Market Woes Leave Thrifts Unfazed; Net Surged in 3Q

Though big banks are reeling from volatile global markets, the nation's thrifts are posting stellar profits.

The Office of Thrift Supervision said Wednesday that the industry earned $2.23 billion in the third quarter, up 66% from a year earlier. It was the eighth consecutive quarter of record results, and it put the industry on track for a record year.

Thrift executives said the results show that old-fashioned banking can produce more profits than foreign lending and securities dealings.

"Well-managed institutions are doing well in basic banking-taking deposits and lending money," said David E.A. Carson, chairman and chief executive of People's Bank, a state-chartered thrift in Bridgeport, Conn. "They haven't been caught in the trading problems of many of the commercial banks."

Commercial banks, stung by trading losses in Russia and other developing markets, are expected to see their own string of record earnings broken when the Federal Deposit Insurance Corp. releases its third-quarter report on Dec. 16. Already, Bankers Trust Corp. and Republic New York Corp. have collectively reported more than $581 million of losses for the third quarter.

The strong results for thrifts stand in sharp contrast to the late 1980s and early 1990s, when the industry collapsed.

"The resurgence of the thrift industry continues," said Paul A. Schosberg, president of America's Community Bankers. "The performance for virtually half a decade now underscores how significant the charter is and how good a job of managing business opportunities ... the executives, trustees, and directors are doing."

Industry officials said the results show that thrifts have retooled themselves, diversified their mortgage products, and successfully expanded into other retail services.

"The late 1980s and early 1990s were an extremely difficult time for the industry," said William A. Fitzgerald, chairman and chief executive of Commercial Federal Bank, Omaha. "Those that survived had to restructure their financial institutions to compete in an environment with greater volatility in interest rate movements."

Kenneth F. Ryder, executive director of research and analysis for the OTS, said the thrift charter's popularity is growing.

The number of start-ups and conversions to thrifts hit 32 in September, trumping the 1997 total of 21. Meanwhile, thrift conversions to banks slowed to 14 in the first nine months of 1998 compared with 49 in all of 1997, and 34 thrifts have been acquired so far by non-OTS-regulated firms compared with 61 last year.

The OTS reported numerous records in its report, including an average return on assets of 113 basis points in the third quarter and $78.6 billion in mortgage originations. Equity capital soared to 8.58% and troubled assets fell to an all-time low of $6.4 billion, or 0.8% of assets, from $6.8 billion, or 0.87% in the second quarter.

Industry earnings were boosted by one-time gains from restructurings and were tempered by one-time losses from acquisition-related expenses and revaluations of mortgage servicing portfolios. Excluding these factors, thrifts' profits were $1.8 billion, said Ellen S. Seidman, director of the OTS.

Ms. Seidman lauded thrift executives for managing the liability side of their balance sheets well and reacting to declines in deposits with less costly, longer-term borrowings.

Yet she said, regulators are worried about declining deposits bases, weaker operating efficiencies, expansions into riskier product lines, and the flattening yield curve between long-term and short-term rates.

All the same, thrift executives took clear pride in comparing the recent results with those of commercial banks.

"I am just going to smile," said Lee Beard, president and chief executive of First Federal Bank in Hazleton, Pa. "I am not going to have to say anything. The numbers speak for themselves."

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