WASHINGTON - Strong loan demand drove first-quarter bank earnings up $400 million to $11.1 billion, the Federal Deposit Insurance Corp. said Wednesday.

However, compared with the same period in 1994, profits were flat. But the FDIC said the 10,241 commercial banks are now making more money from core operations rather than draining loan-loss reserves to fuel earnings.

"Certainly for the first quarter, banks were there making the loans that people wanted," FDIC Chairman Ricki Helfer said at a press conference. "Banks are making money in traditional areas; that is, in lending."

Total loans held by commercial banks rose 12% in the last year, increasing $65.1 billion in the first quarter to $2.42 trillion. Banks in the Southeast led the lending spree, accounting for $25 billion of the quarterly jump.

Commercial and industrial loans dominated the lending spurt, up $32.7 billion in the first quarter - the largest quarterly increase in this category ever. A 13% year-to-year increase brought C&I loans outstanding to $622 billion at March 31.

Real estate lending swelled $22.3 billion in the quarter, surpassing the $1 trillion mark for the first time. Commercial property lending made up just $5.6 billion of the increase, with residential loans accounting for the balance.

While the FDIC continues to be on guard for signs that underwriting standards are weakening, Ms. Helfer said the agency is not expecting any upswing in delinquencies from the additional lending.

Still, noncurrent loans did grow in the quarter for the first time in four years. The $1.6 billion quarterly increase to $32.3 billion, however, was largely attributable to an accounting change.

"One quarter does not make a trend, though the first quarter of 1995 broke a trend of 15 consecutive quarters of improvement," Ms. Helfer noted.

Profits from the new lending spurred net interest income to $37.7 billion in the quarter, $2.5 billion over first quarter 1994.

The first quarter was a departure from previous quarterly earnings, which were bolstered by securities trading gains and reductions in reserves against potential loan losses.

Those sources of income dried up in the first three months of 1995 as banks were hit with a $1.2 billion decline in gains and fees from trading accounts and a $651 million reduction in income from securities sales.

In addition, the first quarter's $2.7 billion loan-loss provision was the second lowest quarterly total in the last 11 years.

"After three years of steady declines, industry loan-loss provisions may have little room left for further significant declines," the FDIC's quarterly bank profile reported.

The number of commercial banks declined by 209 in the quarter as 228 mergers took place - the most in a three-month span on record. Twenty-two new banks were chartered and three banks failed during the quarter.

The FDIC's problem list continues to shrink. The list totaled 215 banks with $27 billion of assets at March 31. That's down 32 banks and $6 billion of assets from yearend 1994.

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