The savings and loan industry is moderately profitable, federal regulators say, as loan losses and assets held by troubled thrifts decline.

"Let me emphasize, the directions are all very positive," said Jonathan Fiechter, acting director of the Office of Thrift Supervision.Fiechter said profits for S&Ls increased in the third quarter of the year to the highest level in 18 months. The institutions earned $1.52 billion in the July-September quarter, compared with $1.24 billion the previous three months - even though interest expenses rose.

With short-term interest rates climbing, the thrifts paid out 3.63 percent of their assets in interest expenses, compared with 3.42 percent in the second quarter. Interest income rose more slowly in the third quarter, to 6.49 percent of assets from 6.35 percent.

The Federal Reserve has raised short-term interest rates six times since February, from 3 percent to 5.5 percent for the rate banks charge each other for overnight loans.

For the S&Ls, the rising interest costs were more than offset by a drop in loan losses to cover troubled assets - from $672 million to $460 million - in the third quarter. Troubled assets include past-due loans and repossessed real estate.

Overall, the industry is "moderately profitable" as the number of troubled S&Ls declines, Fiechter said. In fact, he said, S&Ls may have become too conservative in managing interest rate risk.

That is a turnaround from past policies that contributed to the S&L debacle.

The thrift industry "has recovered from the problems of the early-to-mid-1980s," Fiechter said, when Congress stepped in to approve a costly bailout. He said it may be necessary to set aside only $50 million in the first half of 1995 to rescue failed S&Ls, and that is only in the interests of "an abundance of caution."

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The S&L cleanup has cost about $136 billion since 1987.

Until the past few years, thrifts lent most of their money in long-term, fixed-rate mortgages. When rates soared in the late 1970s and early 1980s, thrifts were forced to pay high rates for deposits but were stuck with low-rate mortgages.

In the past few years, S&Ls sold more fixed-rate mortgages to Wall Street investors in the secondary market and kept adjustable-rate mortgages whose interest earnings rise with deposit rates. That has the effect of lowering risk and producing steadier - though possibly lower - interest income.

Still, Fiechter said, thrifts are not in as good a shape as banks when median returns on assets are compared.

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