-----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, EZU5A/5rAWFSxCZ6mlAdG9cVRoKu/ZOdZzPoBPCRCKUm0EVlY9X814dp0QSU9IIV zsj8ZiqNgmiCOLLt3GDN/Q== 0000950152-09-000430.txt : 20090121 0000950152-09-000430.hdr.sgml : 20090121 20090121083807 ACCESSION NUMBER: 0000950152-09-000430 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20090121 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20090121 DATE AS OF CHANGE: 20090121 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: 09535791 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 c48828e8vk.htm 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 21, 2009

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
EX-99.1


Table of Contents

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

     On January 21, 2009, U.S. Bancorp (the “Company”) issued a press release reporting quarter ended December 31, 2008 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 21, 2009, 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 21, 2009

EX-99.1 2 c48828exv99w1.htm EX-99.1 exv99w1

Exhibit 99.1
         
(U.S. BANCORP LOGO)
  News Release    
 
 
  Contacts:    
 
  Steve Dale   Judith T. Murphy
 
  Media   Investors/Analysts
 
  (612) 303-0784   (612) 303-0783
U.S. BANCORP REPORTS NET INCOME
FOR THE FOURTH QUARTER OF 2008
     MINNEAPOLIS, January 21, 2009 U.S. Bancorp (NYSE: USB) today reported net income of $330 million for the fourth quarter of 2008. Diluted earnings per common share of $.15 in the current quarter were lower than the $.53 of diluted earnings per common share reported for the fourth quarter of 2007. Included in fourth quarter of 2008 results were securities and other market valuation losses totaling $.09 per diluted common share and a provision for credit losses in excess of net charge-offs equal to $.25 per diluted common share. Results for the fourth quarter included strong year-over-year growth in net interest income and average loans and deposits, as the Company continued to benefit from the “flight to quality” by customers seeking banks with strong capital and the ability to provide them with financial products and services during this period of economic uncertainty. Highlights for the fourth quarter of 2008 included:
    Average loan growth of 17.0 percent (12.7 percent excluding acquisitions) over the fourth quarter of 2007, driven by:
    Average total commercial loan growth of 14.7 percent, principally in high quality corporate lending
 
    Average retail loan growth of 17.0 percent, led by credit card balances, home equity lines and student loans
    Average loan growth of 6.4 percent (3.1 percent excluding acquisitions, 12.4 percent annualized) over the third quarter of 2008, including:
    Average total commercial loan growth of 4.3 percent (17.2 percent annualized)
 
    Average total commercial real estate growth of 2.9 percent (11.6 percent annualized)
 
    Average retail loan growth of 3.6 percent (14.4 percent annualized)

 


 

U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 2
    Average deposit growth of 15.2 percent (9.6 percent excluding acquisitions) over the fourth quarter of 2007, including:
    Average noninterest-bearing deposits growth of 17.8 percent
 
    Average total savings deposits growth of 9.5 percent
 
    Total deposit growth of $19.8 billion, or 14.2 percent (5.8 percent excluding acquisitions), from September 30, 2008, to December 31, 2008
    Net interest income growth of 22.6 percent over the fourth quarter of 2007, driven by:
    Average earning assets growth of 12.8 percent
 
    Net interest margin expansion to 3.81 percent in the fourth quarter of 2008 compared with 3.51 percent in the fourth quarter of 2007
    Credit costs, as expected, trended higher, but coverage ratios remained strong:
    Provision for credit losses exceeded net charge-offs by $635 million, resulting in an increase to the allowance for credit losses equal to 100 percent of net charge-offs for the quarter
 
    Allowance to period-end loans increased to 1.96 percent at December 31, 2008, compared with 1.71 percent at September 30, 2008
    The Company acquired the majority of the operations of Downey Savings and Loan and PFF Bank and Trust from the Federal Deposit Insurance Corporation (“FDIC”) on November 21, 2008. Combined, these acquisitions:
    Added 213 branches, primarily in California, resulting in the Company now having the fourth largest branch network in that state and third largest in the southern California region
 
    Increased loans $12.2 billion at December 31, 2008, and average loans $5.5 billion in fourth quarter of 2008. Approximately $11.5 billion of these loans are covered under loss sharing agreements with the FDIC limiting the Company’s credit loss exposure
 
    Increased deposits $11.8 billion at December 31, 2008, and average deposit balances $5.2 billion in fourth quarter of 2008
    Strong regulatory capital ratios at December 31, 2008, which included the impact of the preferred stock issuance to the Department of the U.S. Treasury in the fourth quarter of 2008:
    Tier 1 capital ratio of 10.6 percent
 
    Total risk-based capital ratio of 14.3 percent
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 3

                                                                 
EARNINGS SUMMARY                                                           Table 1  
 
($ in millions, except per-share data)                           Percent     Percent                    
                            Change     Change                    
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year     Percent  
    2008     2008     2007     3Q08     4Q07     2008     2007     Change  
     
Net income
  $ 330     $ 576     $ 942       (42.7 )     (65.0 )   $ 2,946     $ 4,324       (31.9 )
Diluted earnings per common share
    .15       .32       .53       (53.1 )     (71.7 )     1.61       2.43       (33.7 )
 
                                                               
Return on average assets (%)
    .51       .94       1.63                       1.21       1.93          
Return on average common equity (%)
    5.3       10.8       18.3                       13.9       21.3          
Net interest margin (%)
    3.81       3.65       3.51                       3.66       3.47          
Efficiency ratio (%)
    50.6       48.1       55.1                       47.4       49.7          
Tangible efficiency ratio (%) (a)
    48.2       45.8       52.5                       45.1       47.1          
 
                                                               
Dividends declared per common share
  $ .425     $ .425     $ .425                 $ 1.700     $ 1.625       4.6  
Book value per common share (period-end)
    10.47       11.50       11.60       (9.0 )     (9.7 )                        
 
(a)   computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net and intangible amortization.
     U.S. Bancorp reported net income of $330 million for the fourth quarter of 2008, compared with $942 million for the fourth quarter of 2007. Diluted earnings per common share of $.15 in the fourth quarter of 2008 were lower than fourth quarter of 2007 by 71.7 percent, or $.38 per diluted common share. Return on average assets and return on average common equity were .51 percent and 5.3 percent, respectively, for the fourth quarter of 2008, compared with 1.63 percent and 18.3 percent, respectively, for the fourth quarter of 2007. Challenging market conditions continued and had an impact on the fourth quarter of 2008 results. Significant items in the fourth quarter of 2008 results included $253 million of securities losses, primarily impairment charges on securities related to structured investment vehicles. In addition, the Company increased the allowance for credit losses by recording $635 million of provision for credit losses in excess of net charge-offs. In total, significant items reduced earnings per diluted common share by approximately $.34. In the third quarter of 2008, the Company’s results were affected by similar items, including net securities impairments of $411 million, market valuation losses related to the bankruptcy of an investment banking firm and a $250 million provision for credit losses in excess of net charge-offs. In total, those items reduced third quarter of 2008 earnings per diluted common share by approximately $.28.
     U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, “Once again, the Company’s results for the quarter reflected both the strength of our banking franchise and business mix and the challenges facing our industry today, including rising credit costs and market valuation risk. The results were marked by outstanding growth in loans and deposits and an expanded net interest margin, but
(MORE)

 


 

U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 4
tempered by the unfavorable impact of higher credit losses and securities impairments. Fourth quarter’s earnings per diluted common share of $.15 were below both the same quarter of 2007 and the prior quarter of 2008. Although we were able to absorb the increased cost of credit and market-related write-downs, I am disappointed with the overall decline in this quarter’s earnings. I am, however, very proud of the fact that our Company has profitably navigated through this difficult environment, while continuing to build momentum for the future. For the full year 2008 our Company earned $2.9 billion, or $1.61 per diluted common share.
     “As I have said many times over the past year, U.S. Bancorp is “open for business”. The Company’s total average loans outstanding, excluding acquisitions, grew year-over-year by $19.2 billion (12.7 percent) and $5.2 billion (12.4 percent annualized) on a linked quarter basis. Importantly, during the fourth quarter, our business lines originated over $16 billion in new loans to business and consumers. This double-digit growth in average loans, as well as new loan originations, clearly demonstrates that we are “open” and continue to provide our current and newly acquired customers with access to the credit they need. The growth in loans, and an outstanding increase in total average deposits, excluding acquisitions, of $12.0 billion (9.6 percent) year-over-year and $5.8 billion (17.2 percent annualized) over the third quarter of 2008, also demonstrated that our Company is benefiting from the “flight-to-quality”. Coupled with an increase in the net interest margin during the fourth quarter, this balance sheet growth led to a 22.6 percent increase in net interest income year-over-year and a 9.9 percent increase in net interest income over the prior quarter. This growth helped to cushion the impact of higher credit costs, market-related write-downs and the deceleration of growth in some of the fee income categories tied to the economy and equity markets, once more proving the advantage of our diversified business mix.
     “Higher credit costs were a major contributor to the decline in net income this quarter, and the costs were in the middle of the range we communicated last December. Fourth quarter provision for credit losses of $1,267 million, exceeded net charge-offs by $635 million, or 100%. This incremental provision served to strengthen the ratio of allowance to period-end loans (excluding assets covered by the loss agreement with the FDIC) to 2.09 percent at December 31, 2008, from 1.71 percent at September 30, 2008. As expected, nonperforming assets were also higher, ending the quarter at $2,624 million, compared with $1,492 million at September 30, 2008. Included in this increase, however, were $643 million of assets covered by the loss agreements with the FDIC. Without the addition of the covered assets, nonperforming assets grew by $489 million, or 32.8 percent, quarter-over-quarter. Nonperforming assets to loans plus other real estate owned,
(MORE)

