Thrift industry earnings slipped to $1.4 billion in the fourth quarter, off 36% from the third quarter and 18% from the last quarter of 1997, the Office of Thrift Supervision reported Tuesday.

The agency said one-time restructuring charges related to mergers and acquisitions hurt fourth-quarter profits.

Still, the 1,145 thrifts supervised by the OTS set another earnings record last year, pulling in $7.6 billion, or 18% more than the previous record of $6.4 billion set in 1997. Assets held by these OTS-supervised thrifts grew 5.2%, to $817.2 billion.

The OTS attributed the record year to low mortgage rates, strong housing sales, a healthy economy, and low unemployment. But OTS Director Ellen Seidman did note some looming problems.

"While the industry continues to be financially strong, recent information from our examiners raises concerns," she said. "We see some thrifts getting into higher risk lending without adequately managing those risks, there is some lowering of lending standards, and we find more construction lending being done on speculation."

Construction loans grew 21% during 1998, to nearly $14 billion, and commercial loans jumped 35%, to $15.6 billion. Though such rapid growth concerns regulators, these loans remain a small portion of the industry's total assets.

Regulators are also monitoring a growing trend among thrifts to sell mortgages into the secondary market rather than hold the assets on their books. Last year OTS-regulated thrifts made $276 billion in mortgage loans and sold 80%, up from 75% in 1997. OTS officials noted that selling assets increases administrative costs and reduces operating efficiency ratios.

Ms. Seidman said the year-2000 computer problem is under control, but urged thrifts to keep their customers informed and to plan to have enough cash on hand to meet withdrawal demand.

Much of the one-time restructuring charges that depressed fourth-quarter earnings were tied to the industry's continuing consolidation. There were 38 thrift mergers last year, including 12 deals in the fourth quarter. In 1997 there were 28 thrift mergers. The assets of merged thrifts jumped to $107 billion in 1998, from $69 billion in 1997.

Last year 109 OTS-supervised thrifts were acquired or converted to commercial or state bank charters, compared with 141 in 1997. Thirty-nine new thrifts were chartered in 1998, compared to 21 the previous year.

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