-----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, TviLJMGJiIjcMu2S2jsJk1FhJp2XAwZSkW6k/AmEMuaXOK+zbhuVgZjVa8ZMH5a+ 3qQ04vQKbZkMgxwbUujq5w== 0000950134-06-000586.txt : 20060117 0000950134-06-000586.hdr.sgml : 20060116 20060117075109 ACCESSION NUMBER: 0000950134-06-000586 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060117 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060117 DATE AS OF CHANGE: 20060117 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: 06531338 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 c01230e8vk.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): January 17, 2006

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 January 17, 2006, U.S. Bancorp (the “Company”) issued a press release discussing quarter and year ended December 31, 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 January 17, 2006, 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: January 17, 2006

EX-99.1 2 c01230exv99w1.htm PRESS RELEASE exv99w1

 

Exhibit 99.1
         
(USBANCORP LOGO)   News Release
 
        
 
  Contact:    
 
  Steve Dale   Judith T. Murphy
 
  Media Relations   Investor Relations
 
  (612) 303-0784   (612) 303-0783
U.S. BANCORP REPORTS RECORD 2005 NET INCOME

EARNINGS SUMMARY                                                   Table 1
 
($ in millions, except per-share data)                           Percent   Percent            
                            Change   Change            
    4Q   3Q   4Q   4Q05 vs   4Q05 vs   Full Year   Full Year   Percent
    2005   2005   2004   3Q05   4Q04   2005   2004   Change
     
Net income
   $ 1,143     $ 1,154     $ 1,056       (1.0 )     8.2     $ 4,489     $ 4,167       7.7  
Earnings per share (diluted)
     0.62       0.62       0.56       —       10.7       2.42       2.18       11.0  
 
Return on average assets (%)
     2.18       2.23       2.16                       2.21       2.17          
Return on average equity (%)
     22.6       22.8       21.2                       22.5       21.4          
Efficiency ratio (%)
     43.3       43.8       48.5                       44.3       45.3          
Tangible efficiency ratio (%)*
     40.9       40.0       43.6                       40.8       41.0          
 
Dividends declared per share
   $ 0.33     $ 0.30     $ 0.30       10.0       10.0     $ 1.23     $ 1.02       20.6  
Book value per share (period-end)
     11.07       10.93       10.52       1.3       5.2                          
Net interest margin (%)
     3.88       3.95       4.20                       3.97       4.25          
*   computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net and intangible amortization.
     MINNEAPOLIS, January 17, 2006 — U.S. Bancorp (NYSE: USB) today reported net income of $1,143 million for the fourth quarter of 2005, compared with $1,056 million for the fourth quarter of 2004. Net income of $.62 per diluted share in the fourth quarter of 2005 was higher than the same period of 2004 by $.06 (10.7 percent). Return on average assets and return on average equity were 2.18 percent and 22.6 percent, respectively, for the fourth quarter of 2005, compared with returns of 2.16 percent and 21.2 percent, respectively, for the fourth quarter of 2004.
     U.S. Bancorp Chairman and Chief Executive Officer Jerry A. Grundhofer said, “Our 2005 results demonstrated our ability to execute and deliver on our promise to produce high-quality earnings and industry leading returns, while maintaining credit quality and investing in distribution and scale to provide future growth opportunities for the Company. We achieved record earnings of

 

 

U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 2
$4.5 billion in 2005. This represented $2.42 per diluted share, an 11.0 percent increase over our 2004 results. This is the fourth consecutive year that we have exceeded our long-term goal of 10 percent earnings per share growth. We also improved upon our industry leading performance metrics and posted return on assets of 2.21 percent and return on average equity of 22.5 percent for the year. In addition, excluding securities gains and losses and the valuation of our mortgage servicing rights, we grew revenue faster than expense in 2005, thus creating positive operating leverage — a fundamental objective of this Company. Our management team is dedicated to maintaining superior operating efficiency. This year was no exception, as we obtained a tangible efficiency ratio for the year of 40.8 percent. Further, in late 2003 our Company made a commitment to return 80 percent of earnings to our shareholders in the form of dividends and share buybacks. In 2005 we returned 90 percent of earnings to our shareholders, and since we originally made that commitment, we have returned 98 percent of our earnings to shareholders. We expect to continue to return 80 plus percent in 2006.
     “I am extremely proud of the improvements we have made in the Company’s overall risk profile. Our net charge-offs were 51 basis points of average loans in 2005, a continued improvement compared with prior years. Nonperforming assets at December 31, 2005, were $592 million, a 21 percent decrease from the balance at December 31, 2004. The steps we have taken to reduce the Company’s risk profile will enable us to minimize the impact of future changes in the economy.
     “We have continued to invest in our Company. The acquisitions we have made in our fee-based businesses over the past few years have allowed us to achieve our earnings objectives, while maintaining high returns, despite the pressure on the net interest margin. We will continue to invest in fee-based businesses, strengthening our presence and product offerings for the benefit of our entire customer base.
     “Going forward, we will continue to capitalize on our balanced mix of products and services, our great franchise and our ability to provide continuously improved customer service in order to produce high quality results for the benefit of our customers, communities and shareholders.
     “Finally, I would like to thank all of our employees. We could not have accomplished our goals this year without their many contributions and dedication to our Company.”
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 3
     The Company’s results for the fourth quarter of 2005 improved over the same period of 2004, as net income rose by $87 million (8.2 percent), primarily due to growth in fee-based products and services and a debt restructuring charge taken in the fourth quarter of 2004, partially offset by a release of loan loss allowance in the fourth quarter of 2004. In addition, income tax expense was lower in the fourth quarter of 2005, driven by the timing of investments that generate incremental tax credits. The Company’s results also reflected an $81 million favorable change in the valuation of mortgage servicing rights, due to changing longer-term interest rates. These favorable changes were partially offset by higher securities losses of $28 million compared with the fourth quarter of 2004 and additional credit losses related to the new bankruptcy legislation of approximately $56 million in 2005.
     Total net revenue on a taxable-equivalent basis for the fourth quarter of 2005 was $96 million (3.0 percent) higher than the fourth quarter of 2004, primarily reflecting a 7.7 percent increase in noninterest income due to 9.5 percent growth in fee-based revenue across the majority of fee categories and expansion in payment processing businesses. This was partially offset by the increase in securities losses compared with the fourth quarter of 2004 driven by asset/liability risk management decisions given the flatter yield curve and continued growth in fixed-rate loan products.
     Total noninterest expense in the fourth quarter of 2005 was $115 million (7.3 percent) lower than the fourth quarter of 2004, primarily reflecting the $113 million prior year charge related to the prepayment of the Company’s long-term debt and $49 million of reparation in its mortgage servicing rights (“MSR”) asset during the fourth quarter of 2005, compared with a $32 million impairment charge in the fourth quarter of 2004. The favorable change in the valuation of mortgage servicing rights was substantially offset by incremental costs related to expanding the payment processing businesses, investments in in-store branches, higher amortization ($35 million) for investments in tax advantaged projects and other business initiatives.
     Provision for credit losses for the fourth quarter of 2005 was $205 million, an increase of $141 million from the fourth quarter of 2004. The increase in the provision for credit losses year-over-year primarily reflected a $56 million provision in the current quarter for the additional charge-offs related to new bankruptcy legislation and a release of the allowance for credit losses of $99 million in the fourth quarter of 2004. Net charge-offs in the fourth quarter of 2005 were $213 million, compared with the third quarter of 2005 net charge-offs of $156 million and the fourth quarter of
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 4
2004 net charge-offs of $163 million. Net charge-offs in the fourth quarter of 2005 included the additional bankruptcy charge-offs and $8 million of charge-offs related to a policy change to shorten the timeframe for charging off overdrawn deposit accounts in accordance with regulatory guidance. The impact of the policy change reduced the Company’s allowance requirements by that amount. Total nonperforming assets were $592 million at December 31, 2005, a $21 million (3.4 percent) decline when compared with $613 million at September 30, 2005, and a $156 million (20.9 percent) decline compared with $748 million at December 31, 2004. The ratio of the allowance for credit losses to nonperforming loans was 458 percent at December 31, 2005, compared with 438 percent at September 30, 2005, and 355 percent at December 31, 2004.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 5

