The aggregate loan-to-deposit ratio at U.S. banks climbed for the third-consecutive quarter due to persistent loan growth and deposit outflows.

The industry aggregate was 63.6% in the 2022 fourth quarter, up from 62% in the third quarter of 2022 and 57.1% in the fourth quarter of 2021, according to S&P Global Market Intelligence data. The ratio was below the pre-pandemic ratio of 72.4% in the fourth quarter of 2019.

U.S. banks' total loans and leases ticked up 8.7% year over year to $12.227 trillion in the fourth quarter of 2022. Loans increased only 1.9% sequentially as U.S. banks significantly tightened underwriting standards.

Deposits in the quarter totaled $19.214 trillion, down 0.7% from the linked quarter and 2.5% from a year ago. The era of easy money ended in 2022 as the Federal Reserve started hiking interest rates after two years of near-zero rates. Banks have experienced funding pain that is only intensifying as deposit prices catch up and the industry prepares for more outflows this year.

Loans and deposit costs on the rise

Several U.S. banks boosted their provisions for credit losses in the 2022 fourth quarter as loans continued to grow along with heightening recession fears. Meanwhile, the Fed rate hikes started to cause deposit costs to go up, bringing the banking industry's aggregate cost of deposits to 1.02% in the fourth quarter, up almost 49 basis points from the linked quarter.

Many banks continue to expect higher loans and lower deposits. JPMorgan Chase & Co., whose loan-to-deposit ratio was 50.6%, anticipates recording modest loan growth and lower deposit balances for 2023, CFO Jeremy Barnum said on the company's 2022 fourth-quarter earnings call.

For 2023, PNC Financial Services Group Inc. expects average loan growth of 6% to 8% and a continuation of the "pretty healthy" deposits recorded in the fourth quarter, Chairman, President and CEO William Demchak said on the company's earnings call. As of the fourth quarter of 2022, PNC's loan-to-deposit ratio was 75.0%.

"We could, in the near term, increase earnings by being less competitive with deposits and let deposits run off. We have the liquidity to do that. We could increase our loan-to-deposit ratio," Demchak said. "The challenge with that is, in the course of doing that, you're damaging your long-term franchise."

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Truist Financial Corp. sees loan growth moderating from the "robust levels" in 2022 as clients respond to the effect of "higher rates, high inflation and a slowing economy," Executive Chairman, CEO and President William Rogers Jr. said on the company's 2022 fourth-quarter earnings call. The company will also maintain a "balanced approach" in managing deposit growth and rate paid, according to the executive.

Truist's fourth-quarter 2022 loan-to-deposit ratio was 79.2%.

Largest declines

The 20 banks with the largest decreases in loan-to-deposit ratios all booked deposit growth on a year-over-year basis. Only four reported lower loans from a year ago, including Beal Financial Corp. and SMBC Americas Holdings Inc.

Beal Financial had the biggest loan-to-deposit ratio decline, followed by SMBC Americas. Beal Financial's ratio dipped 86.7 percentage points to 13.4%, and SMBC Americas' slumped 83.8 percentage points to 144.5%.

Largest increases

Of the 20 banks with the largest increases in loan-to-deposit ratios, 19 recorded loan growth and only 5 booked deposit growth year over year.

Bankers' Bank led the list with a 58.2-percentage-point increase in its ratio to 116.2%. Tradition Capital Bank ranked second as its ratio rose 43.5 percentage points to 118.1%.