Banks and thrifts insured by the FDIC, benefiting from a decline in their cost of funds, tripled profits in the third quarter when compared with a year ago.

In the second quarter, the 8,099 FDIC-insured institutions had reported an aggregate $4.3 billion loss.

The average net interest margin, or difference between banks' cost of capital and the income they receive from their assets, rose to 3.51 percent from 3.37 percent a year ago. Net interest income totaled $99.9 billion in the quarter, up from $95.3 billion a year earlier.

But the sector's overall profitability doesn't mean that banks are suddenly out of hot water. A total of about 2,100 institutions reported a loss during the latest quarter.

In total, banks saw a 2.4 percent, or $325.7 billion drop in total assets over the year, to $13.25 trillion. But it saw big drops in certain asset categories.

For instance, total loans secured by real estate, which includes those backed by residential properties, fell to $4.5 trillion from $4.7 trillion a year ago. Business loans fell by 15.1 percent to $1.28 trillion, while construction and development loans fell by 19.9 percent to $492.2 billion.

But lending against non-farm, non-residential properties rose to $1.09 trillion from $1.04 trillion a year ago.

"We need to see banks making more loans to their business customers," said Sheila Bair, chairman of the agency.

Meanwhile, asset quality continued to deteriorate in the latest quarter, with an increase in loans and leases that are 30- to 89-days delinquent to $142.7 billion from $141.1 billion in the second quarter and $121.6 billion a year ago. Non-current loans, that is loans that are more than 90 days late, grew to $366.6 billion from $187.4 billion a year ago.

Loan loss provisions during the quarter totaled $62.5 billion, up $11.3 billion from a year ago. So far this year, banks have taken provisions totaling $188.6 billion.

The FDIC increased the number of institutions on its problem list to 522 with $345.9 billion of assets. The list is now the biggest it has been since 1993, when banks with $346.2 billion failed.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.