EX-99.1 2 c25693exv99w1.htm PRESS RELEASE ISSUED APRIL 15, 2008 exv99w1
 

Exhibit 99.1
         
(US BANCORP LOGO)
  News Release    
 
  Contacts:    
 
  Steve Dale   Judith T. Murphy
 
  Media Relations   Investor Relations
 
  (612) 303-0784   (612) 303-0783
U.S. BANCORP REPORTS NET INCOME
FOR THE FIRST QUARTER OF 2008
                                         
EARNINGS SUMMARY                                   Table 1  
 
($ in millions, except per-share data)                                       
                            Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs  
  2008     2007     2007     4Q07     1Q07  
     
Net income
   $ 1,090     $ 942     $ 1,130       15.7       (3.5 )
Diluted earnings per common share
     .62       .53       .63       17.0       (1.6 )
 
Return on average assets (%)
     1.85       1.63       2.09                  
Return on average common equity (%)
     21.3       18.3       22.4                  
Net interest margin (%)
     3.55       3.51       3.51                  
Efficiency ratio (%)
     43.5       55.1       46.4                  
Tangible efficiency ratio (%) (a)
     41.4       52.5       43.6                  
 
Dividends declared per common share
   $ .425     $ .425     $ .400       —       6.3  
Book value per common share (period-end)
     11.55       11.60       11.37       (.4 )     1.6  
 
(a)   computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net and intangible amortization.
     MINNEAPOLIS, April 15, 2008 – U.S. Bancorp (NYSE: USB) today reported net income of $1,090 million for the first quarter of 2008, compared with $1,130 million for the first quarter of 2007. Diluted earnings per common share of $.62 in the first quarter of 2008 were slightly lower than the same period of 2007 by 1.6 percent, or $.01 per diluted common share. Return on average assets and return on average common equity were 1.85 percent and 21.3 percent, respectively, for the first quarter of 2008, compared with returns of 2.09 percent and 22.4 percent, respectively, for the first quarter of 2007. Several significant items were reflected in the Company’s quarterly results, including a $492 million gain related to the Visa Inc. initial public offering that occurred in March of 2008 (“Visa Gain”) and $253 million of impairment charges on structured investment securities purchased in the fourth quarter of 2007 from certain money market funds managed by an affiliate. The Company’s results also included incremental provision for credit losses of $192 million, reflecting continuing stress in the residential real estate markets and related

 

 

U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 2
industries, in addition to the continued growth of the consumer loan portfolios. The quarter also included the adoption of a new accounting standard which resulted in a $62 million reduction to pretax income. In addition, the Company recorded a $25 million contribution to the U.S. Bancorp Foundation and accrued $22 million for certain litigation matters. These items taken together had an approximate impact of ($.02) per diluted common share. The fourth quarter of 2007 results also were affected by two significant items, the pretax charges of $215 million for the Company’s proportionate share of a contingent obligation to indemnify Visa Inc. for certain litigation matters (“Visa Litigation Charge”) and $107 million for valuation losses related to securities purchased from certain money market funds managed by an affiliate. The cumulative impact of these charges in the fourth quarter of 2007 was approximately ($.13) per diluted common share.
     U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, “Our Company’s first quarter results reflected the disciplined approach we have taken toward managing credit and operating risk, while prudently investing for growth. Although the quarter included a number of significant items, the net impact to diluted earnings per share was small and our core operating results were solid.
     “Our fundamental revenue growth was strong year-over-year and on a linked quarter basis. Net interest income increased 9.8 percent over the same quarter of last year and 3.8 percent over the prior quarter, reflecting growth in earning assets and a slightly higher net interest margin of 3.55 percent. Although fee income is seasonally the lowest in the first quarter of each year – 2008 being no exception – on a year-over-year basis the business lines continued to show strong growth in a number of fee categories, including payments, treasury management, commercial products and mortgage banking.
     “In addition to the favorable trends in net interest income and fees, average loans and deposits showed very positive growth rates over the first and fourth quarters of 2007, reflecting the business lines’ continued success in executing a number of growth initiatives, expanding current customer relationships and attracting new customers.
     “As expected, net charge-offs and nonperforming assets increased in the first quarter at manageable levels for our Company. Declining home prices in many of our markets, in addition to stress in the residential home building and mortgage-related industries, are expected to continue through the balance of the year. Given our Company’s overall credit risk profile, however, we anticipate that expected increases in net charge-offs and nonperforming assets in the near term will continue to be manageable.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 3
     “Our capital position is strong and the Company remains well-capitalized. As we indicated last quarter, we suspended our stock buyback for the majority of the first quarter in order to reach our target Tier 1 capital ratio of 8.5 percent, after having dropped slightly below that level on December 31, 2007. At March 31, 2008, the Company’s Tier 1 capital ratio was slightly above target at 8.6 percent.
     “At the end of March, we announced that our lead bank, U.S. Bank National Association, had entered into a definitive agreement to purchase Mellon 1st Business Bank in California. This acquisition will more than double our deposit market share in the attractive, growing Los Angeles area, as well as significantly expand our middle market customer base. Mellon 1st Business Bank is an excellent example of the type of acquisition we continue to seek – acquisitions that serve to strengthen our presence in the faster growing markets within our footprint.
     “With the first quarter of 2008 successfully behind us, I am confident that our Company will continue to perform and prosper, despite the current economic environment. Our management team and employees are focused on business growth initiatives and opportunities to deepen current client relationships and acquire new customers. In other words, we are “open for business” and look forward to maintaining and reinforcing our position as one of the leaders in the financial services industry. Our Company will continue to invest in our products and services, our communities, and our employees, while focusing on our responsibilities to produce consistent, predictable and repeatable results for our shareholders. ”
     The Company’s net income for the first quarter of 2008 decreased by $40 million (3.5 percent) from the same period of 2007. The reduction in net income year-over-year was the result of a 14.4 percent growth in operating income (income before provision and taxes), offset by an increase in the provision for credit losses. On a linked quarter basis, net income increased $148 million (15.7 percent) principally due to the favorable variance that resulted from the Visa Litigation Charge and valuation losses recorded in the fourth quarter of 2007. This positive variance was partially offset by the net unfavorable impact of the significant items recorded in the current quarter.
     Total net revenue on a taxable-equivalent basis for the first quarter of 2008 was $3,874 million, $485 million (14.3 percent) higher than the first quarter of 2007, reflecting a 9.8 percent increase in net interest income and an 18.6 percent increase in noninterest income. Net interest income increased over a year ago driven by growth in earning assets and improving net interest margins. The growth in noninterest income included organic growth in operating fee revenues of 7.3 percent. On a linked quarter basis, total net revenue on a taxable equivalent basis increased $300 million (8.4 percent), reflecting strong growth in net
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 4
interest income of 3.8 percent, as well as a 12.9 percent increase in noninterest income. The increase in noninterest income reflected the net favorable impact of the Visa Gain, the structured investment securities impairment, and the adoption of a new accounting standard in the current quarter and valuation losses recorded in the fourth quarter of 2007, offset somewhat by seasonally lower fees in several noninterest income categories.
     Total noninterest expense in the first quarter of 2008 was $1,796 million, $224 million (14.2 percent) higher than the first quarter of 2007, and $172 million (8.7 percent) lower than the prior quarter. The increase, year-over-year, was principally due to higher costs associated with business initiatives designed to expand the Company’s geographical presence and strengthen customer relationships, including investments in relationship managers, branch initiatives and payment services businesses. The increase in operating expenses also included higher credit collection costs, the impact of a new accounting standard, litigation, a charitable contribution and incremental costs associated with tax-advantaged projects.
     Provision for credit losses for the first quarter of 2008 was $485 million, an increase of $260 million over the fourth quarter of 2007 and $308 million over the first quarter of 2007. The increase in the provision for credit losses from a year ago reflected continuing stress in the residential real estate markets, including homebuilding and related supplier industries, driven by declining home prices in several geographic regions. It also reflected the continued growth of the consumer loan portfolios. Net charge-offs in the first quarter of 2008 were $293 million, compared with net charge-offs of $225 million in the fourth quarter of 2007 and $177 million in the first quarter of 2007. Total nonperforming assets were $845 million at March 31, 2008, compared with $690 million at December 31, 2007, and $582 million at March 31, 2007. Nonperforming assets increased $155 million (22.5 percent) during the first quarter of 2008 over the fourth quarter of 2007, as a result of stress in residential home construction and related industries, an increase in foreclosed properties and the impact of the economic slowdown on other commercial customers. The ratio of the allowance for credit losses to nonperforming loans was 358 percent at March 31, 2008, compared with 406 percent at December 31, 2007, and 498 percent at March 31, 2007.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 5
                                         
