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U.S. Bancorp Reports Net Income for the Third Quarter of 2008

MINNEAPOLIS--(BUSINESS WIRE)--

U.S. Bancorp (NYSE: USB) today reported its financial results for the third quarter of 2008. Diluted earnings per common share of $.32 in the current quarter were lower than the $.62 of diluted earnings per common share reported for the third quarter of 2007. Included in the results were securities valuation losses representing $.18 per diluted common share and an incremental provision for credit losses equal to $.10 per diluted common share. The Company's fundamental business performance continues to be strong, despite the challenging financial markets. Results for the third quarter included strong growth year-over-year in net interest income, average loans and deposits and fee revenue, as customers continued to seek banks with strong capital and the ability to provide them with financial products and services during this period of economic uncertainty. Highlights for the third quarter of 2008 included:

-- Net interest income growth of 16.7 percent over the third quarter
    of 2007, driven by:
   -- Average earning assets growth of 10.3 percent
   -- Net interest margin expansion: 3.65 percent in the third quarter
       of 2008 versus 3.44 percent in the third quarter of 2007
-- Average loan growth of 12.9 percent over the third quarter of 2007,
    driven by:
   -- Average commercial loan growth of 15.2 percent, principally in
       high quality corporate lending
   -- Average retail loan growth of 15.2 percent, led by credit card
       balances, home equity lines and student loans
-- Average deposit growth of 12.1 percent over the third quarter of
    2007, including:
   -- Average noninterest-bearing deposits growth of 5.1 percent
   -- Average total savings deposit growth of 13.6 percent, led by
       24.0 percent growth in interest checking balances
   -- Total deposit growth of $4.4 billion, or 3.2 percent, June 30,
       2008, to September 30, 2008
-- Credit costs, as expected, trended higher, but coverage ratios
    remained strong:
   -- Provision for credit losses exceeded net charge-offs by $250
       million, resulting in provision expense equal to 150 percent of
       net charge-offs
   -- Allowance to period-end loans increased to 1.71 percent at
       September 30, 2008, compared with 1.60 percent at June 30, 2008
   -- Ratio of nonperforming assets to loans plus other real estate
       equaled .88 percent at September 30, 2008, well below the
       ratios posted by our peer banks-to-date
-- Regulatory capital ratios remained strong and on target at
    September 30, 2008, with:
   -- Tier 1 capital ratio of 8.5 percent
   -- Total risk-based capital ratio of 12.3 percent
   -- 89 percent of earnings returned to shareholders in the first
       nine months of 2008
EARNINGS SUMMARY                                               Table 1
----------------------------------------------------------------------
($ in millions,                   Percent Percent
 except per-                      Change  Change
 share data)     3Q    2Q     3Q  3Q08 vs 3Q08 vs  YTD    YTD  Percent
                2008  2008   2007  2Q08    3Q07    2008   2007 Change
                ------------------------------------------------------

Net income       $576  $950 $1,096 (39.4)  (47.4) $2,616 $3,382 (22.6)
Diluted
 earnings per
 common share     .32   .53    .62 (39.6)  (48.4)   1.46   1.89 (22.8)

Return on
 average assets
 (%)              .94  1.58   1.95                  1.45   2.04
Return on
 average common
 equity (%)      10.8  17.9   21.7                  16.6   22.4
Net interest
 margin (%)      3.65  3.61   3.44                  3.60   3.46
Efficiency
 ratio (%)       48.1  47.5   50.0                  46.3   47.9
Tangible
 efficiency
 ratio (%) (a)   45.8  45.2   47.3                  44.1   45.2

Dividends
 declared per
 common share   $.425 $.425  $.400    --     6.3  $1.275 $1.200   6.3
Book value per
 common share
 (period-end)   11.50 11.67  11.41  (1.5)     .8

(a) computed as noninterest expense divided by the sum of net interest
 income on a taxable-equivalent basis and noninterest income excluding
 securities gains (losses), net and intangible amortization.

U.S. Bancorp reported net income of $576 million for the third quarter of 2008, compared with $1,096 million for the third quarter of 2007. Diluted earnings per common share of $.32 in the third quarter of 2008 were lower than the same period of 2007 by 48.4 percent, or $.30 per diluted common share. Return on average assets and return on average common equity were .94 percent and 10.8 percent, respectively, for the third quarter of 2008, compared with returns of 1.95 percent and 21.7 percent, respectively, for the third quarter of 2007. Challenging market conditions impacted the third quarter of 2008 results. Significant items included in the third quarter of 2008 results were $411 million of securities losses, which included valuation impairments of structured investment securities, perpetual preferred stock, including the stock of government sponsored enterprises ("GSEs"), and certain non-agency mortgage-backed securities. In addition, the Company recorded other market valuation losses related to the bankruptcy of an investment banking firm and continued to build the allowance for credit losses by recording $250 million of provision for credit losses expense in excess of net charge-offs. These items reduced earnings per diluted common share by approximately $.28. The Company's results for the second quarter of 2008 were also affected by similar items, including 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 second quarter of 2008 earnings per diluted common share by approximately $.11.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "U.S. Bancorp's third quarter results reflected the underlying strength of our banking franchise and business model, as well as the challenges presented to us by the current operating environment. Strong year-over-year growth in average loans and deposits, an expanded net interest margin and higher fee-based revenue, demonstrated our ability - and on-going opportunity - to provide banking products and services to our growing customer base. Although the Company's fundamental performance was solid, earnings per diluted common share of $.32 were lower than both the previous quarter of 2008 and the same quarter of 2007, as current market conditions led to valuation losses on certain investments and higher credit costs.

"Throughout the quarter, our business lines remained focused on revenue growth initiatives, while continuing to prudently manage risk. An expansion of the net interest margin to 3.65 percent, along with strong earning asset growth, resulted in a 16.7 percent increase in net interest income over the third quarter of 2007. Our fee-based products also posted strong growth, led by commercial products revenue, treasury management fees and payments-related revenue. This year-over-year growth in loans, deposits and fees specifically points to the successful implementation of a number of revenue growth initiatives, in addition to the Company's ability to attract new business. We continue to be viewed as a strong and stable banking partner.

"As expected, credit costs were higher this quarter, reflecting stress in the residential mortgage portfolio and residential homebuilding and related businesses, as well as the overall economy. Net charge-offs of $498 million were higher than the previous quarter by 25.8 percent and equal to 1.19 percent of average loans outstanding. Nonperforming assets ended the quarter at $1,492 million, an increase of 31.5 percent over the second quarter of this year, and equal to .88 percent of outstanding loans plus other real estate. Consistent with the prior two quarters, the Company recorded incremental provision for credit losses. This $250 million incremental provision increased the allowance to period-end loans coverage to 1.71 percent at September 30, 2008. Given the current economic conditions, providing for credit losses over and above net charge-offs is prudent. We began this credit cycle with a strong balance sheet and we intend to keep that balance sheet strong throughout, and beyond, the end of this cycle. Credit costs will continue to increase in the coming quarter, but we expect that increase to be manageable given the Company's capacity to produce solid, core operating earnings.