 


 

U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 5
excluding covered assets, was 1.14 percent at December 31, 2008, moderately higher than the .88 percent the Company recorded at September 30, 2008. We intend to maintain the strength of our balance sheet throughout this credit cycle and beyond, and will rely on our solid, core operating earnings to absorb the higher, but manageable, credit-related costs that we expect in 2009.
     “On November 3, 2008, we announced our participation in the U.S. Treasury’s Capital Purchase Program, and, subsequently, issued $6.6 billion of preferred stock and related warrants to the U.S. Treasury. As our results and actions this quarter illustrated, we are actively lending to credit-worthy borrowers, we are investing in our businesses, we are supporting our communities and we are backing the efforts of the U.S. Treasury to stabilize the financial markets and increase the flow of credit to both consumers and businesses, all while creating long-term value for our shareholders.
     “Finally, I want to take this opportunity to thank all of our 56,000 employees, which includes our 3,000 new employees in California and Arizona. On January 15th, we held our second annual “all employee meeting”. Over 34,000 employees across our franchise, including Europe, gathered in 70 locations and on conference calls to celebrate their collective hard work, adept decision-making, dedication to our customers and communities, and loyalty to our Company. Our future is brighter because of our employees’ extraordinary efforts, and I look forward to the coming year knowing that our employees are engaged and committed to maintaining and enhancing our position as one of the leaders in the financial services industry.”
     The Company’s net income for the fourth quarter of 2008 decreased by $612 million (65.0 percent) from the same period of 2007 and $246 million (42.7 percent) on a linked quarter basis. The reduction in net income on both a year-over-year and linked quarter basis was principally the result of an increase in the provision for credit losses. Total revenue grew during these periods driven by strong growth in net interest income, offset by securities impairments and lower fee based revenue as consumers and businesses reduced spending.
     Total net revenue on a taxable-equivalent basis for the fourth quarter of 2008 was $3,624 million; $50 million (1.4 percent) higher than the fourth quarter of 2007, reflecting a 22.6 percent increase in net interest income and a 19.2 percent decrease in noninterest income. The increase in net interest income year-over-year (22.6 percent) and on a linked quarter basis (9.9 percent, 39.6 percent annualized) was a result of growth in average earning assets and an increase in net interest margin. Noninterest income declined from a year ago as payment services, trust and investment management fees and deposit service charges were
(MORE)

 


 

U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 6
affected by the impact of the slowing economy on equity valuations and customer behavior. In addition, noninterest income was adversely impacted by securities impairments, market-related valuation losses and retail lease residual losses. Noninterest income on a linked quarter basis increased modestly, as the reduction in securities impairments was offset by lower fee income.
     Total noninterest expense in the fourth quarter of 2008 was $1,960 million; $8 million (.4 percent) lower than the fourth quarter of 2007, and $137 million (7.5 percent) higher than the third quarter of 2008. Total noninterest expense was relatively flat year-over-year because higher costs associated with business initiatives designed to expand the Company’s geographic presence and strengthen customer relationships, including the Mellon 1st Business Bank, Downey Savings and Loan and PFF Bank and Trust acquisitions and investments in relationship managers, branch initiatives, and Payment Services’ businesses, were offset by the favorable variance associated with a $215 million charge recognized in the fourth quarter of 2007 related to the Company’s proportionate share of contingent obligations to indemnify Visa Inc. for certain litigation matters (“Visa Charge”). Operating expense also included higher credit collection costs and incremental costs associated with investments in tax-advantaged projects. The increase on a linked quarter basis was principally the result of acquisitions, seasonally higher expenses for marketing and business development campaigns, higher professional service fees and investments in tax-advantaged projects, as well as increased costs related to foreclosed real estate.
     On November 21, 2008, the Company acquired substantially all of the assets and assumed all of the deposits and most of the liabilities of Downey Savings and Loan and PFF Bank and Trust (“Downey and PFF acquisitions”) from the FDIC. In connection with these acquisitions, the Company entered into loss sharing agreements with the FDIC (“Loss Sharing Agreements”) providing for specified credit loss and asset yield protection for all single family residential mortgages and a significant portion of commercial and commercial real estate loans and foreclosed real estate (“covered assets”). The Company estimated that the covered assets would incur approximately $4.7 billion of cumulative credit losses. These losses will be offset by an estimated $2.4 billion benefit to be received by the Company under the Loss Sharing Agreements. Under the terms of the Loss Sharing Agreements, the Company will incur the first $1.6 billion of specified contractual losses (“First Loss Position”) on covered assets, which was approximately the amount of the predecessors’ net assets. The Company acquired these net assets for a nominal amount of consideration. After the First Loss Position, the Company will incur 20 percent of the next $3.1 billion of specified contractual losses and only 5 percent of specified losses beyond that limit. The Company estimates
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 7
its share of those losses will be approximately $.7 billion. The impact of estimated credit losses on future cash flows from the acquired loan portfolios was included in the determination of the estimated value of the loans at the date of the acquisition.
     As required by existing accounting standards, the Company identified the acquired non-revolving loans experiencing credit deterioration, representing the majority of the assets acquired, and recorded these assets in the financial statements at their estimated fair market value to reflect expected credit losses and the estimated impact of the Loss Sharing Agreements. As a result, the Company will not record additional provision for credit losses or report charge-offs on these loans unless further credit deterioration occurs after the date of acquisition. The Company recorded all other loans at the predecessors’ book value, net of fair value adjustments for any interest-rate related discount or premium, and an allowance for credit losses. In an effort to enhance information related to the Company’s credit quality, the Company’s financial disclosures segregate acquired covered assets from assets not subject to Loss Sharing Agreements.
     The Company’s provision for credit losses considers changes in credit quality of the recorded value for the entire portfolio of loans net of the credit loss protection available under the Loss Sharing Agreements with the FDIC. The provision for credit losses for the fourth quarter of 2008 was $1,267 million, an increase of $519 million over the third quarter of 2008 and $1,042 million over the fourth quarter of 2007. The provision for credit losses exceeded net charge-offs by $635 million in the fourth quarter of 2008 and $250 million in the third quarter of 2008. The increase in the provision for credit losses from a year ago reflects continuing stress in residential real estate markets, driven by declining home prices in most geographic regions. It also reflects deteriorating economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the fourth quarter of 2008 were $632 million, compared with net charge-offs of $498 million in the third quarter of 2008 and $225 million in the fourth quarter of 2007. Given current economic conditions and the continuing decline in home and other collateral values, the Company expects net charge-offs to increase during 2009.
     Nonperforming assets were $2,624 million at December 31, 2008, compared with $1,492 million at September 30, 2008, and $690 million at December 31, 2007. This increase included $643 million of covered assets related to the Downey and PFF acquisitions. The majority of these nonperforming assets were subject to the Loss Sharing Agreements with the FDIC and were recorded at their estimated fair value at the date of acquisition. The remaining increase was driven by continuing stress in residential home construction and related industries, as well as the residential mortgage portfolio, an increase in foreclosed
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 8
properties, and the impact of the economic slowdown on other commercial customers. The ratio of the allowance for credit losses to total loans not subject to loss sharing was 2.09 percent at December 31, 2008, compared with 1.71 percent at September 30, 2008, and 1.47 percent at December 31, 2007. The ratio of the allowance for credit losses to total loans, including loans subject to the FDIC Loss Sharing Agreements, was 1.96 percent at December 31, 2008. The Company anticipates that nonperforming assets will continue to increase during 2009 as deteriorating economic conditions begin to impact most commercial and consumer loan categories.

