Iowa banks continued to nudge their way out of the Great Recession during the second quarter of the year. For an industry that didn't suffer the scale of devastation that hit lenders in other states, the gains were not as dramatic as their counterparts across the nation.


And over the year, the number of the state's 337 banks and savings and loans able to show a gain in earnings has dropped dramatically, down to 44.8 percent in the second quarter from nearly 76 percent a year ago. The number is up from nearly 42 percent of all banks in the first quarter.


Iowa banks rely heavily on loan volume and the difference between interest paid on deposits and interest earned on loans as their principal source of income. That figure, called net interest margin, dropped to 3.25 percent in the second quarter, down from 3.46 percent a year ago, but up slightly from the first quarter of the year.


"I think the numbers reflect what's happening in the Iowa economy," said John Sorensen, president and CEO of the Iowa Bankers Association. "We're seeing a gradual return to health on the balance sheets of consumers and businesses. We don't have as far to come back because we didn't fall as far as a state. As a result, we're not going to see quite the significant increases in our ratios. Margins remain tight. We'd still like to see stronger loan demand than we have today. But there are bright spots. Housing continues to gain strength, and agriculture is in a strong position."


Iowa banks reported net income of $398 million in the second quarter, down 7 percent from the $430 million reported a year ago. In the first quarter of the year, Iowa banks reported a collective $196 million in net income.


A key measure of banking vitality called return on assets dropped to 1.1 percent in the quarter, down from 1.24 percent a year ago, but up from 1.08 percent in the first quarter.


Loan volume has increased over the year to nearly $44 billion from $42 billion a year ago. Iowa banks also reported a decline in nonperforming loans over the year.


The number of unprofitable institutions dropped to 2.67 percent from 3.23 percent a year ago.


Sorensen said there is nothing wrong with the industry that an increase in loan demand couldn't correct.


National lenders reported aggregate net income of $42.2 billion in the second quarter, a 22.6 percent increase from a year earlier, according to the Federal Deposit Insurance Corp. (FDIC). Banks had increases in noninterest income, lower noninterest expenses and reduced provisions for loan losses.


Year-over-year earnings at the nation's banks increased at nearly 54 percent of the 6,940 insured institutions reporting financial results. The proportion of banks that were unprofitable fell to 8.2 percent from 11.3 percent a year earlier, according to the report.


The average return on assets rose to 1.17 percent from 0.99 percent a year ago. This is the highest quarterly return on assets for the industry since the 1.22 percent posted in the second quarter of 2007, according to the FDIC.


Loan balances rose 2.9 percent to $219 billion, with the bulk of the increase coming in demand for commercial and industrial loans, as well as nonresidential, nonfarm real estate, the FDIC said.