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U.S. Bancorp Reports Net Income for the Third Quarter of 2007

MINNEAPOLIS--(BUSINESS WIRE)--Oct. 16, 2007--U.S. Bancorp (NYSE:USB):

EARNINGS SUMMARY                                               Table 1
----------------------------------------------------------------------
($ in millions,
 except per-
 share data)                       Percent Percent
                                    Change  Change
                    3Q    2Q    3Q 3Q07 vs 3Q07 vs   YTD   YTD Percent
                  2007  2007  2006    2Q07    3Q06  2007  2006  Change
                ------------------------------------------------------

Net income      $1,176$1,156$1,203     1.7   (2.2)$3,462$3,557   (2.7)
Diluted
 earnings per
 common share      .67   .65   .66     3.1     1.5  1.94  1.95    (.5)

Return on
 average assets
 (%)              2.09  2.09  2.23                  2.09  2.24
Return on
 average common
 equity (%)       23.3  23.0  23.6                  22.9  23.7
Net interest
 margin (%)       3.44  3.44  3.56                  3.46  3.68
Efficiency
 ratio (%)        46.2  46.8  45.0                  46.3  44.7
Tangible
 efficiency
 ratio (%) (a)    43.6  44.1  42.4                  43.6  42.2

Dividends
 declared per
 common share     $.40  $.40  $.33      --    21.2 $1.20  $.99    21.2
Book value per
 common share
 (period-end)    11.46 11.19 11.30     2.4     1.4

(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 (NYSE:USB) today reported net income of $1,176 million for the third quarter of 2007, compared with $1,203 million for the third quarter of 2006. Diluted earnings per common share of $.67 in the third quarter of 2007 were higher than the same period of 2006 by 1.5 percent, or $.01 per diluted common share. Return on average assets and return on average common equity were 2.09 percent and 23.3 percent, respectively, for the third quarter of 2007, compared with returns of 2.23 percent and 23.6 percent, respectively, for the third quarter of 2006.

U.S. Bancorp President and Chief Executive Officer Richard K. Davis said, "Despite the very challenging economic environment, our Company's earnings remained solid, reflecting our core financial strength and emphasis on creating a business model that provides consistent and sustainable results. Our earnings per diluted common share of $.67 were higher than both the same quarter of 2006 and the prior quarter of 2007 by $.01 and $.02, respectively. Our profitability metrics remain among the best in the industry with return on average assets of 2.09 percent and return on average common equity of 23.3 percent. We were able to return 74 percent of our earnings to common shareholders in the form of dividends and buybacks during the quarter, which brought our year-to-date return of earnings to common shareholders to 117 percent.

"The net interest margin in the third quarter of 3.44 percent was equal to the prior quarter, resulting in an increase in net interest income on both a linked quarter and year-over-year basis. This is an important turning point for us, as a stable net interest margin is a key component of our long-term growth assumptions.

"Once again, our fee-based businesses exhibited excellent momentum year-over-year with Payment Services and Wealth Management and Securities Services recording increases in fee revenue of 11 percent and 9 percent, respectively. In addition, mortgage banking revenue, commercial products revenue and treasury management fees also showed very favorable increases over the third quarter of 2006. Although normal third quarter seasonality resulted in somewhat muted growth in total net revenue over the second quarter of 2007, we were able to achieve positive operating leverage on a linked quarter basis.

"Our credit quality statistics, once again, demonstrated our prudent approach to risk management. Net charge-offs were .54 percent of average loans outstanding, compared with .53 percent in the previous quarter. As expected, total nonperforming assets did increase, reflecting stress in the mortgage banking and homebuilding industries. Looking ahead, we would expect that the continuing pressures felt by both businesses and consumers related to the residential mortgage and homebuilding industries will lead to somewhat higher net charge-offs and nonperforming assets. These increases should, however, be very manageable for our Company.

"Going forward, we will continue to capitalize on our core financial strength, including our profitability, efficiency, prudent credit culture, capital management and customer service, while selectively investing for growth in our businesses. We are not immune to the challenges presented to us by the current environment, but our results for the quarter and year-to-date support my belief that our Company is well-positioned to produce a consistent, predictable and repeatable earnings stream for the benefit of our customers, communities, employees and shareholders."

The Company's net income for the third quarter of 2007 declined from the same period of 2006 as strong fee-based revenue growth in Payment Services and Wealth Management and Securities Services was offset by higher operating expenses and an expected increase in credit costs. In addition, the third quarter of 2006 included a $32 million gain on the sale of equity interests in a card association. Diluted earnings per common share increased year-over-year by $.01 (1.5 percent). On a linked quarter basis, net income increased $20 million, or $.02 per diluted common share, reflecting growth in net interest income and credit card and payment processing revenue and lower noninterest expense, partially offset by seasonally lower treasury management and trust and investment management fees and somewhat higher credit costs.

Total net revenue on a taxable-equivalent basis for the third quarter of 2007 was $3,529 million, $108 million (3.2 percent) higher than the third quarter of 2006, primarily reflecting a 5.5 percent increase in noninterest income. Net interest income also increased slightly from a year ago driven by growth in earning assets. Noninterest income growth was driven primarily by organic business growth in fee-based revenue. This growth in noninterest income was muted somewhat by adverse market conditions experienced during the third quarter of 2007. These market factors reduced trading and other revenue by approximately $21 million from a year ago. Additionally, the third quarter of 2006 included a $32 million gain from the sale of equity interests in a card association. On a linked quarter basis, total net revenue increased $24 million (.7 percent) due to growth in net interest income and credit card and payment processing revenues offset by seasonally lower treasury management and trust and investment management fees and the adverse impact of market conditions in the third quarter of 2007.

Total noninterest expense in the third quarter of 2007 was $1,628 million, $90 million (5.9 percent) higher than the third quarter of 2006, principally due to higher operating costs from investments in personnel, branches, customer service initiatives, marketing, business integration costs related to acquisitions, costs related to tax-advantaged investments and an increase in credit-related costs for other real estate owned and collection activities. On a linked quarter basis, total noninterest expense decreased by $12 million (.7 percent) primarily due to a reduction in incentives and seasonally lower employee benefits expense and lower operating costs related to merchant airline processing.

Provision for credit losses for the third quarter of 2007 was $199 million, an increase of $8 million (4.2 percent) from the second quarter of 2007 and $64 million higher than the third quarter of 2006. The increase in the provision for credit losses from a year ago reflected growth in credit card accounts and higher commercial loan losses at this stage of the business cycle. In addition, the provision for credit losses in the third quarter of 2006 partially reflected the favorable residual impact on net charge-offs, principally for credit cards and other retail charge-offs, resulting from changes in bankruptcy laws in the fourth quarter of 2005. Net charge-offs in the third quarter of 2007 were $199 million, compared with the second quarter of 2007 net charge-offs of $191 million and the third quarter of 2006 net charge-offs of $135 million. Nonperforming assets increased $76 million (13.5 percent) during the third quarter of 2007. This increase reflected stress in the mortgage lending and homebuilding industries and was primarily due to two mortgage banking customers that declared bankruptcy during the quarter and continued stress in construction lending. Total nonperforming assets were $641 million at September 30, 2007, compared with $565 million at June 30, 2007, and $575 million at September 30, 2006. The ratio of the allowance for credit losses to nonperforming loans was 441 percent at September 30, 2007, compared with 503 percent at June 30, 2007, and 476 percent at September 30, 2006.

