U.S. Bancorp Reports Record Net Income of $1 Billion for the First
Quarter 2004 EARNINGS SUMMARY Table 1 MINNEAPOLIS, April 20
/PRNewswire-FirstCall/ -- U.S. Bancorp today reported net income of
$1,008.4 million for the first quarter of 2004, compared with
$884.8 million for the first quarter of 2003. Net income of $.52
per diluted share in the first quarter of 2004 was higher than the
same period of 2003 by $.06 (13.0 percent). Return on average
assets and return on average equity were 2.14 percent and 20.7
percent, respectively, for the first quarter of 2004, compared with
returns of 1.95 percent and 19.1 percent, respectively, for the
first quarter of 2003. U.S. Bancorp Chairman, President and Chief
Executive Officer Jerry A. Grundhofer said, "Our Company's first
quarter results, highlighted by achieving record net income of $1
billion, demonstrate that we are well on our way toward reaching
our financial goals for 2004. We expect our industry- leading
return on average assets and return on average equity of 2.14
percent and 20.7 percent, respectively, to show modest improvement
as the year progresses. We had continued improvement in our credit
quality, growth in our fee based businesses and improvement in our
overall operating efficiency. During the first quarter, we
continued to benefit from growth in both consumer deposit accounts
and loans, and we began to see signs of growth in commercial loans.
As the economy improves, we are optimistic that this segment will
become even stronger. "With all integration activity completed and
credit quality issues abating, we are now focused on generating
revenue growth. We remain committed to growing revenue faster than
expense, achieving industry leading performance metrics, reaching
the top quartile in credit quality, sustaining industry leading
capital generation, and returning 80% of our earnings to
shareholders; all while providing exceptional customer service. We
have the people, the products and services, the advanced
technology, the low-cost provider leadership position and the
commitment to customer service we need to continue to build and
grow this franchise. I am looking forward to the rest of 2004 and
what our Company can, and will, accomplish." The Company's results
for the first quarter of 2004 improved over the same period of
2003, primarily due to growth in fee based products and services,
as well as controlled operating expense and lower credit costs.
Included in the current quarter was a $90.0 million reduction in
income tax expense related to the resolution of federal tax
examinations covering substantially all of the Company's legal
entities for the years 1995 through 1999. The first quarter of 2004
also included the recognition of $109.3 million ($71.7 million on
an after-tax basis) of mortgage servicing rights ("MSR")
impairment, driven by lower interest rates and related prepayments,
and a $35.4 million expense ($23.2 million on an after-tax basis)
associated with the prepayment of a portion of the Company's long
term debt. The Company took no securities gains in the quarter to
offset MSR impairment. Total net revenue on a taxable-equivalent
basis for the first quarter of 2004 was $45.5 million (1.4 percent)
lower than the first quarter of 2003, primarily reflecting a $140.7
million reduction in gains on the sale of securities. Favorable
revenue growth in the majority of fee based products and services
categories partially offset the reduction in securities gains.
Total noninterest expense in the first quarter of 2004 was
essentially flat to the first quarter of 2003, primarily reflecting
a $17.6 million reduction in merger and restructuring-related
charges, an $11.6 million favorable change in the recognition of
MSR impairment and cost savings from completed integration
activities. These positive variances were partially offset by
expense increases in employee benefits, professional services,
marketing and business development and other expense, the latter of
which included a $35.4 million charge related to the debt
prepayment. Provision for credit losses for the first quarter of
2004 was $235.0 million, a decrease of $100.0 million (29.9
percent) from the first quarter of 2003. Net charge-offs in the
first quarter of 2004 were $233.9 million, compared with the fourth
quarter of 2003 net charge-offs of $285.1 million and the first
quarter of 2003 net charge-offs of $333.8 million. The decline in
losses from a year ago was primarily the result of an improving
credit risk profile and collection efforts. Total nonperforming
assets declined to $1,046.6 million at March 31, 2004, from
$1,148.1 million at December 31, 2003 (8.8 percent), and $1,362.6
million at March 31, 2003 (23.2 percent). The ratio of the
allowance for credit losses to nonperforming loans was 258 percent
at March 31, 2004, compared with 232 percent at December 31, 2003,
and 194 percent at March 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 first quarter of 2003 and fourth quarter of 2003
included after-tax income from the discontinued operations of Piper
Jaffray Companies of $.7 million and $6.7 million, respectively,
which had an immaterial impact on diluted earnings per share.
