U.S. Bancorp Reports Record Net Income for the Second Quarter 2004
EARNINGS SUMMARY Table 1 ($ in millions, except per-share data)
Percent Percent Change Change 2Q04 2Q04 2Q 1Q 2Q vs vs YTD YTD
Percent 2004 2004 2003 1Q04 2Q03 2004 2003 Change Income from
continuing operations, net $1,036.9 $1,008.4 $915.0 2.8 13.3
$2,045.3 $1,799.1 13.7 Net income 1,036.9 1,008.4 919.9 2.8 12.7
2,045.3 1,804.7 13.3 MINNEAPOLIS, July 20 /PRNewswire-FirstCall/ --
U.S. Bancorp (NYSE:USB) today reported net income of $1,036.9
million for the second quarter of 2004, compared with $919.9
million for the second quarter of 2003. Net income of $.54 per
diluted share in the second quarter of 2004 was higher than the
same period of 2003 by $.06 (12.5 percent). Return on average
assets and return on average equity were 2.19 percent and 21.9
percent, respectively, for the second quarter of 2004, compared
with returns of 1.97 percent and 19.0 percent, respectively, for
the second quarter of 2003. U.S. Bancorp Chairman, President and
Chief Executive Officer Jerry A. Grundhofer said, "Our second
quarter results represent the high-quality earnings that we are
committed to produce for our shareholders. We saw very strong
growth in our fee-based products and services, with the majority of
categories displaying double-digit growth over both the previous
year and the first quarter of 2004 on an annualized basis. The net
interest margin was stable and earning assets were flat, compared
with the first quarter of 2004, as loan growth was funded through
reductions in investment securities. Credit quality continues to
show improvement, with the net charge-off ratio reaching 0.68
percent in the quarter and nonperforming assets declining 13.0
percent from March 31, 2004. In keeping with our target of
returning 80 percent or more of earnings to our shareholders, we
paid out 97 percent of earnings during the second quarter in the
form of dividends and share repurchases. The products and services
we now offer our customers are among the best in the industry and,
along with our people and growing markets, are exactly what we need
to drive organic growth." The Company's results for the second
quarter of 2004 improved over the same period of 2003, primarily
due to growth in fee-based products and services and a lower
provision for credit losses. Included in the current quarter were
losses on the sale of securities of ($171.7) million, a net
reduction of $384.8 million from securities gains realized in the
second quarter of 2003. The current quarter also included a $171.1
million reparation of mortgage servicing rights ("MSR"), a $367.4
million favorable variance over the second quarter of 2003. Since
the end of the first quarter of 2004, the yield on 10-year Treasury
Notes increased 75 basis points to 4.58 percent. The yield on
30-year Fannie Mae commitments rose 70 basis points during the same
timeframe. Driven by the rise in longer-term interest rates, the
mortgage industry experienced a decline in refinancing activities,
resulting in lower prepayments. Total net revenue on a
taxable-equivalent basis for the second quarter of 2004 was $250.4
million (7.7 percent) lower than the second quarter of 2003,
primarily reflecting the $384.8 million net reduction in gains
(losses) on the sale of securities. Favorable revenue growth in all
fee-based products and services categories partially offset the
reduction in securities gains. Total noninterest expense in the
second quarter of 2004 was lower than the second quarter of 2003,
primarily reflecting the $367.4 million favorable change in the
valuation of mortgage servicing rights caused by rising interest
rates from late first quarter 2004. Also contributing to the
positive variance in expense year-over-year was a $10.8 million
reduction in merger and restructuring-related charges. These
positive variances were partially offset by higher incentive-based
compensation, employee benefits, insurance, and other operating
expense. Provision for credit losses for the second quarter of 2004
was $204.5 million, a decrease of $118.5 million (36.7 percent)
from the second quarter of 2003. Net charge-offs in the second
quarter of 2004 were $204.5 million, compared with the first
quarter of 2004 net charge-offs of $233.9 million and the second
quarter of 2003 net charge-offs of $322.9 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 $910.9 million at June 30, 2004, from $1,046.6
million at March 31, 2004 (13.0 percent), and $1,359.7 million at
June 30, 2003 (33.0 percent). The ratio of the allowance for credit
losses to nonperforming loans was 299 percent at June 30, 2004,
compared with 258 percent at March 31, 2004, and 194 percent at
June 30, 2003. On December 31, 2003, the Company completed the
spin-off of Piper Jaffray Companies (NYSE:PJC). In connection with
the spin-off, accounting rules require that the financial
statements be restated for all prior periods. As such, historical
financial results related to Piper Jaffray Companies have been
segregated and accounted for in the Company's financial statements
as discontinued operations. Net income in the second quarter of
2003 included after-tax income from the discontinued operations of
Piper Jaffray Companies of $4.9 million, or $.01 per diluted share.
