-----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, BZyX1P4uq6cb8/bIxtgCxh11gLv4XPFHKLJhfw6/uC+EuMKCp1myY68EPviNC2/x TFynHv46q1i3IX8XvvnUhA== 0000950134-05-013550.txt : 20050719 0000950134-05-013550.hdr.sgml : 20050719 20050719064314 ACCESSION NUMBER: 0000950134-05-013550 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050719 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050719 DATE AS OF CHANGE: 20050719 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: 05960462 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 c96723e8vk.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): July 19, 2005

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 July 19, 2005, U.S. Bancorp (the “Company”) issued a press release discussing quarter ended June 30, 2005 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 “filed” 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 July 19, 2005, deemed “filed” 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: July 19, 2005

EX-99.1 2 c96723exv99w1.htm PRESS RELEASE exv99w1

 

Exhibit 99.1

     
(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 RECORD NET INCOME FOR THE
SECOND QUARTER OF 2005

                                                                 
EARNINGS SUMMARY                                                   Table 1  
 
($ in millions, except per-share data)                           Percent     Percent                    
                            Change     Change                    
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent  
    2005     2005     2004     1Q05     2Q04     2005     2004     Change  
     
Net income
   $ 1,121     $ 1,071     $ 1,037       4.7       8.1     $ 2,192     $ 2,045       7.2  
Earnings per share (diluted)
     0.60       0.57       0.54       5.3       11.1       1.17       1.06       10.4  
 
                                                                
Return on average assets (%)
     2.23       2.21       2.19                       2.22       2.16          
Return on average equity (%)
     22.7       21.9       21.9                       22.3       21.3          
Efficiency ratio (%)
     48.3       41.7       38.6                       45.1       42.7          
 
                                                                
Dividends declared per share
   $ 0.30     $ 0.30     $ 0.24       —       25.0     $ 0.60     $ 0.48       25.0  
Book value per share (period-end)
     10.88       10.43       9.91       4.3       9.8                          
Net interest margin (%)
     3.99       4.08       4.28                       4.03       4.28          

     MINNEAPOLIS, July 19, 2005 — U.S. Bancorp (NYSE: USB) today reported net income of $1,121 million for the second quarter of 2005, compared with $1,037 million for the second quarter of 2004. Net income of $.60 per diluted share in the second quarter of 2005 was higher than the same period of 2004 by $.06 (11.1 percent). Return on average assets and return on average equity were 2.23 percent and 22.7 percent, respectively, for the second quarter of 2005, compared with returns of 2.19 percent and 21.9 percent, respectively, for the second quarter of 2004.

     U.S. Bancorp Chairman and Chief Executive Officer Jerry A. Grundhofer said, “I am very proud to announce that our Company has achieved another quarter of record earnings and industry leading returns on equity and assets. The results included strong year-over-year and seasonal growth in our fee-based businesses, as well as exceptional credit quality. Loan growth in the second quarter of 2005 was excellent, increasing 8.3 percent over the same quarter of 2004 and at an annualized rate of 11.2 percent over the prior quarter. Once again, we exceeded our stated target

 

 

U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 2

and returned 92 percent of earnings to our shareholders during the quarter in the form of dividends and share repurchases.

     “Fee revenue, excluding the impact of securities gains (losses), continued to drive revenue growth this quarter, increasing 8.9 percent over the second quarter of 2004. Investments and core growth in our Payments Services and Consumer Banking business units were the primary drivers of the growth in fees, increasing 17.1 percent and 6.1 percent, respectively.

     “The growth in commercial loans was particularly encouraging this quarter, as average outstandings grew 9.0 percent over the second quarter of 2004 and, more importantly, at an annualized rate of 16.8 percent over the first quarter of 2005. Although credit spreads continued to tighten, accounting for 4 of the 9 basis point drop in the net margin on a linked quarter basis, we have remained competitive and disciplined in our approach to the market, capitalizing on our ability to compete on price while offering a wide array of non-credit products to fulfill our customers’ needs.

     “I am especially pleased with the exceptional improvement we have seen in the Company’s credit quality over the past year. Our loss and coverage ratios are better than our Company has experienced in many years and are the direct result of the actions we have taken to reduce the risk profile of the Company. We expect to continue to grow our credit-related businesses, both commercial and retail, while maintaining the discipline that has helped us reach these quality metrics today.

     “We are well on our way to meeting our financial goals for 2005 and beyond. We will continue to invest in our franchise, as we have been, to create and enhance our set of products and services, increase our market penetration and provide outstanding service to our customers.”

     The Company’s results for the second quarter of 2005 improved over the same period of 2004, as net income rose by $84 million (8.1 percent), primarily due to growth in fee-based products and services, reduced credit costs and lower tax expense. During the second quarter of 2005, the Company recognized a $53 million impairment of its mortgage servicing rights (“MSR”) asset, reflecting lower longer-term interest rates in the second quarter of 2005, compared with the recognition of $171 million reparation of its MSR asset in the second quarter of 2004. Also included in the second quarter of 2005 results was a $54 million charge related to a completed tender offer for debt securities and a $94 million reduction in income tax expense related to the

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 3

resolution of federal tax examinations covering all of the Company’s legal entities for all years through 2002.

     Total net revenue on a taxable-equivalent basis for the second quarter of 2005 was $281 million (9.3 percent) higher than the second quarter of 2004, primarily reflecting 8.9 percent growth in fee-based revenue across the majority of fee categories, expansion in payments processing businesses and a $173 million favorable variance in securities gains (losses), partially offset by a 1.0 percent reduction in net interest income.

     Total noninterest expense in the second quarter of 2005 was $362 million (29.4 percent) higher than the second quarter of 2004, primarily reflecting the $224 million unfavorable change in the valuation of mortgage servicing rights and the $54 million charge related to the Company’s recent tender offer for certain subordinated and trust preferred debt securities. In addition, expenses reflected incremental costs related to expanding the payment processing businesses, investments in in-store branches, adding middle market and community bankers, marketing initiatives and higher pension costs from a year ago.

