-----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, FaAE7+6nmm75N+4EXUmjZGz8n6ukn/9B34RtWyaaSXQPUJdT0J5uM5bpgnxTY5kw kLBN810U9ofNeX3UVxW9cg== 0000950134-04-015204.txt : 20041019 0000950134-04-015204.hdr.sgml : 20041019 20041019105259 ACCESSION NUMBER: 0000950134-04-015204 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041019 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041019 DATE AS OF CHANGE: 20041019 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: 041084525 BUSINESS ADDRESS: STREET 1: U.S.BANCORP STREET 2: 800 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: (612)973-1111 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 c88878e8vk.htm FORM 8-K 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): October 19, 2004

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

Table of Contents

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

     On October 19, 2004, U.S. Bancorp (the “Company”) issued a press release discussing third quarter 2004 results. The press release is included as Exhibit 99.1 hereto and is incorporated herein by reference. 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 October 19, 2004.

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: October 19, 2004

EX-99.1 2 c88878exv99w1.htm PRESS RELEASE exv99w1

 

(USBANCORP LOGO)   News Release
             
 
   Contact:        
  Steve Dale   H.D. McCullough   Judith T. Murphy
  Media Relations   Investor Relations   Investor Relations
  (612) 303-0784   (612) 303-0786   (612) 303-0783

U.S. BANCORP REPORTS 14 PERCENT GROWTH IN EARNINGS PER SHARE
Record Net Income Driven by Strong Fee Revenue, Improved Credit Quality

                                                                 
EARNINGS SUMMARY                                                           Table 1
($ in millions, except per-share data)                           Percent   Percent            
                            Change   Change            
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD   Percent
    2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
Income from continuing operations, net
   $ 1,065.5     $ 1,036.9     $ 940.7       2.8       13.3     $ 3,110.8     $ 2,739.8       13.5  
Net income
     1,065.5       1,036.9       950.9       2.8       12.1       3,110.8       2,755.6       12.9  
 
Earnings per share from continuing operations (diluted)
     0.56       0.54       0.48       3.7       16.7       1.62       1.42       14.1  
Earnings per share (diluted)
     0.56       0.54       0.49       3.7       14.3       1.62       1.43       13.3  
 
Return on average assets (%)
     2.21       2.19       1.98                       2.18       1.97          
Return on average equity (%)
     21.9       21.9       19.5                       21.5       19.2          
Efficiency ratio (%)
     47.2       38.6       40.3                       44.2       46.4          
 
Dividends declared per share
   $ 0.240     $ 0.240     $ 0.205       —       17.1     $ 0.720     $ 0.615       17.1  
Book value per share (period-end)
     10.48       9.91       10.26       5.8       2.1                          
Net interest margin (%)
     4.22       4.28       4.43                       4.26       4.51          

     MINNEAPOLIS, October 19, 2004 — U.S. Bancorp (NYSE: USB) today reported net income of $1,065.5 million for the third quarter of 2004, compared with $950.9 million for the third quarter of 2003. Net income of $.56 per diluted share in the third quarter of 2004 was higher than the same period of 2003 by $.07 (14.3 percent). Return on average assets and return on average equity were 2.21 percent and 21.9 percent, respectively, for the third quarter of 2004, compared with returns of 1.98 percent and 19.5 percent, respectively, for the third quarter of 2003.

     U.S. Bancorp Chairman, President and Chief Executive Officer Jerry A. Grundhofer said, “Our third quarter results represent the 7th consecutive quarter of record earnings for our Company. Our operating units continued to show strong momentum, driven by improved credit quality, moderate revenue growth and disciplined expense management. Aided by strong commercial loan recoveries, the net charge-off ratio fell to .53 percent in the quarter, while nonperforming assets declined by 11.7 percent from the balance at June 30, 2004. Excluding securities gains and losses, total net revenue in the third quarter increased by 3.4 percent over the same period of 2003, driven

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 2

by an 11.7 percent increase in fee-based products and services. Our payment services and consumer banking business lines led the way in fee revenue generation and continued to produce outstanding results, helping to offset weakness in commercial lending. We are continuing our investment in high-growth businesses through the expansion of our merchant acquiring business in Europe, the extension of our card issuing capabilities domestically and the roll out of our in-store branch initiative in consumer banking. Finally, we returned 94 percent of the Company’s earnings in the quarter to our shareholders in the form of dividends and share repurchases.”

     The Company’s results for the third quarter of 2004 improved over the same period of 2003, primarily due to lower credit costs and growth in fee-based products and services. Included in the current quarter were gains on the sale of securities of $87.3 million, a net increase of $196.2 million over securities gains (losses) realized in the third quarter of 2003. The current quarter also included the recognition of $86.7 million of mortgage servicing rights (“MSR”) impairment, a $195.2 million unfavorable variance from the third quarter of 2003. Since the end of the second quarter of 2004, the yield on 10-year Treasury Notes decreased 46 basis points to 4.12 percent. The yield on 30-year Fannie Mae commitments declined 51 basis points during the same timeframe. Driven by the decrease in longer-term interest rates, the mortgage industry experienced an increase in refinancing activities, resulting in more prepayments.

     Total net revenue on a taxable-equivalent basis for the third quarter of 2004 was $302.8 million (10.1 percent) higher than the third quarter of 2003, primarily reflecting the $196.2 million net increase in gains (losses) on the sale of securities and growth in the majority of other fee-based revenue categories. The expansion of the Company’s merchant acquiring business in Europe, including the purchase of the remaining 50 percent shareholder interest in EuroConex Technologies Ltd from the Bank of Ireland and the acquisition of two European merchant acquiring businesses, accounted for approximately $24 million of the favorable variance year-over-year.

     Total noninterest expense in the third quarter of 2004 was $265.7 million (21.2 percent) higher than the third quarter of 2003, primarily reflecting the $195.2 million unfavorable change in the valuation of mortgage servicing rights. The expansion of the Company’s merchant acquiring business in Europe accounted for approximately $29 million of the increase, including $6 million of business integration costs, while higher compensation, employee benefits, marketing and

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 3

business development, and technology and communication also contributed to the increase year-over-year.

     Provision for credit losses for the third quarter of 2004 was $165.1 million, a decrease of $144.9 million (46.7 percent) from the third quarter of 2003. Net charge-offs in the third quarter of 2004 were $165.1 million, compared with the second quarter of 2004 net charge-offs of $204.5 million and the third quarter of 2003 net charge-offs of $309.9 million. The decline in losses from a year ago was primarily the result of declining levels of nonperforming loans, collection efforts and higher commercial loan recoveries. Total nonperforming assets declined to $804.6 million at September 30, 2004, from $910.9 million at June 30, 2004 (11.7 percent), and $1,318.3 million at September 30, 2003 (39.0 percent). The ratio of the allowance for credit losses to nonperforming loans was 337 percent at September 30, 2004, compared with 299 percent at June 30, 2004, and 202 percent at September 30, 2003.

