U.S. banks reported a 23 percent earnings surge at the end of last year, which made 2011 the most profitable period for the banking industry in five years. However, the growth in profits was marred by the lenders' falling revenue.

In its quarterly report on the health of the U.S. banking system, the Federal Deposit Insurance Corp. said banks' net income in 2011 was $119.5 billion, a hike of $34 billion from 2010 earnings, and the highest level since 2006.

"The industry is now in a much better position to support the economy through expanded lending," FDIC Acting Chairman Martin Gruenberg said in a statement.

The last three months of 2011, boosted by lower provisions for loan losses, posted net income of $26.2 billion, an improvement from the $21.4 billion in the same year-ago period.

Fourth-quarter loss provisions totaled $19.5 billion in 2011, about 40 percent less than the $32.7 billion that insured institutions set aside for losses in the fourth quarter of 2010. However, officials warned this trend "cannot go on indefinitely."

The data released Tuesday showed declining bank revenues, with fourth quarter net operating revenues dropping by $3.8 billion, or 2.3 percent, compared with the same quarter in 2010.

The FDIC said loan balances grew by $130.1 billion, or 1.8 percent, in the fourth quarter, as loans to commercial and industrial borrowers increased by $62.8 billion, residential mortgage loan balances rose by $26.0 billion, and credit card balances grew by $21.3 billion.

The number of troubled banks on the FDIC's confidential "problem list" fell for the third quarter in a row to 813, down from 844 in the previous quarter. That is the smallest number of "problem" banks since first quarter of 2010. For all of 2011, there were 92 insured institution failures, compared with 157 failures in 2010.

"However, levels of troubled assets and 'problem' banks are still high," Gruenberg said. "And while the economy is showing signs of improvement, downside risks remain a concern."