While decreases in loan loss provisions helped Massachusetts banks bring in more net income in the first quarter, the net interest margin at these institutions continued to decline.

According to the FDIC’s latest state banking performance summary, Massachusetts’ 109 FDIC-insured institutions together had $1.06 billion in net income in the first quarter, a 38 percent increase over the first quarter of 2020, when the start of the pandemic saw banks with $770 million in net income.

FDIC Chair Jelena McWilliams said in a statement announcing the latest FDIC Quarterly Banking Profile that the main driver of the higher earnings nationwide was a negative provision for loan losses as banks adjusted their expectations for potential future credit losses. She said this was the first nationwide negative provision since the FDIC began publishing the Quarterly Banking Profile.

More Massachusetts banks reported earnings gains. About 78 percent of banks reported income gains in the first quarter compared to 52 percent at the end of 2020 and 33 percent in the first quarter last year.

Almost all institutions are now considered profitable, with just 2.75 percent classified as unprofitable. At the start of the pandemic in the first quarter of 2020, 20.5 percent of institutions were unprofitable.

Banks still face challenges. McWilliams said the low interest rate environment contributed to a further contraction in the average net interest margin, which she said has reached a new record low.

“Community banks reported strong revenue growth, improved asset quality, and modest loan growth in the first quarter,” McWilliams said. “However, community banks continued to report net interest margin compression.”

The net interest margin at Massachusetts institutions was down to 1.67 percent at the end of the first quarter compared to 1.84 percent at the end of the fourth quarter and 1.95 percent in the first quarter of 2020.

Massachusetts institutions saw a collective 1.80 percent yield on all earning assets in the first quarter, down from 2.14 percent in the fourth quarter and 2.44 percent in the first quarter of 2020.

Deposits continued to grow nationwide at a fast pace, McWilliams said, noting that unprecedented growth in deposits had continued for several quarters. Government aid payments, less spending during the pandemic and the Paycheck Protection Program have contributed to the growth.

Massachusetts’ banks together had $420 billion in deposits in the first quarter compared to $407 billion at the end of 2020 and $402.39 billion when the pandemic started in the first quarter last year.

Total assets at the state’s institutions is now at $515 billion, up from about $505.2 billion at the end of 2020. Assets are still below the totals from the first quarter of 2020, when the state’s banks had $534.15 billion. Total loans and leases were $172 billion, up from $168 billion at the end of 2020 and up 3.4 percent year-over-year from $166.35 billion.

The number of full-time-equivalent employees in these institutions increased for the second straight quarter. Massachusetts institutions had 52,464 full-time equivalent employees compared to 51,633 at the end of 2020 and 52,015 a year ago.

Correction 1:10 p.m., May 28, 2021: An earlier version of this article misstated Massachusetts’ FDIC-insured institutions’ collective yield on all earning assets. The collective yield on all earning assets was 1.80 in the first quarter.