FDIC: Banks Earned $87.5B in 2010, But “Problem List” Grew

FDIC-insured commercial banks and savings institutions reported an aggregate profit of $21.7 billion in the fourth quarter of 2010 and $87.5 billion for the full year, a gain largely attributed to large declines in loan-loss provisions. But not all the news was good. Loan and lease balances fell for the ninth time in 10 quarters; the regulator’s list of “problem” institutions grew to 884; and 30 insured institutions failed during the fourth quarter, bringing the total number of failures for the year to 157 (an 18-year high).

Financial results for the fourth quarter and the full year are contained in the FDIC’s latest Quarterly Banking Profile, which was released Wednesday.

The fourth quarter profit was a $23.5 billion improvement from the $1.8 billion net loss the industry reported in the fourth quarter of 2009. This is the sixth consecutive quarter that earnings registered a year-over-year increase. The full-year 2010 profit was a $98.1 billion improvement from 2009’s full-year revised loss of $10.6 billion (down from a previously reported $12.5 billion profit after accounting for amended financial reports).

“Overall, 2010 was a turnaround year with four straight quarters of positive earnings,” FDIC Chairman Sheila Bair said in a press release. “We are encouraged not only by the rising trend in total industry net income, but also by the fact that a substantial majority of insured institutions are participating in this trend.”

Most of the year-over-year improvement in earnings reflected a reduction in provisions for loan losses. Fourth-quarter loss provisions totaled $31.6 billion, slightly more than half the $62.9 billion that insured institutions set aside for losses in the fourth quarter of 2009. Net operating revenue (net interest income plus total noninterest income) was $2.8 billion (1.7%) higher than a year earlier, and realized gains on securities increased by $2.3 billion.

Total loans and leases fell for the ninth time in 10 quarters (the one exception resulted from changes in reporting rules in the first quarter of 2010, not from actual loan growth). The net decline in balances in the fourth quarter was $13.6 billion (0.2%). The largest reductions in loan portfolios occurred in real estate construction loans (down $32.5 billion, or 9.2%), non-credit card consumer loans (down $29 billion, or 4.9%), and home equity lines of credit (down $11 billion, or 1.7%).

The number of institutions on the FDIC’s “Problem List” rose from 860 to 884 (almost 12% out of 7,657 insured institutions). Total assets of “problem” institutions increased to $390 billion from $379 billion in the prior quarter, but are below the $403 billion reported at year-end 2009. “Problem” institutions are those considered at risk of failure.

“As we have repeatedly stated, we believe that the number of failures peaked in 2010, and we expect both the number and total assets of this year’s failures to be lower than last year’s,” Bair said.

The Deposit Insurance Fund (DIF) balance—the net worth of the fund—rose from negative $8 billion to negative $7.4 billion (unaudited) during the fourth quarter. The increase stemmed primarily from assessment revenues and an improving outlook for losses from future failures. The contingent loss reserve, which covers the costs of expected failures, fell from $21.3 billion to $17.7 billion during the quarter.

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