Second-quarter earnings at institutions regulated by the Office of Thrift Supervision fell 12%, to $1.7 billion, from a year earlier, the agency reported Wednesday.

A $931 million tax tab in the second quarter took a bite out of the industry's profits, agency officials said. A year ago, thrifts' taxes were significantly lower-$643 million. But during the three months ending June 30, several institutions realized accrued tax liabilities, the OTS explained.

"If you factor out the tax difference, the industry's second-quarter earnings were comparable to those a year ago" when thrifts earned a record $1.9 billion, said OTS Director Nicolas P. Retsinas. "Looking back, earnings have been steady for the past six quarters. ... This is a reflection of our strong economy."

Second-quarter earnings were down 2% from the first quarter.

The 1,272 federal thrifts and state-chartered savings and loans benefited from steady fee income and improved operating efficiency, said Kenneth F. Ryder, the agency's executive director of research and analysis.

Fee income remained constant during the quarter at 0.54% of average assets. Compared to second quarter 1996 results, that's an increase of 15%, the agency noted. The growth was driven by increases in mortgage loan servicing, mutual fund and annuity sales, and demand deposits.

Improved operating efficiency-the ratio of overhead expense to net income-also contributed to second-quarter earnings. That figure dropped 30 basis points to 59.2% during the second quarter.

"There's continued improvement in the ability of the industry to efficiently generate income," Mr. Ryder said. The industry's equity capital climbed 17 basis points during the quarter to a record 8.11% of assets, the agency said. In addition, a record 98% of thrifts were "well capitalized" on June 30.

During the second quarter, the number of problem thrifts declined by five to 25, a record low since the thrift crisis.

The level of noncurrent loans dropped for most loan categories during the second quarter. The largest decline occurred in single-family mortgages where the noncurrent loan rate dropped 10 basis points to 1.16%.

In the commercial loan area, the delinquency rate climbed 8 basis points to 1.39% during the second quarter. However, that's a 25 basis point improvement from the year-earlier quarter.

Consumer loan delinquency rates decreased during the second quarter for the first time in two years, the OTS said, dropping 5 basis points to 0.9%.

The number of OTS-regulated thrifts shrank by 63 during the first half, while total assets declined by $400 million to $769 billion.

So far this year, 30 thrifts were acquired by commercial banks or state- chartered savings banks; 26 converted to one of these two charters; 15 merged with other thrifts; and the remaining 2 were liquidated. Ten new thrifts were chartered during the first half.

In addition, the OTS said that 22 applications for new thrift charters are pending.

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