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

MINNEAPOLIS--(BUSINESS WIRE)--Jan. 21, 2009--U.S. Bancorp (NYSE: USB) today reported net income of $330 million for the fourth quarter of 2008. Diluted earnings per common share of $.15 in the current quarter were lower than the $.53 of diluted earnings per common share reported for the fourth quarter of 2007. Included in fourth quarter of 2008 results were securities and other market valuation losses totaling $.09 per diluted common share and a provision for credit losses in excess of net charge-offs equal to $.25 per diluted common share. Results for the fourth quarter included strong year-over-year growth in net interest income and average loans and deposits, as the Company continued to benefit from the "flight to quality" by customers seeking banks with strong capital and the ability to provide them with financial products and services during this period of economic uncertainty. Highlights for the fourth quarter of 2008 included:

    --  Average loan growth of 17.0 percent (12.7 percent excluding
        acquisitions) over the fourth quarter of 2007, driven by:
        o Average total commercial loan growth of 14.7 percent, principally in
          high quality corporate lending
        o Average retail loan growth of 17.0 percent, led by credit card
          balances, home equity lines and student loans
    --  Average loan growth of 6.4 percent (3.1 percent excluding acquisitions,
        12.4 percent annualized) over the third quarter of 2008, including:
        o Average total commercial loan growth of 4.3 percent (17.2 percent
          annualized)
        o Average total commercial real estate growth of 2.9 percent (11.6
          percent annualized)
        o Average retail loan growth of 3.6 percent (14.4 percent annualized)
    --  Average deposit growth of 15.2 percent (9.6 percent excluding
        acquisitions) over the fourth quarter of 2007, including:
        o Average noninterest-bearing deposits growth of 17.8 percent
        o Average total savings deposits growth of 9.5 percent
        o Total deposit growth of $19.8 billion, or 14.2 percent (5.8 percent
          excluding acquisitions), from September 30, 2008, to December 31, 2008
    --  Net interest income growth of 22.6 percent over the fourth quarter of
        2007, driven by:
        o Average earning assets growth of 12.8 percent
        o Net interest margin expansion to 3.81 percent in the fourth quarter of
          2008 compared with 3.51 percent in the fourth quarter of 2007
    --  Credit costs, as expected, trended higher, but coverage ratios remained
        strong:
        o Provision for credit losses exceeded net charge-offs by $635 million,
          resulting in an increase to the allowance for credit losses equal to
          100 percent of net charge-offs for the quarter
        o Allowance to period-end loans increased to 1.96 percent at December
          31, 2008, compared with 1.71 percent at September 30, 2008

    --  The Company acquired the majority of the operations of Downey Savings
        and Loan and PFF Bank and Trust from the Federal Deposit Insurance
        Corporation ("FDIC") on November 21, 2008. Combined, these acquisitions:
        o Added 213 branches, primarily in California, resulting in the Company
          now having the fourth largest branch network in that state and third
          largest in the southern California region
        o Increased loans $12.2 billion at December 31, 2008, and average loans
          $5.5 billion in fourth quarter of 2008. Approximately $11.5 billion of
          these loans are covered under loss sharing agreements with the FDIC
          limiting the Company's credit loss exposure
        o Increased deposits $11.8 billion at December 31, 2008, and average
          deposit balances $5.2 billion in fourth quarter of 2008
    --  Strong regulatory capital ratios at December 31, 2008, which included
        the impact of the preferred stock issuance to the Department of the U.S.
        Treasury in the fourth quarter of 2008:
        o Tier 1 capital ratio of 10.6 percent
        o Total risk-based capital ratio of 14.3 percent



 EARNINGS                                                                     Table 1
 SUMMARY

 ($ in
 millions,
 except                                   Percent  Percent
 per-share
 data)

                                          Change   Change

               4Q       3Q       4Q       4Q08 vs  4Q08 vs  Full     Full     Percent
                                                            Year     Year

               2008     2008     2007     3Q08     4Q07     2008     2007     Change

 Net income    $ 330    $ 576    $ 942    (42.7 )  (65.0 )  $ 2,946  $ 4,324  (31.9 )

 Diluted
 earnings per    .15      .32      .53    (53.1 )  (71.7 )    1.61     2.43   (33.7 )
 common share

 Return on
 average         .51      .94      1.63                       1.21     1.93
 assets (%)

 Return on
 average         5.3      10.8     18.3                       13.9     21.3
 common
 equity (%)

 Net interest    3.81     3.65     3.51                       3.66     3.47
 margin (%)

 Efficiency      50.6     48.1     55.1                       47.4     49.7
 ratio (%)

 Tangible
 efficiency      48.2     45.8     52.5                       45.1     47.1
 ratio (%)
 (a)

 Dividends
 declared per  $ .425   $ .425   $ .425   --       --       $ 1.700  $ 1.625  4.6
 common share

 Book value
 per common      10.47    11.50    11.60  (9.0  )  (9.7  )
 share
 (period-end)

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



U.S. Bancorp reported net income of $330 million for the fourth quarter of 2008, compared with $942 million for the fourth quarter of 2007. Diluted earnings per common share of $.15 in the fourth quarter of 2008 were lower than fourth quarter of 2007 by 71.7 percent, or $.38 per diluted common share. Return on average assets and return on average common equity were .51 percent and 5.3 percent, respectively, for the fourth quarter of 2008, compared with 1.63 percent and 18.3 percent, respectively, for the fourth quarter of 2007. Challenging market conditions continued and had an impact on the fourth quarter of 2008 results. Significant items in the fourth quarter of 2008 results included $253 million of securities losses, primarily impairment charges on securities related to structured investment vehicles. In addition, the Company increased the allowance for credit losses by recording $635 million of provision for credit losses in excess of net charge-offs. In total, significant items reduced earnings per diluted common share by approximately $.34. In the third quarter of 2008, the Company's results were affected by similar items, including net securities impairments of $411 million, market valuation losses related to the bankruptcy of an investment banking firm and a $250 million provision for credit losses in excess of net charge-offs. In total, those items reduced third quarter of 2008 earnings per diluted common share by approximately $.28.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "Once again, the Company's results for the quarter reflected both the strength of our banking franchise and business mix and the challenges facing our industry today, including rising credit costs and market valuation risk. The results were marked by outstanding growth in loans and deposits and an expanded net interest margin, but tempered by the unfavorable impact of higher credit losses and securities impairments. Fourth quarter's earnings per diluted common share of $.15 were below both the same quarter of 2007 and the prior quarter of 2008. Although we were able to absorb the increased cost of credit and market-related write-downs, I am disappointed with the overall decline in this quarter's earnings. I am, however, very proud of the fact that our Company has profitably navigated through this difficult environment, while continuing to build momentum for the future. For the full year 2008 our Company earned $2.9 billion, or $1.61 per diluted common share.

"As I have said many times over the past year, U.S. Bancorp is 'open for business'. The Company's total average loans outstanding, excluding acquisitions, grew year-over-year by $19.2 billion (12.7 percent) and $5.2 billion (12.4 percent annualized) on a linked quarter basis. Importantly, during the fourth quarter, our business lines originated over $16 billion in new loans to businesses and consumers. This double-digit growth in average loans, as well as new loan originations, clearly demonstrates that we are 'open' and continue to provide our current and newly acquired customers with access to the credit they need. The growth in loans, and an outstanding increase in total average deposits, excluding acquisitions, of $12.0 billion (9.6 percent) year-over-year and $5.8 billion (17.2 percent annualized) over the third quarter of 2008, also demonstrated that our Company is benefiting from the 'flight-to-quality'. Coupled with an increase in the net interest margin during the fourth quarter, this balance sheet growth led to a 22.6 percent increase in net interest income year-over-year and a 9.9 percent increase in net interest income over the prior quarter. This growth helped to cushion the impact of higher credit costs, market-related write-downs and the deceleration of growth in some of the fee income categories tied to the economy and equity markets, once more proving the advantage of our diversified business mix.

"Higher credit costs were a major contributor to the decline in net income this quarter, and the costs were in the middle of the range we communicated last December. Fourth quarter provision for credit losses of $1,267 million, exceeded net charge-offs by $635 million, or 100%. This incremental provision served to strengthen the ratio of allowance to period-end loans (excluding assets covered by the loss agreement with the FDIC) to 2.09 percent at December 31, 2008, from 1.71 percent at September 30, 2008. As expected, nonperforming assets were also higher, ending the quarter at $2,624 million, compared with $1,492 million at September 30, 2008. Included in this increase, however, were $643 million of assets covered by the loss agreements with the FDIC. Without the addition of the covered assets, nonperforming assets grew by $489 million, or 32.8 percent, quarter-over-quarter. Nonperforming assets to loans plus other real estate owned, excluding covered assets, was 1.14 percent at December 31, 2008, moderately higher than the .88 percent the Company recorded at September 30, 2008. We intend to maintain the strength of our balance sheet throughout this credit cycle and beyond, and will rely on our solid, core operating earnings to absorb the higher, but manageable, credit-related costs that we expect in 2009.

