U.S. Bancorp Reports Record Net Income for the Second Quarter of 2006

U.S. Bancorp (NYSE:USB):
EARNINGS SUMMARY Table 1
----------------------------------------------------------------------
($ in millions, except per-share data)

Percent Percent
Change Change
2Q 1Q 2Q 2Q06 vs 2Q06 vs YTD YTD Percent
2006 2006 2005 1Q06 2Q05 2006 2005 Change
---------------------------------------------------------

Net income $1,201 $1,153 $1,121 4.2 7.1 $2,354 $2,192 7.4
Diluted
earnings per
common share .66 .63 .60 4.8 10.0 1.29 1.17 10.3

Return on
average
assets (%) 2.27 2.23 2.23 2.25 2.22
Return on
average
common
equity (%) 24.3 23.3 22.7 23.8 22.3
Net interest
margin (%) 3.68 3.80 3.99 3.74 4.03
Efficiency
ratio (%) 44.4 44.9 48.3 44.6 45.1
Tangible
efficiency
ratio (%)(a) 41.8 42.4 42.8 42.1 41.2

Dividends
declared per
common share $.33 $.33 $.30 -- 10.0 $.66 $.60 10.0
Book value per
common share
(period-end) 10.89 10.80 10.88 .8 .1

(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.

U.S. Bancorp (NYSE:USB) today reported net income of $1,201million for the second quarter of 2006, compared with $1,121 millionfor the second quarter of 2005. Net income of $.66 per diluted commonshare in the second quarter of 2006 was higher than the same period of2005 by 10.0 percent, or $.06 per diluted common share. Return onaverage assets and return on average common equity were 2.27 percentand 24.3 percent, respectively, for the second quarter of 2006,compared with returns of 2.23 percent and 22.7 percent, respectively,for the second quarter of 2005.

U.S. Bancorp Chairman and Chief Executive Officer Jerry A.Grundhofer said, "Historically, the second quarter of the year is oneof the Company's strongest, and this year was no exception. Ourearnings per diluted common share grew by ten percent over the samequarter of 2005 and 4.8 percent over the first quarter of 2006. Weachieved industry-leading performance metrics of return on assets of2.27 percent and return on average common equity of 24.3 percent. Werecorded exceptional growth in fee revenue, and that growth, coupledwith controlled expenses, led to a tangible efficiency ratio for thequarter of 41.8 percent. Growing revenue faster than expense hasalways been a goal of this Company, and we did just that this quarter.As a result, we created positive operating leverage on both ayear-over-year and linked quarter basis.

"The growth in noninterest income was 13.9 percent year-over-year.Our payments and fiduciary businesses were the primary contributors tothe increase in fee income, both of which recorded solid organicgrowth, as well as incremental revenue from recent acquisitions. Inaddition, consumer banking posted strong increases in deposit servicecharges year-over-year.

"Once again, credit quality was outstanding. These results are thedirect benefit of our efforts to reduce the overall risk profile ofthe Company. Going forward, we will continue to focus on acquiringhigh quality credits and maintaining our current risk profile. Theoffset may be slightly lower spread income and loan growth, but thereward should be lower overall credit costs during the next creditcycle.

"Total average loans increased year-over-year by 7.3 percent,while total average earning assets rose by 4.6 percent. Despite theincrease in average earning assets, net interest income for thequarter was lower than the same period of last year, as our netinterest margin declined to 3.68 percent. Competitive pricing andgrowth in lower-spread assets, given the current interest rateenvironment, had a significant impact on the margin. Our challengegoing forward will be to grow credit products at reasonable spreadsthat compensate for the risk involved. We can compete effectively inthis environment given our powerful fee-based product set and ourstatus as a low-cost producer.

"We announced two acquisitions in June. First, we signed adefinitive agreement to purchase Vail Banks, Inc., the parent companyof WestStar Bank. This acquisition will add 24 new branch locations toour franchise in western Colorado. Second, we announced the purchaseof Schneider Payment Services, a division of Schneider National, Inc.These two small acquisitions fit very well into our expansionstrategy. The Colorado branches will enhance our distribution inattractive, growing markets, while Schneider Payment Services willexpand our current fee-based freight payment offerings and businessopportunities.

"I am very pleased overall with our second quarter results. Theseresults demonstrate that our Company can produce high-quality earningsfor our shareholders by leveraging its balanced business mix,advantaged scale, reduced risk profile, low-cost leadership anddedication to customer service."

The Company's results for the second quarter of 2006 improved overthe same period of 2005, as net income increased by $80 million (7.1percent), primarily due to strong growth in a majority of fee-basedproducts. Included in the second quarter of 2006 results was a $35million gain related to the Company's proportionate share of theinitial public offering of MasterCard, Incorporated ("MasterCardIPO").

Total net revenue on a taxable-equivalent basis for the secondquarter of 2006 was $3,452 million, $150 million (4.5 percent) higherthan the second quarter of 2005, primarily reflecting a 13.9 percentincrease in noninterest income partially offset by a 3.6 percentdecline in net interest income. Noninterest income growth was drivenby organic business growth and recent expansion in trust and paymentprocessing businesses, partially offset by lower mortgage bankingrevenue due to the impact of adopting Statement of FinancialAccounting Standards No. 156, "Accounting for Servicing of FinancialAssets" ("SFAS 156") in the first quarter of 2006. Mortgage bankingrevenue in the second quarter of 2006 was impacted primarily by theeffect of principal repayments on the valuation of servicing rightsthat was previously recognized as part of intangible expense. Totalnoninterest expense in the second quarter of 2006 was $1,530 million,$65 million (4.1 percent) lower than the second quarter of 2005,primarily reflecting lower intangible expense due to the adoption ofSFAS 156 and lower debt prepayment expense. This was partially offsetby incremental operating and business integration costs principallyassociated with recent acquisitions, increased pension costs andhigher expenses related to investments in tax-advantaged projects froma year ago.

Provision for credit losses for the second quarter of 2006 was$125 million, a decrease of $19 million from the second quarter of2005. The decrease in the provision for credit losses year-over-yearprimarily reflected strong credit quality and the near-term favorableimpact of changes in bankruptcy law in the fourth quarter of 2005. Netcharge-offs in the second quarter of 2006 were $125 million, comparedwith the first quarter of 2006 net charge-offs of $115 million and thesecond quarter of 2005 net charge-offs of $144 million. Totalnonperforming assets were $550 million at June 30, 2006, compared with$619 million at March 31, 2006, and $610 million at June 30, 2005. Theratio of the allowance for credit losses to nonperforming loans was500 percent at June 30, 2006, compared with 432 percent at March 31,2006, and 441 percent at June 30, 2005.
INCOME STATEMENT HIGHLIGHTS Table 2
----------------------------------------------------------------------
(Taxable-equivalent basis, $ in millions, except per-share data)

Percent Percent
Change Change
2Q 1Q 2Q 2Q06 vs 2Q06 vs YTD YTD Percent
2006 2006 2005 1Q06 2Q05 2006 2005 Change
-----------------------------------------------------------

