10-QPeriod: Q2 FY2008

US BANCORP \DE\ Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 11, 2008For Securities:USBUSB-PHUSB-PPUSB-PRUSB-PQUSB-PSUSB-PA

Summary

US BancORP (USB) reported net income of $950 million for the second quarter of 2008, a decrease from $1,156 million in the prior year. Diluted earnings per share were $0.53, down from $0.65 year-over-year. This decline was primarily attributed to a significant increase in the provision for credit losses, driven by ongoing stress in residential real estate markets and broader economic conditions, alongside net securities losses primarily related to impairment charges on structured investment securities. Despite the net income decrease, total net revenue saw a 7.5% increase, largely due to a 15.6% rise in net interest income, benefiting from growth in earning assets and an improved net interest margin. Noninterest income experienced a modest increase, supported by growth in fee-based revenue categories like credit/debit cards and merchant processing, though partially offset by securities impairment charges. However, noninterest expenses rose by 9.9%, driven by investments in business initiatives and higher credit collection costs. The company's capital ratios remained strong, exceeding regulatory well-capitalized requirements.

Financial Highlights

22 data points
Beta

Net Income

$950.00M

EPS (Diluted)

$0.53

Cash & Equivalents

$7.96B

Free Cash Flow

$2.21B

Financial Statements
Beta
Interest Expense$1.14B
Net Income$950.00M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)1.74B
Shares Outstanding (Diluted)1.75B

Key Highlights

  • 1Net income for Q2 2008 was $950 million, down 17.8% from $1,156 million in Q2 2007.
  • 2Diluted EPS for Q2 2008 was $0.53, down 18.5% from $0.65 in Q2 2007.
  • 3Provision for credit losses increased significantly by $405 million year-over-year, reflecting stress in residential real estate and broader economic impacts.
  • 4Total net revenue increased 7.5% to $3.8 billion, driven by a 15.6% increase in net interest income.
  • 5Noninterest expense rose 9.9% to $1.835 billion, due to investments in business initiatives and higher credit costs.
  • 6The company's capital ratios (Tier 1 capital, total risk-based capital, leverage) remained strong and above regulatory requirements.

Frequently Asked Questions

The primary drivers for the decline in net income were a significant increase in the provision for credit losses, stemming from stress in residential real estate markets and overall economic conditions, and net securities losses primarily due to impairment charges on structured investment securities. Higher noninterest expenses, related to business investments, also contributed.

Net interest income increased by 15.6% year-over-year, driven by growth in average earning assets and an improvement in the net interest margin. Factors contributing to the margin improvement included growth in higher-spread assets and beneficial asset/liability repricing dynamics in the current interest rate environment.

The company has experienced significant stress in its loan portfolios due to conditions in the residential real estate markets, leading to a substantial increase in the provision for credit losses and net charge-offs. Delinquency ratios and nonperforming assets, particularly in residential mortgages and construction and development loans, have increased. The company has increased its allowance for credit losses to $2.648 billion.

The company's capital position remained strong. All regulatory capital ratios, including Tier 1 capital (8.5%), total risk-based capital (12.5%), and leverage ratio (7.9%), were in excess of regulatory 'well-capitalized' requirements.