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 the Second Quarter of 2005

MINNEAPOLIS, Jul 19, 2005 (BUSINESS WIRE) -- U.S. Bancorp (NYSE:USB):

EARNINGS SUMMARY                                               Table 1
----------------------------------------------------------------------
($ in millions, except per-share data)

                                  Percent Percent
                                  Change  Change
               2Q     1Q     2Q   2Q05 vs 2Q05 vs  YTD    YTD  Percent
              2005   2005   2004   1Q05    2Q04   2005   2004  Change
             ---------------------------------------------------------

Net income   $1,121 $1,071 $1,037    4.7     8.1 $2,192 $2,045    7.2
Earnings per
 share
 (diluted)     0.60   0.57   0.54    5.3    11.1   1.17   1.06   10.4

Return on
 average
 assets (%)    2.23   2.21   2.19                  2.22   2.16
Return on
 average
 equity (%)    22.7   21.9   21.9                  22.3   21.3
Efficiency
 ratio (%)     48.3   41.7   38.6                  45.1   42.7

Dividends
 declared per
 share        $0.30  $0.30  $0.24     --    25.0  $0.60  $0.48   25.0
Book value
 per share
 (period-end) 10.88  10.43   9.91    4.3     9.8
Net interest
 margin (%)    3.99   4.08   4.28                  4.03   4.28

U.S. Bancorp (NYSE:USB) today reported net income of $1,121 million for the second quarter of 2005, compared with $1,037 million for the second quarter of 2004. Net income of $.60 per diluted share in the second quarter of 2005 was higher than the same period of 2004 by $.06 (11.1 percent). Return on average assets and return on average equity were 2.23 percent and 22.7 percent, respectively, for the second quarter of 2005, compared with returns of 2.19 percent and 21.9 percent, respectively, for the second quarter of 2004.

U.S. Bancorp Chairman and Chief Executive Officer Jerry A. Grundhofer said, "I am very proud to announce that our Company has achieved another quarter of record earnings and industry leading returns on equity and assets. The results included strong year-over-year and seasonal growth in our fee-based businesses, as well as exceptional credit quality. Loan growth in the second quarter of 2005 was excellent, increasing 8.3 percent over the same quarter of 2004 and at an annualized rate of 11.2 percent over the prior quarter. Once again, we exceeded our stated target and returned 92 percent of earnings to our shareholders during the quarter in the form of dividends and share repurchases.

"Fee revenue, excluding the impact of securities gains (losses), continued to drive revenue growth this quarter, increasing 8.9 percent over the second quarter of 2004. Investments and core growth in our Payments Services and Consumer Banking business units were the primary drivers of the growth in fees, increasing 17.1 percent and 6.1 percent, respectively.

"The growth in commercial loans was particularly encouraging this quarter, as average outstandings grew 9.0 percent over the second quarter of 2004 and, more importantly, at an annualized rate of 16.8 percent over the first quarter of 2005. Although credit spreads continued to tighten, accounting for 4 of the 9 basis point drop in the net margin on a linked quarter basis, we have remained competitive and disciplined in our approach to the market, capitalizing on our ability to compete on price while offering a wide array of non-credit products to fulfill our customers' needs.

"I am especially pleased with the exceptional improvement we have seen in the Company's credit quality over the past year. Our loss and coverage ratios are better than our Company has experienced in many years and are the direct result of the actions we have taken to reduce the risk profile of the Company. We expect to continue to grow our credit-related businesses, both commercial and retail, while maintaining the discipline that has helped us reach these quality metrics today.

"We are well on our way to meeting our financial goals for 2005 and beyond. We will continue to invest in our franchise, as we have been, to create and enhance our set of products and services, increase our market penetration and provide outstanding service to our customers."

The Company's results for the second quarter of 2005 improved over the same period of 2004, as net income rose by $84 million (8.1 percent), primarily due to growth in fee-based products and services, reduced credit costs and lower tax expense. During the second quarter of 2005, the Company recognized a $53 million impairment of its mortgage servicing rights ("MSR") asset, reflecting lower longer-term interest rates in the second quarter of 2005, compared with the recognition of $171 million reparation of its MSR asset in the second quarter of 2004. Also included in the second quarter of 2005 results was a $54 million charge related to a completed tender offer for debt securities and a $94 million reduction in income tax expense related to the resolution of federal tax examinations covering all of the Company's legal entities for all years through 2002.

Total net revenue on a taxable-equivalent basis for the second quarter of 2005 was $281 million (9.3 percent) higher than the second quarter of 2004, primarily reflecting 8.9 percent growth in fee-based revenue across the majority of fee categories, expansion in payments processing businesses and a $173 million favorable variance in securities gains (losses), partially offset by a 1.0 percent reduction in net interest income.

Total noninterest expense in the second quarter of 2005 was $362 million (29.4 percent) higher than the second quarter of 2004, primarily reflecting the $224 million unfavorable change in the valuation of mortgage servicing rights and the $54 million charge related to the Company's recent tender offer for certain subordinated and trust preferred debt securities. In addition, expenses reflected incremental costs related to expanding the payment processing businesses, investments in in-store branches, adding middle market and community bankers, marketing initiatives and higher pension costs from a year ago.

Provision for credit losses for the second quarter of 2005 was $144 million, a decrease of $60 million (29.4 percent) from the second quarter of 2004. The decrease in the provision for credit losses year-over-year reflected a decrease in total net charge-offs. Net charge-offs in the second quarter of 2005 were $144 million, compared with the first quarter of 2005 net charge-offs of $172 million and the second quarter of 2004 net charge-offs of $204 million. Total nonperforming assets declined to $610 million at June 30, 2005, from $665 million at March 31, 2005 (8.3 percent), and $911 million at June 30, 2004 (33.0 percent). The ratio of the allowance for credit losses to nonperforming loans was 441 percent at June 30, 2005, compared with 404 percent at March 31, 2005, and 299 percent at June 30, 2004.

INCOME STATEMENT HIGHLIGHTS                                    Table 2
----------------------------------------------------------------------
(Taxable-equivalent basis, $ in millions, except per-share data)

                                  Percent Percent
                                  Change  Change
               2Q     1Q     2Q   2Q05 vs 2Q05 vs  YTD    YTD  Percent
              2005   2005   2004   1Q05    2Q04   2005   2004  Change
             ---------------------------------------------------------

Net interest
 income      $1,761 $1,751 $1,779    0.6    (1.0)$3,512 $3,558   (1.3)
Noninterest
 income       1,541  1,382  1,242   11.5    24.1  2,923  2,560   14.2
             ---------------------               --------------
  Total net
   revenue    3,302  3,133  3,021    5.4     9.3  6,435  6,118    5.2
Noninterest
 expense      1,595  1,331  1,233   19.8    29.4  2,926  2,688    8.9
             ---------------------               --------------
Income before
 provision
 and income
 taxes        1,707  1,802  1,788   (5.3)   (4.5) 3,509  3,430    2.3
Provision for
 credit
 losses         144    172    204  (16.3)  (29.4)   316    439  (28.0)
             ---------------------               --------------
Income before
 income taxes 1,563  1,630  1,584   (4.1)   (1.3) 3,193  2,991    6.8
Taxable-
 equivalent
 adjustment       7      7      7     --      --     14     14     --
Applicable
 income taxes   435    552    540  (21.2)  (19.4)   987    932    5.9
             ---------------------               --------------
Net income   $1,121 $1,071 $1,037    4.7     8.1 $2,192 $2,045    7.2
             ---------------------               --------------