"During September, we publicly disclosed that the Company's third quarter results would include valuation impairments related to certain structured investment securities and the perpetual preferred stock of two government sponsored enterprises. The Company's results for the quarter included the losses as presented in September, along with additional write-downs related to events that took place subsequent to that disclosure, including a bankruptcy and certain financial institution failures. In total, these market-related losses reduced third quarter earnings per diluted common share by $.18.

"Our capital position remains strong. The Company's Tier 1 capital ratio at September 30, 2008, was 8.5 percent, on target and equal to the ratio at the end of the second quarter. Our strong capital position has enabled us to grow our businesses, while still returning a substantial portion of our earnings to shareholders, primarily through dividends. Year-to-date, we have returned 89 percent of earnings to shareholders.

"Finally, I want to take a moment to thank all of our employees for their exceptional effort and dedication during this past year. These historic times have presented challenges, but they have also given our employees the opportunity to focus on building deeper relationships with our customers, serving our communities and creating value for our shareholders. Our employees have embraced this opportunity and are now, and will be, a critical component in our ability to grow, prosper and meet the challenges of the future. Our 54,000 employees are engaged, focused and dedicated to maintaining and enhancing U.S. Bancorp's position of strength within our markets and the financial services industry."

The Company's net income for the third quarter of 2008 decreased by $520 million (47.4 percent) from the same period of 2007. The reduction in net income year-over-year was the result of strong growth in net interest income (16.7 percent), offset by securities impairments and an increase in the provision for credit losses. On a linked quarter basis, net income declined by $374 million (39.4 percent), as strong growth in net interest income was offset by securities impairments and higher credit costs during the quarter.

Total net revenue on a taxable-equivalent basis for the third quarter of 2008 was $3,379 million, $183 million (5.1 percent) lower than the third quarter of 2007, reflecting a 16.7 percent increase in net interest income and a 24.8 percent decrease in noninterest income. The increase in net interest income year-over-year (16.7 percent) and on a linked quarter basis (3.1 percent, 12.4 percent annualized) was driven by growth in average earning assets and an improvement in the net interest margin. Noninterest income declined from a year ago and on a linked quarter basis, as strong growth in the majority of revenue categories was offset by securities impairments, other market valuation losses and higher retail lease residual losses.

Total noninterest expense in the third quarter of 2008 was $1,823 million, $47 million (2.6 percent) higher than the third quarter of 2007, and $12 million (.7 percent) lower 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 acquisitions and investments in relationship managers, branch initiatives and Payment Services' businesses. The increase was partially offset by the impact of a $115 million charge recognized in the third quarter of 2007 related to Visa, Inc.'s settlement with American Express ("Visa Charge"). 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 was relatively flat as increases due to a bank acquisition, higher occupancy and equipment expense, outside data processing costs and the impact of marketing and business development campaigns were offset by lower merchant processing expense, costs related to other real estate owned, employee benefits expense and ongoing prudent expense control.

The provision for credit losses for the third quarter of 2008 was $748 million, an increase of $152 million over the second quarter of 2008 and $549 million over the third quarter of 2007. This represented an incremental increase of $250 million over net charge-offs in the third quarter of 2008 and $200 million in the second quarter of 2008. The increase in the provision for credit losses from a year ago reflected continuing stress in the residential real estate markets, as well as homebuilding and related 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 third quarter of 2008 were $498 million, compared with net charge-offs of $396 million in the second quarter of 2008 and $199 million in the third 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 fourth quarter of 2008. Total nonperforming assets were $1,492 million at September 30, 2008, compared with $1,135 million at June 30, 2008, and $641 million at September 30, 2007. Nonperforming assets increased $357 million (31.5 percent) during the third quarter of 2008 over the second quarter of 2008 as a result of stress in residential home construction and related industries, as well as the residential mortgage portfolio, an increase in foreclosed properties and the impact of the economic slowdown on other commercial customers. The ratio of the allowance for credit losses to nonperforming loans was 222 percent at September 30, 2008, compared with 273 percent at June 30, 2008, and 441 percent at September 30, 2007.

INCOME STATEMENT HIGHLIGHTS                                    Table 2
----------------------------------------------------------------------
(Taxable-
 equivalent
 basis, $ in                      Percent Percent
 millions,                        Change  Change
 except per-    3Q     2Q     3Q  3Q08 vs 3Q08 vs  YTD    YTD  Percent
 share data)   2008   2008   2007  2Q08    3Q07    2008   2007 Change
              --------------------------------------------------------

Net interest
 income       $1,967 $1,908 $1,685   3.1    16.7  $5,705 $5,001  14.1
Noninterest
 income        1,412  1,892  1,877 (25.4)  (24.8)  5,348  5,485  (2.5)
              --------------------                -------------
   Total net
    revenue    3,379  3,800  3,562 (11.1)   (5.1) 11,053 10,486   5.4
Noninterest
 expense       1,823  1,835  1,776   (.7)    2.6   5,454  5,018   8.7
              --------------------                -------------
Income before
 provision
 and taxes     1,556  1,965  1,786 (20.8)  (12.9)  5,599  5,468   2.4
Provision for
 credit
 losses          748    596    199  25.5    nm     1,829    567  nm
              --------------------                -------------
Income before
 taxes           808  1,369  1,587 (41.0)  (49.1)  3,770  4,901 (23.1)
Taxable-
 equivalent
 adjustment       34     33     18   3.0    88.9      94     53  77.4
Applicable
 income taxes    198    386    473 (48.7)  (58.1)  1,060  1,466 (27.7)
              --------------------                -------------
Net income      $576   $950 $1,096 (39.4)  (47.4) $2,616 $3,382 (22.6)
              ====================                =============
Net income
 applicable
 to common
 equity         $557   $928 $1,081 (40.0)  (48.5) $2,563 $3,337 (23.2)
              ====================                =============
Diluted
 earnings per
 common share   $.32   $.53   $.62 (39.6)  (48.4)  $1.46  $1.89 (22.8)
              ====================                =============

Net Interest Income

Third quarter net interest income on a taxable-equivalent basis was $1,967 million, compared with $1,685 million in the third quarter of 2007, an increase of $282 million (16.7 percent). The increase was due to strong growth in average earning assets as well as an improved net interest margin over a year ago. Average earning assets for the period increased over the third quarter of 2007 by $20.1 billion (10.3 percent), primarily driven by an increase of $19.0 billion (12.9 percent) in average loans and $1.4 billion (3.5 percent) in average investment securities. During the third quarter of 2008, the net interest margin increased to 3.65 percent compared with 3.44 percent in the third 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 repricing dynamics. Also, given current market conditions, short-term funding rates were lower due to volatility and changing liquidity in the overnight fed funds markets.

Net interest income increased by $59 million (3.1 percent) over the prior quarter of 2008. This favorable variance was due to growth in average earning assets of $2.9 billion (1.4 percent) and an increase in the net interest margin from 3.61 percent in the second quarter of 2008 to 3.65 percent in the current quarter.

