The US banking industry's aggregate efficiency ratio worsened for the third consecutive quarter and at an accelerated pace as noninterest income fell again and noninterest expense shot up.
US banks posted an aggregate efficiency ratio of 65.8% in the 2023 fourth quarter, up 10.2 percentage points from the previous quarter and 10.9 percentage points from the year-ago quarter, according to S&P Global Market Intelligence data. The metric falls as banks become more efficient, calculated by dividing noninterest expenses by net interest income and noninterest revenue.
The latest sequential increase in the industry's efficiency ratio was a product of a sharp increase in noninterest expense and the third consecutive quarter of decline for the industry's noninterest income. Net interest income also fell slightly during the quarter but has remained relatively steady since the fourth quarter of 2022.
US banks' noninterest income declined to $67.61 billion, from $74.14 billion in the previous quarter.
The industry posted $159.89 billion in noninterest expenses in the quarter, excluding goodwill impairment and intangible assets, up from $139.23 billion in the previous quarter and $132.02 billion in the year-ago quarter. Of the top 20 US banks by headcount, 18 reported quarter-over-quarter increases in noninterest expenses.
Noninterest expense was impacted by the Federal Deposit Insurance Corp. special assessment as well as one-time items at Citigroup Inc.
Total net interest income fell to $175.48 billion, from $176.33 billion in the previous quarter and $178.67 billion in the year-ago quarter.
Efficiency ratios worsen at top banks
Efficiency ratios at 19 of the top 20 banks by headcount worsened during the fourth quarter of 2023. Only United Services Automobile Association reported a quarter-over-quarter decline in its efficiency ratio.
Citigroup reported the largest increase in its efficiency ratio at 24.5 percentage points, a significant shift for the company after an improvement of 2.4 percentage points in the linked quarter.
State Street Corp. reported the second-largest efficiency ratio increase at 19.8 percentage points.
Headcount reductions continue
The banking industry's aggregate headcount shrank again during the fourth quarter of 2023, falling to 2.08 million full-time employees from 2.1 million in the linked quarter, or a 0.9% decrease in full-time employees. Year over year, the industry's headcount was down 2.2%.
Only one of the Big Four US banks, JPMorgan Chase & Co., reported a higher headcount; its headcount rose 0.4% during the quarter. Wells Fargo & Co., Citigroup and Bank of America Corp. reported respective headcount declines of 1.4%, 0.7% and 0.1%.
Seventeen of the top 20 US banks by headcount posted a quarter-over-quarter decrease in full-time employees, while three reported an increase.
The Charles Schwab Corp. reported the largest decline in full-time employees, cutting staff by 7.9% during the quarter, and Synchrony Financial reported the largest increase at 1.3%.
