John Stern
Senior Executive Vice President and Chief Financial Officer at U.S. Bancorp
Thanks, Andy. If you turn to slide seven, I'll start with a balance sheet summary followed by a discussion of second quarter earnings trends. Total average deposits increased $10.8 billion or 2.2% on a linked-quarter basis to $514 billion, driven by stable institutional deposit balances and continued consumer balance growth. Average non-interest-bearing deposits decreased $1.4 billion or 1.6% on a linked-quarter basis as we continue to emphasize stickier relationship-based deposit generation. The pace of decline in non-interest-bearing balances continued to slow this quarter.
As the chart on the upper-left shows, we are prudently managing our pricing as we remained focused on retaining and growing core operational relationships across the franchise. Average total loans were $375 billion, an increase of $3.6 billion or 1.0% linked-quarter. The increase was driven by higher credit card loans from high spend -- higher spend volumes and increased commercial loans from growth in corporate banking. Loan growth this quarter was partially offset by lower commercial real estate and total other retail loans.
With elevated deposit levels, we opportunistically increased the size of our investment securities portfolio with short-dated high-quality securities to better optimize cash levels. As a result, the ending balance on our investment portfolio was $168 billion as of June 30th. Actions taken on the investment portfolio this quarter, together with approximately $3 billion of securities runoff resulted in an average yield increase to 3.15%, a 19 basis point increase from the prior quarter. Going forward, we would expect the balance on the investment portfolio to remain relatively flat to the current level and for the reinvestment benefit from quarterly securities runoff to be approximately 6 basis points to 8 basis points on average based on current rates.
Slide eight highlights our credit quality performance. Asset quality metrics continue to develop in line with expectations and we remain appropriately reserved for potential adverse economic conditions. In the second quarter, delinquencies were flat sequentially. Non-performing assets increased approximately 3.7% linked quarter, reflecting a slower pace of change. The ratio of non-performing assets to loans and other real estate was 49 basis points at June 30th, compared with 48 basis points at March 31st and 29 basis points a year ago.
Our second quarter net charge-off ratio of 58 basis points increased 5 basis points from the first quarter, in line with our expectations, and we continue to expect our net charge-off ratio to approach 60 basis points in the second half of this year. Our allowance for credit losses as of June 30th totaled $7.9 billion or 2.1% of period-end loans.
Slide nine provides a more detailed earnings summary. In the second quarter, we reported $0.97 per diluted share, which included $0.01 per share or a $26 million charge for an increase in the FDIC special assessment following last year's bank failures.
Turning to slide 10, net interest income on a taxable equivalent basis totaled approximately $4.05 billion, an increase of 0.9% on a linked-quarter basis. The increase in net interest income this quarter was driven by a combination of deposit volume growth, pricing stabilization, and slower migration as well as fixed asset repricing, improved loan mix, and other actions taken on the investment portfolio to optimize cash balances. Elevated deposit levels and higher on balance sheet liquidity drove a 3 basis point decline in net interest margin this quarter to 2.67%.
Slide 11 highlights trends in non-interest income. Fee income increased $115 million or 4.3% on a linked-quarter basis, driven by seasonally higher payments revenue and stronger mortgage banking fees, which included an approximate $30 million gain on sale of mortgage servicing rights. This increase was partially offset by a slight decrease in commercial product revenue due to lower corporate bond fees and losses on investment securities sales of $36 million. Non-interest income through the first six months of the year increased 5.4% on a year-over-year basis as we continue to benefit from deepening client relationships across our fee businesses.
Turning to slide 12, non-interest expense as adjusted, decreased $6 million or 0.1% on a linked-quarter basis. The decrease was primarily driven by lower compensation and employee benefit expense, which was partially offset by higher net occupancy and equipment as well as marketing and business development costs. Year-over-year non-interest expense as adjusted decreased $71 million or 1.7% as we prudently managed expenses, identified operational efficiencies across the business, and realized synergies from the Union Bank acquisition.
Turning to slide 13. Our common equity Tier-1 ratio of 10.3% as of June 30th was reflective of a 30 basis point increase from the first quarter and a 120 basis point improvement compared to last year. On June 26, the Federal Reserve released its 2024 stress test results. Consistent with the industry, the Fed's modeled results were largely reflective of an assumption taken to significantly lower fee income and increase provision expense in stress, which resulted in a 60 basis point increase to our preliminary stress capital buffer of 3.1%. We remain well-capitalized and prepared to manage any potential industry stress that might result from a severe macroeconomic downturn.
I will now provide forward-looking guidance on slide 14, which is consistent with our previous guidance. We expect net interest income for the third quarter on an FTE basis to be relatively stable to the second quarter. Full year 2024 net interest income on an FTE basis is expected to be in the range of $16.1 billion to $16.4 billion. For the full year, we expect to achieve mid single-digit growth in non-interest income as adjusted. We continue to expect full year non-interest expense as adjusted of $16.8 billion or lower.
Let me now turn it back to Andy for closing remarks.
