U.S. Bancorp put aside nearly $1 billion to cover potential losses from the downturn brought on by the coronavirus outbreak, a decision executives made in late March as the economy rapidly collapsed.
The Minneapolis-based company also grappled with multiple huge demands in recent weeks: a flurry of commercial loans as businesses scrambled for cash, tens of thousands of applications for the government’s small-business stimulus and the quick addition of features to digital banking services for consumers doing more banking from home.
On Wednesday, hours after announcing first-quarter results, the company contended with spotty outages of its website and digital app as traffic surged from customers trying to see if one-time tax refunds from the government stimulus program had arrived in their accounts. Several other banks experienced similar difficulties.
The quarterly results showed that net interest income fell, shaped by interest-rate cuts, and expenses grew. That sent profit down 31% for the nation’s fifth-largest bank.
Following stay-home orders since mid-March, U.S. Bank said 75% of its employees across the country were now working from home. But in discussing the results, Chief Executive Andy Cecere singled out employees in branches and elsewhere who were have kept the company’s public-facing operations going. “I’m proud of the way they came together,” he said.
Cecere said it was unclear how long the economic downturn will last, though the company is basing some of its decisions and models on the expectation that U.S. unemployment will remain around 10% for much of the year.
When downturns begin, banks routinely set aside more money for expected loan and credit losses. U.S. Bank reported a provision of $993 million for credit losses in the January-through-March period. That included $600 million in reserve for future losses.
“Nobody had developed a model that would take into consideration the COVID situation, so you have to adjust a lot,” said Terry Dolan, chief financial officer. “We look at risk ratings and how they will change, particularly for high-risk industries.”
In the first quarter a year ago, U.S. Bank took a provision of $377 million for such losses and $1.5 billion for them in all of 2019.
“In the industry, we’re going to see credit card losses increasing, nonperforming assets increasing, risk ratings getting worse for a while,” Dolan said. “All of that directionally says we’re going to have to continue to build the reserve for some time. How long is a function of the duration of the health care crisis.”
The company earned $1.17 billion, or 72 cents a share, in line with diminished expectations by investment analysts, during the quarter. Revenue was $5.77 billion, up 3.5%.
Net interest income, which accounts for about two-thirds of revenue, fell 1.1%. Noninterest income, which includes fees from investment management, credit cards and mortgages, was up 10%. Like other banks, U.S. Bank experienced a surge of mortgage-related fees as homeowners, spurred by drops in interest rates, refinanced their home borrowings.