U.S. Bancorp Reports Record 2004 Net Income of $4.2 Billion Annual
Earnings Per Share Grow 13 Percent MINNEAPOLIS, Jan. 18
/PRNewswire-FirstCall/ -- U.S. Bancorp (NYSE:USB) today reported
net income of $1,056.0 million for the fourth quarter of 2004,
compared with $977.0 million for the fourth quarter of 2003. Net
income of $.56 per diluted share in the fourth quarter of 2004 was
higher than the same period of 2003 by $.06 (12.0 percent). Return
on average assets and return on average equity were 2.16 percent
and 21.2 percent, respectively, for the fourth quarter of 2004,
compared with returns of 2.05 percent and 19.4 percent,
respectively, for the fourth quarter of 2003. U.S. Bancorp Chairman
and Chief Executive Officer Jerry A. Grundhofer said, "Our
accomplishments in 2004 demonstrate the strength and potential of
U.S. Bancorp. We achieved record earnings of $4.2 billion, a 13
percent increase in earnings per share, while posting
industry-leading returns on assets and equity of 2.17 percent and
21.4 percent, respectively. We exceeded the commitment that we made
in late-2003 and returned 109 percent of earnings to our
shareholders in 2004 in the form of dividends and share
repurchases. This past December, we announced a 25 percent increase
in our quarterly dividend, authorized a 150 million share
repurchase program and reaffirmed our goal of returning 80 percent
of earnings to our shareholders. "Fee revenue, excluding the impact
of securities gains and (losses), continued to show strong growth,
with the fourth quarter of 2004 increasing 12.3 percent over the
fourth quarter of 2003. Reflecting our commitment to invest for
top-line growth, our Payment Services and Consumer Banking business
units led the way, with increases in fee revenue of 19.5 percent
and 17.1 percent, respectively. "Commercial loan balances also
displayed encouraging trends in the fourth quarter, as we reported
our first year-over-year growth in quarterly average balances since
the second quarter of 2001. Compared with the third quarter of
2004, average commercial loans grew at an annualized rate of 9.0
percent. Retail loans continued to display strong growth, with
average fourth quarter balances increasing 10.7 percent over the
fourth quarter of 2003. "Looking ahead, we will continue to
leverage our great franchise by making strategic investments to
drive revenue growth, expanding relationship with existing
customers and improving service quality. "Finally, I want to thank
all of our employees for their energy and commitment in making 2004
a year of great accomplishments." The Company's results for the
fourth quarter of 2004 improved over the same period of 2003, as
net income rose by $79.0 million (8.1 percent), primarily due to
lower credit costs and growth in fee-based products and services.
Also, several notable items impacted quarterly results. The current
quarter included a release of the allowance for credit losses of
$98.5 million, reflecting continued improvement in the Company's
credit quality and economic conditions. Also, the effective income
tax rate was lower, reflecting a $16.3 million reduction in tax
liabilities related to the resolution of a state tax examination.
During the fourth quarter of 2004, the Company recognized a $31.9
million impairment of its mortgage servicing rights' ("MSR") asset,
as the yield on both 10-year Treasury Notes and 30-year Fannie Mae
commitments declined approximately seven to nine basis points. In
addition, the Company repositioned certain investment securities to
retain its economic hedge of the MSR portfolio, resulting in net
securities losses of $20.5 million. Finally, the Company incurred a
$112.3 million charge after electing to prepay $2.3 billion of
borrowings from the Federal Home Loan Bank ("FHLB"). While the
Company's overall interest rate risk position remains neutral
relative to the prior quarter, this action reduces the risks
associated with refinancing these FHLB borrowings. Total net
revenue on a taxable-equivalent basis for the fourth quarter of
2004 was $121.7 million (3.9 percent) higher than the fourth
quarter of 2003, primarily reflecting growth in the majority of
fee-based revenue categories, particularly in payment processing
revenue. 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 several European merchant acquiring
businesses, accounted for approximately $24.2 million of the
favorable variance in total net revenue year-over-year. Fee-based
revenue growth was offset somewhat by the unfavorable variances in
securities gains (losses) and net interest income. Total
noninterest expense in the fourth quarter of 2004 was $235.6
million (17.6 percent) higher than the fourth quarter of 2003,
primarily reflecting the $112.3 million charge related to the
prepayment of the Company's long-term debt and the $31.9 million
unfavorable change in the valuation of mortgage servicing rights.
The expansion of the Company's merchant acquiring business in
Europe accounted for approximately $24.2 million of the increase,
while higher compensation, employee benefits, technology and
communications, postage, printing and supplies, and operating costs
associated with investments in affordable housing also contributed
to the increase year-over- year. Provision for credit losses for
the fourth quarter of 2004 was $65.0 million, a decrease of $221.0
million (77.3 percent) from the fourth quarter of 2003. The
decrease in the provision for credit losses year-over-year
reflected both the release of the allowance for credit losses of
$98.5 million and a decrease in total net charge-offs. Net
charge-offs in the fourth quarter of 2004 were $163.6 million,
compared with the third quarter of 2004 net charge-offs of $165.1
million and the fourth quarter of 2003 net charge-offs of $285.1
million. The decline in losses from a year ago was primarily the
result of declining levels of stressed and nonperforming loans,
continuing collection efforts and improving economic conditions.
