The weak economy continues to hurt U.S. banks' asset quality, creating more problem loans, a new report says.

        The industry's charge-offs for problem loans grew by 45 percent in the first half of this year, up from the first six months of 2000, according to Weiss Ratings Inc., a bank rating agency.

        Loan charge-offs — losses banks take when borrowers default — came in at $15.9 billion from January through June, up from $11 billion in the same year-ago period.

        The agency said non-performing loans for about 3,000 banks and thrifts rose almost 14 percent to $55.5 billion at the end of the second quarter, up from $48.8 billion by year-end 2000.

        The weaker asset quaility puts the industry's nonperforming loan growth rate almost on par with the 26.6 percent rise experienced in 2000, but up greatly from the 2.9 percent jump in 1999.

        Several U.S. banks continue to post higher quarterly profits, but many banks' profits in recent quarters have been hit hard by a higher level of bad-loan problemsor banks being forced to set aside more cash to cover potential loan losses.

        Industry analysts have expressed concern that the trend could continue as banks' earnings are hurt by the weakening economy and last month's terrorist attacks in New York and Washington, D.C.
       

Expenses reduce earnings for quarter

        Higher expenses caused the parent of the First National Bank of Southwest Ohio post a 7 percent drop in third-quarter profits.

        Hamilton-based First Financial Bancorp earned $12.1 million, or 26 cents a share, down from $15.1 million, or 31 cents a share, during last year's third quarter.

        Profits fell as First Financial set aside $5.2 million for potential loan losses, up from $2.7 million a year ago. The company also incurred $700,000 in expenses tied to a two-year regionalization and expansion plan to help boost revenues.

        The company's expansion includes opening a business-loan office in Montgomery next month. It also plans to buy some assets and assume some expenses from a unit of Blue River Bancshares Inc., which includes assets of $25 million and two branches in Fort Wayne, Ind..

        The company also will complete the formation next month of Heritage Community Bank, merging four affiliate banks in southeastern Indiana into one.

        With assets of $3.8 billion, First Financial operates 108 branches in Ohio, Kentucky, Michigan and Indiana.
       

Bank of Ky. parent posts gain of 24%

        Robust growth in fee income, lower expenses and loan growth helped the parent of The Bank of Kentucky reap a 24 percent gain in third-quarter net income.

        The Bank of Kentucky Financial Corp. earned $1.72 million, or 28 cents a share, up from $1.39 million, or 23 cents a share, during last year's third quarter.

        The bank's quarterly fee income rose 42 percent to $1 million and net interest income rose 10.3 percent to $4.8 million, fueled by a 7.4 percent rise in loans. The bank's deposits also grew nearly 15 percent to about $53 million.

        The banking company also completed its integration of Fort Thomas Savings Bank, which it acquired in 1999, helping reduce costs.

        The Bank of Kentucky Financial Corp., with assets of $486 million, has 16 branches in Boone, Kenton, Campbell and Grant counties.

        Contact Jeff McKinney at 768-8499; fax 564-6991; or e-mail jmckinney@enquirer.com.

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