"On November 3, 2008, we announced our participation in the U.S. Treasury's Capital Purchase Program, and, subsequently, issued $6.6 billion of preferred stock and related warrants to the U.S. Treasury. As our results and actions this quarter illustrated, we are actively lending to credit-worthy borrowers, we are investing in our businesses, we are supporting our communities and we are backing the efforts of the U.S. Treasury to stabilize the financial markets and increase the flow of credit to both consumers and businesses, all while creating long-term value for our shareholders.

"Finally, I want to take this opportunity to thank all of our 56,000 employees, which includes our 3,000 new employees in California and Arizona. On January 15th, we held our second annual 'all employee meeting'. Over 34,000 employees across our franchise, including Europe, gathered in 70 locations and on conference calls to celebrate their collective hard work, adept decision-making, dedication to our customers and communities, and loyalty to our Company. Our future is brighter because of our employees' extraordinary efforts, and I look forward to the coming year knowing that our employees are engaged and committed to maintaining and enhancing our position as one of the leaders in the financial services industry."

The Company's net income for the fourth quarter of 2008 decreased by $612 million (65.0 percent) from the same period of 2007 and $246 million (42.7 percent) on a linked quarter basis. The reduction in net income on both a year-over-year and linked quarter basis was principally the result of an increase in the provision for credit losses. Total revenue grew during these periods driven by strong growth in net interest income, offset by securities impairments and lower fee based revenue as consumers and businesses reduced spending.

Total net revenue on a taxable-equivalent basis for the fourth quarter of 2008 was $3,624 million; $50 million (1.4 percent) higher than the fourth quarter of 2007, reflecting a 22.6 percent increase in net interest income and a 19.2 percent decrease in noninterest income. The increase in net interest income year-over-year (22.6 percent) and on a linked quarter basis (9.9 percent, 39.6 percent annualized) was a result of growth in average earning assets and an increase in net interest margin. Noninterest income declined from a year ago as payment services, trust and investment management fees and deposit service charges were affected by the impact of the slowing economy on equity valuations and customer behavior. In addition, noninterest income was adversely impacted by securities impairments, market-related valuation losses and retail lease residual losses. Noninterest income on a linked quarter basis increased modestly, as the reduction in securities impairments was offset by lower fee income.

Total noninterest expense in the fourth quarter of 2008 was $1,960 million; $8 million (.4 percent) lower than the fourth quarter of 2007, and $137 million (7.5 percent) higher than the third quarter of 2008. Total noninterest expense was relatively flat year-over-year because higher costs associated with business initiatives designed to expand the Company's geographic presence and strengthen customer relationships, including the Mellon 1st Business Bank, Downey Savings and Loan and PFF Bank and Trust acquisitions and investments in relationship managers, branch initiatives, and Payment Services' businesses, were offset by the favorable variance associated with a $215 million charge recognized in the fourth quarter of 2007 related to the Company's proportionate share of contingent obligations to indemnify Visa Inc. for certain litigation matters ("Visa Charge"). Operating expense also included higher credit collection costs and incremental costs associated with investments in tax-advantaged projects. The increase on a linked quarter basis was principally the result of acquisitions, seasonally higher expenses for marketing and business development campaigns, higher professional service fees and investments in tax-advantaged projects, as well as increased costs related to foreclosed real estate.

On November 21, 2008, the Company acquired substantially all of the assets and assumed all of the deposits and most of the liabilities of Downey Savings and Loan and PFF Bank and Trust ("Downey and PFF acquisitions") from the FDIC. In connection with these acquisitions, the Company entered into loss sharing agreements with the FDIC ("Loss Sharing Agreements") providing for specified credit loss and asset yield protection for all single family residential mortgages and a significant portion of commercial and commercial real estate loans and foreclosed real estate ("covered assets"). The Company estimated that the covered assets would incur approximately $4.7 billion of cumulative credit losses. These losses will be offset by an estimated $2.4 billion benefit to be received by the Company under the Loss Sharing Agreements. Under the terms of the Loss Sharing Agreements, the Company will incur the first $1.6 billion of specified contractual losses ("First Loss Position") on covered assets, which was approximately the amount of the predecessors' net assets. The Company acquired these net assets for a nominal amount of consideration. After the First Loss Position, the Company will incur 20 percent of the next $3.1 billion of specified contractual losses and only 5 percent of specified losses beyond that limit. The Company estimates its share of those losses will be approximately $.7 billion. The impact of estimated credit losses on future cash flows from the acquired loan portfolios was included in the determination of the estimated value of the loans at the date of the acquisition.

As required by existing accounting standards, the Company identified the acquired non-revolving loans experiencing credit deterioration, representing the majority of the assets acquired, and recorded these assets in the financial statements at their estimated fair market value to reflect expected credit losses and the estimated impact of the Loss Sharing Agreements. As a result, the Company will not record additional provision for credit losses or report charge-offs on these loans unless further credit deterioration occurs after the date of acquisition. The Company recorded all other loans at the predecessors' book value, net of fair value adjustments for any interest-rate related discount or premium, and an allowance for credit losses. In an effort to enhance information related to the Company's credit quality, the Company's financial disclosures segregate acquired covered assets from assets not subject to Loss Sharing Agreements.

The Company's provision for credit losses considers changes in credit quality of the recorded value for the entire portfolio of loans net of the credit loss protection available under the Loss Sharing Agreements with the FDIC. The provision for credit losses for the fourth quarter of 2008 was $1,267 million, an increase of $519 million over the third quarter of 2008 and $1,042 million over the fourth quarter of 2007. The provision for credit losses exceeded net charge-offs by $635 million in the fourth quarter of 2008 and $250 million in the third quarter of 2008. The increase in the provision for credit losses from a year ago reflects continuing stress in residential real estate markets, driven by declining home prices in most geographic regions. It also reflects deteriorating economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the fourth quarter of 2008 were $632 million, compared with net charge-offs of $498 million in the third quarter of 2008 and $225 million in the fourth quarter of 2007. Given current economic conditions and the continuing decline in home and other collateral values, the Company expects net charge-offs to increase during 2009.

Nonperforming assets were $2,624 million at December 31, 2008, compared with $1,492 million at September 30, 2008, and $690 million at December 31, 2007. This increase included $643 million of covered assets related to the Downey and PFF acquisitions. The majority of these nonperforming assets were subject to the Loss Sharing Agreements with the FDIC and were recorded at their estimated fair value at the date of acquisition. The remaining increase was driven by continuing stress in residential home construction and related industries, as well as the residential mortgage portfolio, an increase in foreclosed properties, and the impact of the economic slowdown on other commercial customers. The ratio of the allowance for credit losses to total loans not subject to loss sharing was 2.09 percent at December 31, 2008, compared with 1.71 percent at September 30, 2008, and 1.47 percent at December 31, 2007. The ratio of the allowance for credit losses to total loans, including loans subject to the FDIC Loss Sharing Agreements, was 1.96 percent at December 31, 2008. The Company anticipates that nonperforming assets will continue to increase during 2009 as deteriorating economic conditions begin to impact most commercial and consumer loan categories.



