Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, December 13, 1994 TAG: 9412130053
SECTION: BUSINESS PAGE: B6 EDITION: METRO
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium
The Office of Thrift Supervision said Monday that S&Ls earned $1.52 billion in the July-September quarter, compared with $1.24 billion the previous three months.
The thrift institutions paid out 3.63 percent of their assets in interest expenses, compared with 3.42 percent in the second quarter. Interest income rose more slowly in the third quarter, to 6.49 percent of assets from 6.35 percent.
The Federal Reserve has raised short-term interest rates six times since February, from 3 percent to 5.5 percent for the rate banks charge each other for overnight loans.
For the S&Ls, the rising interest costs were more than offset by a drop in loan losses to cover troubled assets - from $672 million to $460 million in the third quarter. Troubled assets include past-due loans and repossessed real estate.
Overall, the industry's health is improving as the number of troubled S&Ls declines, said Jonathan Fiechter, acting OTS director.
``Let me emphasize, the directions are all very positive,'' he told a news conference.
S&Ls, in fact, may have become too conservative in managing interest rate risk, Fiechter said.
That is a turnaround from past policies that contributed to the S&L debacle.
Until the past few years, thrifts lent most of their money in long-term, fixed-rate mortgages. When rates soared in the late 1970s and early 1980s, thrifts were forced to pay high rates for deposits but were stuck with low-rate mortgages.
In the past few years, S&Ls sold more fixed-rate mortgages to Wall Street investors in the secondary market and kept adjustable-rate mortgages whose interest earnings rise with deposit rates. That has the effect of lowering risk and producing steadier - though possibly lower - interest income.
Also, Fiechter said, thrifts are increasing their reserves as measured against troubled assets. Reserves are more than five times greater than losing assets now; two years ago, reserves equaled less than three times the troubled assets.
Still, Fiechter said, thrifts are not in as good a shape as banks when the median returns on assets are compared. The median return for banks is nearly 11/2 times that of S&Ls, he said.
But he stressed that the number of troubled thrift institutions declined from 73 with $60 billion in assets in June, to 61 with $47 billion in assets at the end of September. About 6 percent of industry assets are held by troubled thrifts, compared to just over 1 percent for the banking industry.
The thrift industry ``has recovered from the problems of the early-to-mid-1980s,'' Fiechter said, when Congress was forced to approve a costly bailout. He said it may be necessary to set aside only $50 million in the first half of 1995 to rescue failed S&Ls, and even that much is only because of ``an abundance of caution.''
The S&L cleanup has cost about $136 billion since 1987.
The decline in the number of S&Ls also has slowed this year. The thrift agency regulated 1,578 of them at the close of September, down 89 this year. One institution failed, 46 converted to state savings banks or commercial banks and 61 merged or liquidated voluntarily. Nineteen new or revitalized S&Ls were added.
by CNB