U.S. Bancorp Reports 14 Percent Growth in Earnings Per Share Record
Net Income Driven by Strong Fee Revenue, Improved Credit Quality
MINNEAPOLIS, Oct. 19 /PRNewswire-FirstCall/ -- U.S. Bancorp
(NYSE:USB) today reported net income of $1,065.5 million for the
third quarter of 2004, compared with $950.9 million for the third
quarter of 2003. Net income of $.56 per diluted share in the third
quarter of 2004 was higher than the same period of 2003 by $.07
(14.3 percent). Return on average assets and return on average
equity were 2.21 percent and 21.9 percent, respectively, for the
third quarter of 2004, compared with returns of 1.98 percent and
19.5 percent, respectively, for the third quarter of 2003. U.S.
Bancorp Chairman, President and Chief Executive Officer Jerry A.
Grundhofer said, "Our third quarter results represent the 7th
consecutive quarter of record earnings for our Company. Our
operating units continued to show strong momentum, driven by
improved credit quality, moderate revenue growth and disciplined
expense management. Aided by strong commercial loan recoveries, the
net charge-off ratio fell to .53 percent in the quarter, while
nonperforming assets declined by 11.7 percent from the balance at
June 30, 2004. Excluding securities gains and losses, total net
revenue in the third quarter increased by 3.4 percent over the same
period of 2003, driven by an 11.7 percent increase in fee-based
products and services. Our payment services and consumer banking
business lines led the way in fee revenue generation and continued
to produce outstanding results, helping to offset weakness in
commercial lending. We are continuing our investment in high-growth
businesses through the expansion of our merchant acquiring business
in Europe, the extension of our card issuing capabilities
domestically and the roll out of our in-store branch initiative in
consumer banking. Finally, we returned 94 percent of the Company's
earnings in the quarter to our shareholders in the form of
dividends and share repurchases." The Company's results for the
third quarter of 2004 improved over the same period of 2003,
primarily due to lower credit costs and growth in fee-based
products and services. Included in the current quarter were gains
on the sale of securities of $87.3 million, a net increase of
$196.2 million over securities gains (losses) realized in the third
quarter of 2003. The current quarter also included the recognition
of $86.7 million of mortgage servicing rights ("MSR") impairment, a
$195.2 million unfavorable variance from the third quarter of 2003.
Since the end of the second quarter of 2004, the yield on 10-year
Treasury Notes decreased 46 basis points to 4.12 percent. The yield
on 30-year Fannie Mae commitments declined 51 basis points during
the same timeframe. Driven by the decrease in longer-term interest
rates, the mortgage industry experienced an increase in refinancing
activities, resulting in more prepayments. Total net revenue on a
taxable-equivalent basis for the third quarter of 2004 was $302.8
million (10.1 percent) higher than the third quarter of 2003,
primarily reflecting the $196.2 million net increase in gains
(losses) on the sale of securities and growth in the majority of
other fee-based revenue categories. The expansion of the Company's
merchant acquiring business in Europe, including the purchase of
the remaining 50 percent shareholder interest in EuroConex
Technologies Ltd from the Bank of Ireland and the acquisition of
two European merchant acquiring businesses, accounted for
approximately $24 million of the favorable variance year-over-year.
Total noninterest expense in the third quarter of 2004 was $265.7
million (21.2 percent) higher than the third quarter of 2003,
primarily reflecting the $195.2 million unfavorable change in the
valuation of mortgage servicing rights. The expansion of the
Company's merchant acquiring business in Europe accounted for
approximately $29 million of the increase, including $6 million of
business integration costs, while higher compensation, employee
benefits, marketing and business development, and technology and
communication also contributed to the increase year-over-year.
Provision for credit losses for the third quarter of 2004 was
$165.1 million, a decrease of $144.9 million (46.7 percent) from
the third quarter of 2003. Net charge-offs in the third quarter of
2004 were $165.1 million, compared with the second quarter of 2004
net charge-offs of $204.5 million and the third quarter of 2003 net
charge-offs of $309.9 million. The decline in losses from a year
ago was primarily the result of declining levels of nonperforming
loans, collection efforts and higher commercial loan recoveries.
Total nonperforming assets declined to $804.6 million at September
30, 2004, from $910.9 million at June 30, 2004 (11.7 percent), and
$1,318.3 million at September 30, 2003 (39.0 percent). The ratio of
the allowance for credit losses to nonperforming loans was 337
percent at September 30, 2004, compared with 299 percent at June
30, 2004, and 202 percent at September 30, 2003. On December 31,
2003, the Company completed the spin-off of Piper Jaffray Companies
(NYSE:PJC). In connection with the spin-off, accounting rules
require that the financial statements be restated for all prior
periods. As such, historical financial results related to Piper
Jaffray Companies have been segregated and accounted for in the
Company's financial statements as discontinued operations. Net
income in the third quarter of 2003 included after-tax income from
the discontinued operations of Piper Jaffray Companies of $10.2
million, or $.01 per diluted share. INCOME STATEMENT HIGHLIGHTS
Table 2 (Taxable-equivalent basis, $ in millions, except per-share
data) Percent Percent Change Change 3Q 2Q 3Q 3Q04 vs 3Q04 vs 2004
2004 2003 2Q04 3Q03 Net interest income $1,781.7 $1,779.4 $1,825.5
0.1 (2.4) Noninterest income 1,524.0 1,241.7 1,177.4 22.7 29.4
Total net revenue 3,305.7 3,021.1 3,002.9 9.4 10.1 Noninterest
expense 1,519.0 1,232.6 1,253.3 23.2 21.2 Provision for credit
losses 165.1 204.5 310.0 (19.3) (46.7) Income from continuing
operations before income taxes 1,621.6 1,584.0 1,439.6 2.4 12.6
Taxable-equivalent adjustment 7.1 7.0 7.0 1.4 1.4 Applicable income
taxes 549.0 540.1 491.9 1.6 11.6 Income from continuing operations
1,065.5 1,036.9 940.7 2.8 13.3 Income from discontinued operations
(after-tax) -- -- 10.2 nm nm Net income $1,065.5 $1,036.9 $950.9
2.8 12.1 Diluted earnings per share: Income from continuing
operations $0.56 $0.54 $0.48 3.7 16.7 Discontinued operations -- --
0.01 nm nm Net income $0.56 $0.54 $0.49 3.7 14.3 YTD YTD Percent
2004 2003 Change Net interest income $5,340.1 $5,400.8 (1.1)
Noninterest income 4,084.0 4,016.4 1.7 Total net revenue 9,424.1
9,417.2 0.1 Noninterest expense 4,206.5 4,254.5 (1.1) Provision for
credit losses 604.6 968.0 (37.5) Income from continuing operations
before income taxes 4,613.0 4,194.7 10.0 Taxable-equivalent
adjustment 21.3 21.0 1.4 Applicable income taxes 1,480.9 1,433.9
3.3 Income from continuing operations 3,110.8 2,739.8 13.5 Income
from discontinued operations (after-tax) -- 15.8 nm Net income
$3,110.8 $2,755.6 12.9 Diluted earnings per share: Income from
continuing operations $1.62 $1.42 14.1 Discontinued operations --
0.01 nm Net income $1.62 $1.43 13.3 Net Interest Income Third
quarter net interest income on a taxable-equivalent basis was
$1,781.7 million, compared with $1,825.5 million recorded in the
