Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, September 8, 1993                   TAG: 9309080070
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

BIG PROFITS SHOW BANKING ON UPSWING

"Our latest look at commercial bank profits and other key indicators clearly shows an industry that is strong and getting stronger," Andrew Hove, chairman of the Federal Deposit Insurance Corp., told reporters.

The FDIC survey of 11,198 commercial banks showed profits totaled $10.4 billion during April-June, down from the quarterly record $10.9 billion set during the first three months of 1993.

But despite the drop, profits in the second quarter still were 32.7 percent higher than the $7.8 billion earned during the same period a year ago.

Virginia banks reported profits of $203 million in the quarter, up 5.7 percent from $192 million a year earlier, the FDIC said.

Just two years ago, many analysts were worried that massive failures would cripple the U.S. banking system in much the same way failed savings and loans crippled the thrift industry.

As a result, Congress in late 1991 authorized the FDIC to borrow up to $75 billion in taxpayer funds if needed.

Hove said that although profits did dip from the first quarter, banks' "core earnings" - profits from traditional banking activities such as loans - reached a record $9.8 billion, up $1.4 billion from the January-March period.

Also, the first-quarter gain included a one-time accounting change that added about $1.8 billion to the profit margin and which is not included in core earnings.

The FDIC attributed the main source of the increase in core earnings during the second quarter to an improvement in the quality of loans.

Because of the improvement, banks were required to set aside $4.2 billion for future loan losses, $521 million less than the first quarter and the lowest since the $3.6 billion set aside in the first quarter of 1989.

Also adding to the core earnings increase was continued wide spreads between the interest banks pay on checking and savings accounts and the interest they receive on loans.

The spread was 4.47 percent in the second quarter, down slightly from 4.5 percent in the first. It was 4.42 percent a year earlier.

Much of the increase was in the area of residential mortgages, although most major loan categories registered gains. Commercial and industrial loans increased for the first time in 13 quarters.

The survey also found the nation's 408 savings banks - hybrid institutions combining characteristics of both commercial banks and S&Ls - earned $414 million in the second quarter, up 87.6 percent from $221 million a year earlier. It was the sixth consecutive profitable quarter following three unprofitable years.