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FDIC Results: Iowa Banks Well Positioned for Continued Economic Recovery

Iowa banks end second quarter with $67.7 billion in active loans, $92.7 billion in deposits

JOHNSTON, IOWA (Sept. 10, 2021) — 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 Banking Results

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%, the FDIC report stated.

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, according to the report. 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, according to the FDIC.

National Banking Results

Overall, the FDIC reported Wednesday 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 pandemic support programs for borrowers wind down and loan forbearance periods end.

“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 1.3% from second quarter 2020 to $205 billion. Net interest income continued to decline year over year, but noninterest income increased during the same period, the FDIC said. A decline in loans, along with continued low interest rates, contributed to the $2.2 billion decline in net interest income from second quarter 2020.

The report showed an increase of $33.2 billion, or 0.3%, in loan balances between first and second quarter, and it was the first quarterly increase in aggregate loan balances since second quarter 2020. High credit card balances (up 4.1%) and auto loan balances (up 3.6%) drove the trend. However, the industry’s aggregate loan balance declined 1.2% from a year ago, driven by a reduction in commercial and industrial loans, the FDIC said. Payoff and forgiveness of Paycheck Protection Program loans contributed to this trend.

Unlike the industry as a whole, community banks reported a 0.5% decline in loan balances from first quarter 2021, led primarily by a reduction in PPP loans. Excluding PPP loans, total loan growth for community banks would have been 1.9%, consistent with growth rates experienced prior to the pandemic. Quarterly growth returned to long-term average rates for several portfolios, including nonfarm nonresidential, construction and development, and farm loans.

Nationally, deposits continued to increase, but the rate of growth moderated to near the long-term average. Total deposits increased by $272 billion, or 1.5%, in the second quarter. Deposits now total $18.7 trillion — the highest level on record, the FDIC said.

The FDIC reported that the number of banks across the nation on its problem list declined from the previous quarter by four to 51. The number of problem banks remains near historical lows.

The Deposit Insurance Fund balance was $120.5 billion as of June 30, up $1.2 billion from the end of the first quarter. The DIF reserve ratio — the fund balance relative to insured deposits — increased two basis points and stood at 1.27% on June 30, the FDIC said.

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