     Provision for credit losses for the second quarter of 2005 was $144 million, a decrease of $60 million (29.4 percent) from the second quarter of 2004. The decrease in the provision for credit losses year-over-year reflected a decrease in total net charge-offs. Net charge-offs in the second quarter of 2005 were $144 million, compared with the first quarter of 2005 net charge-offs of $172 million and the second quarter of 2004 net charge-offs of $204 million. Total nonperforming assets declined to $610 million at June 30, 2005, from $665 million at March 31, 2005 (8.3 percent), and $911 million at June 30, 2004 (33.0 percent). The ratio of the allowance for credit losses to nonperforming loans was 441 percent at June 30, 2005, compared with 404 percent at March 31, 2005, and 299 percent at June 30, 2004.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 4

                                                                 
INCOME STATEMENT HIGHLIGHTS                                                           Table 2  
 
(Taxable-equivalent basis, $ in millions,                           Percent     Percent                    
except per-share data)
                           Change     Change                    
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent  
    2005     2005     2004     1Q05     2Q04     2005     2004     Change  
     
 
                                                                
Net interest income
   $ 1,761     $ 1,751     $ 1,779       0.6       (1.0 )   $ 3,512     $ 3,558       (1.3 )
Noninterest income
     1,541       1,382       1,242       11.5       24.1       2,923       2,560       14.2  
                                 
Total net revenue
     3,302       3,133       3,021       5.4       9.3       6,435       6,118       5.2  
Noninterest expense
     1,595       1,331       1,233       19.8       29.4       2,926       2,688       8.9  
                                 
Income before provision and income taxes
     1,707       1,802       1,788       (5.3 )     (4.5 )     3,509       3,430       2.3  
Provision for credit losses
     144       172       204       (16.3 )     (29.4 )     316       439       (28.0 )
                                 
Income before income taxes
     1,563       1,630       1,584       (4.1 )     (1.3 )     3,193       2,991       6.8  
Taxable-equivalent adjustment
     7       7       7       —       —       14       14       —  
Applicable income taxes
     435       552       540       (21.2 )     (19.4 )     987       932       5.9  
                                 
Net income
   $ 1,121     $ 1,071     $ 1,037       4.7       8.1     $ 2,192     $ 2,045       7.2  
                                 
 
                                                                
Diluted earnings per share
   $ 0.60     $ 0.57     $ 0.54       5.3       11.1     $ 1.17     $ 1.06       10.4  
                                 

Net Interest Income

     Second quarter net interest income on a taxable-equivalent basis was $1,761 million, compared with $1,779 million recorded in the second quarter of 2004. Average earning assets for the period increased over the second quarter of 2004 by $9.7 billion (5.8 percent), primarily driven by a $3.3 billion (8.2 percent) increase in retail loans, a $3.2 billion (8.1 percent) increase in total commercial loans and a $3.1 billion (22.4 percent) increase in residential mortgages. 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 second quarter of 2005 was 3.99 percent, compared with 4.28 percent in the second quarter of 2004. The decline in the net interest margin reflected the current lending environment, asset/liability management decisions and the impact of changes in the yield curve from a year ago. Since the second quarter of 2004, credit spreads have tightened by approximately 18 basis points across most lending products due to competitive pricing and a change in mix due to growth in lower spread credit products. The net interest margin also declined due to funding incremental growth with higher cost wholesale funding and asset/liability decisions designed to maintain a relatively neutral rate risk position, including reducing the duration of the securities portfolio, funding asset growth with more fixed rate long term debt and a 56 percent

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 5

reduction in the net receive fixed swap position between June 30, 2004, and June 30, 2005. Increases in the margin benefit of deposits and net free funds helped to partially offset these factors.

     Net interest income in the second quarter of 2005 was higher than the first quarter of 2005 by $10 million (.6 percent). Average earning assets grew quarter-over-quarter by $3.4 billion (2.0 percent). Growth in most loan categories, including a 3.7 percent increase in total commercial loans, drove the increase in average earning assets over the prior quarter. The positive impact to net interest income from the growth in earning assets and day basis was partially offset by a lower net interest margin. The net interest margin in the second quarter of 2005 was 9 basis points lower than the net interest margin of 4.08 percent recorded in the first quarter of 2005. The decline in the net interest margin from the first quarter of 2005 reflected tighter credit spreads (4 basis points) due to increased competition, in addition to changes in loan mix. Higher short-term rates, funding a higher percentage of earning asset growth with wholesale funding and asset/liability actions designed to maintain a relatively neutral rate risk position, including a 31 percent reduction in the net receive fixed swap position between March 31, 2005, and June 30, 2005, also contributed to the margin reduction. This was partially offset by the higher margin benefit of deposits and net free funds and loan fees.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 6

                                                                 
NET INTEREST INCOME                                                           Table 3  
 
(Taxable-equivalent basis; $ in millions)                                                      
                            Change     Change                    
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent  
    2005     2005     2004     1Q05     2Q04     2005     2004     Change  
     
Components of net interest income
                                                                
Income on earning assets
   $ 2,572     $ 2,442     $ 2,243     $ 130     $ 329     $ 5,014     $ 4,508     $ 506  
Expense on interest-bearing liabilities
     811       691       464       120       347       1,502       950       552  
     
Net interest income
   $ 1,761     $ 1,751     $ 1,779     $ 10     $ (18 )   $ 3,512     $ 3,558     $ (46 )
     
 
                                                                
Average yields and rates paid
                                                                
Earning assets yield
     5.83 %     5.69 %     5.39 %     0.14 %     0.44 %     5.76 %     5.43 %     0.33 %
Rate paid on interest-bearing liabilities
     2.23       1.97       1.38       0.26       0.85       2.10       1.42       0.68  
     
Gross interest margin
     3.60 %     3.72 %     4.01 %     (0.12 )%     (0.41 )%     3.66 %     4.01 %     (0.35 )%
     
Net interest margin
     3.99 %     4.08 %     4.28 %     (0.09 )%     (0.29 )%     4.03 %     4.28 %     (0.25 )%
     
 
                                                                
Average balances
                                                                
Investment securities
   $ 42,341     $ 42,813     $ 42,489     $ (472 )   $ (148 )   $ 42,576     $ 43,617     $ (1,041 )
Loans
     131,275       127,654       121,161       3,621       10,114       129,474       119,985       9,489  
Earning assets
     176,730       173,294       166,990       3,436       9,740       175,022       166,674       8,348  
Interest-bearing liabilities
     146,070       142,052       134,819       4,018       11,251       144,072       134,893       9,179  
Net free funds*
     30,660       31,242       32,171       (582 )     (1,511 )     30,950       31,781       (831 )

*   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 Second Quarter 2005 Results
July 19, 2005
Page 7

                                                                 
AVERAGE LOANS                                                           Table 4  
 
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent  
    2005     2005     2004     1Q05     2Q04     2005     2004     Change  
     
 
                                                                
Commercial
   $ 37,595     $ 36,083     $ 34,484       4.2       9.0     $ 36,843     $ 34,057       8.2  
Lease financing
     4,922       4,914       4,846       0.2       1.6       4,918       4,873       0.9  
                                 
Total commercial
     42,517       40,997       39,330       3.7       8.1       41,761       38,930       7.3  
 
                                                                
Commercial mortgages
     20,156       20,268       20,477       (0.6 )     (1.6 )     20,212       20,515       (1.5 )
Construction and development
     7,426       7,236       6,639       2.6       11.9       7,331       6,598       11.1  
                                 
