NEW YORK (MarketWatch) -- The Federal Deposit Insurance Commission said Tuesday that profits at the banks and thrifts it insures fell to a 16-year low in the fourth quarter of 2007 as provisions for bad loans spiked and trading profits fell.

For the full year 2007, the same factors led to the first year-over-year decline in profits in six years, according to a report from the Federal Deposit Insurance Corp.
"The rising trend in noncurrent loans indicates that write-offs and loss provisions will likely remain high for the near future," FDIC Chairman Sheila C. Bair said in the FDIC's Quarterly Banking Profile.

She added, "We'll also need to keep a close eye as we've been doing for a number of months on loan portfolios other than housing, including commercial real estate, credit cards, and small business. All of these are showing signs of stress as housing market weakness continues."

The FDIC is an independent agency created by the Congress that maintains the stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships.

Commercial banks and savings institutions insured by the FDIC reported net income of $105.5 billion in 2007, a decline of $39.8 billion, or 27.4% from the record $145.2 billion that the industry earned in 2006.

Despite falling, the FDIC pointed out that the industry's earnings remained above $100 billion for the sixth straight year.
"The industry as a whole is coming off a golden period of record profits. Because of this financial strength, the overwhelming majority of banks and thrifts remain well-capitalized and profitable," Bair said.

The said insured members raised more than $29 billion in capital during the fourth quarter to bolster their ability to absorb losses.

Ninety-nine percent of insured institutions were well capitalized at the end of 2007, and nearly 90 percent were profitable for the year, the report said.

The report showed that total industry loan loss provisions more than doubled in 2007, to $68.2 billion from $29.5 billion in 2006.
Trading revenue for member banks and thrifts fell 78.4% to $4.1 billion.

The average return on assets, a standard yardstick of earnings performance, fell to 0.86 percent in 2007, compared to 1.28 percent a year earlier, the DIC reported, while Net interest margin, the difference between the average interest income that institutions earn on their loans and other investments and the average interest expense that they pay to fund those assets, fell.

Net interest margin at member companies dipped to 3.29% from 3.31% last year. Notably, it was the sixth straight year that net interest margins declined. At the end of 2007, the industry's net interest margin was at its lowest level since 1988.
"It's no surprise to anyone that the second half of 2007 was a very tough period for the banking industry. Fourth quarter results were heavily influenced by a number of well-publicized write-downs by large banks," said.

------------------------------------------------------------------------------------------