Diluted
 earnings per
 share        $0.60  $0.57  $0.54    5.3    11.1  $1.17  $1.06   10.4
             ---------------------               --------------

Net Interest Income

Second quarter net interest income on a taxable-equivalent basis was $1,761 million, compared with $1,779 million recorded in the second quarter of 2004. Average earning assets for the period increased over the second quarter of 2004 by $9.7 billion (5.8 percent), primarily driven by a $3.3 billion (8.2 percent) increase in retail loans, a $3.2 billion (8.1 percent) increase in total commercial loans and a $3.1 billion (22.4 percent) increase in residential mortgages. The positive impact to net interest income from the growth in earning assets was more than offset by a lower net interest margin. The net interest margin in the second quarter of 2005 was 3.99 percent, compared with 4.28 percent in the second quarter of 2004. The decline in the net interest margin reflected the current lending environment, asset/liability management decisions and the impact of changes in the yield curve from a year ago. Since the second quarter of 2004, credit spreads have tightened by approximately 18 basis points across most lending products due to competitive pricing and a change in mix due to growth in lower spread credit products. The net interest margin also declined due to funding incremental growth with higher cost wholesale funding and asset/liability decisions designed to maintain a relatively neutral rate risk position, including reducing the duration of the securities portfolio, funding asset growth with more fixed rate long term debt and a 56 percent reduction in the net receive fixed swap position between June 30, 2004, and June 30, 2005. Increases in the margin benefit of deposits and net free funds helped to partially offset these factors.

Net interest income in the second quarter of 2005 was higher than the first quarter of 2005 by $10 million (.6 percent). Average earning assets grew quarter-over-quarter by $3.4 billion (2.0 percent). Growth in most loan categories, including a 3.7 percent increase in total commercial loans, drove the increase in average earning assets over the prior quarter. The positive impact to net interest income from the growth in earning assets and day basis was partially offset by a lower net interest margin. The net interest margin in the second quarter of 2005 was 9 basis points lower than the net interest margin of 4.08 percent recorded in the first quarter of 2005. The decline in the net interest margin from the first quarter of 2005 reflected tighter credit spreads (4 basis points) due to increased competition, in addition to changes in loan mix. Higher short-term rates, funding a higher percentage of earning asset growth with wholesale funding and asset/liability actions designed to maintain a relatively neutral rate risk position, including a 31 percent reduction in the net receive fixed swap position between March 31, 2005, and June 30, 2005, also contributed to the margin reduction. This was partially offset by the higher margin benefit of deposits and net free funds and loan fees.

NET INTEREST INCOME                                            Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in millions)
                                                        Change Change
                                 2Q       1Q      2Q   2Q05 vs 2Q05 vs
                                2005    2005    2004     1Q05   2Q04
                              ----------------------------------------
Components of net interest
 income
  Income on earning assets      $2,572  $2,442  $2,243    $130   $329
  Expense on interest-bearing
   liabilities                     811     691     464     120    347
                              ----------------------------------------
Net interest income             $1,761  $1,751  $1,779     $10   $(18)
                              ----------------------------------------

Average yields and rates paid
  Earning assets yield            5.83%   5.69%   5.39%   0.14%  0.44%
  Rate paid on interest-
   bearing liabilities            2.23    1.97    1.38    0.26   0.85
                              ----------------------------------------
Gross interest margin             3.60%   3.72%   4.01% (0.12%)(0.41%)
                              ----------------------------------------
Net interest margin               3.99%   4.08%   4.28% (0.09%)(0.29%)
                              ----------------------------------------

Average balances
  Investment securities        $42,341 $42,813 $42,489   $(472) $(148)
  Loans                        131,275 127,654 121,161   3,621 10,114
  Earning assets               176,730 173,294 166,990   3,436  9,740
  Interest-bearing liabilities 146,070 142,052 134,819   4,018 11,251
  Net free funds(a)             30,660  31,242  32,171    (582)(1,511)

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



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

                                                YTD     YTD   Percent
                                               2005    2004    Change
                                              ------------------------
Components of net interest income
  Income on earning assets                     $5,014  $4,508    $506
  Expense on interest-bearing liabilities       1,502     950     552
                                              ------------------------
Net interest income                            $3,512  $3,558    $(46)
                                              ------------------------

Average yields and rates paid
  Earning assets yield                           5.76%   5.43%   0.33%
  Rate paid on interest-bearing liabilities      2.10    1.42    0.68
                                              ------------------------
Gross interest margin                            3.66%   4.01% (0.35%)
                                              ------------------------
Net interest margin                              4.03%   4.28% (0.25%)
                                              ------------------------

Average balances
  Investment securities                       $42,576 $43,617 $(1,041)
  Loans                                       129,474 119,985   9,489
  Earning assets                              175,022 166,674   8,348
  Interest-bearing liabilities                144,072 134,893   9,179
  Net free funds(a)                            30,950  31,781    (831)

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


AVERAGE LOANS                                                  Table 4
----------------------------------------------------------------------
($ in millions)                                        Percent Percent
                                                        Change Change
                              2Q        1Q       2Q    2Q05 vs 2Q05 vs
                             2005      2005     2004     1Q05   2Q04
                           -------------------------------------------

Commercial                  $37,595   $36,083  $34,484     4.2    9.0
Lease financing               4,922     4,914    4,846     0.2    1.6
                           ----------------------------
  Total commercial           42,517    40,997   39,330     3.7    8.1

Commercial mortgages         20,156    20,268   20,477    (0.6)  (1.6)
Construction and
 development                  7,426     7,236    6,639     2.6   11.9
                           ----------------------------
  Total commercial real
   estate                    27,582    27,504   27,116     0.3    1.7

Residential mortgages        17,198    15,827   14,052     8.7   22.4

Credit card                   6,527     6,417    5,989     1.7    9.0
Retail leasing                7,314     7,198    6,484     1.6   12.8
Home equity and second
 mortgages                   15,003    14,844   13,775     1.1    8.9
Other retail                 15,134    14,867   14,415     1.8    5.0
                           ----------------------------
  Total retail               43,978    43,326   40,663     1.5    8.2
                           ----------------------------

Total loans                $131,275  $127,654 $121,161     2.8    8.3
                           ----------------------------


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

                                                YTD      YTD   Percent
                                               2005     2004   Change
                                             -------------------------

Commercial                                    $36,843  $34,057    8.2
Lease financing                                 4,918    4,873    0.9
                                             ------------------
  Total commercial                             41,761   38,930    7.3

