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U.S. Bancorp Reports Net Income for the Second Quarter of 2008
MINNEAPOLIS, Jul 15, 2008 (BUSINESS WIRE) -- U.S. Bancorp (NYSE: USB):
EARNINGS SUMMARY                                               Table 1
----------------------------------------------------------------------
($ in
 millions,
 except per-
 share data)                     Percent Percent
                                  Change  Change
                2Q     1Q     2Q 2Q08 vs 2Q08 vs    YTD    YTD Percent
              2008   2008   2007    1Q08    2Q07   2008   2007  Change
             ---------------------------------------------------------

Net income    $950 $1,090 $1,156  (12.8)  (17.8) $2,040 $2,286  (10.8)
Diluted
 earnings
 per common
 share         .53    .62    .65  (14.5)  (18.5)   1.14   1.27  (10.2)

Return on
 average
 assets (%)   1.58   1.85   2.09                   1.71   2.09
Return on
 average
 common
 equity (%)   17.9   21.3   23.0                   19.6   22.7
Net interest
 margin (%)   3.61   3.55   3.44                   3.58   3.47
Efficiency
 ratio (%)    47.5   43.5   47.3                   45.5   46.8
Tangible
 efficiency
 ratio (%)
 (a)          45.2   41.4   44.6                   43.3   44.1

Dividends
 declared
 per common
 share       $.425  $.425  $.400      --     6.3  $.850  $.800     6.3
Book value
 per common
 share
 (period-
 end)        11.67  11.55  11.19     1.0     4.3

(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 $950 million for the second quarter of 2008, compared with $1,156 million for the second quarter of 2007. Diluted earnings per common share of $.53 in the second quarter of 2008 were lower than the same period of 2007 by 18.5 percent, or $.12 per diluted common share. Return on average assets and return on average common equity were 1.58 percent and 17.9 percent, respectively, for the second quarter of 2008, compared with returns of 2.09 percent and 23.0 percent, respectively, for the second quarter of 2007. Significant items included in the second quarter of 2008 results were net securities losses of $63 million, which primarily reflected impairment charges on structured investment securities, and an incremental provision for credit losses, which exceeded net-charge-offs by $200 million. Together, these items reduced earnings per diluted common share by approximately $.11. The Company's results for the first quarter of 2008 were also affected by several significant items, including a $492 million gain related to the Visa Inc. initial public offering that occurred in March of 2008 ("Visa Gain"), $253 million of impairment charges on structured investment securities purchased in the fourth quarter of 2007, a $62 million reduction in pretax income related to the adoption of a new accounting standard, a $25 million contribution to the U.S. Bancorp Foundation and a $22 million accrual for certain litigation matters. In addition, in the first quarter of 2008 the Company's provision for credit losses exceeded net charge-offs by $192 million. The net impact from significant items in the first quarter of 2008 was a reduction of approximately $.02 per diluted common share.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "U.S. Bancorp's earnings for the second quarter of 2008, although lower than the previous quarter and the same quarter of 2007, reflected our Company's core strengths and momentum, including our diversified business mix, prudent approach to credit and operational risk management, strong balance sheet and capital position, and commitment to investing for future growth.

"Historically, revenue growth in the second quarter of each year is seasonally the strongest, particularly for our fee-based businesses. This seasonal trend was evident again this year, as the majority of our fee revenue lines posted strong linked quarter increases, as well as year-over-year growth. Excellent growth in earning assets, coupled with a higher net interest margin, led to an increase in net interest income on both a linked quarter and year-over-year basis of 4.3 percent and 15.6 percent, respectively. Although the revenue growth rates were reduced overall by several significant first quarter items, the core revenue growth trends were favorable and point to the initial success of a number of our revenue growth initiatives, as well as our advantageous mix of businesses.

"These revenue growth initiatives, in addition to our focus and capacity to fulfill the needs of both current and new customers, also led to strong balance sheet growth this quarter. Average earning assets grew by approximately 10 percent on an annualized basis over the first quarter of 2008 and slightly above 10 percent year-over-year. The Company also posted strong growth in average deposits on a linked quarter annualized basis and year-over-year.

"As predicted, credit costs continued to climb this quarter. Net charge-offs of $396 million for the quarter were .98 percent of average loans outstanding, while total nonperforming assets at the end of the quarter totaled $1,135 million, a 34 percent increase over the balance at March 31, 2008. In addition to providing for the $396 million of net charge-offs, the Company recorded an incremental provision for credit losses of $200 million, bringing the allowance to period end loans coverage ratio to 1.60 percent at June 30, 2008. Given the continued stress in the economy, we believe this action is prudent and expect to see net charge-offs increase in the coming quarter. Despite this upward trend, credit costs are expected to be manageable for our Company, as we continue to produce solid core operating results.

"Our capital position remains strong, with the Tier 1 capital ratio at June 30, 2008, on target at 8.5 percent. Although we have capacity in our current authorization, we do not anticipate buybacks between now and the end of the year. We will utilize our strong internal capital generation to support our growth initiatives, and rely on our earnings capacity to sustain our dividend and maintain our well-capitalized position.

"I am very proud of the exceptional efforts of the U.S. Bank team and, notwithstanding the need to very carefully manage risk during this challenging economic environment, our Company remains focused on business growth initiatives, deepening our current customer relationships and acquiring new customers. As I have said before, we are "open for business" and are cognizant of the fact that this environment has created an opportunity for our Company to both solidify and grow our position in the markets we serve for the benefit of our customers, communities, employees and shareholders. Our business model and prudent approach to risk management will enable us to successfully manage this Company through this stressed period in the economic cycle."

The Company's net income for the second quarter of 2008 decreased by $206 million (17.8 percent) from the same period of 2007. The reduction in net income year-over-year was the net result of a 5.4 percent increase in operating income (income before provision and taxes), offset by an increase in the provision for credit losses. On a linked quarter basis, net income declined by $140 million (12.8 percent), as strong growth in net interest income and seasonally higher fee-based operating revenues were offset by higher credit losses during the quarter and the net impact of the other significant items recorded in the first quarter of 2008.

Total net revenue on a taxable-equivalent basis for the second quarter of 2008 was $3,800 million, $265 million (7.5 percent) higher than the second quarter of 2007, reflecting a 15.6 percent increase in net interest income and a modest increase in noninterest income. The increase in net interest income year-over-year was driven by growth in earning assets and an improvement in the net interest margin. Noninterest income from a year ago was relatively flat as strong growth in the majority of revenue categories was muted by securities impairments related to certain structured investments and higher retail lease residual losses. On a linked quarter basis, total net revenue on a taxable equivalent basis decreased $74 million (1.9 percent). Strong growth in net interest income of 4.3 percent (17.2 percent annualized), seasonally higher fee-based revenue and a favorable change in net securities losses were more than offset by a reduction in other noninterest income. The reduction in other noninterest income primarily reflected the $430 million net favorable impact on the first quarter of 2008 from the Visa Gain and the adoption of a new accounting standard.

Total noninterest expense in the second quarter of 2008 was $1,835 million, $165 million (9.9 percent) higher than the second quarter of 2007, and $39 million (2.2 percent) higher than the prior quarter. The increase year-over-year was principally due to higher costs associated with business initiatives designed to expand the Company's geographical presence and strengthen customer relationships, including investments in relationship managers, branch initiatives, Wealth Management and Payment Services businesses. The increase in operating expense also included higher credit collection costs and incremental costs associated with investments in tax-advantaged projects. On a linked quarter basis, noninterest expense increased 2.2 percent (8.8 percent annualized), due primarily to higher credit collection costs and seasonally higher compensation and professional services fees, offset somewhat by the impact of two expense items in the first quarter that included a contribution to the Company's foundation and litigation costs.

