Bank earnings climbed to $38.7 billion in third quarter 2014 as institutions saw jumps in trading and other revenue, according to the latest report released today by the Federal Deposit Insurance Corp.

That translates to an increase of $2.6 billion in the third quarter, or 7.3%, from $36.1 billion in the same period a year earlier.

A big gain – for the first time since 2009, banks set aside more money in case of losses on loans. Those reserves have been siphoned the last five years to offset weak mortgage and trading income.

"Lender profitability continues to be challenged by high levels of expenses, particularly for back office personnel involved in risk management, quality assurance and regulatory compliance,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association. “This looks to us like a permanent change in the cost structure of the business."

James Chessen, chief economist for the American Bankers Association, said mortgage lending continues to suffer from excessive regulation.

“It’s painfully clear that new regulatory requirements have restrained mortgage lending and have made it particularly difficult for first-time homebuyers,” Chessen said. “The complex and liability-laden maze of compliance has made originations very hard to make, especially to borrowers with little or weak credit history."

Overall he was optimistic.

"The banking industry posted another solid quarter with a broad-based expansion in lending and a further improvement in asset quality.  Capital hit a record high as banks continue to aggressively reinforce the support backing every loan on their books,” Chessen said.

Still mortgage bankers are dealing with record high high loan costs. The cost of originating mortgages and loan production is high and growing.

In June, HousingWire reported that after drastically tumbling in the fourth quarter of 2013, the first quarter of 2014 not only got worse for banker profits but also traveled into negative territory, according to the Quarterly Mortgage Bankers Performance Report from theMortgage Bankers Association. 

Independent mortgage banks and mortgage subsidiaries of chartered banks posted a net loss of $194 on each loan they originated in the first quarter of 2014, significantly down from $150 in profit per loan in the fourth quarter of 2013.

This is the sixth consecutive quarter that production income has decreased.