U.S. Bank Home   Customer Service   Contact Us   Locations   Careers   About U.S. Bancorp   
U.S. Bank

Search
 
About



About



Related Links
Careers at U.S. Bancorp
Community Relations
Corporate Governance
Resources
IR Tool Kit
Print PagePrint Page
E-mail PageE-mail Page
RSS FeedsRSS Feeds
IR ContactsIR Contacts


Printer Friendly Version View printer-friendly version
<< Back
U.S. Bancorp Reports Record Net Income For Third Quarter 2003

MINNEAPOLIS, Oct. 21 /PRNewswire-FirstCall/ --

EARNINGS SUMMARY Table 1

    ($ in millions, except per-share data)
                                                            Percent   Percent
                                                             Change    Change
                              3Q          2Q        3Q      3Q03 vs   3Q03 vs
                             2003        2003      2002       2Q03      3Q02

    Net income             $984.9      $953.6     $860.3      3.3       14.5
    Earnings per share
     before cumulative
     effect of change in
     accounting principles
     (diluted)               0.51        0.49       0.45      4.1       13.3
    Earnings per share
     (diluted)               0.51        0.49       0.45      4.1       13.3

    Return on average
     assets (%)              2.05        2.04       1.97
    Return on average
     equity(%)               20.5        20.0       19.8
    Efficiency ratio (%)     42.1        52.1       51.7

    Dividends declared
     per share             $0.205      $0.205     $0.195       --        5.1
    Book value per share
     (period-end)           10.08        9.97       9.15      1.1       10.2
    Net interest
     margin (%)              4.41        4.50       4.61


                            YTD          YTD       Percent
                           2003         2002       Change

    Net income           $2,849.7    $2,439.4       16.8
    Earnings per
     share before
     cumulative effect
     of change in
     accounting
     principles
     (diluted)               1.47        1.29       14.0
    Earnings per
     share (diluted)         1.47        1.27       15.7

    Return on average
     assets (%)              2.04        1.92
    Return on average
     equity(%)               20.2        19.6
    Efficiency ratio (%)     47.9        49.9

    Dividends declared
     per share             $0.615      $0.585        5.1
    Book value per share
     (period-end)
    Net interest margin (%)  4.49        4.60


U.S. Bancorp (NYSE: USB) today reported net income of $984.9 million for the third quarter of 2003, compared with $860.3 million for the third quarter of 2002. Net income of $.51 per diluted share in the third quarter of 2003 was higher than the same period of 2002 by $.06 (13.3 percent). Return on average assets and return on average equity were 2.05 percent and 20.5 percent, respectively, for the third quarter of 2003, compared with returns of 1.97 percent and 19.8 percent, respectively, for the third quarter of 2002. Net income in the third quarter of 2003 included after-tax merger and restructuring-related items of ($6.7) million, which had an immaterial impact on earnings per share, compared with ($45.9) million, or ($.02) per share, in the third quarter of 2002.

The Company's results for the third quarter of 2003 improved over the same period of 2002, primarily due to growth in net interest income and fee based products and services, as well as controlled operating expense and lower credit costs. Included in the current quarter were losses on the sale of securities of ($108.9) million, a net reduction of $227.9 million from securities gains realized in the third quarter of 2002. The current quarter also included a $108.5 million reparation of mortgage servicing rights ("MSR"), a $226.2 million favorable variance over the third quarter of 2002. Changes in interest rates relative to the end of the second quarter of 2003 drove the realization of these items.

U.S. Bancorp Chairman, President and Chief Executive Officer Jerry A. Grundhofer said, "The Company's third quarter results confirm that we are on track to achieve the full year 2003 results that we communicated in late 2002. I am also pleased to report that we made significant progress in the quarter on a number of goals that we had previously committed to achieving. First, the Company continued to show improvement in overall credit quality. This improvement was a direct result of our efforts over the past two years to reduce the risk profile of the organization, and we believe that the improving trends will continue. Second, tangible common equity to assets ended the third quarter at 6.4 percent, comfortably above our target of 6.25 percent. This not only resulted in positive debt rating changes by the rating agencies, but it also now gives us added balance sheet flexibility and the opportunity to resume our stock buyback program. Third, we completed substantially all integration efforts during the quarter, including the final conversion of all NOVA customers onto one merchant processing platform. Finally, we announced a significant increase in distribution through the largest in-store branch expansion in our Company's history. We are partnering with Safeway to open 163 new, full-service branches in California, Arizona and Nevada over the next two years. This expansion of our in-store branch network will be a cost- effective way to increase distribution in the fastest growing communities within our current franchise.

Going forward, we will continue to focus on organic revenue growth, prudent risk management and the efficient use of capital for our shareholders. In addition, we launched our first national brand advertising campaign during the third quarter, which is reinforcing the breadth of our franchise and our commitment to providing convenience to our customers, as well as industry- leading customer service. In closing, I want to take this opportunity to acknowledge and thank our employees for their hard work and commitment. I know that all that we have accomplished and our lasting success depend on the contribution and dedication of each and every employee."

Total net revenue on a taxable-equivalent basis for the third quarter of 2003 was $99.1 million (3.0 percent) lower than the third quarter of 2002, which primarily reflected the net reduction in securities gains (losses) of $227.9 million. Otherwise, favorable revenue growth occurred in net interest income, capital markets-related revenue, cash management fees, and payment systems revenue. Acquisitions, including the 57 branches of Bay View Bank in California and the corporate trust business of State Street Bank and Trust Company ("State Street Corporate Trust"), contributed approximately $46.7 million of the increase in net revenue year-over-year. The Company experienced lower revenue levels in commercial products and the mortgage banking business. With the rise in interest rates from the end of the second quarter 2003, mortgage originations slowed resulting from lower refinancing activities.

Total noninterest expense in the third quarter of 2003 was lower than the third quarter of 2002 by $250.3 million (15.2 percent), primarily reflecting the $226.2 million favorable change in the valuation of mortgage servicing rights caused by rising interest rates from late second quarter 2003. Also contributing to the positive variance in expense year-over-year was a $60.2 million reduction in merger and restructuring-related charges. These positive variances were partially offset by expense increases due to acquisitions, which accounted for approximately $28.1 million of expense growth year-over- year, and higher incentive-based compensation.

Provision for credit losses for the third quarter of 2003 was $310.0 million, a decrease of $20.0 million (6.1 percent) from the third quarter of 2002. Net charge-offs in the third quarter of 2003 were $309.9 million, compared with the second quarter of 2003 net charge-offs of $322.9 million and third quarter of 2002 net charge-offs of $329.0 million. The decline from a year ago primarily reflected lower retail losses, the result of collection efforts and an improving credit risk profile. Total nonperforming assets declined from $1,359.7 million at June 30, 2003, to $1,318.3 million at September 30, 2003. The ratio of the allowance for credit losses to nonperforming loans was 202 percent at September 30, 2003, compared with 194 percent at June 30, 2003, and 204 percent at September 30, 2002.

The Company's effective tax rate was 34.0 percent in the third quarter of 2003, compared with an effective tax rate of 34.8 percent in the third quarter of 2002. The improvement in the effective tax rate primarily reflected a change in unitary state tax apportionment factors driven by a shift in business mix as a result of the impact of acquisitions, market demographics and the mix of product revenue.

During the first quarter of 2003, the Company announced that its Board of Directors approved a plan to effect a spin-off of its capital markets business unit, including the investment banking and brokerage activities primarily conducted by its wholly-owned subsidiary, U.S. Bancorp Piper Jaffray Inc. While subject to review by the Securities and Exchange Commission, it is anticipated that the transaction will be completed by the end of 2003.