third quarter of 2003. Average earning assets for the period
increased over the third quarter of 2003 by $4.3 billion (2.6
percent), primarily driven by increases in investment securities,
retail loans and residential mortgages, partially offset by a
decline in commercial loans and loans held for sale related to
mortgage banking activities. The net interest margin in the third
quarter of 2004 was 4.22 percent, compared with 4.28 percent in the
second quarter of 2004 and 4.43 percent in the third quarter of
2003. The decline in the net interest margin in the third quarter
of 2004 from the third quarter of 2003 primarily reflected a modest
increase in the percent of total earnings assets funded by
wholesale sources of funding and higher rates paid on wholesale
funding due to the impact of rising rates. NET INTEREST INCOME
Table 3 (Taxable-equivalent basis; $ in millions) Change Change 3Q
2Q 3Q 3Q04 vs 3Q04 vs 2004 2004 2003 2Q04 3Q03 Components of net
interest income Income on earning assets $2,309.9 $2,243.2 $2,318.3
$66.7 $(8.4) Expense on interest-bearing liabilities 528.2 463.8
492.8 64.4 35.4 Net interest income $1,781.7 $1,779.4 $1,825.5 $2.3
$(43.8) Average yields and rates paid Earning assets yield 5.47%
5.39% 5.63% 0.08% (0.16)% Rate paid on interest-bearing liabilities
1.55 1.38 1.49 0.17 0.06 Gross interest margin 3.92% 4.01% 4.14%
(0.09)% (0.22)% Net interest margin 4.22% 4.28% 4.43% (0.06)%
(0.21)% Average balances Investment securities $42,502 $42,489
$37,777 $13 $4,725 Loans 122,906 121,161 119,982 1,745 2,924
Earning assets 168,187 166,990 163,865 1,197 4,322 Interest-bearing
liabilities 136,106 134,819 131,693 1,287 4,413 Net free funds*
32,081 32,171 32,172 (90) (91) * 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 YTD YTD 2004 2003 Change
Components of net interest income Income on earning assets $6,818.4
$6,991.3 $(172.9) Expense on interest-bearing liabilities 1,478.3
1,590.5 (112.2) Net interest income $5,340.1 $5,400.8 $(60.7)
Average yields and rates paid Earning assets yield 5.44% 5.84%
(0.40)% Rate paid on interest-bearing liabilities 1.46 1.66 (0.20)
Gross interest margin 3.98% 4.18% (0.20)% Net interest margin 4.26%
4.51% (0.25)% Average balances Investment securities $43,243
$36,059 $7,184 Loans 120,966 118,045 2,921 Earning assets 167,182
159,832 7,350 Interest-bearing liabilities 135,300 127,998 7,302
Net free funds* 31,882 31,834 48 * Represents noninterest-bearing
deposits, allowance for loan losses, unrealized gain (loss) on
available-for-sale securities, non-earning assets, other
noninterest-bearing liabilities and equity AVERAGE LOANS Table 4 ($
in millions) Percent Percent Change Change 3Q 2Q 3Q 3Q04 vs 3Q04 vs
2004 2004 2003 2Q04 3Q03 Commercial $34,457 $34,484 $36,958 (0.1)
(6.8) Lease financing 4,860 4,846 5,022 0.3 (3.2) Total commercial
39,317 39,330 41,980 -- (6.3) Commercial mortgages 20,231 20,477
20,089 (1.2) 0.7 Construction and development 6,963 6,639 7,308 4.9
(4.7) Total commercial real estate 27,194 27,116 27,397 0.3 (0.7)
Residential mortgages 14,569 14,052 12,234 3.7 19.1 Credit card
6,145 5,989 5,606 2.6 9.6 Retail leasing 6,842 6,484 5,806 5.5 17.8
Home equity and second mortgages 14,288 13,775 13,093 3.7 9.1 Other
retail 14,551 14,415 13,866 0.9 4.9 Total retail 41,826 40,663
38,371 2.9 9.0 Total loans $122,906 $121,161 $119,982 1.4 2.4 YTD
YTD Percent 2004 2003 Change Commercial $34,191 $36,627 (6.7) Lease
financing 4,869 5,131 (5.1) Total commercial 39,060 41,758 (6.5)
Commercial mortgages 20,420 20,144 1.4 Construction and development
6,720 6,948 (3.3) Total commercial real estate 27,140 27,092 0.2
Residential mortgages 14,079 11,131 26.5 Credit card 6,005 5,462
9.9 Retail leasing 6,507 5,773 12.7 Home equity and second
mortgages 13,815 13,291 3.9 Other retail 14,360 13,538 6.1 Total
retail 40,687 38,064 6.9 Total loans $120,966 $118,045 2.5 Average
loans for the third quarter of 2004 were $2.9 billion (2.4 percent)
higher than the third quarter of 2003, primarily due to growth in
average retail loans of $3.5 billion (9.0 percent) and residential
mortgages of $2.3 billion (19.1 percent) year-over-year. Total
commercial loans declined by $2.7 billion (6.3 percent), while
total commercial real estate loans decreased by $203 million (.7
percent). While economic conditions have improved somewhat from a
year ago, excess liquidity and improving cash flows among corporate
borrowers have led to the overall decrease in total commercial
loans. Average loans for the third quarter of 2004 were higher than
the second quarter of 2004 by $1.7 billion (1.4 percent), primarily
reflecting growth in retail loans and residential mortgages.
Average investment securities in the third quarter of 2004 were
$4.7 billion (12.5 percent) higher than in the third quarter of
2003, reflecting the reinvestment of proceeds from declining
commercial loan balances and loans held for sale. Investment
securities at September 30, 2004, were $4.6 billion higher than at
September 30, 2003, but $631 million lower than the balance at June
30, 2004. During the third quarter of 2004, the Company acquired
principally floating and shorter-term fixed-rate securities and
sold fixed-rate mortgage-backed securities. AVERAGE DEPOSITS Table
5 ($ in millions) Percent Percent Change Change 3Q 2Q 3Q 3Q04 vs
3Q04 vs 2004 2004 2003 2Q04 3Q03 Noninterest-bearing deposits
$29,791 $30,607 $31,907 (2.7) (6.6) Interest-bearing deposits
Interest checking 20,413 20,739 20,148 (1.6) 1.3 Money market
accounts 31,854 34,242 33,980 (7.0) (6.3) Savings accounts 5,854
5,936 5,846 (1.4) 0.1 Savings products 58,121 60,917 59,974 (4.6)
(3.1) Time certificates of deposit less than $100,000 12,869 13,021
14,824 (1.2) (13.2) Time deposits greater than $100,000 14,535
12,571 11,251 15.6 29.2 Total interest- bearing deposits 85,525
86,509 86,049 (1.1) (0.6) Total deposits $115,316 $117,116 $117,956
(1.5) (2.2) YTD YTD Percent 2004 2003 Change Noninterest-bearing
deposits $29,807 $32,412 (8.0) Interest-bearing deposits Interest
checking 20,699 18,601 11.3 Money market accounts 33,492 31,285 7.1
Savings accounts 5,896 5,579 5.7 Savings products 60,087 55,465 8.3
Time certificates of deposit less than $100,000 13,168 15,936
(17.4) Time deposits greater than $100,000 13,085 12,836 1.9 Total
interest-bearing deposits 86,340 84,237 2.5 Total deposits $116,147
$116,649 (0.4) Average noninterest-bearing deposits for the third
quarter of 2004 were lower than the third quarter of 2003 by $2.1
billion (6.6 percent). Average branch-based noninterest-bearing
deposits for the third quarter of 2004, however, increased by $589
million (4.9 percent) over the same quarter of 2003, as net new
checking account growth continued to gain momentum. This growth was
more than offset, by reductions in average noninterest-bearing
deposits in other areas, including national corporate banking,
wholesale mortgage banking and government banking, as well as in
mortgage-related escrow balances. Average total savings products
declined year-over-year by $1.9 billion (3.1 percent). Average
branch-based savings products deposits, which include interest
checking, money market accounts and savings accounts, however,
increased by $789 million (1.9 percent) over the same quarter of
2003. This positive variance in branch-based savings products
deposits was more than offset by reductions in other areas,
including a $2.8 billion reduction in government-related deposits.
