Bank profits rose 6.6 percent in the third quarter, according to the FDIC. Commercial banks and savings institutions insured by the federal agency reported net income of $37.6 billion, up from $35.2 billion in profits during the same period in 2011—marking the 13th consecutive quarter banks have posted a year-over-year earnings increase.

Likewise, the number of banks on the FDIC’s “problem list” shrank from 732 to 694, marking the first time in three years less than 700 banks have been listed as problematic. According to the FDIC, total assets of “problem” institutions declined by $20 billion to $262 billion. The number of bank failures also fell for the eighth time in the past nine quarters. Only 12 insured institutions failed in the third quarter—the smallest number of failures in a quarter since the fourth quarter of 2008 when 12 also failed. Although seven banks have already failed in the fourth quarter, the year-to-date total is currently 50, compared to 90 bank failures as of Dec. 4, 2011.

“This was another quarter of gradual but steady recovery for FDIC-insured institutions,” said FDIC Chairman Martin J. Gruenberg. “Signs of further progress were evident in a number of indicators, such as loan growth, asset quality and profitability.”

In a sign of a strengthening economy, more than 57 percent of FDIC-insured institutions reported higher quarterly net income than a year ago. Plus, the number of banks reporting net losses during the quarter fell from 14.6 percent last year to 10.5 percent. The FDIC reported the average return on assets, which measures profitability, increased from 1.03 percent in 2011 to 1.06 percent in the third quarter.

More Americans are borrowing according to banks’ loan balances. Total loan balances increased for the fifth consecutive quarter, rising by a total of $64.8 billion. Commercial and industrial loans, residential mortgages and auto loans all increased, while home equity lines of credit, real estate and construction loans decreased.

“More than 55 percent of all banks reported loan growth,” Gruenberg said. “Small banks are also increasing their lending, including their loans to small businesses.”

Full financial results for the third quarter can be found in the FDIC’s most recent “Quarterly Banking Profile,” released today.