Commercial mortgages                           20,212   20,515   (1.5)
Construction and development                    7,331    6,598   11.1
                                             ------------------
  Total commercial real estate                 27,543   27,113    1.6

Residential mortgages                          16,517   13,831   19.4

Credit card                                     6,472    5,933    9.1
Retail leasing                                  7,256    6,338   14.5
Home equity and second mortgages               14,924   13,575    9.9
Other retail                                   15,001   14,265    5.2
                                             ------------------
  Total retail                                 43,653   40,111    8.8
                                             ------------------

Total loans                                  $129,474 $119,985    7.9
                                             ------------------

Average loans for the second quarter of 2005 were $10.1 billion (8.3 percent) higher than the second quarter of 2004, driven by growth in average retail loans of $3.3 billion (8.2 percent), total commercial loans of $3.2 billion (8.1 percent) and residential mortgages of $3.1 billion (22.4 percent). Total commercial real estate loans also increased slightly year-over-year by $466 million (1.7 percent). Average loans for the second quarter of 2005 were higher than the first quarter of 2005 by $3.6 billion (2.8 percent), reflecting growth in substantially all loan categories.

Average investment securities in the second quarter of 2005 were $148 million (.3 percent) lower than in the second quarter of 2004. Investment securities at June 30, 2005, were $2.0 billion higher than at June 30, 2004, but $804 million lower than the balance at March 31, 2005. The changes in the balance of the investment securities portfolio from a year ago principally reflected the net impact of repositioning the investment portfolio during 2004 as part of asset/liability risk management decisions to acquire variable rate and shorter-term fixed securities to reduce the effective duration of the portfolio and to maintain a relatively neutral interest rate risk position. The decline from first quarter of 2005 primarily represented maturities or prepayments with the proceeds being utilized to fund loan growth. During the second quarter of 2005, the Company retained its mix of approximately 39 percent variable rate securities.

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)                                        Percent Percent
                                                        Change Change
                               2Q       1Q       2Q    2Q05 vs 2Q05 vs
                              2005     2005     2004     1Q05   2Q04
                            ------------------------------------------

Noninterest-bearing deposits $29,148  $28,417  $30,607     2.6   (4.8)
Interest-bearing deposits
  Interest checking           23,024   23,146   20,739    (0.5)  11.0
  Money market accounts       29,563   30,264   34,242    (2.3) (13.7)
  Savings accounts             5,886    5,968    5,936    (1.4)  (0.8)
                            ---------------------------
    Savings products          58,473   59,378   60,917    (1.5)  (4.0)

  Time certificates of
   deposit less than
   $100,000                   13,152   12,978   13,021     1.3    1.0
  Time deposits greater than
   $100,000                   20,459   18,650   12,571     9.7   62.7
                            ---------------------------
    Total interest-bearing
     deposits                 92,084   91,006   86,509     1.2    6.4
                            ---------------------------
Total deposits              $121,232 $119,423 $117,116     1.5    3.5
                            ---------------------------


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

                                                YTD      YTD   Percent
                                               2005     2004   Change
                                             -------------------------

Noninterest-bearing deposits                  $28,784  $29,815   (3.5)
Interest-bearing deposits
  Interest checking                            23,085   20,844   10.8
  Money market accounts                        29,911   34,320  (12.8)
  Savings accounts                              5,927    5,917    0.2
                                             ------------------
    Savings products                           58,923   61,081   (3.5)

  Time certificates of deposit less than
   $100,000                                    13,066   13,319   (1.9)
  Time deposits greater than $100,000          19,559   12,352   58.3
                                             ------------------
    Total interest-bearing deposits            91,548   86,752    5.5
                                             ------------------
Total deposits                               $120,332 $116,567    3.2
                                             ------------------

Average noninterest-bearing deposits for the second quarter of 2005 were lower than the second quarter of 2004 by $1.5 billion (4.8 percent). The year-over-year change in the average balance of noninterest-bearing deposits was impacted by product changes in the Consumer Banking business line. In late 2004, the Company migrated approximately $1.3 billion of noninterest-bearing deposit balances to interest checking accounts as an enhancement to its Silver Elite Checking product. Average branch-based noninterest-bearing deposits in the second quarter of 2005, excluding the migration of certain high-value customers to Silver Elite Checking, were higher by approximately $200 million (1.7 percent) over the same quarter of 2004, as net new checking accounts continue to grow. Average noninterest-bearing deposits in other areas, including commercial banking and private client, trust and asset management, also increased year-over-year. These favorable variances were offset, however, by expected declines in average noninterest-bearing deposits in corporate banking as customers utilize their excess liquidity.

Average total savings products declined year-over-year by $2.4 billion (4.0 percent), due to reductions in average money market account balances and savings accounts, partially offset by higher interest checking balances. Average branch-based interest checking deposits increased by $2.5 billion (16.5 percent) over the same quarter of 2004, in part, due to the change in the Silver Elite Checking product, as well as new account growth. Average branch-based interest checking deposits, excluding Silver Elite Checking, were higher by approximately $1.2 billion (8.0 percent) year-over-year. This positive variance in branch-based interest checking account deposits was partially offset by reductions in other areas, principally corporate banking. Average money market account balances declined by $4.7 billion (13.7 percent) year-over-year, with the largest declines in the branches, national corporate banking and government banking. The overall decrease in average money market account balances year-over-year was the result of the Company's deposit pricing decisions. A portion of the money market balances have migrated to time deposits greater than $100,000 as rates increased on the time deposit products.

Average time certificates less than $100,000 were higher in the second quarter of 2005 than the second quarter of 2004 by $131 million (1.0 percent). The Company also experienced year-over-year growth in average time deposits greater than $100,000 of $7.9 billion (62.7 percent), most notably in corporate banking, as customers migrated balances to higher rate deposits.

Average noninterest-bearing deposits for the second quarter of 2005 were $731 million (2.6 percent) higher than the first quarter of 2005. Average savings products declined by $905 million (1.5 percent) in the current quarter from the first quarter of 2005. Average interest checking deposits declined slightly quarter-over-quarter, the net result of higher average branch-related interest checking balances (2.2 percent), offset by lower balances in other business lines, principally corporate banking. Average money market account balances declined by $701 million (2.3 percent) as the Company continued to lag deposit pricing. Time certificates of deposit less than $100,000 increased modestly from the first quarter of 2005, while time deposits greater than $100,000 rose by $1.8 billion (9.7 percent), primarily due to growth in corporate banking customer balances and foreign branch time deposits.

