Bank Profits Remain Steady for the First Quarter of 1995; S&Ls Remain Profitable as Industry Ranks are Pared Down.

AUSTIN, Texas--(BUSINESS WIRE)--July 31, 1995--U.S. banks posted a profit of $11.0 billion before extraordinary items during the first quarter of 1995 and registered a return on assets of 1.09%, according to Sheshunoff Information Services Inc., a leading provider of information to the banking and thrift industries.

This figure represents a $472 million, or 4.0% increase over the $10.6 billion profit earned in the fourth quarter of 1994, and an $8.9 million, or 0.1% decrease from the $11.1 billion reported for the first quarter of 1994.

Overall, 97% of the nation's 10,221 banks were profitable during the first quarter of 1995, reporting earnings of $11.3 billion. The three percent which were unprofitable registered a loss of $337 million.

"Decreasing loan loss provisions and higher net interest income helped banks continue with near-record earnings levels during the first quarter of 1995," said Con Rusling, president of Sheshunoff Information Services Inc. "Increasing loan demand, especially in the consumer sector, helped banks to post respectable profits in spite of narrower interest spreads."

The savings and loan industry posted a $1.1 billion profit before extraordinary items during the first quarter. This figure represents a $168 million, or 18% increase from the $1.0 billion profit reported during the fourth quarter of 1994, and a $416 million, or 58% increase over the $713 million earned during the first quarter of 1994. Of the nation's 1,508 thrifts, 93% were profitable during the first quarter of 1995, up from 89% during 1994.

Bank Suffers Losses on Securities Sales but Achieve Higher Net Interest Income

Commercial banks reported losses on securities sales of $95 million during the first quarter of 1995. This figure represents a $652 million, or 117.1%, decline from the securities gains of $557 million realized during the first quarter of 1994.

"Thanks to healthy gains in their asset base, banks are achieving strong profits despite the losses on securities sales," said Mr. Rusling.

The banking industry's net interest spread before loan loss provisions, as a percentage of average assets, was 3.79% for the first quarter of 1995. This figure represents a slight drop from the 3.81% spread registered during the first quarter of 1994. Despite the slight narrowing in spread, net interest income rose to $153 billion for the first quarter of 1995, representing a $10 billion, or 7.0%, increase over first quarter 1994 results.

The provision for loan losses fell to $2.68 billion during the first quarter of 1995. This figure reflects a drop of $34.1 million, or 1.3%, from the $2.72 billion provision reported for the first quarter of 1994, and a $196.4 million, or 6.8%, decrease from the $2.88 billion provision reported for the fourth quarter of 1994. Due to a combination of decreasing noninterest expenses and a larger asset base, noninterest expenses dropped to 3.65% of average assets for the first quarter of 1995. This important indicator improved slightly from the 3.68% in noninterest expenses reported for the first quarter of 1994 and the 3.73% figure reported for the fourth quarter of 1994.

The S&L industry reported a net interest spread before loan loss provisions, as a percentage of average assets, of 2.62% down from 2.84% in the fourth quarter of 1994. Loan loss provisions declined from 0.32% of average assets for the first quarter of 1994 to 0.21% for the first quarter of 1995.

"Banks were able to report solid first quarter 1995 earnings, despite their recognized losses on securities sales," commented Mr. Rusling. "S&Ls continue to owe much of their improved earnings to lower loan loss provisions. However, competition and a volatile interest rate environment will continue to put pressure on net interest spread for both banks and thrifts."

Asset Growth Reflects Increasing Loan Demand

Total bank assets grew during the first quarter of 1995 by a healthy $106 billion, or 2.6%, bringing the industry total to $4.1 trillion. Strong asset growth has been fueled by an increasing demand for loans. Total loans in domestic offices of U.S. banks increased by $227 billion, or 11.7%, between the first quarter of 1994 and the first quarter of 1995, while loans in foreign offices of U.S. banks increased by $30 billion, or 13.5%.

All major domestic loan categories showed growth during the first quarter of 1995. Commercial and industrial loans led the way, up $24 billion, or 5.1%; home mortgage loans were up $14 billion, or 2.9%; and commercial real estate loans were up $6 billion, or 2.0%.

"Managing credit risk remains a critical issue for banks as loan demand continues to rise," said Mr. Rusling. "Despite the competitive pressures to protect market share, banks must focus on making good quality loans to avoid sacrificing the value of their asset base."

Assets Increase Slightly As Number of S&Ls Drops Near 1,500

Total assets for the S&L industry increased by $3.4 billion, or 0.4%, during the first quarter of 1995 as the number of institutions dropped 10.2%, to 1,508. The decline in the number of S&Ls, down from 1,680 during the last quarter of 1994, is a direct result of S&Ls converting to state-chartered savings banks or their acquisition by commercial banks. No S&Ls reported negative equity for the first quarter of 1995, down from two on December 31, 1994, and from four on September 30, 1994.

"Until congress addresses the funding issues for the Savings Association Insurance Fund, and as long as deposit insurance rates remain more favorable for banks, thrifts will continue to migrate to the banking industry," said Mr. Rusling.

Nonperforming Loans Increase at Banks, Decrease at S&Ls

Nonperforming loans outstanding at the nation's commercial banks rose for the first time since the first quarter of 1991, increasing by $1.6 billion to $32.0 billion, up 5.2% from the $30.4 billion reported for the fourth quarter of 1994. Nonperforming loans as a percentage of gross loans were reported at 1.32%, reflecting the first increase in this measure since the second quarter of 1991. For the first quarter of 1994, nonperforming loans stood at 1.86% of gross loans, compared to 1.29% for the fourth quarter of 1994.

The three states showing the largest quarterly increases in nonperforming loans were North Carolina, up 26.1%; Arizona, up 20.8%; and Rhode Island, up 20.2%.

By contrast, the level of net loan charge-offs declined, dropping from $2.6 billion for the first quarter of 1994 to $2.3 billion for the first quarter of 1995, reflecting a decrease of 12.5%. Furthermore, net charge-offs dropped $833 million, or 26.9%, from the $3.1 billion reported for the fourth quarter of 1994.

S&Ls demonstrated improvement in nonperforming loans for the first quarter of 1995, which fell $3.8 billion, or 35.4%, during the year, to $6.9 billion, or 1.3% of gross loans. Nonperforming loans were also down $182 million, or 2.6%, from the $7.1 billion reported for the fourth quarter of 1994. But high levels of nonperforming loans continue to persist in the Northeast and West, where they make up 2.2% and 1.6% of gross loans, respectively.

"Funding the surge in loan demand continues to be an important issue for banks," commented Mr. Rusling. "Also, banks should remain wary of taking on too much credit risk, especially when the industry is still facing relatively high interest rates and lower net interest spreads."

CONTACT: Sheshunoff Information Services Inc.

Jennifer Scott-Tsiatsios, 512/305-6699

or

Yui & Company

Ellen Yui, 301/585-0298