US banks grow nonbrokered deposits for 1st time in 7 quarters

In a quarter marred by unusual charges, US banks bolstered their balance sheets by adding lower-risk assets and customer-centric deposits.

The fourth quarter of 2023 may have marked a turning point for US banks as the industry posted nonbrokered deposit growth and an increase in total securities' value for the first time in seven quarters and the highest loan quarterly growth of 2023. Moreover, total assets for the industry were up 1.1% sequentially following quarterly decreases in five of the past six quarters, according to S&P Global Market Intelligence data.

Funding transformation

After six consecutive quarters of declining nonbrokered deposits, the banking industry reported a sequential gain in the fourth quarter. Nonbrokered US deposits totaled approximately $16 trillion at the end of 2023, up 0.9% from Sept. 30, 2023. Nonbrokered deposits, relative to brokered deposits, tend to carry lower interest rates and can add to a bank's franchise value by deepening customer relationships.

Each of the four largest US banks by total assets — JPMorgan Chase Bank NA, Bank of America NA, Wells Fargo Bank NA and Citibank NA — reported higher balances of nonbrokered deposits in US offices. Citibank topped its peers with 2.8% quarterly growth.

Two standouts in the regional bank space were Bank OZK and UMB Bank NA, which grew nonbrokered deposits by 8.7% and 8.6%, respectively, representing even higher levels than their total deposit growth.

The rise in nonbrokered deposits did not deter the industry from piling on more brokered deposits, albeit at the slowest rate in the last seven quarters. US banks' brokered deposits increased 3.9%, compared to a range between 7.5% and 18.7% in the previous six quarters.

Deposit growth allowed banks to reduce borrowed funds, which declined 2.5% in the fourth quarter. The recent cyclical peak in borrowings across the industry was March 31, 2023, as banks scrambled to build liquidity in the wake of two of the largest bank failures in history.

Within wholesale funding, several banks with over $100 billion in total assets opted to emphasize brokered deposits instead of borrowings in the fourth quarter. Citizens Bank NA, Huntington National Bank and Regions Bank grew brokered deposits by at least 24% while simultaneously cutting back on borrowings.

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Asset transformation

On the asset side of the balance sheet, banks exercised caution. Cash and equivalents jumped 4.7% quarterly, the second-highest growth rate since mid-2021. JPMorgan Chase's balance was up 11.0% and accounted for more than half of the industry's increase. Also noteworthy was Flagstar Bank NA, a unit of New York Community Bancorp Inc., increasing cash and equivalents 65.9% to build up liquidity.

Also during the quarter, banks began adding to their securities portfolios for the first time since the first quarter of 2022. The value of total securities across the industry went up 2.5% quarter over quarter. The increase was from available-for-sale securities — both net purchases as well as more favorable fair value marks. On the other hand, held-to-maturity securities on a cost basis decreased 1.7%.

Total loans and leases were up 0.9% sequentially, which was the highest quarterly growth rate in 2023 but down from 1.9% in the year-ago quarter. Despite credit deterioration, commercial real estate (CRE) was an area of growth, with balances up 0.6% quarter over quarter. More delinquencies are turning into writedowns, as CRE net charge-offs (NCOs) more than doubled to $1.52 billion in the fourth quarter.

Declining profitability

Net income for the banking industry was $38.41 billion in the fourth quarter, down 43.9% sequentially. The steep decline was from myriad factors, including trading revenue falling 11.1%, margin compression of 4 basis points and provision for credit losses increasing 22.0%. Provisions elevated as the nonperforming asset ratio climbed to a two-year high and the NCO ratio ramped up to 0.65%, the highest level in the last decade.

Banks also had to absorb a string of significant hits to their income statements, most notably the special assessment imposed by the Federal Deposit Insurance Corp. That assessment put a dent across big-bank earnings, highlighted by charges of $2.9 billion at JPMorgan Chase & Co. and $2.1 billion at Bank of America Corp.

Separately, Truist Financial Corp. took a $6.1 billion noncash goodwill impairment charge and Bank of America took a $1.6 billion charge related to the discontinuation of the Bloomberg Short-Term Bank Yield Index.

Citigroup Inc. disclosed a number of items that resulted in a quarterly net loss. In addition to the $1.7 billion special assessment, the bank's fourth quarter included a $1.3 billion reserve build for transfer risk in Argentina and Russia, a translation loss in revenues of $880 million from the devaluation of the Argentine peso and $780 million in restructuring charges.