Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, March 11, 1994 TAG: 9403110072
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
It was the third consecutive year of profits for the industry after four years - from 1987 through 1990 - that saw it hemorrhage more than $30 billion in losses.
The 1,669 institutions that have managed to survive the S&L crisis earned profits of $1.19 billion in the final three months of last year, up from $1.05 billion in the 1992 quarter, the Office of Thrift Supervision said Thursday.
Although full-year earnings declined from 1992, they were roughly equivalent, because the latest year's profits came from a smaller industry.
The industry's return on assets - a standard measure of profitability - was 0.65 percent for both years, about half the return on assets experienced by commercial banks last year.
Virginia thrifts reported a 67 percent increase in profits, to $27.5 million in last year's fourth quarter compared with $16.5 million in the 1992 quarter.
Robert Davis, chief economist of the Savings & Community Bankers of America, said the return for S&Ls was lower than for banks because S&Ls were left with a bigger overhang of problem loans from the 1980s.
He said the stability in the return for S&Ls masked a dramatic improvement in the industry's financial strength and ability to weather problems.
At the end of 1993, problem assets such as delinquent loans and repossessed real estate totaled $17 billion, down from $25 billion a year earlier. And the industry continued to build its capital, which acts as a cushion against future losses. It was 7.1 percent of assets at the end of 1993, up from 6.4 percent a year earlier.
"Even though their earnings are the same, their balance sheets are improving," Davis said.
Ninety-nine percent of S&Ls are at least adequately capitalized, the thrift office said. It said 101 institutions still were considered to be problems, down from 203 a year earlier.
Davis predicted the industry's earnings will continue to improve as it closes the books on more and more of its problem loans.
However, economist Warren Heller of Veribanc Inc. in Wakefield, Mass., said earnings probably would erode.
Much of the profitability of the past two years has been driven by the unusually wide gap between short-term interest rates on deposits and long-term interest rates on loans.
That gap has started to narrow and will continue to close this year, although not dramatically, Heller said.
"I think institutions can weather mildly rising rates . . . but I just don't see any mechanism by which they're going to be able to earn at the same rate as they have the last two years," he said.
by CNB