 INCOME STATEMENT HIGHLIGHTS                                                           Table 2

 (Taxable-equivalent
 basis, $ in                                     Percent  Percent
 millions,

 except per-share                                Change   Change
 data)

                      4Q       3Q       4Q       4Q08 vs  4Q08 vs  Full      Full      Percent
                                                                   Year      Year

                      2008     2008     2007     3Q08     4Q07     2008      2007      Change

 Net interest income  $ 2,161  $ 1,967  $ 1,763  9.9      22.6     $ 7,866   $ 6,764   16.3

 Noninterest income     1,463    1,412    1,811  3.6      (19.2 )    6,811     7,296   (6.6  )

 Total net revenue      3,624    3,379    3,574  7.3      1.4        14,677    14,060  4.4

 Noninterest expense    1,960    1,823    1,968  7.5      (.4   )    7,414     6,986   6.1

 Income before          1,664    1,556    1,606  6.9      3.6        7,263     7,074   2.7
 provision and taxes

 Provision for          1,267    748      225    69.4     nm         3,096     792     nm
 credit losses

 Income before taxes    397      808      1,381  (50.9 )  (71.3 )    4,167     6,282   (33.7 )

 Taxable-equivalent     40       34       22     17.6     81.8       134       75      78.7
 adjustment

 Applicable income      27       198      417    (86.4 )  (93.5 )    1,087     1,883   (42.3 )
 taxes

 Net income           $ 330    $ 576    $ 942    (42.7 )  (65.0 )  $ 2,946   $ 4,324   (31.9 )

 Net income
 applicable to        $ 260    $ 557    $ 927    (53.3 )  (72.0 )  $ 2,823   $ 4,264   (33.8 )
 common equity

 Diluted earnings     $ .15    $ .32    $ .53    (53.1 )  (71.7 )  $ 1.61    $ 2.43    (33.7 )
 per common share



Net Interest Income

Fourth quarter net interest income on a taxable-equivalent basis was $2,161 million, compared with $1,763 million in the fourth quarter of 2007, an increase of $398 million (22.6 percent). The increase was a result of growth in average earning assets, as well as a higher net interest margin than a year ago. Average earning assets for the period increased compared with the fourth quarter of 2007 by $25.7 billion (12.8 percent, 9.4 percent excluding acquisitions), primarily driven by an increase of $25.8 billion (17.0 percent) in average loans. During the fourth quarter of 2008, the net interest margin increased to 3.81 percent compared with 3.51 percent in the fourth quarter of 2007. The net interest margin increased because of growth in average loans at higher credit spreads, asset/liability re-pricing in a declining rate environment, wholesale funding mix during a period of significant volatility in short-term funding markets and the benefit of net free funds.

Net interest income increased $194 million (9.9 percent) over the prior quarter of 2008. This increase was a result of growth in average earning assets of $11.0 billion (5.1 percent, 2.5 percent without the impact of acquisitions) and an increase in the net interest margin from 3.65 percent in the third quarter of 2008 to 3.81 percent in the current quarter.



 NET INTEREST INCOME                                                                                             Table 3

 (Taxable-equivalent
 basis; $ in
 millions)

                                                             Change       Change

                      4Q           3Q           4Q           4Q08 vs      4Q08 vs      Full Year    Full Year

                      2008         2008         2007         3Q08         4Q07         2008         2007         Change

 Components of net
 interest income

 Income on earning    $ 3,195      $ 3,110      $ 3,431      $ 85         $ (236   )   $ 12,630     $ 13,309     $ (679   )
 assets

 Expense on
 interest-bearing       1,034        1,143        1,668        (109   )     (634   )     4,764        6,545        (1,781 )
 liabilities

 Net interest income  $ 2,161      $ 1,967      $ 1,763      $ 194        $ 398        $ 7,866      $ 6,764      $ 1,102

 Average yields and
 rates paid

 Earning assets         5.63    %    5.77    %    6.81    %    (.14   )%    (1.18  )%    5.87    %    6.84    %    (.97   )%
 yield

 Rate paid on
 interest-bearing       2.16         2.45         3.83         (.29   )     (1.67  )     2.58         3.91         (1.33  )
 liabilities

 Gross interest         3.47    %    3.32    %    2.98    %    .15    %     .49    %     3.29    %    2.93    %    .36    %
 margin

 Net interest margin    3.81    %    3.65    %    3.51    %    .16    %     .30    %     3.66    %    3.47    %    .19    %

 Average balances

 Investment           $ 41,974     $ 42,548     $ 42,525     $ (574   )   $ (551   )   $ 42,850     $ 41,313     $ 1,537
 securities

 Loans                  177,205      166,560      151,451      10,645       25,754       165,552      147,348      18,204

 Earning assets         225,986      214,973      200,307      11,013       25,679       215,046      194,683      20,363

 Interest-bearing       190,856      185,494      172,999      5,362        17,857       184,932      167,196      17,736
 liabilities

 Net free funds (a)     35,130       29,479       27,308       5,651        7,822        30,114       27,487       2,627

 (a) Represents noninterest-bearing deposits, allowance for loan losses, unrealized gain (loss) on available-for-sale
 securities, non-earning assets, other noninterest-bearing liabilities and equity.





 AVERAGE                                                                                Table 4
 LOANS

 ($ in                                          Percent  Percent
 millions)

                                                Change   Change

               4Q         3Q         4Q         4Q08 vs  4Q08 vs  Full Year  Full Year  Percent

               2008       2008       2007       3Q08     4Q07     2008       2007       Change

 Commercial    $ 50,328   $ 48,137   $ 43,649   4.6      15.3     $ 47,903   $ 42,087   13.8

 Lease           6,608      6,436      5,978    2.7      10.5       6,404      5,725    11.9
 financing

 Total           56,936     54,573     49,627   4.3      14.7       54,307     47,812   13.6
 commercial

 Commercial      22,967     22,302     19,775   3.0      16.1       21,705     19,650   10.5
 mortgages

 Construction
 and             9,691      9,446      8,983    2.6      7.9        9,405      8,942    5.2
 development

 Total
 commercial      32,658     31,748     28,758   2.9      13.6       31,110     28,592   8.8
 real estate

 Residential     23,430     23,309     22,670   .5       3.4        23,257     22,085   5.3
 mortgages

 Credit card     12,976     12,217     10,621   6.2      22.2       11,954     9,574    24.9

 Retail          5,062      5,200      6,123    (2.7 )   (17.3 )    5,395      6,512    (17.2 )
 leasing

 Home equity
 and second      18,691     17,858     16,343   4.7      14.4       17,550     15,923   10.2
 mortgages

 Other retail    22,247     21,655     17,309   2.7      28.5       20,671     16,850   22.7

 Total retail    58,976     56,930     50,396   3.6      17.0       55,570     48,859   13.7

 Total loans,
 excluding       172,000    166,560    151,451  3.3      13.6       164,244    147,348  11.5
 covered
 assets

 Covered         5,205      --         --       nm       nm         1,308      --       nm
 assets

 Total loans   $ 177,205  $ 166,560  $ 151,451  6.4      17.0     $ 165,552  $ 147,348  12.4



Total average loans, excluding covered assets, for the fourth quarter of 2008 were $172.0 billion; 13.6 percent higher than the fourth quarter of 2007, driven by growth in the majority of loan categories. The increase in total average loans included growth in average total retail loans of $8.6 billion (17.0 percent), total commercial loans of $7.3 billion (14.7 percent), total commercial real estate loans of $3.9 billion (13.6 percent) and residential mortgages of $760 million (3.4 percent). Retail loan growth for the fourth quarter of 2008 over the same quarter of 2007 included a $4.0 billion increase in federally guaranteed student loan balances resulting from a portfolio purchase, from the transfer of loans held for sale to held for investment and from growth in the portfolio. Total average loans, excluding covered assets, for the fourth quarter of 2008 were higher than the third quarter of 2008 by $5.4 billion (3.3 percent). Total commercial loans grew by $2.4 billion (4.3 percent) on a linked quarter basis, driven primarily by increases in corporate banking balances due to both customer account growth and increased line utilization. Total commercial real estate loans increased by $910 million (2.9 percent). Consumer lending continues to experience strong growth in installment products and home equity lines. In addition, credit card balances continue to show solid growth.

Average covered assets of $5.2 billion consisted of loans and foreclosed real estate acquired in the Downey and PFF acquisitions that were covered under the Loss Sharing Agreements. Approximately 70 percent of covered assets are single family residential mortgages.

Average investment securities in the fourth quarter of 2008 were $.6 billion (1.3 percent) lower than both the fourth quarter of 2007 and the third quarter of 2008.



