-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcjOqQuQe+Lm7WM0uZSMdQMe93+G2huk6IetX67OwjqDwcfXrCNPjcndWj+LXn5g ZckaZ7B0tjA5SvA8lvvjsQ== 0000950124-07-002206.txt : 20070417 0000950124-07-002206.hdr.sgml : 20070417 20070417093349 ACCESSION NUMBER: 0000950124-07-002206 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070417 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070417 DATE AS OF CHANGE: 20070417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US BANCORP \DE\ CENTRAL INDEX KEY: 0000036104 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 410255900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06880 FILM NUMBER: 07769645 BUSINESS ADDRESS: STREET 1: U.S.BANCORP STREET 2: 800 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: (651)466-3000 MAIL ADDRESS: STREET 1: U.S.BANCORP STREET 2: 800 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK SYSTEM INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK STOCK CORP DATE OF NAME CHANGE: 19720317 8-K 1 c14198e8vk.htm CURRENT REPORT e8vk
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 17, 2007

U.S. BANCORP
(Exact name of registrant as specified in its charter)

1-6880
(Commission File Number)

     
DELAWARE
(State or other jurisdiction
of incorporation)
  41-0255900
(I.R.S. Employer Identification Number)

800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of principal executive offices and zip code)

(651) 466-3000
(Registrant’s telephone number, including area code)

(not applicable)
(Former name or former address, if changed since last report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 Under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



 


ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
SIGNATURES
Press Release dated 4/17/07


Table of Contents

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

     On April 17, 2007, U.S. Bancorp (the “Company”) issued a press release discussing quarter ended March 31, 2007 results. The press release is included as Exhibit 99.1 hereto and is incorporated herein by reference. The information included in the press release is considered to be “furnished” under the Securities Exchange Act of 1934. The press release contains forward-looking statements regarding the Company and includes a cautionary statement identifying important factors that could cause actual results to differ materially from those anticipated.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(c) Exhibits.

     99.1 Press Release issued by U.S. Bancorp on April 17, 2007, deemed “furnished” under the Securities Exchange Act of 1934.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

   
  U.S. BANCORP
   
  By /s/ Terrance R. Dolan

Terrance R. Dolan
Executive Vice President and
Controller

     DATE: April 17, 2007

EX-99.1 2 c14198exv99w1.htm PRESS RELEASE DATED 4/17/07 exv99w1

 

         
(U.S. BANCORP LOGO)   News Release
 
       
 
  Contacts:    
 
  Steve Dale   Judith T. Murphy
 
  Media Relations   Investor Relations
 
  (612) 303-0784   (612) 303-0783
U.S. BANCORP REPORTS NET INCOME
FOR THE FIRST QUARTER OF 2007

                                         
EARNINGS SUMMARY                                   Table 1  
($ in millions, except per-share data)                           Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs  
    2007     2006     2006     4Q06     1Q06  
Net income
  $ 1,130     $ 1,194     $ 1,153       (5.4 )     (2.0 )
Diluted earnings per common share
    .63       .66       .63       (4.5 )      
 
                                       
Return on average assets (%)
    2.09       2.18       2.23                  
Return on average common equity (%)
    22.4       23.2       23.3                  
Net interest margin (%)
    3.51       3.56       3.80                  
Efficiency ratio (%)
    46.0       47.2       44.9                  
Tangible efficiency ratio (%) (a)
    43.2       44.5       42.4                  
 
                                       
Dividends declared per common share
  $ .40     $ .40     $ .33             21.2  
Book value per common share (period-end)
    11.37       11.44       10.80       (.6 )     5.3  
 
(a)   computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net and intangible amortization.
     MINNEAPOLIS, April 17, 2007 — U.S. Bancorp (NYSE: USB) today reported net income of $1,130 million for the first quarter of 2007, compared with $1,153 million for the first quarter of 2006. Diluted earnings per common share were $.63 for the first quarter of 2007 and for the first quarter of 2006. Return on average assets and return on average common equity were 2.09 percent and 22.4 percent, respectively, for the first quarter of 2007, compared with returns of 2.23 percent and 23.3 percent, respectively, for the first quarter of 2006.
     U.S. Bancorp President and Chief Executive Officer Richard K. Davis said, “Our Company’s first quarter results were solid in light of the challenging economic environment confronting the banking industry as a whole. Historically, growth in the first quarter of each year is seasonally lower for our Company, while the second and third quarters tend to be seasonally strongest. This year was no exception, as earnings per diluted common share of $.63 were equal to the same period of 2006 and lower than the earnings per diluted common share of $.66 reported in the fourth quarter of 2006. However, as we discussed

 


 

