U.S. Bancorp’s profit dropped 17% in the third quarter as it set aside another $635 million for possible loan defaults due to economic challenges from the coronavirus pandemic.
The provision would also cover expected losses from a credit card portfolio it acquired from State Farm, the company said.
But the special charge was smaller than the $1.7 billion it set aside in the previous quarter, a sign that the parent of U.S. Bank sees economic conditions improving.
Its net income in the third quarter was $1.58 billion, or 99 cents a share, compared to $1.91 billion in the same quarter a year ago. The results were better than expected, with analysts having forecast 91 cents a share.
Net interest income, which accounts for about two-thirds of revenue, declined by 1.6%, mostly because of lower rates.
Noninterest income rose 3.7%, fueled by gains in mortgage banking as more consumers refinanced their homes to take advantage of the low interest rates.
“Our results, during this challenging economic environment, are a testament to our diverse business mix and consistent approach to credit risk management,” Andy Cecere, the company’s CEO, said in a statement.
He said consumer loans and fee-based businesses, such as credit cards, also performed well.
“Our payments businesses benefited from improving consumer spending activity as state and local economies continued to open,” Cecere said.
Average total loans in the quarter were 6.4% higher than a year ago, driven by loans through the Paycheck Protection Program and the growth in residential mortgages.