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FIVE STAR SERVICE: UP CLOSE
2005 Annual Report and Form 10-K

Table of contents

  • Page 1
    F I V E S TA R S E RV I C E : U P C L O S E 2005 Annual Report and Form 10-K

  • Page 2
    ... States. Our company operates 2,419 banking offices and 5,003 bank-branded ATMs, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses, government entities and institutions. Headquartered in Minneapolis...

  • Page 3
    ... 5,003 USB Five Star Service Up Close 2 3 4 6 Asset size Deposits Loans Earnings per share (diluted) Return on average assets Return on average equity Efficiency ratio Tangible efficiency ratio Customers Primary banking region Bank branches ATMs NYSE symbol At year-end 2005 FINANCIALS: Management...

  • Page 4
    ...1.020 04 05 Return on Average Assets 2.4 (In Percents) 2.17 2.21 Return on Average Equity 24 (In Percents) 21.4 22.5 Dividend Payout Ratio 100 (In Percents)...net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net. 2 U.S. BANCORP 12.5 ...

  • Page 5
    ......Efficiency ratio ...Average Balances Loans ...Investment securities ...Earning assets ...Assets ...Deposits ...Total shareholders' equity ...Period End Balances Loans ...Allowance for credit losses ...Investment securities ...Assets ...Deposits ...Shareholders' equity ...Regulatory capital ratios...

  • Page 6
    ... benefit of our entire customer base. We operate with an advantageous mix of businesses and have strong market positions in fee-based businesses, particularly merchant processing and corporate trust. We have strategically developed a number of diverse national business lines, which in addition to...

  • Page 7
    ... ranking corporations on the list. Other criteria included competitive edge, consistent sales and profit growth, ethical business practices and product innovation. Creating shareholder value is always our priority In December 2005, U.S. Bancorp announced a 10 percent increase in the dividend rate...

  • Page 8
    ... BUSINESS UNITS: Middle Market Commercial Banking Commercial Real Estate National Corporate Banking Correspondent Banking Dealer Commercial Services Community Banking Equipment Leasing Foreign Exchange Government Banking International Banking Specialized Industries Specialty Lending 6 U.S. BANCORP...

  • Page 9
    ... provides our wholesale banking customers with the expert knowledge, ï¬,exible products and comprehensive service they need to execute their financial strategies. Large corporations, middle market businesses, financial institutions, private sector customers and government entities drive growth in...

  • Page 10
    ... agencies, and created by U.S. Bank Corporate Payment Systems. KEY BUSINESS UNITS: Corporate Payment Systems Merchant Payment Services NOVA Information Systems, Inc. Card Services: Debit, Credit, Specialty Cards and Gift Cards Transactions Services: ATM Driving and Servicing 8 U.S. BANCORP

  • Page 11
    ... than 200,000 merchant locations. Left: U.S. Bancorp is providing bank partners and merchants across Europe with a greater array of payment processing services, including cross-border acquiring, multi-currency processing and dynamic currency conversion solutions. Below: The transaction doubled our...

  • Page 12
    ... Client Group. Acting as a bank within a bank, The Private Client Group works to build, manage and preserve our customers' wealth by providing expert planning, programs and advice. KEY BUSINESS UNITS: The Private Client Group Corporate Trust Services Institutional Trust & Custody U.S. Bancorp Asset...

  • Page 13
    ... is (center) U.S. Bank corporate trust customer Christopher Schoen, Managing Director in Mortgage Finance at Credit Suisse, with Edward Kachinski, Senior Vice President, Business Development, and Barbara Nastro, Vice President, Business Development, of our New York City corporate trust office. Left...

  • Page 14
    ... planned for 2006 to ensure that we are delivering Five Star Service to all of our small business banking customers. KEY BUSINESS UNITS: 24-Hour Banking & Financial Sales Business Equipment Finance Community Banking Community Development Consumer Lending Home Mortgage In-store and Corporate On-site...