Total nonperforming assets declined to $748.4 million at December
31, 2004, from $804.6 million at September 30, 2004 (7.0 percent),
and $1,148.1 million at December 31, 2003 (34.8 percent). The ratio
of the allowance for credit losses to nonperforming loans was 354
percent at December 31, 2004, compared with 337 percent at
September 30, 2004, and 232 percent at December 31, 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 fourth quarter of 2003 included
after-tax income from the discontinued operations of Piper Jaffray
Companies of $6.7 million, which had an immaterial impact on
diluted earnings per share. INCOME STATEMENT HIGHLIGHTS Table 2
(Taxable-equivalent basis, $ in millions, except per-share data)
Percent Percent Change Change 4Q 3Q 4Q 4Q04 vs 4Q04 vs 2004 2004
2003 3Q04 4Q03 Net interest income $1,799.8 $1,781.7 $1,816.7 1.0
(0.9) Noninterest income 1,435.2 1,524.0 1,296.6 (5.8) 10.7 Total
net revenue 3,235.0 3,305.7 3,113.3 (2.1) 3.9 Noninterest expense
1,578.0 1,519.0 1,342.4 3.9 17.6 Provision for credit losses 65.0
165.1 286.0 (60.6) (77.3) Income from continuing operations before
income taxes 1,592.0 1,621.6 1,484.9 (1.8) 7.2 Taxable-equivalent
adjustment 7.3 7.1 7.2 2.8 1.4 Applicable income taxes 528.7 549.0
507.4 (3.7) 4.2 Income from continuing operations 1,056.0 1,065.5
970.3 (0.9) 8.8 Income from discontinued operations (after-tax) --
-- 6.7 -- nm Net income $1,056.0 $1,065.5 $977.0 (0.9) 8.1 Diluted
earnings per share: Income from continuing operations $0.56 $0.56
$0.50 -- 12.0 Discontinued operations -- -- -- -- -- Net income
$0.56 $0.56 $0.50 -- 12.0 Full Year Full Year Percent 2004 2003
Change Net interest income $7,139.9 $7,217.5 (1.1) Noninterest
income 5,519.2 5,313.0 3.9 Total net revenue 12,659.1 12,530.5 1.0
Noninterest expense 5,784.5 5,596.9 3.4 Provision for credit losses
669.6 1,254.0 (46.6) Income from continuing operations before
income taxes 6,205.0 5,679.6 9.3 Taxable-equivalent adjustment 28.6
28.2 1.4 Applicable income taxes 2,009.6 1,941.3 3.5 Income from
continuing operations 4,166.8 3,710.1 12.3 Income from discontinued
operations (after-tax) -- 22.5 nm Net income $4,166.8 $3,732.6 11.6
Diluted earnings per share: Income from continuing operations $2.18
$1.92 13.5 Discontinued operations -- 0.01 nm Net income $2.18
$1.93 13.0 Net Interest Income Fourth quarter net interest income
on a taxable-equivalent basis was $1,799.8 million, compared with
$1,816.7 million recorded in the fourth quarter of 2003. Average
earning assets for the period increased over the fourth quarter of
2003 by $7.2 billion (4.4 percent), primarily driven by continued
strong growth in retail loans, as well as increases in residential
mortgages, investment securities, commercial and commercial real
estate loans. The growth in earning assets contributed
approximately $84 million of additional net interest income
year-over-year, after adjusting for the cost associated with
funding the higher volume. The positive impact of the growth in
earning assets was more than offset by an unfavorable rate
variance, which reduced net interest income by approximately $89
million, primarily driven by the higher cost of wholesale funding
relative to the fourth quarter of 2003. Also contributing to the
year-over-year decline in net interest income was an $11.6 million
reduction in loan fees, the result of fewer loan prepayments. Net
interest income in the fourth quarter of 2004 was higher than the
third quarter of 2004 by $18.1 million (1.0 percent). Average
earning assets grew quarter-over-quarter by $2.7 billion (1.6
percent). Growth in all major loan categories, including a 2.3
percent increase in commercial loans (9.0 percent on an annualized
basis) and a 2.2 percent increase in retail loans (8.8 percent on
an annualized basis), drove the increase in average earning assets
over the prior quarter. The growth in earning assets contributed
approximately $19 million of additional net interest income
quarter-over- quarter, after adjusting for the cost associated with
funding the higher volume. Slightly offsetting the favorable impact
of the growth in earning assets was an unfavorable rate variance of
approximately $1 million, which was primarily driven by the higher
cost of wholesale funding, partially offset by interest recoveries.
The net interest margin in the fourth quarter of 2004 was 4.20
percent, compared with 4.22 percent in the third quarter of 2004
and 4.42 percent in the fourth quarter of 2003. The decline in the
net interest margin in the fourth quarter of 2004 from the fourth
quarter of 2003 primarily reflected the competitive credit pricing
environment, a preference to acquire lower yielding floating-rate
securities, lower loan prepayment fees, a modest increase in the
percent of total earning 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 4Q 3Q 4Q
4Q04 vs 4Q04 vs 2004 2004 2003 3Q04 4Q03 Components of net interest
income Income on earning assets $2,396.7 $2,309.9 $2,294.9 $86.8
$101.8 Expense on interest-bearing liabilities 596.9 528.2 478.2
68.7 118.7 Net interest income $1,799.8 $1,781.7 $1,816.7 $18.1
$(16.9) Average yields and rates paid Earning assets yield 5.59%
5.47% 5.58% 0.12% 0.01% Rate paid on interest-bearing liabilities
1.72 1.55 1.44 0.17 0.28 Gross interest margin 3.87% 3.92% 4.14%
(0.05)% (0.27)% Net interest margin 4.20% 4.22% 4.42% (0.02)%
(0.22)% Average balances Investment securities $42,315 $42,502
$40,774 $(187) $1,541 Loans 125,639 122,906 119,300 2,733 6,339
Earning assets 170,924 168,187 163,705 2,737 7,219 Interest-bearing
liabilities 138,303 136,106 131,990 2,197 6,313 Net free funds*
32,621 32,081 31,715 540 906 Full Year Full Year 2004 2003 Change
Components of net interest income Income on earning assets $9,215.1
$9,286.2 $(71.1) Expense on interest-bearing liabilities 2,075.2
2,068.7 6.5 Net interest income $7,139.9 $7,217.5 $(77.6) Average
yields and rates paid Earning assets yield 5.48% 5.77% (0.29)% Rate
paid on interest-bearing liabilities 1.53 1.60 (0.07) Gross
interest margin 3.95% 4.17% (0.22)% Net interest margin 4.25% 4.49%
(0.24)% Average balances Investment securities $43,009 $37,248
$5,761 Loans 122,141 118,362 3,779 Earning assets 168,123 160,808
7,315 Interest-bearing liabilities 136,055 129,004 7,051 Net free
funds* 32,068 31,804 264 * Represents noninterest-bearing deposits,
allowance for loan losses, unrealized gain (loss) on
available-for-sale securities, non-earning assets, other
noninterest-bearing liabilities and equity AVERAGE LOANS Table 4 ($
in millions) Percent Percent Change Change 4Q 3Q 4Q 4Q04 vs 4Q04 vs
2004 2004 2003 3Q04 4Q03 Commercial $35,348 $34,457 $35,080 2.6 0.8
Lease financing 4,855 4,860 4,959 (0.1) (2.1) Total commercial
40,203 39,317 40,039 2.3 0.4 Commercial mortgages 20,286 20,231
20,230 0.3 0.3 Construction and development 7,360 6,963 7,060 5.7
4.2 Total commercial real estate 27,646 27,194 27,290 1.7 1.3
Residential mortgages 15,044 14,569 13,374 3.3 12.5 Credit card
6,347 6,145 5,713 3.3 11.1 Retail leasing 7,087 6,842 5,895 3.6
20.2 Home equity and second mortgages 14,711 14,288 13,084 3.0 12.4
Other retail 14,601 14,551 13,905 0.3 5.0 Total retail 42,746
41,826 38,597 2.2 10.7 Total loans $125,639 $122,906 $119,300 2.2
5.3 Full Year Full Year Percent 2004 2003 Change Commercial $34,482
$36,238 (4.8) Lease financing 4,866 5,088 (4.4) Total commercial
39,348 41,326 (4.8) Commercial mortgages 20,386 20,166 1.1
Construction and development 6,881 6,976 (1.4) Total commercial
real estate 27,267 27,142 0.5 Residential mortgages 14,322 11,696
22.5 Credit card 6,090 5,525 10.2 Retail leasing 6,653 5,804 14.6
Home equity and second mortgages 14,040 13,239 6.1 Other retail
14,421 13,630 5.8 Total retail 41,204 38,198 7.9 Total loans
$122,141 $118,362 3.2 Average loans for the fourth quarter of 2004
were $6.3 billion (5.3 percent) higher than the fourth quarter of
2003, primarily due to growth in average retail loans of $4.1
billion (10.7 percent) and residential mortgages of $1.7 billion
(12.5 percent) year-over-year. Total commercial loans and total
commercial real estate loans also increased year-over-year by $164
million (.4 percent) and $356 million (1.3 percent), respectively.
Average loans for the fourth quarter of 2004 were higher than the
third quarter of 2004 by $2.7 billion (2.2 percent), reflecting
growth in substantially all loan categories. Average investment
securities in the fourth quarter of 2004 were $1.5 billion (3.8
percent) higher than in the fourth quarter of 2003, reflecting the
timing of securities transactions and asset/liability risk
management decisions to acquire variable rate securities.
