Nine-month earnings top total for all last year.

WASHINGTON -- The commercial banking industry has busted yet another annual earnings record - after just the first three quarters.

Hauling in $11.5 billion in the third quarter, 11,081 banks have already earned $32.6 billion this year, surpassing last year's total of $32.1 billion.

For the first nine months of 1993, the industry earned $8.5 billion more than in the same period last year. The FDIC attributed the gains to a $6.9 billion reduction in loan-loss reserves, a $6.2 billion increase in noninterest income, and a $5.7 billion uptick in net interest income.

Highest-Ever ROA

The Federal Deposit Insurance Corp. said Wednesday that the industry also recorded its highest ever return on assets, 1.27%, in the third quarter. The previous ROA record was set in the first quarter, at 1.23%.

FDIC acting chairman Andrew C. Hove told reporters that the entire industry is sharing in the good times.

"These solid gains are widespread, covering commercial banks in all regions and all size categories," Mr. Hove said. "More than 95% of all commercial banks reported positive earnings."

Industry assets grew more in the third quarter than in any quarter since the fourth quarter of 1989. Assets were up $62 billion, to $3.63 trillion, at Sept. 30.

Retail Side Strongest

Most of the growth came in consumer loans and mortgages, the FDIC said. Commercial and industrial loans outstanding fell $5.3 billion to $530 billion - the lowest level since the end of 1983.

Bank liabilities continued to shift to noninterest bearing demand deposits from higher-cost, longer-term certificates of deposit, the FDIC said.

Even with quarterly cash dividends at an all-time high of $5.3 billion, banks built up equity capital to 7.95%. Retained earnings of $6 billion helped push equity to its highest level since 1963.

The FDIC's "problem list" shed 84 banks, with $45 billion in assets, in the third quarter. Banks in danger of failing totaled 496, with $281 billion, at Sept. 30. That's the lowest troubled-asset total since 1989.

The industry's troubled assets -- noncurrent loans plus foreclosed property - represent the smallest percentage of total assets since the fourth quarter of 1986.

Noncurrent loans, at $50.2 billion on Sept. 30, fell $4 billion in the quarter and have dropped $19.2 billion since third quarter 1992. Foreclosed property held by banks dropped $2.6 billion in the quarter to $19.9 billion. Since third quarter 1992, bank-owned real estate has plummeted $8.1 billion.

As asset quality has improved throughout the industry, more and more banks are cutting their contributions to loan-loss reserves.

Banks kicked $3.9 billion into reservess in the third quarter, $2.8 billion less than in the third quarter of 1992. It was the smallest quarterly addition to loan-loss reserves since the first quarter of 1989.

For the first time since banks started reporting noncurrent loans 12 years ago, the coverage ratio went above 100% in the third quarter. At Sept. 30, banks held $1.07 for every dollar of noncurrent loans.

Withdrawal of Reserves

Some banks are even withdrawing reserves, the FDIC said. In the first nine months, 573 banks pulled $452 million from reserves. That money contributes to earnings.

Banks' third-quarter earnings also got a boost from noninterest income, which was up $2.2 billion to $19.2 billion from the third quarter of 1992. Net interest income hit $35.2 billion in the third quarter, up $1.2 billion from a year ago, even though the industry's net interest margin narrowed 0.02% to 4.45%.

The FDIC noted that banks' core net operating income has increased in each of the last seven quarters.

"Third-quarter earnings were not as dependent on nonrecurring gains such as accounting changes and profits from sales of investment securities," the FDIC report said.

In the third quarter, these gains made up less than $1 billion of earnings, while in the first quarter more than $2.5 billion came from accounting changes and other nonrecurring income.

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