Iowa banks prospered in the first quarter, with profits up 13.3 percent from a year ago to $264.9 million, but Iowa Bankers Association President and CEO John Sorensen wasn’t crowing about the good numbers in a news release to announce the results.

The overall number of Iowa-chartered banks dropped to 294 from 300 a year ago, continuing a trend of bank consolidations that has been ongoing since the Great Recession. 

“Iowa banks face strong headwinds with the increasing costs of regulatory compliance and tax-advantaged competitors,” Sorensen said. Those tax-advantaged competitors are credit unions, which escaped this legislative session without the burden of a tax on income that had been proposed and passed in the state Senate. That bill did not survive the legislative session. (The credit union industry will remind us that their members do pay one-half of 1 percent tax on capital reserves, but that is a far cry from a tax on income.)

“Industry studies have shown the cost of compliance can represent nearly 25 percent of a bank’s income,” Sorensen said in the release. “Add to that the challenge of the nearly 35-40 percent tax advantage enjoyed by credit unions, it comes as no surprise that banks are consolidating to gain the scale necessary to compete in today’s environment.”

And the community banks do compete. Iowa banks had more than $59.5 billion in total loans on their books at the end of the first quarter, up 6.3 percent from a year earlier. Loan charge-offs dropped, as did the number of noncurrent loans. Total assets rose to $85.2 billion from $81.1 billion. Return on assets, a measure of bank performance, improved to 1.25 percent at the end of the quarter from 1.16 percent a year ago.

Iowa banks had a collective tax bill of $40.8 million in the first quarter, according to the release.

Nationwide, bank profits increased 27.5 percent from a year earlier to $6.1 billion as a result of higher net operating revenue and a lower tax rate, the Federal Deposit Insurance Corp. said. Loan balances were up 4.9 percent and net interest income increased 8.5 percent. Noninterest income rose 7.9 percent.