Troubled Banks Weigh on U.S. Bancorp

Asset Quality

Bank holding companies usually exclude loans past due 90 days or more, but still accruing interest, from their reported nonperforming assets. We have included these loans in the table below, and in the nonperforming assets ratio, which was 0.92% as of Sept. 30, rising from 0.74% last quarter and 0.48% in September 2007.

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Net loan charges-offs in the third quarter totaled $498 million, up from $396 million last quarter and $199 million in the third quarter of 2007. Commercial construction loans represented the largest portion of the increase. The company's provision for loan loss reserves exceeded the net charge-offs by $250 million. The annualized ratio of net charge-offs to average loans was 1.19% for the third quarter, and the company's elevated provision kept it "ahead" of the charge-off rate, with reserves covering 1.71% of total loans as of Sept. 30.

"[To] be under 1% on nonperforming assets shows you how late we were to this party and how low we're going to be in this cycle," CEO Richard Davis said on a conference call. "That's probably the best measure of the core operating prudence."

Capital Strength

U.S. Bancorp's capital position remained strong, with leverage and risk-based capital ratios of 8.0% and 12.3% as of Sept. 30, compared to 7.9% and 12.5% last quarter and 8.0% and 12.7% in September 2007.

The company was not part of the initial group of nine large banks that received capital infusions by issuing preferred shares to the federal government last week. However, Davis implied that the company may participate in the Treasury's voluntary program, saying "the capital is quite attractive on those terms," and "we'll have to evaluate in terms of potential acquisitions."