WASHINGTON, May 24 (Reuters) - The U.S. banking industry for the first quarter reported its highest quarterly earnings since the first half of 2007, but there remain signs that the industry is having trouble fully recovering from the financial crisis, according to data released on Thursday by the Federal Deposit Insurance Corp.
The FDIC quarterly report showed the industry earned $35.3 billion in the first quarter, up $6.6 billion, or 22.9 percent, from a year earlier. However, the increase was largely due to banks setting aside less money to guard against loan losses.
Banks pulled back on lending during the first quarter as loan balances dropped for the first time in four quarters.
FDIC Acting Chairman Martin Gruenberg cautioned that it is too soon to read too much into the drop in loan balances but said "the overall decline in loan balances is disappointing after we saw three quarters of growth last year."
Banks' net operating revenues were higher than a year earlier by $5 billion, or 3.1 percent, in the first quarter. The FDIC said this was mostly due to noninterest income, such as loan sales.
Gruenberg said it "remains to be seen whether banks can continue to sustain revenue growth going forward."