INCOME STATEMENT HIGHLIGHTS                                   Table 2  
 
(Taxable-equivalent basis, $ in millions, except per-share data)                                      
                            Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs  
  2008     2007     2007     4Q07     1Q07  
     
Net interest income
   $ 1,830     $ 1,763     $ 1,666       3.8       9.8  
Noninterest income
     2,044       1,811       1,723       12.9       18.6  
                     
Total net revenue
     3,874       3,574       3,389       8.4       14.3  
Noninterest expense
     1,796       1,968       1,572       (8.7 )     14.2  
                     
Income before provision and taxes
     2,078       1,606       1,817       29.4       14.4  
Provision for credit losses
     485       225       177     nm     nm  
                     
Income before taxes
     1,593       1,381       1,640       15.4       (2.9 )
Taxable-equivalent adjustment
     27       22       17       22.7       58.8  
Applicable income taxes
     476       417       493       14.1       (3.4 )
                     
Net income
   $ 1,090     $ 942     $ 1,130       15.7       (3.5 )
                     
Net income applicable to common equity
   $ 1,078     $ 927     $ 1,115       16.3       (3.3 )
                     
Diluted earnings per common share
   $ .62     $ .53     $ .63       17.0       (1.6 )
                     
Net Interest Income
     First quarter net interest income on a taxable-equivalent basis was $1,830 million, compared with $1,666 million in the first quarter of 2007, an increase of $164 million (9.8 percent). The increase was due to strong growth in average earning assets as well as an improving net interest margin from a year ago. Average earning assets for the period increased over the first quarter of 2007 by $15.9 billion (8.3 percent), primarily driven by an increase of $10.5 billion (7.3 percent) in average loans and $3.0 billion (7.4 percent) in investment securities. During the first quarter of 2008, the net interest margin increased to 3.55 percent compared with 3.51 percent in the first quarter of 2007. The improvement in the net interest margin was due to several factors, including growth in higher spread assets, the benefit of the Company’s current asset/liability position in a declining interest rate environment and related asset/liability re-pricing dynamics. Also, short-term funding rates were marginally lower due to market volatility and changing liquidity in the overnight fed fund markets given current market conditions. In addition, the Company’s net interest margin benefited by an increase in yield-related loan fees.
     Net interest income in the first quarter of 2008 increased by $67 million (3.8 percent) over the fourth quarter of 2007. This favorable variance was due to growth in average earning assets of $6.7 billion (3.3 percent) and an increase in the net interest margin from 3.51 percent in the fourth quarter of 2007 to 3.55
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 6
percent in the current quarter. Given the current rate environment and yield curve, the Company expects the net interest margin to remain relatively stable during 2008.
                                         
NET INTEREST INCOME                                   Table 3  
 
(Taxable-equivalent basis, $ in millions)                                       
                            Change     Change  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs  
  2008     2007     2007     4Q07     1Q07  
     
Components of net interest income
                                        
Income on earning assets
   $ 3,258     $ 3,431     $ 3,223     $ (173 )   $ 35  
Expense on interest-bearing liabilities
     1,428       1,668       1,557       (240 )     (129 )
     
Net interest income
   $ 1,830     $ 1,763     $ 1,666     $ 67     $ 164  
     
 
                                        
Average yields and rates paid
                                        
Earning assets yield
     6.32 %     6.81 %     6.81 %     (.49 )%     (.49 )%
Rate paid on interest-bearing liabilities
     3.20       3.83       3.88       (.63 )     (.68 )
     
Gross interest margin
     3.12 %     2.98 %     2.93 %     .14 %     .19 %
     
Net interest margin
     3.55 %     3.51 %     3.51 %     .04 %     .04 %
     
 
                                        
Average balances
                                        
Investment securities
   $ 43,891     $ 42,525     $ 40,879     $ 1,366     $ 3,012  
Loans
     155,232       151,451       144,693       3,781       10,539  
Earning assets
     207,014       200,307       191,135       6,707       15,879  
Interest-bearing liabilities
     179,451       172,999       162,682       6,452       16,769  
Net free funds (a)
     27,563       27,308       28,453       255       (890 )
 
(a)   Represents noninterest-bearing deposits, allowance for loan losses, unrealized gain (loss) on available-for-sale securities, non-earning assets, other noninterest-bearing liabilities and equity.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 7
                                         
AVERAGE LOANS                                   Table 4  
 
($ in millions)                                       
                            Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs  
  2008     2007     2007     4Q07     1Q07  
     
Commercial
   $ 45,471     $ 43,649     $ 41,470       4.2       9.6  
Lease financing
     6,238       5,978       5,549       4.3       12.4  
                     
Total commercial
     51,709       49,627       47,019       4.2       10.0  
 
                                        
Commercial mortgages
     20,337       19,775       19,672       2.8       3.4  
Construction and development
     9,199       8,983       8,960       2.4       2.7  
                     
Total commercial real estate
     29,536       28,758       28,632       2.7       3.2  
 
                                        
Residential mortgages
     22,978       22,670       21,569       1.4       6.5  
 
                                        
Credit card
     11,049       10,621       8,635       4.0       28.0  
Retail leasing
     5,802       6,123       6,845       (5.2 )     (15.2 )
Home equity and second mortgages
     16,527       16,343       15,555       1.1       6.2  
Other retail
     17,631       17,309       16,438       1.9       7.3  
                     
Total retail
     51,009       50,396       47,473       1.2       7.4  
                     
 
                                        