Average noninterest-bearing deposits for the third quarter of 2004
were $816 million (2.7 percent) lower than the second quarter of
2004. Average branch-based noninterest-bearing deposits, however,
increased by $206 million (1.6 percent) quarter-over-quarter. This
growth was more than offset by lower government banking deposits
associated with the timing of tax filings, seasonally lower
corporate trust deposits and a decline in mortgage banking-related
deposits. Average interest-bearing deposits were also lower than
the second quarter of 2004 (1.1 percent), primarily due to
decreases in savings products, primarily driven by lower government
banking deposits, as well as lower time certificates of deposit
less than $100,000. These unfavorable variances were partially
offset by an increase in time deposits greater than $100,000.
Noninterest-bearing deposits at September 30, 2004, were lower than
at September 30, 2003, by $856 million (2.6 percent) and $1.2
billion (3.7 percent) lower than at June 30, 2004. NONINTEREST
INCOME Table 6 ($ in millions) Percent Percent Change Change 3Q 2Q
3Q 3Q04 vs 3Q04 vs 2004 2004 2003 2Q04 3Q03 Credit and debit card
revenue $164.3 $158.8 $137.6 3.5 19.4 Corporate payment products
revenue 108.5 102.7 95.7 5.6 13.4 ATM processing services 45.2 44.9
41.3 0.7 9.4 Merchant processing services 187.5 165.1 146.3 13.6
28.2 Trust and investment management fees 240.2 251.7 239.8 (4.6)
0.2 Deposit service charges 207.4 202.1 187.0 2.6 10.9 Treasury
management fees 117.9 121.5 126.2 (3.0) (6.6) Commercial products
revenue 106.7 107.4 97.8 (0.7) 9.1 Mortgage banking revenue 97.2
109.9 89.5 (11.6) 8.6 Investment products fees and commissions 37.1
42.2 35.5 (12.1) 4.5 Securities gains (losses), net 87.3 (171.7)
(108.9) nm nm Other 124.7 107.1 89.6 16.4 39.2 Total noninterest
income $1,524.0 $1,241.7 $1,177.4 22.7 29.4 YTD YTD Percent 2004
2003 Change Credit and debit card revenue $464.9 $407.3 14.1
Corporate payment products revenue 306.0 272.6 12.3 ATM processing
services 132.3 125.6 5.3 Merchant processing services 493.7 415.4
18.8 Trust and investment management fees 740.5 707.3 4.7 Deposit
service charges 594.7 529.2 12.4 Treasury management fees 356.9
350.0 2.0 Commercial products revenue 324.5 302.0 7.5 Mortgage
banking revenue 301.3 275.2 9.5 Investment products fees and
commissions 118.6 108.7 9.1 Securities gains (losses), net (84.4)
244.9 nm Other 335.0 278.2 20.4 Total noninterest income $4,084.0
$4,016.4 1.7 Noninterest Income Third quarter noninterest income
was $1,524.0 million, an increase of $346.6 million (29.4 percent)
from the same quarter of 2003, and a $282.3 million (22.7 percent)
increase over the second quarter of 2004. The increase in
noninterest income over the third quarter of 2003 was driven by a
net increase in gains (losses) on the sale of securities of $196.2
million, as well as favorable variances in the majority of fee
income categories. Credit and debit card revenue and corporate
payment products revenue were higher in the third quarter of 2004
than the third quarter of 2003 by $26.7 million (19.4 percent) and
$12.8 million (13.4 percent), respectively. Although credit and
debit card revenue grew year-over-year, the growth was somewhat
muted due to the impact of the settlement of the antitrust
litigation brought against VISA USA and Mastercard by Wal-Mart
Stores, Inc., Sears Roebuck & Co. and other retailers, which
lowered the interchange rate on signature debit transactions
beginning in August 2003. The year-over-year impact of the VISA
settlement on credit and debit card revenue was approximately $7.8
million. This change in the interchange rate, in addition to higher
customer loyalty rewards expenses, however, were more than offset
by growth in transaction volumes and other rate changes. The
corporate payment products revenue growth reflected growth in
sales, card usage and rate changes. ATM processing services revenue
was higher by $3.9 million (9.4 percent) in the third quarter of
2004 than the same quarter of the prior year due to increases in
transaction volumes and sales. Merchant processing services revenue
was higher in the third quarter of 2004 than the same quarter of
2003 by $41.2 million (28.2 percent), reflecting an increase in
transaction volume, higher merchant and equipment fees and the
recent expansion of the Company's merchant acquiring business in
Europe. The recent European acquisitions accounted for
approximately $26 million of the total increase. Deposit service
charges were higher year-over-year by $20.4 million (10.9 percent)
due to account growth, revenue enhancement initiatives and
transaction-related fees. Commercial products revenue increased by
$8.9 million (9.1 percent) over the third quarter of 2003,
primarily due to leasing revenue. The favorable variance
year-over-year in mortgage banking revenue of $7.7 million (8.6
percent) was primarily due to higher loan servicing revenue. The
$1.6 million (4.5 percent) increase in investment products fees and
commissions reflected higher sales activity in the Consumer Banking
business line. Other income was higher year-over-year by $35.1
million (39.2 percent), primarily due to a residual value insurance
recovery during the third quarter of 2004 and a favorable change in
retail lease residual gains (losses) relative to the same quarter
of 2003. Partially offsetting these positive variances were
treasury management fees, which declined by $8.3 million (6.6
percent) in the third quarter of 2004 from the same period of 2003.
The decrease in treasury management fees year-over-year was
primarily due to higher fees received during the third quarter of
2003 specifically related to the change in the Federal government's
payment methodology for treasury management services from
compensating balances, reflected in net interest income, to fees.
Noninterest income was higher in the third quarter of 2004 than the
second quarter of 2004 by $282.3 million (22.7 percent), primarily
due to a net increase in gains (losses) on the sale of securities
of $259.0 million. Credit and debit card revenue, corporate payment
products revenue and ATM processing services increased
quarter-over-quarter by $5.5 million (3.5 percent), $5.8 million
(5.6 percent) and $.3 million (.7 percent), respectively, driven by
seasonally higher transaction volumes and sales. Merchant
processing services revenue rose by $22.4 million (13.6 percent)
over the second quarter of 2004 due to the expansion of the
European merchant acquiring business, in addition to seasonality
and higher same store sales. Deposit service charges were higher in
the third quarter by $5.3 million (2.6 percent) than the second
quarter, primarily due to an increase in transaction-related fees.