Provision for credit losses for the second quarter of 2008 was $596 million, an increase of $111 million over the first quarter of 2008 and $405 million over the second quarter of 2007. This represented an incremental increase to the allowance for credit losses of $200 million in the second quarter of 2008 and $192 million in the first quarter of 2008. The increase in the provision for credit losses from a year ago reflected continuing stress in the residential real estate markets, including homebuilding and related supplier industries, driven by declining home prices in most geographic regions. It also reflected the current economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the second quarter of 2008 were $396 million, compared with net charge-offs of $293 million in the first quarter of 2008 and $191 million in the second 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 in the third quarter of 2008. Total nonperforming assets were $1,135 million at June 30, 2008, compared with $845 million at March 31, 2008, and $565 million at June 30, 2007. Nonperforming assets increased $290 million (34.3 percent) during the second quarter of 2008 over the first quarter of 2008 as a result of stress in residential home construction and related industries and the impact of the economic slowdown on other commercial customers. The ratio of the allowance for credit losses to nonperforming loans was 273 percent at June 30, 2008, compared with 358 percent at March 31, 2008, and 503 percent at June 30, 2007.

INCOME STATEMENT HIGHLIGHTS                                    Table 2
----------------------------------------------------------------------
(Taxable-
 equivalent
 basis, $
 in
 millions,
 except
 per-share
 data)                           Percent Percent
                                  Change  Change
                2Q     1Q     2Q 2Q08 vs 2Q08 vs    YTD    YTD Percent
              2008   2008   2007    1Q08    2Q07   2008   2007  Change
            ----------------------------------------------------------

Net
 interest
 income     $1,908 $1,830 $1,650     4.3    15.6 $3,738 $3,316    12.7
Noninterest
 income      1,892  2,044  1,885   (7.4)      .4  3,936  3,608     9.1
            --------------------                 -------------
   Total
    net
    revenue  3,800  3,874  3,535   (1.9)     7.5  7,674  6,924    10.8
Noninterest
 expense     1,835  1,796  1,670     2.2     9.9  3,631  3,242    12.0
            --------------------                 -------------
Income
 before
 provision
 and taxes   1,965  2,078  1,865   (5.4)     5.4  4,043  3,682     9.8
Provision
 for credit
 losses        596    485    191    22.9      nm  1,081    368      nm
            --------------------                 -------------
Income
 before
 taxes       1,369  1,593  1,674  (14.1)  (18.2)  2,962  3,314  (10.6)
Taxable-
 equivalent
 adjustment     33     27     18    22.2    83.3     60     35    71.4
Applicable
 income
 taxes         386    476    500  (18.9)  (22.8)    862    993  (13.2)
            --------------------                 -------------
Net income    $950 $1,090 $1,156  (12.8)  (17.8) $2,040 $2,286  (10.8)
            --------------------                 -------------
Net income
 applicable
 to common
 equity       $928 $1,078 $1,141  (13.9)  (18.7) $2,006 $2,256  (11.1)
            --------------------                 -------------
Diluted
 earnings
 per common
 share        $.53   $.62   $.65  (14.5)  (18.5)  $1.14  $1.27  (10.2)
            --------------------                 -------------

Net Interest Income

Second quarter net interest income on a taxable-equivalent basis was $1,908 million, compared with $1,650 million in the second quarter of 2007, an increase of $258 million (15.6 percent). The increase was due to strong growth in average earning assets as well as an improving net interest margin from a year ago. Average earning assets for the period increased over the second quarter of 2007 by $19.8 billion (10.3 percent), primarily driven by an increase of $17.4 billion (12.0 percent) in average loans and $2.3 billion (5.6 percent) in average investment securities. During the second quarter of 2008, the net interest margin increased to 3.61 percent compared with 3.44 percent in the second quarter of 2007. The improvement in the net interest margin was due to several factors, including growth in higher spread assets, the benefit of the Company's current asset/liability position in a declining interest rate environment and related asset/liability re-pricing dynamics. Also, short-term funding rates were lower due to market volatility and changing liquidity in the overnight fed fund markets given current market conditions.

Net interest income in the second quarter of 2008 increased by $78 million (4.3 percent) compared with the first quarter of 2008. This favorable variance was due to growth in average earning assets of $5.1 billion (2.5 percent) and an increase in the net interest margin from 3.55 percent in the first quarter of 2008 to 3.61 percent in the current quarter. Given the current rate environment, asset re-pricing dynamics and yield curve, the Company expects the net interest margin to remain relatively stable or decline slightly during the remainder of 2008.

NET INTEREST INCOME                                            Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in millions)


                                                    Change    Change
                           2Q        1Q        2Q  2Q08 vs   2Q08 vs
                         2008      2008      2007     1Q08      2Q07
                    --------------------------------------------------
Components of net
 interest income
   Income on
    earning assets  $  3,067  $  3,258  $  3,276  $ (191)  $  (209)
   Expense on
    interest-
    bearing
    liabilities        1,159     1,428     1,626    (269)     (467)
                    --------------------------------------------------
Net interest income $  1,908  $  1,830  $  1,650  $   78   $   258
                    --------------------------------------------------

Average yields and
 rates paid
   Earning assets
    yield               5.81%     6.32%     6.83%   (.51)%   (1.02)%
   Rate paid on
    interest-
    bearing
    liabilities         2.53      3.20      3.95    (.67)    (1.42)
                    --------------------------------------------------
Gross interest
 margin                 3.28%     3.12%     2.88%    .16%      .40%
                    --------------------------------------------------
Net interest margin     3.61%     3.55%     3.44%    .06%      .17%
                    --------------------------------------------------

Average balances
   Investment
    securities      $ 42,999  $ 43,891  $ 40,704  $ (892)  $ 2,295
   Loans             163,070   155,232   145,653   7,838    17,417
   Earning assets    212,089   207,014   192,301   5,075    19,788
   Interest-bearing
    liabilities      183,855   179,451   165,177   4,404    18,678
   Net free funds
    (a)               28,234    27,563    27,124     671     1,110




                                               YTD       YTD
                                              2008      2007    Change
                                        ------------------------------
Components of net interest income
   Income on earning assets              $  6,325  $  6,499  $  (174)
   Expense on interest-bearing
    liabilities                             2,587     3,183     (596)
                                        ------------------------------
Net interest income                      $  3,738  $  3,316  $   422
                                        ------------------------------

Average yields and rates paid
   Earning assets yield                      6.06%     6.82%    (.76)%
   Rate paid on interest-bearing
    liabilities                              2.86      3.91    (1.05)
                                        ------------------------------
Gross interest margin                        3.20%     2.91%     .29%
                                        ------------------------------
Net interest margin                          3.58%     3.47%     .11%
                                        ------------------------------

Average balances
   Investment securities                 $ 43,446  $ 40,791  $ 2,655
   Loans                                  159,151   145,176   13,975
   Earning assets                         209,552   191,721   17,831
   Interest-bearing liabilities           181,653   163,937   17,716
   Net free funds (a)                      27,899    27,784      115


(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
----------------------------------------------------------------------
($ in millions)                                       Percent Percent
                                                       Change  Change
                                 2Q       1Q       2Q 2Q08 vs 2Q08 vs
                               2008     2008     2007    1Q08    2Q07
                           -------------------------------------------

