Bank profits hit record high

"At the same time, institutions face challenges as they recover from a one-two punch of rising compliance costs and weaker-than-normal loan demand that makes it difficult to grow topline revenue."

Losses fell across all major loan categories, but was led by residential real estate loans, falling 41.7 percent on home equity lines of credit compared with a year ago.

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All told, 53.8 percent of nearly 7,000 banks reported improved earnings from a year earlier.

The proportion of banks that were unprofitable fell to 8.2 percent, from 11.3 percent a year earlier.

Total bank lending increased by $73.8 billion, or 1 percent.

Despite the improvement, the majority (82%) of profits were posted by the nation's largest financial institutions such as Bank of America and Wells Fargo, which make up less than 2 percent of all banks nationwide. 

FDIC Chairman Martin Gruenberg said the second-quarter results reflect an overall positive trend in the industry but that "revenue growth remains weak, reflecting narrow margins and modest loan growth."

He also expressed concern about rising interest rates amid talk that the Federal Reserve will begin tapering its massive monthly stimulus. 

"Nonetheless, overall these results show a continuation of the recovery in the banking industry."

The number of so-called problem banks rose to 553 from 612 in the first quarter.

This is the ninth consecutive quarterly decline, and the first quarter since 2009 that the number has fallen than 600. 

At its peak, the list was 40 percent higher, and hit 888 banks in the first quarter of 2011. 

Only 12 banks failed, bringing the year's total to 20, well below the 40 during the same period last year. 

There were a total of 51 last year, 92 in 2011 and 157 in 2010.