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U.S. Bancorp Reports Record 2006 Net Income

MINNEAPOLIS--(BUSINESS WIRE)--Jan. 16, 2007--U.S. Bancorp (NYSE:USB):

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

                                  Percent Percent
                                   Change  Change  Full   Full
                4Q     3Q     4Q  4Q06 vs 4Q06 vs  Year   Year Percent
               2006   2006   2005    3Q06    4Q05   2006   2005 Change
            ----------------------------------------------------------

Net income  $1,194 $1,203 $1,143     (.7)    4.5 $4,751 $4,489    5.8
Diluted
 earnings
 per common
 share         .66    .66    .62      --     6.5   2.61   2.42    7.9

Return on
 average
 assets (%)   2.18   2.23   2.18                   2.23   2.21
Return on
 average
 common
 equity (%)   23.2   23.6   22.6                   23.6   22.5
Net
 interest
 margin (%)   3.56   3.56   3.88                   3.65   3.97
Efficiency
 ratio (%)    47.2   45.0   43.3                   45.4   44.3
Tangible
 efficiency
 ratio (%)
 (a)          44.5   42.4   40.9                   42.8   40.8

Dividends
 declared
 per common
 share        $.40   $.33   $.33    21.2    21.2  $1.39  $1.23   13.0
Book value
 per common
 share
 (period-
 end)        11.44  11.30  11.07     1.2     3.3

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

U.S. Bancorp (NYSE:USB) today reported net income of $1,194 million for the fourth quarter of 2006, compared with $1,143 million for the fourth quarter of 2005. Net income of $.66 per diluted common share in the fourth quarter of 2006 was higher than the same period of 2005 by 6.5 percent, or $.04 per diluted common share. Return on average assets and return on average common equity were 2.18 percent and 23.2 percent, respectively, for the fourth quarter of 2006, compared with returns of 2.18 percent and 22.6 percent, respectively, for the fourth quarter of 2005. Net income for 2006 increased to $4.8 billion, or $2.61 per diluted common share, compared with $4.5 billion, or $2.42 per diluted common share in 2005.

U.S. Bancorp President and Chief Executive Officer Richard K. Davis said, "The Company's fourth quarter results were driven by solid growth in our fee-based businesses, excellent credit quality and controlled operating expenses, in addition to a reduction in the effective tax rate. On a very positive note, our net interest margin was stable on a linked quarter basis. The stable margin, combined with annualized earning asset growth of 5.2 percent quarter-over-quarter, resulted in a comparable increase in net interest income over the prior quarter. Once again, we achieved industry-leading profitability metrics with a return on average assets of 2.18 percent and return on average common equity of 23.2 percent. I am very pleased with the financial results, particularly given the challenging economic environment that our Company, and the banking industry as a whole, has faced during this past year. Although the growth in diluted earnings per common share for the fourth quarter and full year 2006 of 6.5 percent and 7.9 percent, respectively, was lower than it has been in the past few years, I believe the emphasis we have placed on growing our fee-based businesses, stabilizing net interest margin, maintaining high credit quality and our disciplined expense control significantly lessened the impact of a disadvantageous yield curve and heightened competition and excess liquidity that the market offered.

"During the fourth quarter we announced a 21 percent increase in the dividend rate on U.S. Bancorp common stock. This increase is an important part of our strategy to continue our commitment to return 80 percent of our earnings to our shareholders through both dividends and stock buybacks. This increased dividend payout allows our superior, industry-leading profitability to be transferred to our shareholders, while allowing us the financial flexibility we need to support balance sheet growth, capital expenditures and small, cash acquisitions.

"I am honored to have this opportunity to lead U.S. Bancorp into the future. The long-term goals of our Company have not changed. Specifically, we will continue to produce a minimum return on average common equity of 20 percent, effectively manage the credit and earnings volatility of the Company's results, deliver high-quality customer service, invest for future growth, target an 80 percent return of earnings to shareholders and, finally, grow earnings per share by ten percent over the long-term. I believe we are very well positioned to continue to produce a consistent, predictable and repeatable earnings stream going forward and make U.S. Bancorp an attractive partner for our customers, communities, employees, and shareholders."

The Company's results for the fourth quarter of 2006 improved over the same period of 2005, as net income increased by $51 million (4.5 percent), primarily due to growth in fee-based revenues, lower credit costs and the benefit of a reduction in the effective tax rate from a year ago. This was offset somewhat by lower net interest income and additional operating costs of acquired businesses. Total net revenue on a taxable-equivalent basis for the fourth quarter of 2006 was $3,424 million, $93 million (2.8 percent) higher than the fourth quarter of 2005, primarily reflecting an 11.8 percent increase in noninterest income partially offset by a 5.0 percent decline in net interest income. Noninterest income growth was driven by organic business growth and expansion in trust and payment processing businesses, partially offset by lower mortgage banking revenue principally due to the impact of adopting Statement of Financial Accounting Standards No. 156 "Accounting for Servicing of Financial Assets" ("SFAS 156") in the first quarter of 2006 and the net valuation loss on economic hedges in relation to the value of mortgage servicing rights ("MSR") due to relative changes in interest rates at year end. The increase in noninterest income also included a $52 million gain in the fourth quarter of 2006 from the sale of the Company's 401(k) defined contribution recordkeeping business and a favorable change in securities gains (losses) from the prior year. Total noninterest expense in the fourth quarter of 2006 was $1,612 million, $148 million (10.1 percent) higher than the fourth quarter of 2005, primarily reflecting incremental operating and business integration costs principally associated with recent acquisitions, charges related to the prepayment of certain Company trust preferred debt securities and higher expenses related to investments in tax-advantaged projects from a year ago.

Provision for credit losses for the fourth quarter of 2006 was $169 million, a decrease of $36 million from the fourth quarter of 2005. The decrease in the provision for credit losses year-over-year primarily reflected the adverse impact in the fourth quarter of 2005 on net charge-offs from changes in bankruptcy law. Net charge-offs in the fourth quarter of 2006 were $169 million, compared with the third quarter of 2006 net charge-offs of $135 million and the fourth quarter of 2005 net charge-offs of $213 million. Total nonperforming assets were $587 million at December 31, 2006, compared with $575 million at September 30, 2006, and $644 million at December 31, 2005. The ratio of the allowance for credit losses to nonperforming loans was 480 percent at December 31, 2006, compared with 476 percent at September 30, 2006, and 414 percent at December 31, 2005.

