US BANCORP \DE\ - Interim / Quarterly Report 2004

10-Q 1 c89012e10vq.htm FORM 10-Q e10vq PAGEBREAK

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from (not applicable)

Commission file number 1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of Incorporation or organization) 41-0255900 (I.R.S. Employer Identification Number)

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices and zip code)

651-466-3000

(Registrants telephone number, including area code)

(not applicable)

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES X NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES X NO

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.

Class Common Stock, $.01 Par Value Outstanding as of October 31, 2004 1,867,157,587 shares

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TABLE OF CONTENTS

Managements Discussion and Analysis
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Shareholders Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
Part II -- Other Information
Corporate Information
Form of Executive Officer Stock Option Agreement
Form of Executive Officer Stock Option Agreement with Annual Vesting
Form of Executive Officer Restricted Stock Award Agreement
Form of Director Stock Option Agreement
Form of Director Restricted Stock Unit Agreement
Form of Executive Officer Restricted Stock Unit Agreement
Restricted Stock Unit Award Agreement
Amendment No.2 of Employment Agreement

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Table of Contents and Form 10-Q Cross Reference Index

| Part I Financial
Information — 1) | Managements Discussion and Analysis of
Financial Condition and Results of Operations (Item 2) | | |
| --- | --- | --- | --- |
| | a) | Overview | 3 |
| | b) | Statement of Income Analysis | 5 |
| | c) | Balance Sheet Analysis | 9 |
| | d) | Accounting Changes | 32 |
| | e) | Critical Accounting Policies | 32 |
| | f) | Controls and Procedures (Item 4) | 34 |
| 2) | Quantitative and Qualitative Disclosures About
Market Risk / Corporate Risk Profile (Item 3) | | |
| | a) | Overview | 11 |
| | b) | Credit Risk Management | 11 |
| | c) | Residual Risk Management | 17 |
| | d) | Operational Risk Management | 17 |
| | e) | Interest Rate Risk Management | 18 |
| | f) | Market Risk Management | 21 |
| | g) | Liquidity Risk Management | 21 |
| | h) | Capital Management | 23 |
| 3) | Line of Business Financial Review | | 24 |
| 4) | Financial Statements (Item 1) | | 36 |
| Part II Other
Information | | | |
| 1) | Unregistered Sales of Equity Securities and Use
of Proceeds (Item 2) | | 54 |
| 2) | Exhibits (Item 6) | | 54 |
| 3) | Signature | | 55 |
| 4) | Exhibits | | 56 |

Forward-Looking Statements

This Form 10-Q 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 U.S. Bancorp. 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 U.S. Bancorps 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 our assets, or the availability and terms of funding necessary to meet our liquidity needs; (iv) changes in the extensive laws, regulations and policies governing financial services companies could alter our business environment or affect operations; (v) the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending; (vi) competitive pressures could intensify and affect our 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 our results of operations; (viii) changes in the financial performance and condition of our 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 our 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 U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

U.S. Bancorp 1

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Table 1 Selected Financial Data

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
			Percent					Percent
(Dollars and Shares in Millions, Except Per Share Data)	2004	2003	Change			2004	2003	Change
Condensed Income Statement
Net interest income (taxable-equivalent
basis) (a)	$ 1,781.7	$ 1,825.5		(2.4	)%	$ 5,340.1	$	5,400.8	(1.1	)%
Noninterest income	1,436.7	1,286.3		11.7		4,168.4		3,771.5	10.5
Securities gains (losses), net	87.3	(108.9	)	*		(84.4	)	244.9	*
Total net revenue	3,305.7	3,002.9		10.1		9,424.1		9,417.2	.1
Noninterest expense	1,519.0	1,253.3		21.2		4,206.5		4,254.5	(1.1	)
Provision for credit losses	165.1	310.0		(46.7	)	604.6		968.0	(37.5	)
Income from continuing operations before taxes	1,621.6	1,439.6		12.6		4,613.0		4,194.7	10.0
Taxable-equivalent adjustment	7.1	7.0		1.4		21.3		21.0	1.4
Applicable income taxes	549.0	491.9		11.6		1,480.9		1,433.9	3.3
Income from continuing operations	1,065.5	940.7		13.3		3,110.8		2,739.8	13.5
Discontinued operations (after-tax)		10.2		*				15.8	*
Net income	$ 1,065.5	$ 950.9		12.1		$ 3,110.8	$	2,755.6	12.9
Per Common Share
Earnings per share from continuing operations	$ .57	$ .49		16.3	%	$ 1.64	$	1.43	14.7	%
Diluted earnings per share from continuing
operations	.56	.48		16.7		1.62		1.42	14.1
Earnings per share	.57	.49		16.3		1.64		1.43	14.7
Diluted earnings per share	.56	.49		14.3		1.62		1.43	13.3
Dividends declared per share	.240	.205		17.1		.720		.615	17.1
Book value per share	10.48	10.26		2.1
Market value per share	28.90	23.99		20.5
Average common shares outstanding	1,877.0	1,926.0		(2.5	)	1,894.6		1,922.4	(1.4	)
Average common diluted shares outstanding	1,903.7	1,939.8		(1.9	)	1,919.4		1,932.4	(.7	)
Financial Ratios
Return on average assets	2.21 %	1.98	%			2.18	%	1.97 %
Return on average equity	21.9	19.5				21.5		19.2
Net interest margin (taxable-equivalent basis)	4.22	4.43				4.26		4.51
Efficiency ratio (b)	47.2	40.3				44.2		46.4
Average Balances
Loans	$ 122,906	$ 119,982		2.4	%	$ 120,966	$	118,045	2.5	%
Loans held for sale	1,405	4,460		(68.5	)	1,611		4,078	(60.5	)
Investment securities	42,502	37,777		12.5		43,243		36,059	19.9
Earning assets	168,187	163,865		2.6		167,182		159,832	4.6
Assets	191,585	190,241		.7		190,563		187,015	1.9
Noninterest-bearing deposits	29,791	31,907		(6.6	)	29,807		32,412	(8.0	)
Deposits	115,316	117,956		(2.2	)	116,147		116,649	(.4	)
Short-term borrowings	15,382	11,850		29.8		14,706		10,024	46.7
Long-term debt and junior subordinated debentures	35,199	33,794		4.2		34,254		33,737	1.5
Total shareholders equity	19,387	19,360		.1		19,338		19,202	.7
	September 30, 2004	December 31, 2003
Period End Balances
Loans	$ 124,826	$ 118,235		5.6	%
Allowance for loan losses	2,184	2,184
Investment securities	39,654	43,334		(8.5	)
Assets	192,844	189,471		1.8
Deposits	115,567	119,052		(2.9	)
Long-term debt and junior subordinated debentures	38,004	33,816		12.4
Total shareholders equity	19,600	19,242		1.9
Regulatory capital ratios
Tangible common equity	6.4 %	6.5	%
Tier 1 capital	8.7	9.1
Total risk-based capital	12.7	13.6
Leverage	7.9	8.0

*	Not meaningful
(a)	Interest and rates are presented on a
fully-taxable equivalent basis utilizing a tax rate of
35 percent.
(b)	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.

2 U.S. Bancorp

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link1 "Management’s Discussion and Analysis"

Managements Discussion and Analysis

OVERVIEW

Earnings Summary U.S. Bancorp and its subsidiaries (the Company) reported net income of $1,065.5 million for the third quarter of 2004, or $.56 per diluted share, compared with $950.9 million, or $.49 per diluted share, for the third quarter of 2003. Return on average assets and return on average equity were 2.21 percent and 21.9 percent, respectively, for the third quarter of 2004, compared with returns of 1.98 percent and 19.5 percent, respectively, for the third quarter of 2003. The Companys results for the third quarter of 2004 improved over the third quarter of 2003, primarily due to lower credit costs and growth in fee-based products and services. Included in the third quarter of 2004 were net gains on the sale of securities of $87.3 million, a net increase of $196.2 million over net securities losses realized in the third quarter of 2003. The third quarter of 2004 also included the recognition of $86.7 million of mortgage servicing rights (MSR) impairment, a $195.2 million unfavorable variance over the third quarter of 2003. Operating expenses for the third quarter of 2004 also reflected a reduction in pre-tax merger and restructuring-related items of $10.2 million ($6.7 million on an after-tax basis), compared with the third quarter of 2003. The $10.2 million decline in pre-tax merger and restructuring-related charges was primarily due to the completion in 2003 of integration activities associated with the acquisition of NOVA Corporation (NOVA) and other smaller acquisitions.

Total net revenue, on a taxable-equivalent basis, was $3,305.7 million for the third quarter of 2004, compared with $3,002.9 million for the third quarter of 2003, an increase of $302.8 million (10.1 percent) from a year ago. The increase in net revenue was comprised of a 29.4 percent increase in noninterest income and a 2.4 percent decline in net interest income. The 29.4 percent increase in noninterest income was driven by a net increase in gains (losses) on the sale of securities and growth in the majority of fee-based revenue categories. The growth in fee-based noninterest income included increases in payment services revenue, merchant processing services, mortgage banking revenue, deposit service charges, commercial products revenue, trust and investment management fees and other income. The expansion of the Companys merchant acquiring business in Europe, including the purchase of the remaining 50 percent shareholder interest in EuroConex Technologies Ltd and the acquisitions of two European merchant acquiring businesses during the second quarter of 2004, accounted for approximately $24 million of the year-over-year change in fee-based income. The 2.4 percent decline in net interest income was driven by a lower net interest margin, partially offset by an increase in average earning assets. In the third quarter of 2004, average earning assets increased $4.3 billion (2.6 percent), compared with the same period in 2003, primarily due to growth in investment securities, retail loans and residential mortgages, partially offset by a decline in commercial loans and loans held for sale related to mortgage banking activities. The net interest margin for the third quarter of 2004 was 4.22 percent, compared with 4.43 percent in the third quarter of 2003. The decline in the net interest margin primarily reflected tighter credit spreads, a modest increase in the percent of total earning assets funded by wholesale sources of funding and higher rates paid on wholesale funding due to the impact of rising rates.

Total noninterest expense was $1,519.0 million in the third quarter of 2004, compared with $1,253.3 million in the third quarter of 2003. The year-over-year increase in noninterest expense of $265.7 million (21.2 percent) was primarily driven by the unfavorable change in MSR intangible valuations of $195.2 million and operating expenses related to the expansion of the Companys merchant acquiring business in Europe. The expense growth also reflected increases in compensation, employee benefits, marketing and business development, technology and communications and certain business integration costs. The efficiency ratio (the ratio of noninterest expense to taxable-equivalent net revenue excluding net securities gains or losses) was 47.2 percent for the third quarter of 2004, compared with 40.3 percent for the third quarter of 2003.

The provision for credit losses was $165.1 million for the third quarter of 2004, and $310.0 million for the third quarter of 2003, a year-over-year decrease of $144.9 million (46.7 percent). Net charge-offs in the third quarter of 2004 were $165.1 million, compared with net charge-offs of $309.9 million during the third quarter of 2003. The decline in the provision from a year ago primarily reflected declining levels of nonperforming loans, collection efforts and higher commercial loan recoveries. Refer to the Corporate Risk Profile section for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the

U.S. Bancorp 3

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Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Net income for the first nine months of 2004 was $3,110.8 million, or $1.62 per diluted share, compared with $2,755.6 million, or $1.43 per diluted share, for the first nine months of 2003. Return on average assets and return on average equity were 2.18 percent and 21.5 percent, respectively, for the first nine months of 2004, compared with returns of 1.97 percent and 19.2 percent, respectively, for the first nine months of 2003. The Companys results for the first nine months of 2004 improved over the first nine months of 2003, primarily due to lower credit costs and growth in fee-based products and services. Included in the first nine months of 2004 were net losses on the sale of securities of $84.4 million, a net reduction of $329.3 million from net securities gains realized in the first nine months of 2003. The first nine months of 2004 also included a net $24.9 million impairment of MSR, a $183.8 million favorable variance over the first nine months of 2003. Net income for the first nine months of 2004 also included a $90.0 million reduction in income tax expense recognized in the first quarter of 2004 related to the resolution of federal tax examinations covering substantially all of the Companys legal entities for the years 1995 through 1999. In addition, operating results for the first nine months of 2004 included a $35.4 million debt prepayment charge recognized in the first quarter of 2004, partially offset by a reduction in pre-tax merger and restructuring-related items of $38.6 million ($25.4 million on an after-tax basis), compared with the first nine months of 2003.

Total net revenue, on a taxable-equivalent basis, was $9,424.1 million for the first nine months of 2004, compared with $9,417.2 million for the first nine months of 2003, an increase of $6.9 million (.1 percent) from a year ago. The increase in net revenue was comprised of a 1.7 percent increase in noninterest income and a 1.1 percent decline in net interest income. The 1.7 percent increase in noninterest income was driven by growth in fee-based products and services, partially offset by a net reduction in gains (losses) on the sale of securities of $329.3 million. The 1.1 percent decline in net interest income was driven by a lower net interest margin, partially offset by an increase in average earning assets. In the first nine months of 2004, average earning assets increased $7.4 billion (4.6 percent), compared with the same period in 2003, primarily due to increases in investment securities, retail loans and residential mortgages, partially offset by a decline in commercial loans and loans held for sale related to mortgage banking activities. The net interest margin for the first nine months of 2004 was 4.26 percent, compared with 4.51 percent in the first nine months of 2003. The decline in the net interest margin primarily reflected tighter credit spreads, a modest increase in the percent of total earning assets funded by wholesale sources of funding and higher rates paid on wholesale funding due to the impact of rising rates. In addition, the net interest margin declined year-over-year as a result of consolidating high credit quality, low margin loans from Stellar, a commercial loan conduit, onto the Companys balance sheet beginning in the third quarter of 2003.

Total noninterest expense was $4,206.5 million in the first nine months of 2004, compared with $4,254.5 million in the first nine months of 2003. The year-over-year decline in noninterest expense of $48.0 million (1.1 percent) was primarily driven by the favorable change in MSR intangible valuations of $183.8 million and a $38.6 million reduction in merger and restructuring-related charges. These positive variances were partially offset by increases in compensation, employee benefits, professional services, marketing and business development and other operating expense, as well as expenses related to the expansion of the merchant acquiring business in Europe. Other operating expense included a $38.6 million charge related to debt prepayment and expense associated with charge-back exposure related to the Companys airline merchant portfolio that was recorded in the second quarter of 2004. The efficiency ratio (the ratio of noninterest expense to taxable-equivalent net revenue excluding net securities gains or losses) was 44.2 percent for the first nine months of 2004, compared with 46.4 percent for the first nine months of 2003.

The provision for credit losses was $604.6 million for the first nine months of 2004, and $968.0 million for the first nine months of 2003, a year-over-year decrease of $363.4 million (37.5 percent). The decline in the provision from a year ago primarily reflected lower nonperforming assets and lower commercial and retail losses, which were the result of an improving credit risk profile, collection efforts and higher commercial loan recoveries. Net charge-offs in the first nine months of 2004 were $603.5 million, compared with net charge-offs of $966.6 million during the first nine months of 2003. Refer to the Corporate Risk Profile section for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

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On December 31, 2003, the Company completed the spin-off of Piper Jaffray Companies (Piper Jaffray). In connection with the spin-off, accounting rules require that the Companys financial statements be restated for all prior periods. Accordingly, historical financial results related to Piper Jaffray have been segregated and accounted for in the Companys financial statements as discontinued operations. Net income for the third quarter and first nine months of 2003 included after-tax income from the discontinued operations of Piper Jaffray of $10.2 million and $15.8 million, respectively, which had an impact on both periods of $.01 per diluted share. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information regarding discontinued operations.

STATEMENT OF INCOME ANALYSIS

Net Interest Income In the third quarter of 2004 net interest income, on a taxable-equivalent basis, was $1,781.7 million, compared with $1,825.5 million in the third quarter of 2003, which represented a $43.8 million (2.4 percent) decrease from 2003. Net interest income for the first nine months of 2004, on a taxable equivalent basis, was $5,340.1 million, compared with $5,400.8 million for the first nine months of 2003, which represented a $60.7 million (1.1 percent) decrease from a year ago. The decline in net interest income for the third quarter and first nine months reflected modest growth in average earning assets, more than offset by lower net interest margins. Average earning assets in the third quarter and first nine months of 2004 increased $4.3 billion (2.6 percent) and $7.4 billion (4.6 percent), respectively, over the comparable periods of 2003. The increase in average earning assets for the third quarter and first nine months of 2004, compared with the same periods of 2003, was primarily driven by increases in investment securities, retail loans and residential mortgages, partially offset by a decline in commercial loans and loans held for sale related to mortgage banking activities. The net interest margin for the third quarter and first nine months of 2004 was 4.22 percent and 4.26 percent, respectively, compared with 4.43 percent and 4.51 percent for the comparable periods of 2003. The year-over-year decline in the net interest margin primarily reflected tighter credit spreads, a modest increase in the percent of total earning assets funded by wholesale sources of funding and higher rates paid on wholesale funding due to the impact of rising rates. The shift toward wholesale funding reflects, in part, asset/liability decisions to issue longer-term fixed-rate borrowings. In addition, the net interest margin declined for the first nine months of 2004 as a result of consolidating high credit quality, low margin loans from

Table 2 Analysis of Net Interest Income

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in Millions)	2004	2003	Change		2004	2003	Change
Components of net interest income
Income on earning assets (taxable-equivalent
basis) (a)	$ 2,309.9	$ 2,318.3	$ (8.4	)	$ 6,818.4	$ 6,991.3	$ (172.9	)
Expense on interest-bearing liabilities	528.2	492.8	35.4		1,478.3	1,590.5	(112.2	)
Net interest income (taxable-equivalent basis)	$ 1,781.7	$ 1,825.5	$ (43.8	)	$ 5,340.1	$ 5,400.8	$ (60.7	)
Net interest income, as reported	$ 1,774.6	$ 1,818.5	$ (43.9	)	$ 5,318.8	$ 5,379.8	$ (61.0	)
Average yields and rates paid
Earning assets yield (taxable-equivalent basis)	5.47 %	5.63 %	(.16	)%	5.44 %	5.84 %	(.40	)%
Rate paid on interest-bearing liabilities	1.55	1.49	.06		1.46	1.66	(.20	)
Gross interest margin (taxable-equivalent basis)	3.92 %	4.14 %	(.22	)%	3.98 %	4.18 %	(.20	)%
Net interest margin (taxable-equivalent basis)	4.22 %	4.43 %	(.21	)%	4.26 %	4.51 %	(.25	)%
Average balances
Investment securities	$ 42,502	$ 37,777	$ 4,725		$ 43,243	$ 36,059	$ 7,184
Loans	122,906	119,982	2,924		120,966	118,045	2,921
Earning assets	168,187	163,865	4,322		167,182	159,832	7,350
Interest-bearing liabilities	136,106	131,693	4,413		135,300	127,998	7,302
Net free funds (b)	32,081	32,172	(91	)	31,882	31,834	48

| (a) | Interest and rates are presented on a fully
taxable-equivalent basis utilizing a tax rate of
35 percent. |
| --- | --- |
| (b) | Represents noninterest-bearing deposits,
allowance for loan losses, unrealized gain (loss) on
available-for-sale securities, non-earning assets, other
noninterest-bearing liabilities and equity. |

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the Stellar commercial loan conduit onto the Companys balance sheet beginning in the third quarter of 2003.

Total average loans for the third quarter of 2004 were $2.9 billion (2.4 percent) higher than the third quarter of 2003, and year-to-date average loans were $2.9 billion (2.5 percent) higher than the first nine months of 2003. During the third quarter and first nine months of 2004, total average loan growth was driven by growth in average residential mortgages of $2.3 billion (19.1 percent) and $2.9 billion (26.5 percent), respectively, and average retail loan growth of $3.5 billion (9.0 percent) and $2.6 billion (6.9 percent), respectively. Total average commercial loans declined by $2.7 billion (6.3 percent) and $2.7 billion (6.5 percent) during the third quarter and first nine months of 2004, respectively, while average commercial real estate loans decreased by $.2 billion (.7 percent) and increased by $48 million (.2 percent) over the same periods. Although the consolidation of loans from the Stellar commercial loan conduit had a positive impact on average loan balances year-over-year, excess liquidity and improving cash flows among corporate borrowers have led to the overall decrease in total commercial loans.

Average investment securities for the third quarter and first nine months of 2004 were higher by $4.7 billion (12.5 percent) and $7.2 billion (19.9 percent), respectively, compared with the same periods of 2003, reflecting the reinvestment of proceeds from declining average commercial loan balances and loans held for sale. The Company utilizes the investment portfolio as part of its overall asset/ liability management practices to minimize structural interest rate and market valuation risks associated with changes in interest rates. In connection with changing interest rates and its risk management activities, the Company made a decision to sell $2.6 billion of fixed-rate securities, classified as available-for-sale, recognizing an $87.3 million gain on the sale of securities. Also during the third quarter of 2004, the Company acquired $4.6 billion of securities, representing principally floating and shorter-term fixed-rate mortgage-backed securities, giving consideration to the Companys overall asset/liability position. Refer to the Interest Rate Risk Management section for further information on the sensitivity of net interest income to changes in interest rates.

Average noninterest-bearing deposits for the third quarter and first nine months of 2004 were lower by $2.1 billion (6.6 percent) and $2.6 billion (8.0 percent), respectively, compared with the same periods of 2003. While average branch-based noninterest-bearing deposits increased by 4.9 percent from a year ago, mortgage-related escrow balances and business related noninterest-bearing deposits, including wholesale, mortgage banking and government deposits, declined. Average interest-bearing deposits were lower by $.5 billion (.6 percent) for the third quarter of 2004 and higher by $2.1 billion (2.5 percent) for the first nine months of 2004, compared with the same periods of 2003. The year-over-year decrease in average interest-bearing deposits during the third quarter of 2004 included a decrease in average savings product balances of $1.9 billion (3.1 percent) and time certificates of deposit less than $100,000 of $2.0 billion (13.2 percent), partially offset by an increase in time deposits greater than $100,000 of $3.3 billion (29.2 percent). The decrease in average savings deposits and time certificates of deposit less than $100,000 was primarily due to pricing decisions by management in connection with the Companys overall funding and risk management activities. The year-over-year increase in average interest-bearing deposits during the first nine months of 2004 included increases in average savings deposits of $4.6 billion (8.3 percent) and time deposits greater than $100,000 of $.2 billion (1.9 percent), offset somewhat by a decrease in time certificates of deposit less than $100,000 of $2.8 billion (17.4 percent).

Refer to the Consolidated Daily Average Balance Sheet and Related Yields and Rates on pages 52 and 53 for further information on net interest margin.