INCOME STATEMENT HIGHLIGHTS                                                   Table 2
 
(Taxable-equivalent basis, $ in millions,                           Percent   Percent            
     except per-share data)                           Change   Change            
    4Q   3Q   4Q   4Q05 vs   4Q05 vs   Full Year   Full Year   Percent
    2005   2005   2004   3Q05   4Q04   2005   2004   Change
     
Net interest income
   $ 1,785     $ 1,791     $ 1,800       (0.3 )     (0.8 )   $ 7,088     $ 7,140       (0.7 )
Noninterest income
     1,546       1,576       1,435       (1.9 )     7.7       6,045       5,519       9.5  
                                 
Total net revenue
     3,331       3,367       3,235       (1.1 )     3.0       13,133       12,659       3.7  
Noninterest expense
     1,464       1,473       1,579       (0.6 )     (7.3 )     5,863       5,785       1.3  
                                 
Income before provision and income taxes
     1,867       1,894       1,656       (1.4 )     12.7       7,270       6,874       5.8  
Provision for credit losses
     205       145       64       41.4     nm     666       669       (0.4 )
                                 
Income before income taxes
     1,662       1,749       1,592       (5.0 )     4.4       6,604       6,205       6.4  
Taxable-equivalent adjustment
     10       9       8       11.1       25.0       33       29       13.8  
Applicable income taxes
     509       586       528       (13.1 )     (3.6 )     2,082       2,009       3.6  
                                 
Net income
   $ 1,143     $ 1,154     $ 1,056       (1.0 )     8.2     $ 4,489     $ 4,167       7.7  
                                 
 
                                                                
Diluted earnings per share
   $ 0.62     $ 0.62     $ 0.56       —       10.7     $ 2.42     $ 2.18       11.0  
                                 
Net Interest Income
     Fourth quarter net interest income on a taxable-equivalent basis was $1,785 million, compared with $1,800 million recorded in the fourth quarter of 2004. Average earning assets for the period increased over the fourth quarter of 2004 by $12.2 billion (7.1 percent), primarily driven by a $5.3 billion (35.1 percent) increase in residential mortgages, a $3.6 billion (8.9 percent) increase in total commercial loans and a $2.7 billion (6.3 percent) increase in total retail loans. The positive impact to net interest income from the growth in earning assets was offset by a lower net interest margin. The net interest margin in the fourth quarter of 2005 was 3.88 percent, compared with 4.20 percent in the fourth 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 fourth quarter of 2004, credit spreads have tightened by approximately 25 basis points across most lending products due to competitive pricing and a change in mix due to growth in lower-spread, fixed-rate credit products. The net interest margin also declined due to funding incremental asset growth with higher cost wholesale funding, share repurchases and asset/liability decisions designed to minimize the Company’s rate sensitivity position, including an 18.3 percent reduction in the net receive fixed swap position since December
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 6
31, 2004. An increase in the margin benefit of net free funds and loan fees partially offset these factors.
     Net interest income in the fourth quarter of 2005 was slightly lower than the third quarter of 2005 by $6 million (.3 percent). Average earning assets grew quarter-over-quarter by $2.6 billion (1.5 percent). While the Company experienced loan growth in most loan categories, growth in lower-spread residential mortgages and fixed-rate retail products drove nearly 70 percent of the increase in average earning assets over the prior quarter. As such, the positive impact to net interest income from the growth in earning assets was offset by a lower net interest margin. The net interest margin of 3.88 in the fourth quarter of 2005 was 7 basis points lower than the net interest margin of 3.95 percent in the third quarter of 2005. The decline in the net interest margin from the third quarter of 2005 reflected the mix of loan growth toward competitively priced fixed-rate products, higher short-term rates and funding a higher percentage of earning asset growth with wholesale funding. During the fourth quarter of 2005, credit spreads narrowed 11 basis points compared with the third quarter of 2005. This was partially offset by the higher margin benefit of core deposits, fixed-rate wholesale funding and growth in net free funds.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 7

NET INTEREST INCOME                                                   Table 3
 
(Taxable-equivalent basis; $ in millions)                                
                            Change   Change        
    4Q   3Q   4Q   4Q05 vs   4Q05 vs   Full Year   Full Year    
    2005   2005   2004   3Q05   4Q04   2005   2004   Change
     
Components of net interest income
Income on earning assets
   $ 2,843     $ 2,727     $ 2,397     $ 116     $ 446     $ 10,584     $ 9,215     $ 1,369  
Expense on interest-bearing liabilities
     1,058       936       597       122       461       3,496       2,075       1,421  
     
Net interest income
   $ 1,785     $ 1,791     $ 1,800     $ (6 )   $ (15 )   $ 7,088     $ 7,140     $ (52 )
     
Average yields and rates paid
Earning assets yield
     6.18 %     6.01 %     5.59 %     0.17 %     0.59 %     5.93 %     5.48 %     0.45 %
Rate paid on interest-bearing liabilities
     2.77       2.49       1.72       0.28       1.05       2.37       1.53       0.84  
     
Gross interest margin
     3.41 %     3.52 %     3.87 %     (0.11 %)     (0.46 %)     3.56 %     3.95 %     (0.39 %)
     