INCOME STATEMENT HIGHLIGHTS Table 2 (Taxable-equivalent basis, $ in
millions, Percent Percent except per-share data) Change Change 1Q
4Q 1Q 1Q04 vs 1Q04 vs 2004 2003 2003 4Q03 1Q03 Net interest income
$1,779.0 $1,816.7 $1,776.7 (2.1) 0.1 Noninterest income 1,318.3
1,296.6 1,366.1 1.7 (3.5) Total net revenue 3,097.3 3,113.3 3,142.8
(0.5) (1.4) Noninterest expense 1,454.9 1,342.4 1,454.6 8.4 --
Provision for credit losses 235.0 286.0 335.0 (17.8) (29.9) Income
from continuing operations before income taxes 1,407.4 1,484.9
1,353.2 (5.2) 4.0 Taxable-equivalent adjustment 7.2 7.2 7.3 --
(1.4) Applicable income taxes 391.8 507.4 461.8 (22.8) (15.2)
Income from continuing operations 1,008.4 970.3 884.1 3.9 14.1
Income from discontinued operations (after-tax) -- 6.7 0.7 nm nm
Net income $1,008.4 $977.0 $884.8 3.2 14.0 Diluted earnings per
share: Income from continuing operations $0.52 $0.50 $0.46 4.0 13.0
Discontinued operations -- -- -- -- -- Net income $0.52 $0.50 $0.46
4.0 13.0 Net Interest Income First quarter net interest income on a
taxable-equivalent basis was $1,779.0 million, compared with
$1,776.7 million recorded in the first quarter of 2003. Average
earning assets for the period increased over the first quarter of
2003 by $10.2 billion (6.6 percent), primarily driven by increases
in investment securities, residential mortgages, and retail loans,
partially offset by a decline in commercial loans and loans held
for sale related to mortgage banking activities. The net interest
margin in the first quarter of 2004 was 4.29 percent, compared with
4.42 percent in the fourth quarter of 2003 and 4.59 percent in the
first quarter of 2003. The decline in the net interest margin in
the first quarter of 2004 from the first quarter of 2003 primarily
reflected growth in lower-yielding investment securities as a
percent of total earning assets, a change in loan mix, and a
decline in the margin benefit from net free funds due to lower
interest rates. In addition, the net interest margin declined
year-over-year as a result of consolidating high credit quality,
low margin loans from Stellar Funding Group, Inc., a commercial
loan conduit, onto the Company's balance sheet during the third
quarter of 2003. The decline in the net interest margin in the
first quarter of 2004 from the fourth quarter of 2003 reflected a
similar change in earning asset mix. NET INTEREST INCOME Table 3
(Taxable-equivalent basis; $ in millions) Change Change 1Q 4Q 1Q
1Q04 vs 1Q04 vs 2004 2003 2003 4Q03 1Q03 Components of net interest
income Income on earning assets $2,265.3 $2,294.9 $2,338.5 $(29.6)
$(73.2) Expense on interest-bearing liabilities 486.3 478.2 561.8
8.1 (75.5) Net interest income $1,779.0 $1,816.7 $1,776.7 $(37.7)
$2.3 Average yields and rates paid Earning assets yield 5.47% 5.58%
6.05% (0.11)% (0.58)% Rate paid on interest-bearing liabilities
1.45 1.44 1.82 0.01 (0.37) Gross interest margin 4.02% 4.14% 4.23%
(0.12)% (0.21)% Net interest margin 4.29% 4.42% 4.59% (0.13)%
(0.30)% Average balances Investment securities $44,744 $40,774
$34,220 $3,970 $10,524 Loans 118,810 119,300 116,311 (490) 2,499
Earning assets 166,359 163,705 156,126 2,654 10,233
Interest-bearing liabilities 134,966 131,990 124,669 2,976 10,297
Net free funds* 31,393 31,715 31,457 (322) (64) * Represents
noninterest-bearing deposits, allowance for loan losses, unrealized
gain (loss) on available-for-sale securities, non-earning assets,
other non-interest bearing liabilities and equity AVERAGE LOANS
Table 4 ($ in millions) Percent Percent Change Change 1Q 4Q 1Q 1Q04
vs 1Q04 vs 2004 2003 2003 4Q03 1Q03 Commercial $33,629 $35,080
$36,339 (4.1) (7.5) Lease financing 4,902 4,959 5,251 (1.1) (6.6)
Total commercial 38,531 40,039 41,590 (3.8) (7.4) Commercial
mortgages 20,554 20,230 20,241 1.6 1.5 Construction and development
6,556 7,060 6,542 (7.1) 0.2 Total commercial real estate 27,110
27,290 26,783 (0.7) 1.2 Residential mortgages 13,610 13,374 10,124
1.8 34.4 Credit card 5,878 5,713 5,389 2.9 9.1 Retail leasing 6,192
5,895 5,750 5.0 7.7 Home equity and second mortgages 13,376 13,084
13,470 2.2 (0.7) Other retail 14,113 13,905 13,205 1.5 6.9 Total
retail 39,559 38,597 37,814 2.5 4.6 Total loans $118,810 $119,300
$116,311 (0.4) 2.1 Average loans for the first quarter of 2004 were
$2.5 billion (2.1 percent) higher than the first quarter of 2003,
primarily due to growth in average residential mortgages of $3.5
billion (34.4 percent) and retail loans of $1.7 billion (4.6
percent) year-over-year. Total commercial loans declined by $3.1
billion (7.4 percent), while total commercial real estate loans
increased by $327 million (1.2 percent). Although the consolidation
of loans from the Stellar commercial loan conduit had a positive
impact on average loan balances year-over-year, soft economic
conditions throughout much of 2003 led to the overall decrease in
total commercial loans. Average loans for the first quarter of 2004
were lower than the fourth quarter of 2003 by $490 million (.4
percent), reflecting reductions in commercial and commercial real
estate loans, partially offset by growth in both residential
mortgages and retail loans. While average commercial loans declined
for the quarter, the Company's ending commercial loan balances
increased by $480 million from December 31, 2003. Average
investment securities in the first quarter of 2004 were $10.5
billion (30.8 percent) higher than the first quarter of 2003,
reflecting the reinvestment of proceeds from declining commercial
loan balances and deposit growth from a year ago. Investment
securities at March 31, 2004, were $15.0 billion higher than at
March 31, 2003, and $2.1 billion higher than the balance at
December 31, 2003. During the first quarter of 2004, the Company
continued to acquire floating-rate securities and shorter-term
fixed-rate securities as part of its asset/liability management
activities. AVERAGE DEPOSITS Table 5 ($ in millions) Percent
Percent Change Change 1Q 4Q 1Q 1Q04 vs 1Q04 vs 2004 2003 2003 4Q03
1Q03 Noninterest-bearing deposits $29,025 $29,647 $32,824 (2.1)
