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Financial institutions strengthen despite stagnant economy.

An analysis of Federal Reserve Board call data for the second quarter of 1992 by Veribanc, Inc., the bank rating company, showed the nation's financial institutions continued to improve, despite the current recession.

Commercial banks. The nation's 12,145 commercial banks recorded record earnings of $8.18 billion in the second quarter. After a slight increase of $.59 billion in loan loss reserves and a $2.98 billion in problem loans, effective net income rose to $10.57 billion for the quarter. This income, plus another $.23 billion in new capital was used to charge off $3.06 billion in new problem loans and to augment the banking system's capital reserves by a hefty $7.74 billion, or $2.22 billion more than in the previous quarter.

Savings and loans. Second-quarter call data for the nation's 2,089 privately owned savings and loan institutions and those controlled by the Resolution Trust Corporation showed a continued improvement in their financial condition. The annualized rate of the latest six-month return on assets rose to .49% compared with -.40% in the first six months of 1991. Equity as a percentage of assets stood at 6.06% versus 3.97% a year earlier and the percentage of insolvent or nearly insolvent institutions had almost been cut in half, declining from 20.03% in June 1991 to 10.34% at the end of this year's second quarter.

However, the RTC-controlled thrifts are a different matter. As a group, they incurred a $402 million loss during the period, largely because of the absence of congressionally approved funds to resolve them. Veribanc estimated the losses could mount to more than $2 billion in the next year, saying the delay could cost about $5 billion extra when the ultimate cost of financing the resolution of these failed thrifts is added in.

Credit unions. Call report data for the nation's 13,757 credit unions for the first six months of 1992 also showed improvement. Assets were 10.4% above last year's levels, while deposits and shares grew 10.9%. Net income rose 36.1%, bringing the annualized rate of return on assets to 1.26% compared with a scant .84% for the first six months of 1991.
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Dec 1, 1992
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