Net interest margin
     3.88 %     3.95 %     4.20 %     (0.07 %)     (0.32 %)     3.97 %     4.25 %     (0.28 %)
     
Average balances
Investment securities
   $ 41,494     $ 41,782     $ 42,315     $ (288 )   $ (821 )   $ 42,103     $ 43,009     $ (906 )
Loans
     138,069       135,283       125,639       2,786       12,430       133,105       122,141       10,964  
Earning assets
     183,095       180,452       170,924       2,643       12,171       178,425       168,123       10,302  
Interest-bearing liabilities
     151,500       149,431       138,303       2,069       13,197       147,295       136,055       11,240  
Net free funds*
     31,595       31,021       32,621       574       (1,026 )     31,130       32,068       (938 )
     • Represents noninterest-bearing deposits, allowance for loan losses, unrealized gain (loss) on available-for-sale securities, non-earnings assets, other noninterest-bearing liabilities and equity.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 8

                                                                 
AVERAGE LOANS                                                           Table 4
 
($ in millions)                           Percent   Percent            
                            Change   Change            
    4Q   3Q   4Q   4Q05 vs   4Q05 vs   Full Year   Full Year   Percent
    2005   2005   2004   3Q05   4Q04   2005   2004   Change
     
 
                                                                
Commercial
   $ 38,816     $ 38,343     $ 35,348       1.2       9.8     $ 37,718     $ 34,482       9.4  
Lease financing
     4,948       4,908       4,855       0.8       1.9       4,923       4,866       1.2  
                                 
Total commercial
     43,764       43,251       40,203       1.2       8.9       42,641       39,348       8.4  
 
                                                                
Commercial mortgages
     20,307       20,341       20,286       (0.2 )     0.1       20,268       20,386       (0.6 )
Construction and development
     8,256       7,852       7,360       5.1       12.2       7,696       6,881       11.8  
                                 
Total commercial real estate
     28,563       28,193       27,646       1.3       3.3       27,964       27,267       2.6  
 
                                                                
Residential mortgages
     20,319       18,741       15,044       8.4       35.1       18,036       14,322       25.9  
 
                                                                
Credit card
     6,825       6,684       6,347       2.1       7.5       6,615       6,090       8.6  
Retail leasing
     7,403       7,467       7,087       (0.9 )     4.5       7,346       6,653       10.4  
Home equity and second mortgages
     14,946       14,984       14,711       (0.3 )     1.6       14,945       14,040       6.4  
Other retail
     16,249       15,963       14,601       1.8       11.3       15,558       14,421       7.9  
                                 
Total retail
     45,423       45,098       42,746       0.7       6.3       44,464       41,204       7.9  
                                 
 
                                                                
Total loans
   $ 138,069     $ 135,283     $ 125,639       2.1       9.9     $ 133,105     $ 122,141       9.0  
                                 
     Average loans for the fourth quarter of 2005 were $12.4 billion (9.9 percent) higher than the fourth quarter of 2004, driven by growth in average residential mortgages of $5.3 billion (35.1 percent), total commercial loans of $3.6 billion (8.9 percent) and total retail loans of $2.7 billion (6.3 percent). Total commercial real estate loans also increased year-over-year by $.9 billion (3.3 percent). Average loans for the fourth quarter of 2005 were higher than the third quarter of 2005 by $2.8 billion (2.1 percent), reflecting growth in the majority of loan categories.
     Average investment securities in the fourth quarter of 2005 were $821 million (1.9 percent) lower than in the fourth quarter of 2004. Investment securities at December 31, 2005, were $1.7 billion lower than at December 31, 2004, and at September 30, 2005. The change in the balance of the investment securities portfolio from a year ago principally reflected asset/liability risk management decisions to minimize the Company’s rate sensitivity position given the changing rate environment and mix of loan growth. The decline from third quarter of 2005 primarily represented
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 9
maturities and prepayments with the proceeds being utilized to partially fund loan growth. During the fourth quarter of 2005, the Company maintained a mix of approximately 41 percent variable-rate securities.

                                                                 
AVERAGE DEPOSITS                                                           Table 5
 
($ in millions)                           Percent   Percent            
                            Change   Change            
    4Q   3Q   4Q   4Q05 vs   4Q05 vs   Full Year   Full Year   Percent
    2005   2005   2004   3Q05   4Q04   2005   2004   Change
     
 
                                                                
Noninterest-bearing deposits
   $ 29,898     $ 29,434     $ 29,841       1.6       0.2     $ 29,229     $ 29,816       (2.0 )
Interest-bearing deposits
                                                                
Interest checking
     22,473       22,508       21,630       (0.2 )     3.9       22,785       20,933       8.8  
Money market accounts
     28,710       28,740       30,955       (0.1 )     (7.3 )     29,314       32,854       (10.8 )
Savings accounts
     5,648       5,777       5,776       (2.2 )     (2.2 )     5,819       5,866       (0.8 )
                                 
Savings products
     56,831       57,025       58,361       (0.3 )     (2.6 )     57,918       59,653       (2.9 )
Time certificates of deposit less than $100,000
     13,397       13,263       12,794       1.0       4.7       13,199       13,074       1.0  
Time deposits greater than $100,000
     22,205       21,262       15,448       4.4       43.7       20,655       13,679       51.0  
                                 
Total interest-bearing deposits
     92,433       91,550       86,603       1.0       6.7       91,772       86,406       6.2  
                                 
Total deposits
   $ 122,331     $ 120,984     $ 116,444       1.1       5.1     $ 121,001     $ 116,222       4.1  
                                 
     Average noninterest-bearing deposits for the fourth quarter of 2005 were relatively flat as compared with the fourth quarter of 2004. 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 mid-fourth quarter 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 fourth quarter of 2005, excluding the migration of certain high-value customers to Silver Elite Checking, were slightly higher (approximately $74 million) over the same quarter of 2004. Average noninterest-bearing deposits in other areas, including corporate banking and corporate trust, also increased year-over-year.
     Average total savings products declined year-over-year by $1.5 billion (2.6 percent), due to reductions in average money market account balances and savings accounts, partially offset by higher interest checking balances. Average branch-based interest checking deposits increased by $1.5 billion (9.4 percent) over the same quarter of 2004 due to new account growth, as well as the migration of the Silver Elite Checking product. This positive variance in branch-based interest
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 10
checking account deposits was partially offset by reductions in other areas, principally broker dealer and government banking. Average money market account balances declined by $2.2 billion (7.3 percent) year-over-year, with the largest decline in the branches. This was partially offset by increases in corporate trust and government banking balances. The overall decrease in average money market account balances year-over-year was primarily the result of the Company’s deposit pricing decisions for money market products in relation to other fixed-rate deposit products offered. 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 of deposit less than $100,000 were higher in the fourth quarter of 2005 than the fourth quarter of 2004 by $603 million (4.7 percent). The Company experienced year-over-year growth in average time deposits greater than $100,000 of $6.8 billion (43.7 percent). This growth was broad-based across most areas of the bank including; broker dealer, government banking, commercial and branch banking, private client and corporate trust, as customers migrated balances to higher rate deposits.
     Average noninterest-bearing deposits for the fourth quarter of 2005 were $464 million (1.6 percent) higher than the third quarter of 2005. Average savings products declined by $194 million (.3 percent) in the current quarter from the third quarter of 2005. Time certificates of deposit less than $100,000 increased modestly from the third quarter of 2005, while time deposits greater than $100,000 rose by $943 million (4.4 percent), primarily due to an increase in corporate trust balances and the migration of consumer and commercial banking customer balances to these products.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 11