     On December 31, 2003, the Company completed the spin-off of Piper Jaffray Companies (NYSE: PJC). In connection with the spin-off, accounting rules require that the financial statements be restated for all prior periods. As such, historical financial results related to Piper Jaffray Companies have been segregated and accounted for in the Company’s financial statements as discontinued operations. Net income in the third quarter of 2003 included after-tax income from the discontinued operations of Piper Jaffray Companies of $10.2 million, or $.01 per diluted share.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 4

                                                                 
INCOME STATEMENT HIGHLIGHTS                                                           Table 2
(Taxable-equivalent basis, $ in millions,                           Percent   Percent            
except per-share data)                           Change   Change            
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD   Percent
    2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
Net interest income
   $ 1,781.7     $ 1,779.4     $ 1,825.5       0.1       (2.4 )   $ 5,340.1     $ 5,400.8       (1.1 )
Noninterest income
     1,524.0       1,241.7       1,177.4       22.7       29.4       4,084.0       4,016.4       1.7  
 
    
 		      
 		      
 		                      
 		      
 		          
Total net revenue
     3,305.7       3,021.1       3,002.9       9.4       10.1       9,424.1       9,417.2       0.1  
Noninterest expense
     1,519.0       1,232.6       1,253.3       23.2       21.2       4,206.5       4,254.5       (1.1 )
Provision for credit losses
     165.1       204.5       310.0       (19.3 )     (46.7 )     604.6       968.0       (37.5 )
 
    
 		      
 		      
 		                      
 		      
 		          
Income from continuing operations before income taxes
     1,621.6       1,584.0       1,439.6       2.4       12.6       4,613.0       4,194.7       10.0  
Taxable-equivalent adjustment
     7.1       7.0       7.0       1.4       1.4       21.3       21.0       1.4  
Applicable income taxes
     549.0       540.1       491.9       1.6       11.6       1,480.9       1,433.9       3.3  
 
    
 		      
 		      
 		                      
 		      
 		          
Income from continuing operations
     1,065.5       1,036.9       940.7       2.8       13.3       3,110.8       2,739.8       13.5  
Income from discontinued operations (after-tax)
     —       —       10.2   nm   nm       —       15.8   nm  
 
    
 		      
 		      
 		                      
 		      
 		          
Net income
   $ 1,065.5     $ 1,036.9     $ 950.9       2.8       12.1     $ 3,110.8     $ 2,755.6       12.9  
 
    
 		      
 		      
 		                      
 		      
 		          
Diluted earnings per share:
                                                                
Income from continuing operations
   $ 0.56     $ 0.54     $ 0.48       3.7       16.7     $ 1.62     $ 1.42       14.1  
Discontinued operations
     —       —       0.01   nm   nm       —       0.01   nm  
 
    
 		      
 		      
 		                      
 		      
 		          
Net income
   $ 0.56     $ 0.54     $ 0.49       3.7       14.3     $ 1.62     $ 1.43       13.3  
 
    
 		      
 		      
 		                      
 		      
 		          

Net Interest Income

     Third quarter net interest income on a taxable-equivalent basis was $1,781.7 million, compared with $1,825.5 million recorded in the third quarter of 2003. Average earning assets for the period increased over the third quarter of 2003 by $4.3 billion (2.6 percent), primarily driven by increases in investment securities, retail loans and residential mortgages, partially offset by a decline in commercial loans and loans held for sale related to mortgage banking activities. The net interest margin in the third quarter of 2004 was 4.22 percent, compared with 4.28 percent in the second quarter of 2004 and 4.43 percent in the third quarter of 2003. The decline in the net interest margin in the third quarter of 2004 from the third quarter of 2003 primarily reflected a modest increase in the percent of total earnings assets funded by wholesale sources of funding and higher rates paid on wholesale funding due to the impact of rising rates.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 5

                                                                 
NET INTEREST INCOME                                                           Table 3
(Taxable-equivalent basis; $ in millions)                           Change   Change            
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD    
    2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
Components of net interest income
                                                                
Income on earning assets
   $ 2,309.9     $ 2,243.2     $ 2,318.3     $ 66.7     $ (8.4 )   $ 6,818.4     $ 6,991.3     $ (172.9 )
Expense on interest-bearing liabilities
     528.2       463.8       492.8       64.4       35.4       1,478.3       1,590.5       (112.2 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Net interest income
   $ 1,781.7     $ 1,779.4     $ 1,825.5     $ 2.3     $ (43.8 )   $ 5,340.1     $ 5,400.8     $ (60.7 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Average yields and rates paid
                                                                
Earning assets yield
     5.47 %     5.39 %     5.63 %     0.08 %     (0.16 )%     5.44 %     5.84 %     (0.40 )%
Rate paid on interest-bearing liabilities
     1.55       1.38       1.49       0.17       0.06       1.46       1.66       (0.20 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Gross interest margin
     3.92 %     4.01 %     4.14 %     (0.09 )%     (0.22 )%     3.98 %     4.18 %     (0.20 )%
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Net interest margin
     4.22 %     4.28 %     4.43 %     (0.06 )%     (0.21 )%     4.26 %     4.51 %     (0.25 )%
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Average balances
                                                                
Investment securities
   $ 42,502     $ 42,489     $ 37,777     $ 13     $ 4,725     $ 43,243     $ 36,059     $ 7,184  
Loans
     122,906       121,161       119,982       1,745       2,924       120,966       118,045       2,921  
Earning assets
     168,187       166,990       163,865       1,197       4,322       167,182       159,832       7,350  
Interest-bearing liabilities
     136,106       134,819       131,693       1,287       4,413       135,300       127,998       7,302  
Net free funds*
     32,081       32,171       32,172       (90 )     (91 )     31,882       31,834       48  

*   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

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 6

                                                                 
AVERAGE LOANS   Table 4
($ in millions)                           Percent   Percent            
                            Change   Change            
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD   Percent
    2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
Commercial
   $ 34,457     $ 34,484     $ 36,958       (0.1 )     (6.8 )   $ 34,191     $ 36,627       (6.7 )
Lease financing
     4,860       4,846       5,022       0.3       (3.2 )     4,869       5,131       (5.1 )
 
    
 		      
 		      
 		                      
 		      
 		          
Total commercial
     39,317       39,330       41,980       —       (6.3 )     39,060       41,758       (6.5 )
Commercial mortgages
     20,231       20,477       20,089       (1.2 )     0.7       20,420       20,144       1.4  
Construction and development
     6,963       6,639       7,308       4.9       (4.7 )     6,720       6,948       (3.3 )
 
    
 		      
 		      
 		                      
 		      
 		          
Total commercial real estate
     27,194       27,116       27,397       0.3       (0.7 )     27,140       27,092       0.2  
Residential mortgages
     14,569       14,052       12,234       3.7       19.1       14,079       11,131       26.5  
Credit card
     6,145       5,989       5,606       2.6       9.6       6,005       5,462       9.9  
Retail leasing
     6,842       6,484       5,806       5.5       17.8       6,507       5,773       12.7  
Home equity and second mortgages
     14,288       13,775       13,093       3.7       9.1       13,815       13,291       3.9  
Other retail
     14,551       14,415       13,866       0.9       4.9       14,360       13,538       6.1  
 
    
 		      
 		      
 		                      
 		      
 		          
Total retail
     41,826       40,663       38,371       2.9       9.0       40,687       38,064       6.9  
 
    
 		      
 		      
 		                      
 		      
 		          
Total loans
   $ 122,906     $ 121,161     $ 119,982       1.4       2.4     $ 120,966     $ 118,045       2.5  
 
    
 		      
 		      
 		                      
 		      
 		          

     Average loans for the third quarter of 2004 were $2.9 billion (2.4 percent) higher than the third quarter of 2003, primarily due to growth in average retail loans of $3.5 billion (9.0 percent) and residential mortgages of $2.3 billion (19.1 percent) year-over-year. Total commercial loans declined by $2.7 billion (6.3 percent), while total commercial real estate loans decreased by $203 million (.7 percent). While economic conditions have improved somewhat from a year ago, excess liquidity and improving cash flows among corporate borrowers have led to the overall decrease in total commercial loans. Average loans for the third quarter of 2004 were higher than the second quarter of 2004 by $1.7 billion (1.4 percent), primarily reflecting growth in retail loans and residential mortgages.

     Average investment securities in the third quarter of 2004 were $4.7 billion (12.5 percent) higher than in the third quarter of 2003, reflecting the reinvestment of proceeds from declining commercial loan balances and loans held for sale. Investment securities at September 30, 2004, were $4.6 billion higher than at September 30, 2003, but $631 million lower than the balance at

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 7

June 30, 2004. During the third quarter of 2004, the Company acquired principally floating and shorter-term fixed-rate securities and sold fixed-rate mortgage-backed securities.