U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 2
in January, our fourth quarter earnings benefited from a number of notable items, including a gain on the sale of the Company’s 401(k) defined contribution recordkeeping business and incremental tax benefits from the resolution of certain state and federal tax examinations. After consideration of these significant items, net income in the first quarter of this year was actually slightly higher than the fourth quarter. Reflected in this quarter’s results were continued strong growth in our fiduciary-related fee income businesses and double digit year-over-year growth in payment services, as well as prudent balance sheet expansion, controlled expenses and strong credit quality. Further, our profitability metrics remained among the best in the industry, with return on average assets of 2.09 percent and return on average common equity of 22.4 percent. These results, which did not include any unusual income or expense items, establish a strong base from which our earnings will grow in the remaining quarters of 2007 and beyond.
     “Although our fee-based businesses continued to show good growth, our net interest margin declined to 3.51 percent in the first quarter. This was a 29 basis point decline from the first quarter of 2006 and a 5 basis point decline from the fourth quarter of 2006. On a linked quarter basis, the 5 basis point reduction was slightly more than we had expected for a number of reasons, one of which was an accelerated stock repurchase agreement that the Company initiated in February. We do expect the margin to decline slightly over the next few quarters, but our fee-based businesses, efficient operations, balance sheet growth and strong credit quality should mitigate the impact of the margin pressure.
     “Credit quality was strong again this quarter. Total nonperforming assets declined from the balance outstanding at year end, and net charge-offs were only slightly higher than the prior quarter at 50 basis points of average loans outstanding. As we discussed in our recent Annual Report and Form 10K filing, our exposure to the sub-prime residential real estate market, including related wholesale businesses, is minimal and very manageable. We have worked very hard over the past number of years to reduce the overall risk profile of the Company. Our objective going forward is to continue to grow our balance sheet, while maintaining a prudent risk/reward profile.
     “I would like to take this opportunity to recognize the many contributions our employees have made during this past quarter. Specifically, we successfully converted the systems and operations of the acquired corporate trust business of SunTrust. In addition, we completed the acquisition of United Financial Corp., the parent company of Heritage Bank. Further, I am very proud of our first quarter customer service loyalty and satisfaction scores. We have been tracking customer satisfaction since the first quarter of 2002 and have experienced steady improvement. The scores for the first quarter of 2007 were the highest we have seen to
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 3
date. I want to thank all of our employees for their continued focus and dedication to serving our customers so well.
     “As a Company, we will continue to focus on organic growth and invest in businesses that enhance our product and service offerings. I believe we are very well positioned to produce a consistent, predictable and repeatable earnings stream going forward for the benefit of our customers, communities, employees and shareholders.”
     The Company’s results for the first quarter of 2007 declined modestly over the same period of 2006, as growth in fee-based revenues was more than offset by increased credit costs reflecting the favorable impact a year ago of changes in bankruptcy laws, lower net interest income due to the current yield curve and operating costs of acquired businesses. On a linked quarter basis, net income declined $64 million, or $.03 per diluted common share, reflecting several notable items during the fourth quarter of 2006. These notable items included a gain from the sale of the Company’s 401(k) recordkeeping business and tax benefits from the resolution of federal and state tax examinations.
     Total net revenue on a taxable-equivalent basis for the first quarter of 2007 was $3,362 million, $23 million (.7 percent) higher than the first quarter of 2006, primarily reflecting a 5.1 percent increase in noninterest income, partially offset by a 3.4 percent decline in net interest income from a year ago. Noninterest income growth was driven by organic business growth and expansion in payment processing and trust businesses. Fee-based revenue growth was offset somewhat by the net impact in the first quarter of 2006 of $17 million from several previously reported items, including a $44 million trading gain related to derivatives, a $10 million gain related to a favorable settlement in the merchant processing business and a $37 million reduction in mortgage banking revenue due principally to the adoption of fair value accounting standards for mortgage servicing rights. On a linked quarter basis, total net revenue declined $62 million, primarily reflecting the gain of the sale of the
401(k) recordkeeping business and gains representing the liquidation of securities previously acquired a part of a loan workout process. An improvement in mortgage banking revenue was essentially offset by seasonally lower revenues compared with the prior quarter.
     Total noninterest expense in the first quarter of 2007 was $1,545 million, $45 million (3.0 percent) higher than the first quarter of 2006, principally due to investments in business initiatives, operating and business integration costs associated with recent acquisitions and higher expenses related to incremental investments in tax-advantaged projects from a year ago. On a linked quarter basis, total noninterest expense was lower by $67 million (4.2 percent) reflecting a debt prepayment charge and costs related to the timing of
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 4
business initiatives and certain tax advantaged investments in the fourth quarter of 2006, offset somewhat by seasonally higher employee benefits costs.
     Provision for credit losses for the first quarter of 2007 was $177 million, an increase of $62 million from the first quarter of 2006 and $8 million higher than the fourth quarter of 2006. The lower provision for credit losses in the first quarter of 2006 reflected the favorable impact on net charge-offs of changes in bankruptcy laws in the fourth quarter of 2005. Net charge-offs in the first quarter of 2007 were $177 million, compared with fourth quarter of 2006 net charge-offs of $169 million and first quarter of 2006 net charge-offs of $115 million. The Company’s credit quality continues to be strong. Total nonperforming assets declined to $582 million at March 31, 2007, compared with $587 million at December 31, 2006, and $619 million at March 31, 2006. The ratio of the allowance for credit losses to nonperforming loans was 498 percent at March 31, 2007, compared with 480 percent at December 31, 2006, and 432 percent at March 31, 2006.

                                         
INCOME STATEMENT HIGHLIGHTS                                   Table 2  
(Taxable-equivalent basis, $ in millions,                           Percent     Percent  
     except per-share data)                           Change     Change  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs  
    2007     2006     2006     4Q06     1Q06  
Net interest income
  $ 1,666     $ 1,695     $ 1,725       (1.7 )     (3.4 )
Noninterest income
    1,696       1,729       1,614       (1.9 )     5.1  
                     
Total net revenue
    3,362       3,424       3,339       (1.8 )     .7  
Noninterest expense
    1,545       1,612       1,500       (4.2 )     3.0  
                     
Income before provision and taxes
    1,817       1,812       1,839       .3       (1.2 )
Provision for credit losses
    177       169       115       4.7       53.9  
                     
Income before taxes
    1,640       1,643       1,724       (.2 )     (4.9 )
Taxable-equivalent adjustment
    17       15       10       13.3       70.0  
Applicable income taxes
    493       434       561       13.6       (12.1 )
                     
Net income
  $ 1,130     $ 1,194     $ 1,153       (5.4 )     (2.0 )
                     
Net income applicable to common equity
  $ 1,115     $ 1,179     $ 1,153       (5.4 )     (3.3 )
                     
Diluted earnings per common share
  $ .63     $ .66     $ .63       (4.5 )      
                     
Net Interest Income
     First quarter net interest income on a taxable-equivalent basis was $1,666 million, compared with $1,725 million in the first quarter of 2006. Average earning assets for the period increased over the first quarter of 2006 by $8.0 billion (4.4 percent), primarily driven by an increase of $6.9 billion (5.0 percent) in
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 5
total average loans. The positive impact to net interest income from the growth in earning assets was more than offset by a lower net interest margin. The net interest margin in the first quarter of 2007 was 3.51 percent, compared with 3.80 percent in the first quarter of 2006, reflecting the competitive environment and the impact of changes in the yield curve from a year ago. Since the first quarter of 2006, credit spreads have tightened by approximately 11 basis points across most lending products due to competitive loan pricing and a change in mix reflecting growth in lower-spread credit products. Also, fewer interest recoveries from loans are occurring given the stage of the business cycle. Funding costs have increased as rates on interest-bearing deposits have risen and the mix continues to shift toward higher cost deposits and other funding sources. An increase in the margin benefit of net free funds partially offset these factors.
     Net interest income in the first quarter of 2007 decreased from the fourth quarter of 2006 by $29 million (1.7 percent). Net interest income generated by growth in average earning assets of $1.5 billion was offset by the impact of fewer business days in the quarter, seasonally lower noninterest-bearing deposits in trust and business demand accounts and higher funding costs. The net interest margin was 3.51 percent for the first quarter of 2007, compared with 3.56 percent for the fourth quarter of 2006. Of this decrease, approximately 3 basis points were related to specific management decisions, including incremental investment in a bank-owned life insurance program and an accelerated share repurchase agreement executed in February of 2007. Lower than expected interest recoveries reduced net interest margin by another basis point for the first quarter of 2007. Given the current rate environment, the Company expects that net interest margin could decline another five to ten basis points, in aggregate, during the next few quarters.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 6

                                         
NET INTEREST INCOME                                   Table 3  
(Taxable-equivalent basis; $ in millions)                                    
                            Change     Change  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs  
    2007     2006     2006     4Q06     1Q06  
     
Components of net interest income
                                       
Income on earning assets
  $ 3,223     $ 3,236     $ 2,903     $ (13 )   $ 320  
Expense on interest-bearing liabilities
    1,557       1,541       1,178       16       379  
     