Provision for Credit Losses The provision for credit losses was $165.1 million and $310.0 million for the third quarter of 2004 and 2003, respectively, a year-over-year decrease of $144.9 million (46.7 percent). For the first nine months of 2004 and 2003, the provision for credit losses was $604.6 million and $968.0 million, respectively, a decrease of $363.4 million (37.5 percent). The decline from a year ago was primarily the result of lower nonperforming assets and lower retail and commercial loan losses, which were the result of an improving credit risk profile due to more favorable economic conditions, collection efforts and higher commercial loan recoveries. Refer to the Corporate Risk Profile section for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income during the third quarter of 2004 was $1,524.0 million, an increase of $346.6 million (29.4 percent) from the third quarter of 2003. Noninterest income during the first nine months of 2004 was $4,084.0 million, compared with $4,016.4 million for the first nine months of 2003, which represented an increase of $67.6 million

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(1.7 percent). The increase in noninterest income in both periods was driven by growth in fee-based revenue experienced in most categories of noninterest income. Securities gains (losses) during the third quarter and first nine months of 2004 represented a net increase of $196.2 million and a net reduction of $329.3 million, compared with the same periods of 2003.

Credit and debit card revenue, corporate payment products revenue and ATM processing services revenue were higher in the third quarter and first nine months of 2004 by $43.4 million (15.8 percent) and $97.7 million (12.1 percent), respectively, compared with the same periods of 2003. 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 interchange rates on signature debit transactions beginning in August 2003. The year-over-year impact of VISAs settlement on debit card revenue for the third quarter and first nine months of 2004 was approximately $7.8 million and $23.4 million, respectively. This change in the interchange rate, in addition to higher customer loyalty rewards expenses, however, were more than offset by growth in transaction volumes and other rate changes. The corporate payment products revenue growth reflected growth in sales, card usage and rate changes. The favorable variance in ATM processing services revenue was due to increases in transaction volumes and sales. Merchant processing services revenue was higher in the third quarter and first nine months of 2004 by $41.2 million (28.2 percent) and $78.3 million (18.8 percent), respectively, compared with the same periods of 2003, reflecting an increase in transaction volume, higher merchant and equipment fees and the recent expansion of the Companys merchant acquiring business in Europe. These acquisitions contributed approximately $26 million and $33 million of the increase for the third quarter and first nine months of 2004, respectively. Deposit service charges increased in the third quarter and first nine months of 2004 by $20.4 million (10.9 percent) and $65.5 million (12.4 percent), respectively, compared with the same periods of 2003, primarily due to account growth, revenue enhancement initiatives and transaction-related fees. Treasury management fees declined by $8.3 million (6.6 percent) in the third quarter of 2004, compared with the same period of 2003, and increased $6.9 million (2.0 percent) in the first nine months of 2004, compared with the same period of 2003. The decrease in treasury management fees during the third quarter was primarily due to higher fees in the third quarter of 2003 related to the change in the Federal governments payment methodology for treasury management services from compensating balances, reflected in net interest income, to fees. During the third quarter and first nine months of 2004, year-over-year commercial products revenue increased $8.9 million (9.1 percent) and $22.5 million (7.5 percent), respectively, primarily due to growth in leasing revenue. Mortgage banking revenue increased $7.7 million (8.6 percent) and $26.1 million (9.5 percent) during the third quarter and first nine months of 2004, respectively, compared with the same periods of 2003, primarily due to higher loan servicing revenue. Investment products fees and commissions revenue increased in the third quarter and first nine months of

Table 3 Noninterest Income

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
			Percent					Percent
(Dollars in Millions)	2004	2003	Change			2004	2003	Change
Credit and debit card revenue	$ 164.3	$ 137.6		19.4	%	$ 464.9	$	407.3	14.1 %
Corporate payment products revenue	108.5	95.7		13.4		306.0		272.6	12.3
ATM processing services	45.2	41.3		9.4		132.3		125.6	5.3
Merchant processing services	187.5	146.3		28.2		493.7		415.4	18.8
Trust and investment management fees	240.2	239.8		.2		740.5		707.3	4.7
Deposit service charges	207.4	187.0		10.9		594.7		529.2	12.4
Treasury management fees	117.9	126.2		(6.6	)	356.9		350.0	2.0
Commercial products revenue	106.7	97.8		9.1		324.5		302.0	7.5
Mortgage banking revenue	97.2	89.5		8.6		301.3		275.2	9.5
Investment products fees and commissions	37.1	35.5		4.5		118.6		108.7	9.1
Securities gains (losses), net	87.3	(108.9	)	*		(84.4	)	244.9	*
Other	124.7	89.6		39.2		335.0		278.2	20.4
Total noninterest income	$ 1,524.0	$ 1,177.4		29.4	%	$ 4,084.0	$	4,016.4	1.7 %

Not meaningful

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2004 by $1.6 million (4.5 percent) and $9.9 million (9.1 percent), respectively, compared with the same periods of 2003, primarily due to higher sales activities in the Consumer Banking business line. Other income was higher year-over-year by $35.1 million (39.2 percent) and $56.8 million (20.4 percent), during the third quarter and first nine months of 2004, respectively, principally due to a residual value insurance recovery of $17.2 million during the third quarter of 2004 and a favorable change in retail lease residual gains (losses).

Noninterest Expense Third quarter of 2004 noninterest expense was $1,519.0 million, an increase of $265.7 million (21.2 percent) from the third quarter of 2003. For the first nine months of 2004, noninterest expense was $4,206.5 million, a reduction of $48.0 million (1.1 percent) from the first nine months of 2003. The year-over-year increase during the third quarter was primarily due to the unfavorable change in MSR valuations of $195.2 million, while the year-over-year decrease during the first nine months was primarily due to the favorable change in MSR valuations of $183.8 million. Refer to Note 6 of the Notes to Consolidated Financial Statements for a sensitivity analysis on the fair value of MSR to future changes in interest rates. The favorable variance in merger and restructuring-related charges in the third quarter and first nine months of 2004 of $10.2 million and $38.6 million, respectively, was primarily due to the completion of integration activities associated with NOVA and other smaller acquisitions in 2003. Included in these variances in the third quarter and first nine months of 2004, were increases in compensation, employee benefits, marketing and business development, technology and communications and operating expenses related to the expansion of the Companys merchant acquiring business in Europe, including certain business integration costs. During the third quarter of 2004, expenses related to the expansion of the Companys merchant acquiring business in Europe accounted for approximately $29 million of the year-over-year increase, including $6 million of business integration costs. Compensation expense increased during the third quarter and first nine months of 2004, compared with the same periods of 2003, due to an increase in salaries, primarily due to in-store branch expansion, and performance-based incentives. Employee benefits increased primarily as a result of higher pension expense and higher payroll taxes. Pension and retirement expense increased by $14.7 million and $22.0 million, during the third quarter and first nine months of 2004, respectively, compared with the same periods of 2003. Marketing and business development expense increased by $12.0 million (24.7 percent) in the third quarter of 2004 and $15.1 million (11.7 percent) in the first nine months of 2004, compared with the same periods of 2003, reflecting the increase and timing of marketing campaigns. Technology and communications expense was higher year-over-year by $7.7 million (7.5 percent) and $2.8 million (.9 percent), during the third quarter and first nine months of 2004, respectively, primarily due to outsourcing certain institutional trust participant record-keeping functions and capital expenditures for imaging and other electronic payment initiatives. Other expense increased $16.8 million (8.4 percent) and $71.3 million (12.6 percent) in the third quarter and first nine months of 2004, respectively, compared with the same periods of 2003. The year-over-year increase during the first nine months of 2004

Table 4 Noninterest Expense

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
			Percent				Percent
(Dollars in Millions)	2004	2003	Change		2004	2003	Change
Compensation	$ 564.6	$ 543.8	3.8	%	$ 1,673.0	$ 1,637.4	2.2	%
Employee benefits	100.0	75.8	31.9		291.4	247.1	17.9
Net occupancy and equipment	159.2	161.3	(1.3	)	468.3	482.1	(2.9	)
Professional services	37.2	39.9	(6.8	)	104.3	99.2	5.1
Marketing and business development	60.6	48.6	24.7		144.6	129.5	11.7
Technology and communications	109.8	102.1	7.5		313.9	311.1	.9
Postage, printing and supplies	61.4	61.6	(.3	)	183.5	183.8	(.2	)
Other intangibles	210.2	10.8	*		388.7	558.2	(30.4	)
Merger and restructuring-related charges		10.2	*			38.6	*
Other	216.0	199.2	8.4		638.8	567.5	12.6
Total noninterest expense	$ 1,519.0	$ 1,253.3	21.2	%	$ 4,206.5	$ 4,254.5	(1.1	)%
Efficiency ratio (a)	47.2 %	40.3 %			44.2 %	46.4 %

*	Not meaningful
(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.

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included $38.6 million of charges related to the prepayment of a portion of the Companys long-term debt and charge-back exposure associated with the Companys airline merchant portfolio that was recorded in the second quarter of 2004.

Income Tax Expense The provision for income taxes was $549.0 million (an effective rate of 34.0 percent) for the third quarter of 2004 and $1,480.9 million (an effective rate of 32.3 percent) for the first nine months of 2004, compared with $491.9 million (an effective rate of 34.3 percent) and $1,433.9 million (an effective rate of 34.4 percent) for the same periods of 2003. The improvement in the effective tax rate in the first nine months of 2004 primarily reflected a $90.0 million reduction in income tax expense in the first quarter of 2004 related to the resolution of federal tax examinations covering substantially all of the Companys legal entities for the years 1995 through 1999.

Refer to Note 12 of the Notes to Consolidated Financial Statements for further discussion on income taxes.

BALANCE SHEET ANALYSIS

Loans The Companys total loan portfolio was $124.8 billion at September 30, 2004, compared with $118.2 billion at December 31, 2003, an increase of $6.6 billion (5.6 percent). The increase in total loans was driven by growth in retail loans, commercial loans and residential mortgages. Commercial loans, including lease financing, totaled $40.2 billion at September 30, 2004, compared with $38.5 billion at December 31, 2003, an increase of $1.6 billion (4.2 percent). The increase in commercial loans was driven by new customer relationships, increased utilization under lines of credit by commercial customers and increases in corporate card balances. The Companys portfolio of commercial real estate loans, which includes commercial mortgages and construction loans, was $27.4 billion at September 30, 2004, compared with $27.2 billion at December 31, 2003.

Residential mortgages held in the loan portfolio were $14.7 billion at September 30, 2004, compared with $13.5 billion at December 31, 2003, an increase of $1.3 billion (9.5 percent). The increase in residential mortgages was primarily the result of decisions to retain a greater portion of the Companys adjustable-rate loan production.

Total retail loans outstanding, which include credit card, retail leasing, home equity and second mortgages and other retail loans, were $42.5 billion at September 30, 2004, compared with $39.0 billion at December 31, 2003. The $3.5 billion (9.0 percent) increase was driven by an increase in home equity lines of credit, retail leasing, automobile loans and leases and installment loans.

Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary markets, were $1,372 million at September 30, 2004, compared with $1,433 million at December 31, 2003. The decrease of $61 million (4.3 percent) was primarily due to the timing of loan originations and sales during the first nine months of 2004. Mortgage loan production is highly correlated to changes in interest rates with declines in balances during a period of rising interest rates.

Investment Securities At September 30, 2004, investment securities, both available-for-sale and held-to-maturity, totaled $39.7 billion, compared with $43.3 billion at December 31, 2003. The $3.7 billion (8.5 percent) decrease primarily reflected the sale of $6.4 billion of fixed-rate securities, along with maturities and prepayments, partially offset by purchases of primarily floating-rate securities. At September 30, 2004, approximately 35.9 percent of the investment securities portfolio represented adjustable-rate financial instruments, compared with 22.2 percent as of December 31, 2003. Adjustable-rate financial instruments include variable-rate collateralized mortgage obligations, mortgage-backed securities, agency securities, adjustable-rate money market accounts and asset-backed securities.

Deposits Total deposits were $115.6 billion at September 30, 2004, compared with $119.1 billion at December 31, 2003, a decrease of $3.5 billion (2.9 percent). The decrease in total deposits was primarily the result of decreases in noninterest-bearing deposits, interest checking, money market accounts and time certificates of deposit less than $100,000, partially offset by increases in time deposits greater than $100,000.

Noninterest-bearing deposits were $31.6 billion at September 30, 2004, compared with $32.5 billion at December 31, 2003, a decrease of $.9 billion (2.7 percent), primarily due to lower government banking and mortgage related deposits and seasonality of corporate trust deposits.

Interest-bearing deposits totaled $84.0 billion at September 30, 2004, compared with $86.6 billion at December 31, 2003, a decrease of $2.6 billion (3.0 percent). The decrease in interest-bearing deposits included decreases in money market accounts of

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$3.1 billion (9.2 percent), time certificates of deposits less than $100,000 of $1.1 billion (8.0 percent) and interest checking of $.7 billion (3.3 percent). These decreases were partially offset by an increase in time deposits greater than $100,000 of $2.1 billion (18.1 percent), along with a 3.8 percent increase in savings accounts. Time deposits greater than $100,000 are largely viewed as purchased funds and are managed to levels deemed appropriate given alternative funding sources. The declines in interest-bearing deposits were primarily related to pricing decisions by management in connection with overall funding activities.

Borrowings The Company utilizes both short-term and long-term borrowings to fund growth of earning assets in excess of deposit growth. Short-term borrowings,

Table 5 Investment Securities

	Available-for-Sale				Held-to-Maturity
			Weighted-				Weighted-
			Average	Weighted-			Average	Weighted-
	Amortized	Fair	Maturity in	Average	Amortized	Fair	Maturity in	Average
September 30, 2004 (Dollars in Millions)	Cost	Value	Years	Yield	Cost	Value	Years	Yield
U.S. Treasury and agencies
Maturing in one year or less	$ 64	$ 64	.55	3.35 %	$	$		%
Maturing after one year through five years	160	165	2.13	4.52
Maturing after five years through ten years	229	223	8.52	4.01
Maturing after ten years	1,150	1,114	18.76	3.07
Total	$ 1,603	$ 1,566	14.91	3.36 %	$	$		%
Mortgage-backed securities
Maturing in one year or less	$ 1,842	$ 1,851	.60	3.46 %	$	$		%
Maturing after one year through five years	20,711	20,713	3.66	4.27	12	12	3.07	5.30
Maturing after five years through ten years	13,509	13,429	6.34	4.57
Maturing after ten years	694	703	15.04	2.78
Total	$ 36,756	$ 36,696	4.71	4.31 %	$ 12	$ 12	3.07	5.30 %
Asset-backed securities
Maturing in one year or less	$ 47	$ 48	.83	5.61 %	$	$		%
Maturing after one year through five years	37	37	2.25	5.36
Maturing after five years through ten years
Maturing after ten years
Total	$ 84	$ 85	1.46	5.50 %	$	$		%
Obligations of state and political
subdivisions
Maturing in one year or less	$ 118	$ 120	.34	7.49 %	$ 10	$ 10	.32	5.85 %
Maturing after one year through five years	120	126	2.45	7.26	37	39	2.72	6.49
Maturing after five years through ten years	10	10	6.00	8.04	22	24	7.06	6.43
Maturing after ten years					39	41	14.00	6.55
Total	$ 248	$ 256	1.58	7.40 %	$ 108	$ 114	7.42	6.44 %
Other debt securities:
Maturing in one year or less	$ 3	$ 4	.58	8.87 %	$	$		%
Maturing after one year through five years	111	111	2.33	10.05
Maturing after five years through ten years	5	5	5.63	2.73
Maturing after ten years	499	492	22.60	2.46
Total	$ 618	$ 612	18.70	3.86 %	$	$		%
Other investments	$ 317	$ 319		%	$	$		%
Total investment securities	$ 39,626	$ 39,534	5.32	4.29 %	$ 120	$ 126	7.00	6.33 %

Note: Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments. Average yields are presented on a fully-taxable equivalent basis. Yields on available-for-sale and held-to-maturity securities are computed based on historical cost balances. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity.

The weighted-average maturity of the available-for-sale investment securities was 5.32 years at September 30, 2004, compared with 5.12 years at December 31, 2003. The corresponding weighted-average yields were 4.29% and 4.27%, respectively. The weighted-average maturity of the held-to-maturity investment securities was 7.00 years at September 30, 2004, compared with 6.16 years at December 31, 2003. The corresponding weighted-averaged yields were 6.33% and 6.05%, respectively.

	September 30, 2004 — Amortized	Percent	December 31, 2003 — Amortized	Percent
(Dollars in Millions)	Cost	of Total	Cost	of Total
U.S. Treasury and agencies	$ 1,603	4.0 %	$ 1,634	3.7 %
Mortgage-backed securities	36,768	92.5	40,243	92.3
Asset-backed securities	84	.2	250	.6
Obligations of state and political subdivisions	356	.9	473	1.1
Other securities and investments	935	2.4	993	2.3
Total investment securities	$ 39,746	100.0 %	$ 43,593	100.0 %

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which include federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, were $12.6 billion at September 30, 2004, compared with $10.9 billion at December 31, 2003. Short-term funding is managed to levels deemed appropriate given alternative funding sources. The increase of $1.8 billion (16.6 percent) in short-term borrowings reflected wholesale funding associated with the Companys modest earning asset growth. Long-term debt was $35.3 billion at September 30, 2004, an increase of $4.1 billion (13.2 percent), compared with $31.2 billion at December 31, 2003. The increase in long-term debt during the first nine months of 2004 was primarily driven by the issuance of $11.2 billion of bank notes, partially offset by maturities of $5.3 billion and prepayments of $2.2 billion of Federal Home Loan Bank (FHLB) advances. The prepayment of FHLB advances during the first quarter of 2004 and the issuance of predominantly fixed-rate funding was done in connection with asset/liability management activities. Refer to the Liquidity Risk Management section for discussion of liquidity management of the Company.

CORPORATE RISK PROFILE

Overview Managing risks is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit, residual, operational, interest rate, market and liquidity risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Residual risk is the potential reduction in the end-of-term value of leased assets or the residual cash flows related to asset securitization and other off-balance sheet structures. Operational risk includes risks related to fraud, legal and compliance risk, processing errors, technology, breaches of internal controls and business continuation and disaster recovery risk. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Rate movements can affect the repricing of assets and liabilities differently, as well as their market value. Market risk arises from fluctuations in interest rates, foreign exchange rates, and equity prices that may result in changes in the values of financial instruments, such as trading and available-for-sale securities that are accounted for on a mark-to-market basis. Liquidity risk is the possible inability to fund obligations to depositors, investors or borrowers. In addition, corporate strategic decisions, as well as the risks described above, could give rise to reputation risk. Reputation risk is the risk that negative publicity or press, whether true or not, could result in costly litigation or cause a decline in the Companys stock value, customer base or revenue.

Credit Risk Management The Companys strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and management reviews of loans experiencing deterioration of credit quality. The credit risk management strategy also includes a credit risk assessment process completely independent of Company management that performs assessments of compliance with commercial and consumer credit policies, risk ratings, and other critical credit information. The Company strives to identify potential problem loans early, take any necessary charge-offs promptly and maintain adequate reserve levels for probable loan losses inherent in the portfolio. Commercial banking operations rely on a strong credit culture that combines prudent credit policies and individual lender accountability. Lenders are assigned lending grades based on their level of experience and customer service requirements. Lending grades represent the level of approval authority for the amount of credit exposure and level of risk. Credit officers reporting independently to Credit Administration have higher levels of lending grades and support the business units in their credit decision process. Loan decisions are documented as to the borrowers business, purpose of the loan, evaluation of the repayment source and the associated risks, evaluation of collateral, covenants and monitoring requirements, and risk rating rationale. The Company utilizes a credit risk rating system to measure the credit quality of individual commercial loan transactions. The Company uses the risk rating system for regulatory reporting, determining the frequency of review of the credit exposures, and evaluation and determination of the adequacy of the allowance for credit losses. The Company regularly forecasts potential changes in risk ratings, nonperforming status and potential for loss and the estimated impact on the allowance for credit losses. In the Companys retail banking operations, standard credit scoring systems are used to assess credit risks of consumer, small business and small-ticket leasing customers and to price these products accordingly. The Company conducts the underwriting and collections of its retail products in loan underwriting and servicing centers specializing in certain retail products. Forecasts of delinquency levels, bankruptcies and losses in conjunction with projection of estimated losses by delinquency categories and vintage information are regularly prepared

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and are used to evaluate underwriting and collection and determine the adequacy of the allowance for credit losses for these products. The Company also engages in non-lending activities that may give rise to credit risk, including interest rate swap and option contracts for balance sheet hedging purposes, foreign exchange transactions, deposit overdrafts, and interest rate swap contracts for customers, and settlement risk, including Automated Clearing House transactions, and the processing of credit card transactions for merchants. These activities are also subject to credit review, analysis and approval processes.

In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, the level of allowance coverage and macroeconomic factors. Economic conditions during the third quarter of 2004 have improved somewhat from the third quarter of

Table 6 Nonperforming Assets (a)

	September 30,	December 31,
(Dollars in Millions)	2004	2003
Commercial
Commercial	$ 347.7	$ 623.5
Lease financing	91.3	113.3
Total commercial	439.0	736.8
Commercial real estate
Commercial mortgages	165.7	177.6
Construction and development	35.3	39.9
Total commercial real estate	201.0	217.5
Residential mortgages	45.3	40.5
Retail
Retail leasing	.1	.4
Other retail	17.1	24.8
Total retail	17.2	25.2
Total nonperforming loans	702.5	1,020.0
Other real estate	68.7	72.6
Other assets	33.4	55.5
Total nonperforming assets	$ 804.6	$ 1,148.1
Restructured loans accruing interest (b)	$ 3.7	$ 18.0
Accruing loans 90 days or more past due	$ 291.8	$ 329.4
Nonperforming loans to total loans	.56 %	.86 %
Nonperforming assets to total loans plus other
real estate	.64 %	.97 %

Changes in Nonperforming Assets

	Commercial and
	Commercial	Residential
(Dollars in Millions)	Real Estate	Mortgages (d)		Total
Balance December 31, 2003	$ 1,082.4	$	65.7	$	1,148.1
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties	513.4		35.1		548.5
Advances on loans	30.2				30.2
Total additions	543.6		35.1		578.7
Reductions in nonperforming assets
Paydowns, payoffs	(404.3	)	(20.8	)	(425.1	)
Net sales	(110.7	)			(110.7	)
Return to performing status	(78.8	)	(13.5	)	(92.3	)
Charge-offs (c)	(287.4	)	(6.7	)	(294.1	)
Total reductions	(881.2	)	(41.0	)	(922.2	)
Net reductions in nonperforming assets	(337.6	)	(5.9	)	(343.5	)
Balance September 30, 2004	$ 744.8	$	59.8	$	804.6

| (a) | Throughout this document, nonperforming assets
and related ratios do not include accruing loans 90 days or
more past due. |
| --- | --- |
| (b) | Nonaccrual restructured loans are included in
the respective nonperforming loan categories and excluded from
restructured loans accruing interest. |
| (c) | Charge-offs exclude actions for certain card
products and loan sales that were not classified as
nonperforming at the time the charge-off occurred. |
| (d) | Residential mortgage information excludes
changes related to residential mortgages serviced by
others. |

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2003, as reflected in higher levels of employment, stronger corporate earnings and lower credit delinquencies and business bankruptcies.

