The thrift industry posted a $5.4 billion loss for the second quarter of 2008, as institutions set aside record reserves for loan losses during the continued housing market downturn, the Office of Thrift Supervision said on Wednesday. During the second quarter, thrifts set aside $14.0 billion in loan loss provisions, the highest total on record; during the last four quarters, OTS-regulated thrifts have added more than $30 billion to loan loss reserves. The net loss during the second quarter was the second largest on record; the worst quarter in the S&L industry's history came in the fourth quarter of 2007, with $8.8 billion in aggregated losses. Troubled assets rose to 2.68 percent of assets -- up from 2.06 percent in the previous quarter and 0.95 percent a year ago. (Which means that troubled assets more than doubled within the past year, for those keeping score at home.) At the end of the second quarter, the OTS reported that there were 17 problem thrifts out of 829 supervised, an increase from 12 thrifts in the previous quarter and 10 thrifts one year ago; OTS director may have said that "thrift managers are responding appropriately to the challenges they face" in a press statement, but we can't help but think he has some private concerns. Butressing that point is the fact that thrift profitability, as measured by return on average assets, was a negative 1.41 percent in the second quarter, compared with a positive 1.02 percent one year ago. Commercial bank strain, too In a similar vein, commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation reported net income of $5.0 billion in the second quarter of 2008, according to statistics released earlier this week. Income fell $31.8 billion -- or 86.5 percent -- from the $36.8 billion that the industry earned one year earlier, the FDIC said. And like the OTS results, with the exception of the fourth quarter of last year, the latest earnings were the lowest for the industry since the fourth quarter of 1991. "By any yardstick, it was another rough quarter for bank earnings," said FDIC Chairman Sheila Bair, in a press statement. The FDIC's "problem list" grew to 117 institutions from 90 at the end of the first quarter, although the FDIC does not publicize its list of problem banks. That said, it's the largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion, with $32 billion coming from IndyMac Bank, which failed in July. "More banks will come on the list as credit problems worsen," Bair added. "Assets of problem institutions also will continue to rise." HW's sources close to the FDIC have suggested to us that the regulator's internal estimate of bank failures during the current cycle is just north of 800. Related links: FDIC quarterly banking profile, OTS Thrift Industry Highlights