                                                                 
AVERAGE DEPOSITS   Table 5
($ in millions)                           Percent   Percent            
                            Change   Change            
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD   Percent
    2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
Noninterest-bearing deposits
   $ 29,791     $ 30,607     $ 31,907       (2.7 )     (6.6 )   $ 29,807     $ 32,412       (8.0 )
Interest-bearing deposits
                                                                
Interest checking
     20,413       20,739       20,148       (1.6 )     1.3       20,699       18,601       11.3  
Money market accounts
     31,854       34,242       33,980       (7.0 )     (6.3 )     33,492       31,285       7.1  
Savings accounts
     5,854       5,936       5,846       (1.4 )     0.1       5,896       5,579       5.7  
 
    
 		      
 		      
 		                      
 		      
 		          
Savings products
     58,121       60,917       59,974       (4.6 )     (3.1 )     60,087       55,465       8.3  
Time certificates of deposit less than $100,000
     12,869       13,021       14,824       (1.2 )     (13.2 )     13,168       15,936       (17.4 )
Time deposits greater than $100,000
     14,535       12,571       11,251       15.6       29.2       13,085       12,836       1.9  
 
    
 		      
 		      
 		                      
 		      
 		          
Total interest-bearing deposits
     85,525       86,509       86,049       (1.1 )     (0.6 )     86,340       84,237       2.5  
 
    
 		      
 		      
 		                      
 		      
 		          
Total deposits
   $ 115,316     $ 117,116     $ 117,956       (1.5 )     (2.2 )   $ 116,147     $ 116,649       (0.4 )
 
    
 		      
 		      
 		                      
 		      
 		          

     Average noninterest-bearing deposits for the third quarter of 2004 were lower than the third quarter of 2003 by $2.1 billion (6.6 percent). Average branch-based noninterest-bearing deposits for the third quarter of 2004, however, increased by $589 million (4.9 percent) over the same quarter of 2003, as net new checking account growth continued to gain momentum. This growth was more than offset, by reductions in average noninterest-bearing deposits in other areas, including national corporate banking, wholesale mortgage banking and government banking, as well as in mortgage-related escrow balances. Average total savings products declined year-over-year by $1.9 billion (3.1 percent). Average branch-based savings products deposits, which include interest checking, money market accounts and savings accounts, however, increased by $789 million (1.9 percent) over the same quarter of 2003. This positive variance in branch-based savings products deposits, was more than offset by reductions in other areas, including a $2.8 billion reduction in government-related deposits.

     Average noninterest-bearing deposits for the third quarter of 2004 were $816 million (2.7 percent) lower than the second quarter of 2004. Average branch-based noninterest-bearing deposits, however, increased by $206 million (1.6 percent) quarter-over-quarter. This growth was

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 8

more than offset by lower government banking deposits associated with the timing of tax filings, seasonally lower corporate trust deposits and a decline in mortgage banking-related deposits. Average interest-bearing deposits were also lower than the second quarter of 2004 (1.1 percent), primarily due to decreases in savings products, primarily driven by lower government banking deposits, as well as lower time certificates of deposit less than $100,000. These unfavorable variances were partially offset by an increase in time deposits greater than $100,000. Noninterest-bearing deposits at September 30, 2004, were lower than at September 30, 2003, by $856 million (2.6 percent) and $1.2 billion (3.7 percent) lower than at June 30, 2004.

                                                                 
NONINTEREST INCOME   Table 6
($ in millions)                           Percent   Percent            
                            Change   Change            
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD   Percent
    2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
Credit and debit card revenue
   $ 164.3     $ 158.8     $ 137.6       3.5       19.4     $ 464.9     $ 407.3       14.1  
Corporate payment products revenue
     108.5       102.7       95.7       5.6       13.4       306.0       272.6       12.3  
ATM processing services
     45.2       44.9       41.3       0.7       9.4       132.3       125.6       5.3  
Merchant processing services
     187.5       165.1       146.3       13.6       28.2       493.7       415.4       18.8  
Trust and investment management fees
     240.2       251.7       239.8       (4.6 )     0.2       740.5       707.3       4.7  
Deposit service charges
     207.4       202.1       187.0       2.6       10.9       594.7       529.2       12.4  
Treasury management fees
     117.9       121.5       126.2       (3.0 )     (6.6 )     356.9       350.0       2.0  
Commercial products revenue
     106.7       107.4       97.8       (0.7 )     9.1       324.5       302.0       7.5  
Mortgage banking revenue
     97.2       109.9       89.5       (11.6 )     8.6       301.3       275.2       9.5  
Investment products fees and commissions
     37.1       42.2       35.5       (12.1 )     4.5       118.6       108.7       9.1  
Securities gains (losses), net
     87.3       (171.7 )     (108.9 )   nm   nm     (84.4 )     244.9     nm
Other
     124.7       107.1       89.6       16.4       39.2       335.0       278.2       20.4  
 
    
 		      
 		      
 		                      
 		      
 		          
Total noninterest income
   $ 1,524.0     $ 1,241.7     $ 1,177.4       22.7       29.4     $ 4,084.0     $ 4,016.4       1.7  
 
    
 		      
 		      
 		                      
 		      
 		          

Noninterest Income

     Third quarter noninterest income was $1,524.0 million, an increase of $346.6 million (29.4 percent) from the same quarter of 2003, and a $282.3 million (22.7 percent) increase over the second quarter of 2004. The increase in noninterest income over the third quarter of 2003 was driven by a net increase in gains (losses) on the sale of securities of $196.2 million, as well as favorable variances in the majority of fee income categories. Credit and debit card revenue and

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 9

corporate payment products revenue were higher in the third quarter of 2004 than the third quarter of 2003 by $26.7 million (19.4 percent) and $12.8 million (13.4 percent), respectively. Although credit and debit card revenue grew year-over-year, the growth was somewhat muted due to the impact of the settlement of the antitrust litigation brought against VISA USA and Mastercard by Wal-Mart Stores, Inc., Sears Roebuck & Co. and other retailers, which lowered the interchange rate on signature debit transactions beginning in August 2003. The year-over-year impact of the VISA settlement on credit and debit card revenue was approximately $7.8 million. This change in the interchange rate, in addition to higher customer loyalty rewards expenses, however, were more than offset by growth in transaction volumes and other rate changes. The corporate payment products revenue growth reflected growth in sales, card usage and rate changes. ATM processing services revenue was higher by $3.9 million (9.4 percent) in the third quarter of 2004 than the same quarter of the prior year due to increases in transaction volumes and sales. Merchant processing services revenue was higher in the third quarter of 2004 than the same quarter of 2003 by $41.2 million (28.2 percent), reflecting an increase in transaction volume, higher merchant and equipment fees and the recent expansion of the Company’s merchant acquiring business in Europe. The recent European acquisitions accounted for approximately $26 million of the total increase. Deposit service charges were higher year-over-year by $20.4 million (10.9 percent) due to account growth, revenue enhancement initiatives and transaction-related fees. Commercial products revenue increased by $8.9 million (9.1 percent) over the third quarter of 2003, primarily due to leasing revenue. The favorable variance year-over-year in mortgage banking revenue of $7.7 million (8.6 percent) was primarily due to higher loan servicing revenue. The $1.6 million (4.5 percent) increase in investment products fees and commissions reflected higher sales activity in the Consumer Banking business line. Other income was higher year-over-year by $35.1 million (39.2 percent), primarily due to a residual value insurance recovery during the third quarter of 2004 and a favorable change in retail lease residual gains (losses) relative to the same quarter of 2003. Partially offsetting these positive variances were treasury management fees, which declined by $8.3 million (6.6 percent) in the third quarter of 2004 from the same period of 2003. The decrease in treasury management fees year-over-year was primarily due to higher fees received during the third quarter of 2003 specifically related to the change in the Federal government’s payment methodology for treasury management services from compensating balances, reflected in net interest income, to fees.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 10