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

                                  PercentPercent
                                   Change Change  Full    Full
                4Q     3Q     4Q  4Q06 vs4Q06 vs  Year    Year Percent
               2006   2006   2005    3Q06   4Q05   2006    2005 Change
            ----------------------------------------------------------

Net
 interest
 income     $1,695 $1,673 $1,785     1.3   (5.0)$6,790  $7,088   (4.2)
Noninterest
 income      1,729  1,748  1,546    (1.1)  11.8  6,846   6,045   13.3
            ---------------------               ---------------
   Total
    net
    revenue  3,424  3,421  3,331      .1    2.8 13,636  13,133    3.8
Noninterest
 expense     1,612  1,538  1,464     4.8   10.1  6,180   5,863    5.4
            ---------------------               ---------------
Income
 before
 provision
 and taxes   1,812  1,883  1,867    (3.8)  (2.9) 7,456   7,270    2.6
Provision
 for credit
 losses        169    135    205    25.2  (17.6)   544     666  (18.3)
            ---------------------               ---------------
Income
 before
 taxes       1,643  1,748  1,662    (6.0)  (1.1) 6,912   6,604    4.7
Taxable-
 equivalent
 adjustment     15     13     10    15.4   50.0     49      33   48.5
Applicable
 income
 taxes         434    532    509   (18.4) (14.7) 2,112   2,082    1.4
            ---------------------               ---------------
Net income  $1,194 $1,203 $1,143     (.7)   4.5 $4,751  $4,489    5.8
            ---------------------               ---------------
Net income
 applicable
 to common
 equity     $1,179 $1,187 $1,143     (.7)   3.1 $4,703  $4,489    4.8
            ---------------------               ---------------
Diluted
 earnings
 per common
 share        $.66   $.66   $.62      --    6.5  $2.61   $2.42    7.9
            ---------------------               ---------------

Net Interest Income

Fourth quarter net interest income on a taxable-equivalent basis was $1,695 million, compared with $1,785 million recorded in the fourth quarter of 2005. Average earning assets for the period increased over the fourth quarter of 2005 by $6.6 billion (3.6 percent), primarily driven by an increase in total average loans. This increase was partially offset by a $1.2 billion (3.0 percent) decrease in average investment securities. 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 fourth quarter of 2006 was 3.56 percent, compared with 3.88 percent in the fourth quarter of 2005. The decline in the net interest margin reflected the competitive lending environment and the impact of changes in the yield curve from a year ago. Since the fourth quarter of 2005, credit spreads have tightened by approximately 15 basis points across most lending products due to competitive pricing and a change in mix reflecting growth in lower-spread, fixed-rate credit products and noninterest-bearing corporate and purchasing card balances. The net interest margin also declined due to funding incremental asset growth with higher cost wholesale funding, share repurchases and asset/liability decisions designed to minimize the Company's rate sensitivity position. An increase in the margin benefit of net free funds partially offset these factors.

Net interest income in the fourth quarter of 2006 increased from the third quarter of 2006 by $22 million (1.3 percent) driven by growth in average earning assets of $2.5 billion. The net interest margin was 3.56 percent for the fourth of 2006, unchanged from the third quarter of 2006. If the Federal Reserve leaves rates unchanged over the next several quarters, the Company expects net interest margin to continue to remain relatively stable as asset repricing occurs and funding costs moderate.

NET INTEREST INCOME                                            Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in millions)
                                                               Change
                                         4Q        3Q      4Q 4Q06 vs
                                       2006      2006    2005    3Q06
                                 -------------------------------------
Components of net interest income
  Income on earning assets          $3,236    $3,175  $2,843     $61
  Expense on interest-bearing
   liabilities                       1,541     1,502   1,058      39
                                 -------------------------------------
Net interest income                 $1,695    $1,673  $1,785     $22
                                 -------------------------------------

Average yields and rates paid
  Earning assets yield                6.79%     6.74%   6.18%    .05%
  Rate paid on interest-bearing
   liabilities                        3.84      3.79    2.77     .05
                                 -------------------------------------
Gross interest margin                 2.95%     2.95%   3.41%    -- %
                                 -------------------------------------
Net interest margin                   3.56%     3.56%   3.88%    -- %
                                 -------------------------------------

Average balances
  Investment securities            $40,266   $39,806 $41,494    $460
  Loans                            143,686   141,491 136,658   2,195
  Earning assets                   189,660   187,190 183,095   2,470
  Interest-bearing liabilities     159,469   157,248 151,500   2,221
  Net free funds (a)                30,191    29,942  31,595     249

(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)
                                   Change
                                  4Q06 vs  Full Year Full Year
                                     4Q05       2006      2005  Change
                                --------------------------------------
Components of net interest
 income
  Income on earning assets          $393    $12,351   $10,584  $1,767
  Expense on interest-bearing
   liabilities                       483      5,561     3,496   2,065
                                --------------------------------------
Net interest income                 $(90)    $6,790    $7,088   $(298)
                                --------------------------------------

Average yields and rates paid
  Earning assets yield               .61%      6.63%     5.93%    .70%
  Rate paid on interest-bearing
   liabilities                      1.07       3.55      2.37    1.18
                                --------------------------------------
Gross interest margin              (.46)%      3.08%     3.56%  (.48)%
                                --------------------------------------
Net interest margin                (.32)%      3.65%     3.97%  (.32)%
                                --------------------------------------

Average balances
  Investment securities          $(1,228)   $39,961   $42,103 $(2,142)
  Loans                            7,028    140,601   131,610   8,991
  Earning assets                   6,565    186,231   178,425   7,806
  Interest-bearing liabilities     7,969    156,613   147,295   9,318
  Net free funds (a)              (1,404)    29,618    31,130  (1,512)

(a) Represents noninterest-bearing deposits, allowance for loan
 losses, unrealized gain (loss) on available-for-sale securities, non-
 earning assets, other noninterest-bearing liabilities and equity.
AVERAGE LOANS                                                  Table 4
----------------------------------------------------------------------
($ in millions)                                               Percent
                                                               Change
                                       4Q        3Q       4Q  4Q06 vs
                                     2006      2006     2005     3Q06
                              ----------------------------------------

Commercial                       $41,264   $40,781  $38,816      1.2
Lease financing                    5,394     5,287    4,948      2.0
                              ------------------------------
      Total commercial            46,658    46,068   43,764      1.3

Commercial mortgages              19,897    19,941   20,307      (.2)
Construction and development       9,029     8,760    8,256      3.1
                              ------------------------------
      Total commercial real
       estate                     28,926    28,701   28,563       .8

Residential mortgages             21,235    21,118   20,319       .6

Credit card                        8,242     7,800    6,825      5.7
Retail leasing                     7,015     7,069    7,403      (.8)
Home equity and second
 mortgages                        15,444    15,166   14,946      1.8
Other retail                      16,166    15,569   14,838      3.8
                              ------------------------------
      Total retail                46,867    45,604   44,012      2.8
                              ------------------------------

Total loans                     $143,686  $141,491 $136,658      1.6
                              ------------------------------

AVERAGE LOANS                                                  Table 4
----------------------------------------------------------------------
($ in millions)                    Percent
                                    Change
                                   4Q06 vs Full Year Full Year Percent
                                      4Q05      2006      2005  Change
                                 -------------------------------------

Commercial                            6.3   $40,199   $37,718     6.6
Lease financing                       9.0     5,241     4,923     6.5
                                          --------------------
      Total commercial                6.6    45,440    42,641     6.6