    INCOME STATEMENT HIGHLIGHTS                                      Table 2
    (Taxable-equivalent basis, $ in millions,
    except per-share data)
                                                             Percent  Percent
                                                              Change   Change
                            3Q          2Q           3Q      3Q03 vs  3Q03 vs
                           2003        2003         2002       2Q03     3Q02

    Net interest income $1,832.6     $1,805.9    $1,741.1      1.5       5.3
    Noninterest income   1,375.0      1,666.0     1,565.6    (17.5)    (12.2)
      Total net revenue  3,207.6      3,471.9     3,306.7     (7.6)     (3.0)
    Noninterest expense  1,397.3      1,696.5     1,647.6    (17.6)    (15.2)
    Provision for credit
     losses                310.0        323.0       330.0     (4.0)     (6.1)
    Income before income
     taxes and cumulative
     effect of change
     in accounting
     principles          1,500.3      1,452.4     1,329.1      3.3      12.9
    Taxable-equivalent
     adjustment              8.0          7.6         9.3      5.3     (14.0)
    Applicable income
     taxes                 507.4        491.2       459.5      3.3      10.4
    Income before
     cumulative effect
     of change in
     accounting
     principles            984.9        953.6       860.3      3.3      14.5
    Cumulative
     effect of change
     in accounting
     principles
     (after-tax)              --           --          --       nm        nm
    Net income            $984.9       $953.6      $860.3      3.3      14.5

    Diluted earnings
     per share:
      Income before
       cumulative
       effect of change
       in accounting
       principles          $0.51        $0.49       $0.45      4.1      13.3
      Cumulative
       effect of change
       in accounting
       principles             --           --          --       nm        nm
      Net income           $0.51        $0.49       $0.45      4.1      13.3


                            YTD         YTD         Percent
                           2003        2002          Change

    Net interest income $5,422.3     $5,101.3         6.3
    Noninterest income   4,563.9      4,342.4         5.1
      Total net revenue  9,986.2      9,443.7         5.7
    Noninterest expense  4,667.9      4,617.4         1.1
    Provision for credit
     losses                968.0      1,000.0        (3.2)
    Income before income
     taxes and cumulative
     effect of change
     in accounting
     principles          4,350.3      3,826.3        13.7
    Taxable-equivalent
     adjustment             23.9         27.4       (12.8)
    Applicable
     income taxes        1,476.7      1,322.3        11.7
    Income before
     cumulative
     effect of change
     in accounting
     principles          2,849.7      2,476.6        15.1
    Cumulative
     effect of change
     in accounting
     principles
     (after-tax)              --        (37.2)         nm
    Net income          $2,849.7     $2,439.4        16.8

    Diluted earnings
     per share:
      Income before
       cumulative
       effect of
       change in
       accounting
       principles          $1.47        $1.29        14.0
      Cumulative
       effect of
       change in
       accounting
       principles             --        (0.02)         nm
        Net income         $1.47        $1.27        15.7


    Net Interest Income

Third quarter net interest income on a taxable-equivalent basis was $1,832.6 million, compared with $1,741.1 million recorded in the third quarter of 2002. Average earning assets for the period increased over the third quarter of 2002 by $14.8 billion (9.9 percent), primarily driven by increases in investment securities, residential mortgages, loans held for sale, and retail loans, partially offset by a decline in commercial loans. The net interest margin in the third quarter of 2003 was 4.41 percent, compared with 4.50 percent in the second quarter of 2003 and 4.61 percent in the third quarter of 2002. The decline in the net interest margin in the third quarter of 2003 from the third quarter of 2002 primarily reflected growth in lower- yielding investment securities as a percent of total earning assets, a change in loan mix, and a decline in the margin benefit from net free funds due to lower average long-term interest rates. In addition, the net interest margin declined year-over-year as a result of the consolidation of high credit quality, low margin loans from a commercial loan conduit on to the Company's balance sheet during the third quarter of 2003. In anticipation of accounting changes required under FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," the Company elected not to reissue more than 90 percent of the commercial paper funding of Stellar Funding Group, Inc. ("Stellar"), causing the conduit to lose its status as a qualified special purpose entity and triggering the consolidation. The decline in the net interest margin in the third quarter of 2003 from the second quarter of 2003 also reflected a similar change in earning asset mix driven, in part, by the downward shift in average interest rates for the quarter and a decrease of approximately four basis points due to the consolidation of low margin Stellar commercial loans and the impact of a change in the Federal government's payment methodology for treasury management services from the benefit of compensating balances, reflected in net interest income, to cash management fee income. The Company expects the net interest margin to remain relatively unchanged in the fourth quarter of 2003. Despite the decline in the net interest margin, net interest income on a taxable-equivalent basis in the third quarter of 2003 was higher than the second quarter of 2003, by $26.7 million (1.5 percent). The increase was primarily due to a $4.3 billion increase in average earning assets, driven by growth in investment securities and residential mortgages, in addition to the consolidation of approximately $2 billion of commercial loans from the Stellar conduit.

    NET INTEREST INCOME                                              Table 3
    (Taxable-equivalent basis; $ in millions)
                                                             Change    Change
                           3Q           2Q         3Q       3Q03 vs   3Q03 vs
                          2003         2003       2002        2Q03      3Q02
    Components of net
     interest income
      Income on earning
       assets           $2,329.7    $2,347.2  $2,429.3     $ (17.5)   $(99.6)
      Expense on interest
       -bearing
       liabilities         497.1       541.3     688.2       (44.2)   (191.1)
    Net interest
     income             $1,832.6    $1,805.9  $1,741.1       $26.7     $91.5

    Average yields and
     rates paid
      Earning assets
       yield                5.61%      5.85%      6.43%      (0.24)%   (0.82)%
      Rate paid on
       interest-bearing
       liabilities          1.49        1.69      2.26       (0.20)    (0.77)

    Gross interest margin   4.12%      4.16%      4.17%      (0.04)%   (0.05)%
    Net interest margin     4.41%      4.50%      4.61%      (0.09)%   (0.20)%

    Average balances
      Investment
       securities        $37,777     $36,142   $30,219      $1,635    $7,558
      Loans              119,982     117,803   114,664       2,179     5,318
      Earning assets     165,165     160,859   150,336       4,306    14,829
      Interest-bearing
       liabilities       132,642     128,664   120,758       3,978    11,884
      Net free funds*     32,523      32,195    29,578         328     2,945

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

                           YTD         YTD
                          2003        2002        Change
    Components of net
     interest income
      Income on earning
       assets           $7,027.9    $7,185.6    $(157.7)
      Expense on interest
       -bearing
       liabilities       1,605.6     2,084.3     (478.7)
    Net interest
     income             $5,422.3    $5,101.3     $321.0

    Average yields and
     rates paid
      Earning assets yield  5.82%       6.49%     (0.67)%
      Rate paid on
       interest-bearing
       liabilities          1.66        2.33      (0.67)
    Gross interest margin   4.16%       4.16%        -- %
    Net interest margin     4.49%       4.60%     (0.11)%

    Average balances
      Investment
       securities        $36,059     $28,300     $7,759
      Loans              118,046     114,135      3,911
      Earning assets     161,285     147,992     13,293
      Interest-bearing
       liabilities       129,043     119,671      9,372
      Net free funds*     32,242      28,321      3,921

    *Represents noninterest-bearing deposits, allowance for credit 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 Percent
                                                               Change  Change
                          3Q           2Q           3Q        3Q03 vs 3Q03 vs
                         2003         2003         2002         2Q03    3Q02

    Commercial         $36,958      $36,581      $37,673        1.0     (1.9)
    Lease financing      5,022        5,121        5,543       (1.9)    (9.4)
      Total commercial  41,980       41,702       43,216        0.7     (2.9)

