The bank industry posted another record profit in the second quarter, but a key number in the Federal Deposit Insurance Corp.'s latest earnings report should give bankers pause.
Banks saw a $51 billion drop in the unrealized gains for available-for-sale securities in the second quarter, the biggest such decline on record, as higher rates affected mark-to-market accounting. It was one of the clearest signs yet of the risks to banks that have not properly matched the price and terms of their assets and liabilities to a rising rate environment.
"Unrealized gains and losses on available-for-sale securities do not affect current earnings, but they have implications for future earnings if the securities are sold," FDIC Chairman Martin Gruenberg said when the agency released its quarterly banking profile. "Banks really need to be very attentive to their portfolios to determine the loans that they're making and how they're going to manage those portfolios as the interest rate environment changes," Gruenberg said.
Still, profits are up despite headwinds like sluggish loan demand. Thanks to a continued slide in loss provisions and a rebound in trading income, banks earned $42.2 billion in the second quarter. That was 23 percent higher than a year earlier and up 4.7 percent from the previous quarter. Total deposits declined for the first time in 12 quarters, while the number of banks on the FDIC's "problem" list fell by 59 institutions to 553.