U.S. Bancorp Reports Record Net Income for the Second Quarter of 2005

Business Wire, July 19, 2005

MINNEAPOLIS -- U.S. Bancorp (NYSE:USB):

EARNINGS SUMMARY                                               Table 1
----------------------------------------------------------------------
($ in millions, except per-share data)

                                  Percent Percent
                                  Change  Change
               2Q     1Q     2Q   2Q05 vs 2Q05 vs  YTD    YTD  Percent
              2005   2005   2004   1Q05    2Q04   2005   2004  Change
             ---------------------------------------------------------

Net income   $1,121 $1,071 $1,037    4.7     8.1 $2,192 $2,045    7.2
Earnings per
 share
 (diluted)     0.60   0.57   0.54    5.3    11.1   1.17   1.06   10.4

Return on
 average
 assets (%)    2.23   2.21   2.19                  2.22   2.16
Return on
 average
 equity (%)    22.7   21.9   21.9                  22.3   21.3
Efficiency
 ratio (%)     48.3   41.7   38.6                  45.1   42.7

Dividends
 declared per
 share        $0.30  $0.30  $0.24     --    25.0  $0.60  $0.48   25.0
Book value
 per share
 (period-end) 10.88  10.43   9.91    4.3     9.8
Net interest
 margin (%)    3.99   4.08   4.28                  4.03   4.28

U.S. Bancorp (NYSE:USB) today reported net income of $1,121 million for the second quarter of 2005, compared with $1,037 million for the second quarter of 2004. Net income of $.60 per diluted share in the second quarter of 2005 was higher than the same period of 2004 by $.06 (11.1 percent). Return on average assets and return on average equity were 2.23 percent and 22.7 percent, respectively, for the second quarter of 2005, compared with returns of 2.19 percent and 21.9 percent, respectively, for the second quarter of 2004.

U.S. Bancorp Chairman and Chief Executive Officer Jerry A. Grundhofer said, "I am very proud to announce that our Company has achieved another quarter of record earnings and industry leading returns on equity and assets. The results included strong year-over-year and seasonal growth in our fee-based businesses, as well as exceptional credit quality. Loan growth in the second quarter of 2005 was excellent, increasing 8.3 percent over the same quarter of 2004 and at an annualized rate of 11.2 percent over the prior quarter. Once again, we exceeded our stated target and returned 92 percent of earnings to our shareholders during the quarter in the form of dividends and share repurchases.

"Fee revenue, excluding the impact of securities gains (losses), continued to drive revenue growth this quarter, increasing 8.9 percent over the second quarter of 2004. Investments and core growth in our Payments Services and Consumer Banking business units were the primary drivers of the growth in fees, increasing 17.1 percent and 6.1 percent, respectively.

"The growth in commercial loans was particularly encouraging this quarter, as average outstandings grew 9.0 percent over the second quarter of 2004 and, more importantly, at an annualized rate of 16.8 percent over the first quarter of 2005. Although credit spreads continued to tighten, accounting for 4 of the 9 basis point drop in the net margin on a linked quarter basis, we have remained competitive and disciplined in our approach to the market, capitalizing on our ability to compete on price while offering a wide array of non-credit products to fulfill our customers' needs.

"I am especially pleased with the exceptional improvement we have seen in the Company's credit quality over the past year. Our loss and coverage ratios are better than our Company has experienced in many years and are the direct result of the actions we have taken to reduce the risk profile of the Company. We expect to continue to grow our credit-related businesses, both commercial and retail, while maintaining the discipline that has helped us reach these quality metrics today.

"We are well on our way to meeting our financial goals for 2005 and beyond. We will continue to invest in our franchise, as we have been, to create and enhance our set of products and services, increase our market penetration and provide outstanding service to our customers."

The Company's results for the second quarter of 2005 improved over the same period of 2004, as net income rose by $84 million (8.1 percent), primarily due to growth in fee-based products and services, reduced credit costs and lower tax expense. During the second quarter of 2005, the Company recognized a $53 million impairment of its mortgage servicing rights ("MSR") asset, reflecting lower longer-term interest rates in the second quarter of 2005, compared with the recognition of $171 million reparation of its MSR asset in the second quarter of 2004. Also included in the second quarter of 2005 results was a $54 million charge related to a completed tender offer for debt securities and a $94 million reduction in income tax expense related to the resolution of federal tax examinations covering all of the Company's legal entities for all years through 2002.

Total net revenue on a taxable-equivalent basis for the second quarter of 2005 was $281 million (9.3 percent) higher than the second quarter of 2004, primarily reflecting 8.9 percent growth in fee-based revenue across the majority of fee categories, expansion in payments processing businesses and a $173 million favorable variance in securities gains (losses), partially offset by a 1.0 percent reduction in net interest income.