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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.

Gallery

Business and Economic News

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.

US Bancorp 4Q profit falls on higher credit costs

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