Other income was $17.6 million (16.4 percent) higher
quarter-over-quarter, reflecting a residual value insurance
recovery during the third quarter. Trust and investment management
fees were lower in the third quarter of 2004 than the second
quarter of 2004 by $11.5 million (4.6 percent) partially due to the
seasonality of second quarter tax preparation fees. Treasury
management fees decreased by $3.6 million (3.0 percent)
quarter-over-quarter, primarily due to lower federal tax receipts
processing relative to the second quarter. Mortgage banking revenue
was lower in the third quarter of 2004 than the second quarter of
2004 by $12.7 million (11.6 percent), primarily due to lower
origination and sales revenue, partially offset by an increase in
loan servicing revenue. Investment products fees and commissions
declined by $5.1 million (12.1 percent) due to seasonally lower
sales. NONINTEREST EXPENSE Table 7 ($ in millions) Percent Percent
Change Change 3Q 2Q 3Q 3Q04 vs 3Q04 vs 2004 2004 2003 2Q04 3Q03
Compensation $564.6 $572.6 $543.8 (1.4) 3.8 Employee benefits 100.0
91.2 75.8 9.6 31.9 Net occupancy and equipment 159.2 153.4 161.3
3.8 (1.3) Professional services 37.2 34.7 39.9 7.2 (6.8) Marketing
and business development 60.6 48.7 48.6 24.4 24.7 Technology and
communications 109.8 102.4 102.1 7.2 7.5 Postage, printing and
supplies 61.4 60.5 61.6 1.5 (0.3) Other intangibles 210.2 (47.6)
10.8 nm nm Merger and restructuring- related charges -- -- 10.2 nm
nm Other 216.0 216.7 199.2 (0.3) 8.4 Total noninterest expense
$1,519.0 $1,232.6 $1,253.3 23.2 21.2 YTD YTD Percent 2004 2003
Change Compensation $1,673.0 $1,637.4 2.2 Employee benefits 291.4
247.1 17.9 Net occupancy and equipment 468.3 482.1 (2.9)
Professional services 104.3 99.2 5.1 Marketing and business
development 144.6 129.5 11.7 Technology and communications 313.9
311.1 0.9 Postage, printing and supplies 183.5 183.8 (0.2) Other
intangibles 388.7 558.2 (30.4) Merger and restructuring- related
charges -- 38.6 nm Other 638.8 567.5 12.6 Total noninterest expense
$4,206.5 $4,254.5 (1.1) Noninterest Expense Third quarter
noninterest expense totaled $1,519.0 million, an increase of $265.7
million (21.2 percent) from the same quarter of 2003 and a $286.4
million (23.2 percent) increase over the second quarter of 2004.
The increase in expense year-over-year was primarily driven by the
unfavorable change in MSR intangible valuations of $195.2 million
and operating expenses related to the expansion of the Company's
merchant acquiring business in Europe. The expense growth also
reflected increases in compensation, employee benefits, marketing
and business development, and technology and communications and
certain business integration costs. Compensation expense was higher
year-over-year due to an increase in salaries and performance-based
incentives from a year ago. Employee benefits increased
year-over-year by $24.2 million (31.9 percent), primarily as a
result of a $14.7 million increase in pension expense and higher
payroll taxes. Marketing and business development expense was
higher by $12.0 million (24.7 percent), reflecting the increase and
timing of marketing campaigns, while technology and communications
expense rose by $7.7 million (7.5 percent), primarily due to
outsourcing certain institutional trust participant record-keeping
functions and capital expenditures for imaging and other electronic
payments initiatives. Noninterest expense in the third quarter of
2004 was higher than the second quarter of 2004 by $286.4 million
(23.2 percent). The increase in noninterest expense over the second
quarter of 2004 was primarily due to changes in MSR intangible
valuations of $257.8 million, as well as increases in employee
benefits, net occupancy and equipment, professional services,
marketing and business development, technology and communications,
and postage, printing and supplies. Employee benefit costs
primarily reflect higher pension expense. Net occupancy and
equipment costs reflect changes in rental costs, utilities and
maintenance costs. Changes in marketing and business development
reflect the timing of brand advertising programs and marketing
campaigns while technology costs reflect capital investments and
higher network costs. Other expense, excluding the impact of the
expanded European merchant acquiring business, was slightly lower
in the third quarter of 2004, primarily due to charge-back expense
associated with the Company's airline merchant portfolio that was
recorded in the second quarter of 2004. ALLOWANCE FOR CREDIT LOSSES
Table 8 ($ in millions) 3Q 2Q 1Q 4Q 3Q 2004 2004 2004 2003 2003
Balance, beginning of period $2,369.7 $2,369.7 $2,368.6 $2,367.7
$2,367.6 Net charge-offs Commercial 2.7 35.7 53.6 100.9 123.9 Lease
financing 18.2 18.9 21.3 14.9 19.2 Total commercial 20.9 54.6 74.9
115.8 143.1 Commercial mortgages 2.7 1.8 4.6 10.0 5.9 Construction
and development 2.5 0.7 4.7 2.9 4.6 Total commercial real estate
5.2 2.5 9.3 12.9 10.5 Residential mortgages 6.7 7.3 7.3 7.2 7.3
Credit card 64.3 62.7 63.4 62.3 59.3 Retail leasing 9.6 9.8 11.0
11.3 12.2 Home equity and second mortgages 18.7 20.2 19.5 20.4 23.2
Other retail 39.7 47.4 48.5 55.2 54.3 Total retail 132.3 140.1
142.4 149.2 149.0 Total net charge-offs 165.1 204.5 233.9 285.1
309.9 Provision for credit losses 165.1 204.5 235.0 286.0 310.0
Balance, end of period $2,369.7 $2,369.7 $2,369.7 $2,368.6 $2,367.7
Components Allowance for loan losses $2,184.0 $2,189.7 $2,185.6
$2,183.6 $2,184.0 Liability for unfunded credit commitments* 185.7
180.0 184.1 185.0 183.7 Total allowance for credit losses $2,369.7
$2,369.7 $2,369.7 $2,368.6 $2,367.7 Gross charge-offs $259.5 $274.3
$304.8 $352.3 $373.6 Gross recoveries $94.4 $69.8 $70.9 $67.2 $63.7
Net charge-offs to average loans (%) 0.53 0.68 0.79 0.95 1.02
Allowance as a percentage of: Period-end loans 1.90 1.93 1.98 2.00
1.98 Nonperforming loans 337 299 258 232 202 Nonperforming assets
295 260 226 206 180 * During the first quarter of 2004, the Company
reclassified the portion of its allowance for credit losses related
to commercial off-balance sheet loan commitments and letters of
credit to a separate liability account. Amounts for periods
presented in 2003, represent estimates. Credit Quality The
allowance for credit losses was $2,369.7 million at September 30,
2004, equal to the allowance for credit losses at June 30, 2004,
and essentially equal to the allowance for credit losses of
$2,367.7 million at September 30, 2003. The ratio of the allowance
for credit losses to period-end loans was 1.90 percent at September
30, 2004, compared with 1.93 percent at June 30, 2004, and 1.98
percent at September 30, 2003. The ratio of the allowance for
credit losses to nonperforming loans was 337 percent at September
30, 2004, compared with 299 percent at June 30, 2004, and 202
percent at September 30, 2003. Total net charge-offs in the third
quarter of 2004 were $165.1 million, compared with the second
quarter of 2004 net charge-offs of $204.5 million and the third
quarter of 2003 net charge-offs of $309.9 million. Commercial and
commercial real estate loan net charge-offs were $26.1 million for
the third quarter of 2004, or .16 percent of average loans
outstanding, compared with $57.1 million, or .35 percent of average