NONINTEREST INCOME                                             Table 6
----------------------------------------------------------------------
($ in
 millions)                        Percent Percent
                                   Change Change
               2Q     1Q     2Q   2Q05 vs 2Q05 vs  YTD    YTD  Percent
              2005   2005   2004    1Q05   2Q04   2005   2004  Change
             ---------------------------------------------------------

Credit and
 debit card
 revenue       $177   $154   $159    14.9   11.3   $331   $301   10.0
Corporate
 payment
 products
 revenue        120    107    103    12.1   16.5    227    198   14.6
ATM
 processing
 services        57     47     45    21.3   26.7    104     87   19.5
Merchant
 processing
 services       198    178    165    11.2   20.0    376    306   22.9
Trust and
 investment
 management
 fees           253    247    251     2.4    0.8    500    500     --
Deposit
 service
 charges        234    210    202    11.4   15.8    444    387   14.7
Treasury
 management
 fees           117    107    121     9.3   (3.3)   224    239   (6.3)
Commercial
 products
 revenue        100     96    108     4.2   (7.4)   196    218  (10.1)
Mortgage
 banking
 revenue        110    102    110     7.8     --    212    204    3.9
Investment
 products
 fees and
 commissions     39     39     43      --   (9.3)    78     82   (4.9)
Securities
 gains
 (losses),
 net              1    (59)  (172)     nm     nm    (58)  (172) (66.3)
Other           135    154    107   (12.3)  26.2    289    210   37.6
             ---------------------               --------------

Total
 noninterest
 income      $1,541 $1,382 $1,242    11.5   24.1 $2,923 $2,560   14.2
             ---------------------               --------------

Noninterest Income

Second quarter noninterest income was $1,541 million, an increase of $299 million (24.1 percent) from the same quarter of 2004, and $159 million (11.5 percent) higher than the first quarter of 2005. The increase in noninterest income over the second quarter of 2004 was driven by favorable variances in securities gains (losses) and in the majority of fee income categories. Credit and debit card revenue and corporate payment products revenue were both higher in the second quarter of 2005 than the second quarter of 2004 by $18 million and $17 million, or 11.3 percent and 16.5 percent, respectively. The growth in credit and debit card revenue was driven by higher transaction volumes and rate changes. The corporate payment products revenue growth reflected growth in sales, card usage, rate changes and the recent acquisition of a small fleet card business. ATM processing services revenue was higher by $12 million (26.7 percent) in the second quarter of 2005 than the same quarter of the prior year, primarily due to the expansion of the ATM business in May of 2005. Merchant processing services revenue was higher in the second quarter of 2005 than the same quarter of 2004 by $33 million (20.0 percent), reflecting an increase in sales volume, new business, higher equipment fees and the expansion of business in Europe. Deposit service charges were higher year-over-year by $32 million (15.8 percent) due to account growth and transaction-related fees. Other income was higher by $28 million (26.2 percent), primarily due to higher income from equity investments relative to the same quarter of 2004. Partially offsetting these positive variances year-over-year were commercial products revenue, treasury management fees and investment products fees and commissions, which declined by $8 million (7.4 percent), $4 million (3.3 percent) and $4 million (9.3 percent), respectively. Commercial products revenue declined due to reductions in loan fees and international product revenue. The decrease in treasury management fees was primarily due to higher earnings credit on customers' compensating balances. The decline in investment management fees and commissions reflected lower sales volume relative to the same quarter in 2004.

Noninterest income was higher in the second quarter of 2005 than the first quarter of 2005 by $159 million (11.5 percent), primarily due to a $60 million favorable change in gains (losses) on the sale of securities and increases in the majority of the remaining fee income categories. Credit and debit card revenue, corporate payment products revenue and merchant processing services rose by $23 million (14.9 percent), $13 million (12.1 percent) and $20 million (11.2 percent), respectively, reflecting seasonally higher sales. ATM processing services revenue increased by $10 million (21.3 percent) primarily due to the expansion of the business. Deposit service charges were higher by $24 million (11.4 percent) in the second quarter of 2005 compared with the first quarter of 2005, reflecting higher transaction-related fees and net new account growth. The increase in trust and investment management fees and treasury management fees over the first quarter of 2005 reflected seasonally strong tax-related processing revenue. Mortgage banking revenue was higher by $8 million (7.8 percent) than the prior quarter due to stronger loan production. Slightly offsetting these favorable variances was other income which was lower quarter-over-quarter by $19 million (12.3 percent), primarily due to a decline in revenue from equity investments relative to the first quarter of 2005.

NONINTEREST EXPENSE                                            Table 7
----------------------------------------------------------------------
($ in
 millions)                        Percent Percent
                                   Change Change
               2Q     1Q     2Q   2Q05 vs 2Q05 vs  YTD    YTD  Percent
              2005   2005   2004    1Q05   2Q04   2005   2004  Change
             ---------------------------------------------------------

Compensation   $612   $567   $573     7.9    6.8 $1,179 $1,109    6.3
Employee
 benefits       108    116     91    (6.9)  18.7    224    191   17.3
Net occupancy
 and
 equipment      159    154    153     3.2    3.9    313    309    1.3
Professional
 services        39     36     35     8.3   11.4     75     67   11.9
Marketing and
 business
 development     67     43     49    55.8   36.7    110     84   31.0
Technology
 and
 communica-
 tions          113    106    102     6.6   10.8    219    204    7.4
Postage,
 printing and
 supplies        63     63     60      --    5.0    126    122    3.3
Other
 intangibles    181     71    (47)     nm     nm    252    179   40.8
Debt
 prepayment      54     --      2      nm     nm     54     37   45.9
Other           199    175    215    13.7   (7.4)   374    386   (3.1)
             ---------------------               --------------

Total
 noninterest
 expense     $1,595 $1,331 $1,233    19.8   29.4 $2,926 $2,688    8.9
             ---------------------               --------------

Noninterest Expense

Second quarter noninterest expense totaled $1,595 million, an increase of $362 million (29.4 percent) over the same quarter of 2004 and a $264 million (19.8 percent) increase over the first quarter of 2005. The increase in expense year-over-year was primarily driven by the $224 million unfavorable change in the MSR valuation, as well as the increase of $52 million in debt prepayment charges relative to the second quarter of 2004. Compensation expense was higher year-over-year by $39 million (6.8 percent), principally due to business expansion of in-store branches, investments in commercial and community bankers, expansion of the Company's payments processing businesses, and other growth initiatives. Employee benefits increased year-over-year by $17 million (18.7 percent), primarily as a result of higher pension expense and payroll taxes. Marketing and business development was higher in the second quarter of 2005 than the second quarter of 2004 by $18 million (36.7 percent) due to marketing initiatives and the timing of contributions to the Company's charitable foundation. Technology and communications expense rose by $11 million (10.8 percent), reflecting technology investments that increased software expense, in addition to outside data processing expense. Other expense declined in the second quarter from the same quarter of 2004 by $16 million (7.4 percent), primarily due to decreases in other loan expense, insurance, lower merchant charge-back risk, and other operating losses.