Net
interest
income $1,697 $1,725 $1,761 (1.6) (3.6) $3,422 $3,512 (2.6)
Noninterest
income 1,755 1,614 1,541 8.7 13.9 3,369 2,923 15.3
--------------------- ---------------
Total
net
revenue 3,452 3,339 3,302 3.4 4.5 6,791 6,435 5.5
Noninterest
expense 1,530 1,500 1,595 2.0 (4.1) 3,030 2,926 3.6
--------------------- ---------------
Income
before
provision
and taxes 1,922 1,839 1,707 4.5 12.6 3,761 3,509 7.2
Provision
for credit
losses 125 115 144 8.7 (13.2) 240 316 (24.1)
--------------------- ---------------
Income
before
taxes 1,797 1,724 1,563 4.2 15.0 3,521 3,193 10.3
Taxable-
equivalent
adjustment 11 10 7 10.0 57.1 21 14 50.0
Applicable
income
taxes 585 561 435 4.3 34.5 1,146 987 16.1
--------------------- ---------------
Net income $1,201 $1,153 $1,121 4.2 7.1 $2,354 $2,192 7.4
--------------------- ---------------
Net income
applicable
to common
equity $1,184 $1,153 $1,121 2.7 5.6 $2,337 $2,192 6.6
--------------------- ---------------

Diluted
earnings
per common
share $.66 $.63 $.60 4.8 10.0 $1.29 $1.17 10.3
--------------------- ---------------

Net Interest Income

Second quarter net interest income on a taxable-equivalent basiswas $1,697 million, compared with $1,761 million recorded in thesecond quarter of 2005. Average earning assets for the periodincreased over the second quarter of 2005 by $8.2 billion (4.6percent), primarily driven by a $3.7 billion (21.3 percent) increasein residential mortgages, a $2.6 billion (6.0 percent) increase intotal commercial loans, a $2.2 billion (4.9 percent) increase in totalretail loans and a $1.2 billion (4.4 percent) increase in totalcommercial real estate loans. This was partially offset by a $2.3billion (5.3 percent) decrease in investment securities. The positiveimpact to net interest income from the growth in earning assets wasmore than offset by a lower net interest margin. The net interestmargin in the second quarter of 2006 was 3.68 percent, compared with3.99 percent in the second quarter of 2005. The decline in the netinterest margin reflected the competitive lending environment during2005, asset/liability management decisions and the impact of changesin the yield curve from a year ago. Since the second quarter of 2005,credit spreads have tightened by approximately 23 basis points acrossmost lending products due to competitive pricing and a change in mixdue to growth in lower-spread, fixed-rate credit products. The netinterest margin also declined due to funding incremental asset growthwith higher cost wholesale funding, share repurchases andasset/liability decisions designed to minimize the Company's ratesensitivity position. An increase in the margin benefit of net freefunds and loan fees partially offset these factors.

Net interest income in the second quarter of 2006 was lower thanthe first quarter of 2006 by $28 million (1.6 percent). The netinterest margin of 3.68 percent in the second quarter of 2006 was 12basis points lower than the net interest margin of 3.80 percent in thefirst quarter of 2006. The decline in the net interest margin from thefirst quarter of 2006 was due to continued tightening of the creditspreads, incrementally funding a higher percentage of earning assetswith wholesale funding and the ongoing impact of the flat yield curve.During the second quarter of 2006, credit spreads narrowed 7 basispoints compared with the first quarter of 2006.
NET INTEREST INCOME Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in millions)
Change Change
2Q 1Q 2Q 2Q06 vs 2Q06 vs
2006 2006 2005 1Q06 2Q05
------------------------------------------
Components of net interest
income
Income on earning assets $3,037 $2,903 $2,572 $134 $465
Expense on interest-
bearing liabilities 1,340 1,178 811 162 529
------------------------------------------
Net interest income $1,697 $1,725 $1,761 $(28) $(64)
------------------------------------------

Average yields and rates
paid
Earning assets yield 6.58% 6.40% 5.83% .18% .75%
Rate paid on interest-
bearing liabilities 3.45 3.10 2.23 .35 1.22
------------------------------------------
Gross interest margin 3.13% 3.30% 3.60% (.17)% (.47)%
------------------------------------------
Net interest margin 3.68% 3.80% 3.99% (.12)% (.31)%
------------------------------------------

Average balances
Investment securities $40,087 $39,680 $42,341 $407 $(2,254)
Loans 140,863 139,379 131,275 1,484 9,588
Earning assets 184,890 183,101 176,730 1,789 8,160
Interest-bearing
liabilities 155,755 153,911 146,070 1,844 9,685
Net free funds (a) 29,135 29,190 30,660 (55) (1,525)

(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.


NET INTEREST INCOME Table 3
----------------------------------------------------------------------
(Taxable-equivalent basis; $ in millions)

YTD YTD
2006 2005 Change
--------------------------
Components of net interest income
Income on earning assets $5,940 $5,014 $926
Expense on interest-bearing liabilities 2,518 1,502 1,016
--------------------------
Net interest income $3,422 $3,512 $(90)
--------------------------

Average yields and rates paid
Earning assets yield 6.49% 5.76% .73%
Rate paid on interest-bearing liabilities 3.28 2.10 1.18
--------------------------
Gross interest margin 3.21% 3.66% (.45)%
--------------------------
Net interest margin 3.74% 4.03% (.29)%
--------------------------

Average balances
Investment securities $39,885 $42,576 $(2,691)
Loans 140,125 129,474 10,651
Earning assets 184,000 175,022 8,978
Interest-bearing liabilities 154,838 144,072 10,766
Net free funds (a) 29,162 30,950 (1,788)

(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.


AVERAGE LOANS Table 4
----------------------------------------------------------------------
($ in millions) Percent Percent
Change Change
2Q 1Q 2Q 2Q06 vs 2Q06 vs
2006 2006 2005 1Q06 2Q05
--------------------------------------------

Commercial $39,871 $38,847 $37,595 2.6 6.1
Lease financing 5,199 5,078 4,922 2.4 5.6
---------------------------
Total commercial 45,070 43,925 42,517 2.6 6.0

Commercial mortgages 20,195 20,269 20,156 (.4) .2
Construction and
development 8,600 8,347 7,426 3.0 15.8
---------------------------
Total commercial real
estate 28,795 28,616 27,582 .6 4.4

Residential mortgages 20,868 20,987 17,198 (.6) 21.3

Credit card 7,360 7,120 6,527 3.4 12.8
Retail leasing 7,115 7,250 7,314 (1.9) (2.7)
Home equity and second
mortgages 15,035 14,935 15,003 .7 .2
Other retail 16,620 16,546 15,134 .4 9.8
---------------------------
Total retail 46,130 45,851 43,978 .6 4.9
---------------------------

Total loans $140,863 $139,379 $131,275 1.1 7.3
---------------------------


AVERAGE LOANS Table 4
----------------------------------------------------------------------
($ in millions)

