Banks’ earnings for the three months ending June 30 marked a second consecutive record quarter, the FDIC said Thursday in its Quarterly Banking Profile. After the second-most profitable year on record in 2012, the boom continued in the first half of this year as some of the largest banks scored trading success that outpaced analyst expectations.

“The trends we have seen in recent quarters continued in the second quarter,” FDIC Chairman Martin Gruenberg said during a press briefing on the report. “Asset quality continues to recover, loan balances are trending up, fewer institutions are unprofitable, the number of problem banks is down and the number of failures is significantly below levels of a year ago.”

JPMorgan Chase & Co., the largest U.S. bank by assets, reported a 31 percent profit increase to $6.5 billion for the second quarter on climbing revenue from trading stocks and bonds, and third-biggest Citigroup Inc.’s profit jumped 42 percent year-over-year. Bank of America Corp., the second largest by assets, also had improved equity results while crediting expense cuts and lower provisions for bad credit for its 63 percent profit gain.

Few Losses

Industry profits were widespread with just 8.2 percent of banks reporting negative income even as interest income declined by 1.7 percent, according to the agency’s report.

As trading has helped profits, increasing interest rates are squeezing existing portfolios. The market value for bonds and equities held with no set plan for sale dropped by $51 billion, Gruenberg said. It was the largest drop in “available- for-sale investment securities” since banks started reporting the data in 1994, according to the FDIC.

“When you have rates jumping by a hundred basis points, you have to expect the value of the portfolio to change and reverse those unrealized gains that you had, and it happened all at once,” said James Chessen, chief economist at the American Bankers Association. He said the industry is putting measures in place to manage the risk. “The magnitude and how quickly it changed I think was a surprise.”

Gruenberg said that challenge for existing portfolios “will be a matter of supervisory attention for our examiners.”

Cutting Reserves

Bank profits are still being bolstered by reductions in the amount of money set aside for bad loans, mainly at the larger banks, the FDIC said in the report. Lenders set aside $8.6 billion for bad loans, 4.1 percent less than the preceding quarter. Regulators at the FDIC and Office of the Comptroller of the Currency have cautioned lenders against excessive cutting of loan-loss reserves.

Loan balances rose by $73.8 billion for the quarter, with almost half coming from a 2 percent boost in commercial and industrial loans, the FDIC said.

“There’s a lot of competition for good loans,” Chessen said. “I think many bankers see some deals being put together that shock them, because they’re too generous and are being extended for too long.”

Industry assets and number of banks also continued to decline. Assets fell by $14.8 billion, and the population of institutions fell below 7,000 to 6,940, with 62 mergers during the quarter and 12 failures. It’s been two years since the establishment of a new bank, the FDIC said.

Banks considered “problem” institutions by the FDIC — those deemed to be at greater risk of collapse — fell from 612 to 553 in this quarter, continuing a nine-quarter trend.

The agency’s deposit insurance fund, which protects customer accounts of as much as $250,000 against bank failures, rose $2.1 billion to $37.9 billion, the FDIC said. Bank assessments were increased in 2011 to replenish the fund, which fell into deficit as the agency resolved hundreds of bank failures stemming from the subprime mortgage crisis.

Investors have pushed the 24-company KBW Bank Index up almost 23 percent so far this year.