Banks set second consecutive quarterly earnings record with $13.7 billion; thrifts post record quarter with earnings of $1.8 billion; industry shrinkage stabilizes.

AUSTIN, Texas--(BUSINESS WIRE)--Jan. 30, 1996--U.S. banks registered record earnings for the second consecutive quarter, with profits of $13.7 billion before extraordinary items during the third quarter of 1995 for an annualized return on assets of 1.31 percent, according to Sheshunoff Information Services Inc., a leading provider of information to the banking and thrift industries.

This figure represents the highest quarterly income ever reported by the banking industry. The third quarter earnings figure represents a $1.7 billion, or 14 percent, increase over the former record level of $12.0 billion in profits earned during the second quarter of 1995.

The banking industry's profits rose to $36.7 billion for the first three quarters of 1995, up $2.8 billion, or 8.4 percent, over earnings for the first three quarters of 1994.

"The industry's ability to continue posting record-setting quarters is encouraging, especially in light of shrinking net interest spreads," said Con Rusling, president of Sheshunoff Information Services Inc. "The real question is how long can these profit levels be maintained."

The savings and loan industry also reported record earnings during the third quarter of 1995, with a profit of $1.8 billion before extraordinary items.

This figure represents an increase of $475 million, or 35.4 percent, over the second quarter of 1995 and $339 million, or 22.9 percent, over the third quarter of 1994. Profits for the first three quarters of 1995 rose to $4.3 billion, an increase of $995 million, or 30.2 percent, over the first three quarters of 1994.

Bank Profits Bolstered by Rising Net Interest Income, BIF Recapitalization 

The banking industry's net interest spread before loan loss provisions, as a percent of average assets, fell to 3.79 percent through September 1995, compared to 3.87 percent at year-end 1994. Despite thinning spreads, net interest income for the industry rose to $114.5 billion through September 1995, reflecting an increase of $6.2 billion, or 5.8 percent, over the first three quarters of 1994.

The provision for loan losses rose to $8.8 billion through September 1995, representing an increase of $0.8 billion, or 9.5 percent, over the amount recorded during the first three quarters of 1994. This marks the second straight quarter of increased loan loss provisions, although the ratio of reserves to noncurrent loans has gradually increased during the six-month period.

Noninterest expenses continued their downward trend, measuring 3.59 percent of average assets through September 1995. This is down from 3.69 percent and 3.91 percent in noninterest expenses posted for the first three quarters of 1994 and 1993, respectively.

"The continued improvement in bank earnings can be attributed to improved net interest income from loan growth coupled with good asset quality. Banks also experienced lower operating costs due to the recapitalization of the Bank Insurance Fund (BIF), resulting in significantly reduced deposit insurance premiums," said Rusling.

The S&L industry reported a net interest spread after loan loss provisions, as a percentage of average assets, of 2.41 percent, down from 2.54 percent for year-end 1994. Loan loss provisions fell to 0.21 percent of average assets, down from 0.27 percent and 0.51 percent recorded at year-end 1994 and 1993, respectively.

"Record profits in the nations' S&Ls were driven mainly by low loan loss provisions and steady loan growth," commented Rusling. "Given the loan growth now being realized, the industry's ability to maintain loan loss provision expenses at their current low level is questionable."

Loan Demand Fuels Bank Asset Growth; Thrift Assets Continue to Level

Total bank assets grew during the third quarter of 1995 by $58.5 billion, or 1.4 percent, raising the industry total to $4.2 trillion. Loan demand continues to spur this growth. Total domestic loans grew by $49.3 billion, or 2.2 percent, during the third quarter, and loans in foreign offices of U.S. banks grew by $7.7 billion, or 3.0 percent.

The most significant growth during the third quarter was realized in home mortgages, up $14.6 billion, or 2.8 percent; consumer loans, up $14.4 billion, or 3.0 percent; and commercial and industrial loans, up $4.7 billion, or 0.9 percent.

Total assets for the S&L industry realized a slight decrease of $3.1 billion, or 0.4 percent, totaling $775 billion for the third quarter of 1995. The declining trend in the number of thrifts leveled off during the third quarter, with the industry reporting 1,506 institutions in both June and September of 1995. This number is down 4.4 percent from the 1,573 thrifts reported in September of 1994.

Decline in Bank and S&L Nonperforming Loans Persists

During the third quarter of 1995, nonperforming loans outstanding at the nation's commercial banks fell $214 million, or 0.7 percent. Nonperforming loans as a percentage of gross loans decreased to 1.22 percent, compared to 1.26 percent as of June 30, 1995 and 1.46 percent, as of September 30, 1994.

"Although overall bank asset quality continues to improve, the trend in nonperforming consumer loans, which have grown nearly four times as fast as total consumer loans through September 1995, may indicate that asset quality has topped out," Rusling stated.

Net charge-offs through the first three quarters of 1995 rose to $8.2 billion, reflecting an increase of $155 million, or 1.9 percent, from the $8.1 billion reported during the same period of 1994. The $3.2 billion in charge-offs recorded during the third quarter of 1995 is the highest amount charged off in a single quarter since the $4.7 billion charged off in the fourth quarter of 1993.

Nonperforming loans at the nation's thrifts continued their decline during the third quarter, dropping $219 million to $6.5 billion from the $6.7 billion reported on June 30, 1995. This represents a quarterly decline of 3.2 percent and a 20.1 percent reduction from September 1994.

"Bank executives have been challenged with booking profitable loans to offset narrowing net interest spreads," commented Rusling. "Meeting loan demand without incurring excessive credit or interest rate risk will be a particularly trying task. Effective net noninterest spread management should prove to be invaluable if loan demand subsides, as predicted by some economists."

CONTACT: Sheshunoff Information Services Inc.

Jennifer Scott-Tsiatsios, 512/305-6699

or

Yui + Company

Ellen Yui, 301/585-0298