INCOME STATEMENT HIGHLIGHTS Table 2 (Taxable-equivalent basis, $ in
millions, except per-share data) Percent Percent Change Change 2Q
1Q 2Q 2Q04 vs 2Q04 vs 2004 2004 2003 1Q04 2Q03 Net interest income
$1,779.4 $1,779.0 $1,798.6 -- (1.1) Noninterest income 1,241.7
1,318.3 1,472.9 (5.8) (15.7) Total net revenue 3,021.1 3,097.3
3,271.5 (2.5) (7.7) Noninterest expense 1,232.6 1,454.9 1,546.6
(15.3) (20.3) Provision for credit losses 204.5 235.0 323.0 (13.0)
(36.7) Income from continuing operations before income taxes
1,584.0 1,407.4 1,401.9 12.5 13.0 Taxable- equivalent adjustment
7.0 7.2 6.7 (2.8) 4.5 Applicable income taxes 540.1 391.8 480.2
37.9 12.5 Income from continuing operations 1,036.9 1,008.4 915.0
2.8 13.3 Income from discontinued operations (after-tax) -- -- 4.9
nm nm Net income $1,036.9 $1,008.4 $919.9 2.8 12.7 Diluted earnings
per share: Income from continuing operations $0.54 $0.52 $0.47 3.8
14.9 Discontinued operations -- -- 0.01 nm nm Net income $0.54
$0.52 $0.48 3.8 12.5 YTD YTD Percent 2004 2003 Change Net interest
income $3,558.4 $3,575.3 (0.5) Noninterest income 2,560.0 2,839.0
(9.8) Total net revenue 6,118.4 6,414.3 (4.6) Noninterest expense
2,687.5 3,001.2 (10.5) Provision for credit losses 439.5 658.0
(33.2) Income from continuing operations before income taxes
2,991.4 2,755.1 8.6 Taxable- equivalent adjustment 14.2 14.0 1.4
Applicable income taxes 931.9 942.0 (1.1) Income from continuing
operations 2,045.3 1,799.1 13.7 Income from discontinued operations
(after-tax) -- 5.6 nm Net income $2,045.3 $1,804.7 13.3 Diluted
earnings per share: Income from continuing operations $1.06 $0.93
14.0 Discontinued operations -- 0.01 nm Net income $1.06 $0.94 12.8
Net Interest Income Second quarter net interest income on a
taxable-equivalent basis was $1,779.4 million, compared with
$1,798.6 million recorded in the second quarter of 2003. Average
earning assets for the period increased over the second quarter of
2003 by $7.6 billion (4.7 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 second quarter of 2004 was 4.28 percent, compared
with 4.29 percent in the first quarter of 2004 and 4.52 percent in
the second quarter of 2003. The decline in the net interest margin
in the second quarter of 2004 from the second 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. NET INTEREST INCOME Table 3 (Taxable-equivalent
basis; $ in millions) Change Change 2Q 1Q 2Q 2Q04 vs 2Q04 vs 2004
2004 2003 1Q04 2Q03 Components of net interest income Income on
earning assets $2,243.2 $2,265.3 $2,334.5 $(22.1) $(91.3) Expense
on interest- bearing liabilities 463.8 486.3 535.9 (22.5) (72.1)
Net interest income $1,779.4 $1,779.0 $1,798.6 $0.4 $(19.2) Average
yields and rates paid Earning assets yield 5.39% 5.47% 5.87%
(0.08)% (0.48)% Rate paid on interest- bearing liabilities 1.38
1.45 1.68 (0.07) (0.30) Gross interest margin 4.01% 4.02% 4.19%
(0.01)% (0.18)% Net interest margin 4.28% 4.29% 4.52% (0.01)%
(0.24)% Average balances Investment securities $42,489 $44,744
$36,142 $(2,255) $6,347 Loans 121,161 118,810 117,803 2,351 3,358
Earning assets 166,990 166,359 159,425 631 7,565 Interest- bearing
liabilities 134,819 134,966 127,552 (147) 7,267 Net free funds*
32,171 31,393 31,873 778 298 YTD YTD 2004 2003 Change Components of
net interest income Income on earning assets $4,508.5 $4,673.0
$(164.5) Expense on interest- bearing liabilities 950.1 1,097.7
(147.6) Net interest income $3,558.4 $3,575.3 $(16.9) Average
yields and rates paid Earning assets yield 5.43% 5.96% (0.53)% Rate
paid on interest-bearing liabilities 1.42 1.75 (0.33) Gross
interest margin 4.01% 4.21% (0.20)% Net interest margin 4.28% 4.56%
(0.28)% Average balances Investment securities $43,617 $35,187
$8,430 Loans 119,985 117,061 2,924 Earning assets 166,674 157,784
8,890 Interest-bearing liabilities 134,893 126,119 8,774 Net free
funds* 31,781 31,665 116 *Represents noninterest-bearing deposits,
allowance for loan losses, unrealized gain (loss) on
available-for-sale securities, non-earning assets, other
noninterest-bearing liabilities and equity AVERAGE LOANS Table 4 ($
in millions) Percent Percent Change Change 2Q 1Q 2Q 2Q04 vs 2Q04 vs
2004 2004 2003 1Q04 2Q03 Commercial $34,484 $33,629 $36,581 2.5
(5.7) Lease financing 4,846 4,902 5,121 (1.1) (5.4) Total
commercial 39,330 38,531 41,702 2.1 (5.7) Commercial mortgages
20,477 20,554 20,105 (0.4) 1.9 Construction and development 6,639
6,556 6,984 1.3 (4.9) Total commercial real estate 27,116 27,110
27,089 -- 0.1 Residential mortgages 14,052 13,610 11,012 3.2 27.6
Credit card 5,989 5,878 5,388 1.9 11.2 Retail leasing 6,484 6,192
5,762 4.7 12.5 Home equity and second mortgages 13,775 13,376
13,316 3.0 3.4 Other retail 14,415 14,113 13,534 2.1 6.5 Total
retail 40,663 39,559 38,000 2.8 7.0 Total loans $121,161 $118,810
$117,803 2.0 2.9 YTD YTD Percent 2004 2003 Change Commercial
$34,057 $36,460 (6.6) Lease financing 4,873 5,186 (6.0) Total
commercial 38,930 41,646 (6.5) Commercial mortgages 20,515 20,173
1.7 Construction and development 6,598 6,764 (2.5) Total commercial
real estate 27,113 26,937 0.7 Residential mortgages 13,831 10,570
30.9 Credit card 5,933 5,389 10.1 Retail leasing 6,338 5,756 10.1
Home equity and second mortgages 13,575 13,392 1.4 Other retail
14,265 13,371 6.7 Total retail 40,111 37,908 5.8 Total loans
$119,985 $117,061 2.5 Average loans for the second quarter of 2004
were $3.4 billion (2.9 percent) higher than the second quarter of
2003, primarily due to growth in average residential mortgages of
$3.0 billion (27.6 percent) and retail loans of $2.7 billion (7.0
percent) year-over-year. Total commercial loans declined by $2.4
billion (5.7 percent), while total commercial real estate loans
increased by $27 million (.1 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 second quarter of
2004 were higher than the first quarter of 2004 by $2.4 billion
(2.0 percent), reflecting growth in commercial loans, residential
mortgages and retail loans. Average investment securities in the
second quarter of 2004 were $6.3 billion (17.6 percent) higher than
the second quarter of 2003, reflecting the reinvestment of proceeds
from declining commercial loan balances and deposit growth from a
year ago. Investment securities at June 30, 2004, were $4.7 billion
higher than at June 30, 2003, but $5.1 billion lower than the
balance at March 31, 2004. During the second quarter of 2004, the
Company continued to reposition its investment portfolio as part of
its asset/liability management activities by acquiring principally
floating and shorter-term fixed-rate securities and selling
fixed-rate mortgage-backed securities. AVERAGE DEPOSITS Table 5 ($
in millions) Percent Percent Change Change 2Q 1Q 2Q 2Q04 vs 2Q04 vs
2004 2004 2003 1Q04 2Q03 Noninterest- bearing deposits $30,607
$29,025 $32,515 5.5 (5.9) Interest-bearing deposits Interest
checking 20,739 20,948 18,090 (1.0) 14.6 Money market accounts
34,242 34,397 31,134 (0.5) 10.0 Savings accounts 5,936 5,898 5,614
0.6 5.7 Savings products 60,917 61,243 54,838 (0.5) 11.1 Time
certificates of deposit less than $100,000 13,021 13,618 15,790
(4.4) (17.5) Time deposits greater than $100,000 12,571 12,133
13,008 3.6 (3.4) Total interest- bearing deposits 86,509 86,994
83,636 (0.6) 3.4 Total deposits $117,116 $116,019 $116,151 0.9 0.8
YTD YTD Percent 2004 2003 Change Noninterest- bearing deposits
$29,815 $32,669 (8.7) Interest- bearing deposits Interest checking
20,844 17,814 17.0 Money market accounts 34,320 29,915 14.7 Savings
accounts 5,917 5,444 8.7 Savings products 61,081 53,173 14.9 Time
certificates of deposit less than $100,000 13,319 16,500 (19.3)
Time deposits greater than $100,000 12,352 13,642 (9.5) Total
interest- bearing deposits 86,752 83,315 4.1 Total deposits
$116,567 $115,984 0.5 Average noninterest-bearing deposits for the
second quarter of 2004 were lower than the second quarter of 2003
by $1.9 billion (5.9 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 $2.9 billion (3.4 percent)
over the second 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
second quarter of 2004 were $1.6 billion (5.5 percent) higher than
the first quarter of 2004, primarily reflecting seasonality of
corporate and individual tax filings. Average interest-bearing
deposits were slightly lower than the first quarter of 2004 (.6
percent), primarily due to decreases in savings products and time
certificates of deposit less than $100,000, partially offset by an
increase in time deposits greater than $100,000.