(11.6) Interest-bearing deposits Interest checking 20,948 20,595
17,536 1.7 19.5 Money market accounts 34,397 35,351 28,683 (2.7)
19.9 Savings accounts 5,898 5,708 5,272 3.3 11.9 Savings products
61,243 61,654 51,491 (0.7) 18.9 Time certificates of deposit less
than $100,000 13,618 14,182 17,218 (4.0) (20.9) Time deposits
greater than $100,000 12,133 10,786 14,282 12.5 (15.0) Total
interest- bearing deposits 86,994 86,622 82,991 0.4 4.8 Total
deposits $116,019 $116,269 $115,815 (0.2) 0.2 Average
noninterest-bearing deposits for the first quarter of 2004 were
lower than the first quarter of 2003 by $3.8 billion (11.6
percent). The change was primarily due to lower deposits associated
with mortgage banking activities and a decline in Federal
government deposits related to their decision in the third quarter
of 2003 to pay for treasury management services rather than
maintain compensating balances. Average interest-bearing deposits
increased by $4.0 billion (4.8 percent) over the first quarter of
2003, driven by increases in savings products balances, partially
offset by decreases in time certificates of deposit less than
$100,000 and time deposits greater than $100,000. Average
noninterest-bearing deposits for the first quarter of 2004 were
$622 million (2.1 percent) lower than the fourth quarter of 2003
due to lower deposits associated with mortgage banking activities
and corporate banking. Average interest-bearing deposits were
slightly higher than the fourth quarter of 2003 (.4 percent),
primarily due to increases in time deposits greater than $100,000,
interest checking and savings accounts, partially offset by
decreases in money market accounts and time certificates of deposit
less than $100,000. Noninterest-bearing deposits at March 31, 2004,
were lower than at March 31, 2003, by $3.4 billion (9.8 percent)
and were $1.4 billion (4.3 percent) lower than at December 31,
2003. NONINTEREST INCOME Table 6 ($ in millions) Percent Percent
Change Change 1Q 4Q 1Q 1Q04 vs 1Q04 vs 2004 2003 2003 4Q03 1Q03
Credit and debit card revenue $141.8 $153.4 $127.4 (7.6) 11.3
Corporate payment products revenue 94.8 88.7 86.0 6.9 10.2 ATM
processing services 42.2 40.3 42.4 4.7 (0.5) Merchant processing
services 141.1 146.0 127.3 (3.4) 10.8 Trust and investment
management fees 248.6 246.6 228.6 0.8 8.7 Deposit service charges
185.2 186.6 163.2 (0.8) 13.5 Treasury management fees 117.5 116.3
112.0 1.0 4.9 Commercial products revenue 110.4 98.5 104.2 12.1 6.0
Mortgage banking revenue 94.2 91.9 95.4 2.5 (1.3) Investment
products fees and commissions 39.3 36.2 35.1 8.6 12.0 Securities
gains (losses), net -- (0.1) 140.7 nm nm Other 103.2 92.2 103.8
11.9 (0.6) Total noninterest income $1,318.3 $1,296.6 $1,366.1 1.7
(3.5) Noninterest Income First quarter noninterest income was
$1,318.3 million, a decrease of $47.8 million (3.5 percent) from
the same quarter of 2003, and a $21.7 million (1.7 percent)
increase over the fourth quarter of 2003. The decline in
noninterest income in the first quarter of 2004 from the first
quarter of 2003 was driven by a $140.7 million reduction in gains
on the sale of securities, partially offset by increases in most
other categories of noninterest income. Credit and debit card
revenue and corporate payment products revenue were higher in the
first quarter of 2004 than the first quarter of 2003 by $14.4
million (11.3 percent) and $8.8 million (10.2 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 $8.2 million. This change in the
interchange rate, in addition to higher customer loyalty rewards
expenses, however, were more than offset by increases in
transaction volumes and other rate adjustments. The corporate
payment products revenue growth reflected growth in sales and card
usage. Merchant processing services revenue was higher in the first
quarter of 2004 than the same quarter of 2003 by $13.8 million
(10.8 percent), reflecting an increase in transaction volume,
partially offset by lower processing spreads due to a change in the
mix of merchants. The favorable variance in trust and investment
management fees of $20.0 million (8.7 percent) in the first quarter
of 2004 over the same period of 2003 was principally driven by
higher equity market valuations year-over-year. Deposit service
charges were higher year- over-year by $22.0 million (13.5 percent)
due to account growth and revenue enhancement initiatives. Treasury
management fees grew by $5.5 million (4.9 percent) in the first
quarter of 2004 over the same period of 2003. The increase in
treasury management fees year-over-year was partially driven by a
change during the third quarter of 2003 in the Federal government's
payment methodology for treasury management services from
compensating balances, reflected in net interest income, to fees.
Commercial products revenue increased by $6.2 million (6.0 percent)
over the first quarter of 2003 due to higher letter of credit,
foreign exchange, syndication, and leasing fees, partially offset
by a reduction in conduit servicing revenue. The $4.2 million (12.0
percent) increase in investment products fees and commissions
reflected higher sales activity in the Consumer Banking business
line. Offsetting these favorable variances were slight declines in
mortgage banking revenue and other income year-over-year.
Noninterest income increased in the first quarter of 2004 by $21.7
million (1.7 percent) over the fourth quarter of 2003, the net
result of favorable variances in corporate payment products
revenue, ATM processing services, trust and investment management
fees, treasury management fees, commercial products revenue,
mortgage banking revenue, investment products fees and commissions
and other income, partially offset by seasonally lower credit and
debit card revenue and merchant processing services. Corporate
payment products revenue, ATM processing services, commercial
products revenue, and investment products fees and commissions rose
due to higher processing volumes and product sales. Mortgage
banking revenue increased due to higher servicing fee income,
partially offset by lower fees from originations and loan sales.
