U.S. Thrifts Turn $1.8B Profit Despite Mounting Foreclosures

The nation's thrift industry posted profits of $1.82 billion in the first quarter of 2010, the ""Office of Thrift Supervision"":http://www.ots.treas.gov (OTS) reported this week. According to the regulator, the Q1 data indicates that thrifts generally are stabilizing despite continued pressures stemming from delinquent loans and still-rising foreclosures.
[IMAGE] The positive first quarter earnings were up from a profit of $442 million in the previous quarter and a loss of more than $1.6 billion in the first quarter of 2009. It's the third consecutive quarter that the industry as a whole has turned a profit.

The U.S. thrift industry consists of savings and loan institutions that focus on taking deposits and originating home mortgages. By law, they are required to have at least 65 percent of their lending in mortgages and other consumer loans, and typically, they are considered to be community banks. The OTS currently supervises 757 such institutions.

In fact, the OTS describes thrift banks as being ""built on the bedrock of the American dream of homeownership-supplying affordable home financing for Americans from all walks of life.""

But this focus has made them particularly vulnerable to the housing market downturn and the nation's foreclosure crisis.

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According to the OTS, thrifts' troubled assets, including non-current loans and repossessed real estate assets, made up 3.27 percent of the industry's total holdings during the first quarter.

While the industry's ""troubled"" proportion was down slightly from 3.29 percent in the prior quarter, the OTS pointed out that the current troubled asset ratio is similar to the ratio in the 1990-1991 period, the culmination of the savings and loan (S&L) crisis that brought the industry to its knees. However, the federal regulator says the composition of thrift troubled assets is currently much different than during that period.

Mortgages on one- to four-family properties comprise approximately 65 percent of the industry's current troubled assets, with an additional 27 percent made up of commercial real estate loans, and 8 percent in nonmortgage loans. In contrast, commercial real estate loans comprised the majority, or 68 percent, of thrift troubled assets at the end of 1990, while one- to four-family mortgages made up 23 percent.

""The health of the thrift industry is improving but we cannot say the industry has fully recovered from the financial crisis,"" said OTS Acting Director John E. Bowman. ""Until America gets back to full employment and more families are able to pay their monthly mortgages on time, the thrift industry will continue to face significant challenges.""

Though trending down from very high levels in 2008, provisions set aside by thrifts to cover potential loan losses remained elevated in Q1. The industry added $2.71 billion to loan loss provisions in the first quarter. According to the OTS, substantial additions to loan loss cushions have pushed the industry's capital reserves to record levels. The need for loss provisions in upcoming quarters will largely depend on trends in employment, home prices, and commercial real estate markets, the federal regulator said.