Total loans
   $ 155,232     $ 151,451     $ 144,693       2.5       7.3  
                     
     Average loans for the first quarter of 2008 were $10.5 billion (7.3 percent) higher than the first quarter of 2007, driven by growth in a majority of the loan categories. This included growth in average total commercial loans of $4.7 billion (10.0 percent), total retail loans of $3.5 billion (7.4 percent), residential mortgages of $1.4 billion (6.5 percent), and total commercial real estate loans of $904 million (3.2 percent). Average loans for the first quarter of 2008 were higher than the fourth quarter of 2007 by $3.8 billion (2.5 percent), again reflecting growth in a majority of the loan categories. Total commercial loans grew $2.1 billion (4.2 percent) in the first quarter of 2008 over the fourth quarter of 2007, driven by growth in corporate and commercial banking balances as business customers utilize bank credit facilities, rather than the capital markets, to fund business growth and liquidity requirements. Total commercial real estate loans also increased over the fourth quarter of 2007, primarily reflecting changing market conditions that have limited borrower access to the capital markets. Consumer lending continues to experience strong growth in installment products, home equity lines and credit card balances. This growth was offset somewhat by lower retail leasing balances.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 8
     Average investment securities in the first quarter of 2008 were $3.0 billion (7.4 percent) higher than the first quarter of 2007. The increase was driven by the purchase in the fourth quarter of 2007 of structured investment securities from certain money market funds managed by an affiliate and an increase in tax exempt municipal securities, partially offset by a reduction in mortgage-backed securities. Average investment securities grew by $1.4 billion (3.2 percent) over the fourth quarter of 2007 principally related to the timing of purchasing the structured investments in late fourth quarter of 2007.
                                         
AVERAGE DEPOSITS                                   Table 5  
 
($ in millions)                                       
                            Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs  
  2008     2007     2007     4Q07     1Q07  
     
Noninterest-bearing deposits
   $ 27,119     $ 26,869     $ 27,677       .9       (2.0 )
Interest-bearing savings deposits
                                        
Interest checking
     30,303       27,458       25,076       10.4       20.8  
Money market savings
     25,590       25,996       25,712       (1.6 )     (.5 )
Savings accounts
     5,134       5,100       5,401       .7       (4.9 )
                     
Total of savings deposits
     61,027       58,554       56,189       4.2       8.6  
Time certificates of deposit less than $100,000
     13,607       14,539       14,775       (6.4 )     (7.9 )
Time deposits greater than $100,000
     29,105       25,461       22,087       14.3       31.8  
                     
Total interest-bearing deposits
     103,739       98,554       93,051       5.3       11.5  
                     
Total deposits
   $ 130,858     $ 125,423     $ 120,728       4.3       8.4  
                     
     Average noninterest-bearing deposits for the first quarter of 2008 decreased modestly, $558 million (2.0 percent), from the first quarter of 2007. Average total savings deposits increased year-over-year by $4.8 billion (8.6 percent) due to a $5.2 billion increase (20.8 percent) in interest checking balances driven by higher balances from broker dealer, government and institutional trust customers. This increase was partially offset by a decline of $267 million (4.9 percent) in average savings accounts and $122 million (.5 percent) in average money market savings, primarily within Consumer Banking. Average time certificates of deposit less than $100,000 were lower in the first quarter of 2008 than in the first quarter of 2007 by $1.2 billion (7.9 percent) while time deposits greater than $100,000 increased by $7.0 billion (31.8 percent) over the same period, reflecting the Company’s funding and pricing decisions and competition for these deposits by other financial institutions that have more limited access to the wholesale funding sources given the current market environment.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 9
     Average noninterest-bearing deposits for the first quarter of 2008 remained relatively flat compared with the fourth quarter of 2007. Total average savings deposits increased $2.5 billion (4.2 percent) from the fourth quarter of 2007, primarily due to higher broker dealer, institutional trust and government banking balances. Average time certificates less than $100,000 declined by $932 million (6.4 percent) from the prior quarter reflecting competition for these funding sources given current market conditions. Average time deposits greater than $100,000 increased by $3.6 billion (14.3 percent) over the prior quarter, primarily in government and wholesale time deposits.
                                         
NONINTEREST INCOME                                   Table 6  
 
($ in millions)                                       
                            Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs  
  2008     2007     2007     4Q07     1Q07  
     
Credit and debit card revenue
   $ 248     $ 285     $ 206       (13.0 )     20.4  
Corporate payment products revenue
     164       166       147       (1.2 )     11.6  
ATM processing services
     84       84       77       —       9.1  
Merchant processing services
     271       281       252       (3.6 )     7.5  
Trust and investment management fees
     335       344       322       (2.6 )     4.0  
Deposit service charges
     257       277       247       (7.2 )     4.0  
Treasury management fees
     124       117       111       6.0       11.7  
Commercial products revenue
     112       121       100       (7.4 )     12.0  
Mortgage banking revenue
     105       48       67     nm       56.7  
Investment products fees and commissions
     36       38       34       (5.3 )     5.9  
Securities gains (losses), net
     (251 )     4       1     nm     nm  
Other
     559       46       159     nm     nm  
                     
 
                                        
Total noninterest income
   $ 2,044     $ 1,811     $ 1,723       12.9       18.6  
                     