Other income was higher by $11.0 million (11.9 percent), the net
result of lower end of term lease residual losses partially offset
by a decrease in revenue from equity investments relative to the
fourth quarter of 2003. NONINTEREST EXPENSE Table 7 ($ in millions)
Percent Percent Change Change 1Q 4Q 1Q 1Q04 vs 1Q04 vs 2004 2003
2003 4Q03 1Q03 Compensation $535.8 $539.4 $546.0 (0.7) (1.9)
Employee benefits 100.2 81.3 91.7 23.2 9.3 Net occupancy and
equipment 155.7 161.6 161.3 (3.7) (3.5) Professional services 32.4
44.2 26.4 (26.7) 22.7 Marketing and business development 35.3 50.8
29.8 (30.5) 18.5 Technology and communications 101.7 106.3 104.9
(4.3) (3.1) Postage, printing and supplies 61.6 61.8 60.4 (0.3) 2.0
Other intangibles 226.1 124.2 235.1 82.0 (3.8) Merger and
restructuring-related charges -- 7.6 17.6 nm nm Other 206.1 165.2
181.4 24.8 13.6 Total noninterest expense $1,454.9 $1,342.4
$1,454.6 8.4 -- Noninterest Expense First quarter noninterest
expense totaled $1,454.9 million, essentially flat to noninterest
expense for the first quarter of 2003. Favorable variances in
merger and restructuring-related charges of $17.6 million and other
intangibles of $9.0 million (3.8 percent), along with general cost
savings from completed integration activities were offset by
increases in employee benefits, professional services, marketing
and business development, postage, printing and supplies and other
expense. Other expense in the first quarter of 2004 included a
$35.4 million charge related to the prepayment of a portion of the
Company's debt. Noninterest expense in the first quarter of 2004
was higher than the fourth quarter of 2003 by $112.5 million (8.4
percent). The unfavorable variance from the fourth quarter of 2003
was primarily due to the recognition of $109.3 million of MSR
impairment and a $35.4 million charge in other expense related to
the prepayment of a portion of the Company's debt in the first
quarter of 2004. The fourth quarter of 2003 did not include expense
related to changes in MSR valuations. In addition, seasonally high
payroll taxes contributed to the unfavorable variance in employee
benefits quarter- over-quarter. Partially offsetting these
variances were reductions in all other expense categories,
reflecting on-going expense management activities. ALLOWANCE FOR
CREDIT LOSSES Table 8 ($ in millions) 1Q 4Q 3Q 2Q 1Q 2004 2003 2003
2003 2003 Balance, beginning of period $2,368.6 $2,367.7 $2,367.6
$2,408.5 $2,422.0 Net charge-offs Commercial 53.6 100.9 123.9 122.9
137.9 Lease financing 21.3 14.9 19.2 26.9 23.0 Total commercial
74.9 115.8 143.1 149.8 160.9 Commercial mortgages 4.6 10.0 5.9 9.3
2.9 Construction and development 4.7 2.9 4.6 2.5 1.0 Total
commercial real estate 9.3 12.9 10.5 11.8 3.9 Residential mortgages
7.3 7.2 7.3 6.5 5.9 Credit card 63.4 62.3 59.3 64.5 68.7 Retail
leasing 11.0 11.3 12.2 12.6 13.9 Home equity and second mortgages
19.5 20.4 23.2 23.9 25.4 Other retail 48.5 55.2 54.3 53.8 55.1
Total retail 142.4 149.2 149.0 154.8 163.1 Total net charge-offs
233.9 285.1 309.9 322.9 333.8 Provision for credit losses 235.0
286.0 310.0 323.0 335.0 Acquisitions and other changes -- -- --
(41.0) (14.7) Balance, end of period $2,369.7 $2,368.6 $2,367.7
$2,367.6 $2,408.5 Components Allowance for loan losses $2,238.3
$2,235.0 $2,241.2 $2,266.2 $2,295.0 Liability for unfunded credit
commitments * 131.4 133.6 126.5 101.4 113.5 Total allowance for
credit losses $2,369.7 $2,368.6 $2,367.7 $2,367.6 $2,408.5 Net
charge-offs to average loans (%) 0.79 0.95 1.02 1.10 1.16 Allowance
for credit losses as a percentage of: Period-end loans 1.98 2.00
1.98 1.98 2.06 Nonperforming loans 258 232 202 194 194
Nonperforming assets 226 206 180 174 177 * 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 $2,369.7 million
at March 31, 2004, compared with the allowance for credit losses of
$2,368.6 million at December 31, 2003, and $2,408.5 million at
March 31, 2003. The ratio of the allowance for credit losses to
period-end loans was 1.98 percent at March 31, 2004, compared with
2.00 percent at December 31, 2003, and 2.06 percent at March 31,
2003. The ratio of the allowance for credit losses to nonperforming
loans was 258 percent at March 31, 2004, compared with 232 percent
at December 31, 2003, and 194 percent at March 31, 2003. Total net
charge-offs in the first quarter of 2004 were $233.9 million,
compared with the fourth quarter of 2003 net charge-offs of $285.1
million and the first quarter of 2003 net charge-offs of $333.8
million. Commercial and commercial real estate loan net charge-offs
were $84.2 million for the first quarter of 2004, or .52 percent of
average loans outstanding, compared with $128.7 million, or .76
percent of average loans outstanding, in the fourth quarter of 2003
and $164.8 million, or .98 percent of average loans outstanding, in
the first quarter of 2003. The decline in net charge-offs was
broad-based across most industries within the commercial loan
portfolio. Retail loan net charge-offs of $142.4 million in the
first quarter of 2004 were $6.8 million (4.6 percent) lower than
the fourth quarter of 2003 and $20.7 million (12.7 percent) lower
than the first quarter of 2003. Retail loan net charge-offs as a
percent of average loans outstanding were 1.45 percent in the first
quarter of 2004, compared with 1.53 percent and 1.75 percent in the
fourth quarter of 2003 and first quarter of 2003, respectively.
