FDIC: U.S. Banks Net Operating Revenue Hits $1 Trillion for 2023

Author: Brian Weakliam, Founder & CEO

U.S. corporations are contributing to record bank profits as the industry’s net operating revenue broke the $1 trillion barrier in 2023.

Legacy banking arrangements and high interest rates are benefiting the banks at the expense of their customers. Bankhawk reports that corporations are reviewing the real cost of their banking relationships as their banks net operating revenue soars.

The cost of sub-optimized banking arrangements is a major drag on the profits of US businesses. The benefits of higher interest rates are not properly filtering through to bank customers.   

According to the Federal Deposit Insurance Corporation (FDIC), the 2023 fiscal year ended on a somewhat bright note. In its recent fourth-quarter report, the FDIC concluded that “Full-year net income remained high, overall asset quality metrics were favorable, and the industry's liquidity was stable.”

In fact, the $257 billion in 2023 bank earnings remained well above levels reported before the pandemic. Additionally, the industry's net operating revenue crossed the $1 trillion mark for the first time in Quarterly Banking Profile (QBP) history, and the full-year net interest margin was 3.30%, the highest reported margin since 2019.

Source: Axios

With the Good Comes the Bad

However, with the good news for the banks comes a dose of the bad. Banks also saw higher noninterest expense, provision expense, and realized losses on securities. The banking industry's net income declined 43.9% from the prior quarter.

This is mostly due to several nonrecurring, noninterest expenses, such as a special assessment to recover anticipated Deposit Insurance Fund losses from two banks that failed to protect uninsured depositors last spring. The larger banks now must cover $15.8 billion to bail out uninsured depositors at Silicon Valley Bank and Signature Bank. By law and as detailed in Final Rule 12 CFR Part 327, the FDIC must levy a "special assessment" to retrieve those funds.

This is a fascinating outcome from the failure of the two U.S. banks. It should be noted that there is no formally prescribed resolution method to protect depositors in failed banks in other jurisdictions, in the EU in particular, where governments have not been able to agree on a formal mechanism to protect uninsured bank deposits.

The industry's net interest margin also declined slightly in the fourth quarter.

The FDIC reports that net interest margin fell two basis points from last quarter to 3.28% as the cost of deposits and other interest-bearing liabilities increased faster than yields on earning assets. The largest two asset-size groups reported slightly lower net interest margins, while the other size groups reported unchanged or higher margins.

Concerning 2023 Q4, the S&P Global Market Intelligence also reports that Capital One Financial Corp.'s announced acquisition of Discover Financial Services also shook up the top 50 U.S. bank rankings. If approved later this year (the merger faces antitrust scrutiny), the acquisition will be the largest U.S. bank deal in 15 years.

Our Take

Corporate Benchmarks from Bankhawk show that the return on company funds in U.S. banks is not climbing as fast as Fed rate increases and market interest rates suggest.

Companies should review their banking arrangements to determine if their net interest margin has slipped. By benchmarking the net interest margin, they can easily see the additional value that can be generated.

Bankhawk's experience shows companies can improve profitability without significantly changing their banking relationships.

To learn more about our bank fee optimization services, visit our website at na.bankhawk.com/bankfeeoptimization or contact us at northamerica@bankhawk.com.