INCOME STATEMENT                                               Table 2
 HIGHLIGHTS
----------------------------------------------------------------------
(Taxable-
 equivalent
 basis, $
 in
 millions,
 except
 per-share                       Percent Percent
 data)                            Change  Change
                3Q     2Q     3Q 3Q07 vs 3Q07 vs    YTD    YTD Percent
              2007   2007   2006    2Q07    3Q06   2007   2006  Change
            ----------------------------------------------------------

Net
 interest
 income     $1,685 $1,650 $1,673     2.1      .7 $5,001 $5,095  (1.8)
Noninterest
 income      1,844  1,855  1,748    (.6)     5.5  5,395  5,117   5.4
            --------------------                 -------------
   Total
    net
    revenue  3,529  3,505  3,421      .7     3.2 10,396 10,212   1.8
Noninterest
 expense     1,628  1,640  1,538    (.7)     5.9  4,813  4,568   5.4
            --------------------                 -------------
Income
 before
 provision
 and taxes   1,901  1,865  1,883     1.9     1.0  5,583  5,644  (1.1)
Provision
 for credit
 losses        199    191    135     4.2    47.4    567    375  51.2
            --------------------                 -------------
Income
 before
 taxes       1,702  1,674  1,748     1.7   (2.6)  5,016  5,269  (4.8)
Taxable-
 equivalent
 adjustment     18     18     13      --    38.5     53     34  55.9
Applicable
 income
 taxes         508    500    532     1.6   (4.5)  1,501  1,678 (10.5)
            --------------------                 -------------
Net income  $1,176 $1,156 $1,203     1.7   (2.2) $3,462 $3,557  (2.7)
            --------------------                 -------------
Net income
 applicable
 to common
 equity     $1,161 $1,141 $1,187     1.8   (2.2) $3,417 $3,524  (3.0)
            --------------------                 -------------
Diluted
 earnings
 per common
 share        $.67   $.65   $.66     3.1     1.5  $1.94  $1.95   (.5)
            --------------------                 -------------

Net Interest Income

Third quarter net interest income on a taxable-equivalent basis was $1,685 million, compared with $1,673 million in the third quarter of 2006, an increase of $12 million from a year ago. Average earning assets for the period increased over the third quarter of 2006 by $7.7 billion (4.1 percent), primarily driven by an increase of $6.0 billion (4.3 percent) in average loans. The positive impact to net interest income from the growth in earning assets was partially offset by a lower net interest margin. The net interest margin in the third quarter of 2007 was 3.44 percent, compared with 3.56 percent in the third quarter of 2006, reflecting the competitive environment and the impact of a flat yield curve during the past several quarters. Since the third quarter of 2006, credit spreads have tightened by approximately 5 basis points across most lending products due to competitive loan pricing. In addition, funding costs have increased as rates paid on interest-bearing deposits have risen and the Company's funding mix continues to shift toward higher cost deposits and other funding sources. Net interest margin was also impacted by a decline in net free funds due to a decline in noninterest-bearing deposits, investment in bank-owned life insurance, share repurchases and the impact of acquisitions. An increase in loan fees from a year ago partially offset these factors.

Net interest income in the third quarter of 2007 increased from the second quarter of 2007 by $35 million (2.1 percent). Net interest income increased due to average earning assets growth of $2.6 billion while the net interest margin remained unchanged from the second quarter of 2007, at 3.44 percent. As expected, the tightening of credit spreads and changes in the deposit and other funding mix have moderated. Additionally, market expectations regarding interest rates have changed somewhat in light of recent liquidity disruptions in the capital markets and the Federal Reserve Bank's decrease in short-term interest rates. Considering these factors, the Company continues to expect that the net interest margin will remain relatively stable throughout the remainder of the year consistent with previous management guidance.

NET INTEREST INCOME                                            Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in millions)
                                                               Change
                                           3Q      2Q      3Q 3Q07 vs
                                         2007    2007    2006    2Q07
                                     ---------------------------------
Components of net interest income
  Income on earning assets            $3,379  $3,276  $3,175    $103
  Expense on interest-bearing
   liabilities                         1,694   1,626   1,502      68
                                     ---------------------------------
Net interest income                   $1,685  $1,650  $1,673     $35
                                     ---------------------------------

Average yields and rates paid
  Earning assets yield                  6.90%   6.83%   6.74%    .07%
  Rate paid on interest-bearing
   liabilities                          4.01    3.95    3.79     .06
                                     ---------------------------------
Gross interest margin                   2.89%   2.88%   2.95%    .01%
                                     ---------------------------------
Net interest margin                     3.44%   3.44%   3.56%     --%
                                     ---------------------------------

Average balances
  Investment securities              $41,128 $40,704 $39,806    $424
  Loans                              147,517 145,653 141,491   1,864
  Earning assets                     194,886 192,301 187,190   2,585
  Interest-bearing liabilities       167,805 165,177 157,248   2,628
  Net free funds (a)                  27,081  27,124  29,942     (43)

(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.

NET INTEREST INCOME                                            Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in
 millions)
                                        Change
                                       3Q07 vs     YTD     YTD
                                          3Q06    2007    2006  Change
                                     ---------------------------------
Components of net interest income
  Income on earning assets              $204   $9,878  $9,115   $763
  Expense on interest-bearing
   liabilities                           192    4,877   4,020    857
                                     ---------------------------------
Net interest income                      $12   $5,001  $5,095   $(94)
                                     ---------------------------------

Average yields and rates paid
  Earning assets yield                   .16%    6.85%   6.58%   .27%
  Rate paid on interest-bearing
   liabilities                           .22     3.95    3.45    .50
                                     ---------------------------------
Gross interest margin                   (.06)%   2.90%   3.13%  (.23)%
                                     ---------------------------------
Net interest margin                     (.12)%   3.46%   3.68%  (.22)%
                                     ---------------------------------

Average balances
  Investment securities               $1,322  $40,904 $39,858 $1,046
  Loans                                6,026  145,965 139,561  6,404
  Earning assets                       7,696  192,788 185,075  7,713
  Interest-bearing liabilities        10,557  165,240 155,650  9,590
  Net free funds (a)                  (2,861)  27,548  29,425 (1,877)

(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.
AVERAGE LOANS                                                  Table 4
----------------------------------------------------------------------
($ in millions)                                               Percent
                                                               Change
                                         3Q       2Q       3Q 3Q07 vs
                                       2007     2007     2006    2Q07
                                   -----------------------------------

Commercial                          $41,648  $41,572  $40,781     .2
Lease financing                       5,742    5,625    5,287    2.1
                                   --------------------------
      Total commercial               47,390   47,197   46,068     .4

Commercial mortgages                 19,592   19,562   19,941     .2
Construction and development          8,870    8,941    8,760    (.8)
                                   --------------------------
      Total commercial real estate   28,462   28,503   28,701    (.1)