Total commercial real estate
     27,582       27,504       27,116       0.3       1.7       27,543       27,113       1.6  
 
                                                                
Residential mortgages
     17,198       15,827       14,052       8.7       22.4       16,517       13,831       19.4  
 
                                                                
Credit card
     6,527       6,417       5,989       1.7       9.0       6,472       5,933       9.1  
Retail leasing
     7,314       7,198       6,484       1.6       12.8       7,256       6,338       14.5  
Home equity and second mortgages
     15,003       14,844       13,775       1.1       8.9       14,924       13,575       9.9  
Other retail
     15,134       14,867       14,415       1.8       5.0       15,001       14,265       5.2  
                                 
Total retail
     43,978       43,326       40,663       1.5       8.2       43,653       40,111       8.8  
                                 
 
                                                                
Total loans
   $ 131,275     $ 127,654     $ 121,161       2.8       8.3     $ 129,474     $ 119,985       7.9  
                                 

     Average loans for the second quarter of 2005 were $10.1 billion (8.3 percent) higher than the second quarter of 2004, driven by growth in average retail loans of $3.3 billion (8.2 percent), total commercial loans of $3.2 billion (8.1 percent) and residential mortgages of $3.1 billion (22.4 percent). Total commercial real estate loans also increased slightly year-over-year by $466 million (1.7 percent). Average loans for the second quarter of 2005 were higher than the first quarter of 2005 by $3.6 billion (2.8 percent), reflecting growth in substantially all loan categories.

     Average investment securities in the second quarter of 2005 were $148 million (.3 percent) lower than in the second quarter of 2004. Investment securities at June 30, 2005, were $2.0 billion higher than at June 30, 2004, but $804 million lower than the balance at March 31, 2005. The changes in the balance of the investment securities portfolio from a year ago principally reflected the net impact of repositioning the investment portfolio during 2004 as part of asset/liability risk management decisions to acquire variable rate and shorter-term fixed securities to reduce the effective duration of the portfolio and to maintain a relatively neutral interest rate risk position. The

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 8

decline from first quarter of 2005 primarily represented maturities or prepayments with the proceeds being utilized to fund loan growth. During the second quarter of 2005, the Company retained its mix of approximately 39 percent variable rate securities.

                                                                 
AVERAGE DEPOSITS                                                           Table 5  
 
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent  
    2005     2005     2004     1Q05     2Q04     2005     2004     Change  
     
 
                                                                
Noninterest-bearing deposits
   $ 29,148     $ 28,417     $ 30,607       2.6       (4.8 )   $ 28,784     $ 29,815       (3.5 )
Interest-bearing deposits
                                                                
Interest checking
     23,024       23,146       20,739       (0.5 )     11.0       23,085       20,844       10.8  
Money market accounts
     29,563       30,264       34,242       (2.3 )     (13.7 )     29,911       34,320       (12.8 )
Savings accounts
     5,886       5,968       5,936       (1.4 )     (0.8 )     5,927       5,917       0.2  
                                 
Savings products
     58,473       59,378       60,917       (1.5 )     (4.0 )     58,923       61,081       (3.5 )
Time certificates of deposit less than $100,000
     13,152       12,978       13,021       1.3       1.0       13,066       13,319       (1.9 )
Time deposits greater than $100,000
     20,459       18,650       12,571       9.7       62.7       19,559       12,352       58.3  
                                 
Total interest-bearing deposits
     92,084       91,006       86,509       1.2       6.4       91,548       86,752       5.5  
                                 
Total deposits
   $ 121,232     $ 119,423     $ 117,116       1.5       3.5     $ 120,332     $ 116,567       3.2  
                                 

     Average noninterest-bearing deposits for the second quarter of 2005 were lower than the second quarter of 2004 by $1.5 billion (4.8 percent). The year-over-year change in the average balance of noninterest-bearing deposits was impacted by product changes in the Consumer Banking business line. In late 2004, the Company migrated approximately $1.3 billion of noninterest-bearing deposit balances to interest checking accounts as an enhancement to its Silver Elite Checking product. Average branch-based noninterest-bearing deposits in the second quarter of 2005, excluding the migration of certain high-value customers to Silver Elite Checking, were higher by approximately $200 million (1.7 percent) over the same quarter of 2004, as net new checking accounts continue to grow. Average noninterest-bearing deposits in other areas, including commercial banking and private client, trust and asset management, also increased year-over-year. These favorable variances were offset, however, by expected declines in average noninterest-bearing deposits in corporate banking as customers utilize their excess liquidity.

     Average total savings products declined year-over-year by $2.4 billion (4.0 percent), due to reductions in average money market account balances and savings accounts, partially offset by

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 9

higher interest checking balances. Average branch-based interest checking deposits increased by $2.5 billion (16.5 percent) over the same quarter of 2004, in part, due to the change in the Silver Elite Checking product, as well as new account growth. Average branch-based interest checking deposits, excluding Silver Elite Checking, were higher by approximately $1.2 billion (8.0 percent) year-over-year. This positive variance in branch-based interest checking account deposits was partially offset by reductions in other areas, principally corporate banking. Average money market account balances declined by $4.7 billion (13.7 percent) year-over-year, with the largest declines in the branches, national corporate banking and government banking. The overall decrease in average money market account balances year-over-year was the result of the Company’s deposit pricing decisions. A portion of the money market balances have migrated to time deposits greater than $100,000 as rates increased on the time deposit products.

     Average time certificates less than $100,000 were higher in the second quarter of 2005 than the second quarter of 2004 by $131 million (1.0 percent). The Company also experienced year-over-year growth in average time deposits greater than $100,000 of $7.9 billion (62.7 percent), most notably in corporate banking, as customers migrated balances to higher rate deposits.

     Average noninterest-bearing deposits for the second quarter of 2005 were $731 million (2.6 percent) higher than the first quarter of 2005. Average savings products declined by $905 million (1.5 percent) in the current quarter from the first quarter of 2005. Average interest checking deposits declined slightly quarter-over-quarter, the net result of higher average branch-related interest checking balances (2.2 percent), offset by lower balances in other business lines, principally corporate banking. Average money market account balances declined by $701 million (2.3 percent) as the Company continued to lag deposit pricing. Time certificates of deposit less than $100,000 increased modestly from the first quarter of 2005, while time deposits greater than $100,000 rose by $1.8 billion (9.7 percent), primarily due to growth in corporate banking customer balances and foreign branch time deposits.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 10

                                                                 
NONINTEREST INCOME                                                           Table 6  
 
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent  
    2005     2005     2004     1Q05     2Q04     2005     2004     Change  
     
 
                                                                