Net interest income
  $ 1,666     $ 1,695     $ 1,725     $ (29 )   $ (59 )
     
 
                                       
Average yields and rates paid
                                       
Earning assets yield
    6.81 %     6.79 %     6.40 %     .02 %     .41 %
Rate paid on interest-bearing liabilities
    3.88       3.84       3.10       .04       .78  
     
Gross interest margin
    2.93 %     2.95 %     3.30 %     (.02 )%     (.37 )%
     
Net interest margin
    3.51 %     3.56 %     3.80 %     (.05 )%     (.29 )%
     
 
                                       
Average balances
                                       
Investment securities
  $ 40,879     $ 40,266     $ 39,680     $ 613     $ 1,199  
Loans
    144,693       143,686       137,779       1,007       6,914  
Earning assets
    191,135       189,660       183,101       1,475       8,034  
Interest-bearing liabilities
    162,682       159,469       153,911       3,213       8,771  
Net free funds (a)
    28,453       30,191       29,190       (1,738 )     (737 )
 
(a)   Represents noninterest-bearing deposits, allowance for loan losses, unrealized gain (loss) on available-for-sale securities, non-earning assets, other noninterest-bearing liabilities and equity.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 7

                                         
AVERAGE LOANS                                   Table 4  
($ in millions)                           Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs  
    2007     2006     2006     4Q06     1Q06  
     
Commercial
  $ 41,470     $ 41,264     $ 38,847       .5       6.8  
Lease financing
    5,549       5,394       5,078       2.9       9.3  
                     
Total commercial
    47,019       46,658       43,925       .8       7.0  
 
                                       
Commercial mortgages
    19,672       19,897       20,269       (1.1 )     (2.9 )
Construction and development
    8,960       9,029       8,347       (.8 )     7.3  
                     
Total commercial real estate
    28,632       28,926       28,616       (1.0 )     .1  
 
                                       
Residential mortgages
    21,569       21,235       20,987       1.6       2.8  
 
                                       
Credit card
    8,635       8,242       7,120       4.8       21.3  
Retail leasing
    6,845       7,015       7,250       (2.4 )     (5.6 )
Home equity and second mortgages
    15,555       15,444       14,935       .7       4.2  
Other retail
    16,438       16,166       14,946       1.7       10.0  
                     
Total retail
    47,473       46,867       44,251       1.3       7.3  
                     
 
                                       
Total loans
  $ 144,693     $ 143,686     $ 137,779       .7       5.0  
                     
     Average loans for the first quarter of 2007 were $6.9 billion (5.0 percent) higher than the first quarter of 2006, driven by growth in average total retail loans of $3.2 billion (7.3 percent), total commercial loans of $3.1 billion (7.0 percent), and residential mortgages of $582 million (2.8 percent). Average loans for the first quarter of 2007 were higher than the fourth quarter of 2006 by $1.0 billion (.7 percent), primarily reflecting growth in total retail loans due principally to an increase in average credit card balances. The increase in the average credit card balances compared with the first quarter of 2006 and the fourth quarter of 2006 was the result of organic growth initiatives and portfolios acquired from financial partners. Residential mortgages and total commercial loans also grew modestly in the first quarter of 2007 compared with the fourth quarter of 2006. Total commercial real estate declined slightly from the fourth quarter of 2006, reflecting customer refinancings in light of the liquidity available in the financial markets, a decision to reduce condominium construction financing and a slowdown in residential homebuilding during 2006. At the end of the first quarter of 2007, the residential and home equity and second mortgage portfolios included approximately $3.1 billion and $900 million, respectively, of loans to customers that may be defined as sub-prime borrowers. Together, these balances represent just 2.7 percent of the Company’s total loans outstanding at March 31, 2007.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 8
     Average investment securities in the first quarter of 2007 were $1.2 billion (3.0 percent) higher than the first quarter of 2006, driven primarily by an increase in the municipal securities portfolio partially offset by a reduction in mortgage-backed assets. These changes reflected asset/liability management decisions to reduce the focus on residential mortgage-backed assets given the changing rate environment and mix of loan growth.

                                         
AVERAGE DEPOSITS                                   Table 5  
($ in millions)                           Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs  
    2007     2006     2006     4Q06     1Q06  
     
Noninterest-bearing deposits
  $ 27,677     $ 29,020     $ 28,837       (4.6 )     (4.0 )
Interest-bearing deposits
                                       
Interest checking
    25,076       24,127       23,141       3.9       8.4  
Money market savings
    25,712       26,214       27,378       (1.9 )     (6.1 )
Savings accounts
    5,401       5,392       5,689       .2       (5.1 )
                     
Total of savings deposits
    56,189       55,733       56,208       .8        
Time certificates of deposit less than $100,000
    14,775       13,974       13,505       5.7       9.4  
Time deposits greater than $100,000
    22,087       22,255       21,613       (.8 )     2.2  
                     
Total interest-bearing deposits
    93,051       91,962       91,326       1.2       1.9  
                     
Total deposits
  $ 120,728     $ 120,982     $ 120,163       (.2 )     .5  
                     
     Average noninterest-bearing deposits for the first quarter of 2007 decreased $1.2 billion (4.0 percent) compared with the first quarter of 2006, reflecting a decline in business demand deposits within most business lines as these customers reduced excess liquidity to fund business growth. The decline in business demand account balances was partially offset by higher corporate trust deposits driven by acquisitions and business growth.
     Average total savings deposits remained relatively flat year-over-year as an increase of $1.9 billion (8.4 percent) in interest checking balances due to higher broker dealer, government and institutional trust balances was offset by a decline of $2.0 billion (5.9 percent) in average money market and savings balances primarily due to a decline in balances within Consumer Banking. A portion of branch-based money market savings accounts have migrated to fixed-rate time certificates, as customers take advantage of higher interest rates for these products.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 9
     Average time certificates of deposit less than $100,000 were higher in the first quarter of 2007 than in the first quarter of 2006 by $1.3 billion (9.4 percent) and time deposits greater than $100,000 grew by $474 million (2.2 percent) over the same period. This year-over-year growth included increases in corporate trust balances and consumer-based time deposits reflecting customer migration to higher rate deposit products.
     Average noninterest-bearing deposits for the first quarter of 2007 decreased $1.3 billion (4.6 percent) compared with the fourth quarter of 2006, primarily due to a seasonal decline in business demand deposits and corporate trust deposits. Total savings deposits had a modest increase of $456 million (.8 percent) from the fourth quarter of 2006, while time deposits increased $633 million (1.7 percent) from the prior quarter, reflecting customer migration to these deposit products.

