leases fell from 3.50% to 3.40% during the quarter, but this is still the second-highest ratio in the 63 years for which data are available. Net interest income was $8.5 billion (8.6%) higher than a year ago, and noninterest expenses were $1.5 billion (1.5%) lower. Total loans and leases declined by $107.5 billion (1.4%) during the quarter. Total assets fell by $136.2 billion (1%).


The Deposit Insurance Fund (DIF) balance improved for the second consecutive quarter. The DIF balance improved from negative $20.7 billion to negative $15.2 billion. The improvement stemmed primarily from assessment revenues and from a reduction in the contingent loss reserve, which covers the costs of expected failures. The reserve declined from $40.7 billion to $27.5 billion during the quarter. Total insured deposits declined by 0.7% ($39 billion) during the quarter.


The FDIC’s Quarterly Banking Profile is available at


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