U.S. bank profits jump after releasing more funds for pandemic rainy days
Consumer spending is gradually increasing, and borrowing with it, US Bancorp executives said Thursday, as the company’s latest results pointed to an economy in transition.
Over the next few months, consumers will likely drive loan and fee growth at the U.S. bank faster than businesses, which are still teeming with capital that the government and Federal Reserve have made available to combat the economic downturn caused. by the pandemic.
In the three months ended September 30, US Bancorp released more of the money it set aside last year in case the downturn resulted in a significant number of customers in default.
The accounting move helped profit jump 28% to $ 2 billion in the quarter. The executives also cited the improvement in the economic situation and the strong performance of credit and guarantees for the increase in profits.
Throughout 2020, US Bank has set aside an additional $ 2 billion as an allowance for credit losses. But this year, it brought in $ 1.7 billion from those funds, accounting for 27% of its $ 6.3 billion in profits in the first nine months of 2021.
Revenue fell 1.2% to $ 5.89 billion, with lower interest income and non-interest charges from other services. Large commercial borrowers reduced or repaid their loans, a key factor in a 1.7% drop in interest income. The company’s commercial loan base was 12% lower at quarter end compared to a year ago.
Terry Dolan, the company’s chief financial officer, said companies continue to work with funds that helped them weather last year’s recession. It will be a few more quarters before commercial lending activity increases sharply, the company believes.
“Over the next six to 12 months, we’re going to see stable to slightly better loan growth on the business side, but it won’t be gangbusters,” Dolan said.
In addition, the US Bank is seeing an end to the fees associated with administering the federal government’s primary pandemic relief to businesses, the Paycheck Protection Program.
In contrast, growth in personal banking services is abundant, consistent with broader measures of consumer spending.
“Credit cards are now starting to grow,” Dolan said. “Auto loans are still very strong and mortgages continue to be very strong as people buy homes.”
The US bank’s net interest margin, a measure that shows the difference between what it charges customers for loans and what it pays them for deposits, fell to 2.53% from 2.67 % one year ago.
The results did not include any effect of its decision last month to acquire MUFG Union Bank in an $ 8 billion transaction, the largest venture by the company since 2001. The US bank agreed to pay 5 , $ 5 billion in cash and the rest in stock for California. based banking company, in a deal expected to close next year. The company ended the third quarter with about $ 64 billion in cash on its balance sheet.