Investment securities at December 31, 2004, were $1.9 billion lower
than at December 31, 2003, but $1.8 billion higher than the balance
at September 30, 2004. During the fourth quarter of 2004, the
Company sold certain principal-only securities and acquired
mortgage-backed securities to reposition the economic hedge of the
MSR portfolio. AVERAGE DEPOSITS Table 5 ($ in millions) Percent
Percent Change Change 4Q 3Q 4Q 4Q04 vs 4Q04 vs 2004 2004 2003 3Q04
4Q03 Noninterest-bearing deposits $29,841 $29,791 $29,647 0.2 0.7
Interest-bearing deposits Interest checking 21,630 20,413 20,595
6.0 5.0 Money market accounts 30,955 31,854 35,351 (2.8) (12.4)
Savings accounts 5,776 5,854 5,708 (1.3) 1.2 Savings products
58,361 58,121 61,654 0.4 (5.3) Time certificates of deposit less
than $100,000 12,794 12,869 14,182 (0.6) (9.8) Time deposits
greater than $100,000 15,448 14,535 10,786 6.3 43.2 Total interest-
bearing deposits 86,603 85,525 86,622 1.3 -- Total deposits
$116,444 $115,316 $116,269 1.0 0.2 Full Year Full Year Percent 2004
2003 Change Noninterest-bearing deposits $29,816 $31,715 (6.0)
Interest-bearing deposits Interest checking 20,933 19,104 9.6 Money
market accounts 32,854 32,310 1.7 Savings accounts 5,866 5,612 4.5
Savings products 59,653 57,026 4.6 Time certificates of deposit
less than $100,000 13,074 15,493 (15.6) Time deposits greater than
$100,000 13,679 12,319 11.0 Total interest- bearing deposits 86,406
84,838 1.8 Total deposits $116,222 $116,553 (0.3) Average
noninterest-bearing deposits for the fourth quarter of 2004 were
higher than the fourth quarter of 2003 by $194 million (.7
percent). The year-over-year change in the average balance of
noninterest-bearing deposits was impacted by product changes in the
Consumer Banking business line. Approximately $650 million of
average noninterest-bearing deposit balances were migrated to
interest checking accounts as an enhancement to the Silver Elite
Checking product. Average branch-based noninterest-bearing deposits
in the fourth quarter of 2004, excluding the migration of certain
high-value customers to Silver Elite Checking, were higher by
approximately $600 million (5.2 percent) over the same quarter of
2003, as net new checking account growth continued to gain
momentum. Average noninterest-bearing deposits in other areas,
including private client, corporate trust, commercial banking and
mortgage, also increased year-over-year, but these favorable
variances were partially offset by expected declines in average
noninterest-bearing deposits in corporate banking, wholesale
mortgage banking and government banking. Average total savings
products declined year-over-year by $3.3 billion (5.3 percent),
principally due to a reduction in average money market account
balances, partially offset by higher interest checking and savings
accounts balances. Average branch-based interest checking deposits
increased by $1.9 billion (13.4 percent) over the same quarter of
2003, in part, due to the change in the Silver Elite Checking
product, as well as new account growth. Average branch-based
interest checking deposits, excluding Silver Elite Checking, were
higher by approximately $1.2 billion (8.4 percent) year-over- year.
This positive variance in branch-based interest checking account
deposits was partially offset by reductions in other areas,
including broker dealer, government banking and institutional
trust. Average money market account balances declined by $4.4
billion (12.4 percent) year-over-year, with the largest declines in
government banking, national corporate banking, and the branches.
These reductions were partially offset by strong growth in
corporate trust deposits. The overall decrease in average money
market account balances year-over-year was the result of the
Company's decision to lag deposit pricing, given modest loan growth
and excess liquidity throughout 2004. A portion of the money market
balances migrated to time deposits greater than $100,000 as rates
increased on the time deposit products. Time certificates less than
$100,000 were lower in the fourth quarter of 2004 than the fourth
quarter of 2003 by $1.4 billion (9.8 percent), as older, higher
rate certificates continued to mature. This reduction was offset by
an increase year-over-year of time deposits greater than $100,000,
most notably in the corporate banking area. Average
noninterest-bearing deposits for the fourth quarter of 2004 were
$50.0 million (.2 percent) higher than the third quarter of 2004.
Average noninterest-bearing deposits were impacted
quarter-over-quarter by the change in the Silver Elite Checking
product. Average branch-related products, excluding Silver Elite
Checking, rose by approximately $260 million (2.2 percent)
quarter-over-quarter. Corporate trust, commercial banking, mortgage
and private banking also posted increases in noninterest-bearing
deposits quarter-over-quarter, offset by reductions in national
corporate and government banking. Average savings products were
higher in the current quarter than the prior quarter of 2004 by
$240 million (.4 percent), primarily due to increases in interest
checking, partially driven by the Silver Elite Checking product
switch from noninterest-bearing accounts to interest checking
accounts. Average branch-related interest checking balances,
excluding Silver Elite Checking, rose by 2.0 percent in the fourth
quarter of 2004 over the prior quarter. Average money market
account balances declined by $899 million (2.8 percent) as the
Company continued to lag deposit pricing. Time certificates of
deposit less than $100,000 declined modestly in the fourth quarter,
while time deposits greater than $100,000 rose by $913 million (6.3
percent), primarily within the Corporate Banking business line.
Noninterest- bearing deposits at December 31, 2004, were lower than
at December 31, 2003, by $1.7 billion (5.3 percent) and $829
million (2.6 percent) lower than at September 30, 2004. The change
in the Silver Elite Checking product accounted for $1.3 billion of
the decline from both December 31, 2003, and September 30, 2004.
NONINTEREST INCOME Table 6 ($ in millions) Percent Percent Change
Change 4Q 3Q 4Q 4Q04 vs 4Q04 vs 2004 2004 2003 3Q04 4Q03 Credit and
debit card revenue $184.4 $164.3 $153.4 12.2 20.2 Corporate payment
products revenue 100.8 108.5 88.7 (7.1) 13.6 ATM processing
services 43.0 45.2 40.3 (4.9) 6.7 Merchant processing services
180.9 187.5 146.0 (3.5) 23.9 Trust and investment management fees
240.7 240.2 246.6 0.2 (2.4) Deposit service charges 211.7 207.4
186.6 2.1 13.5 Treasury management fees 109.8 117.9 116.3 (6.9)
(5.6) Commercial products revenue 107.7 106.7 98.5 0.9 9.3 Mortgage
banking revenue 96.0 97.2 91.9 (1.2) 4.5 Investment products fees
and commissions 37.4 37.1 36.2 0.8 3.3 Securities gains (losses),
net (20.5) 87.3 (0.1) nm nm Other 143.3 124.7 92.2 14.9 55.4 Total
noninterest income $1,435.2 $1,524.0 $1,296.6 (5.8) 10.7 Full Year
Full Year Percent 2004 2003 Change Credit and debit card revenue
$649.3 $560.7 15.8 Corporate payment products revenue 406.8 361.3
12.6 ATM processing services 175.3 165.9 5.7 Merchant processing
services 674.6 561.4 20.2 Trust and investment management fees
981.2 953.9 2.9 Deposit service charges 806.4 715.8 12.7 Treasury
management fees 466.7 466.3 0.1 Commercial products revenue 432.2
400.5 7.9 Mortgage banking revenue 397.3 367.1 8.2 Investment
products fees and commissions 156.0 144.9 7.7 Securities gains
(losses), net (104.9) 244.8 nm Other 478.3 370.4 29.1 Total
noninterest income $5,519.2 $5,313.0 3.9 Noninterest Income Fourth
quarter noninterest income was $1,435.2 million, an increase of
$138.6 million (10.7 percent) from the same quarter of 2003, but
$88.8 million (5.8 percent) lower than the third quarter of 2004.