                                                                 
NONINTEREST INCOME                                                           Table 6
 
($ in millions)                           Percent   Percent            
                            Change   Change            
    4Q   3Q   4Q   4Q05 vs   4Q05 vs   Full Year   Full Year   Percent
    2005   2005   2004   3Q05   4Q04   2005   2004   Change
     
 
                                                                
Credit and debit card revenue
   $ 197     $ 185     $ 184       6.5       7.1     $ 713     $ 649       9.9  
Corporate payment products revenue
     126       135       101       (6.7 )     24.8       488       407       19.9  
ATM processing services
     61       64       43       (4.7 )     41.9       229       175       30.9  
Merchant processing services
     194       200       181       (3.0 )     7.2       770       675       14.1  
Trust and investment management fees
     258       251       241       2.8       7.1       1,009       981       2.9  
Deposit service charges
     238       246       212       (3.3 )     12.3       928       807       15.0  
Treasury management fees
     104       109       110       (4.6 )     (5.5 )     437       467       (6.4 )
Commercial products revenue
     101       103       108       (1.9 )     (6.5 )     400       432       (7.4 )
Mortgage banking revenue
     109       111       96       (1.8 )     13.5       432       397       8.8  
Investment products fees and commissions
     37       37       37       —       —       152       156       (2.6 )
Securities gains (losses), net
     (49 )     1       (21 )   nm   nm     (106 )     (105 )     1.0  
Other
     170       134       143       26.9       18.9       593       478       24.1  
                                 
 
                                                                
Total noninterest income
   $ 1,546     $ 1,576     $ 1,435       (1.9 )     7.7     $ 6,045     $ 5,519       9.5  
                                 
Noninterest Income
     Fourth quarter noninterest income was $1,546 million, an increase of $111 million (7.7 percent) from the same quarter of 2004, and $30 million (1.9 percent) lower than the third quarter of 2005. The increase in noninterest income over the fourth quarter of 2004 was driven by favorable variances in the majority of fee income categories, partially offset by a $28 million reduction due to net securities gains (losses). Credit and debit card revenue and corporate payment products revenue were both higher in the fourth quarter of 2005 than the fourth quarter of 2004 by $13 million and $25 million, or 7.1 percent and 24.8 percent, respectively. The growth in credit and debit card revenue was primarily driven by higher transaction volumes. The corporate payment products revenue growth reflected growth in sales, card usage, rate changes and the acquisition of a small fleet card business. ATM processing services revenue was higher by $18 million (41.9 percent) in the fourth quarter of 2005 than the same quarter of the prior year, primarily due to the acquisition of an ATM business in May of 2005. Merchant processing services revenue was higher in the fourth quarter of 2005 than the same quarter of 2004 by $13 million (7.2 percent), reflecting an increase in sales volume, new business and higher equipment fees. Trust and investment management fees
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 12
increased by $17 million (7.1 percent) year-over-year, primarily due to improved equity market conditions and account growth. Deposit service charges grew year-over-year by $26 million (12.3 percent) due to account growth and increased transaction-related fees. Mortgage banking revenue was higher in the fourth quarter of 2005 than the same quarter of 2004 by $13 million (13.5 percent), due to higher production volumes and increased servicing income. Other income was higher by $27 million (18.9 percent), primarily due to higher income from equity and other investments relative to the same quarter of 2004. Partially offsetting these positive variances, year-over-year, were reductions in commercial products revenue and treasury management fees, which declined by $7 million (6.5 percent) and $6 million (5.5 percent), respectively. The decrease in commercial products revenue was due to reductions in loan-related fees and international product revenue. Treasury management fees declined due to higher earnings credit on customers’ compensating balances relative to a year ago, reflecting rising interest rates.
     Noninterest income was lower in the fourth quarter of 2005 than the third quarter of 2005 by $30 million (1.9 percent). The decline reflected an unfavorable change in net securities gains (losses) of $50 million. Credit and debit card revenue increased by $12 million (6.5 percent) quarter-over-quarter, reflecting seasonally higher consumer holiday spending. However, corporate payment products revenue, merchant processing services and ATM processing services were lower than the third quarter of 2005 by $9 million (6.7 percent), $6 million (3.0 percent) and $3 million (4.7 percent), respectively, due to seasonally lower transaction volumes and sales in those product lines. Deposit service charges were lower by $8 million (3.3 percent) in the fourth quarter of 2005 compared with the third quarter of 2005, reflecting lower transaction-related fees partially offset by net new account growth. In addition, treasury management fees declined from the third quarter of 2005 by $5 million (4.6 percent) primarily due to fewer processing days for these products. Other income increased $36 million (26.9 percent) quarter-over quarter primarily due to higher income from equity investments, partially offset by lower retail lease residual revenue due to the impact of higher fuel prices on residual valuations.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 13

                                                                 
NONINTEREST EXPENSE Table 7  
($ in millions)                           Percent   Percent            
                            Change   Change            
    4Q   3Q   4Q   4Q05 vs   4Q05 vs   Full Year   Full Year   Percent
    2005   2005   2004   3Q05   4Q04   2005   2004   Change
     
 
                                                                
Compensation
   $ 601     $ 603     $ 579       (0.3 )     3.8     $ 2,383     $ 2,252       5.8  
Employee benefits
     101       106       98       (4.7 )     3.1       431       389       10.8  
Net occupancy and equipment
     166       162       163       2.5       1.8       641       631       1.6  
Professional services
     47       44       45       6.8       4.4       166       149       11.4  
Marketing and business development
     64       61       49       4.9       30.6       235       194       21.1  
Technology and communications
     129       118       116       9.3       11.2       466       430       8.4  
Postage, printing and supplies
     65       64       65       1.6       —       255       248       2.8  
Other intangibles
     81       125       161       (35.2 )     (49.7 )     458       550       (16.7 )
Debt prepayment
     —       —       113       —     nm     54       155       (65.2 )
Other
     210       190       190       10.5       10.5       774       787       (1.7 )
                                 
 
                                                                
