Event Brief of Q2 2004 U.S. Bancorp Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

CORPORATE PARTICIPANTS

. Matt McCullough, U.S. Bancorp,, SVP, IR . Jerry Grundhofer, U.S. Bancorp,, Chairman, President & CEO . David Moffett, U.S. Bancorp,, Vice Chairman & CFO

OVERVIEW

On a GAAP basis, USB's 2Q04 EPS increased 12.5% from the same period of last year, and an annualized 15.2% from 1Q04. Average total loans increased an annualized 8% from 1Q04. USB aggressively repurchased its stock in the quarter, buying back almost 21m shares. USB remains optimistic about its prospects for the remainder of the year as well as the longer term. Q&A Focus: Net interest income outlook, interest rate positioning, payment trends, unrealized loss, and balance sheet.

FINANCIAL DATA

A. Key Data From Call 1. 2Q04 nonperforming assets decline = $136m.

2. Net chargeoffs on a link quarter basis = $204m.

PRESENTATION SUMMARY

S1. Opening Comments (J.G.) 1. Highlights: 1. On a GAAP basis, 2Q04 EPS increased 12.5% from the same period of last year, and an annualized 15.2% from 1Q04. 2. Excluding the 12/31/2003 spin-off of Piper Jaffray, EPS from continuing operations were up 14.9% from 2Q03. 3. 2Q04's high-quality earnings were driven by strong fee income growth and improved credit quality. 4. Excluding securities gains and losses, noninterest income

increased 12.2% from last year's similar quarter. 5. The payment fee categories increased 13.1%, reflecting increased customer penetration and an improving economy, with merchant processing increasing 16.4%, corporate payments increasing 13%, and credit and debit card revenue increasing 11.6% respectively. 6. Deposit service charges increased 12.9% driven by net new account growth, which continued to gain momentum in the quarter. 7. Mortgage banking revenue also displayed growth and strength in

the quarter. 8. On a link quarter basis, fee income growth excluding securities gains and losses was stronger than normal, and 2Q is historically a very strong quarter, but increasing 7.2% or 28.8% annualized. 9. All fee categories with the exception of trust and investment management fees and commercial product revenue grew at double-digit annualized rates vs. 1Q04.

10. Credit quality continued to show improvement. 11. 2Q04 net chargeoffs declined 12.6% from 1Q04, coming in at 68 bp of average loan, with the majority of the improvement coming on the commercial side. 12. Nonperforming assets declined $136m or 13%. 1. USB expects these credit quality trends to improve modestly over the next few quarters. 2. Loans: 1. Average total loans increased an annualized 8% from 1Q04. 2. The breadth of the economic recovery is becoming more evident across USB's 24-state franchise, and its commercial customers are more optimistic about the future. 3. USB believes that commercial loans will continue to show moderate growth for the remainder of 2004. 4. Average retail loans including first lien home equity loans continued to grow 10% vs. 1Q03, driven by growth in leasing, credit card, and home equity products. 3. Other Details: 1. The growth rate of net new checking accounts continues to accelerate, growing 81,000 net new accounts in the quarter, that's an annualized 6.5% in 2Q, while average low-cost core deposits in the branches increased just under 6% vs. 2Q03. 2. USB aggressively repurchased its stock in the quarter, buying back almost 21m shares.

1. This combined with USB's normal quarterly dividend resulted in a 97% return of earnings to shareholders in this quarter. 3. Going forward, USB's primary goal is to continue to demonstrate that it is uniquely positioned to achieve consistent 10% plus EPS growth as a result of its balanced business mix, advantage scale, reduced risk profile, low-cost leadership, and emphasis on customer service. 4. USB is very proud of its industry-leading return on assets and equity of 2.19%, and 21.9% respectively in the quarter. 1. USB believes that it will continue to see modest improvement in these ratios as 2004 progresses, it understands the need to show above average organic revenue growth that translates

into double-digit EPS growth. 5. USB has invested almost $500m in revenue enhancing projects over the past three years with approx. one-third of this investment in its retail distribution and branch system over the past one-and-a-half years. 6. USB's in-store initiative is proceeding on schedule. 7. USB now has 80 Safeway locations open in California, Arizona, and Nevada, 15 Smith's locations open in Utah, and six Publix locations open in Tennessee. 8. USB expects to end 2004 with 446 in-grocery store locations, an increase of 127 from the end of 2003.

1. Financial results for the initiatives are exceeding expectations.

9. Transaction volumes in payment businesses continued to gain

momentum as the economy gained strength. 10. USB also has a number of initiatives underway to penetrate its existing customer base with a broad array of payments, products, and services.

11. USB is continuing to relentlessly focus on improving the

level of service that it provides its customers. 12. USB remains optimistic about its prospects for the remainder of the year as well as the longer term.

S2. Financials (D.M.) 1. Details: 1. Today USB reported 1Q (Phonetic) earnings of $1.37b or $0.54 per share on a diluted basis, which is $0.01 better than the First Call consensus estimate, and was a 12.5% increase over 2Q03, and an annualized 15.2% increase over 1Q04. 2. Revenue growth was better than expected, as the fee category showed strong growth both YoverY and on a link quarter basis. 3. Excluding the impact of mortgage servicing rights, impairment

and repairment, noninterest expense increased 4% from 2Q03.

1. This was primarily driven by higher incentive expense, higher employee benefit cost, higher insurance expense, and higher charge-back exposure associated with the Co.'s airline merchant processing portfolio.

4. Credit quality continues to show improvement once again

exceeding USB's expectations for the quarter. 5. Commercial borrowing conditions are best characterized as improving, with the expectation of continued modest commercial loan growth in 2H of the year. 6. During the quarter, USB's net interest margin fell 1 bp to 4.28% from 4.29% in 1Q04. 7. Earnings assets were largely flat vs. 1Q as average loans increased $2.4b, and average investment securities decreased $2.3b. 8. USB ended the quarter relatively neutral from a rate perspective. 9. Going forward, USB will continue to position the balance sheet

for higher rates. 10. USB expects to grow net interest income in 2H of the year, assuming modest commercial loan demand and the continuation of the current retail growth trends. 11. During the quarter, USB wrote its mortgage servicing rights up by $171m based on increases in market rates of interest. 1. USB booked this repairment as a reduction in intangible amortization expense and offset the benefit with $170m loss from the investment securities portfolio. 2. Business Unit Results: 1. Compared to 2Q of last year, wholesale banking increased net operating earnings by 26.2%, driven by improved credit quality and reduced noninterest expense. 2. Reflecting a 5.2% decline in average loan balances, total revenue declined 3.5%. 3. Noninterest expense declined 3.3% primarily due to …