Noninterest expense in the second quarter of 2005 was higher than the first quarter of 2005 by $264 million (19.8 percent). The increase in noninterest expense in the second quarter of 2005 from the first quarter of 2005 was primarily driven by the $107 million unfavorable change in the MSR valuation quarter-over-quarter, as well as the $54 million charge taken in connection with the Company's tender offer for certain debt securities in the second quarter of 2005. The increase in compensation expense of $45 million (7.9 percent) in the second quarter over the prior quarter was primarily due to acquisitions, merit-based salary increases and higher incentive and commission-based compensation costs in the second quarter of 2005, while employee benefits declined by $8 million (6.9 percent) due to seasonally lower payroll taxes. Marketing and business development and technology and communications rose quarter-over-quarter by $24 million (55.8 percent) and $7 million (6.6 percent), respectively. The variance in marketing and business development reflected the timing of marketing programs and contributions to the Company's charitable foundation. Technology and communications rose relative to the prior quarter due to business investment and increases in data transmission costs. Other expense was higher in the second quarter of 2005 than the first quarter of 2005, primarily due to acquisition integration costs and write-downs associated with certain co-branding and lease arrangements.

ALLOWANCE FOR CREDIT LOSSES                                    Table 8
----------------------------------------------------------------------
($ in millions)                      2Q     1Q     4Q     3Q     2Q
                                    2005   2005   2004   2004   2004
                                   -----------------------------------

Balance, beginning of period       $2,269 $2,269 $2,370 $2,370 $2,370

Net charge-offs
    Commercial                          9     14      8      2     36
    Lease financing                     6     13     10     19     19
                                   -----------------------------------
         Total commercial              15     27     18     21     55
    Commercial mortgages                1      4      9      3      2
    Construction and development       (3)     2      1      3     --
                                   -----------------------------------
        Total commercial real
         estate                        (2)     6     10      6      2

    Residential mortgages               8      9      8      7      7

    Credit card                        64     65     61     65     63
    Retail leasing                      5      8      9      9     10
    Home equity and second
     mortgages                         16     17     18     18     20
    Other retail                       38     40     39     40     47
                                   -----------------------------------
         Total retail                 123    130    127    132    140
                                   -----------------------------------
            Total net charge-offs     144    172    163    166    204
Provision for credit losses           144    172     64    166    204
Acquisitions and other changes         --     --     (2)    --     --
                                   -----------------------------------
Balance, end of period             $2,269 $2,269 $2,269 $2,370 $2,370
                                   -----------------------------------

Components
   Allowance for loan losses       $2,082 $2,082 $2,080 $2,184 $2,190
   Liability for unfunded credit
    commitments                       187    187    189    186    180
                                   -----------------------------------
            Total allowance for
             credit losses         $2,269 $2,269 $2,269 $2,370 $2,370
                                   -----------------------------------

Gross charge-offs                    $222   $231   $235   $260   $274
Gross recoveries                      $78    $59    $72    $94    $70

Net charge-offs to average loans (%) 0.44   0.55   0.52   0.54   0.68

Allowance as a percentage of:
   Period-end loans                  1.70   1.76   1.80   1.90   1.93
   Nonperforming loans                441    404    355    337    299
   Nonperforming assets               372    341    303    294    260

Credit Quality

The allowance for credit losses was $2,269 million at June 30, 2005, equal to the allowance for credit losses at March 31, 2005, and slightly lower than the allowance for credit losses of $2,370 million at June 30, 2004. The ratio of the allowance for credit losses to period-end loans was 1.70 percent at June 30, 2005, compared with 1.76 percent at March 31, 2005, and 1.93 percent at June 30, 2004. The ratio of the allowance for credit losses to nonperforming loans was 441 percent at June 30, 2005, compared with 404 percent at March 31, 2005, and 299 percent at June 30, 2004. Total net charge-offs in the second quarter of 2005 were $144 million, compared with the first quarter of 2005 net charge-offs of $172 million and the second quarter of 2004 net charge-offs of $204 million.

Commercial and commercial real estate loan net charge-offs were $13 million for the second quarter of 2005, or .07 percent of average loans outstanding, compared with $33 million, or .20 percent of average loans outstanding, in the first quarter of 2005 and $57 million, or .35 percent of average loans outstanding, in the second quarter of 2004. The decline in net charge-offs reflected a stronger level of recoveries than prior quarters, as well as broad-based improvement in the overall quality of the commercial loan portfolio.

Retail loan net charge-offs of $123 million in the second quarter of 2005 were $7 million (5.4 percent) lower than the first quarter of 2005 and $17 million (12.1 percent) lower than the second quarter of 2004. Retail loan net charge-offs as a percent of average loans outstanding were 1.12 percent in the second quarter of 2005, compared with 1.22 percent and 1.38 percent in the first quarter of 2005 and second quarter of 2004, respectively. Lower levels of retail loan net charge-offs principally reflected the Company's ongoing improvement in collection efforts and risk management.

CREDIT RATIOS                                                  Table 9
----------------------------------------------------------------------
(Percent)                                     2Q   1Q   4Q   3Q   2Q
                                             2005 2005 2004 2004 2004
                                            --------------------------
Net charge-offs ratios(a)
   Commercial                                0.10 0.16 0.09 0.02 0.42
   Lease financing                           0.49 1.07 0.82 1.56 1.58
      Total commercial                       0.14 0.27 0.18 0.21 0.56

   Commercial mortgages                      0.02 0.08 0.18 0.06 0.04
   Construction and development             (0.16)0.11 0.05 0.17   --
      Total commercial real estate          (0.03)0.09 0.14 0.09 0.03

   Residential mortgages                     0.19 0.23 0.21 0.19 0.20

   Credit card                               3.93 4.11 3.82 4.21 4.23
   Retail leasing                            0.27 0.45 0.51 0.52 0.62
   Home equity and second mortgages          0.43 0.46 0.49 0.50 0.58
   Other retail                              1.01 1.09 1.06 1.09 1.31
      Total retail                           1.12 1.22 1.18 1.26 1.38

Total net charge-offs                        0.44 0.55 0.52 0.54 0.68

Delinquent loan ratios - 90 days or more past due excluding
 nonperforming loans(b)
   Commercial                                0.05 0.06 0.05 0.05 0.05
   Commercial real estate                    0.01 0.02   -- 0.01 0.01
   Residential mortgages                     0.32 0.41 0.46 0.46 0.50
   Retail                                    0.40 0.43 0.47 0.47 0.48
Total loans                                  0.19 0.22 0.23 0.23 0.24

Delinquent loan ratios - 90 days or more past due including
 nonperforming loans(b)
   Commercial                                0.74 0.84 0.99 1.14 1.37
   Commercial real estate                    0.59 0.68 0.73 0.75 0.76
   Residential mortgages                     0.55 0.66 0.74 0.77 0.79
   Retail                                    0.43 0.47 0.51 0.51 0.52
Total loans                                  0.58 0.66 0.74 0.80 0.88

(a) annualized and calculated on average loan balances
(b) ratios are expressed as a percent of ending loan balances


ASSET QUALITY                                                 Table 10
----------------------------------------------------------------------
($ in millions)
                                   Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
                                    2005   2005   2004   2004   2004
                                   -----------------------------------
Nonperforming loans
   Commercial                        $238   $254   $289   $348   $416
   Lease financing                     60     70     91     91    111
                                   -----------------------------------
      Total commercial                298    324    380    439    527
   Commercial mortgages               140    159    175    166    164
   Construction and development        21     21     25     35     41
                                   -----------------------------------
      Commercial real estate          161    180    200    201    205
   Residential mortgages               42     41     43     46     42
   Retail                              13     16     17     17     18
                                   -----------------------------------
Total nonperforming loans             514    561    640    703    792

Other real estate                      68     66     72     69     70
Other nonperforming assets             28     38     36     33     49
                                   -----------------------------------

Total nonperforming assets(a)        $610   $665   $748   $805   $911
                                   -----------------------------------

Accruing loans 90 days or more past
 due                                 $258   $285   $294   $292   $293
                                   -----------------------------------

Nonperforming assets to loans
   plus ORE (%)                      0.46   0.52   0.59   0.64   0.74

(a) does not include accruing loans 90 days or more past due
----------------------------------------------------------------------

Nonperforming assets at June 30, 2005, totaled $610 million, compared with $665 million at March 31, 2005, and $911 million at June 30, 2004. The ratio of nonperforming assets to loans and other real estate was .46 percent at June 30, 2005, compared with .52 percent at March 31, 2005, and .74 percent at June 30, 2004.