Analysis of Nonperforming Assets Nonperforming assets represent a key indicator, among other considerations, of the potential for future credit losses. Nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms and other real estate and other nonperforming assets owned by the Company. Interest payments on nonperforming assets are typically applied against the principal balance and not recorded as income. At September 30, 2004, total nonperforming assets were $804.6 million, compared with $1,148.1 million at December 31, 2003. The ratio of total nonperforming assets to total loans and other real estate decreased to .64 percent at September 30, 2004, compared with .97 percent at December 31, 2003. The improvement in credit quality has been broad-based across most industry categories reflecting continued improvement in economic conditions. While nonperforming assets are expected to continue to decline slightly during the next few quarters, the ongoing level of nonperforming assets is expected to stabilize in mid-2005.

The Company had restructured loans of $70.6 million as of September 30, 2004, compared with $58.5 million as of December 31, 2003. Commitments to lend additional funds under restructured loans were $8.7 million as of September 30, 2004, compared with $8.2 million as of December 31, 2003. Restructured loans performing under the restructured terms beyond a specific timeframe may be reported as accruing. Of the Companys total restructured loans at September 30, 2004, $3.7 million were reported as accruing.

Accruing loans 90 days or more past due totaled $291.8 million at September 30, 2004, compared with $329.4 million at December 31, 2003. These loans were not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status. The ratio of delinquent loans 90 days or more past due and accruing to total loans declined to .23 percent at September 30, 2004, compared with .28 percent at December 31, 2003. Improving economic conditions and the Companys continued focus on the credit process are the primary factors for the favorable change from December 31, 2003. Given the relative level of loans 90 days or more past due, the Company does not anticipate significant reductions in future periods.

Table 7 Delinquent Loan Ratios as a Percent of Ending Loan Balances

	September 30,	December 31,
90 days or more past due excluding nonperforming loans	2004	2003
Commercial
Commercial	.06 %	.06 %
Lease financing		.04
Total commercial	.05	.06
Commercial real estate
Commercial mortgages	.01	.02
Construction and development	.01	.03
Total commercial real estate	.01	.02
Residential mortgages	.46	.61
Retail
Credit card	1.76	1.68
Retail leasing	.08	.14
Other retail	.29	.41
Total retail	.47	.56
Total loans	.23 %	.28 %

	September 30,	December 31,
90 days or more past due including nonperforming loans	2004	2003
Commercial	1.14 %	1.97 %
Commercial real estate	.75	.82
Residential mortgages	.77	.91
Retail	.51	.62
Total loans	.80 %	1.14 %

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To monitor credit risk associated with retail loans, the Company monitors delinquency ratios in the various stages of collection including nonperforming status.

The decline in residential mortgage delinquencies at September 30, 2004, compared with December 31, 2003, reflected the general improvement in economic conditions, collection efforts and the effect of portfolio growth on delinquency ratios reported on a concurrent basis. The decline in retail loan delinquencies as of September 30, 2004, compared with December 31, 2003, reflected improving economic conditions as well as ongoing collection efforts, risk management actions taken by the Company and the effect of portfolio growth on delinquency ratios reported on a concurrent basis.

The following table provides summary delinquency information for residential mortgages and retail loans:

	Amount		As a Percent of Ending — Loan Balances
	September 30,	December 31,	September 30,	December 31,
(Dollars in Millions)	2004	2003	2004	2003
Residential Mortgages
30-89 days	$ 100.6	$ 102.9	.68 %	.76 %
90 days or more	68.2	82.5	.46	.61
Nonperforming	45.3	40.5	.31	.30
Total	$ 214.1	$ 225.9	1.45 %	1.68 %
Retail
Credit Card
30-89 days	$ 134.9	$ 150.9	2.17 %	2.54 %
90 days or more	109.4	99.5	1.76	1.68
Nonperforming
Total	$ 244.3	$ 250.4	3.93 %	4.22 %
Retail Leasing
30-89 days	$ 66.0	$ 78.8	.95 %	1.31 %
90 days or more	5.9	8.2	.08	.14
Nonperforming	.1	.4		.01
Total	$ 72.0	$ 87.4	1.03 %	1.45 %
Other Retail
30-89 days	$ 251.7	$ 311.9	.86 %	1.15 %
90 days or more	84.6	110.2	.29	.41
Nonperforming	17.1	24.8	.06	.09
Total	$ 353.4	$ 446.9	1.21 %	1.65 %

Analysis of Net Loan Charge-offs Total loan net charge-offs were $165.1 million and $603.5 million during the third quarter and first nine months of 2004, respectively, compared with net charge-offs of $309.9 million and $966.6 million, respectively, for the same periods of 2003. The ratio of total loan net charge-offs to average loans in the third quarter and first nine months of 2004 was .53 percent and .67 percent, respectively, compared with 1.02 percent and 1.09 percent, respectively, for the same periods of 2003. The overall level of net charge-offs in the third quarter and first nine months of 2004 reflected the Companys ongoing efforts to reduce the overall risk profile of the organization, improved economic conditions, higher commercial loan recoveries in the third quarter of 2004, refinancings by customers and higher asset valuations. Net charge-offs are expected to increase modestly as commercial loan recoveries return to more normal levels in future periods.

Commercial and commercial real estate loan net charge-offs for the third quarter of 2004 were $26.1 million (.16 percent of average loans outstanding), compared with $153.6 million (.88 percent of average loans outstanding) for the third quarter of 2003. Commercial and commercial real estate loan net charge-offs for the first nine months of 2004 were $167.4 million (.34 percent of average loans outstanding), compared with $480.0 million (.93 percent of average loans outstanding) for the first nine months of 2003. The year-over-year decline in commercial loan net charge-offs of $122.2 million during the third quarter of 2004 continues to be broad-based across most industries within the commercial loan portfolio and was favorably influenced by higher levels of commercial loan recoveries in the third quarter of 2004. Higher levels of commercial loan recoveries are not expected to continue into 2005.

Retail loan net charge-offs for the third quarter of 2004 were $132.3 million (1.26 percent of average loans outstanding), compared with $149.0 million (1.54 percent of average loans outstanding) for the third quarter of 2003. Retail loan net charge-offs for the first nine months of 2004 were $414.8 million (1.36 percent of average loans outstanding), compared with

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$466.9 million (1.64 percent of average loans outstanding) for the same period in 2003. Lower levels of retail loan net charge-offs principally reflected changes by the Company in underwriting, ongoing collection efforts and other risk management activities. The decline also reflected lower delinquency ratios from a year ago as the economy continues to improve.

The Companys retail lending business utilizes several distinct business processes and channels to originate retail credit including traditional branch credit, indirect lending, student lending and a consumer finance division. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles. Within Consumer Banking, U.S. Bank Consumer Finance (USBCF), participates in all facets of the Companys consumer lending activities. USBCF specializes in serving channel-specific and alternative lending markets in residential mortgages, home equity and installment loan financing. USBCF manages loans originated through a broker network, correspondent relationships and U.S. Bank branch offices. Generally, loans managed by USBCF exhibit higher credit risk characteristics, but are priced commensurate with the differing risk profile.

The following table provides an analysis of net charge-offs as a percentage of average loans outstanding managed by the consumer finance division, compared with traditional branch-related loans:

	Three Months Ended September 30, — Average Loan		Percent of		Nine Months Ended September 30, — Average Loan		Percent of
	Balance		Average Loans		Balance		Average Loans
(Dollars in Millions)	2004	2003	2004	2003	2004	2003	2004	2003
Consumer Finance (a)
Residential mortgages	$ 4,708	$ 3,669	.46 %	.40 %	$ 4,432	$ 3,312	.45 %	.46 %
Home equity and second mortgages	2,527	2,259	1.93	2.50	2,322	2,408	2.20	2.40
Other retail	426	379	4.42	4.52	414	349	4.70	4.48
Traditional Branch
Residential mortgages	$ 9,861	$ 8,565	.05 %	.17 %	$ 9,647	$ 7,819	.09 %	.14 %
Home equity and second mortgages	11,761	10,834	.22	.33	11,493	10,883	.23	.36
Other retail	14,125	13,487	.99	1.47	13,946	13,189	1.16	1.54
Total Company
Residential mortgages	$ 14,569	$ 12,234	.18 %	.24 %	$ 14,079	$ 11,131	.20 %	.24 %
Home equity and second mortgages	14,288	13,093	.52	.70	13,815	13,291	.56	.73
Other retail	14,551	13,866	1.09	1.55	14,360	13,538	1.26	1.61

(a) Consumer finance category included credit originated and managed by USBCF, as well as home equity loans and second mortgage loans with a loan-to-value greater than 100 percent that were originated in the branches.

Table 8 Net Charge-offs as a Percent of Average Loans Outstanding

September 30,		September 30,
2004	2003	2004	2003
Commercial
Commercial	.03 %	1.33 %	.36 %	1.40 %
Lease financing	1.49	1.52	1.60	1.80
Total commercial	.21	1.35	.51	1.45
Commercial real estate
Commercial mortgages	.05	.12	.06	.12
Construction and development	.14	.25	.16	.16
Total commercial real estate	.08	.15	.08	.13
Residential mortgages	.18	.24	.20	.24
Retail
Credit card	4.16	4.20	4.24	4.71
Retail leasing	.56	.83	.62	.90
Home equity and second mortgages	.52	.70	.56	.73
Other retail	1.09	1.55	1.26	1.61
Total retail	1.26	1.54	1.36	1.64
Total loans	.53 %	1.02 %	.67 %	1.09 %

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Table 9 Summary of Allowance for Credit Losses

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(Dollars in Millions)	2004	2003	2004	2003
Balance at beginning of period	$ 2,369.7	$ 2,367.6	$ 2,368.6	$ 2,422.0
Charge-offs
Commercial
Commercial	55.9	146.6	204.2	429.8
Lease financing	29.1	31.6	89.6	111.4
Total commercial	85.0	178.2	293.8	541.2
Commercial real estate
Commercial mortgages	5.0	9.6	18.9	27.8
Construction and development	3.6	4.7	9.9	9.8
Total commercial real estate	8.6	14.3	28.8	37.6
Residential mortgages	7.9	8.3	24.5	22.4
Retail
Credit card	71.5	67.7	212.7	213.9
Retail leasing	12.3	14.0	37.0	43.7
Home equity and second mortgages	22.1	26.4	68.0	81.0
Other retail	52.1	64.7	173.8	202.0
Total retail	158.0	172.8	491.5	540.6
Total charge-offs	259.5	373.6	838.6	1,141.8
Recoveries
Commercial
Commercial	53.2	22.7	112.2	45.1
Lease financing	10.9	12.4	31.2	42.3
Total commercial	64.1	35.1	143.4	87.4
Commercial real estate
Commercial mortgages	2.3	3.7	9.8	9.7
Construction and development	1.1	.1	2.0	1.7
Total commercial real estate	3.4	3.8	11.8	11.4
Residential mortgages	1.2	1.0	3.2	2.7
Retail
Credit card	7.2	8.4	22.3	21.4
Retail leasing	2.7	1.8	6.6	5.0
Home equity and second mortgages	3.4	3.2	9.6	8.5
Other retail	12.4	10.4	38.2	38.8
Total retail	25.7	23.8	76.7	73.7
Total recoveries	94.4	63.7	235.1	175.2
Net Charge-offs
Commercial
Commercial	2.7	123.9	92.0	384.7
Lease financing	18.2	19.2	58.4	69.1
Total commercial	20.9	143.1	150.4	453.8
Commercial real estate
Commercial mortgages	2.7	5.9	9.1	18.1
Construction and development	2.5	4.6	7.9	8.1
Total commercial real estate	5.2	10.5	17.0	26.2
Residential mortgages	6.7	7.3	21.3	19.7
Retail
Credit card	64.3	59.3	190.4	192.5
Retail leasing	9.6	12.2	30.4	38.7
Home equity and second mortgages	18.7	23.2	58.4	72.5
Other retail	39.7	54.3	135.6	163.2
Total retail	132.3	149.0	414.8	466.9
Total net charge-offs	165.1	309.9	603.5	966.6
Provision for credit losses	165.1	310.0	604.6	968.0
Acquisitions and other changes				(55.7	)
Balance at end of period	$ 2,369.7	$ 2,367.7	$ 2,369.7	$ 2,367.7
Components
Allowance for loan losses	$ 2,184.0	$ 2,184.0
Liability for unfunded credit commitments (a)	185.7	183.7
Total allowance for credit losses	$ 2,369.7	$ 2,367.7
Allowance for credit losses as a percentage of
Period-end loans	1.90 %	1.98 %
Nonperforming loans	337	202
Nonperforming assets	295	180
Annualized net charge-offs	361	193

(a) 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. Amounts for periods presented in 2003 represent estimates.

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Analysis and Determination of the Allowance for Credit Losses The allowance for credit losses provides coverage for probable and estimable losses inherent in the Companys loan and lease portfolio. Management evaluates the allowance each quarter to determine that it is adequate to cover inherent losses. The evaluation of each element and the overall allowance is based on a continuing assessment of problem loans and related off-balance sheet items, recent loss experience and other factors, including regulatory guidance and economic conditions.

At September 30, 2004, the allowance for credit losses was $2,369.7 million (1.90 percent of loans), compared with an allowance of $2,368.6 million (2.00 percent of loans) at December 31, 2003. The ratio of the allowance for credit losses to nonperforming loans was 337 percent at September 30, 2004, compared with 232 percent at December 31, 2003. The ratio of the allowance for credit losses to annualized loan net charge-offs was 361 percent at September 30, 2004, compared with 189 percent at December 31, 2003.

Several factors were taken into consideration in evaluating the allowance for credit losses at September 30, 2004, including the risk profile of the portfolios and loan net charge-offs during the period, the level of nonperforming assets, the accruing loans 90 days or more past due, and the lease financing, commercial real estate, residential mortgages and retail delinquency categories relative to December 31, 2003. Management also considered the uncertainty related to certain industry sectors, including the transportation sector, the extent of credit exposure to highly leveraged enterprise-value borrowers within the portfolio, concentration risks associated with commercial real estate and the fact that nonperforming assets remain at somewhat elevated levels despite recent improvements. Finally, the Company considered the improving economic trends, including improving corporate earnings, changes in unemployment rates, the level of bankruptcies and general economic indicators.

Residual Risk Management The Company manages its risk to changes in the residual value of leased assets through disciplined residual valuation setting at the inception of a lease, diversification of its leased assets, regular asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. Commercial lease originations are subject to the same well-defined underwriting standards referred to in the Credit Risk Management section which includes an evaluation of the residual risk. Retail lease residual risk is mitigated further by originating longer-term vehicle leases and effective end-of-term marketing of off-lease vehicles. Also, to reduce the financial risk of potential changes in vehicle residual values, the Company maintains residual value insurance. The catastrophic insurance maintained by the Company provides for the potential recovery of losses on individual vehicle sales in an amount equal to the difference between: (a) 105 percent or 110 percent of the average wholesale auction price for the vehicle at the time of sale and (b) the vehicle residual value specified by the Automotive Lease Guide (an authoritative industry source) at the inception of the lease. The potential recovery is calculated for each individual vehicle sold in a particular policy year and is reduced by any gains realized on vehicles sold during the same period. The Company will receive claim proceeds under this insurance program if, in the aggregate, there is a net loss for such period. In addition, the Company obtains separate residual value insurance for all vehicles at lease inception where end of lease term settlement is based solely on the residual value of the individual leased vehicles. Under this program, the potential recovery is computed for each individual vehicle sold and does not allow the insurance carrier to offset individually determined losses with gains from other leases. This individual vehicle coverage is included in the calculation of minimum lease payments when making the capital lease assessment. To reduce the risk associated with collecting insurance claims, the Company monitors the financial viability of the insurance carrier based on insurance industry ratings and available financial information.

Included in the retail leasing portfolio was approximately $3.9 billion of retail leasing residuals at September 30, 2004, compared with $3.3 billion at December 31, 2003. At September 30, 2004, the commercial leasing portfolio had $784 million of residuals, compared with $816 million at December 31, 2003. No significant change in the concentration of the portfolios has occurred since December 31, 2003.

Operational Risk Management Operational risk represents the risk of loss resulting from the Companys operations, including, but not limited to, the risk of fraud by employees or persons outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements and business continuation and disaster recovery. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business

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decisions or their implementation, and customer attrition due to potential negative publicity.

The Company operates in many different businesses in diverse markets and relies on the ability of its employees and systems to process a high number of transactions. Operational risk is inherent in all business activities, and the management of this risk is important to the achievement of the Companys objectives. In the event of a breakdown in the internal control system, improper operation of systems or employees improper actions, the Company could suffer financial loss, face regulatory action and suffer damage to its reputation.

The Company manages operational risk through a risk management framework and its internal control processes. The framework involves the business lines, corporate risk management personnel and executive management. Under this framework, business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risk. Clear structures and processes with defined responsibilities are in place. Business managers maintain a system of controls with the objective of providing proper transaction authorization and execution, proper system operations, safeguarding of assets from misuse or theft, and ensuring the reliability of financial and other data. Business managers ensure that the controls are appropriate and are implemented as designed.

Each business line within the Company has designated risk managers. These risk managers are responsible for, among other things, coordinating the completion of ongoing risk assessments and ensuring that operational risk management is integrated into business decision-making activities. Business continuation and disaster recovery planning is also critical to effectively manage operational risks. Each business unit of the Company is required to develop, maintain and test these plans at least annually to ensure that recovery activities, if needed, can support mission critical functions including technology, networks and data centers supporting customer applications and business operations. The Companys internal audit function validates the system of internal controls through risk-based, regular and ongoing audit procedures and reports on the effectiveness of internal controls to executive management and the Audit Committee of the Board of Directors.

Customer-related business conditions may also increase operational risk or the level of operational losses in certain transaction processing business units, including merchant processing activities. Ongoing risk monitoring of customer activities and their financial condition and operational processes serve to mitigate customer-related operational risk. Refer to Note 13 of the Notes to Consolidated Financial Statements for further discussion on merchant processing.

While the Company believes that it has designed effective methods to minimize operational risks, there is no absolute assurance that business disruption or operational losses would not occur in the event of a disaster. On an ongoing basis, management makes process changes and investments to enhance its systems of internal controls and business continuity and disaster recovery plans.

Interest Rate Risk Management In the banking industry, a significant risk exists related to changes in interest rates. To minimize the volatility of net interest income and of the market value of assets and liabilities, the Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Policy Committee (ALPC) and approved by the Board of Directors. ALPC has the responsibility for approving and ensuring compliance with ALPC management policies, including interest rate risk exposure. The Company uses Net Interest Income Simulation Analysis and Market Value of Equity Modeling for measuring and analyzing consolidated interest rate risk.

Net Interest Income Simulation Analysis One of the primary tools used to measure interest rate risk and the effect of interest rate changes on rate sensitive income and net interest income is simulation analysis. The monthly analysis incorporates substantially all of the Companys assets and liabilities and off-balance sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through these simulations, management estimates the impact on interest rate sensitive income of a 300 basis point upward or downward gradual change of market interest rates over a one-year period. The simulations also estimate the effect of immediate and sustained parallel shifts in the yield curve of 50 basis points as well as the effect of immediate and sustained flattening or steepening of the yield curve. These simulations include assumptions about how the balance sheet is likely to be affected by changes in loan and deposit growth. Assumptions are made to project interest rates for new loans and deposits based on historical analysis, managements outlook and repricing strategies. These assumptions are validated on a periodic basis. A sensitivity analysis is provided for key variables of the simulation. The results are reviewed by ALPC monthly and are used to guide hedging strategies. ALPC policy guidelines limit the estimated change in interest rate sensitive income to

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5.0 percent of forecasted interest rate sensitive income over the succeeding 12 months.

The table below summarizes the interest rate risk of net interest income and rate sensitive income based on forecasts over the succeeding 12 months. At September 30, 2004, the Companys overall interest rate risk position was substantially neutral to changes in interest rates. Rate sensitive income includes net interest income as well as other income items that are sensitive to interest rates, including asset management fees, mortgage banking and the impact from compensating deposit balances. The Company manages its interest rate risk position by holding assets on the balance sheet with desired interest rate risk characteristics, implementing certain pricing strategies for loans and deposits and through the selection of derivatives and various funding and investment portfolio strategies. The Company manages the overall interest rate risk profile within policy limits. At September 30, 2004, and December 31, 2003, the Company was within its policy guidelines.

Sensitivity of Net Interest Income and Rate Sensitive Income:

Down 50	Up 50	Down 300	Up 300	Down 50	Up 50	Down 300	Up 300
Immediate	Immediate	Gradual	Gradual	Immediate	Immediate	Gradual	Gradual
Net interest income	(.80) %	.31 %	* %	(.04) %	1.30 %	.19%	* %	(.02	)%
Rate sensitive income	(.69) %	.13 %	* %	(.56) %	.74 %	.01%	* %	(.54	)%

Given the current level of interest rates, a downward 300 basis point scenario can not be computed.

Market Value of Equity Modeling The Company also utilizes the market value of equity as a measurement tool in managing interest rate sensitivity. The market value of equity measures the degree to which the market values of the Companys assets and liabilities and off-balance sheet instruments will change given a change in interest rates. ALPC guidelines limit the change in market value of equity in a 200 basis point parallel rate shock to 15 percent of the market value of equity assuming interest rates at September 30, 2004. Given the low level of current interest rates, the down 200 basis point scenario cannot be computed. The up 200 basis point scenario resulted in a 1.9 percent decrease in the market value of equity at September 30, 2004, compared with a 3.1 percent decrease at December 31, 2003. ALPC reviews other down rate scenarios to evaluate the impact of falling interest rates. The down 100 basis point scenario resulted in a 1.4 percent decrease at September 30, 2004, and a 1.3 percent increase at December 31, 2003. At September 30, 2004, and December 31, 2003, the Company was within its policy guidelines.

The valuation analysis is dependent upon certain key assumptions about the nature of indeterminate maturity of assets and liabilities. Management estimates the average life and rate characteristics of asset and liability accounts based upon historical analysis and managements expectation of rate behavior. These assumptions are validated on a periodic basis. A sensitivity analysis of key variables of the valuation analysis is provided to ALPC monthly and is used to guide hedging strategies. The results of the valuation analysis as of September 30, 2004, were well within policy guidelines. The Company also uses duration of equity as a measure of interest rate risk. The duration of equity is a measure of the net market value sensitivity of the assets, liabilities and derivative positions of the Company. The duration of assets was 1.68 years at September 30, 2004, compared with 1.91 years at December 31, 2003. The duration of liabilities was 2.15 years at September 30, 2004, compared with 2.18 years at December 31, 2003. After giving effect to the Companys derivative positions, the estimated duration of equity at September 30, 2004 was .99 years, compared with 1.35 years at December 31, 2003. The duration of equity measure shows that sensitivity of the market value of equity of the Company was relatively neutral to changes in interest rates.