Commercial                  $47,648  $45,471  $41,572     4.8    14.6
Lease financing               6,331    6,238    5,625     1.5    12.6
                           --------------------------
  Total commercial           53,979   51,709   47,197     4.4    14.4

Commercial mortgages         21,192   20,337   19,562     4.2     8.3
Construction and
 development                  9,281    9,199    8,941      .9     3.8
                           -------- -------- --------
  Total commercial real
   estate                    30,473   29,536   28,503     3.2     6.9

Residential mortgages        23,307   22,978   21,831     1.4     6.8

Credit card                  11,559   11,049    9,120     4.6    26.7
Retail leasing                5,523    5,802    6,662   (4.8)  (17.1)
Home equity and second
 mortgages                   17,106   16,527   15,735     3.5     8.7
Other retail                 21,123   17,631   16,605    19.8    27.2
                           -------- -------- --------
  Total retail               55,311   51,009   48,122     8.4    14.9
                           -------- -------- --------

Total loans                $163,070 $155,232 $145,653     5.0    12.0
                           -------- -------- --------

AVERAGE LOANS                                                  Table 4
----------------------------------------------------------------------
($ in millions)

                                                  YTD      YTD Percent
                                                 2008     2007  Change
                                             -------------------------

Commercial                                    $46,559  $41,515    12.1
Lease financing                                 6,285    5,588    12.5
                                             -------- --------
  Total commercial                             52,844   47,103    12.2

Commercial mortgages                           20,765   19,617     5.9
Construction and development                    9,240    8,956     3.2
                                             -------- --------
  Total commercial real estate                 30,005   28,573     5.0

Residential mortgages                          23,142   21,700     6.6

Credit card                                    11,304    8,879    27.3
Retail leasing                                  5,662    6,753  (16.2)
Home equity and second mortgages               16,817   15,646     7.5
Other retail                                   19,377   16,522    17.3
                                             -------- --------
  Total retail                                 53,160   47,800    11.2
                                             -------- --------

Total loans                                  $159,151 $145,176     9.6
                                             -------- --------

Average loans for the second quarter of 2008 were $17.4 billion (12.0 percent) higher than the second quarter of 2007, driven by growth in the majority of loan categories. This included growth in average total retail loans of $7.2 billion (14.9 percent), total commercial loans of $6.8 billion (14.4 percent), total commercial real estate loans of $2.0 billion (6.9 percent) and residential mortgages of $1.5 billion (6.8 percent). Average loans for the second quarter of 2008 were higher than the first quarter of 2008 by $7.8 billion (5.0 percent), again reflecting growth in the majority of loan categories. Total commercial loans grew by $2.3 billion (4.4 percent) in the second quarter of 2008 over the first quarter of 2008, driven by growth in corporate and commercial banking balances as business customers utilized bank credit facilities, rather than the capital markets, to fund business growth and liquidity requirements. Total commercial real estate loans also increased over the first quarter of 2008, primarily reflecting changing market conditions that have limited borrower access to the capital markets and the impact of an acquisition. Consumer lending continues to experience strong growth in installment products, home equity lines and credit card balances. Retail loan growth in the second quarter of 2008 included a $2.9 billion increase in federally guaranteed student loan balances due to both the transfer of balances from loans held for sale and a portfolio purchase.

Average investment securities in the second quarter of 2008 were $2.3 billion (5.6 percent) higher than the second quarter of 2007. The increase was driven by the purchase in the fourth quarter of 2007 of structured investment securities from certain money market funds managed by an affiliate and an increase in tax exempt municipal securities, partially offset by a reduction in mortgage-backed securities. Average investment securities declined by $ .9 billion (2.0 percent) from the first quarter of 2008 principally due to a reduction in mortgage-backed securities.

AVERAGE DEPOSITS
----------------------------------------------------------------------
($ in millions)                                       Percent Percent
                                                       Change  Change
                                 2Q       1Q       2Q 2Q08 vs 2Q08 vs
                               2008     2008     2007    1Q08    2Q07
                           -------------------------------------------

Noninterest-bearing
 deposits                   $27,851  $27,119  $27,977     2.7    (.5)
Interest-bearing savings
 deposits
  Interest checking          32,479   30,303   25,858     7.2    25.6
  Money market savings       26,426   25,590   24,603     3.3     7.4
  Savings accounts            5,377    5,134    5,443     4.7   (1.2)
                           --------------------------
     Total of savings
      deposits               64,282   61,027   55,904     5.3    15.0
Time certificates of
 deposit less than
 $100,000                    12,635   13,607   14,716   (7.1)  (14.1)
Time deposits greater than
 $100,000                    31,041   29,105   20,378     6.7    52.3
                           --------------------------
     Total interest-
      bearing deposits      107,958  103,739   90,998     4.1    18.6
                           --------------------------
Total deposits             $135,809 $130,858 $118,975     3.8    14.1
                           --------------------------

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)

                                                  YTD      YTD Percent
                                                 2008     2007  Change
                                             -------------------------

Noninterest-bearing deposits                  $27,485  $27,828   (1.2)
Interest-bearing savings deposits
  Interest checking                            31,390   25,470    23.2
  Money market savings                         26,008   25,154     3.4
  Savings accounts                              5,256    5,422   (3.1)
                                             -----------------
     Total of savings deposits                 62,654   56,046    11.8
Time certificates of deposit less than
 $100,000                                      13,121   14,745  (11.0)
Time deposits greater than $100,000            30,073   21,228    41.7
                                             -----------------
     Total interest-bearing deposits          105,848   92,019    15.0
                                             -----------------
Total deposits                               $133,333 $119,847    11.3
                                             -----------------

Average noninterest-bearing deposits for the second quarter of 2008 decreased modestly, $126 million (.5 percent), from the second quarter of 2007. Average total savings deposits increased year-over-year by $8.4 billion (15.0 percent) due to a $6.6 billion increase (25.6 percent) in interest checking balances and a $1.8 billion increase (7.4 percent) in money market savings balances, driven by higher balances from broker dealer, government and institutional trust customers. This increase was partially offset by a modest decline of $66 million (1.2 percent) in average savings accounts. Average time certificates of deposit less than $100,000 were lower in the second quarter of 2008 than in the second quarter of 2007 by $2.1 billion (14.1 percent), reflecting the Company's funding and pricing decisions and competition for these deposits by other financial institutions that have more limited access to wholesale funding sources given the current market environment. Time deposits greater than $100,000 increased by $10.7 billion (52.3 percent) over the same period of 2007 as a result of both the Company's wholesale funding decisions and the business lines' ability to attract larger customer deposits given the current market conditions.

Average noninterest-bearing deposits for the second quarter of 2008 increased modestly compared with the first quarter of 2008. Total average savings deposits increased $3.3 billion (5.3 percent) from the first quarter of 2008, primarily due to higher broker dealer and institutional trust balances. Average time certificates less than $100,000 declined by $972 million (7.1 percent) from the prior quarter reflecting competition for these funding sources given current market conditions. Average time deposits greater than $100,000 increased by $1.9 billion (6.7 percent) over the prior quarter, primarily due to wholesale funding decisions and growth in customer time deposits.

