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Even Though Challenged by Delinquencies, U.S. Thrifts Post Q2 Profit

The U.S. thrift industry reported earnings of $1.49 billion in the second quarter of 2010, its fourth consecutive quarterly profit, the ""Office of Thrift Supervision"":http://www.ots.treas.gov (OTS) reported Wednesday.

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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.

With today's troubled housing market, the institutions' mandated line of business is proving precarious. OTS warns that thrifts continue to face challenges from delinquent loans, with the number of problem thrifts growing and overall assets declining.

At the end of the second quarter, the OTS supervised 753 thrift institutions with assets of $931.2 billion. Just three months earlier, the federal regulator had 757 thrifts under its supervision, with $949.8 billion in assets.

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The industry's second quarter profit was down from $1.72 billion in the previous quarter, but up from a loss of $94 million in the second quarter of 2009.

""The thrift industry has clearly improved from the height of the recession but has certainly not recovered in full,"" noted OTS Acting Director John E. Bowman. ""The performance of the industry reflects the state of the overall economy and the stresses from high unemployment, weakness in the housing market, and the spread of weakness to the commercial real estate market.""

According to OTS, managers of thrift institutions continued to prepare for challenges ahead by adding $2.3 billion in provisions for loan losses in Q2 and by maintaining solid capital levels.

However, troubled assets, including noncurrent loans and repossessed assets, fell to 3.21 percent of assets at the end of the second quarter, down from 3.28 percent at the end of Q1 and 3.5 percent one year earlier.

OTS says even with some degree of stabilization in the first half of 2010, thrifts' level of troubled assets is much higher than levels just before the economic downturn began. At the end of 2006, the industry's troubled assets ratio was 0.70 percent. According to the federal regulator, the elevated level of troubled assets is a direct result of the housing market downturn and high unemployment.

At the end of the second quarter, 93.4 percent of the industry reported capital exceeding ""well-capitalized"" regulatory standards. Sixteen thrifts were less than adequately capitalized.

The sector's profitability, as measured by return on average assets, was 0.64 percent in the second quarter, down from 0.73 percent in the previous quarter.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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