Use of Derivatives to Manage Interest Rate and Foreign Currency Risk In the ordinary course of business, the Company enters into derivative transactions to manage its interest rate, prepayment, and foreign currency risks (asset and liability management positions) and to accommodate the business requirements of its customers (customer-related positions). To manage its interest rate risk, the Company may enter into interest rate swap agreements and interest rate options such as caps and floors. Interest rate swaps involve the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. Interest rate caps protect against rising interest rates while interest rate floors protect against declining interest rates. In connection with its mortgage banking operations, the Company enters into forward commitments to sell mortgage loans related to fixed-rate mortgage loans held for sale and fixed-rate mortgage loan commitments. The Company also acts as a seller and buyer of interest rate contracts and foreign exchange rate contracts on behalf

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of customers. The Company minimizes its market and liquidity risks by taking similar offsetting positions.

All interest rate derivatives that qualify for hedge accounting are recorded at fair value as other assets or liabilities on the balance sheet and are designated as either fair value or cash flow hedges. The Company performs an assessment, both at inception and quarterly thereafter, when required, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged items. Hedge ineffectiveness for both cash flow and fair value hedges is immediately recorded in noninterest income. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income until income from the cash flows of the hedged items is realized. Customer-related interest rate swaps, foreign exchange rate contracts, and all other derivative contracts that do not qualify for hedge accounting are recorded at fair value and resulting gains or losses are recorded in trading account gains or losses or mortgage banking revenue.

By their nature, derivative instruments are subject to market risk. The Company does not utilize derivative instruments for speculative purposes. Of the Companys $32.3 billion of total notional amount of asset and liability management derivative positions at September 30, 2004, $29.2 billion was designated as either fair value or cash flow hedges. The cash flow hedge positions are interest rate swaps that hedge the forecasted cash flows from the underlying variable-rate LIBOR loans and floating-rate debt. The fair value hedges are primarily interest rate contracts that hedge the change in fair value related to interest rate changes of underlying fixed-rate debt, subordinated obligations and deposit obligations. In addition, the Company uses forward commitments to sell residential mortgage loans to hedge its interest rate risk related to residential mortgage loans held for sale. The Company commits to sell the loans at specified prices in a future period, typically within 90 days. The Company is exposed to interest rate risk during the period between issuing a loan commitment and the sale of the loan into the secondary market. Related to its mortgage banking operations, the Company held $1.5 billion of forward commitments to sell mortgage loans and $1.5 billion of unfunded mortgage loan commitments that were derivatives in accordance with the provisions of the Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedge Activities. The unfunded mortgage loan commitments are reported at fair value as options in Table 10.

Derivative instruments are also subject to credit risk associated with counterparties to the derivative contracts. Credit risk associated with derivatives is measured based on the replacement cost should the counterparties with contracts in a gain position to the Company fail to perform under the terms of the contract. The Company manages this risk through diversification of its derivative positions among various counterparties, requiring collateral agreements with credit-rating thresholds, entering into master netting agreements in certain cases and entering into interest rate swap risk participation agreements. These agreements are credit derivatives that transfer the credit risk related to interest rate swaps from the Company to an unaffiliated third-party. The Company also provides credit protection to third-parties with risk participation agreements, for a fee, as part of a loan syndication transaction.

At September 30, 2004, the Company had $174.6 million in accumulated other comprehensive income related to unrealized gains on derivatives classified as cash flow hedges. The unrealized gains will be reflected in earnings when the related cash flows or hedged transactions occur and will offset the related performance of the hedged items. The estimated amount of gain to be reclassified from accumulated other comprehensive income into earnings during the remainder of 2004 and the next 12 months is $22.5 million and $84.8 million, respectively.

Gains or losses on customer-related derivative positions were not material for the third quarter and first nine months of 2004. The change in fair value of forward commitments attributed to hedge ineffectiveness recorded in noninterest income was a decrease of $4.9 million and $9.5 million for the third quarter and first nine months of 2004, respectively. The change in the fair value of all other asset and liability management derivative positions attributed to hedge ineffectiveness was not material for the third quarter and first nine months of 2004.

Beginning in the second quarter of 2004, the Company entered into derivatives to protect its net investment in certain foreign operations. The Company uses forward commitments to sell specified amounts of certain foreign currencies to hedge its capital volatility risk associated with fluctuations in foreign currency exchange rates. The net amount of gains or losses included in the cumulative translation adjustment for the third quarter and the first nine months of 2004 was not material.

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Table 10 summarizes information on the Companys derivative positions at September 30, 2004.

Market Risk Management In addition to interest rate risk, the Company is exposed to other forms of market risk as a consequence of conducting normal trading activities. Business activities that contribute to market risk include, among other things, proprietary trading and foreign exchange positions. Value at Risk (VaR) is a key measure of market risk for the Company. Theoretically, VaR represents the maximum amount that the Company has placed at risk of loss, with a ninety-ninth percentile degree of confidence, to adverse market movements in the course of its risk taking activities.

VaR modeling of trading activities is subject to certain limitations. Additionally, it should be recognized that there are assumptions and estimates associated with VaR modeling, and actual results could differ from those assumptions and estimates. The Company mitigates these uncertainties through regular monitoring of trading activities by management and other risk management practices, including stop-loss and position limits related to its trading activities. Stress-test models are used to provide management with perspectives on market events that VaR models do not capture.

The Company establishes market risk limits, subject to approval by the Companys Board of Directors. The Companys VaR limit was $20 million at September 30, 2004, compared with $40 million at December 31, 2003. The market valuation risk inherent in its customer-based derivative trading, mortgage banking pipeline and foreign exchange, as estimated by the VaR analysis, was $2.7 million at September 30, 2004, compared with $1.5 million at December 31, 2003.

Liquidity Risk Management ALPC establishes policies, as well as analyzes and manages liquidity, to ensure that

Table 10 Derivative Positions


			Average
			Remaining
	Notional	Fair	Maturity
September 30, 2004 (Dollars in Millions)	Amount	Value	In Years
Asset and Liability Management
Positions
Interest rate contracts
Receive fixed/pay floating swaps	$ 19,520	$ 536		5.33
Pay fixed/receive floating swaps	8,275	10		1.33
Futures and forwards	2,660	(14	)	.12
Options
Written	1,514	(1	)	.15
Foreign exchange forward contracts	272	1		.08
Equity contracts	48	1		4.55
Customer-related Positions
Interest rate contracts
Receive fixed/pay floating swaps	$ 6,364	$ 126		4.50
Pay fixed/receive floating swaps	6,364	(93	)	4.50
Options
Purchased	882	9		3.33
Written	882	(8	)	3.33
Risk participation agreements (a)
Purchased	138			7.36
Written	72			2.86
Foreign exchange rate contracts
Forwards, spots and swaps
Buy	2,151	59		.42
Sell	2,110	(57	)	.43
Options
Purchased	3			.11
Written	3			.11

(a) At September 30, 2004, the credit equivalent amount was $1 million and $5 million for purchased and written risk participation agreements, respectively.

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adequate funds are available to meet normal operating requirements in addition to unexpected customer demands for funds, such as high levels of deposit withdrawals or loan demand, in a timely and cost-effective manner. The most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable supply of core deposits and wholesale funds. Ultimately, public confidence is generated through profitable operations, sound credit quality and a strong capital position. The Companys performance in these areas has enabled it to develop a large and reliable base of core funding within its market areas and in domestic and global capital markets. Liquidity management is viewed from long-term and short-term perspectives, as well as from an asset and liability perspective. Management monitors liquidity through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk.

The Company maintains strategic liquidity and contingency plans that are subject to the availability of asset liquidity in the balance sheet. Monthly, ALPC reviews the Companys ability to meet funding requirements that could arise as a result of adverse business events. These funding needs are then matched with specific asset-based sources to ensure sufficient funds are available. Also, strategic liquidity policies require diversification of wholesale funding sources to avoid concentrations in any one market source. Subsidiary banks are members of various FHLBs that provide a source of funding through FHLB advances. The Company maintains a Grand Cayman branch for issuing eurodollar time deposits. The Company also establishes relationships with dealers to issue national market retail and institutional savings certificates and short- and medium-term bank notes. Also, the Companys subsidiary banks have significant correspondent banking networks and corporate accounts. Accordingly, the Company has access to national fed funds, funding through repurchase agreements and sources of more stable, regionally based certificates of deposit.

The Companys ability to raise negotiated funding at competitive prices is influenced by rating agencies views on the Companys credit quality, liquidity, capital and earnings. On September 27, 2004, Fitch Ratings upgraded the Companys senior long-term debt ratings to AA - and raised the Companys short-term debt ratings to F-1+.

The parent companys routine funding requirements consist primarily of operating expenses, dividends to shareholders, debt service, repurchases of common stock and funds used for acquisitions. The parent company obtains funding to meet its obligations from dividends collected from its subsidiaries and the issuance of debt securities.

At September 30, 2004, parent company long-term debt outstanding was $4.5 billion, compared with $5.2 billion at December 31, 2003. The change in long-term debt in the first nine months of 2004 was driven by medium-term note maturities of $.6 billion and fixed-rate subordinated note prepayments of $.1 billion. Total parent company debt scheduled to mature in the remainder of 2004 is $250 million. These debt obligations may be met through medium-term note issuances and dividends from subsidiaries, as well as from parent company cash and cash equivalents. Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. The amount of dividends available to the parent company from its banking subsidiaries was approximately $1.7 billion at September 30, 2004.

Off-Balance Sheet Arrangements Off-balance sheet arrangements include any contractual arrangement to which an unconsolidated entity is a party, under which the Company has an obligation to provide credit or liquidity enhancements or market risk support. Off-balance sheet arrangements include certain defined guarantees, asset securitization trusts and conduits. Off-balance sheet arrangements also include any obligation under a variable interest held by an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support.

In the ordinary course of business, the Company enters into an array of commitments to extend credit, letters of credit, lease commitments and various forms of guarantees that may be considered off-balance sheet arrangements. The nature and extent of these arrangements are provided in Note 13 of the Notes to Consolidated Financial Statements.

Asset securitization and conduits represent a source of funding for the Company through off-balance sheet structures. Credit, liquidity, operational and legal structural risks exist due to the nature and complexity of asset securitizations and other off-balance sheet structures. ALPC regularly monitors the performance of each off-balance sheet structure in an effort to minimize these risks and ensure compliance with the requirements of the structures. The Company utilizes its credit risk management systems to evaluate the credit quality of underlying assets and regularly forecasts cash flows to evaluate any potential impairment of retained interests. Also, regulatory guidelines require consideration of asset securitizations in the determination of risk-based capital ratios. The Company does not rely significantly

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on off-balance sheet arrangements for liquidity or capital resources.

The Company sponsors an off-balance sheet conduit to which it transferred high-grade investment securities, funded by the issuance of commercial paper. The conduit held assets of $6.1 billion at September 30, 2004, and $7.3 billion at December 31, 2003. These investment securities include primarily (i) private label asset-backed securities, which are insurance wrapped by AAA/ Aaa-rated monoline insurance companies and (ii) government agency mortgage-backed securities and collateralized mortgage obligations. The conduit had commercial paper liabilities of $6.1 billion at September 30, 2004, and $7.3 billion at December 31, 2003.

The Company provides a liquidity facility to the conduit. Utilization of the liquidity facility would be triggered if the conduit is unable to, or does not, issue commercial paper to fund its assets. A liability for the estimate of the potential risk of loss the Company has as the liquidity facility provider is recorded on the balance sheet in other liabilities. The liability is adjusted downward over time as the underlying assets pay down with the offset recognized as other noninterest income. The liability for the liquidity facility was $35.3 million at September 30, 2004 and $47.3 million at December 31, 2003. In addition, the Company recorded at fair value its retained residual interest in the investment securities conduit of $65.0 million at September 30, 2004, and $89.5 million at December 31, 2003.

The Company also has an asset-backed securitization to fund an unsecured small business credit product. The unsecured small business credit securitization trust held assets of $405.8 million at September 30, 2004, of which the Company retained $91.9 million of subordinated securities, transferors interests of $10.2 million and a residual interest-only strip of $36.9 million. This compared with $497.5 million in assets at December 31, 2003, of which the Company retained $112.4 million of subordinated securities, transferors interests of $12.4 million and a residual interest-only strip of $34.4 million. The securitization trust issued asset-backed variable funding notes in various tranches. The Company provides credit enhancement in the form of subordinated securities and reserve accounts. The Companys risk, primarily from losses in the underlying assets, was considered in determining the fair value of the Companys retained interests in this securitization. The Company recognized income from subordinated securities, an interest-only strip and servicing fees from this securitization of $9.2 million and $24.1 million during the third quarter and first nine months of 2004, respectively, and $6.6 million and $23.9 million, respectively, during the same periods of 2003. The unsecured small business credit securitization held average assets of $423.1 million and $550.0 million in the third quarter of 2004 and 2003, respectively.

The Company has relationships with certain special purpose entities. Because the Companys investment securities conduit and the asset-backed securitizations are Qualifying Special Purpose Entities (QSPEs), which are exempt from consolidation under the provisions of the Financial Accounting Standards Board Interpretation No. 46 (FIN 46), the Company does not believe that FIN 46 requires the consolidation of the conduit or securitizations in its financial statements. With respect to other interests in entities subject to FIN 46, the adoption of FIN 46 did not have a material impact on the Companys financial statements.

Capital Management The Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. The Company has targeted returning 80 percent of earnings to our shareholders through a combination of dividends and share repurchases. In keeping with this target, the Company returned 94 percent of earnings and 110 percent of earnings during the third quarter and first nine months of 2004, respectively. Total shareholders equity was $19.6 billion at September 30, 2004, compared with $19.2 billion at December 31, 2003. The increase was the result of corporate earnings offset by dividends and share repurchases.

Table 11 Capital Ratios

	September 30,	December 31,
(Dollars in Millions)	2004	2003
Tangible common equity	$ 11,819	$ 11,858
As a percent of tangible assets	6.4 %	6.5 %
Tier 1 capital	$ 14,589	$ 14,623
As a percent of risk-weighted assets	8.7 %	9.1 %
As a percent of adjusted quarterly average assets
(leverage ratio)	7.9 %	8.0 %
Total risk-based capital	$ 21,428	$ 21,710
As a percent of risk-weighted assets	12.7 %	13.6 %

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Tangible common equity to assets was 6.4 percent at September 30, 2004, compared with 6.5 percent at December 31, 2003. The Tier 1 capital ratio was 8.7 percent at September 30, 2004, compared with 9.1 percent at December 31, 2003. The total risk-based capital ratio was 12.7 percent at September 30, 2004, compared with 13.6 percent at December 31, 2003. The leverage ratio was 7.9 percent at September 30, 2004, compared with 8.0 percent at December 31, 2003. All regulatory ratios continue to be in excess of stated well capitalized requirements.

On December 16, 2003, the Board of Directors approved an authorization to repurchase 150 million shares of outstanding common stock over the following 24 months. The following table provides a detailed analysis of all shares repurchased under this authorization during the third quarter of 2004:

	Number	Average	Remaining Shares
	of Shares	Price Paid	Available to be
Time Period	Purchased (a)	per Share	Purchased
July	6,335,701	$ 28.14	81,055,584
August	7,321,514	28.72	73,734,070
September	5,802,388	29.13	67,931,682
Total	19,459,603	$ 28.65	67,931,682

(a) All shares purchased during the third quarter of 2004 were purchased under the publicly announced December 16, 2003 repurchase authorization.

LINE OF BUSINESS FINANCIAL REVIEW

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.

Basis for Financial Presentation Business line results are derived from the Companys business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. Funds transfer-pricing methodologies are utilized to allocate a cost of funds used or credit for funds provided to all business line assets and liabilities using a matched funding concept. Also, the business unit is allocated the taxable-equivalent benefit of tax-exempt products. Noninterest income and expenses directly managed by each business line, including fees, service charges, salaries and benefits, and other direct costs are accounted for within each segments financial results in a manner similar to the consolidated financial statements. Occupancy costs are allocated based on utilization of facilities by the lines of business. Certain expenses, including charges for potential litigation and liabilities for certain guarantees, are included in the line of business results upon final resolution. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business lines operations are charged to the applicable business line based on its utilization of those services primarily measured by the volume of customer activities. These allocated expenses are reported as net shared services expense. Certain corporate activities that do not directly support the operations of the lines of business are not charged to the lines of business. Goodwill and other intangible assets are assigned to the lines of business based on the mix of business of the acquired entity. The provision for credit losses within the Wholesale Banking, Consumer Banking, Private Client, Trust and Asset Management and Payment Services lines of business is based on net charge-offs, while Treasury and Corporate Support reflects the residual component of the Companys total consolidated provision for credit losses determined in accordance with accounting principles generally accepted in the United States. Income taxes are assessed to each line of business at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support. Merger and restructuring-related charges, discontinued operations and cumulative effects of changes in accounting principles are not identified by or allocated to lines of business. Within the Company, capital levels are evaluated and managed centrally; however, capital is allocated to the operating segments to support evaluation of business performance. Capital allocations to the business lines are based on the amount of goodwill and other intangibles, the extent of off-balance sheet managed assets and lending commitments and the ratio of on-balance sheet assets relative to the total Company. Certain lines of business, such as Trust and Asset Management, have no significant balance sheet components. For these business units, capital is allocated taking into consideration fiduciary and operational risk, capital levels of

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independent organizations operating similar businesses, and regulatory requirements.

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, 2003 results were 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 $278.0 million of the Companys operating earnings for the third quarter of 2004 and $795.1 million for the first nine months of 2004, increases of $64.8 million (30.4 percent) and $157.8 million (24.8 percent), respectively, compared with the same periods of 2003. The increase in operating earnings in the third quarter of 2004 and the first nine months of 2004, compared with the same periods of 2003, was driven by reductions in the provision for credit losses and total noninterest expense, partially offset by a decline in total net revenue.

Total net revenue decreased $26.4 million (4.3 percent) in the third quarter of 2004 and $83.2 million (4.5 percent) in the first nine months of 2004, compared with the same periods of 2003. Net interest income, on a taxable-equivalent basis, decreased 4.4 percent and 5.5 percent, respectively, compared with the third quarter of 2003 and the first nine months of 2003, as average loans decreased $3.0 billion (6.5 percent) and $2.7 billion (5.9 percent) over the same periods. The decline in average loans was driven, in part, by soft customer loan demand through early 2004, in addition to the Companys decisions to tighten credit availability to certain types of lending products, industries and customers and reductions due to asset workout activities. The decline in average loans was partially offset by the consolidation of the commercial loan conduit onto the Companys balance sheet during the third quarter of 2003. While average total deposits decreased 5.9 percent during the third quarter of 2004, compared with the same period of a year ago, due to reductions in government and mortgage-related deposits, the net interest spread on deposits increased due to the funding benefit associated with the impact of rising interest rates over the last several quarters. Although average total deposits increased 1.1 percent during the first nine months of 2004, compared with the same period of a year ago, the net interest spread from deposits declined due to a shift in the mix of deposits from lower cost noninterest-bearing deposits balances (a 16.8 percent decline) into interest-bearing deposit balances. The decrease in noninterest-bearing deposits year-over-year was primarily driven by declines in mortgage-related and government deposits, primarily due to a decision by the Federal government to pay fees for treasury management services rather than maintain compensating balances.

Noninterest income decreased $8.2 million (4.3 percent) and $14.0 million (2.4 percent) in the third quarter of 2004 and the first nine months of 2004, respectively, compared with the same periods of 2003. The decrease in noninterest income in the third quarter of 2004 was primarily due to lower treasury management-related fees and commercial products revenue, partially offset by higher other fee revenue. The decrease in treasury management-related fees was primarily driven by a change in the Federal governments payment methodology for services from compensating balances, reflected in net interest income, to fees, during the third quarter of 2003. The decrease in commercial products revenue is primarily attributable to lower syndication and other commercial loan fees, and the consolidation of the commercial loan conduit onto the Companys balance sheet in the third quarter of 2003. The decrease in noninterest income in the first nine months of 2004 was primarily due to declines in commercial products revenue resulting from the consolidation of the commercial loan conduit onto the Companys balance sheet, as well as lower trust and investment management fees and other fee revenue. These declines were partially offset by growth in treasury management-related fees, commercial leasing, international banking, foreign exchange and syndication fees, compared with the same periods of 2003.