NONINTEREST INCOME
----------------------------------------------------------------------
($ in millions)                                       Percent Percent
                                                       Change  Change
                                     2Q     1Q     2Q 2Q08 vs 2Q08 vs
                                   2008   2008   2007    1Q08    2Q07
                                 -------------------------------------

Credit and debit card revenue      $266   $248   $230     7.3    15.7
Corporate payment products
 revenue                            174    164    159     6.1     9.4
ATM processing services              93     84     82    10.7    13.4
Merchant processing services        309    271    286    14.0     8.0
Trust and investment management
 fees                               350    335    342     4.5     2.3
Deposit service charges             278    257    277     8.2      .4
Treasury management fees            137    124    126    10.5     8.7
Commercial products revenue         117    112    105     4.5    11.4
Mortgage banking revenue             81    105     68  (22.9)    19.1
Investment products fees and
 commissions                         37     36     38     2.8   (2.6)
Securities gains (losses), net     (63)  (251)      3    74.9      nm
Other                               113    559    169  (79.8)  (33.1)
                                 --------------------

Total noninterest income         $1,892 $2,044 $1,885   (7.4)      .4
                                 --------------------

NONINTEREST INCOME                                             Table 6
----------------------------------------------------------------------
($ in millions)

                                                    YTD    YTD Percent
                                                   2008   2007  Change
                                                 ---------------------

Credit and debit card revenue                      $514   $436    17.9
Corporate payment products revenue                  338    306    10.5
ATM processing services                             177    159    11.3
Merchant processing services                        580    538     7.8
Trust and investment management fees                685    664     3.2
Deposit service charges                             535    524     2.1
Treasury management fees                            261    237    10.1
Commercial products revenue                         229    205    11.7
Mortgage banking revenue                            186    135    37.8
Investment products fees and commissions             73     72     1.4
Securities gains (losses), net                    (314)      4      nm
Other                                               672    328      nm
                                                 -------------

Total noninterest income                         $3,936 $3,608     9.1
                                                 -------------

Noninterest Income

Second quarter noninterest income was $1,892 million, $7 million (.4 percent) higher than the same quarter of 2007 and $152 million (7.4 percent) lower than the first quarter of 2008. Noninterest income compared with the second quarter of 2007 was relatively flat, as strong fee-based revenue growth in several revenue categories was muted by impairment charges on certain structured investments and higher retail lease residual losses from a year ago. Credit and debit card revenue, corporate payment products revenue, ATM processing services and merchant processing services were higher in the second quarter of 2008 than the same period of 2007 by $36 million (15.7 percent), $15 million (9.4 percent), $11 million (13.4 percent) and $23 million (8.0 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 over a year ago. Corporate payment products revenue growth reflected growth in sales volumes, card usage and business expansion. The ATM processing services increase was also due to growth in transaction volumes. Merchant processing services revenue was higher in the second quarter of 2008 than the same quarter of a year ago due to higher core transaction volume and business expansion. Trust and investment management fees increased $8 million (2.3 percent) year-over-year due to core account growth, partially offset by unfavorable equity market conditions. Deposit service charges remained relatively flat year-over-year, partially due to deposit account-related revenue traditionally reflected in this fee category continuing to migrate to yield-related loan fees as customers utilized new consumer products. Treasury management fees increased $11 million (8.7 percent), due primarily to the favorable impact of declining rates on customer earnings credits and account growth. Commercial products revenue increased $12 million (11.4 percent) year-over-year due to higher commercial loan, syndication and other capital markets fees and commercial leasing revenue. Mortgage banking revenue increased $13 million (19.1 percent) due to an increase in mortgage servicing income and production revenue, partially offset by the unfavorable net change in the valuation of mortgage servicing rights ("MSRs") and related economic hedging activities. Securities gains (losses) were lower from a year ago by $66 million due to the impact of the impairment charges on structured investment securities. Other income declined $56 million year-over-year, primarily due to the approximate $42 million adverse impact of higher retail lease residual losses compared with the second quarter of 2007.

Noninterest income was lower by $152 million (7.4 percent) in the second quarter of 2008 than the first quarter of 2008, reflecting the impact of the Visa Gain, partially offset by seasonally higher fee-based revenue and a favorable variance in securities losses. Credit and debit card revenue increased $18 million (7.3 percent), corporate payment products revenue increased $10 million (6.1 percent) and ATM processing services increased $9 million (10.7 percent) on a linked quarter basis due to seasonally higher transaction volumes. Merchant processing services were higher in the second quarter of 2008 compared with the first quarter of 2008 by $38 million (14.0 percent) due to seasonally strong sales volumes, pricing initiatives and business expansion. Trust and investment management fees increased $15 million (4.5 percent) on a linked quarter basis, primarily due to seasonal tax filing fees. Deposit service charges increased $21 million (8.2 percent) compared with seasonally lower transaction fees in the first quarter of 2008. Treasury management fees increased by $13 million (10.5 percent) on a linked quarter basis due to higher government lock box activity and the favorable impact of declining rates on customer earnings credits. Commercial products revenue increased from the first quarter of 2008 by $5 million (4.5 percent) due to higher syndication fees, stand-by letter of credit fees and commercial leasing gains, partially offset by lower foreign exchange revenue. In addition, net securities losses reflected a $188 million favorable variance on a linked quarter basis, due primarily to the change in the impairment charges recorded on structured investment securities. These increases were offset by several unfavorable variances. Other income was lower on a linked quarter basis due to the $492 million Visa Gain in first quarter of 2008 and due to higher retail lease residual losses, partially offset by a $62 million unfavorable impact in first quarter of 2008 related to the adoption of Statement of Financial Accounting Standard No. 157 "Fair Value Measurements" ("SFAS 157") on the valuation of certain derivatives. Mortgage banking revenue decreased by $24 million (22.9 percent) from the first quarter of 2008 due to an unfavorable change in the valuation of MSRs and related economic hedging activities and lower production income, partially offset by an increase in servicing revenue.

NONINTEREST EXPENSE
----------------------------------------------------------------------
($ in millions)                                       Percent Percent
                                                       Change  Change
                                     2Q     1Q     2Q 2Q08 vs 2Q08 vs
                                   2008   2008   2007    1Q08    2Q07
                                 -------------------------------------

Compensation                       $761   $745   $659     2.1    15.5
Employee benefits                   129    137    123   (5.8)     4.9
Net occupancy and equipment         190    190    184      --     3.3
Professional services                59     47     59    25.5      --
Marketing and business
 development                         66     79     68  (16.5)   (2.9)
Technology and communications       149    140    138     6.4     8.0
Postage, printing and supplies       73     71     71     2.8     2.8
Other intangibles                    87     87     95      --   (8.4)
Other                               321    300    273     7.0    17.6
                                 --------------------

Total noninterest expense        $1,835 $1,796 $1,670     2.2     9.9
                                 --------------------

NONINTEREST EXPENSE                                            Table 7
----------------------------------------------------------------------
($ in millions)

                                                    YTD    YTD Percent
                                                   2008   2007  Change
                                                ----------------------

Compensation                                     $1,506 $1,294    16.4
Employee benefits                                   266    256     3.9
Net occupancy and equipment                         380    361     5.3
Professional services                               106    106      --
Marketing and business development                  145    120    20.8
Technology and communications                       289    273     5.9
Postage, printing and supplies                      144    140     2.9
Other intangibles                                   174    189   (7.9)
Other                                               621    503    23.5
                                                --------------

Total noninterest expense                        $3,631 $3,242    12.0
                                                --------------

Noninterest Expense

Second quarter noninterest expense totaled $1,835 million, an increase of $165 million (9.9 percent) over the same quarter of 2007 and an increase of $39 million (2.2 percent) over the first quarter of 2008. Compensation expense increased $102 million (15.5 percent) over the same period of 2007 due to growth in ongoing bank operations, acquired businesses and other bank initiatives and the adoption of SFAS 157. Under this new accounting standard, compensation expense is no longer deferred for origination of mortgage loans held for sale. Employee benefits expense increased $6 million (4.9 percent) year-over-year as higher payroll taxes and medical costs were partially offset by lower pension costs. Net occupancy and equipment expense increased $6 million (3.3 percent) over the second quarter of 2007, primarily due to acquisitions and branch-based and other business expansion initiatives. Technology and communications expense increased $11 million (8.0 percent) year-over-year, primarily due to increased processing volumes and business expansion. Other expense increased $48 million (17.6 percent) year-over-year, due primarily to credit-related costs for other real estate owned and loan collection activities, investments in tax-advantaged projects, and higher litigation and fraud costs. These increases were partially offset by a decrease in other intangibles expense of $8 million (8.4 percent).

