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U.S. Banks Post $10.4-Billion Quarterly Profit : Finance: The industry has had to set aside less money for bad loans. Earnings are up 32.7% from a year ago.

September 08, 1993|From Associated Press

WASHINGTON — The nation's banks, many of which were in financial trouble just two years ago, posted their second-highest profits on record during the April-June quarter, the government said Tuesday.

"Our latest look at commercial bank profits and other key indicators clearly shows an industry that is strong and getting stronger," said Andrew C. Hove Jr., chairman of the Federal Deposit Insurance Corp.

The FDIC survey of 11,198 commercial banks showed profits totaled $10.4 billion during the April-June period, down from the quarterly record of $10.9 billion set during the first three months of 1993.

But despite the drop, profits in the second quarter were still 32.7% higher than the $7.8 billion earned during the same period a year ago.

Just two years ago, many analysts were worried that massive failures would cripple the U.S. banking system in much the same way failed savings and loans crippled the thrift industry.

As a result, Congress in late 1991 authorized the FDIC to borrow up to $75 billion in taxpayer funds if needed.

Hove said that although profits did dip from the first quarter, banks' "core earnings"--profits from traditional banking activities such as loans--reached a record $9.8 billion, up $1.4 billion from the January-March period.

The first-quarter gain included a onetime accounting change that added about $1.8 billion to the profit margin and which is not included in core earnings.

The FDIC attributed the main source of the increase in core earnings during the second quarter to an improvement in the quality of loans.

Because of the improvement, banks were required to set aside $4.2 billion for future loan losses, $521 million less than the first quarter and the lowest since the $3.6 billion set aside in the first quarter of 1989.

Also adding to the core earnings increase was the continued wide gap between the interest banks pay on checking and savings accounts and the interest they receive on loans.

The spread was 4.47% in the second quarter, down slightly from 4.5% in the first. It was 4.42% a year earlier.

That means banks maintained earnings on their loan and securities portfolios while at the same time paying depositors less than 3%.

The FDIC said commercial bank lending increased to $2.07 trillion during the latest survey period, up $44.2 billion from the first quarter.

Much of the increase was in the area of residential mortgages, although most major loan categories registered gains. Commercial and industrial loans increased for the first time in 13 quarters.

Total lending had declined in each of the previous two quarters and in eight of the previous nine quarters. Deposits grew to $2.68 trillion from $2.66 trillion in the first quarter.

The survey also found that the nation's 408 savings banks--hybrid institutions combining characteristics of both commercial banks and S&Ls--earned $414 million in the second quarter, up 87.6% from $221 million a year earlier.

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