    Commercial
     mortgages          20,089       20,105       19,312       (0.1)     4.0
    Construction and
     development         7,308        6,984        6,506        4.6     12.3
      Total commercial
       real estate      27,397       27,089       25,818        1.1      6.1

    Residential
     mortgages          12,234       11,012        8,513       11.1     43.7

    Credit card          5,606        5,388        5,604        4.0       --
    Retail leasing       5,806        5,762        5,543        0.8      4.7
    Home equity and
     second mortgages   13,093       13,316       13,605       (1.7)    (3.8)
    Other retail        13,866       13,534       12,365        2.5     12.1
      Total retail      38,371       38,000       37,117        1.0      3.4

    Total loans       $119,982     $117,803     $114,664        1.8      4.6


                         YTD          YTD           Percent
                         2003         2002          Change

    Commercial         $36,628      $38,707          (5.4)
    Lease financing      5,131        5,627          (8.8)
      Total commercial  41,759       44,334          (5.8)

    Commercial
     mortgages          20,144       18,928          6.4
    Construction and
     development         6,948        6,485          7.1
      Total commercial
       real estate      27,092       25,413          6.6

    Residential
     mortgages          11,131        8,225         35.3

    Credit card          5,462        5,623         (2.9)
    Retail leasing       5,773        5,309          8.7
    Home equity and
     second mortgages   13,291       13,091          1.5
    Other retail        13,538       12,140         11.5
      Total retail      38,064       36,163          5.3

    Total loans       $118,046     $114,135          3.4

Average loans for the third quarter of 2003 were $5.3 billion (4.6 percent) higher than the third quarter of 2002, primarily due to growth in average residential mortgages of $3.7 billion (43.7 percent) and retail loans of $1.3 billion (3.4 percent) year-over-year. Commercial and commercial real estate loans grew by just $343 million (.5 percent). Although the consolidation of loans from the Stellar commercial loan conduit had a positive impact on average loan balances year-over-year, current credit markets and soft economic conditions through early 2003 led to the modest increase in total commercial and commercial real estate loans. Average loans for the third quarter of 2003 were higher than the second quarter of 2003 by $2.2 billion (1.8 percent), reflecting growth in both residential mortgages and retail loans and the transfer of approximately $2 billion of average loans from the commercial loan conduit back on to the balance sheet.

Average investment securities in the third quarter of 2003 were $7.6 billion (25.0 percent) higher than the third quarter of 2002, reflecting reinvestment of proceeds from loan sales, declines in commercial loan balances and deposits assumed in connection with the Bay View Bank branch acquisition. Investment securities at September 30, 2003, were $6.5 billion higher than at September 30, 2002, but $563 million lower than the balance at June 30, 2003. During the third quarter of 2003, the Company sold approximately $3.2 billion of fixed-rate securities as part of a decision to offset the reparation of MSR impairment and reinvest the proceeds into higher yielding securities.

    AVERAGE DEPOSITS                                                 Table 5
    ($ in millions)                                            Percent Percent
                                                                Change  Change
                            3Q          2Q           3Q        3Q03 vs 3Q03 vs
                           2003        2003         2002         2Q03    3Q02
    Noninterest
     -bearing deposits   $31,907     $32,515      $28,838       (1.9)   10.6
    Interest-bearing
     deposits
      Interest checking   20,148      18,090       15,534       11.4    29.7
      Money market
       accounts           33,980      31,134       24,512        9.1    38.6
      Savings accounts     5,846       5,614        4,969        4.1    17.6
        Savings products  59,974      54,838       45,015        9.4    33.2
      Time certificates
       of deposit less
       than $100,000      14,824      15,790       18,710       (6.1)  (20.8)
      Time deposits
       greater than
       $100,000           11,251      13,008       12,349      (13.5)   (8.9)
      Total interest
       -bearing deposits  86,049      83,636       76,074        2.9    13.1
    Total deposits      $117,956    $116,151     $104,912        1.6    12.4


                            YTD        YTD          Percent
                            2003       2002         Change
    Noninterest
    -bearing deposits     $32,412    $27,872         16.3
    Interest-bearing
     deposits
      Interest checking    18,601     15,336         21.3
      Money market
       accounts            31,285     24,563         27.4
      Savings accounts      5,579      4,901         13.8
        Savings products   55,465     44,800         23.8
      Time certificates
       of deposit less
       than $100,000       15,936     19,602        (18.7)
      Time deposits
       greater than
       $100,000            12,836     10,865         18.1
      Total interest
       -bearing deposits   84,237     75,267         11.9
    Total deposits       $116,649   $103,139         13.1


Average noninterest-bearing deposits in the third quarter of 2003 were higher than the third quarter of 2002 by $3.1 billion (10.6 percent), primarily due to higher business and government banking demand deposit balances. Average interest-bearing deposits increased by $10.0 billion (13.1 percent) over the third quarter of 2002. Approximately $3.7 billion of the increase in average interest-bearing deposits was due to acquisitions, while the remaining $6.3 billion of growth was driven by increases in savings products balances, partially offset by decreases in time certificates of deposit less than $100,000 and time deposits greater than $100,000.

Total deposits in the third quarter of 2003 were $1.8 billion (1.6 percent) higher on average than the second quarter of 2003. Noninterest- bearing deposits at September 30, 2003, were $12.0 billion lower than at June 30, 2003, but slightly higher than at September 30, 2002. The majority of the decrease from June 30, 2003, to September 30, 2003, was due to the timing of seasonal corporate trust and government deposits of short duration at the end of the second quarter of 2003. These short-term deposits also contributed to the $6.1 billion decline in total assets from June 30, 2003, to September 30, 2003, as the short-term funds had been invested in money market investments.

    NONINTEREST INCOME                                               Table 6
    ($ in millions)                                          Percent  Percent
                                                              Change   Change
                             3Q         2Q         3Q        3Q03 vs  3Q03 vs
                            2003       2003       2002         2Q03     3Q02

    Credit and debit
     card revenue         $137.6     $142.3     $132.8        (3.3)      3.6
    Corporate payment
     products revenue       95.7       90.9       87.6         5.3       9.2
    ATM processing
     services               41.3       41.9       42.9        (1.4)     (3.7)
    Merchant processing
     services              146.3      141.8      147.3         3.2       (0.7)
    Trust and investment
     management fees       241.9      241.9      225.2          --       7.4
    Deposit service
     charges               187.0      179.0      186.5         4.5       0.3
    Cash management fees   126.2      111.8      105.8        12.9      19.3
    Commercial products
     revenue                97.8      100.0      125.0        (2.2)     (21.8)
    Mortgage banking
     revenue                89.5       90.3      111.8        (0.9)     (19.9)
    Trading account
     profits and
     commissions            56.2       67.6       52.6       (16.9)      6.8
    Investment products
     fees and
     commissions           104.5      109.2      105.0        (4.3)      (0.5)
    Investment banking
     revenue                75.0       56.8       35.7        32.0        nm
    Securities gains
     (losses), net        (108.9)     213.1      119.0          nm        nm
    Other                   84.9       79.4       88.4         6.9       (4.0)

    Total noninterest
     income             $1,375.0   $1,666.0   $1,565.6       (17.5)     (12.2)


                            YTD         YTD      Percent
                           2003        2002      Change

