U.S. Bancorp Results In-Line

The Midwestern bank was boosted by Visa's IPO, but weighed by bad loans and other investments.
By Debra Borchardt ,

U.S. Bancorp

(USB) - Get Report

saw its income drop by 3.5%, but managed to beat earnings estimates by a penny.

The Midwestern bank reported a profit of $1.09 billion, or 62 cents per diluted share, vs. $1.13 billion, or 63 cents a share, in the year-ago period. Analysts had estimated a profit of 61 cents a share, according to Thomson Financial.

Similar to other banks, U.S. Bancorp enjoyed a boost from a sale of

Visa

(V) - Get Report

shares in the electronic payment processor's

initial public offering

last month. The bank booked a $492 million gain related to the IPO.

That good news, however, was offset by poor quality loans and other investments. Net charge-offs for the first quarter climbed to $293 million, compared with $225 million for the previous quarter and $177 million in the first quarter of 2007.

Total nonperforming assets jumped to $845 million at the end of March 31, vs. $690 million at the end of December. Nonperforming assets increased $155 million, or 22.5%, during the first quarter of 2008 over the fourth quarter of 2007, as a result of stress in residential home construction and related industries, an increase in foreclosed properties and the impact of the economic slowdown on other commercial customers.

"As expected, net charge-offs and nonperforming assets increased in the first quarter at manageable levels for our company," Chairman, President and CEO Richard Davis said in a company statement. "Declining home prices in many of our markets, in addition to stress in the residential home building and mortgage-related industries, are expected to continue through the balance of the year. Given our company's overall credit risk profile, however, we anticipate that expected increases in net charge-offs and nonperforming assets in the near term will continue to be manageable."

The bank insisted in its statement that the capital levels were strong. It also noted that total commercial loans grew $2.1 billion or 4.2% in the first quarter of 2008 over the fourth quarter of 2007, driven by growth in corporate and commercial banking balances. It seems business customers that can no longer tap into the capital markets due to the tightening of credit in that market are turning to the banks for credit facilities to fund business growth.

U.S. Bancorp shares rose modestly Tuesday morning. Recently, the stock was rising 23 cents to $31.90.

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