loans outstanding, in the second quarter of 2004 and $153.6
million, or .88 percent of average loans outstanding, in the third
quarter of 2003. The decline in net charge-offs continues to be
broad-based across most industries within the commercial loan
portfolio and was favorably influenced by higher levels of
commercial loan recoveries in the third quarter of 2004. Commercial
loan recoveries are expected to return to more normal levels in
future periods. Retail loan net charge-offs of $132.3 million in
the third quarter of 2004 were $7.8 million (5.6 percent) lower
than the second quarter of 2004 and $16.7 million (11.2 percent)
lower than the third quarter of 2003. Retail loan net charge-offs
as a percent of average loans outstanding were 1.26 percent in the
third quarter of 2004, compared with 1.39 percent and 1.54 percent
in the second quarter of 2004 and third quarter of 2003,
respectively. Lower levels of retail loan net charge-offs
principally reflected the Company's improvement in ongoing
collection efforts and risk management. CREDIT RATIOS Table 9
(Percent) 3Q 2Q 1Q 4Q 3Q 2004 2004 2004 2003 2003 Net charge-offs
ratios* Commercial 0.03 0.42 0.64 1.14 1.33 Lease financing 1.49
1.57 1.75 1.19 1.52 Total commercial 0.21 0.56 0.78 1.15 1.35
Commercial mortgages 0.05 0.04 0.09 0.20 0.12 Construction and
development 0.14 0.04 0.29 0.16 0.25 Total commercial real estate
0.08 0.04 0.14 0.19 0.15 Residential mortgages 0.18 0.21 0.22 0.21
0.24 Credit card 4.16 4.21 4.34 4.33 4.20 Retail leasing 0.56 0.61
0.71 0.76 0.83 Home equity and second mortgages 0.52 0.59 0.59 0.62
0.70 Other retail 1.09 1.32 1.38 1.57 1.55 Total retail 1.26 1.39
1.45 1.53 1.54 Total net charge-offs 0.53 0.68 0.79 0.95 1.02
Delinquent loan ratios - 90 days or more past due excluding
nonperforming loans** Commercial 0.05 0.05 0.06 0.06 0.11
Commercial real estate 0.01 0.01 0.01 0.02 0.01 Residential
mortgages 0.46 0.50 0.56 0.61 0.63 Retail 0.47 0.48 0.54 0.56 0.57
Total loans 0.23 0.24 0.27 0.28 0.29 Delinquent loan ratios - 90
days or more past due including nonperforming loans** Commercial
1.14 1.37 1.67 1.97 2.31 Commercial real estate 0.75 0.76 0.85 0.82
0.75 Residential mortgages 0.77 0.79 0.87 0.91 0.98 Retail 0.51
0.52 0.59 0.62 0.63 Total loans 0.80 0.88 1.03 1.14 1.27 *
annualized and calculated on average loan balances ** ratios are
expressed as a percent of ending loan balances The overall level of
net charge-offs in the third quarter of 2004 reflected the
Company's ongoing efforts to reduce the overall risk profile of the
organization and the higher level of commercial loan recoveries
during the third quarter of 2004. Net charge-offs are expected to
increase modestly as commercial loan recoveries return to more
normal levels in future periods. ASSET QUALITY Table 10 ($ in
millions) Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 2004 2004 2004 2003
2003 Nonperforming loans Commercial $347.7 $415.7 $510.7 $623.5
$793.9 Lease financing 91.3 111.0 115.6 113.3 111.6 Total
commercial 439.0 526.7 626.3 736.8 905.5 Commercial mortgages 165.7
163.8 184.9 177.6 161.5 Construction and development 35.3 41.3 43.6
39.9 40.2 Commercial real estate 201.0 205.1 228.5 217.5 201.7
Residential mortgages 45.3 41.7 42.1 40.5 46.1 Retail 17.2 18.4
20.4 25.2 21.6 Total nonperforming loans 702.5 791.9 917.3 1,020.0
1,174.9 Other real estate 68.7 70.0 76.0 72.6 70.4 Other
nonperforming assets 33.4 49.0 53.3 55.5 73.0 Total nonperforming
assets* $804.6 $910.9 $1,046.6 $1,148.1 $1,318.3 Accruing loans 90
days or more past due $291.8 $293.2 $319.2 $329.4 $352.4
Nonperforming assets to loans plus ORE (%) 0.64 0.74 0.87 0.97 1.10
*does not include accruing loans 90 days or more past due
Nonperforming assets at September 30, 2004, totaled $804.6 million,
compared with $910.9 million at June 30, 2004, and $1,318.3 million
at September 30, 2003. The ratio of nonperforming assets to loans
and other real estate was .64 percent at September 30, 2004,
compared with .74 percent at June 30, 2004, and 1.10 percent at
September 30, 2003. While nonperforming assets are expected to
continue to decline slightly during the next few quarters, the
ongoing level of nonperforming assets is expected to stabilize at
those lower levels. CAPITAL POSITION Table 11 ($ in millions) Sep
30 Jun 30 Mar 31 Dec 31 Sep 30 2004 2004 2004 2003 2003 Total
shareholders' equity $19,600 $18,675 $19,452 $19,242 $19,771 Tier 1
capital 14,589 14,294 14,499 14,623 14,589 Total risk-based capital
21,428 21,255 21,559 21,710 21,859 Common equity to assets 10.2%
9.8% 10.1% 10.2% 10.5% Tangible common equity to assets 6.4 6.3 6.4
6.5 6.5 Tier 1 capital ratio 8.7 8.7 8.9 9.1 9.0 Total risk-based
capital ratio 12.7 12.9 13.3 13.6 13.5 Leverage ratio 7.9 7.8 8.0
8.0 8.0 Total shareholders' equity was $19.6 billion at September
30, 2004, compared with $19.8 billion at September 30, 2003. The
decrease was primarily the result of corporate earnings offset by
share buybacks and dividends, including the special dividend of
$685 million related to the December 31, 2003, spin-off of Piper
Jaffray Companies. Tangible common equity to assets was 6.4 percent
at September 30, 2004, compared with 6.3 percent at June 30, 2004,
and 6.5 percent at September 30, 2003. The Tier 1 capital ratio was
8.7 percent at September 30, 2004, and at June 30, 2004, compared
with 9.0 percent at September 30, 2003. The total risk-based
capital ratio was 12.7 percent at September 30, 2004, compared with
12.9 percent at June 30, 2004, and 13.5 percent at September 30,
2003. The leverage ratio was 7.9 percent at September 30, 2004,
compared with 7.8 percent at June 30, 2004, and 8.0 percent at
September 30, 2003. All regulatory ratios continue to be in excess
of stated "well capitalized" requirements. COMMON SHARES Table 12
(Millions) 3Q 2Q 1Q 4Q 3Q 2004 2004 2004 2003 2003 Beginning shares
outstanding 1,884.1 1,901.2 1,922.9 1,927.4 1,924.5 Shares issued
for stock option and stock purchase plans, acquisitions and other
corporate purposes 6.2 3.7 12.1 10.5 2.9 Shares repurchased (19.5)
(20.8) (33.8) (15.0) -- Ending shares outstanding 1,870.8 1,884.1
1,901.2 1,922.9 1,927.4 On December 16, 2003, the board of
directors of U.S. Bancorp approved an authorization to repurchase
150 million shares of outstanding common stock during the following
24 months. During the third quarter of 2004, the Company
repurchased 19.5 million shares of common stock. As of September
30, 2004, there were approximately 68 million shares remaining to
be repurchased under the current authorization. LINE OF BUSINESS
FINANCIAL PERFORMANCE* Table 13 ($ in millions) Operating
Earnings** Percent Change 3Q 2Q 3Q 3Q04 vs 3Q04 vs Business Line
2004 2004 2003 2Q04 3Q03 Wholesale Banking $278.0 $266.3 $213.2 4.4
30.4 Consumer Banking 409.5 388.5 355.2 5.4 15.3 Private Client,
Trust and Asset Management 110.8 109.4 99.3 1.3 11.6 Payment
Services 185.0 177.7 153.6 4.1 20.4 Treasury and Corporate Support
82.2 95.0 126.1 (13.5) (34.8) Consolidated Company $1,065.5
$1,036.9 $947.4 2.8 12.5 * preliminary data ** earnings before
merger and restructuring-related items and discontinued operations
3Q 2004 YTD YTD Percent Earnings Business Line 2004 2003 Change
Composition Wholesale Banking $795.1 $637.3 24.8 26% Consumer
