WASHINGTON — Banks and thrifts earned $40.3 billion in the fourth quarter — a nearly 17% rise from a year earlier — largely due once again to reduced loan loss provisions, the Federal Deposit Insurance Corp. said Wednesday.

The agency's Quarterly Banking Profile reported total 2013 earnings for the industry of $154.7 billion. The annual net income was 9.6% higher than in 2012, marking the fourth consecutive increase in full-year earnings.

As has been the case for a long string of quarters, a drop in expenses related to bad loans helped drive the industry's success. The FDIC said total earnings also reflected reduced litigation reserves at one large institution.

Total loan-loss reserves for the industry declined by 4.7% during the fourth quarter. Just over 53% of all institutions reported higher earnings than in the fourth quarter of 2012.

But the FDIC warned that banks still face revenue challenges. Net operating revenue was 1.7% less than a year earlier. Even though institutions posted the first year-over-year growth in net interest income — of 1.3% — in five quarters, noninterest income registered a 6.6% decline. Banks earned 34% less in income from the sale, securitization and servicing of residential mortgages from a year earlier.

Growth in loans was "modest," the agency said, and residential real estate lending declined. Total loan balances grew by 1.2% from the previous quarter to $7.89 trillion, but home equity loan balances fell by 1.9%. Balances of other loans secured by residential properties fell by 0.7%.

"Asset quality improved, loan balances were up, and there were fewer troubled institutions," FDIC Chairman Martin Gruenberg said in remarks prepared for the QBP's release. "However, challenges remain in the industry. Narrow margins, modest loan growth and a decline in mortgage refinancing activity have made it difficult for banks to increase revenue and profitability."

The agency's list of "problem" institutions fell by 48 to a total of 467. Meanwhile, even though total deposits grew by 1.5% during the quarter, the agency still reported an 11-basis point rise in its ratio of reserves to insured deposits. The reserve ratio stood at 0.79% at the end of the quarter.

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