WASHINGTON ( TheStreet) -- The Federal Deposit Insurance Corp. said Tuesday that its "Problem List" of troubled banks and thrifts grew to 702 as of Dec. 31, up from 552 in September and 252 a year earlier, despite the increasing pace of bank failures.
Undercapitalized Banks
2010 Bank Watch List

The FDIC said the combined domestic banking industry essentially broke even during the fourth quarter, with $914 million in net income, vs. an industry net loss of $37.8 billion a year earlier. Most of the improvement in earnings was concentrated among the largest banks -- in fact, out of the four peer groups covered in the FDIC's report, only banks and thrifts with total assets exceeding $10 billion had a positive return on assets for the quarter.

Major factors in the industry's overall earnings improvement included trading revenue, which was $2.8 billion for the fourth quarter, compared to trading losses of $9.2 billion during the fourth quarter of 2008. Servicing income also rebounded, to $8 billion, up from a loss of $390 million a year earlier.

The industry trend of several quarters' improvement in net interest margins reversed itself during the fourth quarter. The industry's margin (the difference between the average rate earned on loans and investments and the average cost of funds) was 3.49%, up considerably from 3.33 a year earlier but down from 3.51% in the third quarter.

Industry net income for all of 2009 was "well below historical norms" at $12.5 billion, up from $4.5 billion in 2008, but way down from the $100 billion during 2007.

Asset quality continued to deteriorate, although the growth in nonperforming loans was slowing. Nonperforming assets, including repossessed real estate and loans past due 90 days or more or in nonaccrual status, comprised 3.32% of total assets, up from 3.07% in September and 1.88% at the end of 2008.

Net charge-offs (actual loan losses) totaled $53 billion during the fourth quarter, for an annualized net charge-off rate of 2.89%, up from 2.72% in the third quarter and 1.95% a year earlier. The industry continued to stay "ahead of the pace" of charge-offs, with loan loss reserves covering 3.12% as of Dec. 31. The FDIC said this was the highest level of loan loss reserve coverage for the industry since the agency was formed in 1933.

Lending continued to languish, with overall industry loan balances declining for the sixth consecutive quarter. Outstanding loan balances declined 5% during 2009, which the FDIC said was the largest year-over-year decline since the inception of the agency.

-- Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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