Credit and debit card revenue
   $ 177     $ 154     $ 159       14.9       11.3     $ 331     $ 301       10.0  
Corporate payment products revenue
     120       107       103       12.1       16.5       227       198       14.6  
ATM processing services
     57       47       45       21.3       26.7       104       87       19.5  
Merchant processing services
     198       178       165       11.2       20.0       376       306       22.9  
Trust and investment management fees
     253       247       251       2.4       0.8       500       500       —  
Deposit service charges
     234       210       202       11.4       15.8       444       387       14.7  
Treasury management fees
     117       107       121       9.3       (3.3 )     224       239       (6.3 )
Commercial products revenue
     100       96       108       4.2       (7.4 )     196       218       (10.1 )
Mortgage banking revenue
     110       102       110       7.8       —       212       204       3.9  
Investment products fees and commissions
     39       39       43       —       (9.3 )     78       82       (4.9 )
Securities gains (losses), net
     1       (59 )     (172 )   nm     nm       (58 )     (172 )     (66.3 )
Other
     135       154       107       (12.3 )     26.2       289       210       37.6  
                                 
 
                                                                
Total noninterest income
   $ 1,541     $ 1,382     $ 1,242       11.5       24.1     $ 2,923     $ 2,560       14.2  
                                 

Noninterest Income

     Second quarter noninterest income was $1,541 million, an increase of $299 million (24.1 percent) from the same quarter of 2004, and $159 million (11.5 percent) higher than the first quarter of 2005. The increase in noninterest income over the second quarter of 2004 was driven by favorable variances in securities gains (losses) and in the majority of fee income categories. Credit and debit card revenue and corporate payment products revenue were both higher in the second quarter of 2005 than the second quarter of 2004 by $18 million and $17 million, or 11.3 percent and 16.5 percent, respectively. The growth in credit and debit card revenue was driven by higher transaction volumes and rate changes. The corporate payment products revenue growth reflected growth in sales, card usage, rate changes and the recent acquisition of a small fleet card business. ATM processing services revenue was higher by $12 million (26.7 percent) in the second quarter of 2005 than the same quarter of the prior year, primarily due to the expansion of the ATM business in May of 2005. Merchant processing services revenue was higher in the second quarter of 2005 than the same quarter of 2004 by $33 million (20.0 percent), reflecting an increase in sales volume, new

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 11

business, higher equipment fees and the expansion of business in Europe. Deposit service charges were higher year-over-year by $32 million (15.8 percent) due to account growth and transaction-related fees. Other income was higher by $28 million (26.2 percent), primarily due to higher income from equity investments relative to the same quarter of 2004. Partially offsetting these positive variances year-over-year were commercial products revenue, treasury management fees and investment products fees and commissions, which declined by $8 million (7.4 percent), $4 million (3.3 percent) and $4 million (9.3 percent), respectively. Commercial products revenue declined due to reductions in loan fees and international product revenue. The decrease in treasury management fees was primarily due to higher earnings credit on customers’ compensating balances. The decline in investment management fees and commissions reflected lower sales volume relative to the same quarter in 2004.

     Noninterest income was higher in the second quarter of 2005 than the first quarter of 2005 by $159 million (11.5 percent), primarily due to a $60 million favorable change in gains (losses) on the sale of securities and increases in the majority of the remaining fee income categories. Credit and debit card revenue, corporate payment products revenue and merchant processing services rose by $23 million (14.9 percent), $13 million (12.1 percent) and $20 million (11.2 percent), respectively, reflecting seasonally higher sales. ATM processing services revenue increased by $10 million (21.3 percent) primarily due to the expansion of the business. Deposit service charges were higher by $24 million (11.4 percent) in the second quarter of 2005 compared with the first quarter of 2005, reflecting higher transaction-related fees and net new account growth. The increase in trust and investment management fees and treasury management fees over the first quarter of 2005 reflected seasonally strong tax-related processing revenue. Mortgage banking revenue was higher by $8 million (7.8 percent) than the prior quarter due to stronger loan production. Slightly offsetting these favorable variances was other income which was lower quarter-over-quarter by $19 million (12.3 percent), primarily due to a decline in revenue from equity investments relative to the first quarter of 2005.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 12

                                                                 
NONINTEREST EXPENSE                                                           Table 7  
 
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent  
    2005     2005     2004     1Q05     2Q04     2005     2004     Change  
     
 
                                                                
Compensation
   $ 612     $ 567     $ 573       7.9       6.8     $ 1,179     $ 1,109       6.3  
Employee benefits
     108       116       91       (6.9 )     18.7       224       191       17.3  
Net occupancy and equipment
     159       154       153       3.2       3.9       313       309       1.3  
Professional services
     39       36       35       8.3       11.4       75       67       11.9  
Marketing and business development
     67       43       49       55.8       36.7       110       84       31.0  
Technology and communications
     113       106       102       6.6       10.8       219       204       7.4  
Postage, printing and supplies
     63       63       60       —       5.0       126       122       3.3  
Other intangibles
     181       71       (47 )   nm     nm       252       179       40.8  
Debt prepayment
     54       —       2       nm       nm       54       37       45.9  
Other
     199       175       215       13.7       (7.4 )     374       386       (3.1 )
                                 
 
                                                                
Total noninterest expense
   $ 1,595     $ 1,331     $ 1,233       19.8       29.4     $ 2,926     $ 2,688       8.9  
                                 

Noninterest Expense

     Second quarter noninterest expense totaled $1,595 million, an increase of $362 million (29.4 percent) over the same quarter of 2004 and a $264 million (19.8 percent) increase over the first quarter of 2005. The increase in expense year-over-year was primarily driven by the $224 million unfavorable change in the MSR valuation, as well as the increase of $52 million in debt prepayment charges relative to the second quarter of 2004. Compensation expense was higher year-over-year by $39 million (6.8 percent), principally due to business expansion of in-store branches, investments in commercial and community bankers, expansion of the Company’s payments processing businesses, and other growth initiatives. Employee benefits increased year-over-year by $17 million (18.7 percent), primarily as a result of higher pension expense and payroll taxes. Marketing and business development was higher in the second quarter of 2005 than the second quarter of 2004 by $18 million (36.7 percent) due to marketing initiatives and the timing of contributions to the Company’s charitable foundation. Technology and communications expense rose by $11 million (10.8 percent), reflecting technology investments that increased software expense, in addition to outside data processing expense. Other expense declined in the second

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 13

quarter from the same quarter of 2004 by $16 million (7.4 percent), primarily due to decreases in other loan expense, insurance, lower merchant charge-back risk, and other operating losses.