NET INTEREST INCOME                                            Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in                               Change
 millions)                            3Q       2Q       3Q    3Q08 vs
                                     2008     2008     2007    2Q08
                                   -----------------------------------
Components of net interest income
  Income on earning assets          $3,110   $3,067   $3,379    $43
  Expense on interest-bearing
   liabilities                       1,143    1,159    1,694    (16)
                                   -----------------------------------
Net interest income                 $1,967   $1,908   $1,685    $59
                                   ===================================

Average yields and rates paid
  Earning assets yield                5.77%    5.81%    6.90%  (.04)%
  Rate paid on interest-bearing
   liabilities                        2.45     2.53     4.01   (.08)
                                   -----------------------------------
Gross interest margin                 3.32%    3.28%    2.89%   .04%
                                   -----------------------------------
Net interest margin                   3.65%    3.61%    3.44%   .04%
                                   -----------------------------------

Average balances
  Investment securities            $42,548  $42,999  $41,128  $(451)
  Loans                            166,560  163,070  147,517  3,490
  Earning assets                   214,973  212,089  194,886  2,884
  Interest-bearing liabilities     185,494  183,855  167,805  1,639
  Net free funds (a)                29,479   28,234   27,081  1,245

(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     Change
 millions)                         3Q08 vs    YTD      YTD
                                     3Q07     2008     2007    Change
                                  ------------------------------------
Components of net interest income
  Income on earning assets          $(269)   $9,435   $9,878   $(443)
  Expense on interest-bearing
   liabilities                       (551)    3,730    4,877  (1,147)
                                  ------------------------------------
Net interest income                  $282    $5,705   $5,001    $704
                                  ====================================

Average yields and rates paid
  Earning assets yield              (1.13)%    5.96%    6.85%   (.89)%
  Rate paid on interest-bearing
   liabilities                      (1.56)     2.72     3.95   (1.23)
                                  ------------------------------------
Gross interest margin                 .43%     3.24%    2.90%    .34%
                                  ------------------------------------
Net interest margin                   .21%     3.60%    3.46%    .14%
                                  ------------------------------------

Average balances
  Investment securities            $1,420   $43,144  $40,904  $2,240
  Loans                            19,043   161,639  145,965  15,674
  Earning assets                   20,087   211,372  192,788  18,584
  Interest-bearing liabilities     17,689   182,943  165,240  17,703
  Net free funds (a)                2,398    28,429   27,548     881

(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   3Q08 vs
                                      2008     2008     2007   2Q08
                                    ----------------------------------

Commercial                           $48,137  $47,648  $41,648   1.0
Lease financing                        6,436    6,331    5,742   1.7
                                    --------------------------
   Total commercial                   54,573   53,979   47,390   1.1

Commercial mortgages                  22,302   21,192   19,592   5.2
Construction and development           9,446    9,281    8,870   1.8
                                    --------------------------
   Total commercial real estate       31,748   30,473   28,462   4.2

Residential mortgages                 23,309   23,307   22,258    --

Credit card                           12,217   11,559    9,895   5.7
Retail leasing                         5,200    5,523    6,424  (5.8)
Home equity and second mortgages      17,858   17,106   16,048   4.4
Other retail                          21,655   21,123   17,040   2.5
                                    --------------------------
   Total retail                       56,930   55,311   49,407   2.9
                                    --------------------------

Total loans                         $166,560 $163,070 $147,517   2.1
                                    ==========================

AVERAGE LOANS                                                  Table 4
----------------------------------------------------------------------
($ in millions)                       Percent
                                      Change
                                      3Q08 vs   YTD      YTD   Percent
                                       3Q07     2008     2007  Change
                                    ----------------------------------

Commercial                              15.6   $47,089  $41,560  13.3
Lease financing                         12.1     6,336    5,640  12.3
                                              -----------------
   Total commercial                     15.2    53,425   47,200  13.2

Commercial mortgages                    13.8    21,281   19,608   8.5
Construction and development             6.5     9,309    8,928   4.3
                                              -----------------
   Total commercial real estate         11.5    30,590   28,536   7.2

Residential mortgages                    4.7    23,198   21,888   6.0

Credit card                             23.5    11,611    9,221  25.9
Retail leasing                         (19.1)    5,507    6,643 (17.1)
Home equity and second mortgages        11.3    17,166   15,781   8.8
Other retail                            27.1    20,142   16,696  20.6
                                              -----------------
   Total retail                         15.2    54,426   48,341  12.6
                                              -----------------

Total loans                             12.9  $161,639 $145,965  10.7
                                              =================

Average loans for the third quarter of 2008 were $19.0 billion (12.9 percent) higher than the third quarter of 2007, driven by growth in the majority of loan categories. This included growth in average total retail loans of $7.5 billion (15.2 percent), total commercial loans of $7.2 billion (15.2 percent), total commercial real estate loans of $3.3 billion (11.5 percent) and residential mortgages of $1.1 billion (4.7 percent). Retail loan growth for the third quarter of 2008 over the third quarter of 2007 included a $3.4 billion increase in federally guaranteed student loan balances due to both the transfer of balances from loans held for sale and a portfolio purchase earlier in 2008. Average loans for the third quarter of 2008 were higher than the second quarter of 2008 by $3.5 billion (2.1 percent), again reflecting growth in the majority of loan categories. Total commercial loans grew by $594 million (1.1 percent) in the third quarter of 2008 over the second quarter of 2008, driven by increases in corporate and commercial banking balances as business customers utilize bank credit facilities, rather than the capital markets, to fund business growth and liquidity requirements. Total commercial real estate loans also increased $1.3 billion (4.2 percent) over the second quarter of 2008, reflecting the acquisition of Mellon 1st Business Bank late in the second quarter of 2008, as well as new business growth. Consumer lending continues to experience strong growth in installment products, home equity lines and credit card balances.

Average investment securities in the third quarter of 2008 were $1.4 billion (3.5 percent) higher than the third 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 and government agency securities. Average investment securities declined by $451 million (1.0 percent) from the second quarter of 2008, due to reductions in mortgage-backed and other asset-backed securities including the impact of impairments.

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)                                               Percent
                                                              Change
                                       3Q       2Q       3Q   3Q08 vs
                                      2008     2008     2007   2Q08
                                    ----------------------------------

Noninterest-bearing deposits         $28,322  $27,851  $26,947   1.7
Interest-bearing savings deposits
   Interest checking                  32,304   32,479   26,052   (.5)
   Money market savings               26,167   26,426   25,018  (1.0)
   Savings accounts                    5,531    5,377    5,283   2.9
                                    --------------------------
     Total of savings deposits        64,002   64,282   56,353   (.4)
Time certificates of deposit less
 than $100,000                        12,669   12,635   14,590    .3
Time deposits greater than $100,000   28,546   31,041   21,255  (8.0)
                                    --------------------------
     Total interest-bearing deposits 105,217  107,958   92,198  (2.5)
                                    --------------------------
Total deposits                      $133,539 $135,809 $119,145  (1.7)
                                    ==========================

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)                       Percent
                                      Change
                                      3Q08 vs   YTD      YTD   Percent
                                       3Q07     2008     2007  Change
                                    ----------------------------------

Noninterest-bearing deposits             5.1   $27,766  $27,531    .9
Interest-bearing savings deposits
   Interest checking                    24.0    31,697   25,666  23.5
   Money market savings                  4.6    26,062   25,108   3.8
   Savings accounts                      4.7     5,348    5,375   (.5)
                                              -----------------
     Total of savings deposits          13.6    63,107   56,149  12.4
Time certificates of deposit less
 than $100,000                         (13.2)   12,969   14,693 (11.7)
Time deposits greater than $100,000     34.3    29,560   21,237  39.2
                                              -----------------
     Total interest-bearing deposits    14.1   105,636   92,079  14.7
                                              -----------------
Total deposits                          12.1  $133,402 $119,610  11.5
                                              =================

