WASHINGTON, DC—The Federal Deposit Insurance Corp. reports that bank lending reached $8.1 trillion in the second quarter--a high not seen since 2007--as total loan and lease balances rose by $178.5 billion, or 2.3%. Commercial and industrial loans increased by $49.9 billion, or 3.1% and residential mortgage loans rose by $22.7 billion, for a 1.2% increase.

By many measures, in fact, it is clear that the banking sector is growing stronger. FDIC also reported that the commercial banks and savings institutions it insures reported aggregate net income of $40.2 billion in the second quarter of 2014, up $2.0 billion, or 5.3% from earnings of $38.2 billion reported a year earlier.

"We saw further improvement in the banking industry during the second quarter," says FDIC Chairman Martin J. Gruenberg said in a prepared statement. Besides the aforementioned, he also notes that there has been a large decline in the number of problem banks.

Asset quality indicators continued to improve as insured banks and thrifts charged off $9.9 billion in uncollectible loans during the quarter, down $4.1 billion, or 29.5%, from a year earlier. The amount of noncurrent loans and leases--those 90 days or more past due or in nonaccrual status--fell by $13.4 billion (6.9%) during the quarter. The percentage of loans and leases that were noncurrent declined to 2.24%, the lowest level since the 2.09% posted at the end of the second quarter of 2008.

There were some low notes in the report, however.

Despite the quarterly increase in mortgage balances, income from mortgage-related activity remained well below the level of a year earlier. For example, income from the sale, securitization and servicing of mortgages was $3.7 billion, or 42.5% lower than a year ago.

One- to four-family residential real estate loans originated and intended for sale during the quarter were $290.6 billion, or 63.9%, lower than in the second quarter of 2013, as higher interest rates reduced the demand for mortgage refinancing.

Realized gains on securities sales also were lower than a year ago, thanks to higher medium- and long-term interest rates that reduced the market values of fixed-rate securities.

Gruenberg called out some of these developments as well. He noted that industry revenue has been under pressure from narrow net interest margins and lower mortgage-related income. Also, "institutions have been extending asset maturities, which is raising concerns about interest-rate risk. And banks have been increasing higher-risk loans to leveraged commercial borrowers. "

Instant Insights /

Bank Lending Reaches $8T in Q2

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