U.S. Bancorp's profit swelled as it freed up more reserves amid improving economy

U.S. Bancorp's profit swelled this spring after it released more of the money it put aside in the early days of the pandemic to cover potential bad loans as the economy soured.

Executives said Thursday that they're feeling optimistic heading into the second half of the year as they see improving credit trends and increased spending by consumers and businesses as a result of aggressive government stimulus programs.

"The economy continues to recover towards pre-pandemic activity levels, and the consumer and business spending activity continues to improve," Andy Cecere, the company's CEO, told analysts on a conference call.

"Credit quality trends have been a positive surprise," he added. "And our payments volumes have come back a bit faster than we expected as recently as a few months ago."

Sales volumes in each of the bank's three payment businesses as of late June exceeded 2019 levels for the first time since the beginning of the pandemic, Cecere added.

The Minneapolis-based bank's shares rose 3% on Thursday after it reported higher-than-expected earnings for the second quarter. Net income grew to $1.98 billion, or $1.28 a share, from $689 million, or 41 cents a share, in the same period a year ago.

Other of the nation's largest banks also saw big jumps in profit amid a brightening economy and by releasing the pandemic reserves.

Terry Dolan, the company's chief financial officer, said in an interview that the bank could still release a little bit more in coming months.

"I would suspect as risk ratings improve and if delinquencies stay low that there may still be some change to the reserve, but it's getting pretty close," he said. "I think everybody is getting back to what would be a more normal level."

U.S. Bancorp still struggled a bit, though not as much as some analysts had expected, with revenue, which declined less than a percent to $5.78 billion.

Its net interest income dropped 1.9% to $3.16 billion compared with a year ago, mostly due to lower interest rates and lower average loan balances.

Meanwhile, its noninterest income, which is derived from its fee-based services, increased 0.2% to $2.26 billion, driven by improvements in payment services revenue and deposit service charges.