Better results at unhealthy thrifts cleared the way for the industry to earn a record $5.4 billion last year, the Office of Thrift Supervision said Wednesday.

Problem thrifts lost $675 million last year, roughly $1 billion less than they lost in 1994. The number of sick institutions also fell, dropping 23% to 41 thrifts with $11 billion in assets.

"This is a continuation of a five-year trend and illustrates the recovery of the industry," acting OTS Director Jonathan Fiechter said. "We have a much healthier group of troubled thrifts."

While fourth-quarter profits jumped 24% to $1.3 billion from the year- earlier period, profits slid 18% from the third quarter.

Mr. Fiechter downplayed the quarter-to-quarter drop, saying the sale of Home Savings of America's New York branches artificially inflated third- quarter earnings. Without the sale, industry profits would have fallen by only a few million dollars, he said.

The thrift industry's return on assets also dropped in the fourth quarter to 0.67% from 0.82%. However, the decline was only 0.03% after adjusting for the gains at Home Savings.

Deposits held by Savings Association Insurance Fund members continued a five-year free fall, dropping another $21 billion in 1995 to $470 billion.

Mr. Fiechter blamed most of last year's drop on the 23-basis-point differential in deposit insurance premiums paid by banks and thrifts. Deposits, he said, will continue to leave institutions insured by the fund until Congress approves a bill to recapitalize the fund.

"The sooner we get action on the Hill to resolve the SAIF problem, the better this industry will be," Mr. Fiechter said.

Joseph B. Blalock, senior financial economist at America's Community Bankers, said the figures show that higher deposit insurance premiums are preventing healthy thrifts from growing.

"The people who are making money are not continuing to increase the amount they are making," he said. "They have stagnated."

Mr. Blalock said he expects profits to fall further this year, especially if Congress fails to act.

"We have reached a turning point in the credit cycle and we look for credit quality worsening from here on out," he said. "That is going to eat into profitability. We have a less optimistic outlook going forward."

The number of troubled home and consumer thrift loans rose slightly in the fourth quarter, the second straight increase, OTS reported.

The industry continued to increase its Tier 1 capital in the quarter, boosting reserves 0.10% to 7.48%. These capital reserves pushed down the industry's return on equity to 9%, well below the banking sector's 15% average return.

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