Black ink at last for the thrifts.

• Author: Peltz, Henry S.
• Position: Optimistic outlook for the savings and loan industry - Management Strategy

Black ink at last for the thrifts

IN THE MARCH QUARTER OF 1991, for the first time in four years, the private-sector portion of the savings and loan industry - those companies not in the hands of the government - showed a profit, aggregating $627 million. In addition, the number of private-sector thrifts, which includes both savings banks and savings and loans, showing a profit rose to 1,936, or 85 percent of the group, from 1,808 or 72 percent in December 1989, and 1,769 or 76 percent in December 1990.

While there are seasonal factors in thrift earnings - the incidence of loan loss reserving is often heaviest at year-end - the improvement in industry earnings in the most recent quarter has been substantial. It has reflected a drop in loss provisioning from $1.7 billion in the December 1990 quarter to $1.1 billion in March 1991, the taking over of money-losing companies by the government, and a substantial improvement in net interest income as deposit and borrowing costs have declined faster than interest income for many thrifts.

Obviously, the March 1991 data are still tentative and the data from the June quarter will not be reported until the end of September. The Office of Thrift Supervision (OTS) has a nasty habit of revising income for a period downward in subsequent releases as laggard associations file, or correct, their regulatory reports or as examiners carve out more loss reserves from their beleaguered charges. In addition, the OTS changed its reporting form in March 1990, temporarily causing confusion and errors in the preparation of the numbers by managers. The fourth quarter 1990 loss originally was reported at $965 million, but the OTS later revised it to $1,488 million. We reckon that the revision only adds emphasis to the profit improvement shown this year.

Let's take the earnings figures for what they purport to show and draw some conclusions about where the industry is going.

1. DURING THE LAST 18 MONTHS, the number of savings and loans not in government hands has fallen 12 percent, from 2,597 to 2,283. Assets of these companies have declined from $1,159 billion to $971 billion, or by 16 percent. While the number of companies has dropped, the number of "dead" savings and loans (those in what the OTS classifies as Group Four, the lowest quality) has declined even faster, from 377 in December 1989 to 164 in March 1991. The assets of these companies have come down from $261 billion to $102 billion.

   In fact, conditions have...