Average total deposits for the third quarter of 2008 increased $14.4 billion (12.1 percent) over the third quarter of 2007. Noninterest-bearing deposits increased $1.4 billion (5.1 percent) due primarily to Wealth Management & Security Services and Wholesale Banking, which included the impact of the Mellon 1st Business Bank acquisition. Average total savings deposits increased year-over-year by $7.6 billion (13.6 percent) due to a $6.3 billion increase (24.0 percent) in interest checking balances, primarily the result of higher broker-dealer and institutional trust balances, a $1.1 billion increase (4.6 percent) in money market savings balances driven by higher balances from broker-dealers, Consumer Banking and Mellon 1st Business Bank customers, and a modest increase in savings accounts balances. Average time certificates of deposit less than $100,000 were lower in the third quarter of 2008 than in the third quarter of 2007 by $1.9 billion (13.2 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 $7.3 billion (34.3 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 current market conditions.

Average noninterest-bearing deposits for the third quarter of 2008 increased $471 million (1.7 percent) over the second quarter of 2008 due primarily to increases in business demand deposits, including the impact of the Mellon 1st Business Bank acquisition, partially offset by a seasonal decline in government deposits. Total average savings deposits declined modestly by $280 million (.4 percent) from the second quarter of 2008, as an increase in savings accounts balances was offset by declines in interest checking and money market accounts. The declines in interest checking and money market balances were primarily due to seasonally lower corporate trust balances and a reduction in government deposits, partially offset by the impact of the acquisition. Average time certificates less than $100,000 were slightly higher than the prior quarter, while average time deposits greater than $100,000 decreased by $2.5 billion (8.0 percent) from the prior quarter, primarily due to wholesale funding decisions. Total deposits were $139.5 billion at September 30, 2008 an increase of $4.4 billion (3.2 percent, 12.8 percent annualized) from June 30, 2008. This increase was driven by growth in Consumer Banking, Wealth Management & Securities Services and Wholesale Banking, as well as wholesale funding decisions.

NONINTEREST INCOME                                             Table 6
----------------------------------------------------------------------
($ in                            Percent Percent
 millions)                       Change  Change
              3Q     2Q     3Q   3Q08 vs 3Q08 vs   YTD   YTD   Percent
             2008   2008   2007   2Q08    3Q07    2008   2007  Change
            ----------------------------------------------------------

Credit and
 debit card
 revenue      $269   $266   $237    1.1    13.5    $783   $673   16.3
Corporate
 payment
 products
 revenue       179    174    166    2.9     7.8     517    472    9.5
ATM
 processing
 services       94     93     84    1.1    11.9     271    243   11.5
Merchant
 processing
 services      300    309    289   (2.9)    3.8     880    827    6.4
Trust and
 investment
 management
 fees          329    350    331   (6.0)    (.6)  1,014    995    1.9
Deposit
 service
 charges       286    278    276    2.9     3.6     821    800    2.6
Treasury
 management
 fees          128    137    118   (6.6)    8.5     389    355    9.6
Commercial
 products
 revenue       132    117    107   12.8    23.4     361    312   15.7
Mortgage
 banking
 revenue        61     81     76  (24.7)  (19.7)    247    211   17.1
Investment
 products
 fees and
 commissions    37     37     36     --     2.8     110    108    1.9
Securities
 gains
 (losses),
 net          (411)   (63)     7   nm      nm      (725)    11   nm
Other            8    113    150  (92.9)  (94.7)    680    478   42.3
            --------------------                 -------------

Total
 noninterest
 income     $1,412 $1,892 $1,877  (25.4)  (24.8) $5,348 $5,485   (2.5)
            ====================                 =============

Noninterest Income

Third quarter noninterest income was $1,412 million, $465 million (24.8 percent) lower than the same quarter of 2007 and $480 million (25.4 percent) lower than the second quarter of 2008. Noninterest income declined from the third quarter of 2007, as strong fee-based revenue growth in a majority of revenue categories was offset by impairment charges related to structured investment securities, perpetual preferred stock, including the stock of GSEs, and certain non-agency mortgage-backed securities. In addition, retail lease residual losses increased from a year ago. Credit and debit card revenue, corporate payment products revenue, ATM processing services and merchant processing services were higher in the third quarter of 2008 than the same period of 2007 by $32 million (13.5 percent), $13 million (7.8 percent), $10 million (11.9 percent) and $11 million (3.8 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 the prior year quarter. Corporate payment products revenue growth reflected growth in sales volumes and business expansion. The ATM processing services increase was also due to growth in transaction volumes. Merchant processing services revenue was higher in the third quarter of 2008 than the same period of 2007 due to higher transaction volume and business expansion. Deposit service charges increased $10 million (3.6 percent) year-over-year, primarily due to account growth and higher transaction-related fees. Treasury management fees increased $10 million (8.5 percent), due primarily to the favorable impact of declining rates on customer earnings credits and account growth. Commercial products revenue increased $25 million (23.4 percent) year-over-year due to higher customer syndication fees, letters of credit, capital markets and other commercial loan fees. Mortgage banking revenue decreased $15 million (19.7 percent) due to an unfavorable net change in the valuation of mortgage servicing rights ("MSRs") and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Net securities gains (losses) were lower than a year ago by $418 million due to the impact of impairment charges on various investment securities. Other income declined $142 million year-over-year, due to the adverse impact of higher retail lease residual losses, lower equity investment revenue and market valuation losses related to the bankruptcy of an investment banking firm.

Noninterest income was lower by $480 million (25.4 percent) in the third quarter of 2008 than the second quarter of 2008, reflecting the unfavorable variance in net securities losses and higher retail lease residual losses. Credit and debit card revenue increased $3 million (1.1 percent) and corporate payment products revenue increased $5 million (2.9 percent) due to higher transaction volumes. Deposit service charges increased $8 million (2.9 percent) due to account growth and more business days in the current quarter. Commercial products revenue increased over the second quarter of 2008 by $15 million (12.8 percent) due to higher syndication fees, stand-by letter of credit fees and foreign exchange revenue, partially offset by lower commercial leasing gains. These increases were offset by the several unfavorable variances. Merchant processing services revenue was lower in the third quarter of 2008 compared with the second quarter of 2008 by $9 million (2.9 percent) due to lower same store volumes and a change in the volume mix to business sectors with narrower processing margins. Trust and investment management fees decreased $21 million (6.0 percent) on a linked quarter basis due to seasonally higher second quarter tax filing fees and the impact of unfavorable equity market conditions. Treasury management fees decreased by $9 million (6.6 percent) on a linked quarter basis due primarily to seasonally higher government lock box activity in the second quarter. Mortgage banking revenue decreased by $20 million (24.7 percent) from the second quarter of 2008 due primarily to lower production income, partially offset by an increase in servicing revenue. The fair value of MSRs net of economic hedging activity remained relatively flat on a linked quarter basis. Net securities losses reflected a $348 million unfavorable variance on a linked quarter basis, due to higher impairment charges recorded on investment securities. Other income was lower on a linked quarter basis due to higher retail lease residual losses, lower equity investment revenue and market valuation losses, including derivatives write-offs.