Banking 1,073.1 999.3 7.4 39 Private Client, Trust and Asset
Management 330.0 284.7 15.9 10 Payment Services 524.5 432.5 21.3 17
Treasury and Corporate Support 388.1 411.4 (5.7) 8 Consolidated
Company $3,110.8 $2,765.2 12.5 100% * preliminary data ** earnings
before merger and restructuring-related items and discontinued
operations 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. These allocated expenses are
reported as net shared services expense. Designations, assignments
and allocations may change from time to time as management systems
are enhanced, methods of evaluating performance or product lines
change or business segments are realigned to better respond to our
diverse customer base. During 2004, 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 $278.0 million
of the Company's operating earnings in the third quarter of 2004, a
30.4 percent increase over the same period of 2003 and a 4.4
percent increase over the second quarter of 2004. The increase in
Wholesale Banking's third quarter 2004 contribution over the third
quarter of 2003 was primarily the result of favorable variances in
the provision for credit losses and total noninterest expense (6.7
percent), partially offset by a decrease in total net revenue (4.3
percent). The decline in total net revenue from the third quarter
of 2003 reflected unfavorable variances in both net interest income
(4.4 percent) and noninterest income (4.6 percent). The decrease in
net interest income was primarily due to a decline in average total
loans outstanding (6.5 percent) and average noninterest bearing
deposits (13.3 percent) and savings products (32.6 percent) due, in
part, to lower deposits associated with government banking and
mortgage banking activities. The decline in noninterest income was
primarily the result of unfavorable variances in treasury
management fees and commercial products revenue. Treasury
management fees were lower (9.1 percent) year-over-year due to a
reduction in fees from the Federal government relative to the same
quarter of 2003, while the unfavorable variance in commercial
products revenue (2.9 percent) was primarily due to lower capital
markets activity and other non-yield-related loan fees. Wholesale
Banking's favorable variance in total noninterest expense
year-over-year was primarily the result of a decline in net shared
services (9.0 percent), which is primarily driven by customer
transaction volume and account activities. The decrease in the
provision for credit losses year-over-year was the result of the
favorable change from net charge-offs of $104.4 million in the
third quarter of 2003 to net recoveries of $12.7 million in the
current quarter. The increase in Wholesale Banking's contribution
to operating earnings in the third quarter of 2004 over the second
quarter of 2004 was the net result of favorable variances in the
provision for credit losses and total noninterest expense (2.5
percent), partially offset by lower total net revenue (1.2
percent). Total net revenue was slightly lower on a linked quarter
basis, with essentially flat net interest income, but lower
noninterest income (3.8 percent). The unfavorable variance
quarter-over-quarter in noninterest income was primarily attributed
to lower treasury management fees, the result of lower Federal tax
receipt processing activity relative to the second quarter of 2004.
The decrease in noninterest expense was principally due to lower
net shared services and professional services expense. Net
recoveries for the third quarter of 2004 drove the favorable
variance in provision for credit losses over the prior quarter.
Consumer Banking delivers products and services to the broad
consumer market and small businesses through banking offices,
telemarketing, on-line services, direct mail and automated teller
machines ("ATMs"). It encompasses community banking, metropolitan
banking, branch ATM 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 $409.5 million of
the Company's operating earnings in the third quarter of 2004, a
15.3 percent increase over the same period of 2003 and a 5.4
percent increase over the second quarter of 2004. While the retail
banking business segment grew operating earnings by 26.2 percent
and 10.5 percent over the third quarter of 2003 and the second
quarter of 2004, respectively, the contribution of the mortgage
banking business declined from both of the previous reporting
periods. The decrease in the mortgage banking business's
contribution from the third quarter of 2003 was the net result of a
decline in net interest income and an increase in noninterest
expense, excluding the change in MSR valuation. The increase in
noninterest expense, excluding the change in MSR valuation, was
primarily due to an increase in other intangible amortization, the
result of the growing servicing portfolio. In the third quarter of
2004, as in the third quarter of 2003, net gains (losses) on
securities in the mortgage banking business line were offset by the
change in MSR valuation. The mortgage banking business line's
contribution declined in the third quarter of 2004 from the second
quarter of 2004, primarily due to lower net interest income and
noninterest income and higher operating expense. For the Consumer
Banking business, as a whole, the favorable variance in gains
(losses) on the sale of securities was offset with the unfavorable
variance in MSR valuation year-over-year. Excluding net gains
(losses) on the sale of securities, total net revenue was higher
than the same quarter of the 2003 by 5.2 percent, primarily due to
an increase in noninterest income (18.0 percent). Consumer
Banking's results also benefited from a reduction in the provision
for credit losses (16.5 percent), while total noninterest expense,
excluding the change in MSR valuations, was essentially flat from
the third quarter of 2003. Net interest income was slightly lower
year-over-year (.3 percent), the result of increases in average
loans outstanding (8.7 percent), offset by declines in the average
balance of loans held for sale and in the business line's net
interest margin. Noninterest income improved in the third quarter
of 2004 over the same period of 2003, primarily due to growth in
deposit service charges (11.1 percent), commercial products revenue
(45.7 percent), mortgage banking revenue (7.7 percent), investment
products fees and commissions (4.0 percent) and other revenue.
Other revenue was higher due to a residual value insurance recovery
during the third quarter of 2004 and a favorable change in lease
residual gains (losses). Total noninterest expense, excluding the
change in MSR valuation, in the third quarter of 2004 was
essentially flat to the third quarter of 2003, with higher
compensation and employee benefits (2.1 percent), net occupancy and
equipment (1.3 percent), and other intangibles (9.7 percent),
offset by lower net shared services (7.9 percent) and other expense
(1.6 percent). A 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
third quarter of 2004 over the second quarter of 2004 was primarily
the result of favorable variances in total net revenue, excluding
net gains (losses) on the sale of securities (2.1 percent), and a
reduction in the provision for credit losses (5.7 percent).