    Credit and debit
     card revenue         $407.3      $373.3        9.1
    Corporate payment
     products revenue      272.6       245.3       11.1
    ATM processing
     services              125.6       118.9        5.6
    Merchant processing
     services              415.4       425.3       (2.3)
    Trust and investment
     management fees       714.1       684.4        4.3
    Deposit service
     charges               529.2       503.9        5.0
    Cash management fees   350.0       314.3       11.4
    Commercial products
     revenue               302.0       370.9      (18.6)
    Mortgage banking
     revenue               275.2       241.8       13.8
    Trading account
     profits and
     commissions           184.7       152.0       21.5
    Investment products
     fees and
     commissions           314.0       323.5       (2.9)
    Investment banking
     revenue               169.4       159.4        6.3
    Securities gains
     (losses), net         244.9       193.7       26.4
    Other                  259.5       235.7       10.1

    Total noninterest
     income             $4,563.9    $4,342.4        5.1


    Noninterest Income

Third quarter noninterest income was $1,375.0 million, a decrease of $190.6 million (12.2 percent) from the same quarter of 2002, and a $291.0 million (17.5 percent) decrease from the second quarter of 2003. The decline in noninterest income from the third quarter of 2002 was driven by a net reduction in gains (losses) on the sale of securities, commercial products revenue and mortgage banking revenue, partially offset by increases in investment banking revenue, cash management fees, payment services revenue, and acquisitions, including the branches of Bay View Bank and State Street Corporate Trust, which contributed approximately $27.1 million in noninterest income in the third quarter of 2003. Credit and debit card revenue and corporate payment products revenue were higher in the third quarter of 2003 than the third quarter of 2002 by $12.9 million (5.9 percent). Although credit and debit card revenue grew year-over-year, the growth was somewhat muted due to the impact of the settlement of the antitrust litigation brought against VISA USA and Mastercard by Wal-Mart, Sears and other retailers, which lowered the interchange rate on signature debit transactions as of August 1, 2003. The year-over-year impact of the VISA settlement on credit and debit card revenue was approximately $5.7 million. This change in the interchange rate, in addition to higher customer loyalty rewards expenses, however, were more than offset by increases in transaction volumes and other rate adjustments. The corporate payment products revenue growth reflected growth in sales and card usage. ATM processing services and merchant processing services revenue were both slightly lower in the third quarter of 2003 than the same quarter of 2002, by $1.6 million (3.7 percent) and $1.0 million (.7 percent), respectively. The unfavorable variance in ATM processing services revenue was primarily due to lower transaction volumes, while merchant processing services revenue was lower year-over-year due to lower processing spreads resulting from changes in the mix of merchants. The favorable variance in trust and investment management fees of $16.7 million (7.4 percent) in the third quarter of 2003 over the same period of 2002 was principally driven by the acquisition of State Street Corporate Trust, which contributed $21.9 million in fees during the third quarter of 2003. Cash management fees grew by $20.4 million (19.3 percent) in the third quarter of 2003 over the same period of 2002, with the majority of the change within the Wholesale Banking line of business. The increase in cash management fees over the third quarter of 2002 was primarily driven by a change in the Federal government's payment methodology for treasury management services from compensating balances, reflected in net interest income, to fees during the third quarter of 2003. Investment banking revenue grew by $39.3 million in the third quarter of 2003 over the third quarter of 2002, primarily due to increased equity market activity. Offsetting these favorable variances were declines in mortgage banking revenue and commercial products revenue year- over-year. Mortgage banking revenue decreased by $22.3 million (19.9 percent) in the third quarter of 2003 from the third quarter of 2002 due to lower gains on the sale of loans, offset somewhat by servicing revenue. Commercial products revenue declined by $27.2 million (21.8 percent) year-over-year, principally reflecting lower commercial loan conduit servicing fees, which resulted, in part, from unwinding the Stellar commercial loan conduit.

Noninterest income declined in the third quarter of 2003 by $291.0 million (17.5 percent) from the second quarter of 2003, primarily due to a net reduction in gains (losses) on the sale of securities of $227.9 million and declines in credit and debit card revenue and commercial products revenue. These unfavorable variances were partially offset by higher cash management fees, deposit service charges, corporate payment products revenue, merchant processing services revenue, capital markets-related revenue and other income. Credit and debit card revenue in the third quarter was lower than the second quarter of 2003, primarily due to the VISA USA settlement, which reduced debit card interchange revenue by approximately $8.3 million, and the expansion of the Company's debit card rewards programs. The unfavorable variance in commercial products revenue was the result of lower loan conduit servicing fees due to unwinding the commercial loan conduit. The increase in cash management fees over the prior quarter was due to a change in the Federal government's payment methodology for treasury management services from the benefit of compensating balances, reflected in net interest income, to cash management fee income. The increase in deposit service charges from the second quarter of 2003 was primarily due to increased account activity and revenue enhancements in the Consumer Banking business line. Corporate payment products and merchant processing services revenue increased by $4.8 million (5.3 percent) and $4.5 million (3.2 percent), respectively, on a linked quarter basis due to higher transaction volume. Capital markets-related activity was slightly higher than the prior quarter due to equity market transactions, which were partially offset by lower trading account profits and commissions and investment products fees and commissions.

    NONINTEREST EXPENSE                                              Table 7
     ($ in millions)                                         Percent  Percent
                                                              Change   Change
                            3Q          2Q         3Q        3Q03 vs  3Q03 vs
                           2003        2003       2002         2Q03     3Q02

    Salaries             $623.3      $625.3     $606.0       (0.3)       2.9
    Employee benefits      90.9        95.0       93.8       (4.3)      (3.1)
    Net occupancy         101.3       101.1      103.2        0.2       (1.8)
    Furniture and
     equipment             72.7        72.0       75.7        1.0       (4.0)
    Capitalized software   36.0        38.2       36.8       (5.8)      (2.2)
    Communication          49.5        50.5       46.6       (2.0)       6.2
    Postage                45.0        45.9       44.3       (2.0)       1.6
    Other intangible
     assets                10.8       312.3      211.4      (96.5)     (94.9)
    Merger and
     restructuring-related
     charges               10.2        10.8       70.4       (5.6)     (85.5)
     Other                357.6       345.4      359.4        3.5       (0.5)

    Total noninterest
     expense           $1,397.3    $1,696.5   $1,647.6      (17.6)     (15.2)


                           YTD         YTD         Percent
                          2003        2002         Change

    Salaries           $1,850.4    $1,801.9         2.7
    Employee benefits     295.1       281.3         4.9
    Net occupancy         304.6       305.1        (0.2)
    Furniture and
     equipment            218.1       229.6        (5.0)
    Capitalized
     software             111.5       112.9        (1.2)
    Communication         151.2       136.4        10.9
    Postage               136.3       135.3         0.7
    Other intangible
     assets               558.2       396.3        40.9
    Merger and
     restructuring-related
     charges               38.6       216.2       (82.1)
    Other               1,003.9     1,002.4         0.1

    Total noninterest
     expense           $4,667.9    $4,617.4         1.1


    Noninterest Expense

Third quarter noninterest expense totaled $1,397.3 million, a decrease of $250.3 million (15.2 percent) from the third quarter of 2002. The decline in expense year-over-year was primarily due to the favorable change in MSR intangible valuations of $226.2 million and a $60.2 million reduction in merger and restructuring-related charges. These positive variances were partially offset by the impact of recent acquisitions, including the branches of Bay View Bank and State Street Corporate Trust, and compensation expense, which primarily reflected higher incentive-based compensation related to capital markets activity. The acquisitions contributed approximately $28.1 million of expense to the quarter.

Noninterest expense in the third quarter of 2003 was lower than the second quarter of 2003 by $299.2 million (17.6 percent). The favorable variance was primarily due to the change in MSR intangible valuations of $304.8 million. Partially offsetting this positive variance was other expense, which was $12.2 million (3.5 percent) higher than the prior quarter, primarily reflecting increases in legal and professional services, data processing, cardholder processing expense, and insurance.