     Noninterest income was higher in the third quarter of 2004 than the second quarter of 2004 by $282.3 million (22.7 percent), primarily due to a net increase in gains (losses) on the sale of securities of $259.0 million. Credit and debit card revenue, corporate payment products revenue and ATM processing services increased quarter-over-quarter by $5.5 million (3.5 percent), $5.8 million (5.6 percent) and $.3 million (.7 percent), respectively, driven by seasonally higher transaction volumes and sales. Merchant processing services revenue rose by $22.4 million (13.6 percent) over the second quarter of 2004 due to the expansion of the European merchant acquiring business, in addition to seasonality and higher same store sales. Deposit service charges were higher in the third quarter by $5.3 million (2.6 percent) than the second quarter, primarily due to an increase in transaction-related fees. Other income was $17.6 million (16.4 percent) higher quarter-over-quarter, reflecting a residual value insurance recovery during the third quarter. Trust and investment management fees were lower in the third quarter of 2004 than the second quarter of 2004 by $11.5 million (4.6 percent) partially due to the seasonality of second quarter tax preparation fees. Treasury management fees decreased by $3.6 million (3.0 percent) quarter-over-quarter, primarily due to lower federal tax receipts processing relative to the second quarter. Mortgage banking revenue was lower in the third quarter of 2004 than the second quarter of 2004 by $12.7 million (11.6 percent), primarily due to lower origination and sales revenue, partially offset by an increase in loan servicing revenue. Investment products fees and commissions declined by $5.1 million (12.1 percent) due to seasonally lower sales.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 11

                                                                 
NONINTEREST EXPENSE   Table 7
($ in millions)                           Percent   Percent            
                            Change   Change            
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD   Percent
    2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
Compensation
   $ 564.6     $ 572.6     $ 543.8       (1.4 )     3.8     $ 1,673.0     $ 1,637.4       2.2  
Employee benefits
     100.0       91.2       75.8       9.6       31.9       291.4       247.1       17.9  
Net occupancy and equipment
     159.2       153.4       161.3       3.8       (1.3 )     468.3       482.1       (2.9 )
Professional services
     37.2       34.7       39.9       7.2       (6.8 )     104.3       99.2       5.1  
Marketing and business development
     60.6       48.7       48.6       24.4       24.7       144.6       129.5       11.7  
Technology and communications
     109.8       102.4       102.1       7.2       7.5       313.9       311.1       0.9  
Postage, printing and supplies
     61.4       60.5       61.6       1.5       (0.3 )     183.5       183.8       (0.2 )
Other intangibles
     210.2       (47.6 )     10.8       nm     nm     388.7       558.2       (30.4 )
Merger and restructuring-related charges
     —       —       10.2       nm     nm     —       38.6        nm
Other
     216.0       216.7       199.2       (0.3 )     8.4       638.8       567.5       12.6  
 
    
 		      
 		      
 		                      
 		      
 		          
Total noninterest expense
   $ 1,519.0     $ 1,232.6     $ 1,253.3       23.2       21.2     $ 4,206.5     $ 4,254.5       (1.1 )
 
    
 		      
 		      
 		                      
 		      
 		          

Noninterest Expense

     Third quarter noninterest expense totaled $1,519.0 million, an increase of $265.7 million (21.2 percent) from the same quarter of 2003 and a $286.4 million (23.2 percent) increase over the second quarter of 2004. The increase in expense year-over-year was primarily driven by the unfavorable change in MSR intangible valuations of $195.2 million and operating expenses related to the expansion of the Company’s merchant acquiring business in Europe. The expense growth also reflected increases in compensation, employee benefits, marketing and business development, and technology and communications and certain business integration costs. Compensation expense was higher year-over-year due to an increase in salaries and performance-based incentives from a year ago. Employee benefits increased year-over-year by $24.2 million (31.9 percent), primarily as a result of a $14.7 million increase in pension expense and higher payroll taxes. Marketing and business development expense was higher by $12.0 million (24.7 percent), reflecting the increase and timing of marketing campaigns, while technology and communications expense rose by $7.7 million (7.5 percent), primarily due to outsourcing certain institutional trust participant record-keeping functions and capital expenditures for imaging and other electronic payments initiatives.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 12

     Noninterest expense in the third quarter of 2004 was higher than the second quarter of 2004 by $286.4 million (23.2 percent). The increase in noninterest expense over the second quarter of 2004 was primarily due to changes in MSR intangible valuations of $257.8 million, as well as increases in employee benefits, net occupancy and equipment, professional services, marketing and business development, technology and communications, and postage, printing and supplies. Employee benefit costs primarily reflect higher pension expense. Net occupancy and equipment costs reflect changes in rental costs, utilities and maintenance costs. Changes in marketing and business development reflect the timing of brand advertising programs and marketing campaigns while technology costs reflect capital investments and higher network costs. Other expense, excluding the impact of the expanded European merchant acquiring business, was slightly lower in the third quarter of 2004, primarily due to charge-back expense associated with the Company’s airline merchant portfolio that was recorded in the second quarter of 2004.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 13

                                         
ALLOWANCE FOR CREDIT LOSSES   Table 8
($ in millions)   3Q   2Q   1Q   4Q   3Q
    2004
   2004
   2004
   2003
   2003
Balance, beginning of period
   $ 2,369.7     $ 2,369.7     $ 2,368.6     $ 2,367.7     $ 2,367.6  
Net charge-offs
                                        
Commercial
     2.7       35.7       53.6       100.9       123.9  
Lease financing
     18.2       18.9       21.3       14.9       19.2  
 
    
 		      
 		      
 		      
 		      
 		  
Total commercial
     20.9       54.6       74.9       115.8       143.1  
Commercial mortgages
     2.7       1.8       4.6       10.0       5.9  
Construction and development
     2.5       0.7       4.7       2.9       4.6  
 
    
 		      
 		      
 		      
 		      
 		  
Total commercial real estate
     5.2       2.5       9.3       12.9       10.5  
 
                                        
Residential mortgages
     6.7       7.3       7.3       7.2       7.3  
 
                                        
Credit card
     64.3       62.7       63.4       62.3       59.3  
Retail leasing
     9.6       9.8       11.0       11.3       12.2  
Home equity and second mortgages
     18.7       20.2       19.5       20.4       23.2  
Other retail
     39.7       47.4       48.5       55.2       54.3  
 
    
 		      
 		      
 		      
 		      
 		  
Total retail
     132.3       140.1       142.4       149.2       149.0  
 
    
 		      
 		      
 		      
 		      
 		  
Total net charge-offs
     165.1       204.5       233.9       285.1       309.9  
Provision for credit losses
     165.1       204.5       235.0       286.0       310.0  
 
    
 		      
 		      
 		      
 		      
 		  
Balance, end of period
   $ 2,369.7     $ 2,369.7     $ 2,369.7     $ 2,368.6     $ 2,367.7  
 
    
 		      
 		      
 		      
 		      
 		  
Components
                                        
Allowance for loan losses
   $ 2,184.0     $ 2,189.7     $ 2,185.6     $ 2,183.6     $ 2,184.0  
Liability for unfunded credit commitments*
     185.7       180.0       184.1       185.0       183.7  
 
    
 		      
 		      
 		      
 		      
 		  
Total allowance for credit losses
   $ 2,369.7     $ 2,369.7     $ 2,369.7     $ 2,368.6     $ 2,367.7  
 
    
 		      
 		      
 		      
 		      
 		  
Gross charge-offs
   $ 259.5     $ 274.3     $ 304.8     $ 352.3     $ 373.6  
Gross recoveries
   $ 94.4     $ 69.8     $ 70.9     $ 67.2     $ 63.7  
Net charge-offs to average loans (%)
     0.53       0.68       0.79       0.95       1.02  
Allowance as a percentage of:
                                        
Period-end loans
     1.90       1.93       1.98       2.00       1.98  
Nonperforming loans
     337       299       258       232       202  
Nonperforming assets
     295       260       226       206       180  
                                         
*  During the first quarter of 2004, the Company reclassified the portion of its allowance for credit losses related to commercial off-balance sheet loan commitments and letters of credit to a separate liability account. Amounts for periods presented in 2003, represent estimates.