YTD YTD Percent
2006 2005 Change
-------------------------

Commercial $39,362 $36,843 6.8
Lease financing 5,139 4,918 4.5
------------------
Total commercial 44,501 41,761 6.6

Commercial mortgages 20,231 20,212 .1
Construction and development 8,475 7,331 15.6
------------------
Total commercial real estate 28,706 27,543 4.2

Residential mortgages 20,927 16,517 26.7

Credit card 7,241 6,472 11.9
Retail leasing 7,182 7,256 (1.0)
Home equity and second mortgages 14,985 14,924 .4
Other retail 16,583 15,001 10.5
------------------
Total retail 45,991 43,653 5.4
------------------

Total loans $140,125 $129,474 8.2
------------------

Average loans for the second quarter of 2006 were $9.6 billion(7.3 percent) higher than the second quarter of 2005, driven by growthin average residential mortgages of $3.7 billion (21.3 percent), totalcommercial loans of $2.6 billion (6.0 percent), total retail loans of$2.2 billion (4.9 percent) and total commercial real estate loans of$1.2 billion (4.4 percent). Average loans for the second quarter of2006 were higher than the first quarter of 2006 by $1.5 billion (1.1percent), reflecting growth in the majority of loan categories.Residential mortgages remained relatively flat in the second quarterof 2006 compared with the first quarter of 2006. During the firstquarter of 2006, the Company began selling an increased proportion ofits residential mortgage loan production and anticipates that balanceswill remain essentially flat or decline somewhat during the nextseveral quarters.

Average investment securities in the second quarter of 2006 were$2.3 billion (5.3 percent) lower than in the second quarter of 2005.The change in the balance of the investment securities portfolio froma year ago principally reflected asset/liability management decisionsto reduce the focus on residential mortgage assets given the changingrate environment and mix of loan growth. Additionally, the Companyreclassified approximately $460 million of principal-only securitiesto its trading account effective as of January 1, 2006, in connectionwith the adoption of SFAS 156. During the second quarter of 2006, theCompany maintained a mix of approximately 40 percent variable-ratesecurities.
AVERAGE DEPOSITS Table 5
----------------------------------------------------------------------
($ in millions) Percent Percent
Change Change
2Q 1Q 2Q 2Q06 vs 2Q06 vs
2006 2006 2005 1Q06 2Q05
-------------------------------------------

Noninterest-bearing
deposits $28,949 $28,837 $29,148 .4 (.7)
Interest-bearing deposits
Interest checking 23,333 23,141 23,024 .8 1.3
Money market savings 26,981 27,378 29,563 (1.5) (8.7)
Savings accounts 5,720 5,689 5,886 .5 (2.8)
---------------------------
Total of savings
deposits 56,034 56,208 58,473 (.3) (4.2)
Time certificates of
deposit less
than $100,000 13,689 13,505 13,152 1.4 4.1
Time deposits greater
than $100,000 22,561 21,613 20,459 4.4 10.3
---------------------------
Total interest-
bearing deposits 92,284 91,326 92,084 1.0 .2
---------------------------
Total deposits $121,233 $120,163 $121,232 .9 --
---------------------------


AVERAGE DEPOSITS Table 5
----------------------------------------------------------------------
($ in millions)

YTD YTD Percent
2006 2005 Change
---------------------------

Noninterest-bearing deposits $28,893 $28,784 .4
Interest-bearing deposits
Interest checking 23,238 23,085 .7
Money market savings 27,178 29,911 (9.1)
Savings accounts 5,705 5,927 (3.7)
------------------
Total of savings deposits 56,121 58,923 (4.8)
Time certificates of deposit less
than $100,000 13,598 13,066 4.1
Time deposits greater than $100,000 22,089 19,559 12.9
------------------
Total interest-bearing deposits 91,808 91,548 .3
------------------
Total deposits $120,701 $120,332 .3
------------------

Average noninterest-bearing deposits for the second quarter of2006 remained relatively flat, decreasing only $199 million (.7percent) compared with the second quarter of 2005 despite a reductionof excess liquidity in the markets.

Average total savings deposits declined year-over-year by $2.4billion (4.2 percent) due to reductions in average money marketsavings and savings accounts. Average money market savings balancesdeclined by $2.6 billion (8.7 percent) year-over-year, primarily dueto a decline in balances within the branches. This was partiallyoffset by increases in broker dealer and corporate trust balances. Theoverall decrease in average money market savings balancesyear-over-year was primarily the result of the Company's depositpricing decisions for money market products in relation to otherfixed-rate deposit products offered. A portion of branch based moneymarket savings accounts have migrated to fixed-rate time certificates,while larger customer money market savings accounts have migrated totime deposits greater than $100,000 as rates increased on the timedeposit products.

Average time certificates of deposit less than $100,000 werehigher in the second quarter of 2006 than the second quarter of 2005by $537 million (4.1 percent). The Company experienced year-over-yeargrowth in average time deposits greater than $100,000 of $2.1 billion(10.3 percent). This growth was broad-based across most areas of thebank including; corporate, commercial, branch banking, private clientand corporate trust, as customers migrated balances to higher ratedeposits.

Average noninterest-bearing deposits for the second quarter of2006 increased modestly compared with the first quarter of 2006principally representing seasonal deposit balances. Total savingsdeposits declined slightly, $174 million (.3 percent) from the firstquarter of 2006 while fixed-rate time certificates and time depositsgreater than $100,000 increased by $1.1 billion reflecting the impactof product pricing decisions by the Company.
NONINTEREST INCOME Table 6
----------------------------------------------------------------------
($ in millions) Percent Percent
Change Change
2Q 1Q 2Q 2Q06 vs 2Q06 vs YTD YTD Percent
2006 2006 2005 1Q06 2Q05 2006 2005 Change
----------------------------------------------------------

Credit and
debit card
revenue $202 $182 $177 11.0 14.1 $384 $331 16.0
Corporate
payment
products
revenue 139 127 120 9.4 15.8 266 227 17.2
ATM
processing
services 61 59 57 3.4 7.0 120 104 15.4
Merchant
processing
services 253 213 198 18.8 27.8 466 376 23.9
Trust and
investment
management
fees 314 297 253 5.7 24.1 611 500 22.2
Deposit
service
charges 264 232 234 13.8 12.8 496 444 11.7
Treasury
management
fees 116 107 117 8.4 (.9) 223 224 (.4)
Commercial
products
revenue 107 104 100 2.9 7.0 211 196 7.7
Mortgage
banking
revenue 75 24 110 nm (31.8) 99 212 (53.3)
Investment
products
fees and
commissions 42 38 39 10.5 7.7 80 78 2.6
Securities
gains
(losses),
net 3 -- 1 nm nm 3 (58) nm
Other 179 231 135 (22.5) 32.6 410 289 41.9
--------------------- --------------

Total
noninterest
income $1,755 $1,614 $1,541 8.7 13.9 $3,369 $2,923 15.3
--------------------- --------------

Noninterest Income

Second quarter noninterest income was $1,755 million, an increaseof $214 million (13.9 percent) from the same quarter of 2005 and $141million (8.7 percent) higher than the first quarter of 2006. Theincrease in noninterest income over the second quarter of 2005 wasdriven by favorable variances in the majority of fee income categoriesand the impact of the MasterCard IPO gain included in other income.This strong growth in revenue was partially offset by the accountingimpact of SFAS 156 on mortgage banking revenue.