NONINTEREST EXPENSE                                            Table 7
----------------------------------------------------------------------
($ in millions)                    Percent Percent
                                   Change  Change
                 3Q     2Q     3Q  3Q08 vs 3Q08 vs YTD    YTD  Percent
                2008   2008   2007  2Q08    3Q07   2008   2007 Change
               -------------------------------------------------------

Compensation     $763   $761   $656    .3    16.3 $2,269 $1,950  16.4
Employee
 benefits         125    129    119  (3.1)    5.0    391    375   4.3
Net occupancy
 and equipment    199    190    189   4.7     5.3    579    550   5.3
Professional
 services          61     59     56   3.4     8.9    167    162   3.1
Marketing and
 business
 development       75     66     71  13.6     5.6    220    191  15.2
Technology
 and
 communications   153    149    140   2.7     9.3    442    413   7.0
Postage,
 printing and
 supplies          73     73     70    --     4.3    217    210   3.3
Other
 intangibles       88     87     94   1.1    (6.4)   262    283  (7.4)
Other             286    321    381 (10.9)  (24.9)   907    884   2.6
               --------------------               -------------

Total
 noninterest
 expense       $1,823 $1,835 $1,776   (.7)    2.6 $5,454 $5,018   8.7
               ====================               =============

Noninterest Expense

Third quarter noninterest expense totaled $1,823 million, an increase of $47 million (2.6 percent) over the same quarter of 2007 and a decrease of $12 million (.7 percent) from the second quarter of 2008. Compensation expense increased $107 million (16.3 percent) over the same period of 2007 due to growth in ongoing bank operations, acquired businesses and other bank initiatives and the adoption of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("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 (5.0 percent) year-over-year as higher payroll taxes and medical costs were partially offset by lower pension costs. Net occupancy and equipment expense increased $10 million (5.3 percent) over the third quarter of 2007, primarily due to acquisitions, as well as branch-based and other business expansion initiatives. Professional services expense increased $5 million (8.9 percent) from the third quarter of 2007 due to increased litigation related costs. Marketing and business development expense increased $4 million (5.6 percent) year-over-year due to the timing of Consumer Banking product marketing programs and a national advertising campaign. Technology and communications expense increased $13 million (9.3 percent) year-over-year, primarily due to increased processing volumes and business expansion. These increases were partially offset by decreases in other intangibles expense of $6 million (6.4 percent) and other expense of $95 million (24.9 percent), due primarily to the $115 million Visa Charge recognized in the third quarter of 2007.

Noninterest expense in the third quarter of 2008 was relatively flat compared with the second quarter of 2008. Other expense decreased by $35 million (10.9 percent) from the second quarter of 2008 due to lower merchant processing costs and a reduction in credit-related costs for other real estate owned. Employee benefits expense decreased $4 million (3.1 percent) on a linked quarter basis due to lower employee recruitment expense, payroll taxes and other benefits. These favorable variances were offset by increases in net occupancy and equipment expense due to business expansion and other initiatives, marketing and business development expense due primarily to the national advertising campaign, and technology and communication expense due to increased volumes and the impact of an acquisition.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2008 resulted in a tax rate on a taxable-equivalent basis of 28.7 percent (effective tax rate of 25.6 percent) compared with 30.9 percent (effective tax rate of 30.1 percent) in the third quarter of 2007 and 30.6 percent (effective tax rate of 28.9 percent) in the second quarter of 2008.

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

Balance, beginning of period       $2,648 $2,435 $2,260  $2,260 $2,260

Net charge-offs
    Commercial                         57     51     39      23     26
    Lease financing                    22     18     16      13     11
                                   -----------------------------------
         Total commercial              79     69     55      36     37
    Commercial mortgages                9      6      4       3      1
    Construction and development       56     12      8       7      1
                                   -----------------------------------
        Total commercial real
         estate                        65     18     12      10      2

    Residential mortgages              71     53     26      17     17

    Credit card                       149    139    108      88     77
    Retail leasing                      9      8      7       6      3
    Home equity and second
     mortgages                         48     48     30      22     20
    Other retail                       77     61     55      46     43
                                   -----------------------------------
         Total retail                 283    256    200     162    143
                                   -----------------------------------
            Total net charge-offs     498    396    293     225    199
Provision for credit losses           748    596    485     225    199
Acquisitions and other changes         --     13    (17)     --     --
                                   -----------------------------------
Balance, end of period             $2,898 $2,648 $2,435  $2,260 $2,260
                                   ===================================

Components
   Allowance for loan losses       $2,767 $2,518 $2,251  $2,058 $2,041
   Liability for unfunded credit
    commitments                       131    130    184     202    219
                                   -----------------------------------
            Total allowance for
             credit losses         $2,898 $2,648 $2,435  $2,260 $2,260
                                   ===================================

Gross charge-offs                    $544   $439   $348    $287   $256
Gross recoveries                      $46    $43    $55     $62    $57

Allowance for credit losses as a
 percentage of
   Period-end loans                  1.71   1.60   1.54    1.47   1.52
   Nonperforming loans                222    273    358     406    441
   Nonperforming assets               194    233    288     328    353

Credit Quality

During the third quarter of 2008, credit losses and nonperforming assets continued to trend higher. The allowance for credit losses was $2,898 million at September 30, 2008, compared with $2,648 million at June 30, 2008, and $2,260 million at September 30, 2007. As a result of the continued stress in the residential housing markets, homebuilding and related industry sectors, and growth of the loan portfolios, the Company has increased the allowance for credit losses by $638 million during 2008. The credit stress is being reflected in higher delinquencies, nonperforming asset levels and net charge-offs relative to a year ago and the second quarter of 2008. Total net charge-offs in the third quarter of 2008 were $498 million, compared with the second quarter of 2008 net charge-offs of $396 million and the third quarter of 2007 net charge-offs of $199 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 homebuilding and related industries, 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 $144 million in the third quarter of 2008 (.66 percent of average loans outstanding) compared with $87 million (.41 percent of average loans outstanding) in the second quarter of 2008 and $39 million (.20 percent of average loans outstanding) in the third quarter of 2007. This increasing trend in commercial and commercial real estate losses reflected the continuing stress within the portfolios, especially residential homebuilding and related industry sectors.

Residential mortgage loan net charge-offs increased to $71 million in the third quarter of 2008 (1.21 percent of average loans outstanding) compared with $53 million (.91 percent of average loans outstanding) in the second quarter of 2008 and $17 million (.30 percent of average loans outstanding) in the third 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 $283 million (1.98 percent of average loans outstanding) in the third quarter of 2008 compared with $256 million (1.86 percent of average loans outstanding) in the second quarter of 2008 and $143 million (1.15 percent of average loans outstanding) in the third quarter of 2007. The increased retail loan credit losses reflected the Company's growth in credit card and consumer loan balances, as well as the adverse impact of current economic conditions on consumers.