Commercial mortgages                 (2.0)   20,074    20,268    (1.0)
Construction and development          9.4     8,686     7,696    12.9
                                          --------------------
      Total commercial real
       estate                         1.3    28,760    27,964     2.8

Residential mortgages                 4.5    21,053    18,036    16.7

Credit card                          20.8     7,634     6,615    15.4
Retail leasing                       (5.2)    7,112     7,346    (3.2)
Home equity and second mortgages      3.3    15,146    14,945     1.3
Other retail                          8.9    15,456    14,063     9.9
                                          --------------------
      Total retail                    6.5    45,348    42,969     5.5
                                          --------------------

Total loans                           5.1  $140,601  $131,610     6.8
                                          --------------------

Average loans for the fourth quarter of 2006 were $7.0 billion (5.1 percent) higher than the fourth quarter of 2005, driven by growth in average total commercial loans of $2.9 billion (6.6 percent), residential mortgages of $916 million (4.5 percent) and total retail loans of $2.9 billion (6.5 percent). Average loans for the fourth quarter of 2006 were higher than the third quarter of 2006 by $2.2 billion (1.6 percent), reflecting growth in total commercial and total retail loans. Residential mortgages and total commercial real estate loans remained relatively flat in the fourth quarter of 2006 compared with the third quarter of 2006. The growth rate of residential mortgages reflected the Company's decision in early 2006 to begin selling an increased proportion of its residential mortgage loan production, while commercial real estate loan growth reflected customer refinancings given liquidity available in the financial markets, a decision to reduce condominium construction financing and a slowdown in residential homebuilding during 2006.

Average investment securities in the fourth quarter of 2006 were $1.2 billion (3.0 percent) lower than the fourth quarter of 2005. The change in the balance of the investment securities portfolio from a year ago principally reflected asset/liability management decisions to reduce the focus on residential mortgage-backed assets given the changing rate environment and mix of loan growth. Additionally, the Company reclassified approximately $460 million of principal-only securities to its trading account effective January 1, 2006, in connection with the adoption of SFAS 156.

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)                                               Percent
                                                               Change
                                       4Q        3Q       4Q  4Q06 vs
                                     2006      2006     2005     3Q06
                               ---------------------------------------

Noninterest-bearing deposits     $29,020   $28,220  $29,898      2.8
Interest-bearing deposits
   Interest checking              24,127    23,595   22,473      2.3
   Money market savings           26,214    26,116   28,710       .4
   Savings accounts                5,392     5,598    5,648     (3.7)
                               -----------------------------
      Total of savings deposits   55,733    55,309   56,831       .8
   Time certificates of deposit
    less than $100,000            13,974    13,867   13,397       .8
   Time deposits greater than
    $100,000                      22,255    22,579   22,205     (1.4)
                               -----------------------------
         Total interest-bearing
          deposits                91,962    91,755   92,433       .2
                               -----------------------------
Total deposits                  $120,982  $119,975 $122,331       .8
                               -----------------------------

AVERAGE DEPOSITS                                               Table 5
----------------------------------------------------------------------
($ in millions)                    Percent
                                    Change
                                   4Q06 vs Full Year Full Year Percent
                                      4Q05      2006      2005  Change
                                 -------------------------------------

Noninterest-bearing deposits         (2.9)  $28,755   $29,229    (1.6)
Interest-bearing deposits
   Interest checking                  7.4    23,552    22,785     3.4
   Money market savings              (8.7)   26,667    29,314    (9.0)
   Savings accounts                  (4.5)    5,599     5,819    (3.8)
                                          --------------------
      Total of savings deposits      (1.9)   55,818    57,918    (3.6)
   Time certificates of deposit
    less than $100,000                4.3    13,761    13,199     4.3
   Time deposits greater than
    $100,000                           .2    22,255    20,655     7.7
                                          --------------------
         Total interest-bearing
          deposits                    (.5)   91,834    91,772      .1
                                          --------------------
Total deposits                       (1.1) $120,589  $121,001     (.3)
                                          --------------------

Average noninterest-bearing deposits for the fourth quarter of 2006 decreased $878 million (2.9 percent) compared with the fourth quarter of 2005 reflecting a decline in business demand deposits as these customers reduced excess liquidity to fund business growth, partially offset by higher corporate trust deposits.

Average total savings deposits declined year-over-year by $1.1 billion (1.9 percent) due to reductions in average money market savings and savings accounts, partially offset by an increase in interest checking balances. Average money market savings balances declined by $2.5 billion (8.7 percent) year-over-year, primarily due to a decline in balances within the branches. This decline was partially offset by an increase in broker dealer balances. The overall decrease in average money market savings balances year-over-year was primarily the result of the Company's deposit pricing decisions for money market products in relation to other fixed-rate deposit products offered. A portion of branch-based money market savings accounts have migrated to fixed-rate time certificates to take advantage of higher interest rates for these products.

Average time certificates of deposit less than $100,000 were higher in the fourth quarter of 2006 than in the fourth quarter of 2005 by $577 million (4.3 percent). Additionally, the Company experienced year-over-year growth in average consumer-based time deposits greater than $100,000 of $1.0 billion (28.0 percent) due to customer migration of deposit balances. This increase was offset by a decline in other time deposits greater than $100,000, primarily reflecting asset/liability decisions and related pricing for these time deposits.

Average noninterest-bearing deposits for the fourth quarter of 2006 increased $800 million (2.8 percent) compared with the third quarter of 2006, primarily due to seasonal growth of business and trust deposits. Total savings deposits had a modest increase of $424 million (.8 percent) from the third quarter of 2006 while time deposits remained relatively stable with a decrease of only $217 million from the prior quarter.

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

                                  PercentPercent
                                   Change Change
                                                  Full    Full
                 4Q     3Q     4Q 4Q06 vs4Q06 vs  Year    Year Percent
               2006   2006   2005    3Q06   4Q05   2006    2005 Change
            ----------------------------------------------------------

Credit and
 debit card
 revenue      $210   $206   $197     1.9    6.6   $800    $713   12.2
Corporate
 payment
 products
 revenue       141    150    126    (6.0)  11.9    557     488   14.1
ATM
 processing
 services       60     63     61    (4.8)  (1.6)   243     229    6.1
Merchant
 processing
 services      244    253    194    (3.6)  25.8    963     770   25.1
Trust and
 investment
 management
 fees          319    305    258     4.6   23.6  1,235   1,009   22.4
Deposit
 service
 charges       259    268    238    (3.4)   8.8  1,023     928   10.2
Treasury
 management
 fees          107    111    104    (3.6)   2.9    441     437     .9
Commercial
 products
 revenue       104    100    101     4.0    3.0    415     400    3.8
Mortgage
 banking
 revenue        25     68    109   (63.2) (77.1)   192     432  (55.6)
Investment
 products
 fees and
 commissions    36     34     37     5.9   (2.7)   150     152   (1.3)
Securities                             nm     nm                    nm
 gains
 (losses),
 net            11     --    (49)                   14    (106)
Other          213    190    170    12.1   25.3    813     593   37.1
            ---------------------               ---------------

Total
 noninterest
 income     $1,729 $1,748 $1,546    (1.1)  11.8 $6,846  $6,045   13.3
            ---------------------               ---------------

Noninterest Income

Fourth quarter noninterest income was $1,729 million, an increase of $183 million (11.8 percent) from the same quarter of 2005 and $19 million (1.1 percent) lower than the third quarter of 2006. The increase in noninterest income over the fourth quarter of 2005 was driven by favorable variances in the majority of fee income categories and a favorable variance of $60 million on net securities gains (losses). Strong growth in fee-based revenue was partially offset by the accounting impact of SFAS 156 on mortgage banking revenue.

