MINNEAPOLIS — With the economy on the upswing, U.S. Bancorp has decided to release more than $1 billion in reserves stashed away last year to cover potential loan defaults from the pandemic.
As a result, U.S. Bancorp’s profit soared to $2.28 billion in the first quarter, up 95% from a year ago.
Other big banks have made similar moves in recent months, a sign that they are increasingly upbeat about the strength of the economic recovery.
U.S. Bancorp had been hesitant to start freeing up those funds in January, with executives pointing then to some continued uncertainty. But on Thursday, they pointed to the passing of additional government relief, vaccine availability, and reduced levels of new virus cases as having shifted the economic landscape toward a clear improving trend. The bank has now released a little under half of the additional reserves it built up last year to cover the potential bad loans.
“A lot has changed in the last year, and our first quarter results were reflective of improving economic conditions and increasing consumer confidence and spending activity,” Andy Cecere, CEO of the Minneapolis-based company, said in a statement.
He added that credit quality continues to perform better than expected and its payments business is poised to reap the benefits of the recovery and renewed business and consumer activity.
However, revenue declined by 5.2% from a year ago to $5.47 billion.
Net interest income declined 4.9% largely driven by lower rates and related mortgage refinancing activities compared to a year ago. The company said it expects opportunities for growth in this area in future quarters.
Noninterest income also decreased 5.7%, largely due to lower mortgage banking revenue, deposit service charges, security gains and other noninterest income. Its payment services revenue was essentially flat compared to a year ago as consumer spending has strengthened driven by government relief, states easing up on restrictions, and consumer behavior beginning to normalize.
Average total loans for the first quarter was $3.7 billion, a 1.2% decline from a year ago, mostly because of a drop in commercial loans due to paydowns by corporate customers, lower credit card loans fueled by stimulus payments, and lower home equity and second mortgages as customers primarily focuses on refinancing.
The company’s noninterest expenses also increased 1.9% as a result of performance-based incentive compensation and technology and communications charges.