Noninterest-bearing deposits at June 30, 2004, were lower than at
June 30, 2003, by $11.7 billion (26.3 percent), but were $1.7
billion (5.5 percent) higher than at March 31, 2004. NONINTEREST
INCOME Table 6 ($ in millions) Percent Percent Change Change 2Q 1Q
2Q 2Q04 vs 2Q04 vs 2004 2004 2003 1Q04 2Q03 Credit and debit card
revenue $158.8 $141.8 $142.3 12.0 11.6 Corporate payment products
revenue 102.7 94.8 90.9 8.3 13.0 ATM processing services 44.9 42.2
41.9 6.4 7.2 Merchant processing services 165.1 141.1 141.8 17.0
16.4 Trust and investment management fees 251.7 248.6 238.9 1.2 5.4
Deposit service charges 202.1 185.2 179.0 9.1 12.9 Treasury
management fees 121.5 117.5 111.8 3.4 8.7 Commercial products
revenue 107.4 110.4 100.0 (2.7) 7.4 Mortgage banking revenue 109.9
94.2 90.3 16.7 21.7 Investment products fees and commissions 42.2
39.3 38.1 7.4 10.8 Securities gains (losses), net (171.7) -- 213.1
nm nm Other 107.1 103.2 84.8 3.8 26.3 Total noninterest income
$1,241.7 $1,318.3 $1,472.9 (5.8) (15.7) YTD YTD Percent 2004 2003
Change Credit and debit card revenue $300.6 $269.7 11.5 Corporate
payment products revenue 197.5 176.9 11.6 ATM processing services
87.1 84.3 3.3 Merchant processing services 306.2 269.1 13.8 Trust
and investment management fees 500.3 467.5 7.0 Deposit service
charges 387.3 342.2 13.2 Treasury management fees 239.0 223.8 6.8
Commercial products revenue 217.8 204.2 6.7 Mortgage banking
revenue 204.1 185.7 9.9 Investment products fees and commissions
81.5 73.2 11.3 Securities gains (losses), net (171.7) 353.8 nm
Other 210.3 188.6 11.5 Total noninterest income $2,560.0 $2,839.0
(9.8) Noninterest Income Second quarter noninterest income was
$1,241.7 million, a decrease of $231.2 million (15.7 percent) from
the same quarter of 2003, and a $76.6 million (5.8 percent)
decrease from the first quarter of 2004. The decline in noninterest
income from the second quarter of 2003 was driven by a net
reduction in gains (losses) on the sale of securities of $384.8
million. The net reduction in gains (losses) on the sales of
securities year-over-year was partially offset by increases in all
other categories of noninterest income. Credit and debit card
revenue and corporate payment products revenue were higher in the
second quarter of 2004 than the second quarter of 2003 by $16.5
million (11.6 percent) and $11.8 million (13.0 percent),
respectively. Although credit and debit card revenue grew
year-over-year, the growth was somewhat muted due to the impact of
the settlement of the antitrust litigation brought against VISA USA
and Mastercard by Wal-Mart Stores, Inc., Sears Roebuck & Co.
and other retailers, which lowered the interchange rate on
signature debit transactions beginning in August 2003. The
year-over-year impact of the VISA settlement on credit and debit
card revenue was approximately $7.4 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
second quarter of 2004 than the same quarter of 2003 by $23.3
million (16.4 percent), reflecting an increase in transaction
volume and the purchase of two European merchant acquiring
businesses, which accounted for approximately $7.1 million of the
increase. The favorable variance in trust and investment management
fees of $12.8 million (5.4 percent) in the second quarter of 2004
over the same period of 2003 was principally driven by higher
equity market valuations year-over-year, as well as net new account
growth. Deposit service charges were higher year-over-year by $23.1
million (12.9 percent) due to account growth and revenue
enhancement initiatives. Treasury management fees grew by $9.7
million (8.7 percent) in the second 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 $7.4 million (7.4 percent) over the second quarter of
2003, primarily due to leasing fees and international product
revenue. The favorable variance year-over-year in mortgage banking
revenue of $19.6 million (21.7 percent) was primarily due to higher
origination and sales and loan servicing revenue. The $4.1 million
(10.8 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 $22.3 million (26.3
percent), primarily due to higher income from equity investments
relative to the same quarter of 2003. Noninterest income was lower
in the second quarter of 2004 than the first quarter of 2004 by
$76.6 million (5.8 percent), primarily due to the net reduction in
gains (losses) on the sale of securities of $171.7 million. This
unfavorable variance was partially offset by growth in the majority
of other noninterest income categories. Credit and debit card
revenue, corporate payment products revenue and ATM processing
services increased quarter-over-quarter by $17.0 million (12.0
percent), $7.9 million (8.3 percent) and $2.7 million (6.4
percent), respectively, driven by seasonally higher transaction
volumes. Merchant processing services revenue rose by $24.0 million
(17.0 percent) over the first quarter of 2004 due to seasonality,
higher same store sales and the purchase of two European merchant
acquiring businesses. Trust and investment management fees were
higher in the second quarter of 2004 than the first quarter of 2004
by $3.1 million (1.2 percent) due to tax preparation fees and net
new account growth. Deposit service charges were higher in the
second quarter by $16.9 million (9.1 percent) than the first
quarter, primarily due to pricing enhancements and an increase in
transaction-related fees. Treasury management fees increased by
$4.0 million (3.4 percent) quarter-over-quarter, primarily due to
federal tax receipts processing. Mortgage banking revenue was
higher in the second quarter of 2004 than the first quarter of 2004
by $15.7 million (16.7 percent) due to increased origination and
sales and loan servicing revenue. Investment products fees and
commissions and other income increased by $2.9 million (7.4
percent) and $3.9 million (3.8 percent), respectively. Higher
investment product sales in Consumer Banking led to the improvement
in investment products fees and commissions, while higher revenue
from equity investments relative to the first quarter of 2004 was
the primary reason for the favorable variance in other income.