 AVERAGE DEPOSITS                                                                              Table 5

 ($ in millions)                                       Percent  Percent

                                                       Change   Change

                      4Q         3Q         4Q         4Q08 vs  4Q08 vs  Full Year  Full Year  Percent

                      2008       2008       2007       3Q08     4Q07     2008       2007       Change

 Noninterest-bearing  $ 31,639   $ 28,322   $ 26,869   11.7     17.8     $ 28,739   $ 27,364   5.0
 deposits

 Interest-bearing
 savings deposits

 Interest checking      29,467     32,304     27,458   (8.8 )   7.3        31,137     26,117   19.2

 Money market           27,009     26,167     25,996   3.2      3.9        26,300     25,332   3.8
 savings

 Savings accounts       7,657      5,531      5,100    38.4     50.1       5,929      5,306    11.7

 Total of savings       64,133     64,002     58,554   .2       9.5        63,366     56,755   11.6
 deposits

 Time certificates
 of deposit less        15,414     12,669     14,539   21.7     6.0        13,583     14,654   (7.3 )
 than $100,000

 Time deposits
 greater than           33,283     28,546     25,461   16.6     30.7       30,496     22,302   36.7
 $100,000

 Total
 interest-bearing       112,830    105,217    98,554   7.2      14.5       107,445    93,711   14.7
 deposits

 Total deposits       $ 144,469  $ 133,539  $ 125,423  8.2      15.2     $ 136,184  $ 121,075  12.5



Average total deposits for the fourth quarter of 2008 increased $19.0 billion (15.2 percent) over the fourth quarter of 2007. Without the impact of acquisitions (Mellon 1st Business Bank, Downey and PFF), average total deposits increased $12.0 billion (9.6 percent). Noninterest-bearing deposits increased $4.8 billion (17.8 percent) year-over-year primarily related to Wealth Management & Securities Services, Corporate Banking and the impact of acquisitions. Average total savings deposits increased year-over-year by $5.6 billion (9.5 percent) due to an increase in average savings accounts of $2.6 billion (50.1 percent), primarily in Consumer Banking, a $2.0 billion increase (7.3 percent) in average interest checking balances, primarily the result of higher Consumer Banking balances, broker-dealer and institutional trust balances, and a $1.0 billion increase (3.9 percent) in average money market savings balances driven by higher balances from broker-dealers, Consumer Banking and the impact of acquisitions. Average time certificates of deposit less than $100,000 were higher in the fourth quarter of 2008 than in the fourth quarter of 2007 by $.9 billion (6.0 percent), primarily due to acquisitions. Average time deposits greater than $100,000 increased by $7.8 billion (30.7 percent) over the same period of 2007 as a result of the business lines' ability to attract larger customer deposits given current market conditions and the impact of acquisitions, as well as the Company's wholesale funding decisions.

Average total deposits increased $10.9 billion (8.2 percent) over the third quarter of 2008. Without the impact of the Downey and PFF acquisitions, average total deposits increased $5.8 billion (4.3 percent, 17.2 percent annualized). Average noninterest-bearing deposits for the fourth quarter of 2008 increased $3.3 billion (11.7 percent) over the prior quarter of 2008 due primarily to increases in broker-dealer and corporate trust deposits. Total average savings deposits increased modestly by $131 million (.2 percent) from the third quarter of 2008, as a strong increase in average savings accounts balances and an increase in average money market accounts were offset by a decline in average interest checking deposits. The 38.4 percent increase in average savings account balances on a linked quarter basis, and the 50.1 percent increase year-over-year, was principally the result of strong participation in a new savings product offered by Consumer Banking. The increase in average money market savings over the third quarter of 2008 was due primarily to higher broker-dealer and institutional trust balances. The decline in average interest checking deposits was primarily due to lower broker-dealer and institutional trust balances. Average time certificates less than $100,000 increased $2.7 billion (21.7 percent) over the prior quarter due to acquisitions, and average time deposits greater than $100,000 increased by $4.7 billion (16.6 percent) from the prior quarter, reflecting acquisitions and wholesale funding decisions.



 NONINTEREST                                                                       Table 6
 INCOME

 ($ in                                       Percent  Percent
 millions)

                                             Change   Change

              4Q         3Q         4Q       4Q08 vs  4Q08 vs  Full Year  Full     Percent
                                                                          Year

              2008       2008       2007     3Q08     4Q07     2008       2007     Change

 Credit and
 debit card   $ 256      $ 269      $ 285    (4.8  )  (10.2 )  $ 1,039    $ 958    8.5
 revenue

 Corporate
 payment        154        179        166    (14.0 )  (7.2  )    671        638    5.2
 products
 revenue

 ATM
 processing     95         94         84     1.1      13.1       366        327    11.9
 services

 Merchant
 processing     271        300        281    (9.7  )  (3.6  )    1,151      1,108  3.9
 services

 Trust and
 investment     300        329        344    (8.8  )  (12.8 )    1,314      1,339  (1.9 )
 management
 fees

 Deposit
 service        260        286        277    (9.1  )  (6.1  )    1,081      1,077  .4
 charges

 Treasury
 management     128        128        117    --       9.4        517        472    9.5
 fees

 Commercial
 products       131        132        121    (.8   )  8.3        492        433    13.6
 revenue

 Mortgage
 banking        23         61         48     (62.3 )  (52.1 )    270        259    4.2
 revenue

 Investment
 products       37         37         38     --       (2.6  )    147        146    .7
 fees and
 commissions

 Securities
 gains          (253  )    (411  )    4      38.4     nm         (978  )    15     nm
 (losses),
 net

 Other          61         8          46     nm       32.6       741        524    41.4

 Total
 noninterest  $ 1,463    $ 1,412    $ 1,811  3.6      (19.2 )  $ 6,811    $ 7,296  (6.6 )
 income



Noninterest Income

Fourth quarter noninterest income was $1,463 million; $348 million (19.2 percent) lower than the same quarter of 2007 and $51 million (3.6 percent) higher than the third quarter of 2008. Noninterest income declined from the fourth quarter of 2007, as fee-based revenue in a number of revenue categories was lower as deteriorating economic conditions adversely impacted consumer and business behavior. In addition, total noninterest income was unfavorably impacted by impairment charges related to structured investment securities and other market valuation losses and higher retail lease residual losses from a year ago, partially offset by a $59 million gain related to the Company's ownership interests in Visa Inc ("Visa Gain"). Credit and debit card revenue, corporate payment products revenue and merchant processing services revenue were lower in the fourth quarter of 2008 than the same period of 2007 by $29 million (10.2 percent), $12 million (7.2 percent) and $10 million (3.6 percent), respectively. All categories were impacted by lower transaction volumes compared with the prior year's quarter. Trust and investment management fees declined $44 million (12.8 percent) primarily due to the adverse impact of equity market conditions. Deposit service charges decreased $17 million (6.1 percent) year-over-year, primarily due to lower overdraft fees as customer spending declined. Mortgage banking revenue decreased $25 million (52.1 percent) due to an unfavorable net change in the valuation of mortgage servicing rights ("MSRs") and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Net securities gains (losses) were lower than a year ago by $257 million due to the impact of impairment charges primarily related to structured investment securities. ATM processing services increased by $11 million (13.1 percent), due to growth in transaction volumes and business expansion. Treasury management fees increased $11 million (9.4 percent), due primarily to the favorable impact of declining rates on customer earnings credits and account growth. Commercial products revenue increased $10 million (8.3 percent) year-over-year due to higher foreign exchange revenue, letters of credit and other commercial loan fees. Other income increased by $15 million year-over-year, as the Visa Gain and the net change in market valuation losses were partially offset by the adverse impact of higher retail lease residual losses and lower equity investment revenue.

Noninterest income was higher by $51 million (3.6 percent) in the fourth quarter of 2008 than the third quarter of 2008, reflecting the Visa Gain and the favorable impact of lower securities impairments, partially offset by a decline in fee-based revenue due principally to the ongoing economic slowdown. Other income increased $53 million primarily due to the Visa Gain. Credit and debit card revenue decreased $13 million (4.8 percent), corporate payment products revenue decreased $25 million (14.0 percent), and merchant processing services revenue was lower by $29 million (9.7 percent) all due to lower transaction volumes. Trust and investment management fees were lower by $29 million (8.8 percent) on a linked quarter basis primarily due to the impact of market conditions. Deposit service charges decreased $26 million (9.1 percent) due to a decline in overdraft transactions. Mortgage banking revenue decreased $38 million (62.3 percent) from the third quarter of 2008, due to a decline in the fair value of MSRs net of economic hedging activity and lower production income, partially offset by an increase in servicing revenue.