                                         
NONINTEREST INCOME                                   Table 6  
($ in millions)                           Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs  
    2007     2006     2006     4Q06     1Q06  
     
Credit and debit card revenue
  $ 205     $ 210     $ 182       (2.4 )     12.6  
Corporate payment products revenue
    145       141       127       2.8       14.2  
ATM processing services
    59       60       59       (1.7 )      
Merchant processing services
    250       244       213       2.5       17.4  
Trust and investment management fees
    322       319       297       .9       8.4  
Deposit service charges
    243       259       232       (6.2 )     4.7  
Treasury management fees
    111       107       107       3.7       3.7  
Commercial products revenue
    100       104       104       (3.8 )     (3.8 )
Mortgage banking revenue
    67       25       24     nm     nm  
Investment products fees and commissions
    34       36       38       (5.6 )     (10.5 )
Securities gains (losses), net
    1       11             (90.9 )   nm  
Other
    159       213       231       (25.4 )     (31.2 )
                     
 
                                       
Total noninterest income
  $ 1,696     $ 1,729     $ 1,614       (1.9 )     5.1  
                     
Noninterest Income
     First quarter noninterest income was $1,696 million, an increase of $82 million (5.1 percent) from the same quarter of 2006 and $33 million (1.9 percent) lower than the fourth quarter of 2006. The increase in noninterest income over the first quarter of 2006 was driven by organic growth in the majority of fee income categories and the benefit of acquired businesses. In addition, certain revenue categories were impacted by accounting items in the first quarter of 2006.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 10
     Credit and debit card revenue and corporate payment products revenue were higher in the first quarter of 2007 than the first quarter of 2006 by $23 million and $18 million, or 12.6 percent and 14.2 percent, respectively. The strong growth in credit and debit card revenue was primarily driven by higher customer transaction volumes from a year ago. The corporate payment products revenue growth reflected organic growth in sales volumes and card usage and acquired business expansion. Merchant processing services revenue was higher in the first quarter of 2007 than the same quarter a year ago by $37 million (17.4 percent), reflecting an increase in sales volume driven by acquisitions and higher same store sales. Trust and investment management fees increased by $25 million (8.4 percent) year-over-year due to favorable equity market conditions and core account growth. Deposit service charges grew year-over-year by $11 million (4.7 percent) primarily due to increased transaction-related fees and the impact of net new checking accounts of 78,000 (5.3 percent annualized growth). Mortgage banking revenue increased $43 million in the first quarter of 2007 compared with the same quarter of 2006. Included in the first quarter of 2006 were changes in accounting for mortgage servicing rights and mortgage banking revenue of $37 million. The incremental improvement in mortgage banking revenue was related to higher servicing income and mortgage production gains. These favorable changes in fee-based revenue were partially offset by the decline in other income of $72 million (31.2 percent) compared with the first quarter of 2006. The reduction in other income resulted from a $44 million trading gain recognized in the first quarter of 2006 related to terminating certain interest rate swaps previously designated as cash flow hedges that did not qualify as hedges in accordance with SFAS 133, “Accounting for Derivatives” and a $10 million favorable settlement within the merchant processing business recorded in 2006. In addition, revenues from equity investments and student loan sales were lower in the first quarter of 2007 as compared with the same period of 2006.
     Noninterest income was lower by $33 million (1.9 percent) in the first quarter of 2007 compared with the fourth quarter of 2006 primarily due to seasonality and certain non-recurring gains in the previous quarter. Credit and debit card revenue decreased $5 million (2.4 percent) and deposit service charges declined $16 million (6.2 percent) primarily reflecting seasonally lower post-holiday customer transaction volumes. Other income declined due to a $52 million gain on the sale of the Company’s 401(k) recordkeeping business and $6 million in trading gains related to certain interest rate swaps, both of which were recorded in the fourth quarter of 2006. In addition, there was a $10 million reduction in net securities gains in the first quarter 2007 as compared with the fourth quarter of 2006, which included the sale of securities from a business previously acquired through the loan workout process. Partially offsetting these
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 11
unfavorable variances were increases in merchant processing and corporate payment products volumes resulting in increases of $6 million (2.5 percent) and $4 million (2.8 percent), respectively. In addition, mortgage banking revenue was higher than the fourth quarter of 2006 by $42 million, primarily due to an adverse change in the fourth quarter of 2006 related to the valuation of MSR’s and the corresponding MSR economic hedges. In addition, production gains and mortgage servicing revenue increased 4.9 percent as compared with the fourth quarter of 2006.

                                         
NONINTEREST EXPENSE                                   Table 7  
($ in millions)                           Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs  
    2007     2006     2006     4Q06     1Q06  
     
Compensation
  $ 635     $ 621     $ 633       2.3       .3  
Employee benefits
    133       102       133       30.4        
Net occupancy and equipment
    165       166       165       (.6 )      
Professional services
    47       69       35       (31.9 )     34.3  
Marketing and business development
    48       61       40       (21.3 )     20.0  
Technology and communications
    125       133       117       (6.0 )     6.8  
Postage, printing and supplies
    69       67       66       3.0       4.5  
Other intangibles
    94       92       85       2.2       10.6  
Debt prepayment
          22           nm     nm  
Other
    229       279       226       (17.9 )     1.3  
                     
 
                                       
Total noninterest expense
  $ 1,545     $ 1,612     $ 1,500       (4.2 )     3.0  
                     
Noninterest Expense
     First quarter noninterest expense totaled $1,545 million, an increase of $45 million (3.0 percent) from the same quarter of 2006 and a decrease of $67 million (4.2 percent) from the fourth quarter of 2006. Compensation expense remained relatively flat as compared with the same period of 2006 as increases in salary costs related to business expansion were offset by lower stock-based compensation expense. In the first quarter of 2006, the Company adopted new accounting standards for share-based compensation. Under the new standard, the Company recorded incremental stock-based compensation expense to immediately recognize the value of stock awards for employees that met retiree status, despite their continued active employment service. Professional services expense increased by $12 million (34.3 percent) due primarily to revenue enhancement-related business initiatives, including the cost involved with establishing a bank in Ireland to support pan-European payment processing. Marketing and business development and technology
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 12
and communications expenses both increased $8 million, 20.0 percent and 6.8 percent, respectively, year-over year due to the timing of customer campaigns and increased volumes for business expansion initiatives including prepaid card programs. Other intangibles expense increased by $9 million (10.6 percent) from same period of 2006 due to recent acquisitions in Consumer Banking, Wealth Management and Payment Services.
     Noninterest expense in the first quarter of 2007 was lower than the fourth quarter of 2006 by $67 million (4.2 percent) primarily due to the timing of certain business initiatives and investments, offset somewhat by seasonally higher employee benefits expenses. Professional services and marketing and business development decreased $22 million (31.9 percent) and $13 million (21.3 percent), respectively, due to the timing of business initiatives within the Consumer Banking and Payment Services business lines. Technology and communications costs decreased by 6.0 percent, on a linked quarter basis, due to usage-based expense credits that are typically determined in the first quarter of each year. The decrease in other expense was driven, in part, by lower costs associated tax-advantaged investments given the timing of these investments and a $22 million debt prepayment charge in the fourth quarter of 2006.
Provision for Income Taxes
     The provision for income taxes for the first quarter of 2007 resulted in an effective tax rate of 30.4 percent compared with an effective tax rate of 32.7 percent in the first quarter of 2006. The effective tax rate was 26.7 percent in fourth quarter of 2006. The reduction in the effective rate from the same quarter of the prior year primarily reflected investments in tax-exempt municipal securities and bank-owned life insurance as well as incremental tax credits from affordable housing projects and other tax-advantaged investments.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 13