NONINTEREST EXPENSE Table 7 ($ in millions) Percent Percent Change
Change 2Q 1Q 2Q 2Q04 vs 2Q04 vs 2004 2004 2003 1Q04 2Q03
Compensation $572.6 $535.8 $547.6 6.9 4.6 Employee benefits 91.2
100.2 79.6 (9.0) 14.6 Net occupancy and equipment 153.4 155.7 159.5
(1.5) (3.8) Professional services 34.7 32.4 32.9 7.1 5.5 Marketing
and business development 48.7 35.3 51.1 38.0 (4.7) Technology and
communications 102.4 101.7 104.1 0.7 (1.6) Postage, printing and
supplies 60.5 61.6 61.8 (1.8) (2.1) Other intangibles (47.6) 226.1
312.3 nm nm Merger and restructuring- related charges -- -- 10.8 nm
nm Other 216.7 206.1 186.9 5.1 15.9 Total noninterest expense
$1,232.6 $1,454.9 $1,546.6 (15.3) (20.3) YTD YTD Percent 2004 2003
Change Compensation $1,108.4 $1,093.6 1.4 Employee benefits 191.4
171.3 11.7 Net occupancy and equipment 309.1 320.8 (3.6)
Professional services 67.1 59.3 13.2 Marketing and business
development 84.0 80.9 3.8 Technology and communications 204.1 209.0
(2.3) Postage, printing and supplies 122.1 122.2 (0.1) Other
intangibles 178.5 547.4 (67.4) Merger and restructuring- related
charges -- 28.4 nm Other 422.8 368.3 14.8 Total noninterest expense
$2,687.5 $3,001.2 (10.5) Noninterest Expense Second quarter
noninterest expense totaled $1,232.6 million, a decrease of $314.0
million (20.3 percent) from the same quarter of 2003 and a $222.3
million (15.3 percent) decrease from the first quarter of 2004. The
decline in expense year-over-year was primarily driven by the
favorable change in MSR intangible valuations of $367.4 million and
a $10.8 million reduction in merger and restructuring-related
charges, offset by increases in compensation, employee benefits,
professional services, and other expense. Compensation expense was
higher year-over-year due to an increase in salaries,
performance-based incentives and stock-based compensation, offset
somewhat by lower contract labor costs. Employee benefits increased
year-over-year by $11.6 million (14.6 percent), primarily as a
result of higher pension expense, training, education and
recruitment costs and payroll taxes. Professional services were
higher than the same period of 2003 by $1.8 million (5.5 percent),
while other expense rose by $29.8 million (15.9 percent), primarily
due to higher charge-back exposure associated with the Company's
airline merchant processing portfolio, insurance, higher deposit
fraud losses and processing expenses associated with the growth in
payment services revenue. Noninterest expense in the second quarter
of 2004 was lower than the first quarter of 2004 by $222.3 million
(15.3 percent). The decline in noninterest expense from the first
quarter of 2004 was primarily due to the favorable change in MSR
intangible valuations of $280.4 million, partially offset by
increases in compensation, professional services, marketing and
business development, technology and communication and other
expense. The $36.8 million (6.9 percent) increase in compensation
expense quarter-over- quarter was primarily due to higher
performance-based incentives, resulting from mortgage banking and
product sales production, as well as stock-based compensation
costs. The unfavorable variance in marketing and business
development of $13.4 million (38.0 percent) quarter-over-quarter
was primarily due to the timing of promotional programs and brand
advertising. Other expense grew by $10.6 million (5.1 percent) over
the first quarter of 2004, the result of higher merchant acquiring
costs, higher mortgage loan expenses and slightly higher deposit
fraud losses, offset by a charge taken in the first quarter of 2004
related to prepaying a portion of the Company's debt. ALLOWANCE FOR
CREDIT LOSSES Table 8 ($ in millions) 2Q 1Q 4Q 3Q 2Q 2004 2004 2003
2003 2003 Balance, beginning of period $2,369.7 $2,368.6 $2,367.7
$2,367.6 $2,408.5 Net charge-offs Commercial 35.7 53.6 100.9 123.9
122.9 Lease financing 18.9 21.3 14.9 19.2 26.9 Total commercial
54.6 74.9 115.8 143.1 149.8 Commercial mortgages 1.8 4.6 10.0 5.9
9.3 Construction and development 0.7 4.7 2.9 4.6 2.5 Total
commercial real estate 2.5 9.3 12.9 10.5 11.8 Residential mortgages
7.3 7.3 7.2 7.3 6.5 Credit card 62.7 63.4 62.3 59.3 64.5 Retail
leasing 9.8 11.0 11.3 12.2 12.6 Home equity and second mortgages
20.2 19.5 20.4 23.2 23.9 Other retail 47.4 48.5 55.2 54.3 53.8
Total retail 140.1 142.4 149.2 149.0 154.8 Total net charge-offs
204.5 233.9 285.1 309.9 322.9 Provision for credit losses 204.5
235.0 286.0 310.0 323.0 Acquisitions and other changes -- -- -- --
(41.0) Balance, end of period $2,369.7 $2,369.7 $2,368.6 $2,367.7
$2,367.6 Components Allowance for loan losses $2,244.4 $2,238.3
$2,235.0 $2,241.2 $2,266.2 Liability for unfounded credit
commitments* 125.3 131.4 133.6 126.5 101.4 Total allowance for
credit losses $2,369.7 $2,369.7 $2,368.6 $2,367.7 $2,367.6 Gross
charge-offs $274.3 $304.8 $352.3 $373.6 $375.6 Gross recoveries
$69.8 $70.9 $67.2 $63.7 $52.7 Net charge-offs to average loans (%)
0.68 0.79 0.95 1.02 1.10 Allowance as a percentage of: Period-end
loans 1.93 1.98 2.00 1.98 1.98 Nonperforming loans 299 258 232 202
194 Nonperforming assets 260 226 206 180 174 * 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 June 30, 2004, equal to the allowance for
credit losses at March 31, 2004, and essentially equal to the
allowance for credit losses of $2,367.6 million at June 30, 2003.
