WASHINGTON - Bank profits hit an all-time high of $12 billion in the second quarter, the Federal Deposit Insurance Corp. reported Tuesday.

The previous quarterly pretax earnings record was $11.8 billion, set in the third quarter of 1994.

"These record earnings were the result of continuing extraordinarily favorable conditions: a strong economy, high loan demand, and relatively few problems in asset quality," said FDIC Chairman Ricki Helfer.

What's more, there's no reason to predict a worsening of those conditions in coming months, Ms. Helfer said, and banks will soon begin reaping the benefits of a 19-basis-point cut in their deposit insurance premiums.

"One of the people here has said the banking industry is like Cal Ripken," Ms. Helfer said. "It just keeps going."

Expressed in percentages, however, earnings at the nation's 10,168 commercial banks broke no records.

The industry's annualized return on assets in the second quarter was 1.16%, the same as a year ago but up from 1.10% in the first quarter of 1995. In 1993, return on assets was 1.20%.

Return on equity for the second quarter was 14.56%, up from 14.00% in the first quarter, but down from 14.61% in 1994 and 15.34% in 1993.

For savings and loans and savings banks, returns were much lower. The thrift industry's annualized return on assets was 0.76% in the second quarter, the FDIC reported, and its return on equity was 9.36% for the quarter.

Second-quarter bank earnings were fueled by loan growth. Net interest income hit $38.4 billion in the quarter, up 1.8% from the first quarter, and 5.1% from the same period in 1994.

There were few indications that loan growth is exposing banks to new risks, Ms. Helfer said. While other regulators have sounded alarms about slipping credit quality, she said FDIC examiners had detected a slight tightening of lending standards in the smaller state-chartered banks they supervise.

"The lending mix has continued to shift toward loans that traditionally reflect more diversified credit risk - primarily residential mortgage loans, credit cards, and other loans to individuals - and away from types of loans that reflect more concentrated credit risk, such as commercial real estate loans," Ms. Helfer noted.

Loans to consumers, including home mortgage loans and credit card debt, rose 3.5% from the first quarter to the second, while commercial and industrial loans went up 2.9%.

That left banks with 56% of their total lending in commercial loans, 44% in retail loans. In 1986, the mix was 69% commercial, 31% retail.

Total loans and leases grew 3% in the second quarter, to $2.5 trillion. Noncurrent loans decreased 2%, to $31.7 billion. However, net chargeoffs in the first half were just 12% below 1994 levels, in stark contrast to the 30% annual reductions of 1992 and 1993.

In fact, banks set aside $2.9 billion to cover bad loans in the second quarter. While that's just $74 million more than in the second quarter of 1994, it was the first year-to-year increase in loan-loss reserves since early 1992.

Also driving bank earnings were gains in noninterest income, which rose $1.6 billion to a record $20.2 billion in the second quarter from a year earlier.

Securities sales produced a net gain for the first time in a year, boosting pretax profits by $350 million. Trading profits at large banks bounced back from the first quarter. (See related story on this page.)

The FDIC's "problem list" shrank by 25 during the second quarter, to 190 banks with $23 billion in assets. At the end of 1991, there were 1,016 problem banks holding $528 billion in assets.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.