Business

Iowa banks say capital levels strong

But earnings have been affected by loan loss provisions

A window display is seen at Hills Bank in Cedar Rapids on Friday, March 27, 2020.  (Rebecca F. Miller/The Gazette)
A window display is seen at Hills Bank in Cedar Rapids on Friday, March 27, 2020. (Rebecca F. Miller/The Gazette)

The Iowa banking industry continues to maintain strong levels of capital and liquidity despite the financial impact to state businesses and consumers from the COVID-19 pandemic.

Iowa-chartered banks ended the first quarter with $65.2 billion in active loans, up 4.3 percent from $62.6 billion at the end of the same quarter of 2018, according to a report from the Federal Deposit Insurance Corp.

Net loan charge-offs were down to 0.08 percent from 0.12 percent in the final quarter of 2019.

Bank earnings were negatively affected by increases in loan loss provisions.

First quarter net income for the Iowa banking industry was $243 million on March 31, down 8.3 percent from $265 million on March 31, 2019.

Return on assets was 1.05 percent on March 31, compared to 1.21 percent at the end of the first quarter of 2019.

Community banks across the nation reported lower profits than a year ago, primarily as a result of higher provision expenses.

However, community banks’ net operating revenue increased, annual loan growth rate was strong and asset quality metrics remained stable, the FDIC said.

With the Federal Reserve cutting the Fed Funds rate near zero in March, the low interest rate environment combined with the economic downturn will present challenges to the industry over the near to midterm.

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“Community banks are particularly vulnerable to fluctuating interest rates, as nearly half of their assets mature or re-price in three or more years,” the FDIC said.

Community banks continued to see deterioration in agriculture loan portfolios during first quarter 2020.

While the net charge-off rate for agriculture loans remained low, non-current rates increased in both farmland and agricultural production loan categories.

“The community bank farmland non-current rate rose year over year to 1.75 percent and the agricultural production loan non-current rate rose to 1.19 percent,” the FDIC reported.

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