Noninterest expense in the second quarter of 2008 was higher than the first quarter of 2008 by $39 million (2.2 percent). Compensation expense increased $16 million (2.1 percent) due to continued focus on business expansion and operations, acquisitions and the timing of merit increases. Professional services expense increased $12 million (25.5 percent) on a linked quarter basis, due to the seasonal timing of legal costs and other consulting projects. Technology and communications expense increased $9 million (6.4 percent) due to increased processing volumes and the impact of a vendor credit received in the first quarter of 2008. Other expense increased by $21 million (7.0 percent) as compared with the first quarter of 2008 due to credit-related costs for other real estate owned and loan collection activities, higher fraud losses, and increased investments in tax-advantaged projects, partially offset by the favorable impact from $22 million in litigation costs recorded in the prior quarter. These increases were partially offset by favorable variances in employee benefits and marketing and business development expenses. Employee benefits decreased $8 million (5.8 percent) on a linked quarter basis, due primarily to seasonally lower payroll taxes. Marketing and business development expense decreased $13 million (16.5 percent) on a linked quarter basis due to a $25 million charitable contribution in the first quarter of 2008, partially offset by the timing of Payment Services and Consumer Banking promotions.

Provision for Income Taxes

The provision for income taxes for the second quarter of 2008 resulted in a tax rate on a taxable equivalent basis of 30.6 percent (effective tax rate of 28.9 percent) compared with 30.9 percent (effective tax rate of 30.2 percent) in the second quarter of 2007 and 31.6 percent (effective tax rate of 30.4 percent) in the first quarter of 2008.

ALLOWANCE FOR CREDIT LOSSES                                    Table 8
----------------------------------------------------------------------
($ in millions)                         2Q     1Q     4Q     3Q     2Q
                                      2008   2008   2007   2007   2007
                                    ----------------------------------

Balance, beginning of period        $2,435 $2,260 $2,260 $2,260 $2,260

Net charge-offs
    Commercial                          51     39     23     26     21
    Lease financing                     18     16     13     11      8
                                    ----------------------------------
         Total commercial               69     55     36     37     29
    Commercial mortgages                 6      4      3      1      7
    Construction and development        12      8      7      1      2
                                    ----------------------------------
        Total commercial real estate    18     12     10      2      9

    Residential mortgages               53     26     17     17     15

    Credit card                        139    108     88     77     81
    Retail leasing                       8      7      6      3      4
    Home equity and second mortgages    48     30     22     20     16
    Other retail                        61     55     46     43     37
                                    ----------------------------------
         Total retail                  256    200    162    143    138
                                    ----------------------------------
            Total net charge-offs      396    293    225    199    191
Provision for credit losses            596    485    225    199    191
Acquisitions and other changes          13   (17)     --     --     --
                                    ----------------------------------
Balance, end of period              $2,648 $2,435 $2,260 $2,260 $2,260
                                    ----------------------------------

Components
   Allowance for loan losses        $2,518 $2,251 $2,058 $2,041 $2,028
   Liability for unfunded credit
    commitments                        130    184    202    219    232
                                    ----------------------------------
            Total allowance for
             credit losses          $2,648 $2,435 $2,260 $2,260 $2,260
                                    ----------------------------------

Gross charge-offs                     $439   $348   $287   $256   $252
Gross recoveries                       $43    $55    $62    $57    $61

Allowance for credit losses as a
 percentage of
   Period-end loans                   1.60   1.54   1.47   1.52   1.55
   Nonperforming loans                 273    358    406    441    503
   Nonperforming assets                233    288    328    353    400

Credit Quality

During the second quarter of 2008, credit losses and nonperforming assets continued to trend higher. The allowance for credit losses was $2,648 million at June 30, 2008, compared with $2,435 million at March 31, 2008, and $2,260 million at June 30, 2007. As a result of the continued stress in the residential housing markets, homebuilding and related industry sectors, and due to the growth of the loan portfolios, the Company has increased the allowance for credit losses in the first and second quarters of 2008 by $192 million and $200 million, respectively. The credit stress is being reflected in higher delinquencies, nonperforming asset levels and net charge-offs relative to a year ago and the first quarter of 2008. Total net charge-offs in the second quarter of 2008 were $396 million, compared with the first quarter of 2008 net charge-offs of $293 million and the second quarter of 2007 net charge-offs of $191 million. The increase in total net charge-offs from a year ago was driven by the factors affecting the residential housing markets as well as 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 $87 million in the second quarter of 2008 (.41 percent of average loans outstanding) compared with $67 million (.33 percent of average loans outstanding) in the first quarter of 2008 and $38 million (.20 percent of average loans outstanding) in the second quarter of 2007. This increasing trend in commercial and commercial real estate net charge-offs reflected increases in nonperforming loans and delinquencies within the portfolios, especially residential homebuilding and related industry sectors.

Residential mortgage loan net charge-offs increased to $53 million in the second quarter of 2008 (.91 percent of average loans outstanding) compared with $26 million (.46 percent of average loans outstanding) in the first quarter of 2008 and $15 million (.28 percent of average loans outstanding) in the second 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 $256 million (1.86 percent of average loans outstanding) in the second quarter of 2008 compared with $200 million (1.58 percent of average loans outstanding) in the first quarter of 2008 and $138 million (1.15 percent of average loans outstanding) in the second quarter of 2007. The increased retail loan credit losses reflected the Company's growth in credit card and consumer loan balances, seasonally higher losses related to credit cards, as well as the adverse impact of current economic conditions on consumers.

The ratio of the allowance for credit losses to period-end loans was 1.60 percent at June 30, 2008, compared with 1.54 percent at March 31, 2008, and 1.55 percent at June 30, 2007. The ratio of the allowance for credit losses to nonperforming loans was 273 percent at June 30, 2008, compared with 358 percent at March 31, 2008, and 503 percent at June 30, 2007.