                                                                 
INCOME STATEMENT HIGHLIGHTS   Table 2  
(Taxable-equivalent basis, $ in millions,                           Percent     Percent                    
except per-share data)
                          Change     Change                    
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year     Percent  
    2008     2008     2007     3Q08     4Q07     2008     2007     Change  
     
Net interest income
  $ 2,161     $ 1,967     $ 1,763       9.9       22.6     $ 7,866     $ 6,764       16.3  
Noninterest income
    1,463       1,412       1,811       3.6       (19.2 )     6,811       7,296       (6.6 )
                                 
Total net revenue
    3,624       3,379       3,574       7.3       1.4       14,677       14,060       4.4  
Noninterest expense
    1,960       1,823       1,968       7.5       (.4 )     7,414       6,986       6.1  
                                 
Income before provision and taxes
    1,664       1,556       1,606       6.9       3.6       7,263       7,074       2.7  
Provision for credit losses
    1,267       748       225       69.4     nm       3,096       792     nm  
                                 
Income before taxes
    397       808       1,381       (50.9 )     (71.3 )     4,167       6,282       (33.7 )
Taxable-equivalent adjustment
    40       34       22       17.6       81.8       134       75       78.7  
Applicable income taxes
    27       198       417       (86.4 )     (93.5 )     1,087       1,883       (42.3 )
                                 
Net income
  $ 330     $ 576     $ 942       (42.7 )     (65.0 )   $ 2,946     $ 4,324       (31.9 )
                                 
Net income applicable to common equity
  $ 260     $ 557     $ 927       (53.3 )     (72.0 )   $ 2,823     $ 4,264       (33.8 )
                                 
Diluted earnings per common share
  $ .15     $ .32     $ .53       (53.1 )     (71.7 )   $ 1.61     $ 2.43       (33.7 )
                                 
Net Interest Income
     Fourth quarter net interest income on a taxable-equivalent basis was $2,161 million, compared with $1,763 million in the fourth quarter of 2007, an increase of $398 million (22.6 percent). The increase was a result of growth in average earning assets, as well as a higher net interest margin than a year ago. Average earning assets for the period increased compared with the fourth quarter of 2007 by $25.7 billion (12.8 percent, 9.4 percent excluding acquisitions), primarily driven by an increase of $25.8 billion (17.0 percent) in average loans. During the fourth quarter of 2008, the net interest margin increased to 3.81 percent compared with 3.51 percent in the fourth quarter of 2007. The net interest margin increased because of growth in average loans at higher credit spreads, asset/liability re-pricing in a declining rate environment,
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 9
wholesale funding mix during a period of significant volatility in short-term funding markets and the benefit of net free funds.
     Net interest income increased $194 million (9.9 percent) over the prior quarter of 2008. This increase was a result of growth in average earning assets of $11.0 billion (5.1 percent, 2.5 percent without the impact of acquisitions) and an increase in the net interest margin from 3.65 percent in the third quarter of 2008 to 3.81 percent in the current quarter.

                                                                 
NET INTEREST INCOME   Table 3  
(Taxable-equivalent basis; $ in millions)                                                      
                            Change     Change                    
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year        
    2008     2008     2007     3Q08     4Q07     2008     2007     Change  
     
Components of net interest income
                                                               
Income on earning assets
  $ 3,195     $ 3,110     $ 3,431     $ 85     $ (236 )   $ 12,630     $ 13,309     $ (679 )
Expense on interest-bearing liabilities
    1,034       1,143       1,668       (109 )     (634 )     4,764       6,545       (1,781 )
     
Net interest income
  $ 2,161     $ 1,967     $ 1,763     $ 194     $ 398     $ 7,866     $ 6,764     $ 1,102  
     
 
                                                               
Average yields and rates paid
                                                               
Earning assets yield
    5.63 %     5.77 %     6.81 %     (.14 )%     (1.18 )%     5.87 %     6.84 %     (.97 )%
Rate paid on interest-bearing liabilities
    2.16       2.45       3.83       (.29 )     (1.67 )     2.58       3.91       (1.33 )
     
Gross interest margin
    3.47 %     3.32 %     2.98 %     .15 %     .49 %     3.29 %     2.93 %     .36 %
     
Net interest margin
    3.81 %     3.65 %     3.51 %     .16 %     .30 %     3.66 %     3.47 %     .19 %
     
 
                                                               
Average balances
                                                               
Investment securities
  $ 41,974     $ 42,548     $ 42,525     $ (574 )   $ (551 )   $ 42,850     $ 41,313     $ 1,537  
Loans
    177,205       166,560       151,451       10,645       25,754       165,552       147,348       18,204  
Earning assets
    225,986       214,973       200,307       11,013       25,679       215,046       194,683       20,363  
Interest-bearing liabilities
    190,856       185,494       172,999       5,362       17,857       184,932       167,196       17,736  
Net free funds (a)
    35,130       29,479       27,308       5,651       7,822       30,114       27,487       2,627  
     
(a)   Represents noninterest-bearing deposits, allowance for loan losses, unrealized gain (loss) on available-for-sale securities, non-earning assets, other noninterest-bearing liabilities and equity.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 10

                                                                 
AVERAGE LOANS   Table 4  
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year     Percent  
    2008     2008     2007     3Q08     4Q07     2008     2007     Change  
     
Commercial
  $ 50,328     $ 48,137     $ 43,649       4.6       15.3     $ 47,903     $ 42,087       13.8  
Lease financing
    6,608       6,436       5,978       2.7       10.5       6,404       5,725       11.9  
                                 
Total commercial
    56,936       54,573       49,627       4.3       14.7       54,307       47,812       13.6  
 
                                                               
Commercial mortgages
    22,967       22,302       19,775       3.0       16.1       21,705       19,650       10.5  
Construction and development
    9,691       9,446       8,983       2.6       7.9       9,405       8,942       5.2  
                                 
Total commercial real estate
    32,658       31,748       28,758       2.9       13.6       31,110       28,592       8.8  
 
                                                               
Residential mortgages
    23,430       23,309       22,670       .5       3.4       23,257       22,085       5.3  
 
                                                               
Credit card
    12,976       12,217       10,621       6.2       22.2       11,954       9,574       24.9  
Retail leasing
    5,062       5,200       6,123       (2.7 )     (17.3 )     5,395       6,512       (17.2 )
Home equity and second mortgages
    18,691       17,858       16,343       4.7       14.4       17,550       15,923       10.2  
Other retail
    22,247       21,655       17,309       2.7       28.5       20,671       16,850       22.7  
                                 
Total retail
    58,976       56,930       50,396       3.6       17.0       55,570       48,859       13.7  
                                 
 
                                                               
Total loans, excluding covered assets
    172,000       166,560       151,451       3.3       13.6       164,244       147,348       11.5  
                                 
 
                                                               
Covered assets
    5,205                 nm     nm       1,308           nm  
                                 
 
                                                               
Total loans
  $ 177,205     $ 166,560     $ 151,451       6.4       17.0     $ 165,552     $ 147,348       12.4  
                                 
     Total average loans, excluding covered assets, for the fourth quarter of 2008 were $172.0 billion; 13.6 percent higher than the fourth quarter of 2007, driven by growth in the majority of loan categories. The increase in total average loans included growth in average total retail loans of $8.6 billion (17.0 percent), total commercial loans of $7.3 billion (14.7 percent), total commercial real estate loans of $3.9 billion (13.6 percent) and residential mortgages of $760 million (3.4 percent). Retail loan growth for the fourth quarter of 2008 over the same quarter of 2007 included a $4.0 billion increase in federally guaranteed student loan balances resulting from a portfolio purchase, from the transfer of loans held for sale to held for investment and from growth in the portfolio. Total average loans, excluding covered assets, for the fourth quarter of 2008 were higher than the third quarter of 2008 by $5.4 billion (3.3 percent). Total commercial loans grew by $2.4 billion (4.3 percent) on a linked quarter basis, driven primarily by increases in corporate banking balances due to both customer account growth and increased line utilization. Total commercial real estate loans increased by $910 million (2.9 percent). Consumer lending continues to experience strong growth in installment products and home equity lines. In addition, credit card balances continue to show solid growth.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 11
     Average covered assets of $5.2 billion consisted of loans and foreclosed real estate acquired in the Downey and PFF acquisitions that were covered under the Loss Sharing Agreements. Approximately 70 percent of covered assets are single family residential mortgages.
     Average investment securities in the fourth quarter of 2008 were $.6 billion (1.3 percent) lower than both the fourth quarter of 2007 and the third quarter of 2008.