Credit Quality

     The allowance for credit losses was $2,369.7 million at September 30, 2004, equal to the allowance for credit losses at June 30, 2004, and essentially equal to the allowance for credit losses

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 14

of $2,367.7 million at September 30, 2003. The ratio of the allowance for credit losses to period-end loans was 1.90 percent at September 30, 2004, compared with 1.93 percent at June 30, 2004, and 1.98 percent at September 30, 2003. The ratio of the allowance for credit losses to nonperforming loans was 337 percent at September 30, 2004, compared with 299 percent at June 30, 2004, and 202 percent at September 30, 2003. Total net charge-offs in the third quarter of 2004 were $165.1 million, compared with the second quarter of 2004 net charge-offs of $204.5 million and the third quarter of 2003 net charge-offs of $309.9 million.

     Commercial and commercial real estate loan net charge-offs were $26.1 million for the third quarter of 2004, or .16 percent of average loans outstanding, compared with $57.1 million, or .35 percent of average loans outstanding, in the second quarter of 2004 and $153.6 million, or .88 percent of average loans outstanding, in the third quarter of 2003. The decline in net charge-offs continues to be broad-based across most industries within the commercial loan portfolio and was favorably influenced by higher levels of commercial loan recoveries in the third quarter of 2004. Commercial loan recoveries are expected to return to more normal levels in future periods.

     Retail loan net charge-offs of $132.3 million in the third quarter of 2004 were $7.8 million (5.6 percent) lower than the second quarter of 2004 and $16.7 million (11.2 percent) lower than the third quarter of 2003. Retail loan net charge-offs as a percent of average loans outstanding were 1.26 percent in the third quarter of 2004, compared with 1.39 percent and 1.54 percent in the second quarter of 2004 and third quarter of 2003, respectively. Lower levels of retail loan net charge-offs principally reflected the Company’s improvement in ongoing collection efforts and risk management.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 15

                                         
CREDIT RATIOS                                   Table 9
(Percent)   3Q   2Q   1Q   4Q   3Q
    2004
   2004
   2004
   2003
   2003
Net charge-offs ratios*
                                        
Commercial
     0.03       0.42       0.64       1.14       1.33  
Lease financing
     1.49       1.57       1.75       1.19       1.52  
Total commercial
     0.21       0.56       0.78       1.15       1.35  
 
                                        
Commercial mortgages
     0.05       0.04       0.09       0.20       0.12  
Construction and development
     0.14       0.04       0.29       0.16       0.25  
Total commercial real estate
     0.08       0.04       0.14       0.19       0.15  
 
                                        
Residential mortgages
     0.18       0.21       0.22       0.21       0.24  
 
                                        
Credit card
     4.16       4.21       4.34       4.33       4.20  
Retail leasing
     0.56       0.61       0.71       0.76       0.83  
Home equity and second mortgages
     0.52       0.59       0.59       0.62       0.70  
Other retail
     1.09       1.32       1.38       1.57       1.55  
Total retail
     1.26       1.39       1.45       1.53       1.54  
 
                                        
Total net charge-offs
     0.53       0.68       0.79       0.95       1.02  
 
                                        
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans**
Commercial
     0.05       0.05       0.06       0.06       0.11  
Commercial real estate
     0.01       0.01       0.01       0.02       0.01  
Residential mortgages
     0.46       0.50       0.56       0.61       0.63  
Retail
     0.47       0.48       0.54       0.56       0.57  
Total loans
     0.23       0.24       0.27       0.28       0.29  
 
                                        
Delinquent loan ratios - 90 days or more past due including nonperforming loans**
Commercial
     1.14       1.37       1.67       1.97       2.31  
Commercial real estate
     0.75       0.76       0.85       0.82       0.75  
Residential mortgages
     0.77       0.79       0.87       0.91       0.98  
Retail
     0.51       0.52       0.59       0.62       0.63  
Total loans
     0.80       0.88       1.03       1.14       1.27  

*   annualized and calculated on average loan balances
 
**   ratios are expressed as a percent of ending loan balances

     The overall level of net charge-offs in the third quarter of 2004 reflected the Company’s ongoing efforts to reduce the overall risk profile of the organization and the higher level of commercial loan recoveries during the third quarter of 2004. Net charge-offs are expected to increase modestly as commercial loan recoveries return to more normal levels in future periods.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 16

                                         
ASSET QUALITY   Table 10
($ in millions)                    
    Sep 30   Jun 30   Mar 31   Dec 31   Sep 30
    2004
   2004
   2004
   2003
   2003
Nonperforming loans
                                        
Commercial
   $ 347.7     $ 415.7     $ 510.7     $ 623.5     $ 793.9  
Lease financing
     91.3       111.0       115.6       113.3       111.6  
 
    
 		      
 		      
 		      
 		      
 		  
Total commercial
     439.0       526.7       626.3       736.8       905.5  
Commercial mortgages
     165.7       163.8       184.9       177.6       161.5  
Construction and development
     35.3       41.3       43.6       39.9       40.2  
 
    
 		      
 		      
 		      
 		      
 		  
Commercial real estate
     201.0       205.1       228.5       217.5       201.7  
Residential mortgages
     45.3       41.7       42.1       40.5       46.1  
Retail
     17.2       18.4       20.4       25.2       21.6  
 
    
 		      
 		      
 		      
 		      
 		  
Total nonperforming loans
     702.5       791.9       917.3       1,020.0       1,174.9  
 
                                        
Other real estate
     68.7       70.0       76.0       72.6       70.4  
Other nonperforming assets
     33.4       49.0       53.3       55.5       73.0  
 
    
 		      
 		      
 		      
 		      
 		  
 
                                        
Total nonperforming assets*
   $ 804.6     $ 910.9     $ 1,046.6     $ 1,148.1     $ 1,318.3  
 
    
 		      
 		      
 		      
 		      
 		  
 
                                        
Accruing loans 90 days or more past due
   $ 291.8     $ 293.2     $ 319.2     $ 329.4     $ 352.4  
 
    
 		      
 		      
 		      
 		      
 		  
 
                                        
Nonperforming assets to loans plus ORE (%)
     0.64       0.74       0.87       0.97       1.10  

*does not include accruing loans 90 days or more past due

     Nonperforming assets at September 30, 2004, totaled $804.6 million, compared with $910.9 million at June 30, 2004, and $1,318.3 million at September 30, 2003. The ratio of nonperforming assets to loans and other real estate was .64 percent at September 30, 2004, compared with .74 percent at June 30, 2004, and 1.10 percent at September 30, 2003. While nonperforming assets are expected to continue to decline slightly during the next few quarters, the ongoing level of nonperforming assets is expected to stabilize at those lower levels.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 17

                                         
CAPITAL POSITION   Table 11
($ in millions)   Sep 30   Jun 30   Mar 31   Dec 31   Sep 30
    2004
   2004
   2004
   2003
   2003
Total shareholders’ equity
   $ 19,600     $ 18,675     $ 19,452     $ 19,242     $ 19,771  
Tier 1 capital
     14,589       14,294       14,499       14,623       14,589  
Total risk-based capital
     21,428       21,255       21,559       21,710       21,859  
 
                                        
Common equity to assets
     10.2 %     9.8 %     10.1 %     10.2 %     10.5 %
Tangible common equity to assets
     6.4       6.3       6.4       6.5       6.5  
Tier 1 capital ratio
     8.7       8.7       8.9       9.1       9.0  
Total risk-based capital ratio
     12.7       12.9       13.3       13.6       13.5  
Leverage ratio
     7.9       7.8       8.0       8.0       8.0  

     Total shareholders’ equity was $19.6 billion at September 30, 2004, compared with $19.8 billion at September 30, 2003. The decrease was primarily the result of corporate earnings offset by share buybacks and dividends, including the special dividend of $685 million related to the December 31, 2003, spin-off of Piper Jaffray Companies.