Lower levels of retail loan net charges-offs principally reflected
the Company's improvement in ongoing collection efforts and risk
management. CREDIT RATIOS Table 9 (Percent) 1Q 4Q 3Q 2Q 1Q 2004
2003 2003 2003 2003 Net charge-offs ratios* Commercial 0.64 1.14
1.33 1.35 1.54 Lease financing 1.75 1.19 1.52 2.11 1.78 Total
commercial 0.78 1.15 1.35 1.44 1.57 Commercial mortgages 0.09 0.20
0.12 0.19 0.06 Construction and development 0.29 0.16 0.25 0.14
0.06 Total commercial real estate 0.14 0.19 0.15 0.17 0.06
Residential mortgages 0.22 0.21 0.24 0.24 0.24 Credit card 4.34
4.33 4.20 4.80 5.17 Retail leasing 0.71 0.76 0.83 0.88 0.98 Home
equity and second mortgages 0.59 0.62 0.70 0.72 0.76 Other retail
1.38 1.57 1.55 1.59 1.69 Total retail 1.45 1.53 1.54 1.63 1.75
Total net charge-offs 0.79 0.95 1.02 1.10 1.16 Delinquent loan
ratios - 90 days or more past due excluding nonperforming loans**
Commercial 0.06 0.06 0.11 0.09 0.10 Commercial real estate 0.01
0.02 0.01 0.02 0.03 Residential mortgages 0.56 0.61 0.63 0.65 0.82
Retail 0.54 0.56 0.57 0.63 0.71 Total loans 0.27 0.28 0.29 0.30
0.34 Delinquent loan ratios - 90 days or more past due including
nonperforming loans** Commercial 1.67 1.97 2.31 2.27 2.33
Commercial real estate 0.85 0.82 0.75 0.82 0.85 Residential
mortgages 0.87 0.91 0.98 1.13 1.37 Retail 0.59 0.62 0.63 0.70 0.77
Total loans 1.03 1.14 1.27 1.32 1.40 * 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
first quarter of 2004 reflected the Company's ongoing efforts to
reduce the overall risk profile of the organization. Net
charge-offs are expected to continue to trend modestly lower. ASSET
QUALITY Table 10 ($ in millions) Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2004 2003 2003 2003 2003 Nonperforming loans Commercial $510.7
$623.5 $793.9 $795.2 $808.4 Lease financing 115.6 113.3 111.6 126.6
129.4 Total commercial 626.3 736.8 905.5 921.8 937.8 Commercial
mortgages 184.9 177.6 161.5 182.0 174.6 Construction and
development 43.6 39.9 40.2 35.3 46.1 Commercial real estate 228.5
217.5 201.7 217.3 220.7 Residential mortgages 42.1 40.5 46.1 56.0
57.4 Retail 20.4 25.2 21.6 24.2 23.9 Total nonperforming loans
917.3 1,020.0 1,174.9 1,219.3 1,239.8 Other real estate 76.0 72.6
70.4 71.5 66.2 Other nonperforming assets 53.3 55.5 73.0 68.9 56.6
Total nonperforming assets* $1,046.6 $1,148.1 $1,318.3 $1,359.7
$1,362.6 Accruing loans 90 days or more past due $319.2 $329.4
$352.4 $360.7 $403.5 Nonperforming assets to loans plus ORE (%)
0.87 0.97 1.10 1.14 1.16 * does not include accruing loans 90 days
or more past due Nonperforming assets at March 31, 2004, totaled
$1,046.6 million, compared with $1,148.1 million at December 31,
2003, and $1,362.6 million at March 31, 2003. The ratio of
nonperforming assets to loans and other real estate was .87 percent
at March 31, 2004, compared with .97 percent at December 31, 2003,
and 1.16 percent at March 31, 2003. Given the Company's ongoing
efforts to reduce the overall risk profile of the organization,
nonperforming assets are expected to continue to trend lower.
CAPITAL POSITION Table 11 ($ in millions) Mar 31 Dec 31 Sep 30 Jun
30 Mar 31 2004 2003 2003 2003 2003 Total shareholders' equity
$19,452 $19,242 $19,771 $19,521 $18,862 Tier 1 capital 14,499
14,623 14,589 13,950 13,215 Total risk-based capital 21,559 21,710
21,859 21,392 20,242 Common equity to assets 10.1% 10.2% 10.5%
10.0% 10.4% Tangible common equity to assets 6.4 6.5 6.6 6.0 6.0
Tier 1 capital ratio 8.9 9.1 9.0 8.5 8.2 Total risk-based capital
ratio 13.3 13.6 13.5 13.0 12.6 Leverage ratio 8.0 8.0 8.0 7.8 7.6
Total shareholders' equity was $19.5 billion at March 31, 2004,
compared with $18.9 billion at March 31, 2003. The increase was the
result of corporate earnings offset primarily by dividends,
including the special dividend of $685 million related to the
spin-off of Piper Jaffray Companies, and share buybacks. Tangible
common equity to assets was 6.4 percent at March 31, 2004, compared
with 6.5 percent at December 31, 2003, and 6.0 percent at March 31,
2003. The Tier 1 capital ratio was 8.9 percent at March 31, 2004,
compared with 9.1 percent at December 31, 2003, and 8.2 percent at
March 31, 2003. The total risk-based capital ratio was 13.3 percent
at March 31, 2004, compared with 13.6 percent at December 31, 2003,
and 12.6 percent at March 31, 2003. The leverage ratio was 8.0
percent at March 31, 2004, compared with 8.0 percent at December
31, 2003, and 7.6 percent at March 31, 2003. All regulatory ratios
continue to be in excess of stated "well capitalized" requirements.
