The FDIC’s “Quarterly Banking Profile” for the fourth quarter of 2024 reveals the financial performance and condition of FDIC-insured institutions. The report indicates the banking industry experienced strong earnings and increased domestic deposit growth during the year.
Asset quality metrics generally remained favorable, even with some weakness in specific loan portfolios like non-owner occupied commercial real estate. While domestic deposits saw an increase, unrealized losses on securities increased substantially. The Deposit Insurance Fund (DIF) balance also grew and is on track to meet its statutory reserve ratio by 2028.
What key factors influenced the overall health of FDIC-insured institutions in 2024?
Several factors influenced the health of FDIC-insured institutions in 2024. Overall, the banking industry showed strength, with strong earnings and growth in domestic deposits.
Key factors impacting the health of FDIC-insured institutions:
- Earnings and Return on Assets: The banking industry finished the year with strong earnings, yielding a return on assets ratio of 1.12 percent for the full year. Net income totaled $268.2 billion in 2024, up 5.6 percent from 2023, driven by lower interest expense, higher non-interest income, and lower realized losses on the sale of securities.
- Deposit Growth: Domestic deposit growth was higher in 2024 compared to 2023.
- Loan Growth: Loan growth remained modest in the elevated-rate environment. Total loans increased by 0.8 percent in the fourth quarter. Community bank loan growth was more robust, increasing 1.3 percent from the prior quarter and 5.1 percent from the prior year.
- Asset Quality: Asset quality metrics remained generally favorable, although there was some weakness in certain portfolios. The overall past-due and non-accrual rate increased slightly.
- Net Interest Margin (NIM): The industry’s NIM increased for a second consecutive quarter to 3.28 percent, surpassing its pre-pandemic average. The full-year NIM was 3.22 percent, slightly lower than 2023 but higher than the NIM from 2020-2022.
- Unrealized Losses: Total unrealized losses on held-to-maturity and available-for-sale securities portfolios increased $118.4 billion from the prior quarter.
- Problem Banks: The number of banks on the FDIC’s “Problem Bank List” decreased to 66, representing 1.5 percent of total banks, which is within the normal range for non-crisis periods.
- Deposit Insurance Fund (DIF): The DIF balance was $137.1 billion on December 31, 2024, up from the prior quarter, with assessment revenue being the primary driver of the increase. The reserve ratio increased to 1.28 percent and is on track to reach the statutory minimum of 1.35 percent by September 30, 2028.
How did NIM change for community banks in 2024?
In 2024, the Net Interest Margin (NIM) for community banks experienced several changes.
Key points regarding the NIM for community banks in 2024:
- Increase in Fourth Quarter: Community banks’ NIM increased for the third straight quarter, reaching 3.44 percent, which was up 9 basis points from the previous quarter. This increase was driven by an 11 basis-point decrease in the cost of funds, outpacing a 3 basis-point decrease in earning asset yields.
- Below Pre-Pandemic Average: Despite the improvement, the community bank NIM remained below the pre-pandemic average of 3.63 percent.
What drove the industry’s 2024 net income increase?
The banking industry’s net income increased in 2024 due to several factors. The primary drivers were:
- Lower interest expense.
- Higher non-interest income.
- Lower realized losses on the sale of securities.
Specifically, short-term interest-rate cuts led to interest expenses declining more than interest income, resulting in an increase in net interest income of $3.8 billion in the fourth quarter.
What was 2024’s full-year return on assets ratio?
The full-year return on assets ratio for the banking industry in 2024 was 1.12 percent. This reflects strong earnings for the year.
How did fourth-quarter loan balances change?
In the fourth quarter of 2024, the banking industry’s loan balances saw the following changes:
- Overall Increase: Total loans increased by $105.2 billion, which is 0.8 percent.
- Largest Portfolio Increases: The most significant increases were reported in “all other” loans and loans to non-depository financial institutions, largely due to reclassifications following changes to how certain loan products are reported.
- Reclassifications Impact: Reclassifications also likely caused declines in other loan categories, particularly C&I (Commercial and Industrial) and “other” consumer loans.
- Credit Card Loans: In addition to reclassifications, credit card loans contributed to quarterly loan growth.
- Loans to Non-Depository Financial Institutions: Organic growth in loans to non-depository financial institutions also contributed to quarterly loan growth.
- Community Banks: Community bank loan growth was more robust and widespread than the industry’s growth overall. Total loans at community banks increased 1.3 percent from the prior quarter and 5.1 percent from the prior year, led by increases in non-farm nonresidential CRE (Commercial Real Estate) and residential mortgage portfolios.
- Annual Loan Growth: The industry’s annual rate of loan growth remained steady in the fourth quarter at 2.2 percent.
What caused unrealized losses to increase?
Unrealized losses increased in the fourth quarter of 2024 because longer-term interest rates, such as the 30-year mortgage rate and the 10-year Treasury rate, increased after declining in the third quarter. This increase in interest rates decreased the value of securities reported by banks, leading to increased unrealized losses. Total unrealized losses increased by $118.4 billion (32.5 percent) from the prior quarter, reaching $482.4 billion.
How did domestic deposits change during fourth quarter?
During the fourth quarter of 2024, domestic deposits experienced the following changes:
- Overall Increase: Domestic deposits increased by $214.4 billion, or 1.2 percent.
- Transaction Deposits: Transaction deposits increased from the prior quarter by $230.7 billion.
- Time Deposits: Time deposits declined by $122.4 billion.
- Brokered Deposits: Brokered deposits decreased for the fourth straight quarter, down $46.0 billion (3.6 percent) from the prior quarter.
- Uninsured Deposits: Estimated uninsured domestic deposits increased $218.5 billion, or 3.0 percent. Growth in estimated uninsured deposits was widespread among banks in all asset size groups that report estimated uninsured deposits.
- Insured Deposits: Insured deposits also increased, but at a slower pace, increasing $39.1 billion quarter over quarter, or 0.4 percent.