  • Page 15
    ..., including deposit and investment accounts; credit in the form of loans, lines, leases, cards and SBA lending; cash management and insurance products. Above: U.S. Bank Small Business customer, Tina Stoeberl, owner of College Hill Coffee Co. and Casual Gourmet in Cincinnati, greets a customer at her...

  • Page 16
    ... Banking & Financial Sales Business Equipment Finance Community Banking Community Development Consumer Lending Home Mortgage In-store and Corporate On-site Banking Investments and Insurance Metropolitan Branch Banking Small Business Banking SBA Division Workplace and Student Banking 14 U.S. BANCORP

  • Page 17
    ... corporate relationships. Left: U.S. Bank on-site customers save time by banking at work, save money with special on-site offers, and enjoy free consultations and financial seminars. Below: Our on-site branch located at the Minneapolis corporate headquarters of Best Buy, North America's number...

  • Page 18
    ..., U.S. Bancorp employees are providing their expertise, time and talents to help improve our communities. The U.S. Bank Development Network, comprised of 50 geographically based chapters, provides a forum where our employees engage in community service activities, mentoring opportunities, charitable...

  • Page 19
    ... strength, shareholder value We are proud of the strides we have made in improving customer service - through expansion, added capabilities, new products and services, more offices in more convenient locations - and in delivering the very best we have to offer to every customer, every time. We...

  • Page 20
    ... for customers, and acquiring fee-based businesses with operating scale. As a result of this focus, the Company's fee-based revenue grew 9.4 percent over 2004 with growth in most product categories. Fee income growth was led by growth in deposit service charges and revenues generated by payment...

  • Page 21
    ... securities Earning assets Assets Noninterest-bearing deposits Deposits Short-term borrowings Long-term debt Shareholders' equity Period End Balances Loans Allowance for credit losses Investment securities Assets Deposits Long-term debt Shareholders' equity Regulatory capital ratios...

  • Page 22
    ...points in 2005 across most lending products due to competitive pricing and a change in mix due to growth in lower-spread, fixed-rate credit products. The net interest margin also declined due to the impact of share repurchases, funding incremental growth of earning assets with higher cost wholesale...

  • Page 23
    ... adjustable-rate mortgage production over the last several quarters. Total average commercial real estate loans increased only 2.6 percent, relative to 2004, principally due to higher refinancing activities during the past two years given the interest rate environment. Average investment securities...

  • Page 24
    ...Dollars in Millions) Volume Yield/Rate Total Volume 2004 v 2003 Yield/Rate Total Increase (decrease) in Interest income Investment securities Loans held for sale Commercial loans Commercial real estate Residential mortgages Retail loans Total loans Other earning assets Total 39) 11 185 39...

  • Page 25
    ... and deposit service charges. The growth in credit and debit card revenue of 9.9 percent was principally driven by higher customer transaction volumes and rate changes from a year ago. The corporate payment products revenue growth of 19.9 percent reï¬,ected growth in sales, card usage, rate changes...

  • Page 26
    ... in same store sales volume, new business and expansion of the Company's merchant acquiring business in Europe. Deposit service charges increased in 2004 primarily due to account growth, revenue enhancement initiatives and transaction-related fees. Trust and investment management fees increased as...

  • Page 27
    ... expense (or credits) includes service costs, interest costs based on the assumed discount rate, the expected return on plan assets based on an actuarially derived market-related value and amortization of actuarial gains and losses. The Company's pension accounting policy follows guidance outlined...

  • Page 28
    ... and development Total commercial real estate 20,272 8,191 28,463 14.7 6.0 20.7 20,315 7,270 27,585 16.1 5.7 21.8 20,624 6,618 27,242 17.4 5.6 23.0 20,325 6,542 26,867 17.5 5.6 23.1 18,765 6,608 25,373 16.4 5.8 22.2 Residential mortgages Residential mortgages Home equity loans, first...

  • Page 29
    ... mortgages, commercial loans and retail loans. The change in average earning assets was principally funded by increases of $5.4 billion in interest-bearing deposits and $5.9 billion in wholesale funding. For average balance information, refer to Consolidated Daily Average Balance Sheet and Related...