COMMON SHARES Table 12 (Millions) 1Q 4Q 3Q 2Q 1Q 2004 2003 2003
2003 2003 Beginning shares outstanding 1,922.9 1,927.4 1,924.5
1,919.0 1,917.0 Shares issued for stock option and stock purchase
plans, acquisitions and other corporate purposes 12.1 10.5 2.9 5.5
2.0 Shares repurchased (33.8) (15.0) -- -- -- Ending shares
outstanding 1,901.2 1,922.9 1,927.4 1,924.5 1,919.0 On December 16,
2003, the board of directors of U.S. Bancorp approved an
authorization to repurchase 150 million shares of outstanding
common stock during the following 24 months. During the first
quarter of 2004, the Company repurchased 33.8 million shares of
common stock in both open market and privately negotiated
transactions. As of March 31, 2004, there were approximately 108
million shares remaining to be repurchased under the current
authorization. LINE OF BUSINESS FINANCIAL PERFORMANCE* Table 13 ($
in millions) Net Operating Earnings** Percent Change 1Q 2004 1Q 4Q
1Q 1Q04 vs 1Q04 vs Earnings Business Line 2004 2003 2003 4Q03 1Q03
Composition Wholesale Banking $264.7 $234.8 $226.0 12.7 17.1 26%
Consumer Banking*** 321.2 367.7 349.5 (12.6) (8.1) 32 Private
Client, Trust and Asset Management 123.8 117.6 98.0 5.3 26.3 12
Payment Services 160.5 163.3 132.9 (1.7) 20.8 16 Treasury and
Corporate Support 138.2 91.9 89.2 50.4 54.9 14 Consolidated Company
$1,008.4 $975.3 $895.6 3.4 12.6 100% * preliminary data ** earnings
before merger and restructuring-related items and discontinued
operations *** In 1Q04 Consumer Banking's retail banking business
grew net operating earnings by 8.5 percent and 18.6 percent over
4Q03 and 1Q03, respectively. The Consumer Bank's mortgage banking
business profitability declined in 1Q04 due to MSR impairment of
$109.3 million that was not offset by realizing securities gains in
the quarter. 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. 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, a methodology change was made to allocate operational
expenses incurred by Treasury and Corporate Support on behalf of
the other major lines of business back to the appropriate operating
segment. These allocations are identified as net shared services
expense on the business lines' income statements. Accordingly,
results for 2003 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
$264.7 million of the Company's operating earnings in the first
quarter of 2004, a 17.1 percent increase over the same period of
2003 and a 12.7 percent increase over the fourth quarter of 2003.
The increase in Wholesale Banking's first quarter 2004 contribution
over the first quarter of 2003 was the result of favorable
variances in total noninterest expense (5.5 percent) and the
provision for credit losses (70.4 percent), partially offset by a
decrease in total net revenue (4.6 percent). Total net revenue in
the first quarter of 2004 was lower than in the first quarter of
2003, reflecting unfavorable variances in both net interest income
(5.3 percent) and noninterest income (3.4 percent). The decrease in
net interest income was primarily due to declines in average total
loans outstanding (6.2 percent), partially offset by higher average
total deposits (4.6 percent). Although treasury management fees
were higher (9.7 percent) year-over-year, the growth was more than
offset by unfavorable variances in commercial products revenue (5.9
percent), primarily conduit servicing fees, and other revenue. The
increase in treasury management fees was principally driven by a
change during the third quarter of 2003 in the Federal government's
payment methodology for treasury management services from
compensating balances to fees. Wholesale Banking's favorable
variance in total noninterest expense year-over-year was driven by
a decrease in other expense, the result of lower loan
workout-related expense relative to the first quarter of 2003,
partially offset by an increase in net shared services expense,
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 a reduction in net charge-offs.
The increase in Wholesale Banking's contribution to operating
earnings in the first quarter of 2004 over the fourth quarter of
2003 was the net result of favorable variances in total noninterest
expense (4.4 percent) and the provision for credit losses,
partially offset by slightly lower total net revenue (.2 percent).
Total net revenue in the first quarter of 2004 was lower than the
previous quarter due to lower net interest income (2.8 percent)
partially offset by growth in noninterest income (5.6 percent). The
change in net interest income reflected reductions from the prior
quarter in the business line's average loans outstanding and
average deposits. The growth quarter-to-quarter in noninterest
income was attributed to higher commercial products revenue,
primarily syndication revenue, lease residual gains and letter of
credit fees. The decrease in noninterest expense was principally
due to lower loan-related expense. Lower net charge-offs from
improving credit quality drove the favorable variance in provision
for credit losses. Consumer Banking delivers products and services
to the broad consumer market and small businesses through banking
offices, telemarketing, on-line services, direct mail and automated
teller machines ("ATMs"). It encompasses community banking,
metropolitan banking, small business banking, 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 $321.2 million of the
Company's operating earnings in the first quarter of 2004, an 8.1
percent decrease from the same period of 2003 and a 12.6 percent
decline from the fourth quarter of 2003. While the retail banking
business segment grew net operating earnings by 18.6 percent and
8.5 percent over the first quarter of 2003 and the fourth quarter
of 2003, respectively, the contribution of the mortgage banking
business declined. The decrease in the mortgage banking business
from the first quarter of 2003 was primarily the result of a
reduction in gains on the sale of securities of $105.8 million
that, generally, are utilized by the Company to offset impairment
of mortgage servicing rights. In the first quarter of 2004, the
Company elected not to sell higher yielding securities to offset
MSR impairment within the mortgage banking business segment. For
the Consumer Banking business, as a whole, the unfavorable variance
in gains on the sale of securities was partially offset with
favorable variances in net interest income (.4 percent),
noninterest income (9.7 percent), total noninterest expense (2.2
percent) and the provision for credit losses (3.9 percent). Net
interest income improved year-over-year (.4 percent), the result of
increases in average loans and average core deposits, partially
offset by a decline in the business line's net interest margin.
