Piper Jaffray Companies (NYSE:PJC)
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From Oct 2019 to Oct 2024
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