WASHINGTON - Overcoming intense pressure on net interest margins, the nation's thrifts raked in record earnings again in the third quarter, the Office of Thrift Supervision reported Monday.
However, there is evidence that credit quality is slipping slightly. The industry reported that $4.3 billion of loans for one- to four-family homes were nonperforming, 22% more than in the second quarter.
OTS-regulated thrifts reported net income of $4.04 billion, up 0.2% from the second quarter and 15% from a year earlier. It was the fourth consecutive quarter of record earnings.
Net interest income was 11% higher than a year earlier, largely because of a surge in home loan originations. Net interest income was down slightly from the second quarter, to $9.70 billion from $9.72 billion, but gains in fee income, lower expenses, and a reduced tax burden offset the decline, the OTS said.
Mortgage originations totaled $204.2 billion, up 6.4% from the second quarter and 22% from a year earlier. But as the spread between short-term and long-term rates has narrowed, thrifts have had to rely more on fees to drive earnings.
The average net interest margin fell to 2.76%, the lowest level at least two years. It was 2.85% in the second quarter and 2.88% in the third quarter of 2004.
Fee income of $5.76 billion was up 1% from the second quarter and 9.9% from a year earlier.
Nonperforming home loans rose to 0.30% of assets, from 0.25% in the second quarter. An OTS spokesman said many loans originated three years earlier were seasoning. (Relatively few home loans become delinquent in the first three years.)
On Thursday, during a speech in Florida, OTS Director John Reich expressed concern about the growth of nontraditional home loan products, such as interest-only and payment-option adjustable-rate mortgages. Thrifts and others should pay particular attention to "risk layering," the practice of loading a home loan with more than one nontraditional feature, he said.
But the OTS spokesman said Monday that there was no connection between such loans and the third-quarter increase in nonperformers.
Among other things, the OTS said:
- Thrifts paid $2.19 billion of taxes in the quarter, down from $2.22 billion in the second quarter but up from $1.89 billion a year earlier.
- The OTS supervised 866 thrifts, 3.3% fewer than a year earlier, but their total assets rose 16%, to $1.4 trillion.
Return on average equity fell 15 basis points from a year earlier, to 12.43%. Return on average assets was flat, at 1.15%.
