Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) have just posted their 10th consecutive quarter of annual gains.  In the fourth quarter of 2011 these banks reported aggregate profits of $26.3 billion, a $4.9 billion increase over profits in the fourth quarter of 2010.  The FDIC reported the numbers on Tuesday, stating that, as has been the case in the previous nine quarters, these improvements were primarily driven by lower provisions for loan losses.

Sixty-three percent of the insured institutions reported improvements in quarterly income compared to the year before and the share of institutions reporting net losses for the quarter fell to 18.9 percent from 27.1 percent in the fourth quarter of 2010.  The average return on assets (ROA) rose to 0.76 percent from 0.64 percent.

Loan loss provisions were 40 percent lower than a year earlier with $19.5 billion set aside in Q4 2011 compared to $32.7 billion in Q4 2010.  Net operating revenue was $3.8 billion or 2.3 percent lower than a year earlier because of a $4.4 billion or 7.4 percent drop in noninterest income.

FDIC Acting Chairman Martin J. Gruenberg said that "2011 represented the second full year of improving performance by the banking system. Banks reported higher positive aggregate earnings, the numbers of 'problem' banks and failures declined, and loan balances increased in the final three quarters of the year." He also noted that "insured institutions of all sizes continued to make substantial progress in improving their profitability."

Charge-offs of uncollectable loans and well as noncurrent assets both fell.  Charge-offs declined from 40.2 percent from a year earlier to $25.4 billion and loans and leases 90+ days past due or in nonaccrual status fell for the seventh straight quarter although their numbers remain elevated compared to previous crises.

Other highlights from FDIC's Quarterly Banking Profile:

  • Loan portfolios increased for the third quarter.  Commercial and industrial loans increased by $62.8 billion; residential mortgage loans balances by $16.0 billion, and credit card balances by $21.3 billion.  Loans and leases overall increased by $130.1 billion or 1.8 percent.
  • Deposits in insured deposit accounts increased by $249.7 billion or 2.9 percent during the 4th quarter.  Three quarters of the increase - $191.2 billion - went into large noninterest-bearing transactional accounts with (temporarily) unlimited insurance.  The 10 largest insured banks accounts for 73.6 percent of the growth in these balances.
  • "Problem banks" diminished for the third consecutive quarter.  There are now 813 banks on FDIC's "Problem List" compared to 844 the previous quarter and the smallest number since the first quarter of 2010.  Assets in these banks declined from $339 billion to $319 billion.
  • Eighteen insured institutions failed during the fourth quarter and there were 92 failures for the entire year.  In 2010 there were 157 FDIC banks that failed.
  • Balances in the Deposit Insurance Fund (DIF) continued to increase, rising from $7.8 billion at the end of the third quarter to $9.2 billion at year's end.  The contingent loss reserve which covers the cost of expected failures fell from $7.2 billion to $6.5 billion during the quarter and estimated insured deposits grew 3.1 percent.