Total noninterest expense
   $ 1,464     $ 1,473     $ 1,579       (0.6 )     (7.3 )   $ 5,863     $ 5,785       1.3  
                                 
Noninterest Expense
     Fourth quarter noninterest expense totaled $1,464 million, a decrease of $115 million (7.3 percent) from the same quarter of 2004 and a $9 million (.6 percent) decrease from the third quarter of 2005. The decrease in expense year-over-year included the $113 million charge related to the prepayment of the Company’s long-term debt in the prior year and the $81 million favorable change in the valuation of mortgage servicing rights. Compensation expense was higher year-over-year by $22 million (3.8 percent), principally due to business expansion, including in-store branches, the Company’s payment processing businesses, and other growth initiatives. Employee benefits increased year-over-year by $3 million (3.1 percent), primarily as a result of higher payroll taxes, 401(k) costs and other benefits. Marketing and business development expense increased $15 million (30.6 percent) due to the timing of payment processing business program initiatives in 2005. Technology and communications expense rose by $13 million (11.2 percent), reflecting depreciation of technology investments, network costs associated with expansion of the payments processing businesses, and higher outside data processing expense principally associated with expanding a prepaid gift card program. Other expense increased in the fourth quarter of 2005 from the same quarter of 2004 by $20 million (10.5 percent), primarily due to the $35 million incremental impact from investments in tax advantaged projects.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 14
     Noninterest expense in the fourth quarter of 2005 was lower than the third quarter of 2005 by $9 million (.6 percent). The decrease in noninterest expense in the fourth quarter of 2005 from the third quarter of 2005 was primarily driven by a $46 million favorable change in the MSR valuation quarter-over-quarter and slightly lower employee benefits costs primarily related to payroll taxes. Offsetting this favorable change were higher costs due to marketing initiatives, seasonally higher occupancy costs and professional services related to business initiatives. Technology and communications expense increased by $11 million (9.3 percent), quarter-over-quarter, primarily due to processing costs for new payment processing initiatives, including the prepaid gift card program. Other expense also increased from the third quarter of 2005, primarily due to higher operating expenses of $35 million for investments in tax advantaged projects.
Provision for Income Taxes
     The provision for income taxes for the fourth quarter of 2005 declined to an effective tax rate of 30.8 percent from an effective tax rate of 33.7 percent in third quarter of 2005 and an effective tax rate of 33.3 percent in the fourth quarter of 2004. The decline in the effective rate during the fourth quarter of 2005 primarily reflects the Company’s decision to increase tax-advantaged investments and the timing of closing these projects. These investments generated incremental tax credits of $42 million (pre-tax equivalent of approximately $64 million), compared with the third quarter of 2005. The Company expects its effective tax rate to approximate 33 percent in future quarters.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 15

                                         
ALLOWANCE FOR CREDIT LOSSES Table 8  
($ in millions)   4Q   3Q   2Q   1Q   4Q
    2005   2005   2005   2005   2004
     
 
                                        
Balance, beginning of period
   $ 2,258     $ 2,269     $ 2,269     $ 2,269     $ 2,370  
 
                                        
Net charge-offs
                                        
Commercial
     15       7       9       14       8  
Lease financing
     7       16       6       13       10  
     
Total commercial
     22       23       15       27       18  
Commercial mortgages
     (1 )     2       1       4       9  
Construction and development
     —       (2 )     (3 )     2       1  
     
Total commercial real estate
     (1 )     —       (2 )     6       10  
 
                                        
Residential mortgages
     10       9       8       9       8  
 
                                        
Credit card
     86       63       64       65       61  
Retail leasing
     8       5       5       8       9  
Home equity and second mortgages
     21       14       16       17       18  
Other retail
     67       42       38       40       39  
     
Total retail
     182       124       123       130       127  
     
Total net charge-offs
     213       156       144       172       163  
Provision for credit losses
     205       145       144       172       64  
Acquisitions and other changes
     1       —       —       —       (2 )
     
Balance, end of period
   $ 2,251     $ 2,258     $ 2,269     $ 2,269     $ 2,269  
     
 
                                        
Components
                                        
Allowance for loan losses
   $ 2,041     $ 2,055     $ 2,082     $ 2,082     $ 2,080  
Liability for unfunded credit commitments
     210       203       187       187       189  
     
Total allowance for credit losses
   $ 2,251     $ 2,258     $ 2,269     $ 2,269     $ 2,269  
     
 
                                        
Gross charge-offs
   $ 267     $ 229     $ 222     $ 231     $ 235  
Gross recoveries
   $ 54     $ 73     $ 78     $ 59     $ 72  
 
                                        
Net charge-offs to average loans (%)
     0.61       0.46       0.44       0.55       0.52  
 
                                        
Allowance as a percentage of
                                        
Period-end loans
     1.63       1.65       1.70       1.76       1.80  
Nonperforming loans
     458       438       441       404       355  
Nonperforming assets
     380       368       372       341       303  
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 16
Credit Quality
     The allowance for credit losses was $2,251 million at December 31, 2005, compared with $2,258 million at September 30, 2005, and $2,269 million at December 31, 2004. The ratio of the allowance for credit losses to period-end loans was 1.63 percent at December 31, 2005, compared with 1.65 percent at September 30, 2005, and 1.80 percent at December 31, 2004. The ratio of the allowance for credit losses to nonperforming loans was 458 percent at December 31, 2005, compared with 438 percent at September 30, 2005, and 355 percent at December 31, 2004. Total net charge-offs in the fourth quarter of 2005 were $213 million, compared with the third quarter of 2005 net charge-offs of $156 million and the fourth quarter of 2004 net charge-offs of $163 million. The increase in total net charge-offs was principally due to the impact of changes in bankruptcy legislation that went into effect during the fourth quarter of 2005. The Company anticipates that total net charge-offs in early 2006 will return to levels similar to the third quarter of 2005.
     Retail loan net charge-offs were $182 million in the fourth quarter of 2005 compared with the $124 million in the third quarter of 2005 and $127 million in the fourth quarter of 2004. The increase in retail loan net charge-offs, reflected additional charge-offs related to the new bankruptcy legislation. Retail loan net charge-offs as a percent of average loans outstanding were 1.59 percent in the fourth quarter of 2005, compared with 1.09 percent and 1.18 percent in the third quarter of 2005 and fourth quarter of 2004, respectively. The Company does not anticipate that this higher level of bankruptcy charge-offs will have a significant continued impact in future quarters.
     Commercial and commercial real estate loan net charge-offs were $21 million for the fourth quarter of 2005, or .12 percent of average loans outstanding, relatively flat when compared with $23 million, or .13 percent of average loans outstanding, in the third quarter of 2005 and $28 million, or .16 percent of average loans outstanding, in the fourth quarter of 2004.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 17