Noninterest income also improved in the first quarter of 2004 over
the same period of 2003, primarily due to growth in deposit service
charges, investment products fees and commissions and other
revenue. Other revenue was higher due to lower lease residual
losses relative to the first quarter of 2003. Total noninterest
expense in the first quarter of 2004 was lower than the first
quarter of 2003 (2.2 percent), mainly due to favorable changes in
net shared services expense and lower MSR impairment relative to
2003. A reduction in net charge-offs year-over-year drove the
positive variance in the business line's provision for credit
losses. The decline in Consumer Banking's contribution in the first
quarter of 2004 from the fourth quarter of 2003 was primarily the
result of the recognition of $109.3 million of MSR impairment in
2004. Offsetting this unfavorable variance were positive changes in
total net revenue (1.0 percent), noninterest expense (3.8 percent)
and the provision for credit losses (1.2 percent). 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 $123.8 million of
the Company's operating earnings in the first quarter of 2004, 26.3
percent higher than the same period of 2003 and 5.3 percent higher
than the fourth quarter of 2003. The favorable variance in the
business line's contribution in the first quarter of 2004 over the
first quarter of 2003 was the result of favorable variances in
total net revenue (12.0 percent) and total noninterest expense (2.1
percent). Higher average total deposit balances (45.5 percent)
favorably impacted net interest income year-over-year, while
noninterest income benefited from higher asset management revenue
due to improving equity market valuations. The favorable variance
in expense was primarily due to business line cost savings
year-over- year and slightly lower intangible amortization. The
increase in the business line's contribution (5.3 percent) in the
first quarter of 2004 over the fourth quarter of 2003 was the
result of higher total net revenue (2.0 percent), lower total
noninterest expense (1.4 percent) and a decrease in the provision
for credit losses. The increase in net interest income from the
fourth quarter of 2003 to the first quarter of 2004 was primarily
driven by an increase in average total deposits (8.2 percent),
while noninterest income benefited from higher equity market
valuations. Payment Services includes consumer and business credit
cards, corporate and purchasing card services, consumer lines of
credit, ATM processing, merchant processing, and debit cards.
Payment Services contributed $160.5 million of the Company's
operating earnings in the first quarter of 2004, a 20.8 percent
increase over the same period of 2003, but a 1.7 percent decrease
over the fourth quarter of 2003. The increase in Payment Services'
contribution in the first quarter of 2004 from the same period of
2003 was the result of higher total net revenue (5.2 percent) and a
lower provision for credit losses (14.6 percent). The increase in
total net revenue year-over- year was primarily due to growth in
noninterest income (10.5 percent), partially offset by lower net
interest income (7.1 percent), which reflected lower spreads on
retail credit cards 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
(11.1 percent), corporate payment products revenue (10.2 percent)
and merchant processing services revenue (10.8 percent). Although
credit and debit card revenue was negatively impacted in the first
quarter of 2004 by the VISA debit card settlement and higher
customer loyalty rewards expense, increases in transaction volumes
and other rate adjustments more than offset these detrimental
changes. The decrease in Payment Services' contribution in the
first quarter of 2004 from the fourth quarter of 2003 was primarily
due to seasonally lower total net revenue (2.1 percent), offset by
a reduction in the provision for credit losses, the result of a
favorable change in net charge- offs. Treasury and Corporate
Support includes the Company's investment portfolios, funding,
capital management and asset securitization activities, interest
rate risk management, the net effect of transfer pricing related to
average balances and business activities managed on a corporate
basis, including enterprise-wide operations and administrative
support functions. 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 $138.2 million in the first
quarter of 2004, compared with operating earnings of $89.2 million
in the first quarter of 2003 and $91.9 million in the fourth
quarter of 2003. The increase in operating earnings in the current
quarter over the first quarter of 2003 was largely the net result
of a $90.0 million reduction in income tax expense related to the
resolution of federal tax examinations for the years 1995 through
1999 and a $35.4 million charge associated with the prepayment of a
portion of the Company's debt in the first quarter of 2004. In
addition, revenue declined year-over-year due to a $35.8 million
decrease in gains on the sale of securities. The favorable variance
in operating earnings in the first quarter of 2004 over the fourth
quarter of 2003 was principally the net result of the reduction in
income tax expense and the charge associated with the prepayment of
debt, as well as lower revenue from equity investments relative to
the fourth quarter of 2003. Additional schedules containing more
detailed information about the Company's business line results are
available on the web at usbank.com or by calling Investor Relations
at 612-303-0781. CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
JERRY A. GRUNDHOFER, AND VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER,
DAVID M. MOFFETT, WILL HOST A CONFERENCE CALL TO REVIEW THE
FINANCIAL RESULTS ON TUESDAY, April 20, 2004, AT 3:00 p.m. (CDT).
To access the conference call, please dial 800-540-0559 and ask for
the U.S. Bancorp earnings conference call. Participants calling
from outside the United States, please call 785-832-1508. For those
unable to participate during the live call, a recording of the call
will be available approximately one hour after the conference call
ends on Tuesday, April 20, 2004, and will run through Tuesday,
April 27, 2004, at 11:00 p.m. (CDT). To access the recorded message
dial 888-276-5315. If calling from outside the United States,
please dial 402-220-2332. Minneapolis-based U.S. Bancorp ("USB"),
with $192 billion in assets, is the 7th largest financial services
holding company in the United States. The company operates 2,275
banking offices and 4,472 ATMs, and provides a comprehensive line
of banking, brokerage, insurance, investment, mortgage, trust and
payment services products to consumers, businesses and
institutions. U.S. Bancorp is the parent company of U.S. Bank.
Visit U.S. Bancorp on the web at usbank.com. Forward-Looking
Statements This press release contains forward-looking statements.
Statements that are not historical or current facts, including
statements about beliefs and expectations, are forward-looking
statements. These statements often include the words "may,"
"could," "would," "should," "believes," "expects," "anticipates,"
"estimates," "intends," "plans," "targets," "potentially,"
"probably," "projects," "outlook" or similar expressions. These
forward- looking statements cover, among other things, anticipated
future revenue and expenses, and the future prospects of the
Company. Forward-looking statements involve inherent risks and
uncertainties, and important factors could cause actual results to
differ materially from those anticipated, including the following,
in addition to those contained in the Company's reports on file
with the SEC: (i) general economic or industry conditions could be
less favorable than expected, resulting in a deterioration in
credit quality, a change in the allowance for credit losses, or a
reduced demand for credit or fee-based products and services; (ii)
changes in the domestic interest rate environment could reduce net
interest income and could increase credit losses; (iii) inflation,
changes in securities market conditions and monetary fluctuations
could adversely affect the value or credit quality of the Company's
assets, or the availability and terms of funding necessary to meet
the Company's liquidity needs; (iv) changes in the extensive laws,
regulations and policies governing financial services companies
could alter the Company's business environment or affect
operations; (v) the potential need to adapt to industry changes in
information technology systems, on which the Company is highly
dependent, could present operational issues or require significant
capital spending; (vi) competitive pressures could intensify and
affect the Company's profitability, including as a result of
continued industry consolidation, the increased availability of
financial services from non- banks, technological developments, or
bank regulatory reform; (vii) changes in consumer spending and
savings habits could adversely affect the Company's results of
operations; (viii) changes in the financial performance and
condition of the Company's borrowers could negatively affect
repayment of such borrowers' loans; (ix) acquisitions may not
produce revenue enhancements or cost savings at levels or within
time frames originally anticipated, or may result in unforeseen
integration difficulties; (x) capital investments in the Company's
businesses may not produce expected growth in earnings anticipated
at the time of the expenditure; and (xi) acts or threats of
terrorism, and/or political and military actions taken by the U.S.