Credit and debit card revenue and corporate payment productsrevenue were both higher in the second quarter of 2006 than the secondquarter of 2005 by $25 million and $19 million, or 14.1 percent and15.8 percent, respectively. The strong growth in credit and debit cardrevenue was primarily driven by higher customer transaction volumes.The corporate payment products revenue growth reflected organic growthin sales volumes and card usage. Merchant processing services revenuewas higher in the second quarter of 2006 than the same quarter a yearago by $55 million (27.8 percent), reflecting an increase in salesvolume driven by acquisitions, higher same store sales and equipmentfees. Trust and investment management fees increased by $61 million(24.1 percent) year-over-year, due to improved equity marketconditions, incremental account growth and customer balances and theacquisition of the corporate and institutional trust business ofWachovia Corporation. Deposit service charges grew year-over-year by$30 million (12.8 percent) due to increased transaction-related fees.Other income was higher by $44 million (32.6 percent) as compared tothe second quarter of 2005, primarily due to the gain on theMasterCard IPO. These favorable changes in fee-based revenue werepartially offset by the decline in mortgage banking revenue,principally driven by the adoption of the fair value method ofaccounting for mortgage servicing rights ($33 million).

Noninterest income was higher in the second quarter of 2006 thanthe first quarter of 2006 by $141 million (8.7 percent). Thisreflected a $20 million (11.0 percent) increase in credit and debitcard revenue and a $12 million (9.4 percent) increase in corporatepayment products revenue due primarily to organic growth andseasonally higher transaction volume. Merchant processing servicesrevenue increased by $40 million (18.8 percent), due primarily tohigher same store sales volumes, pricing enhancements and recentbusiness acquisitions. Trust and investment management fees andtreasury management fees increased over the first quarter of 2006 by$17 million (5.7 percent) and $9 million (8.4 percent), respectively,due to seasonal tax-related processing volumes. Mortgage bankingrevenue was $51 million higher in the second quarter of 2006 dueprimarily to losses on principal-only securities and ahedging/mortgage servicing rights valuation mismatch due to theadoption of SFAS 156 in the first quarter of 2006. Other revenuedecreased primarily due to a $44 million gain on certain interest rateswaps and a favorable settlement within the merchant processingbusiness recorded in the first quarter of 2006, as well as lower gainson student loan sales and equity investment income in the secondquarter of 2006 as compared with the first quarter of 2006, partiallyoffset by the MasterCard IPO gain recorded in the current quarter.
NONINTEREST EXPENSE Table 7
----------------------------------------------------------------------
($ in millions) Percent Percent
Change Change
2Q 1Q 2Q 2Q06 vs 2Q06 vs YTD YTD Percent
2006 2006 2005 1Q06 2Q05 2006 2005 Change
-----------------------------------------------------------

Compensation $627 $633 $612 (.9) 2.5 $1,260 $1,179 6.9
Employee
benefits 123 133 108 (7.5) 13.9 256 224 14.3
Net occupancy
and
equipment 161 165 159 (2.4) 1.3 326 313 4.2
Professional
services 41 35 39 17.1 5.1 76 75 1.3
Marketing and
business
development 58 40 67 45.0 (13.4) 98 110 (10.9)
Technology and
communica-
tions 127 117 113 8.5 12.4 244 219 11.4
Postage,
printing and
supplies 66 66 63 -- 4.8 132 126 4.8
Other
intangibles 89 85 181 4.7 (50.8) 174 252 (31.0)
Debt
prepayment 11 -- 54 nm (79.6) 11 54 (79.6)
Other 227 226 199 .4 14.1 453 374 21.1
-------------------- -------------

Total
noninterest
expense $1,530 $1,500 $1,595 2.0 (4.1) $3,030 $2,926 3.6
-------------------- -------------

Noninterest Expense

Second quarter noninterest expense totaled $1,530 million, adecrease of $65 million (4.1 percent) from the same quarter of 2005and a $30 million (2.0 percent) increase from the first quarter of2006. The decrease from a year ago primarily reflected the impact ofadopting SFAS 156 on other intangible expense and lower debtprepayment expense. Compensation expense was higher year-over-year by$15 million (2.5 percent) primarily due to the corporate andinstitutional trust and payments processing acquisitions and othergrowth initiatives. Benefits expense increased from the second quarterof 2005 primarily due to higher pension costs. Technology andcommunications expense rose by $14 million (12.4 percent) due toincreased software expense and higher outside data processing expenseprincipally associated with expanding a prepaid gift card program andthe corporate and institutional trust acquisition. Other expenseincreased in the second quarter of 2006 from the same quarter of 2005by $28 million (14.1 percent) primarily due to increased investmentsin tax-advantaged projects relative to a year ago and businessintegration costs. Offsetting these expense increases was ayear-over-year decline in other intangible expense of $92 million(50.8 percent), reflecting the elimination of mortgage servicingrights amortization and impairment due to the adoption of SFAS 156,and lower debt prepayment expense of $43 million.

Noninterest expense in the second quarter of 2006 was higher thanthe first quarter of 2006 by $30 million (2.0 percent). The increasein noninterest expense in the second quarter of 2006 from the firstquarter of 2006 was primarily due to operating costs from acquiredbusinesses, an $18 million (45.0 percent) increase in marketing andbusiness development due to the timing of marketing initiatives inconsumer banking and payment systems, and debt prepayment expenses of$11 million. Partially offsetting these increases was a decline incompensation expense due to the incremental stock-based compensationexpense in the first quarter of 2006 related to adopting Statement ofFinancial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS123R") and lower benefits expense related to seasonal changes inpayroll taxes and other benefits.