Total noninterest expense was $158.1 million in the third quarter of 2004 and $480.3 million in the first nine months of 2004, compared with $169.4 million in the third quarter of 2003 and $510.8 million in the first nine months of 2003, representing declines of $11.3 million (6.7 percent) and $30.5 million (6.0 percent), respectively. The $11.3 million decrease (6.7 percent) in the third quarter of 2004, compared with the same period of 2003, was primarily due to cost savings initiatives that reduced personnel-related costs, lower software expenses and other expenses. Loan workout expenses declined in the third quarter of 2004, compared with the third quarter of 2003, as the credit quality of the loan portfolio has improved. Net shared services costs decreased in the third quarter of 2004,

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Table 12 Line of Business Financial Performance

	Wholesale					Consumer
	Banking					Banking
			Percent					Percent
Three Months Ended September 30 (Dollars in Millions)	2004	2003	Change			2004	2003	Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$ 399.4	$	417.6	(4.4	)%	$ 919.8	$ 922.6		(.3	)%
Noninterest income	182.5		191.3	(4.6	)	462.7	392.1		18.0
Securities gains (losses), net	.6			*		86.9	(108.7	)	*
Total net revenue	582.5		608.9	(4.3	)	1,469.4	1,206.0		21.8
Noninterest expense	153.6		164.6	(6.7	)	588.9	594.1		(.9	)
Other intangibles	4.5		4.8	(6.3	)	148.7	(52.0	)	*
Total noninterest expense	158.1		169.4	(6.7	)	737.6	542.1		36.1
Operating earnings before provision and income
taxes	424.4		439.5	(3.4	)	731.8	663.9		10.2
Provision for credit losses	(12.7	)	104.4	*		88.1	105.5		(16.5	)
Operating earnings before income taxes	437.1		335.1	30.4		643.7	558.4		15.3
Income taxes and taxable-equivalent adjustment	159.1		121.9	30.5		234.2	203.2		15.3
Operating earnings	$ 278.0	$	213.2	30.4		$ 409.5	$ 355.2		15.3
Merger and restructuring-related items (after-tax)
Discontinued operations (after-tax)
Net income
Average Balance Sheet Data
Commercial	$ 26,616	$	28,771	(7.5	)%	$ 7,813	$ 8,227		(5.0	)%
Commercial real estate	15,789		16,574	(4.7	)	10,668	10,090		5.7
Residential mortgages	77		102	(24.5	)	14,139	11,855		19.3
Retail	55		45	22.2		31,844	29,149		9.2
Total loans	42,537		45,492	(6.5	)	64,464	59,321		8.7
Goodwill	1,225		1,225			2,243	2,243
Other intangible assets	85		104	(18.3	)	1,143	853		34.0
Assets	48,815		52,577	(7.2	)	72,243	70,264		2.8
Noninterest-bearing deposits	12,574		14,510	(13.3	)	14,242	14,169		.5
Savings products	8,563		12,709	(32.6	)	41,663	40,873		1.9
Time deposits	8,364		4,131	*		15,840	17,784		(10.9	)
Total deposits	29,501		31,350	(5.9	)	71,745	72,826		(1.5	)
Shareholders equity	5,004		5,009	(.1	)	6,155	5,922		3.9

	Wholesale				Consumer
	Banking				Banking
			Percent				Percent
Nine Months Ended September 30 (Dollars in Millions)	2004	2003	Change		2004	2003	Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$ 1,194.9	$ 1,264.1	(5.5	)%	$ 2,679.8	$	2,686.1	(.2	)%
Noninterest income	563.9	579.4	(2.7	)	1,341.4		1,163.7	15.3
Securities gains (losses), net	1.5		*		(84.2	)	193.4	*
Total net revenue	1,760.3	1,843.5	(4.5	)	3,937.0		4,043.2	(2.6	)
Noninterest expense	466.4	496.2	(6.0	)	1,750.5		1,777.5	(1.5	)
Other intangibles	13.9	14.6	(4.8	)	211.0		372.0	(43.3	)
Total noninterest expense	480.3	510.8	(6.0	)	1,961.5		2,149.5	(8.7	)
Operating earnings before provision and income
taxes	1,280.0	1,332.7	(4.0	)	1,975.5		1,893.7	4.3
Provision for credit losses	29.9	330.8	(91.0	)	288.6		322.7	(10.6	)
Operating earnings before income taxes	1,250.1	1,001.9	24.8		1,686.9		1,571.0	7.4
Income taxes and taxable-equivalent adjustment	455.0	364.6	24.8		613.8		571.7	7.4
Operating earnings	$ 795.1	$ 637.3	24.8		$ 1,073.1	$	999.3	7.4
Merger and restructuring-related items (after-tax)
Discontinued operations (after-tax)
Net income
Average Balance Sheet Data
Commercial	$ 26,485	$ 28,543	(7.2	)%	$ 7,780	$	8,318	(6.5	)%
Commercial real estate	15,865	16,419	(3.4	)	10,524		9,887	6.4
Residential mortgages	72	125	(42.4	)	13,690		10,750	27.3
Retail	52	51	2.0		30,913		28,953	6.8
Total loans	42,474	45,138	(5.9	)	62,907		57,908	8.6
Goodwill	1,225	1,227	(.2	)	2,242		2,242
Other intangible assets	89	109	(18.3	)	1,063		922	15.3
Assets	48,934	52,296	(6.4	)	70,739		68,235	3.7
Noninterest-bearing deposits	12,831	15,422	(16.8	)	13,980		13,715	1.9
Savings products	10,266	10,346	(.8	)	41,878		39,657	5.6
Time deposits	6,729	3,742	79.8		16,028		19,012	(15.7	)
Total deposits	29,826	29,510	1.1		71,886		72,384	(.7	)
Shareholders equity	5,047	5,034	.3		6,180		5,805	6.5

Not meaningful

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Private Client, Trust				Payment				Treasury and						Consolidated
and Asset Management				Services				Corporate Support						Company
		Percent				Percent					Percent					Percent
2004	2003	Change		2004	2003	Change		2004	2003		Change			2004	2003	Change
$ 94.8	$ 79.8	18.8	%	$ 138.1	$ 149.1	(7.4	)%	$ 229.6	$	256.4		(10.5	)%	$ 1,781.7	$ 1,825.5		(2.4	)%
240.1	241.8	(.7	)	496.0	409.3	21.2		55.4		51.8		6.9		1,436.7	1,286.3		11.7
								(.2	)	(.2	)			87.3	(108.9	)	*
334.9	321.6	4.1		634.1	558.4	13.6		284.8		308.0		(7.5	)	3,305.7	3,002.9		10.1
143.5	145.8	(1.6	)	214.0	178.9	19.6		208.8		148.9		40.2		1,308.8	1,232.3		6.2
16.0	16.5	(3.0	)	39.6	39.8	(.5	)	1.4		1.7		(17.6	)	210.2	10.8		*
159.5	162.3	(1.7	)	253.6	218.7	16.0		210.2		150.6		39.6		1,519.0	1,243.1		22.2
175.4	159.3	10.1		380.5	339.7	12.0		74.6		157.4		(52.6	)	1,786.7	1,759.8		1.5
1.2	3.2	(62.5	)	89.6	98.3	(8.9	)	(1.1	)	(1.4	)	(21.4	)	165.1	310.0		(46.7	)
174.2	156.1	11.6		290.9	241.4	20.5		75.7		158.8		(52.3	)	1,621.6	1,449.8		11.8
63.4	56.8	11.6		105.9	87.8	20.6		(6.5	)	32.7		*		556.1	502.4		10.7
$ 110.8	$ 99.3	11.6		$ 185.0	$ 153.6	20.4		$ 82.2	$	126.1		(34.8	)	1,065.5	947.4		12.5
															(6.7	)
															10.2
														$ 1,065.5	$ 950.9
$ 1,592	$ 1,857	(14.3	)%	$ 3,085	$ 2,909	6.1	%	$ 211	$	216		(2.3	)%	$ 39,317	$ 41,980		(6.3	)%
610	567	7.6						127		166		(23.5	)	27,194	27,397		(.7	)
344	265	29.8						9		12		(25.0	)	14,569	12,234		19.1
2,278	1,960	16.2		7,590	7,169	5.9		59		48		22.9		41,826	38,371		9.0
4,824	4,649	3.8		10,675	10,078	5.9		406		442		(8.1	)	122,906	119,982		2.4
845	741	14.0		1,915	1,813	5.6				306		*		6,228	6,328		(1.6	)
362	389	(6.9	)	855	671	27.4		7		12		(41.7	)	2,452	2,029		20.8
6,580	6,464	1.8		14,081	13,667	3.0		49,866		47,269		5.5		191,585	190,241		.7
3,127	3,223	(3.0	)	115	178	(35.4	)	(267	)	(173	)	54.3		29,791	31,907		(6.6	)
7,854	6,390	22.9		12	10	20.0		29		(8	)	*		58,121	59,974		(3.1	)
568	471	20.6						2,632		3,689		(28.7	)	27,404	26,075		5.1
11,549	10,084	14.5		127	188	(32.4	)	2,394		3,508		(31.8	)	115,316	117,956		(2.2	)
2,296	1,995	15.1		3,320	3,007	10.4		2,612		3,427		(23.8	)	19,387	19,360		.1

Private Client, Trust				Payment				Treasury and						Consolidated
and Asset Management				Services				Corporate Support						Company
		Percent				Percent					Percent						Percent
2004	2003	Change		2004	2003	Change		2004	2003		Change			2004	2003		Change
$ 265.8	$ 231.2	15.0	%	$ 428.3	$ 453.9	(5.6	)%	$ 771.3	$	765.5		.8	%	$ 5,340.1	$	5,400.8	(1.1	)%
743.2	710.0	4.7		1,370.8	1,186.6	15.5		149.1		131.8		13.1		4,168.4		3,771.5	10.5
								(1.7	)	51.5		*		(84.4	)	244.9	*
1,009.0	941.2	7.2		1,799.1	1,640.5	9.7		918.7		948.8		(3.2	)	9,424.1		9,417.2	.1
433.2	439.0	(1.3	)	584.1	531.7	9.9		583.6		413.3		41.2		3,817.8		3,657.7	4.4
46.1	49.6	(7.1	)	113.5	117.4	(3.3	)	4.2		4.6		(8.7	)	388.7		558.2	(30.4	)
479.3	488.6	(1.9	)	697.6	649.1	7.5		587.8		417.9		40.7		4,206.5		4,215.9	(.2	)
529.7	452.6	17.0		1,101.5	991.4	11.1		330.9		530.9		(37.7	)	5,217.6		5,201.3	.3
10.9	5.1	*		277.0	311.6	(11.1	)	(1.8	)	(2.2	)	(18.2	)	604.6		968.0	(37.5	)
518.8	447.5	15.9		824.5	679.8	21.3		332.7		533.1		(37.6	)	4,613.0		4,233.3	9.0
188.8	162.8	16.0		300.0	247.3	21.3		(55.4	)	121.7		*		1,502.2		1,468.1	2.3
$ 330.0	$ 284.7	15.9		$ 524.5	$ 432.5	21.3		$ 388.1	$	411.4		(5.7	)	3,110.8		2,765.2	12.5
																(25.4	)
																15.8
														$ 3,110.8	$	2,755.6
$ 1,637	$ 1,828	(10.4	)%	$ 2,985	$ 2,852	4.7	%	$ 173	$	217		(20.3	)%	$ 39,060	$	41,758	(6.5	)%
606	577	5.0						145		209		(30.6	)	27,140		27,092	.2
307	243	26.3						10		13		(23.1	)	14,079		11,131	26.5
2,197	1,951	12.6		7,473	7,059	5.9		52		50		4.0		40,687		38,064	6.9
4,747	4,599	3.2		10,458	9,911	5.5		380		489		(22.3	)	120,966		118,045	2.5
809	740	9.3		1,852	1,814	2.1				306		*		6,128		6,329	(3.2	)
354	407	(13.0	)	756	680	11.2		8		13		(38.5	)	2,270		2,131	6.5
6,491	6,383	1.7		13,523	13,262	2.0		50,876		46,839		8.6		190,563		187,015	1.9
3,124	2,997	4.2		113	330	(65.8	)	(241	)	(52	)	*		29,807		32,412	(8.0	)
7,911	5,450	45.2		11	9	22.2		21		3		*		60,087		55,465	8.3
536	462	16.0						2,960		5,556		(46.7	)	26,253		28,772	(8.8	)
11,571	8,909	29.9		124	339	(63.4	)	2,740		5,507		(50.2	)	116,147		116,649	(.4	)
2,220	1,980	12.1		3,152	2,994	5.3		2,739		3,389		(19.2	)	19,338		19,202	.7

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compared with the third quarter of 2003, due to lower transaction processing costs. The $30.5 million decrease (6.0 percent) for the first nine months of 2004 was primarily driven by lower personnel-related costs, loan workout expenses, software expenses and net shared services expense.

The provision for credit losses was a net recovery of $12.7 million in the third quarter of 2004 and a net loss of $29.9 million for the first nine months of 2004, compared with net losses of $104.4 million and $330.8 million for the same periods of 2003, representing declines of $117.1 million (112.2 percent) and $300.9 million (91.0 percent) year-over-year. The favorable change in the provision for credit losses for the Wholesale Banking business segment was due to improving net charge-offs, resulting in a net recovery of .12 percent of average loans in the third quarter of 2004, compared with a net charge-off of .91 percent of average loans in the third quarter of 2003. The reduction in net charge-offs was attributable to strong commercial loan recoveries, in addition to improvements in credit quality driven by the initiatives taken by the Company during the past three years, including asset workout activities and reductions in commitments to certain industries and customers. Commercial loan recoveries are expected to return to more normal levels during future periods. Nonperforming assets within Wholesale Banking were $435.1 million at September 30, 2004, compared with $523.8 million at June 30, 2004, and $933.3 million at September 30, 2003. Nonperforming assets as a percentage of end-of-period loans were 1.01 percent, 1.21 percent and 2.10 percent as of September 30, 2004, June 30, 2004, and September 30, 2003, respectively. Refer to the Corporate Risk Profile section for further information on factors impacting the credit quality of the loan portfolios.

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 $409.5 million of the Companys operating earnings for the third quarter of 2004 and $1,073.1 million for the first nine months of 2004, an increase of $54.3 million (15.3 percent) and $73.8 million (7.4 percent), respectively, compared with the same periods of 2003. Within Consumer Banking, the retail banking business grew operating earnings by 26.2 percent in the third quarter of 2004 and 21.4 percent in the first nine months of 2004, offset somewhat by lower contribution from the mortgage banking business, compared with the same periods of 2003.

Total net revenue increased $263.4 million (21.8 percent) in the third quarter of 2004 and decreased $106.2 million (2.6 percent) in the first nine months of 2004, compared with the same periods of 2003. The increase in the third quarter of 2004 was due to higher net securities gains (losses) and fee-based revenue growth, offset by a reduction in net interest income, while the decrease in the first nine months of 2004 was due to declines in net securities gains (losses) and net interest income, partially offset by growth in fee-based revenues. Net interest income, on a taxable-equivalent basis, decreased $2.8 million (.3 percent) and $6.3 million (.2 percent) in the third quarter of 2004 and the first nine months of 2004, respectively, compared with the same periods of 2003. Fee-based revenue increased $70.6 million (18.0 percent) and net securities gains (losses) increased $195.6 million in the third quarter of 2004, while fee-based revenue increased $177.7 million (15.3 percent) and net securities gains (losses) decreased $277.6 million in the first nine months of 2004, compared with the same periods of 2003.

The decrease in net interest income for the third quarter of 2004 and the first nine months of 2004, compared with the same periods of 2003, was due to the reduction in average mortgage loans held for sale and commercial loans (5.0 percent and 6.5 percent, respectively), attributable to the changing interest rate environment, resulting in lower mortgage refinance activity and lower prepayment fees. Partially offsetting these decreases were changes in the mix of average deposit balances and their related funding benefit due to rising interest rates in addition to improved spreads on commercial loans. The increase in the average loan balances of 8.7 percent for the third quarter of 2004 reflected retail loan growth of 9.2 percent and growth in residential mortgages of 19.3 percent, compared with the third quarter of 2003. Included within the retail loan category are second-lien home equity loans which had a growth rate of 8.5 percent. The category of residential mortgages includes first-lien home equity loans, which had a growth rate of 6.4 percent in the third quarter of 2004, compared with the third quarter of 2003. On a combined basis, first and second-lien home equity products increased $1.4 billion, or 7.9 percent, compared with a year ago. The

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year-over-year growth of traditional residential mortgages was 29.5 percent. Commercial real estate loan balances increased 5.7 percent, while commercial loan balances decreased 5.0 percent during the third quarter of 2004, compared with the third quarter of 2003. Average deposits included growth in noninterest-bearing, interest checking and savings account balances, offset by a reduction in balances associated with money market accounts and time deposits in the third quarter of 2004, compared with the third quarter of 2003. The decline in lower margin time deposits primarily reflected a shift in product mix towards savings products.

Fee-based noninterest income was $462.7 million in the third quarter of 2004 and $1,341.4 million in the first nine months of 2004, an increase of $70.6 million (18.0 percent) and $177.7 million (15.3 percent), respectively, compared with the same periods of 2003. This growth was driven by deposit service charges, commercial products revenue, mortgage banking revenue, investment products fees and commissions and other revenue. The third quarter 2004 growth in fee-based revenue was attributable to new deposit account growth, pricing enhancements, increased sales, higher mortgage servicing revenue, lower end-of-term lease losses and a residual value insurance recovery.

Total noninterest expense was $737.6 million in the third quarter of 2004 and $1,961.5 million in the first nine months of 2004, compared with $542.1 million and $2,149.5 million for the same periods of 2003, an increase of $195.5 million (36.1 percent) in the third quarter of 2004 and a decrease of $188.0 million (8.7 percent) in the first nine months of 2004, respectively. The increase in noninterest expense was primarily attributable to a decrease in MSR values during the third quarter of 2004 resulting in a MSR impairment of $86.7 million, compared with a MSR reparation of $108.5 million in 2003. In addition to the net increase in MSR impairments of $195.2 million, compensation and occupancy costs increased related to new in-store branch expansion along with higher amortization costs from growth in the mortgage servicing portfolio, partially offset by reductions in net shared services and loan origination costs. Noninterest expense included MSR impairment of $24.9 million in the first nine months of 2004 compared with $208.7 million in the first nine months of 2003. The change in MSR valuations was driven by rising interest rates and slower prepayment speeds in the second quarter of 2004, compared with the declining interest rates and refinancing activities in the first nine months of 2003 and the first quarter and third quarter of 2004.

The provision for credit losses decreased $17.4 million (16.5 percent) and $34.1 million (10.6 percent) in the third quarter of 2004 and the first nine months of 2004, respectively, compared with the same periods of 2003. The improvement in the provision for credit losses in the third quarter of 2004 and the first nine months of 2004, compared with the same periods of 2003, was primarily attributable to lower retail loan and commercial loan net charge-offs. As a percentage of average loans, net charge-offs declined to .54 percent in the third quarter of 2004, compared with .71 percent in the third quarter of 2003. Retail loan net charge-offs continued to decline, primarily a result of ongoing collection efforts and risk management. Nonperforming assets within Consumer Banking were $362.3 million at September 30, 2004, compared with $377.6 million at June 30, 2004, and $374.2 million at September 30, 2003. The decrease in nonperforming assets in the third quarter of 2004 was a result of declines in nonperforming loans associated with small business and community banking-based borrowers. Nonperforming assets as a percentage of end-of-period loans were .59 percent, .63 percent and .66 percent as of September 30, 2004, June 30, 2004, and September 30, 2003, respectively. Refer to the Corporate Risk Profile section for further information on factors impacting the credit quality of the loan portfolios.

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 $110.8 million of the Companys operating earnings for the third quarter of 2004 and $330.0 million for the first nine months of 2004, increases of 11.6 percent and 15.9 percent, respectively, compared with the same periods of 2003. The period-over-period increases for the third quarter of 2004 and first nine months of 2004 were attributable to growth in total net revenue (4.1 percent and 7.2 percent, respectively) and a reduction in noninterest expense (1.7 percent and 1.9 percent, respectively), partially offset by an increase in the provision for credit losses for the first nine months of 2004.

Total net revenue was $334.9 million in the third quarter of 2004 and $1,009.0 million in the first nine months of 2004, increases of 4.1 percent and 7.2 percent, respectively, compared with the same periods of 2003. Net interest income, on a taxable-equivalent basis, increased $15.0 million (18.8 percent) in the third quarter of 2004 and $34.6 million

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(15.0 percent) in the first nine months of 2004, compared with the same periods of 2003. The increase in net interest income in the third quarter of 2004 was due to growth in total deposits of 14.5 percent, attributable to growth in savings products and time deposits, in addition to the favorable impact of rising interest rates on the funding benefit of deposits. Noninterest income decreased $1.7 million (.7 percent) in the third quarter of 2004 and increased $33.2 million (4.7 percent) in the first nine months of 2004, compared with the same periods of 2003. The year-over-year increase in noninterest income for the first nine months of 2004 was primarily attributable to improvement in equity capital market conditions and related fees.

Total noninterest expense decreased $2.8 million (1.7 percent) in the third quarter of 2004 and $9.3 million (1.9 percent) in the first nine months of 2004, compared with the same periods of 2003, primarily due to reductions in intangible amortization and net shared services expense.

The provision for credit losses decreased $2.0 million in the third quarter of 2004 and increased $5.8 million in the first nine months of 2004, compared with the same periods of 2003. The $5.8 million increase year-over-year in the provision for credit losses was due to abnormally higher commercial and retail loan net charge-offs during the second quarter of 2004. Net charge-offs as a percentage of average loans were .10 percent in the third quarter of 2004, compared with .27 percent in the third quarter of 2003.

Payment Services includes consumer and business credit cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services contributed $185.0 million of the Companys operating earnings for the third quarter of 2004 and $524.5 million for the first nine months of 2004, a 20.4 percent and 21.3 percent increase, respectively, over the same periods of 2003. The increases were due to growth in total net revenue and reductions in provision for credit losses, partially offset by increases in total noninterest expense.

In the second quarter of 2004, the Company entered into a definitive agreement to purchase the remaining 50 percent ownership interest of EuroConex Technologies Ltd (EuroConex) from the Bank of Ireland. In addition, the Company completed two separate transactions to acquire merchant processing businesses in Poland and the United Kingdom. In connection with these transactions, EuroConex and its affiliates will provide debit and credit card processing services to merchants, directly and through alliances with banking partners in these European markets. The buyout from the Bank of Ireland closed on June 29, 2004.

Total net revenue was $634.1 million in the third quarter of 2004 and $1,799.1 million in the first nine months of 2004, increases of $75.7 million (13.6 percent) and $158.6 million (9.7 percent), respectively, compared with the same periods of 2003. Net interest income decreased $11.0 million (7.4 percent) and $25.6 million (5.6 percent) in the third quarter and the first nine months of 2004, respectively, compared with the same periods of 2003, primarily due to reductions in customer fees, higher corporate card rebates and lower revolve rates. These declines were partially offset by total average loan growth of 5.9 percent and 5.5 percent for the third quarter of 2004 and the first nine months of 2004, respectively, compared with the same periods of a year ago. Noninterest income increased $86.7 million (21.2 percent) in the third quarter of 2004 and $184.2 million (15.5 percent) in the first nine months of 2004, compared with the same periods of 2003. The increase in fee-based revenue in the third quarter of 2004 was driven by strong growth in credit card and debit card revenue (19.4 percent), corporate payment products revenue (13.4 percent), ATM processing services revenue (13.5 percent) and merchant processing revenue (28.2 percent). The growth in credit card and debit card revenue was muted somewhat by the impact of the debit card antitrust settlement by VISA USA and MasterCard, which lowered interchange rates on signature debit transactions commencing in the third quarter of 2003. Credit card and debit card revenue increased $26.5 million due to strong growth in sales volumes. Corporate payment products revenue increased $12.8 million due to increases in sales volumes and pricing enhancements. ATM processing services revenue increased $3.6 million due to transaction growth and new sales. Merchant processing revenue increased $41.2 million due to an increase in sales and transaction processing volumes and the expansion of the merchant acquiring business in Europe which accounted for approximately $26.0 million of the revenue growth.

Total noninterest expense was $253.6 million in the third quarter of 2004 and $697.6 million in the first nine months of 2004, increases of $34.9 million (16.0 percent) and $48.5 million (7.5 percent), respectively, compared with the same periods of 2003. The noninterest expense increase was primarily attributable to higher compensation and employee benefit costs for processing associated with increased corporate payment products and merchant processing sales volumes, in addition to higher merchant acquiring

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costs resulting from the expansion of the merchant acquiring business in Europe, which accounted for approximately $23.1 million and $32.6 million of the increase in the third quarter of 2004 and the first nine months of 2004, respectively.

The provision for credit losses was $89.6 million in the third quarter of 2004 and $277.0 million in the first nine months of 2004, decreases of $8.7 million (8.9 percent) and $34.6 million (11.1 percent), respectively, compared with the same periods of 2003, due to lower net charge-offs. Net charge-offs were 3.34 percent of average loans in the third quarter of 2004, compared with 3.87 percent in the third quarter of 2003. The favorable change in credit losses was due to improvements in ongoing collection efforts and risk management, as well as an improvement in economic conditions from a year ago.

Treasury and Corporate Support includes the Companys 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 $82.2 million for the third quarter of 2004 and $388.1 million for the first nine months of 2004, a decrease of $43.9 million (34.8 percent) and $23.3 million (5.7 percent), respectively, compared with the same periods of 2003.