or other governments in response to acts or threats of terrorism or
otherwise could adversely affect general economic or industry
conditions. Forward-looking statements speak only as of the date
they are made, and the Company undertakes no obligation to update
them in light of new information or future events. U.S. Bancorp
Consolidated Statement Of Income (Dollars and Shares in Millions,
Three Months Ended Except Per Share Data) March 31, (Unaudited)
2004 2003 Interest Income Loans $1,747.0 $1,836.7 Loans held for
sale 19.9 59.6 Investment securities Taxable 464.0 396.1
Non-taxable 5.3 8.9 Other interest income 21.9 29.9 Total interest
income 2,258.1 2,331.2 Interest Expense Deposits 227.0 306.6
Short-term borrowings 49.9 39.5 Long-term debt 185.9 184.3
Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely the junior subordinated debentures
of the parent company 23.5 31.4 Total interest expense 486.3 561.8
Net interest income 1,771.8 1,769.4 Provision for credit losses
235.0 335.0 Net interest income after provision for credit losses
1,536.8 1,434.4 Noninterest Income Credit and debit card revenue
141.8 127.4 Corporate payment products revenue 94.8 86.0 ATM
processing services 42.2 42.4 Merchant processing services 141.1
127.3 Trust and investment management fees 248.6 228.6 Deposit
service charges 185.2 163.2 Treasury management fees 117.5 112.0
Commercial products revenue 110.4 104.2 Mortgage banking revenue
94.2 95.4 Investment products fees and commissions 39.3 35.1
Securities gains, net -- 140.7 Other 103.2 103.8 Total noninterest
income 1,318.3 1,366.1 Noninterest Expense Compensation 535.8 546.0
Employee benefits 100.2 91.7 Net occupancy and equipment 155.7
161.3 Professional services 32.4 26.4 Marketing and business
development 35.3 29.8 Technology and communications 101.7 104.9
Postage, printing and supplies 61.6 60.4 Other intangibles 226.1
235.1 Merger and restructuring-related charges -- 17.6 Other 206.1
181.4 Total noninterest expense 1,454.9 1,454.6 Income from
continuing operations before income taxes 1,400.2 1,345.9
Applicable income taxes 391.8 461.8 Income from continuing
operations 1,008.4 884.1 Income (loss) from discontinued operations
(after-tax) -- .7 Net income $1,008.4 $884.8 Earnings Per Share
Income from continuing operations $.53 $.46 Discontinued operations
-- -- Net income $.53 $.46 Diluted Earnings Per Share Income from
continuing operations $.52 $.46 Discontinued operations -- -- Net
income $.52 $.46 Dividends declared per share $.240 $.205 Average
common shares 1,915.4 1,919.0 Average diluted common shares 1,941.1
1,925.6 U.S. Bancorp Consolidated Ending Balance Sheet March
December March 31, 31, 31, (Dollars in Millions) 2004 2003 2003
Assets (Unaudited) (Unaudited) Cash and due from banks $7,177
$8,630 $8,910 Investment securities Held-to-maturity 137 152 220
Available-for-sale 45,268 43,182 30,231 Loans held for sale 1,644
1,433 3,102 Loans Commercial 39,006 38,526 42,011 Commercial real
estate 27,215 27,242 26,893 Residential mortgages 13,717 13,457
10,329 Retail 39,945 39,010 37,939 Total loans 119,883 118,235
117,172 Less allowance for loan losses (2,238) (2,369) (2,409) Net
loans 117,645 115,866 114,763 Premises and equipment 1,924 1,957
1,655 Customers' liability on acceptances 148 121 140 Goodwill
6,095 6,025 6,332 Other intangible assets 2,025 2,124 2,181 Other
assets 10,030 9,796 14,697 Total assets $192,093 $189,286 $182,231
Liabilities and Shareholders' Equity Deposits Noninterest-bearing
$31,086 $32,470 $34,459 Interest-bearing 74,262 74,749 68,909 Time
deposits greater than $100,000 13,616 11,833 11,853 Total deposits
118,964 119,052 115,221 Short-term borrowings 13,431 10,850 6,576
Long-term debt 30,851 31,215 32,068 Junior subordinated debentures
issued to unconsolidated subsidiary trusts * 2,717 2,601 2,983
Acceptances outstanding 148 121 140 Other liabilities 6,530 6,205
6,381 Total liabilities 172,641 170,044 163,369 Shareholders'
equity Common stock 20 20 20 Capital surplus 5,832 5,851 5,823
Retained earnings 15,059 14,508 13,596 Less treasury stock (1,853)
(1,205) (1,222) Other comprehensive income 394 68 645 Total
shareholders' equity 19,452 19,242 18,862 Total liabilities and
shareholders' equity $192,093 $189,286 $182,231 * Amounts prior to
2004 represented Company-obligated mandatorily redeemable preferred
securities. The subsidiary grantor trusts, which issue mandatorily
redeemable preferred securities, were de-consolidated under the
provisions of FIN 46 on March 31, 2004. 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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