Provision for Income Taxes

The provision for income taxes for the second quarter of 2006resulted in an effective tax rate of 32.8 percent compared with aneffective tax rate of 28.0 percent in the second quarter of 2005 andan effective tax rate of 32.7 percent in first quarter of 2006. Theincrease in the effective rate from the same quarter of the prior yearwas due to a $94 million reduction in income tax expense in the secondquarter of 2005 related to the resolution of federal tax examinationscovering substantially all of the Company's legal entities for years2000 through 2002.
ALLOWANCE FOR CREDIT LOSSES Table 8
----------------------------------------------------------------------
($ in millions) 2Q 1Q 4Q 3Q 2Q
2006 2006 2005 2005 2005
-----------------------------------

Balance, beginning of period $2,251 $2,251 $2,258 $2,269 $2,269

Net charge-offs
Commercial 13 5 15 7 9
Lease financing 7 7 7 16 6
-----------------------------------
Total commercial 20 12 22 23 15
Commercial mortgages (1) 2 (1) 2 1
Construction and development 1 -- -- (2) (3)
-----------------------------------
Total commercial real
estate -- 2 (1) -- (2)

Residential mortgages 11 7 10 9 8

Credit card 50 46 86 63 64
Retail leasing 2 4 8 5 5
Home equity and second
mortgages 13 12 21 14 16
Other retail 29 32 67 42 38
-----------------------------------
Total retail 94 94 182 124 123
-----------------------------------
Total net charge-offs 125 115 213 156 144
Provision for credit losses 125 115 205 145 144
Acquisitions and other changes -- -- 1 -- --
-----------------------------------
Balance, end of period $2,251 $2,251 $2,251 $2,258 $2,269
-----------------------------------

Components
Allowance for loan losses $2,039 $2,035 $2,041 $2,055 $2,082
Liability for unfunded credit
commitments 212 216 210 203 187
-----------------------------------
Total allowance for
credit losses $2,251 $2,251 $2,251 $2,258 $2,269
-----------------------------------

Gross charge-offs $176 $175 $267 $229 $222
Gross recoveries $51 $60 $54 $73 $78

Allowance as a percentage of
Period-end loans 1.59 1.62 1.63 1.65 1.70
Nonperforming loans 500 432 414 413 441
Nonperforming assets 409 364 350 351 372

Credit Quality

The allowance for credit losses was $2,251 million at June 30,2006, and at March 31, 2006, compared with $2,269 million at June 30,2005. The ratio of the allowance for credit losses to period-end loanswas 1.59 percent at June 30, 2006, compared with 1.62 percent at March31, 2006, and 1.70 percent at June 30, 2005. The ratio of theallowance for credit losses to nonperforming loans was 500 percent atJune 30, 2006, compared with 432 percent at March 31, 2006, and 441percent at June 30, 2005. Total net charge-offs in the second quarterof 2006 were $125 million, compared with the first quarter of 2006 netcharge-offs of $115 million and the second quarter of 2005 netcharge-offs of $144 million. The year-over-year decrease in total netcharge-offs was principally due to the impact of changes in bankruptcylegislation that went into effect during the fourth quarter of 2005.

Commercial and commercial real estate loan net charge-offs were$20 million for the second quarter of 2006, or .11 percent of averageloans outstanding, compared with $14 million, or .08 percent ofaverage loans outstanding, in the first quarter of 2006 and $13million, or .07 percent of average loans outstanding, in the secondquarter of 2005. The increase in net charge-offs reflected a lowerlevel of recoveries as compared with prior quarters.

Retail loan net charge-offs were $94 million in the second quarterand first quarter of 2006 compared with $123 million in the secondquarter of 2005. Retail loan net charge-offs remained flat as comparedto the first quarter of 2006 and declined from the second quarter of2005, reflecting the impact of the bankruptcy legislation change thatoccurred in the fourth quarter of 2005. Retail loan net charge-offs asa percent of average loans outstanding were .82 percent in the secondquarter of 2006, compared with .83 percent and 1.12 percent in thefirst quarter of 2006 and second quarter of 2005, respectively. TheCompany anticipates that bankruptcy charge-offs will return to morenormalized levels in future quarters.
CREDIT RATIOS Table 9
----------------------------------------------------------------------
(Percent) 2Q 1Q 4Q 3Q 2Q
2006 2006 2005 2005 2005
-----------------------------------
Net charge-offs ratios (a)
Commercial .13 .05 .15 .07 .10
Lease financing .54 .56 .56 1.29 .49
Total commercial .18 .11 .20 .21 .14

Commercial mortgages (.02) .04 (.02) .04 .02
Construction and development .05 -- -- (.10) (.16)
Total commercial real estate -- .03 (.01) -- (.03)

Residential mortgages .21 .14 .20 .19 .19

Credit card 2.72 2.62 5.00 3.74 3.93
Retail leasing .11 .22 .43 .27 .27
Home equity and second mortgages .35 .33 .56 .37 .43
Other retail .70 .78 1.64 1.04 1.01
Total retail .82 .83 1.59 1.09 1.12

Total net charge-offs .36 .33 .61 .46 .44

Delinquent loan ratios - 90 days or more past due
excluding nonperforming loans (b)
Commercial .05 .05 .05 .04 .05
Commercial real estate -- -- -- .01 .01
Residential mortgages .30 .31 .32 .30 .32
Retail .38 .36 .36 .36 .40
Total loans .19 .18 .18 .18 .19

Delinquent loan ratios - 90 days or more past due
including nonperforming loans (b)
Commercial .58 .64 .69 .74 .74
Commercial real estate .40 .51 .55 .57 .59
Residential mortgages .49 .53 .55 .53 .55
Retail .50 .52 .50 .45 .43
Total loans .51 .56 .58 .58 .58

(a) annualized and calculated on average loan balances
(b) ratios are expressed as a percent of ending loan balances



ASSET QUALITY Table 10
----------------------------------------------------------------------
($ in millions)
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
2006 2006 2005 2005 2005
-----------------------------------
Nonperforming loans
Commercial $203 $219 $231 $265 $238
Lease financing 38 41 42 35 60
-----------------------------------
Total commercial 241 260 273 300 298
Commercial mortgages 88 123 134 144 140
Construction and development 25 23 23 16 21
-----------------------------------
Total commercial real estate 113 146 157 160 161
Residential mortgages 39 45 48 44 42
Retail 57 70 66 43 13
-----------------------------------
Total nonperforming loans 450 521 544 547 514

Other real estate 77 71 71 68 68
Other nonperforming assets 23 27 29 29 28
-----------------------------------

Total nonperforming assets (a) $550 $619 $644 $644 $610
-----------------------------------

Accruing loans 90 days or more past
due $264 $251 $253 $242 $258
-----------------------------------

Restructured loans that continue
to accrue interest $370 $371 $315 $301 $274
-----------------------------------

Nonperforming assets to loans
plus ORE (%) .39 .45 .47 .47 .46

(a) does not include accruing loans 90 days or more past due or
restructured loans that continue to accrue interest

Nonperforming assets at June 30, 2006, totaled $550 million,compared with $619 million at March 31, 2006, and $610 million at June30, 2005. The ratio of nonperforming assets to loans and other realestate was .39 percent at June 30, 2006, compared with .45 percent atMarch 31, 2006, and .46 percent at June 30, 2005. Restructured loansthat continue to accrue interest have increased from the secondquarter of 2005, reflecting the impact of implementing higher minimumbalance payment requirements for credit card customers in response toindustry guidance issued by the banking regulatory agencies.
CAPITAL POSITION Table 11
----------------------------------------------------------------------
($ in millions) Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
2006 2006 2005 2005 2005
--------------------------------------------

Total shareholders'
equity $20,415 $20,256 $20,086 $19,864 $19,901
Tier 1 capital 16,841 16,478 15,145 15,180 14,564
Total risk-based capital 24,893 24,328 23,056 23,283 22,362

Tier 1 capital ratio 8.9 % 8.9 % 8.2 % 8.4 % 8.1 %
Total risk-based capital
ratio 13.1 13.1 12.5 12.8 12.5
Leverage ratio 8.2 8.2 7.6 7.7 7.5
Common equity to assets 9.1 9.2 9.6 9.6 9.8
Tangible common equity to
assets 5.6 5.4 5.9 6.2 6.1

Total shareholders' equity was $20.4 billion at June 30, 2006,compared with $19.9 billion at June 30, 2005. The increase was theresult of corporate earnings and the issuance of $1.0 billion ofnon-cumulative, perpetual preferred stock on March 27, 2006, offset byshare buybacks and dividends. On June 20, 2006, the Company's board ofdirectors declared the first quarterly dividend on the preferredstock. The $432.44 per share (equivalent to $.43244 per depositoryshare) was declared for shareholders of record on June 30, 2006,payable July 17, 2006.

