Bank earnings rose sharply in the fourth quarter, the 17th straight quarterly year-over-year increase and showing strong a string of profitability since 2009.

Bank Profits

Banks’ fourth quarter net up staggering $40.3 billion

Banks and savings and loans insured by the Federal Deposit Insurance Corporation (FDIC) earned a staggering $40.3 billion in the fourth quarter of 2013, up nearly 17% from a year ago, according to the FDIC.  Net income for 2013 was up 9.6% to $154 billion year over year.  More than 50 percent of the FDIC insured financial institutions reported a year-over-year growth in quarterly earnings, as the portion of unprofitable banks declined 2.8% to 12.2% in the fourth quarter.

While the headline number is strong, there are undercurrents to be considered.

Headline numbers belie issues

Most significant, the earnings improvement was largely due to an $8.1 billion reduction in loan-loss provisions, an accounting line item that banks estimate on their own.  Essentially the banks dropped their reserve for bad loans, which contributed to nearly 25% of the fourth quarter revenue.

Mortgage applications continue to slide

Another issue was the fact that mortgage applications continue to fall, with mortgage revenue lower year over year. Amidst rising interest rates, mortgage loans for one- to four-bedroom homes dropped 62% in the fourth quarter compared to the same period the year, the FDIC report noted.

“Narrow margins, modest loan growth, and a decline in mortgage refinancing activity have made it difficult for banks to increase revenue and profitability,” said FDIC Chairman Martin J. Gruenberg in a statement.