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BANKS HAVE GREAT QUARTER; THRIFTS’ NOT SO GOOD

SHARE BANKS HAVE GREAT QUARTER; THRIFTS’ NOT SO GOOD

Commercial banks recorded their second-best profits ever during the first three months of this year, but problems at three big savings and loans dampened the thrift industry's earnings, the government said Wednesday.

The nations' 10,840 commercial banks earned $11.1 billion, up from $10.8 billion a year earlier, the Federal Deposit Insurance Corp. said. That was second only to the $11.5 billion earned during the July-September quarter last year."Banks and thrifts are safer now than we've seen in some time, perhaps ever," said economist Martin Regalia of the U.S. Chamber of Commerce.

During the first quarter, no commercial banks failed - the first time that's happened in 16 years. So far during the April-June period, only four have failed.

The number of problem banks is down to 383 with $53 billion in assets, compared with 981 with $535 billion just two years ago.

Meanwhile, earnings at the 2,240 savings banks and savings and loan institutions fell to $1.3 billion from $2.4 billion a year earlier. However, the FDIC attributed more than $500 million of the decline to "balance sheet restructuring" at three of the top 20 thrifts.

In California, Glendale Federal Bank and California Federal Bank recognized losses on real estate loans. First Federal of Michigan lost $139 million on interest rate swaps.

Other signs, however, pointed to increasing strength in the thrift industry during the first quarter. No thrifts failed, for the second consecutive quarter, although one has failed so far in the second quarter.

The number of problem institutions is down to 118 with $89 billion in assets, compared with 381 institutions with $274 billion two years ago. The industry's capital cushion was 7.6 percent of assets, up from 7 percent a year ago.

"What we see is a very stable and strong core of earnings," said economist Bob Davis of the Savings & Community Bankers of America, the trade group for the savings business.

The savings institution figures exclude the 48 failed institutions that were being operated by the Resolution Trust Corp.

FDIC Chairman Andrew C. Hove Jr. cautioned that interest rates have risen since the end of the first quarter and said regulators will be watching closely to see whether that dampens bank and thrift earnings.

The gap between the interest rates charged on loans and paid on deposits is narrowing. But Hove and private analysts said lending institutions probably would be able offset the declining net interest income with increased fee income by originating more loans and from the continuing decline in losses on bad loans.

"We don't see anything in the near future that would cause us to think earnings are going to decline dramatically," Hove said.

The first-quarter addition to banks' reserves for bad loans, $2.7 billion, was the smallest in 10 years.

A $10.6 billion increase in business lending by banks was the biggest in nearly seven years, a sign that the so-called credit crunch has faded in most areas of the country. But real estate loan growth slowed to a crawl, reflecting the tailoff of the boom in home mortgage refinancing.

Longer term, Hove said bankers' institutional memory of the near-crisis of the 1980s and early 1990s should keep them from repeating their past mistakes.

An increasing number of both banks and S&Ls are offering uninsured mutual funds to their customers. Eighteen percent of all banks and 19 percent of savings institutions reported fee income from selling mutual funds.

The FDIC noted that the number of banks and S&Ls continues to shrink due to mergers. During the first quarter, there were 127 bank mergers. Seventeen savings institutions either were acquired by banks or switched from savings to banking charters.