The Tier 1 capital ratio was 8.9 percent at June 30, 2006, and atMarch 31, 2006, and 8.1 percent at June 30, 2005. The total risk-basedcapital ratio was 13.1 percent at June 30, 2006, and at March 31,2006, and 12.5 percent at June 30, 2005. The leverage ratio was 8.2percent at June 30, 2006, and at March 31, 2006, and 7.5 percent atJune 30, 2005. Tangible common equity to assets was 5.6 percent atJune 30, 2006, compared with 5.4 percent at March 31, 2006, and 6.1percent at June 30, 2005. All regulatory ratios continue to be inexcess of stated "well capitalized" requirements.
COMMON SHARES Table 12
----------------------------------------------------------------------
(Millions) 2Q 1Q 4Q 3Q 2Q
2006 2006 2005 2005 2005
-----------------------------------

Beginning shares outstanding 1,783 1,815 1,818 1,829 1,842

Shares issued for stock option and
stock purchase
plans, acquisitions and other
corporate purposes 9 9 6 4 4
Shares repurchased (9) (41) (9) (15) (17)
-----------------------------------
Ending shares outstanding 1,783 1,783 1,815 1,818 1,829
-----------------------------------

On December 21, 2004, the Board of Directors of U.S. Bancorpapproved an authorization to repurchase up to 150 million shares ofoutstanding common stock during the following 24 months. During thesecond quarter of 2006, the Company repurchased 9 million shares ofcommon stock. As of June 30, 2006, there were approximately 33 millionshares remaining to be repurchased under the current authorization.
LINE OF BUSINESS FINANCIAL PERFORMANCE (a) Table 13
----------------------------------------------------------------------
($ in millions)
Net Income Percent Change
--------------------- ----------------
2Q 1Q 2Q 2Q06 vs 2Q06 vs
Business Line 2006 2006 2005 1Q06 2Q05
--------------------------------------

Wholesale Banking $298 $300 $292 (.7) 2.1
Consumer Banking 488 411 429 18.7 13.8
Wealth Management 148 134 116 10.4 27.6
Payment Services 251 223 183 12.6 37.2
Treasury and Corporate Support 16 85 101 (81.2) (84.2)
---------------------

Consolidated Company $1,201 $1,153 $1,121 4.2 7.1
---------------------

(a) preliminary data


LINE OF BUSINESS FINANCIAL PERFORMANCE (a) Table 13
----------------------------------------------------------------------
($ in millions)
2Q 2006
YTD YTD Percent Earnings
Business Line 2006 2005 Change Composition
------------------------------------

Wholesale Banking $598 $571 4.7 25 %
Consumer Banking 899 816 10.2 41
Wealth Management 282 227 24.2 12
Payment Services 474 351 35.0 21
Treasury and Corporate Support 101 227 (55.5) 1
--------------- -------------

Consolidated Company $2,354 $2,192 7.4 100 %
--------------- -------------

(a) preliminary data

Lines of Business

Within the Company, financial performance is measured by majorlines of business, which include Wholesale Banking, Consumer Banking,Wealth Management, Payment Services, and Treasury and CorporateSupport. These operating segments are components of the Company aboutwhich financial information is available and is evaluated regularly indeciding how to allocate resources and assess performance. Noninterestexpenses incurred by centrally managed operations or business linesthat directly support another business line's operations are chargedto the applicable business line based on its utilization of thoseservices primarily measured by the volume of customer activities,number of employees or other relevant factors. These allocatedexpenses are reported as net shared services expense withinnoninterest expense. Designations, assignments and allocations changefrom time to time as management systems are enhanced, methods ofevaluating performance or product lines change or business segmentsare realigned to better respond to our diverse customer base. During2006, certain organization and methodology changes were made and,accordingly, prior period results have been restated and presented ona comparable basis.

Wholesale Banking offers lending, depository, treasury managementand other financial services to middle market, large corporate andpublic sector clients. Wholesale Banking contributed $298 million ofthe Company's net income in the second quarter of 2006, a 2.1 percentincrease over the same period of 2005 and relatively flat as comparedwith the first quarter of 2006. The increase in Wholesale Banking'ssecond quarter 2006 contribution over the same quarter of 2005 was theresult of a favorable variance in total net revenue (3.1 percent). Thefavorable variance in total net revenue year-over-year was the resultof growth in net interest income (3.2 percent) and total noninterestincome (2.7 percent). The increase in net interest income was drivenprimarily by loan growth (5.9 percent) and the margin benefit ofdeposits partially offset by tighter credit spreads. The increase intotal noninterest income was due primarily to increases in commerciallease income and foreign exchange trading revenue. These positivevariances were partially offset by an increase in the provision forcredit losses which primarily reflected lower recoveries compared witha year ago.

Wholesale Banking's contribution to net income in the secondquarter of 2006 compared to the first quarter of 2006 was relativelyflat as a favorable variance in total net revenue (1.0 percent) wassubstantially offset by an increase in the provision for creditlosses. Total net revenue was higher on a linked quarter basis dueprimarily to an increase in net interest income (1.3 percent). Thefavorable variance in net interest income was primarily due toseasonally higher deposit balances and the benefit from wider depositspreads. Total noninterest income on a linked quarter basis was flatas increases in commercial lease revenue and seasonally highertreasury management fees were offset by a decrease in income relatedto equity investments. Net charge-offs increased compared with firstquarter of 2006 due to lower commercial recoveries, which drove theunfavorable variance in the provision for credit lossesquarter-over-quarter.

