Iowa banks remain well positioned to serve the needs of consumers and businesses as the economy rebounds, according to bank performance data released Wednesday by the Federal Deposit Insurance Corp.
“Iowa banks were truly the economic first-responders for their communities during the pandemic,” said John Sorensen, president and CEO of the Iowa Bankers Association. “Government stimulus payments flooded into bank accounts early on, improving consumer and business balance sheets, but also dampening demand for credit. As economic growth accelerates, we expect loan balances to mirror that growth.”
Iowa-chartered banks continued to support the state’s economy with $67.7 billion in active loans on their books as of June 30, a decrease of 1.3% from the prior year. The quality of these loans remained strong, as net loan charge-offs decreased to 0.05% of total loans, compared to 0.08% from the prior year. At 0.67%, the noncurrent percentage of total loans is down from the second quarter 2020 percentage of 0.86%.
Continued below-normal consumer spending and government stimulus payments helped increase the savings rate for Iowans, resulting in deposit growth industrywide. Total deposits at Iowa banks were $92.7 billion as of June 30, up 12.2% from second quarter 2020 when deposits totaled $82.7 billion.
Net income for Iowa banks was $759 million for the quarter ending June 30 — up 36.8%, or $204 million, from second quarter 2020. Although bank net interest margins remain compressed, fee income from SBA loan programs and higher home mortgage activity contributed to improved earnings. A key driver to the quarterly earnings spike was the recapture of loan loss reserves, as banks adjusted their expectations for potential future credit losses.
Return on assets (ROA), another indicator of overall bank performance, increased to 1.40% from 1.17% at the end of second quarter 2020. Iowa-chartered banks’ total assets amounted to $109.6 billion at the end of second quarter 2021.
Overall, the FDIC reported Wednesday that the national banking industry remains strong with revenue increasing along with strong economic growth and improved conditions. The banks remain well positioned to support the country’s lending needs as the economy continues to recover from the pandemic, with record deposits, favorable credit quality and strong capital levels. However, low interest rates and modest loan demand will likely continue to present challenges for the banking industry in the near term, the FDIC said. Further, the banking industry may face additional challenges as pandemic support programs for borrowers wind down and loan forbearance periods end.