    ALLOWANCE FOR CREDIT LOSSES                                      Table 8
    ($ in millions)           3Q         2Q         1Q         4Q        3Q
                             2003       2003       2003       2002      2002


    Balance, beginning of
     period              $2,367.6    $2,408.5  $2,422.0   $2,460.5  $2,466.4


    Net charge-offs
      Commercial            123.9       122.9     137.9      136.7     124.0
      Lease financing        19.2        26.9      23.0       58.2      23.4
        Total commercial    143.1       149.8     160.9      194.9     147.4
      Commercial mortgages    5.9         9.3       2.9       13.5       3.5
      Construction and
       development            4.6         2.5       1.0       (0.9)      6.0
        Total commercial
         real estate         10.5        11.8       3.9       12.6       9.5

      Residential mortgages   7.3         6.5       5.9        6.6       5.9

      Credit card            59.3        64.5      68.7       69.1      70.8
      Retail leasing         12.2        12.6      13.9       10.7       9.4
      Home equity and
       second mortgages      23.2        23.9      25.4       24.4      21.5
      Other retail           54.3        53.8      55.1       60.2      64.5
        Total retail        149.0       154.8     163.1      164.4     166.2
          Total net
           charge-offs      309.9       322.9     333.8      378.5     329.0

    Provision for credit
     losses                 310.0       323.0     335.0      349.0     330.0
    Acquisitions and
     other changes             --       (41.0)    (14.7)      (9.0)     (6.9)

    Balance, end of
     period              $2,367.7    $2,367.6  $2,408.5   $2,422.0  $2,460.5

    Net charge-offs to
     average loans (%)       1.02        1.10      1.16       1.30      1.14

    Allowance as a
     percentage of:
      Period-end loans       1.98        1.98      2.06       2.08      2.12
      Nonperforming loans     202         194       194        196       204
      Nonperforming assets    180         174       177        176       183


    Credit Quality

The allowance for credit losses was $2,367.7 million at September 30, 2003, compared with the allowance for credit losses of $2,367.6 million at June 30, 2003. The ratio of the allowance for credit losses to nonperforming loans was 202 percent at September 30, 2003, compared with 194 percent at June 30, 2003. The ratio of the allowance for credit losses to period-end loans was 1.98 percent at September 30, 2003, equal to the ratio at June 30, 2003. Total net charge-offs in the third quarter of 2003 were $309.9 million, compared with the second quarter of 2003 net charge-offs of $322.9 million and the third quarter of 2002 net charge-offs of $329.0 million.

Commercial and commercial real estate loan net charge-offs were $153.6 million for the third quarter of 2003, or .88 percent of average loans outstanding, compared with $161.6 million, or .94 percent of average loans outstanding, in the second quarter of 2003 and $156.9 million, or .90 percent of average loans outstanding, in the third quarter of 2002.

Retail loan net charge-offs of $149.0 million in the third quarter of 2003 were lower than the second quarter of 2003 by $5.8 million (3.7 percent) and $17.2 million (10.3 percent) lower than the third quarter of 2002. Retail loan net charge-offs as a percent of average loans outstanding were 1.54 percent in the third quarter of 2003, compared with 1.63 percent and 1.78 percent in the second quarter of 2003 and third quarter of 2002, respectively. Lower levels of retail loan net charges-offs principally reflected the Company's improvement in ongoing collection efforts and risk management.

    CREDIT RATIOS                                                    Table 9
    (Percent)                 3Q          2Q        1Q         4Q        3Q
                             2003        2003      2003       2002      2002
    Net charge-offs ratios*
      Commercial             1.33        1.35      1.54       1.47      1.31
      Lease financing        1.52        2.11      1.78       4.27      1.67
        Total commercial     1.35        1.44      1.57       1.83      1.35

      Commercial mortgages   0.12        0.19      0.06       0.27      0.07
      Construction and
       development           0.25        0.14      0.06     (0.05)      0.37
        Total commercial
         real estate         0.15        0.17      0.06       0.19      0.15

      Residential mortgages  0.24        0.24      0.24       0.29      0.27

      Credit card            4.20        4.80      5.17       4.84      5.01
      Retail leasing         0.83        0.88      0.98       0.75      0.67
      Home equity and
       second mortgages      0.70        0.72      0.76       0.71      0.63
      Other retail           1.55        1.59      1.69       1.90      2.07
        Total retail         1.54        1.63      1.75       1.74      1.78

    Total net charge-offs    1.02        1.10      1.16       1.30      1.14

    Delinquent loan ratios - 90 days or more past due excluding nonperforming
     loans**
      Commercial             0.11        0.09      0.10       0.14      0.15
      Commercial real
       estate                0.01        0.02      0.03       0.04      0.04
      Residential
       mortgages             0.63        0.65      0.82       0.90      0.93
      Retail                 0.57        0.63      0.71       0.72      0.63
    Total loans              0.29        0.30      0.34       0.37      0.33

    Delinquent loan ratios - 90 days or more past due including nonperforming
     loans**
      Commercial             2.31        2.27      2.33       2.35      2.24
      Commercial real
       estate                0.75        0.82      0.85       0.90      0.82
      Residential
       mortgages             0.98        1.13      1.37       1.44      1.62
      Retail                 0.63        0.70      0.77       0.79      0.70
    Total loans              1.27        1.32      1.40       1.43      1.38

     * annualized and calculated on average loan balances
    ** ratios are expressed as a percent of ending loan balances

The overall level of net charge-offs in the third quarter of 2003 continued to reflect current economic conditions. Due to the Company's ongoing efforts to reduce the overall risk profile of the organization, net charge-offs are expected to continue to trend lower.

    ASSET QUALITY                                                   Table 10
    ($ in millions)
                            Sep 30     Jun 30     Mar 31    Dec 31     Sep 30
                             2003       2003       2003      2002       2002

    Nonperforming loans
      Commercial           $793.9      $795.2    $808.4     $760.4    $745.2
      Lease financing       111.6       126.6     129.4      166.7     170.6
        Total commercial    905.5       921.8     937.8      927.1     915.8
      Commercial mortgages  161.5       182.0     174.6      174.6     157.6
      Construction and
       development           40.2        35.3      46.1       57.5      49.1
        Commercial real
         estate             201.7       217.3     220.7      232.1     206.7
      Residential mortgages  46.1        56.0      57.4       52.0      57.7
      Retail                 21.6        24.2      23.9       26.1      27.1
    Total nonperforming
     loans                1,174.9     1,219.3   1,239.8    1,237.3   1,207.3

    Other real estate        70.4        71.5      66.2       59.5      63.3
    Other nonperforming
     assets                  73.0        68.9      56.6       76.7      73.8

    Total nonperforming
     assets*             $1,318.3    $1,359.7  $1,362.6   $1,373.5  $1,344.4

    Accruing loans 90 days
     past due              $352.4      $360.7    $403.5     $426.4    $387.9

    Nonperforming assets
     to loans plus ORE (%)   1.10        1.14      1.16       1.18      1.16

    * does not include accruing loans 90 days past due

Nonperforming assets at September 30, 2003, totaled $1,318.3 million, compared with $1,359.7 million at June 30, 2003, and $1,344.4 million at September 30, 2002. The ratio of nonperforming assets to loans and other real estate was 1.10 percent at September 30, 2003, compared with 1.14 percent at June 30, 2003, and 1.16 percent at September 30, 2002. Given the Company's ongoing efforts to reduce the overall risk profile of the organization, nonperforming assets are expected to continue to trend lower.