Noninterest Income
     First quarter noninterest income was $2,044 million, an increase of $321 million (18.6 percent) over the same quarter of 2007 and $233 million (12.9 percent) higher than the fourth quarter of 2007. The increase in noninterest income over the first quarter of 2007 was driven by strong organic fee-based revenue growth of 7.3 percent and the Visa Gain in the first quarter of 2008. The Visa Gain represented $339 million of cash proceeds received for Class B shares redeemed in March, 2008 and $153 million related to the Company’s proportionate share of stock redeemed to fund an escrow account for the settlement of Visa Inc. litigation matters. In addition, noninterest income was impacted by the adoption of Statement of Financial Accounting Standard No. 157 “Fair Value Measurements” (“SFAS 157”) which decreased trading revenue, as it requires
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 10
consideration of the primary market and nonperformance risk when determining the fair value of customer derivatives. The standard also increased mortgage production gains as it no longer allows the deferral of compensation expense related to the closing of mortgage loans held for sale. The adoption of SFAS 157 reduced trading revenue by $62 million and increased mortgage banking revenue by $19 million.
     Credit and debit card revenue, corporate payment products revenue and ATM processing services were higher in the first quarter of 2008 than the first quarter of 2007 by $42 million (20.4 percent), $17 million (11.6 percent) and $7 million (9.1 percent), respectively. The strong growth in credit and debit card revenue was primarily driven by an increase in customer accounts and higher customer transaction volumes over a year ago. Corporate payment products revenue growth reflected organic growth in sales volumes and card usage. The ATM processing services increase was also due to growth in transaction volumes. Merchant processing services revenue was higher in the first quarter of 2008 than the same quarter of a year ago by $19 million (7.5 percent), primarily reflecting an increase in the number of merchants, higher sales volumes and business expansion. Trust and investment management fees increased $13 million (4.0 percent) year-over-year due to core account growth, partially offset by unfavorable equity market conditions. Deposit service charges grew year-over-year by $10 million (4.0 percent), driven by increased transaction-related fees and the impact of continued growth in net new checking accounts. This growth rate was muted somewhat as deposit account-related revenue, traditionally reflected in this fee category, continued to migrate to yield-related loan fees as customers utilized new consumer products. Treasury management fees increased $13 million (11.7 percent) due to higher customer transaction volumes and the favorable impact of declining rates on the customer earnings credit. Commercial products revenue increased $12 million (12.0 percent) year-over-year due to higher syndication and other commercial loan fees, foreign exchange and commercial leasing revenue. Mortgage banking revenue increased $38 million (56.7 percent) due to an increase in mortgage servicing income and production gains, including $19 million from the adoption of SFAS 157. These favorable impacts to mortgage banking revenue were partially offset by the unfavorable net change in the valuation of mortgage servicing rights (“MSRs”) and related economic hedging activities. Other income was higher year-over-year due to the Visa Gain, partially offset by lower retail lease revenue due to higher end-of-term losses and a $62 million unfavorable impact to trading income upon adoption of SFAS 157 related to the valuation of certain derivatives. Securities gains (losses) were lower year-over-year by $252 million due to an impairment of certain structured investment securities recognized in the first quarter of 2008.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 11
     Noninterest income was higher by $233 million (12.9 percent) in the first quarter of 2008 than the fourth quarter of 2007, reflecting the impact of the Visa Gain and the adoption of SFAS 157, partially offset by seasonally lower fee-based revenue within the core banking operations and the securities losses. Other income increased by $513 million, representing the $492 million Visa Gain in the first quarter of 2008 and the valuation losses of $107 million recognized in the fourth quarter of 2007, partially offset by lower trading income due primarily to the adoption of SFAS 157 in January 2008. Treasury management revenue increased by $7 million (6.0 percent) on a linked quarter basis due to seasonally higher government lock box activity and the favorable impact of declining rates on customer earnings credits. Mortgage banking revenue increased by $57 million from the fourth quarter of 2007 due to higher production gains including the impact of adopting SFAS 157, higher servicing income and a favorable change in the valuation of MSRs and related economic hedging activities. Partially offsetting these favorable increases were seasonal declines in several fee categories. Credit and debit card revenue decreased $37 million (13.0 percent) primarily driven by seasonally lower customer transaction volumes and the positive impact in the fourth quarter of 2007 from renegotiating an association contract. Merchant processing services declined $10 million (3.6 percent) on a linked quarter basis due to seasonally lower volumes and lower interchange rates due to the mix of transactions and lower customer transaction volumes in certain European markets, partially offset by a recent acquisition. Trust and investment management fees were lower by $9 million (2.6 percent) than the fourth quarter of 2007 due primarily to the unfavorable impact of equity markets, partially offset by account growth. Deposit service charges were $20 million (7.2 percent) lower on a linked quarter basis due primarily to seasonally lower post-holiday customer transaction volumes and the impact of customer tax refunds. Commercial products revenue decreased from the fourth quarter of 2007 by $9 million (7.4 percent) due to lower syndication fees and foreign exchange revenue. In addition, net securities gains (losses) decreased $255 million on a linked quarter basis due to the impairment recognized in the first quarter of 2008 on structured investment securities purchased last quarter from certain money market funds managed by an affiliate.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 12
                                         
NONINTEREST EXPENSE                                   Table 7  
 
($ in millions)                                       
                            Percent     Percent  
                            Change     Change  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs  
  2008     2007     2007     4Q07     1Q07  
     
Compensation
   $ 745     $ 690     $ 635       8.0       17.3  
Employee benefits
     137       119       133       15.1       3.0  
Net occupancy and equipment
     190       188       177       1.1       7.3  
Professional services
     47       71       47       (33.8 )     —  
Marketing and business development
     79       69       52       14.5       51.9  
Technology and communications
     140       148       135       (5.4 )     3.7  
Postage, printing and supplies
     71       73       69       (2.7 )     2.9  
Other intangibles
     87       93       94       (6.5 )     (7.4 )
Other
     300       517       230       (42.0 )     30.4  
                     
 
                                        
Total noninterest expense
   $ 1,796     $ 1,968     $ 1,572       (8.7 )     14.2  
                     
Noninterest Expense
     First quarter noninterest expense totaled $1,796 million, an increase of $224 million (14.2 percent) over the same quarter of 2007 and a decrease of $172 million (8.7 percent) from the fourth quarter of 2007. Compensation expense increased $110 million (17.3 percent) from the same period of 2007 due to growth in ongoing bank operations, acquired businesses and other bank initiatives and the $19 million impact from the adoption of SFAS 157. Under this new accounting standard, compensation expense is no longer deferred for origination of mortgage loans held for sale. Employee benefits expense increased $4 million (3.0 percent) year-over-year as higher medical costs were partially offset by lower pension costs. Net occupancy and equipment expense increased $13 million (7.3 percent) over the first quarter of 2007 primarily due to rental cost escalation, acquisitions and branch-based business initiatives. Marketing and business development expense increased $27 million (51.9 percent) primarily due to $25 million recognized in the current quarter for a charitable contribution to the Company’s foundation intended to support community-based programs within our geographical markets. Other intangibles expense decreased by $7 million (7.4 percent) primarily reflecting the timing and relative size of recent acquisitions. Other expense increased $70 million (30.4 percent) year-over-year, due primarily to investments in tax-advantaged projects, higher litigation costs and credit-related costs for other real estate owned and loan collection activities.
     Noninterest expense in the first quarter of 2008 was lower than the fourth quarter of 2007 by $172 million (8.7 percent). Professional services expense declined $24 million (33.8 percent) on a linked quarter
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 13
basis due to the timing of legal costs and other consulting projects. Technology and communications expense declined $8 million (5.4 percent) due to usage credits. Other intangibles expense declined by $6 million (6.5 percent) primarily reflecting the timing and relative size of recent acquisitions. Other expense decreased by $217 million (42.0 percent) on a linked quarter basis, primarily due to the $215 million Visa Litigation Charge recorded in the fourth quarter of 2007. These decreases were partially offset by increased compensation, employee benefits and marketing and business development expenses. Compensation expense increased $55 million (8.0 percent) due to continued focus on business operations and expansion, the timing of merit increases and the impact of adopting SFAS 157 for mortgage loans held for sale. Employee benefits expense increased $18 million (15.1 percent) on a linked quarter due to seasonally higher payroll taxes and 401(k) expense offset by lower pension expense. Marketing and business development expense increased $10 million (14.5 percent) over the fourth quarter of 2007 due to a $25 million charitable contribution, partially offset by the timing of marketing programs and seasonally lower travel expenses.
Provision for Income Taxes
     The provision for income taxes for the first quarter of 2008 resulted in a tax rate on a taxable equivalent basis of 31.6 percent (effective tax rate of 30.4 percent) compared with 31.1 percent (effective tax rate of 30.4 percent) in the first quarter of 2007 and 31.8 percent (effective tax rate of 30.7 percent) in the fourth quarter of 2007.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 14
                                         
ALLOWANCE FOR CREDIT LOSSES                                   Table 8  
 
($ in millions)                               
    1Q     4Q     3Q     2Q     1Q  
    2008     2007     2007     2007     2007  
     
Balance, beginning of period
   $ 2,260     $ 2,260     $ 2,260     $ 2,260     $ 2,256  
 