The increase in noninterest income over the fourth quarter of 2003
was driven by favorable variances in the majority of fee income
categories, slightly offset by an increase in losses on the sale of
securities of $20.4 million. Credit and debit card revenue and
corporate payment products revenue were higher in the fourth
quarter of 2004 than the fourth quarter of 2003 by $31.0 million
(20.2 percent) and $12.1 million (13.6 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 $9.4
million. This change in the interchange rate, in addition to higher
customer loyalty rewards expense, however, were more than offset by
higher 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 $2.7 million (6.7 percent) in the fourth 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 fourth quarter of 2004 than the same quarter of 2003 by
$34.9 million (23.9 percent), reflecting an increase in same store
sales volume, new business, higher equipment fees, and the recent
expansion of the Company's merchant acquiring business in Europe.
The recent European acquisitions accounted for approximately $25.5
million of the total increase. Deposit service charges were higher
year-over-year by $25.1 million (13.5 percent) due to account
growth, revenue enhancement initiatives and transaction-related
fees. Commercial products revenue increased by $9.2 million (9.3
percent) over the fourth quarter of 2003, primarily due to
syndication fees and commercial leasing revenue. The favorable
variance year-over-year in mortgage banking revenue of $4.1 million
(4.5 percent) was primarily due to higher loan servicing revenue.
The $1.2 million (3.3 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
$51.1 million (55.4 percent), primarily due to a favorable change
in retail end-of- term lease residual gains (losses) and revenue
from equity investments relative to the same quarter of 2003.
Partially offsetting these positive variances were trust and
investment management fees, which declined by $5.9 million (2.4
percent) in the fourth quarter of 2004 from the same period of
2003, and treasury management fees, which declined by $6.5 million
(5.6 percent) year-over-year. Trust and investment management fees
declined as gains from equity market valuations were more than
offset by lower fees, partially due to a change in the mix of fund
balances and customers' migration from paying for services with
fees to paying with compensating balances. The decrease in treasury
management fees was primarily due to higher earnings credit on
customers' compensating balances and fewer business processing days
in the current year's quarter. Noninterest income was lower in the
fourth quarter of 2004 than the third quarter of 2004 by $88.8
million (5.8 percent), primarily due to an unfavorable change in
gains (losses) on the sale of securities of $107.8 million.
Although credit and debit card revenue rose by $20.1 million (12.2
percent) quarter-over-quarter, reflecting seasonally higher
consumer spending, corporate payment products revenue, ATM
processing services and merchant processing were lower than the
third quarter by $7.7 million (7.1 percent), $2.2 million (4.9
percent) and $6.6 million (3.5 percent), respectively, driven by
seasonally lower transaction volumes and sales in those product
lines. Deposit service charges were higher in the fourth quarter by
$4.3 million (2.1 percent) than the third quarter, primarily due to
an increase in transaction-related fees. Other income was $18.6
million (14.9 percent) higher quarter-over-quarter, primarily
reflecting higher revenue from equity investments, partially offset
by a residual value insurance recovery recorded during the third
quarter. Mortgage banking revenue was slightly lower in the fourth
quarter of 2004 than in the third quarter of 2004 by $1.2 million
(1.2 percent), primarily due to lower gains from the sale of
mortgage production. Treasury management fees were lower in the
current quarter by $8.1 million (6.9 percent) than the prior
quarter, primarily due to higher interest earnings credits being
received by customers that are maintaining compensating balances
and fewer business processing days. NONINTEREST EXPENSE Table 7 ($
in millions) Percent Percent Change Change 4Q 3Q 4Q 4Q04 vs 4Q04 vs
2004 2004 2003 3Q04 4Q03 Compensation $579.2 $564.6 $539.4 2.6 7.4
Employee benefits 98.0 100.0 81.3 (2.0) 20.5 Net occupancy and
equipment 162.5 159.2 161.6 2.1 0.6 Professional services 44.6 37.2
44.2 19.9 0.9 Marketing and business development 48.9 60.6 50.8
(19.3) (3.7) Technology and communications 115.7 109.8 106.3 5.4
8.8 Postage, printing and supplies 64.9 61.4 61.8 5.7 5.0 Other
intangibles 161.4 210.2 124.2 (23.2) 30.0 Merger and restructuring-
related charges -- -- 7.6 -- nm Other 302.8 216.0 165.2 40.2 83.3
Total noninterest expense $1,578.0 $1,519.0 $1,342.4 3.9 17.6 Full
Year Full Year Percent 2004 2003 Change Compensation $2,252.2
$2,176.8 3.5 Employee benefits 389.4 328.4 18.6 Net occupancy and
equipment 630.8 643.7 (2.0) Professional services 148.9 143.4 3.8
Marketing and business development 193.5 180.3 7.3 Technology and
communications 429.6 417.4 2.9 Postage, printing and supplies 248.4
245.6 1.1 Other intangibles 550.1 682.4 (19.4) Merger and
restructuring- related charges -- 46.2 nm Other 941.6 732.7 28.5
Total noninterest expense $5,784.5 $5,596.9 3.4 Noninterest Expense
Fourth quarter noninterest expense totaled $1,578.0 million, an
increase of $235.6 million (17.6 percent) over the same quarter of
2003 and a $59.0 million (3.9 percent) increase over the third
quarter of 2004. The increase in expense year-over-year was
primarily driven by the $112.3 million charge related to the
prepayment of the Company's long-term debt and the $31.9 million
unfavorable change in the valuation of mortgage servicing rights,
as well as operating expenses related to the expansion of the
Company's merchant acquiring business in Europe of $24.2 million.
