USAA Bank back to quarterly profit

Amid the pandemic, S.A. company had seen losses for the past seven reporting periods

USAA Federal Savings Bank’s pandemic-long streak of losses has ended.

The San Antonio financial institution posted a $30 million profit in the three months ended March 31, snapping seven consecutive quarters of red ink. It lost a combined $858 million over that span.

USAA Bank lost $323.9 million in 2020 and $386.5 million in 2021 — only the second time in its history it lost money in backto-back years. The first was in its first two full years of operation in 1984 and 1985, when the institution was a fraction of the size it is today.

The bank, with $118.3 billion in assets, returned to profitability on just under $1.48 billion in revenue last quarter. A year ago, it lost $78.9 million on about $1.36 billion in revenue.

“USAA Bank continues to demonstrate strong capital and liquidity positions that ensure our financial strength and enable us to serve our members when they need us most,” a spokesman said in an emailed statement. “In Q1 2022, we continued to experience improvement in our core business driven by expanding net interest margins, strong asset quality, and disciplined expense management. We expect to see positive trends continue.”

In a February interview, Senior Financial Officer Michael Moran cited a “number of issues” for the losses in 2020 and 2021. They began after the Federal

Reserve cut interest rates to close to zero in March 2020 to combat economic upheaval caused by the coronavirus pandemic.

Falling loan volumes, soaring deposits and record-low interest rates all negatively affected the bank’s bottom line. The bank had $37.8 billion in loans on its books at the end of the latest quarter, down $1.9 billion — almost 5 percent — from a year

ago. Deposits climbed more than $9 billion — or about 11 percent — to $91.5 billion.

The bank’s costs soared in 2020 and 2021. It spent heavily on technology systems, hiring and compensation to improve its business. Salaries and benefits increased by more than $100 million, or 20 percent, to $634 million in the first quarter.

The bank also had to strengthen its risk management and regulatory compliance after regulators levied penalties for alleged violations of banking regulations.

In March, the Financial Crimes Enforcement Network, or FINCEN, and the Office of the Comptroller of the Currency levied a combined $200 million in fines against USAA Bank. FINCEN reported that it failed to accurately report thousands of suspicious transactions by its customers — including those using personal accounts for apparent criminal activity.

The bank had to pay only $140 million because FINCEN agreed to credit the OCC’S $60 million fine. The bank spokesman said the fine was mostly included in year-end 2021 results, with the rest included in the first quarter.

Those fines came after others in past years.

In 2020, the OCC fined the bank $85 million for “violations of law” that were “part of a pattern of misconduct.” The bank neither admitted nor denied violating banking laws.

And in 2019, the Consumer Financial Protection Bureau directed the bank to pay a $3.5 million penalty and $12 million in restitution to settle charges that it violated banking laws.

The bank trimmed its workforce by 90 employees in March on falling demand for home loans. It had 15,949 full-time employees as of March 31.

‘Servicing fees’ soar

USAA Bank’s revenue was up $120 million in the latest quarter, a change of 8 percent from a year ago, mostly because of a nearly $101 million jump in noninterest income — also known as fee income.

The revenue it generated from “servicing fees” soared to $128 million, a 158 percent increase from the first quarter of 2021, when it was $49.7 million. USAA Bank’s spokesman attributed the jump to rising interest rates on the value of its mortgage servicing rights.

The bank’s revenue from “service charges” increased about $16 million, or 35 percent, to $62 million in the first quarter. The bank charges a variety of fees — from $29 on a stop-payment order to $45 for an international wire to $5 for a returned item.

Such charges include the $2 the bank charges a customer every time they make a withdrawal at a NON-USAA ATM after 10 withdrawals in any monthly statement cycle.

Later this year, the bank intends to end that $2 ATM fee. Customers may still be charged fees by other companies for using ATMS outside USAA Bank’s network, it said in a statement on its website last month.

It also said it will stop charging the $29 fee for nonsufficient funds, known as an NSF fee, for each transaction it declines or returns unpaid when an account’s available balance isn’t enough to pay for the transaction.

“We continuously evaluate and are committed to providing products and services to enable members to manage their financial security,” Ryan Bailey, USAA Bank’s head of retail banking, said in the statement.

The bank doesn’t charge overdraft fees, according to its depository agreement and disclosures.

Eliminating NSF fees

USAA Bank is jumping on a bandwagon of banks doing away with certain fees.

“This is a national trend started by a few big banks and now spreading everywhere, although some banks only give up a portion of it and are very careful how and when to charge it,” said Kenneth Thomas, a Miami-based bank analyst and president of Community Development Fund Advisors.

“It is a front-burner consumer issue, especially by the Consumer Financial Protection Bureau, where they are all over bank ‘junk fees,’ ” he added.

In January, the CFPB said it would use its powers to reduce “exploitative junk fees charged by banks and financial companies.”

Some of the nation’s biggest banks — including Bank of America and Wells Fargo — had already revealed that month that they were eliminating NSF fees and certain overdraft charges. The Pew Charitable Trusts called it a “watershed month for boosting consumer protections.”

Last week, Frost Bank — the largest regional bank based in San Antonio — revealed it expects to eliminate NSF fees in the next few months.

In addition, Frost is doing away with certain overdraft fees — expanding a feature it introduced last year to no longer assess fees on customers when they overdraw their checking accounts by up to $100 — as long as they have monthly direct deposits of at least $500. Frost intends to expand that this year to include all consumer customers.

The changes will cost Frost $3.4 million to $3.6 million in fee revenue a year, it said.

The USAA Bank spokeswoman wouldn’t say how much dropping the fees would costs the bank, calling it “proprietary” information.

It generated almost $172.3 million from servicing fees last year, ranking it 51st among banks, according to the website Usbanklocations.com. Chase Bank topped the list, reportedly charging $699 million in servicing fees.