                                         
ALLOWANCE FOR CREDIT LOSSES                                   Table 8  
($ in millions)   1Q     4Q     3Q     2Q     1Q  
    2007     2006     2006     2006     2006  
     
Balance, beginning of period
  $ 2,256     $ 2,256     $ 2,251     $ 2,251     $ 2,251  
 
                                       
Net charge-offs
                                       
Commercial
    32       24       18       13       5  
Lease financing
    3       7       3       7       7  
     
Total commercial
    35       31       21       20       12  
Commercial mortgages
    1       2             (1 )     2  
Construction and development
                      1        
     
Total commercial real estate
    1       2                   2  
 
                                       
Residential mortgages
    12       12       11       11       7  
 
                                       
Credit card
    74       68       56       50       46  
Retail leasing
    3       4       4       2       4  
Home equity and second mortgages
    16       13       12       13       12  
Other retail
    36       39       31       29       32  
     
Total retail
    129       124       103       94       94  
     
Total net charge-offs
    177       169       135       125       115  
Provision for credit losses
    177       169       135       125       115  
Acquisitions and other changes
    4             5              
     
Balance, end of period
  $ 2,260     $ 2,256     $ 2,256     $ 2,251     $ 2,251  
     
 
                                       
Components
                                       
Allowance for loan losses
  $ 2,027     $ 2,022     $ 2,034     $ 2,039     $ 2,035  
Liability for unfunded credit commitments
    233       234       222       212       216  
     
Total allowance for credit losses
  $ 2,260     $ 2,256     $ 2,256     $ 2,251     $ 2,251  
     
 
                                       
Gross charge-offs
  $ 237     $ 217     $ 195     $ 176     $ 175  
Gross recoveries
  $ 60     $ 48     $ 60     $ 51     $ 60  
 
                                       
Allowance for credit losses as a percentage of
                                       
Period-end loans
    1.56       1.57       1.58       1.61       1.64  
Nonperforming loans
    498       480       476       500       432  
Nonperforming assets
    388       384       392       409       364  
Credit Quality
     The allowance for credit losses was $2,260 million at March 31, 2007, compared with $2,256 million at December 31, 2006, and $2,251 million at March 31, 2006. The ratio of the allowance for credit losses to period-end loans was 1.56 percent at March 31, 2007, compared with 1.57 percent at December 31, 2006, and 1.64 percent at March 31, 2006. The ratio of the allowance for credit losses to nonperforming loans was 498 percent at March 31, 2007, compared with 480 percent at December 31, 2006, and 432 percent at March 31, 2006. Total net charge-offs in the first quarter of 2007 were $177 million, compared with the fourth quarter of 2006 net charge-offs of $169 million and the first quarter of 2006 net charge-offs of $115 million.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 14
The year-over-year increase in total net charge-offs was due, in part, to the implementation of minimum balance payment programs, as well as an expected increase in consumer bankruptcies. Bankruptcy levels declined substantially in 2006 as a result of changes in bankruptcy legislation that went into effect in late 2005.
     Commercial and commercial real estate loan net charge-offs increased to $36 million in the first quarter of 2007 (.19 percent of average loans outstanding) compared with $33 million (.17 percent of average loans outstanding) in the fourth quarter of 2006 and $14 million (.08 percent of average loans outstanding) in the first quarter of 2006. The Company expects commercial net charge-offs to continue to increase somewhat over the next several quarters, due to slightly higher gross charge-offs and lower commercial loan recoveries.
     Retail loan net charge-offs were $129 million in the first quarter of 2007 compared with $124 million in the fourth quarter of 2006 and $94 million in the first quarter of 2006. Retail loan net charge-offs increased as compared with the fourth quarter of 2006 and from the first quarter of 2006, reflecting the impact of the bankruptcy legislation changes that occurred in the fourth quarter of 2005 and implementing the minimum balance payment requirements. Retail loan net charge-offs as a percent of average loans outstanding were 1.10 percent in the first quarter of 2007, compared with 1.05 percent and .86 percent in the fourth quarter of 2006 and first quarter of 2006, respectively. The Company anticipates modestly higher delinquencies and net charge-offs in the retail portfolios during 2007.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 15

                                         
CREDIT RATIOS                                   Table 9  
(Percent)   1Q     4Q     3Q     2Q     1Q  
    2007     2006     2006     2006     2006  
Net charge-offs ratios (a)
                                       
Commercial
    .31       .23       .18       .13       .05  
Lease financing
    .22       .51       .23       .54       .56  
Total commercial
    .30       .26       .18       .18       .11  
 
                                       
Commercial mortgages
    .02       .04             (.02 )     .04  
Construction and development
                      .05        
Total commercial real estate
    .01       .03                   .03  
 
                                       
Residential mortgages
    .23       .22       .21       .21       .14  
 
                                       
Credit card
    3.48       3.27       2.85       2.72       2.62  
Retail leasing
    .18       .23       .22       .11       .22  
Home equity and second mortgages
    .42       .33       .31       .35       .33  
Other retail
    .89       .96       .79       .77       .87  
Total retail
    1.10       1.05       .90       .84       .86  
 
                                       
Total net charge-offs
    .50       .47       .38       .36       .34  
 
                                       
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans (b)
Commercial
    .07       .05       .06       .05       .05  
Commercial real estate
    .04       .01       .01              
Residential mortgages
    .46       .45       .36       .30       .31  
Retail
    .54       .48       .41       .39       .38  
Total loans
    .27       .24       .21       .19       .18  
 
                                       
Delinquent loan ratios - 90 days or more past due including nonperforming loans (b)
Commercial
    .46       .57       .55       .58       .64  
Commercial real estate
    .69       .53       .54       .40       .51  
Residential mortgages
    .63       .62       .53       .49       .53  
Retail
    .63       .58       .52       .52       .54  
Total loans
    .59       .57       .54       .51       .56  
 
(a)   annualized and calculated on average loan balances
 
(b)   ratios are expressed as a percent of ending loan balances
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 16

                                         
ASSET QUALITY                                   Table 10  
($ in millions)                              
    Mar 31     Dec 31     Sep 30     Jun 30     Mar 31  
    2007     2006     2006     2006     2006  
Nonperforming loans
                                       
Commercial
  $ 147      $ 196      $ 192      $ 203      $ 219    
Lease financing
    41        40        39        38        41    
     
Total commercial
    188        236        231        241        260    
Commercial mortgages
    114        112        114        88        123    
Construction and development
    71        38        40        25        23    
     