 NONINTEREST                                                                    Table 7
 EXPENSE

 ($ in                                      Percent  Percent
 millions)

                                            Change   Change

                 4Q       3Q       4Q       4Q08 vs  4Q08 vs  Full     Full     Percent
                                                              Year     Year

                 2008     2008     2007     3Q08     4Q07     2008     2007     Change

 Compensation    $ 770    $ 763    $ 690    .9       11.6     $ 3,039  $ 2,640  15.1

 Employee          124      125      119    (.8  )   4.2        515      494    4.3
 benefits

 Net occupancy     202      199      188    1.5      7.4        781      738    5.8
 and equipment

 Professional      73       61       71     19.7     2.8        240      233    3.0
 services

 Marketing and
 business          90       75       69     20.0     30.4       310      260    19.2
 development

 Technology and    156      153      148    2.0      5.4        598      561    6.6
 communications

 Postage,
 printing and      77       73       73     5.5      5.5        294      283    3.9
 supplies

 Other             93       88       93     5.7      --         355      376    (5.6 )
 intangibles

 Other             375      286      517    31.1     (27.5 )    1,282    1,401  (8.5 )

 Total
 noninterest     $ 1,960  $ 1,823  $ 1,968  7.5      (.4   )  $ 7,414  $ 6,986  6.1
 expense



Noninterest Expense

Fourth quarter noninterest expense totaled $1,960 million, a decrease of $8 million (.4 percent) from the same quarter of 2007 and an increase of $137 million (7.5 percent) over the third quarter of 2008. Compensation expense increased $80 million (11.6 percent) over the same period of 2007 due to costs for acquired businesses, growth in ongoing bank operations and other initiatives and the adoption of a new accounting standard in 2008. Under this new accounting standard, compensation expense is no longer deferred for the origination of mortgage loans held for sale. Net occupancy and equipment expense increased $14 million (7.4 percent) over the fourth quarter of 2007, primarily due to acquisitions, as well as branch-based and other business expansion initiatives. Marketing and business development expense increased $21 million (30.4 percent) year-over-year due to the timing of Consumer Banking and retail payment product marketing programs and a national advertising campaign. Technology and communications expense increased $8 million (5.4 percent) year-over-year, primarily due to increased processing volumes and business expansion. These increases were offset by a decrease in other expense of $142 million (27.5 percent), due primarily to the $215 million Visa Charge recognized in the fourth quarter of 2007, partially offset by increased costs for other real estate owned, tax-advantaged projects, acquisitions and litigation.

Noninterest expense in the fourth quarter of 2008 increased $137 million (7.5 percent) compared with the third quarter of 2008. This increase included costs for acquired businesses. In addition, professional services expense was seasonally higher; $12 million (19.7 percent) on a linked quarter basis. Marketing and business development expense increased $15 million (20.0 percent) due primarily to the Company's national advertising campaign and the timing of other product promotional campaigns. Other intangibles expense was higher compared with the third quarter of 2008 due to the Downey and PFF acquisitions. Other expense increased $89 million (31.1 percent) on a linked quarter basis due to increased litigation and other real estate owned-related costs, and the timing of costs related to tax-advantaged projects.

Provision for Income Taxes

The provision for income taxes for the fourth quarter of 2008 resulted in a tax rate on a taxable-equivalent basis of 16.9 percent (effective tax rate of 7.6 percent) compared with 31.8 percent (effective tax rate of 30.7 percent) in the fourth quarter of 2007 and 28.7 percent (effective tax rate of 25.6 percent) in the third quarter of 2008. The decline in the effective tax rate reflects the marginal impact of the decline in pretax earnings. The Company expects the taxable-equivalent tax rate to be approximately 30 percent in 2009.

Acquired Loans and Other Assets

Assets acquired in the Downey and PFF acquisitions are substantially covered under Loss Sharing Agreements with the FDIC. In accordance with current accounting standards, the Company identified non-revolving loans with credit deterioration and recorded these assets in the financial statements at their estimated fair market value to reflect expected credit losses and the estimated impact of the Loss Sharing Agreements. For all other acquired loans, the Company recorded the assets at the predecessors' book value, net of fair value adjustments for any interest-rate related discount or premium, and an allowance for credit losses. The Company recorded foreclosed real estate at estimated fair value. The following table provides an overview of the predecessors' net asset values of the loans and other real estate acquired from the FDIC ("contract value"), the book value recorded as of December 31, 2008, and the impact on average balances for the fourth quarter of 2008.


 DOWNEY AND PFF ACQUISITIONS (a)                                 Table 8

 ($ in millions)

                                     12/31/08        12/31/08    4Q08 Average

                                     Contract Value  Book Value  Book Value

 Covered assets

 Loans                               $ 13,347        $ 8,794     $ 3,947

 Other real estate                     465             274         150

 Subtotal                              13,812          9,068       4,097

 Benefit of loss sharing agreement     --              2,382       1,108

 Total covered assets                  13,812          11,450      5,205

 Other loans                           825             715         250

 Total loans and other real estate   $ 14,637        $ 12,165    $ 5,455
 acquired

 (a) preliminary data




 ALLOWANCE FOR CREDIT LOSSES                                            Table 9

 ($ in millions)                  4Q       3Q       2Q       1Q         4Q

                                  2008     2008     2008     2008       2007

 Balance, beginning of period     $ 2,898  $ 2,648  $ 2,435  $ 2,260    $ 2,260

 Net charge-offs

 Commercial                         108      57       51       39         23

 Lease financing                    31       22       18       16         13

 Total commercial                   139      79       69       55         36

 Commercial mortgages               14       9        6        4          3

 Construction and development       63       56       12       8          7

 Total commercial real estate       77       65       18       12         10

 Residential mortgages              84       71       53       26         17

 Credit card                        169      149      139      108        88

 Retail leasing                     11       9        8        7          6

 Home equity and second             52       48       48       30         22
 mortgages

 Other retail                       95       77       61       55         46

 Total retail                       327      283      256      200        162

 Total net charge-offs,             627      498      396      293        225
 excluding covered assets

 Covered assets                     5        --       --       --         --

 Total net charge-offs              632      498      396      293        225

 Provision for credit losses        1,267    748      596      485        225

 Acquisitions and other changes     106      --       13       (17   )    --

 Balance, end of period           $ 3,639  $ 2,898  $ 2,648  $ 2,435    $ 2,260

 Components

 Allowance for loan losses        $ 3,514  $ 2,767  $ 2,518  $ 2,251    $ 2,058

 Liability for unfunded credit      125      131      130      184        202
 commitments

 Total allowance for credit       $ 3,639  $ 2,898  $ 2,648  $ 2,435    $ 2,260
 losses

 Gross charge-offs                $ 678    $ 544    $ 439    $ 348      $ 287

 Gross recoveries                 $ 46     $ 46     $ 43     $ 55       $ 62

 Allowance for credit losses as
 a percentage of

 Period-end loans, excluding        2.09     1.71     1.60     1.54       1.47
 covered assets

 Nonperforming loans, excluding     206      222      273      358        406
 covered assets

 Nonperforming assets, excluding    184      194      233      288        328
 covered assets

 Period-end loans                   1.96     1.71     1.60     1.54       1.47

 Nonperforming loans                151      222      273      358        406

 Nonperforming assets               139      194      233      288        328



Credit Quality

During the fourth quarter of 2008, credit losses and nonperforming assets continued to trend higher. The allowance for credit losses was $3,639 million at December 31, 2008, compared with $2,898 million at September 30, 2008, and $2,260 million at December 31, 2007. As a result of the continued stress in the residential housing markets, homebuilding and related industry sectors, and growth of the loan portfolios, the Company has increased the allowance for credit losses by $1,379 million during 2008. The credit stress is reflected in higher delinquencies, nonperforming asset levels and net charge-offs relative to a year ago and the third quarter of 2008. Total net charge-offs in the fourth quarter of 2008 were $632 million, compared with the third quarter of 2008 net charge-offs of $498 million and the fourth quarter of 2007 net charge-offs of $225 million. The increase in total net charge-offs from a year ago was driven by factors affecting the residential housing markets as well as homebuilding and related industries, and credit costs associated with credit card and other consumer loan growth over the past several quarters.

Commercial and commercial real estate loan net charge-offs increased to $216 million in the fourth quarter of 2008 (.96 percent of average loans outstanding) compared with $144 million (.66 percent of average loans outstanding) in the third quarter of 2008 and $46 million (.23 percent of average loans outstanding) in the fourth quarter of 2007. This increasing trend in commercial and commercial real estate losses reflected continuing stress within the portfolios, especially residential homebuilding and related industry sectors.

Residential mortgage loan net charge-offs increased to $84 million in the fourth quarter of 2008 (1.43 percent of average loans outstanding) compared with $71 million (1.21 percent of average loans outstanding) in the third quarter of 2008 and $17 million (.30 percent of average loans outstanding) in the fourth quarter of 2007. The increased residential mortgage losses were primarily related to loans originated within the consumer finance division and reflected the impact of rising foreclosures on sub-prime mortgages and current economic conditions.

Total retail loan net charge-offs were $327 million (2.21 percent of average loans outstanding) in the fourth quarter of 2008 compared with $283 million (1.98 percent of average loans outstanding) in the third quarter of 2008 and $162 million (1.28 percent of average loans outstanding) in the fourth quarter of 2007. The increased retail loan credit losses reflected the Company's growth in credit card and consumer loan balances, as well as the adverse impact of current economic conditions on consumers. In addition, there were $5 million of net-charge-offs on loans under the Loss Sharing Agreements with the FDIC.