Net charge-offs
                                        
Commercial
     39       23       26       21       32  
Lease financing
     16       13       11       8       3  
     
Total commercial
     55       36       37       29       35  
Commercial mortgages
     4       3       1       7       1  
Construction and development
     8       7       1       2       —  
     
Total commercial real estate
     12       10       2       9       1  
 
                                        
Residential mortgages
     26       17       17       15       12  
 
Credit card
     108       88       77       81       74  
Retail leasing
     7       6       3       4       3  
Home equity and second mortgages
     30       22       20       16       16  
Other retail
     55       46       43       37       36  
     
Total retail
     200       162       143       138       129  
     
Total net charge-offs
     293       225       199       191       177  
Provision for credit losses
     485       225       199       191       177  
Acquisitions and other changes
     (17 )     —       —       —       4  
     
Balance, end of period
   $ 2,435     $ 2,260     $ 2,260     $ 2,260     $ 2,260  
     
 
                                        
Components
                                        
Allowance for loan losses
   $ 2,251     $ 2,058     $ 2,041     $ 2,028     $ 2,027  
Liability for unfunded credit commitments
     184       202       219       232       233  
     
Total allowance for credit losses
   $ 2,435     $ 2,260     $ 2,260     $ 2,260     $ 2,260  
     
 
                                        
Gross charge-offs
   $ 348     $ 287     $ 256     $ 252     $ 237  
Gross recoveries
   $ 55     $ 62     $ 57     $ 61     $ 60  
 
                                        
Allowance for credit losses as a percentage of Period-end loans
     1.54       1.47       1.52       1.55       1.56  
Nonperforming loans
     358       406       441       503       498  
Nonperforming assets
     288       328       353       400       388  
Credit Quality
     During the first quarter of 2008, credit losses and nonperforming assets continued to trend higher. The allowance for credit losses was $2,435 million at March 31, 2008, compared with $2,260 million at December 31, 2007, and at March 31, 2007. The increase in the allowance for credit losses was primarily due to continued stress in the residential housing market, homebuilding and related industry sectors, in addition to the growth of the credit card and other consumer loan portfolios. This stress is being reflected in higher delinquencies, nonperforming asset levels and net charge-offs relative to a year ago and the fourth quarter of 2007. Total net charge-offs in the first quarter of 2008 were $293 million, compared with the
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 15
fourth quarter of 2007 net charge-offs of $225 million and the first quarter of 2007 net charge-offs of $177 million. The increase in total net charge-offs of 65.5 percent from a year ago was driven by the factors previously noted.
     Commercial and commercial real estate loan net charge-offs increased to $67 million in the first quarter of 2008 (.33 percent of average loans outstanding) compared with $46 million (.23 percent of average loans outstanding) in the fourth quarter of 2007 and $36 million (.19 percent of average loans outstanding) in the first quarter of 2007. This increasing trend in commercial and commercial real estate net charge-offs reflected anticipated increases in nonperforming loans and delinquencies within the portfolios, especially residential homebuilding and related industry sectors. Given the continuing stress in the homebuilding and related industries, as well as the potential impact of the economic downturn on other commercial customers, the Company expects commercial and commercial real estate net charge-offs to continue to increase moderately over the next several quarters.
     Total retail loan net charge-offs were $200 million (1.58 percent of average loans outstanding) in the first quarter of 2008 compared with $162 million (1.28 percent of average loans outstanding) in the fourth quarter of 2007 and $129 million (1.10 percent of average loans outstanding) in the first quarter of 2007. The Company anticipates higher delinquency levels in the retail portfolios and that retail net charge-offs will continue to increase, but remain in a manageable range during 2008.
     The ratio of the allowance for credit losses to period-end loans was 1.54 percent at March 31, 2008, compared with 1.47 percent at December 31, 2007, and 1.56 percent at March 31, 2007. The ratio of the allowance for credit losses to nonperforming loans was 358 percent at March 31, 2008, compared with 406 percent at December 31, 2007, and 498 percent at March 31, 2007.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 16
                                         
CREDIT RATIOS                                   Table 9  
 
(Percent)                               
    1Q     4Q     3Q     2Q     1Q  
    2008     2007     2007     2007     2007  
     
Net charge-offs ratios (a)
                                        
Commercial
     .34       .21       .25       .20       .31  
Lease financing
     1.03       .86       .76       .57       .22  
Total commercial
     .43       .29       .31       .25       .30  
 
                                        
Commercial mortgages
     .08       .06       .02       .14       .02  
Construction and development
     .35       .31       .04       .09       —  
Total commercial real estate
     .16       .14       .03       .13       .01  
 
                                        
Residential mortgages
     .46       .30       .30       .28       .23  
 
Credit card
     3.93       3.29       3.09       3.56       3.48  
Retail leasing
     .49       .39       .19       .24       .18  
Home equity and second mortgages
     .73       .53       .49       .41       .42  
Other retail
     1.25       1.05       1.00       .89       .89  
Total retail
     1.58       1.28       1.15       1.15       1.10  
 
                                        
Total net charge-offs
     .76       .59       .54       .53       .50  
 
                                        
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans (b)
                                        
Commercial
    .09       .07       .07       .07       .07  
Commercial real estate
     .13       .02       .04       —       .04  
Residential mortgages
     .98       .86       .58       .46       .42  
Retail
     .69       .68       .55       .50       .56  
Total loans
     .43       .38       .30       .26       .27  
 
                                        
Delinquent loan ratios - 90 days or more past due including nonperforming loans (b)
                                        
Commercial
     .60       .43       .51       .44       .46  
Commercial real estate
     1.18       1.02       .83       .69       .69  
Residential mortgages
     1.24       1.10       .79       .65       .59  
Retail
     .77       .73       .61       .58       .65  
Total loans
     .86       .74       .65       .57       .59  
 
(a)   annualized and calculated on average loan balances
 
(b)   ratios are expressed as a percent of ending loan balances
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 17
                                         
ASSET QUALITY                                   Table 10  
 
($ in millions)                               
    Mar 31     Dec 31     Sep 30     Jun 30     Mar 31  
    2008     2007     2007     2007     2007  
     
Nonperforming loans
                                        
Commercial
   $ 201     $ 128     $ 161     $ 128     $ 147  
Lease financing
     64       53       46       44       41  
     
Total commercial
     265       181       207       172       188  
Commercial mortgages
     102       84       73       90       114  
Construction and development
     212       209       153       107       71  
     
Total commercial real estate
     314       293       226       197       185  
Residential mortgages
     59       54       48       41       38  
Retail
     42       29       32       39       43  
     
Total nonperforming loans
     680       557       513       449       454  
 
                                        
Other real estate
     141       111       113       103       113  
Other nonperforming assets
     24       22       15       13       15  
     
 
                                        
Total nonperforming assets (a)
   $ 845     $ 690     $ 641     $ 565     $ 582  
     
 
                                        
Accruing loans 90 days or more past due
   $ 676     $ 584     $ 451     $ 376     $ 397  
     
 
                                        
Restructured loans that continue to accrue interest
   $ 695     $ 551     $ 468     $ 435     $ 411  
     
 
                                        
