Iowa banks’ first quarter active loans up 5.1%, deposits up a record 20.5%
JOHNSTON, IOWA (May 28, 2021) — As the COVID-19 health crisis wanes, the Iowa banking industry continues to demonstrate its resilience, according to bank performance data released Wednesday by the Federal Deposit Insurance Corp.
“Iowa banks continue to be a source of strength for economic recovery from the pandemic,” said John Sorensen, president and CEO of the Iowa Bankers Association. “The first quarter FDIC results clearly demonstrate the impact of recent government stimulus programs, as loan demand has moderated while deposits in consumer and business bank accounts have grown. We believe these trends are likely to reverse as the economy fully reopens during the latter half of this year.”
Iowa Banking Results
Iowa-chartered banks continued to support the state’s economy with $68.6 billion in active loans on their books as of March 31, an increase of 5.1% from the prior year. The quality of these loans also remained strong, as net loan charge-offs decreased to 0.02% of total loans, compared to 0.09% from the prior year. At 0.74%, the noncurrent percentage of total loans is down from the first quarter 2020 percentage of 0.85%.
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 $92.5 billion as of March 31, up a record 20.5% from first quarter 2020 when deposits totaled $76.7 billion.
Net income for Iowa banks was $391 million for the quarter ending March 31 — up 60.9%, or $148 million, from first quarter 2020. Although bank net interest margins remain compressed, fee income from U.S. Small Business Administration 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 1.46% from 1.05% at the end of first quarter 2020. Iowa-chartered banks’ total assets amounted to $109.5 billion at the end of first quarter 2021, according to FDIC data.
National Banking Results
Overall, the FDIC reported Wednesday that nationally the banking industry holds a record level of deposits and remains well positioned to support the country’s lending needs as the economy continues to recover. Asset quality metrics are favorable and capital levels are strong. Nevertheless, the FDIC said, the continued low interest rate environment coupled with low loan demand will continue to present challenges for the industry.
“Although the banking industry reported an overall contraction in loan balances from both the previous quarter and a year ago, banks continued to support the recovery with lending through the second round of the Paycheck Protection Program,” said FDIC Chairman Jelena McWilliams on Wednesday.
Net operating revenue nationally increased 1.1% from first quarter 2020 to $206.5 billion. Net interest income declined, but noninterest income increased relative to a year ago. While the largest banks reported declines in net interest income, more than three-fifths of all banks reported higher net interest income compared with a year ago, the FDIC reported.
The first quarter report showed a decline of $38.7 billion, or 1.2%, in loan balances, and it was the first annual loan contraction since third quarter 2011. Reductions in commercial and industrial loans and credit card balances drove the annual decrease, the FDIC said. At the same time, PPP loans, guaranteed by the SBA, grew $61.2 billion from the previous quarter to $469.4 billion.
Unlike the industry as a whole, community banks across the country reported positive quarterly and annual loan growth. According to the FDIC report, community banks’ loan balances expanded 1.4% in the first quarter, compared to fourth quarter 2020, led by PPP participation.
Nationally, the banking industry’s liquidity position continued to strengthen as a result of unprecedented deposit growth over the last several quarters. Deposits increased by $635 billion, or 3.6%, in first quarter 2021. The total volume of deposits increased to $18.5 trillion — the largest level on record.
On Wednesday, the FDIC reported that the number of banks across the nation on its problem list declined from the previous quarter by one to 55. The number of problem banks remains near historical lows.
The Deposit Insurance Fund balance was $119.4 billion as of March 31, up $1.5 billion from the end of the fourth quarter. The DIF reserve ratio declined four basis points to 1.25%, solely because of strong estimated insured deposit growth, the FDIC said. Because the reserve ratio fell below its statutorily required minimum of 1.35% on June 30 last year, the FDIC board adopted a Fund Restoration Plan in September. The FDIC has said the reduction in the reserve ratio was solely the result of the strong growth in insured deposits.