Declines in mortgage-related revenue and trading income helped pull first-quarter earnings down 7.6% from the industry's profit a year earlier, the Federal Deposit Insurance Corp. said Wednesday.

Banks and thrifts earned $37.2 billion in the three-month period that ended March 31, $3.1 billion less than at the same point a year earlier. It was only the second time in 19 quarters that year-over-year earnings fell for the industry.

"Industry revenue has been affected by narrow margins, modest loan growth and a decline in noninterest income as higher interest rates have reduced mortgage-related activity and trading income fell," FDIC Martin Gruenberg said in a statement prepared for the report’s release.

The FDIC's update on industry health, which featured a new section breaking out data specifically for community banks, noted that lower demand for mortgage refinancings—resulting from a rise in medium- and long-term interest rates—helped drive down new originations for the industry. Mortgage revenue declined by almost one-half. However, the decline in earnings was also attributed in part to the fact that a one-time gain at one institution had inflated earnings a year earlier.

Overall, 54% of all institutions also reported higher earnings than a year earlier.

The agency said a decline in noninterest income outpaced higher net interest income. The $163.7 billion in net operating revenue was 4% less than revenue a year earlier. Although interest-related income grew by 0.3%—or $361 million—noninterest income fell by 10.7%. Driving the reduction in noninterest income was a 53.6% drop from a year earlier in income from mortgage sales, securitization and servicing. Meanwhile, trading revenue fell by 18.3%.

However, institutions were still buoyed by improvements in asset quality. Net charge-offs fell year over year for the 15th straight quarter, dropping by 34.8% to $10.4 billion. It was the lowest quarterly total since the second quarter of 2007. The industry's balance of noncurrent loans fell below $200 billion for the first time since the third quarter of 2008. Banks on the FDIC's "Problem List" declined by 56 institutions to a total of 411.

The report also included a separate set of data devoted to the earnings performance of community banks. The new reporting feature comes on the heels of FDIC research on the evolution of community banks and the effects of consolidation. According to the data, community banks earned $4.4 billion in the quarter. That was 1.5% less than net income a year earlier, but the agency noted the decline was milder than that experienced by the whole industry.

"This new section of the Quarterly Banking Profile will provide insight into the condition and performance of this important part of the banking industry," the report said.

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