    CAPITAL POSITION                                                Table 11
     ($ in millions)       Sep 30      Jun 30    Mar 31     Dec 31    Sep 30
                            2003        2003      2003       2002      2002

    Total shareholders'
     equity               $19,426     $19,180   $18,520    $18,101   $17,518
    Tier 1 capital         14,243      13,609    12,873     12,606    13,172
    Total risk-based
     capital               21,512      21,051    19,900     19,753    20,420

    Common equity to assets  10.3%       9.8%      10.2%      10.1%     10.1%
    Tangible common equity
     to assets                6.4         5.8       5.8        5.6       6.1
    Tier 1 capital ratio      8.8         8.3       8.0        7.8       8.1
    Total risk-based
     capital ratio           13.3        12.8      12.4       12.2      12.6
    Leverage ratio            7.8         7.6       7.4        7.5       7.9


Total shareholders' equity was $19.4 billion at September 30, 2003, compared with $17.5 billion at September 30, 2002. The increase was the result of corporate earnings offset primarily by dividends.

Tangible common equity to assets was 6.4 percent at September 30, 2003, compared with 5.8 percent at June 30, 2003 and 6.1 percent at September 30, 2002. The tier 1 capital ratio was 8.8 percent at September 30, 2003, compared with 8.3 percent at June 30, 2003, and 8.1 percent at September 30, 2002. The total risk-based capital ratio was 13.3 percent at September 30, 2003, compared with 12.8 percent at June 30, 2003, and 12.6 percent at September 30, 2002. The leverage ratio was 7.8 percent at September 30, 2003, compared with 7.6 percent at June 30, 2003, and 7.9 percent at September 30, 2002. All regulatory ratios continue to be in excess of stated "well capitalized" requirements.

    COMMON SHARES                                                   Table 12
    (Millions)               3Q          2Q        1Q          4Q       3Q
                            2003        2003      2003        2002     2002
    Beginning shares
     outstanding          1,924.5     1,919.0   1,917.0     1,914.7  1,914.2

    Shares issued for
     stock option and
     stock purchase plans,
     acquisitions and other
     corporate purposes       2.9         5.5       2.0         2.3      0.9
    Shares repurchased         --          --        --          --     (0.4)
    Ending shares
     outstanding          1,927.4     1,924.5   1,919.0     1,917.0  1,914.7


On December 18, 2001, the board of directors of U.S. Bancorp approved an authorization to repurchase 100 million shares of outstanding common stock through 2003. As of September 30, 2003, there were approximately 91.5 million shares remaining to be repurchased under this authorization.

    LINE OF BUSINESS FINANCIAL PERFORMANCE*                         Table 13
    ($ in millions)
                                 Operating Earnings**          Percent Change
                              3Q          2Q        3Q        3Q03 vs 3Q03 vs
    Business Line            2003        2003      2002        2Q03      3Q02

    Wholesale Banking      $316.1      $297.1    $300.8         6.4      5.1
    Consumer Banking        446.4       426.3     396.0         4.7     12.7
    Private Client, Trust
     and Asset Management   131.9       128.5     110.2         2.6     19.7
    Payment Services        192.0       182.2     196.3         5.4     (2.2)
    Capital Markets          18.3        10.2       9.3        79.4     96.8
    Treasury and Corporate
     Support               (113.1)      (83.5)   (106.4)      (35.4)    (6.3)
    Consolidated Company   $991.6      $960.8    $906.2         3.2      9.4

    *  preliminary data
    **earnings before merger and restructuring-related items and cumulative
       effect of change in accounting principles

                                                                  3Q 2003
                              YTD         YTD      Percent        Earnings
    Business Line             2003        2002      Change      Composition

    Wholesale Banking        $906.9      $864.4      4.9            32%
    Consumer Banking        1,282.7     1,138.8     12.6            45
    Private Client, Trust
     and Asset Management     377.6       347.1      8.8            13
    Payment Services          544.5       496.3      9.7            19
    Capital Markets            34.4        27.8     23.7             2
    Treasury and Corporate
     Support                 (271.0)     (256.8)    (5.5)          (11)

    Consolidated Company   $2,875.1    $2,617.6      9.8           100%

    *  preliminary data
    ** earnings before merger and restructuring-related items and cumulative
       effect of change in accounting principles


    Lines of Business

Within the Company, financial performance is measured by major lines of business which include Wholesale Banking, Consumer Banking, Private Client, Trust and Asset Management, Payment Services, Capital Markets, and Treasury and Corporate Support. Business line results are derived from the Company's business unit profitability reporting systems. Designations, assignments and allocations may 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 our diverse customer base. During 2003, certain organization and methodology changes were made and, accordingly, results for 2003 and 2002 have been restated and presented on a comparable basis.

Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $316.1 million of the Company's operating earnings in the third quarter of 2003, a 5.1 percent increase over the same period of 2002 and a 6.4 percent increase over the second quarter of 2003. The increase in Wholesale Banking's third quarter 2003 contribution over the third quarter of 2002 was the result of slightly higher net revenue (1.3 percent), lower noninterest expense (13.7 percent), and a favorable variance in the provision for credit losses (2.2 percent). Total net revenue in the third quarter of 2003 was higher than the third quarter of 2002, the net effect of a favorable variance in net interest income (2.2 percent) and slightly lower noninterest income (.8 percent). The increase in net interest income was primarily due to a significant increase in average deposits (42.6 percent) year-over-year and the consolidation of the commercial loan conduit. Wholesale Banking's unfavorable variance in noninterest income year-over-year was the net result of lower commercial products revenue (22.5 percent) and higher cash management fees (29.1 percent). The increase in cash management fees was principally driven by a change in the Federal government's payment methodology for treasury management services from compensating balances to fees during the third quarter of 2003, while the decline in commercial products revenue was primarily due to lower loan conduit servicing fees related to the unwinding of the commercial loan conduit. Wholesale Banking's favorable variance in noninterest expense year-over-year was driven by decreases in salaries and employee benefits and other expense, principally loan expense, professional services and miscellaneous losses. The increase in Wholesale Banking's contribution to operating earnings in the third quarter of 2003 over the second quarter of 2003 was the result of a slight favorable variance in net revenue (1.9 percent), lower noninterest expense (9.3 percent) and a decline in the provision for credit losses (7.9 percent). Net revenue in the third quarter of 2003 was higher than the previous quarter due to an increase in net interest income (2.5 percent), while a decrease in other expense, principally loan expense, and net charge-offs drove the favorable variances in noninterest expense and the provision for credit losses, respectively.

Consumer Banking delivers products and services to the broad consumer market and small businesses through banking offices, telemarketing, on-line services, direct mail and automated teller machines ("ATMs"). It encompasses community banking, metropolitan banking, small business banking, consumer lending, mortgage banking, workplace banking, student banking, 24-hour banking, and investment product and insurance sales. Consumer Banking contributed $446.4 million of the Company's operating earnings in the third quarter of 2003, a 12.7 percent increase over the same period of 2002 and a 4.7 percent increase over the second quarter of 2003. The increase in Consumer Banking's third quarter 2003 contribution over the third quarter of 2002 was the result of lower net revenue (9.3 percent) and a favorable variance in noninterest expense (34.0 percent). Net interest income improved year-over-year by $82.4 million (9.6 percent), the result of increases in residential mortgages, retail loans and average deposits, as well as the acquisition of the Bay View Bank branches in California. Chiefly offsetting the favorable variance in net interest income was a net reduction in gains (losses) on the sale of securities, in addition to lower mortgage banking revenue, and other revenue. The variance in other revenue was primarily due to higher end-of-term lease residual losses. The $108.7 million of losses on the sale of securities recognized by the business line in the third quarter of 2003 represent an economic hedge to the reparation of MSR valuation caused by changes in interest rates and a related reduction in prepayments. Noninterest expense in the third quarter of 2003 was lower than the third quarter of 2002 (34.0 percent), mainly due to the change in MSR valuation, partly offset by the impact of the acquisition of the Bay View Bank branches. The improvement in Consumer Banking's contribution in the third quarter of 2003 over the second quarter of 2003 was the result of a decrease in noninterest expense (43.3 percent), partially offset by lower net revenue (18.2 percent). These variances were largely due to the change in MSR valuation and the net reduction in gains (losses) on sale of securities, respectively.