The ratio of the allowance for credit losses to period-end loans
was 1.93 percent at June 30, 2004, compared with 1.98 percent at
both March 31, 2004, and June 30, 2003. The ratio of the allowance
for credit losses to nonperforming loans was 299 percent at June
30, 2004, compared with 258 percent at March 31, 2004, and 194
percent at June 30, 2003. Total net charge-offs in the second
quarter of 2004 were $204.5 million, compared with the first
quarter of 2004 net charge-offs of $233.9 million and the second
quarter of 2003 net charge-offs of $322.9 million. Commercial and
commercial real estate loan net charge-offs were $57.1 million for
the second quarter of 2004, or .35 percent of average loans
outstanding, compared with $84.2 million, or .52 percent of average
loans outstanding, in the first quarter of 2004 and $161.6 million,
or .94 percent of average loans outstanding, in the second 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 $140.1 million in the second quarter of
2004 were $2.3 million (1.6 percent) lower than the first quarter
of 2004 and $14.7 million (9.5 percent) lower than the second
quarter of 2003. Retail loan net charge-offs as a percent of
average loans outstanding were 1.39 percent in the second quarter
of 2004, compared with 1.45 percent and 1.63 percent in the first
quarter of 2004 and second quarter of 2003, respectively. Lower
levels of retail loan net charge-offs principally reflected the
Company's improvement in ongoing collection efforts and risk
management. CREDIT RATIOS Table 9 (Percent) 2Q 1Q 4Q 3Q 2Q 2004
2004 2003 2003 2003 Net charge-offs ratios* Commercial 0.42 0.64
1.14 1.33 1.35 Lease financing 1.57 1.75 1.19 1.52 2.11 Total
commercial 0.56 0.78 1.15 1.35 1.44 Commercial mortgages 0.04 0.09
0.20 0.12 0.19 Construction and development 0.04 0.29 0.16 0.25
0.14 Total commercial real estate 0.04 0.14 0.19 0.15 0.17
Residential mortgages 0.21 0.22 0.21 0.24 0.24 Credit card 4.21
4.34 4.33 4.20 4.80 Retail leasing 0.61 0.71 0.76 0.83 0.88 Home
equity and second mortgages 0.59 0.59 0.62 0.70 0.72 Other retail
1.32 1.38 1.57 1.55 1.59 Total retail 1.39 1.45 1.53 1.54 1.63
Total net charge-offs 0.68 0.79 0.95 1.02 1.10 Delinquent loan
ratios - 90 days or more past due excluding nonperforming loans**
Commercial 0.05 0.06 0.06 0.11 0.09 Commercial real estate 0.01
0.01 0.02 0.01 0.02 Residential mortgages 0.50 0.56 0.61 0.63 0.65
Retail 0.48 0.54 0.56 0.57 0.63 Total loans 0.24 0.27 0.28 0.29
0.30 Delinquent loan ratios - 90 days or more past due including
nonperforming loans** Commercial 1.37 1.67 1.97 2.31 2.27
Commercial real estate 0.76 0.85 0.82 0.75 0.82 Residential
mortgages 0.79 0.87 0.91 0.98 1.13 Retail 0.52 0.59 0.62 0.63 0.70
Total loans 0.88 1.03 1.14 1.27 1.32 * 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
second 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) Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
2004 2004 2003 2003 2003 Nonperforming loans Commercial $415.7
$510.7 $623.5 $793.9 $795.2 Lease financing 111.0 115.6 113.3 111.6
126.6 Total commercial 526.7 626.3 736.8 905.5 921.8 Commercial
mortgages 163.8 184.9 177.6 161.5 182.0 Construction and
development 41.3 43.6 39.9 40.2 35.3 Commercial real estate 205.1
228.5 217.5 201.7 217.3 Residential mortgages 41.7 42.1 40.5 46.1
56.0 Retail 18.4 20.4 25.2 21.6 24.2 Total nonperforming loans
791.9 917.3 1,020.0 1,174.9 1,219.3 Other real estate 70.0 76.0
72.6 70.4 71.5 Other nonperforming assets 49.0 53.3 55.5 73.0 68.9
Total nonperforming assets* $910.9 $1,046.6 $1,148.1 $1,318.3
$1,359.7 Accruing loans 90 days or more past due $293.2 $319.2
$329.4 $352.4 $360.7 Nonperforming assets to loans plus ORE (%)
0.74 0.87 0.97 1.10 1.14 * does not include accruing loans 90 days
or more past due Nonperforming assets at June 30, 2004, totaled
$910.9 million, compared with $1,046.6 million at March 31, 2004,
and $1,359.7 million at June 30, 2003. The ratio of nonperforming
assets to loans and other real estate was .74 percent at June 30,
2004, compared with .87 percent at March 31, 2004, and 1.14 percent
at June 30, 2003. Given the Company's ongoing efforts to reduce the
overall risk profile of the organization, nonperforming assets are
expected to continue to trend lower. CAPITAL POSITION Table 11 ($
in millions) Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 2004 2004 2003 2003
2003 Total shareholders' equity $18,675 $19,452 $19,242 $19,771
$19,521 Tier 1 capital 14,294 14,499 14,623 14,589 13,950 Total
risk-based capital 21,255 21,559 21,710 21,859 21,392 Common equity
to assets 9.8% 10.1% 10.2% 10.5% 10.0% Tangible common equity to
assets 6.3 6.4 6.5 6.6 6.0 Tier 1 capital ratio 8.7 8.9 9.1 9.0 8.5
Total risk-based capital ratio 12.9 13.3 13.6 13.5 13.0 Leverage
ratio 7.8 8.0 8.0 8.0 7.8 Total shareholders' equity was $18.7
billion at June 30, 2004, compared with $19.5 billion at June 30,
2003. The decrease was the result of corporate earnings offset by
dividends, including the special dividend of $685 million related
to the spin-off of Piper Jaffray Companies, share buybacks and the
change in other comprehensive income, principally reflecting
changes in securities valuations from a year ago. Tangible common
equity to assets was 6.3 percent at June 30, 2004, compared with
6.4 percent at March 31, 2004, and 6.0 percent at June 30, 2003.