The ratio of the allowance for credit losses to period-end loans not subject to Loss Sharing Agreements was 2.09 percent (1.96 percent of total period end loans) at December 31, 2008, compared with 1.71 percent at September 30, 2008, and 1.47 percent at December 31, 2007. The ratio of the allowance for credit losses to nonperforming loans was 151 percent (206 percent excluding covered assets) at December 31, 2008, compared with 222 percent at September 30, 2008, and 406 percent at December 31, 2007.


 CREDIT RATIOS                                                     Table 10

 (Percent)                          4Q       3Q      2Q      1Q    4Q

                                    2008     2008    2008    2008  2007

 Net charge-offs ratios (a)

 Commercial                         .85      .47     .43     .34   .21

 Lease financing                    1.87     1.36    1.14    1.03  .86

 Total commercial                   .97      .58     .51     .43   .29

 Commercial mortgages               .24      .16     .11     .08   .06

 Construction and development       2.59     2.36    .52     .35   .31

 Total commercial real estate       .94      .81     .24     .16   .14

 Residential mortgages              1.43     1.21    .91     .46   .30

 Credit card                        5.18     4.85    4.84    3.93  3.29

 Retail leasing                     .86      .69     .58     .49   .39

 Home equity and second mortgages   1.11     1.07    1.13    .73   .53

 Other retail                       1.70     1.41    1.16    1.25  1.05

 Total retail                       2.21     1.98    1.86    1.58  1.28

 Total net charge-offs, excluding   1.45     1.19    .98     .76   .59
 covered assets

 Covered assets                     .38      --      --      --    --

 Total net charge-offs              1.42     1.19    .98     .76   .59

 Delinquent loan ratios - 90 days or more past due excluding nonperforming
 loans (b)

 Commercial                         .13      .11     .09     .09   .07

 Commercial real estate             .11      .05     .09     .13   .02

 Residential mortgages              1.55     1.34    1.09    .98   .86

 Retail                             .82      .68     .63     .69   .68

 Total loans, excluding covered     .56      .46     .41     .43   .38
 assets

 Covered assets                     5.13     --      --      --    --

 Total loans                        .84      .46     .41     .43   .38

 Delinquent loan ratios - 90 days or more past due including nonperforming
 loans (b)

 Commercial                         .82      .76     .71     .60   .43

 Commercial real estate             3.34     2.25    1.57    1.18  1.02

 Residential mortgages              2.44     2.00    1.55    1.24  1.10

 Retail                             .97      .81     .74     .77   .73

 Total loans, excluding covered     1.57     1.23    1.00    .86   .74
 assets

 Covered assets                     10.74    --      --      --    --

 Total loans                        2.14     1.23    1.00    .86   .74

 (a) annualized and calculated on average loan balances

 (b) ratios are expressed as a percent of ending loan balances




 ASSET QUALITY                                                        Table 11

 ($ in millions)

                                   Dec 31   Sep 30   Jun 30   Mar 31  Dec 31

                                   2008     2008     2008     2008    2007

 Nonperforming loans

 Commercial                        $ 290    $ 280    $ 265    $ 201   $ 128

 Lease financing                     102      85       75       64      53

 Total commercial                    392      365      340      265     181

 Commercial mortgages                294      164      139      102     84

 Construction and development        780      545      326      212     209

 Total commercial real estate        1,074    709      465      314     293

 Residential mortgages               210      155      108      59      54

 Retail                              92       74       58       42      29

 Total nonperforming loans,          1,768    1,303    971      680     557
 excluding covered assets

 Covered assets                      643      --       --       --      --

 Total nonperforming loans           2,411    1,303    971      680     557

 Other real estate                   190      164      142      141     111

 Other nonperforming assets          23       25       22       24      22

 Total nonperforming assets (a)    $ 2,624  $ 1,492  $ 1,135  $ 845   $ 690

 Accruing loans 90 days or more
 past due, excluding covered       $ 967    $ 787    $ 687    $ 676   $ 584
 assets

 Accruing loans 90 days or more    $ 1,554  $ 787    $ 687    $ 676   $ 584
 past due

 Restructured loans that continue  $ 1,509  $ 1,180  $ 1,029  $ 695   $ 551
 to accrue interest

 Nonperforming assets to loans
 plus ORE, excluding covered         1.14     .88      .68      .53     .45
 assets (%)

 Nonperforming assets to loans       1.42     .88      .68      .53     .45
 plus ORE (%)

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



Nonperforming assets at December 31, 2008, totaled $2,624 million, compared with $1,492 million at September 30, 2008, and $690 million at December 31, 2007. The current period included $643 million of nonperforming covered assets from the Downey and PFF acquisitions. Nonperforming covered assets were primarily related to foreclosed real estate and construction loans. The ratio of nonperforming assets to loans and other real estate was 1.42 percent (1.14 percent excluding covered assets) at December 31, 2008, compared with .88 percent at September 30, 2008, and .45 percent at December 31, 2007. The increase in nonperforming assets from a year ago including the Downey and PFF acquisitions was driven primarily by the residential construction portfolio and related industries, as well as the residential mortgage portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers. The Company expects nonperforming assets to continue to increase due to general economic conditions and continuing stress in the residential mortgage portfolio and residential construction industry. Accruing loans 90 days or more past due increased to $1,554 million ($967 million excluding covered assets) at December 31, 2008, compared with $787 million at September 30, 2008, and $584 million at December 31, 2007. The year-over-year increase in delinquent loans that continue to accrue interest was primarily related to residential mortgages, credit cards and home equity loans. Restructured loans that continue to accrue interest have also increased from the fourth quarter of 2007 and the third quarter of 2008, reflecting the impact of restructurings for certain residential mortgage customers in light of current economic conditions. The Company expects this trend to continue in the near term as residential home valuations decline and certain borrowers take advantage of the Company's mortgage loan restructuring programs.


 CAPITAL POSITION                                                  Table 12

 ($ in millions)   Dec 31      Sep 30      Jun 30      Mar 31      Dec 31

                   2008        2008        2008        2008        2007

 Total
 shareholders'     $ 26,300    $ 21,675    $ 21,828    $ 21,572    $ 21,046
 equity

 Tier 1 capital      24,426      18,877      18,624      18,543      17,539

 Total risk-based    32,894      27,403      27,502      27,207      25,925
 capital

 Tier 1 capital      10.6   %    8.5    %    8.5    %    8.6    %    8.3    %
 ratio

 Total risk-based    14.3        12.3        12.5        12.6        12.2
 capital ratio

 Leverage ratio      9.8         8.0         7.9         8.1         7.9

 Common equity to    6.9         8.2         8.2         8.3         8.4
 assets

 Tangible common     4.5         5.3         5.2         5.3         5.1
 equity to assets



On November 14, 2008, the Company issued to the U.S. Department of the Treasury, 6.6 million shares of cumulative perpetual preferred stock and warrants to purchase 32.7 million shares of the Company's common stock at a price of $30.29 per common share for an aggregate purchase price of $6.6 billion in cash. As a result of this transaction, the Company's total shareholders' equity and capital ratios increased during the fourth quarter of 2008. Total shareholders' equity was $26.3 billion at December 31, 2008, compared with $21.7 billion at September 30, 2008, and $21.0 billion at December 31, 2007. The Tier 1 capital ratio was 10.6 percent at December 31, 2008, compared with 8.5 percent at September 30, 2008, and 8.3 percent at December 31, 2007. The total risk-based capital ratio was 14.3 percent at December 31, 2008, compared with 12.3 percent at September 30, 2008, and 12.2 percent at December 31, 2007. The leverage ratio was 9.8 percent at December 31, 2008, compared with 8.0 percent at September 30, 2008, and 7.9 percent at December 31, 2007. Tangible common equity to assets was 4.5 percent at December 31, 2008, compared with 5.3 percent at September 30, 2008, and 5.1 percent at December 31, 2007. The decline in this ratio was principally due to the Downey and PFF acquisitions. All regulatory ratios continue to be in excess of stated "well-capitalized" requirements.


