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U.S. thrifts lost $5.4 billion in the second quarter and set aside a record amount to cover losses from bad mortgages and other loans.

Data from the U.S. Office of Thrift Supervision released Wednesday show federally insured savings and loan institutions posted their second-largest quarterly loss ever in the April-June period, after the $8.8 billion loss in the fourth quarter of last year. Heavily focused on mortgage lending, thrifts have been stung by mounting home-loan defaults.

The $5.4 billion quarterly loss compared with net profits of $3.8 billion in the year-ago period, and a loss of $627 million in the first quarter.

The roughly 830 thrifts also set aside a record $14 billion to cover losses from bad mortgages and other loans.

John Reich, the thrift agency’s director, said 98% of institutions still have adequate capital to weather the housing and economic turbulence.

"Solid capital and sizable reserves for potential loan losses show once again that thrift managers are responding appropriately to the challenges they face," Reich said in a statement. "These two factors will serve the industry well in riding out the current crisis."

The report from the agency, a division of the Treasury Department, came a day after the Federal Deposit Insurance Corp. said the number of troubled banks and thrifts jumped to 117 — the highest level since mid-2003. The FDIC also said profits earned by banks and savings and loans plunged by 86% in the second quarter, to $5 billion.

The thrift agency said its number of problem institutions grew to 17 at the end of the second quarter from 10 a year earlier.

The agency said the amount that savings associations set aside for problem loans soared in the second quarter to 3.68% of average assets from 0.38% a year earlier.

Thrifts differ from banks in that, by law, they must have at least 65% of their lending in mortgages and other consumer loans — making them particularly vulnerable to the persistent housing downturn cash till payday. The institutions regulated by the Office of Thrift Supervision range in size from big lenders like Seattle-based Washington Mutual Inc. (WM, Fortune 500) and Sovereign Bancorp Inc (SOV, Fortune 500). of Philadelphia to small community banks.

Like banks, thrifts are being closely examined by federal inspectors for signs of heavy exposure to declining markets or troubled areas such as construction and real estate loans.

The largest bank failure in years occurred in July and involved a thrift. Pasadena, Calif.-based IndyMac Bank was the biggest regulated thrift to fail and the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984. It was taken over by the FDIC with about $32 billion in assets and deposits of $19 billion.

IndyMac succumbed to the pressures weighing on institutions of all sizes nationwide: tighter credit, tumbling home prices and rising foreclosures.

Eight other FDIC-insured banks have failed so far this year, compared with three in all of 2007, and more are expected to collapse this year. 

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