WASHINGTON - In a third quarter when the banking industry posted record earnings, nearly one in 10 banks with assets of less than $100 million lost money, the Federal Deposit Insurance Corp. said Wednesday.

Though regulators cautioned that about half these institutions are start-ups, which are typically unprofitable in their first few years of operation, they said the rate of unprofitability must still be considered high, reflecting an increasingly tough environment for small banks. "Small banks are facing more pressures than large institutions and in some instances have fewer options in terms of dealing with competitive pressures," FDIC analyst Ross Waldrop said. "They don't have the same ability to generate fee income; they are much more dependent on the traditional intermediation - and there is a lot of competition in that area."

The rosy performance of the industry as a whole overshadowed these shortcomings. The FDIC said in its Quarterly Banking Profile that the country's 8,621 commercial banks earned a combined $19.4 billion in the three months ended Sept. 30, up from $17 billion in the previous quarter and $15 billion in the third quarter last year.

Industrywide return on assets reached an all-time high of 1.42% in the quarter, the highest since the third quarter of 1995, when it was 1.32%.

Banks' noninterest income rose to $36.9 billion, from $34.5 billion in the second quarter and $29.6 billion a year earlier. Noninterest income continued to account for an increasingly large portion of earnings among banks with more than $1 billion of assets, climbing to a high of 46.2%. Among banks with less than $1 billion of assets, though, that share fell slightly, to 26.8%.

The industry, as a result, is on its way to record earnings for the year. Commercials banks posted profits of $54.3 billion during the first nine months of 1999, up from $47 billion the year earlier.

Though 64.1% of banks reported their earnings had increased from the second quarter, a closer look shows a gap between large and small institutions. Among banks with assets of $100 million or more, 70% booked higher earnings, but only 55.9% of banks under $100 million saw earnings rise.

Furthermore, during the first three quarters of 1999, 9.6% of banks with less than $100 million of assets were in the red, compared with 6.7% of all commercial banks.

Also, the agency continues to monitor falling credit quality.

"In a quarter when almost everything went right, strong growth in noninterest income, combined with fewer expenses related to mergers and restructurings, helped lift commercial bank earnings to new heights," FDIC Chairman Donna A. Tanoue said in a release issued with the report. "This achievement was clouded, however, by rising levels of noncurrent commercial and consumer installment loans, which outpaced growth in banks' reserves for losses."

Net loan chargeoffs rose 5.5% from the second quarter total, to $4.6 billion, but remained 12.6% lower than the year before. The net chargeoff rate on credit card loans increased to 4.38%, from 4.26% in the previous quarter but remained well below the year-earlier rate of 5.15%.

Noncurrent loans - those 90 days or more past due or in nonaccrual status - grew 3.7%, to $32.3 billion, during the quarter and are 9.5% more than the $29.5 billion total a year earlier. Banks increased their reserves for loan losses by $632 million in the quarter, but their overall coverage ratio fell to $1.80 for every $1 of noncurrent loans. This ratio was $1.85 per dollar at the end of the second quarter.

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