Declining noninterest income, resulting from reduced mortgage activity and a drop in trading revenue, contributed to an overall decline in earnings across commercial banks and savings institutions, according to the Federal Deposit Insurance Corp.’s (FDIC) recent quarterly banking profile.

According to the report, aggregate net income across FDIC-insured institutions totaled $37.2 billion in the first quarter of 2014, representing a year-over-year decline of $3.1 billion, or 7.6 percent, from $40.3 billion in the same period last year.

Noninterest income declined $7.1 billion, or 10.7 percent, from last year, and the FDIC noted in its report that noninterest income was higher in the year-ago period due to a one-time gain at one institution.

But in spite of the decline, more than half (54 percent) of the 6,730 insured institutions saw year-over-year growth in quarterly earnings, and the proportion of banks that were unprofitable fell to 7.3 percent from 8.5 percent a year ago.

"We saw further improvement in the condition of the banking industry in the first quarter," FDIC Chairman Martin J. Gruenberg said in a statement. "Asset quality continues to improve, loan balances are trending up, fewer institutions are unprofitable and the number of problem banks continues to decline."

"However, 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," he said.

Banks and thrifts charged off $10.4 billion in uncollectible loans during the first quarter, down $5.5 billion, or 34.8 percent, from a year ago. Noncurrent loans and leases fell 5.8 percent, or $12.1 billion, over that time period, and the percentage of noncurrent loans and leases declined to 2.46 percent, its lowest level since the third quarter of 2008, when that figure totaled 2.35 percent.

Total loan and lease balances increased half a percent, or $37.8 billion, to $7.9 trillion. Credit card balances posted a seasonal decline and banks continued to reduce their inventories of mortgage loans held for sale, but most other loan categories registered modest growth. Over the last 12 months, loan and lease balances increased by 3.6 percent, the highest 12-month growth rate since before the recent financial crisis.

Despite the overall growth in loan and lease balances, income from mortgage-related activity remained well below the level of a year earlier. Noninterest income from the sale, securitization and servicing of mortgages declined $4 billion, or 53.6 percent, from the year-ago period. One- to four-family residential real estate loans originated and intended for sale declined $323.6 billion, or 70.6 percent, from the first quarter of 2013.

The FDIC, which recently added a section to its quarterly banking profile that focuses on community banks, said that community banks earned $4.4 billion during this quarter. That’s down $67 million, or 1.5 percent, from last year, but the percentage decline among the nation’s 6,234 community banks, or 93 percent of all FDIC-insured institutions, was well below the 7.6 percent industry-wide decline. According to the report, loan balances at community banks also grew at a faster pace than the industry average, and community banks accounted for 45 percent of loans to small businesses.

The number of "problem banks" also fell for the 12th consecutive quarter, to 411 from 467. The number of "problem" banks now is less than half the post-crisis high of 888 at the end of the first quarter of 2011. Five FDIC-insured institutions failed in the first quarter.