U.S. Bancorp's profit dipped more sharply in the third quarter than Wall Street expected because of shaky mortgages and loans to home builders but its status as a relative safe haven appeared to pay dividends in some key areas.

The Minneapolis company's chairman and chief executive, Richard K. Davis, said his $247 billion-asset operation is attracting new customers and their deposits in signficant volume. Third-quarter deposits rose 3% from the previous quarter, to nearly $140 billion, and Mr. Davis said the trend is accelerating.

"I don't think there's been a day in October" that "we haven't seen a net inflow of an exceptional level," he said on Tuesday.

While emphasizing that U.S. Bancorp would not rush into deals, Mr. Davis said it may be more open to an acquisition now that the Treasury Department has unveiled plans to invest in the nation's largest banks, including U.S. Bancorp.

"It would definitely make it more attractive," he said. "Some of … our targets look more attractive and our valuation is easier now, but to the extent that it has to hit all of the normal bellwether marks and expectations we have for the near term and long term, it still has to be a good deal. So it doesn't really change our philosophy, but it does make it easier to find our way to partnerships that might be more accretive."

If deposits continue to flow into U.S. Bancorp, analysts said, the company's credit provision — a big drag on earnings — should be adequate despite an economic downturn that is expected to carry into 2009.

"Overall, I think they did a pretty good job this quarter," Andrew Marquardt, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said in an interview Tuesday.

But he and other analysts said that U.S. Bancorp, like all financial companies, has a narrow margin for error these days.

Third-quarter profit fell 47% from a year earlier, to $576 million, or 32 cents a share. U.S. Bancorp, the nation's fifth-largest banking company, said mounting losses in its mortgage and residential home building portfolios forced it to more than triple its provision for credit losses from a year earlier, to $748 million.

Analysts polled by Thomson Reuters, on average, expected earnings of 47 cents a share. U.S. Bancorp said bad bets on mortgage-related securities helped trim about 18 cents a share.

Net chargeoffs of $498 million doubled from a year earlier, to 1.19% of average loans, and nonperforming assets of $1.5 billion also doubled, to 0.88% of total assets.

Net interest margin rose to 3.65%, from 3.44% a year earlier.

That U.S. Bancorp has wrestled with loan losses, despite long billing itself as a conservative lender, underscores the severity of the economic slump, observers said.

And conditions for even the strongest banks are bound to deteriorate further this quarter and early next year, as what most economists view as a recession inflicts nasty side effects on consumers, curtailing not only their demand for bank services but also their ability to pay off existing loans of all forms, analysts said.

For example, U.S. Bancorp's allowance for losses on credit cards, as a percentage of total loans, was 4.85% at the end of the third quarter, up significantly from 3.09% a year earlier. This was partly because of growth in the portfolio and partly because of consumers' struggles to manage debt.

"Right now, it's all a matter of degrees, and with U.S. Bancorp, it made money, so to that degree it looks good," Jeff K. Davis, a veteran bank analyst and a principal at Wolf River Capital LLC, said in an interview Tuesday. "But at the same time, we're in a recession, and there is no escaping it for any of the banks."

Its CEO said U.S. Bancorp's ability to stay comfortably in the black "reflected the underlying strength of our banking franchise," particularly a "prudent approach to risk management. But the results also demonstrated the fact we are not immune to the challenges of the current environment."

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