The Tier 1 capital ratio was 8.7 percent at June 30, 2004, compared
with 8.9 percent at March 31, 2004, and 8.5 percent at June 30,
2003. The total risk- based capital ratio was 12.9 percent at June
30, 2004, compared with 13.3 percent at March 31, 2004, and 13.0
percent at June 30, 2003. The leverage ratio was 7.8 percent at
June 30, 2004, compared with 8.0 percent at March 31, 2004, and 7.8
percent at June 30, 2003. All regulatory ratios continue to be in
excess of stated "well capitalized" requirements. COMMON SHARES
Table 12 (Millions) 2Q 1Q 4Q 3Q 2Q 2004 2004 2003 2003 2003
Beginning shares outstanding 1,901.2 1,922.9 1,927.4 1,924.5
1,919.0 Shares issued for stock option and stock purchase plans,
acquisitions and other corporate purposes 3.7 12.1 10.5 2.9 5.5
Shares repurchased (20.8) (33.8) (15.0) -- -- Ending shares
outstanding 1,884.1 1,901.2 1,922.9 1,927.4 1,924.5 On December 16,
2003, the board of directors of U.S. Bancorp approved an
authorization to repurchase 150 million shares of outstanding
common stock during the following 24 months. During the second
quarter of 2004, the Company repurchased 20.8 million shares of
common stock. As of June 30, 2004, there were approximately 87
million shares remaining to be repurchased under the current
authorization. LINE OF BUSINESS FINANCIAL PERFORMANCE* Table 13 ($
in millions) Operating Earnings** Percent Change 2Q 1Q 2Q 2Q04 vs
2Q04 vs Business Line 2004 2004 2003 1Q04 2Q03 Wholesale Banking
$265.7 $249.9 $210.5 6.3 26.2 Consumer Banking*** 394.5 283.8 333.2
39.0 18.4 Private Client, Trust and Asset Management 109.0 110.0
97.5 (0.9) 11.8 Payment Services 176.8 160.9 143.4 9.9 23.3
Treasury and Corporate Support 90.9 203.8 137.6 (55.4) (33.9)
Consolidated Company $1,036.9 $1,008.4 $922.2 2.8 12.4 2Q 2004 YTD
YTD Percent Earnings Business Line 2004 2003 Change Composition
Wholesale Banking $515.6 $423.2 21.8 26% Consumer Banking*** 678.3
646.4 4.9 38 Private Client, Trust and Asset Management 219.0 185.3
18.2 10 Payment Services 337.7 276.4 22.2 17 Treasury and Corporate
Support 294.7 286.5 2.9 9 Consolidated Company $2,045.3 $1,817.8
12.5 100% * preliminary data ** earnings before merger and
restructuring-related items and discontinued operations *** In 2Q04
Consumer Banking's retail banking business grew operating earnings
by 22.4 percent and 8.8 percent over 2Q03 and 1Q04, respectively.
The Consumer Bank's mortgage banking business profitability
declined slightly in 2Q04 from 2Q03, but significantly increased in
2Q04 over 1Q04 due to MSR impairment of $109.3 million, which the
Company elected not to offset by realizing securities gains for the
business line in 1Q04. 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, 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 $265.7 million of the Company's operating
earnings in the second quarter of 2004, a 26.2 percent increase
over the same period of 2003 and a 6.3 percent increase over the
first quarter of 2004. The increase in Wholesale Banking's second
quarter 2004 contribution over the second quarter of 2003 was
primarily the result of favorable variances in the provision for
credit losses (92.3 percent) and total noninterest expense (3.3
percent), partially offset by a decrease in total net revenue (3.5
percent). Total net revenue in the second quarter of 2004 was lower
than in the second quarter of 2003, reflecting unfavorable
variances in both net interest income (4.9 percent) and noninterest
income (.6 percent). The decrease in net interest income was
primarily due to a decline in average total loans outstanding (5.2
percent) and average noninterest bearing deposits (14.5 percent)
due, in part, to lower deposits held by the Federal government.
Although treasury management fees were higher (15.1 percent)
year-over-year, the growth was more than offset by unfavorable
variances in commercial products revenue (6.3 percent), primarily
conduit servicing fees, and other revenue (32.7 percent). 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
maintaining compensating deposit balances to paying fees. Wholesale
Banking's favorable variance in total noninterest expense
year-over-year was primarily driven by a decline in other expense
(30.2 percent), the result of lower loan workout-related expense
relative to the second quarter of 2003, partially offset by an
increase in net shared services expense (5.9 percent), which is
primarily driven by customer transaction volume and account
activities. The decrease in the provision for credit losses
year-over-year was the result of a reduction in net charge-offs,
the result of improving credit quality. The increase in Wholesale
Banking's contribution to operating earnings in the second quarter
of 2004 over the first quarter of 2004 was the net result of
favorable variances in the provision for credit losses (74.7
percent) and total net revenue (.3 percent), partially offset by
higher total noninterest expense (1.5 percent). Total net revenue
was slightly higher on a linked quarter basis, with a favorable
variance in net interest income (1.1 percent), offset by an
unfavorable variance in noninterest income (.8 percent). The change
in net interest income reflected increases over the prior quarter
in the business line's average total loans outstanding (1.0
percent) and average total deposits (2.4 percent). The unfavorable
variance quarter-over-quarter in noninterest income was attributed
to lower commercial products revenue, partially offset by higher
treasury management fees and other revenue. The increase in
noninterest expense was principally due to higher net shared
services and loan-related expense, offset by lower compensation and
employee benefits 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, 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 $394.5 million of
the Company's operating earnings in the second quarter of 2004, an
18.4 percent increase over the same period of 2003 and a 39.0
percent increase over the first quarter of 2004. While the retail
banking business segment grew operating earnings by 22.4 percent
and 8.8 percent over the second quarter of 2003 and the first
quarter of 2004, respectively, the contribution of the mortgage
banking business declined slightly year-over-year (3.7 percent),
but provided a significant part of the growth for Consumer Banking
over the first quarter of 2004. The decrease in the mortgage
banking business's contribution from the second quarter of 2003 was
primarily the result of an increase in noninterest expense,
excluding the change in MSR valuation, due to an increase in other
intangible amortization, the result of the growing servicing
portfolio. In the second quarter of 2004, as in the second quarter
of 2003, net gains (losses) on securities in the mortgage banking
business line were offset by the change in MSR valuation. The
mortgage banking business line's contribution rose in the second
quarter of 2004 over the first quarter of 2004, primarily due to a
favorable change in the MSR valuation of $280.4 million, partially
offset by the reduction in net gains (losses) on the sale of
securities of $171.1 million. In the first quarter of 2004, the
Company elected not to sell higher yielding securities to offset
MSR impairment in the mortgage banking business. The mortgage
banking business also benefited from growth in both net interest
and noninterest income and lower noninterest expense relative to
the first quarter of 2004. For the Consumer Banking business, as a
whole, the unfavorable variance in gains (losses) on the sale of
securities was offset with the favorable variance in MSR valuation
year-over-year. Excluding net gains (losses) on the sale of
securities, total net revenue was higher than the same quarter of
the 2003 by 6.2 percent, including increases in both net interest
income (1.0 percent) and noninterest income (18.2 percent).