The ratio of the allowance for credit losses to period-end loans was 1.71 percent at September 30, 2008, compared with 1.60 percent at June 30, 2008, and 1.52 percent at September 30, 2007. The ratio of the allowance for credit losses to nonperforming loans was 222 percent at September 30, 2008, compared with 273 percent at June 30, 2008, and 441 percent at September 30, 2007.

CREDIT RATIOS                                                  Table 9
----------------------------------------------------------------------
(Percent)                             3Q     2Q     1Q     4Q     3Q
                                     2008   2008   2008   2007   2007
                                    ----------------------------------
Net charge-offs ratios (a)
   Commercial                          .47    .43    .34    .21    .25
   Lease financing                    1.36   1.14   1.03    .86    .76
      Total commercial                 .58    .51    .43    .29    .31

   Commercial mortgages                .16    .11    .08    .06    .02
   Construction and development       2.36    .52    .35    .31    .04
      Total commercial real estate     .81    .24    .16    .14    .03

   Residential mortgages              1.21    .91    .46    .30    .30

   Credit card                        4.85   4.84   3.93   3.29   3.09
   Retail leasing                      .69    .58    .49    .39    .19
   Home equity and second mortgages   1.07   1.13    .73    .53    .49
   Other retail                       1.41   1.16   1.25   1.05   1.00
      Total retail                    1.98   1.86   1.58   1.28   1.15

Total net charge-offs                 1.19    .98    .76    .59    .54

Delinquent loan ratios - 90 days or more past due excluding
 nonperforming loans (b)
   Commercial                          .11    .09    .09    .07    .07
   Commercial real estate              .05    .09    .13    .02    .04
   Residential mortgages              1.34   1.09    .98    .86    .58
   Retail                              .68    .63    .69    .68    .55
Total loans                            .46    .41    .43    .38    .30

Delinquent loan ratios - 90 days or more past due including
 nonperforming loans (b)
   Commercial                          .76    .71    .60    .43    .51
   Commercial real estate             2.25   1.57   1.18   1.02    .83
   Residential mortgages              2.00   1.55   1.24   1.10    .79
   Retail                              .81    .74    .77    .73    .61
Total loans                           1.23   1.00    .86    .74    .65

(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
                                     2008   2008   2008   2007   2007
                                    ----------------------------------
Nonperforming loans
   Commercial                         $280   $265   $201   $128   $161
   Lease financing                      85     75     64     53     46
                                    ----------------------------------
      Total commercial                 365    340    265    181    207
   Commercial mortgages                164    139    102     84     73
   Construction and development        545    326    212    209    153
                                    ----------------------------------
      Total commercial real estate     709    465    314    293    226
   Residential mortgages               155    108     59     54     48
   Retail                               74     58     42     29     32
                                    ----------------------------------
Total nonperforming loans            1,303    971    680    557    513

Other real estate                      164    142    141    111    113
Other nonperforming assets              25     22     24     22     15
                                    ----------------------------------

Total nonperforming assets (a)      $1,492 $1,135   $845   $690   $641
                                    ==================================

Accruing loans 90 days or more past
 due                                  $787   $687   $676   $584   $451
                                    ==================================

Restructured loans that continue to
 accrue interest                    $1,180 $1,029   $695   $551   $468
                                    ==================================

Nonperforming assets to loans plus
 ORE (%)                               .88    .68    .53    .45    .43

(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, 2008, totaled $1,492 million, compared with $1,135 million at June 30, 2008, and $641 million at September 30, 2007. The ratio of nonperforming assets to loans and other real estate was .88 percent at September 30, 2008, compared with .68 percent at June 30, 2008, and .43 percent at September 30, 2007. The increase in nonperforming assets from a year ago was driven primarily by the residential construction portfolio and related industries, as well as the residential mortgage portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers. The Company expects nonperforming assets to continue to increase due to general economic conditions and continuing stress in the residential mortgage portfolio and residential construction industry. Accruing loans 90 days or more past due increased to $787 million at September 30, 2008, compared with $687 million at June 30, 2008, and $451 million at September 30, 2007. The year-over-year increase in delinquent loans that continue to accrue interest was primarily related to residential mortgages, credit cards and home equity loans. Restructured loans that continue to accrue interest have also increased from the third quarter of 2007 and the second quarter of 2008, reflecting the impact of restructurings for certain residential mortgage customers in light of current economic conditions. The Company expects this trend to continue in the near term as residential home valuations decline and certain borrowers take advantage of the Company's mortgage loan restructuring programs.

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

Total shareholders' equity    $21,675 $21,828 $21,572 $21,046 $20,686
Tier 1 capital                 18,877  18,624  18,543  17,539  17,288
Total risk-based capital       27,403  27,502  27,207  25,925  25,820

Tier 1 capital ratio              8.5%    8.5%    8.6%    8.3%    8.5%
Total risk-based capital ratio   12.3    12.5    12.6    12.2    12.7
Leverage ratio                    8.0     7.9     8.1     7.9     8.0
Common equity to assets           8.2     8.2     8.3     8.4     8.6
Tangible common equity to
 assets                           5.3     5.2     5.3     5.1     5.3

Total shareholders' equity was $21.7 billion at September 30, 2008, compared with $21.8 billion at June 30, 2008, and $20.7 billion at September 30, 2007. The Tier 1 capital ratio was 8.5 percent at September 30, 2008, June 30, 2008, and September 30, 2007. The total risk-based capital ratio was 12.3 percent at September 30, 2008, compared with 12.5 percent at June 30, 2008, and 12.7 percent at September 30, 2007. The leverage ratio was 8.0 percent at September 30, 2008, compared with 7.9 percent at June 30, 2008, and 8.0 percent at September 30, 2007. Tangible common equity to assets was 5.3 percent at September 30, 2008, compared with 5.2 percent at June 30, 2008, and 5.3 percent at September 30, 2007. All regulatory ratios continue to be in excess of stated "well-capitalized" requirements. The Company does not plan to buy back shares during the remainder of 2008.

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

Beginning shares outstanding           1,741 1,738 1,728  1,725 1,728
Shares issued for stock option and
 stock purchase plans, acquisitions and
 other corporate purposes                 13     3    12      3     3
Shares repurchased                        --    --    (2)    --    (6)
                                       -------------------------------
Ending shares outstanding              1,754 1,741 1,738  1,728 1,725
                                       ===============================
LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                    Table 13
----------------------------------------------------------------------
($ in millions)
                                       Net Income     Percent Change
                                    ----------------- ----------------
                                     3Q   2Q    3Q    3Q08 vs 3Q08 vs
Business Line                       2008 2008  2007    2Q08    3Q07
                                    ----------------------------------

Wholesale Banking                   $237 $254   $265    (6.7)  (10.6)
Consumer Banking                     272  324    471   (16.0)  (42.3)
Wealth Management & Securities
 Services                            116  149    151   (22.1)  (23.2)
Payment Services                     269  277    274    (2.9)   (1.8)
Treasury and Corporate Support      (318) (54)   (65)   nm      nm
                                    -----------------

Consolidated Company                $576 $950 $1,096   (39.4)  (47.4)
                                    =================

(a) preliminary data

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                    Table 13
----------------------------------------------------------------------
($ in millions)
                                                             3Q 2008
                                        YTD    YTD  Percent Earnings
Business Line                          2008   2007  Change Composition
                                     ---------------------------------

