WASHINGTON DC, United States – THE number of US banks considered troubled jumped to more than 700 last quarter even as the industry eked out a small profit, the government said yesterday.

The 702 banks on the Federal Deposit Insurance Corp’s confidential “problem” list are the most since the height of the savings-and-loan crisis in the early 1990s.

Big banks have been gradually recovering, many of them with help from federal bailout money. But distress for small and mid-sized institutions has continued and likely will persist in coming years.

Regional banks are especially vulnerable to losses on loans for commercial real estate, like stores and office complexes. These loans make up a disproportionate share of their business. Losses are growing as buildings sit vacant and builders default on their loans.

Such defaults could escalate the wave of failures that totalled 140 last year. So far this year, 20 banks have failed.

Bank failures pushed the FDIC’s deposit insurance fund into the red last year. It was US$20.9 billion in deficit as of December 31, the agency reported. It expects further bank failures to cost the fund around US$100 billion through 2013.

The agency mandated that banks prepay about US$45 billion in premiums last year, for 2010 through 2012, to help replenish the insurance fund.

The FDIC said banks essentially broke even in the October-December period. They earned US$914 million, compared with a US$37.8- billion loss in the fourth quarter of 2008. Still, nearly one in every three banks reported a net loss for the latest quarter.

Most of the improvement in earnings was due to the largest banks. Still, for the first time in three years, more than half the 8,000 or so federally insured banks and thrifts reported higher income compared with the year-earlier quarter.

“Consistent with a recovering economy, we saw signs of improvement in industry performance,” in the fourth quarter, FDIC Chairman Sheila Bair said at a news conference.

Bair noted, though, that a recovery in the banking industry usually lags behind an economic rebound as banks deal with soured loans.

“It’s not that this was a strong quarter,” she said. “It’s simply that everything was so bad a year ago.”

The FDIC’s reserves of cash and securities set aside to cover losses from failures jumped to US$66 billion as of December 31 from US$23 billion at the end of September.

For all of 2009, banks earned US$12.5 billion, up from US$4.5 billion in 2008. Last year’s earnings represented a return on assets of 0.09 per cent, up from 0.03 per cent in 2008.

The number of banks on the FDIC’s problem list leaped above 700 from 552 in the third quarter, the FDIC said. The combined assets of those banks were US$402.8 billion, up from US$345.9 billion in the third quarter.