JOHNSTON, IOWA (Sept. 5, 2024) — The banking industry finished the first half of the year with growth and resiliency, despite continued economic uncertainty. The Federal Deposit Insurance Corp. (FDIC) second quarter data released Thursday showed loan growth and steady deposits for Iowa banks.
“The FDIC’s report shows Iowa banks continue to experience lower net interest margins due to the trailing effects of the Federal Reserve’s 2022-23 interest rate hikes,” said John Sorensen, president and CEO of the Iowa Bankers Association. “At the same time, credit quality remains favorable with just moderate increases in loan delinquencies and charge-offs. This reflects the ability of borrowers to service debt and the overall health of Iowa’s economy.”
Iowa Banking Results
Iowa-domiciled banks saw an increase in loans this quarter to $85.8 billion, an increase of 5.3% from a year ago and a 0.8% increase from the previous quarter. Deposits decreased slightly from last quarter; however, total deposits for the second quarter were $103.5 billion, compared to $101.8 billion the year prior.
Loan quality remains strong with average net loan charge-offs at just 0.08%, a slight increase from first quarter 2024, but still favorable credit quality. The non-current percentage of total loans at 0.52% was unchanged from the previous quarter, signifying the financial stability of Iowans.
Total assets remain stable for Iowa banks this quarter at $125.2 billion, down slightly from $125.4 billion in the first quarter. Second-quarter total assets were 2.5% higher than the same period in 2023.
Iowa banks had $603 million in net income through the second quarter, a 6.2% decrease from second quarter 2023. The competitive interest rate environment continues to have an impact on net interest margins, especially in Iowa, where there are more banks per capita than most states in the nation. The average return on assets (ROA), an overall indicator of bank performance, at Iowa banks was 0.97% in the second quarter, down from 1.06% in the second quarter 2023.
National Banking Results
The FDIC reported Thursday that the banking industry continues to show ongoing resilience despite interest rate volatility, and economic and geopolitical uncertainty. The FDIC reported that “weakness in certain loan portfolios, particularly office properties, credit cards, and multifamily loans, continues to warrant monitoring.”
Total deposits in the second quarter were $18.8 trillion, a slight decrease from first quarter and a slight increase from second quarter 2023. Domestic deposits decreased by 1.1% to $197.7 billion from the previous quarter. Second quarter saw a decline in both savings and transactions deposits, partially offset by growth in small time deposits. Brokered deposits continued to decline for the second straight quarter to $10.1 billion, a 0.8% decrease from first quarter 2024. Community banks saw a $4.5 billion increase in deposits this quarter, with over half reporting an increase in deposit balances.
Total loans grew by 1% from the previous quarter to $12.5 trillion. The FDIC reported that second quarter loan growth was mostly attributed to loans to non-depository financial institutions (NDFIs) and consumer loans. Loans to NDFIs include reclassifications of credit card loans and residential mortgage loans. Most banks reported loan growth in all categories aside from construction and development. Community banks reported broad-based loan growth again this quarter with the strongest growth continuing to be in residential mortgage loan balances and nonfarm, nonresidential commercial real estate.
Asset quality metrics remain favorable, still well below pre-pandemic averages, but the industry continues to see deterioration due to commercial real estate loans and credit card portfolios. Total assets were $23.9 trillion in the second quarter, a slight increase from the year prior. Community banks saw growth in total assets from the previous year and quarter prior.
Total net income increased 11.4% from the previous quarter to $71.5 billion in the second quarter, largely due to a significant decline in noninterest expense, higher noninterest income and gains on the sale of securities. Community banks also reported an increase in net income by 1.1% from the previous quarter to $6.4 billion. Higher noninterest expense continues to drive net income down for community banks this year compared to 2023.
The number of banks on the FDIC’s “Problem Bank List” increased by three to 66 banks from the previous quarter. Total assets held by problem banks were $83.4 billion, an increase of $1.3 billion from the quarter prior. Only 1.5% of total banks are considered “problem banks” which is within the normal range. There was one bank failure in the second quarter.
The Deposit Insurance Fund (DIF) balance was $129.2 billion on June 30. The DIF reserve ratio — the fund balance relative to insured deposits — increased by 4 basis points to 1.21%. The FDIC noted that based on projections, “the reserve ratio remains on track to reach 1.35% by the statutory deadline.”
About the Iowa Bankers Association
The Iowa Bankers Association represents Iowa banks and savings institutions. Iowa bankers are committed to the values of honesty, hard work and community service, and have been a trusted resource for Iowans for more than 135 years. Iowa banks offer FDIC insurance and lend nearly $86 billion to help individuals, business owners and agriculture. Nearly 40,000 Iowans work at an Iowa bank, and bank employees volunteer more than 300,000 hours to support local communities each year. To learn more, visit www.iowabankers.com.