Iowa banks end third quarter with $68.1 billion in active loans, $95.3 billion in deposits
JOHNSTON, IOWA (Dec. 2, 2021) — In the third quarter, the economy continued its upward trajectory out of the COVID-19 pandemic, and Iowa banks remained a reliable resource for meeting Iowans’ financial needs, according to data released Tuesday by the Federal Deposit Insurance Corp.
“The FDIC’s third quarter bank performance report shows Iowa banks remain strong and well positioned to serve the financial needs of Iowans,” said John Sorensen, president and CEO of the Iowa Bankers Association. “Total lending actually declined slightly compared to the prior year due to Paycheck Protection Program loan forgiveness and repayment. Iowa banks made 93 percent of all PPP loans provided to small businesses and farms in Iowa.”
Iowa Banking Results
Continued payoff and forgiveness of PPP loans resulted in total loan balances at Iowa-chartered banks declining in the third quarter. Iowa banks reported $68.1 billion in active loans on their books as of Sept. 30, a decrease of nearly 2% from the prior year. The quality of these loans remained strong, as net loan charge-offs decreased to 0.03% of total loans, compared to 0.10% from the prior year. At 0.61%, the noncurrent percentage of total loans is down from the third quarter 2020 percentage of 0.93%.
Restrained consumer and business spending and government stimulus payments helped increase the rate of savings, resulting in deposit growth industrywide, Sorensen said. Total deposits at Iowa banks were $95.3 billion as of Sept. 30, up 12.6% from third quarter 2020 when deposits totaled $84.6 billion.
Net income for Iowa banks was $1.1 billion for the nine months ending Sept. 30 — up 36.8%, or $307 million, from the same period in 2020. 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 1.39% from 1.15% at the end of third quarter 2020. Iowa-chartered banks’ total assets amounted to $112.3 billion at the end of third quarter 2021.
National Banking Results
Overall, the FDIC reported Tuesday that the national banking industry remains strong with revenue increasing along with strong economic growth and improved conditions. 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 businesses and consumers transition out of the pandemic.
“With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to support the country’s needs for financial services while navigating the challenges presented by the pandemic,” said FDIC Chairman Jelena McWilliams.
Net operating revenue nationally increased 4.5% from third quarter 2020 to $210.4 billion, reaching its highest level ever reported in the FDIC’s Quarterly Banking Profile. Net interest income and noninterest income increased year over year, the FDIC said. A decline in interest expense drove the $5.6 billion improvement in net interest income from third quarter 2020.
Despite continued payoff and forgiveness of PPP loans, total loan balances grew for a second consecutive quarter nationally — increasing by $62.7 billion, or 0.6%, between second and third quarter. Several portfolios contributed meaningfully to the industry’s growth, including 1-4 family residential mortgages, consumer loans, commercial real estate loans, and loans to nondepository institutions.
Due primarily to a reduction in PPP loans, community banks reported a 0.2% decline in loan balances from second quarter 2021. Community banks’ PPP lending, relative to their size, exceeded that of the overall industry. Therefore, increased repayment and forgiveness of PPP loans has resulted in relatively lower loan growth for community banks, the FDIC said. Excluding PPP loans, total loan growth for community banks would have been 2.6% quarter over quarter — greater than quarterly growth rates experienced before the pandemic.
Nationally, deposits continued to increase in the third quarter, with total deposits up by $436 billion or 2.3% from last quarter. This is above the second quarter gain of $271.8 billion but below the unprecedented growth rates of 2020 and first quarter 2021, the FDIC said. The banking industry’s cash position remains strong, supported by deposit growth.
The FDIC reported that the number of banks across the nation on its problem list declined by five banks from second quarter to 46. The number of problem banks is at its lowest level since FDIC Quarterly Banking Profile data began in 1984.
The Deposit Insurance Fund balance was $121.9 billion as of Sept. 30, up $1.4 billion from the end of the second quarter. The DIF reserve ratio — the fund balance relative to insured deposits —saw no change from second quarter and remained at 1.27% on Sept. 30, the FDIC said.