Consumer spending is gradually rising, and borrowing along with it, executives at U.S. Bancorp said Thursday as the company's latest results underscored an economy in transition.
For the next few months, consumers will likely drive loan and fee growth at U.S. Bank more quickly than businesses, which are still awash with capital that the government and Federal Reserve made available to fight the economic downturn caused by the pandemic.
In the three months ended Sept. 30, U.S. Bancorp released more of the money it set aside last year in case the slowdown led sizable numbers of customers to default on loans.
That accounting move contributed to a 28% jump in profit to $2 billion in the quarter. Executives also cited the improving economic picture and strong credit and collateral performance for the profit increase.
Throughout 2020, U.S. Bank put aside an additional $2 billion as a provision for credit losses. But this year it has brought back $1.7 billion of those funds, accounting for 27% of its $6.3 billion in profit during the first nine months of 2021.
Revenue fell 1.2% to $5.89 billion, with declines in both interest income and noninterest fees from other services. Large commercial borrowers have reduced or paid off their loans, a key factor in a 1.7% decline in interest income. The company's commercial loan base was 12% smaller at the end of the quarter than a year ago.
Terry Dolan, the company's chief financial officer, said businesses are still working through the funds that helped them withstand last year's recession. It will be another few quarters before commercial loan activity rises sharply, the company estimates.
"For the next six to 12 months, we're going to see stable to marginally better loan growth on the commercial side, but it's not going to be gangbusters," Dolan said.
In addition, U.S. Bank is seeing an end coming to fees associated with administering the federal government's chief pandemic relief to businesses, the Paycheck Protection Program.
By contrast, there's plenty of growth in consumer banking, which is in line with broader measures of consumer spending.
"Credit cards are now starting to expand," Dolan said. "Auto lending is still very strong and then mortgages continue to be very robust as people are buying homes."
U.S. 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, shrank to 2.53% from 2.67% a year ago.
The results did not include any effect from its decision last month to acquire MUFG Union Bank in an $8 billion deal that is the largest undertaken by the company since 2001. U.S. Bank agreed to pay $5.5 billion in cash and the rest in shares for the California-based banking firm, in a transaction that's likely to close next year. The company ended the third quarter with about $64 billion in cash on its balance sheet.