Total net revenue was $284.8 million and $918.7 million in the third quarter and first nine months of 2004, respectively, compared with total net revenue of $308.0 million and $948.8 million for the same periods of 2003. The decline of $23.2 million (7.5 percent) in total net revenue in the third quarter of 2004 was attributable to reductions in net interest income of $26.8 million (10.5 percent), partially offset by increases in noninterest income of $3.6 million (6.9 percent). The decrease in net interest income was primarily attributable to the Companys 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. Investment securities increased $4.9 billion in the third quarter of 2004 compared with the third quarter of 2003, partially reflecting the reinvestment of proceeds from declines in commercial loan balances and loans held for sale. The decline of $30.1 million (3.2 percent) in total net revenue in the first nine months of 2004 was attributable to decreases in net securities gains (losses) of $53.2 million, partially offset by increases in net interest income of $5.8 million (.8 percent) and noninterest income of $17.3 million (13.1 percent). The increase in net interest income was primarily attributable to an increase in the investment portfolio of $7.3 billion, partially offset by a reduction in fees charged to business units for customer-related loan prepayments, the net effect of transfer pricing related to changes in the average balance sheet and interest rates and changes in funding mix.

Noninterest expense was $210.2 million in the third quarter of 2004 and $587.8 million in the first nine months of 2004, compared with $150.6 million and $417.9 million for the same periods of 2003, respectively. The $59.6 million (39.6 percent) increase in the third quarter of 2004 and the $169.9 million (40.7 percent) increase in the first nine months of 2004, compared with the same periods of 2003, reflected higher costs associated with incentives, stock-based compensation, pension benefits, corporate insurance, software expense and the unfavorable variance in net shared services. In addition, the first nine months of 2004 included $38.6 million of charges associated with the prepayment of the Companys long-term debt and a charge associated with future-delivery charge-back exposure within the Companys airline merchant processing portfolio.

The provision for credit losses for this business unit represents the residual aggregate of the net credit losses allocated to the reportable business units and the Companys recorded provision determined in accordance with accounting principles generally accepted in the United States. The provision for credit losses was a net recovery of $1.1 million in the third quarter of 2004 and $1.8 million in the first nine months of 2004, compared with a net recovery of $1.4 million and $2.2 million for the same periods of 2003, respectively. Refer to the Corporate Risk Profile section for further information on the provision for credit losses, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Income taxes are assessed to each line of business at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support. The first

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quarter of 2004 reflected a $90.0 million reduction in income tax expense related to the resolution of federal tax examinations covering substantially all of the Companys legal entities for the years 1995 through 1999.

ACCOUNTING CHANGES

Note 2 of the Notes to Consolidated Financial Statements discusses new accounting policies adopted by the Company during 2004 and the expected impact of accounting policies recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards affects the Companys financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of Managements Discussion and Analysis and the Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Companys financial statements. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Companys financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third-parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under generally accepted accounting principles. Management has discussed the development and the selection of critical accounting policies with the Companys Audit Committee.

Significant accounting policies are discussed in detail in the Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2003. Those policies considered to be critical accounting policies are described below.

Allowance for Credit Losses The allowance for credit losses is established to provide for probable losses inherent in the Companys credit portfolio. The methods utilized to estimate the allowance for credit losses, key assumptions and quantitative and qualitative information considered by management in determining the adequacy of the allowance for credit losses are discussed in the Credit Risk Management section.

Managements evaluation of the adequacy of the allowance for credit losses is often the most critical of accounting estimates for a banking institution. It is a highly subjective process impacted by many factors as discussed throughout the Managements Discussion and Analysis section of the Annual Report. Although risk management practices, methodologies and other tools are utilized to determine each element of the allowance, degrees of imprecision exist in these measurement tools due in part to subjective judgments involved and an inherent lagging of credit quality measurements relative to the stage of the business cycle. Even determining the stage of the business cycle is highly subjective. As discussed in the Analysis and Determination of the Allowance for Credit Losses section, management considers the effect of imprecision and many other factors in determining the allowance for credit losses by establishing an allowance for other factors that is not specifically allocated to a category of loans. If not considered, inherent losses in the portfolio related to imprecision and other subjective factors could have a dramatic adverse impact on the liquidity and financial viability of a bank.

Given the many subjective factors affecting the credit portfolio, changes in the allowance for other factors may not directly coincide with changes in the risk ratings of the credit portfolio reflected in the risk rating process. This is in part due to the timing of the risk rating process in relation to changes in the business cycle, the exposure and mix of loans within risk rating categories, levels of nonperforming loans and the timing of charge-offs and recoveries. For example, the amount of loans within specific risk ratings may change, providing a leading indicator of improving credit quality, while nonperforming loans and net charge-offs continue at elevated levels. Because the allowance specifically allocated to commercial loans is primarily driven by risk ratings and loss ratios determined through migration analysis and historical performance, the amount of the allowance for commercial and commercial real estate loans might decline. However, it

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is likely that management would maintain an adequate allowance for credit losses by increasing the allowance for other factors at a stage in the business cycle that is uncertain and when nonperforming asset levels remain elevated.

Sensitivity analysis to the many factors impacting the allowance for credit losses is difficult. Some factors are quantifiable while other factors require qualitative judgment. Management conducts analysis with respect to the accuracy of risk ratings and the volatility of inherent losses, and utilizes this analysis along with qualitative factors including uncertainty in the economy from changes in unemployment rates, the level of bankruptcies, concentration risks, including risks associated with the transportation sector and highly leveraged enterprise-value credits, in determining the overall level of the allowance for credit losses. Refer to the Analysis and Determination of the Allowance for Credit Losses section for further information.

Asset Impairment In the ordinary course of business, the Company evaluates the carrying value of its assets for potential impairment. Generally, potential impairment is determined based on a comparison of fair value to the carrying value. The determination of fair value can be highly subjective, especially for assets that are not actively traded or when market-based prices are not available. The Company estimates fair value based on the present value of estimated future cash flows. The initial valuation and subsequent impairment tests may require the use of significant management estimates. Additionally, determining the amount, if any, of an impairment may require an assessment of whether or not a decline in an assets estimated fair value below the recorded value is temporary in nature. While impairment assessments impact most asset categories, the following areas are considered to be critical accounting matters in relation to the financial statements.

Mortgage Servicing Rights MSRs are capitalized as separate assets when loans are sold and servicing is retained. The total cost of loans sold is allocated between the loans sold and the servicing assets retained based on their relative fair values. MSRs that are purchased from others are initially recorded at cost. The carrying value of the MSRs is amortized in proportion to and over the period of estimated net servicing revenue and recorded in noninterest expense as amortization of intangible assets. The carrying value of these assets is periodically reviewed for impairment using a lower of carrying value or fair value methodology. For purposes of measuring impairment, the servicing rights are stratified based on the underlying loan type and note rate and the carrying value for each stratum is compared to fair value based on a discounted cash flow analysis, utilizing current prepayment speeds and discount rates. Events that may significantly affect the estimates used are changes in interest rates and the related impact on mortgage loan prepayment speeds and the payment performance of the underlying loans. If the carrying value is greater than fair value, impairment is recognized through a valuation allowance for each impaired stratum and recorded as amortization of intangible assets. The reduction in the fair value of MSRs at September 30, 2004, to immediate 25 and 50 basis point adverse changes in interest rates would be approximately $115 million and $239 million, respectively. An upward movement in interest rates at September 30, 2004, of 25 and 50 basis points would increase the value of the MSRs by approximately $99 million and $172 million, respectively. Refer to Note 6 of the Notes to Consolidated Financial Statements for additional information regarding MSRs.

Goodwill and Other Intangibles The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by Statement of Financial Accounting Standards No. 141, Goodwill and Other Intangible Assets. Goodwill and indefinite-lived assets are no longer amortized but are subject, at a minimum, to annual tests for impairment. Under certain situations, interim impairment tests may be required if events occur or circumstances change that would more likely than not reduce the fair value of a reporting segment below its carrying amount. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount.

The initial recognition of goodwill and other intangible assets and subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods including discounted cash flow analysis. Additionally, estimated cash flows may extend beyond ten years and, by their nature, are difficult to determine over an extended timeframe. Events and factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures, technology, changes in discount rates and specific industry and market conditions. In determining the reasonableness of cash flow estimates, the Company reviews historical

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performance of the underlying assets or similar assets in an effort to assess and validate assumptions utilized in its estimates.

In assessing the fair value of reporting units, the Company may consider the stage of the current business cycle and potential changes in market conditions in estimating the timing and extent of future cash flows. Also, management often utilizes other information to validate the reasonableness of its valuations including public market comparables, and multiples of recent mergers and acquisitions of similar businesses. Valuation multiples may be based on revenue, price-to-earnings and tangible capital ratios of comparable public companies and business segments. These multiples may be adjusted to consider competitive differences including size, operating leverage and other factors. The carrying amount of a reporting unit is determined based on the capital required to support the reporting units activities including its tangible and intangible assets. The determination of a reporting units capital allocation requires management judgment and considers many factors including the regulatory capital regulations and capital characteristics of comparable public companies in relevant industry sectors. In certain circumstances, management will engage a third-party to independently validate its assessment of the fair value of its business segments.

The Companys annual assessment of potential goodwill impairment was completed during the second quarter of 2004. Based on the results of this assessment, no goodwill impairment was recognized.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Companys management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based upon this evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

During the most recently completed fiscal quarter, there was no change made in the Companys internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

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link1 "Consolidated Balance Sheet"

Consolidated Balance Sheet

(Dollars in Millions)	September 30, — 2004	2003
	(Unaudited)
Assets
Cash and due from banks	$ 6,969	$	8,630
Investment securities
Held-to-maturity (fair value $126 and $161,
respectively)	120		152
Available-for-sale	39,534		43,182
Loans held for sale	1,372		1,433
Loans
Commercial	40,151		38,526
Commercial real estate	27,414		27,242
Residential mortgages	14,741		13,457
Retail	42,520		39,010
Total loans	124,826		118,235
Less allowance for loan losses	(2,184	)	(2,184	)
Net loans	122,642		116,051
Premises and equipment	1,894		1,957
Customers liability on acceptances	146		121
Goodwill	6,226		6,025
Other intangible assets	2,419		2,124
Other assets	11,522		9,796
Total assets	$ 192,844	$	189,471
Liabilities and Shareholders
Equity
Deposits
Noninterest-bearing	$ 31,585	$	32,470
Interest-bearing	70,011		74,749
Time deposits greater than $100,000	13,971		11,833
Total deposits	115,567		119,052
Short-term borrowings	12,648		10,850
Long-term debt	35,328		31,215
Junior subordinated debentures	2,676		2,601
Acceptances outstanding	146		121
Other liabilities	6,879		6,390
Total liabilities	173,244		170,229
Shareholders equity
Common stock, par value $0.01 a share
authorized: 4,000,000,000 shares issued: 09/30/04 and 12/31/03 1,972,643,007 shares	20		20
Capital surplus	5,868		5,851
Retained earnings	16,260		14,508
Less cost of common stock in treasury:
09/30/04 101,801,460 shares; 12/31/03
49,722,856 shares	(2,710	)	(1,205	)
Other comprehensive income	162		68
Total shareholders equity	19,600		19,242
Total liabilities and shareholders equity	$ 192,844	$	189,471

See Notes to Consolidated Financial Statements.

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U.S. Bancorp

link1 "Consolidated Statement of Income"

Consolidated Statement of Income

	Three Months Ended
	September 30,		September 30,
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)	2004	2003	2004		2003
Interest Income
Loans	$ 1,802.8	$ 1,818.3	$	5,289.8	$	5,476.0
Loans held for sale	21.1	59.5		68.3		170.9
Investment securities
Taxable	448.8	403.6		1,351.5		1,222.1
Non-taxable	4.4	6.7		14.4		23.1
Other interest income	25.7	23.2		73.1		78.2
Total interest income	2,302.8	2,311.3		6,797.1		6,970.3
Interest Expense
Deposits	221.4	256.4		653.7		851.5
Short-term borrowings	74.5	44.9		183.3		123.3
Long-term debt	205.3	167.9		566.0		536.2
Junior subordinated debentures	27.0	23.6		75.3		79.5
Total interest expense	528.2	492.8		1,478.3		1,590.5
Net interest income	1,774.6	1,818.5		5,318.8		5,379.8
Provision for credit losses	165.1	310.0		604.6		968.0
Net interest income after provision for credit
losses	1,609.5	1,508.5		4,714.2		4,411.8
Noninterest Income
Credit and debit card revenue	164.3	137.6		464.9		407.3
Corporate payment products revenue	108.5	95.7		306.0		272.6
ATM processing services	45.2	41.3		132.3		125.6
Merchant processing services	187.5	146.3		493.7		415.4
Trust and investment management fees	240.2	239.8		740.5		707.3
Deposit service charges	207.4	187.0		594.7		529.2
Treasury management fees	117.9	126.2		356.9		350.0
Commercial products revenue	106.7	97.8		324.5		302.0
Mortgage banking revenue	97.2	89.5		301.3		275.2
Investment products fees and commissions	37.1	35.5		118.6		108.7
Securities gains (losses), net	87.3	(108.9	)	(84.4	)	244.9
Other	124.7	89.6		335.0		278.2
Total noninterest income	1,524.0	1,177.4		4,084.0		4,016.4
Noninterest Expense
Compensation	564.6	543.8		1,673.0		1,637.4
Employee benefits	100.0	75.8		291.4		247.1
Net occupancy and equipment	159.2	161.3		468.3		482.1
Professional services	37.2	39.9		104.3		99.2
Marketing and business development	60.6	48.6		144.6		129.5
Technology and communications	109.8	102.1		313.9		311.1
Postage, printing and supplies	61.4	61.6		183.5		183.8
Other intangibles	210.2	10.8		388.7		558.2
Merger and restructuring-related charges		10.2				38.6
Other	216.0	199.2		638.8		567.5
Total noninterest expense	1,519.0	1,253.3		4,206.5		4,254.5
Income from continuing operations before income
taxes	1,614.5	1,432.6		4,591.7		4,173.7
Applicable income taxes	549.0	491.9		1,480.9		1,433.9
Income from continuing operations	1,065.5	940.7		3,110.8		2,739.8
Income from discontinued operations (after-tax)		10.2				15.8
Net income	$ 1,065.5	$ 950.9	$	3,110.8	$	2,755.6
Earnings Per Share
Income from continuing operations	$ .57	$ .49	$	1.64	$	1.43
Discontinued operations
Net income	$ .57	$ .49	$	1.64	$	1.43
Diluted Earnings Per Share
Income from continuing operations	$ .56	$ .48	$	1.62	$	1.42
Discontinued operations		.01				.01
Net income	$ .56	$ .49	$	1.62	$	1.43
Dividends declared per share	$ .240	$ .205	$	.720	$	.615
Average common shares outstanding	1,877.0	1,926.0		1,894.6		1,922.4
Average diluted common shares outstanding	1,903.7	1,939.8		1,919.4		1,932.4

See Notes to Consolidated Financial Statements.

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U.S. Bancorp

link1 "Consolidated Statement of Shareholders’ Equity"

Consolidated Statement of Shareholders Equity

(Dollars in Millions)	Common Shares	Common	Capital	Retained	Treasury	Comprehensive		Shareholders
(Unaudited)	Outstanding	Stock	Surplus	Earnings	Stock	Income		Equity
Balance December 31, 2002	1,916,956,560	$20	$ 5,799	$ 13,105	$ (1,272	)	$784	$	18,436
Net income				2,756					2,756
Unrealized loss on securities available for sale							(521	)	(521	)
Unrealized loss on derivatives							(273	)	(273	)
Foreign currency translation adjustment							17		17
Realized gain on derivatives							199		199
Reclassification adjustment for gains realized in
net income							(279	)	(279	)
Income taxes							325		325
Total
comprehensive income									2,224
Cash dividends declared on common stock				(1,184	)				(1,184	)
Issuance of common and treasury stock	11,195,691		(52	)	258				206
Stock option and restricted stock grants			114						114
Shares reserved to meet deferred
compensation obligations	(755,215	)	(8	)	(17	)			(25	)
Balance September 30, 2003	1,927,397,036	$20	$ 5,853	$ 14,677	$ (1,031	)	$252	$	19,771
Balance December 31, 2003	1,922,920,151	$20	$ 5,851	$ 14,508	$ (1,205	)	$68	$	19,242
Net income				3,111					3,111
Unrealized gain on securities available for sale							82		82
Unrealized gain on derivatives							32		32
Foreign currency translation adjustment							(14	)	(14	)
Realized gain on derivatives							17		17
Reclassification adjustment for losses realized
in net income							35		35
Income taxes							(58	)	(58	)
Total
comprehensive income									3,205
Cash dividends declared on common stock				(1,359	)				(1,359	)
Issuance of common and treasury stock	22,812,988		(73	)	583				510
Purchase of treasury stock	(74,067,318	)			(2,066	)			(2,066	)
Stock option and restricted stock grants			73						73
Shares reserved to meet deferred
compensation obligations	(824,274	)	17		(22	)			(5	)
Balance September 30, 2004	1,870,841,547	$20	$ 5,868	$ 16,260	$ (2,710	)	$162	$	19,600

See Notes to Consolidated Financial Statements.

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U.S. Bancorp

link1 "Consolidated Statement of Cash Flows"

Consolidated Statement of Cash Flows

	Nine Months Ended
	September 30,
(Dollars in Millions)
(Unaudited)	2004	2003
Operating Activities
Net cash provided by (used in) operating
activities	$ 4,257.3	$	4,534.9
Investing Activities
Proceeds from sales of available-for-sale
investment securities	5,559.2		17,097.6
Proceeds from maturities of investment securities	9,322.8		15,873.1
Purchases of investment securities	(12,497.2	)	(40,018.8	)
Net (increase) decrease in loans outstanding	(6,545.3	)	(5,674.4	)
Proceeds from sales of loans	1,284.4		1,715.5
Purchases of loans	(1,800.4	)	(554.5	)
Proceeds from sales of premises and equipment	43.1		33.2
Purchases of premises and equipment	(129.3	)	(603.8	)
Acquisitions, net of cash acquired	(301.6	)
Other, net	(331.2	)	(192.9	)
Net cash provided by (used in) investing
activities	(5,395.5	)	(12,325.0	)
Financing Activities
Net increase (decrease) in deposits	(3,485.2	)	(490.9	)
Net increase (decrease) in short-term
borrowings	1,798.0		5,057.3
Principal payments on long-term debt	(7,458.3	)	(5,362.0	)
Proceeds from issuance of long-term debt	11,674.4		8,449.5
Redemption of Company-obligated mandatorily
redeemable preferred securities			(350.0	)
Proceeds from issuance of common stock	443.6		179.0
Repurchase of common stock	(2,115.0	)
Cash dividends paid	(1,371.2	)	(1,161.7	)
Net cash provided by (used in) financing
activities	(513.7	)	6,321.2
Change in cash and cash equivalents	(1,651.9	)	(1,468.9	)
Cash and cash equivalents at beginning of period	8,782.2		11,192.1
Cash and cash equivalents at end of period	$ 7,130.3	$	9,723.2

See Notes to Consolidated Financial Statements.

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link1 "Notes to Consolidated Financial Statements"

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the Company), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. For further information, refer to the consolidated financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2003. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Accounting policies for the lines of business are generally the same as those used in preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Table 12 Line of Business Financial Performance provides details of segment results. This information is incorporated by reference into these Notes to Consolidated Financial Statements.

Note 2 Accounting Changes

Loan Commitments On March 9, 2004, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin No. 105 (SAB 105), Application of Accounting Principles to Loan Commitments, which provides guidance regarding loan commitments accounted for as derivative instruments and is effective for commitments entered into after March 31, 2004. The guidance clarifies that expected future cash flows related to the servicing of the loan may be recognized only when the servicing asset has been contractually separated from the underlying loan by sale with servicing retained. The adoption of SAB 105 did not have a material impact on the Companys financial statements.

Note 3 Discontinued Operations

On December 31, 2003, the Company completed the distribution of all of the outstanding shares of common stock of Piper Jaffray Companies to its shareholders. This non-cash distribution was tax-free to the Company, its shareholders and Piper Jaffray Companies. In connection with the December 31, 2003, distribution, the results of Piper Jaffray Companies for 2003 are reported in the Companys Consolidated Statement of Income separately as discontinued operations.

The following table represents the condensed results of operations for discontinued operations for the third quarter and first nine months of 2003:

	Three Months Ended	Nine Months Ended
(Dollars in Millions)	September 30, 2003	September 30, 2003
Revenue	$ 210.6	$584.9
Noninterest expense	188.2	552.2
Income from discontinued operations	22.4	32.7
Costs of disposal	5.3	7.4
Income taxes	6.9	9.5
Discontinued operations, net of tax	$ 10.2	$ 15.8

Following the distribution, the Companys wholly-owned subsidiary, USB Holdings, Inc. holds a $180 million subordinated debt facility with Piper Jaffray & Co., a broker-dealer subsidiary of Piper Jaffray Companies. In addition, the Company provides an indemnification in an amount up to $17.5 million with respect to certain specified liabilities primarily resulting from third-party claims relating to research analyst independence and from certain regulatory investigations, as defined in the separation and distribution agreement entered into with Piper

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Jaffray Companies at the time of the distribution. Through September 30, 2004, the Company has paid approximately $2.8 million to Piper Jaffray Companies under this indemnification agreement.

Note 4 Investment Securities

The detail of the amortized cost, gross unrealized holding gains and losses, and fair value of held-to-maturity and available-for-sale securities was as follows:

	September 30, 2004					December 31, 2003
		Gross	Gross				Gross	Gross
		Unrealized	Unrealized				Unrealized	Unrealized
	Amortized	Holding	Holding		Fair	Amortized	Holding	Holding		Fair
(Dollars in Millions)	Cost	Gains	Losses		Value	Cost	Gains	Losses		Value
Held-to-maturity (a)
Mortgage-backed securities	$ 12	$	$		$ 12	$ 14	$	$		$ 14
Obligations of state and political subdivisions	108	9	(3	)	114	138	11	(2	)	147
Total held-to-maturity securities	$ 120	$ 9	$ (3	)	$ 126	$ 152	$ 11	$ (2	)	$ 161
Available-for-sale (b)
U.S. Treasury and agencies	$ 1,603	$ 7	$ (44	)	$ 1,566	$ 1,634	$ 10	$ (69	)	$ 1,575
Mortgage-backed securities	36,756	145	(205	)	36,696	40,229	203	(407	)	40,025
Asset-backed securities	84	1			85	250	5	(3	)	252
Obligations of state and political subdivisions	248	8			256	335	13			348
Other securities and investments	935	9	(13	)	931	993	9	(20	)	982
Total available-for-sale securities	$ 39,626	$ 170	$ (262	)	$ 39,534	$ 43,441	$ 240	$ (499	)	$ 43,182

| (a) | Held-to-maturity securities are carried at
historical cost adjusted for amortization of premiums and
accretion of discounts. |
| --- | --- |
| (b) | Available-for-sale securities are carried at
fair value with unrealized net gains or losses reported within
other comprehensive income in shareholders
equity. |

The fair value of available-for-sale securities shown above includes securities totaling $6.8 billion with unrealized losses of $173.0 million which have been in an unrealized loss position for greater than 12 months. All principal and interest payments on available-for-sale debt securities in an unrealized loss position for greater than 12 months are expected to be collected given the high credit quality of the U.S. government agency debt securities and bank holding company issuers and the Companys ability and intent to hold the securities until such time as the value recovers or maturity. All other available-for-sale securities with unrealized losses have an aggregate fair value of $14.0 billion and have been in an unrealized loss position for less than 12 months and represent both fixed-rate securities and floating-rate securities containing caps with temporary impairment resulting from increases in interest rates since the purchase of the securities.

