US Bancorp’s fourth-quarter profit fell 8.4% after the company received a $734 million bill to help replenish a government insurance fund that was drawn down last spring due to the collapse of Silicon Valley and Signature Bank.
The US bank is not alone in its assessment. Other banks also must pay a one-time fee from the Federal Deposit Insurance Corp. — each amount varying by size — to help cover more than $16 billion in aid to uninsured depositors caught up in bank failures.
“When you get the appraisal bill, we pay that amount over eight quarters in cash,” said John Stern, the Minneapolis-based bank’s chief financial officer. “But from an accounting perspective, we recognize the entire amount in one period, so all the banks are doing it at the same time this quarter.”
When they reported their earnings last week, some of the country’s largest banks revealed how much they were 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 has raised concerns about other banks’ capital levels and their ability to withstand similar financial pressures. US Bancorp’s capital level raised some eyebrows last year because it fell following its $8 billion acquisition of MUFG Union Bank in late 2022.
But on Wednesday, the bank reported that it has now increased its capital level higher than it was before the deal closed. Executives told analysts they plan to continue building it further as they also anticipate and prepare for higher regulatory limits for this metric.
“2023 has been a turbulent year for the industry,” CEO Andy Cecere told analysts on a conference call. “However, we have achieved a lot, including our successful conversion of Union Bank in late May and achieving $900 million” in cost synergies related to the deal, achieving the company’s goal.
In 2024, the bank will be “adequately allocated to macroeconomic uncertainties” and seeing positive momentum from its fee-based business, Cecere said.
Executives told analysts that the bank expects four interest rate cuts this year by the Federal Reserve, starting in the second quarter of this year. Stern said the cuts should not have a significant impact on how much the bank profits this year, no matter how many cuts actually occur.
High interest rates have been a mixed bag for the bank. While that means more interest from loans, the bank’s deposit costs also increased as consumers moved more of their money into higher-interest accounts such as money markets or CDs. In the fourth quarter, costs outpaced the borrowing feature, so net interest income was down 4.2% compared to last year.
Meanwhile, the bank’s non-interest income jumped 28.2%, driven by higher payment services revenue and other fees. Its total quarterly revenues increased by 6.2% to $6.8 billion, compared to $6.4 billion a year ago.
US Bancorp’s profits were $847 million, down from $925 million in the same quarter last year. In addition to the insurance assessment, the company also added $49 million to loan loss reserves and recorded $171 million in integration costs related to the acquisition of Union Bank.
Late last year, US Bancorp decided to exit a business in which it provided cash services to other banks’ ATMs. This is a capital-intensive business with a lot of costs associated with it, Stern said. He said it was a business worth about $120 million.
For the full year of 2023, US Bancorp generated record revenue of $28.1 billion, primarily due to the addition of Union Bank.
Meanwhile, earnings during the year were under pressure due to merger costs, an increase in the reserve fund for potential bad loans, and the special assessment of the Federal Insurance Fund. But the bank still reported profits of $5.4 billion last year, down from $5.8 billion in 2022.