Residential mortgages                22,258   21,831   21,118    2.0

Credit card                           9,895    9,120    7,800    8.5
Retail leasing                        6,424    6,662    7,069   (3.6)
Home equity and second mortgages     16,048   15,735   15,166    2.0
Other retail                         17,040   16,605   15,569    2.6
                                   --------------------------
      Total retail                   49,407   48,122   45,604    2.7
                                   --------------------------

                                   --------------------------
Total loans                        $147,517 $145,653 $141,491    1.3
                                   --------------------------

AVERAGE LOANS                                                  Table 4
----------------------------------------------------------------------
($ in millions)                       Percent
                                       Change
                                      3Q07 vs     YTD      YTD Percent
                                         3Q06    2007     2006  Change
                                     ---------------------------------

Commercial                               2.1  $41,560  $39,840    4.3
Lease financing                          8.6    5,640    5,189    8.7
                                             -----------------
      Total commercial                   2.9   47,200   45,029    4.8

Commercial mortgages                    (1.8)  19,608   20,133   (2.6)
Construction and development             1.3    8,928    8,571    4.2
                                             -----------------
      Total commercial real estate       (.8)  28,536   28,704    (.6)

Residential mortgages                    5.4   21,888   20,992    4.3

Credit card                             26.9    9,221    7,429   24.1
Retail leasing                          (9.1)   6,643    7,144   (7.0)
Home equity and second mortgages         5.8   15,781   15,047    4.9
Other retail                             9.4   16,696   15,216    9.7
                                             -----------------
      Total retail                       8.3   48,341   44,836    7.8
                                             -----------------

                                             -----------------
Total loans                              4.3 $145,965 $139,561    4.6
                                             -----------------

Average loans for the third quarter of 2007 were $6.0 billion (4.3 percent) higher than the third quarter of 2006, driven by growth in average total retail loans of $3.8 billion (8.3 percent), total commercial loans of $1.3 billion (2.9 percent), and residential mortgages of $1.1 billion (5.4 percent), partially offset by a decline in total commercial real estate loans of $239 million (.8 percent). Average loans for the third quarter of 2007 were higher than the second quarter of 2007 by $1.9 billion (1.3 percent), primarily reflecting growth in residential mortgages and total retail loans, driven by growth in average credit card balances and installment loans. Total commercial loans also grew modestly in the third quarter of 2007 compared with the second quarter of 2007. Total commercial real estate loans declined slightly from the second quarter of 2007, reflecting customer refinancing, a management decision to reduce condominium construction financing in selected markets and a slowdown in residential homebuilding impacting construction lending.

Average investment securities in the third quarter of 2007 were $1.3 billion (3.3 percent) higher than the third quarter of 2006 driven primarily by an increase in the municipal securities portfolio, partially offset by a reduction in mortgage-backed assets.

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)                                               Percent
                                                               Change
                                         3Q       2Q       3Q 3Q07 vs
                                       2007     2007     2006    2Q07
                                   -----------------------------------

Noninterest-bearing deposits        $26,947  $27,977  $28,220   (3.7)
Interest-bearing deposits
   Interest checking                 26,052   25,858   23,595     .8
   Money market savings              25,018   24,603   26,116    1.7
   Savings accounts                   5,283    5,443    5,598   (2.9)
                                   --------------------------
         Total savings deposits      56,353   55,904   55,309     .8
   Time certificates of deposit
    less than $100,000               14,590   14,716   13,867    (.9)
   Time deposits greater than
    $100,000                         21,255   20,378   22,579    4.3
                                   --------------------------
         Total interest-bearing
          deposits                   92,198   90,998   91,755    1.3
                                   --------------------------
Total deposits                     $119,145 $118,975 $119,975     .1
                                   --------------------------

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)                      Percent
                                      Change
                                     3Q07 vs      YTD      YTD Percent
                                        3Q06     2007     2006  Change
                                    ----------------------------------

Noninterest-bearing deposits           (4.5)  $27,531  $28,666   (4.0)
Interest-bearing deposits
   Interest checking                   10.4    25,666   23,358    9.9
   Money market savings                (4.2)   25,108   26,820   (6.4)
   Savings accounts                    (5.6)    5,375    5,669   (5.2)
                                             -----------------
         Total savings deposits         1.9    56,149   55,847     .5
   Time certificates of deposit less
    than $100,000                       5.2    14,693   13,688    7.3
   Time deposits greater than
    $100,000                           (5.9)   21,237   22,255   (4.6)
                                             -----------------
         Total interest-bearing
          deposits                       .5    92,079   91,790     .3
                                             -----------------
Total deposits                          (.7) $119,610 $120,456    (.7)
                                             -----------------

Average noninterest-bearing deposits for the third quarter of 2007 decreased $1.3 billion (4.5 percent) compared with the third quarter of 2006, reflecting a decline in business demand deposits within most business lines as customers utilized deposit balances to fund business growth and meet other liquidity requirements.

Average total savings deposits increased year-over-year by $1.0 billion (1.9 percent) as a $2.5 billion increase (10.4 percent) in interest checking balances due to higher broker dealer, government and institutional trust balances was partially offset by a decline of $1.4 billion (4.5 percent) in average money market and savings balances, primarily within Consumer Banking. The overall decrease in average money market and savings balances year-over-year was principally the result of the Company's deposit pricing decisions for money market products in relation to other fixed-rate deposit products offered. A portion of branch-based money market savings accounts have migrated to fixed-rate time certificates to take advantage of higher interest rates for these products.

Average time certificates of deposit less than $100,000 were higher in the third quarter of 2007 than in the third quarter of 2006 by $723 million (5.2 percent) and time deposits greater than $100,000 declined by $1.3 billion (5.9 percent) over the same period, reflecting Company funding decisions. The year-over-year growth in time certificates less than $100,000 was due to consumer-based time deposits, reflecting customer migration to higher rate deposit products.

Average noninterest-bearing deposits for the third quarter of 2007 decreased $1.0 billion (3.7 percent) compared with the second quarter of 2007, primarily due to a seasonal decrease in government banking demand deposits. Total average savings deposits had a slight increase of $449 million (.8 percent) from the second quarter of 2007. Average time deposits greater than $100,000 increased $877 million (4.3 percent) from the prior quarter. This change in average time deposits greater than $100,000 was primarily in government deposits.

