Iowa-chartered banks end 2022 with increase in active loans, lower net income
JOHNSTON, IOWA (March 2, 2023) — The Federal Deposit Insurance Corp. on Tuesday released bank performance data for the fourth quarter and year ending on Dec. 31, 2022. At Iowa banks, strong loan growth continued and asset quality measures remained favorable albeit with modest deterioration.
“Despite headwinds from inflation, rising interest rates and geopolitical uncertainty, Iowa banks continue to drive economic growth and job creation in the communities they serve,” said John Sorensen, president and CEO of the Iowa Bankers Association.
Iowa Banking Results
Iowa-domiciled banks reported $79.2 billion in active loans on their books as of Dec. 31, an increase of 13.3% from the prior year. The quality of these loans continued to be strong, as net loan charge-offs remained steady at 0.04% of total loans, which was the same percentage as the prior year. At 0.36%, the noncurrent percentage of total loans is down from the fourth quarter 2021 percentage of 0.53%.
Total deposits at Iowa banks were $102.5 billion as of Dec. 31, up 3.2% from fourth quarter 2021 when deposits totaled $99.4 billion. This reflects a competitive rate environment for deposits and continued runoff of pandemic-induced government support programs.
Net income for Iowa banks was $1.4 billion for the 12 months ending Dec. 31 — down 4.3%, or $63 million, from the same period in 2021. The year-over-year decline of Iowa banks’ net income is partly due to an increase in provisions, which are set aside by institutions to protect against future loan losses. The increase in provision expense reflects the banking industry’s recognition of risks related to persistent economic uncertainties and slowing economic growth, as well as the increase in loan balances.
Average return on assets (ROA), another indicator of overall bank performance, decreased to 1.19% from 1.33% at the end of fourth quarter 2021. Iowa-chartered banks’ total assets amounted to $120.9 billion at the end of fourth quarter 2022.
National Banking Results
Overall, the FDIC reported Tuesday that key banking industry metrics remain favorable at this time. Loan growth continued, net interest income grew and asset quality measures remained favorable. Further, the industry remains well capitalized and highly liquid.
However, the FDIC said, the banking industry continues to face downside risks from the effects of inflation, rising market interest rates and continued geopolitical uncertainty; these could hurt bank profitability, weaken credit quality and capital, and limit loan and deposit growth. These risks will be matters of continued supervisory attention by the FDIC over the coming year.
Net operating revenue nationally decreased 1.0% from third quarter 2022 to $242.9 billion. But net interest income as a percentage of average assets increased from the third quarter and now exceeds the pre-pandemic average.
Total loan balances grew for a seventh consecutive quarter, and the growth continued to exceed the average pre-pandemic pace in the fourth quarter, the FDIC said. The banking industry reported annual loan balance growth of 8.7% from the previous year, well above the pre-pandemic average. The growth was led by higher commercial and industrial loans, one-to-four family residential mortgages and consumer loans.
Compared to the industry, community banks reported stronger loan growth, increasing 14.4 % year over year, the FDIC said. Nonfarm, nonresidential commercial real estate loan portfolios and one-to-four family residential mortgages drove annual loan growth for community banks.
Paycheck Protection Program loan payoffs and forgiveness continued to affect loan growth rates nationally. Excluding the effects of PPP loan payoffs, the year-over-year loan growth rate would have been 9.6% for the industry and 16.2% for community banks, the FDIC said.
Nationally, deposits declined for a third consecutive quarter, according to FDIC data. A reduction in uninsured deposits was the primary driver of the quarterly decline since insured deposits increased. Deposits totaled $19.2 trillion, down 0.7% from the level reported in the third quarter. While this reduction slightly offsets the unprecedented growth in deposits reported during the pandemic, total deposits are still well above pre-pandemic levels.
The FDIC reported that the number of banks across the nation on its problem list decreased by three from the previous quarter to 39 banks, and total assets held by banks declined $116.3 billion to $47.5 billion in the fourth quarter. The number of problem banks is at the lowest level since the FDIC began collecting quarterly data in 1984.
The Deposit Insurance Fund balance was $128.2 billion as of Dec. 31, up about $2.8 billion from the third quarter. The DIF reserve ratio — the fund balance relative to insured deposits — increased by one basis point in the fourth quarter to 1.27%. The reserve ratio was also one basis point higher than a year ago.