US Bancorp Earnings Beat Estimates

Updated from 8:29 a.m. EDT

US Bancorp (USB) beat meager expectations with its earnings report on Tuesday, though the 51% profit decline due to higher loan losses will not go unnoticed by wary investors.

The Minneapolis-based bank reported a first-quarter profit of $419 million, or 24 cents per share, down from $1.1 billion, or 62 cents per share, a year earlier. Results topped the average analyst estimate by 4 cents per share, according to Thomson Reuters, though analysts largely underestimated bank results last quarter.

US Bancorp shares traded higher on its earnings report, recently up 8.3% at $17.26.

US Bancorp's net charge-offs grew by 25% during the quarter, as nonperforming assets increased by 30%. The company boosted its provision for future loan losses by $530 million, saying it expects conditions to deteriorate further throughout the year across commercial and consumer lines of credit. Those provisions now account for 2.37% of US Bancorp's loan book, vs. 2.09% at the end of last year.

CEO Richard Davis said during a conference call that deterioration in asset quality was spread across a wide array of businesses, though the most significant charge-offs came from lease financing, and construction and development loans, as well as credit cards. However, the company's future losses on assets of two recently acquired California banks are mitigated by a loss-sharing agreement with the Federal Deposit Insurance Corp.

Davis said that going forward, he doesn't expect reserve building against losses to halt over the next couple of quarters, but believes "we're going to find loans to start to moderate in that regard."