US Bancorp 4Q profit falls on higher credit costs

AP) - U.S. Bancorp on Wednesday reported a 72 percent drop in earnings in the final three months of last year - its eighth-straight quarterly profit decline - as credit costs and securities losses climbed.

For the fourth quarter of 2008, the Minneapolis-based bank reported net income applicable to common shareholders of $260 million, or 15 cents per share, down from $927 million, or 53 cents per share, a year earlier.

Analysts polled by Thomson Reuters, on average, were expecting earnings of 22 cents per share.

Results suffered as the company set aside $1.27 billion during the quarter to cover bad loans. This compares with a loan loss provision of just $225 million in the fourth quarter of 2007, and $748 million in the third quarter of last year.

Total revenue inched up 1 percent to $3.62 billion, driven by strong growth in net interest income. But this was offset by lower fee-based revenue and securities losses.

Net interest income, or the difference between how much it costs a bank to borrow money and how much it receives from lending money to customers, rose 23 percent to $2.16 billion from $1.76 billion in the prior-year quarter.

Noninterest income, or income earned from fees and other charges, fell 19 percent to $1.46 billion.

Chairman and Chief Executive Richard K. Davis said he was "disappointed" in the company's inability to increase earnings, but is confident the bank will continue to navigate the economic downturn.

"We are not immune to the challenges facing our industry," he said during a conference call with investors.

However, the bank remains well capitalized by regulatory standards, he said, and the company has no plans to raise additional capital, nor will it need to seek further government assistance.

This didn't seem to reassure investors, who sent shares down nearly 12 percent, or $1.72, to $13.61 in morning trading.

Investors have grown increasingly fearful in recent weeks that banks will need more government assistance as loan losses continue to climb.

The government has already pumped $250 billion into the financial sector through preferred stock purchases, and has been forced to provide Citigroup Inc. and Bank of America Corp. with $20 billion in extra aid apiece.

U.S. Bancorp received $6.6 billion from the Treasury Department last fall as part of the government's capital purchase program. Including the investment, the bank's tier 1 capital ratio, a measure of financial strength, stands at 10.6 percent as of Dec. 31.

U.S. Bancorp has also been able to capitalize on the current economic downturn by acquiring the banking operations of two failed California institutions from the Federal Deposit Insurance Corp. The recent acquisitions of Downey Savings & Loan and PFF Bank & Trust added about $12 billion in deposits and 213 branches, primarily in California.

As part of the transactions, U.S. Bancorp agreed to assume the first $1.5 billion of expected losses on Downey's assets, and the first $100 million of expected losses on PFF's assets. Any losses above that will be absorbed under a loss sharing agreement with the FDIC.

Excluding the acquisitions, the company experienced average loan growth of 12.7 percent over the fourth quarter of 2007, and average deposit growth of 9.6 percent.

Still, the bank continues to see deterioration in several of its loan portfolios. Net chargeoffs, or loans written off as unpaid, were $632 million in the fourth quarter, up from $225 million in the year-ago period. The ratio of chargeoffs to total loans grew to 1.42 percent from 0.59 percent. The increase was primarily concentrated in residential home loans, credit cards and other consumer loans.

U.S. Bancorp said it expects chargeoffs to continue to increase during 2009.

Nonperforming loans stood at $2.62 billion at Dec. 31. This includes $643 million of covered assets related to the Downey and PFF acquisitions, the company said.

For the full year, the bank earned $2.82 billion, or $1.61 per share, down 34 percent from $4.26 billion, or $2.43 per share, in 2007.

(Copyright 2009 by The Associated Press. All Rights Reserved.)

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