(Bloomberg) -- Washington’s “Problem Bank List” rose again last quarter, capping off a year when US lenders struggled to cope with higher interest rates and more overdue loans for commercial buildings and credit cards.

The Federal Deposit Insurance Corp. said Thursday that its confidential tally of lenders with with financial, operational or managerial weaknesses had grown by eight banks to 52, representing 1.1% of the institutions it oversees. The total assets held by those firms increased by $12.8 billion last quarter to $66.3 billion.

Although the number of firms on the FDIC’s list remains relatively low compared with historical highs, it continues an increasing trend that started early last year. Overall, the FDIC said that the sector remains strong and resilient. 

According to the FDIC, banks are placed on the problem bank list based on a key risk measure known as CAMELS. The score is based on a 1-through-5 scale, with 5 being the worst. Banks that are included have a score of 4 or 5, the regulator has said. 

The regulator said banks on the list get an individualized correction action plan and their progress will be evaluated by the agency’s regional supervisors.

Overall Strength

More generally, the FDIC said in its Quarterly Banking Profile that the 4,587 banks it supervises are financially strong as a group. The regulator said that the industry’s net operating revenue hit the $1 trillion mark for the first time since the agency started issuing its snapshots.  

“The banking industry continued to show resilience after a period of liquidity stress in early 2023,” Martin Gruenberg, the head of the agency, said in a statement. He added that the industry faces significant risks that could affect credit quality, profits and liquidity. The FDIC chief flagged concerns around commercial real estate loans. 

The agency said that net income for banks declined 44% from the previous quarter. The agency attributed this largely to expenses related to the FDIC’s so-called special assessment. 

Read More: Big Banks Saddled With Steep Tab for SVB, Signature Depositors

In May, the FDIC saddled the biggest banks with much of the tab for refilling the nation’s bedrock deposit-insurance fund after regulators used it to make whole all depositors in Silicon Valley Bank and Signature Bank after their failures last March.

The deposit-insurance fund covers only as much as $250,000 in an account, but was used to make whole uninsured depositors who were hit by banking turmoil this year.  

The FDIC now estimates $20.4 billion in losses arising from the failure of both SVB and New York-based Signature Bank, up 25% from its $16.3 billion November estimate.

Read More: Banks Face Extra $4.1 Billion FDIC Bill for Last Year’s Failures

Empty Offices

Despite general strength, overdue loans for commercial real estate and credit cards are clouding this year’s outlook.

Late payments on commercial properties that aren’t owner occupied are at the highest level since the first months of 2014, Gruenberg, the FDIC chairman, said in his remarks. Delinquent credit cards haven’t been this high since the third quarter of 2011, he added.

On a more positive note, Gruenberg said unrealized losses fell 30% to $478 billion, helped by improvements in mortgage-backed securities that the banks hold. Along with higher cash balances, that helped improve liquidity for the lenders. The total is the lowest since the second quarter of 2022, but it’s still higher than historical levels, the FDIC said.

Banks may get more relief on those holdings in the months ahead. Fed Chair Jerome Powell told a Senate hearing today that rate cuts “can and will begin over the course of this year,” if inflation comes in as expected.

Capital Plan

After the release of the quarterly report, Gruenberg told reporters that he anticipated that regulators would make changes to a proposal to make large lenders hold significantly more capital. On Wednesday, Federal Reserve Chair Jerome Powell said he anticipated “broad and material changes,” and that a complete do-over was very possible. 

Read More: Wall Street Gets Big Win as Powell Floats Scrapping Capital Plan

The proposal from the Fed, FDIC and the Office of the Comptroller of the Currency is tied to the Basel III international overhaul that started more than a decade ago. Supporters have billed it as a fix for some of the issues exposed by the failures of Silicon Valley Bank and Signature Bank. Opponents, including bank trade groups, have launched a fierce lobbying campaign against the proposal. 

(Updates with comments from FDIC chairman starting in 12th paragraph)

©2024 Bloomberg L.P.