NONINTEREST                                                   Table 6
 INCOME
----------------------------------------------------------------------
($ in millions)                   Percent Percent
                                   Change  Change
                   3Q    2Q    3Q 3Q07 vs 3Q07 vs    YTD   YTDPercent
                 2007  2007  2006    2Q07    3Q06   2007  2006 Change
               -------------------------------------------------------

Credit and
 debit card
 revenue         $235  $228  $206     3.1    14.1   $668  $590   13.2
Corporate
 payment
 products
 revenue          164   157   150     4.5     9.3    466   416   12.0
ATM processing
 services          62    62    63      --    (1.6)   183   183     --
Merchant
 processing
 services         287   285   253      .7    13.4    822   719   14.3
Trust and
 investment
 management
 fees             331   342   305    (3.2)    8.5    995   916    8.6
Deposit
 service
 charges          271   272   268     (.4)    1.1    786   764    2.9
Treasury
 management
 fees             118   126   111    (6.3)    6.3    355   334    6.3
Commercial
 products
 revenue          107   105   100     1.9     7.0    312   311     .3
Mortgage
 banking
 revenue           76    68    68    11.8    11.8    211   167   26.3
Investment
 products fees
 and
 commissions       36    38    34    (5.3)    5.9    108   114   (5.3)
Securities
 gains
 (losses), net      7     3    --      nm      nm     11     3     nm
Other             150   169   190   (11.2)  (21.1)   478   600  (20.3)
               ------------------                 ------------

Total
 noninterest
 income        $1,844$1,855$1,748     (.6)    5.5 $5,395$5,117    5.4
               ------------------                 ------------

Noninterest Income

Third quarter noninterest income was $1,844 million, an increase of $96 million (5.5 percent) from the same quarter of 2006 and $11 million (.6 percent) lower than the second quarter of 2007. The increase in noninterest income over the third quarter of 2006 was driven by strong organic fee-based revenue growth, offset somewhat by market conditions in the third quarter of 2007 adversely impacting valuations for certain trading securities and loans held for sale within a commercial real estate joint venture. Additionally, the third quarter of 2006 included a $32 million gain on the sale of equity interests in a card association.

Credit and debit card revenue and corporate payment products revenue were higher in the third quarter of 2007 than the third quarter of 2006 by $29 million (14.1 percent) and $14 million (9.3 percent), respectively. The strong growth in credit and debit card revenue was primarily driven by an increase in customer accounts and higher customer transaction volumes from a year ago. The corporate payment products revenue growth reflected organic growth in sales volumes and card usage and an acquired business. Merchant processing services revenue was higher in the third quarter of 2007 than the same quarter a year ago by $34 million (13.4 percent), primarily reflecting an increase in customers and sales volumes. Trust and investment management fees increased $26 million (8.5 percent) year-over-year due to core account growth and favorable market conditions. Deposit service charges grew modestly year-over-year by $3 million (1.1 percent) driven by increased transaction-related fees and the impact of continued growth in net new checking accounts. Additionally, deposit account-related revenue, traditionally reflected in this fee category, continued to migrate to yield-related loan fees as customers utilize new consumer products. Treasury management fees increased $7 million (6.3 percent) due to higher customer transaction volumes, account growth and pricing enhancements. Commercial products revenue increased $7 million (7.0 percent) year-over-year due to higher foreign exchange and syndication fees and commercial leasing revenue. Mortgage banking revenue increased $8 million (11.8 percent) due to an increase in mortgage servicing income and production gains partially offset by a change in the valuation of mortgage servicing rights ("MSRs") and related economic hedging activities. These favorable changes in fee-based revenue were partially offset by a decline in other income of $40 million (21.1 percent) compared with the third quarter of 2006. The reduction in other income reflected the $32 gain recognized in the third quarter of 2006 related to the sale of equity interests in a card association. The decline in other revenue also included market valuation losses of approximately $21 million, partially offset by an increase in revenue from investment in bank-owned life insurance programs. The third quarter of 2007 also included $7 million of net securities gains.

Noninterest income was lower by $11 million (.6 percent) in the third quarter of 2007 compared with the second quarter of 2007. Trust and investment management fees and treasury management fees declined from the second quarter of 2007 by $11 million (3.2 percent) and $8 million (6.3 percent) respectively, due to seasonally higher tax filing fees and tax receipt processing volumes in the second quarter of 2007. In addition, other revenue declined by $19 million on a linked quarter basis, due primarily to capital markets conditions in the third quarter that resulted in valuation losses on certain trading securities and loans held for sale within a commercial real estate joint venture. Credit and debit card revenue increased $7 million (3.1 percent) due primarily to higher cash advance and other transactions fees. Corporate payment products revenue increased $7 million (4.5 percent), primarily reflecting seasonally higher sales volumes. Mortgage banking revenue increased $8 million (11.8 percent) as lower production gains were more than offset by a favorable change in the valuation of MSRs and related economic hedging activities. In addition, net securities gains increased $4 million on a linked quarter basis.

NONINTEREST EXPENSE                                            Table 7
----------------------------------------------------------------------
($ in millions)                    Percent Percent
                                    Change  Change
                    3Q    2Q    3Q 3Q07 vs 3Q07 vs   YTD   YTD Percent
                  2007  2007  2006    2Q07    3Q06  2007  2006  Change
                ------------------------------------------------------

Compensation      $656  $659  $632    (.5)  3.8   $1,950$1,892    3.1
Employee
 benefits          119   123   123   (3.3) (3.3)     375   379   (1.1)
Net occupancy
 and equipment     175   171   168    2.3   4.2      511   494    3.4
Professional
 services           56    59    54   (5.1)  3.7      162   130   24.6
Marketing and
 business
 development        66    64    58    3.1  13.8      178   156   14.1
Technology
 and
 communications    127   126   128     .8   (.8)     378   372    1.6
Postage,
 printing and
 supplies           70    71    66   (1.4)  6.1      210   198    6.1
Other
 intangibles        94    95    89   (1.1)  5.6      283   263    7.6
Debt prepayment     --    --    --     --    --       --    11      nm
Other              265   272   220   (2.6) 20.5      766   673   13.8
                ------------------                ------------

Total
 noninterest
 expense        $1,628$1,640$1,538    (.7)  5.9   $4,813$4,568    5.4
                ------------------                ------------

Noninterest Expense

Third quarter noninterest expense totaled $1,628 million, an increase of $90 million (5.9 percent) from the same quarter of 2006 and a decrease of $12 million (.7 percent) compared with the second quarter of 2007. Compensation expense increased $24 million (3.8 percent) compared with the same period of 2006 due to growth in ongoing bank operations and acquired businesses. Net occupancy and equipment expense increased $7 million (4.2 percent) from the third quarter of 2006 primarily due to acquisitions and branch-based business initiatives. Marketing and business development expense increased $8 million (13.8 percent) year-over-year due to the timing of customer promotions, solicitations and advertising activities. Postage, printing and supplies expense increased $4 million (6.1 percent) from the third quarter of 2006 due primarily to changes in postage rates. The increase in other intangibles expense of $5 million (5.6 percent) from the same period of 2006 reflected the impact of recent acquisitions in Consumer Banking, Wealth Management and Securities Services and Payment Services. Other expense increased $45 million (20.5 percent) compared with the prior year, due to costs related to affordable housing and other tax-advantaged investments, an increase in merchant processing expenses driven by transaction volumes, integration expenses related to recent acquisitions and higher credit-related costs for other real estate owned and loan collection activities.

Noninterest expense in the third quarter of 2007 was lower than the second quarter of 2007 by $12 million (.7 percent), primarily due to seasonal changes in employee benefits expense, lower incentives and lower business integration costs. These increases were partially offset by higher net occupancy and equipment expense driven by business investments and seasonally higher utilities expense.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2007 resulted in a tax rate on a taxable equivalent basis of 30.9 percent (effective tax rate of 30.2 percent) compared with 31.2 percent (effective tax rate of 30.7 percent) in the third quarter of 2006 and 30.9 percent (effective tax rate of 30.2 percent) in the second quarter of 2007. The reduction in the tax rate from the same quarter of the prior year primarily reflected investments in tax-exempt municipal securities and bank-owned life insurance, as well as incremental tax credits from affordable housing projects and other tax-advantaged investments.