                                         
CREDIT RATIOS Table 9  
(Percent)   4Q   3Q   2Q   1Q   4Q
    2005   2005   2005   2005   2004
     
 
                                        
Net charge-offs ratios*
                                        
Commercial
     0.15       0.07       0.10       0.16       0.09  
Lease financing
     0.56       1.29       0.49       1.07       0.82  
Total commercial
     0.20       0.21       0.14       0.27       0.18  
 
                                        
Commercial mortgages
     (0.02 )     0.04       0.02       0.08       0.18  
Construction and development
     —       (0.10 )     (0.16 )     0.11       0.05  
Total commercial real estate
     (0.01 )     —       (0.03 )     0.09       0.14  
 
                                        
Residential mortgages
     0.20       0.19       0.19       0.23       0.21  
 
                                        
Credit card
     5.00       3.74       3.93       4.11       3.82  
Retail leasing
     0.43       0.27       0.27       0.45       0.51  
Home equity and second mortgages
     0.56       0.37       0.43       0.46       0.49  
Other retail
     1.64       1.04       1.01       1.09       1.06  
Total retail
     1.59       1.09       1.12       1.22       1.18  
 
                                        
Total net charge-offs
     0.61       0.46       0.44       0.55       0.52  
 
                                        
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans**
Commercial
     0.05       0.04       0.05       0.06       0.05  
Commercial real estate
     —       0.01       0.01       0.02       —  
Residential mortgages
     0.32       0.30       0.32       0.41       0.46  
Retail
     0.42       0.41       0.40       0.43       0.47  
Total loans
     0.20       0.19       0.19       0.22       0.23  
 
                                        
Delinquent loan ratios - 90 days or more past due including nonperforming loans**
Commercial
     0.69       0.74       0.74       0.84       0.99  
Commercial real estate
     0.55       0.57       0.59       0.68       0.73  
Residential mortgages
     0.55       0.53       0.55       0.66       0.74  
Retail
     0.45       0.43       0.43       0.47       0.51  
Total loans
     0.56       0.57       0.58       0.66       0.74  
* 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 Fourth Quarter 2005 Results
January 17, 2006
Page 18

                                         
ASSET QUALITY Table 10  
($ in millions)                    
    Dec 31   Sep 30   Jun 30   Mar 31   Dec 31
    2005   2005   2005   2005   2004
     
Nonperforming loans
                                        
Commercial
   $ 230     $ 265     $ 238     $ 254     $ 289  
Lease financing
     42       35       60       70       91  
     
Total commercial
     272       300       298       324       380  
Commercial mortgages
     134       144       140       159       175  
Construction and development
     23       16       21       21       25  
     
Commercial real estate
     157       160       161       180       200  
Residential mortgages
     48       44       42       41       43  
Retail
     15       12       13       16       17  
     
Total nonperforming loans
     492       516       514       561       640  
 
                                        
Other real estate
     71       68       68       66       72  
Other nonperforming assets
     29       29       28       38       36  
     
 
                                        
Total nonperforming assets*
   $ 592     $ 613     $ 610     $ 665     $ 748  
     
 
                                        
Accruing loans 90 days or more past due
   $ 280     $ 265     $ 258     $ 285     $ 294  
     
 
                                        
Nonperforming assets to loans plus ORE (%)
     0.43       0.45       0.46       0.52       0.59  
*does not include accruing loans 90 days or more past due
     Nonperforming assets at December 31, 2005, totaled $592 million, compared with $613 million at September 30, 2005, and $748 million at December 31, 2004. The ratio of nonperforming assets to loans and other real estate was .43 percent at December 31, 2005, compared with .45 percent at September 30, 2005, and .59 percent at December 31, 2004.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 19

                                         
CAPITAL POSITION Table 11  
($ in millions)   Dec 31   Sep 30   Jun 30   Mar 31   Dec 31
    2005   2005   2005   2005   2004
     
 
                                        
Total shareholders’ equity
   $ 20,086     $ 19,864     $ 19,901     $ 19,208     $ 19,539  
Tier 1 capital
     15,145       15,180       14,564       14,943       14,720  
Total risk-based capital
     23,056       23,283       22,362       23,099       23,352  
 
Common equity to assets
     9.6 %     9.6 %     9.8 %     9.7 %     10.0 %
Tangible common equity to assets
     5.9       6.2       6.1       6.2       6.4  
Tier 1 capital ratio
     8.2       8.4       8.1       8.6       8.6  
Total risk-based capital ratio
     12.5       12.8       12.5       13.3       13.1  
Leverage ratio
     7.6       7.7       7.5       7.9       7.9  
     Total shareholders’ equity was $20.1 billion at December 31, 2005, compared with $19.5 billion at December 31, 2004. The increase was the result of corporate earnings offset by share buybacks and dividends.
     Tangible common equity to assets was 5.9 percent at December 31, 2005, compared with 6.2 percent at September 30, 2005, and 6.4 percent at December 31, 2004. The Tier 1 capital ratio was 8.2 percent at December 31, 2005, compared with 8.4 percent at September 30, 2005, and 8.6 percent at December 31, 2004. The total risk-based capital ratio was 12.5 percent at December 31, 2005, compared with 12.8 percent at September 30, 2005, and 13.1 percent at December 31, 2004. The leverage ratio was 7.6 percent at December 31, 2005, compared with 7.7 percent at September 30, 2005, and 7.9 percent at December 31, 2004. All regulatory ratios continue to be in excess of stated “well capitalized” requirements.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 20

                                         
COMMON SHARES Table 12  
(Millions)   4Q   3Q   2Q   1Q   4Q
    2005   2005   2005   2005   2004
     
 
                                        
Beginning shares outstanding
     1,818       1,829       1,842       1,858       1,871  
 
                                        
Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes
     5       5       4       4       7  
Shares repurchased
     (8 )     (16 )     (17 )     (20 )     (20 )
     
Ending shares outstanding
     1,815       1,818       1,829       1,842       1,858  
     
     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 fourth quarter of 2005, the Company repurchased 8 million shares of common stock. As of December 31, 2005, there were approximately 83 million shares remaining to be repurchased under the current authorization.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 21

                                                                         
LINE OF BUSINESS FINANCIAL PERFORMANCE*                                                             Table 13  
 
($ in millions)                                          
    Net Income     Percent Change                             4Q 2005  
    4Q     3Q     4Q     4Q05 vs     4Q05 vs     Full Year   Full Year   Percent     Earnings  
Business Line   2005     2005     2004     3Q05     4Q04     2005   2004   Change     Composition  
     
 
                                                                        