                                                                 
AVERAGE DEPOSITS   Table 5  
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year     Percent  
    2008     2008     2007     3Q08     4Q07     2008     2007     Change  
     
Noninterest-bearing deposits
  $ 31,639     $ 28,322     $ 26,869       11.7       17.8     $ 28,739     $ 27,364       5.0  
Interest-bearing savings deposits
                                                               
Interest checking
    29,467       32,304       27,458       (8.8 )     7.3       31,137       26,117       19.2  
Money market savings
    27,009       26,167       25,996       3.2       3.9       26,300       25,332       3.8  
Savings accounts
    7,657       5,531       5,100       38.4       50.1       5,929       5,306       11.7  
                                 
Total of savings deposits
    64,133       64,002       58,554       .2       9.5       63,366       56,755       11.6  
Time certificates of deposit less than $100,000
    15,414       12,669       14,539       21.7       6.0       13,583       14,654       (7.3 )
Time deposits greater than $100,000
    33,283       28,546       25,461       16.6       30.7       30,496       22,302       36.7  
                                 
Total interest-bearing deposits
    112,830       105,217       98,554       7.2       14.5       107,445       93,711       14.7  
                                 
Total deposits
  $ 144,469     $ 133,539     $ 125,423       8.2       15.2     $ 136,184     $ 121,075       12.5  
                                 
     Average total deposits for the fourth quarter of 2008 increased $19.0 billion (15.2 percent) over the fourth quarter of 2007. Without the impact of acquisitions (Mellon 1st Business Bank, Downey and PFF), average total deposits increased $12.0 billion (9.6 percent). Noninterest-bearing deposits increased $4.8 billion (17.8 percent) year-over-year primarily related to Wealth Management & Securities Services, Corporate Banking and the impact of acquisitions. Average total savings deposits increased year-over-year by $5.6 billion (9.5 percent) due to an increase in average savings accounts of $2.6 billion (50.1 percent), primarily in Consumer Banking, a $2.0 billion increase (7.3 percent) in average interest checking balances, primarily the result of higher Consumer Banking balances, broker-dealer and institutional trust balances, and a $1.0 billion increase (3.9 percent) in average money market savings balances driven by higher balances from broker-dealers, Consumer Banking and the impact of acquisitions. Average time certificates of deposit less than $100,000 were higher in the fourth quarter of 2008 than in the fourth quarter of 2007 by $.9 billion (6.0 percent), primarily due to acquisitions. Average time deposits greater than $100,000 increased by $7.8 billion (30.7 percent) over the same period of 2007 as a result of the business lines’ ability to attract larger
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 12
customer deposits given current market conditions and the impact of acquisitions, as well as the Company’s wholesale funding decisions.
     Average total deposits increased $10.9 billion (8.2 percent) over the third quarter of 2008. Without the impact of the Downey and PFF acquisitions, average total deposits increased $5.8 billion (4.3 percent, 17.2 percent annualized). Average noninterest-bearing deposits for the fourth quarter of 2008 increased $3.3 billion (11.7 percent) over the prior quarter of 2008 due primarily to increases in broker-dealer and corporate trust deposits. Total average savings deposits increased modestly by $131 million (.2 percent) from the third quarter of 2008, as a strong increase in average savings accounts balances and an increase in average money market accounts were offset by a decline in average interest checking deposits. The 38.4 percent increase in average savings account balances on a linked quarter basis, and the 50.1 percent increase year-over-year, was principally the result of strong participation in a new savings product offered by Consumer Banking. The increase in average money market savings over the third quarter of 2008 was due primarily to higher broker-dealer and institutional trust balances. The decline in average interest checking deposits was primarily due to lower broker-dealer and institutional trust balances. Average time certificates less than $100,000 increased $2.7 billion (21.7 percent) over the prior quarter due to acquisitions, and average time deposits greater than $100,000 increased by $4.7 billion (16.6 percent) from the prior quarter, reflecting acquisitions and wholesale funding decisions.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 13

                                                                 
NONINTEREST INCOME   Table 6  
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year     Percent  
    2008     2008     2007     3Q08     4Q07     2008     2007     Change  
     
Credit and debit card revenue
  $ 256     $ 269     $ 285       (4.8 )     (10.2 )   $ 1,039     $ 958       8.5  
Corporate payment products revenue
    154       179       166       (14.0 )     (7.2 )     671       638       5.2  
ATM processing services
    95       94       84       1.1       13.1       366       327       11.9  
Merchant processing services
    271       300       281       (9.7 )     (3.6 )     1,151       1,108       3.9  
Trust and investment management fees
    300       329       344       (8.8 )     (12.8 )     1,314       1,339       (1.9 )
Deposit service charges
    260       286       277       (9.1 )     (6.1 )     1,081       1,077       .4  
Treasury management fees
    128       128       117             9.4       517       472       9.5  
Commercial products revenue
    131       132       121       (.8 )     8.3       492       433       13.6  
Mortgage banking revenue
    23       61       48       (62.3 )     (52.1 )     270       259       4.2  
Investment products fees and commissions
    37       37       38             (2.6 )     147       146       .7  
Securities gains (losses), net
    (253 )     (411 )     4       38.4     nm       (978 )     15     nm  
Other
    61       8       46     nm       32.6       741       524       41.4  
                                 
 
                                                               
Total noninterest income
  $ 1,463     $ 1,412     $ 1,811       3.6       (19.2 )   $ 6,811     $ 7,296       (6.6 )
                                 
Noninterest Income
     Fourth quarter noninterest income was $1,463 million; $348 million (19.2 percent) lower than the same quarter of 2007 and $51 million (3.6 percent) higher than the third quarter of 2008. Noninterest income declined from the fourth quarter of 2007, as fee-based revenue in a number of revenue categories was lower as deteriorating economic conditions adversely impacted consumer and business behavior. In addition, total noninterest income was unfavorably impacted by impairment charges related to structured investment securities and other market valuation losses and higher retail lease residual losses from a year ago, partially offset by a $59 million gain related to the Company’s ownership interests in Visa Inc (“Visa Gain”). Credit and debit card revenue, corporate payment products revenue and merchant processing services revenue were lower in the fourth quarter of 2008 than the same period of 2007 by $29 million (10.2 percent), $12 million (7.2 percent) and $10 million (3.6 percent), respectively. All categories were impacted by lower transaction volumes compared with the prior year’s quarter. Trust and investment management fees declined $44 million (12.8 percent) primarily due to the adverse impact of equity market conditions. Deposit service charges decreased $17 million (6.1 percent) year-over-year, primarily due to lower overdraft fees as customer spending declined. Mortgage banking revenue decreased $25 million (52.1 percent) due to an unfavorable net change in the valuation of mortgage servicing rights (“MSRs”) and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Net
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 14
securities gains (losses) were lower than a year ago by $257 million due to the impact of impairment charges primarily related to structured investment securities. ATM processing services increased by $11 million (13.1 percent), due to growth in transaction volumes and business expansion. Treasury management fees increased $11 million (9.4 percent), due primarily to the favorable impact of declining rates on customer earnings credits and account growth. Commercial products revenue increased $10 million (8.3 percent) year-over-year due to higher foreign exchange revenue, letters of credit and other commercial loan fees. Other income increased by $15 million year-over-year, as the Visa Gain and the net change in market valuation losses were partially offset by the adverse impact of higher retail lease residual losses and lower equity investment revenue.
     Noninterest income was higher by $51 million (3.6 percent) in the fourth quarter of 2008 than the third quarter of 2008, reflecting the Visa Gain and the favorable impact of lower securities impairments, partially offset by a decline in fee-based revenue due principally to the ongoing economic slowdown. Other income increased $53 million primarily due to the Visa Gain. Credit and debit card revenue decreased $13 million (4.8 percent), corporate payment products revenue decreased $25 million (14.0 percent), and merchant processing services revenue was lower by $29 million (9.7 percent) all due to lower transaction volumes. Trust and investment management fees were lower by $29 million (8.8 percent) on a linked quarter basis primarily due to the impact of market conditions. Deposit service charges decreased $26 million (9.1 percent) due to a decline in overdraft transactions. Mortgage banking revenue decreased $38 million (62.3 percent) from the third quarter of 2008, due to a decline in the fair value of MSRs net of economic hedging activity and lower production income, partially offset by an increase in servicing revenue.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 15

                                                                 
NONINTEREST EXPENSE Table 7  
($ in millions)                           Percent     Percent                    
                            Change     Change                    
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year     Percent  
    2008     2008     2007     3Q08     4Q07     2008     2007     Change  
     
Compensation
  $ 770     $ 763     $ 690       .9       11.6     $ 3,039     $ 2,640       15.1  
Employee benefits
    124       125       119       (.8 )     4.2       515       494       4.3  
Net occupancy and equipment
    202       199       188       1.5       7.4       781       738       5.8  
Professional services
    73       61       71       19.7       2.8       240       233       3.0  
Marketing and business development
    90       75       69       20.0       30.4       310       260       19.2  
Technology and communications
    156       153       148       2.0       5.4       598       561       6.6  
Postage, printing and supplies
    77       73       73       5.5       5.5       294       283       3.9  
Other intangibles
    93       88       93       5.7             355       376       (5.6 )
Other
    375       286       517       31.1       (27.5 )     1,282       1,401       (8.5 )
                                 
