US banks' efficiency ratios improved in Q2 2024 for second straight quarter

US banks' efficiency ratios improved for the second quarter in a row.

The banking industry posted an aggregate efficiency ratio in the second quarter of 56.4%, down 2.0 percentage points from the linked quarter but still 1.1 percentage points higher than a year earlier, according to S&P Global Market Intelligence data.

Efficiency ratios measure the amount of overhead cost for every dollar of operating revenue, derived from dividing noninterest expenses by the combined net interest income and noninterest revenue. Lower percentages indicate higher efficiency.

Upticks in net interest income and noninterest income, combined with a sinking noninterest expense, brought down the industry aggregate efficiency ratio in the second quarter.

Noninterest income at US banks rose to $79.35 billion from $77.89 billion a quarter earlier.

After slipping in the first quarter, US banks' net interest income rose 0.1% in the second quarter to $172.67 billion.

The industry's noninterest expense, excluding goodwill impairment and intangible assets, dropped to $142.23 billion from $146.35 billion but remained higher than the year-ago quarter.

Of the top 20 banks by headcount, 12 had lower noninterest expense quarter over quarter.

Efficiency ratios

Efficiency ratios at 11 of the top 20 banks by headcount improved in the second quarter.

TD Group US Holdings LLC's ratio dropped 13.8 percentage points, the largest improvement among the top 20 banks by full-time equivalent employees. That compares to an increase of 7.3 percentage points in the first quarter. TD Group recorded the biggest drop in noninterest expense in the analysis, at 16.5%.

The next-largest drop in efficiency ratio was posted by State Street Corp., down 8.9 percentage points.

UBS Americas Holding LLC reported the highest rise in efficiency ratio in the analysis, up 10.6 percentage points to 107.9% — 51.4 percentage points above the industry aggregate ratio. UBS Americas also posted the largest rise in expenses, up 48.4% quarterly.

Trimming staff

Industry aggregate headcount fell for the fifth straight quarter to 2.06 million, down 0.8% from the previous quarter's 2.07 million and down 2.8% from 2.12 million a year earlier.

Three of the four biggest US banks by headcount downsized employees quarter over quarter. Bank of America Corp. cut 1.7%, and Wells Fargo & Co. dropped 1.5%. JPMorgan Chase & Co.'s headcount rose for the eighth quarter in a row, up 0.5% sequentially.

Citigroup Inc.'s employee count fell 2.8%, down for the fourth straight quarter. The company completed an organizational overhaul during the second quarter, to result in the reduction of roughly 7,000 jobs. The changes will save Citigroup an estimated $1.5 billion by 2025 and 2026, Citigroup executives said in a first-quarter earnings call.

UBS Americas posted the largest proportional headcount increase among the top 20 banks by number of employees, of 23.0%.

Truist Financial Corp. shrunk the most on the list proportionally, with an employee count down 15.9% during the quarter.