The U.S. thrift industry reported a fifth-straight quarter of profits in the third quarter, while the combined mortgage portfolio at these institutions shrunk 20% from a year ago, according to the Office of Thrift Supervision. Thrift banks are institutions focused on accepting deposits and originating mortgages with access to low-cost funding from the Federal Home Loan Banks. They used to be known as savings and loans associations. The OTS-supervised 741 thrift banks holding $927.9 billion in assets posted a collective $1.7 billion in profits during the third quarter, the fifth-straight period of growth. Under Dodd-Frank, the OTS will fold into the Office of the Comptroller of the Currency next summer. From the fourth quarter of 2007 through the first half of 2009, thrifts posted mounting losses. The third quarter numbers are an increase from the $1.24 billion in profits reported a year ago and $1.49 billion more in the previous quarter. But while profits have grown, thrifts are shrinking their mortgage portfolios. Since September 2009, thrifts have cut their combined mortgage portfolio from $550.3 billion to $435.9 billion as of September 2010, a reduction of more than 20%. These mortgages consist of construction and multifamily loans as well as more traditional financing, but drilling down to residential mortgages, the cuts are deeper. The residential portfolio of these institutions went from $9.7 billion at the end of September 2009 to $5.5 billion at the end of the third quarter of 2010, according to OTS data. OTS Acting Director John Bowman said the third quarter report was mixed as the number of problem thrifts remained high and troubled assets increased slightly. "The industry’s profitability was encouraging, but other indicators reminded us that economic stresses – particularly from unemployment – continued to take a toll," Bowman said. The OTS designated 53 institutions as problem thrifts, up from 43 a year ago but nearly level to the 54 reported in the previous month. Still, profitability equaled a 0.77% return on average assets, up from 0.46% a ear ago and 0.64% in the previous quarter, while the amount of troubled assets and only seven thrifts were considered less than adequately capitalized. Write to Jon Prior.