Total commercial real estate
    185        150        154        113        146    
Residential mortgages
    38        36        36        39        45    
Retail
    43        48        53        57        70    
     
Total nonperforming loans
    454        470        474        450        521    
 
                                         
Other real estate
    113        95        79        77        71    
Other nonperforming assets
    15        22        22        23        27    
     
 
                                         
Total nonperforming assets (a)
  $ 582      $ 587      $ 575      $ 550      $ 619    
     
 
                                         
Accruing loans 90 days or more past due
  $ 397      $ 349      $ 295      $ 264      $ 251    
     
 
                                         
Restructured loans that continue to accrue interest
  $ 411      $ 405      $ 369      $ 370      $ 371    
     
Nonperforming assets to loans plus ORE (%)
    .40        .41        .40        .39        .45    
 
(a)   does not include accruing loans 90 days or more past due or restructured loans that continue to accrue interest
     Nonperforming assets at March 31, 2007, totaled $582 million, compared with $587 million at December 31, 2006, and $619 million at March 31, 2006. The ratio of nonperforming assets to loans and other real estate was .40 percent at March 31, 2007, compared with .41 percent at December 31, 2006, and .45 percent at March 31, 2006. Restructured loans that continue to accrue interest have increased from the first quarter of 2006, reflecting the impact of implementing higher minimum balance payment requirements for credit card customers in response to industry guidance issued by the banking regulatory agencies.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 17

                                         
CAPITAL POSITION                                   Table 11  
($ in millions)   Mar 31     Dec 31     Sep 30     Jun 30     Mar 31  
    2007     2006     2006     2006     2006  
     
Total shareholders’ equity
  $ 20,800     $ 21,197     $ 20,926     $ 20,415     $ 20,256  
Tier 1 capital
    16,917       17,036       17,042       16,841       16,478  
Total risk-based capital
    25,826       24,495       25,011       24,893       24,328  
 
                                       
Tier 1 capital ratio
    8.6 %     8.8 %     8.8 %     8.9 %     8.9 %
Total risk-based capital ratio
    13.1       12.6       13.0       13.1       13.1  
Leverage ratio
    8.0       8.2       8.3       8.2       8.2  
Common equity to assets
    8.9       9.2       9.2       9.1       9.2  
Tangible common equity to assets
    5.3       5.5       5.4       5.6       5.4  
     Total shareholders’ equity was $20.8 billion at March 31, 2007, compared with $21.2 billion at December 31, 2006, and $20.3 billion at March 31, 2006. The increase year-over-year was the result of corporate earnings, partially offset by share buybacks, including the accelerated share repurchase agreement, and dividends.
     The Tier 1 capital ratio was 8.6 percent at March 31, 2007, compared with 8.8 percent at December 31, 2006, and 8.9 percent at March 31, 2006. The total risk-based capital ratio was 13.1 percent at March 31, 2007, compared with 12.6 percent at December 31, 2006, and 13.1 percent at March 31, 2006. The leverage ratio was 8.0 percent at March 31, 2007, compared with 8.2 percent at December 31, 2006, and at March 31, 2006. Tangible common equity to assets was 5.3 percent at March 31, 2007, compared with 5.5 percent at December 31, 2006, and 5.4 percent at March 31, 2006. All regulatory ratios continue to be in excess of stated “well capitalized” requirements.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 18

                                         
COMMON SHARES                                   Table 12  
(Millions)   1Q     4Q     3Q     2Q     1Q  
    2007     2006     2006     2006     2006  
     
Beginning shares outstanding
    1,765       1,763       1,783       1,783       1,815  
Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes
    11       12       10       9       9  
Shares repurchased
    (34 )     (10 )     (30 )     (9 )     (41 )
     
Ending shares outstanding
    1,742       1,765       1,763       1,783       1,783  
     
     On August 3, 2006, the Company announced that the Board of Directors approved an authorization to repurchase 150 million shares of common stock through December 31, 2008. During the first quarter of 2007, the Company repurchased 34 million shares of common stock which included approximately 25 million shares repurchased in connection with an accelerated stock repurchase agreement initiated in February. As of March 31, 2007, there were approximately 88 million shares remaining to be repurchased under the current authorization.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 19

                                                 
LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                                           Table 13  
($ in millions)                  
    Net Income     Percent Change     1Q 2007  
    1Q     4Q     1Q     1Q07 vs     1Q07 vs     Earnings  
Business Line   2007     2006     2006     4Q06     1Q06     Composition  
     
Wholesale Banking
  $ 275     $ 284     $ 307       (3.2 )     (10.4 )     24 %
Consumer Banking
    429       417       411       2.9       4.4       38  
Wealth Management
    153       156       137       (1.9 )     11.7       14  
Payment Services
    229       237       225       (3.4 )     1.8       20  
Treasury and Corporate Support
    44       100       73       (56.0 )     (39.7 )     4  
                           
 
                                               
Consolidated Company
  $ 1,130     $ 1,194     $ 1,153       (5.4 )     (2.0 )     100 %
                           