ALLOWANCE FOR CREDIT LOSSES                                    Table 8
----------------------------------------------------------------------
($ in millions)                         3Q     2Q     1Q     4Q     3Q
                                      2007   2007   2007   2006   2006
                                    ----------------------------------

Balance, beginning of period        $2,260 $2,260 $2,256 $2,256 $2,251

Net charge-offs
  Commercial                            26     21     32     24     18
  Lease financing                       11      8      3      7      3
                                    ----------------------------------
       Total commercial                 37     29     35     31     21
  Commercial mortgages                   1      7      1      2     --
  Construction and development           1      2     --     --     --
                                    ----------------------------------
      Total commercial real estate       2      9      1      2     --

  Residential mortgages                 17     15     12     12     11

  Credit card                           77     81     74     68     56
  Retail leasing                         3      4      3      4      4
  Home equity and second mortgages      20     16     16     13     12
  Other retail                          43     37     36     39     31
                                    ----------------------------------
       Total retail                    143    138    129    124    103
                                    ----------------------------------
          Total net charge-offs        199    191    177    169    135
Provision for credit losses            199    191    177    169    135
Acquisitions and other changes          --     --      4     --      5
                                    ----------------------------------
Balance, end of period              $2,260 $2,260 $2,260 $2,256 $2,256
                                    ----------------------------------

Components
 Allowance for loan losses          $2,041 $2,028 $2,027 $2,022 $2,034
 Liability for unfunded credit
  commitments                          219    232    233    234    222
                                    ----------------------------------
          Total allowance for credit
           losses                   $2,260 $2,260 $2,260 $2,256 $2,256
                                    ----------------------------------

Gross charge-offs                     $256   $252   $237   $217   $195
Gross recoveries                       $57    $61    $60    $48    $60

Allowance for credit losses as a
 percentage of
 Period-end loans                     1.52   1.55   1.56   1.57   1.58
 Nonperforming loans                   441    503    498    480    476
 Nonperforming assets                  353    400    388    384    392

Credit Quality

The overall credit quality of the Company continued to be strong during the third quarter of 2007. The allowance for credit losses was $2,260 million at September 30, 2007, and at June 30, 2007, and was $2,256 million at September 30, 2006. The ratio of the allowance for credit losses to period-end loans was 1.52 percent at September 30, 2007, compared with 1.55 percent at June 30, 2007, and 1.58 percent at September 30, 2006. The ratio of the allowance for credit losses to nonperforming loans was 441 percent at September 30, 2007, compared with 503 percent at June 30, 2007, and 476 percent at September 30, 2006. Total net charge-offs in the third quarter of 2007 were $199 million, compared with the second quarter of 2007 net charge-offs of $191 million and the third quarter of 2006 net charge-offs of $135 million. The increase in total net charge-offs from a year ago was due primarily to an anticipated increase in consumer charge-offs, primarily related to credit cards, and somewhat higher commercial loan net charge-offs. Bankruptcy levels declined substantially in 2006 as a result of changes in bankruptcy legislation that went into effect in late 2005.

Commercial and commercial real estate loan net charge-offs increased modestly to $39 million in the third quarter of 2007 (.20 percent of average loans outstanding) compared with $38 million (.20 percent of average loans outstanding) in the second quarter of 2007 and $21 million (.11 percent of average loans outstanding) in the third quarter of 2006. Given the continuing stress in the homebuilding industry, the Company expects commercial and commercial real estate net charge-offs to continue to increase moderately over the next several quarters.

Retail loan net charge-offs were $143 million in the third quarter of 2007 compared with $138 million in the second quarter of 2007 and $103 million in the third quarter of 2006. The increase in retail loan net charge-offs is a reflection of the 8.3 percent growth in the portfolio, including 26.9 percent growth in average credit card balances from a year ago. While retail loan net charge-offs increased from the second quarter of 2007 and from the third quarter of 2006, retail loan net charge-offs as a percent of average loans outstanding remained at 1.15 percent in the third quarter of 2007, the same as in the second quarter of 2007. This compares with a net charge-off ratio of .90 in the third quarter of 2006, which reflected lower credit losses in 2006 due to the beneficial impact of bankruptcy law changes. The Company anticipates higher delinquencies in the retail portfolios and that retail net charge-offs will increase moderately over the next several quarters.

CREDIT RATIOS                                                  Table 9
----------------------------------------------------------------------
(Percent)                                       3Q   2Q   1Q   4Q   3Q
                                              2007 2007 2007 2006 2006
                                              ------------------------
Net charge-offs ratios (a)
   Commercial                                  .25  .20  .31  .23  .18
   Lease financing                             .76  .57  .22  .51  .23
      Total commercial                         .31  .25  .30  .26  .18

   Commercial mortgages                        .02  .14  .02  .04   --
   Construction and development                .04  .09   --   --   --
      Total commercial real estate             .03  .13  .01  .03   --

   Residential mortgages                       .30  .28  .23  .22  .21

   Credit card                                3.09 3.56 3.48 3.27 2.85
   Retail leasing                              .19  .24  .18  .23  .22
   Home equity and second mortgages            .49  .41  .42  .33  .31
   Other retail                               1.00  .89  .89  .96  .79
      Total retail                            1.15 1.15 1.10 1.05  .90

Total net charge-offs                          .54  .53  .50  .47  .38

Delinquent loan ratios - 90 days or more past due excluding
 nonperforming loans (b)
   Commercial                                  .07  .07  .07  .05  .06
   Commercial real estate                      .04   --  .04  .01  .01
   Residential mortgages                       .64  .50  .46  .45  .36
   Retail                                      .52  .48  .54  .48  .41
Total loans                                    .30  .26  .27  .24  .21

Delinquent loan ratios - 90 days or more past due including
 nonperforming loans (b)
   Commercial                                  .51  .44  .46  .57  .55
   Commercial real estate                      .83  .69  .69  .53  .54
   Residential mortgages                       .86  .69  .63  .62  .53
   Retail                                      .58  .55  .63  .58  .52
Total loans                                    .65  .57  .59  .57  .54

(a) annualized and calculated on average loan balances
(b) ratios are expressed as a percent of ending loan balances
ASSET QUALITY                                                 Table 10
----------------------------------------------------------------------
($ in millions)
                                    Sep 30 Jun 30 Mar 31 Dec 31 Sep 30
                                      2007   2007   2007   2006   2006
                                    ----------------------------------
Nonperforming loans
   Commercial                         $161   $128   $147   $196   $192
   Lease financing                      46     44     41     40     39
                                    ----------------------------------
      Total commercial                 207    172    188    236    231
   Commercial mortgages                 73     90    114    112    114
   Construction and development        153    107     71     38     40
                                    ----------------------------------
      Total commercial real estate     226    197    185    150    154
   Residential mortgages                48     41     38     36     36
   Retail                               32     39     43     48     53
                                    ----------------------------------
Total nonperforming loans              513    449    454    470    474

