U.S. Bancorp has avoided stricter regulatory requirements — for now.
The Federal Reserve informed the Minneapolis banking giant this week that it will no longer be required to meet liquidity and other federal requirements for so-called Category II banks by the end of 2024, according to the company.
"The Fed decision is really going to give us more time and flexibility going forward," U.S. Bancorp Chief Financial Officer John Stern said in an interview Wednesday.
The company's
U.S. Bancorp sold about $30 billion of investment securities, according to the Fed. The company has also gotten rid of mortgages issued to noncore customers in recent months, Stern said. U.S. Bancorp said it plans to keep a close eye on total assets and
Banks are required by their regulators to maintain a certain level of assets that can swiftly be converted into cash in the case of unexpected financial obligations, including hefty deposit requests. A bank's total assets help determine which liquidity requirements it must meet.
Total assets at the country's seventh-largest banking company fell nearly 2% on a linked-quarter basis to $668 billion at Sept. 30. They were $681 billion in the second quarter and $682 billion in the first quarter. Before U.S. Bancorp began selling assets this year, its acquisition of Union Bank boosted total assets from $601 billion in the third quarter of 2022 to $675 billion in the fourth quarter of 2022.
But the effort to keep total assets below $700 billion in the short-term doesn't mean U.S. Bancorp can't add assets if it wants, executives said.
"We're not under an asset cap at all," U.S. Bancorp CEO Andy Cecere told analysts on a Wednesday morning call.
Softening demand for both consumer and commercial loans industrywide should make it easier to keep total assets in check. Cecere called loan growth at the bank and across the industry "relatively tepid." At U.S. Bancorp, total loans were down 3.5% in the third quarter compared with the second quarter.
It's possible the Fed could impose additional regulatory requirements for U.S. Bancorp at some point. The company said it doesn't expect any changes to its capital and liquidity requirements until the second half of 2025 at the earliest.
U.S. Bancorp's third-quarter profit of $1.74 billion, announced Wednesday, came in lower than expected because of a 42% increase in provision for credit losses from a year earlier. Some of that increase can be explained by the closing of the Union Bank deal in December, which added about $58 billion of loans to the bank's balance sheet.
Net interest income totaled $4.2 billion in the third quarter, down 4.1% from the second quarter. U.S. Bancorp executives said they expect the metric to reach its low point in the fourth quarter of 2023 because of still-high interest rates. The company had previously told investors to expect the metric, which measures lending profitability, to bottom out in the third quarter of 2023.
Shares of U.S. Bancorp closed down more than 4% at $33.37 on Wednesday. On Tuesday, news of the regulatory reprieve boosted the company's stock price as much as 9.6%.