     Noninterest expense in the second quarter of 2005 was higher than the first quarter of 2005 by $264 million (19.8 percent). The increase in noninterest expense in the second quarter of 2005 from the first quarter of 2005 was primarily driven by the $107 million unfavorable change in the MSR valuation quarter-over-quarter, as well as the $54 million charge taken in connection with the Company’s tender offer for certain debt securities in the second quarter of 2005. The increase in compensation expense of $45 million (7.9 percent) in the second quarter over the prior quarter was primarily due to acquisitions, merit-based salary increases and higher incentive and commission-based compensation costs in the second quarter of 2005, while employee benefits declined by $8 million (6.9 percent) due to seasonally lower payroll taxes. Marketing and business development and technology and communications rose quarter-over-quarter by $24 million (55.8 percent) and $7 million (6.6 percent), respectively. The variance in marketing and business development reflected the timing of marketing programs and contributions to the Company’s charitable foundation. Technology and communications rose relative to the prior quarter due to business investment and increases in data transmission costs. Other expense was higher in the second quarter of 2005 than the first quarter of 2005, primarily due to acquisition integration costs and write-downs associated with certain co-branding and lease arrangements.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 14

                                         
ALLOWANCE FOR CREDIT LOSSES                                   Table 8  
 
($ in millions)   2Q     1Q     4Q     3Q     2Q  
    2005     2005     2004     2004     2004  
     
 
                                        
Balance, beginning of period
   $ 2,269     $ 2,269     $ 2,370     $ 2,370     $ 2,370  
 
                                        
Net charge-offs
                                        
Commercial
     9       14       8       2       36  
Lease financing
     6       13       10       19       19  
     
Total commercial
     15       27       18       21       55  
Commercial mortgages
     1       4       9       3       2  
Construction and development
     (3 )     2       1       3       —  
     
Total commercial real estate
     (2 )     6       10       6       2  
 
                                        
Residential mortgages
     8       9       8       7       7  
 
                                        
Credit card
     64       65       61       65       63  
Retail leasing
     5       8       9       9       10  
Home equity and second mortgages
     16       17       18       18       20  
Other retail
     38       40       39       40       47  
     
Total retail
     123       130       127       132       140  
     
Total net charge-offs
     144       172       163       166       204  
Provision for credit losses
     144       172       64       166       204  
Acquisitions and other changes
     —       —       (2 )     —       —  
     
Balance, end of period
   $ 2,269     $ 2,269     $ 2,269     $ 2,370     $ 2,370  
     
 
                                        
Components
                                        
Allowance for loan losses
   $ 2,082     $ 2,082     $ 2,080     $ 2,184     $ 2,190  
Liability for unfunded credit commitments
     187       187       189       186       180  
     
Total allowance for credit losses
   $ 2,269     $ 2,269     $ 2,269     $ 2,370     $ 2,370  
     
 
                                        
Gross charge-offs
   $ 222     $ 231       235     $ 260     $ 274  
Gross recoveries
   $ 78     $ 59     $ 72     $ 94     $ 70  
 
                                        
Net charge-offs to average loans (%)
     0.44       0.55       0.52       0.54       0.68  
 
                                        
Allowance as a percentage of:
                                        
Period-end loans
     1.70       1.76       1.80       1.90       1.93  
Nonperforming loans
     441       404       355       337       299  
Nonperforming assets
     372       341       303       294       260  

Credit Quality

     The allowance for credit losses was $2,269 million at June 30, 2005, equal to the allowance for credit losses at March 31, 2005, and slightly lower than the allowance for credit losses of $2,370

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 15

million at June 30, 2004. The ratio of the allowance for credit losses to period-end loans was 1.70 percent at June 30, 2005, compared with 1.76 percent at March 31, 2005, and 1.93 percent at June 30, 2004. The ratio of the allowance for credit losses to nonperforming loans was 441 percent at June 30, 2005, compared with 404 percent at March 31, 2005, and 299 percent at June 30, 2004. Total net charge-offs in the second quarter of 2005 were $144 million, compared with the first quarter of 2005 net charge-offs of $172 million and the second quarter of 2004 net charge-offs of $204 million.

     Commercial and commercial real estate loan net charge-offs were $13 million for the second quarter of 2005, or .07 percent of average loans outstanding, compared with $33 million, or .20 percent of average loans outstanding, in the first quarter of 2005 and $57 million, or .35 percent of average loans outstanding, in the second quarter of 2004. The decline in net charge-offs reflected a stronger level of recoveries than prior quarters, as well as broad-based improvement in the overall quality of the commercial loan portfolio.

     Retail loan net charge-offs of $123 million in the second quarter of 2005 were $7 million (5.4 percent) lower than the first quarter of 2005 and $17 million (12.1 percent) lower than the second quarter of 2004. Retail loan net charge-offs as a percent of average loans outstanding were 1.12 percent in the second quarter of 2005, compared with 1.22 percent and 1.38 percent in the first quarter of 2005 and second quarter of 2004, respectively. Lower levels of retail loan net charge-offs principally reflected the Company’s ongoing improvement in collection efforts and risk management.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 16

                                         
CREDIT RATIOS                                   Table 9  
 
(Percent)   2Q     1Q     4Q     3Q     2Q  
    2005     2005     2004     2004     2004  
     
Net charge-offs ratios*
                                        
Commercial
     0.10       0.16       0.09       0.02       0.42  
Lease financing
     0.49       1.07       0.82       1.56       1.58  
Total commercial
     0.14       0.27       0.18       0.21       0.56  
 
                                        
Commercial mortgages
     0.02       0.08       0.18       0.06       0.04  
Construction and development
     (0.16 )     0.11       0.05       0.17       —  
Total commercial real estate
     (0.03 )     0.09       0.14       0.09       0.03  
 
                                        
Residential mortgages
     0.19       0.23       0.21       0.19       0.20  
 
                                        
Credit card
     3.93       4.11       3.82       4.21       4.23  
Retail leasing
     0.27       0.45       0.51       0.52       0.62  
Home equity and second mortgages
     0.43       0.46       0.49       0.50       0.58  
Other retail
     1.01       1.09       1.06       1.09       1.31  
Total retail
     1.12       1.22       1.18       1.26       1.38  
 
                                        
Total net charge-offs
     0.44       0.55       0.52       0.54       0.68  
 
                                        
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans**
Commercial
     0.05       0.06       0.05       0.05       0.05  
Commercial real estate
     0.01       0.02       —       0.01       0.01  
Residential mortgages
     0.32       0.41       0.46       0.46       0.50  
Retail
     0.40       0.43       0.47       0.47       0.48  
Total loans
     0.19       0.22       0.23       0.23       0.24  
 
                                        
Delinquent loan ratios - 90 days or more past due including nonperforming loans**
Commercial
     0.74       0.84       0.99       1.14       1.37  
Commercial real estate
     0.59       0.68       0.73       0.75       0.76  
Residential mortgages
     0.55       0.66       0.74       0.77       0.79  
Retail
     0.43       0.47       0.51       0.51       0.52  
Total loans
     0.58       0.66       0.74       0.80       0.88  
 