     Tangible common equity to assets was 6.4 percent at September 30, 2004, compared with 6.3 percent at June 30, 2004, and 6.5 percent at September 30, 2003. The Tier 1 capital ratio was 8.7 percent at September 30, 2004, and at June 30, 2004, compared with 9.0 percent at September 30, 2003. The total risk-based capital ratio was 12.7 percent at September 30, 2004, compared with 12.9 percent at June 30, 2004, and 13.5 percent at September 30, 2003. The leverage ratio was 7.9 percent at September 30, 2004, compared with 7.8 percent at June 30, 2004, and 8.0 percent at September 30, 2003. All regulatory ratios continue to be in excess of stated “well capitalized” requirements.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 18

                                         
COMMON SHARES   Table 12
(Millions)   3Q   2Q   1Q   4Q   3Q
    2004
   2004
   2004
   2003
   2003
Beginning shares outstanding
     1,884.1       1,901.2       1,922.9       1,927.4       1,924.5  
 
                                        
Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes
     6.2       3.7       12.1       10.5       2.9  
Shares repurchased
     (19.5 )     (20.8 )     (33.8 )     (15.0 )     —  
 
    
 		      
 		      
 		      
 		      
 		  
Ending shares outstanding
     1,870.8       1,884.1       1,901.2       1,922.9       1,927.4  
 
    
 		      
 		      
 		      
 		      
 		  

     On December 16, 2003, the board of directors of U.S. Bancorp approved an authorization to repurchase 150 million shares of outstanding common stock during the following 24 months. During the third quarter of 2004, the Company repurchased 19.5 million shares of common stock. As of September 30, 2004, there were approximately 68 million shares remaining to be repurchased under the current authorization.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 19

                                                                         
LINE OF BUSINESS FINANCIAL PERFORMANCE*   Table 13
($ in millions)                                    
    Operating Earnings**
   Percent Change
                           3Q 2004
    3Q   2Q   3Q   3Q04 vs   3Q04 vs   YTD   YTD   Percent   Earnings
Business Line   2004
   2004
   2003
   2Q04
   3Q03
   2004
   2003
   Change
   Composition
Wholesale Banking
   $ 278.0     $ 266.3     $ 213.2       4.4       30.4     $ 795.1     $ 637.3       24.8       26 %
Consumer Banking
     409.5       388.5       355.2       5.4       15.3       1,073.1       999.3       7.4       39  
Private Client, Trust and Asset Management
     110.8       109.4       99.3       1.3       11.6       330.0       284.7       15.9       10  
Payment Services
     185.0       177.7       153.6       4.1       20.4       524.5       432.5       21.3       17  
Treasury and Corporate Support
     82.2       95.0       126.1       (13.5 )     (34.8 )     388.1       411.4       (5.7 )     8  
 
    
 		      
 		      
 		                      
 		      
 		              
 		  
Consolidated Company
   $ 1,065.5     $ 1,036.9     $ 947.4       2.8       12.5     $ 3,110.8     $ 2,765.2       12.5       100 %
 
    
 		      
 		      
 		                      
 		      
 		              
 		  

*   preliminary data
 
**   earnings before merger and restructuring-related items and discontinued operations

Lines of Business

     Within the Company, financial performance is measured by major lines of business which include Wholesale Banking, Consumer Banking, Private Client, Trust and Asset 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. These allocated expenses are reported as net shared services expense. Designations, assignments and allocations may 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 our diverse customer base. During 2004, 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, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $278.0 million of the Company’s operating earnings in the third quarter of 2004, a 30.4

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 20

percent increase over the same period of 2003 and a 4.4 percent increase over the second quarter of 2004. The increase in Wholesale Banking’s third quarter 2004 contribution over the third quarter of 2003 was primarily the result of favorable variances in the provision for credit losses and total noninterest expense (6.7 percent), partially offset by a decrease in total net revenue (4.3 percent). The decline in total net revenue from the third quarter of 2003 reflected unfavorable variances in both net interest income (4.4 percent) and noninterest income (4.6 percent). The decrease in net interest income was primarily due to a decline in average total loans outstanding (6.5 percent) and average noninterest bearing deposits (13.3 percent) and savings products (32.6 percent) due, in part, to lower deposits associated with government banking and mortgage banking activities. The decline in noninterest income was primarily the result of unfavorable variances in treasury management fees and commercial products revenue. Treasury management fees were lower (9.1 percent) year-over-year due to a reduction in fees from the Federal government relative to the same quarter of 2003, while the unfavorable variance in commercial products revenue (2.9 percent) was primarily due to lower capital markets activity and other non-yield-related loan fees. Wholesale Banking’s favorable variance in total noninterest expense year-over-year was primarily the result of a decline in net shared services (9.0 percent), which is primarily driven by customer transaction volume and account activities. The decrease in the provision for credit losses year-over-year was the result of the favorable change from net charge-offs of $104.4 million in the third quarter of 2003 to net recoveries of $12.7 million in the current quarter. The increase in Wholesale Banking’s contribution to operating earnings in the third quarter of 2004 over the second quarter of 2004 was the net result of favorable variances in the provision for credit losses and total noninterest expense (2.5 percent), partially offset by lower total net revenue (1.2 percent). Total net revenue was slightly lower on a linked quarter basis, with essentially flat net interest income, but lower noninterest income (3.8 percent). The unfavorable variance quarter-over-quarter in noninterest income was primarily attributed to lower treasury management fees, the result of lower Federal tax receipt processing activity relative to the second quarter of 2004. The decrease in noninterest expense was principally due to lower net shared services and professional services expense. Net recoveries for the third quarter of 2004 drove the favorable variance in provision for credit losses over the prior quarter.

     Consumer Banking delivers products and services to the broad consumer market and small businesses through banking offices, telemarketing, on-line services, direct mail and automated

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 21

teller machines (“ATMs”). It encompasses community banking, metropolitan banking, branch ATM banking, small business banking, including lending guaranteed by the Small Business Administration, small-ticket leasing, consumer lending, mortgage banking, workplace banking, student banking, 24-hour banking, and investment product and insurance sales. Consumer Banking contributed $409.5 million of the Company’s operating earnings in the third quarter of 2004, a 15.3 percent increase over the same period of 2003 and a 5.4 percent increase over the second quarter of 2004. While the retail banking business segment grew operating earnings by 26.2 percent and 10.5 percent over the third quarter of 2003 and the second quarter of 2004, respectively, the contribution of the mortgage banking business declined from both of the previous reporting periods. The decrease in the mortgage banking business’s contribution from the third quarter of 2003 was the net result of a decline in net interest income and an increase in noninterest expense, excluding the change in MSR valuation. The increase in noninterest expense, excluding the change in MSR valuation, was primarily due to an increase in other intangible amortization, the result of the growing servicing portfolio. In the third quarter of 2004, as in the third quarter of 2003, net gains (losses) on securities in the mortgage banking business line were offset by the change in MSR valuation. The mortgage banking business line’s contribution declined in the third quarter of 2004 from the second quarter of 2004, primarily due to lower net interest income and noninterest income and higher operating expense.

     For the Consumer Banking business, as a whole, the favorable variance in gains (losses) on the sale of securities was offset with the unfavorable variance in MSR valuation year-over-year. Excluding net gains (losses) on the sale of securities, total net revenue was higher than the same quarter of the 2003 by 5.2 percent, primarily due to an increase in noninterest income (18.0 percent). Consumer Banking’s results also benefited from a reduction in the provision for credit losses (16.5 percent), while total noninterest expense, excluding the change in MSR valuations, was essentially flat from the third quarter of 2003. Net interest income was slightly lower year-over-year (.3 percent), the result of increases in average loans outstanding (8.7 percent), offset by declines in the average balance of loans held for sale and in the business line’s net interest margin. Noninterest income improved in the third quarter of 2004 over the same period of 2003, primarily due to growth in deposit service charges (11.1 percent), commercial products revenue (45.7 percent), mortgage banking revenue (7.7 percent), investment products fees and commissions (4.0 percent) and other revenue. Other revenue was higher due to a residual value insurance recovery

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 22

during the third quarter of 2004 and a favorable change in lease residual gains (losses). Total noninterest expense, excluding the change in MSR valuation, in the third quarter of 2004 was essentially flat to the third quarter of 2003, with higher compensation and employee benefits (2.1 percent), net occupancy and equipment (1.3 percent), and other intangibles (9.7 percent), offset by lower net shared services (7.9 percent) and other expense (1.6 percent). A reduction in net charge-offs year-over-year drove the positive variance in the business line’s provision for credit losses.