Offsetting these favorable variances was slightly higher
noninterest expense, excluding the change in MSR valuation (.2
percent). The growth in noninterest income, excluding net gains
(losses) on the sale of securities, quarter-over-quarter was driven
by deposit service charges (2.7 percent), treasury management fees
(5.0 percent) and other revenue (26.7 percent). The unfavorable
variance in noninterest expense, excluding the change in MSR
valuation, quarter-over-quarter was primarily the result of
slightly higher compensation and employee benefits and other
expense. Private Client, Trust and Asset Management provides trust,
private banking, financial advisory, investment management and
mutual fund and alternative investment product services through
five businesses: Private Client Group, Corporate Trust, Asset
Management, Institutional Trust and Custody, and Fund Services,
LLC. Private Client, Trust and Asset Management contributed $110.8
million of the Company's operating earnings in the third quarter of
2004, 11.6 percent higher than the same period of 2003 and 1.3
percent higher than the second quarter of 2004. The favorable
variance in the business line's contribution in the third quarter
of 2004 over the third quarter of 2003 was the result of favorable
variances in net interest income (18.8 percent), total noninterest
expense (1.7 percent) and the provision for credit losses. Higher
average loans outstanding (3.8 percent) and average total deposits
(14.5 percent) favorably impacted net interest income
year-over-year. Noninterest income was slightly lower than the same
quarter of 2003 (.7 percent). The increase in the business line's
contribution (1.3 percent) in the third quarter of 2004 over the
second quarter of 2004 was primarily the result of slightly lower
total noninterest expense (.9 percent) and a favorable variance in
the provision for credit losses, offset by lower total net revenue
(2.0 percent). Although net interest income rose (7.8 percent)
quarter-over-quarter, noninterest income fell by 5.4 percent from
the second quarter of 2004 to the third quarter of 2004. The
increase in net interest income was primarily driven by an increase
in average loans outstanding (1.3 percent), while noninterest
income declined partially due to seasonally lower tax preparation
fees relative to the second quarter of 2004. 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
$185.0 million of the Company's operating earnings in the third
quarter of 2004, a 20.4 percent increase over the same period of
2003, and a 4.1 percent increase over the second quarter of 2004.
The increase in Payment Services' contribution in the third quarter
of 2004 over the same period of 2003 was the result of higher total
net revenue (13.6 percent) and a lower provision for credit losses
(8.9 percent), partially offset by an increase in total noninterest
expense (16.0 percent). The increase in total net revenue
year-over-year was primarily due to growth in noninterest income
(21.2 percent), partially offset by lower net interest income (7.4
percent), which primarily reflected higher corporate card rebates
and a reduction in late fees relative to the prior year's quarter.
The increase in noninterest income was principally the result of
growth in credit and debit card revenue (19.4 percent), corporate
payment products revenue (13.4 percent), ATM processing service
revenue (13.5 percent) and merchant processing services revenue
(28.2 percent). Although credit and debit card revenue was
negatively impacted in the third quarter of 2004 by the VISA debit
card settlement and higher customer loyalty rewards expense,
increases in transaction volumes and other rate changes more than
offset these detrimental changes. The increase in merchant
processing revenue included approximately $26 million associated
with the expansion of the Company's merchant acquiring business in
Europe. 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 approximately $23
million associated with the European merchant acquiring business.
The increase in Payment Services' contribution in the third quarter
of 2004 over the second quarter of 2004 was primarily due to
seasonally strong total net revenue (4.8 percent) and lower
provision for credit losses (5.5 percent), offset by an increase in
total noninterest expense (9.7 percent), the result of the increase
in processing-related expense and the expansion of the merchant
acquiring business in Europe. 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 expenses associated with
business activities managed on a corporate basis, including
enterprise-wide operations and administrative support functions.
Operational expenses incurred by Treasury and Corporate Support on
behalf of the other business lines are allocated back primarily
based on customer transaction volume and account activities to the
appropriate business unit and are identified as net shared services
expense. Treasury and Corporate Support recorded operating earnings
of $82.2 million in the third quarter of 2004, compared with
operating earnings of $126.1 million in the third quarter of 2003
and $95.0 million in the second quarter of 2004. The decrease in
operating earnings in the current quarter from the third quarter of
2003 was largely due to lower total net revenue (7.5 percent) and
higher total noninterest expense (39.6 percent). Lower total net
revenue reflected the Company's asset/liability management
decisions to invest in lower-yield floating-rate securities,
higher-cost fixed funding and repositioning of the balance sheet
for changes in the interest rate environment. The increase in total
noninterest expense year-over-year reflected higher compensation
and employee benefits, specifically performance-based incentives
and pension expense, as well as an unfavorable variance in net
shared services. The unfavorable variance in operating earnings in
the third quarter of 2004 from the second quarter of 2004 was the
result of lower total net revenue (5.8 percent) and higher total
noninterest expense (5.0 percent). Total net revenue declined
quarter-over-quarter, primarily due to the continuing
asset/liability management decisions of the Company, while the
increase in noninterest expense reflected higher net occupancy and
equipment costs and other expense. Additional schedules containing
more detailed information about the Company's business line results
are available on the web at http://usbank.com/ or by calling
Investor Relations at 612-303-0781. CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, JERRY A. GRUNDHOFER, AND VICE CHAIRMAN AND CHIEF
FINANCIAL OFFICER, DAVID M. MOFFETT, WILL HOST A CONFERENCE CALL TO
REVIEW THE FINANCIAL RESULTS ON TUESDAY, October 19, 2004, AT 1:00
p.m. (CDT). To access the conference call, please dial 800-223-9488
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, October 19, 2004, and will run
through Tuesday, October 26, 2004, at 11:00 p.m. (CDT). To access
the recorded message dial 888-276-5316. If calling from outside the
United States, please dial 402-220-2333. After October 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 $193 billion in assets, is the 6th largest
financial services holding company in the United States. The
company operates 2,346 banking offices and 4,621 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 http://usbank.com/ .
