Even as the economy begins to show signs of recovery, the banking industry is still struggling to emerge from its abysmal state, according to the Federal Deposit Insurance Corporation s most recent Quarterly Banking Profile report, out Tuesday.

Bank failures reached new highs. In 2009, 140 banks failed (the largest number since 1990) and 179 banks were absorbed through mergers. Only 31 new charters were added during the year the smallest total since 1942. In the fourth quarter alone, 45 institutions failed and the FDIC added 150 institutions to its problem list for a total of 702 at year-end, compared with 252 at the end of 2008. Mainly due to increased provisions for bank failures, the FDIC s Deposit Insurance Fund decreased by $12.6 billion to a negative $20.9 billion, with a negative 0.39% reserve ratio -- the lowest on record.

The fact that the actual reserves are $20 billion negative is not a concern for the average American, says Jamie Peters, an equity analyst who tracks banks for Morningstar. But it does mean that eventually the banking industry has to repay those funds so we ll eventually see higher FDIC assessments to banks. The banks are already paying premiums [to the FDIC].

Net charge-offs the total loans and leases that the banks have removed from their balance sheets because they re uncollectable, minus the amounts recovered on loans and leases that have been previously charged off reached new highs. At 2.89%, the quarterly net charge-off rate is the highest reported by the industry in the 26 years for which such data are available. This is the 12th consecutive quarter in which net charge-offs have increased year-over-year.

Non-current loans (those that are 90 days or more past due) also hit a record. Up 6.6% in the fourth quarter to $391.9 billion, these loans represented 5.37% of all loans and leases at year-end, this is the highest level for the industry s noncurrent rate in the 26 years for which such data has been reported. Again, the big culprits were noncurrent residential mortgage loans.

Still, overall, the banking industry managed to squeeze out a profit in the fourth quarter of 2009, an improvement over the fourth quarter of 2008. (Q4 2009 net income for the industry was $914 million, compared with a $37.8 billion net loss in Q4 2008.) For the first time in three years, more than half of insured institutions reported a year-over-year improvement in net income, the FDIC reported. Much of that improvement was concentrated among the largest banks.

The main thing is that the banking industry divided up into the big and the small and that was because the government obviously determined that the big were too big to fail and the top funds went to the largest banks to help them survive, says Edward Friedman, a director at Moody s Economy.com who specializes in global cities forecasting. And, he adds, Large banks, for one thing, have activities that are growing again.

With interest rates still at record lows, how did the banks eke out a profit? To start with, income from fees, service charges and other so-called non-interest income went up 53%, to $21.7 billion, compared with the fourth quarter of 2008. Banks also brought in $2.8 billion in trading revenues in the quarter, compared with a $9.2 billion loss a year earlier. And servicing income rebounded strongly, the FDIC said, to an $8 billion gain compared with a $390 million loss the year before.

Even with these improvements, last year was hardly lucrative. Full-year 2009 net income was $12.5 billion, up from $4.5 billion in 2008 but still markedly below the $100 billion reported in 2007, according to the FDIC.

The full Quarterly Banking Profile is available here. Below are some of the highlights:

* Highest proportion of unprofitable institutions since 1984. More than one in four institutions (29.5%) reported negative income for the year, up from 24.8% in 2008.

* Highest net charge-off rates in 26 years. The industry reported NCOs totaling $53 billion in the fourth quarter of 2009, up 37% compared with the same period in 2008. The NCO rate, at 2.89%, is the highest recorded by the industry in the 26 years for which quarterly NCO data are available.

* Residential mortgage-loan charge-off increase was highest, up by $3.3 billion, or 47.7%. Credit-card charge-offs increased by $2.7 billion, or 41.4%.

* Largest percentage decline (5.3%) in total assets since the inception of the FDIC. Credit-card balances increased $29.1 billion, or 7.4%, but all other major loan categories declined.

* Percentage of industry assets funded by deposits highest since March 31, 1996, up to 70.4%. Total deposits increased by $125.7 billion, or 1.4%. Domestic non-interest-bearing deposits rose by 6.1%.

* Problem institutions, both in terms of their assets and number, are at highest level since June 30, 1993.

* Number of failed institutions (140 in 2009) highest since 1990, when 168 institutions failed.

* The Deposit Insurance Fund s reserve ratio, a negative 0.39%, was the lowest reserve ratio for a combined bank and thrift insurance fund on record.