                                        

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

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 17

                                         
ASSET QUALITY                                   Table 10  
 
($ in millions)                              
    Jun 30     Mar 31     Dec 31     Sep 30     Jun 30  
    2005     2005     2004     2004     2004  
     
Nonperforming loans
                                        
Commercial
   $ 238     $ 254     $ 289     $ 348     $ 416  
Lease financing
     60       70       91       91       111  
     
Total commercial
     298       324       380       439       527  
Commercial mortgages
     140       159       175       166       164  
Construction and development
     21       21       25       35       41  
     
Commercial real estate
     161       180       200       201       205  
Residential mortgages
     42       41       43       46       42  
Retail
     13       16       17       17       18  
     
Total nonperforming loans
     514       561       640       703       792  
 
                                        
Other real estate
     68       66       72       69       70  
Other nonperforming assets
     28       38       36       33       49  
     
 
                                        
Total nonperforming assets*
   $ 610     $ 665     $ 748     $ 805     $ 911  
     
 
                                        
Accruing loans 90 days or more past due
   $ 258     $ 285     $ 294     $ 292     $ 293  
     
 
                                        
Nonperforming assets to loans plus ORE (%)
     0.46       0.52       0.59       0.64       0.74  

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

     Nonperforming assets at June 30, 2005, totaled $610 million, compared with $665 million at March 31, 2005, and $911 million at June 30, 2004. The ratio of nonperforming assets to loans and other real estate was .46 percent at June 30, 2005, compared with .52 percent at March 31, 2005, and .74 percent at June 30, 2004.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 18

                                         
CAPITAL POSITION                                   Table 11  
 
($ in millions)   Jun 30     Mar 31     Dec 31     Sep 30     Jun 30  
    2005     2005     2004     2004     2004  
     
 
                                        
Total shareholders’ equity
   $ 19,901     $ 19,208     $ 19,539     $ 19,600     $ 18,675  
Tier 1 capital
     14,564       14,943       14,720       14,589       14,294  
Total risk-based capital
     22,362       23,099       23,352       21,428       21,255  
 
                                        
Common equity to assets
     9.8 %     9.7 %     10.0 %     10.2 %     9.8 %
Tangible common equity to assets
     6.1       6.2       6.4       6.4       6.3  
Tier 1 capital ratio
     8.1       8.6       8.6       8.7       8.7  
Total risk-based capital ratio
     12.5       13.3       13.1       12.7       12.9  
Leverage ratio
     7.5       7.9       7.9       7.9       7.8  

     Total shareholders’ equity was $19.9 billion at June 30, 2005, compared with $18.7 billion at June 30, 2004. The increase was the result of corporate earnings offset by share buybacks and dividends.

     Tangible common equity to assets was 6.1 percent at June 30, 2005, compared with 6.2 percent at March 31, 2005, and 6.3 percent at June 30, 2004. The Tier 1 capital ratio was 8.1 percent at June 30, 2005, compared with 8.6 percent at March 31, 2005, and 8.7 percent at June 30, 2004. The total risk-based capital ratio was 12.5 percent at June 30, 2005, compared with 13.3 percent at March 31, 2005, and 12.9 percent at June 30, 2004. The leverage ratio was 7.5 percent at June 30, 2005, compared with 7.9 percent at March 31, 2005, and 7.8 percent at June 30, 2004. All regulatory ratios continue to be in excess of stated “well capitalized” requirements.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 19

                                         
COMMON SHARES                                   Table 12  
 
(Millions)   2Q     1Q     4Q     3Q     2Q  
    2005     2005     2004     2004     2004  
     
 
                                        
Beginning shares outstanding
     1,842       1,858       1,871       1,884       1,901  
 
                                        
Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes
     4       4       7       6       4  
Shares repurchased
     (17 )     (20 )     (20 )     (19 )     (21 )
     
Ending shares outstanding
     1,829       1,842       1,858       1,871       1,884  
     

     On December 21, 2004, the Board of Directors of U.S. Bancorp approved an authorization to repurchase up to 150 million shares of outstanding common stock during the following 24 months. This repurchase program replaced the Company’s previous program. During the second quarter of 2005, the Company repurchased 17 million shares of common stock. As of June 30, 2005, there were approximately 107 million shares remaining to be repurchased under the current authorization.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 20

                                                                         
LINE OF BUSINESS FINANCIAL PERFORMANCE*     Table 13  
 
($ in millions)                                          
    Net Income     Percent Change                             2Q 2005  
    2Q     1Q     2Q     2Q05 vs     2Q05 vs     YTD     YTD     Percent     Earnings  
Business Line   2005     2005     2004     1Q05     2Q04     2005     2004     Change     Composition  
     
 
                                                                        
Wholesale Banking
   $ 267     $ 255     $ 243       4.7       9.9     $ 522     $ 471       10.8       24 %
Consumer Banking
     452       405       369       11.6       22.5       857       698       22.8       40  
Private Client, Trust and Asset Management
     116       112       95       3.6       22.1       228       196       16.3       10  
Payment Services
     178       165       161       7.9       10.6       343       309       11.0       16  
Treasury and Corporate Support
     108       134       169       (19.4 )     (36.1 )     242       371       (34.8 )     10  
                                       
 
                                                                        
Consolidated Company
   $ 1,121     $ 1,071     $ 1,037       4.7       8.1     $ 2,192     $ 2,045       7.2       100 %
                                       

*   preliminary data

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, 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 our diverse customer base. During 2005, certain organization and methodology changes were made and, accordingly, prior period results have been restated and presented on a comparable basis.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 21

     Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $267 million of the Company’s net income in the second quarter of 2005, a 9.9 percent increase over the same period of 2004 and a 4.7 percent increase over the first quarter of 2005. The increase in Wholesale Banking’s second quarter 2005 contribution over the same quarter of 2004 was primarily the result of favorable variances in total net revenue (2.8 percent) and the provision for credit losses. Partly offsetting these positive variances was an increase in total noninterest expense (1.4 percent). The favorable variance in total net revenue year-over-year was primarily the result of growth in net interest income (4.3 percent), as the business line’s noninterest income remained flat. The increase in net interest income was primarily due to an increase in average loans outstanding and wider deposit spreads, partially offset by tighter credit spreads. Noninterest income was flat year-over-year, as declines in commercial products revenue (3.4 percent) and treasury management fees (1.2 percent) were offset by higher revenue from equity investments relative to the second quarter of 2004. Wholesale Banking’s unfavorable variance in total noninterest expense year-over-year was the result of higher compensation and employee benefits, the result of merit-based increases, new hires and production-based incentives, in addition to higher net shared services expense. Net recoveries of $16 million in the current quarter, compared with net charge-offs of $8 million in the second quarter of 2004, drove the favorable variance in the provision for credit losses year-over-year. The increase in Wholesale Banking’s contribution to net income in the second quarter of 2005 over the first quarter of 2005 was the result of favorable variances in total net revenue (1.5 percent) and the provision for credit losses, partially offset by an increase in total noninterest expense (4.5 percent). Total net revenue was higher on a linked quarter basis, with an increase in net interest income (3.3 percent) partially offset by a decline in total noninterest income (1.9 percent). The favorable variance quarter-over-quarter in net interest income was primarily attributed to an increase in average loans outstanding and deposit balances, as well as wider deposit spreads. The decrease in noninterest income quarter-over-quarter was due to favorable variances in commercial products revenue and treasury management fees, which were more than offset by a decrease in other income related to revenue from equity investments. Commercial products revenue benefited from stronger capital markets related fees, while the growth in treasury management fees reflected seasonal tax receipt processing. The increase in total noninterest expense was principally due to higher net shared services expense related to customer transaction volumes and seasonal tax