Consumer Banking's results also benefited from a reduction in the
provision for credit losses (11.8 percent) and a favorable variance
in total noninterest expense, excluding the change in MSR
valuations (.6 percent), over the second quarter of 2003. Net
interest income improved year-over-year, the result of increases in
average loans outstanding (8.6 percent) and a favorable change in
the mix of average total deposits, partially offset by declines in
the average balance of loans held for sale and in the business
line's net interest margin. Noninterest income improved in the
second quarter of 2004 over the same period of 2003, primarily due
to growth in deposit service charges (13.1 percent), commercial
products revenue (47.9 percent), mortgage banking revenue (20.9
percent), investment products fees and commissions (11.7 percent)
and other revenue (89.0 percent). Other revenue was higher due to
lower lease residual losses and gains on the sale of student loans
relative to the second quarter of 2003. Total noninterest expense,
excluding the change in MSR valuation (.6 percent), in the second
quarter of 2004 was lower than the second quarter of 2003, mainly
due to a favorable change in net shared services expense (12.4
percent). A reduction in net charge-offs year-over-year drove the
positive variance in the business line's provision for credit
losses. The increase in Consumer Banking's contribution in the
second quarter of 2004 over the first quarter of 2004 was primarily
the result of a favorable change in the MSR valuation of $280.4
million, partially offset by the reduction in net gains (losses) on
the sale of securities of $171.1 million. In the first quarter of
2004, the Company elected not to sell higher yielding securities to
offset MSR impairment in the mortgage banking business segment.
Excluding the impact of the change in MSR and net gains (losses) on
the sale of securities, Consumer Banking's contribution for the
current quarter rose by 11.7 percent over the first quarter of
2004. The increase was primarily due to an increase in total net
revenue, excluding net gains (losses) on the sale of securities
(5.0 percent), and a reduction in the provision for credit losses
(12.8 percent). Offsetting these favorable variances were higher
noninterest expense, excluding the change in MSR valuation (2.2
percent). The growth in noninterest income, excluding net gains
(losses) on the sale of securities, quarter-over-quarter was driven
by deposit service charges, commercial products revenue, mortgage
banking revenue, investment products fees and commissions and other
revenue. The unfavorable variance in noninterest expense, excluding
the change in MSR valuation, quarter-over- quarter was primarily
the result of higher net shared services expense and other expense.
Private Client, Trust and Asset Management provides trust, private
banking, financial advisory, investment management and mutual fund
and alternative investment product services through five
businesses: Private Client Group, Corporate Trust, Asset
Management, Institutional Trust, and Custody and Fund Services,
LLC. Private Client, Trust and Asset Management contributed $109.0
million of the Company's operating earnings in the second quarter
of 2004, 11.8 percent higher than the same period of 2003 and .9
percent lower than the first quarter of 2004. The favorable
variance in the business line's contribution in the second quarter
of 2004 over the second quarter of 2003 was the result of favorable
variances in total net revenue (7.6 percent) and total noninterest
expense (.7 percent), partially offset by a $7.3 million increase
in the provision for credit losses. Higher average loans
outstanding (3.4 percent) and total deposits (34.0 percent)
favorably impacted net interest income year-over-year, while
noninterest income benefited from higher trust and investment
management fees due to improving equity market valuations and net
new account growth. The slight decrease in the business line's
contribution (.9 percent) in the second quarter of 2004 from the
first quarter of 2004 was the result of higher total net revenue
(2.7 percent), offset by higher total noninterest expense (1.6
percent) and a $7.9 million increase in the provision for credit
losses, the result of higher net charge-offs in the second quarter
of 2004. The increase in net interest income from the first quarter
of 2004 to the second quarter of 2004 was primarily driven by an
increase in average loans outstanding (2.2 percent) and total
deposits (3.1 percent), while noninterest income benefited from tax
preparation fees and net new account growth. 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
$176.8 million of the Company's operating earnings in the second
quarter of 2004, a 23.3 percent increase over the same period of
2003, and a 9.9 percent increase over the first quarter of 2004.
The increase in Payment Services' contribution in the second
quarter of 2004 from the same period of 2003 was the result of
higher total net revenue (10.0 percent) and a lower provision for
credit losses (9.6 percent), partially offset by an increase in
total noninterest expense (5.8 percent). The increase in total net
revenue year- over-year was primarily due to growth in noninterest
income (14.4 percent), partially offset by lower net interest
income (2.3 percent), which primarily reflected higher corporate
card rebates and a reduction in late fees relative to the prior
year's quarter. The increase in noninterest income was principally
the result of growth in credit and debit card revenue (11.5
percent), corporate payment products revenue (13.0 percent), ATM
processing service revenue (10.6 percent) and merchant processing
services revenue (16.4 percent). Although credit and debit card
revenue was negatively impacted in the second 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 growth
in total noninterest expense year-over-year primarily reflected an
increase in processing expense related to the revenue growth. The
increase in Payment Services' contribution in the second quarter of
2004 over the first quarter of 2004 was primarily due to seasonally
strong total net revenue (8.1 percent), offset by a slight increase
in the provision for credit losses (2.4 percent) and an increase in
total noninterest expense (8.5 percent), the result of the increase
in processing related expense. Treasury and Corporate Support
includes the Company's investment portfolios, funding, capital
management and asset securitization activities, interest rate risk
management, the net effect of transfer pricing related to average
balances and the residual aggregate of 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 $90.9 million in the second quarter of 2004, compared with