  • Page 30
    ... at December 31, 2004. The Company also finances the operations of real estate developers and other entities with operations related to real estate. These loans are not secured directly by real estate and are subject to terms and conditions similar to commercial loans. These loans were included in...

  • Page 31
    ...) in 2005, reï¬,ecting growth in home equity lines, installment loans, retail leasing and credit card. Of the total retail loans and residential mortgages outstanding, approximately 82.8 percent were to customers located in the Company's primary banking regions. Table 9 provides a geographic summary...

  • Page 32
    securities transactions were principally related to asset/liability management decisions. At December 31, 2005, approximately 41 percent of the investment securities portfolio represented adjustable-rate financial instruments, compared with 39 percent at December 31, 2004. Adjustable-rate fi...

  • Page 33
    ...money market savings account balances reï¬,ected the Company's deposit pricing decisions in selected markets, given excess customer liquidity throughout 2004 and a migration of some customer balances to time deposits greater than $100,000 as rates increased on time deposit products. Average interest...

  • Page 34
    ... operations rely on prudent credit policies and procedures and individual lender and business line manager accountability. Lenders are assigned lending authority based on their level of experience and customer service requirements. Credit officers reporting to an independent credit administration...

  • Page 35
    ... asset-based lending, commercial lease financing, agricultural credit, warehouse mortgage lending, commercial real estate, health care and correspondent banking. The Company also offers an array of retail lending products including credit cards, retail leases, home equity, revolving credit, lending...

  • Page 36
    ... 81.4 percent of total commercial loans within the 24-state banking region. Credit relationships outside of the Company's banking region are reï¬,ected within the corporate banking, mortgage banking, auto dealer and leasing businesses focusing on large national customers and specifically targeted...

  • Page 37
    ...18 .03 .02 .02 .78 2.18 .11 .74 .90 .40% Commercial real estate Commercial mortgages Construction and development Total commercial real estate Residential mortgages Retail Credit card Retail leasing Other retail Total retail Total loans At December 31, 90 days or more past due including...

  • Page 38
    ... commercial real estate loans during 2005, was broad-based and extended across most property types. Nonperforming retail loans increased by $49 million from a year ago, primarily due to implementing a program for customers having financial difficulties meeting recent minimum balance payment...

  • Page 39
    ...this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. (b) Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred. (c) Residential mortgage information...

  • Page 40
    ... Commercial mortgages Construction and development Total commercial real estate 03 (.04) .01 .20 .09 .13 .10 .20 .14 .16 .14 .23 .17 .11 .15 .23 .22 .17 .20 .15 Residential mortgages Retail Credit card Retail leasing Home equity and second mortgages Other retail Total retail Total loans...

  • Page 41
    ... by the consumer finance division, compared with traditional branch related loans: Year Ended December 31 (Dollars in Millions) Average Loan Amount 2005 2004 Percent of Average Loans 2005 2004 Consumer Finance (a) Residential mortgages ***** Home equity and second mortgages Other retail 5,947...

  • Page 42
    ...development Total commercial real estate Residential mortgages Retail Credit card Retail leasing Home equity and second mortgages Other retail Total retail Total net charge-offs Provision for credit losses Losses from loan sales /transfers (a Acquisitions and other changes Balance at end...

  • Page 43
    ... risks associated with commercial real estate and the mix of loans, including credit cards, loans originated through the consumer finance division and residential mortgages balances, and their relative credit risks were evaluated. Finally, the Company considered current economic conditions...

  • Page 44
    ...and development ***** Total commercial real estate **** 115 53 168 39 131 40 171 33 170 59 229 33 153 53 206 34 177 76 253 22 .57 .65 .59 .19 .64 .55 .62 .21 .82 .89 .84 .25 .75 .81 .77 .35 .94 1.15 1.00 .28 Residential mortgages Retail Credit card Retail leasing Home equity and second mortgages...

  • Page 45
    ... Company's 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...

  • Page 46
    ...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 Company's internal audit...

  • Page 47
    ... 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...