 
                                                               
Total noninterest expense
  $ 1,960     $ 1,823     $ 1,968       7.5       (.4 )   $ 7,414     $ 6,986       6.1  
                                 
Noninterest Expense
     Fourth quarter noninterest expense totaled $1,960 million, a decrease of $8 million (.4 percent) from the same quarter of 2007 and an increase of $137 million (7.5 percent) over the third quarter of 2008. Compensation expense increased $80 million (11.6 percent) over the same period of 2007 due to costs for acquired businesses, growth in ongoing bank operations and other initiatives and the adoption of a new accounting standard in 2008. Under this new accounting standard, compensation expense is no longer deferred for the origination of mortgage loans held for sale. Net occupancy and equipment expense increased $14 million (7.4 percent) over the fourth quarter of 2007, primarily due to acquisitions, as well as branch-based and other business expansion initiatives. Marketing and business development expense increased $21 million (30.4 percent) year-over-year due to the timing of Consumer Banking and retail payment product marketing programs and a national advertising campaign. Technology and communications expense increased $8 million (5.4 percent) year-over-year, primarily due to increased processing volumes and business expansion. These increases were offset by a decrease in other expense of $142 million (27.5 percent), due primarily to the $215 million Visa Charge recognized in the fourth quarter of 2007, partially offset by increased costs for other real estate owned, tax-advantaged projects, acquisitions and litigation.
     Noninterest expense in the fourth quarter of 2008 increased $137 million (7.5 percent) compared with the third quarter of 2008. This increase included costs for acquired businesses. In addition, professional services expense was seasonally higher; $12 million (19.7 percent) on a linked quarter basis.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 16
Marketing and business development expense increased $15 million (20.0 percent) due primarily to the Company’s national advertising campaign and the timing of other product promotional campaigns. Other intangibles expense was higher compared with the third quarter of 2008 due to the Downey and PFF acquisitions. Other expense increased $89 million (31.1 percent) on a linked quarter basis due to increased litigation and other real estate owned-related costs, and the timing of costs related to tax-advantaged projects.
Provision for Income Taxes
     The provision for income taxes for the fourth quarter of 2008 resulted in a tax rate on a taxable-equivalent basis of 16.9 percent (effective tax rate of 7.6 percent) compared with 31.8 percent (effective tax rate of 30.7 percent) in the fourth quarter of 2007 and 28.7 percent (effective tax rate of 25.6 percent) in the third quarter of 2008. The decline in the effective tax rate reflects the marginal impact of the decline in pretax earnings. The Company expects the taxable-equivalent tax rate to be approximately 30 percent in 2009.
Acquired Loans and Other Assets
     Assets acquired in the Downey and PFF acquisitions are substantially covered under Loss Sharing Agreements with the FDIC. In accordance with current accounting standards, the Company identified non-revolving loans with credit deterioration and recorded these assets in the financial statements at their estimated fair market value to reflect expected credit losses and the estimated impact of the Loss Sharing Agreements. For all other acquired loans, the Company recorded the assets at the predecessors’ book value, net of fair value adjustments for any interest-rate related discount or premium, and an allowance for credit losses. The Company recorded foreclosed real estate at estimated fair value. The following table provides an overview of the predecessors’ net asset values of the loans and other real estate acquired from the FDIC (“contract value”), the book value recorded as of December 31, 2008, and the impact on average balances for the fourth quarter of 2008.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 17

                         
DOWNEY AND PFF ACQUISITIONS (a)                   Table 8  
($ in millions)                  
    12/31/08     12/31/08     4Q08 Average  
    Contract Value     Book Value     Book Value  
     
Covered assets
                       
Loans
  $ 13,347     $ 8,794     $ 3,947  
Other real estate
    465       274       150  
     
Subtotal
    13,812       9,068       4,097  
Benefit of loss sharing agreement
          2,382       1,108  
     
Total covered assets
    13,812       11,450       5,205  
Other loans
    825       715       250  
     
                         
Total loans and other real estate acquired
  $ 14,637     $ 12,165     $ 5,455  
     
(a)     preliminary data
                       
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 18

                                         
ALLOWANCE FOR CREDIT LOSSES                                   Table 9  
($ in millions)   4Q     3Q     2Q     1Q     4Q  
    2008     2008     2008     2008     2007  
     
Balance, beginning of period
  $ 2,898     $ 2,648     $ 2,435     $ 2,260     $ 2,260  
 
                                       
Net charge-offs
                                       
Commercial
    108       57       51       39       23  
Lease financing
    31       22       18       16       13  
     
Total commercial
    139       79       69       55       36  
Commercial mortgages
    14       9       6       4       3  
Construction and development
    63       56       12       8       7  
     
Total commercial real estate
    77       65       18       12       10  
 
                                       
Residential mortgages
    84       71       53       26       17  
 
                                       
Credit card
    169       149       139       108       88  
Retail leasing
    11       9       8       7       6  
Home equity and second mortgages
    52       48       48       30       22  
Other retail
    95       77       61       55       46  
     
Total retail
    327       283       256       200       162  
     
Total net charge-offs, excluding covered assets
    627       498       396       293       225  
Covered assets
    5                          
     
Total net charge-offs
    632       498       396       293       225  
Provision for credit losses
    1,267       748       596       485       225  
Acquisitions and other changes
    106             13       (17 )      
     
Balance, end of period
  $ 3,639     $ 2,898     $ 2,648     $ 2,435     $ 2,260  
     
 
                                       
Components
                                       
Allowance for loan losses
  $ 3,514     $ 2,767     $ 2,518     $ 2,251     $ 2,058  
Liability for unfunded credit commitments
    125       131       130       184       202  
     
Total allowance for credit losses
  $ 3,639     $ 2,898     $ 2,648     $ 2,435     $ 2,260  
     
 
                                       
Gross charge-offs
  $ 678     $ 544     $ 439     $ 348     $ 287  
Gross recoveries
  $ 46     $ 46     $ 43     $ 55     $ 62  
 
                                       
Allowance for credit losses as a percentage of
Period-end loans, excluding covered assets
    2.09       1.71       1.60       1.54       1.47  
Nonperforming loans, excluding covered assets
    206       222       273       358       406  
Nonperforming assets, excluding covered assets
    184       194       233       288       328  
Period-end loans
    1.96       1.71       1.60       1.54       1.47  
Nonperforming loans
    151       222       273       358       406  
Nonperforming assets
    139       194       233       288       328  
Credit Quality
     During the fourth quarter of 2008, credit losses and nonperforming assets continued to trend higher. The allowance for credit losses was $3,639 million at December 31, 2008, compared with $2,898 million at September 30, 2008, and $2,260 million at December 31, 2007. As a result of the continued stress in the residential housing markets, homebuilding and related industry sectors, and growth of the loan portfolios, the
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 19
Company has increased the allowance for credit losses by $1,379 million during 2008. The credit stress is reflected in higher delinquencies, nonperforming asset levels and net charge-offs relative to a year ago and the third quarter of 2008. Total net charge-offs in the fourth quarter of 2008 were $632 million, compared with the third quarter of 2008 net charge-offs of $498 million and the fourth quarter of 2007 net charge-offs of $225 million. The increase in total net charge-offs from a year ago was driven by factors affecting the residential housing markets as well as homebuilding and related industries, and credit costs associated with credit card and other consumer loan growth over the past several quarters.
     Commercial and commercial real estate loan net charge-offs increased to $216 million in the fourth quarter of 2008 (.96 percent of average loans outstanding) compared with $144 million (.66 percent of average loans outstanding) in the third quarter of 2008 and $46 million (.23 percent of average loans outstanding) in the fourth quarter of 2007. This increasing trend in commercial and commercial real estate losses reflected continuing stress within the portfolios, especially residential homebuilding and related industry sectors.
     Residential mortgage loan net charge-offs increased to $84 million in the fourth quarter of 2008 (1.43 percent of average loans outstanding) compared with $71 million (1.21 percent of average loans outstanding) in the third quarter of 2008 and $17 million (.30 percent of average loans outstanding) in the fourth quarter of 2007. The increased residential mortgage losses were primarily related to loans originated within the consumer finance division and reflected the impact of rising foreclosures on sub-prime mortgages and current economic conditions.
     Total retail loan net charge-offs were $327 million (2.21 percent of average loans outstanding) in the fourth quarter of 2008 compared with $283 million (1.98 percent of average loans outstanding) in the third quarter of 2008 and $162 million (1.28 percent of average loans outstanding) in the fourth quarter of 2007. The increased retail loan credit losses reflected the Company’s growth in credit card and consumer loan balances, as well as the adverse impact of current economic conditions on consumers. In addition, there were $5 million of net-charge-offs on loans under the Loss Sharing Agreements with the FDIC.
     The ratio of the allowance for credit losses to period-end loans not subject to Loss Sharing Agreements was 2.09 percent (1.96 percent of total period end loans) at December 31, 2008, compared with 1.71 percent at September 30, 2008, and 1.47 percent at December 31, 2007. The ratio of the allowance for credit losses to nonperforming loans was 151 percent (206 percent excluding covered assets) at December 31, 2008, compared with 222 percent at September 30, 2008, and 406 percent at December 31, 2007.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 20