Other real estate                      113    103    113     95     79
Other nonperforming assets              15     13     15     22     22
                                    ----------------------------------

Total nonperforming assets (a)        $641   $565   $582   $587   $575
                                    ----------------------------------

Accruing loans 90 days or more past
 due                                  $451   $376   $397   $349   $295
                                    ----------------------------------

Restructured loans that continue to
 accrue interest                      $468   $435   $411   $405   $369
                                    ----------------------------------

Nonperforming assets to loans plus
 ORE (%)                               .43    .39    .40    .41    .40

(a) does not include accruing loans 90 days or more past due or
 restructured loans that continue to accrue interest

Nonperforming assets at September 30, 2007, totaled $641 million, compared with $565 million at June 30, 2007, and $575 million at September 30, 2006. The ratio of nonperforming assets to loans and other real estate was .43 percent at September 30, 2007, compared with .39 percent at June 30, 2007, and .40 percent at September 30, 2006. The change in nonperforming assets reflects higher levels of nonperforming loans resulting from stress in the mortgage lending industry and an increase in other real estate assets primarily representing residential mortgage loan foreclosures. Accruing loans 90 days or more past due increased to $451 million at September 30, 2007, compared with $376 million at June 30, 2007, and $295 million at September 30, 2006. Restructured loans that continue to accrue interest have increased from the third quarter of 2006, reflecting the impact of restructurings for residential mortgage customers in light of current economic conditions. The Company expects nonperforming assets to increase modestly over the next several quarters due to continued stress in residential mortgages and residential construction.

CAPITAL POSITION                                             Table 11
----------------------------------------------------------------------
($ in millions)                Sep 30  Jun 30  Mar 31  Dec 31  Sep 30
                                 2007    2007    2007    2006    2006
                              ---------------------------------------

Total shareholders' equity    $20,766 $20,330 $20,800 $21,197 $20,926
Tier 1 capital                 17,368  16,876  16,917  17,036  17,042
Total risk-based capital       25,900  25,709  25,826  24,495  25,011

Tier 1 capital ratio              8.6%    8.5%    8.6%    8.8%    8.8%
Total risk-based capital ratio   12.8    13.0    13.1    12.6    13.0
Leverage ratio                    8.1     7.9     8.0     8.2     8.3
Common equity to assets           8.7     8.7     8.9     9.2     9.2
Tangible common equity to
 assets                           5.3     5.2     5.3     5.5     5.4

Total shareholders' equity was $20.8 billion at September 30, 2007, compared with $20.3 billion at June 30, 2007, and $20.9 billion at September 30, 2006.

The Tier 1 capital ratio was 8.6 percent at September 30, 2007, compared with 8.5 at June 30, 2007, and 8.8 percent at September 30, 2006. The total risk-based capital ratio was 12.8 percent at September 30, 2007, compared with 13.0 percent at June 30, 2007, and at September 30, 2006. The leverage ratio was 8.1 percent at September 30, 2007, compared with 7.9 percent at June 30, 2007, and 8.3 percent at September 30, 2006. Tangible common equity to assets was 5.3 percent at September 30, 2007, compared with 5.2 percent at June 30, 2007, and 5.4 percent at September 30, 2006. All regulatory ratios continue to be in excess of stated "well-capitalized" requirements.

COMMON SHARES                                                 Table 12
----------------------------------------------------------------------
(Millions)                          3Q      2Q      1Q      4Q      3Q
                                  2007    2007    2007    2006    2006
                                --------------------------------------

Beginning shares outstanding    1,728   1,742   1,765   1,763   1,783
Shares issued for stock option
 and stock purchase plans,
 acquisitions and other
 corporate purposes                 3       4      11      12      10
Shares repurchased                 (6)    (18)    (34)    (10)    (30)
                                --------------------------------------
Ending shares outstanding       1,725   1,728   1,742   1,765   1,763
                                --------------------------------------

On August 3, 2006, the Company announced that the Board of Directors approved an authorization to repurchase 150 million shares of common stock through December 31, 2008. During the third quarter of 2007, the Company repurchased 6 million shares of common stock. As of September 30, 2007, there were approximately 64 million shares remaining to be repurchased under the current authorization.

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                    Table 13
----------------------------------------------------------------------
($ in millions)
                                      Net Income      Percent Change
                                 -------------------- ----------------
                                     3Q      2Q    3Q 3Q07 vs 3Q07 vs
Business Line                      2007    2007  2006    2Q07    3Q06
                                 -------------------------------------

Wholesale Banking                  $265   $278   $298   (4.7)  (11.1)
Consumer Banking                    455    456    474    (.2)   (4.0)
Wealth Management and Securities
 Services                           165    171    148   (3.5)   11.5
Payment Services                    276    258    253    7.0     9.1
Treasury and Corporate Support       15     (7)    30      nm  (50.0)
                                 --------------------

Consolidated Company             $1,176 $1,156 $1,203    1.7    (2.2)
                                 --------------------

(a) preliminary data

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                    Table 13
----------------------------------------------------------------------
($ in millions)
                                                              3Q 2007
                                       YTD    YTD Percent    Earnings
Business Line                         2007   2006  Change Composition
                                   -----------------------------------

Wholesale Banking                     $817   $907   (9.9)          23%
Consumer Banking                     1,343  1,375   (2.3)          39
Wealth Management and Securities
 Services                              489    437   11.9           14
Payment Services                       762    730    4.4           23
Treasury and Corporate Support          51    108  (52.8)           1
                                   --------------         -----------

Consolidated Company                $3,462 $3,557   (2.7)         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 and 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 relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company's diverse customer base. During 2007, certain organization and methodology changes were made and, accordingly, prior period results have been restated and presented on a comparable basis.

Wholesale Banking offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, and public sector clients. Wholesale Banking contributed $265 million of the Company's net income in the third quarter of 2007, an 11.1 percent decrease from the same period of 2006 and a 4.7 percent decrease compared with the second quarter of 2007. The decrease in Wholesale Banking's third quarter of 2007 contribution from the same quarter of 2006 was the result of lower total net revenue (5.2 percent), higher total noninterest expense (5.3 percent) and an increase in the provision for credit losses from a year ago. The decline in total net revenue was due to lower net interest income and fee-based revenue. The decrease in net interest income was due to tighter credit spreads and a decline in average noninterest-bearing deposit balances as customers utilized their liquidity to fund business growth, partially offset by growth in average loan balances. Total noninterest income decreased due to market-related valuation losses, including trading securities and loans held for sale within a commercial real estate lending joint venture, and lower equity investment income, partially offset by stronger treasury management fees and commercial products revenue. Total noninterest expense increased due to higher compensation and benefits expense related to production-based incentives and business growth initiatives, including expanding the national corporate banking franchise and relationship management focus. Loan collection, lease residual and other related costs have also increased somewhat from a year ago. The unfavorable variance in the provision for credit losses was due to a $4 million increase in net charge-offs in the third quarter of 2007 compared with a year ago. The change in net charge-offs reflected fewer wholesale loan recoveries and an increase in gross charge-offs at this stage of the business cycle.

