first half, up 9.1% from the year-earlier period, the Federal Deposit Insurance Corp. said Monday.

The second-quarter earnings total was $17 billion, weighed down by a $1.5 billion loss recorded by Bankers Trust Co., which was acquired by Deutsche Bank in June. If not for that, FDIC Chairman Donna Tanoue noted, the industry would have posted a record for the second consecutive quarter.

"It may not have been the very best quarter ever, but as a bank regulator and insurer -- who has to address problems and pay for bank failures -- the FDIC welcomed it as the second-best," said Ms. Tanoue.

The FDIC said second-quarter profits were fueled by an increase in fee income, fatter net interest margins, and improved asset quality. On the downside, banks earned less from international operations and trading.

Noninterest income was flat in the second quarter, at $34.5 billion, but fee income increased $1.4 billion, or 9.2% from the first quarter, and was up 26.8% from the second quarter of 1998.

The industry's overall net interest margin was basically steady at 4.05%, but higher interest rates helped smaller banks widen their spreads. Banks with assets under $100 million added 11 basis points, bringing their net interest margin to 4.43%. Banks with assets of $100 million to $1 billion added 12 basis points, bringing margins to 4.58%. The trend at larger banks was flat.

Asset quality improved in the second quarter as "consumer loans registered strong improvement and the deteriorating trend in loans to commercial and industrial borrowers slowed," the FDIC said in its Quarterly Bank Profile report. Net chargeoffs totaled $4.6 billion in the second quarter, down 8.5% from the previous quarter. Noncurrent loans fell by $1.1 billion, or 3.3%, but remained 7.2% above year-earlier levels.

Credit card loans showed the most improvement, with chargeoffs declining by $545 million, or 20.4%, from the first quarter and 26.5% from the second quarter last year. Chargeoffs related to commercial and industrial loans, however, increased by $269 million, or 26.6%, from the first quarter and $554 million, or 76%, from the second quarter of 1998.

During the second quarter, 2,262 banks cut loan-loss reserves by $1.5 billion. The number of banks trimming reserves was in line with previous quarters, but the dollar figure was much higher than the roughly $850 million FDIC researchers have been seeing.

According to the FDIC, Morgan Guaranty Trust Co. shaved its reserves by $112 million, to $334 million, while Chase Manhattan Bank cut its reserves by $91 million, to $2.55 billion. The industry's ratio of reserves to total loans fell but because asset quality improved, the ratio of reserves to noncurrent loans improved.

On June 30, banks held $1.85 in reserves for every $1 in loans 90 or more days past due. That was up from $1.80 on March 31.

Lower trading revenue was partially responsible for overall noninterest income declining by $209 million, to $34.5 billion. Income from international operations fell $742 million from the first quarter, to $1.6 billion, while income from trading activities dropped 61%, to $2.2 billion.

Industrywide return on assets was 1.25%, matching last year's number for the second quarter, but down slightly from the 1.32% in the first quarter.

Assets of the 8,675 insured commercial banks grew 0.5%, or $26.5 billion, in the first half. In the 12 months that ended June 30, industry assets increased 5.5%, to $5.467 trillion. Trading asset accounts declined for the third consecutive quarter, falling $36.6 billion to $231.8 billion. Commercial and industrial loans increased by only $1.43 billion, or 1.6% -- the smallest quarterly percentage increase since the third quarter of 1997.

Only one bank failed in the second quarter, while 55 new banks were chartered. The number on the FDIC's problem list fell by two, to 62, with a combined $4.66 billion of assets.

Ms. Tanoue's discussion of the report ended with a perfunctory warning against complacency on the part of banking supervisors. "We continue to monitor emerging risks that could affect institutions and will address problems as they arise," she said.

Expanding on the chairman's remarks, spokesman Steve Katsanos said, "We are certainly looking at subprime lending and are giving a little extra attention to agricultural lenders given the low commodities prices they have had to deal with." ?

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