WASHINGTON — The thrift industry scraped by in the second quarter, earning $4 million — the industry's first profit in six quarters — but signs of more trouble were visible.
The Office of Thrift Supervision said thrifts essentially broke even during the quarter but cited significant growth in troubled assets and problem thrifts as causes for concern.
"Despite some encouraging signs the industry's performance remained uneven," OTS Acting Director John Bowman said at a press conference Wednesday announcing the results. "The bottom line is, the industry is not out of the woods yet."
The agency attributed the poor earnings to a rise in loan-loss provisions and the special assessment by the Federal Deposit Insurance Corp., which reduced net income by about $325 million. Loan-loss provisions fell to $4.7 billion but were still the sixth-highest on record.
The report made clear that it was not only the thrifts themselves but also their regulator that was in trouble. The OTS said that Bank of America Corp., which bought Countrywide Financial last year, had formally integrated the thrift in April, dissolving its thrift charter. This left the OTS with no thrifts holding more than $100 billion of assets, and a rapidly dwindling assessment base (the agency is funded by exam fees). The OTS supervised 794 thrifts with assets of $1.10 trillion at the end of the second quarter, the first time the total dropped below 800. A year earlier it supervised 829 thrifts with assets of $1.51 trillion.
Like many commercial banks, thrifts have struggled during the credit crisis. Troubled assets grew to 3.52% of total assets, up from 3.35% in the previous quarter and 2.68% a year earlier, the OTS said.
The agency said the latest troubled asset ratio was similar to those in the savings and loan crisis but that the composition was different. About 68% of the industry's troubled assets are mortgages on one- to four-family dwellings; an additional 22% are commercial real estate loans. By contrast, about 68% of thrifts' troubled assets were commercial real estate loans at the end of 1990, and 23% were mortgages on one- to four-family homes.
Mortgage originations continued to decline, to $70.5 billion, down from $96.1 billion in the prior quarter and $128.3 billion a year earlier. One- to four-family home originations were $62.4 billion, down 29% from $88.1 billion in the previous quarter and 42% from $107.5 billion a year earlier.
The total risk-based capital ratio was 15.6% in the second quarter, up from 14.7% in the previous quarter. The total Tier 1 risk-based capital ratio increased to 14.4%, from 13.5% in the previous quarter.
The $4.7 billion of loan-loss provisions was 1.71% of assets, down from 3.70% a year earlier. Thrifts also reported a negative 1.26% of net chargeoffs, down from a negative 1.07% the previous quarter.
The number of problem thrifts grew to 40, from 31 in the previous quarter, the most since 1995. Most thrifts were considered well capitalized, the OTS said. Fifteen thrifts with $24 billion of assets were adequately capitalized, and 15 thrifts with combined assets of $21 billion were undercapitalized. Of these, one has since raised capital, four have failed, and one has a purchase application approved. The OTS said it is working with the remaining nine to find buyers or capital infusions.