Private Client, Trust and Asset Management provides mutual fund processing services, trust, private banking and financial advisory services through four businesses, including: the Private Client Group, Corporate Trust, Institutional Trust and Custody, and Fund Services, LLC. The business segment also offers investment management services to several client segments including mutual funds, institutional customers, and private asset management. Private Client, Trust and Asset Management contributed $131.9 million of the Company's operating earnings in the third quarter of 2003, 19.7 percent higher than the same period of 2002 and 2.6 percent higher than the second quarter of 2003. The favorable variance in the business line's contribution in the third quarter of 2003 over the third quarter of 2002 was the result of a favorable variance in net revenue of $40.0 million (13.3 percent), partly offset by an unfavorable variance in noninterest expense of $8.2 million (6.7 percent). The increase in net revenue was primarily due to the acquisition of State Street Corporate Trust, which added approximately $32.0 million of net revenue in the third quarter of 2003, and higher deposit balances, which favorably impacted net interest income year-over-year. The unfavorable variance in expense was, also, primarily due to the acquisition of State Street Corporate Trust, partly offset by business line cost savings year-over-year. The $3.4 million (2.6 percent) increase in the business line's contribution in the third quarter of 2003 over the second quarter of 2003 was the result of higher net revenue (2.4 percent), largely net interest income, partially offset by a slight increase in noninterest expense (.3 percent) and a $2.2 million increase in the provision for credit losses. The increase in net interest income from the second quarter of 2003 to the third quarter of 2003 was driven by an increase in average deposits (14.2 percent).

Payment Services includes consumer and business credit cards, corporate and purchasing card services, consumer lines of credit, ATM processing, merchant processing, and debit cards. Payment Services contributed $192.0 million of the Company's operating earnings in the third quarter of 2003, a 2.2 percent decrease from the same period of 2002, but a 5.4 percent increase over the second quarter of 2003. The decline in Payment Services' contribution in the third quarter of 2003 from the third quarter of 2002 was the result of lower net revenue (3.9 percent), partially offset by a decline in noninterest expense (2.2 percent) and a lower provision for credit losses (11.9 percent). The reduction in net revenue year-over-year was primarily due to lower net interest income (8.5 percent), which reflected lower spreads on retail credit cards and a reduction in loan fees relative to the prior year's quarter, slight decreases in ATM processing services and merchant processing services revenue of 3.7 percent and .7 percent, respectively, and lower other revenue. Other revenue decreased due to gains of $20.9 million on the sale of a credit card loan portfolio that was completed in the third quarter of 2002. Partially offsetting these declines were growth in credit and debit card revenue (3.1 percent) and corporate payment products revenue (9.2 percent). Although credit and debit card revenue was negatively impacted in the third quarter of 2003 by the VISA debit card settlement and higher customer loyalty rewards expenses, increases in transaction volumes and other rate adjustments more than offset these detrimental changes. Noninterest expense declined by $4.2 million (2.2 percent) in the third quarter of 2003 from the third quarter of 2002, primarily due to savings from the completion of systems integration activity. The increase in Payment Services' contribution in the third quarter of 2003 over the previous quarter was primarily due to seasonally higher net revenue in corporate payment products revenue and merchant processing services and a lower provision for credit losses. Offsetting a portion of the increase in corporate payment products and merchant processing services were lower credit and debit card revenues, largely the result of the VISA debit card settlement and higher customer loyalty rewards expense.

Capital Markets engages in equity and fixed income trading activities, offers investment banking and underwriting services for corporate and public sector customers and provides financial advisory services and securities, mutual funds, annuities and insurance products to consumers and regionally based businesses through a network of brokerage offices. Capital Markets contributed $18.3 million of the Company's operating earnings in the third quarter of 2003, compared with a contribution of $9.3 million in the third quarter of 2002 and $10.2 million in the second quarter of 2003. The business line's contribution was higher in the third quarter of 2003 than the same quarter of 2002, primarily due to an increase in net revenue (18.8 percent), driven by both equity and fixed income investment banking activity, partially offset by an increase in noninterest expense (11.9 percent), principally incentive-based compensation. The increase in Capital Markets' contribution in the third quarter of 2003 over the previous quarter was primarily the result of an increase in net revenue (2.2 percent), driven by higher equity and fixed income investment banking activity, in addition to a decrease in noninterest expense (4.3 percent). Noninterest expense declined from the previous quarter chiefly due to lower litigation-related expense.

Treasury and Corporate Support includes the Company's investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to average balances and business activities managed on a corporate basis, including enterprise-wide operations and administrative support functions. Treasury and Corporate Support recorded an operating loss of $113.1 million in the third quarter of 2003, compared with operating losses of $106.4 million in the third quarter of 2002 and $83.5 million in the second quarter of 2003. The increase in the loss year-over-year was largely the result of a decrease in net revenue of $33.7 million (15.7 percent), partially offset by a benefit from a change in the effective tax rate year-over-year. The decline in net revenue from the third quarter of 2002 was primarily due to a net reduction in gains (losses) on the sale of securities, partially offset by higher equity investment gains relative to the same quarter of 2002. The increase in the business line's loss in the third quarter of 2003 over the second quarter of 2003 was the result of unfavorable variances in net revenue (14.7 percent) and noninterest expense (4.6 percent).

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.

Chairman, President and Chief Executive Officer, Jerry A. Grundhofer, and Vice Chairman and Chief Financial Officer, David M. Moffett, will host a conference call to review the financial results on Tuesday, October 21, 2003, at 8:00 a.m. (CDT). To access the conference call, please dial 800-867-2186 and ask for the U.S. Bancorp earnings conference call. Participants calling from outside the United States, please call 785-832-0326. For those unable to participate during the live call, a recording of the call will be available approximately one hour after the conference call ends on Tuesday, October 21, 2003, and will run through Tuesday, October 28, 2003, at 11:00 p.m. (CDT). To access the recorded message dial 800-938-2796. If calling from outside the United States, please dial 402-220-9030.

Minneapolis-based U.S. Bancorp ("USB"), with $189 billion in assets, is the 8th largest financial services holding company in the United States. The company operates 2,201 banking offices and 4,506 ATMs, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on the web at usbank.com .

