U.S. Bancorp Weathering the Credit Storm

Net charge-offs totaled $396 million for the second quarter, or an annualized 0.98% of average loans. The company's quarterly provision for loan losses increased to $596 million, from $485 million last quarter and $191 million in the second quarter of 2007.

Elevated provisions for loan loss reserves are the major factor in the weakening earnings for most major regional banks.

Credit Quality

When bank holding companies release their financial statements, they play little games with nonperforming loan figures, by excluding loans past due 90 days (but not yet in nonaccrual status) from "nonperforming loans." We include them when analyzing banks and S&Ls.

When comparing asset quality for large banks in this environment, it is useful to look at nonperforming assets as a percentage of total assets. Here we include all nonperforming loans and other assets, plus repossessed real estate. We are excluding restructured loans that are still performing:

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While details on loans past due 90 days but still considered performing were not released, the biggest increase in nonperforming loans was in the construction and development category. Nonperforming construction loans increased 54% from the first quarter, to $326 million as of June 30.

The largest percentage increase in net charge-offs was in residential loans, with $53 million charged-off during the second quarter, more than double last quarter. The biggest dollar increase in net charge-offs was in credit card loans. Net card charge-offs during the quarter were $139 million, up 29% from last quarter.

Capital Levels and Reserve Coverage

As we discussed Monday when we looked at US Bank NA as part of our discussion on banks based in Ohio, US Bancorp has fared well so far, since it has not had to cut dividends or make other moves to preserve or raise capital.