Wholesale Banking
   $ 282     $ 258     $ 268       9.3       5.2     $ 1,063     $ 984       8.0       25 %
Consumer Banking
     454       473       389       (4.0 )     16.7       1,788       1,473       21.4       40  
Private Client, Trust and Asset Management
     132       123       101       7.3       30.7       484       394       22.8       12  
Payment Services
     166       204       181       (18.6 )     (8.3 )     715       656       9.0       14  
Treasury and Corporate Support
     109       96       117       13.5       (6.8 )     439       660       (33.5 )     9  
                                       
 
                                                                        
Consolidated Company
   $ 1,143     $ 1,154     $ 1,056       (1.0 )     8.2     $ 4,489     $ 4,167       7.7       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.
     Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $282 million of the Company’s net income in the fourth quarter of 2005, a 5.2 percent
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 22
increase over the same period of 2004 and a 9.3 percent increase from the third quarter of 2005. The increase in Wholesale Banking’s fourth quarter 2005 contribution over the same quarter of 2004 was primarily the result of favorable variances in total net revenue (2.2 percent) and total noninterest expense (4.2 percent). Partly offsetting these positive variances was a reduction in net recoveries reflected in the provision for credit losses. The favorable variance in total net revenue year-over-year was primarily the result of growth in net interest income (3.7 percent), as the business line’s noninterest income declined slightly. The increase in net interest income was driven by the margin benefit of deposits. Total noninterest income declined $1 million, year-over-year, reflecting lower treasury management fees driven by higher earnings credit on customers’ compensating balances relative to a year ago. Wholesale Banking’s favorable variance in total noninterest expense year-over-year was the result of lower net shared services expense, partially offset by an increase in compensation and employee benefits.
     The increase in Wholesale Banking’s contribution to net income in the fourth quarter of 2005 from the third quarter of 2005 was the result of a favorable variance in total net revenue (6.4 percent) partially offset by an increase in total noninterest expense (2.0 percent). Total net revenue was higher on a linked quarter basis with increases in both net interest income (2.4 percent) and noninterest income (15.3 percent). The favorable variance in net interest income was due primarily to the benefit from wider deposit spreads. The increase in noninterest income on a linked quarter basis was primarily due to an increase in income related to equity investments, partially offset by a decrease in treasury management fees (5.2 percent), which reflected seasonal tax-receipts processing revenue in the third quarter of 2005. Net recoveries of $7 million in the fourth quarter of 2005, compared with net recoveries of $4 million in the third quarter of 2005, drove the unfavorable variance in the provision for credit losses quarter-over-quarter.
     Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, including lending guaranteed by the Small Business Administration, small-ticket leasing, consumer lending, mortgage banking, consumer finance, workplace banking, student banking, 24-hour banking, and investment product and insurance sales. Consumer Banking contributed $454 million of the Company’s net income in the fourth quarter of 2005, a 16.7 percent increase over the same period of 2004 and a 4.0 percent decrease from the prior quarter. The favorable increase year-over-year was the result of higher total
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 23
net revenue (7.6 percent) partially offset by higher total noninterest expense (.5 percent) and provision for credit losses (4.6 percent). Total net revenue was higher than the same quarter of 2004 due to increases in both net interest income (6.3 percent) and noninterest income (10.1 percent). Net interest income was higher year-over-year due to the margin benefit of deposits. Net interest income generated by growth in average loan balances was substantially offset by lower spreads on those assets given the competitive lending environment. Noninterest income improved in the fourth quarter of 2005 over the same period of 2004, principally due to growth in deposit service charges (12.3 percent) and mortgage banking revenue (13.4 percent). Total noninterest expense in the fourth quarter of 2005 was slightly higher as compared with the same quarter of 2004, as an increase in compensation and employee benefits (9.7 percent), the result of the Company’s in-store branch expansion, other hiring initiatives and production-based incentives was substantially offset by a decline in net shared services expense (10.5 percent). A year-over-year increase in net charge-offs (4.6 percent) drove the unfavorable variance in the business line’s provision for credit losses.
     The decrease in Consumer Banking’s contribution in the fourth quarter of 2005 from the prior quarter was primarily the result of unfavorable variances in total net revenue (1.0 percent) and the provision for credit losses (26.4 percent). The decline in total net revenue was due primarily to a decline in total noninterest income (4.2 percent) as a result of lower deposit service charges (3.3 percent) related to transaction volumes and a decline in other revenue (10.6 percent) due to lower retail leasing revenue. The increase in the provision for credit losses was due to a $19 million increase in net charge-offs, including approximately $16 million of additional charge-offs related to new bankruptcy legislation.
     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 $132 million of the Company’s net income in the fourth quarter of 2005, 30.7 percent higher than the same period of 2004 and 7.3 percent higher than the prior quarter of 2005. The increase in the business line’s contribution in the fourth quarter of 2005 over the same quarter of 2004 was the result of favorable variances in total net revenue (12.4 percent) and total noninterest expense (5.3 percent). Net interest income was favorably impacted year-over-year by wider deposit spreads and growth in deposit balances. Noninterest income
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 24
increased by 8.5 percent from the same quarter of 2004, primarily due to improved equity market conditions and account growth. The increase in the business line’s contribution in the fourth quarter of 2005, as compared with the prior quarter, was primarily due to similar factors causing favorable total net revenue growth (4.0 percent) while total noninterest expense and provision for credit losses remained relatively flat.
     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 $166 million of the Company’s net income in the fourth quarter of 2005, an 8.3 percent decrease from the same period of 2004 and an 18.6 percent decrease from the third quarter of 2005. The decrease in Payment Services’ contribution in the fourth quarter of 2005 from the same period of 2004 was primarily the result of higher total noninterest expense (26.3 percent) and provision for credit losses (36.0 percent), partially offset by an increase in total net revenue (12.5 percent). The increase in total net revenue year-over-year was due to growth in total noninterest income (13.5 percent) and net interest income (9.1 percent), reflecting growth in higher yielding retail loan balances, offset by increases in corporate card balances and rebates. All categories benefited from higher transaction volumes, rate changes and business expansion initiatives. The growth in total noninterest expense year-over-year primarily reflected new business initiatives, including costs associated with acquisitions and co-branding relationships and the timing of marketing programs. Also included in the fourth quarter of 2005 was a $19 million write-off of a prepaid rewards program associated with a co-branding relationship. The $31 million increase in the provision for credit losses was primarily related to higher net charge-offs, year-over-year, reflecting approximately $40 million of additional charge-offs related to new bankruptcy legislation.
     The decrease in Payment Services’ contribution in the fourth quarter of 2005 from the prior quarter was primarily due to seasonal revenue trends, higher provision for credit losses (33.0 percent) driven by bankruptcy-related net charge-offs and unfavorable total noninterest expense (10.0 percent). The increase in total noninterest expense from the prior quarter included the write-off of the co-branding rewards programs as well as costs to support ongoing business expansion, including the prepaid gift card program and the timing of marketing programs. Total net revenue was relatively flat as higher holiday retail credit card sales volumes were offset by seasonally lower volumes in corporate payment products, ATM processing and merchant processing.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 25
     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 $109 million in the fourth quarter of 2005, compared with net income of $117 million in the fourth quarter of 2004 and $96 million in the third quarter of 2005. The change in net income in the current quarter from the same quarter of 2004 was the net result of the unfavorable change in net interest income ($126 million) reflecting asset/liability management decisions, including issuing higher cost fixed-rate funding and repositioning of the Company for changes in the interest rate environment, a $102 million increase in the provision for credit losses primarily related to a $99 million release of the allowance for credit losses in the fourth quarter of 2004, and the $28 million unfavorable change in net securities gains (losses), offset by favorable variances in the MSR valuation ($81 million) and debt prepayment expense ($113 million). In addition, there was a favorable variance in income tax expense reflecting the tax impact of changes in pretax earnings and the generation of incremental tax credits from the increased tax-advantaged investments. Net income in the fourth quarter of 2005 was higher than net income in the third quarter of 2005 due to lower net interest income ($38 million), a $50 million unfavorable change in net securities gains (losses), and a $12 million unfavorable change in the provision for credit losses, offset by a favorable change in the MSR valuation ($46 million) and by a $63 million favorable change in income tax expense.
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U.S. Bancorp Reports Fourth Quarter 2005 Results
January 17, 2006
Page 26
     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 REVIEW THE FINANCIAL RESULTS IN A PRE-RECORDED CALL ON TUESDAY, JANUARY 17, 2006. The call will be available by telephone or on the internet. The pre-recorded call will be available from approximately 7:00 a.m. (CST) on Tuesday, January 17th through Tuesday, January 24th at 11:00 p.m. (CST). To access the recorded call, please dial 800-839-5685. Participants calling from outside the United States, please call 402-220-2567. Find the recorded call via the internet at usbank.com.
Minneapolis-based U.S. Bancorp (“USB”), with $209 billion in assets, is the 6th largest financial holding company in the United States. The Company operates 2,419 banking offices and 5,003 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 Fourth Quarter 2005 Results
January 17, 2006
Page 27
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       Year Ended  
(Dollars and Shares in Millions, Except Per Share Data)   December 31,       December 31,  
(Unaudited)   2005     2004       2005     2004  
       
