A sharp drop in the level of loan loss provisions helped the banking industry earn $21.7 billion in the fourth quarter, the second highest quarterly total in more than three years, the Federal Deposit Insurance Corp. reported.
According to the agency's Quarterly Banking Profile, the greatest year-over-year improvement was at the biggest banks, but 62% of banks reported better net income than a year earlier. Approximately 25% reported a net loss, but that was still better than yearend 2009 when 35% of banks were unprofitable.
"Overall, 2010 was a turnaround year with four straight quarters of positive earnings," said FDIC chairman Sheila Bair.
The increase in earnings was mostly due to the decline in loan loss provisions, which fell nearly 50% to $31.6 billion from the year-earlier fourth quarter. The FDIC said it was the smallest quarterly loss provision since the third quarter of 2007; seven large banks accounted for more than half of the drop.
The report once again demonstrated the industry's recovery. Net loan charge-offs fell 23.7% to $41.9 billion in the fourth quarter, with nearly every major loan category, with the exception of credit cards, showing improvement. Real estate construction and development loan charge-offs fell by $4.2 billion while commercial and industrial loan charge-offs were down $4 billion. Residential mortgage charge-offs fell by $3.1 billion.
Credit card charge-offs, however, were up $2.9 billion, but that was because securitized credit card balances were included for the first time, the FDIC said.
Nonperforming assets also declined in the fourth quarter. The amount of noncurrent loans fell 4.7%, declining in all major loan categories. Noncurrent real estate construction loans were down $7.4 billion while such C&I loans fell by $3.2 billion.
The number of institutions on the FDIC's "problem bank" list increased by 24 during the fourth quarter to 884 while assets held by these banks increased $11 billion, to $390 billion.
Total assets for the industry fell by 0.4%, or $51.8 billion, in the fourth quarter. Total loans decreased by 0.2%, or $13.6 billion.
Bair reiterated that despite the industry's recovery, more lending is needed. "The long term health of both the industry and our economy will depend on a responsible expansion of bank lending at this pivotal point in the economic recovery," she said.
For all of 2010, banks earned $87 billion, the highest full-year earnings in three years. Those figures were affected, however, by changes in goodwill expenses, primarily at one large institution, through earnings restatements. The institution reduced its expenses for goodwill impairment by $10.4 billion in the third quarter of 2010, therefore increasing the industry's full-year earnings by that amount.