The weighted average maturity of the available-for-sale investment securities was 5.32 years at September 30, 2004, compared with 5.12 years at December 31, 2003. The corresponding weighted average yields were 4.29% and 4.27%, respectively. The weighted average maturity of the held-to-maturity investment securities was 7.00 years at September 30, 2004, compared with 6.16 years at December 31, 2003.

Securities carried at $27.8 billion at September 30, 2004, and $31.0 billion at December 31, 2003, were pledged to secure public, private and trust deposits and for other purposes required by law. Securities sold under agreements to repurchase were collateralized by securities and securities purchased under agreements to resell with an amortized cost of $4.0 billion and $3.6 billion at September 30, 2004 and December 31, 2003, respectively.

The following table provides information as to the amount of gross gains and losses realized through the sales of available-for-sale investment securities:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in Millions)	2004	2003			2004		2003
Realized gains	$ 87.8	$	.4		$ 89.1		$ 362.7
Realized losses	(.5	)	(109.3	)	(173.5	)	(117.8	)
Net realized gains (losses)	$ 87.3	$	(108.9	)	$ (84.4	)	$ 244.9
Income tax (benefit) on realized gains
(losses)	$ 33.2	$	(41.4	)	$ (32.1	)	$ 93.1

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For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale securities outstanding at September 30, 2004, refer to Table 5 included in Managements Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

Note 5 Loans

The composition of the loan portfolio was as follows:

	September 30, 2004	Percent	December 31, 2003	Percent
(Dollars in Millions)	Amount	of Total	Amount	of Total
Commercial
Commercial	$ 35,286	28.3 %	$ 33,536	28.4 %
Lease financing	4,865	3.9	4,990	4.2
Total commercial	40,151	32.2	38,526	32.6
Commercial real estate
Commercial mortgages	20,232	16.2	20,624	17.4
Construction and development	7,182	5.7	6,618	5.6
Total commercial real estate	27,414	21.9	27,242	23.0
Residential mortgages
Residential mortgages	8,955	7.2	7,332	6.2
Home equity loans, first liens	5,786	4.6	6,125	5.2
Total residential mortgages	14,741	11.8	13,457	11.4
Retail
Credit card	6,216	5.0	5,933	5.0
Retail leasing	7,004	5.6	6,029	5.1
Home equity and second mortgages	14,548	11.7	13,210	11.2
Other retail
Revolving credit	2,555	2.1	2,540	2.1
Installment	2,790	2.2	2,380	2.0
Automobile	7,481	6.0	7,165	6.1
Student	1,926	1.5	1,753	1.5
Total other retail	14,752	11.8	13,838	11.7
Total retail	42,520	34.1	39,010	33.0
Total loans	$ 124,826	100.0 %	$ 118,235	100.0 %

Loans are presented net of unearned interest and deferred fees and costs, which amounted to $1.4 billion and $1.5 billion at September 30, 2004, and December 31, 2003, respectively.

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.

Note 6 Mortgage Servicing Rights

The Companys portfolio of residential mortgages serviced for others was $63.2 billion and $53.9 billion at September 30, 2004, and December 31, 2003, respectively.

The net carrying value of capitalized mortgage servicing rights was as follows:

(Dollars in Millions)	September 30, — 2004	2003
Initial carrying value, net of amortization	$ 1,021	$	830
Impairment valuation allowance	(156	)	(160	)
Net carrying value	$ 865	$	670

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Changes in capitalized mortgage servicing rights are summarized as follows:

(Dollars in Millions)	Nine Months Ended — September 30, 2004	December 31, 2003
Balance at beginning of period	$670	$	642
Rights purchased	143		55
Rights capitalized	217		338
Amortization	(140	)	(156	)
Rights sold
Impairment (a)	(25	)	(209	)
Balance at end of period	$865	$	670

(a) Mortgage servicing rights impairment of $86.7 million and reparation of $108.5 million were recognized during the third quarter of 2004 and 2003, respectively.

The key economic assumptions used to estimate the value of the mortgage servicing rights portfolio were as follows:

	September 30,	December 31,
(Dollars in Millions)	2004	2003
Fair value	$869	$670
Expected weighted-average life (in years)	5.7	5.2
Discount rate	9.5%	9.9%

The estimated sensitivity of the fair value of the mortgage servicing rights portfolio to changes in interest rates at September 30, 2004, was as follows:

(Dollars in Millions)	Down Scenario — 50 bps		25 bps	25 bps		50 bps
Fair value	$ (239	)	$ (115	)	$99	$ 172

The fair value of mortgage servicing rights and its sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. In the current interest rate environment, mortgage loans originated as part of government agency and state loan programs tend to experience slower prepayment speeds and better cash flows than conventional mortgage loans. The Companys servicing portfolio consists of the distinct portfolios of Mortgage Revenue Bond Programs (MRBP), government-related mortgages and conventional mortgages. The MRBP division specializes in servicing loans made under state and local housing authority programs. These programs provide mortgages to low and moderate income borrowers and are generally under government insured programs with down payment or closing cost assistance. The conventional and government servicing portfolios are predominantly comprised of fixed-rate agency loans (FNMA, FHLMC, GNMA, FHLB and various housing agencies) with limited adjustable-rate or jumbo mortgage loans.

A summary of the Companys mortgage servicing rights and related characteristics by portfolio as of September 30, 2004, was as follows:

(Dollars in Millions)	MRBP	Government	Conventional	Total
Servicing portfolio	$ 7,503	$ 8,805	$ 46,900	$ 63,208
Fair market value	$ 115	$ 135	$ 619	$ 869
Value (bps)	153	153	132	137
Weighted-average servicing fees (bps)	43	46	33	36
Multiple (value/servicing fees)	3.56	3.33	4.00	3.81
Weighted-average note rate	6.30 %	6.06 %	5.71 %	5.83 %
Age (in years)	3.6	2.3	1.4	1.8
Expected life (in years)	6.0	5.4	5.7	5.7
Discount rate	10.0 %	10.9 %	9.1 %	9.5 %

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Note 7 Intangible Assets

The following table reflects the changes in the carrying value of goodwill for the nine months ended September 30, 2004:

	Wholesale	Consumer	Private Client, — Trust and Asset	Payment	Consolidated
(Dollars in Millions)	Banking	Banking	Management	Services	Company
Balance at December 31, 2003	$ 1,225	$ 2,242	$ 742	$ 1,816	$6,025
Goodwill acquired			103	97	200
Other (a)				1	1
Balance at September 30, 2004	$ 1,225	$ 2,242	$ 845	$ 1,914	$6,226

(a) Other changes in goodwill include foreign exchange effects on non-dollar-denominated goodwill.

Intangible assets consisted of the following:

	Estimated	Amortization	September 30,	December 31,
(Dollars in Millions)	Life (a)	Method (b)	2004	2003
Goodwill			$ 6,226	$6,025
Merchant processing contracts	8 years	AC	713	552
Core deposit benefits	10 years/6 years	SL/AC	356	417
Mortgage servicing rights	6 years	AC	865	670
Trust relationships	15 years/9 years	SL/AC	309	311
Other identified intangibles	8 years/9 years	SL/AC	176	174
Total			$ 8,645	$8,149

| (a) | Estimated life represents the amortization
period for assets subject to the straight line method and the
weighted-average amortization period for intangibles subject to
accelerated methods. If more than one amortization method is
used for a category, the estimated life for each method is
calculated and reported separately. |
| --- | --- |
| (b) | Amortization methods: SL = straight
line method AC = accelerated
methods generally based on cash flows |

Aggregate amortization and impairment expense consisted of the following:

	Three Months Ended
	September 30,		September 30,
(Dollars in Millions)	2004	2003	2004		2003
Merchant processing contracts	$ 32.3	$ 33.4	$	92.5	$ 98.1
Core deposit benefits	19.8	22.0		61.0	66.2
Mortgage servicing rights (a)	133.5	(68.8	)	164.4	321.4
Trust relationships	12.9	13.3		36.6	39.9
Other identified intangibles	11.7	10.9		34.2	32.6
Total	$ 210.2	$ 10.8	$	388.7	$ 558.2

(a) Includes mortgage servicing rights impairment of $86.7 million and reparation of $108.5 million for the three months ended September 30, 2004 and 2003, respectively, and impairment of $24.9 million and $208.7 million for the nine months ended September 30, 2004 and 2003, respectively.

Below is the estimated amortization expense for the years ending:

2004	$ 124.8
2005	446.2
2006	375.4
2007	322.3
2008	264.1

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Note 8 Junior Subordinated Debentures Issued to Unconsolidated Subsidiary Trusts

The following table is a summary of the debt obligations relating to unconsolidated subsidiary trusts holding junior subordinated debentures of the Company as of September 30, 2004:

		Trust
		Preferred					Earliest
	Issuance	Securities	Debentures	Rate			Redemption
Issuance Trust (Dollars in Millions)	Date	Amount	Amount (a)	Type (b)	Rate	Maturity Date	Date
Retail
USB Capital V	December 2001	$ 300	$ 309	Fixed	7.25 %	December 2031	December 7, 2006
USB Capital IV	November 2001	500	515	Fixed	7.35	November 2031	November 1, 2006
USB Capital III	May 2001	700	722	Fixed	7.75	May 2031	May 4, 2006
Institutional
Star Capital I	June 1997	150	155	Variable	2.65	June 2027	June 15, 2007
Mercantile Capital Trust I	February 1997	150	155	Variable	2.54	February 2027	February 1, 2007
USB Capital I	December 1996	300	309	Fixed	8.27	December 2026	December 15, 2006
Firstar Capital Trust I	December 1996	150	155	Fixed	8.32	December 2026	December 15, 2006
FBS Capital I	November 1996	300	309	Fixed	8.09	November 2026	November 15, 2006

| (a) | Junior subordinated debentures issued to
unconsolidated subsidiary trusts that are designated in fair
value hedges at September 30, 2004, are recorded on the
balance sheet at fair value. Carrying value includes a fair
value adjustment of $50 million related to hedges on
certain junior subordinated debentures, as well as prepaid
issuance fees of $(3) million. |
| --- | --- |
| (b) | The variable-rate Trust Preferred Securities
and Debentures reprice quarterly based on three-month
LIBOR. |

Note 9 Shareholders Equity

At September 30, 2004, and December 31, 2003, the Company had authority to issue 4 billion shares of common stock and 10 million shares of preferred stock. The Company had 1,870.8 million and 1,922.9 million shares of common stock outstanding at September 30, 2004, and December 31, 2003, respectively.

On December 18, 2001, the Board of Directors approved an authorization to repurchase 100 million shares of outstanding common stock throughout 2003. In 2003, the Company repurchased 7.0 million shares of common stock under the plan, which expired in December of 2003. On December 16, 2003, the Board of Directors approved an authorization to repurchase 150 million shares of common stock during the following 24 months. The Company purchased 19.5 million and 74.1 million shares under the December 2003 plan in the third quarter and first nine months of 2004, respectively. As of September 30, 2004, there were approximately 68 million shares remaining to be repurchased under the current authorization.

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Note 10 Earnings Per Share

The components of earnings per share were:

	Three Months Ended — September 30,		Nine Months Ended — September 30,
(Dollars and Shares in Millions, Except Per Share Data)	2004	2003	2004	2003
Income from continuing operations	$ 1,065.5	$ 940.7	$ 3,110.8	$ 2,739.8
Income from discontinued operations (after-tax)		10.2		15.8
Net income	$ 1,065.5	$ 950.9	$ 3,110.8	$ 2,755.6
Average common shares outstanding	1,877.0	1,926.0	1,894.6	1,922.4
Net effect of the assumed purchase of stock based
on the treasury stock method for options and stock plans	26.7	13.8	24.8	10.0
Average diluted common shares outstanding	1,903.7	1,939.8	1,919.4	1,932.4
Earnings per share
Income from continuing operations	$ .57	$ .49	$ 1.64	$ 1.43
Discontinued operations
Net income	$ .57	$ .49	$ 1.64	$ 1.43
Diluted earnings per share
Income from continuing operations	$ .56	$ .48	$ 1.62	$ 1.42
Discontinued operations		.01		.01
Net income	$ .56	$ .49	$ 1.62	$ 1.43

For the three months ended September 30, 2004 and 2003, options to purchase 29 million and 56 million shares, respectively, and 38 million and 92 million shares for the nine months ended 2004 and 2003, respectively, were outstanding but not included in the computation of diluted earnings per share because they were antidilutive.

Note 11 Employee Benefits

Retirement Plans The following table sets forth the components of net periodic benefit cost (income) for the retirement plans:

	Three Months Ended
	September 30, 2004			September 30, 2004
		Post-				Post-
		Retirement				Retirement
	Pension	Medical		Pension		Medical
(Dollars in Millions)	Plans	Plans		Plans		Plans
Components of net periodic benefit cost (income)
Service cost	$ 14.7	$	1.0	$	44.0	$	2.9
Interest cost	27.6		4.1		81.3		13.7
Expected return on plan assets	(50.7	)	(.3	)	(152.3	)	(1.0	)
Net amortization and deferral	(1.5	)			(4.7	)	(.1	)
Recognized actuarial loss	17.9		.3		33.0		2.1
Net periodic benefit cost (income)	$ 8.0	$	5.1	$	1.3	$	17.6

The information for the components of the net periodic benefit cost (income) for the three and nine months ended September 30, 2003, was not readily available.

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Note 12 Income Taxes

The components of income tax expense were:

	Three Months Ended — September 30,		Nine Months Ended — September 30,
(Dollars in Millions)	2004	2003	2004	2003
Federal
Current	$ 430.4	$ 380.9	$ 1,126.5	$ 1,121.3
Deferred	63.0	57.2	196.3	165.6
Federal income tax	493.4	438.1	1,322.8	1,286.9
State
Current	43.4	40.4	121.5	107.0
Deferred	12.2	13.4	36.6	40.0
State income tax	55.6	53.8	158.1	147.0
Total income tax provision	$ 549.0	$ 491.9	$ 1,480.9	$ 1,433.9

A reconciliation of expected income tax expense at the federal statutory rate of 35% to the Companys applicable income tax expense follows:

	Three Months Ended
	September 30,			September 30,
(Dollars in Millions)	2004	2003		2004		2003
Tax at statutory rate (35%)	$ 565.1	$	501.4	$	1,607.1	$	1,460.8
State income tax, at statutory rates, net of
federal tax benefit	36.2		36.6		102.8		98.7
Tax effect of
Resolution of federal income tax examinations					(90.0	)
Tax credits	(35.7	)	(27.1	)	(98.8	)	(80.9	)
Tax-exempt interest, net	(5.3	)	(6.3	)	(16.2	)	(17.3	)
Other items	(11.3	)	(12.7	)	(24.0	)	(27.4	)
Applicable income taxes	$ 549.0	$	491.9	$	1,480.9	$	1,433.9

Included in the first quarter of 2004 was a reduction in income tax expense related to the resolution of federal income tax examinations covering substantially all of the Companys legal entities for the years 1995 through 1999. The resolution of these cycles was the result of a series of negotiations held between the Company and representatives of the Internal Revenue Service at both the examination and appellate levels. The resolution of these matters and the taxing authorities acceptance of submitted claims and tax return adjustments resulted in the reduction of estimated income tax liabilities.

The Companys net deferred tax liability was $1,953.8 million at September 30, 2004, and $1,556.4 million at December 31, 2003.

Note 13 Guarantees and Contingent Liabilities

COMMITMENTS TO EXTEND CREDIT

Commitments to extend credit are legally binding and generally have fixed expiration dates or other termination clauses. The contractual amount represents the Companys exposure to credit loss, in the event of default by the borrower. The Company manages this credit risk by using the same credit policies it applies to loans. Collateral is obtained to secure commitments based on managements credit assessment of the borrower. The collateral may include marketable securities, receivables, inventory, equipment and real estate. Since the Company expects many of the commitments to expire without being drawn, total commitment amounts do not necessarily represent the Companys future liquidity requirements. In addition, the commitments include consumer credit lines that are cancelable upon notification to the consumer.

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LETTERS OF CREDIT

Standby letters of credit are commitments the Company issues to guarantee the performance of a customer to a third-party. The guarantees frequently support public and private borrowing arrangements, including commercial paper issuances, bond financings and other similar transactions. The Company issues commercial letters of credit on behalf of customers to ensure payment or collection in connection with trade transactions. In the event of a customers nonperformance, the Companys credit loss exposure is the same as in any extension of credit, up to the letters contractual amount. Management assesses the borrowers credit to determine the necessary collateral, which may include marketable securities, receivables, inventory, equipment and real estate. Since the conditions requiring the Company to fund letters of credit may not occur, the Company expects its liquidity requirements to be less than the total outstanding commitments. The maximum potential future payments guaranteed by the Company under standby letter of credit arrangements at September 30, 2004, were approximately $10.3 billion with a weighted- average term of approximately 23 months. The estimated fair value of standby letters of credit was approximately $72.7 million at September 30, 2004.

GUARANTEES

Guarantees are contingent commitments issued by the Company to customers or other third-parties. The Companys guarantees primarily include parent guarantees related to subsidiaries third-party borrowing arrangements; third-party performance guarantees inherent in the Companys business operations such as indemnified securities lending programs and merchant charge-back guarantees; indemnification or buy-back provisions related to certain asset sales; and contingent consideration arrangements related to acquisitions. For certain guarantees, the Company has recorded a liability related to the potential obligation, or has access to collateral to support the guarantee or through the exercise of other recourse provisions can offset some or all of the maximum potential future payments made under these guarantees. The estimated fair value of guarantees, other than standby letters of credit, was approximately $133 million at September 30, 2004.

Third-Party Borrowing Arrangements The Company provides guarantees to third-parties as a part of certain subsidiaries borrowing arrangements, primarily representing guaranteed operating or capital lease payments or other debt obligations with maturity dates extending through 2007. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $1.4 billion at September 30, 2004. The Companys recorded liabilities as of September 30, 2004, included $33.0 million representing outstanding amounts owed to these third-parties and required to be recorded on the Companys balance sheet in accordance with accounting principles generally accepted in the United States.

Commitments from Securities Lending The Company participates in securities lending activities by acting as the customers agent involving the loan or sale of securities. The Company indemnifies customers for the difference between the market value of the securities lent and the market value of the collateral received. Cash collateralizes these transactions. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $17.3 billion at September 30, 2004, and represented the market value of the securities lent to third-parties. At September 30, 2004, the Company held assets with a market value of $17.9 billion as collateral for these arrangements.

Asset Sales The Company has provided guarantees to certain third-parties in connection with the sale of certain assets, primarily loan portfolios and low-income housing tax credits. These guarantees are generally in the form of asset buy-back or make-whole provisions that are triggered upon a credit event or a change in the tax-qualifying status of the related projects, as applicable, and remain in effect until the loans are collected or final tax credits are realized, respectively. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $554.4 million at September 30, 2004, and represented the total proceeds received from the buyer in these transactions where the buy-back or make-whole provisions have not yet expired. Recourse available to the Company includes guarantees from the Small Business Administration (for SBA loans sold), recourse against the correspondent that originated the loan or to the private mortgage issuer, the right to collect payments from the debtors, and/or the right to liquidate the underlying collateral, if any, and retain the proceeds. Based on its established loan-to-value guidelines, the Company believes the recourse available is sufficient to recover future payments, if any, under the loan buy-back guarantees.

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Merchant Processing The Company, through its subsidiaries NOVA Information Systems, Inc. and NOVA European Holdings Company, provides merchant processing services. Under the rules of credit card associations, a merchant processor retains a contingent liability for credit card transactions processed. This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholders favor. In this situation, the transaction is charged back to the merchant and the disputed amount is credited or otherwise refunded to the cardholder. If the Company is unable to collect this amount from the merchant, it bears the loss for the amount of the refund paid to the cardholder.

A cardholder, through its issuing bank, generally has until the latter of up to four months after the date the transaction is processed or the receipt of the product or service to present a charge-back to the Company as the merchant processor. The absolute maximum potential liability is estimated to be the total volume of credit card transactions that meet the associations requirements to be valid charge-back transactions at any given time. Management estimates that the maximum potential exposure for charge-backs would approximate the total amount of merchant transactions processed through the credit card associations for the last four months. For the last four months this amount totaled approximately $51.8 billion. In most cases, this contingent liability is unlikely to arise, as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. However, where the product or service is not provided until a future date (future delivery), the potential for this contingent liability increases. To mitigate this risk, the Company may require the merchant to make an escrow deposit, may place maximum volume limitations on future delivery transactions processed by the merchant at any point in time, or may require various credit policy enhancements (including letters of credit and bank guarantees). Also, merchant processing contracts may include event triggers to provide the Company more financial and operational control in the event of financial deterioration of the merchant. At September 30, 2004, the Company held $40.5 million of merchant escrow deposits as collateral.

The Company currently processes card transactions for several of the largest airlines in the United States. In the event of liquidation of these airlines, the Company could become financially liable for refunding tickets purchased through the credit card associations under the charge-back provisions. Charge-back risk related to an airline is evaluated in a manner similar to credit risk assessments and merchant processing contracts consider the potential risk of default. At September 30, 2004, the value of future delivery airline tickets purchased was approximately $2.0 billion, and the Company held collateral of $243.2 million in escrow deposits and lines of credit related to airline customer transactions.

In the normal course of business, the Company has unresolved charge-backs that are in process of resolution. The Company assesses the likelihood of its potential liability based on the extent and nature of unresolved charge-backs and its historical loss experience. At September 30, 2004, the Company had a recorded liability for estimated losses of $32.4 million. In addition, the Company had a $58.2 million liability for guaranty obligations associated with its airline processing business.

Other Guarantees The Company provides liquidity and credit enhancement facilities to a Company-sponsored conduit, as more fully described in the Off-Balance Sheet Arrangements section within Managements Discussion and Analysis. Although management believes a draw against these facilities is remote, the maximum potential future payments guaranteed by the Company under these arrangements were approximately $6.1 billion at September 30, 2004. The recorded fair value of the Companys liability for the credit enhancement recourse obligation and liquidity facilities was $35.3 million at September 30, 2004, and was included in other liabilities.

The Company guarantees payments to certain certificate holders of Company-sponsored investment trusts with varying termination dates extending through December 2004. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $31.9 million at September 30, 2004. At September 30, 2004, the Company had a recorded liability of $31.9 million, held $15.2 million in cash collateral and had other contractual sources of recourse available to it, including guarantees from third-parties and the underlying assets held by the investment trusts.

OTHER CONTINGENT LIABILITIES

In connection with the spin-off of Piper Jaffray Companies, the Company has agreed to indemnify Piper Jaffray Companies against losses that may result from third-party claims relating to certain specified matters. The Companys indemnification obligation related to these specified matters is capped at $17.5 million and can be terminated by the Company if there is a change in control event for Piper Jaffray Companies. Through

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September 30, 2004, the Company has paid approximately $2.8 million to Piper Jaffray Companies under this agreement.