Interest Income
                                  
Loans
     $2,276       $1,878         $8,381       $7,168  
Loans held for sale
     31       23         106       91  
Investment securities
     500       461         1,954       1,827  
Other interest income
     26       27         110       100  
           
Total interest income
     2,833       2,389         10,551       9,186  
Interest Expense
                                  
Deposits
     476       250         1,559       904  
Short-term borrowings
     230       80         690       263  
Long-term debt
     352       267         1,247       908  
           
Total interest expense
     1,058       597         3,496       2,075  
           
Net interest income
     1,775       1,792         7,055       7,111  
Provision for credit losses
     205       64         666       669  
           
Net interest income after provision for credit losses
     1,570       1,728         6,389       6,442  
Noninterest Income
                                  
Credit and debit card revenue
     197       184         713       649  
Corporate payment products revenue
     126       101         488       407  
ATM processing services
     61       43         229       175  
Merchant processing services
     194       181         770       675  
Trust and investment management fees
     258       241         1,009       981  
Deposit service charges
     238       212         928       807  
Treasury management fees
     104       110         437       467  
Commercial products revenue
     101       108         400       432  
Mortgage banking revenue
     109       96         432       397  
Investment products fees and commissions
     37       37         152       156  
Securities gains (losses), net
     (49 )     (21 )       (106 )     (105 )
Other
     170       143         593       478  
           
Total noninterest income
     1,546       1,435         6,045       5,519  
Noninterest Expense
                                  
Compensation
     601       579         2,383       2,252  
Employee benefits
     101       98         431       389  
Net occupancy and equipment
     166       163         641       631  
Professional services
     47       45         166       149  
Marketing and business development
     64       49         235       194  
Technology and communications
     129       116         466       430  
Postage, printing and supplies
     65       65         255       248  
Other intangibles
     81       161         458       550  
Debt prepayment
     —       113         54       155  
Other
     210       190         774       787  
           
Total noninterest expense
     1,464       1,579         5,863       5,785  
           
Income before income taxes
     1,652       1,584         6,571       6,176  
Applicable income taxes
     509       528         2,082       2,009  
           
Net income
     $1,143       $1,056         $4,489       $4,167  
           
Earnings per share
     $.63       $.57         $2.45       $2.21  
Diluted earnings per share
     $.62       $.56         $2.42       $2.18  
Dividends declared per share
     $.33       $.30         $1.23       $1.02  
Average common shares outstanding
     1,816       1,865         1,831       1,887  
Average diluted common shares outstanding
     1,841       1,894         1,857       1,913  
       
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U.S. Bancorp
Consolidated Ending Balance Sheet
                 
    December 31,     December 31,  
(Dollars in Millions)   2005     2004  
 
Assets
                
Cash and due from banks
     $8,004       $6,336  
Investment securities
                
Held-to-maturity
     109       127  
Available-for-sale
     39,659       41,354  
Loans held for sale
     1,686       1,439  
Loans
                
Commercial
     42,942       40,173  
Commercial real estate
     28,463       27,585  
Residential mortgages
     20,730       15,367  
Retail
     45,671       43,190  
     
Total loans
     137,806       126,315  
Less allowance for loan losses
     (2,041 )     (2,080 )
     
Net loans
     135,765       124,235  
Premises and equipment
     1,841       1,890  
Customers’ liability on acceptances
     61       95  
Goodwill
     7,005       6,241  
Other intangible assets
     2,874       2,387  
Other assets
     12,461       11,000  
     
Total assets
     $209,465       $195,104  
     
 
                
Liabilities and Shareholders’ Equity
                
Deposits
                
Noninterest-bearing
     $32,214       $30,756  
Interest-bearing
     70,024       71,936  
Time deposits greater than $100,000
     22,471       18,049  
     
Total deposits
     124,709       120,741  
Short-term borrowings
     20,200       13,084  
Long-term debt
     37,069       34,739  
Acceptances outstanding
     61       95  
Other liabilities
     7,340       6,906  
     
Total liabilities
     189,379       175,565  
Shareholders’ equity
                
Common stock
     20       20  
Capital surplus
     5,907       5,902  
Retained earnings
     19,001       16,758  
Less treasury stock
     (4,413 )     (3,125 )
Other comprehensive income
     (429 )     (16 )
     
Total shareholders’ equity
     20,086       19,539  
     
Total liabilities and shareholders’ equity
     $209,465       $195,104  
 
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