The FDIC announced the problem bank list, which is one step from walking the plank, being seized and shut down, grew to 884 from 860 in Q4 2010. Problem banks are now 11.5% of the 7,657 banks and savings institutions covered by the FDIC.

From the FDIC press release:

The number of institutions on the FDIC's "Problem List" rose from 860 to 884. Total assets of "problem" institutions increased to $390 billion from $379 billion in the prior quarter, but are below the $403 billion reported at year-end 2009. The rate of increase in the number of "problem" banks has declined in each of the past four quarters. Thirty insured institutions failed during the fourth quarter, bringing the total number of failures for the full year to 157.

The FDIC believes bank failures in 2011 will be less than the 157 of 2010. To date, there have been 22 bank failures in the first 7 weeks of 2011. Projecting the current 2011 closure rate onto all of 2011 would be 167. Wikipedia is keeping a tally of closed banks. This time last year, we had 20 bank failures.

The Deposit Insurance Fund is still in the red and went from a negative balance of -$8 billion to -$7.4 billion.

Here's the weird story. While bank failures and problem banks sprout up like mushrooms, the FDIC is reporting record Q4 profits of $21.7 billion. In Q4 2009, the aggregate commercial banks reported a $1.8 billion dollar loss.

Almost two-thirds of all institutions (62 percent) reported improvements in their quarterly net income from a year ago. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.65 percent, from negative 0.06 percent a year ago. Although community banks' aggregate return on assets lags the ROA for larger institutions, as a group they are recovering, as most community banks reported higher earnings than a year ago.

Yet wait, oops, that's due to getting noncollectable loans off the books.

Reductions in provisions for loan losses were responsible for most of the year-over-year improvement in earnings.

Insured banks and thrifts charged off $41.9 billion in uncollectible loans during the quarter, down $13 billion (23.7 percent) from a year earlier.

The average return on assets is now positive, 0.65 from -0.06 in Q4 2009.

The FDIC says now that banks have cleaned up their books, it's time to rebuild loan portfolios. One small problem here, with the jobs crisis, wages as flat as a 2000 squished Y2K bug, who is going to be able to pay back these new loans?