FDIC Sees Hopeful Earnings Trend But West Emerges as Trouble Spot

WASHINGTON - The nation's commercial banks earned $4.3 billion in the third quarter amid signs that the industry's crisis may be bottoming out, the Federal Deposit Insurance Corp. reported Tuesday.

The third-quarter result for 12,072 FDIC-insured banks was down $300 million from the previous quarter but up $700 million from third-quarter 1990.

Compared with the second quarter, net interest margins improved and equity capital held steady at 6.7% of assets, the highest level since 1975. The percentage of noncurrent real estate loans fell by three basis points, and noncurrent commercial loans fell by eight basis points.

Trouble, Western Style

The West was emerging as a trouble spot as the problems of the Northeast and Southwest were leveling off. Banks in 12 western states accounted for all of the industry's decline in net income from the second quarter. The region's noncurrent loan rates surpassed those of the recovering Southwest.

The western banks earned $334 million in the third quarter, half their $669 million in the second quarter and 74% less than the $1.27 billion they reported in the 1990 third quarter.

"Maybe the worst is behind us, especially in New England," said Sung Won Sohn, chief economist at Minneapolis-based Norwest Corp. "But I think in the case of California we are seeing the tip of the iceberg."

The FDIC data showed 24% of California banks reported a net loss for the first nine months of 1991. Among the most populated states, only Florida at 25% and New York at 21% were comparable.

Bevy of Nine-Month Losers

Arizona (48%), Hawaii (29%), Colorado (21%), and Nevada (21%) were also among the 14 states - most others are in the Northeast - in which at least 20% of banks had nine-month losses.

The District of Columbia topped all the states at 79%, followed by Connecticut at 64% and Massachusetts at 53%.

But nationally, troubled loans at commercial banks increased by just $778 million, or 1%, in the third quarter. The total of noncurrent loans was $80.5 billion on Sept. 30.

A year earlier, noncurrent loans were up by $5.3 billion, or 8%.

Of the 12,072 banks in the survey, with $3.43 trillion in assets, more than 88% reported a profit for the third quarter. Almost 58% increased earnings from the 1990 quarter.

Tricky Feat

Bert Ely, president of Ely & Co., a consultant in Alexandria, Va., said the banking industry is showing that it can earn money while battling a real estate recession and increased insurance premiums.

"We are hardly seeing a robust industry," he said. "But, on the other hand, we are not seeing an industry that is on the ropes."

Troubled real estate assets slowed most noticeably in the Northeast, falling to 11.97% in the quarter compared with a high of 12.31% in the second quarter.

The percentage of northeastern banks' real estate loans classified as noncurrent fell to 8.39% from 8.62% in the second quarter. The Northeast is now the worst region on this scale, but its improvement contributed to the national decline - to 4.86% from 4.89%.

Troubled real estate assets increased in the West to 6.03%, up from 5.23%, and declined in the Southwest to 9.38%, from 9.67%.

The western banks' noncurrent real estate loan rate rose in the quarter to 4.12% from 3.54%. The dollar amount of those loans more than doubled over the past year to $7.4 billion.

Don Inscoe, associate director of the FDIC's division of research and statistics, said the rise in problem real estate loans has not reached an alarming level in the West, yet there is little evidence that it has peaked.

New England's healing was apparent in the real estate data. Massachusetts' troubled real estate assets declined to 10.37% from 17.14% in the previous quarter, and Connecticut fell to 13.61% from 16.83%.


Commercial banks are writing off problem loans. In the third quarter banks reported $8.5 billion in net loan chargeoffs, $400 million less than in the previous quarter but $2.5 billion more than in the 1990 third quarter.

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