CAPITAL POSITION                                             Table 11
----------------------------------------------------------------------
($ in millions)           Jun 30   Mar 31   Dec 31   Sep 30   Jun 30
                           2005     2005     2004     2004     2004
                         --------------------------------------------

Total shareholders'
 equity                  $19,901  $19,208  $19,539  $19,600  $18,675
Tier 1 capital            14,564   14,943   14,720   14,589   14,294
Total risk-based capital  22,362   23,099   23,352   21,428   21,255

Common equity to assets      9.8 %    9.7 %   10.0 %   10.2 %    9.8 %
Tangible common equity to
 assets                      6.1      6.2      6.4      6.4      6.3
Tier 1 capital ratio         8.1      8.6      8.6      8.7      8.7
Total risk-based capital
 ratio                      12.5     13.3     13.1     12.7     12.9
Leverage ratio               7.5      7.9      7.9      7.9      7.8

Total shareholders' equity was $19.9 billion at June 30, 2005, compared with $18.7 billion at June 30, 2004. The increase was the result of corporate earnings offset by share buybacks and dividends.

Tangible common equity to assets was 6.1 percent at June 30, 2005, compared with 6.2 percent at March 31, 2005, and 6.3 percent at June 30, 2004. The Tier 1 capital ratio was 8.1 percent at June 30, 2005, compared with 8.6 percent at March 31, 2005, and 8.7 percent at June 30, 2004. The total risk-based capital ratio was 12.5 percent at June 30, 2005, compared with 13.3 percent at March 31, 2005, and 12.9 percent at June 30, 2004. The leverage ratio was 7.5 percent at June 30, 2005, compared with 7.9 percent at March 31, 2005, and 7.8 percent at June 30, 2004. All regulatory ratios continue to be in excess of stated "well capitalized" requirements.

COMMON SHARES                                                 Table 12
----------------------------------------------------------------------
(Millions)                                2Q    1Q    4Q    3Q    2Q
                                         2005  2005  2004  2004  2004
                                        ------------------------------

Beginning shares outstanding            1,842 1,858 1,871 1,884 1,901

Shares issued for stock option and stock
 purchase plans, acquisitions and other
 corporate purposes                         4     4     7     6     4
Shares repurchased                        (17)  (20)  (20)  (19)  (21)
                                        ------------------------------
Ending shares outstanding               1,829 1,842 1,858 1,871 1,884
                                        ------------------------------

On December 21, 2004, the Board of Directors of U.S. Bancorp approved an authorization to repurchase up to 150 million shares of outstanding common stock during the following 24 months. This repurchase program replaced the Company's previous program. During the second quarter of 2005, the Company repurchased 17 million shares of common stock. As of June 30, 2005, there were approximately 107 million shares remaining to be repurchased under the current authorization.

LINE OF BUSINESS FINANCIAL PERFORMANCE(a)                     Table 13
----------------------------------------------------------------------
($ in millions)
                                     Net Income        Percent Change
                                --------------------- ----------------
                                  2Q     1Q     2Q    2Q05 vs 2Q05 vs
Business Line                    2005   2005   2004     1Q05    2Q04
                                --------------------------------------

Wholesale Banking                 $267   $255   $243      4.7     9.9
Consumer Banking                   452    405    369     11.6    22.5
Private Client, Trust and Asset
 Management                        116    112     95      3.6    22.1
Payment Services                   178    165    161      7.9    10.6
Treasury and Corporate Support     108    134    169    (19.4)  (36.1)
                                ---------------------

Consolidated Company            $1,121 $1,071 $1,037      4.7     8.1
                                ---------------------

(a) preliminary data
----------------------------------------------------------------------


LINE OF BUSINESS FINANCIAL PERFORMANCE(a)                     Table 13
----------------------------------------------------------------------
($ in millions)
                                                             2Q 2005
                                        YTD    YTD  Percent Earnings
Business Line                           2005   2004 Change Composition
                                      --------------------------------

Wholesale Banking                       $522   $471   10.8        24 %
Consumer Banking                         857    698   22.8        40
Private Client, Trust and Asset
 Management                              228    196   16.3        10
Payment Services                         343    309   11.0        16
Treasury and Corporate Support           242    371  (34.8)       10
                                      --------------       ----------

Consolidated Company                  $2,192 $2,045    7.2       100 %
                                      --------------       ----------

(a) preliminary data
----------------------------------------------------------------------

Lines of Business

Within the Company, financial performance is measured by major lines of business which include Wholesale Banking, Consumer Banking, Private Client, Trust and Asset Management, 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 our diverse customer base. During 2005, certain organization and methodology changes were made and, accordingly, prior period results have been restated and presented on a comparable basis.

Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $267 million of the Company's net income in the second quarter of 2005, a 9.9 percent increase over the same period of 2004 and a 4.7 percent increase over the first quarter of 2005. The increase in Wholesale Banking's second quarter 2005 contribution over the same quarter of 2004 was primarily the result of favorable variances in total net revenue (2.8 percent) and the provision for credit losses. Partly offsetting these positive variances was an increase in total noninterest expense (1.4 percent). The favorable variance in total net revenue year-over-year was primarily the result of growth in net interest income (4.3 percent), as the business line's noninterest income remained flat. The increase in net interest income was primarily due to an increase in average loans outstanding and wider deposit spreads, partially offset by tighter credit spreads. Noninterest income was flat year-over-year, as declines in commercial products revenue (3.4 percent) and treasury management fees (1.2 percent) were offset by higher revenue from equity investments relative to the second quarter of 2004. Wholesale Banking's unfavorable variance in total noninterest expense year-over-year was the result of higher compensation and employee benefits, the result of merit-based increases, new hires and production-based incentives, in addition to higher net shared services expense. Net recoveries of $16 million in the current quarter, compared with net charge-offs of $8 million in the second quarter of 2004, drove the favorable variance in the provision for credit losses year-over-year. The increase in Wholesale Banking's contribution to net income in the second quarter of 2005 over the first quarter of 2005 was the result of favorable variances in total net revenue (1.5 percent) and the provision for credit losses, partially offset by an increase in total noninterest expense (4.5 percent). Total net revenue was higher on a linked quarter basis, with an increase in net interest income (3.3 percent) partially offset by a decline in total noninterest income (1.9 percent). The favorable variance quarter-over-quarter in net interest income was primarily attributed to an increase in average loans outstanding and deposit balances, as well as wider deposit spreads. The decrease in noninterest income quarter-over-quarter was due to favorable variances in commercial products revenue and treasury management fees, which were more than offset by a decrease in other income related to revenue from equity investments. Commercial products revenue benefited from stronger capital markets related fees, while the growth in treasury management fees reflected seasonal tax receipt processing. The increase in total noninterest expense was principally due to higher net shared services expense related to customer transaction volumes and seasonal tax receipt processing activities, partially offset by lower compensation and employee benefits and other expense. Net recoveries of $16 million in the second quarter of 2005, compared with net charge-offs of $3 million in the first quarter of 2005, drove the favorable variance in the provision for credit losses quarter-over-quarter.