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 22

receipt processing activities, partially offset by lower compensation and employee benefits and other expense. Net recoveries of $16 million in the second quarter of 2005, compared with net charge-offs of $3 million in the first quarter of 2005, drove the favorable variance in the provision for credit losses quarter-over-quarter.

     Consumer Banking delivers products and services through banking offices, telemarketing, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store 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 $452 million of the Company’s net income in the second quarter of 2005, a 22.5 percent increase over the same period of 2004 and an 11.6 percent increase over the prior quarter. The favorable increase year-over-year was the result of higher total net revenue (9.1 percent) and lower provision for credit losses (26.9 percent), partially offset by an increase in total noninterest expense (2.9 percent). Total net revenue was higher than the same quarter of 2004 due to increases in both net interest income (10.8 percent) and noninterest income (6.1 percent). Net interest income was higher year-over-year, primarily as a result of higher deposit spreads, as income from growth in average loan balances was offset by lower spreads on those assets. Noninterest income improved in the second quarter of 2005 over the same period of 2004, principally due to growth in deposit service charges (15.9 percent). Total noninterest expense in the second quarter of 2005 was higher than the same quarter of 2004, primarily due to an increase in compensation and employee benefits (5.4 percent), the result of the Company’s in-store branch expansion, other hiring initiatives and incentives, in addition to higher net shared services expense (5.5 percent). A 26.9 percent 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 second quarter of 2005 over the prior quarter was the net result of favorable variances in total net revenue (6.5 percent) and provision for credit losses (15.0 percent), partly offset by an increase in noninterest expense (4.1 percent). Net interest income was higher quarter-over-quarter largely due to increases in average loans outstanding and deposit spreads relative to the prior quarter, which were partly offset by lower credit spreads. Noninterest income was higher (11.6 percent) than the prior quarter primarily due to growth in deposit service charges, mortgage banking revenue and other revenue, the result of a

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 23

favorable change in lease residual income. The unfavorable variance in total noninterest expense quarter-over-quarter was driven by an increase in net shared services expense and other expense, mainly the result of higher marketing and business development expense. A 15.0 percent reduction in net charge-offs quarter-over-quarter drove the positive variance in the provision for credit losses.

     Private Client, Trust and Asset Management provides trust, private banking, financial advisory, investment management and mutual fund servicing through five businesses: Private Client Group, Corporate Trust, Asset Management, Institutional Trust and Custody and Fund Services. Private Client, Trust and Asset Management contributed $116 million of the Company’s net income in the second quarter of 2005, 22.1 percent higher than the same period of 2004 and 3.6 percent higher than the prior quarter of 2005. The increase in the business line’s contribution in the second quarter of 2005 over the same quarter of 2004 was the result of favorable variances in total net revenue (7.9 percent) and the provision for credit losses (77.8 percent). Total noninterest expense remained flat year-over-year. Net interest income was favorably impacted year-over-year by deposit spreads, while noninterest income was essentially equal to the same quarter of 2004, as gains from equity market valuations were offset by lower fees, partially due to a change in the mix of fund balances and customers’ migration from paying for services with fees to paying with compensating balances. Lower net charge-offs drove the positive change in provision for credit losses year-over-year. The increase in the business line’s contribution (3.6 percent) in the second quarter of 2005 over the prior quarter was the result of higher total net revenue (3.4 percent), partly offset by an increase in total noninterest expense (1.7 percent) and provision for credit losses. Net interest income and noninterest income rose quarter-over-quarter by 6.7 percent and 2.0 percent, respectively. The increase in net interest income was primarily driven by growth in average deposit balances and favorable deposit spreads, while noninterest income increased largely due to seasonally higher tax preparation fees. Total noninterest expense was slightly higher in the second quarter due to an increase in net shared services expense.

     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 $178 million of the Company’s net income in the second quarter of 2005, a 10.6 percent increase over the same period of 2004 and a 7.9 percent increase over the first quarter of 2005. The increase in Payment Services’ contribution in the second quarter of 2005 over the same period of 2004 was the result of higher total net revenue (11.6 percent) and a slightly

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 24

lower provision for credit losses (2.1 percent), partially offset by an increase in total noninterest expense (17.4 percent). The increase in total net revenue year-over-year was primarily due to growth in noninterest income (17.1 percent), partially offset by a reduction in net interest income (7.2 percent), reflecting higher corporate card balances and rebates. The increase in noninterest income was principally the result of growth in credit and debit card revenue (12.0 percent), corporate payment products revenue (16.5 percent), ATM processing services revenue (40.0 percent) and merchant processing services revenue (20.0 percent). All categories benefited from higher transaction volumes, some rate changes and business expansion initiatives. 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 costs associated with expansion of the European merchant acquiring business and other smaller payment services acquisitions. The increase in Payment Services’ contribution in the second quarter of 2005 over the prior quarter was primarily due to seasonally strong growth in total net revenue (7.8 percent), partly offset by higher total noninterest expense (9.4 percent) and provision for credit losses (3.4 percent). Net interest income decreased 8.5 percent quarter-over-quarter, while fee-based revenue rose by 12.6 percent due to seasonally higher retail and corporate credit card sales volumes, ATM processing services revenue and merchant processing fees. The unfavorable variance in total noninterest expense from the prior quarter was primarily due to personnel and other costs to support ongoing business expansion and higher processing volumes, in addition to higher net shared services expense.