                                         
CREDIT RATIOS                                   Table 10  
(Percent)   4Q     3Q     2Q     1Q     4Q  
    2008     2008     2008     2008     2007  
     
Net charge-offs ratios (a)
                                       
Commercial
    .85       .47       .43       .34       .21  
Lease financing
    1.87       1.36       1.14       1.03       .86  
Total commercial
    .97       .58       .51       .43       .29  
 
                                       
Commercial mortgages
    .24       .16       .11       .08       .06  
Construction and development
    2.59       2.36       .52       .35       .31  
Total commercial real estate
    .94       .81       .24       .16       .14  
 
                                       
Residential mortgages
    1.43       1.21       .91       .46       .30  
 
                                       
Credit card
    5.18       4.85       4.84       3.93       3.29  
Retail leasing
    .86       .69       .58       .49       .39  
Home equity and second mortgages
    1.11       1.07       1.13       .73       .53  
Other retail
    1.70       1.41       1.16       1.25       1.05  
Total retail
    2.21       1.98       1.86       1.58       1.28  
 
                                       
Total net charge-offs, excluding covered assets
    1.45       1.19       .98       .76       .59  
 
                                       
Covered assets
    .38                          
 
                                       
Total net charge-offs
    1.42       1.19       .98       .76       .59  
 
                                       
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans (b)
Commercial
    .13       .11       .09       .09       .07  
Commercial real estate
    .11       .05       .09       .13       .02  
Residential mortgages
    1.55       1.34       1.09       .98       .86  
Retail
    .82       .68       .63       .69       .68  
Total loans, excluding covered assets
    .56       .46       .41       .43       .38  
Covered assets
    5.13                          
Total loans
    .84       .46       .41       .43       .38  
 
Delinquent loan ratios - 90 days or more past due including nonperforming loans (b)
Commercial
    .82       .76       .71       .60       .43  
Commercial real estate
    3.34       2.25       1.57       1.18       1.02  
Residential mortgages
    2.44       2.00       1.55       1.24       1.10  
Retail
    .97       .81       .74       .77       .73  
Total loans, excluding covered assets
    1.57       1.23       1.00       .86       .74  
Covered assets
    10.74                          
Total loans
    2.14       1.23       1.00       .86       .74  
(a)   annualized and calculated on average loan balances
 
(b)   ratios are expressed as a percent of ending loan balances
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 21

                                         
ASSET QUALITY                                   Table 11  
 
($ in millions)                              
    Dec 31     Sep 30     Jun 30     Mar 31     Dec 31  
    2008     2008     2008     2008     2007  
     
Nonperforming loans
                                       
Commercial
  $ 290     $ 280     $ 265     $ 201     $ 128  
Lease financing
    102       85       75       64       53  
     
Total commercial
    392       365       340       265       181  
Commercial mortgages
    294       164       139       102       84  
Construction and development
    780       545       326       212       209  
     
Total commercial real estate
    1,074       709       465       314       293  
Residential mortgages
    210       155       108       59       54  
Retail
    92       74       58       42       29  
     
Total nonperforming loans, excluding covered assets
    1,768       1,303       971       680       557  
 
                                       
Covered assets
    643                          
     
Total nonperforming loans
    2,411       1,303       971       680       557  
 
Other real estate
    190       164       142       141       111  
Other nonperforming assets
    23       25       22       24       22  
     
 
                                       
Total nonperforming assets (a)
  $ 2,624     $ 1,492     $ 1,135     $ 845     $ 690  
     
 
                                       
Accruing loans 90 days or more past due, excluding covered assets
  $ 967     $ 787     $ 687     $ 676     $ 584  
     
 
                                       
Accruing loans 90 days or more past due
  $ 1,554     $ 787     $ 687     $ 676     $ 584  
     
 
                                       
Restructured loans that continue to accrue interest
  $ 1,509     $ 1,180     $ 1,029     $ 695     $ 551  
     
Nonperforming assets to loans plus ORE, excluding covered assets (%)
    1.14       .88       .68       .53       .45  
Nonperforming assets to loans plus ORE (%)
    1.42       .88       .68       .53       .45  
(a)   does not include accruing loans 90 days or more past due or restructured loans that continue to accrue interest
     Nonperforming assets at December 31, 2008, totaled $2,624 million, compared with $1,492 million at September 30, 2008, and $690 million at December 31, 2007. The current period included $643 million of nonperforming covered assets from the Downey and PFF acquisitions. Nonperforming covered assets were primarily related to foreclosed real estate and construction loans. The ratio of nonperforming assets to loans and other real estate was 1.42 percent (1.14 percent excluding covered assets) at December 31, 2008, compared with .88 percent at September 30, 2008, and .45 percent at December 31, 2007. The increase in nonperforming assets from a year ago including the Downey and PFF acquisitions was driven primarily by the residential construction portfolio and related industries, as well as the residential mortgage portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers. The Company expects nonperforming assets to continue to increase due to general economic
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 22
conditions and continuing stress in the residential mortgage portfolio and residential construction industry. Accruing loans 90 days or more past due increased to $1,554 million ($967 million excluding covered assets) at December 31, 2008, compared with $787 million at September 30, 2008, and $584 million at December 31, 2007. The year-over-year increase in delinquent loans that continue to accrue interest was primarily related to residential mortgages, credit cards and home equity loans. Restructured loans that continue to accrue interest have also increased from the fourth quarter of 2007 and the third quarter of 2008, reflecting the impact of restructurings for certain residential mortgage customers in light of current economic conditions. The Company expects this trend to continue in the near term as residential home valuations decline and certain borrowers take advantage of the Company’s mortgage loan restructuring programs.

                                         
CAPITAL POSITION                                   Table 12  
($ in millions)   Dec 31     Sep 30     Jun 30     Mar 31     Dec 31  
    2008     2008     2008     2008     2007  
     
Total shareholders’ equity
  $ 26,300     $ 21,675     $ 21,828     $ 21,572     $ 21,046  
Tier 1 capital
    24,426       18,877       18,624       18,543       17,539  
Total risk-based capital
    32,894       27,403       27,502       27,207       25,925  
 
                                       
Tier 1 capital ratio
    10.6 %     8.5 %     8.5 %     8.6 %     8.3 %
Total risk-based capital ratio
    14.3       12.3       12.5       12.6       12.2  
Leverage ratio
    9.8       8.0       7.9       8.1       7.9  
Common equity to assets
    6.9       8.2       8.2       8.3       8.4  
Tangible common equity to assets
    4.5       5.3       5.2       5.3       5.1  
     On November 14, 2008, the Company issued to the U.S. Department of the Treasury, 6.6 million shares of cumulative perpetual preferred stock and warrants to purchase 32.7 million shares of the Company’s common stock at a price of $30.29 per common share for an aggregate purchase price of $6.6 billion in cash. As a result of this transaction, the Company’s total shareholders’ equity and capital ratios increased during the fourth quarter of 2008. Total shareholders’ equity was $26.3 billion at December 31, 2008, compared with $21.7 billion at September 30, 2008, and $21.0 billion at December 31, 2007. The Tier 1 capital ratio was 10.6 percent at December 31, 2008, compared with 8.5 percent at September 30, 2008, and 8.3 percent at December 31, 2007. The total risk-based capital ratio was 14.3 percent at December 31, 2008, compared with 12.3 percent at September 30, 2008, and 12.2 percent at December 31, 2007. The leverage ratio was 9.8 percent at December 31, 2008, compared with 8.0 percent at September 30, 2008, and 7.9 percent at December 31, 2007. Tangible common equity to assets was 4.5 percent at December 31, 2008,
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 23
compared with 5.3 percent at September 30, 2008, and 5.1 percent at December 31, 2007. The decline in this ratio was principally due to the Downey and PFF acquisitions. All regulatory ratios continue to be in excess of stated “well-capitalized” requirements.