CREDIT RATIOS                                                  Table 9
----------------------------------------------------------------------
(Percent)                                       2Q   1Q   4Q   3Q   2Q
                                              2008 2008 2007 2007 2007
                                              ------------------------
Net charge-offs ratios (a)
   Commercial                                  .43  .34  .21  .25  .20
   Lease financing                            1.14 1.03  .86  .76  .57
      Total commercial                         .51  .43  .29  .31  .25

   Commercial mortgages                        .11  .08  .06  .02  .14
   Construction and development                .52  .35  .31  .04  .09
      Total commercial real estate             .24  .16  .14  .03  .13

   Residential mortgages                       .91  .46  .30  .30  .28

   Credit card                                4.84 3.93 3.29 3.09 3.56
   Retail leasing                              .58  .49  .39  .19  .24
   Home equity and second mortgages           1.13  .73  .53  .49  .41
   Other retail                               1.16 1.25 1.05 1.00  .89
      Total retail                            1.86 1.58 1.28 1.15 1.15

Total net charge-offs                          .98  .76  .59  .54  .53

Delinquent loan ratios - 90 days or more past due excluding
 nonperforming loans (b)
   Commercial                                  .09  .09  .07  .07  .07
   Commercial real estate                      .09  .13  .02  .04   --
   Residential mortgages                      1.09  .98  .86  .58  .46
   Retail                                      .63  .69  .68  .55  .50
Total loans                                    .41  .43  .38  .30  .26

Delinquent loan ratios - 90 days or more past due including
 nonperforming loans (b)
   Commercial                                  .71  .60  .43  .51  .44
   Commercial real estate                     1.57 1.18 1.02  .83  .69
   Residential mortgages                      1.55 1.24 1.10  .79  .65
   Retail                                      .74  .77  .73  .61  .58
Total loans                                   1.00  .86  .74  .65  .57

(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)
                                    Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
                                      2008   2008   2007   2007   2007
                                    ----------------------------------
Nonperforming loans
   Commercial                         $265   $201   $128   $161   $128
   Lease financing                      75     64     53     46     44
                                    ----------------------------------
      Total commercial                 340    265    181    207    172
   Commercial mortgages                139    102     84     73     90
   Construction and development        326    212    209    153    107
                                    ----------------------------------
      Total commercial real estate     465    314    293    226    197
   Residential mortgages               108     59     54     48     41
   Retail                               58     42     29     32     39
                                    ----------------------------------
Total nonperforming loans              971    680    557    513    449

Other real estate                      142    141    111    113    103
Other nonperforming assets              22     24     22     15     13
                                    ----------------------------------

Total nonperforming assets (a)      $1,135   $845   $690   $641   $565
                                    ----------------------------------

Accruing loans 90 days or more past
 due                                  $687   $676   $584   $451   $376
                                    ----------------------------------

Restructured loans that continue
 to accrue interest                 $1,029   $695   $551   $468   $435
                                    ----------------------------------

Nonperforming assets to loans
   plus ORE (%)                        .68    .53    .45    .43    .39

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

Nonperforming assets at June 30, 2008, totaled $1,135 million, compared with $845 million at March 31, 2008, and $565 million at June 30, 2007. The ratio of nonperforming assets to loans and other real estate was .68 percent at June 30, 2008, compared with .53 percent at March 31, 2008, and .39 percent at June 30, 2007. The increase in nonperforming assets from a year ago was driven primarily by the residential construction portfolio and related industries, 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 conditions and continuing stress in the residential mortgage portfolio and residential construction industry. Accruing loans 90 days or more past due increased to $687 million at June 30, 2008, compared with $676 million at March 31, 2008, and $376 million at June 30, 2007. Similar to nonperforming assets, the increase year-over-year in delinquent loans that continue to accrue interest was primarily related to residential mortgages, credit cards and home equity loans. However, the increase on a linked quarter basis moderated. Restructured loans that continue to accrue interest have also increased from the second quarter of 2007 and the first 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 during 2008 as residential home valuations continue to decline and certain borrowers take advantage of the Company's mortgage loan restructuring programs.

CAPITAL POSITION                                              Table 11
----------------------------------------------------------------------
($ in millions)            Jun 30   Mar 31   Dec 31   Sep 30   Jun 30
                             2008     2008     2007     2007     2007
                          -------------------------------------------

Total shareholders'
 equity                   $21,828  $21,572  $21,046  $20,686  $20,330
Tier 1 capital             18,624   18,543   17,539   17,288   16,876
Total risk-based capital   27,502   27,207   25,925   25,820   25,709

Tier 1 capital ratio          8.5%     8.6%     8.3%     8.5%     8.5%
Total risk-based capital
 ratio                       12.5     12.6     12.2     12.7     13.0
Leverage ratio                7.9      8.1      7.9      8.0      7.9
Common equity to assets       8.2      8.3      8.4      8.6      8.7
Tangible common equity to
 assets                       5.2      5.3      5.1      5.3      5.2

Total shareholders' equity was $21.8 billion at June 30, 2008, compared with $21.6 billion at March 31, 2008, and $20.3 billion at June 30, 2007. The Tier 1 capital ratio was 8.5 percent at June 30, 2008, compared with 8.6 percent at March 31, 2008, and 8.5 percent at June 30, 2007. The total risk-based capital ratio was 12.5 percent at June 30, 2008, compared with 12.6 percent at March 31, 2008, and 13.0 percent at June 30, 2007. The leverage ratio was 7.9 percent at June 30, 2008, compared with 8.1 percent at March 31, 2008, and 7.9 percent at June 30, 2007. Tangible common equity to assets was 5.2 percent at June 30, 2008, compared with 5.3 percent at March 31, 2008, and 5.2 percent at June 30, 2007. All regulatory ratios continue to be in excess of stated "well-capitalized" requirements.

COMMON SHARES                                                 Table 12
----------------------------------------------------------------------
(Millions)                                  2Q    1Q    4Q    3Q    2Q
                                          2008  2008  2007  2007  2007
                                         -----------------------------

Beginning shares outstanding             1,738 1,728 1,725 1,728 1,742
Shares issued for stock option and stock
 purchase
  plans, acquisitions and other corporate
   purposes                                  3    12     3     3     4
Shares repurchased                          --   (2)    --   (6)  (18)
                                         -----------------------------
Ending shares outstanding                1,741 1,738 1,728 1,725 1,728
                                         -----------------------------

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. As of June 30, 2008, there were approximately 62 million shares remaining to be repurchased under the authorization.

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)
----------------------------------------------------------------------
($ in millions)
                        Net Income     Percent Change
                    ------------------ ---------------
                      2Q     1Q     2Q 2Q08 vs 2Q08 vs    YTD    YTD
Business Line       2008   2008   2007    1Q08    2Q07   2008   2007
                    --------------------------------------------------

Wholesale Banking   $255   $254   $278      .4   (8.3)   $509   $545
Consumer Banking     321    387    478  (17.1)  (32.8)    708    927
Wealth Management &
   Securities
    Services         149    147    153     1.4   (2.6)    296    298
Payment Services     278    282    253   (1.4)     9.9    560    481
Treasury and
 Corporate Support  (53)     20    (6)      nm      nm   (33)     35
                    ------------------                 -------------

Consolidated
 Company            $950 $1,090 $1,156  (12.8)  (17.8) $2,040 $2,286
                    ------------------                 -------------

(a) preliminary data

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                   Table 13
----------------------------------------------------------------------
($ in millions)
                                                              2Q 2008
                                                  Percent    Earnings
Business Line                                      Change Composition
                                                 ---------------------

Wholesale Banking                                   (6.6)          27%
Consumer Banking                                   (23.6)          34
Wealth Management &
   Securities Services                               (.7)          16
Payment Services                                     16.4          29
Treasury and Corporate Support                         nm         (6)
                                                          -----------

Consolidated Company                               (10.8)         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 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 $255 million of the Company's net income in the second quarter of 2008, an 8.3 percent decrease from the same period of 2007 and a .4 percent increase from the first quarter of 2008. Stronger net interest income year-over-year and growth in fee-based revenues was offset by valuation losses due to adverse market conditions, an increase in total noninterest expense driven by incremental investments in the wholesale banking business and higher credit costs. Net interest income increased $30 million year-over-year due to strong growth in earning assets, partially offset by declining loan rates and a decrease in the margin benefit of deposits. The decline in total noninterest income was primarily due to security valuation losses and lower earnings from equity investments, offset somewhat by growth in treasury management fees, syndication, commercial loan and other capital markets fees and higher commercial leasing revenue. Total noninterest expense increased by $22 million (9.1 percent) over a year ago, primarily due to higher compensation and employee benefits expense related to merit increases, expanding the business line's national corporate banking presence, investments to enhance customer relationship management, and an acquisition. The provision for credit losses increased $35 million due to continued credit deterioration in the homebuilding and commercial home supplier industries.