Nonperforming assets to loans plus ORE (%)
     .53       .45       .43       .39       .40  
 
(a)   does not include accruing loans 90 days or more past due or restructured loans that continue to accrue interest
     Nonperforming assets at March 31, 2008, totaled $845 million, compared with $690 million at December 31, 2007, and $582 million at March 31, 2007. The ratio of nonperforming assets to loans and other real estate was .53 percent at March 31, 2008, compared with .45 percent at December 31, 2007, and .40 percent at March 31, 2007. The increase in nonperforming assets of 45.2 percent from a year ago was driven primarily by the residential construction portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers. The Company expects nonperforming assets to increase moderately over the next several quarters due to general economic conditions and continued stress in the residential mortgage portfolio and residential construction industry. Accruing loans 90 days or more past due increased to $676 million at March 31, 2008, compared with $584 million at December 31, 2007, and $397 million at March 31, 2007. Similar to nonperforming assets, the increase in delinquent loans that continue to accrue interest was primarily related to residential mortgages, credit cards and home equity loans. Restructured loans that continue to accrue interest have also increased from the first quarter of 2007 and the fourth quarter of 2007, reflecting the impact of restructurings for certain residential mortgage customers in light of current economic conditions. The Company expects this
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 18
trend to continue during 2008 as residential home valuations continue to decline and certain borrowers take advantage of the Company’s mortgage loan restructuring programs.
                                         
CAPITAL POSITION                                   Table 11  
 
($ in millions)                               
    Mar 31     Dec 31     Sep 30     Jun 30     Mar 31  
    2008     2007     2007     2007     2007  
     
Total shareholders’ equity
   $ 21,572     $ 21,046     $ 20,686     $ 20,330     $ 20,800  
Tier 1 capital
     18,543       17,539       17,288       16,876       16,917  
Total risk-based capital
     27,207       25,925       25,820       25,709       25,826  
 
                                        
Tier 1 capital ratio
     8.6 %     8.3 %     8.5 %     8.5 %     8.6 %
Total risk-based capital ratio
     12.6       12.2       12.7       13.0       13.1  
Leverage ratio
     8.1       7.9       8.0       7.9       8.0  
Common equity to assets
     8.3       8.4       8.6       8.7       8.9  
Tangible common equity to assets
     5.3       5.1       5.3       5.2       5.3  
     Total shareholders’ equity was $21.6 billion at March 31, 2008, compared with $21.0 billion at December 31, 2007, and $20.8 billion at March 31, 2007. The Tier 1 capital ratio was 8.6 percent at March 31, 2008, compared with 8.3 percent at December 31, 2007, and 8.6 percent at March 31, 2007. The total risk-based capital ratio was 12.6 percent at March 31, 2008, compared with 12.2 percent at December 31, 2007, and 13.1 percent at March 31, 2007. The leverage ratio was 8.1 percent at March 31, 2008, compared with 7.9 percent at December 31, 2007, and 8.0 percent at March 31, 2007. Tangible common equity to assets was 5.3 percent at March 31, 2008, compared with 5.1 percent at December 31, 2007, and 5.3 percent at March 31, 2007. All regulatory ratios continue to be in excess of stated “well-capitalized” requirements.
                                         
COMMON SHARES                                   Table 12  
 
(Millions)                               
    1Q     4Q     3Q     2Q     1Q  
    2008     2007     2007     2007     2007  
     
Beginning shares outstanding
     1,728       1,725       1,728       1,742       1,765  
Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes
     12       3       3       4       11  
Shares repurchased
     (2 )     —       (6 )     (18 )     (34 )
     
Ending shares outstanding
     1,738       1,728       1,725       1,728       1,742  
     
     On August 3, 2006, the Company announced that the Board of Directors approved an authorization to repurchase 150 million shares of common stock through December 31, 2008. As of March 31, 2008, there were approximately 62 million shares remaining to be repurchased under the 2006 authorization.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 19
                                                 
LINE OF BUSINESS FINANCIAL PERFORMANCE (a)                                     Table 13  
 
($ in millions)                                     
    Net Income     Percent Change     1Q 2008  
    1Q     4Q     1Q     1Q08 vs     1Q08 vs     Earnings  
Business Line   2008     2007     2007     4Q07     1Q07     Composition  
     
Wholesale Banking
   $ 255     $ 280     $ 272       (8.9 )     (6.3 )     23 %
Consumer Banking
     367       411       434       (10.7 )     (15.4 )     34  
Wealth Management & Securities Services
     157       101       154       55.4       1.9       14  
Payment Services
     289       319       231       (9.4 )     25.1       27  
Treasury and Corporate Support
     22       (169 )     39     nm       (43.6 )     2  
                           
 
Consolidated Company
  $ 1,090     $ 942     $ 1,130       15.7       (3.5 )     100 %
                           