Credit and debit card revenue and corporate payment products revenue were both higher in the fourth quarter of 2006 than the fourth quarter of 2005 by $13 million and $15 million, or 6.6 percent and 11.9 percent, respectively. The strong growth in credit and debit card revenue was primarily driven by higher customer transaction volumes. The corporate payment products revenue growth reflected organic growth in sales volumes and card usage and acquired business expansion. Merchant processing services revenue was higher in the fourth quarter of 2006 than the same quarter a year ago by $50 million (25.8 percent), reflecting an increase in sales volume driven by acquisitions, higher same store sales, changes in pricing and equipment fees. Trust and investment management fees increased by $61 million (23.6 percent) year-over-year, due to recent acquisitions of corporate and institutional trust businesses, customer account growth and favorable equity market conditions. Deposit service charges grew year-over-year by $21 million (8.8 percent) due to increased transaction-related fees and the impact of net new checking accounts. These favorable changes in fee-based revenue were partially offset by the decline in mortgage banking revenue of $84 million (77.1 percent), principally driven by the adoption of the fair value method of accounting for mortgage servicing rights and MSR economic hedging results in the fourth quarter of 2006 due to changes in relative interest rates at year end. Other income was higher by $43 million (25.3 percent) as compared with the fourth quarter of 2005, primarily due to a $52 million gain on the sale of the Company's 401(k) defined contribution recordkeeping business and $6 million in trading gains related to certain interest rate swaps that the Company determined did not qualify for hedge accounting, partially offset by a decline in equity investment revenue from a year ago.

Noninterest income was seasonally lower ($19 million or 1.1 percent) in the fourth quarter of 2006 compared with the third quarter of 2006. Payment processing revenues declined due to lower transaction volumes and sales in corporate payment products and merchant processing resulting in decreases of $9 million (6.0 percent) and $9 million (3.6 percent), respectively. Deposit service charges declined by $9 million (3.4 percent) in the fourth quarter of 2006 compared with the third quarter of 2006, reflecting lower transaction-related fees, partially offset by net new account growth. In addition to seasonal declines in revenue, mortgage banking revenue was lower than the third quarter of 2006 by $43 million (63.2 percent), primarily due to changes in the valuation of mortgage servicing rights and the corresponding MSR economic hedges given changes in interest rates at year end. The declines in these revenue categories were partially offset by an increase in trust and investment management fees of $14 million (4.6 percent) due primarily to core fee account growth and favorable equity market conditions. Other revenue increased $23 million (12.1 percent) in the fourth quarter of 2006, primarily due to the gain on the sale of the Company's 401(k) defined contribution recordkeeping business and trading gains on interest rate derivatives, partially offset by a $32 million gain on the sale of equity interests in a card association in the third quarter of 2006 and lower retail product revenue as a result of higher end-of-term residual losses and slightly lower residual valuations. In addition, noninterest income included $11 million of net securities gains in the fourth quarter of 2006.

NONINTEREST EXPENSE                                            Table 7
----------------------------------------------------------------------
($ in millions)                                               Percent
                                                               Change
                                          4Q      3Q       4Q 4Q06 vs
                                        2006    2006     2005    3Q06
                                   -----------------------------------

Compensation                           $621    $632     $601    (1.7)
Employee benefits                       102     123      101   (17.1)
Net occupancy and equipment             166     168      166    (1.2)
Professional services                    69      54       47    27.8
Marketing and business development       61      58       64     5.2
Technology and communications           133     128      129     3.9
Postage, printing and supplies           67      66       65     1.5
Other intangibles                        92      89       81     3.4
Debt prepayment                          22      --       --       nm
Other                                   279     220      210    26.8
                                   --------------------------

Total noninterest expense            $1,612  $1,538   $1,464     4.8
                                   --------------------------

NONINTEREST EXPENSE                                            Table 7
----------------------------------------------------------------------
($ in millions)                    Percent
                                    Change
                                   4Q06 vs Full Year Full Year Percent
                                      4Q05      2006      2005  Change
                                  ------------------------------------

Compensation                          3.3    $2,513    $2,383     5.5
Employee benefits                     1.0       481       431    11.6
Net occupancy and equipment            --       660       641     3.0
Professional services                46.8       199       166    19.9
Marketing and business development   (4.7)      217       235    (7.7)
Technology and communications         3.1       505       466     8.4
Postage, printing and supplies        3.1       265       255     3.9
Other intangibles                    13.6       355       458   (22.5)
Debt prepayment                         nm       33        54   (38.9)
Other                                32.9       952       774    23.0
                                          --------------------

Total noninterest expense            10.1    $6,180    $5,863     5.4
                                          --------------------

Noninterest Expense

Fourth quarter noninterest expense totaled $1,612 million, an increase of $148 million (10.1 percent) from the same quarter of 2005 and $74 million (4.8 percent) from the third quarter of 2006. Compensation expense was higher year-over-year by $20 million (3.3 percent), primarily due to the corporate and institutional trust and payments processing acquisitions and other growth initiatives undertaken by the Company. Benefits expense remained flat from the fourth quarter of 2005 as higher pension costs from a year ago were offset by lower medical benefits expense due to favorable claims experience. Professional services expense increased by $22 million (46.8 percent) due primarily to revenue enhancement-related business initiatives, including establishing a bank charter in Ireland to support pan-European payment processing. Other intangibles expense increased by $11 million (13.6 percent) from the prior year due to acquisitions in Consumer Banking, Wealth Management and Payment Services. Other expense increased in the fourth quarter of 2006 from the same quarter of 2005 by $69 million (32.9 percent), primarily due to increased investments in tax-advantaged projects and business integration costs relative to a year ago. In addition, noninterest expense in the fourth quarter of 2006 was impacted by $22 million in charges related to the prepayment of certain trust preferred debt securities.

Noninterest expense in the fourth quarter of 2006 was higher than the third quarter of 2006 by $74 million (4.8 percent). The increase in noninterest expense in the fourth quarter of 2006 from the third quarter of 2006 was primarily due to operating costs from acquired businesses and other business development initiatives, the $22 million debt prepayment charge and increases in tax-advantaged investment expense. These increases were partially offset by a reduction in benefits expense principally due to lower medical costs resulting from favorable claims experience.