Consumer Banking delivers products and services through bankingoffices, telephone servicing and sales, on-line services, direct mailand ATMs. It encompasses community banking, metropolitan banking,in-store banking, small business banking, consumer lending, mortgagebanking, consumer finance, workplace banking, student banking, and24-hour banking. Consumer Banking contributed $488 million of theCompany's net income in the second quarter of 2006, a 13.8 percentincrease over the same period of 2005 and an 18.7 percent increasefrom the prior quarter. The favorable increase year-over-year was theresult of higher total net revenue (1.6 percent), a reduction in totalnoninterest expense (9.1 percent) and lower provision for creditlosses (14.3 percent). Total net revenue was higher than the samequarter of 2005 due to growth in net interest income (2.0 percent) anda modest increase in noninterest income (.6 percent). Net interestincome was higher year-over-year primarily due to growth in averageloan balances of 8.6 percent and the margin benefit of deposits,somewhat offset by lower spreads on those assets given the competitivelending environment. Noninterest income was relatively flat in thesecond quarter of 2006 as compared to the same period of 2005. Areduction in mortgage banking revenue, primarily due to adopting fairvalue accounting for mortgage servicing rights in the first quarter of2006, was offset by strong growth in deposit service charges due toincreased transaction-related fees and other revenue resulting fromimproving end-of-term retail lease residual values. Total noninterestexpense in the second quarter of 2006 was lower compared with the samequarter of 2005 due to the elimination of mortgage servicing rightsamortization under SFAS 156 which resulted in a decrease in otherintangible expense of $52 million. In addition there was a favorablevariance in net shared services expense (6.1 percent). A $9 millionyear-over-year decrease in net charge-offs (14.3 percent), primarilyrelated to the impact of the new bankruptcy legislation in the fourthquarter of 2005, drove the favorable variance in the business line'sprovision for credit losses.

The increase in Consumer Banking's contribution in the secondquarter of 2006 from the first quarter of 2006 was the result offavorable variances in all categories. The increase in total netrevenue was due primarily to an increase in total noninterest income(21.4 percent) which reflected an increase mortgage banking revenueand higher deposit service fees. In addition, lower gains from thesales of student loans were offset by improved retail leasing revenue.Noninterest expense was lower, on a linked quarter basis, dueprimarily to a favorable variance in net shared services expensepartially offset by an increase in marketing and business developmentexpense. The decrease in the provision for credit losses was due to a$9 million decrease in net charge-offs, primarily related to thecontinuing impact of new bankruptcy legislation.

Wealth Management provides trust, private banking, financialadvisory, investment management, insurance, custody and mutual fundservicing through six businesses: Private Client Group, CorporateTrust, U.S. Bancorp Investments and Insurance, FAF Advisors,Institutional Trust and Custody and Fund Services. Wealth Managementcontributed $148 million of the Company's net income in the secondquarter of 2006, 27.6 percent higher than the same period of 2005 and10.4 percent higher than the first quarter of 2006. The increase inthe business line's contribution in the second quarter of 2006 overthe same quarter of 2005 was the result of a favorable variance intotal net revenue (21.6 percent) partially offset by an increase intotal noninterest expense (17.5 percent). Net interest income wasfavorably impacted year-over-year by wider deposit spreads and growthin deposit balances. Noninterest income increased by 22.2 percent fromthe same quarter of 2005, primarily due to improved equity marketconditions, incremental growth in customer accounts and balances andthe acquisition of the corporate and institutional trust business ofWachovia Corporation. The increase in total noninterest expense wasprimarily due to the recent acquisition. The increase in the businessline's contribution in the second quarter of 2006, as compared withthe first quarter of 2006, was due primarily to seasonally highertrust and investment management fees and core account growth.

Payment Services includes consumer and business credit cards,stored-value cards, debit cards, corporate and purchasing cardservices, consumer lines of credit, ATM processing and merchantprocessing. Payment Services contributed $251 million of the Company'snet income in the second quarter of 2006, a 37.2 percent increase fromthe same period of 2005 and a 12.6 percent increase from the firstquarter of 2006. The increase in Payment Services' contribution in thesecond quarter of 2006 from the same period of 2005 was the result ofhigher total net revenue (18.8 percent) and a $27 million favorablevariance in the provision for credit losses (29.3 percent), partiallyoffset by an increase in total noninterest expense (15.8 percent). Theincrease in total net revenue year-over-year was due to growth intotal noninterest income (19.6 percent) and net interest income (15.6percent), reflecting growth in higher yielding retail loan balances,partially offset by increases in noninterest-bearing corporate cardbalances. All revenue categories benefited from higher transactionvolumes, rate changes and business expansion initiatives. The growthin total noninterest expense year-over-year primarily reflected newbusiness initiatives, including costs associated with acquisitions andother business growth initiatives. The decrease in the provision forcredit losses was driven by lower net charge-offs, year-over-year,reflecting the continuing near-term impact of changes in bankruptcylegislation in the fourth quarter of 2005.

The increase in Payment Services' contribution in the secondquarter of 2006 from the first quarter of 2006 was due to improvednoninterest income (10.8 percent), partially offset by increasedprovision for credit losses (8.3 percent) and a modest increase intotal noninterest expense (2.6 percent). The increase in noninterestincome was due to seasonally higher volumes in credit and debit cardrevenue and corporate payment products revenue. In addition, merchantprocessing services was favorably impacted by a recent businessacquisition. The increase in total noninterest expense was primarilydue to the timing of marketing programs and the impact of acquisitionson various expenses including compensation and employee benefits andother intangible expense.

Treasury and Corporate Support includes the Company's investmentportfolios, funding, capital management and asset securitizationactivities, interest rate risk management, the net effect of transferpricing related to average balances and the residual aggregate ofthose expenses associated with corporate activities that are managedon a consolidated basis. In addition, prior to the adoption of SFAS156, changes in mortgage servicing rights valuations due to interestrate changes were managed at a corporate level and, as such, reportedwithin this business unit. Operational expenses incurred by Treasuryand Corporate Support on behalf of the other business lines areallocated back to the appropriate business unit, primarily based oncustomer transaction volume and account activities, deposit balancesand employee levels and are identified as net shared services expense.Treasury and Corporate Support recorded net income of $16 million inthe second quarter of 2006, compared with net income of $101 millionin the second quarter of 2005 and $85 million in the first quarter of2006. The decrease in net income in the current quarter from thesecond quarter of 2005 was caused by an unfavorable change in netinterest income ($140 million) reflecting the impact of a flatteryield curve and asset/liability management decisions during the pastyear, including reducing the investment securities portfolio, changesin interest rate derivative positions and the issuance of higher costwholesale funding. The adverse impact of net interest income wasoffset somewhat by growth in noninterest income resulting from thegain on the MasterCard IPO. In addition, the favorable change innoninterest expense was due primarily to lower debt prepayment expenseand the mortgage servicing rights impairment recorded in the secondquarter of 2005. The unfavorable change in income taxes from a yearago resulted from the $94 million tax benefit recorded in the secondquarter of 2005. Net income in the second quarter of 2006 was lowerthan net income in the first quarter of 2006 due to lower net interestincome ($47 million) driven by the flatter yield curve and fundingearning asset growth with wholesale funding. In addition, the lowercontribution of this line of business reflects lower noninterestincome ($25 million) due primarily to certain interest rate swap gainsrecognized in the first quarter of 2006, partially offset by theMasterCard IPO gain and higher noninterest expense ($34 million)primarily related to a debt restructuring charge and higher net sharedservices expense.

