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FDIC Results Show Iowa Banks Remain Poised for Economic Growth Post-Pandemic

Iowa-chartered banks end fourth quarter with $69.9 billion in active loans, $99.4 billion in deposits

JOHNSTON, IOWA (March 3, 2021) — In the fourth 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.

“We are beginning to see consumer spending and business investment return to more normal patterns. Credit demand and availability are rising as risks from the pandemic subside,” said John Sorensen, president and CEO of the Iowa Bankers Association. “Iowa banks are poised to continue supporting economic growth in our communities.”

Iowa Banking Results

The banking industry reported broad-based increases in total loan balances, improved credit quality and strong capital levels. Iowa banks reported $69.9 billion in active loans on their books as of Dec. 31, an increase of 2.7% from the prior year. The quality of these loans remained strong, as net loan charge-offs decreased to 0.04% of total loans, compared to 0.15% from the prior year. At 0.53%, the noncurrent percentage of total loans is down from the fourth quarter 2020 percentage of 0.83%.

Total deposits at Iowa banks were $99.4 billion as of Dec. 31, up 12.9% from fourth quarter 2020 when deposits totaled $88 billion.

Net income for Iowa banks was $1.5 billion for the 12 months ending Dec. 31 — up 30.3%, or $341 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 1.33% from 1.14% at the end of fourth quarter 2020. Iowa-chartered banks’ total assets amounted to $116.2 billion at the end of fourth quarter 2021.

National Banking Results

Overall, the FDIC reported Tuesday that the banking industry remains strong. Revenue has increased along with stronger economic growth, higher loan demand and improved credit conditions. At the current time, the banking industry remains well positioned to support the country’s credit needs as the economy continues to recover from the pandemic, with record deposits, favorable credit quality and strong capital levels.

“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 Acting Chairman Martin Gruenberg. “The banking industry may face challenges as businesses and consumers continue to transition out of the pandemic, interest rates rise and geopolitical tensions persist. These will be matters of ongoing supervisory attention by the FDIC over the coming year.”

Net operating revenue nationally increased 4% from fourth quarter 2020 to $209.8 billion. Net interest income reached its highest level since first quarter 2020. The improvement was broad-based, as nearly two-thirds of all banks reported higher net interest income compared with a year ago.

Despite continued payoff and forgiveness of Paycheck Protection Program loans, total loan balances grew for a third consecutive quarter nationally — increasing by $326 billion, or 3%, between third and fourth quarter. Several portfolios contributed meaningfully to the industry’s growth, including commercial and industrial loans, credit card loans and loans to nondepository financial institutions.

Loan balances for community banks grew 1.4% from third quarter 2021 and 2% from the prior year. Excluding PPP loans, total loan growth for community banks would have been 3.1% quarter over quarter and 7.6% year over year — above growth rates experienced before the pandemic, the FDIC said.

Nationally, deposits continued to increase in the fourth quarter. Total deposits were $535 billion or 2.8% higher than last quarter. Deposit levels remain high from an historical perspective; however, growth rates are below the unprecedented levels reported in 2020 and first quarter 2021.

The FDIC reported that the number of banks across the nation on its problem list declined by two banks from third quarter to 44, but problem bank assets increased from $50.6 billion to $170.2 billion. The number of problem banks is at its lowest level since FDIC Quarterly Banking Profile data began in 1984. No failures occurred in the fourth quarter.

The Deposit Insurance Fund balance was $123.1 billion as of Dec. 31, up $1.2 billion from the end of the third quarter. Assessment revenue was the primary driver of the increase in the fund. Due to continued strong growth in insured deposits, the DIF reserve ratio — the fund balance relative to insured deposits — remained the same at 1.27% on Dec. 31, the FDIC said.

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