By Simon Miller
US banks reported an aggregate profit of $35.3bn (£22.4bn) in the first quarter of 2012 according to the Federal Deposit Insurance Corporation (FDIC).
Profit was up $6.6bn from the $28.8bn reported in Q1 2011 and was the 11th consecutive quarter that earnings have registered a year-over-year increase.
However, loan balances declined by $56.3 billion (0.8%) after three consecutive quarterly increases.
FDIC acting chairman Martin Gruenberg said: "The condition of the industry continues to gradually improve. Insured institutions have made steady progress in shedding bad loans, bolstering net worth, and increasing profitability."
He continued: "The overall decline in loan balances is disappointing after we saw three quarters of growth last year. But we should be cautious in drawing conclusions from just one quarter."
More than two-thirds of all institutions (67.5%) reported improvements in their quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 10.3% from 15.7% a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 1.02% from 0.86% a year ago.
FDIC said lower provisions for loan losses and higher noninterest income were responsible for most of the year-over-year improvement in earnings. First-quarter loss provisions totaled $14.3bn, almost one-third less than the $20.9bn that insured institutions set aside for losses in the first quarter of 2011.
Net operating revenue (net interest income plus total noninterest income) totaled $169.6bn, an increase of $5bn (3.1%) from a year earlier, as gains from loan sales rose by $2.3bn. Realized gains on investment securities and other assets were $2bn higher than in the first quarter of 2011.
The American Bankers' Association's chief economist James Chessen commented: "The banking industry continues to steadily march forward, with solid increases in business lending, strong capital levels and a continued decline in problem loans. At the same time, uncertainty surrounding the pace of economic growth is keeping risk higher than normal and may make businesses less inclined to borrow going forward."