Forward-Looking Statements

This press release contains forward-looking statements. 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 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 the following, in addition to those contained in the Company's reports on file with the SEC: (i) general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for credit losses, or a reduced demand for credit or fee-based products and services; (ii) changes in the domestic interest rate environment could reduce net interest income and could increase credit losses; (iii) inflation, changes in securities market conditions and monetary fluctuations could adversely affect the value or credit quality of the Company's assets, or the availability and terms of funding necessary to meet the Company's liquidity needs; (iv) changes in the extensive laws, regulations and policies governing financial services companies could alter the Company's business environment or affect operations; (v) the potential need to adapt to industry changes in information technology systems, on which the Company is highly dependent, could present operational issues or require significant capital spending; (vi) competitive pressures could intensify and affect the Company's profitability, including as a result of continued industry consolidation, the increased availability of financial services from non- banks, technological developments, or bank regulatory reform; (vii) changes in consumer spending and savings habits could adversely affect the Company's results of operations; (viii) changes in the financial performance and condition of the Company's borrowers could negatively affect repayment of such borrowers' loans; (ix) acquisitions may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated, or may result in unforeseen integration difficulties; (x) capital investments in the Company's businesses may not produce expected growth in earnings anticipated at the time of the expenditure; and (xi) acts or threats of terrorism, and/or political and military actions taken by the U.S. or other governments in response to acts or threats of terrorism or otherwise could adversely affect general economic or industry conditions. 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)                           2003      2002      2003      2002
    Interest Income
    Loans                              $1,818.3  $1,961.2  $5,476.1  $5,830.0
    Loans held for sale                    59.5      37.3     170.9     113.1
    Investment securities
      Taxable                             403.6     372.2   1,222.1   1,066.1
      Non-taxable                           6.7      10.9      23.1      35.8
    Money market investments                1.6       3.3       8.2       8.8
    Trading securities                      7.5       9.7      22.8      27.3
    Other interest income                  24.5      25.4      80.8      77.1
        Total interest income           2,321.7   2,420.0   7,004.0   7,158.2

    Interest Expense
    Deposits                              256.4     370.3     851.5   1,141.6
    Short-term borrowings                  47.7      56.4     133.9     203.6
    Long-term debt                        169.4     226.8     540.7     635.7
    Company-obligated mandatorily
     redeemable preferred securities
     of subsidiary trusts holding
     solely the junior subordinated
     debentures of the parent company      23.6      34.7      79.5     103.4
        Total interest expense            497.1     688.2   1,605.6   2,084.3
    Net interest income                 1,824.6   1,731.8   5,398.4   5,073.9
    Provision for credit losses           310.0     330.0     968.0   1,000.0
    Net interest income after
     provision for credit losses        1,514.6   1,401.8   4,430.4   4,073.9

    Noninterest Income
    Credit and debit card revenue         137.6     132.8     407.3     373.3
    Corporate payment products revenue     95.7      87.6     272.6     245.3
    ATM processing services                41.3      42.9     125.6     118.9
    Merchant processing services          146.3     147.3     415.4     425.3
    Trust and investment management
     fees                                 241.9     225.2     714.1     684.4
    Deposit service charges               187.0     186.5     529.2     503.9
    Cash management fees                  126.2     105.8     350.0     314.3
    Commercial products revenue            97.8     125.0     302.0     370.9
    Mortgage banking revenue               89.5     111.8     275.2     241.8
    Trading account profits and
     commissions                           56.2      52.6     184.7     152.0
    Investment products fees and
     commissions                          104.5     105.0     314.0     323.5
    Investment banking revenue             75.0      35.7     169.4     159.4
    Securities gains (losses), net       (108.9)    119.0     244.9     193.7
    Other                                  84.9      88.4     259.5     235.7
        Total noninterest income        1,375.0   1,565.6   4,563.9   4,342.4

    Noninterest Expense
    Salaries                              623.3     606.0   1,850.4   1,801.9
    Employee benefits                      90.9      93.8     295.1     281.3
    Net occupancy                         101.3     103.2     304.6     305.1
    Furniture and equipment                72.7      75.7     218.1     229.6
    Capitalized software                   36.0      36.8     111.5     112.9
    Communication                          49.5      46.6     151.2     136.4
    Postage                                45.0      44.3     136.3     135.3
    Other intangible assets                10.8     211.4     558.2     396.3
    Merger and restructuring-related
     charges                               10.2      70.4      38.6     216.2
    Other                                 357.6     359.4   1,003.9   1,002.4
        Total noninterest expense       1,397.3   1,647.6   4,667.9   4,617.4

    Income before income taxes and
     cumulative effect of change in
     accounting principles              1,492.3   1,319.8   4,326.4   3,798.9
    Applicable income taxes               507.4     459.5   1,476.7   1,322.3

    Income before cumulative effect of
     change in accounting principles      984.9     860.3   2,849.7   2,476.6
    Cumulative effect of change in
     accounting principles                  --        --        --      (37.2)
    Net income                           $984.9    $860.3  $2,849.7  $2,439.4

    Earnings Per Share
      Income before cumulative
       effect of change in
       accounting principles               $.51      $.45     $1.48     $1.29
      Cumulative effect of change
       in accounting principles             --        --        --       (.02)
      Net income                           $.51      $.45     $1.48     $1.27

    Diluted Earnings Per Share
      Income before cumulative
       effect of change in
       accounting principles               $.51      $.45     $1.47     $1.29
      Cumulative effect of change
       in accounting principles             --        --        --       (.02)
      Net income                           $.51      $.45     $1.47     $1.27

    Dividends declared per share          $.205     $.195     $.615     $.585
    Average common shares               1,926.0   1,915.0   1,922.4   1,916.0
    Average diluted common shares       1,940.8   1,923.3   1,933.5   1,926.7


    U.S. Bancorp
    Consolidated Ending Balance Sheet
                                            September    December   September
    (Dollars in Millions)                    30, 2003    31, 2002    30, 2002
    Assets                                 (Unaudited)             (Unaudited)
    Cash and due from banks                   $9,187     $10,758      $8,705
    Money market investments                     536         434         485
    Trading securities                         1,138         898         848
    Investment securities
      Held-to-maturity                           180         233         257
      Available-for-sale                      34,835      28,255      28,237
    Loans held for sale                        3,640       4,159       2,575
    Loans
      Commercial                              41,170      41,944      43,826
      Commercial real estate                  27,242      26,867      26,304
      Residential mortgages                   12,976       9,746       8,439
      Retail                                  38,494      37,694      37,365
        Total loans                          119,882     116,251     115,934
         Less allowance for credit losses     (2,368)     (2,422)     (2,461)
         Net loans                           117,514     113,829     113,473
    Premises and equipment                     2,028       1,697       1,706
    Customers' liability on acceptances          143         140         132
    Goodwill                                   6,329       6,325       5,442
    Other intangible assets                    2,138       2,321       2,077
    Other assets                              11,167      10,978      10,069
          Total assets                      $188,835    $180,027    $174,006

    Liabilities and Shareholders' Equity
    Deposits
      Noninterest-bearing                    $32,441     $35,106     $32,189
      Interest-bearing                        74,419      68,214      63,639
      Time deposits greater than $100,000      8,183      12,214      11,598
        Total deposits                       115,043     115,534     107,426
    Short-term borrowings                     12,864       7,806       7,499
    Long-term debt                            31,603      28,588      31,685
    Company-obligated mandatorily
     redeemable preferred securities
     of subsidiary trusts holding
     solely the junior subordinated
     debentures of the parent company          2,605       2,994       2,975
    Acceptances outstanding                      143         140         132
    Other liabilities                          7,151       6,864       6,771
        Total liabilities                    169,409     161,926     156,488
    Shareholders' equity
      Common stock                                20          20          20
      Capital surplus                          4,800       4,850       4,870
      Retained earnings                       15,385      13,719      13,243
      Less treasury stock                     (1,031)     (1,272)     (1,325)
      Other comprehensive income                 252         784         710
        Total shareholders' equity            19,426      18,101      17,518
        Total liabilities and
         shareholders' equity               $188,835    $180,027    $174,006

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.



The information that is on or available through this site is for informational purposes only and speaks only as of the particular date or dates of that information. We do not guarantee the accuracy or completeness of information on or available through this site, and we are not responsible for inaccuracies or omissions in that information or for actions taken in reliance on that information. U.S. Bancorp does not undertake an obligation, and disclaims any duty, to update any of the information on or available through this site.

This site is supported through the use of Microsoft Internet Explorer Browser, version 6.x or higher. Use of older or other browsers may cause pages to improperly display. We regret any inconvenience that this may cause.





Privacy Pledge   |   © 2010 U.S. Bancorp Site Map   |   Careers