Provision for Income Taxes

The provision for income taxes for the fourth quarter of 2006 declined to an effective tax rate of 26.7 percent compared with an effective tax rate of 30.8 percent in the fourth quarter of 2005 and an effective tax rate of 30.7 percent in third quarter of 2006. The reduction in the effective rate from the same quarter of the prior year reflected incremental tax credits from tax-advantaged investments and a reduction in tax liabilities after the resolution of federal income tax examinations for all years through 2004 and certain state tax examinations during the fourth quarter of 2006. The Company anticipates its effective tax rate for the foreseeable future to approximate 32 percent.

ALLOWANCE FOR CREDIT LOSSES                                    Table 8
----------------------------------------------------------------------
($ in millions)                     4Q      3Q      2Q      1Q      4Q
                                  2006    2006    2006    2006    2005
                              ----------------------------------------

Balance, beginning of period   $2,256  $2,251  $2,251  $2,251  $2,258

Net charge-offs
    Commercial                     24      18      13       5      15
    Lease financing                 7       3       7       7       7
                              ----------------------------------------
         Total commercial          31      21      20      12      22
    Commercial mortgages            2      --      (1)      2      (1)
    Construction and
     development                   --      --       1      --      --
                              ----------------------------------------
        Total commercial real
         estate                     2      --      --       2      (1)

    Residential mortgages          12      11      11       7      10

    Credit card                    68      56      50      46      86
    Retail leasing                  4       4       2       4       8
    Home equity and second
     mortgages                     13      12      13      12      21
    Other retail                   39      31      29      32      67
                              ----------------------------------------
         Total retail             124     103      94      94     182
                              ----------------------------------------
            Total net charge-
             offs                 169     135     125     115     213
Provision for credit losses       169     135     125     115     205
Acquisitions and other changes     --       5      --      --       1
                              ----------------------------------------
Balance, end of period         $2,256  $2,256  $2,251  $2,251  $2,251
                              ----------------------------------------

Components
   Allowance for loan losses   $2,022  $2,034  $2,039  $2,035  $2,041
   Liability for unfunded
    credit commitments            234     222     212     216     210
                              ----------------------------------------
            Total allowance
             for credit losses $2,256  $2,256  $2,251  $2,251  $2,251
                              ----------------------------------------

Gross charge-offs                $217    $195    $176    $175    $267
Gross recoveries                  $48     $60     $51     $60     $54

Allowance for credit losses as
 a percentage of
   Period-end loans              1.57    1.58    1.61    1.64    1.65
   Nonperforming loans            480     476     500     432     414
   Nonperforming assets           384     392     409     364     350

Credit Quality

The allowance for credit losses was $2,256 million at December 31, 2006, and at September 30, 2006, compared with $2,251 million at December 31, 2005. The ratio of the allowance for credit losses to period-end loans was 1.57 percent at December 31, 2006, compared with 1.58 percent at September 30, 2006, and 1.65 percent at December 31, 2005. The ratio of the allowance for credit losses to nonperforming loans was 480 percent at December 31, 2006, compared with 476 percent at September 30, 2006, and 414 percent at December 31, 2005. Total net charge-offs in the fourth quarter of 2006 were $169 million, compared with the third quarter of 2006 net charge-offs of $135 million and the fourth quarter of 2005 net charge-offs of $213 million. The year-over-year decrease in total net charge-offs was principally due to the impact in the fourth quarter of 2005 from changes in bankruptcy legislation that went into effect during that timeframe.

Commercial and commercial real estate loan net charge-offs increased to $33 million in the fourth quarter of 2006 (.17 percent of average loans outstanding) compared with $21 million (.11 percent of average loans outstanding) in the third quarter of 2006 and $21 million (.12 percent of average loans outstanding) in the fourth quarter of 2005. The Company expects commercial net charge-offs to continue to increase somewhat over the next several quarters, due to slightly higher gross charge-offs and lower commercial loan recoveries.

Retail loan net charge-offs were $124 million in the fourth quarter of 2006 compared with $103 million in the third quarter of 2006 and $182 million in the fourth quarter of 2005. Retail loan net charge-offs increased as compared with the third quarter of 2006 and declined from the fourth quarter of 2005, reflecting the impact of the bankruptcy legislation changes that occurred in the fourth quarter of 2005. Retail loan net charge-offs as a percent of average loans outstanding were 1.05 percent in the fourth quarter of 2006, compared with .90 percent and 1.64 percent in the third quarter of 2006 and fourth quarter of 2005, respectively. The 15 basis point increase in retail net charge-offs from the third quarter of 2006 reflected a higher level of bankruptcy-related losses as the lingering effects of changes in bankruptcy laws were realized throughout 2006. The Company anticipates slightly higher delinquencies in the retail portfolios and that net charge-offs will continue to increase moderately during 2007.

CREDIT RATIOS                                                  Table 9
----------------------------------------------------------------------
(Percent)                                   4Q    3Q    2Q    1Q    4Q
                                          2006  2006  2006  2006  2005
                                        ------------------------------
Net charge-offs ratios (a)
   Commercial                             .23   .18   .13   .05   .15
   Lease financing                        .51   .23   .54   .56   .56
      Total commercial                    .26   .18   .18   .11   .20

   Commercial mortgages                   .04    --  (.02)  .04  (.02)
   Construction and development            --    --   .05    --    --
      Total commercial real estate        .03    --    --   .03  (.01)

   Residential mortgages                  .22   .21   .21   .14   .20

   Credit card                           3.27  2.85  2.72  2.62  5.00
   Retail leasing                         .23   .22   .11   .22   .43
   Home equity and second mortgages       .33   .31   .35   .33   .56
   Other retail                           .96   .79   .77   .87  1.79
      Total retail                       1.05   .90   .84   .86  1.64

Total net charge-offs                     .47   .38   .36   .34   .62

Delinquent loan ratios - 90 days or more past due excluding
 nonperforming loans (b)
   Commercial                             .05   .06   .05   .05   .05
   Commercial real estate                 .01   .01    --    --    --
   Residential mortgages                  .45   .36   .30   .31   .32
   Retail                                 .48   .41   .39   .38   .37
Total loans                               .24   .21   .19   .18   .19

Delinquent loan ratios - 90 days or more past due including
 nonperforming loans (b)
   Commercial                             .57   .55   .58   .64   .69
   Commercial real estate                 .53   .54   .40   .51   .55
   Residential mortgages                  .62   .53   .49   .53   .55
   Retail                                 .58   .52   .52   .54   .52
Total loans                               .57   .54   .51   .56   .58

(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)
                                    Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
                                      2006   2006   2006   2006   2005
                                   -----------------------------------
Nonperforming loans
   Commercial                        $196   $192   $203   $219   $231
   Lease financing                     40     39     38     41     42
                                   -----------------------------------
      Total commercial                236    231    241    260    273
   Commercial mortgages               112    114     88    123    134
   Construction and development        38     40     25     23     23
                                   -----------------------------------
      Total commercial real estate    150    154    113    146    157
   Residential mortgages               36     36     39     45     48
   Retail                              48     53     57     70     66
                                   -----------------------------------
Total nonperforming loans             470    474    450    521    544

