Full-year 2023 net income of $256.9bn for US banks represents a resilient performance despite ongoing economic and geopolitical uncertainty.

But fourth quarter net income of $38.4bn is down by 43.4% from the prior quarter. The sharp fall in profits in the fourth quarter is driven by higher non-interest and provision expenses and lower non-interest Income. The net interest margin declines by two basis points to 3.28% from the third quarter.

NIM declines as the increase in deposit and non-deposit liability costs more than outpaced the increase in asset yields. Despite the quarterly decline, the industry NIM is still three basis points above the pre-pandemic average NIM of 3.25%.  The community bank NIM of 3.35% is unchanged from the prior quarter, but is 28bps lower than its pre-pandemic average.

Q4 retail deposits, lending rises

Positive fourth quarter metrics include an increase in retail deposits for the first time in seven quarters. Domestic deposits increase by 1.1% to $186.9bn from third quarter 2023.

Growth in time deposits lead the increase in domestic deposits, while noninterest-bearing deposits decline for the seventh consecutive quarter.  Estimated insured deposits (up 0.4%) increase during the quarter. Reported uninsured deposits decreased during the quarter, but would have increased for the first time in eight quarters had a large bank’s subsidiary transactions not affected reported data. Excluding that bank from the calculations, the industry increased uninsured deposits $92.4bn, or 1.4%, in the quarter.

In addition, the industry reports loan growth in the fourth quarter.

Total loan and lease balances rise by 0.9% to $107.5bn from the previous quarter.  This is the highest loan growth rate reported by the industry in 2023. An increase in credit card loans (up 6%) drives loan growth.  Delinquency rates are trending higher but remain below pre-pandemic average rates.

The industry’s net charge-off rate increases by 14 basis points from the prior quarter and 29 basis points from a year prior to 0.65%.  Credit cards lead the annual increase in net charge-off balances. The industry’s net charge-off rate is 17 basis points above its pre-pandemic average.

Resilience after a period of liquidity stress

Martin Gruenberg, FDIC chairman said: “The banking industry has shown resilience after a period of liquidity stress in early 2023.  Full-year net income remained high. Overall asset quality metrics were favourable, and the industry’s liquidity was stable.  However, ongoing economic and geopolitical uncertainty, continuing inflationary pressures, volatility in market interest rates, and emerging risks in some bank commercial real estate portfolios pose significant downside risks to the banking industry.  These issues, together with funding and earnings pressures, will remain matters of ongoing supervisory attention by the FDIC.”