Forward-Looking Statements This press release contains
forward-looking statements. Statements that are not historical or
current facts, including statements about beliefs and expectations,
are forward-looking statements. These statements often include the
words "may," "could," "would," "should," "believes," "expects,"
"anticipates," "estimates," "intends," "plans," "targets,"
"potentially," "probably," "projects," "outlook" or similar
expressions. These forward-looking statements cover, among other
things, anticipated future revenue and expenses and the future
prospects of the Company. Forward-looking statements involve
inherent risks and uncertainties, and important factors could cause
actual results to differ materially from those anticipated,
including the following, in addition to those contained in the
Company's reports on file with the SEC: (i) general economic or
industry conditions could be less favorable than expected,
resulting in a deterioration in credit quality, a change in the
allowance for credit losses, or a reduced demand for credit or
fee-based products and services; (ii) changes in the domestic
interest rate environment could reduce net interest income and
could increase credit losses; (iii) inflation, changes in
securities market conditions and monetary fluctuations could
adversely affect the value or credit quality of the Company's
assets, or the availability and terms of funding necessary to meet
the Company's liquidity needs; (iv) changes in the extensive laws,
regulations and policies governing financial services companies
could alter the Company's business environment or affect
operations; (v) the potential need to adapt to industry changes in
information technology systems, on which the Company is highly
dependent, could present operational issues or require significant
capital spending; (vi) competitive pressures could intensify and
affect the Company's profitability, including as a result of
continued industry consolidation, the increased availability of
financial services from non-banks, technological developments, or
bank regulatory reform; (vii) changes in consumer spending and
savings habits could adversely affect the Company's results of
operations; (viii) changes in the financial performance and
condition of the Company's borrowers could negatively affect
repayment of such borrowers' loans; (ix) acquisitions may not
produce revenue enhancements or cost savings at levels or within
time frames originally anticipated, or may result in unforeseen
integration difficulties; (x) capital investments in the Company's
businesses may not produce expected growth in earnings anticipated
at the time of the expenditure; and (xi) acts or threats of
terrorism, and/or political and military actions taken by the U.S.
or other governments in response to acts or threats of terrorism or
otherwise could adversely affect general economic or industry
conditions. Forward-looking statements speak only as of the date
they are made, and the Company undertakes no obligation to update
them in light of new information or future events. U.S. Bancorp
Consolidated Statement of Income (Dollars and Shares in Millions,
Three Months Ended Nine Months Ended Except Per Share Data)
September 30, September 30, (Unaudited) 2004 2003 2004 2003
Interest Income Loans $1,802.8 $1,818.3 $5,289.8 $5,476.0 Loans
held for sale 21.1 59.5 68.3 170.9 Investment securities Taxable
448.8 403.6 1,351.5 1,222.1 Non-taxable 4.4 6.7 14.4 23.1 Other
interest income 25.7 23.2 73.1 78.2 Total interest income 2,302.8
2,311.3 6,797.1 6,970.3 Interest Expense Deposits 221.4 256.4 653.7
851.5 Short-term borrowings 74.5 44.9 183.3 123.3 Long-term debt
205.3 167.9 566.0 536.2 Junior subordinated debentures 27.0 23.6
75.3 79.5 Total interest expense 528.2 492.8 1,478.3 1,590.5 Net
interest income 1,774.6 1,818.5 5,318.8 5,379.8 Provision for
credit losses 165.1 310.0 604.6 968.0 Net interest income after
provision for credit losses 1,609.5 1,508.5 4,714.2 4,411.8
Noninterest Income Credit and debit card revenue 164.3 137.6 464.9
407.3 Corporate payment products revenue 108.5 95.7 306.0 272.6 ATM
processing services 45.2 41.3 132.3 125.6 Merchant processing
services 187.5 146.3 493.7 415.4 Trust and investment management
fees 240.2 239.8 740.5 707.3 Deposit service charges 207.4 187.0
594.7 529.2 Treasury management fees 117.9 126.2 356.9 350.0
Commercial products revenue 106.7 97.8 324.5 302.0 Mortgage banking
revenue 97.2 89.5 301.3 275.2 Investment products fees and
commissions 37.1 35.5 118.6 108.7 Securities gains (losses), net
87.3 (108.9) (84.4) 244.9 Other 124.7 89.6 335.0 278.2 Total
noninterest income 1,524.0 1,177.4 4,084.0 4,016.4 Noninterest
Expense Compensation 564.6 543.8 1,673.0 1,637.4 Employee benefits
100.0 75.8 291.4 247.1 Net occupancy and equipment 159.2 161.3
468.3 482.1 Professional services 37.2 39.9 104.3 99.2 Marketing
and business development 60.6 48.6 144.6 129.5 Technology and
communications 109.8 102.1 313.9 311.1 Postage, printing and
supplies 61.4 61.6 183.5 183.8 Other intangibles 210.2 10.8 388.7
558.2 Merger and restructuring-related charges -- 10.2 -- 38.6
Other 216.0 199.2 638.8 567.5 Total noninterest expense 1,519.0
1,253.3 4,206.5 4,254.5 Income from continuing operations before
income taxes 1,614.5 1,432.6 4,591.7 4,173.7 Applicable income
taxes 549.0 491.9 1,480.9 1,433.9 Income from continuing operations
1,065.5 940.7 3,110.8 2,739.8 Income from discontinued operations
(after-tax) -- 10.2 -- 15.8 Net income $1,065.5 $950.9 $3,110.8
$2,755.6 Earnings Per Share Income from continuing operations $.57
$.49 $1.64 $1.43 Discontinued operations -- -- -- -- Net income
$.57 $.49 $1.64 $1.43 Diluted Earnings Per Share Income from
continuing operations $.56 $.48 $1.62 $1.42 Discontinued operations
-- .01 -- .01 Net income $.56 $.49 $1.62 $1.43 Dividends declared
per share $.240 $.205 $.720 $.615 Average common shares outstanding
1,877.0 1,926.0 1,894.6 1,922.4 Average diluted common shares
outstanding 1,903.7 1,939.8 1,919.4 1,932.4 U.S. Bancorp
Consolidated Ending Balance Sheet September December September 30,
31, 30, (Dollars in Millions) 2004 2003 2003 Assets (Unaudited)
(Unaudited) Cash and due from banks $6,969 $8,630 $9,187 Investment
securities Held-to-maturity 120 152 180 Available-for-sale 39,534
43,182 34,835 Loans held for sale 1,372 1,433 3,640 Loans
Commercial 40,151 38,526 41,170 Commercial real estate 27,414
27,242 27,242 Residential mortgages 14,741 13,457 12,976 Retail
42,520 39,010 38,494 Total loans 124,826 118,235 119,882 Less
allowance for loan losses (2,184) (2,184) (2,184) Net loans 122,642
116,051 117,698 Premises and equipment 1,894 1,957 2,028 Customers'
liability on acceptances 146 121 143 Goodwill 6,226 6,025 6,329
Other intangible assets 2,419 2,124 2,138 Other assets 11,522 9,796
12,841 Total assets $192,844 $189,471 $189,019 Liabilities and
Shareholders' Equity Deposits Noninterest-bearing $31,585 $32,470
$32,441 Interest-bearing 70,011 74,749 74,419 Time deposits greater
than $100,000 13,971 11,833 8,183 Total deposits 115,567 119,052
115,043 Short-term borrowings 12,648 10,850 12,864 Long-term debt
35,328 31,215 31,603 Junior subordinated debentures 2,676 2,601
2,605 Acceptances outstanding 146 121 143 Other liabilities 6,879
6,390 6,990 Total liabilities 173,244 170,229 169,248 Shareholders'
equity Common stock 20 20 20 Capital surplus 5,868 5,851 5,853
Retained earnings 16,260 14,508 14,677 Less treasury stock (2,710)
(1,205) (1,031) Other comprehensive income 162 68 252 Total
shareholders' equity 19,600 19,242 19,771 Total liabilities and
shareholders' equity $192,844 $189,471 $189,019 DATASOURCE: U.S.
Bancorp CONTACT: Media Relations, Steve Dale, +1-612-303-0784, or
Investor Relations, H.D. McCullough, +1-612-303-0786, or Judith T.
Murphy, +1-612-303-0783, all of U.S. Bancorp Web site:
http://www.usbank.com/ Company News On-Call:
http://www.prnewswire.com/comp/312402.html
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