WASHINGTON -- The thrift industry earned a near-record $1.5 billion in the third quarter, in part because fewer loans are going bad, the Office of Thrift Supervision reported Monday.

The industry's best profit indicator -- the median return on average assets -- has stabilized at 0.87% over the past three quarters.

The industry's income is "becoming far less volatile than we've seen in the past," said OTS Acting Director Jonathan L. Fiechter. "What we are seeing now is the benefit of reduced provisioning."

The nation's 1,578 OTS-supervised thrifts earned $1.5 billion in the July-to-September quarter, up from $1.3 billion in the second quarter, the OTS reproted. The September figure is the highest since the first quarter of 1993, when the industry earned $1.8 billion.

The Savings and Community Bankers of America's Robert R. Davis said, "I am encouraged that the industry is still doing well even in the face of escalating interest rates and the tightening of the spread."

The industry's median return on average assets "has been rock solid for three quarters," said Mr. Davis, who is chief economist of the thrift trade group. "The core earnings are remaining steady."

But Mr. Fiechter pointed out that even though the industry's income is steady, thrifts are "not as profitable as commercial banks."

The Federal Deposit Insurance Corp. plans to announce Thursday that third quarter commercial bank earnings set another record. The FDIC will also release profit figures for state-chartered savings banks, which are not included in the OTS data.

The spread between the interest rates thrifts pay on deposits and the rates they charge on loans narrowed to 286 basis points. That number will, "continue to shrink and that will put continued pressure on thrift earnings," Mr. Fiechter said.

Since March, the month after the Federal Reserve began raising interest rates, the industry's market value has declined by 11%. But Mr. Fiechter said thrifts have done a good job of hedging against interest rate risk and have strong capital levels that would likely adequately cushion further losses.

One bright spot was the industry's asset quality. "The improvement in asset quality was across the board." Even California, with its troubled economy, is looking up, he said.

"From an asset-quality standpoint, it seems to have troughed," Mr. Fiechter said of the state.


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