NEW YORK ( TheStreet) -- A stock-market rally, government bailout and rising profits have lifted banks out of the doldrums.Still, the number of undercapitalized U.S. banks increased to 146 as of Dec. 31, up from 116 in the previous quarter. Sixty-three banks failed in the fourth quarter. Bank failures are continuing at a brisk pace. The Federal Deposit Insurance Corp. has been offering generous loss-sharing agreements that make acquisitions of failed banks attractive to holding companies and private-equity investors. An example is New York Community Bancorp ( NYB), which booked an after-tax gain of $84 million on its December acquisition of the failed Amtrust Bank. With such sweet deals available for failed banks, it's difficult for smaller banks still operating to be merged into stronger institutions or attract investment capital. Nearly half of the undercapitalized banks are in the four states with the highest number of bank failures since the beginning of 2008: Georgia, Florida, Illinois and California. Most banks, and savings and loans need to maintain tier 1 leverage, tier 1 risk-based and total risk-based capital ratios of at least 5%, 6% and 10% to be considered well-capitalized under regulatory guidelines . Some trust banks have much lower capital requirements. The ratios need to be at least 4%, 4% and 8% for most to be considered adequately capitalized. The largest undercapitalized bank with $10.3 billion in total assets as of Dec. 31 was Sterling Savings Bank of Spokane, Wash., the main subsidiary of Sterling Financial ( STSA). Mounting commercial-loan charge-offs in the second half led to a 2009 net loss of $830 million, and the bank slipped to undercapitalized with a total risk-based capital ratio of 7.25% as of Dec. 31. Nonperforming assets, including loans past due 90 days or in nonaccrual status, along with repossessed real estate comprised 11.38% of total assets as of Dec. 31.