U.S. Bancorp Profit Declines as Energy-Loan Provisions Surge

  • Per-share earnings of 76 cents match analysts' estimates
  • Bank's provisions for credit losses jump 25%, driven by energy

U.S. Bancorp, the nation’s largest regional lender, said profit dropped 3.1 percent in the first quarter as provisions for bad loans surged 25 percent, driven by a jump in downgrades on energy-related credits.

Net income fell to $1.39 billion, or 76 cents a share, from $1.43 billion, or 76 cents, a year earlier, the Minneapolis-based bank said Wednesday in a statement. That matched the average estimate of 31 analysts surveyed by Bloomberg.

Oil prices have plunged more than 60 percent since their 2014 peak, forcing banks to set aside billions of dollars to cover bad energy loans. Standard & Poor’s said in March that U.S. regional banks could suffer losses if oil prices continue to fall. U.S. Bancorp Chief Executive Officer Richard Davis has relied on fees from credit cards and auto financing to bolster earnings.

“Although the pressures from the energy industry negatively impacted the quarter, we took appropriate measures and remain confident that we are well positioned to continue delivering industry-leading returns throughout the year,” Davis, 58, said in the statement.

U.S. Bancorp shares rose 1.7 percent to $42.63 at 10:59 a.m. in New York. The stock slipped less than 1 percent this year, compared with the 5.4 percent decline of the 24-company KBW Bank Index.

Souring Loans

Provisions for credit losses increased to $330 million from $264 million a year earlier, and energy-related commercial non-performing assets jumped $257 million from the fourth quarter, the company said. Reserves for the commercial energy sector rose to 9.1 percent of outstanding balances from 5.4 percent at the end of December. The company said provision expenses will remain stable in the second quarter of this year during a conference call with analysts.

U.S. Bancorp’s loans to energy-related businesses were $3.4 billion as of March 31, about 1.3 percent of the total outstanding.

Revenue rose 2.7 percent to $5.04 billion, while expenses climbed 3.2 percent to $2.75 billion.

Comerica Inc., a Dallas-based regional lender, said Tuesday that first-quarter profit dropped 55 percent to $60 million as the bank increased its provision for credit losses more than 10-fold to $148 million, due largely to soured energy loans. The firm said it had hired Boston Consulting Group Inc. to help undertake a “comprehensive review” of its expense and revenue base.

PNC Financial Services Group Inc., the second-largest U.S. regional bank, last week reported profit that missed analysts’ estimates as provisions for bad loans almost tripled from a year earlier.

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