Federally insured banks and savings institutions saw fourth-quarter earnings plummet 83 percent — their lowest levels since 1991 — and failed to boost loss reserves as fast as borrowers became delinquent on loans, the FDIC reported today.

Fourth-quarter net income fell to $5.8 billion at 8,500 banks and savings and loans insured by the Federal Deposit Insurance Corp., down from $35.2 billion a year ago. For the year, net income fell 27 percent, to $105.5 billion, as banks more than doubled loan loss provisions to $68.2 billion.

One of four insured institutions with assets of more than $10 billion reported a net loss for the fourth quarter, and the percentage that were unprofitable in 2007 — 11.6 percent — was the highest since 1991.

At the end of 2007, there were 76 FDIC-insured commercial banks and savings institutions on the “Problem List,” with combined assets of $22.2 billion, up from 65 institutions with $18.5 billion at the end of the third quarter.

Weakness in the housing sector and the credit squeeze in financial markets brought to an end six consecutive years of record earnings, and made 2007 “a very challenging time for many institutions,” FDIC Chairwoman Sheila Bair said in a statement accompanying the release of the FDIC’s Quarterly Banking Profile. Bair said those problems will continue in 2008, but said “most institutions are so far successfully coping with the challenges they face.”

Commenting on the report, American Bankers Association Chief Economist James Chessen said banks are “well-positioned” to handle the downturn, and continue to build capital and set aside reserves to cover potential losses. At year-end, the banking industry had $1.35 trillion in capital, an increase of $25 billion from the fourth quarter, Chessen said, and $8.4 trillion in deposits.

But the FDIC’s survey suggests that banks aren’t adding to reserves as fast as loans are going bad, and that more trouble lies ahead.

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