Quote:

Banks Reduce Loan-Loss Provisions to Five-Year Low

Banks set aside $14.2 billion in provisions for loan losses in the second quarter. This amount represents a $5 billion (26.2 percent) decline from second quarter 2011, and is the smallest quarterly total in five years. The reduction in provision expenses helped offset a $287 million (0.3 percent) decline in net interest income, as the industry’s average net interest margin fell to a three-year low. The average net interest margin was 3.46 percent, compared with 3.61 percent a year earlier, because average asset yields declined faster than average funding costs. Noninterest income made a positive contribution to the increase in earnings, rising by $1.6 billion (2.8 percent) from second quarter 2011. Gains on loan sales and on fair values of financial instruments contributed to the rise in noninterest income, while a $4.7 billion decline in trading income limited the year-over-year improvement. Net operating revenue (the sum of net interest income and total noninterest income) was only $1.3 billion (0.8 percent) higher than in second quarter 2011. Realized gains on securities and other assets were $1.7 billion (208.2 percent) higher than a year ago. A few large banks accounted for most of the dollar amounts of the decline in trading results, increased gains on loan sales and higher realized gains on securities.