     The increase in Consumer Banking’s contribution in the third quarter of 2004 over the second quarter of 2004 was primarily the result of favorable variances in total net revenue, excluding net gains (losses) on the sale of securities (2.1 percent), and a reduction in the provision for credit losses (5.7 percent). Offsetting these favorable variances was slightly higher noninterest expense, excluding the change in MSR valuation (.2 percent). The growth in noninterest income, excluding net gains (losses) on the sale of securities, quarter-over-quarter was driven by deposit service charges (2.7 percent), treasury management fees (5.0 percent) and other revenue (26.7 percent). The unfavorable variance in noninterest expense, excluding the change in MSR valuation, quarter-over-quarter was primarily the result of slightly higher compensation and employee benefits and other expense.

     Private Client, Trust and Asset Management provides trust, private banking, financial advisory, investment management and mutual fund and alternative investment product services through five businesses: Private Client Group, Corporate Trust, Asset Management, Institutional Trust and Custody, and Fund Services, LLC. Private Client, Trust and Asset Management contributed $110.8 million of the Company’s operating earnings in the third quarter of 2004, 11.6 percent higher than the same period of 2003 and 1.3 percent higher than the second quarter of 2004. The favorable variance in the business line’s contribution in the third quarter of 2004 over the third quarter of 2003 was the result of favorable variances in net interest income (18.8 percent), total noninterest expense (1.7 percent) and the provision for credit losses. Higher average loans outstanding (3.8 percent) and average total deposits (14.5 percent) favorably impacted net interest income year-over-year. Noninterest income was slightly lower than the same quarter of 2003 (.7 percent). The increase in the business line’s contribution (1.3 percent) in the third quarter of 2004 over the second quarter of 2004 was primarily the result of slightly lower total noninterest expense (.9 percent) and a favorable variance in the provision for credit losses, offset by lower total net revenue (2.0 percent). Although net interest income rose (7.8 percent) quarter-over-quarter,

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 23

noninterest income fell by 5.4 percent from the second quarter of 2004 to the third quarter of 2004. The increase in net interest income was primarily driven by an increase in average loans outstanding (1.3 percent), while noninterest income declined partially due to seasonally lower tax preparation fees relative to the second quarter of 2004.

     Payment Services includes consumer and business credit cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing, and merchant processing. Payment Services contributed $185.0 million of the Company’s operating earnings in the third quarter of 2004, a 20.4 percent increase over the same period of 2003, and a 4.1 percent increase over the second quarter of 2004. The increase in Payment Services’ contribution in the third quarter of 2004 over the same period of 2003 was the result of higher total net revenue (13.6 percent) and a lower provision for credit losses (8.9 percent), partially offset by an increase in total noninterest expense (16.0 percent). The increase in total net revenue year-over-year was primarily due to growth in noninterest income (21.2 percent), partially offset by lower net interest income (7.4 percent), which primarily reflected higher corporate card rebates and a reduction in late fees relative to the prior year’s quarter. The increase in noninterest income was principally the result of growth in credit and debit card revenue (19.4 percent), corporate payment products revenue (13.4 percent), ATM processing service revenue (13.5 percent) and merchant processing services revenue (28.2 percent). Although credit and debit card revenue was negatively impacted in the third quarter of 2004 by the VISA debit card settlement and higher customer loyalty rewards expense, increases in transaction volumes and other rate changes more than offset these detrimental changes. The increase in merchant processing revenue included approximately $26 million associated with the expansion of the Company’s merchant acquiring business in Europe. The growth in total noninterest expense year-over-year primarily reflected an increase in processing expense related to the business line’s revenue growth, including approximately $23 million associated with the European merchant acquiring business. The increase in Payment Services’ contribution in the third quarter of 2004 over the second quarter of 2004 was primarily due to seasonally strong total net revenue (4.8 percent) and lower provision for credit losses (5.5 percent), offset by an increase in total noninterest expense (9.7 percent), the result of the increase in processing-related expense and the expansion of the merchant acquiring business in Europe.

     Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 24

of transfer pricing related to average balances and the residual aggregate of expenses associated with business activities managed on a corporate basis, including enterprise-wide operations and administrative support functions. Operational expenses incurred by Treasury and Corporate Support on behalf of the other business lines are allocated back primarily based on customer transaction volume and account activities to the appropriate business unit and are identified as net shared services expense. Treasury and Corporate Support recorded operating earnings of $82.2 million in the third quarter of 2004, compared with operating earnings of $126.1 million in the third quarter of 2003 and $95.0 million in the second quarter of 2004. The decrease in operating earnings in the current quarter from the third quarter of 2003 was largely due to lower total net revenue (7.5 percent) and higher total noninterest expense (39.6 percent). Lower total net revenue reflected the Company’s asset/liability management decisions to invest in lower-yield floating-rate securities, higher-cost fixed funding and repositioning of the balance sheet for changes in the interest rate environment. The increase in total noninterest expense year-over-year reflected higher compensation and employee benefits, specifically performance-based incentives and pension expense, as well as an unfavorable variance in net shared services. The unfavorable variance in operating earnings in the third quarter of 2004 from the second quarter of 2004 was the result of lower total net revenue (5.8 percent) and higher total noninterest expense (5.0 percent). Total net revenue declined quarter-over-quarter, primarily due to the continuing asset/liability management decisions of the Company, while the increase in noninterest expense reflected higher net occupancy and equipment costs and other expense.

     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.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 25

CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, JERRY A. GRUNDHOFER, AND VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, DAVID M. MOFFETT, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS ON TUESDAY, October 19, 2004, AT 1:00 p.m. (CDT). To access the conference call, please dial 800-223-9488 and ask for the U.S. Bancorp earnings conference call. Participants calling from outside the United States, please call 785-832-1508. 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, October 19, 2004, and will run through Tuesday, October 26, 2004, at 11:00 p.m. (CDT). To access the recorded message dial 888-276-5316. If calling from outside the United States, please dial 402-220-2333. After October 26th, a recording of the call will continue to be available by webcast on the U.S. Bancorp web site at usbank.com.

     Minneapolis-based U.S. Bancorp (“USB”), with $193 billion in assets, is the 6th largest financial services holding company in the United States. The company operates 2,346 banking offices and 4,621 ATMs, 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.

 

 

U.S. Bancorp Reports Third Quarter 2004 Results
October 19, 2004
Page 26

Forward-Looking Statements

     This press release contains forward-looking statements. 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 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 the following, in addition to those contained in the Company’s reports on file with the SEC: (i) general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for credit losses, or a reduced demand for credit or fee-based products and services; (ii) changes in the domestic interest rate environment could reduce net interest income and could increase credit losses; (iii) inflation, changes in securities market conditions and monetary fluctuations could adversely affect the value or credit quality of the Company’s assets, or the availability and terms of funding necessary to meet the Company’s liquidity needs; (iv) changes in the extensive laws, regulations and policies governing financial services companies could alter the Company’s business environment or affect operations; (v) the potential need to adapt to industry changes in information technology systems, on which the Company is highly dependent, could present operational issues or require significant capital spending; (vi) competitive pressures could intensify and affect the Company’s profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments, or bank regulatory reform; (vii) changes in consumer spending and savings habits could adversely affect the Company’s results of operations; (viii) changes in the financial performance and condition of the Company’s borrowers could negatively affect repayment of such borrowers’ loans; (ix) acquisitions may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated, or may result in unforeseen integration difficulties; (x) capital investments in the Company’s businesses may not produce expected growth in earnings anticipated at the time of the expenditure; and (xi) acts or threats of terrorism, and/or political and military actions taken by the U.S. or other governments in response to acts or threats of terrorism or otherwise could adversely affect general economic or industry conditions. 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.