The expense growth also reflected increases in compensation,
employee benefits, technology and communications and postage,
printing and supplies. Compensation expense was higher
year-over-year by $39.8 million (7.4 percent) due to increases in
salaries and stock-based compensation. The increase in salaries
reflected business expansion of in-store branches, the expansion of
the Company's merchant acquiring business in Europe and other
initiatives. Stock-based compensation was higher due to lower
forfeitures relative to prior years. Employee benefits increased
year-over-year by $16.7 million (20.5 percent), primarily as a
result of a $13.5 million increase in pension expense and higher
payroll taxes. Technology and communications expense rose by $9.4
million (8.8 percent), reflecting technology investments that
increased software expense amortization and the write-off of
capitalized software being replaced. Postage, printing and supplies
expense was higher by $3.1 million (5.0 percent), primarily due to
new consumer credit card accounts. Other expense was higher in the
fourth quarter than the same quarter of 2003 by $137.6 million
(83.3 percent), primarily due to the $112.3 million debt prepayment
charge, in addition to increases in loan-related expense,
affordable housing operating costs and processing costs for payment
services products, the result of increases in transaction volume
year-over-year. Slightly offsetting these unfavorable variances was
marketing and business development expense, which was lower by $1.9
million (3.7 percent), reflecting the timing of marketing
campaigns. Noninterest expense in the fourth quarter of 2004 was
higher than the third quarter of 2004 by $59.0 million (3.9
percent). The increase in noninterest expense in the fourth quarter
of 2004 over the third quarter of 2004 was primarily due to the
$112.3 million charge related to the prepayment of the Company's
long-term debt, as well as increases in compensation, net occupancy
and equipment, professional services, technology and
communications, and postage, printing and supplies. The increase in
compensation expense of $14.6 million (2.6 percent) in the fourth
quarter over the prior quarter was primarily due to the in-store
branch initiative, the expansion of the merchant acquiring business
in Europe and slightly higher deferred compensation costs. The
quarter-over-quarter increase in net occupancy and equipment costs
of $3.3 million (2.1 percent) reflected changes in rental and
maintenance costs. Professional services expense increased
quarter-over-quarter by $7.4 million (19.9 percent) as a result of
loan origination activities and higher audit costs. Technology and
communications expense and postage, printing and supplies rose by
$5.9 million (5.4 percent) and $3.5 million (5.7 percent),
respectively. The variance in technology and communications expense
quarter- over-quarter was primarily software-related, while the
change in postage, printing and supplies primarily reflected new
account activity. Offsetting these increases were favorable changes
in the MSR intangible valuation of $54.8 million and marketing and
business development of $11.7 million (19.3 percent). The variance
in marketing and business development reflected the timing of brand
advertising programs and marketing campaigns. Other expense,
excluding the impact of the debt prepayment charge, was lower in
the fourth quarter of 2004 than the previous quarter, due to lower
insurance, litigation- related and merchant servicing costs, as
well as an operating loss in the corporate trust business and
business integration costs related to the expansion of the merchant
processing business in Europe, which were incurred during the third
quarter of 2004. ALLOWANCE FOR CREDIT LOSSES Table 8 ($ in
millions) 4Q 3Q 2Q 1Q 4Q 2004 2004 2004 2004 2003 Balance,
beginning of period $2,369.7 $2,369.7 $2,369.7 $2,368.6 $2,367.7
Net charge-offs Commercial 7.6 2.7 35.7 53.6 100.9 Lease financing
10.7 18.2 18.9 21.3 14.9 Total commercial 18.3 20.9 54.6 74.9 115.8
Commercial mortgages 8.9 2.7 1.8 4.6 10.0 Construction and
development 1.1 2.5 0.7 4.7 2.9 Total commercial real estate 10.0
5.2 2.5 9.3 12.9 Residential mortgages 7.4 6.7 7.3 7.3 7.2 Credit
card 61.5 64.3 62.7 63.4 62.3 Retail leasing 9.0 9.6 9.8 11.0 11.3
Home equity and second mortgages 17.4 18.7 20.2 19.5 20.4 Other
retail 40.0 39.7 47.4 48.5 55.2 Total retail 127.9 132.3 140.1
142.4 149.2 Total net charge-offs 163.6 165.1 204.5 233.9 285.1
Provision for credit losses 65.0 165.1 204.5 235.0 286.0
Acquisitions and other changes (1.8) -- -- -- -- Balance, end of
period $2,269.3 $2,369.7 $2,369.7 $2,369.7 $2,368.6 Components
Allowance for loan losses $2,080.4 $2,184.0 $2,189.7 $2,185.6
$2,183.6 Liability for unfunded credit commitments* 188.9 185.7
180.0 184.1 185.0 Total allowance for credit losses $2,269.3
$2,369.7 $2,369.7 $2,369.7 $2,368.6 Gross charge-offs $234.9 $259.5
$274.3 $304.8 $352.3 Gross recoveries $71.3 $94.4 $69.8 $70.9 $67.2
Net charge-offs to average loans (%) 0.52 0.53 0.68 0.79 0.95
Allowance as a percentage of: Period-end loans 1.80 1.90 1.93 1.98
2.00 Nonperforming loans 354 337 299 258 232 Nonperforming assets
303 295 260 226 206 * 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. Credit Quality The
allowance for credit losses was $2,269.3 million at December 31,
2004, lower than the allowance for credit losses of $2,369.7
million at September 30, 2004, and the allowance for credit losses
of $2,368.6 million at December 31, 2003. The release of the
allowance for credit losses in the fourth quarter of $98.5 million
reflects the continued improvement in credit quality and economic
conditions. The ratio of the allowance for credit losses to
period-end loans was 1.80 percent at December 31, 2004, compared
with 1.90 percent at September 30, 2004, and 2.00 percent at
December 31, 2003. The ratio of the allowance for credit losses to
nonperforming loans was 354 percent at December 31, 2004, compared
with 337 percent at September 30, 2004, and 232 percent at December
31, 2003. Total net charge-offs in the fourth quarter of 2004 were
$163.6 million, compared with the third quarter of 2004 net
charge-offs of $165.1 million and the fourth quarter of 2003 net
charge- offs of $285.1 million. Commercial and commercial real
estate loan net charge-offs were $28.3 million for the fourth
quarter of 2004, or .17 percent of average loans outstanding,
compared with $26.1 million, or .16 percent of average loans
outstanding, in the third quarter of 2004 and $128.7 million, or
.76 percent of average loans outstanding, in the fourth quarter of
2003. The decline in net charge-offs continues to be broad-based
across most industries within the commercial loan portfolio. Retail
loan net charge-offs of $127.9 million in the fourth quarter of
2004 were $4.4 million (3.3 percent) lower than the third quarter
of 2004 and $21.3 million (14.3 percent) lower than the fourth
quarter of 2003. Retail loan net charge-offs as a percent of
average loans outstanding were 1.19 percent in the fourth quarter
of 2004, compared with 1.26 percent and 1.53 percent in the third
quarter of 2004 and fourth quarter of 2003, respectively. Lower
levels of retail loan net charge-offs principally reflected the
Company's ongoing improvement in collection efforts and risk
management. CREDIT RATIOS Table 9 (Percent) 4Q 3Q 2Q 1Q 4Q 2004
2004 2004 2004 2003 Net charge-offs ratios* Commercial 0.09 0.03
