The US banking industry's aggregate efficiency ratio worsened for the first time after five consecutive quarters of improvement.
US banks posted an aggregate efficiency ratio of 55.44% in the second quarter, up from 52.83% in the first quarter. The metric — which falls as banks become more efficient, calculated by dividing noninterest expenses divided by net interest income and noninterest revenue — was still lower on a year-over-year basis, from 58.5% in the 2022 second quarter, according to S&P Global Market Intelligence data.
The latest sequential increase in the industry's efficiency ratio resulted from a sharp decline in noninterest income, a slight decline in net interest income and an increase in noninterest expense.
Banks break efficiency streak
Among the top 20 US banks by headcount, just eight reported quarter-over-quarter declines in their efficiency ratios.
BMO Financial Corp. again reported the greatest improvement at 7.7 percentage points quarter over quarter, which was significantly smaller than the company's 49.7 percentage point improvement in the linked quarter.
M&T Bank Corp. posted the second-best sequential efficiency ratio improvement among the group, with a decline of 7.0 percentage points.
Of the top 20 US banks by headcount, 12 reported quarter-over-quarter increases in their efficiency ratios, compared to just five in the first quarter.
Noninterest income drops
US banks posted $141.11 billion in noninterest expenses in the second quarter, excluding goodwill impairment and intangible assets, up from $138.75 billion in the linked quarter and $133.85 billion in the year-ago quarter. Of the top 20 US banks by headcount, 12 reported quarter-over-quarter increases in noninterest expenses.
A drop in noninterest income further worsened banks' efficiency ratios. The industry posted $78.29 billion in total noninterest income in the second quarter, down more than $7 billion from $85.96 billion in the first quarter.
Meanwhile, total net interest income fell slightly to $176.24 billion from $176.69 billion in the first quarter, but is still up from $151.96 billion in the year-ago period.
Bank headcounts decline
The second quarter also marked a break in the banking industry's hiring streak, with the industry's aggregate headcount declining for the first time since the third quarter of 2021. The industry reported a 0.65% decrease in full-time employees quarter over quarter while still increasing headcount by 0.69% year over year.
Even so, two of the Big Four US banks reported higher headcounts. JPMorgan Chase & Co., which acquired the failed First Republic Bank in May, saw headcount increase by 1.1%. Citigroup Inc.'s headcount, meanwhile, rose by 0.5%.
Bank of America Corp. reported a headcount decline of 1.6% and Wells Fargo & Co. reported a headcount decline of 0.9%.
PNC Financial Services Group Inc. reported the largest decline in full-time employees, cutting staff by 2.1% in the second quarter, and The Bank of New York Mellon Corp. reported the largest increase at 3.1%.