The Company is subject to various other litigation, investigations and legal and administrative cases and proceedings that arise in the ordinary course of its businesses. Due to their complex nature, it may be years before some matters are resolved. While it is impossible to ascertain the ultimate resolution or range of financial liability with respect to these contingent matters, the Company believes that the aggregate amount of such liabilities will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

Note 14 Supplemental Disclosures to the Consolidated Financial Statements

Consolidated Statement of Cash Flows Listed below are supplemental disclosures to the Consolidated Statement of Cash Flows:

	Nine Months Ended
	September 30,
(Dollars in Millions)	2004	2003
Acquisitions and divestitures
Assets acquired	$ 413.1	$
Liabilities assumed	(110.6	)
Net	$ 302.5	$

Money Market Investments Money market investments are included with cash and due from banks as part of cash and cash equivalents. Money market investments consisted of the following:

	September 30,	December 31,
(Dollars in Millions)	2004	2003
Interest-bearing deposits	$ 6	$ 4
Federal funds sold	155	109
Securities purchased under agreements to resell		39
Total money market investments	$161	$152

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link1 "Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)"

Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)


	2004			2003
			Yields			Yields	% Change
(Dollars in Millions)	Average		and	Average		and	Average
(Unaudited)	Balances	Interest	Rates	Balances	Interest	Rates	Balances
Assets Taxable
securities $ 42,142 $ 448.8 4.26 % $ 37,221 $ 403.6 4.34 % 13.2 % Non-taxable securities 360 6.4 7.11 556 9.7 7.00 (35.3 ) Loans held for sale 1,405 21.1 6.00 4,460 59.5 5.34 (68.5 ) Loans (b) Commercial 39,317 556.5 5.64 41,980 579.7 5.49 (6.3 ) Commercial real estate 27,194 386.8 5.66 27,397 391.5 5.67 (.7 ) Residential mortgages 14,569 204.5 5.60 12,234 181.5 5.91 19.1 Retail 41,826 660.2 6.28 38,371 669.5 6.92 9.0 Total loans 122,906 1,808.0 5.86 119,982 1,822.2 6.03 2.4 Other earning assets 1,374 25.6 7.45 1,646 23.3 5.60 (16.5 ) Total earning assets 168,187 2,309.9 5.47 163,865 2,318.3 5.63 2.6 Allowance for loan losses (2,287 ) (2,451 ) (6.7 ) Unrealized gain (loss) on available-for-sale
securities (492 ) (544 ) (9.6 ) Other assets (c) 26,177 29,371 (10.9 ) Total assets $ 191,585 $ 190,241 .7 Liabilities and Shareholders
Equity Noninterest-bearing deposits $ 29,791 $ 31,907 (6.6 ) Interest-bearing deposits Interest checking 20,413 16.0 .31 20,148 20.3 .40 1.3 Money market accounts 31,854 53.3 .67 33,980 78.9 .92 (6.3 ) Savings accounts 5,854 3.6 .25 5,846 5.2 .36 .1 Time certificates of deposit less than $100,000 12,869 83.1 2.57 14,824 105.1 2.81 (13.2 ) Time deposits greater than $100,000 14,535 65.4 1.79 11,251 46.9 1.66 29.2 Total interest-bearing deposits 85,525 221.4 1.03 86,049 256.4 1.18 (.6 ) Short-term borrowings 15,382 74.5 1.93 11,850 44.9 1.50 29.8 Long-term debt 32,525 205.3 2.51 31,218 167.9 2.14 4.2 Junior subordinated debentures 2,674 27.0 4.04 2,576 23.6 3.65 3.8 Total interest-bearing liabilities 136,106 528.2 1.55 131,693 492.8 1.49 3.4 Other liabilities (d) 6,301 7,281 (13.5 ) Shareholders equity 19,387 19,360 .1 Total liabilities and shareholders equity $ 191,585 $ 190,241 .7 % Net interest income $ 1,781.7 $ 1,825.5 Gross interest margin 3.92 % 4.14 % Gross interest margin without taxable-equivalent
increments 3.90 4.12 Percent of Earning Assets Interest income 5.47 % 5.63 % Interest expense 1.25 1.20 Net interest margin 4.22 % 4.43 % Net interest margin without taxable-equivalent
increments 4.20 % 4.41 %	Taxable
securities	$ 42,142	$ 448.8	4.26 %	$ 37,221	$ 403.6	4.34 %	13.2 %	Non-taxable securities	360	6.4	7.11	556	9.7	7.00	(35.3	)	Loans held for sale	1,405	21.1	6.00	4,460	59.5	5.34	(68.5	)	Loans (b)	Commercial	39,317	556.5	5.64	41,980	579.7	5.49	(6.3	)	Commercial real estate	27,194	386.8	5.66	27,397	391.5	5.67	(.7	)	Residential mortgages	14,569	204.5	5.60	12,234	181.5	5.91	19.1	Retail	41,826	660.2	6.28	38,371	669.5	6.92	9.0	Total loans	122,906	1,808.0	5.86	119,982	1,822.2	6.03	2.4	Other earning assets	1,374	25.6	7.45	1,646	23.3	5.60	(16.5	)	Total earning assets	168,187	2,309.9	5.47	163,865	2,318.3	5.63	2.6	Allowance for loan losses	(2,287	)	(2,451	)	(6.7	)	Unrealized gain (loss) on available-for-sale
securities	(492	)	(544	)	(9.6	)	Other assets (c)	26,177	29,371	(10.9	)	Total assets	$ 191,585	$ 190,241	.7	Liabilities and Shareholders
Equity	Noninterest-bearing deposits	$ 29,791	$ 31,907	(6.6	)	Interest-bearing deposits	Interest checking	20,413	16.0	.31	20,148	20.3	.40	1.3	Money market accounts	31,854	53.3	.67	33,980	78.9	.92	(6.3	)	Savings accounts	5,854	3.6	.25	5,846	5.2	.36	.1	Time certificates of deposit less than $100,000	12,869	83.1	2.57	14,824	105.1	2.81	(13.2	)	Time deposits greater than $100,000	14,535	65.4	1.79	11,251	46.9	1.66	29.2	Total interest-bearing deposits	85,525	221.4	1.03	86,049	256.4	1.18	(.6	)	Short-term borrowings	15,382	74.5	1.93	11,850	44.9	1.50	29.8	Long-term debt	32,525	205.3	2.51	31,218	167.9	2.14	4.2	Junior subordinated debentures	2,674	27.0	4.04	2,576	23.6	3.65	3.8	Total interest-bearing liabilities	136,106	528.2	1.55	131,693	492.8	1.49	3.4	Other liabilities (d)	6,301	7,281	(13.5	)	Shareholders equity	19,387	19,360	.1	Total liabilities and shareholders equity	$ 191,585	$ 190,241	.7 %	Net interest income	$ 1,781.7	$ 1,825.5	Gross interest margin	3.92 %	4.14 %	Gross interest margin without taxable-equivalent
increments	3.90	4.12	Percent of Earning Assets	Interest income	5.47 %	5.63 %	Interest expense	1.25	1.20	Net interest margin	4.22 %	4.43 %	Net interest margin without taxable-equivalent
increments	4.20 %	4.41 %
Taxable
securities	$ 42,142	$ 448.8	4.26 %	$ 37,221	$ 403.6	4.34 %	13.2	%
Non-taxable securities	360	6.4	7.11	556	9.7	7.00	(35.3	)
Loans held for sale	1,405	21.1	6.00	4,460	59.5	5.34	(68.5	)
Loans (b)
Commercial	39,317	556.5	5.64	41,980	579.7	5.49	(6.3	)
Commercial real estate	27,194	386.8	5.66	27,397	391.5	5.67	(.7	)
Residential mortgages	14,569	204.5	5.60	12,234	181.5	5.91	19.1
Retail	41,826	660.2	6.28	38,371	669.5	6.92	9.0
Total loans	122,906	1,808.0	5.86	119,982	1,822.2	6.03	2.4
Other earning assets	1,374	25.6	7.45	1,646	23.3	5.60	(16.5	)
Total earning assets	168,187	2,309.9	5.47	163,865	2,318.3	5.63	2.6
Allowance for loan losses	(2,287	)		(2,451	)		(6.7	)
Unrealized gain (loss) on available-for-sale
securities	(492	)		(544	)		(9.6	)
Other assets (c)	26,177			29,371			(10.9	)
Total assets	$ 191,585			$ 190,241			.7
Liabilities and Shareholders
Equity
Noninterest-bearing deposits	$ 29,791			$ 31,907			(6.6	)
Interest-bearing deposits
Interest checking	20,413	16.0	.31	20,148	20.3	.40	1.3
Money market accounts	31,854	53.3	.67	33,980	78.9	.92	(6.3	)
Savings accounts	5,854	3.6	.25	5,846	5.2	.36	.1
Time certificates of deposit less than $100,000	12,869	83.1	2.57	14,824	105.1	2.81	(13.2	)
Time deposits greater than $100,000	14,535	65.4	1.79	11,251	46.9	1.66	29.2
Total interest-bearing deposits	85,525	221.4	1.03	86,049	256.4	1.18	(.6	)
Short-term borrowings	15,382	74.5	1.93	11,850	44.9	1.50	29.8
Long-term debt	32,525	205.3	2.51	31,218	167.9	2.14	4.2
Junior subordinated debentures	2,674	27.0	4.04	2,576	23.6	3.65	3.8
Total interest-bearing liabilities	136,106	528.2	1.55	131,693	492.8	1.49	3.4
Other liabilities (d)	6,301			7,281			(13.5	)
Shareholders equity	19,387			19,360			.1
Total liabilities and shareholders equity	$ 191,585			$ 190,241			.7	%
Net interest income		$ 1,781.7			$ 1,825.5
Gross interest margin			3.92 %			4.14 %
Gross interest margin without taxable-equivalent
increments			3.90			4.12
Percent of Earning Assets
Interest income			5.47 %			5.63 %
Interest expense			1.25			1.20
Net interest margin			4.22 %			4.43 %
Net interest margin without taxable-equivalent
increments			4.20 %			4.41 %

| (a) | Interest and rates are presented on a fully
taxable-equivalent basis under a tax rate of
35 percent. |
| --- | --- |
| (b) | Interest income and rates on loans include
loan fees. Nonaccrual loans are included in average loan
balances. |
| (c) | Includes approximately $1,300 million of
earning assets from discontinued operations in third quarter
2003. |
| (d) | Includes approximately $949 million of
interest-bearing liabilities from discontinued operations in
third quarter 2003. |

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U.S. Bancorp

link1 "Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)"

Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)

	For the Nine Months Ended September 30,
	2004			2003
			Yields			Yields	% Change
(Dollars in Millions)	Average		and	Average		and	Average
(Unaudited)	Balances	Interest	Rates	Balances	Interest	Rates	Balances
Assets
Taxable securities	$ 42,848	$ 1,351.5	4.21 %	$ 35,429	$ 1,222.1	4.60 %	20.9	%
Non-taxable securities	395	21.0	7.10	630	33.1	7.00	(37.3	)
Loans held for sale	1,611	68.3	5.65	4,078	170.9	5.59	(60.5	)
Loans (b)
Commercial	39,060	1,644.1	5.62	41,758	1,752.6	5.61	(6.5	)
Commercial real estate	27,140	1,133.5	5.58	27,092	1,192.5	5.89	.2
Residential mortgages	14,079	601.5	5.70	11,131	516.0	6.19	26.5
Retail	40,687	1,925.3	6.32	38,064	2,025.8	7.12	6.9
Total loans	120,966	5,304.4	5.86	118,045	5,486.9	6.21	2.5
Other earning assets	1,362	73.2	7.18	1,650	78.3	6.34	(17.5	)
Total earning assets	167,182	6,818.4	5.44	159,832	6,991.3	5.84	4.6
Allowance for loan losses	(2,335	)		(2,476	)		(5.7	)
Unrealized gain (loss) on available-for-sale
securities	(412	)		250			*
Other assets (c)	26,128			29,409			(11.2	)
Total assets	$ 190,563			$ 187,015			1.9
Liabilities and Shareholders
Equity
Noninterest-bearing deposits	$ 29,807			$ 32,412			(8.0	)
Interest-bearing deposits
Interest checking	20,699	49.3	.32	18,601	64.4	.46	11.3
Money market accounts	33,492	177.5	.71	31,285	238.4	1.02	7.1
Savings accounts	5,896	11.7	.26	5,579	16.5	.40	5.7
Time certificates of deposit less than $100,000	13,168	257.2	2.61	15,936	353.3	2.96	(17.4	)
Time deposits greater than $100,000	13,085	158.0	1.61	12,836	178.9	1.86	1.9
Total interest-bearing deposits	86,340	653.7	1.01	84,237	851.5	1.35	2.5
Short-term borrowings	14,706	183.3	1.67	10,024	123.3	1.64	46.7
Long-term debt	31,605	566.0	2.39	30,999	536.2	2.31	2.0
Junior subordinated debentures	2,649	75.3	3.79	2,738	79.5	3.87	(3.3	)
Total interest-bearing liabilities	135,300	1,478.3	1.46	127,998	1,590.5	1.66	5.7
Other liabilities (d)	6,118			7,403			(17.4	)
Shareholders equity	19,338			19,202			.7
Total liabilities and shareholders equity	$ 190,563			$ 187,015			1.9	%
Net interest income		$ 5,340.1			$ 5,400.8
Gross interest margin			3.98 %			4.18 %
Gross interest margin without taxable-equivalent
increments			3.96			4.16
Percent of Earning Assets
Interest income			5.44 %			5.84 %
Interest expense			1.18			1.33
Net interest margin			4.26 %			4.51 %
Net interest margin without taxable-equivalent
increments			4.24 %			4.49 %

*	Not meaningful
(a)	Interest and rates are presented on a fully
taxable-equivalent basis under a tax rate of
35 percent.
(b)	Interest income and rates on loans include
loan fees. Nonaccrual loans are included in average loan
balances.
(c)	Includes approximately $1,453 million of
earning assets from discontinued operations in 2003.
(d)	Includes approximately $1,045 million of
interest-bearing liabilities from discontinued operations in
2003.

U.S. Bancorp 53

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link1 "Part II -- Other Information"

Part II Other Information

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  Refer to the Capital Management section within Managements Discussion and Analysis in Part I for information regarding shares repurchased by the Company during the third quarter of 2004.

Item 6. Exhibits

| 10.1 | Form of Executive Officer Stock Option Agreement
with cliff and performance vesting under U.S. Bancorp 2001
Stock Incentive Plan. |
| --- | --- |
| 10.2 | Form of Executive Officer Stock Option Agreement
with annual vesting under U.S. Bancorp 2001 Stock Incentive
Plan. |
| 10.3 | Form of Executive Officer Restricted Stock Award
Agreement under U.S. Bancorp 2001 Stock Incentive Plan. |
| 10.4 | Form of Director Stock Option Agreement under
U.S. Bancorp 2001 Stock Incentive Plan. |
| 10.5 | Form of Director Restricted Stock Unit Agreement
under U.S. Bancorp 2001 Stock Incentive Plan. |
| 10.6 | Form of Executive Officer Restricted Stock Unit
Agreement under U.S. Bancorp 2001 Stock Incentive Plan. |
| 10.7 | Restricted Stock Unit Award Agreement with
Jerry A. Grundhofer dated January 2, 2002. |
| 10.8 | Amendment No. 2 of Employment Agreement with
Jerry A. Grundhofer. |
| 12 | Computation of Ratio of Earnings to Fixed Charges. |
| 31.1 | Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| 31.2 | Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| 32 | Certification of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |

54 U.S. Bancorp

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

U.S. BANCORP

By: /s/ TERRANCE R. DOLAN

Terrance R. Dolan
Executive Vice President and Controller
(Chief Accounting Officer and Duly Authorized
Officer)

DATE: November 9, 2004

U.S. Bancorp 55

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EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges

(Dollars in Millions)			Three Months Ended — September 30, 2004	Nine Months Ended — September 30, 2004
Earnings
1.	Net income		$ 1,065.5	$ 3,110.8
2.	Applicable income taxes		549.0	1,480.9
3.	Income before income taxes (1 + 2)		$ 1,614.5	$ 4,591.7
4.	Fixed charges:
	a.	Interest expense excluding interest on deposits	$ 306.8	$ 824.6
	b.	Portion of rents representative of interest and
amortization of debt expense	16.8	51.1
	c.	Fixed charges excluding interest on deposits
(4a + 4b)	323.6	875.7
	d.	Interest on deposits	221.4	653.7
	e.	Fixed charges including interest on deposits
(4c + 4d)	$ 545.0	$ 1,529.4
5.	Amortization of interest capitalized		$	$
6.	Earnings excluding interest on deposits
(3 + 4c + 5)		1,938.1	5,467.4
7.	Earnings including interest on deposits
(3 + 4e + 5)		2,159.5	6,121.1
8.	Fixed charges excluding interest on deposits (4c)		323.6	875.7
9.	Fixed charges including interest on deposits (4e)		545.0	1,529.4
Ratio of Earnings to Fixed Charges
10.	Excluding interest on deposits (line 6/ line 8)		5.99	6.24
11.	Including interest on deposits (line 7/ line 9)		3.96	4.00

56 U.S. Bancorp

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EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Jerry A. Grundhofer, Chief Executive Officer of U.S. Bancorp, a Delaware corporation, certify that:

| (1) | I have reviewed this Quarterly Report on
Form 10-Q of U.S. Bancorp; |
| --- | --- |
| (2) | Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements,
and other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report; |
| (4) | The registrants other certifying officers
and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |

| (a) | designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared; |
| --- | --- |
| (b) | evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |

(c) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

(5) The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

| (a) | all significant deficiencies and material
weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process,
summarize and report financial information; and |
| --- | --- |
| (b) | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting. |

/s/ JERRY A. GRUNDHOFER
Jerry A. Grundhofer
Chief Executive Officer

Dated: November 9, 2004

U.S. Bancorp 57

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EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, David M. Moffett, Chief Financial Officer of U.S. Bancorp, a Delaware corporation, certify that:

/s/ DAVID M. MOFFETT
David M. Moffett
Chief Financial Officer

Dated: November 9, 2004

58 U.S. Bancorp

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EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Chief Executive Officer and Chief Financial Officer of U.S. Bancorp, a Delaware corporation (the Company), do hereby certify that:

| (1) | The Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004 (the
Form 10-Q) of the Company fully complies with
the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
| --- | --- |
| (2) | The information contained in the Form 10-Q
fairly presents, in all material respects, the financial
condition and results of operations of the Company. |

/s/ JERRY A. GRUNDHOFER	/s/ DAVID M. MOFFETT
Jerry A. Grundhofer	David M. Moffett
Chief Executive Officer	Chief Financial Officer

Dated: November 9, 2004

U.S. Bancorp 59

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First Class
U.S. Postage
PAID
Permit No. 2440
Minneapolis, MN

link1 "Corporate Information"

Corporate Information

Executive Offices

U.S. Bancorp

800 Nicollet Mall

Minneapolis, MN 55402

Common Stock Transfer Agent and Registrar

Mellon Investor Services acts as our transfer agent and registrar, dividend paying agent and investor services program administrator, and maintains all shareholder records for the corporation. Inquiries related to shareholder records, stock transfers, changes of ownership, lost stock certificates, changes of address and dividend payment should be directed to the transfer agent at:

Mellon Investor Services

P.O. Box 3315

South Hackensack, NJ 07606-1915

Phone: 888-778-1311 or 201-329-8660

Internet: melloninvestor.com

For Registered or Certified Mail:

Mellon Investor Services

85 Challenger Road

Ridgefield Park, NJ 07660

Telephone representatives are available weekdays from 8:00 a.m. to 6:00 p.m. Central Time, and automated support is available 24 hours a day, 7 days a week. Specific information about your account is available on Mellons Internet site by clicking on the Investor ServiceDirect SM link.

Independent Auditors

Ernst & Young LLP serves as the independent auditors of U.S. Bancorp.

Common Stock Listing and Trading

U.S. Bancorp common stock is listed and traded on the New York Stock Exchange under the ticker symbol USB.

Dividends and Reinvestment Plan

U.S. Bancorp currently pays quarterly dividends on our common stock on or about the 15th day of January, April, July and October, subject to prior approval by our Board of Directors. U.S. Bancorp shareholders can choose to participate in an investor services program that provides automatic reinvestment of dividends and/or optional cash purchase of additional shares of U.S. Bancorp common stock. For more information, please contact our transfer agent, Mellon Investor Services. See above.

Investment Community Contacts

Howell D. McCullough

Senior Vice President, Investor Relations

[email protected]

Phone: 612-303-0786

Judith T. Murphy

Vice President, Investor Relations

[email protected]

Phone: 612-303-0783 or 866-775-9668

Financial Information

U.S. Bancorp news and financial results are available through our web site and by mail.

Web site. For information about U.S. Bancorp, including news, financial results, annual reports and other documents filed with the Securities and Exchange Commission, access our home page on the Internet at usbank.com and click on Investor/Shareholder Information.

Mail. At your request, we will mail to you our quarterly earnings news releases, quarterly financial data reported on Form 10-Q and additional copies of our annual reports. Please contact:

U.S. Bancorp Investor Relations

800 Nicollet Mall

Minneapolis, Minnesota 55402

[email protected]

Phone: 612-303-0799 or 866-775-9668

Media Requests

Steven W. Dale

Senior Vice President, Media Relations

[email protected]

Phone: 612-303-0784

Privacy

U.S. Bancorp is committed to respecting the privacy of our customers and safeguarding the financial and personal information provided to us. To learn more about the U.S. Bancorp commitment to protecting privacy, visit usbank.com and click on Privacy Pledge.

Code of Ethics

U.S. Bancorp places the highest importance on honesty and integrity. Each year, every U.S. Bancorp employee certifies compliance with the letter and spirit of our Code of Ethics and Business Conduct, the guiding ethical standards of our organization. For details about our Code of Ethics and Business Conduct, visit usbank.com and click on About U.S. Bancorp, then Ethics at U.S. Bank.

Diversity

U.S. Bancorp and our subsidiaries are committed to developing and maintaining a workplace that reflects the diversity of the communities we serve. We support a work environment where individual differences are valued and respected and where each individual who shares the fundamental values of the company has an opportunity to contribute and grow based on individual merit.

Equal Employment Opportunity/Affirmative Action

U.S. Bancorp and our subsidiaries are committed to providing Equal Employment Opportunity to all employees and applicants for employment. In keeping with this commitment, employment decisions are made based upon performance, skills and abilities, rather than race, color, religion, national origin or ancestry, gender, age, disability, veteran status, sexual orientation or any other factors protected by law. The corporation complies with municipal, state and federal fair employment laws, including regulations applying to federal contractors.

U.S. Bancorp, including each of our subsidiaries, is an Equal Opportunity Employer committed to creating a diverse workforce.

U.S. Bancorp

Member FDIC

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