US Bancorp profit rises, but so do charge-offs

(AP) — U.S. Bancorp said on Wednesday that its fourth-quarter profit more than doubled from a year ago, as mortgage banking revenue grew.

The bank also benefited from growth in traditional deposits, giving it a cheap source of money for loans. Total average deposits rose 15.3 percent from a year ago to $36.4 billion. The company has raised what it pays depositors and is aiming to be about in the middle of the pack, after being near the bottom in the past.

It still wrote off more bad loans during the quarter, and expects those write-offs will increase in this quarter as well, because of economic conditions and weak home prices.

Net loan charge-offs were $1.11 billion, up 6.6 percent from the third quarter. The amount set aside to cover bad loans rose $278 million to $5.26 billion, a smaller increase than in recent quarters.

Even businesses that have lines of credit already set up aren't using them. They had borrowed just 30 percent of their credit limit, a new all-time low and down from 38 percent a year ago.

"The best indicator of loan demand is people who have it, can use it, it's theirs if they want it, it's a preferred rate, and they don't," Chairman and CEO Richard Davis said. "And until that starts to turn, that's your best proxy for what the real loan demand is out in the real world, and we're not seeing it."

In a hopeful sign, the bank said the percentage of consumer loans in the early stages of delinquency (running 30 to 89 days late) fell slightly compared to the third quarter, to 1.1 percent. However, the percentage of commercial loans in the early stages of delinquency rose slightly to about 1 percent.

Its shares rose 51 cents, or 2.1 percent, to $25 in afternoon trading.

U.S. Bancorp said it earned $580 million, or 30 cents a share, for the last three months of 2009, up from $259 million, or 15 cents a share, a year ago. The profits are after the company paid preferred dividends.

The profit and its $4.38 billion in revenue were better than analysts expected.

A new Federal Reserve rule taking effect July 1 will require banks to get their customer's permission before charging overdraft fees for debit card and ATM transactions. Without such permission, the transaction would just be denied.

Davis said he expects very few customers to opt-in for the fees. He said the bank is working on alternatives to denying the transaction, such as pre-paid debit cards or possibly a phone number to make a speedy transfer. U.S. Bankcorp expects to give up roughly $200 million to $300 million a year in lost overdraft charges once the new rule takes effect.

U.S. Bancorp, based in Minneapolis, has been under pressure to raise its quarterly dividend from the current 5 cents per share. It is taking a wait-and-see approach, though.

Davis said that before the dividend is raised the bank needs a better sense of its future profits, and it needs to know what new regulations the government plans. President Barack Obama has proposed a 0.15 percent tax on bank liabilities to get back the government's bailout money. Like several other big banks, U.S. Bancorp repaid its bailout money in June.

"We are confident that our earnings can support a higher dividend," Davis said on a conference call. "Unfortunately, there remains a great deal of uncertainty for all of us in the banking industry regarding potential legislative and regulatory changes in addition to the timing and the scope of the economic recovery."

For the full year, U.S. Bank reported a profit of $1.8 billion, down from $2.82 billion for 2008.