(a) preliminary data
Lines of Business
     Within the Company, financial performance is measured by major lines of business, which include Wholesale Banking, Consumer Banking, Wealth Management & Securities Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is available and is evaluated regularly in deciding how to allocate resources and assess performance. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2008, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.
     Wholesale Banking offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, and public sector clients. Wholesale Banking contributed $255 million of the Company’s net income in the first quarter of 2008, a 6.3 percent decrease from the same period of 2007 and an 8.9 percent decrease from the fourth quarter of 2007. Stronger net interest income during the current quarter was offset by a reduction in noninterest income due to capital
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 20
market conditions, the incremental cost of further investments in the wholesale banking business and higher credit costs. Net interest income increased $34 million, year-over-year, due to strong growth in earning assets and deposit balances and improved credit spreads, partially offset by a decrease in the margin benefit of deposits. The decline in noninterest income was primarily due to market-related valuation losses within a commercial real estate business and lower earnings from equity investments, offset somewhat by growth in treasury management fees, commercial leasing and foreign exchange revenue. Total noninterest expense increased by $10 million over a year ago, primarily due to higher compensation and employee benefits expense related to merit increases, expanding the business line’s national corporate banking presence, investments to enhance customer relationship management, and other business initiatives. The provision for credit losses increased $22 million due to continued credit deterioration in the homebuilding and commercial home supplier industries.
     Wholesale Banking’s contribution to net income in the first quarter of 2008 was $25 million (8.9 percent) lower than the fourth quarter of 2007 due to a $17 million increase in the provision for credit losses due to higher net charge-offs and an unfavorable variance in total net revenue (3.3 percent). Total net revenue was lower on a linked quarter basis due primarily to a decrease in total noninterest income. Net interest income improved slightly as growth in average loans and interest-bearing deposit balances was offset by the lower margin benefit of deposits. Total noninterest income decreased on a linked quarter basis due to a decline in other revenue from a commercial real estate business and other equity investments, partially offset by higher treasury management and commercial product revenue. Total noninterest expense remained relatively flat, as an increase in compensation and employee benefits expense was offset by seasonally lower travel and entertainment expense and a decline in net shared services expense.
     Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking, and 24-hour banking. Consumer Banking contributed $367 million of the Company’s net income in the first quarter of 2008, a 15.4 percent decrease from the same period of 2007 and a 10.7 percent decrease on a linked quarter basis. Within Consumer Banking, the retail banking division accounted for $320 million of the total contribution, a 21.8 percent decrease for the division on a year-over-year basis and an 18.2 percent decrease from the prior quarter. The decrease in the retail banking division was due to lower total net revenue, growth in total noninterest expense related to incremental business
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 21
investments during the year and an increase in the provision for credit losses. Net interest income for the retail banking division declined year-over-year as an increase in average loan balances and yield related loan fees was more than offset by lower deposit balances and a decline in the margin benefit of deposits given the declining interest rate environment. Total noninterest income for the retail banking division decreased 2.2 percent from a year ago due to lower retail lease revenue related to higher end-of-term losses and declining student loan sales gains which were partially offset by growth in deposit service charges. Total noninterest expense in the first quarter of 2008 increased 7.0 percent for the division over the same quarter of 2007 reflecting branch expansion initiatives, bank acquisitions, geographical promotional activities and customer service initiatives. In addition, the division experienced higher credit-related costs associated with other real estate owned and foreclosures. The provision for credit losses for the retail banking division increased due to a $48 million year-over-year increase in net charge-offs (66.7 percent), reflecting portfolio growth and credit deterioration in residential mortgages, home equity and other installment and consumer loan portfolios from a year ago. In the first quarter of 2008, the mortgage banking division’s contribution was $47 million, a $22 million increase from the same period of 2007. The division’s total net revenue increased by $64 million (75.3 percent) over a year ago reflecting strong revenue growth from mortgage loan production. As a result of higher loan originations, net interest income increased $22 million as average mortgage loans held for sale increased $1.2 billion from a year ago. Total noninterest income for the division increased $42 million related to higher servicing income and stronger production gains, including $19 million from the adoption of SFAS 157. These favorable impacts to mortgage banking revenue were partially offset by an unfavorable net change in the valuation of MSRs and related economic hedging activities. Total noninterest expense for the mortgage banking division increased $30 million (66.7 percent) over the first quarter of 2007 primarily due to the impact of the adoption of SFAS 157 on compensation expense of $19 million, higher production levels from a year ago and servicing costs associated with other real estate owned and foreclosures.
     Consumer Banking’s contribution in the first quarter of 2008 decreased $44 million (10.7 percent) on a linked quarter basis compared with the fourth quarter of 2007. The retail banking division’s contribution decreased 18.2 percent on a linked quarter basis driven by an increase in the provision for credit losses, along with a decline in total net revenue. Total net revenue for the retail banking division decreased $87 million (6.4 percent) due to lower net interest income and total noninterest income. Net interest income declined by 5.9 percent on a linked quarter basis, as the favorable impact of growth in average loan balances
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 22
was more than offset by lower deposit balances and narrowing credit spreads due to increasing liquidity costs. The decline in total noninterest income was driven by seasonally lower deposit service charges and higher end-of-term residual losses on retail leases. Total noninterest expense for the retail banking division remained relatively flat on a linked quarter basis. An increase in compensation and employee benefits due to the timing of merit increases and other business initiatives was offset by lower fraud losses and the timing of marketing programs and processing costs. The provision for credit losses for the division reflected a $27 million increase in net charge-offs compared with the fourth quarter of 2007 reflecting higher consumer delinquencies within these portfolios. The contribution of the mortgage banking division increased $27 million over the fourth quarter of 2007 driven primarily by an increase in total net revenue related to higher loan production gains including the impact of adopting SFAS 157, higher servicing income and a favorable change in the valuation of MSRs and related economic hedging activities. Net interest income for the division also increased 32.1 percent on a linked quarter basis due to growth in loan production. Total noninterest expense of the mortgage banking division increased $22 million (41.5 percent) over the fourth quarter of 2007 driven by the impact of SFAS 157 and production processing levels.
     Wealth Management & Securities Services provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services. Wealth Management & Securities Services contributed $157 million of the Company’s net income in the first quarter of 2008, a 1.9 percent increase from the same period of 2007 and a 55.4 percent increase over the fourth quarter of 2007. The increase in the business line’s contribution in the first quarter of 2008 over the same quarter of 2007 was the result of core account growth, partially offset by unfavorable equity market conditions relative to a year ago. Total noninterest expense was 4.0 percent higher compared with the same quarter of 2007 primarily due to higher compensation and employee benefits and processing expense.
     The increase in the business line’s contribution in the first quarter of 2008 compared with the fourth quarter of 2007 was primarily due to market valuation losses of $107 million recorded in the fourth quarter of 2007. This increase was partially offset by seasonally lower trust and investment management fees. Investment management fees were also adversely impacted by unfavorable equity market conditions during the first quarter of 2008. Net interest income declined on a linked quarter basis by 9.0 percent due to somewhat lower average loan balances and the margin impact of declining interest rates on deposits.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 23
Noninterest expense decreased by 1.5 percent due primarily to the timing of marketing and professional services expense, partially offset by an increase in compensation and employee benefits expense.
     Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services are highly inter-related with banking products and services of the other lines of business and rely on access to the bank subsidiary’s settlement network, lower cost funding available to the Company, cross-selling opportunities and operating efficiencies. Payment Services contributed $289 million of the Company’s net income in the first quarter of 2008, a 25.1 percent increase over the same period of 2007 and a 9.4 percent decrease from the fourth quarter of 2007. Total net revenue increased year-over-year due to higher net interest income (49.1 percent) and total noninterest income (13.1 percent). Net interest income increased due to strong growth in higher yielding credit card balances and the timing of asset repricing in a declining rate environment. During the past year, all payment processing revenue categories benefited from account growth, higher transaction volumes and business expansion initiatives. Growth in total noninterest expense year-over-year primarily reflected new business initiatives, including costs associated with transaction processing and a recent acquisition, as well as higher collection costs. An increase in the provision for credit losses was driven by an increase in net charge-offs of $43 million year-over-year which reflected portfolio growth and higher delinquency rates from a year ago.
     The decrease in Payment Services’ contribution in the first quarter of 2008 from the fourth quarter of 2007 was due to seasonally lower fee-based revenues and an increase in the provision for credit losses (21.8 percent) due to portfolio growth and changing economic conditions. Total net revenue was lower due to a 6.9 percent decrease in total noninterest income, partially offset by a 10.0 percent increase in net interest income in this declining rate environment. Total noninterest income declined due to seasonally lower credit and debit card revenue from lower customer transaction volumes after the holidays and the positive impact in the fourth quarter of 2007 from renegotiating an association contract. Merchant processing services also declined on a linked quarter basis due to seasonally lower transaction volumes and the impact of the mix of business on interchange rates. Net interest income increased due to strong growth in retail credit card balances and favorable credit spreads. The decrease in total noninterest expense was primarily due to the timing of marketing programs and seasonally lower debit and prepaid card costs, partially offset by an increase in compensation and employee benefits including the impact of business expansion initiatives.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 24
     Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $22 million in the first quarter of 2008, compared with net income of $39 million in the first quarter of 2007 and a net loss of $169 million in the fourth quarter of 2007. Net interest income increased $65 million in the current quarter over the first quarter of 2007 reflecting a steepening yield curve relative to the first quarter of 2007, wholesale funding decisions and the Company’s asset/liability position. Total noninterest income increased $212 million primarily due to the net impact of the Visa Gain, offset by the structured investment securities impairment and the transition impact of adopting SFAS 157 during the first quarter of 2008. Total noninterest expense increased $95 million year-over-year primarily reflecting higher compensation and employee benefits expense, the $25 million charitable contribution made to the foundation and higher litigation costs, partially offset by a reduction in net shared services expense. The provision for credit losses increased $194 million driven by the incremental provision expense recorded this quarter which reflected deterioration in credit quality within the loan portfolios related to stress in the residential real estate markets, including homebuilding and related supplier industries, and the continued growth of the consumer loan portfolios.
     Net income in the first quarter of 2008 was higher on a linked quarter basis due to the impact of the $215 million Visa Litigation Charge taken in the fourth quarter of 2007 and the $492 million Visa Gain recorded in the current quarter. These were partially offset by the incremental provision for credit losses, the structured investment securities impairment, the unfavorable impact of SFAS 157, a charitable contribution and additional litigation costs in the first quarter of 2008.
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.
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U.S. Bancorp Reports First Quarter 2008 Results
April 15, 2008
Page 25
RICHARD K. DAVIS, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND ANDREW CECERE, VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, WILL HOST A CONFERENCE CALL TO REVIEW THE FINANCIAL RESULTS AT 8:00 AM (CDT) ON TUESDAY, APRIL 15, 2008. The conference call will be available by telephone or on the internet. To access the conference call from locations within the United States and Canada, please dial 866-316-1409. Participants calling from outside the United States and Canada, please dial 706-634-9086. The conference ID number for all participants is 39876056. For those unable to participate during the live call, a recording of the call will be available approximately two hours after the conference call ends on Tuesday, April 15th, and will run through Tuesday, April 22nd, at 11:00 p.m. (CDT). To access the recorded message within the United States and Canada, dial 800-642-1687. If calling from outside the United States and Canada, please dial 706-645-9291 to access the recording. The conference ID is 39876056. Find the recorded call via the internet at usbank.com.
Minneapolis-based U.S. Bancorp (“USB”), with $242 billion in assets, is the parent company of U.S. Bank, the 6th largest commercial bank in the United States. The Company operates 2,522 banking offices and 4,844 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at usbank.com.
Forward-Looking Statements
The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of the Company. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including changes in general business and economic conditions, changes in interest rates, deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans, deterioration in the value of securities held in our investment securities portfolio, legal and regulatory developments, increased competition from both banks and non-banks, changes in customer behavior and preferences, effects of mergers and acquisitions and related integration, effects of critical accounting policies and judgments, and management’s ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk. For discussion of these and other risks that may cause actual results to differ from expectations, refer to our Annual Report on Form 10-K for the year ended December 31, 2007, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile.” Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.
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U.S. Bancorp
Consolidated Statement of Income
                   
