Merger-related expenses trimmed the thrift industry's third-quarter earnings by 25%, the Office of Thrift Supervision announced Wednesday.

OTS-regulated institutions earned $1.347 billion in the quarter ended Sept. 30, compared to $1.686 billion during the second quarter.

Still, the industry's performance remains strong, said OTS Director Ellen S. Seidman. Through the first nine months of 1997, the 1,238 institutions regulated by OTS earned $4.758 billion, up from $3.272 billion during the first nine months of 1996.

"The thrift industry continues to demonstrate strong and stable performance aided by the nation's sustained economic growth, low inflation, and low and stable interest rates," Ms. Seidman said.

Excluding $355 million in acquisition costs posted by three large institutions, return on average assets was 0.92%, up from 0.84% in the second quarter.

Comparing performance to the third quarter of 1996 is difficult because the industry paid a one-time assessment to shore up the Savings Association Insurance Fund and ended up reporting a $483 million loss.

The level of delinquent loans declined to $6.3 billion in the third quarter, down from $6.8 billion in third quarter 1996.

At a press conference, Ms. Seidman said loans originated from 1994 through 1996 are showing higher delinquency rates than loans booked in 1992 and 1993.

"As portfolios naturally begin to have fewer of the earlier loans, there may be an uptick in delinquencies," she warned. "We just want to make sure people are reserving properly."

Still, the number of thrifts on the agency's watch list decreased to 23.

Industry consolidation has cut the number of OTS-regulated institutions by 124 since the beginning of the year. During the third quarter, 34 institutions were either acquired or converted to national banks or state- chartered institutions. The OTS also approved 19 new charter applications in the quarter.

Total industry assets declined 2% from a year earlier to $763 billion.

Single-family mortgage loans remain the largest component of thrift portfolios, accounting for 50.8% of total assets, up from 49% a year earlier.

Though consumer and small business loan business remains a small portion of portfolios, thrifts have increased those businesses significantly. The amount of consumer loans rose 7% to $43.3 billion from the previous year while small business loans rose 15% to $10.6 billion.

Fee income continues to add an increasing share of industry revenue, climbing to 0.59% of average assets from 0.49% a year earlier.

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