                                         
COMMON SHARES                                   Table 13  
 
(Millions)   4Q     3Q     2Q     1Q     4Q  
    2008     2008     2008     2008     2007  
     
Beginning shares outstanding
    1,754       1,741       1,738       1,728       1,725  
Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes
    1       13       3       12       3  
Shares repurchased
                      (2 )      
 
                             
Ending shares outstanding
    1,755       1,754       1,741       1,738       1,728  
 
                             

                                                                         
LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                                                             Table 14  
($ in millions)                                          
    Net Income     Percent Change                             4Q 2008  
    4Q     3Q     4Q     4Q08 vs     4Q08 vs     Full Year     Full Year     Percent     Earnings  
Business Line   2008     2008     2007     3Q08     4Q07     2008     2007     Change     Composition  
     
Wholesale Banking
  $ 282     $ 235     $ 281       20.0       .4     $ 1,017     $ 1,094       (7.0 )     86 %
Consumer Banking
    209       274       431       (23.7 )     (51.5 )     1,203       1,830       (34.3 )     63  
Wealth Management & Securities Services
    134       116       89       15.5       50.6       541       537       .7       41  
Payment Services
    235       269       314       (12.6 )     (25.2 )     1,068       1,068             71  
Treasury and Corporate Support
    (530 )     (318 )     (173 )     (66.7 )   nm     (883 )     (205 )   nm     (161 )
                                       
 
                                                                       
Consolidated Company
  $ 330     $ 576     $ 942       (42.7 )     (65.0 )   $ 2,946     $ 4,324       (31.9 )     100 %
                                       
(a)   preliminary data
Lines of Business
     Within the Company, financial performance is measured by major lines of business, which include Wholesale Banking, Consumer Banking, Wealth Management & Securities Services, 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
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 24
relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2008, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.
     Wholesale Banking offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, and public sector clients. Wholesale Banking contributed $282 million of the Company’s net income in the fourth quarter of 2008, a .4 percent increase from the same period of 2007 and a 20.0 percent increase from the third quarter of 2008. Stronger net interest income year-over-year and an increase in fee-based revenue were offset by a $125 million increase in the provision for credit losses and an increase in total noninterest expense, driven primarily by the Mellon 1st Business Bank acquisition and other business initiatives. Net interest income increased $154 million year-over-year due to strong growth in average earning assets and deposits. Total noninterest income increased $7 million (3.2 percent) as growth in treasury management, letter of credit, commercial loan and foreign exchange fees was partially offset by lower earnings from equity investments. Total noninterest expense increased by $33 million (13.6 percent) over a year ago, primarily due to higher compensation and employee benefits expense related to the impact of an acquisition and other business initiatives. In addition, there was an increase in expenses related to other real estate owned and higher other intangibles expense. The provision for credit losses increased $125 million due to continued credit deterioration in the homebuilding, commercial home supplier and other commercial portfolios.
     Wholesale Banking’s contribution to net income in the fourth quarter of 2008 was $47 million (20.0 percent) higher than the third quarter of 2008. Strong growth in total net revenue (19.7 percent) was partially offset by modestly higher total noninterest expense (5.3 percent) and a $54 million increase in the provision for credit losses, reflecting higher net charge-offs. Total net revenue was higher on a linked quarter basis due to an increase in both net interest income (25.8 percent) and total noninterest income (5.1 percent). The increase in net interest income was due primarily to growth in average loan balances and a higher net interest margin. Total noninterest income increased on a linked quarter basis due to higher foreign exchange, letter of credit and capital markets revenue and the impact of net securities impairments recorded in the third quarter, partially offset by lower equity investment income, including an investment in
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 25
a commercial real estate business. Total noninterest expense increased $14 million (5.3 percent) due to increased costs related to other real estate owned and higher processing costs. The provision for credit losses increased due to higher net charge-offs.
     Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATM processing. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking and 24-hour banking. Consumer Banking contributed $209 million of the Company’s net income in the fourth quarter of 2008, a 51.5 percent decrease from the same period of 2007 and a 23.7 percent decrease from the prior quarter. Within Consumer Banking, the retail banking division accounted for $205 million of the total contribution, a 50.4 percent decrease on a year-over-year basis and a 16.0 percent decrease from the prior quarter. The decrease in the retail banking division from the same period of 2007 was due to lower total net revenue, growth in total noninterest expense related to incremental business investments, including acquisitions, and an increase in the provision for credit losses. Net interest income for the retail banking division increased year-over-year as increases in average loan balances, average deposit balances and yield-related loan fees were partially offset by a decline in the margin benefit of deposits in a declining interest rate environment. Total noninterest income for the retail banking division decreased 20.0 percent from a year ago due to lower deposit service charges and retail lease revenue related to higher retail lease residual losses, partially offset by growth in revenue from ATM processing services. Total noninterest expense in the fourth quarter of 2008 increased 11.5 percent for the division over the same quarter of 2007, reflecting acquisitions, branch expansion initiatives, geographical promotional activities and customer service initiatives. In addition, the division experienced higher fraud losses and credit-related costs associated with other real estate owned and foreclosures. The provision for credit losses for the retail banking division was higher due to a $172 million year-over-year increase in net charge-offs, reflecting portfolio growth and credit deterioration in residential mortgages, home equity and other installment and consumer loan portfolios. In the fourth quarter of 2008, the mortgage banking division’s contribution was $4 million, a $14 million (77.8 percent) decrease from the same period of 2007. The decrease in the mortgage banking division’s contribution was a result of higher total noninterest expense and provision for credit losses, partially offset by higher total net revenue. The division’s total net revenue increased by $13 million (15.7 percent) over a year ago, reflecting an increase in net interest income and an increase in mortgage servicing income, and the favorable impact of the adoption of a new accounting
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 26
standard in early 2008, partially offset by an unfavorable net change in the valuation of MSRs and related economic hedging activities. As a result of higher rates and increased loan production and balances, net interest income increased $36 million year-over-year. Total noninterest expense for the mortgage banking division increased $25 million (46.3 percent) over the fourth quarter of 2007, primarily due to the impact on compensation expense of the adoption of a new accounting standard, higher production levels from a year ago and servicing costs associated with other real estate owned and foreclosures.
     Consumer Banking’s contribution in the fourth quarter of 2008 decreased $65 million (23.7 percent) compared with the third quarter of 2008. The retail banking division’s contribution decreased 16.0 percent on a linked quarter basis, primarily due to an increase in the provision for credit losses, lower deposit service charges and an increase in total noninterest expense, primarily driven by acquisitions. Total net revenue for the retail banking division increased $40 million (3.0 percent) as higher net interest income was partially offset by lower total noninterest income. Net interest income increased by 8.1 percent on a linked quarter basis due to growth in average loan and deposit balances. The decrease in total noninterest income was driven by lower deposit service charges. Total noninterest expense for the retail banking division increased $48 million (6.5 percent) on a linked quarter basis. This increase was due primarily to the impact of acquisitions on compensation and employee benefits expense, net occupancy and equipment expense and other intangibles expense. The provision for credit losses for the division reflected a $54 million increase in net charge-offs compared with the third quarter of 2008, reflecting higher consumer delinquencies. The contribution of the mortgage banking division decreased $26 million from the third quarter of 2008, driven primarily by lower total net revenue. Total net revenue decreased by 26.7 percent, principally due to an unfavorable net change in the valuation of MSRs and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Total noninterest expense in the mortgage banking division increased modestly by $2 million (2.6 percent) from the third quarter of 2008. In addition, the mortgage banking division’s provision for credit losses increased $3 million on a linked quarter basis.
     Wealth Management & Securities Services provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services. Wealth Management & Securities Services contributed $134 million of the Company’s net income in the fourth quarter of 2008, a 50.6 percent increase compared with the same period of 2007 and a 15.5 percent increase from the third quarter of 2008. Total net revenue year-over-year increased $63 million
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 27
(15.7 percent). Net interest income increased by $25 million (19.2 percent) due primarily to the margin benefit of higher deposit balances, while total noninterest income increased by $38 million (14.0 percent) due primarily to the favorable impact of a $107 million market valuation loss recognized in the fourth quarter of 2007, partially offset by current quarter market valuation losses and the impact of unfavorable equity market conditions compared with a year ago. Total noninterest expense was 3.8 percent lower compared with the same quarter of 2007, reflecting lower compensation and employee benefits expense and other intangibles expense.
     The increase in the business line’s contribution in the fourth quarter of 2008 compared with the linked quarter was the result of higher net interest income and lower total noninterest expense, partially offset by the unfavorable impact of equity market conditions on fees.
     Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services offerings are highly inter-related with banking products and services of the other lines of business and rely on access to the bank subsidiary’s settlement network, lower cost funding available to the Company, cross-selling opportunities and operating efficiencies. Payment Services contributed $235 million of the Company’s net income in the fourth quarter of 2008, a decrease of 25.2 percent from the same period of 2007 and a 12.6 percent decrease from the third quarter of 2008. The decline year-over-year was due primarily to an increase in the provision for credit losses driven by an increase in net charge-offs of $99 million, reflecting credit card portfolio growth, higher delinquency rates and changing economic conditions from a year ago. In addition, total noninterest expense increased $29 million (7.5 percent) year-over-year, primarily due to business expansion and marketing programs. These unfavorable variances were partially offset by an increase in total net revenue year-over-year due to higher net interest income (25.9 percent), partially offset by lower total noninterest income (7.4 percent). Net interest income increased due to strong growth in credit card balances and the timing of asset repricing. During the current quarter, all payment processing revenue categories were impacted by lower transaction volumes due to the economic climate.
     Payment Services’ contribution in the fourth quarter of 2008 decreased $34 million (12.6 percent) from the third quarter of 2008 primarily due to a decline in total net revenue (1.7 percent), an increase in total noninterest expense (3.5 percent) due to the timing of marketing programs and an increase in the provision for credit losses (12.4 percent) due to portfolio growth and changing economic conditions. Total net revenue declined $17 million (1.7 percent) compared with the third quarter of 2008. Net interest income increased
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 28
$46 million (18.7 percent) on a linked quarter basis due to loan growth and higher credit spreads. Total noninterest income declined 8.2 percent as the slowdown in the economy resulted in lower transaction volumes in all categories.
     Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of $530 million in the fourth quarter of 2008, compared with a net loss of $173 million in the fourth quarter of 2007 and a net loss of $318 million in the third quarter of 2008. Net interest income increased $100 million in the current quarter over the fourth quarter of 2007, reflecting the impact of the current rate environment, wholesale funding decisions and the Company’s asset/liability position. Total noninterest income decreased $218 million, primarily reflecting the impairment charges for structured investment securities. Total noninterest expense decreased $166 million primarily due to the Visa Charge recognized in the fourth quarter of 2007. The provision for credit losses increased $634 million reflecting incremental provision related to deterioration in credit quality within the loan portfolios due to stress in the residential real estate markets, including homebuilding and related industries, and the impact of economic conditions on all loan portfolios.
     Net income in the fourth quarter of 2008 was lower on a linked quarter basis due to the increase in the incremental provision for credit losses and higher acquisition and litigation expenses, partially offset by the net favorable impact of the securities impairments.
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.
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 29
RICHARD K. DAVIS, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND ANDREW CECERE, VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS AT 8:00 AM (CT) ON WEDNESDAY, JANUARY 21, 2009. The conference call will be available by telephone or on the Internet. To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 78901067. For those unable to participate during the live call, a recording of the call will be available approximately two hours after the conference call ends on Wednesday, January 21st, and will run through Wednesday, January 28th, at 11:00 PM (CT). To access the recorded message within the United States and Canada, dial 800-642-1687. If calling from outside the United States and Canada, please dial 706-645-9291 to access the recording. The conference ID is 78901067. To access the webcast go to usbank.com and click on “About U.S. Bancorp” and then “Investor/Shareholder Information”. The webcast link can be found under “Webcasts and Presentations”.
Minneapolis-based U.S. Bancorp (“USB”), with $266 billion in assets, is the parent company of U.S. Bank, the 6th largest commercial bank in the United States as of September 30, 2008. The Company operates 2,791 banking offices and 4,897 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at usbank.com.
Forward-Looking Statements
The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including continued deterioration in general business and economic conditions and in the financial markets; changes in interest rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in our investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk. A continuation of the recent turbulence in significant portions of the global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our counterparties and the economy generally. Dramatic declines in the housing market in the past year have resulted in significant write-downs of asset values by financial institutions. Concerns about the stability of the financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction
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U.S. Bancorp Reports Fourth Quarter 2008 Results
January 21, 2009
Page 30
of business activity, and increased market volatility. There can be no assurance that the Emergency Economic Stabilization Act of 2008, the actions taken by the U.S. Treasury Department thereunder, or any other governmental program, will help to stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely impact our business. In addition, our business and financial performance could be impacted as the financial industry restructures in the current environment, by changes in the creditworthiness and performance of our counterparties, by changes in the competitive landscape, and by increased regulation or other adverse effects of recently enacted legislation and FDIC actions.
For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2007, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile,” and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. 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)   2008     2007       2008     2007  
       