 
(a)   preliminary data
Lines of Business
     Within the Company, financial performance is measured by major lines of business, which include Wholesale Banking, Consumer Banking, Wealth Management, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is available and is evaluated regularly in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2007, certain organization and methodology changes were made and, accordingly, prior period results have been restated and presented on a comparable basis.
     Wholesale Banking offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, and public sector clients. Wholesale Banking contributed $275 million of the Company’s net income in the first quarter of 2007, a 10.4 percent decrease from the same period of 2006 and a 3.2 percent decrease as compared with the fourth quarter of 2006. The
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 20
decrease in Wholesale Banking’s first quarter of 2007 contribution from the same quarter of 2006 was primarily the result of an unfavorable variance in total net revenue (3.8 percent) and an increase in the provision for credit losses from a year ago. The decrease in net interest income was due to tighter credit spreads and a decline in average noninterest-bearing deposit balances as customers utilized their liquidity to fund business growth, partially offset by growth in average loan balances and the margin benefit of deposits. Total noninterest income remained relatively flat, as an increase in treasury management fees was offset by a decline in equity investment revenue. Total noninterest expense also remained relatively flat as an increase in compensation and benefits expense was offset by a decline in net shared services. The unfavorable variance in the provision for credit losses was due to a $22 million increase in net charge-offs in the first quarter of 2007 compared with a year ago. The change in net charge-offs reflected fewer wholesale loan recoveries and an increase in gross charge-offs at this stage of the business cycle.
     Wholesale Banking’s contribution to net income in the first quarter of 2007 compared with the fourth quarter of 2006 was $9 million (3.2 percent) lower due to unfavorable variances in total net revenue (1.9 percent) and the provision for credit losses. Total net revenue was lower on a linked quarter basis due to lower net interest income driven primarily by fewer business days in the quarter and seasonally lower deposit balances offset somewhat by stronger fee-based income. Total noninterest income grew modestly with increases in treasury management fees and equity investment revenue offset by a reduction in net securities gains. Included in the fourth quarter of 2006 were securities gains associated with the sale of shares previously received as part of a loan workout process. Total noninterest expense declined from the fourth quarter of 2006 as an increase in compensation and employee benefits expense was more than offset by a decline in net shared services expense. The provision for credit losses increased on a linked quarter basis due to an increase in net charge-offs.
     Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking, and 24-hour banking. Consumer Banking contributed $429 million of the Company’s net income in the first quarter of 2007, a 4.4 percent increase from the same period of 2006 and a 2.9 percent increase from the prior quarter. Within Consumer Banking, the retail banking division contributed $401 million of the total contribution, a 1.7 percent decrease for the division on a year-over-year basis. Net interest income was higher than a year ago primarily due to growth in average loan balances,
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 21
stronger loan fees and the margin benefit of deposits, somewhat offset by lower credit spreads given the competitive lending environment. Total noninterest income for the retail banking division was relatively unchanged from a year ago as growth in deposit service charges of 4.8 percent, driven by higher transaction levels, was offset by the extent and timing of student loan sales. Total noninterest expense in the first quarter of 2007 increased 3.4 percent compared with the same quarter of 2006 primarily due to an increase in compensation and employee benefits expense related to recent acquisitions, professional services and marketing and business development expense for various business initiatives and the timing of customer marketing programs, partially offset by a reduction in net shared services expense. The business line experienced a $6 million year-over-year increase in net charge-offs (9.5 percent) reflecting higher levels of bankruptcy-related losses. Bankruptcies were generally lower in 2006 due to the lingering effects of changes in bankruptcy laws in late 2005. In the first quarter of 2007, the mortgage banking division’s contribution was $28 million. This division’s total net revenue increased $40 million (85.1 percent) from a year ago. Included in the first quarter of 2006 was a $37 million reduction in mortgage banking revenue, principally related to the adoption of fair value accounting for mortgage servicing rights. Total noninterest expense for the mortgage banking division was essentially unchanged from the first quarter of 2006.
     The increase in Consumer Banking’s contribution in the first quarter of 2007 from the fourth quarter of 2006 was principally due to higher fee-based revenues in the mortgage banking division. The retail banking division’s contribution declined by 3.6 percent on a linked quarter basis due to lower net interest income driven by fewer days in the first quarter of 2007 and seasonally lower deposit service charges (6.2 percent). Total noninterest expense for the retail banking division on a linked quarter basis was essentially unchanged. Seasonally higher compensation costs and the impact of costs associated with recent acquisitions were substantially offset by lower net shared services expense from processing volumes and administrative costs. The provision for credit losses during the quarter reflected a $3 million decrease in net charge-offs relative to the fourth quarter of 2006. The contribution of the mortgage banking division increased $27 million from the fourth quarter of 2006 driven by an increase in total noninterest income. This increase in revenue reflected valuation changes of mortgage servicing rights and the corresponding derivatives economically hedging the servicing rights due to market rates at year end. Mortgage production gains and servicing income increased 4.9 percent as compared with the prior quarter. Total noninterest expense of the mortgage banking division was essentially unchanged from the fourth quarter of 2006.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 22
     Wealth Management provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through six businesses: Private Client Group, Corporate Trust, U.S. Bancorp Investments and Insurance, FAF Advisors, Institutional Trust and Custody and Fund Services. Wealth Management contributed $153 million of the Company’s net income in the first quarter of 2007, an 11.7 percent increase over the same period of 2006 and a 1.9 percent decrease from the fourth quarter of 2006. The growth in the business line’s contribution in the first quarter of 2007 over the same quarter of 2006 was the result of core account fee growth and improved equity market conditions relative to a year ago. Net interest income was unfavorably impacted year-over-year by deposit pricing and tightening credit spreads partially offset by earnings from deposit growth. Total noninterest income increased by 6.3 percent from the same quarter of 2006, primarily due to core account fee growth and favorable equity market conditions. A decrease in total noninterest expense was primarily due to the completion of certain acquisition integration activities and a reduction in net shared services expense.
     The decrease in the business line’s contribution in the first quarter of 2007 as compared with the fourth quarter of 2006, was due to a reduction in net interest income driven by a decline in average loan balances and changes in the mix of deposits during the quarter.
     Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services contributed $229 million of the Company’s net income in the first quarter of 2007, a 1.8 percent increase over the same period of 2006 and a 3.4 percent decrease from the fourth quarter of 2006. The increase in Payment Services’ contribution in the first quarter of 2007 from the same period of 2006 was the result of higher total net revenue (9.7 percent), partially offset by an unfavorable variance in the provision for credit losses (55.0 percent) and total noninterest expense (9.7 percent). The increase in total net revenue year-over-year was due to growth in total noninterest income (11.4 percent) and net interest income (3.7 percent), reflecting growth in higher yielding retail loan balances, partially offset by declining spreads on retail credit cards. All revenue categories benefited from higher transaction volumes, rate changes and business expansion initiatives. The increase in noninterest income was partially offset by the merchant processing settlement recorded in the first quarter of 2006. The growth in total noninterest expense year-over-year primarily reflected new business initiatives, including costs associated with acquisitions. The increase in the provision for credit losses was driven by an increase of $33 million in net charge-offs, year-over-year, reflecting the impact of implementing minimum balance payment requirements and a higher level
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 23
of bankruptcy-related losses as the lingering favorable effects of changes in bankruptcy laws were realized throughout 2006.
     The decrease in Payment Services’ contribution in the first quarter of 2007 from the fourth quarter of 2006 was due to seasonally lower total net revenue (1.4 percent) and higher credit losses (9.4 percent), partially offset by a decrease in total noninterest expense (1.8 percent). Total net revenue was lower as net interest income declined due to fewer business days during the first quarter and a lower yield on retail credit cards, while total noninterest income declined due to seasonally lower credit and debit card revenue. The decrease in total noninterest expense was primarily due to the timing of marketing and professional service costs from retail payment system and other business expansion initiatives.
     Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $44 million in the first quarter of 2007, compared with net income of $73 million in the first quarter of 2006 and $100 million in the fourth quarter of 2006. Net interest income decreased in the current quarter from the first quarter of 2006 by $49 million, reflecting the adverse impact of a flatter yield curve and the issuance of higher cost wholesale funding to support earning asset growth. Total noninterest income decreased due to trading gains realized in the first quarter of 2006 related to terminating certain interest rate derivatives. Total noninterest expense remained relatively flat year-over-year, as the decrease in compensation and benefits expense due to the immediate recognition in the first quarter of 2006 of the value of stock awards for employees that met retiree status was offset by an unfavorable change in net shared services allocated to the lines of business. The favorable change in income taxes, compared with a year ago, resulted from incremental investment in tax-exempt municipal securities, tax-advantaged investments and expansion of a bank-owned life insurance program.
     Net income in the first quarter of 2007 was lower than the fourth quarter of 2006 due to a decrease in total net revenue and an unfavorable variance in income taxes, partially offset by a decrease in total noninterest expense. Net interest income decreased primarily due to the higher cost of wholesale funding and specific management decisions, including expanding the bank-owned life insurance program and an accelerated share repurchase program initiated in February of 2007. Total noninterest income decreased $60 million due to the $52 million gain on the sale of the Company’s 401(k) recordkeeping business and $6
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 24
million related to terminating a derivative in the fourth quarter of 2006. Total noninterest expenses decreased by $52 million primarily due to a $22 million debt prepayment charge in the fourth quarter of 2006 and lower costs related to tax-advantaged investments given the timing of these investments in late 2006. The residual tax benefits recognized by the Treasury and Corporate Support business line decreased during the first quarter of 2007 primarily due to lower levels of tax credits related to tax-advantaged investments.
Additional schedules containing more detailed information about the Company’s business line results are available on the web at usbank.com or by calling Investor Relations at 612-303-0781.
PRESIDENT AND CHIEF EXECUTIVE OFFICER, RICHARD K. DAVIS, AND VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, ANDREW CECERE, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS AT 1:00 P.M. (CDT) ON TUESDAY, APRIL 17, 2007. The conference call will be available by telephone or on the internet. To access the conference call, please dial 800-909-7113 and ask for the U.S. Bancorp earnings conference call. Participants calling from outside the United States, please dial 785-830-1914. For those unable to participate during the live call, a recording of the call will be available approximately one hour after the conference call ends on Tuesday, April 17th, and will run through Tuesday, April 24th, at 11:00 p.m. (CDT). To access the recorded message dial 800-839-1229. If calling from outside the United States, please dial 402-220-0459 to access the recording. Find the recorded call via the internet at usbank.com.
Minneapolis-based U.S. Bancorp (“USB”), with $221 billion in assets, is the 6th largest financial holding company in the United States. The Company operates 2,498 banking offices and 4,837 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on the web at usbank.com.
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U.S. Bancorp Reports First Quarter 2007 Results
April 17, 2007
Page 25
Forward-Looking Statements
The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of the Company. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including changes in general business and economic conditions, changes in interest rates, legal and regulatory developments, increased competition from both banks and non-banks, changes in customer behavior and preferences, effects of mergers and acquisitions and related integration, and effects of critical accounting policies and judgments. For discussion of these and other risks that may cause actual results to differ from expectations, refer to our Annual Report on Form 10-K for the year ended December 31, 2006, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile.” Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.
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U.S. Bancorp
Consolidated Statement of Income
                 