Consumer Banking delivers products and services through banking offices, telemarketing, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, including lending guaranteed by the Small Business Administration, small-ticket leasing, consumer lending, mortgage banking, workplace banking, student banking, 24-hour banking, and investment product and insurance sales. Consumer Banking contributed $452 million of the Company's net income in the second quarter of 2005, a 22.5 percent increase over the same period of 2004 and an 11.6 percent increase over the prior quarter. The favorable increase year-over-year was the result of higher total net revenue (9.1 percent) and lower provision for credit losses (26.9 percent), partially offset by an increase in total noninterest expense (2.9 percent). Total net revenue was higher than the same quarter of 2004 due to increases in both net interest income (10.8 percent) and noninterest income (6.1 percent). Net interest income was higher year-over-year, primarily as a result of higher deposit spreads, as income from growth in average loan balances was offset by lower spreads on those assets. Noninterest income improved in the second quarter of 2005 over the same period of 2004, principally due to growth in deposit service charges (15.9 percent). Total noninterest expense in the second quarter of 2005 was higher than the same quarter of 2004, primarily due to an increase in compensation and employee benefits (5.4 percent), the result of the Company's in-store branch expansion, other hiring initiatives and incentives, in addition to higher net shared services expense (5.5 percent). A 26.9 percent reduction in net charge-offs year-over-year drove the positive variance in the business line's provision for credit losses.

The increase in Consumer Banking's contribution in the second quarter of 2005 over the prior quarter was the net result of favorable variances in total net revenue (6.5 percent) and provision for credit losses (15.0 percent), partly offset by an increase in noninterest expense (4.1 percent). Net interest income was higher quarter-over-quarter largely due to increases in average loans outstanding and deposit spreads relative to the prior quarter, which were partly offset by lower credit spreads. Noninterest income was higher (11.6 percent) than the prior quarter primarily due to growth in deposit service charges, mortgage banking revenue and other revenue, the result of a favorable change in lease residual income. The unfavorable variance in total noninterest expense quarter-over-quarter was driven by an increase in net shared services expense and other expense, mainly the result of higher marketing and business development expense. A 15.0 percent reduction in net charge-offs quarter-over-quarter drove the positive variance in the provision for credit losses.

Private Client, Trust and Asset Management provides trust, private banking, financial advisory, investment management and mutual fund servicing through five businesses: Private Client Group, Corporate Trust, Asset Management, Institutional Trust and Custody and Fund Services. Private Client, Trust and Asset Management contributed $116 million of the Company's net income in the second quarter of 2005, 22.1 percent higher than the same period of 2004 and 3.6 percent higher than the prior quarter of 2005. The increase in the business line's contribution in the second quarter of 2005 over the same quarter of 2004 was the result of favorable variances in total net revenue (7.9 percent) and the provision for credit losses (77.8 percent). Total noninterest expense remained flat year-over-year. Net interest income was favorably impacted year-over-year by deposit spreads, while noninterest income was essentially equal to the same quarter of 2004, as gains from equity market valuations were offset by lower fees, partially due to a change in the mix of fund balances and customers' migration from paying for services with fees to paying with compensating balances. Lower net charge-offs drove the positive change in provision for credit losses year-over-year. The increase in the business line's contribution (3.6 percent) in the second quarter of 2005 over the prior quarter was the result of higher total net revenue (3.4 percent), partly offset by an increase in total noninterest expense (1.7 percent) and provision for credit losses. Net interest income and noninterest income rose quarter-over-quarter by 6.7 percent and 2.0 percent, respectively. The increase in net interest income was primarily driven by growth in average deposit balances and favorable deposit spreads, while noninterest income increased largely due to seasonally higher tax preparation fees. Total noninterest expense was slightly higher in the second quarter due to an increase in net shared services expense.

Payment Services includes consumer and business credit cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing, and merchant processing. Payment Services contributed $178 million of the Company's net income in the second quarter of 2005, a 10.6 percent increase over the same period of 2004 and a 7.9 percent increase over the first quarter of 2005. The increase in Payment Services' contribution in the second quarter of 2005 over the same period of 2004 was the result of higher total net revenue (11.6 percent) and a slightly lower provision for credit losses (2.1 percent), partially offset by an increase in total noninterest expense (17.4 percent). The increase in total net revenue year-over-year was primarily due to growth in noninterest income (17.1 percent), partially offset by a reduction in net interest income (7.2 percent), reflecting higher corporate card balances and rebates. The increase in noninterest income was principally the result of growth in credit and debit card revenue (12.0 percent), corporate payment products revenue (16.5 percent), ATM processing services revenue (40.0 percent) and merchant processing services revenue (20.0 percent). All categories benefited from higher transaction volumes, some rate changes and business expansion initiatives. The growth in total noninterest expense year-over-year primarily reflected an increase in processing expense related to the business line's revenue growth, including costs associated with expansion of the European merchant acquiring business and other smaller payment services acquisitions. The increase in Payment Services' contribution in the second quarter of 2005 over the prior quarter was primarily due to seasonally strong growth in total net revenue (7.8 percent), partly offset by higher total noninterest expense (9.4 percent) and provision for credit losses (3.4 percent). Net interest income decreased 8.5 percent quarter-over-quarter, while fee-based revenue rose by 12.6 percent due to seasonally higher retail and corporate credit card sales volumes, ATM processing services revenue and merchant processing fees. The unfavorable variance in total noninterest expense from the prior quarter was primarily due to personnel and other costs to support ongoing business expansion and higher processing volumes, in addition to higher net shared services 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 the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. In addition, changes in MSR valuations primarily due to interest rates are managed at a corporate level and, as such, reported within this business unit. Operational expenses incurred by Treasury and Corporate Support on behalf of the other business lines are allocated back to the appropriate business unit, primarily based on customer transaction volume and account activities, deposit balances and employee levels and are identified as net shared services expense. Treasury and Corporate Support recorded net income of $108 million in the second quarter of 2005, compared with net income of $169 million in the second quarter of 2004 and $134 million in the first quarter of 2005. The decrease in net income in the current quarter from the same quarter of 2004 was the net result of unfavorable variances in net interest income ($147 million), the MSR valuation ($224 million) and debt prepayment expense ($52 million), partially offset by a $173 million favorable change in net securities gains (losses) and the $94 million tax benefit realized by the Company in the current quarter. The unfavorable change in net interest income (56.3 percent) year-over-year reflected the Company's asset/liability management decisions to invest in lower-yield floating-rate securities, higher-cost fixed funding and repositioning of the Company for changes in the interest rate environment. Net income in the second quarter of 2005 was lower than net income in the first quarter of 2005, the result of unfavorable variances in net interest income ($36 million), the MSR valuation ($107 million) and debt prepayment expense ($54 million), partly offset by favorable variances in securities gains (losses) ($56 million) and the $94 million tax benefit realized in the current quarter. Total net interest income declined quarter-over-quarter, primarily due to the continuing asset/liability management decisions of the Company.