###

 

 

U.S. Bancorp
Consolidated Statement of Income

                                 
    Three Months Ended   Nine Months Ended
(Dollars and Shares in Millions, Except Per Share Data)   September 30,
   September 30,
(Unaudited)
   2004
   2003
   2004
   2003
Interest Income
                                
Loans
   $ 1,802.8     $ 1,818.3     $ 5,289.8     $ 5,476.0  
Loans held for sale
     21.1       59.5       68.3       170.9  
Investment securities
                                
Taxable
     448.8       403.6       1,351.5       1,222.1  
Non-taxable
     4.4       6.7       14.4       23.1  
Other interest income
     25.7       23.2       73.1       78.2  
 
    
 		      
 		      
 		      
 		  
Total interest income
     2,302.8       2,311.3       6,797.1       6,970.3  
Interest Expense
                                
Deposits
     221.4       256.4       653.7       851.5  
Short-term borrowings
     74.5       44.9       183.3       123.3  
Long-term debt
     205.3       167.9       566.0       536.2  
Junior subordinated debentures
     27.0       23.6       75.3       79.5  
 
    
 		      
 		      
 		      
 		  
Total interest expense
     528.2       492.8       1,478.3       1,590.5  
 
    
 		      
 		      
 		      
 		  
Net interest income
     1,774.6       1,818.5       5,318.8       5,379.8  
Provision for credit losses
     165.1       310.0       604.6       968.0  
 
    
 		      
 		      
 		      
 		  
Net interest income after provision for credit losses
     1,609.5       1,508.5       4,714.2       4,411.8  
Noninterest Income
                                
Credit and debit card revenue
     164.3       137.6       464.9       407.3  
Corporate payment products revenue
     108.5       95.7       306.0       272.6  
ATM processing services
     45.2       41.3       132.3       125.6  
Merchant processing services
     187.5       146.3       493.7       415.4  
Trust and investment management fees
     240.2       239.8       740.5       707.3  
Deposit service charges
     207.4       187.0       594.7       529.2  
Treasury management fees
     117.9       126.2       356.9       350.0  
Commercial products revenue
     106.7       97.8       324.5       302.0  
Mortgage banking revenue
     97.2       89.5       301.3       275.2  
Investment products fees and commissions
     37.1       35.5       118.6       108.7  
Securities gains (losses), net
     87.3       (108.9 )     (84.4 )     244.9  
Other
     124.7       89.6       335.0       278.2  
 
    
 		      
 		      
 		      
 		  
Total noninterest income
     1,524.0       1,177.4       4,084.0       4,016.4  
Noninterest Expense
                                
Compensation
     564.6       543.8       1,673.0       1,637.4  
Employee benefits
     100.0       75.8       291.4       247.1  
Net occupancy and equipment
     159.2       161.3       468.3       482.1  
Professional services
     37.2       39.9       104.3       99.2  
Marketing and business development
     60.6       48.6       144.6       129.5  
Technology and communications
     109.8       102.1       313.9       311.1  
Postage, printing and supplies
     61.4       61.6       183.5       183.8  
Other intangibles
     210.2       10.8       388.7       558.2  
Merger and restructuring-related charges
     —       10.2       —       38.6  
Other
     216.0       199.2       638.8       567.5  
 
    
 		      
 		      
 		      
 		  
Total noninterest expense
     1,519.0       1,253.3       4,206.5       4,254.5  
 
    
 		      
 		      
 		      
 		  
Income from continuing operations before income taxes
     1,614.5       1,432.6       4,591.7       4,173.7  
Applicable income taxes
     549.0       491.9       1,480.9       1,433.9  
 
    
 		      
 		      
 		      
 		  
Income from continuing operations
     1,065.5       940.7       3,110.8       2,739.8  
Income from discontinued operations (after-tax)
     —       10.2       —       15.8  
 
    
 		      
 		      
 		      
 		  
Net income
   $ 1,065.5     $ 950.9     $ 3,110.8     $ 2,755.6  
 
    
 		      
 		      
 		      
 		  
Earnings Per Share
                                
Income from continuing operations
   $ .57     $ .49     $ 1.64     $ 1.43  
Discontinued operations
     —       —       —       —  
 
    
 		      
 		      
 		      
 		  
Net income
   $ .57     $ .49     $ 1.64     $ 1.43  
 
    
 		      
 		      
 		      
 		  
Diluted Earnings Per Share
                                
Income from continuing operations
   $ .56     $ .48     $ 1.62     $ 1.42  
Discontinued operations
     —       .01       —       .01  
 
    
 		      
 		      
 		      
 		  
Net income
   $ .56     $ .49     $ 1.62     $ 1.43  
 
    
 		      
 		      
 		      
 		  
Dividends declared per share
   $ .240     $ .205     $ .720     $ .615  
 
    
 		      
 		      
 		      
 		  
Average common shares outstanding
     1,877.0       1,926.0       1,894.6       1,922.4  
Average diluted common shares outstanding
     1,903.7       1,939.8       1,919.4       1,932.4  
 
    
 		      
 		      
 		      
 		  

 

 

U.S. Bancorp
Consolidated Ending Balance Sheet

                         
    September 30,   December 31,   September 30,
(Dollars in Millions)
   2004
   2003
   2003
    (Unaudited)           (Unaudited)
Assets
                        
Cash and due from banks
   $ 6,969     $ 8,630     $ 9,187  
Investment securities
                        
Held-to-maturity
     120       152       180  
Available-for-sale
     39,534       43,182       34,835  
Loans held for sale
     1,372       1,433       3,640  
Loans
                        
Commercial
     40,151       38,526       41,170  
Commercial real estate
     27,414       27,242       27,242  
Residential mortgages
     14,741       13,457       12,976  
Retail
     42,520       39,010       38,494  
 
    
 		      
 		      
 		  
Total loans
     124,826       118,235       119,882  
Less allowance for loan losses
     (2,184 )     (2,184 )     (2,184 )
 
    
 		      
 		      
 		  
Net loans
     122,642       116,051       117,698  
Premises and equipment
     1,894       1,957       2,028  
Customers’ liability on acceptances
     146       121       143  
Goodwill
     6,226       6,025       6,329  
Other intangible assets
     2,419       2,124       2,138  
Other assets
     11,522       9,796       12,841  
 
    
 		      
 		      
 		  
Total assets
   $ 192,844     $ 189,471     $ 189,019  
 
    
 		      
 		      
 		  
Liabilities and Shareholders’ Equity
                        
Deposits
                        
Noninterest-bearing
   $ 31,585     $ 32,470     $ 32,441  
Interest-bearing
     70,011       74,749       74,419  
Time deposits greater than $100,000
     13,971       11,833       8,183  
 
    
 		      
 		      
 		  
Total deposits
     115,567       119,052       115,043  
Short-term borrowings
     12,648       10,850       12,864  
Long-term debt
     35,328       31,215       31,603  
Junior subordinated debentures
     2,676       2,601       2,605  
Acceptances outstanding
     146       121       143  
Other liabilities
     6,879       6,390       6,990  
 
    
 		      
 		      
 		  
Total liabilities
     173,244       170,229       169,248  
Shareholders’ equity
                        
Common stock
     20       20       20  
Capital surplus
     5,868       5,851       5,853  
Retained earnings
     16,260       14,508       14,677  
Less treasury stock
     (2,710 )     (1,205 )     (1,031 )
Other comprehensive income
     162       68       252  
 
    
 		      
 		      
 		  
Total shareholders’ equity
     19,600       19,242       19,771  
 
    
 		      
 		      
 		  
Total liabilities and shareholders’ equity
   $ 192,844     $ 189,471     $ 189,019  
 
    
 		      
 		      
 		  

 

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