0.42 0.64 1.14 Lease financing 0.88 1.49 1.57 1.75 1.19 Total
commercial 0.18 0.21 0.56 0.78 1.15 Commercial mortgages 0.17 0.05
0.04 0.09 0.20 Construction and development 0.06 0.14 0.04 0.29
0.16 Total commercial real estate 0.14 0.08 0.04 0.14 0.19
Residential mortgages 0.20 0.18 0.21 0.22 0.21 Credit card 3.85
4.16 4.21 4.34 4.33 Retail leasing 0.51 0.56 0.61 0.71 0.76 Home
equity and second mortgages 0.47 0.52 0.59 0.59 0.62 Other retail
1.09 1.09 1.32 1.38 1.57 Total retail 1.19 1.26 1.39 1.45 1.53
Total net charge-offs 0.52 0.53 0.68 0.79 0.95 Delinquent loan
ratios - 90 days or more past due excluding nonperforming loans**
Commercial 0.05 0.05 0.05 0.06 0.06 Commercial real estate -- 0.01
0.01 0.01 0.02 Residential mortgages 0.46 0.46 0.50 0.56 0.61
Retail 0.47 0.47 0.48 0.54 0.56 Total loans 0.23 0.23 0.24 0.27
0.28 Delinquent loan ratios - 90 days or more past due including
nonperforming loans** Commercial 0.99 1.14 1.37 1.67 1.97
Commercial real estate 0.73 0.75 0.76 0.85 0.82 Residential
mortgages 0.74 0.77 0.79 0.87 0.91 Retail 0.51 0.51 0.52 0.59 0.62
Total loans 0.74 0.80 0.88 1.03 1.14 * annualized and calculated on
average loan balances ** ratios are expressed as a percent of
ending loan balances The overall level of net charge-offs in the
fourth quarter of 2004 reflected the Company's ongoing efforts to
reduce the overall risk profile of the organization. ASSET QUALITY
Table 10 ($ in millions) Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 2004
2004 2004 2004 2003 Nonperforming loans Commercial $289.5 $347.7
$415.7 $510.7 $623.5 Lease financing 90.6 91.3 111.0 115.6 113.3
Total commercial 380.1 439.0 526.7 626.3 736.8 Commercial mortgages
174.6 165.7 163.8 184.9 177.6 Construction and development 25.3
35.3 41.3 43.6 39.9 Commercial real estate 199.9 201.0 205.1 228.5
217.5 Residential mortgages 43.3 45.3 41.7 42.1 40.5 Retail 17.2
17.2 18.4 20.4 25.2 Total nonperforming loans 640.5 702.5 791.9
917.3 1,020.0 Other real estate 72.2 68.7 70.0 76.0 72.6 Other
nonperforming assets 35.7 33.4 49.0 53.3 55.5 Total nonperforming
assets* $748.4 $804.6 $910.9 $1,046.6 $1,148.1 Accruing loans 90
days or more past due $294.0 $291.8 $293.2 $319.2 $329.4
Nonperforming assets to loans plus ORE (%) 0.59 0.64 0.74 0.87 0.97
* does not include accruing loans 90 days or more past due
Nonperforming assets at December 31, 2004, totaled $748.4 million,
compared with $804.6 million at September 30, 2004, and $1,148.1
million at December 31, 2003. The ratio of nonperforming assets to
loans and other real estate was .59 percent at December 31, 2004,
compared with .64 percent at September 30, 2004, and .97 percent at
December 31, 2003. CAPITAL POSITION Table 11 ($ in millions) Dec 31
Sep 30 Jun 30 Mar 31 Dec 31 2004 2004 2004 2004 2003 Total
shareholders' equity $19,539 $19,600 $18,675 $19,452 $19,242 Tier 1
capital 14,720 14,589 14,294 14,499 14,623 Total risk-based capital
22,352 21,428 21,255 21,559 21,710 Common equity to assets 10.0%
10.2% 9.8% 10.1% 10.2% Tangible common equity to assets 6.4 6.4 6.3
6.4 6.5 Tier 1 capital ratio 8.6 8.7 8.7 8.9 9.1 Total risk-based
capital ratio 13.1 12.7 12.9 13.3 13.6 Leverage ratio 7.9 7.9 7.8
8.0 8.0 Total shareholders' equity was $19.5 billion at December
31, 2004, compared with $19.2 billion at December 31, 2003. The
increase was the result of corporate earnings offset by share
buybacks and dividends. Tangible common equity to assets was 6.4
percent at December 31, 2004, and at September 30, 2004, compared
with 6.5 percent at December 31, 2003. The Tier 1 capital ratio was
8.6 percent at December 31, 2004, compared with 8.7 percent at
September 30, 2004, and 9.1 percent at December 31, 2003. The total
risk-based capital ratio was 13.1 percent at December 31, 2004,
compared with 12.7 percent at September 30, 2004, and 13.6 percent
at December 31, 2003. The leverage ratio was 7.9 percent at
December 31, 2004, and at September 30, 2004, compared with 8.0
percent at December 31, 2003. All regulatory ratios continue to be
in excess of stated "well capitalized" requirements. COMMON SHARES
Table 12 (Millions) 4Q 3Q 2Q 1Q 4Q 2004 2004 2004 2004 2003
Beginning shares outstanding 1,870.8 1,884.1 1,901.2 1,922.9
1,927.4 Shares issued for stock option and stock purchase plans,
acquisitions and other corporate purposes 6.5 6.2 3.7 12.1 10.5
Shares repurchased (19.7) (19.5) (20.8) (33.8) (15.0) Ending shares
outstanding 1,857.6 1,870.8 1,884.1 1,901.2 1,922.9 On December 21,
2004, the board of directors of U.S. Bancorp approved an
authorization to repurchase up to 150 million shares of outstanding
common stock over the next 24 months. This repurchase program
replaced the Company's previous program. During the fourth quarter
of 2004, the Company repurchased 19.7 million shares of common
stock under these authorizations. As of December 31, 2004, there
were approximately 145 million shares remaining to be repurchased
under the current authorization. LINE OF BUSINESS FINANCIAL
PERFORMANCE* Table 13 ($ in millions) Operating Earnings** Percent
Change 4Q 3Q 4Q 4Q04 vs 4Q04 vs Business Line 2004 2004 2003 3Q04
4Q03 Wholesale Banking $284.9 $277.7 $218.5 2.6 30.4 Consumer
Banking 402.6 405.9 328.5 (0.8) 22.6 Private Client, Trust and
Asset Management 114.2 109.0 103.9 4.8 9.9 Payment Services 198.2
183.0 163.7 8.3 21.1 Treasury and Corporate Support 56.1 89.9 160.7
(37.6) (65.1) Consolidated Company $1,056.0 $1,065.5 $975.3 (0.9)
8.3 4Q 2004 Full Year Full Year Percent Earnings Business Line 2004
2003 Change Composition Wholesale Banking $1,079.6 $850.3 27.0 27%
Consumer Banking 1,465.0 1,333.7 9.8 38 Private Client, Trust and
Asset Management 439.5 388.6 13.1 11 Payment Services 716.5 596.0
20.2 19 Treasury and Corporate Support 466.2 571.9 (18.5) 5
Consolidated Company $4,166.8 $3,740.5 11.4 100% * 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 $284.9 million
of the Company's operating earnings in the fourth quarter of 2004,
a 30.4 percent increase over the same period of 2003 and a 2.6
percent increase over the third quarter of 2004. The increase in
Wholesale Banking's fourth quarter 2004 contribution over the
fourth quarter of 2003 was primarily the result of favorable
variances in the provision for credit losses, total net revenue
(3.1 percent) and total noninterest expense (2.6 percent). The
increase in total net revenue over the fourth quarter of 2003
reflected favorable variances in both net interest income (3.3
percent) and noninterest income (2.6 percent). The increase in net
interest income was primarily due to an increase in loan fees and
wider deposit spreads. The increase in noninterest income was
primarily the result of growth in commercial products revenue and
other revenue, partially offset by a reduction in treasury
management fees. Commercial products revenue growth (8.1 percent)
was driven by higher capital markets- related syndication revenue
and equipment leasing revenue, while other income included
incremental revenue associated with the dissolution of a government
banking deposit processing venture. These services are being
brought in-house in 2005. Treasury management fees were lower (6.8
percent) year-over-year due to higher interest credits earned on
compensating balances due to rising interest rates and fewer
business processing days. Wholesale Banking's favorable variance in
total noninterest expense year-over-year was primarily the result