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 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, July 19, 2005, AT 7:00 a.m. (CDT). To access the conference call, please dial 800-540-0559 and ask for the U.S. Bancorp earnings conference call. Participants calling from outside the United States, please call 785-832-1508. 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, July 19, 2005, and will run through Tuesday, July 26, 2005, at 11:00 p.m. (CDT). To access the recorded message dial 888-274-8331. If calling from outside the United States, please dial 402-220-7332. After July 26th, a recording of the call will continue to be available by webcast on the U.S. Bancorp web site at usbank.com.

Minneapolis-based U.S. Bancorp ("USB"), with $204 billion in assets, is the 6th largest financial holding company in the United States. The Company operates 2,383 banking offices and 4,877 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 Six Months Ended
Except Per Share Data)                 June 30,          June 30,
                                 -------------------------------------
(Unaudited)                         2005     2004     2005      2004
----------------------------------------------------------------------
Interest Income
Loans                              $2,027   $1,740   $3,938    $3,487
Loans held for sale                    24       27       45        47
Investment securities                 486      444      962       913
Other interest income                  28       25       55        47
                                 -------------------------------------
        Total interest income       2,565    2,236    5,000     4,494
Interest Expense
Deposits                              361      205      669       432
Short-term borrowings                 143       59      255       109
Long-term debt                        307      200      578       409
                                 -------------------------------------
        Total interest expense        811      464    1,502       950
                                 -------------------------------------
Net interest income                 1,754    1,772    3,498     3,544
Provision for credit losses           144      204      316       439
                                 -------------------------------------
Net interest income after
 provision for credit losses        1,610    1,568    3,182     3,105
Noninterest Income
Credit and debit card revenue         177      159      331       301
Corporate payment products
 revenue                              120      103      227       198
ATM processing services                57       45      104        87
Merchant processing services          198      165      376       306
Trust and investment management
 fees                                 253      251      500       500
Deposit service charges               234      202      444       387
Treasury management fees              117      121      224       239
Commercial products revenue           100      108      196       218
Mortgage banking revenue              110      110      212       204
Investment products fees and
 commissions                           39       43       78        82
Securities gains (losses), net          1     (172)     (58)     (172)
Other                                 135      107      289       210
                                 -------------------------------------
        Total noninterest income    1,541    1,242    2,923     2,560
Noninterest Expense
Compensation                          612      573    1,179     1,109
Employee benefits                     108       91      224       191
Net occupancy and equipment           159      153      313       309
Professional services                  39       35       75        67
Marketing and business
 development                           67       49      110        84
Technology and communications         113      102      219       204
Postage, printing and supplies         63       60      126       122
Other intangibles                     181      (47)     252       179
Debt prepayment                        54        2       54        37
Other                                 199      215      374       386
                                 -------------------------------------
        Total noninterest expense   1,595    1,233    2,926     2,688
                                 -------------------------------------
Income before income taxes          1,556    1,577    3,179     2,977
Applicable income taxes               435      540      987       932
                                 -------------------------------------
Net income                         $1,121   $1,037   $2,192    $2,045
                                 -------------------------------------

Earnings per share                   $.61     $.55    $1.19     $1.07
Diluted earnings per share           $.60     $.54    $1.17     $1.06
Dividends declared per share         $.30     $.24     $.60      $.48
Average common shares outstanding   1,833    1,892    1,842     1,904
Average diluted common shares
 outstanding                        1,857    1,913    1,869     1,927
----------------------------------------------------------------------


U.S. Bancorp
Consolidated Ending Balance Sheet

                                     June 30,  December 31,  June 30,
(Dollars in Millions)                  2005        2004        2004
----------------------------------------------------------------------
Assets                             (Unaudited)             (Unaudited)
Cash and due from banks                $6,442       $6,336     $7,476
Investment securities
    Held-to-maturity                      116          127        125
    Available-for-sale                 42,183       41,354     40,160
Loans held for sale                     1,734        1,439      1,383
Loans
    Commercial                         43,180       40,173     40,065
    Commercial real estate             27,743       27,585     27,204
    Residential mortgages              17,966       15,367     14,380
    Retail                             44,555       43,190     41,181
                                  ------------------------------------
        Total loans                   133,444      126,315    122,830
            Less allowance for
             loan losses               (2,082)      (2,080)    (2,190)
                                  ------------------------------------
            Net loans                 131,362      124,235    120,640
Premises and equipment                  1,864        1,890      1,893
Customers' liability on
 acceptances                               95           95        169
Goodwill                                6,372        6,241      6,226
Other intangible assets                 2,584        2,387      2,475
Other assets                           11,229       11,000      9,737
                                  ------------------------------------
            Total assets             $203,981     $195,104   $190,284
                                  ------------------------------------

Liabilities and Shareholders'
 Equity
Deposits
    Noninterest-bearing               $33,401      $30,756    $32,786
    Interest-bearing                   69,690       71,936     71,314
    Time deposits greater than
     $100,000                          18,732       18,049     15,827
                                  ------------------------------------
        Total deposits                121,823      120,741    119,927
Short-term borrowings                  20,434       13,084     11,592
Long-term debt                         34,788       34,739     33,665
Acceptances outstanding                    95           95        169
Other liabilities                       6,940        6,906      6,256
                                  ------------------------------------
        Total liabilities             184,080      175,565    171,609
Shareholders' equity
    Common stock                           20           20         20
    Capital surplus                     5,903        5,902      5,860
    Retained earnings                  17,849       16,758     15,644
    Less treasury stock                (3,984)      (3,125)    (2,316)
    Other comprehensive income            113          (16)      (533)
                                  ------------------------------------
        Total shareholders' equity     19,901       19,539     18,675
                                  ------------------------------------
        Total liabilities and
         shareholders' equity        $203,981     $195,104   $190,284
----------------------------------------------------------------------

SOURCE: U.S. Bancorp

U.S. Bancorp
Media Relations - Steve Dale, 612-303-0784
Investor Relations - H. D. McCullough, 612-303-0786
Investor Relations - Judith T. Murphy, 612-303-0783

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



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