U.S. Bank eliminates some overdraft fees

Like a growing number of other banks, U.S. Bank is eliminating some of its overdraft fees.

The bank this month stopped charging customers fees for non-sufficient funds in checking accounts.

By early this summer, it also will increase the amount an account can be overdrawn from $5 to $50 before a fee is charged. In addition, it will begin giving customers a full day to deposit funds to avoid a $36 overdraft fee.

The Minneapolis-based bank, the fifth-largest in the U.S., announced the changes Wednesday when it also reported lower-than-expected fourth-quarter earnings. The company's shares fell nearly 8% on Wednesday as investors also reacted to a decline in revenue and increase in expenses.

Under pressure from regulators and policymakers, banks such as Wells Fargo and Bank of America have announced changes to their overdraft fees in recent weeks. Those fees have been criticized for boosting the revenue of banks at the expense of lower-income consumers who are most likely to incur them and often puts them into further financial turmoil.

"We believe this is not only the right thing to do for customers, but it's a smart business decision," Terry Dolan, U.S. Bank's chief financial officer, said on a call with analysts.

In an interview, he said the changes also make sense in a digital world in which customers have more tools to keep track of their finances.

Overdraft fees accounted for $340 million, or a little less than 2%, of U.S. Bancorp's revenue in 2021. The lowered fees will reduce annual revenue by $160 million to $170 million, but other revenue streams may partly offset the drop Dolan said.

In the fourth quarter, U.S. Bancorp's profit rose 10% to $1.67 billion from $1.52 billion a year earlier. That amounted to $1.07 a share, which was slightly lower than analysts' expectations.

Nearly all of the $150 million increase came from the release of $145 million of loan-loss reserves that were set aside earlier in the COVID-19 pandemic.

U.S. Bank's total revenue dropped 1.2% to $5.68 billion. Net interest income, which accounts for nearly two-thirds of revenue, decreased 1.6%. Noninterest income was down 0.6%, shaped by a steep drop in mortgage banking.

Average deposits grew 6.5% over the year to $27.4 billion. And average total loans were up slightly mostly because of a growth in credit card balances and in retail loans, which was primarily due to increase auto and recreational vehicle lending.

U.S. Bancorp executives forecast revenue growth of 3% to 4% this year.

"The economy looks strong," Dolan said. "We're optimistic about loan growth, both in terms of consumer as well as corporate, and we're very optimistic that spending trends in terms of businesses and consumers is going to continue to be pretty strong."

Andy Cecere, the company's chief executive, said the bank is also positioned to benefit as the Federal Reserve is poised to raise rates at least three times this year. In the meantime, the bank is monitoring the impact of the omicron variant of COVID-19.

"Due to the omicron surge, year over year sales growth has slowed somewhat in the past few weeks from the exceptionally strong pace we saw in the second half of 2021," he said. "However, growth rates remain strong, and we believe this will likely prove to be a speed bump rather than an extended slowdown."

As for its pending $8 billion acquisition of MUFG Union Bank's consumer business, some analysts raised concerns that the deal could be delayed because of a leadership turnover at the Fed.

But Cecere said he still expects the deal to close in the first half of this year — with conversion of MUFG Union's branches on track for September or October.

"We're preparing for that timeframe," he said.

U.S. Bancorp submitted an application for the deal in early October and has been responding to regulators' questions while integration teams at both companies are working through details, he said.