of declines in technology and communications expense, legal and
professional fees and other loan-related expense. The decrease in
the provision for credit losses year-over-year was the result of
the favorable change from net charge-offs of $74.7 million in the
fourth quarter of 2003 to net recoveries of $7.3 million in the
current quarter. The increase in Wholesale Banking's contribution
to operating earnings in the fourth quarter of 2004 over the third
quarter of 2004 was the net result of a favorable variance in total
net revenue (3.5 percent), partially offset by unfavorable
variances in the provision for credit losses and total noninterest
expense (2.1 percent). Total net revenue was higher on a linked
quarter basis, with increases in both net interest income (4.3
percent) and noninterest income (2.0 percent). The favorable
variance quarter-over-quarter in net interest income was primarily
attributed to an increase in average loans outstanding and higher
deposit spreads. The increase in noninterest income quarter-over-
quarter was primarily due to favorable variances in commercial
products revenue and other revenue, partially offset by lower
treasury management fees. The increase in noninterest expense was
principally due to higher legal and professional services,
incentives and marketing expenses. Net recoveries for the fourth
quarter of 2004 were lower than the third quarter of 2004 by $5.4
million, which drove the unfavorable variance in provision for
credit losses from 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 $402.6 million of the Company's
operating earnings in the fourth quarter of 2004, a 22.6 percent
increase over the same period of 2003, but a .8 percent reduction
from the third quarter of 2004. While the retail banking business
segment grew operating earnings by 34.0 percent and 4.0 percent
over the fourth quarter of 2003 and the third 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 fourth
quarter of 2003 was the net result of a decline in net interest
income and an increase in noninterest expense, including the $31.9
million unfavorable change in MSR valuation. Fee-based revenue
related to mortgage production and servicing improved
year-over-year by 6.8 percent. 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. The mortgage banking business line's
contribution declined in the fourth quarter of 2004 from the
previous quarter of 2004, primarily due to an $86.9 million
decrease in gains from the sale of securities. This unfavorable
variance was only partially offset by a $54.8 million reduction in
MSR valuation expense. For the Consumer Banking business, as a
whole, the unfavorable variance in MSR valuation year-over-year of
$31.9 million was not offset by favorable gains (losses) on the
sale of securities in the fourth quarter of 2004. Total net revenue
was higher than the same quarter of the 2003 by 10.2 percent, due
to increases in both net interest income (7.2 percent) and
noninterest income (17.1 percent). Consumer Banking's results also
benefited from a reduction in the provision for credit losses (20.2
percent), while total noninterest expense, excluding the change in
MSR valuations, was just slightly higher (.7 percent) than the
fourth quarter of 2003. Net interest income was higher
year-over-year as a result of increases in average loans
outstanding (9.0 percent) and higher deposit spreads. Noninterest
income improved in the fourth quarter of 2004 over the same period
of 2003, primarily due to growth in deposit service charges (13.5
percent) and other revenue. Other revenue was higher primarily due
to improving end-of-term values for retail lease residuals and
gains from student loan sales. Total noninterest expense, excluding
the change in MSR valuation, in the fourth quarter of 2004 was
slightly higher than the fourth quarter of 2003, primarily due to
an increase in other expense (5.9 percent), which included higher
litigation and fraud losses. A reduction in net charge-offs
year-over-year drove the positive variance in the business line's
provision for credit losses. The decrease in Consumer Banking's
contribution in the fourth quarter of 2004 from the third quarter
of 2004 was the net result of favorable variances in total
noninterest expense (7.0 percent) and the provision for credit
losses (1.8 percent), offset by an unfavorable variance in total
net revenue (4.0 percent). An $86.5 million reduction in securities
gains and a 2.1 percent decrease in noninterest income more than
offset the 4.1 percent increase in net interest income. Net
interest income was higher quarter-over-quarter due to average loan
growth (2.0 percent) and higher deposit spreads relative to the
prior quarter, while noninterest income, excluding securities gains
(losses) was lower than the prior quarter primarily due to other
revenue. Other revenue in the third quarter of 2004 included a
residual value insurance recovery. The favorable variance in
noninterest expense quarter-over-quarter was primarily the result
of the change in MSR valuation. 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 $114.2 million of the Company's operating earnings in
the fourth quarter of 2004, 9.9 percent higher than the same period
of 2003 and 4.8 percent higher than the third quarter of 2004. The
increase in the business line's contribution in the fourth quarter
of 2004 over the fourth quarter of 2003 was the result of favorable
variances in total net revenue (5.1 percent), and the provision for
credit losses, partially offset by an increase in total noninterest
expense (1.7 percent). Net interest income was favorably impacted
year-over-year by strong deposit growth and deposit spreads.
Noninterest income was slightly lower than the same quarter of 2003
(1.3 percent), as gains from equity market valuations were more
than offset by lower fees, partially due to a change in the mix of
fund balances and customers' migration from paying for services
with fees to paying with compensating balances. Noninterest expense
was slightly higher year-over-year due to other expense, which
included higher operating losses related to the corporate trust
business in the fourth quarter of 2004. The increase in the
business line's contribution (4.8 percent) in the fourth quarter of
2004 over the third quarter of 2004 was primarily the result of
higher total net revenue (3.5 percent) and a favorable variance in
the provision for credit losses, offset by higher total noninterest
expense (3.4 percent). Both net interest income and noninterest
income rose quarter-over-quarter by 8.5 percent and 1.6 percent,
respectively. The increase in net interest income was primarily
driven by growth in average deposits and favorable deposit spreads,
while noninterest income increased, in part, due to equity market
valuations. Noninterest expense was higher in the fourth quarter
due to other expense, which reflected higher losses relative to the
prior quarter. 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 $198.2 million of the Company's
operating earnings in the fourth quarter of 2004, a 21.1 percent
increase over the same period of 2003, and an 8.3 percent increase
over the third quarter of 2004. The increase in Payment Services'
contribution in the fourth quarter of 2004 over the same period of
2003 was the result of higher total net revenue (13.3 percent) and
a lower provision for credit losses (15.3 percent), partially
offset by an increase in total noninterest expense (17.4 percent).