Interest Income
                                 
Loans
  $ 2,575     $ 2,730       $ 10,051     $ 10,627  
Loans held for sale
    53       72         227       277  
Investment securities
    477       541         1,984       2,095  
Other interest income
    36       36         156       137  
           
Total interest income
    3,141       3,379         12,418       13,136  
Interest Expense
                                 
Deposits
    392       722         1,881       2,754  
Short-term borrowings
    205       352         1,066       1,433  
Long-term debt
    423       564         1,739       2,260  
           
Total interest expense
    1,020       1,638         4,686       6,447  
           
Net interest income
    2,121       1,741         7,732       6,689  
Provision for credit losses
    1,267       225         3,096       792  
           
Net interest income after provision for credit losses
    854       1,516         4,636       5,897  
Noninterest Income
                                 
Credit and debit card revenue
    256       285         1,039       958  
Corporate payment products revenue
    154       166         671       638  
ATM processing services
    95       84         366       327  
Merchant processing services
    271       281         1,151       1,108  
Trust and investment management fees
    300       344         1,314       1,339  
Deposit service charges
    260       277         1,081       1,077  
Treasury management fees
    128       117         517       472  
Commercial products revenue
    131       121         492       433  
Mortgage banking revenue
    23       48         270       259  
Investment products fees and commissions
    37       38         147       146  
Securities gains (losses), net
    (253 )     4         (978 )     15  
Other
    61       46         741       524  
           
Total noninterest income
    1,463       1,811         6,811       7,296  
Noninterest Expense
                                 
Compensation
    770       690         3,039       2,640  
Employee benefits
    124       119         515       494  
Net occupancy and equipment
    202       188         781       738  
Professional services
    73       71         240       233  
Marketing and business development
    90       69         310       260  
Technology and communications
    156       148         598       561  
Postage, printing and supplies
    77       73         294       283  
Other intangibles
    93       93         355       376  
Other
    375       517         1,282       1,401  
           
Total noninterest expense
    1,960       1,968         7,414       6,986  
           
Income before income taxes
    357       1,359         4,033       6,207  
Applicable income taxes
    27       417         1,087       1,883  
           
Net income
  $ 330     $ 942       $ 2,946     $ 4,324  
           
Net income applicable to common equity
  $ 260     $ 927       $ 2,823     $ 4,264  
           
Earnings per common share
  $ .15     $ .54       $ 1.62     $ 2.46  
Diluted earnings per common share
  $ .15     $ .53       $ 1.61     $ 2.43  
Dividends declared per common share
  $ .425     $ .425       $ 1.700     $ 1.625  
Average common shares outstanding
    1,754       1,726         1,742       1,735  
Average diluted common shares outstanding
    1,764       1,746         1,757       1,758  
       

Page 31


 

U.S. Bancorp
Consolidated Ending Balance Sheet
                 
    December 31,     December 31,  
(Dollars in Millions)   2008     2007  
 
Assets
               
Cash and due from banks
  $ 6,859     $ 8,884  
Investment securities
               
Held-to-maturity
    53       74  
Available-for-sale
    39,468       43,042  
Loans held for sale
    3,210       4,819  
Loans
               
Commercial
    56,618       51,074  
Commercial real estate
    33,213       29,207  
Residential mortgages
    23,580       22,782  
Retail
    60,368       50,764  
     
Total loans, excluding covered assets
    173,779       153,827  
Covered assets
    11,450        
     
Total loans
    185,229       153,827  
Less allowance for loan losses
    (3,514 )     (2,058 )
     
Net loans
    181,715       151,769  
Premises and equipment
    1,790       1,779  
Goodwill
    8,571       7,647  
Other intangible assets
    2,834       3,043  
Other assets
    21,412       16,558  
     
Total assets
  $ 265,912     $ 237,615  
     
 
               
Liabilities and Shareholders’ Equity
               
Deposits
               
Noninterest-bearing
  $ 37,494     $ 33,334  
Interest-bearing
    85,886       72,458  
Time deposits greater than $100,000
    35,970       25,653  
     
Total deposits
    159,350       131,445  
Short-term borrowings
    33,983       32,370  
Long-term debt
    38,359       43,440  
Other liabilities
    7,920       9,314  
     
Total liabilities
    239,612       216,569  
Shareholders’ equity
               
Preferred stock
    7,931       1,000  
Common stock
    20       20  
Capital surplus
    5,830       5,749  
Retained earnings
    22,541       22,693  
Less treasury stock
    (6,659 )     (7,480 )
Other comprehensive income
    (3,363 )     (936 )
     
Total shareholders’ equity
    26,300       21,046  
     
Total liabilities and shareholders’ equity
  $ 265,912     $ 237,615  
 

Page 32

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