U.S. Bancorp posted a larger-than-expected 18 percent decline in quarterly profit due to mounting housing-related credit losses, and said that tough economic conditions will cause more loans to go bad.
The results, from a bank that has avoided the massive credit losses afflicting many rivals, augur poorly for the rest of the nation's banks, many of which are expected to report dismal quarterly results this week and next.
U.S. Bancorp is the sixth-largest U.S. bank and the first of the 10 biggest to report. Its shares fell Tuesday to their lowest level in more than five years, dropping $2.01, or 8.6 percent, to $21.32 in morning trading.
Financial shares are under pressure as investors worry about liquidity and capital needs. Regulators seized the mortgage lender IndyMac last week, and shares of such lenders as Citigroup and Wachovia have lost well over half of their value.
Second-quarter net income for the Minneapolis-based bank fell to $950 million, or 53 cents per share, from $1.16 billion, or 65 cents, a year earlier.
Analysts on average forecast a profit of 59 cents per share, according to Reuters Estimates. Revenue increased 7 percent to $3.8 billion, matching the average forecast, while expenses rose 10 percent to $1.84 billion.
U.S. Bancorp set aside $596 million for credit losses, triple the year-earlier level, citing the impact of falling housing prices on homeowners, homebuilders and suppliers, as well as on commercial and consumer lending.
Net charge-offs, or loans the bank doesn't expect to be repaid, doubled to $396 million, and nonperforming assets doubled to $1.14 billion. The latter increased 34 percent from $845 million as of March 31.
The increase in reserves, together with $63 million of securities losses including from structured investments, reduced profit by 11 cents per share, U.S. Bancorp said.
Chief Executive Richard Davis said it was prudent to boost reserves "given the continued stress in the economy," and said he expects net charge-offs to increase this quarter.
Davis also said the bank does not expect to buy back stock for the rest of 2008. Its Tier-1 capital ratio, which measures the ability to cover losses, was 8.5 percent as of June 30, down from 8.6 percent in March but "on target," Davis said.
The bank was not immediately available for further comment.
M&T Bank , a large mid-Atlantic regional bank, on Monday reported an unexpected increase in credit losses, leading to a 15.6 percent decline that day in its shares.
At U.S. Bancorp, lending income increased 16 percent to $1.91 billion, helped by an increase in net interest margin to 3.61 percent from 3.44 percent, while noninterest income was little changed at $1.89 billion.
U.S. Bancorp operates 2,542 branches in 24 U.S. states, largely in the western two-thirds of the country. It ended the quarter with $246.5 billion of assets.
Through Monday, U.S. Bancorp shares had fallen 26 percent this year, compared with a 44 percent decline in the KBW Bank.