U.S. Bancorp Beats Estimates Despite Big Charges, Provisions
U.S. Bancorp said Tuesday its first-quarter profit fell 61 percent as it more than doubled its provision for loan losses and took charges tied to securities losses. However, the bank still beat analysts’ expectations.
Minneapolis-based U.S. Bancorp’s net income available to common shareholders fell to $419 million, or 24 cents per share, during the quarter ended March 31. The bank earned $1.08 billion, or 62 cents per share, during the same quarter a year ago.
Analysts polled by Thomson Reuters, on average, forecast earnings of 20 cents per share for the quarter.
U.S. Bancorp’s first-quarter profit fell primarily due to an increase in money set aside to cover loan losses and charges tied to investments.
Like many banks amid the ongoing recession, U.S. Bancorp is facing more loan losses as customers fall behind on payments. U.S. Bancorp says it set aside $1.32 billion for loan losses during the first quarter. The bank’s provision for loan losses totaled $485 million during the first quarter in 2008.
The bank said the increase in loan losses was mainly driven by declining home prices in most regions and deteriorating economic conditions hurting its commercial and consumer loan portfolios.
Net charge-offs, or loans written off as not being repaid, swelled to $788 million during the first quarter from $293 million during the year-ago period. The charge-off ratio — which measures loans written off as not being repaid as a percentage of total loans — increased to 1.72 percent from 0.98 percent during the year-ago quarter.
A continued rise in charge-offs is expected in the upcoming quarters as well, Richard Davis, U.S. Bancorp’s president and chief executive, said during a morning conference call with investors.
Davis added that U.S. Bancorp will continue to add to loan-loss reserves in the coming quarters as charge-offs continue to rise. He said he doesn’t expect the bank to stop building reserves until there is a clear reduction in charge-offs.
U.S. Bancorp also recorded $198 million in securities losses, primarily tied to reducing the value of an investment in preferred stock of a domestic bank. The securities loss reduced earnings by 9 cents per share.
Despite the rising charges, U.S. Bancorp’s profit was buoyed by record mortgage banking revenue. U.S. Bancorp received $25 billion in loan applications during the quarter and mortgage loan production volume reached $13.4 billion.
That production allowed U.S. Bancorp to more than double its mortgage banking revenue. It generated $233 million in mortgage banking revenue during the first quarter, compared with $105 million during the same period last year.
Many banks have announced strong mortgage banking revenue for the first quarter thanks to declining interest rates and a surge in refinancing activity.
Net interest income, the difference between how much it costs a bank to borrow money and how much it receives from lending money, increased 15 percent to $2.1 billion in the first quarter from $1.83 billion during the same quarter a year earlier.
Non-interest income, money derived from fees and other charges, fell 13 percent to $1.79 billion, from $2.04 billion. Non-interest income fell mainly because the bank recorded a special gain of $492 million during the first quarter in 2008 from the initial public offering of Visa Inc.
Amid the ongoing market turmoil, U.S. Bancorp was among hundreds of banks that received money from the government as part of the Treasury Department’s attempts to unclog the stagnant credit markets. U.S. Bancorp, which has remained profitable through the credit crisis and ongoing recession, received $6.6 billion as part of the program known as the Troubled Assets Relief Program.
“We would like to pay back our TARP obligations only and after we have permission from our regulators and it’s in good alignment with what the government wants at the right time,” Davis said. “But, it’s my hope if the stress tests are positive, that’s your first right to say I would like to repay the TARP, if I may.”
The government is in the process of running a round of tests to determine if the nation’s largest banks have enough capital. The results of the tests are expected in the coming weeks.
Shares of U.S. Bancorp fell 29 cents to $15.65 in premarket trading.
4/21/2009 9:13 AM STEPHEN BERNARD AP Business Writer NEW YORK