USB US Bancorp

By Lisa Beilfuss 

U.S. Bancorp said its first-quarter profit slipped, as the lender set aside more reserves to cover potential energy loan losses and booked sharply lower mortgage-banking revenue amid heightened competition.

The Minneapolis-based lender logged earnings of $1.39 billion, down from $1.43 billion a year earlier. On a per-share basis, profit was flat at 76 cents thanks to a lower share count.

Revenue edged 2.7% higher to $5.04 billion. Analysts projected 76 cents in earnings per share on $5.06 billion in revenue.

Shares rose more than 1% in morning trading as bank stocks ticked up broadly.

U.S. Bank is one of the country's biggest banks, offering commercial banking and retail branches across much of the West and Midwest. The company said its energy-related commercial loan portfolio deteriorated during the quarter, prompting it to push its loan-loss provision up to $330 million -- 25% higher than a year earlier and up 8.2% from the fourth quarter.

The company said Wednesday that as of March 31, roughly $3.4 billion of commercial loans were to customers in energy-related businesses, representing 1.3% of its portfolio and up slightly from the end of December. Reserves for these loans were 9.1% of U.S. Bank's outstanding balances at the end of March, up from 5.4% three months earlier. The bank also said that 52% of loans to the sector were considered "criticized," meaning they were at higher risk of default.

Analysts have been keeping a close eye on energy customers' draws on their bank credit lines this quarter. At U.S. Bank, energy loan balances were up after a handful of borrowers drew on their lines, executives said, adding that such draws could continue.

Meanwhile, revenue from fee businesses inched 0.2% lower to $2.15 billion as mortgage banking revenue dropped 22% on lower originations and lower pricing. A 10% rise in fees from credit and debit cards help to partially offset the mortgage slide; for U.S. Bancorp, card fees make up the biggest chunk of noninterest income.

Like many other lenders, the company has hoped the Fed's decision to lift interest rates late last year -- albeit modestly -- would bolster profitability. But a key measure of lending profitability, net interest margin, slipped to 3.06% during the period from 3.08% a year earlier. U.S. Bank attributed the decline to a shift in its loan portfolio, which countered impact of higher interest rates. From the fourth quarter, the metric held steady.

The bank said it paid higher interest rates on deposits to some commercial customers after the December increase.

Overall lending grew 5.8%, driven by commercial and credit card lending.

--Rachel Louise Ensign contributed to this article.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

April 20, 2016 13:18 ET (17:18 GMT)

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