Bank Profits Surged 15% in Quarter; Helfer Sees Record $50B Year

The earnings of the nation's 9,689 commercial banks soared again in the second quarter, to $13.78 billion, 15% more than a year earlier, the Federal Deposit Insurance Corp. reported Wednesday.

"The earnings of commercial banks have never been better," FDIC Chairman Ricki Helfer said. She said the industry could set its fifth consecutive annual record by earning more than $50 billion this year.

Commercial banks earned $25.5 billion in the first half, up 10.3% from the first six months of 1995.

In the second quarter, average return on assets rose to 1.27%, from 1.16% a year ago. It was the 14th consecutive quarter that ROA has exceeded 1%, Ms. Helfer said.

The surge came largely from noninterest income, which jumped 19.8% from a year earlier to $24.1 billion. Officials attributed the increase to the sale of merger-related assets and higher bank fees.

Ms. Helfer tempered her report with concerns about credit- card loans and the Savings Association Insurance Fund.

Second-quarter net loan chargeoffs jumped by $1 billion from a year earlier, or 36.3%, to $3.8 billion, Ms. Helfer said. Most of the chargeoffs - 61% - covered bad credit card debt.

She acknowledged, however, that the industry has fattened its loan loss reserves. The average bank is holding a record $1.77 in reserve for each $1 of noncurrent loans.

Though 1,981 savings institutions reported record second-quarter earnings of $2.6 billion, Ms. Helfer continues to worry about the thrift insurance fund.

Without a congressional rescue, Ms. Helfer said, the fund will shrink as thrifts increasingly find ways to shift deposits to the Bank Insurance Fund to avoid paying higher deposit insurance premiums.

If the thrift fund shrinks too much, there won't be enough money to pay the $800 million annual interest on Financing Corp. bonds, issued in the late 1980s to pay for the first phase of the savings and loan bailout. The bonds could default.

"We have one institution that has shifted $9.4 billion since the second quarter of 1995," Ms. Helfer said. That institution, FDIC officials confirmed, was Golden West Financial Corp. of Oakland, Calif., which shifted $3 billion in deposits from its thrift to its bank in the second quarter.

The thrift fund needs the premium income from $333 billion in deposits to meet its Fico obligations. The cushion above that total dropped $8 billion in the second quarter, to $110 billion, she said.

Institutions could potentially move $186 billion out of the thrift fund, according to Ms. Helfer. She declined to say how quickly that money might move. Deposit shifts, she said, "depend on judgments individual institutions make."

The Bank Insurance Fund, however, remains strongly capitalized. FDIC figures show that for the past three quarters the bank fund's reserve ratio has hovered at 1.30% or above. That's a sore point for bankers, who argue that they deserve a rebate when the fund exceeds the legally required 1.25%.

But Ms. Helfer said bankers ought to be happy about the higher ratio. "The fact that the fund balance will creep up because of interest income is not a negative," she said, adding that it will prevent higher premiums in bad times.

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