WASHINGTON - Thrifts earned a record $2.23 billion in the first quarter, up 13% from the fourth quarter, the Office of Thrift Supervision reported Wednesday.

The previous high mark set by OTS-regulated institutions was $2.08 billion in the third quarter of 1998. Though regulators were pleased with the strong first-quarter performance, they noted that a $160 million one-time tax benefit at a large unidentified thrift contributed to the record.

Despite rising interest rates and a drop in mortgage lending, the OTS report described a strong thrift market.

Return on average assets jumped to 1.04% from 0.93% while 98% of the industry remained well capitalized. Troubled assets reached a new low of 61 basis points of total industry assets. The agency also noted that thrifts spent just 58 cents to generate $1 of core income, down from 60 cents in the fourth quarter.

But OTS Director Ellen Seidman told reporters that she is concerned about some industry practices, including insufficient control over third-party marketers and servicers, risky construction lending coupled with inadequate administration, and institutions with chronically low earnings.

"We're seeing a lot of speculative construction lending in places like Atlanta, and a lot of thrifts that are doing speculative lending outside their home markets," Ms. Seidman said. "That can be very dangerous." She also highlighted poor business planning as a source of concern.

"We call it the 'flit' strategy, where thrifts jump from one business plan to another," she said. "This is a problem not just in the thrift industry but in banking as well. We recognize that people may want to change their business plans, we just want to make sure they do so in an intelligent way."

The agency noted a jump in the number of thrifts with low Camels ratings. The number rated 3 on the 1-to-5 scale increased 17.6%, to 80, with $32.5 billion of assets. Thrifts with a Camels 4 or 5 rating increased 16.6%, to 14, and collectively hold $5.26 billion of assets.

The 1,097 OTS-regulated thrifts held $869 billion on March 31, up 2.4% in the quarter. Thrift assets continued to be concentrated in residential mortgages, which accounted for 47.9% of all assets.

Higher interest rates led to fewer mortgage originations, which plunged 17% to $39.7 billion in the quarter. Consumers increasingly turned to adjustable rate mortgages to protect against the rising interest rates.

Adjustable rate mortgages accounted for 75% of the first quarter's thrift originations, a significant increase from 38% one year ago, OTS said.

Editor's Note: Each link opens a new browser window. We have no control over the content or availability of sites not part of American Banker Online.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.