U.S. thrifts report first profit since 2007

WASHINGTON (Reuters) - The U.S. thrift industry reported its first profit in nearly two years, earning a slender total of $4 million in the second quarter, regulators said on Wednesday.

The Office of Thrift Supervision said the profit compared with a revised first-quarter loss of $1.62 billion. The previously reported loss for the earlier quarter was only $47 million, before one thrift revised its results.

The OTS, which largely regulates mortgage lenders, said the small profit, the industry's first since the third quarter of 2007, was primarily due to higher net interest margins, lower provisions for loan losses and higher fee income.

However, the agency also said the number of "problem" thrifts grew to 40 from 31 during the second quarter.

"Despite some encouraging signs, the industry's performance remained uneven," said John Bowman, acting director of the OTS. "The bottom line is the industry is not out of the woods yet."

Troubled thrifts accounted for 3.52 percent of the industry's assets, compared with 3.35 percent in the first quarter.

Thrifts also continued to set aside large amounts of money to protect against deteriorating loans. Loan loss provisions declined slightly to $4.7 billion during the second quarter, but were still the sixth-highest on record, the OTS said.

The agency said the uneven financial picture reflected the nation's weak job market and a generally weak economic environment.

OTS officials said they expected continued pressure on the industry's earnings because high levels of loan loss provisions will continue until housing prices stabilize.

Separately, a government report showed on Wednesday that sales of newly built U.S. single-family homes rose for the fourth straight month in July to set their fastest pace since September.

A special assessment, charged by the Federal Deposit Insurance Corp to replenish its insurance fund used to back bank deposits, reduced the thrift industry's after-tax net income by about $325 million, the OTS said.

The bank industry is likely to face more special assessments as more institutions fail during the recession, further draining the deposit insurance fund.

The OTS said three thrifts had failed during the second quarter. Overall, the agency supervised 794 thrifts at the end of the quarter, as well as 459 holding company enterprises.

Bowman said OTS is continuing to press ahead, even as lawmakers consider folding its operations into the Office of the Comptroller of the Currency, another Treasury Department unit.

He told reporters his agency remains "viable," and it would continue to "regulate and supervise an industry that we think is critical to the American economy."

"We are not going to change what we do or whatever else," Bowman said. "We will continue to make improvements to the extent we see there have been weaknesses in our programs in the past."

(Reporting by Karey Wutkowski and Steve Eder, editing by Maureen Bavdek, Lisa Von Ahn and Matthew Lewis)