operating earnings of $137.6 million in the second quarter of 2003
and $203.8 million in the first quarter of 2004. The decrease in
operating earnings in the current quarter from the second quarter
of 2003 was largely due to lower total net revenue (6.5 percent)
and higher total noninterest expense (45.8 percent). Lower net
revenue reflected the Company's asset/liability management
decisions to invest in lower-yield floating-rate securities,
higher-cost fixed funding and repositioning of the balance sheet
for changes in the interest rate environment. The increase in total
noninterest expense year-over-year reflected higher performance and
stock- based compensation costs during 2004. The unfavorable
variance in operating earnings in the second quarter of 2004 from
the first quarter of 2004 was principally the net result of a $90.0
million credit in income tax expense and a $35.4 million charge
associated with the prepayment of debt, both of which were recorded
in the first quarter of 2004. In addition, total net revenue
declined 8.1 percent quarter-over-quarter, primarily due to the
reduction in the investment securities portfolio and continuing
asset/liability management decisions of the Company. Additional
schedules containing more detailed information about the Company's
business line results are available on the web at
http://usbank.com/ or by calling Investor Relations at
612-303-0781. CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
JERRY A. GRUNDHOFER, AND VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER,
DAVID M. MOFFETT, WILL HOST A CONFERENCE CALL TO REVIEW THE
FINANCIAL RESULTS ON TUESDAY, July 20, 2004, AT 1:00 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, July 20, 2004, and will run through Tuesday, July
27, 2004, at 11:00 p.m. (CDT). To access the recorded message dial
888-567-0677. If calling from outside the United States, please
dial 402-530-0419. After July 27th, 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
$190 billion in assets, is the 6th largest financial services
holding company in the United States. The company operates 2,315
banking offices and 4,565 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 Six Months Ended Except Per Share Data) June 30,
June 30, (Unaudited) 2004 2003 2004 2003 Interest Income Loans
$1,740.0 $1,821.0 $3,487.0 $3,657.7 Loans held for sale 27.3 51.8
47.2 111.4 Investment securities Taxable 438.7 422.4 902.7 818.5
Non-taxable 4.7 7.5 10.0 16.4 Other interest income 25.5 25.1 47.4
55.0 Total interest income 2,236.2 2,327.8 4,494.3 4,659.0 Interest
Expense Deposits 205.3 288.5 432.3 595.1 Short-term borrowings 58.9
38.9 108.8 78.4 Long-term debt 174.8 184.0 360.7 368.3 Junior
subordinated debentures 24.8 24.5 48.3 55.9 Total interest expense
463.8 535.9 950.1 1,097.7 Net interest income 1,772.4 1,791.9
3,544.2 3,561.3 Provision for credit losses 204.5 323.0 439.5 658.0
Net interest income after provision for credit losses 1,567.9
1,468.9 3,104.7 2,903.3 Noninterest Income Credit and debit card
revenue 158.8 142.3 300.6 269.7 Corporate payment products revenue
102.7 90.9 197.5 176.9 ATM processing services 44.9 41.9 87.1 84.3
Merchant processing services 165.1 141.8 306.2 269.1 Trust and
investment management fees 251.7 238.9 500.3 467.5 Deposit service
charges 202.1 179.0 387.3 342.2 Treasury management fees 121.5
111.8 239.0 223.8 Commercial products revenue 107.4 100.0 217.8
204.2 Mortgage banking revenue 109.9 90.3 204.1 185.7 Investment
products fees and commissions 42.2 38.1 81.5 73.2 Securities gains
(losses), net (171.7) 213.1 (171.7) 353.8 Other 107.1 84.8 210.3
188.6 Total noninterest income 1,241.7 1,472.9 2,560.0 2,839.0
Noninterest Expense Compensation 572.6 547.6 1,108.4 1,093.6
Employee benefits 91.2 79.6 191.4 171.3 Net occupancy and equipment
153.4 159.5 309.1 320.8 Professional services 34.7 32.9 67.1 59.3
Marketing and business development 48.7 51.1 84.0 80.9 Technology
and communications 102.4 104.1 204.1 209.0 Postage, printing and
supplies 60.5 61.8 122.1 122.2 Other intangibles (47.6) 312.3 178.5
547.4 Merger and restructuring-related charges -- 10.8 -- 28.4
Other 216.7 186.9 422.8 368.3 Total noninterest expense 1,232.6
1,546.6 2,687.5 3,001.2 Income from continuing operations before
income taxes 1,577.0 1,395.2 2,977.2 2,741.1 Applicable income
taxes 540.1 480.2 931.9 942.0 Income from continuing operations
1,036.9 915.0 2,045.3 1,799.1 Income from discontinued operations
(after-tax) -- 4.9 -- 5.6 Net income $1,036.9 $919.9 $2,045.3
$1,804.7 Earnings Per Share Income from continuing operations $.55
$.48 $1.07 $.94 Discontinued operations -- -- -- -- Net income $.55
$.48 $1.07 $.94 Diluted Earnings Per Share Income from continuing
operations $.54 $.47 $1.06 $.93 Discontinued operations -- .01 --
.01 Net income $.54 $.48 $1.06 $.94 Dividends declared per share
$.240 $.205 $.480 $.410 Average common shares outstanding 1,891.6
1,922.3 1,903.5 1,920.6 Average diluted common shares outstanding
1,913.4 1,931.6 1,927.3 1,928.6 U.S. Bancorp Consolidated Ending
Balance Sheet June 30, December 31, June 30, (Dollars in Millions)
2004 2003 2003 Assets (Unaudited) (Unaudited) Cash and due from
banks $7,476 $8,630 $11,795 Investment securities Held-to-maturity
125 152 188 Available-for-sale 40,160 43,182 35,390 Loans held for
sale 1,383 1,433 3,791 Loans Commercial 40,065 38,526 42,238
Commercial real estate 27,204 27,242 27,259 Residential mortgages
14,380 13,457 11,712 Retail 41,181 39,010 38,214 Total loans
122,830 118,235 119,423 Less allowance for loan losses (2,244)
(2,369) (2,368) Net loans 120,586 115,866 117,055 Premises and
equipment 1,893 1,957 2,064 Customers' liability on acceptances 169
121 148 Goodwill 6,226 6,025 6,329 Other intangible assets 2,475
2,124 1,984 Other assets 9,737 9,796 16,155 Total assets $190,230
$189,286 $194,899 Liabilities and Shareholders' Equity Deposits
Noninterest-bearing $32,786 $32,470 $44,465 Interest-bearing 71,314
74,749 72,315 Time deposits greater than $100,000 15,827 11,833
9,547 Total deposits 119,927 119,052 126,327 Short-term borrowings
11,592 10,850 7,387 Long-term debt 31,013 31,215 31,379 Junior
subordinated debentures 2,652 2,601 2,652 Acceptances outstanding
169 121 148 Other liabilities 6,202 6,205 7,485 Total liabilities
171,555 170,044 175,378 Shareholders' equity Common stock 20 20 20
Capital surplus 5,860 5,851 5,836 Retained earnings 15,644 14,508
14,121 Less treasury stock (2,316) (1,205) (1,092) Other
comprehensive income (533) 68 636 Total shareholders' equity 18,675
19,242 19,521 Total liabilities and shareholders' equity $190,230
$189,286 $194,899 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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