    Three Months Ended  
(Dollars and Shares in Millions, Except Per Share Data)   March 31,  
(Unaudited)   2008       2007  
 
Interest Income
                  
Loans
   $ 2,560       $ 2,578  
Loans held for sale
     73         59  
Investment securities
     535         516  
Other interest income
     37         34  
     
Total interest income
     3,205         3,187  
Interest Expense
                  
Deposits
     606         675  
Short-term borrowings
     322         328  
Long-term debt
     474         535  
     
Total interest expense
     1,402         1,538  
     
Net interest income
     1,803         1,649  
Provision for credit losses
     485         177  
     
Net interest income after provision for credit losses
     1,318         1,472  
Noninterest Income
                  
Credit and debit card revenue
     248         206  
Corporate payment products revenue
     164         147  
ATM processing services
     84         77  
Merchant processing services
     271         252  
Trust and investment management fees
     335         322  
Deposit service charges
     257         247  
Treasury management fees
     124         111  
Commercial products revenue
     112         100  
Mortgage banking revenue
     105         67  
Investment products fees and commissions
     36         34  
Securities gains (losses), net
     (251 )       1  
Other
     559         159  
     
Total noninterest income
     2,044         1,723  
Noninterest Expense
                  
Compensation
     745         635  
Employee benefits
     137         133  
Net occupancy and equipment
     190         177  
Professional services
     47         47  
Marketing and business development
     79         52  
Technology and communications
     140         135  
Postage, printing and supplies
     71         69  
Other intangibles
     87         94  
Other
     300         230  
     
Total noninterest expense
     1,796         1,572  
     
Income before income taxes
     1,566         1,623  
Applicable income taxes
     476         493  
     
Net income
   $ 1,090       $ 1,130  
     
Net income applicable to common equity
   $ 1,078       $ 1,115  
     
Earnings per common share
   $ .62       $ .64  
Diluted earnings per common share
   $ .62       $ .63  
Dividends declared per common share
   $ .425       $ .400  
Average common shares outstanding
     1,731         1,752  
Average diluted common shares outstanding
     1,749         1,780  
 
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U.S. Bancorp
Consolidated Ending Balance Sheet
                         
    March 31,     December 31,     March 31,  
(Dollars in Millions)   2008     2007     2007  
 
Assets
     (Unaudited)           (Unaudited)  
Cash and due from banks
   $ 7,323     $ 8,884     $ 6,287  
Investment securities
                        
Held-to-maturity
     72       74       83  
Available-for-sale
     41,624       43,042       40,508  
Loans held for sale
     5,241       4,819       4,075  
Loans
                        
Commercial
     52,744       51,074       47,315  
Commercial real estate
     29,969       29,207       28,530  
Residential mortgages
     23,218       22,782       21,765  
Retail
     52,369       50,764       47,235  
     
Total loans
     158,300       153,827       144,845  
Less allowance for loan losses
     (2,251 )     (2,058 )     (2,027 )
     
Net loans
     156,049       151,769       142,818  
Premises and equipment
     1,805       1,779       1,818  
Goodwill
     7,685       7,647       7,585  
Other intangible assets
     2,962       3,043       3,215  
Other assets
     19,020       16,558       15,059  
     
Total assets
   $ 241,781     $ 237,615     $ 221,448  
     
 
                        
Liabilities and Shareholders’ Equity
                        
Deposits
                        
Noninterest-bearing
   $ 32,870     $ 33,334     $ 28,666  
Interest-bearing
     76,895       72,458       70,557  
Time deposits greater than $100,000
     28,505       25,653       18,837  
     
Total deposits
     138,270       131,445       118,060  
Short-term borrowings
     36,392       32,370       28,516  
Long-term debt
     36,229       43,440       44,698  
Other liabilities
     9,318       9,314       9,374  
     
Total liabilities
     220,209       216,569       200,648  
Shareholders’ equity
                        
Preferred stock
     1,500       1,000       1,000  
Common stock
     20       20       20  
Capital surplus
     5,677       5,749       5,745  
Retained earnings
     23,033       22,693       21,660  
Less treasury stock
     (7,178 )     (7,480 )     (6,972 )
Other comprehensive income
     (1,480 )     (936 )     (653 )
     
Total shareholders’ equity
     21,572       21,046       20,800  
     
Total liabilities and shareholders’ equity
   $ 241,781     $ 237,615     $ 221,448  
 
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