U.S. Bancorp's profit takes hit because of $734M charge related to bank failures

U.S. Bancorp's fourth-quarter profit fell 8.4% as the company got hit with a $734 million bill to help replenish the government insurance fund that was drawn down last spring due to the meltdown of Silicon Valley Bank and Signature Bank.

U.S. Bank is not alone in the special assessment. Other banks, too, must pay a one-time charge from the Federal Deposit Insurance Corp. — the amounts differing based on their size — to help cover more than $16 billion in aid for uninsured depositors caught up in the bank failures.

"Once you get the assessment bill, we pay that amount over eight quarters in cash," said John Stern, chief financial officer for the Minneapolis-based bank. "But from an accounting perspective, we recognize the entire amount in one period, and so all banks are doing that at the same time this quarter."

When they reported their earnings last week, some of the nation's largest banks revealed how much they are being required to pay into the fund: $2.9 billion for JPMorgan Chase, $2.1 billion for Bank of America and $1.9 billion for Wells Fargo.

The collapse of Silicon Valley and Signature banks led to heightened concern about other banks' capital levels and their ability to weather similar financial pressures. U.S. Bancorp's capital level raised some eyebrows last year because it had dropped following its $8 billion acquisition in late 2022 of MUFG Union Bank.

But on Wednesday, the bank reported it has now increased its capital level to above where it was before the deal closed. Executives told analysts they plan to continue to build it up further as they also anticipate and prepare for higher regulatory thresholds for that metric.

"2023 was a turbulent year for the industry," CEO Andy Cecere told analysts on a conference call. "However, we achieved a great deal, including our successful conversion of Union Bank in late May and the realization of $900 million" in cost synergies related to the deal, meeting the company's target.

In 2024, the bank is "appropriately reserved for macroeconomic uncertainties" and is seeing positive momentum from its fee-based businesses, Cecere said.

Executives told analysts that the bank is forecasting four interest rate cuts this year by the Federal Reserve, starting in the second quarter. But the cuts should not have a significant impact on how much the bank earns this year, regardless of how many actually occur, Stern said.

Higher interest rates have been a mixed bag for the bank. While it means more interest from loans, the bank's deposit costs also have increased as consumers move more of their money into higher-interest-bearing accounts such as money markets or CDs. In the fourth quarter, the costs outweighed the advantage from the loans, so its net interest income declined 4.2% compared with a year ago.

Meanwhile, the bank's noninterest income jumped 28.2%, driven by higher payment services revenue and other fees. Its overall quarterly revenue rose 6.2% to $6.8 billion, compared with $6.4 billion a year ago.

U.S. Bancorp's profit came in at $847 million, down from $925 million in the same quarter a year ago. In addition to the insurance assessment, the company also added $49 million to its loan loss reserves and recorded $171 million in merger costs related to the Union Bank acquisition.

Late last year, U.S. Bancorp decided to exit one of its businesses in which it provided cash services for other banks' ATMs. Stern said it was a very capital intensive business with a lot of associated costs. He said it was a roughly $120 million business.

For the full year of 2023, U.S. Bancorp brought in a record $28.1 billion in revenue, primarily due to the addition of Union Bank.

Meanwhile, profits over the year were pressured by merger costs, increasing its reserve fund for potential bad loans, and the special assessment for the federal insurance fund. But the bank still reported $5.4 billion in profits last year, down from $5.8 billion in 2022.