Second-quarter profit plunged 76 percent at U.S. Bancorp as credit costs rose and it repaid a government loan. But the results still beat Wall Street expectations as net revenue hit a quarterly record and the stock rose nearly 4 percent today.
Second-quarter profit plunged 76 percent at U.S. Bancorp as credit costs rose and it repaid a government loan. But the results still beat Wall Street expectations as net revenue hit a quarterly record and the stock rose nearly 4 percent today.
U.S. Bancorp said earnings available to common shareholders totaled $221 million, or 12 cents per share, in the three months ended June 30, down from $926 million, or 53 cents per share, a year ago.
Analysts had been expecting a profit of 10 cents per share, according to a poll by Thomson Reuters.
Net revenue was $4.2 billion, driven by increases in net interest income and higher mortgage banking revenue. The company said that was the highest it has had for any quarter.
Shares of the Minneapolis-based bank rose 69 cents, or 3.8 percent, to close at $18.96.
The bank said results were weighed down by higher costs to cover rising loan losses, as well as a charge to repay government bailout funds and a special fee to the Federal Deposit Insurance Corp.
However, Chief Executive Officer Richard K. Davis told analysts on a conference call that the company was seeing slight signs of improvement. He said for the next 90 days the company expects increases both in nonperforming assets and charges for writing off bad loans, but it expects the quarter-to-quarter increase in those numbers to slow.
"We are not seeing the end of the road here, but we are starting to see in our portfolio a new, repetitive improvement in overall performance of our credit," he told analysts. "We are starting to see that as first a decrease in the increase of negativity."
In a research note, Barclays Capital analyst Jason M. Goldberg called Wednesday's report, "A solid quarter with broad-based fee income strength and relatively better asset quality trends."
Net interest income, or income generated from loans and deposits, rose 10 percent to $2.1 billion from $1.91 billion in the year-ago quarter. Income from fees and other charges rose 9 percent to $2.06 billion, boosted by a spike in mortgage banking activity.
Chief Financial Officer Andy Cecere said the company is using its comparative strength in the banking sector to attract more saving and checking account customers with competitive rates.
"Our pricing strategy on the retail side is to focus on core checking and savings accounts. That is where we are certainly more a bit more aggressive," he said. "That's been our focus in growing core accounts and we have been successful with regard to that."
During the quarter, U.S. Bancorp recorded a one-time charge of $154 million, or 8 cents per share, as it repaid $6.6 billion it received last fall as part of the government's Troubled Asset Relief Program.
Additionally, U.S. Bancorp paid a fee equal to 5 cents per share to help replenish the FDIC's insurance fund.
The biggest hit to earnings, though, was higher credit costs. U.S. Bancorp set aside $1.4 billion to cover future loan losses, more than double the amount it reserved in the prior-year quarter.
The increase in the bank's provision for credit losses came as chargeoffs, or loans written off as unpaid, jumped to $929 million from $788 million in the first quarter and $396 million in the second quarter of last year.
Nonperforming assets stood at $4.02 billion at the end of the quarter, up from $1.14 billion at June 30, 2008.
The bulk of the bank's loan troubles came from its residential housing and credit card portfolios, as well as commercial real estate.
Davis said the demand for commercial loans is down overall due to the recession, but that might not be all bad for the banking industry.
"I think it is good for banks if we continue to be prudent as an industry and not reach to get loan growth by reducing our underwriting," he said. "Certainly won't do that at this company."