Other real estate                      95     79     77     71     71
Other nonperforming assets             22     22     23     27     29
                                   -----------------------------------

Total nonperforming assets (a)       $587   $575   $550   $619   $644
                                   -----------------------------------

Accruing loans 90 days or more past
 due                                 $349   $295   $264   $251   $253
                                   -----------------------------------

Restructured loans that continue
 to accrue interest                  $405   $369   $370   $371   $315
                                   -----------------------------------

Nonperforming assets to loans
   plus ORE (%)                       .41    .40    .39    .45    .47

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

Nonperforming assets at December 31, 2006, totaled $587 million, compared with $575 million at September 30, 2006, and $644 million at December 31, 2005. The ratio of nonperforming assets to loans and other real estate was .41 percent at December 31, 2006, .40 percent at September 30, 2006, and .47 percent at December 31, 2005. Restructured loans that continue to accrue interest have increased from the fourth quarter of 2005, reflecting the impact of implementing higher minimum balance payment requirements for credit card customers in response to industry guidance issued by the banking regulatory agencies.

CAPITAL POSITION                                             Table 11
----------------------------------------------------------------------
($ in millions)            Dec 31   Sep 30   Jun 30   Mar 31   Dec 31
                             2006     2006     2006     2006     2005
                         --------------------------------------------

Total shareholders'
 equity                  $21,197  $20,926  $20,415  $20,256  $20,086
Tier 1 capital            17,036   17,042   16,841   16,478   15,145
Total risk-based capital  24,495   25,011   24,893   24,328   23,056

Tier 1 capital ratio         8.8 %    8.8 %    8.9 %    8.9 %    8.2 %
Total risk-based capital
 ratio                      12.6     13.0     13.1     13.1     12.5
Leverage ratio               8.2      8.3      8.2      8.2      7.6
Common equity to assets      9.2      9.2      9.1      9.2      9.6
Tangible common equity to
 assets                      5.5      5.4      5.6      5.4      5.9

Total shareholders' equity was $21.2 billion at December 31, 2006, compared with $20.1 billion at December 31, 2005. The increase was the result of corporate earnings and the issuance of $1.0 billion of non-cumulative, perpetual preferred stock on March 27, 2006, partially offset by share buybacks and dividends. In December of 2006, the Company announced a 21 percent increase in its quarterly dividend to common shareholders, increasing the dividend from $.33 per common share to $.40 per common share.

The Tier 1 capital ratio was 8.8 percent at December 31, 2006, and at September 30, 2006, and 8.2 percent at December 31, 2005. The total risk-based capital ratio was 12.6 percent at December 31, 2006, compared with 13.0 percent at September 30, 2006, and 12.5 percent at December 31, 2005. The leverage ratio was 8.2 percent at December 31, 2006, compared with 8.3 percent at September 30, 2006, and 7.6 percent at December 31, 2005. Tangible common equity to assets was 5.5 percent at December 31, 2006, compared with 5.4 percent at September 30, 2006, and 5.9 percent at December 31, 2005. All regulatory ratios continue to be in excess of stated "well capitalized" requirements.


COMMON SHARES                                                 Table 12
----------------------------------------------------------------------
(Millions)                              4Q     3Q     2Q     1Q     4Q
                                      2006   2006   2006   2006   2005
                                   -----------------------------------

Beginning shares outstanding        1,763  1,783  1,783  1,815  1,818
Shares issued for stock option and
 stock purchase plans, acquisitions
 and other corporate purposes          12     10      9      9      6
Shares repurchased                    (10)   (30)    (9)   (41)    (9)
                                   -----------------------------------
Ending shares outstanding           1,765  1,763  1,783  1,783  1,815
                                   -----------------------------------

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. On August 3, 2006, the Company announced that the Board of Directors approved an authorization to repurchase 150 million shares of common stock through December 2008. This new authorization replaced the December 21, 2004, share repurchase program. During the fourth quarter of 2006, the Company repurchased 10 million shares of common stock. As of December 31, 2006, there were approximately 122 million shares remaining to be repurchased under the current authorization.

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                    Table 13
----------------------------------------------------------------------
($ in millions)
                                   Net Income         Percent Change
                             ----------------------- -----------------
                                   4Q     3Q      4Q  4Q06 vs 4Q06 vs
Business Line                    2006   2006    2005     3Q06    4Q05
                             -----------------------------------------

Wholesale Banking               $284   $298    $312     (4.7)   (9.0)
Consumer Banking                 419    475     428    (11.8)   (2.1)
Wealth Management                156    147     130      6.1    20.0
Payment Services                 237    253     170     (6.3)   39.4
Treasury and Corporate                                     nm
 Support                          98     30     103             (4.9)
                             -----------------------

Consolidated Company          $1,194 $1,203  $1,143      (.7)    4.5
                             -----------------------

(a) preliminary data

LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                    Table 13
----------------------------------------------------------------------
($ in millions)
                                                              4Q 2006
                           Full Year Full Year   Percent     Earnings
Business Line                   2006      2005    Change  Composition
                          -------------------- --------- -------------

Wholesale Banking            $1,194    $1,176       1.5           24 %
Consumer Banking              1,793     1,692       6.0           35
Wealth Management               589       479      23.0           13
Payment Services                967       729      32.6           20
Treasury and Corporate
 Support                        208       413     (49.6)           8
                          --------------------           ------------

Consolidated Company         $4,751    $4,489       5.8          100 %
                          --------------------           ------------

(a) preliminary data

Lines of Business

Within the Company, financial performance is measured by major lines of business, which include Wholesale Banking, Consumer Banking, Wealth Management, 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 2006, 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, commercial real estate, equipment finance, small-ticket leasing and public sector clients, along with lending guaranteed by the Small Business Administration. Wholesale Banking contributed $284 million of the Company's net income in the fourth quarter of 2006, a 9.0 percent decrease from the same period of 2005 and a 4.7 percent decrease as compared with the third quarter of 2006. The decrease in Wholesale Banking's fourth quarter 2006 contribution from the same quarter of 2005 was primarily the result of an unfavorable variance in total net revenue (4.7 percent) and an increase in the provision for credit losses from a year ago. Net interest income increases from the growth in average loan balances and the margin benefit of deposits were more than offset by tighter credit spreads and a decline in average deposit balances as customers utilized their liquidity to fund business growth. The unfavorable variance year-over-year in total noninterest income (4.7 percent) was primarily driven by lower equity investment revenue and non-yield loan fees, partially offset by higher income from commercial real estate production, commercial leasing and net securities gains. The unfavorable variance in the provision for credit losses was due to the increase in net charge-offs to $10 million in the fourth quarter of 2006, reflecting fewer wholesale loan recoveries and an increase in gross charge-offs at this stage of the business cycle.

