U.S. banks posted their strongest quarterly returns since Q3/23, driven by declining deposit costs and an expansion in net interest margins (NIM), according to KBRA’s newly released Q4/24 U.S. Bank Compendium. The report provides an in-depth analysis of earnings, credit quality, and other key financial metrics among KBRA-rated banks.

KBRA’s data shows that the median return on average assets (ROAA) for rated banks rose to 0.98% in Q4/24, up from 0.94% in the previous quarter and 0.84% a year earlier. Adjusted ROAA, which excludes nonrecurring items, increased to 1.05%, marking the third consecutive quarter of improvement. The primary driver of this earnings rebound was the expansion of net interest margins, which climbed four basis points quarter-over-quarter to 3.34%, reflecting a 14-basis-point recovery from its early 2024 trough.

“The sequential improvement in bank earnings was largely due to declining funding costs,” the report stated. “Lower deposit costs — enabled by Federal Reserve rate cuts in September, November, and December — provided banks with much-needed relief following a period of compression in net interest margins.”

Credit Quality Remains Manageable Despite Increase in Nonperforming Assets

The report also highlighted ongoing shifts in asset quality, with nonperforming assets (NPAs) increasing to 0.54% from 0.45% in 4Q23. However, KBRA noted that while problem asset levels have risen year-over-year, they remain below pre-pandemic averages, and overall credit quality remains sound.

“The rise in nonperforming assets is expected as credit conditions normalize, but problem asset formation has been gradual and manageable,” the report stated. “Additionally, despite some increases in criticized and classified loans, most banks are well-positioned to absorb potential losses given their strong capital reserves.”

Capital Strength Provides Stability

U.S. banks also ended 2024 with stronger capital positions, with the median common equity tier 1 (CET1) capital ratio rising to 12.0% — its highest level since KBRA began tracking the data in Q4/15. The tangible common equity (TCE) ratio remained steady at 8.7%, reflecting improvements from 2022 levels when accumulated other comprehensive income (AOCI) losses weighed on banks’ balance sheets.

The report pointed to a resurgence in bank equity raises, as financial institutions capitalized on improved market sentiment following the Federal Reserve’s policy shift in mid-2024 and the outcome of the U.S. presidential election. Many banks have sought to raise capital to support potential mergers and acquisitions (M&A), loan growth, or adjustments to their investment portfolios.

To access the full report, including a detailed breakdown of individual bank performance, KBRA’s fourth-quarter 2024 U.S. Bank Compendium is available online, as are the following related publications:

• Fourth-Quarter 2024 U.S. Bank Compendium Bank Debt Worksheet
• Fourth-Quarter 2024 U.S. Bank Compendium Ratio Spreadsheet