District Banking Conditions publications are produced quarterly and provide a comprehensive view of financial performance data across Tenth District commercial banks compared to national trends.
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Executive Summary
Earnings increased across most Tenth District banks in 2024, with an aggregate annual return on average assets (ROAA) of 1.14 percent (see Chart A6). During the fourth quarter, the quarterly District net interest margin (NIM) improved to 3.58 percent (see Chart A11), its highest level since year-end 2022, as a result of decreasing cost of funds (see Chart A15). At year-end, quarterly funding costs fell for the first time since March 2022. Cost of funds declined most significantly at larger District banks, which also saw decreasing earning asset yields, though to a lesser extent (see Supplemental Chart). Other earnings items, including overhead costs, non-interest income, and provision expenses, impacted earnings more significantly at District banks under $250 million. Most considerably, those banks under $250 million saw a year-to-date increase in overhead expenses as a percent of average assets (+27 basis points) as well as provisions as a percent of average assets (+5 basis points) (see Charts A19 and B2).
District bank balance sheets grew modestly throughout 2024. Loan growth totaled just 3.7 percent year-over-year (see Chart C9), and loans represent 64 percent of total assets, consistent with the prior year (see Chart C6). Liquid assets also saw modest growth, now totaling 14.5 percent of total assets (see Chart D9), with banks primarily shifting funds from securities into cash accounts (see Chart C3). However, District banks under $250 million continue to experience greater loan growth (7.1 percent year-over-year) funded by a decrease in liquid asset levels (see Charts C9 and D9). Further, securities remain hindered by large amounts of unrealized losses, totaling 19.7 percent of Tier 1 capital at year-end 2024. Unrealized loss positions worsened from third quarter levels but remain improved compared to the prior year (see Chart D11).
Balance sheets were also impacted by changing funding profiles during the fourth quarter. Core deposits grew 4.8 percent year-over-year, with particular strength in the fourth quarter, as banks reduced wholesale and noncore funding (see Chart C3). Borrowings, including Federal Home Loan Bank (FHLB) advances, declined throughout the year (see Chart D12); however, banks continued to see modest increases in large time deposits. Larger District banks maintain the highest levels of wholesale funding as a percent of liabilities but have seen the greatest decrease in utilization in recent periods (see Chart D14). Further, capital ratios continue to increase, benefitting from retained earnings and only modest levels of asset growth. At year-end 2024, the District Tier 1 Leverage ratio totaled 10.1 percent, well above its 10-year average (see Chart A2).
Asset quality metrics show some deterioration with slight upticks in delinquency measures. Still, noncurrent loans represent only 0.6 percent of total loans, which remains below the historical average. Credit quality deterioration has primarily been seen in an increase in past due and nonaccrual commercial real estate (CRE) loans (see Chart B8). Charge-offs also continue to increase (see Chart B3). Further, allowance for credit losses as a percent of loans has declined (see Chart B5). While District banks under $250 million increased provisions in late 2024 in line with greater loan growth, larger District banks maintained near-average provision expenses (see Chart B2), resulting in decreased allowance levels as a percent of loans.