JOHNSTON — Iowa-chartered banks provided $63.2 billion in total loans to Iowa businesses, farmers and consumers as of June 30, 2019, , according to results released by the Federal Deposit Insurance Corp.
Loan quality at Iowa banks remains strong. Net loan charge-offs were at 0.09 percent, compared to 0.07 percent last quarter. At 0.75 percent, the noncurrent loan percentage of total loans is up from the year prior percentage of 0.68 percent.
“Iowa continues to benefit from our nation’s longest economic expansion, despite the persistent headwinds impacting our agricultural sector,” said John Sorensen, president and CEO of the Iowa Bankers Association. “Iowa bankers remain attentive to interest rate, liquidity and credit risks emerging at this stage of the business cycle, positioning themselves as a stable and trusted source of credit and financial expertise for the communities and industries they serve.”
The FDIC reported that the nation’s positive second quarter has several highlights, including quarterly net income expanded from higher net interest income. As loan growth increased, asset quality indicators showed modest improvement, and the number of “problem banks” continued to decline.
Nationally, net income at community banks benefited from higher net operating revenue, and the annual rate of loan growth at community banks was stronger than the overall industry, the FDIC reported.
In July, this economic expansion became the longest on record in the United States, said FDIC Chairman Jelena McWilliams. With the recent lowering of short-term rates and inversion of the yield curve in the second quarter, she said new challenges for banks in lending and funding may emerge.
The FDIC continues to monitor challenges in the agriculture sector associated with low commodity prices and farm incomes. While the net charge-off rate for agriculture loans remains low, the FDIC reported that some farm banks are reporting asset quality deterioration.
“The noncurrent rate for agriculture loans at community banks rose 13 basis points from a year ago to 1.28 percent, but is below levels reached during previous downturns,” the FDIC report stated.
Nationally, all major loan categories reported quarterly increases, which were led by commercial and industrial loans, consumer loans and residential mortgages, the FDIC reported. Credit card balances registered the largest dollar increase in net charge-offs for the second quarter. The charge-off rate increased to 4.03 percent from 3.97 percent last quarter, but remains well below the previous high of 13.21 percent reported in first quarter 2010.
In addition to providing access to quality credit, banks provide consumers with a safe place to store deposits. Total deposits at Iowa banks were $72.9 billion at the end of second quarter this year, up 5.13 percent from the year prior.
The number of banks across the nation on the FDIC’s “problem list” declined from 59 to 56 during the second quarter, which is the lowest number of problem banks since first quarter 2007. Five new banks opened, and one bank failed in the second quarter.
The FDIC Deposit Insurance Fund, supported by bank premiums, rose by $2.6 billion from the end of first quarter 2019 to $107.4 billion. The increase in the fund was mainly driven by assessment income followed by unrealized gains on securities by the DIF and a reduction in losses from past failures, the FDIC reported.
Estimated insured deposits were $7.7 trillion at the end of June, a decrease of 0.1 percent from the last quarter and 4.6 percent over the past four quarters. The FDIC also reported that the deposit insurance fund reserve ratio reached 1.40 percent. As a result of the ratio exceeding 1.38 percent, the FDIC will apply credits of approximately $320 million to small banks’ quarterly assessment invoices in September, McWilliams said.
Net income for the Iowa banking industry was $572 million for second quarter 2019, and total assets were nearly $88.9 billion. Return on assets (ROA), another indicator of overall bank performance, increased slightly to 1.32 percent, compared to 1.30 percent at the end of second quarter the year prior.