    Three Months Ended
(Dollars and Shares in Millions, Except Per Share Data)   March 31,
(Unaudited)   2007     2006  
 
Interest Income
               
Loans
  $ 2,578     $ 2,307  
Loans held for sale
    59       51  
Investment securities
    516       490  
Other interest income
    34       43  
     
Total interest income
    3,187       2,891  
Interest Expense
               
Deposits
    675       503  
Short-term borrowings
    328       270  
Long-term debt
    535       403  
     
Total interest expense
    1,538       1,176  
     
Net interest income
    1,649       1,715  
Provision for credit losses
    177       115  
     
Net interest income after provision for credit losses
    1,472       1,600  
Noninterest Income
               
Credit and debit card revenue
    205       182  
Corporate payment products revenue
    145       127  
ATM processing services
    59       59  
Merchant processing services
    250       213  
Trust and investment management fees
    322       297  
Deposit service charges
    243       232  
Treasury management fees
    111       107  
Commercial products revenue
    100       104  
Mortgage banking revenue
    67       24  
Investment products fees and commissions
    34       38  
Securities gains (losses), net
    1        
Other
    159       231  
     
Total noninterest income
    1,696       1,614  
Noninterest Expense
               
Compensation
    635       633  
Employee benefits
    133       133  
Net occupancy and equipment
    165       165  
Professional services
    47       35  
Marketing and business development
    48       40  
Technology and communications
    125       117  
Postage, printing and supplies
    69       66  
Other intangibles
    94       85  
Other
    229       226  
     
Total noninterest expense
    1,545       1,500  
     
Income before income taxes
    1,623       1,714  
Applicable income taxes
    493       561  
     
Net income
  $ 1,130     $ 1,153  
     
Net income applicable to common equity
  $ 1,115     $ 1,153  
     
Earnings per common share
  $ .64     $ .64  
Diluted earnings per common share
  $ .63     $ .63  
Dividends declared per common share
  $ .40     $ .33  
Average common shares outstanding
    1,752       1,801  
Average diluted common shares outstanding
    1,780       1,826  
 
Page 26

 


 

U.S. Bancorp
Consolidated Ending Balance Sheet
                         
    March 31,     December 31,     March 31,  
(Dollars in Millions)   2007     2006     2006  
    (Unaudited)             (Unaudited)  
Assets
                       
Cash and due from banks
  $ 6,287     $   8,639     $ 7,050  
Investment securities
                       
Held-to-maturity
    83       87       110  
Available-for-sale
    40,508       40,030       39,286  
Loans held for sale
    4,075       3,256       3,638  
Loans
                       
Commercial
    47,315       46,190       43,844  
Commercial real estate
    28,530       28,645       28,782  
Residential mortgages
    21,765       21,285       20,656  
Retail
    47,235       47,477       43,915  
     
Total loans
    144,845       143,597       137,197  
Less allowance for loan losses
    (2,027 )     (2,022 )     (2,035 )
     
Net loans
    142,818       141,575       135,162  
Premises and equipment
    1,818       1,835       1,817  
Goodwill
    7,585       7,538       7,267  
Other intangible assets
    3,215       3,227       3,128  
Other assets
    15,059       13,045       12,449  
     
Total assets
  $ 221,448     $219,232     $ 209,907  
     
 
                       
Liabilities and Shareholders’ Equity
                       
Deposits
                       
Noninterest-bearing
  $ 28,666     $   32,128     $ 29,384  
Interest-bearing
    70,557       70,330       69,995  
Time deposits greater than $100,000
    18,837       22,424       22,365  
     
Total deposits
    118,060       124,882       121,744  
Short-term borrowings
    28,516       26,933       20,651  
Long-term debt
    44,698       37,602       39,327  
Other liabilities
    9,374       8,618       7,929  
     
Total liabilities
    200,648       198,035       189,651  
Shareholders’ equity
                       
Preferred stock
    1,000       1,000       1,000  
Common stock
    20       20       20  
Capital surplus
    5,745       5,762       5,819  
Retained earnings
    21,660       21,242       19,568  
Less treasury stock
    (6,972 )     (6,091 )     (5,394 )
Other comprehensive income
    (653 )     (736 )     (757 )
     
Total shareholders’ equity
    20,800       21,197       20,256  
     
Total liabilities and shareholders’ equity
  $ 221,448     $219,232     $ 209,907  
 
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