Quarterly Banking ProfileFederal Deposit Insurance Corporation All FDIC-Insured InstitutionsSecond Quarter 2014INSURED INSTITUTION PERFORMANCEQuarterly Net Income of $40.2 Billion Is 5.3 Percent Higher Than a Year Ago Net Interest Income Posts $2 Billion Year-Over-Year Increase Lower Income From Mortgage Activities Contributes to $3.6 Billion Drop in Noninterest Income Loan Growth Rises to Post-Crisis High Number of Banks on “Problem List” Falls Below 400 Lower Expenses Contribute to Improvement in Earnings The impact of the rise in medium- and long-term interest rates in second quarter 2013 remained evident in year- over-year earnings comparisons in second quarter 2014. The negative effect on noninterest income, particularly income from mortgage lending and from trading, was greater at large banks, while the positive implications of a steeper yield curve for net interest margins, combined with strengthening loan growth, were more significant for smaller institutions. The 6,656 FDIC-insured institutions filing financial results for second quarter 2014 reported combined net income of $40.2 billion. This is $2 billion (5.3 percent) more than the industry reported in second quarter 2013. Net operating revenue (the sum of net interest income and total noninterest income) was $1.5 billion (0.9 percent) lower than in second quarter 2013, as a decline in noninterest income from mortgage sales, securitization and servicing outweighed an increase in net interest income. Earnings benefited from lower expenses for loan-loss provisions, goodwill impairment, and payrolls. A majority of banks57.5 percent reported year-over-year increases in quarterly earnings, and only 6.8 percent of banks were unprofitable, down from 8.4 percent a year ago. This is the lowest proportion of unprofitable institutions since first quarter 2006. The average return on assets for the quarter was 1.07 percent, slightly above the 1.06 percent average in the year- ago quarter. Revenues Decline From Year-Ago Level for Fourth Consecutive Quarter Net interest income posted the largest year-over-year increase in 14 quarters, rising by $2 billion (1.9 percent), as interest-earning assets were 6.4 percent above year-ago levels. Almost 72 percent of all institutions reported year-over-year growth in quarterly net interest income. The average net interest margin fell to 3.15 percent from 3.25 percent in second quarter 2013. This is the lowest quarterly margin for the industry since third quarter 1989. Margin pressure was most evident at large banks. Nine of the ten largest banks reported lower quarterly margins than a year ago, whereas 55.2 percent of all banks reported year-over-year margin increases. Noninterest income was $3.6 billion (5.3 percent) lower than a year earlier, as income from sales, securitization, and servicing of 1-to-4 family residential mortgages fell by $3.7 billion (42.5 percent). Trading income declined for a fourth consecutive quarter, falling by $721 million (10.1 percent). Reduced expenses outweighed the weakness in revenues compared with the year before. Banks set aside $6.6 billion in provisions for loan and lease losses during the quarter, a $1.9 billion (22.4 percent) decline from second quarter 2013 and the lowest quarterly provision total since second quarter 2006. Expenses for goodwill impairment totaled $192 million, down from $4.4 billion in second quarter 2013, when two institutions reported large impairment charges. Expenses for salaries and employee benefits were $399 million (0.8 percent) lower as the industry reported 37,282 fewer employees than the year before. Itemized litigation expenses were $2 billion higher than in second quarter 2013.Charge-Offs Fall to Seven-Year Low Loan losses declined year over year for a 16thconsecutive quarter, falling to $9.9 billion from $14.1 billion in second quarter 2013. This is the lowest quarterly net charge-off total for the industry since second quarter 2007. The decline was led by 1-to-4 family residential mortgage loans, where net charge-offs fell by $2.2 billion (74.7 percent). Net charge-offs were down year over year in all major loan categories except auto loans, where 2Quarterly Banking ProfileSecond Quarter 2014 All FDIC-Insured Institutionscharge-offs increased $31 million (10.4 percent). Slightly more than half of all banks50.8 percentreported lower quarterly net charge-offs than in second quarter 2013. Noncurrent Loan Rate Falls to Six-Year Low Noncurrent loan balances improved for a 17thconsecutive quarter, falling by $13.4 billion (6.9 percent) during the three months ended June 30. Noncurrent balances declined in all major loan categories except auto loans, where they increased by $28 million (3.2 percent). The largest decline occurred in