Wholesale Banking                       $746   $809   (7.8)        41%
Consumer Banking                         983  1,405  (30.0)        47
Wealth Management & Securities
 Services                                411    447   (8.1)        20
Payment Services                         828    757    9.4         47
Treasury and Corporate Support          (352)   (36)  nm          (55)
                                     ---------------       -----------

Consolidated Company                  $2,616 $3,382  (22.6)       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 $237 million of the Company's net income in the third quarter of 2008, a 10.6 percent decrease from the same period of 2007 and a 6.7 percent decrease from the second quarter of 2008. Stronger net interest income year-over-year and an increase in fee-based revenue were offset by securities valuation losses due to adverse market conditions and an increase in total noninterest expense, driven primarily by the Mellon 1st Business Bank acquisition. Net interest income increased $50 million year-over-year due to strong growth in average earning assets and deposits, partially offset by declining loan rates and a decrease in the margin benefit of deposits. Total noninterest income increased $9 million (4.4 percent) as growth in treasury management, letter of credit, commercial loan and foreign exchange fees was partially offset by securities valuation losses and lower earnings from equity investments. Total noninterest expense increased by $20 million (8.4 percent) over a year ago, primarily due to higher compensation and employee benefits expense related to merit increases and the impact of an acquisition and other business initiatives. The provision for credit losses increased $83 million due to continued credit deterioration in the homebuilding and commercial home supplier industries.

Wholesale Banking's contribution to net income in the third quarter of 2008 was $17 million (6.7 percent) lower compared with the second quarter of 2008. Growth in total net revenue (1.5 percent) and modestly lower total noninterest expense (1.9 percent) were offset by a $43 million increase in the provision for credit losses, due to higher net charge-offs. Total net revenue was higher on a linked quarter basis due to an increase in net interest income (5.2 percent), partially offset by lower total noninterest income (6.1 percent). The increase in net interest income was due primarily to growth in average loan balances, partially offset by the effect of asset repricing. Total noninterest income decreased on a linked quarter basis due primarily to lower equity investment income, including an investment in a commercial real estate business. Total noninterest expense decreased $5 million (1.9 percent) due to lower processing costs impacted by higher second quarter of 2008 government lock box volume. The provision for credit losses increased due to higher net charge-offs principally related to 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 $272 million of the Company's net income in the third quarter of 2008, a 42.3 percent decrease from the same period of 2007 and a 16.0 percent decrease from the prior quarter. Within Consumer Banking, the retail banking division accounted for $241 million of the total contribution, a 44.9 percent decrease on a year-over-year basis and a 17.2 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 increases in average loan balances and yield-related loan fees were 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 16.1 percent from a year ago due to lower retail lease revenue related to higher retail lease residual losses, partially offset by growth in revenue from ATM processing services and higher deposit service charges. Total noninterest expense in the third quarter of 2008 increased 8.2 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 $120 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 third quarter of 2008, the mortgage banking division's contribution was $31 million, a $3 million (8.8 percent) decrease from the same period of 2007. The decrease in the mortgage banking division's contribution was a result of higher total noninterest expense and provision for credit losses, partially offset by higher total net revenue. The division's total net revenue increased by $27 million (25.7 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 MSRs and related economic hedging activities. As a result of higher rates and increased loan production, net interest income increased $38 million as average mortgage loans and mortgage loans held for sale increased over a year ago. Total 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 $26 million (51.0 percent) over the third quarter of 2007, primarily due to the impact of the adoption of SFAS 157 on compensation expense, 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 2008 decreased $52 million (16.0 percent) compared with the second quarter of 2008. The retail banking division's contribution decreased 17.2 percent on a linked quarter basis, driven primarily by an increase in the provision for credit losses and higher retail lease residual losses. Total net revenue for the retail banking division decreased $24 million (1.8 percent) due to lower total noninterest income, partially offset by higher net interest income. Net interest income increased by 2.7 percent on a linked quarter basis due to the favorable impact of growth in average loan balances and loan fees. The decrease in total noninterest income was driven by higher retail lease residual losses, partially offset by higher deposit service charges. Total noninterest expense for the retail banking division increased $15 million (2.1 percent) on a linked quarter basis. This increase was due to higher compensation and employee benefits expense due to the branch expansion, higher processing costs and the timing of marketing programs. The provision for credit losses for the division reflected a $40 million increase in net charge-offs compared with the second quarter of 2008, reflecting higher consumer delinquencies. The contribution of the mortgage banking division decreased $2 million from the second quarter of 2008, driven primarily by lower total net revenue. Total net revenue decreased by 7.7 percent principally due to lower production revenue, partially offset by higher servicing income. The valuation of MSRs and related economic hedging activities was relatively flat on a linked quarter basis. Total noninterest expense in the mortgage banking division decreased $4 million (4.9 percent) from the second quarter of 2008. In addition, the mortgage banking division's provision for credit losses declined $3 million on a linked quarter basis.

Wealth Management & Securities Services provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services. Wealth Management & Securities Services contributed $116 million of the Company's net income in the third quarter of 2008, a 23.2 percent decrease compared with the same period of 2007 and a 22.1 percent decrease from the second quarter of 2008. Total net revenue year-over-year decreased $38 million (7.8 percent) as net interest income declined by $7 million (5.8 percent) due primarily to the lower margin benefit of deposits while total noninterest income declined by $31 million (8.5 percent) due to the impact of unfavorable equity market conditions compared with a year ago, partially offset by core account growth. Total noninterest expense was 6.5 percent higher compared with the same quarter of 2007, primarily due to higher compensation and employee benefits expense and legal related costs, partially offset by lower other intangibles expense.

The decrease in the business line's contribution in the third quarter of 2008 compared with the linked quarter was primarily due to the unfavorable impact of equity market conditions on fees and seasonally higher tax filing fees in the second quarter of 2008. This decrease was partially offset by higher net interest income.

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 $269 million of the Company's net income in the third quarter of 2008, a decrease of 1.8 percent from the same period of 2007 and a 2.9 percent decrease compared with the second quarter of 2008. The decline year-over-year was due primarily to an increase in the provision for credit losses driven by an increase in net charge-offs of $86 million which reflected credit card portfolio growth, higher delinquency rates and changing economic conditions from a year ago. In addition, total noninterest expense increased $36 million (9.8 percent) year-over-year, primarily due to business expansion and increased transaction processing costs. These unfavorable variances were partially offset by an increase in total net revenue year-over-year due to higher net interest income (28.6 percent) and total noninterest income (8.4 percent). Net interest income increased due to strong growth in 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.

Payment Services' contribution in the third quarter of 2008 decreased $8 million (2.9 percent) from the second quarter of 2008 primarily due to an increase in the provision for credit losses (10.7 percent) due to portfolio growth and changing economic conditions. Total net revenue was relatively flat compared with the second quarter of 2008. Net interest income increased $4 million (1.6 percent) on a linked quarter basis, as loan volume growth was offset by declining rates. Total noninterest income increased slightly (.4 percent) as increases in credit and debit card revenue and corporate payment products revenue due to volume growth were offset by a decline in merchant processing services revenue due to lower same store volumes and a change in the volume mix to business sectors with narrower processing margins.

