Higher margins propelled the U.S. banking industry to record levels of revenue in the second quarter.

Net interest income, noninterest income and pre-provision net revenue (net interest income plus noninterest income, minus noninterest expense) across the industry were at all-time peaks, according to S&P Global Market Intelligence data.

Profitability

U.S. commercial banks, savings banks, and savings and loan associations earned $93.16 billion of pre-provision net revenue in the quarter ended June 30, up 15.3% on a linked-quarter basis. In the previous nine quarters, pre-provision net revenue had ranged from $75.30 billion to $82.36 billion.

Several large banks set a pre-provision net revenue record, including Capital One Financial Corp. unit Capital One Bank (USA) NA, Discover Financial Services unit Discover Bank and SVB Financial Group unit Silicon Valley Bank.

Higher provisions for credit losses partially offset the record-breaking revenue. The provision for the industry rose to $10.95 billion in the second quarter, more than twice as high as in the first quarter. Only three of the 35 banks over $100 billion in total assets at June 30 recorded a negative provision: Bank of Montreal unit BMO Harris Bank NA, PNC Financial Services Group Inc. unit PNC Bank NA and Northern Trust Corp. unit Northern Trust Co.

Balance sheet restructuring

U.S. banks and thrifts undertook significant balance sheet changes during the second quarter. Total loans and leases jumped 3.7%, the highest quarterly increase since the first quarter of 2020. Total deposits declined 1.9%, representing the first quarter-over-quarter decrease in four years. The loans-to-deposits ratio climbed more than 300 basis points to 60.17%.

While loans were up, other assets such as cash and equivalents were down. Total assets were 1.1% lower, which was the first quarterly decline in seven years. The two largest banks by total assets at June 30 — JPMorgan Chase & Co. unit JPMorgan Chase Bank NA and Bank of America Corp. unit Bank of America NA — shed close to 3% of their asset bases during the second quarter.

A greater emphasis on loans combined with higher interest rates to lift margins. The yield on loans and leases spiked 22 basis points, helping push the fully taxable equivalent net interest margin to 2.74% from 2.51%. Margin expansion provided almost all of the 9.5% increase in net interest income, which in turn drove the jump in pre-provision net revenue.

Rapid loan growth is not translating to noticeable credit deterioration. The early-stage delinquency ratio remained steady at 0.48%, while the nonperforming asset ratio of 0.56% was slightly lower on a quarterly basis and down from 2.00% eight years ago. The net charge-off ratio inched up 1 basis point to 0.23%, although it was down on a year-over-year basis.

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