Additional schedules containing more detailed information aboutthe Company's business line results are available on the web atusbank.com or by calling Investor Relations at 612-303-0781.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER, JERRY A. GRUNDHOFER, ANDVICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, DAVID M. MOFFETT, WILLREVIEW THE FINANCIAL RESULTS IN A PRE-RECORDED CALL ON TUESDAY, JULY18, 2006. The call will be available by telephone or on the internet.The pre-recorded call will be available from approximately 7:00 a.m.(CDT) on Tuesday, July 18th through Tuesday, July 25th at 11:00 p.m.(CDT). To access the recorded call, please dial 800-727-1367.Participants calling from outside the United States, please call402-220-2669. Find the recorded call via the internet at usbank.com.

Minneapolis-based U.S. Bancorp ("USB"), with $213 billion inassets, is the 6th largest financial holding company in the UnitedStates. The Company operates 2,434 banking offices and 4,966 ATMs, andprovides a comprehensive line of banking, brokerage, insurance,investment, mortgage, trust and payment services products toconsumers, businesses and institutions. U.S. Bancorp is the parentcompany of U.S. Bank. Visit U.S. Bancorp on the web at usbank.com.

Forward-Looking Statements

The following information appears in accordance with the PrivateSecurities 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, areforward-looking statements. These statements often include the words"may," "could," "would," "should," "believes," "expects,""anticipates," "estimates," "intends," "plans," "targets,""potentially," "probably," "projects," "outlook" or similarexpressions. These forward-looking statements cover, among otherthings, anticipated future revenue and expenses and the future plansand prospects of the Company. Forward-looking statements involveinherent risks and uncertainties, and important factors could causeactual results to differ materially from those anticipated, includingchanges in general business and economic conditions, changes ininterest rates, legal and regulatory developments, increasedcompetition from both banks and non-banks, changes in customerbehavior and preferences, effects of mergers and acquisitions andrelated integration, and effects of critical accounting policies andjudgments. For discussion of these and other risks that may causeactual results to differ from expectations, refer to our Annual Reporton Form 10-K for the year ended December 31, 2005, on file with theSEC, for example the sections entitled "Risk Factors" and "CorporateRisk Profile." Forward-looking statements speak only as of the datethey are made, and the Company undertakes no obligation to update themin light of new information or future events.
U.S. Bancorp
Consolidated Statement of Income
Three Months Six Months
(Dollars and Shares in Millions, Except Ended Ended
Per Share Data) June 30, June 30,
----------------------------
(Unaudited) 2006 2005 2006 2005
----------------------------------------------------------------------
Interest Income
Loans $2,449 $2,027 $4,781 $3,938
Loans held for sale 33 24 59 45
Investment securities 500 486 990 962
Other interest income 36 28 79 55
----------------------------
Total interest income 3,018 2,565 5,909 5,000
Interest Expense
Deposits 578 361 1,081 669
Short-term borrowings 270 143 540 255
Long-term debt 484 307 887 578
----------------------------
Total interest expense 1,332 811 2,508 1,502
----------------------------
Net interest income 1,686 1,754 3,401 3,498
Provision for credit losses 125 144 240 316
----------------------------
Net interest income after provision for
credit losses 1,561 1,610 3,161 3,182
Noninterest Income
Credit and debit card revenue 202 177 384 331
Corporate payment products revenue 139 120 266 227
ATM processing services 61 57 120 104
Merchant processing services 253 198 466 376
Trust and investment management fees 314 253 611 500
Deposit service charges 264 234 496 444
Treasury management fees 116 117 223 224
Commercial products revenue 107 100 211 196
Mortgage banking revenue 75 110 99 212
Investment products fees and commissions 42 39 80 78
Securities gains (losses), net 3 1 3 (58)
Other 179 135 410 289
----------------------------
Total noninterest income 1,755 1,541 3,369 2,923
Noninterest Expense
Compensation 627 612 1,260 1,179
Employee benefits 123 108 256 224
Net occupancy and equipment 161 159 326 313
Professional services 41 39 76 75
Marketing and business development 58 67 98 110
Technology and communications 127 113 244 219
Postage, printing and supplies 66 63 132 126
Other intangibles 89 181 174 252
Debt prepayment 11 54 11 54
Other 227 199 453 374
----------------------------
Total noninterest expense 1,530 1,595 3,030 2,926
----------------------------
Income before income taxes 1,786 1,556 3,500 3,179
Applicable income taxes 585 435 1,146 987
----------------------------
Net income $1,201 $1,121 $2,354 $2,192
----------------------------
Net income applicable to common equity $1,184 $1,121 $2,337 $2,192
----------------------------

Earnings per common share $.66 $.61 $1.30 $1.19
Diluted earnings per common share $.66 $.60 $1.29 $1.17
Dividends declared per common share $.33 $.30 $.66 $.60
Average common shares outstanding 1,781 1,833 1,791 1,842
Average diluted common shares outstanding 1,805 1,857 1,816 1,869
----------------------------------------------------------------------


U.S. Bancorp
Consolidated Ending Balance Sheet

June 30, December 31, June 30,
(Dollars in Millions) 2006 2005 2005
----------------------------------------------------------------------
Assets (Unaudited) (Unaudited)
Cash and due from banks $7,234 $8,004 $6,442
Investment securities
Held-to-maturity 98 109 116
Available-for-sale 38,364 39,659 42,183
Loans held for sale 2,589 1,686 1,734
Loans
Commercial 45,369 42,942 43,180
Commercial real estate 28,562 28,463 27,743
Residential mortgages 21,063 20,730 17,966
Retail 46,388 45,671 44,555
-------------------------------------
Total loans 141,382 137,806 133,444
Less allowance for
loan losses (2,039) (2,041) (2,082)
-------------------------------------
Net loans 139,343 135,765 131,362
Premises and equipment 1,817 1,841 1,864
Goodwill 7,283 7,005 6,372
Other intangible assets 3,158 2,874 2,584
Other assets 13,519 12,522 11,324
-------------------------------------
Total assets $213,405 $209,465 $203,981
-------------------------------------

Liabilities and Shareholders'
Equity
Deposits
Noninterest-bearing $30,730 $32,214 $33,401
Interest-bearing 69,302 70,024 69,690
Time deposits greater than
$100,000 22,687 22,471 18,732
-------------------------------------
Total deposits 122,719 124,709 121,823
Short-term borrowings 20,570 20,200 20,434
Long-term debt 41,952 37,069 34,788
Other liabilities 7,749 7,401 7,035
-------------------------------------
Total liabilities 192,990 189,379 184,080
Shareholders' equity
Preferred stock 1,000 -- --
Common stock 20 20 20
Capital surplus 5,789 5,907 5,903
Retained earnings 20,164 19,001 17,849
Less treasury stock (5,421) (4,413) (3,984)
Other comprehensive income (1,137) (429) 113
-------------------------------------
Total shareholders'
equity 20,415 20,086 19,901
-------------------------------------
Total liabilities and
shareholders' equity $213,405 $209,465 $203,981
----------------------------------------------------------------------