Wholesale Banking's contribution to net income in the second quarter of 2008 was relatively flat compared with the first quarter of 2008. Growth in total net revenue (4.9 percent) was offset by a $12 million increase in the provision for credit losses primarily due to higher net charge-offs, and higher total noninterest expense (7.8 percent). Total net revenue was higher on a linked quarter basis due to an increase in total noninterest income, while net interest income was essentially flat to the first quarter of 2008. Growth in average loans and interest-bearing deposit balances was offset by the effect of asset repricing and the lower margin benefit of deposits given the declining rate environment. Total noninterest income increased on a linked quarter basis due to an increase in treasury management fees, an increase in commercial products revenue due to higher commercial leasing gains, stand-by letter of credit and syndication fees, and a favorable variance in other revenue from an investment in a commercial real estate business. This was partially offset by security valuation losses driven by recent market conditions. Total noninterest expense increased $19 million (7.8 percent) due to a seasonal increase in compensation expense and higher credit collection-related costs. The provision for credit losses increased due to higher net charge-offs principally related to commercial construction lending.

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 $321 million of the Company's net income in the second quarter of 2008, a 32.8 percent decrease from the same period of 2007 and a 17.1 percent decrease from the prior quarter. Within Consumer Banking, the retail banking division accounted for $285 million of the total contribution, a 36.7 percent decrease on a year-over-year basis and a 16.4 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 and an increase in the provision for credit losses. Net interest income for the retail banking division declined year-over-year as an increase in average loan balances and yield-related loan fees was more than offset by lower deposit balances, as customers utilized balances to fund higher living costs, and a decline in the margin benefit of deposits given the declining interest rate environment. Total noninterest income for the retail banking division decreased 7.2 percent from a year ago due to lower retail lease revenue related to higher retail lease residual losses, which were partially offset by growth in revenue from ATM processing services. Total noninterest expense in the second quarter of 2008 increased 9.3 percent for the division over the same quarter of 2007, reflecting 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 $97 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 second quarter of 2008 the mortgage banking division's contribution was $36 million, an $8 million increase from the same period of 2007. The increase for the mortgage banking division's contribution was a result of higher total net revenue, partially offset by higher noninterest expense and provision for credit losses. The division's total net revenue increased by $54 million (59.3 percent) over a year ago, reflecting an increase in net interest income and an increase in mortgage servicing income and production revenue, partially offset by an unfavorable net change in the valuation of mortgage servicing rights ("MSRs") and related economic hedging activities. As a result of higher rates and increased loan production, net interest income increased $40 million as average mortgage loans and loans held for sale increased over a year ago. Noninterest income was favorably impacted by loan production and the adoption of SFAS 157 in early 2008. Total noninterest expense for the mortgage banking division increased $31 million (66.0 percent) over the second quarter of 2007, primarily due to the impact of the adoption of SFAS 157 on compensation expense of $18 million, higher production levels from a year ago and servicing costs associated with other real estate owned and foreclosures.

Consumer Banking's contribution in the second quarter of 2008 decreased $66 million (17.1 percent) compared with the first quarter of 2008. The retail banking division's contribution decreased 16.4 percent on a linked quarter basis, driven primarily by an increase in the provision for credit losses. Total net revenue for the retail banking division decreased $9 million (.7 percent) due to lower net interest income, partially offset by an increase in total noninterest income. Net interest income declined by 2.4 percent on a linked quarter basis, as the favorable impact of growth in average loan balances was more than offset by lower deposit balances and changing credit spreads due to the current yield curve. The increase in total noninterest income was driven by seasonally higher deposit service charges and ATM processing services revenue, partially offset by higher retail lease residual losses. Total noninterest expense for the retail banking division increased $30 million (4.3 percent) on a linked quarter basis. This increase was due to higher compensation and employee benefits expense due to the timing of merit increases, higher fraud losses and processing costs and the timing of marketing programs. The provision for credit losses for the division reflected a $50 million increase in net charge-offs compared with the first quarter of 2008 reflecting higher consumer delinquencies within these portfolios. The contribution of the mortgage banking division decreased $10 million from the first quarter of 2008, driven primarily by an increase in provision for credit losses. Total net revenue decreased by 1.4 percent principally due to the net impact of an unfavorable change in the valuation of MSRs and related economic hedging activities. Total noninterest expense in the mortgage banking division increased $3 million (4.0 percent) over the first quarter of 2008, primarily driven by higher processing costs.

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 $149 million of the Company's net income in the second quarter of 2008, a 2.6 percent decrease compared with the same period of 2007 and a 1.4 percent increase over the first quarter of 2008. Total net revenue year-over-year remained relatively flat. Total noninterest income increased (2.4 percent) due to core account growth, partially offset by unfavorable equity market conditions from a year ago. Net interest income declined (6.0 percent) due to a reduction in the margin benefit of deposits. Total noninterest expense was 3.6 percent higher compared with the same quarter of 2007, primarily due to higher compensation and employee benefits expense, partially offset by lower other intangibles expense.

The increase in the business line's contribution in the second quarter of 2008 compared with the first quarter of 2008 was primarily due to seasonally higher tax filing fees. This increase was partially offset by lower net interest income due to the margin impact of declining rates on deposits and a 2.0 percent increase in total noninterest expense as compared with the first quarter of 2008.

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 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 $278 million of the Company's net income in the second quarter of 2008, a 9.9 percent increase over the same period of 2007 and a 1.4 percent decrease compared with the first quarter of 2008. Total net revenue increased year-over-year due to higher net interest income (43.8 percent) and total noninterest income (10.6 percent). Net interest income increased due to strong growth in higher spread credit card balances and the timing of asset repricing in a declining rate environment. During the past year, all payment processing revenue categories benefited from account growth, higher transaction volumes and business expansion initiatives. Growth in total noninterest expense (11.4 percent) year-over-year primarily reflected new business initiatives, including costs associated with transaction processing and recent acquisitions. An increase in the provision for credit losses was driven by an increase in net charge-offs of $67 million year-over-year, which reflected credit card portfolio growth, higher delinquency rates and changing economic conditions from a year ago.

Payment Services' contribution in the second quarter of 2008 decreased slightly (1.4 percent) compared with the first quarter of 2008, as total net revenue growth was offset by an increase in total noninterest expense (6.7 percent) and in the provision for credit losses (25.4 percent) due to portfolio growth and changing economic conditions. Total net revenue was higher due to a 9.2 percent increase in total noninterest income, partially offset by a 4.3 percent decrease in net interest income. Total noninterest income increased due to seasonally higher transaction volumes and changes in rates, driven by the mix of sales volume. Net interest income decreased as the benefit from strong growth in retail credit card balances was offset by declining rates as these assets repriced with the recent declines in interest rates. The increase in total noninterest expense was primarily due to an increase in compensation and employee benefits, including the impact of business expansion initiatives, increased fraud losses and the timing of marketing programs.

