U.S. Banks' Earnings Fell 8.8% In Quarter

WASHINGTON -- The nation's 12,246 banks earned $5.7 billion in the first quarter, 8.8% less than a year earlier, the Federal Deposit Insurance Corp. said Tuesday.

But the profits were five times more than the fourth-quarter earnings of $1.1 billion.

Assets Down 1%

The results were characterized by an unusual decline in industry assets - by $38 billion, or about 1%, to $3.39 trillion. A year earlier the industry added $18.3 billion in assets.

Bank assets grew just 1% in the 12 months through March 31, the lowest annual rate since 1976, when the FDIC started reporting the consolidated industry data. The agency attributed the balance-sheet decline to a weak economy and the deterioration of many banks' loan portfolios, especially their real estate credits.

Realty Lending Increases

Nonetheless, banks continued making real estate loans. This was the only major category of assets that grew in the first quarter, according to FDIC Chairman L. William Seidman.

Real estate loans, including commercial and residential mortgages, were up $6.8 billion in the three months, while holdings of mortgage-backed securities and collateralized mortgage obligations jumped by $12.5 billion. Total real estate loans of $836 billion made up 25% of the industry's asset portfolio.

Commercial and industrial loans were off $9 billion, to $606 billion on March 31. Consumer loans declined by $13 billion, to $389 billion, in what the FDIC termed "seasonal shrinkage."

Ninety percent of the insured commercial banks made money in the first quarter, and aggregate year-to-year declines in earnings occurred in just three regions -- the Northeast, Southeast, and West.

Seidman Wary

Even so, Mr. Seidman was not optimistic about second-quarter results. The recession may have hit bottom in the first quarter but the real estate recession has not eased, he said.

Mr. Seidman singled out the West as a region where banks are threatened by falling real estate values. Of California, he said, "The trend is in the wrong direction."

The West is the only region where banks grew during the first quarter, increasing assets by $3.2 billion asset increase. But problems rose rapidly. Net chargeoffs in the region zoomed 76%. Nonperforming loans increased $1.6 billion, while holdings of foreclosed property grew by $850 million.

The data also revealed:

* Equity capital increased $4.4 billion in the quarter. Coupled with the decline in assets, the additional capital edged the industry's capital ratio to 6.66% of assets, from 6.46% at the end of the 1990.

* The industry's return on assets continued to slide, particularly at the largest banks. At banks with more than $10 billion, returns fell to 0.43%, from 0.74% a year ago. Banks in the Northeast reported the worst returns -- a meager 0.39% of assets.

* Interest revenue fell by 7%, but interest expenses fell 13%, so net interest income was up $1.3 billion.

* Loan-loss reserves climbed 21% from a year ago, to $7.1 billion in the first quarter, portending more writedowns. Charge-offs in the first quarter fell 6%, to $6.3 billion.

* Almost 5% of real estate-related loans were noncurrent as of March 31. At banks with more than $10 billion in assets, the figure was 7.3%, and at Northeastern banks it was 8.6%.

* In the Northeast, 22.2% of the $45 billion in construction and development loans have soured. At banks with more than $10 billion in assets, 17.8% of the C&D loans were nonperforming.

* About 21% of loans made to developing countries were not currentm and 9.8% of loans used for highly leveraged transactions were delinquent. The FDIC chief said he is considered applying new underwriting standards on bank LDC and HLT loans.

440 Failures

Mr. Seidman said that as many as 440 banks may fail by the end of 1992, and that the cost of handling those failures may reach $23 billion. To date this year, 57 banks have failed. The FDIC expects most of the 440 closings to occur in 1992, Mr. Seidman said.

He denied allegations that regulators are postponing bank closings to preserve the FDIC's cash until Congress refunds it.

Mr. Seidman said his biggest cause for concern is the growth of assets at the 996 banks on the FDIC's problem list. While the problem roster is down from 1,012 at yearend, those banks are getting bigger. Their assets are $418 billion, up $18 billion during the quarter.

The nation's 463 FDIC-insured savings banks lost $170 million in the first quarter, but the 341 institutions in New England lost $217 million. The return on assets for New England savings banks was negative 0.79%.

Savings banks' assets declined $1.4 billion, to $258 billion, in the first three months. Their foreclosed property swelled $1.2 billion to $4.5 billion. [Graph Omitted]

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