The aggregate efficiency ratio for U.S. banks jumped to its highest level since the third quarter of 2013.

The jump in U.S. banks' aggregate efficiency ratio in the fourth quarter of 2021 was led by a surge in noninterest expenses and a decline in noninterest income.

Climbing efficiency ratios

The aggregate efficiency ratio for U.S. banks was 63.2% in the fourth quarter of 2021, up from 60.4% in the linked quarter and 61.6% in the year-ago period, according to S&P Global Market Intelligence data.

Of the top 20 U.S. banks by headcount, 15 reported a quarter-over-quarter increase in their efficiency ratio, a measure of noninterest expenses divided by net interest income and noninterest revenue. Among those, Citigroup Inc. reported the largest increase at 11.9% quarter over quarter.

Expense and income levels

A surge in total noninterest expenses contributed to the efficiency ratio deterioration for the industry.

U.S. banks posted $133.4 billion in other noninterest expenses, excluding goodwill impairment and intangible assets, up 5.0% from the linked quarter and 7.3% from the year-ago quarter. Of the top 20 U.S. banks by headcount, 17 reported a quarter-over-quarter increase in noninterest expenses.

Total noninterest income also weighed on efficiency ratios as U.S. banks reported a decline in total noninterest income quarter over quarter for the first time since the fourth quarter of 2020.

U.S. banks reported $73.0 billion in total noninterest income in the fourth quarter of 2021, down from $76.0 billion in the third quarter of 2021 but up from $70.3 billion in the fourth quarter of 2020.

The impact of declining noninterest income and surging expenses was partially offset by a jump in net interest income as loan demand returns. U.S. banks reported $138.2 billion in net interest income, up from $134.4 billion in the linked quarter and $131.5 billion in the year-ago period.

Headcount

U.S. banks reported a 0.6% increase in full-time employees quarter over quarter, but total headcount was down 0.2% year over year.

Among the "big four" U.S. banks, Wells Fargo & Co. posted the largest decline in total headcount as it continues to work through its aggressive plan to cut expenses and bring its efficiency ratio in line with peers. The company reported 240,413 full-time employees as of Dec. 31, 2021, down 1.8% from the prior quarter and 7.1% from the year-ago period.

Bank of America Corp.'s total headcount also shrunk, with the company reporting a slight 0.9% decline in employees quarter over quarter.

On the other hand, JPMorgan Chase & Co. and Citigroup grew headcount by 2.0% and 1.8% quarter over quarter, respectively.