Iowa-chartered banks end first quarter with increase in active loans, lower net income
JOHNSTON, IOWA (May 25, 2022) — In the first quarter, the Iowa banking industry remained strong and continued to meet Iowans’ financial needs while navigating the challenges presented by inflationary pressures, rising interest rates and the end of pandemic support programs for borrowers, according to data released Tuesday by the Federal Deposit Insurance Corp.
“Iowa banks reported increases in total loan balances and favorable credit quality metrics, allowing them to support Iowans amid rising inflation and interest rates,” said John Sorensen, president and CEO of the Iowa Bankers Association. “Banks are closely monitoring the recent economic conditions and have made adjustments to protect against future uncertainties. Nonetheless, the Iowa banking industry remains healthy and well capitalized to handle these challenges.”
Iowa Banking Results
Net income for Iowa banks was $324 million for first quarter 2022 — down 17.3%, or $68 million, from the amount in first quarter 2021. The FDIC said the national decline of banks’ net income is due to an increase in provisions, which are set aside by institutions to protect against future loan losses. The increase in provision expense reflects, in part, a slow return to pre-pandemic levels, reflecting an increase in loan balances and evolving economic uncertainties. At community banks, net income declined from year-ago levels because of reduced revenue from loan sales and higher business expenses, the FDIC reported.
Iowa banks reported $70.4 billion in active loans on their books as of March 31, an increase of 2.65% from the prior year. The quality of these loans remained strong, as net loan charge-offs did not fluctuate from 0.02% from the prior year. At 0.52%, the noncurrent percentage of total loans is down from the first quarter 2021 percentage of 0.74%.
Total deposits at Iowa banks were $102 billion as of March 31, up 10.3% from first quarter 2021 when deposits totaled $92.5 billion.
Return on assets (ROA), another indicator of overall bank performance, declined to 1.11% from 1.46% at the end of first quarter 2021. Iowa-chartered banks’ total assets amounted to $117.7 billion at the end of first quarter 2022.
National Banking Results
Overall, the FDIC reported Tuesday that the banking industry remains strong at this time. The net income decline reflects higher provision expenses relative to the level reported last year in anticipation of potential future risks. But capital and liquidity remained strong. In addition, loan growth and credit quality metrics remain generally favorable.
At the same time, the banking industry faces significant uncertainty going forward resulting from lingering sensitivities related to the pandemic, inflationary pressures, a rising interest rate environment and geopolitical developments, said FDIC Acting Chairman Martin Gruenberg. These factors could impact bank profitability, credit quality and loan growth and will be matters of ongoing supervisory attention by the FDIC over the coming year, he said.
Net operating revenue nationally increased 3.9% from first quarter 2021 to $214.7 billion. Net interest income continued to trend upward for the fourth consecutive quarter. More than half of all banks nationally 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 fourth consecutive quarter nationally — increasing by $109.9 billion, or 1%, between fourth quarter 2021 and first quarter 2022. Several portfolios contributed to the industry’s growth, including commercial and industrial loans, nonfarm nonresidential commercial real estate loans and “all other consumer loans,” which includes auto loans and unsecured personal loans.
Loan balances for community banks grew 1.3% from fourth quarter 2021 and 2.1% from the prior year driven by growth in commercial real estate loans. Excluding PPP loans, total loan growth rates for both industry and community banks would have exceeded pre-pandemic average growth rates. The annual loan growth rate would have been 9.2% for the industry and 10.2 % for community banks, the FDIC said.
Nationally, deposits continued to increase in the first quarter, driven by growth in insured deposits. Uninsured deposits actually declined modestly. Total deposits were $230.7 billion or 1.2% higher than the level reported last quarter. Deposit levels remain high from a historical perspective; however, growth rates are well 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 four banks from fourth quarter 2021 to 40, but problem bank assets increased by $3 billion to $173.1 billion in the first quarter. The number of problem banks is at its lowest level since FDIC Quarterly Banking Profile data began in 1984. No failures occurred in the first quarter.
The Deposit Insurance Fund balance was $123 billion as of March 31, down about $100 million from the end of the fourth quarter. This was the first decline in the DIF balance in more than a decade. The DIF reserve ratio — the fund balance relative to insured deposits — fell four basis points to 1.23% as of March 31, the FDIC said.