Wholesale Banking's contribution to net income in the third quarter of 2007 compared with the second quarter of 2007 was $13 million (4.7 percent) lower due to an unfavorable variance in total net revenue (4.3 percent), partially offset by a decrease in total noninterest expense and the provision for credit losses. Total net revenue was lower on a linked quarter basis due to seasonally higher fee-based income in the second quarter, principally related to treasury management fees from tax receipt processing, and the market-related valuation losses during the third quarter of 2007. These unfavorable variances were partially offset by an increase in commercial products revenue driven by stronger foreign currency fees, customer derivatives trading and loan syndication revenues. Total noninterest expense decreased from the second quarter of 2007 due to a decrease in tax receipt processing expenses that are seasonally higher in the second quarter of 2007. The provision for credit losses decreased on a linked quarter basis due to lower net charge-offs despite somewhat higher levels of nonperforming assets caused by stress in mortgage warehouse lending caused by recent liquidity disruption in the mortgage lending industry.

Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking, and 24-hour banking. Consumer Banking contributed $455 million of the Company's net income in the third quarter of 2007, a 4.0 percent decrease from the same period of 2006 and relatively flat on a linked quarter basis. Within Consumer Banking, the retail banking division contributed $420 million of the total contribution, a 5.2 percent decrease for the division on a year-over-year basis and a 2.1 percent decrease from the prior quarter. An increase in total net revenue for the retail banking division was offset by an increase in the provision for credit losses and growth in total noninterest expense compared with the same period of 2006. Net interest income for the retail banking division was flat year-over-year as an increase in yield-related loan fees was offset by narrowing loan spreads and lower deposit balances. Total noninterest income for the retail banking division increased 3.9 percent from a year ago due to growth in deposit service charges and other fee revenue, primarily due to insurance, asset sales and check cashing fees. Total noninterest expense in the third quarter of 2007 increased 3.0 percent for the division compared with the same quarter of 2006. Compensation and employee benefits expense increased related to recent acquisitions, branch expansion and other business investments. In addition, the line of business recognized higher costs for professional services related to revenue enhancement initiatives and credit-related costs associated with other real estate owned. The business line experienced a $33 million year-over-year increase in net charge-offs (56.9 percent), reflecting higher levels of retail charge-offs, driven by portfolio growth and stress in residential mortgages, home equity and other installment and consumer balances. Also, bankruptcies were generally lower in 2006 due to the lingering effects of changes in bankruptcy laws in late 2005. In the third quarter of 2007, the mortgage banking division's contribution was $35 million, an increase of $4 million (12.9 percent) from the same period of 2006. This division's total net revenue increased $14 million (15.2 percent) from a year ago due to an increase in noninterest income of $10 million (14.1 percent) primarily reflecting an increase in production gains and servicing income, partially offset by an adverse change in the net MSR valuation and the related derivatives utilized for managing interest rate valuation risk. In addition, the mortgage banking division increased net interest income by $4 million (19.0 percent) year-over-year driven by growth in loan production. Total noninterest expense for the mortgage banking division increased $8 million (18.6 percent) from the third quarter of 2006 primarily due to higher production levels from a year ago and servicing costs associated with other real estate owned and foreclosures.

Consumer Banking's contribution in the third quarter of 2007 was relatively flat compared with the second quarter of 2007 as an increase in the mortgage banking division was offset by a decline in the retail banking division. The retail banking division's contribution decreased by 2.1 percent on a linked quarter basis as an increase in noninterest expense and the provision for credit losses was partially offset by an increase in total net revenue. Total net revenue for the retail banking division increased $13 million (1.0 percent) due to increased net interest income related to higher loan balances and yield-related loan fees. Deposit service charges were relatively flat as customers utilized new consumer products where the benefit is recorded in yield-related loan fees. Total noninterest expense for the retail banking division increased 2.2% on a linked quarter basis primarily due to increased transaction processing expense and credit-related costs on other real estate owned. The provision for credit losses for the quarter reflected a $14 million increase in net charge-offs relative to the second quarter of 2007, driven primarily by retail net charge-offs. The contribution of the mortgage banking division increased $8 million from the second quarter of 2007 driven by an increase in total net revenue due to strong growth in net interest income related to loans held for sale balances and a favorable change in the valuation of MSRs including the impact of related economic hedging activities. Total noninterest expense of the mortgage banking division increased $4 million (8.5 percent) from the second quarter of 2007, driven by production processing levels.

Wealth Management and 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 and Securities Services contributed $165 million of the Company's net income in the third quarter of 2007, an 11.5 percent increase over the same period of 2006 and a 3.5 percent decrease from the second quarter of 2007. The growth in the business line's contribution in the third quarter of 2007 over the same quarter of 2006 was the result of core account fee growth and improved equity market conditions relative to a year ago. Net interest income was unfavorably impacted year-over-year by changes in deposit pricing and tightening credit spreads, partially offset by earnings from deposit growth. Total noninterest expense was flat compared with the same quarter of 2006.

The decrease in the business line's contribution in the third quarter of 2007 compared with the second quarter of 2007 was primarily due to the seasonal effect of higher tax-related fees in the second quarter of 2007.

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services contributed $276 million of the Company's net income in the third quarter of 2007, a 9.1 percent increase over the same period of 2006 and a 7.0 percent increase from the second quarter of 2007. Strong growth in operating income of 13.1 percent from a year ago was partially offset by an expected increase in the provision for credit losses (35.1 percent). An increase in total net revenue year-over-year was due to higher total noninterest income (11.1 percent) and net interest income (12.8 percent), reflecting growth in higher yielding retail loan balances, partially offset by the margin impact of recent acquisitions and growth in corporate payment card balances. All payment processing revenue categories benefited from account growth, higher transaction volumes and business expansion initiatives. The growth in total noninterest expense year-over-year primarily reflected new business initiatives, including costs associated with marketing programs, transaction processing and acquisitions, as well as higher collection costs. The increase in the provision for credit losses was driven by an increase in net charge-offs of $26 million year-over-year reflecting portfolio growth and the favorable prior year effects of changes in bankruptcy laws in late 2005.

The increase in Payment Services' contribution in the third quarter of 2007 from the second quarter of 2007 was due to higher total net revenue (3.8 percent), partially offset by higher total noninterest expense (1.8 percent). The provision for credit losses remained relatively flat. Total net revenue was higher due to an 11.4 percent increase in net interest income, driven by strong growth in retail credit card balances and favorable loan yields, as well as a 2.0 percent increase in total noninterest income primarily from credit card fees and seasonally higher corporate payments transaction sales volumes. An increase in total noninterest expense was primarily due to the timing of marketing and professional services costs from retail payment systems and other business expansion initiatives. The increase also reflected slightly higher processing expenses related to merchant processing volumes.

