Iowa banks’ fourth quarter active loans up 5.8%, net income down 4.4% year over year
JOHNSTON, IOWA (Feb. 26, 2021) — The Iowa banking industry ended 2020 continuing to demonstrate resilience and support Iowans’ financial needs with an increase in loans despite ongoing economic challenges, as shown by 2020 fourth quarter results released Tuesday by the Federal Deposit Insurance Corp.
“Iowa banks continue to provide a bridge to the other side of this pandemic for our small business, farm and consumer customers,” said John Sorensen, president and CEO of the Iowa Bankers Association. “We are proud of the thousands of bankers who worked tirelessly to deliver 111,000 Paycheck Protection Program loans to help our small businesses preserve Iowa jobs. And, we look forward to supporting the renewal and economic growth soon to be fostered by the unprecedented vaccine development and deployment.”
Iowa Banking Results
Iowa-chartered banks continued to support the state’s economy with nearly $68.1 billion in active loans on their books as of December 31, 2020, an increase of 5.8% from the prior year. Despite the pandemic-induced economic challenges, Iowa bank credit quality ratios continued to record modest increases. In the fourth quarter, net loan charge-offs were up to 0.15%, compared to 0.10% last quarter. At 0.84%, the noncurrent percentage of total loans is up from the fourth quarter 2019 percentage of 0.68%.
Reduced spending and government stimulus payments helped to increase the overall savings rate for Iowans, resulting in deposit growth industry wide. Total deposits at Iowa banks were $88 billion at year-end 2020, up 16.7% from year-end 2019 when deposits totaled $75.4 billion.
Net income for the Iowa banking industry was $1.13 billion for 2020 — down 4.4%, or $52 million, from 2019. Return on assets (ROA), another indicator of overall bank performance, declined to 1.14% from 1.33% at the end of fourth quarter 2019. Iowa-chartered banks’ total assets amounted to $105.4 billion at year-end 2020.
National Banking Results
While national banking industry income for the full year 2020 declined from full year 2019 levels, banks remained resilient in fourth quarter 2020, consistent with the improving economic outlook, said FDIC Chairman Jelena McWilliams on Tuesday.
“The low interest rate environment coupled with economic uncertainties will continue to challenge the banking industry, placing downward pressure on revenue and the net interest margin,” McWilliams said. “However, the industry maintains strong capital and liquidity levels, which can mitigate potential future losses.”
Net operating revenue nationally showed a modest decline to $201.7 billion compared with a year ago. While aggregate net interest income increased from third quarter 2020, it declined relative to a year ago for the fifth consecutive quarter. The decline was primarily focused in the largest banks. More than half of all banks (57%) reported higher net interest income compared to a year ago, the FDIC said.
The fourth quarter report showed a decline of $48 billion, or 0.4%, in loan balances that was driven by a reduction in commercial and industrial lending, which fell by $104 billion (4.1%) from third quarter 2020. The U.S. Small Business Administration-guaranteed Paycheck Protection Program loans declined $84 billion (17.1%) from the previous quarter to $407 billion. On an annual basis, loan balances increased 3.3%. This was the lowest growth rate since fourth quarter 2013, the FDIC said.
Nationally, community banks had similar trends with loan growth contracting quarterly but expanding annually. According to the FDIC report, loan balances declined 1.6% between third and fourth quarter 2020, led by a reduction in commercial and industrial lending but grew 10.3% annually due to community banks’ participation in the PPP.
Community banks nationally reported improved credit quality in the agriculture sector during the fourth quarter. The noncurrent rate for loans secured by farmland declined seven basis points year-over-year to 1.41%. The noncurrent rate for agricultural production loans declined 19 basis points to 0.9%.
Nationally, the banking industry’s liquidity position continued to strengthen as a result of growth in deposits. Deposits in the fourth quarter increased by $707 billion (4.1%) from third quarter. While the increase in deposits for the fourth quarter is below the quarterly increases reported during the first half of 2020, it is the third largest quarterly increase ever reported in the FDIC Quarterly Banking Profile.
On Tuesday, the FDIC reported that the number of banks across the nation on its problem list remain unchanged from the previous quarter at 56. The number of problem banks remains near historical lows.
The Deposit Insurance Fund balance was $117.9 billion on Dec. 31, 2020, up $1.5 billion from the end of the third quarter, and the DIF reserve ratio declined one basis point and stood at 1.29% at year-end. 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.