The increase in total net revenue year- over-year was primarily due
to growth in noninterest income (19.5 percent), partially offset by
lower net interest income (4.2 percent), which primarily reflected
higher corporate card rebates. The increase in noninterest income
was principally the result of growth in credit and debit card
revenue (21.0 percent), corporate payment products revenue (13.6
percent), ATM processing services revenue (8.6 percent) and
merchant processing services revenue (23.9 percent). Although
credit and debit card revenue was negatively impacted in the fourth
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
$25.5 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 $24.2 million associated with the
European merchant acquiring business. The increase in Payment
Services' contribution in the fourth quarter of 2004 over the third
quarter of 2004 was primarily due to higher total net revenue (2.1
percent), lower total noninterest expense (2.5 percent) and lower
provision for credit losses (4.5 percent). Net interest income
increased 5.1 percent, driven by seasonally higher retail credit
card balances. Fee-based revenue increased 1.3 percent due to
seasonally higher retail credit card sales volumes, offset somewhat
by seasonally lower corporate payment products revenue and merchant
processing fees. 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 $56.1 million in
the fourth quarter of 2004, compared with operating earnings of
$160.7 million in the fourth quarter of 2003 and $89.9 million in
the third quarter of 2004. The decrease in operating earnings in
the current quarter from the fourth quarter of 2003 was largely due
to lower total net revenue (34.2 percent) and higher total
noninterest expense, partially offset by a reduction in the
provision for loan losses. The unfavorable change in net interest
income (37.4 percent) year-over-year reflected the Company's
asset/liability management decisions to invest in lower-yield
floating-rate securities, higher-cost fixed funding and
repositioning of the balance sheet for changes in the interest rate
environment. Partially offsetting this negative variance was a
favorable change in noninterest income in the fourth quarter of
2004 over the same quarter of 2003, primarily the result of higher
revenue from equity investments. The business line's total net
revenue also included net securities losses of $20.9 million
resulting from the Company's repositioning of certain investment
securities to retain its economic hedge of the MSR portfolio. The
increase in total noninterest expense year-over-year was driven by
higher pension costs and stock-based compensation, the $112.3
million debt prepayment charge taken in the fourth quarter of 2004
and higher operating costs associated with affordable housing
investments. The unfavorable variance in operating earnings in the
fourth quarter of 2004 from the third quarter of 2004 was the
result of lower total net revenue (19.9 percent) and higher total
noninterest expense (54.3 percent). Total net interest income
declined quarter-over-quarter, primarily due to the continuing
asset/liability management decisions of the Company, while
noninterest income benefited quarter-over-quarter from higher
revenue from equity investments. Losses on the sale of securities
also negatively impacted total net revenue on a linked quarter
basis. The increase in noninterest expense quarter-over- quarter
primarily reflected the debt prepayment charge of $112.3 million
and higher stock-based compensation, offset by lower insurance,
litigation-related and business integration costs. The favorable
variance in the provision for credit losses was the result of the
release of the allowance for credit losses in the fourth quarter of
2004. 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 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, January 18, 2005, AT 1:00 p.m. (CST). To access
the conference call, please dial 877-707-9628 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, January 18, 2005, and will run through Tuesday, January
25, 2005, at 11:00 p.m. (CST). To access the recorded message dial
800-839-8389. If calling from outside the United States, please
dial 402-271-9156. After January 25th, a recording of the call will
continue to be available by webcast on the U.S. Bancorp web site at
http://usbank.com/. Minneapolis-based U.S. Bancorp ("USB"), with
$195 billion in assets, is the 6th largest financial services
holding company in the United States. The company operates 2,370
banking offices and 4,620 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 Year Ended Except Per Share Data) December 31,
December 31, (Unaudited) 2004 2003 2004 2003 Interest Income Loans
$1,878.3 $1,796.0 $7,168.1 $7,272.0 Loans held for sale 23.2 31.3
91.5 202.2 Investment securities Taxable 457.1 432.5 1,808.6
1,654.6 Non-taxable 4.1 6.3 18.5 29.4 Other interest income 26.7
21.6 99.8 99.8 Total interest income 2,389.4 2,287.7 9,186.5
9,258.0 Interest Expense Deposits 250.6 245.1 904.3 1,096.6
Short-term borrowings 79.4 43.5 262.7 166.8 Long-term debt 237.4
166.0 803.4 702.2 Junior subordinated debentures 29.5 23.6 104.8
103.1 Total interest expense 596.9 478.2 2,075.2 2,068.7 Net
interest income 1,792.5 1,809.5 7,111.3 7,189.3 Provision for
credit losses 65.0 286.0 669.6 1,254.0 Net interest income after
provision for credit losses 1,727.5 1,523.5 6,441.7 5,935.3
Noninterest Income Credit and debit card revenue 184.4 153.4 649.3
560.7 Corporate payment products revenue 100.8 88.7 406.8 361.3 ATM
processing services 43.0 40.3 175.3 165.9 Merchant processing
services 180.9 146.0 674.6 561.4 Trust and investment management
fees 240.7 246.6 981.2 953.9 Deposit service charges 211.7 186.6
806.4 715.8 Treasury management fees 109.8 116.3 466.7 466.3
Commercial products revenue 107.7 98.5 432.2 400.5 Mortgage banking
revenue 96.0 91.9 397.3 367.1 Investment products fees and
commissions 37.4 36.2 156.0 144.9 Securities gains (losses), net
(20.5) (.1) (104.9) 244.8 Other 143.3 92.2 478.3 370.4 Total
noninterest income 1,435.2 1,296.6 5,519.2 5,313.0 Noninterest
Expense Compensation 579.2 539.4 2,252.2 2,176.8 Employee benefits
98.0 81.3 389.4 328.4 Net occupancy and equipment 162.5 161.6 630.8
643.7 Professional services 44.6 44.2 148.9 143.4 Marketing and
business development 48.9 50.8 193.5 180.3 Technology and
communications 115.7 106.3 429.6 417.4 Postage, printing and
supplies 64.9 61.8 248.4 245.6 Other intangibles 161.4 124.2 550.1
682.4 Merger and restructuring-related charges -- 7.6 -- 46.2 Other
302.8 165.2 941.6 732.7 Total noninterest expense 1,578.0 1,342.4
5,784.5 5,596.9 Income from continuing operations before income
taxes 1,584.7 1,477.7 6,176.4 5,651.4 Applicable income taxes 528.7
507.4 2,009.6 1,941.3 Income from continuing operations 1,056.0
970.3 4,166.8 3,710.1 Income from discontinued operations
(after-tax) -- 6.7 -- 22.5 Net income $1,056.0 $977.0 $4,166.8
$3,732.6 Earnings Per Share Income from continuing operations $.57
$.50 $2.21 $1.93 Discontinued operations -- .01 -- .01 Net income
$.57 $.51 $2.21 $1.94 Diluted Earnings Per Share Income from
continuing operations $.56 $.50 $2.18 $1.92 Discontinued operations
-- -- -- .01 Net income $.56 $.50 $2.18 $1.93 Dividends declared
per share $.300 $.240 $1.020 $.855 Average common shares
outstanding 1,865.0 1,927.3 1,887.1 1,923.7 Average diluted common
shares outstanding 1,893.8 1,950.8 1,912.9 1,936.2 U.S. Bancorp
Consolidated Ending Balance Sheet December 31, December 31,
(Dollars in Millions) 2004 2003 Assets Cash and due from banks
$6,336 $8,630 Investment securities Held-to-maturity 127 152
Available-for-sale 41,354 43,182 Loans held for sale 1,439 1,433
Loans Commercial 40,173 38,526 Commercial real estate 27,585 27,242
Residential mortgages 15,367 13,457 Retail 43,190 39,010 Total
loans 126,315 118,235 Less allowance for loan losses (2,080)
(2,184) Net loans 124,235 116,051 Premises and equipment 1,890
1,957 Customers' liability on acceptances 95 121 Goodwill 6,241
6,025 Other intangible assets 2,387 2,124 Other assets 11,000 9,796
Total assets $195,104 $189,471 Liabilities and Shareholders' Equity
Deposits Noninterest-bearing $30,756 $32,470 Interest-bearing
71,936 74,749 Time deposits greater than $100,000 18,049 11,833
Total deposits 120,741 119,052 Short-term borrowings 13,084 10,850
Long-term debt 32,070 31,215 Junior subordinated debentures 2,669
2,601 Acceptances outstanding 95 121 Other liabilities 6,906 6,390
Total liabilities 175,565 170,229 Shareholders' equity Common stock
20 20 Capital surplus 5,902 5,851 Retained earnings 16,758 14,508
Less treasury stock (3,125) (1,205) Other comprehensive income (16)
68 Total shareholders' equity 19,539 19,242 Total liabilities and
shareholders' equity $195,104 $189,471 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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