 COMMON SHARES                                                        Table 13

 (Millions)                         4Q       3Q       2Q     1Q       4Q

                                    2008     2008     2008   2008     2007

 Beginning shares outstanding       1,754    1,741    1,738  1,728    1,725

 Shares issued for stock option
 and stock purchase plans,          1        13       3      12       3
 acquisitions and other corporate
 purposes

 Shares repurchased                 --       --       --     (2    )  --

 Ending shares outstanding          1,755    1,754    1,741  1,738    1,728





 LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                                                   Table 14

 ($ in
 millions)

               Net Income                    Percent Change                                   4Q 2008

               4Q        3Q        4Q        4Q08 vs  4Q08 vs  Full Year  Full Year  Percent  Earnings

 Business      2008      2008      2007      3Q08     4Q07     2008       2007       Change   Composition
 Line

 Wholesale     $ 282     $ 235     $ 281     20.0     .4       $ 1,017    $ 1,094    (7.0  )  86          %
 Banking

 Consumer        209       274       431     (23.7 )  (51.5 )    1,203      1,830    (34.3 )  63
 Banking

 Wealth
 Management &    134       116       89      15.5     50.6       541        537      .7       41
 Securities
 Services

 Payment         235       269       314     (12.6 )  (25.2 )    1,068      1,068    --       71
 Services

 Treasury and
 Corporate       (530 )    (318 )    (173 )  (66.7 )  nm         (883  )    (205  )  nm       (161 )
 Support

 Consolidated  $ 330     $ 576     $ 942     (42.7 )  (65.0 )  $ 2,946    $ 4,324    (31.9 )  100         %
 Company

 (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 $282 million of the Company's net income in the fourth quarter of 2008, a .4 percent increase from the same period of 2007 and a 20.0 percent increase from the third quarter of 2008. Stronger net interest income year-over-year and an increase in fee-based revenue were offset by a $125 million increase in the provision for credit losses and an increase in total noninterest expense, driven primarily by the Mellon 1st Business Bank acquisition and other business initiatives. Net interest income increased $154 million year-over-year due to strong growth in average earning assets and deposits. Total noninterest income increased $7 million (3.2 percent) as growth in treasury management, letter of credit, commercial loan and foreign exchange fees was partially offset by lower earnings from equity investments. Total noninterest expense increased by $33 million (13.6 percent) over a year ago, primarily due to higher compensation and employee benefits expense related to the impact of an acquisition and other business initiatives. In addition, there was an increase in expenses related to other real estate owned and higher other intangibles expense. The provision for credit losses increased $125 million due to continued credit deterioration in the homebuilding, commercial home supplier and other commercial portfolios.

Wholesale Banking's contribution to net income in the fourth quarter of 2008 was $47 million (20.0 percent) higher than the third quarter of 2008. Strong growth in total net revenue (19.7 percent) was partially offset by modestly higher total noninterest expense (5.3 percent) and a $54 million increase in the provision for credit losses, reflecting higher net charge-offs. Total net revenue was higher on a linked quarter basis due to an increase in both net interest income (25.8 percent) and total noninterest income (5.1 percent). The increase in net interest income was due primarily to growth in average loan balances and a higher net interest margin. Total noninterest income increased on a linked quarter basis due to higher foreign exchange, letter of credit and capital markets revenue and the impact of net securities impairments recorded in the third quarter, partially offset by lower equity investment income, including an investment in a commercial real estate business. Total noninterest expense increased $14 million (5.3 percent) due to increased costs related to other real estate owned and higher processing costs. The provision for credit losses increased due to higher net charge-offs.

Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATM processing. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking and 24-hour banking. Consumer Banking contributed $209 million of the Company's net income in the fourth quarter of 2008, a 51.5 percent decrease from the same period of 2007 and a 23.7 percent decrease from the prior quarter. Within Consumer Banking, the retail banking division accounted for $205 million of the total contribution, a 50.4 percent decrease on a year-over-year basis and a 16.0 percent decrease from the prior quarter. The decrease in the retail banking division from the same period of 2007 was due to lower total net revenue, growth in total noninterest expense related to incremental business investments, including acquisitions, and an increase in the provision for credit losses. Net interest income for the retail banking division increased year-over-year as increases in average loan balances, average deposit balances and yield-related loan fees were partially offset by a decline in the margin benefit of deposits in a declining interest rate environment. Total noninterest income for the retail banking division decreased 20.0 percent from a year ago due to lower deposit service charges and retail lease revenue related to higher retail lease residual losses, partially offset by growth in revenue from ATM processing services. Total noninterest expense in the fourth quarter of 2008 increased 11.5 percent for the division over the same quarter of 2007, reflecting acquisitions, branch expansion initiatives, geographical promotional activities and customer service initiatives. In addition, the division experienced higher fraud losses and credit-related costs associated with other real estate owned and foreclosures. The provision for credit losses for the retail banking division was higher due to a $172 million year-over-year increase in net charge-offs, reflecting portfolio growth and credit deterioration in residential mortgages, home equity and other installment and consumer loan portfolios. In the fourth quarter of 2008, the mortgage banking division's contribution was $4 million, a $14 million (77.8 percent) decrease from the same period of 2007. The decrease in the mortgage banking division's contribution was a result of higher total noninterest expense and provision for credit losses, partially offset by higher total net revenue. The division's total net revenue increased by $13 million (15.7 percent) over a year ago, reflecting an increase in net interest income and an increase in mortgage servicing income, and the favorable impact of the adoption of a new accounting standard in early 2008, partially offset by an unfavorable net change in the valuation of MSRs and related economic hedging activities. As a result of higher rates and increased loan production and balances, net interest income increased $36 million year-over-year. Total noninterest expense for the mortgage banking division increased $25 million (46.3 percent) over the fourth quarter of 2007, primarily due to the impact on compensation expense of the adoption of a new accounting standard, higher production levels from a year ago and servicing costs associated with other real estate owned and foreclosures.

Consumer Banking's contribution in the fourth quarter of 2008 decreased $65 million (23.7 percent) compared with the third quarter of 2008. The retail banking division's contribution decreased 16.0 percent on a linked quarter basis, primarily due to an increase in the provision for credit losses, lower deposit service charges and an increase in total noninterest expense, primarily driven by acquisitions. Total net revenue for the retail banking division increased $40 million (3.0 percent) as higher net interest income was partially offset by lower total noninterest income. Net interest income increased by 8.1 percent on a linked quarter basis due to growth in average loan and deposit balances. The decrease in total noninterest income was driven by lower deposit service charges. Total noninterest expense for the retail banking division increased $48 million (6.5 percent) on a linked quarter basis. This increase was due primarily to the impact of acquisitions on compensation and employee benefits expense, net occupancy and equipment expense and other intangibles expense. The provision for credit losses for the division reflected a $54 million increase in net charge-offs compared with the third quarter of 2008, reflecting higher consumer delinquencies. The contribution of the mortgage banking division decreased $26 million from the third quarter of 2008, driven primarily by lower total net revenue. Total net revenue decreased by 26.7 percent, principally due to an unfavorable net change in the valuation of MSRs and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Total noninterest expense in the mortgage banking division increased modestly by $2 million (2.6 percent) from the third quarter of 2008. In addition, the mortgage banking division's provision for credit losses increased $3 million on a linked quarter basis.

Wealth Management & Securities Services provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services. Wealth Management & Securities Services contributed $134 million of the Company's net income in the fourth quarter of 2008, a 50.6 percent increase compared with the same period of 2007 and a 15.5 percent increase from the third quarter of 2008. Total net revenue year-over-year increased $63 million (15.7 percent). Net interest income increased by $25 million (19.2 percent) due primarily to the margin benefit of higher deposit balances, while total noninterest income increased by $38 million (14.0 percent) due primarily to the favorable impact of a $107 million market valuation loss recognized in the fourth quarter of 2007, partially offset by current quarter market valuation losses and the impact of unfavorable equity market conditions compared with a year ago. Total noninterest expense was 3.8 percent lower compared with the same quarter of 2007, reflecting lower compensation and employee benefits expense and other intangibles expense.

The increase in the business line's contribution in the fourth quarter of 2008 compared with the linked quarter was the result of higher net interest income and lower total noninterest expense, partially offset by the unfavorable impact of equity market conditions on fees.

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services offerings are highly inter-related with banking products and services of the other lines of business and rely on access to the bank subsidiary's settlement network, lower cost funding available to the Company, cross-selling opportunities and operating efficiencies. Payment Services contributed $235 million of the Company's net income in the fourth quarter of 2008, a decrease of 25.2 percent from the same period of 2007 and a 12.6 percent decrease from the third quarter of 2008. The decline year-over-year was due primarily to an increase in the provision for credit losses driven by an increase in net charge-offs of $99 million, reflecting credit card portfolio growth, higher delinquency rates and changing economic conditions from a year ago. In addition, total noninterest expense increased $29 million (7.5 percent) year-over-year, primarily due to business expansion and marketing programs. These unfavorable variances were partially offset by an increase in total net revenue year-over-year due to higher net interest income (25.9 percent), partially offset by lower total noninterest income (7.4 percent). Net interest income increased due to strong growth in credit card balances and the timing of asset repricing. During the current quarter, all payment processing revenue categories were impacted by lower transaction volumes due to the economic climate.