Wholesale Banking's contribution to net income in the fourth quarter of 2006 compared with the third quarter of 2006 was $14 million (4.7 percent) lower, due to unfavorable variances in total net revenue (1.0 percent), total noninterest expense (3.1 percent) and the provision for credit losses. Total net revenue was lower on a linked quarter basis due to lower net interest income driven primarily by tightening credit spreads. Total noninterest income remained relatively flat, as net securities gains were offset by lower equity investment revenue. Total noninterest expense increased due primarily to lease production-related commissions and commercial lease expenses. The provision for credit losses increased on a linked quarter basis due to the increase in net charge-offs.

Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking, and 24-hour banking. Consumer Banking contributed $419 million of the Company's net income in the fourth quarter of 2006, a 2.1 percent decrease from the same period of 2005 and an 11.8 percent decrease from the prior quarter. The decline was due to a $28 million reduction in net contribution of the mortgage banking business from a year ago. This unfavorable change in the mortgage banking division was driven by lower average loan warehouse portfolio and origination gains, adverse changes in MSR and related economic hedge valuations and the Company's adoption of SFAS 156 in early 2006. The mortgage banking division's total net revenue and noninterest expense declined by approximately $94 million and $50 million, respectively, compared with the fourth quarter of 2005. The contribution of the retail banking division of Consumer Banking increased approximately 4.8 percent from a year ago driven by income before provision and income taxes growth of 2.4 percent and lower credit losses. Net interest income was higher year-over-year primarily due to growth in average loan balances, increased loan fees and the margin benefit of deposits, somewhat offset by lower spreads on those assets given the competitive lending environment. Fee-based revenues for the retail banking division increased 2.5 percent, reflecting growth in deposit service charges (8.9 percent) due to increased transaction-related fees and net new checking accounts, offset somewhat by lower retail leasing revenues due, in part, to slightly lower residual valuations and end-of-term lease residual income. The retail banking division's total noninterest expense in the fourth quarter of 2006 increased compared with the same quarter of 2005 primarily due to an increase in net shared services expense and increased professional services expense related to various business initiatives. A $12 million year-over-year decrease in net charge-offs (14.1 percent) resulted in the favorable variance in the division's provision for credit losses. The decline in credit losses from a year ago reflected, in part, the impact of changes in the bankruptcy laws in the fourth quarter of 2005.

The decrease in Consumer Banking's contribution in the fourth quarter of 2006 from the third quarter of 2006 was principally due to the lower fee-based revenues and higher provision for credit losses. The decline in total noninterest income was due to a decrease in mortgage banking revenue (62.3 percent) reflecting the impact of the interest rate environment on production gains and MSR and related economic hedge valuations at year end. The quarterly change in revenue also reflected lower deposit service charges (3.4 percent) and retail lease residual income. Total noninterest expense was higher on a linked quarter basis, primarily due to higher net shared services expense partially offset by lower compensation costs in the branch network. The increase in the provision for credit losses during the quarter was due to a $14 million increase in net charge-offs as bankruptcy related charge-offs return to more normalized levels, portfolio growth and somewhat higher loan delinquencies.

Wealth Management provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through six businesses: Private Client Group, Corporate Trust, U.S. Bancorp Investments and Insurance, FAF Advisors, Institutional Trust and Custody and Fund Services. Wealth Management contributed $156 million of the Company's net income in the fourth quarter of 2006, a 20.0 percent increase over the same period of 2005 and a 6.1 percent increase over the third quarter of 2006. The growth in the business line's contribution in the fourth quarter of 2006 over the same quarter of 2005 was the result of corporate and institutional trust acquisitions, core account fee growth and improved equity market conditions. Net interest income was favorably impacted year-over-year by deposit balance growth and slightly wider deposit spreads, partially offset by tightening asset spreads. Total noninterest income increased by 19.9 percent from the same quarter of 2005, primarily due to recent acquisitions of corporate and institutional trust businesses, core account fee growth and favorable equity market conditions. The increase in total noninterest expense was primarily due to the recent acquisitions.

The increase in the business line's contribution in the fourth quarter of 2006, as compared with the third quarter of 2006, was due to core account fee growth and improved equity market conditions.

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services contributed $237 million of the Company's net income in the fourth quarter of 2006, a 39.4 percent increase over the same period of 2005 and a 6.3 percent decrease from the third quarter of 2006. The increase in Payment Services' contribution in the fourth quarter of 2006 from the same period of 2005 was the result of higher total net revenue (13.9 percent) and a favorable variance in the provision for credit losses (27.4 percent), partially offset by an increase in total noninterest expense (8.0 percent). The increase in total net revenue year-over-year was due to growth in total noninterest income (15.5 percent) and net interest income (8.0 percent), reflecting growth in higher yielding retail loan balances, partially offset by the margin impact of growth in noninterest-bearing corporate and purchasing card balances and intangibles related to recent acquisitions. All revenue categories benefited from higher transaction volumes, rate changes and business expansion initiatives. The growth in total noninterest expense year-over-year primarily reflected new business initiatives, including costs associated with acquisitions and other business growth initiatives, partially offset by the impact of a $19 million write-off associated with a co-branding relationship in the fourth quarter of 2005. The decrease in the provision for credit losses was driven by lower net charge-offs, year-over-year, reflecting the impact of changes in bankruptcy legislation in the fourth quarter of 2005.

The decrease in Payment Services' contribution in the fourth quarter of 2006 from the third quarter of 2006 was due primarily to increased provision for credit losses (14.9 percent) and an increase in total noninterest expense (3.8 percent). Total net revenue was essentially flat as growth in net interest income was offset by seasonally lower payment processing fee revenues. The increase in net interest income was primarily driven by growth in higher yielding credit card loan balances and related loan fees. A $10 million increase in net charge-offs drove the increase in the provision for credit losses, as bankruptcy charge-offs continue to return to more normalized levels. The provision was also impacted somewhat by portfolio growth and slightly higher loan delinquencies. The increase in total noninterest expense was primarily due to the impact of marketing and professional services costs from retail payment system initiatives.

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, prior to the adoption of SFAS 156, changes in mortgage servicing rights valuations due to interest rate changes were 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 $98 million in the fourth quarter of 2006, compared with net income of $103 million in the fourth quarter of 2005 and $30 million in the third quarter of 2006. Net interest income decreased in the current quarter from the fourth quarter of 2005 by $103 million, reflecting primarily the impact of a flatter yield curve and asset/liability management decisions during the past year and the issuance of higher cost wholesale funding. Total noninterest income increased due to the $52 million gain on the sale of the Company's 401(k) defined contribution recordkeeping business, trading gains related to interest rate derivatives and the favorable impact of net securities losses recorded in the prior year. Total noninterest expense increased $119 million primarily due to operating costs associated with incremental investments in tax-advantaged projects relative to a year ago and business integration costs, offset by an unfavorable variance in intangible assets amortization due to the adoption of SFAS 156. The favorable change in income taxes, compared with a year ago, resulted from expected income tax credits from incremental tax-advantaged investments and the resolution of various federal and state tax examinations.

