U.S. bank profits rose 29.1% in the first quarter as the improving economy helped push credit loss provisions downward.

The Federal Deposit Insurance Corporation reported Wednesday that aggregate net income for insured institutions increased to $76.8 billion in the first three months of 2021, up $17.3 billion from the fourth quarter of 2020.

Aggregate negative provision expense boosted both quarterly and year-over-year profit growth, with 74.8% of all banks reported annual improvements in net income and the share of unprofitable institutions dropped from 7.4% a year ago to 3.9%.

The first-quarter report “shows that banks of all sizes continue to serve as a source of strength for economic recovery from the COVID-19 recession. In addition to helping businesses and consumers navigate evolving conditions, banks continued to demonstrate their own resiliency,” American Bankers Association Senior Economist Rob Strand said.

“Consumer and business financial health turned out better than expected in the quarter, as stimulus payments and other government assistance helped Americans meet their financial obligations,” he added. “As a result, banks were able to recapture loan loss reserves, yielding the first-ever recorded quarter of overall negative provisioning.”

Provision expenses declined $1.4 billion (78.4%) from a year ago and $826.2 million (67.9%) from the previous quarter while higher revenue from loan sales (up $1.3 billion or 126.4%) supported a 45% increase in noninterest income.

Net interest income fell by $7.6 billion, or 5.6%, the sixth straight quarterly decline, and the average net interest margin contracted 57 basis points to 2.56%.

The number of banks on the FDIC’s problem bank list declined by one from the prior quarter to 55.

“The banking industry reported positive results for the first quarter of 2021, reflecting optimism about the pace of the economic recovery. However, a record low net interest margin and slow loan growth could challenge banks going forward,” FDIC Chairman Jelena McWilliams said.

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