     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. In addition, changes in MSR valuations primarily due to interest rates are managed at a corporate level and, as such, reported within this business unit. Operational expenses incurred by Treasury and Corporate Support on behalf of the other business lines are allocated back to the appropriate business unit, primarily based on customer transaction volume and account activities, deposit balances and employee levels and are identified as net shared services expense. Treasury and Corporate Support recorded net income of $108 million in the second quarter of 2005, compared with net income of $169 million in the second quarter of 2004 and $134 million in the first quarter of 2005. The decrease in net income in the current quarter from the same quarter of 2004 was the net result of

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
Page 25

unfavorable variances in net interest income ($147 million), the MSR valuation ($224 million) and debt prepayment expense ($52 million), partially offset by a $173 million favorable change in net securities gains (losses) and the $94 million tax benefit realized by the Company in the current quarter. The unfavorable change in net interest income (56.3 percent) year-over-year reflected the Company’s asset/liability management decisions to invest in lower-yield floating-rate securities, higher-cost fixed funding and repositioning of the Company for changes in the interest rate environment. Net income in the second quarter of 2005 was lower than net income in the first quarter of 2005, the result of unfavorable variances in net interest income ($36 million), the MSR valuation ($107 million) and debt prepayment expense ($54 million), partly offset by favorable variances in securities gains (losses) ($56 million) and the $94 million tax benefit realized in the current quarter. Total net interest income declined quarter-over-quarter, primarily due to the continuing asset/liability management decisions of the Company.

     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.

CHAIRMAN 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, July 19, 2005, AT 7:00 a.m. (CDT). To access the conference call, please dial 800-540-0559 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, July 19, 2005, and will run through Tuesday, July 26, 2005, at 11:00 p.m. (CDT). To access the recorded message dial 888-274-8331. If calling from outside the United States, please dial 402-220-7332. After July 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 $204 billion in assets, is the 6th largest financial holding company in the United States. The Company operates 2,383 banking offices and 4,877 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.

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U.S. Bancorp Reports Second Quarter 2005 Results
July 19, 2005
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.

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U.S. Bancorp
Consolidated Statement of Income

                                   
    Three Months Ended       Six Months Ended  
(Dollars and Shares in Millions, Except Per Share Data)   June 30,       June 30,  
(Unaudited)   2005     2004       2005     2004  
       
Interest Income
                                  
Loans
   $ 2,027     $ 1,740       $ 3,938     $ 3,487  
Loans held for sale
     24       27         45       47  
Investment securities
     486       444         962       913  
Other interest income
     28       25         55       47  
           
Total interest income
     2,565       2,236         5,000       4,494  
Interest Expense
                                  
Deposits
     361       205         669       432  
Short-term borrowings
     143       59         255       109  
Long-term debt
     307       200         578       409  
           
Total interest expense
     811       464         1,502       950  
           
Net interest income
     1,754       1,772         3,498       3,544  
Provision for credit losses
     144       204         316       439  
           
Net interest income after provision for credit losses
     1,610       1,568         3,182       3,105  
Noninterest Income
                                  
Credit and debit card revenue
     177       159         331       301  
Corporate payment products revenue
     120       103         227       198  
ATM processing services
     57       45         104       87  
Merchant processing services
     198       165         376       306  
Trust and investment management fees
     253       251         500       500  
Deposit service charges
     234       202         444       387  
Treasury management fees
     117       121         224       239  
Commercial products revenue
     100       108         196       218  
Mortgage banking revenue
     110       110         212       204  
Investment products fees and commissions
     39       43         78       82  
Securities gains (losses), net
     1       (172 )       (58 )     (172 )
Other
     135       107         289       210  
           
Total noninterest income
     1,541       1,242         2,923       2,560  
Noninterest Expense
                                  
Compensation
     612       573         1,179       1,109  
Employee benefits
     108       91         224       191  
Net occupancy and equipment
     159       153         313       309  
Professional services
     39       35         75       67  
Marketing and business development
     67       49         110       84  
Technology and communications
     113       102         219       204  
Postage, printing and supplies
     63       60         126       122  
Other intangibles
     181       (47 )       252       179  
Debt prepayment
     54       2         54       37  
Other
     199       215         374       386  
           
Total noninterest expense
     1,595       1,233         2,926       2,688  
           
Income before income taxes
     1,556       1,577         3,179       2,977  
Applicable income taxes
     435       540         987       932  
           
Net income
   $ 1,121     $ 1,037       $ 2,192     $ 2,045  
           
Earnings per share
   $ .61     $ .55       $ 1.19     $ 1.07  
Diluted earnings per share
   $ .60     $ .54       $ 1.17     $ 1.06  
Dividends declared per share
   $ .30     $ .24       $ .60     $ .48  
Average common shares outstanding
     1,833       1,892         1,842       1,904  
Average diluted common shares outstanding
     1,857       1,913         1,869       1,927  
       

Page 27

 

U.S. Bancorp
Consolidated Ending Balance Sheet

                         
    June 30,     December 31,     June 30,  
(Dollars in Millions)   2005     2004     2004  
 
Assets
   (Unaudited)           (Unaudited)
Cash and due from banks
   $ 6,442     $ 6,336     $ 7,476  
Investment securities
                        
Held-to-maturity
     116       127       125  
Available-for-sale
     42,183       41,354       40,160  
Loans held for sale
     1,734       1,439       1,383  
Loans
                        
Commercial
     43,180       40,173       40,065  
Commercial real estate
     27,743       27,585       27,204  
Residential mortgages
     17,966       15,367       14,380  
Retail
     44,555       43,190       41,181  
     
Total loans
     133,444       126,315       122,830  
Less allowance for loan losses
     (2,082 )     (2,080 )     (2,190 )
     
Net loans
     131,362       124,235       120,640  
Premises and equipment
     1,864       1,890       1,893  
Customers’ liability on acceptances
     95       95       169  
Goodwill
     6,372       6,241       6,226  
Other intangible assets
     2,584       2,387       2,475  
Other assets
     11,229       11,000       9,737  
     
Total assets
   $ 203,981     $ 195,104     $ 190,284  
     
 
                        
Liabilities and Shareholders’ Equity
                        
Deposits
                        
Noninterest-bearing
   $ 33,401     $ 30,756     $ 32,786  
Interest-bearing
     69,690       71,936       71,314  
Time deposits greater than $100,000
     18,732       18,049       15,827  
     
Total deposits
     121,823       120,741       119,927  
Short-term borrowings
     20,434       13,084       11,592  
Long-term debt
     34,788       34,739       33,665  
Acceptances outstanding
     95       95       169  
Other liabilities
     6,940       6,906       6,256  
     
Total liabilities
     184,080       175,565       171,609  
Shareholders’ equity
                        
Common stock
     20       20       20  
Capital surplus
     5,903       5,902       5,860  
Retained earnings
     17,849       16,758       15,644  
Less treasury stock
     (3,984 )     (3,125 )     (2,316 )
Other comprehensive income
     113       (16 )     (533 )
     
Total shareholders’ equity
     19,901       19,539       18,675  
     
Total liabilities and shareholders’ equity
   $ 203,981     $ 195,104     $ 190,284  
 

Page 28

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