Net income in the fourth quarter of 2006 was higher than the third quarter of 2006 due to a increase in total noninterest income ($34 million) related to the gain on sale of the 401(k) recordkeeping business and trading gains related to interest rate derivatives, partially offset by the $32 million gain on the sale of equity interests in a card association and gains from the sale of certain commercial real estate, both of which were recorded in third quarter of 2006. Net interest income improved during the quarter by $25 million reflecting growth in investment securities and the impact of recent changes in interest rate policies of the Federal Reserve. Total noninterest expenses increased by $44 million primarily due to incremental amortization related to tax-advantaged investments. The residual tax benefits recognized by the Treasury and Corporate Support business line increased during the fourth quarter of 2006 primarily due to higher levels of tax credits and the resolution of federal and state tax examinations during the quarter.

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.

PRESIDENT AND CHIEF EXECUTIVE OFFICER, RICHARD K. DAVIS, AND VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, DAVID MOFFETT, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS AT 1:00 P.M. (CST) ON TUESDAY, JANUARY 16, 2007. The conference call will be available by telephone or on the internet. To access the conference call, please dial 800-896-8445 and ask for the U.S. Bancorp earnings conference call. Participants calling from outside the United States, please dial 785-830-1916. 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, January 16th, and will run though Tuesday, January 23rd, at 11:00 p.m. (CST). To access the recorded message, dial 800-283-4216. If calling from outside the United States, please dial 402-220-9033 to access the recording. Find the recorded call via the internet at usbank.com.

Minneapolis-based U.S. Bancorp ("USB"), with $219 billion in assets, is the 6th largest financial holding company in the United States. The Company operates 2,472 banking offices and 4,841 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

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

This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words "may," "could," "would," "should," "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of the Company. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including changes in general business and economic conditions, changes in interest rates, legal and regulatory developments, increased competition from both banks and non-banks, changes in customer behavior and preferences, effects of mergers and acquisitions and related integration, and effects of critical accounting policies and judgments. For discussion of these and other risks that may cause actual results to differ from expectations, refer to our Annual Report on Form 10-K for the year ended December 31, 2005, on file with the Securities and Exchange Commission, including the sections entitled "Risk Factors" and "Corporate Risk Profile." Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.

U.S. Bancorp
Consolidated Statement of Income

(Dollars and Shares in Millions,    Three Months Ended   Year Ended
 Except Per Share Data)                December 31,     December 31,
                                    ----------------------------------
(Unaudited)                              2006     2005    2006    2005
----------------------------------------------------------------------
Interest Income
Loans                                 $2,596   $2,255  $9,873  $8,306
Loans held for sale                       64       52     236     181
Investment securities                    511      500   2,001   1,954
Other interest income                     34       26     153     110
                                    ----------------------------------
        Total interest income          3,205    2,833  12,263  10,551
Interest Expense
Deposits                                 668      476   2,389   1,559
Short-term borrowings                    342      230   1,203     690
Long-term debt                           515      352   1,930   1,247
                                    ----------------------------------
        Total interest expense         1,525    1,058   5,522   3,496
                                    ----------------------------------
Net interest income                    1,680    1,775   6,741   7,055
Provision for credit losses              169      205     544     666
                                    ----------------------------------
Net interest income after provision
 for credit losses                     1,511    1,570   6,197   6,389
Noninterest Income
Credit and debit card revenue            210      197     800     713
Corporate payment products revenue       141      126     557     488
ATM processing services                   60       61     243     229
Merchant processing services             244      194     963     770
Trust and investment management fees     319      258   1,235   1,009
Deposit service charges                  259      238   1,023     928
Treasury management fees                 107      104     441     437
Commercial products revenue              104      101     415     400
Mortgage banking revenue                  25      109     192     432
Investment products fees and
 commissions                              36       37     150     152
Securities gains (losses), net            11      (49)     14    (106)
Other                                    213      170     813     593
                                    ----------------------------------
        Total noninterest income       1,729    1,546   6,846   6,045
Noninterest Expense
Compensation                             621      601   2,513   2,383
Employee benefits                        102      101     481     431
Net occupancy and equipment              166      166     660     641
Professional services                     69       47     199     166
Marketing and business development        61       64     217     235
Technology and communications            133      129     505     466
Postage, printing and supplies            67       65     265     255
Other intangibles                         92       81     355     458
Debt prepayment                           22       --      33      54
Other                                    279      210     952     774
                                    ----------------------------------
        Total noninterest expense      1,612    1,464   6,180   5,863
                                    ----------------------------------
Income before income taxes             1,628    1,652   6,863   6,571
Applicable income taxes                  434      509   2,112   2,082
                                    ----------------------------------
Net income                            $1,194   $1,143  $4,751  $4,489
                                    ----------------------------------
Net income applicable to common
 equity                               $1,179   $1,143  $4,703  $4,489
                                    ----------------------------------

Earnings per common share               $.67     $.63   $2.64   $2.45
Diluted earnings per common share       $.66     $.62   $2.61   $2.42
Dividends declared per common share     $.40     $.33   $1.39   $1.23
Average common shares outstanding      1,761    1,816   1,778   1,831
Average diluted common shares
 outstanding                           1,789    1,841   1,804   1,857
----------------------------------------------------------------------
U.S. Bancorp
Consolidated Ending Balance Sheet

                                             December 31, December 31,
(Dollars in Millions)                               2006         2005
----------------------------------------------------------------------
Assets
Cash and due from banks                           $8,639       $8,004
Investment securities
    Held-to-maturity                                  87          109
    Available-for-sale                            40,030       39,659
Loans held for sale                                3,256        3,030
Loans
    Commercial                                    46,190       42,942
    Commercial real estate                        28,645       28,463
    Residential mortgages                         21,285       20,730
    Retail                                        47,477       44,327
                                             -------------------------
        Total loans                              143,597      136,462
            Less allowance for loan losses        (2,022)      (2,041)
                                             -------------------------
            Net loans                            141,575      134,421
Premises and equipment                             1,835        1,841
Goodwill                                           7,538        7,005
Other intangible assets                            3,227        2,874
Other assets                                      13,045       12,522
                                             -------------------------
            Total assets                        $219,232     $209,465
                                             -------------------------

Liabilities and Shareholders' Equity
Deposits
    Noninterest-bearing                          $32,128      $32,214
    Interest-bearing                              70,330       70,024
    Time deposits greater than $100,000           22,424       22,471
                                             -------------------------
        Total deposits                           124,882      124,709
Short-term borrowings                             26,933       20,200
Long-term debt                                    37,602       37,069
Other liabilities                                  8,618        7,401
                                             -------------------------
        Total liabilities                        198,035      189,379
Shareholders' equity
    Preferred stock                                1,000           --
    Common stock                                      20           20
    Capital surplus                                5,762        5,907
    Retained earnings                             21,242       19,001
    Less treasury stock                           (6,091)      (4,413)
    Other comprehensive income                      (736)        (429)
                                             -------------------------
        Total shareholders' equity                21,197       20,086
                                             -------------------------
        Total liabilities and shareholders'
         equity                                 $219,232     $209,465
----------------------------------------------------------------------

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

SOURCE: U.S. Bancorp

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



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