Treasury and Corporate Support includes the Company's investment portfolios, funding, capital management, 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 a net loss of $53 million in the second quarter of 2008, compared with a net loss of $6 million in the second quarter of 2007 and net income of $20 million in the first quarter of 2008. Net interest income increased $185 million in the current quarter over the second quarter of 2007, reflecting a steepening yield curve, wholesale funding decisions and the Company's asset/liability position. Total noninterest income decreased $44 million, primarily reflecting the impairment charges for certain structured investment securities. Total noninterest expense was flat year-over-year, reflecting higher compensation and employee benefits expense, incremental costs associated with investments in tax-advantaged projects and litigation costs, partially offset by a reduction in business integration expense and net shared services expense. The provision for credit losses increased $196 million representing the incremental charge taken this quarter. This incremental provision, reflected deterioration in credit quality within the loan portfolios related to stress in the residential real estate markets, including homebuilding and related supplier industries, and the impact of economics conditions on the loan portfolios.

Net income in the second quarter of 2008 was lower on a linked quarter basis due to the impact of several significant items recognized by the Company in the first quarter of 2008. The net change in operating results, on a linked quarter basis was primarily due to the $492 million Visa Gain, net of the $62 million for adoption of SFAS 157 recorded in the first quarter of 2008, partially offset by a favorable variance on the structured investment securities impairment charges and the first quarter of 2008 foundation contribution.

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, 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 1:00 PM (CDT) ON TUESDAY, JULY 15, 2008. 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 52522493. 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, July 15th, and will run through Tuesday, July 22nd, 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 52522493. Find the recorded call via the Internet at usbank.com.

Minneapolis-based U.S. Bancorp ("USB"), with $247 billion in assets, is the parent company of U.S. Bank, the 6th largest commercial bank in the United States. The Company operates 2,542 banking offices and 4,895 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, 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. 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, 2007, 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 Six Months Ended
 Except Per Share Data)                 June 30,          June 30,
                                   -----------------------------------
(Unaudited)                               2008   2007      2008   2007
----------------------------------------------------------------------
Interest Income
Loans                                   $2,429 $2,616    $4,989 $5,194
Loans held for sale                         49     70       122    129
Investment securities                      494    516     1,029  1,032
Other interest income                       43     34        80     68
                                   -----------------------------------
        Total interest income            3,015  3,236     6,220  6,423
Interest Expense
Deposits                                   458    663     1,064  1,338
Short-term borrowings                      263    379       585    707
Long-term debt                             419    562       893  1,097
                                   -----------------------------------
        Total interest expense           1,140  1,604     2,542  3,142
                                   -----------------------------------
Net interest income                      1,875  1,632     3,678  3,281
Provision for credit losses                596    191     1,081    368
                                   -----------------------------------
Net interest income after
 provision for credit losses             1,279  1,441     2,597  2,913
Noninterest Income
Credit and debit card revenue              266    230       514    436
Corporate payment products revenue         174    159       338    306
ATM processing services                     93     82       177    159
Merchant processing services               309    286       580    538
Trust and investment management
 fees                                      350    342       685    664
Deposit service charges                    278    277       535    524
Treasury management fees                   137    126       261    237
Commercial products revenue                117    105       229    205
Mortgage banking revenue                    81     68       186    135
Investment products fees and
 commissions                                37     38        73     72
Securities gains (losses), net            (63)      3     (314)      4
Other                                      113    169       672    328
                                   -----------------------------------
        Total noninterest income         1,892  1,885     3,936  3,608
Noninterest Expense
Compensation                               761    659     1,506  1,294
Employee benefits                          129    123       266    256
Net occupancy and equipment                190    184       380    361
Professional services                       59     59       106    106
Marketing and business development          66     68       145    120
Technology and communications              149    138       289    273
Postage, printing and supplies              73     71       144    140
Other intangibles                           87     95       174    189
Other                                      321    273       621    503
                                   -----------------------------------
        Total noninterest expense        1,835  1,670     3,631  3,242
                                   -----------------------------------
Income before income taxes               1,336  1,656     2,902  3,279
Applicable income taxes                    386    500       862    993
                                   -----------------------------------
Net income                                $950 $1,156    $2,040 $2,286
                                   -----------------------------------
Net income applicable to common
 equity                                   $928 $1,141    $2,006 $2,256
                                   -----------------------------------

Earnings per common share                 $.53   $.66     $1.16  $1.29
Diluted earnings per common share         $.53   $.65     $1.14  $1.27
Dividends declared per common
 share                                   $.425  $.400     $.850  $.800
Average common shares outstanding        1,740  1,736     1,735  1,744
Average diluted common shares
 outstanding                             1,756  1,760     1,752  1,770
----------------------------------------------------------------------

U.S. Bancorp
Consolidated Ending Balance Sheet

                                     June 30, December 31,    June 30,
(Dollars in Millions)                    2008         2007        2007
----------------------------------------------------------------------
Assets                            (Unaudited)              (Unaudited)
Cash and due from banks                $7,956       $8,884      $6,534
Investment securities
    Held-to-maturity                       64           74          81
    Available-for-sale                 41,058       43,042      39,433
Loans held for sale                     3,788        4,819       4,552
Loans
    Commercial                         55,138       51,074      46,459
    Commercial real estate             31,247       29,207      28,421
    Residential mortgages              23,301       22,782      21,992
    Retail                             56,204       50,764      48,836
                                  ------------------------------------
        Total loans                   165,890      153,827     145,708
            Less allowance for
             loan losses              (2,518)      (2,058)     (2,028)
                                  ====================================
            Net loans                 163,372      151,769     143,680
Premises and equipment                  1,811        1,779       1,798
Goodwill                                7,851        7,647       7,593
Other intangible assets                 3,313        3,043       3,352
Other assets                           17,325       16,558      15,507
                                  ------------------------------------
            Total assets             $246,538     $237,615    $222,530
                                  ------------------------------------

Liabilities and Shareholders'
 Equity
Deposits
    Noninterest-bearing               $33,970      $33,334     $29,545
    Interest-bearing                   76,300       72,458      70,216
    Time deposits greater than
     $100,000                          24,861       25,653      19,941
                                  ------------------------------------
        Total deposits                135,131      131,445     119,702
Short-term borrowings                  41,107       32,370      27,160
Long-term debt                         39,943       43,440      45,946
Other liabilities                       8,529        9,314       9,392
                                  ------------------------------------
        Total liabilities             224,710      216,569     202,200
Shareholders' equity
    Preferred stock                     1,500        1,000       1,000
    Common stock                           20           20          20
    Capital surplus                     5,682        5,749       5,748
    Retained earnings                  23,220       22,693      22,110
    Less treasury stock               (7,075)      (7,480)     (7,476)
    Other comprehensive income        (1,519)        (936)     (1,072)
                                  ------------------------------------
        Total shareholders' equity     21,828       21,046      20,330
                                  ------------------------------------
        Total liabilities and
         shareholders' equity        $246,538     $237,615    $222,530
----------------------------------------------------------------------

SOURCE: U.S. Bancorp

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

"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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