Payment Services' contribution in the fourth quarter of 2008 decreased $34 million (12.6 percent) from the third quarter of 2008 primarily due to a decline in total net revenue (1.7 percent), an increase in total noninterest expense (3.5 percent) due to the timing of marketing programs and an increase in the provision for credit losses (12.4 percent) due to portfolio growth and changing economic conditions. Total net revenue declined $17 million (1.7 percent) compared with the third quarter of 2008. Net interest income increased $46 million (18.7 percent) on a linked quarter basis due to loan growth and higher credit spreads. Total noninterest income declined 8.2 percent as the slowdown in the economy resulted in lower transaction volumes in all categories.

Treasury and Corporate Support includes the Company's investment portfolios, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of $530 million in the fourth quarter of 2008, compared with a net loss of $173 million in the fourth quarter of 2007 and a net loss of $318 million in the third quarter of 2008. Net interest income increased $100 million in the current quarter over the fourth quarter of 2007, reflecting the impact of the current rate environment, wholesale funding decisions and the Company's asset/liability position. Total noninterest income decreased $218 million, primarily reflecting the impairment charges for structured investment securities. Total noninterest expense decreased $166 million primarily due to the Visa Charge recognized in the fourth quarter of 2007. The provision for credit losses increased $634 million reflecting incremental provision related to deterioration in credit quality within the loan portfolios due to stress in the residential real estate markets, including homebuilding and related industries, and the impact of economic conditions on all loan portfolios.

Net income in the fourth quarter of 2008 was lower on a linked quarter basis due to the increase in the incremental provision for credit losses and higher acquisition and litigation expenses, partially offset by the net favorable impact of the securities impairments.

Additional schedules containing more detailed information about the Company's business line results are available on the web at usbank.com or by calling Investor Relations at 612-303-0781.

RICHARD K. DAVIS, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND ANDREW CECERE, VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS AT 8:00 AM (CT) ON WEDNESDAY, JANUARY 21, 2009. The conference call will be available by telephone or on the Internet. To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 78901067. For those unable to participate during the live call, a recording of the call will be available approximately two hours after the conference call ends on Wednesday, January 21st, and will run through Wednesday, January 28th, at 11:00 PM (CT). To access the recorded message within the United States and Canada, dial 800-642-1687. If calling from outside the United States and Canada, please dial 706-645-9291 to access the recording. The conference ID is 78901067. To access the webcast go to usbank.com and click on "About U.S. Bancorp" and then "Investor/Shareholder Information". The webcast link can be found under "Webcasts and Presentations".

Minneapolis-based U.S. Bancorp ("USB"), with $266 billion in assets, is the parent company of U.S. Bank, the 6th largest commercial bank in the United States as of September 30, 2008. The Company operates 2,791 banking offices and 4,897 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at usbank.com.

Forward-Looking Statements

The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:

This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words "may," "could," "would," "should," "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including continued deterioration in general business and economic conditions and in the financial markets; changes in interest rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in our investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management's ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk. A continuation of the recent turbulence in significant portions of the global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our counterparties and the economy generally. Dramatic declines in the housing market in the past year have resulted in significant write-downs of asset values by financial institutions. Concerns about the stability of the financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction of business activity, and increased market volatility. There can be no assurance that the Emergency Economic Stabilization Act of 2008, the actions taken by the U.S. Treasury Department thereunder, or any other governmental program, will help to stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely impact our business. In addition, our business and financial performance could be impacted as the financial industry restructures in the current environment, by changes in the creditworthiness and performance of our counterparties, by changes in the competitive landscape, and by increased regulation or other adverse effects of recently enacted legislation and FDIC actions.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp's Annual Report on Form 10-K for the year ended December 31, 2007, on file with the Securities and Exchange Commission, including the sections entitled "Risk Factors" and "Corporate Risk Profile," and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.


U.S. Bancorp

Consolidated Statement of Income

                                        Three Months Ended  Year Ended

(Dollars and Shares in Millions,        December 31,        December 31,
Except Per Share Data)

(Unaudited)                             2008       2007     2008        2007

Interest Income

Loans                                   $ 2,575    $ 2,730  $ 10,051    $ 10,627

Loans held for sale                       53         72       227         277

Investment securities                     477        541      1,984       2,095

Other interest income                     36         36       156         137

Total interest income                     3,141      3,379    12,418      13,136

Interest Expense

Deposits                                  392        722      1,881       2,754

Short-term borrowings                     205        352      1,066       1,433

Long-term debt                            423        564      1,739       2,260

Total interest expense                    1,020      1,638    4,686       6,447

Net interest income                       2,121      1,741    7,732       6,689

Provision for credit losses               1,267      225      3,096       792

Net interest income after provision       854        1,516    4,636       5,897
for credit losses

Noninterest Income

Credit and debit card revenue             256        285      1,039       958

Corporate payment products revenue        154        166      671         638

ATM processing services                   95         84       366         327

Merchant processing services              271        281      1,151       1,108

Trust and investment management fees      300        344      1,314       1,339

Deposit service charges                   260        277      1,081       1,077

Treasury management fees                  128        117      517         472

Commercial products revenue               131        121      492         433

Mortgage banking revenue                  23         48       270         259

Investment products fees and              37         38       147         146
commissions

Securities gains (losses), net            (253  )    4        (978   )    15

Other                                     61         46       741         524

Total noninterest income                  1,463      1,811    6,811       7,296

Noninterest Expense

Compensation                              770        690      3,039       2,640

Employee benefits                         124        119      515         494

Net occupancy and equipment               202        188      781         738

Professional services                     73         71       240         233

Marketing and business development        90         69       310         260

Technology and communications             156        148      598         561

Postage, printing and supplies            77         73       294         283

Other intangibles                         93         93       355         376

Other                                     375        517      1,282       1,401

Total noninterest expense                 1,960      1,968    7,414       6,986

Income before income taxes                357        1,359    4,033       6,207

Applicable income taxes                   27         417      1,087       1,883

Net income                              $ 330      $ 942    $ 2,946     $ 4,324

Net income applicable to common equity  $ 260      $ 927    $ 2,823     $ 4,264

Earnings per common share               $ .15      $ .54    $ 1.62      $ 2.46

Diluted earnings per common share       $ .15      $ .53    $ 1.61      $ 2.43

Dividends declared per common share     $ .425     $ .425   $ 1.700     $ 1.625

Average common shares outstanding         1,754      1,726    1,742       1,735

Average diluted common shares             1,764      1,746    1,757       1,758
outstanding




U.S. Bancorp

Consolidated Ending Balance Sheet

                                            December 31,  December 31,

(Dollars in Millions)                       2008          2007

Assets

Cash and due from banks                     $ 6,859       $ 8,884

Investment securities

Held-to-maturity                              53            74

Available-for-sale                            39,468        43,042

Loans held for sale                           3,210         4,819

Loans

Commercial                                    56,618        51,074

Commercial real estate                        33,213        29,207

Residential mortgages                         23,580        22,782

Retail                                        60,368        50,764

Total loans, excluding covered assets         173,779       153,827

Covered assets                                11,450        --

Total loans                                   185,229       153,827

Less allowance for loan losses                (3,514  )     (2,058  )

Net loans                                     181,715       151,769

Premises and equipment                        1,790         1,779

Goodwill                                      8,571         7,647

Other intangible assets                       2,834         3,043

Other assets                                  21,412        16,558

Total assets                                $ 265,912     $ 237,615

Liabilities and Shareholders' Equity

Deposits

Noninterest-bearing                         $ 37,494      $ 33,334

Interest-bearing                              85,886        72,458

Time deposits greater than $100,000           35,970        25,653

Total deposits                                159,350       131,445

Short-term borrowings                         33,983        32,370

Long-term debt                                38,359        43,440

Other liabilities                             7,920         9,314

Total liabilities                             239,612       216,569

Shareholders' equity

Preferred stock                               7,931         1,000

Common stock                                  20            20

Capital surplus                               5,830         5,749

Retained earnings                             22,541        22,693

Less treasury stock                           (6,659  )     (7,480  )

Other comprehensive income                    (3,363  )     (936    )

Total shareholders' equity                    26,300        21,046

Total liabilities and shareholders' equity  $ 265,912     $ 237,615



CONTACT: U.S. Bancorp
Media
Steve Dale, 612-303-0784
or
Investors/Analysts
Judith T. Murphy, 612-303-0783

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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