Loan activity for Iowa banks increased more than 7% during the second quarter of 2022, but cumulatively, Iowa banks’ net income was down more than 10% compared with the year-ago quarter, according to the latest data released Thursday by the Federal Deposit Insurance Corp. The decrease in earnings in Iowa and nationally reflects a recognition of risks related to slowing economic growth, as well as the increase in loan balances, officials say.

John Sorensen, president and CEO of the Iowa Bankers Association, said Iowa banks are in a strong position to continue supporting the state’s economy during a challenging period.

“We are experiencing robust loan demand from consumers and businesses; meanwhile the pandemic-fueled surge in deposits is beginning to wane,” Sorensen said in an emailed statement. “Our banks remain well-capitalized and highly liquid.”

Net income for Iowa banks was $680 million through the first two quarters of 2022 — down 10.4%, or $79 million, from the same period in 2021.

The FDIC said the national decline of banks’ net income is 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, FDIC Acting Chairman Martin Gruenberg said in a press release. At community banks, increasing labor costs also reduced earnings for the period, according to the FDIC.

Iowa-domiciled banks reported $72.8 billion in active loans on their books as of June 30, an increase of 7.54% from the prior year. The quality of these loans remained strong, as net loan charge-offs were 0.02% of total loans outstanding, a decline from 0.05% the year prior. At 0.46%, the noncurrent percentage of total loans is down from the second quarter 2021 percentage of 0.68%.

Total deposits at Iowa banks were $101.4 billion as of June 30, up 9.4% from second quarter 2021 when deposits totaled $92.7 billion. However, deposits are starting to trend downward slightly from the previous quarter, which closed at $102 billion on March 31.

Return on assets, another indicator of overall bank performance, declined to 1.17% from 1.4% at the end of second quarter 2021. Iowa-chartered banks’ total assets amounted to $116.8 billion at the end of second quarter 2022.

Overall, the FDIC reported Thursday that key banking industry metrics remain favorable at this time. Loan growth strengthened, net interest income grew, and most asset quality measures improved, despite a rise in early delinquencies. Further, the industry remains well capitalized and highly liquid.

At the same time, the FDIC said, the banking industry continues to face downside risks resulting from prevailing economic uncertainties, inflationary pressures, a rising interest rate environment and geopolitical concerns. These factors could hamper bank profitability, weaken credit quality and capital, and limit loan growth, and they will be matters of continued supervisory attention by the FDIC over the coming year.