Although the banking industry experienced moderate loan growth in the quarter, analysts at FBR Capital Markets aren't convinced the market is rebounding. "It doesn't seem like we've hit an inflection point in terms of demand," commented Bob Ramsey, one of the contributors to the report. "There's not a bunch of demand firming up." The firm said in a report Tuesday that loan portfolios at Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) decreased a collective $73 billion, or 2.3%, during the first three months of the year. In addition, loan portfolios at the top 10 regional banks shrunk $8.6 billion, or 1% of their total loans. The report examines the big four banks as well as the top 10 regional banks. Combined, these 14 institutions hold about 65% market share — an estimated $9 trillion. FBR said it will be tough for banks to grow their loan portfolios throughout the course of the year, especially residential mortgage portfolios. The latest trends have Ramsey and his co-authors wondering if banks underwriting practices are becoming slightly aggressive. "Wells Fargo, Bank of America, and JPMorgan are currently the top three mortgage originators in the U.S. and should see more pressure than the regional players, given their reliance on mortgage banking for revenue in the past," the report said. Mortgage banking net revenues were down 36% from the fourth quarter of 2010, FBR said. There is a reported excess of liquidity in the financial market, as deposits grew 2.4% at the big banks and 0.7% at regional banks over the first quarter. Credit quality appears to be improving, FBR said, as almost every bank reported sequential declines in provisional expenses in their first quarter earnings. The median annualized provision to average loans for the biggest 14 banks was 3.63%, down from 5.44% in the fourth quarter of 2010. Only First Niagara (FNFG), Hudson City (HCBK), and TCF Financial Corp. (TCB) provisioned more than the amount of net charge-offs in the first quarter. "On the one hand, we do not give banks full credit for earnings derived from reserve release; however, we recognize that banks have built the reserves that they are now drawing down to cover expected losses," FBR said. "The building and subsequent drawing down of reserves allows banks to 'normalize' their credit costs even before credit metrics, including NCOs and NPAs, return to normal." "Overall, we believe this quarter was a perfect example of why the financials continue to be out of favor," the report said. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.