EARNINGS : Nation’s Banks Enjoy Record Net in Quarter

U.S. banks earned a record $7.3 billion in the first quarter, but an information service compiling the report said Monday that the industry must come to terms with some short-term challenges.

Alex Sheshunoff & Co. said that of the nation’s 12,994 banks, 91% were profitable with total earnings of $7.8 billion in the period. But those profits were marginally offset by losses of $500 million at the unprofitable banks.

Comparatively, the savings and loan industry lost $3.4 billion in the first quarter. Of the 2,946 institutions, 2,163, or 73%, were profitable in the first quarter with earnings of $1.4 billion. But the gains were erased by losses of $4.8 billion at the 783 unprofitable institutions.

Although bank profits were exceptionally strong, company President Alex Sheshunoff said the industry must take note of the increasing probability of a recession, declining real estate values because of excessive growth in some regions, and the need of some banks to deal with the value of loans to lesser developed nations.

Limited Loan Growth

He said that with both businesses and consumers pulling back, there is clear indication the economy is slowing down.

“In the first quarter, real estate loans remained the only major source of loan growth, increasing by $18 billion, or 2.83%, to $654 billion,” Sheshunoff said. “Commercial and industrial loans rose only $3 billion, or 0.6%, to $500 billion. And loans to individuals actually declined by $5.3 billion, or 1.47%, to $356 billion.”

In real estate, while the California market showed continued growth, the Southwestern market was burdened by tens of billions of dollars in repossessed real estate assets held by S&Ls; and regulators.

“A soft landing in a highly leveraged industry such as real estate can mean a hard landing for the financial institutions involved,” Sheshunoff said.

In terms of overall strength, profitability and growth, the Southeast was the strong region with first-quarter loan growth of 1.8%, a 1.03% return on assets, and only 1.24% of non-performing loans.

South Carolina, North Carolina, and Georgia led the nation in loan growth with first-quarter increases of 4.73%, 4.01% and 2.92% respectively.

‘Super-Regional’ Banks

Alaska with 6.85% had the highest percentage of non-performing assets to gross loans. Arizona with 6.45% and Texas with 6.42% were next.

“The bankers in the Southeast still remember the major problems they dealt with in the mid-1970s,” Sheshunoff said. “Combining this respect for history with excellent bank management, the base has been built for a number of major ‘super-regional’ banking organizations. Over the next few years the Southeast ‘super-regional’ banks will become major, nationwide banking organizations.”

Home equity loans grew significantly from last year, especially in the Northeast and California, the report said.

Wells Fargo was the leading lender with $1.7 billion, up 14%; followed by Citibank $1.43 billion, up 15%; Bank of America $1.27 billion, up 135%; Security Pacific with $835 million, up 122%, and Connecticut National Bank with $632 million, up 106%.

Foreign loans increased only slightly from the previous year at the three largest banks that make foreign loans. Citibank held the largest amount of foreign loans with $52.8 billion, up 4.3%. Chase Manhattan had $29 billion, up 1.2% and Bank of America $22.1 billion, up 0.6%.