WASHINGTON -- Profits at federally insured banks and thrifts jumped 8.8 percent last year, to a record $145.7 billion, but slumping home prices and rising interest rates pushed write-offs of home mortgage loans to a three-year high in the fourth quarter, data released yesterday show.
The financial information made public by the Federal Deposit Insurance Corp. marked 2006 as the sixth straight year of record earnings for the US banking industry, despite a slowing growth in loan business overall late in the year.
"The banking industry continues to perform well, even as . . . a weakening mortgage market (has) made the operating environment more challenging," FDIC chairwoman Sheila Bair said. While banks and savings institutions generally are in sound financial condition with adequate capital, she said, "bankers and regulators should ensure that risk-management practices are also equal to the challenges."
In September, the FDIC and the other federal agencies that regulate financial institutions directed them to properly explain the risks posed to borrowers from interest-only and other nontraditional mortgages. Such mortgages have exploded in popularity in recent years and raised concern about defaults if borrowers cannot meet rising mortgages payments.
Mortgage delinquencies and foreclosures are surging, especially for people who took out subprime mortgages -- higher-interest loans for those with blemished credit records or low incomes who are considered higher risks -- during the sizzling housing boom that waned in the latter half of 2005.
Write-offs of home mortgage loans by banks and thrifts totaled $888 million in the October-December period, a three-year high, according to figures in the FDIC's quarterly banking profile. Home loans that were 90 days or more past due rose by $3.1 billion, or 15.6 percent, from the year-earlier quarter -- following an increase of $974 million, or 5.2 percent, in the third quarter.
Banks' overall loan business rose by $66.1 billion in the fourth quarter, the smallest quarterly growth since early 2002, amid slowdowns in home lending as well as real estate construction and development loans.
By contrast, total deposits at banks and savings and loans marked the biggest quarterly increase ever reported -- $247.2 billion, according to the FDIC.
About 56 percent of financial institutions reported an increase in profits last year from 2005 but fewer than half, 46 percent, reported higher returns on assets -- considered by banking regulators to be a key gauge of earnings performance.