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The FDIC's quarterly banking profile came out a few weeks ago. It's been awhile since I've looked at this document, but considering the Fed released its stress test last week it seems appropriate to check in on the health of the nation's financial institutions.

Let's start with the report itself:

Lower provisions for loan losses, reflecting an improving trend in asset quality, lifted fourth-quarter net income of FDIC-insured commercial banks and savings institutions. Fourth-quarter earnings totaled $26.3 billion, an increase of $4.9 billion (23.1 percent) compared with the same period of 2010. The year-over-year improvement in profits comprised a majority of insured institutions. Almost two out of every three banks (63.2 percent) reported higher quarterly net income than a year ago, and only 18.9 percent were unprofitable, compared with 27.1 percent in fourth quarter 2010. The average return on assets (ROA) rose to 0.76 percent, from 0.64 percent a year earlier.

(Click charts to expand)

The chart above shows that overall new income dropped sharply in 2008 and 2009, but that banks have returned to profitability since then. Also of importance is this has been going on for two years, giving the banks time to heal from the excesses of the early 2000s.

Net charge-offs totaled $25.4 billion in the fourth quarter, a decline of $17.1 billion (40.2 percent) from a year ago. The fourth-quarter total represents the lowest level for quarterly charge-offs since first quarter 2008. This is the sixth consecutive quarter in which charge-offs have posted a year-over-year decline. Improvements occurred across all major loan types. The largest declines were in credit cards (down $5.4 billion, or 42.2 percent), real estate construction and land development loans (down $3.3 billion, or 62.4 percent), residential mortgage loans (down $2.4 billion, or 31.8 percent) and loans to commercial and industrial (C&I) borrowers (down $2 billion, or 43.5 percent).

The above chart shows two distinct trends. First, until the 1Q10 we see an increase in quarterly net charts off and the quarterly change in non-current loans. However, since then we've seen both decrease in value. It's important to remember that, given the depth of the problems in the financial sector, it takes more than a quarter to solve the problems caused by a number of bad loans. However, the chart above indicates the industry has been racking up more than a few quarters of good news.

The above chart of total net charge offs is also very significant. After peaking at very high levels for banks with more than a $1billion in assets, we see a large and significant decline in this number. Smaller banks are still higher by historical standards, but they too have come down from their high levels.

Source: Quarterly Banking Profile