Treasury and Corporate Support includes the Company's investment portfolios, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of $318 million in the third quarter of 2008, compared with a net loss of $65 million in the third quarter of 2007 and a net loss of $54 million in the second quarter of 2008. Net interest income increased $197 million in the current quarter over the third quarter of 2007, reflecting the impact of the declining rate environment, wholesale funding decisions and the Company's asset/liability position. Total noninterest income decreased $411 million, primarily reflecting the impairment charges for structured investment securities, perpetual preferred stock, including the stock of GSEs, and certain non-agency mortgage-backed securities. Total noninterest expense decreased $107 million primarily due to the Visa Charge recognized in the third quarter of 2007. The provision for credit losses increased $252 million reflecting incremental provision, which exceeded net-charge-offs, 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 industries, and the impact of economic conditions on the loan portfolios.

Net income in the third quarter of 2008 was lower on a linked quarter basis due to the net unfavorable impact of the securities impairments and the incremental provision for credit losses.

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 6:30 AM (CT) ON TUESDAY, OCTOBER 21, 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 67006722. 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 21st, and will run through Tuesday, October 28th, at 11:00 PM (CT). To access the recorded message within the United States and Canada, dial 800-642-1687. If calling from outside the United States and Canada, please dial 706-645-9291 to access the recording. The conference ID is 67006722. 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 as of June 30, 2008. The Company operates 2,556 banking offices and 4,903 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 continued deterioration in general business and economic conditions and in the financial markets; changes in interest rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in our investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management's ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk.

A continuation of the recent turbulence in significant portions of the global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our counterparties and the economy generally. Dramatic declines in the housing market in the past year have resulted in significant write-downs of asset values by financial institutions. Concerns about the stability of the financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction of business activity, and increased market volatility. There can be no assurance that the Emergency Economic Stabilization Act of 2008 or the actions taken by the U.S. Treasury Department thereunder will help to stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely impact our business. In addition, our business and financial performance could be impacted as the financial industry restructures in the current environment, both by changes in the creditworthiness and performance of our counterparties and by changes in the competitive landscape.

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 Nine Months Ended
 Except Per Share Data)             September 30,      September 30,
                                  ------------------ -----------------
(Unaudited)                         2008      2007     2008     2007
----------------------------------------------------------------------
Interest Income
Loans                               $2,487    $2,703  $7,476    $7,897
Loans held for sale                     52        76     174       205
Investment securities                  478       522   1,507     1,554
Other interest income                   40        33     120       101
                                  ------------------------------------
        Total interest income        3,057     3,334   9,277     9,757
Interest Expense
Deposits                               425       694   1,489     2,032
Short-term borrowings                  276       374     861     1,081
Long-term debt                         423       599   1,316     1,696
                                  ------------------------------------
        Total interest expense       1,124     1,667   3,666     4,809
                                  ------------------------------------
Net interest income                  1,933     1,667   5,611     4,948
Provision for credit losses            748       199   1,829       567
                                  ------------------------------------
Net interest income after
 provision for credit losses         1,185     1,468   3,782     4,381
Noninterest Income
Credit and debit card revenue          269       237     783       673
Corporate payment products
 revenue                               179       166     517       472
ATM processing services                 94        84     271       243
Merchant processing services           300       289     880       827
Trust and investment management
 fees                                  329       331   1,014       995
Deposit service charges                286       276     821       800
Treasury management fees               128       118     389       355
Commercial products revenue            132       107     361       312
Mortgage banking revenue                61        76     247       211
Investment products fees and
 commissions                            37        36     110       108
Securities gains (losses), net        (411)        7    (725)       11
Other                                    8       150     680       478
                                  ------------------------------------
        Total noninterest income     1,412     1,877   5,348     5,485
Noninterest Expense
Compensation                           763       656   2,269     1,950
Employee benefits                      125       119     391       375
Net occupancy and equipment            199       189     579       550
Professional services                   61        56     167       162
Marketing and business
 development                            75        71     220       191
Technology and communications          153       140     442       413
Postage, printing and supplies          73        70     217       210
Other intangibles                       88        94     262       283
Other                                  286       381     907       884
                                  ------------------------------------
        Total noninterest expense    1,823     1,776   5,454     5,018
                                  ------------------------------------
Income before income taxes             774     1,569   3,676     4,848
Applicable income taxes                198       473   1,060     1,466
                                  ------------------------------------
Net income                            $576    $1,096  $2,616    $3,382
                                  ====================================
Net income applicable to common
 equity                               $557    $1,081  $2,563    $3,337
                                  ====================================

Earnings per common share             $.32      $.63   $1.47     $1.92
Diluted earnings per common share     $.32      $.62   $1.46     $1.89
Dividends declared per common
 share                               $.425     $.400  $1.275    $1.200
Average common shares outstanding    1,743     1,725   1,738     1,737
Average diluted common shares
 outstanding                         1,757     1,745   1,754     1,762
----------------------------------------------------------------------
U.S. Bancorp
Consolidated Ending Balance Sheet

                              September 30, December 31, September 30,
(Dollars in Millions)             2008          2007         2007
----------------------------------------------------------------------
Assets                         (Unaudited)                (Unaudited)
Cash and due from banks             $7,118       $8,884        $6,636
Investment securities
  Held-to-maturity                      64           74            78
  Available-for-sale                39,285       43,042        40,293
Loans held for sale                  3,116        4,819         4,601
Loans
  Commercial                        56,454       51,074        48,012
  Commercial real estate            32,177       29,207        28,517
  Residential mortgages             23,341       22,782        22,563
  Retail                            57,891       50,764        49,947
                              ----------------------------------------
     Total loans                   169,863      153,827       149,039
         Less allowance for
          loan losses               (2,767)      (2,058)       (2,041)
                              ----------------------------------------
         Net loans                 167,096      151,769       146,998
Premises and equipment               1,775        1,779         1,779
Goodwill                             7,816        7,647         7,604
Other intangible assets              3,242        3,043         3,150
Other assets                        17,543       16,558        16,489
                              ----------------------------------------
         Total assets             $247,055     $237,615      $227,628
                              ========================================

Liabilities and Shareholders' Equity
Deposits
  Noninterest-bearing              $35,476      $33,334       $28,272
  Interest-bearing                  76,697       72,458        70,916
  Time deposits greater than
   $100,000                         27,331       25,653        23,560
                              ----------------------------------------
     Total deposits                139,504      131,445       122,748
Short-term borrowings               37,423       32,370        28,868
Long-term debt                      40,110       43,440        45,241
Other liabilities                    8,343        9,314        10,085
                              ----------------------------------------
     Total liabilities             225,380      216,569       206,942
Shareholders' equity
    Preferred stock                  1,500        1,000         1,000
    Common stock                        20           20            20
    Capital surplus                  5,646        5,749         5,748
    Retained earnings               23,032       22,693        22,500
    Less treasury stock             (6,695)      (7,480)       (7,554)
    Other comprehensive income      (1,828)        (936)       (1,028)
                              ----------------------------------------
     Total shareholders'
      equity                        21,675       21,046        20,686
                              ----------------------------------------
     Total liabilities and
      shareholders' equity        $247,055     $237,615      $227,628
                              ========================================

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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