Treasury and Corporate Support includes the Company's investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $15 million in the third quarter of 2007, compared with net income of $30 million in the third quarter of 2006 and a net loss of $7 million in the second quarter of 2007. Net interest income improved $17 million in the current quarter from the third quarter of 2006 reflecting an increase in asset rates and volumes, partially offset by the mix of higher cost wholesale funding to support earning assets growth. Total noninterest income decreased $27 million due principally to the $32 million gain from the sale of equity interests in a card association in the third quarter of 2006 partially offset by $7 million in net securities gains recorded in the current quarter. Total noninterest expense increased $18 million year-over-year primarily reflecting an increase in costs related to investments in affordable housing and other tax-advantaged projects.

Net income in the third quarter of 2007 was higher than the second quarter of 2007 due primarily to a decrease in total noninterest expense. Total noninterest expense decreased by $27 million primarily due to lower personnel, operating and business integration expenses.

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.

RICHARD K. DAVIS, 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 7:30 A.M. (CDT) ON TUESDAY, OCTOBER 16, 2007. 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 18740666. 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 Tuesday, October 16th, and will run through Tuesday, October 23rd, at 11:00 p.m. (CDT). 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 18740666. Find the recorded call via the internet at usbank.com.

Minneapolis-based U.S. Bancorp ("USB"), with $228 billion in assets, is the parent company of U.S. Bank, 6th largest commercial bank in the United States. The Company operates 2,512 banking offices and 4,870 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 the Company. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including changes in general business and economic conditions, changes in interest rates, legal and regulatory developments, increased competition from both banks and non-banks, changes in customer behavior and preferences, effects of mergers and acquisitions and related integration, 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. For discussion of these and other risks that may cause actual results to differ from expectations, refer to our Annual Report on Form 10-K for the year ended December 31, 2006, on file with the Securities and Exchange Commission, including the sections entitled "Risk Factors" and "Corporate Risk Profile." Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.

U.S. Bancorp
Consolidated Statement of Income

(Dollars and Shares in Millions,  Three Months Ended Nine Months Ended
 Except Per Share Data)             September 30,      September 30,
                                  ------------------------------------
(Unaudited)                            2007     2006     2007     2006
----------------------------------------------------------------------
Interest Income
Loans                                $2,703   $2,545   $7,897   $7,277
Loans held for sale                      76       64      205      172
Investment securities                   522      500    1,554    1,490
Other interest income                    33       40      101      119
                                  ------------------------------------
        Total interest income         3,334    3,149    9,757    9,058
Interest Expense
Deposits                                694      640    2,032    1,721
Short-term borrowings                   374      321    1,081      861
Long-term debt                          599      528    1,696    1,415
                                  ------------------------------------
        Total interest expense        1,667    1,489    4,809    3,997
                                  ------------------------------------
Net interest income                   1,667    1,660    4,948    5,061
Provision for credit losses             199      135      567      375
                                  ------------------------------------
Net interest income after
 provision for credit losses          1,468    1,525    4,381    4,686
Noninterest Income
Credit and debit card revenue           235      206      668      590
Corporate payment products revenue      164      150      466      416
ATM processing services                  62       63      183      183
Merchant processing services            287      253      822      719
Trust and investment management
 fees                                   331      305      995      916
Deposit service charges                 271      268      786      764
Treasury management fees                118      111      355      334
Commercial products revenue             107      100      312      311
Mortgage banking revenue                 76       68      211      167
Investment products fees and
 commissions                             36       34      108      114
Securities gains (losses), net            7       --       11        3
Other                                   150      190      478      600
                                  ------------------------------------
        Total noninterest income      1,844    1,748    5,395    5,117
Noninterest Expense
Compensation                            656      632    1,950    1,892
Employee benefits                       119      123      375      379
Net occupancy and equipment             175      168      511      494
Professional services                    56       54      162      130
Marketing and business development       66       58      178      156
Technology and communications           127      128      378      372
Postage, printing and supplies           70       66      210      198
Other intangibles                        94       89      283      263
Debt prepayment                          --       --       --       11
Other                                   265      220      766      673
                                  ------------------------------------
        Total noninterest expense     1,628    1,538    4,813    4,568
                                  ------------------------------------
Income before income taxes            1,684    1,735    4,963    5,235
Applicable income taxes                 508      532    1,501    1,678
                                  ------------------------------------
Net income                           $1,176   $1,203   $3,462   $3,557
                                  ------------------------------------
Net income applicable to common
 equity                              $1,161   $1,187   $3,417   $3,524
                                  ------------------------------------

Earnings per common share              $.67     $.67    $1.97    $1.98
Diluted earnings per common share      $.67     $.66    $1.94    $1.95
Dividends declared per common
 share                                 $.40     $.33    $1.20     $.99
Average common shares outstanding     1,725    1,771    1,737    1,784
Average diluted common shares
 outstanding                          1,745    1,796    1,762    1,809
----------------------------------------------------------------------
U.S. Bancorp
Consolidated Ending Balance
 Sheet

                              September 30, December 31, September 30,
(Dollars in Millions)                  2007         2006          2006
----------------------------------------------------------------------
Assets                          (Unaudited)                (Unaudited)
Cash and due from banks             $6,636       $8,639        $6,355
Investment securities
 Held-to-maturity                       78           87            91
 Available-for-sale                 40,293       40,030        39,429
Loans held for sale                  4,601        3,256         4,126
Loans
 Commercial                         48,012       46,190        46,594
 Commercial real estate             28,517       28,645        28,973
 Residential mortgages              22,563       21,285        21,215
 Retail                             49,947       47,477        46,149
                              ----------------------------------------
     Total loans                   149,039      143,597       142,931
         Less allowance for
          loan losses               (2,041)      (2,022)       (2,034)
                              ----------------------------------------
         Net loans                 146,998      141,575       140,897
Premises and equipment               1,779        1,835         1,835
Goodwill                             7,604        7,538         7,444
Other intangible assets              3,150        3,227         3,171
Other assets                        16,489       13,045        13,507
                              ----------------------------------------
         Total assets             $227,628     $219,232      $216,855
                              ----------------------------------------

Liabilities and Shareholders'
 Equity
Deposits
 Noninterest-bearing               $28,272      $32,128       $30,554
 Interest-bearing                   70,916       70,330        69,095
 Time deposits greater than
  $100,000                          23,560       22,424        21,312
                              ----------------------------------------
     Total deposits                122,748      124,882       120,961
Short-term borrowings               28,868       26,933        24,783
Long-term debt                      45,241       37,602        41,230
Other liabilities                   10,005        8,618         8,955
                              ----------------------------------------
     Total liabilities             206,862      198,035       195,929
Shareholders' equity
 Preferred stock                     1,000        1,000         1,000
 Common stock                           20           20            20
 Capital surplus                     5,748        5,762         5,770
 Retained earnings                  22,580       21,242        20,770
 Less treasury stock                (7,554)      (6,091)       (6,093)
 Other comprehensive income         (1,028)        (736)         (541)
                              ----------------------------------------
     Total shareholders'
      equity                        20,766       21,197        20,926
                              ----------------------------------------
     Total liabilities and
      shareholders' equity        $227,628     $219,232      $216,855
----------------------------------------------------------------------

CONTACT: U.S. Bancorp
Steve Dale, 612-303-0784
Media Relations
or
Judith T. Murphy, 612-303-0783
Investor Relations

SOURCE: U.S. Bancorp

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding U.S. Bancorp's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.



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