The analysis on the size of the consumer lending industry has been updated.
Industry earnings remained strong in the second quarter of 2007, despite an operating environment that was decidedly less favorable than in earlier quarters. A flat yield curve, rising levels of troubled loans, and a weak housing market all made the task of improving earnings more difficult. Insured commercial banks and savings institutions reported $36.7 billion in net income for the quarter, a decline of $1.3 billion (3.4 percent) from the second quarter of 2006, but $772 million (2.1 percent) more than they earned in the first quarter of 2007. The decline in earnings compared to a year ago was caused by higher provisions for loan losses, particularly at larger institutions, and by increased noninterest expenses.
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Net charge-offs totaled $9.2 billion in the second quarter, the highest quarterly total since the fourth quarter of 2005, and $3.1 billion (51.2 percent) more than in the second quarter of 2006. This was the second consecutive quarter that net charge-offs have had a year-over-year increase. The loan categories with the largest increases in net charge-offs included consumer loans other than credit cards (up $757 million, or 60.9 percent), commercial and industrial (C&I) loans (up $577 million, or 71.4 percent), residential mortgage loans (up $422 million, or 144.3 percent), and credit card loans (up $393 million, or 12.1 percent). All of the major loan categories posted both increased net charge-offs and higher net charge-off rates.
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The amount of loans and leases that were noncurrent (loans 90 days or more past due or in nonaccrual status) grew by $6.4 billion (10.6 percent) during the quarter. This is the largest quarterly increase in noncurrent loans since the fourth quarter of 1990, and marks the fifth consecutive quarter that the industry’s inventory of noncurrent loans has grown. Almost half of the increase (48.1 percent) consisted of residential mortgage loans.