Banks returned to shareholders nearly three-quarters of the record $52.4 billion earned in 1996.

The amount paid out, $38.8 billion, was 24.8% more than the $31.1 billion banks paid shareholders-their holding companies and investors-in 1995, according to the Federal Deposit Insurance Corp. That year, banks paid out 64% of the $48.7 billion they earned.

The trend was even more pronounced in the thrift industry, which paid out 83% of its $7 billion in earnings last year, up from 53.6% in 1995.

James J. McDermott, president of Keefe, Bruyette & Woods Inc. in New York, said banks are wise to reward shareholders rather than chase after loans.

"This is sound capital management," he said. "Banks are saying, 'if we can't earn a high return on capital, let's give it back to our shareholders.' This is more responsible growth (than) dumping the money down some lending category that's going to be the next problem."

"There is excess capital in the banking industry," added American Bankers Association president Walter A. Dods Jr., chairman and chief executive officer of First Hawaiian Bank, Honolulu. "If banks can't put it to work profitably, they are returning it to their shareholders."

Donald Inscoe, an associate director in the FDIC's research division, said much of the dividend payouts went to bank holding companies, which in turn used much of the proceeds to repurchase their stock.

That was the case at many of the 919 banks that paid out $5.6 billion more in dividends than they earned in 1996.

In terms of dollars, it's a trend that's growing: 943 banks paid $3.7 billion more than they earned in 1995 while 923 banks paid $3.2 billion more than they earned in 1994.

According to Keefe, the 25 largest banking companies bought back $20 billion worth of their stock last year.

Mr. Inscoe said regulators are not concerned by big dividends and large repurchases. "They have not kept the industry from raising its capital to historic highs," he noted. The industry's total equity capital increased $25.7 billion in 1996 to 8.2% of total assets.

With $52.4 billion in net income, 1996 was the fifth consecutive annual record; the industry's earnings have climbed 66% from 1992 when banks made $31.6 billion.

The FDIC said last year's profits were driven by a $2.9 billion, or 13.3%, increase in fee income. One area of growth: investment products.

Fee income from the sale and service of mutual funds and annuities grew 38% in 1996 to $2.35 billion. And the biggest banks are grabbing a larger share of that revenue source. Banks with more than $10 billion of assets made 75.2% of the total last year, compared with 72% in 1995.

Last year's earnings increase also was fueled by a jump in net interest income of 6%, or $2.4 billion. While spreads narrowed in 1996 for the fourth successive year to 4.27%, banks bolstered interest-earning assets by 5.7% to $3.95 trillion.

Loans accounted for 60.2% of all assets at yearend 1996, the highest level since March 1991, according to the FDIC.

The largest increases were in commercial and industrial lending, up 7.3% in the fourth quarter to $710 billion. In fact, the industry reversed a decade-old trend last year.

Since 1987, banks have been scaling back loans to commercial borrowers while beefing up consumer lending. Last year, however, commercial loans accounted for 57% of total loans, up 2%, while loans to consumers dipped 2% to 43% of total loans.

The rise in lending was offset by decline in U.S. Treasury securities, down 14.6%, or $28.9 billion, in 1996.

Asset quality was mixed last year as noncurrent loans declined while delinquent credits rose 15.1%, or $5.1 billion, led by a 24% increase in credit card accounts 30 to 89 days past due.

Net loan chargeoffs were up 21% to $15.5 billion in 1996; writeoffs of credit card loans accounted for 61%, or $9.5 billion, of that total.

In 1996, unused credit card commitments increased $226.3 billion to $1.34 trillion, according to the FDIC.

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