  • Page 48
    ... in fair value related to interest rate changes of underlying fixed-rate debt and subordinated 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...

  • Page 49
    ... limits, subject to approval by the Company's Board of Directors. The Company's VaR limit was $20 million at December 31, 2005 and 2004. The market valuation risk inherent in its customer-based derivative trading, mortgage banking pipeline and foreign exchange, as estimated by the VaR analysis, was...

  • Page 50
    ...National Association Short-term time deposits Long-term time deposits Bank notes Subordinated debt Commercial paper P-1 Aa1 Aa1/P-1 Aa2 P-1 A-1+ AA AA/A-1+ AA- A-1+ F1+ AA AA-/F1+ A+ F1+ Company's ability to meet funding requirements due to adverse business events. These funding needs are then...

  • Page 51
    ... capital requirements for well-capitalized bank holding companies. To achieve these capital goals, the Company employs a variety of capital management tools, including dividends, common share repurchases, and the issuance of subordinated debt and other capital instruments. Total shareholders' equity...

  • Page 52
    ... repurchased during 2004 was $28.34 per share. In 2005, the Company purchased 62 million shares under the 2004 plan. The average price paid for the shares repurchased in 2005 was $29.37 per share. For a complete analysis of activities impacting shareholders' equity and capital management programs...

  • Page 53
    ... in noninterest-bearing corporate payment card balances and a change in mix due to growth in lower-spread, fixed-rate credit products. The net interest margin also declined due to funding incremental asset growth with higher cost wholesale funding, share repurchases and asset/liability decisions...

  • Page 54
    ...management fees increased $17 million (7.1 percent) year-over-year, primarily due to improved equity market conditions and account growth. Deposit service charges increased year-over-year by $26 million (12.3 percent) due to account growth and transaction-related activities. Mortgage banking revenue...

  • Page 55
    ... accountable are not charged to the lines of business. The income or expenses associated with these corporate activities is reported within the Treasury and Corporate Support line of business. The provision for credit losses within the Wholesale Banking, Consumer Banking, Private Client, Trust...

  • Page 56
    ... 21.2 21.4 Average Balance Sheet Data Commercial Commercial real estate Residential mortgages Retail Total loans Goodwill Other intangible assets Assets Noninterest-bearing deposits Interest checking Savings products Time deposits Total deposits Shareholders' equity * Not meaningful...

  • Page 57
    .... Deposit service Private Client, Trust and Asset Management 2005 2004 Percent Change 2005 Payment Services 2004 Percent Change charges were higher due to new account growth and higher transaction-related service activities. The growth in mortgage banking revenue was due to strong loan production...

  • Page 58
    ...products revenue, ATM processing services revenue and merchant processing revenue. Credit and debit card revenue increased primarily due to higher customer transaction volumes and rate changes from a year ago. Corporate payment products revenue increased primarily due to growth in sales volume, card...

  • Page 59
    ... the loan portfolio and establishing the allowance for credit losses. Income taxes are assessed to each line of business at a managerial tax rate of 36.4 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support. The...

  • Page 60
    ...any point in time reach different reasonable conclusions that could be significant to the Company's financial statements. Refer to the ''Analysis and Determination of the Allowance for Credit Losses'' section for further information. Mortgage Servicing Rights MSRs are capitalized as separate assets...

  • Page 61
    ... 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 unit's activities including...

  • Page 62
    ... no change made in the Company's 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 Company's internal control over financial reporting. The annual report...

  • Page 63
    (This page intentionally left blank) U.S. BANCORP 61

  • Page 64
    ... BANCORP CONSOLIDATED BALANCE SHEET At December 31 (Dollars in Millions) 2005 2004 Assets Cash and due from banks Investment securities Held-to-maturity (fair value $113 and $132, respectively Available-for-sale Loans held for sale Loans Commercial Commercial real estate Residential mortgages...

  • Page 65
    ... Income Credit and debit card revenue Corporate payment products revenue ATM processing services Merchant processing services Trust and investment management fees Deposit service charges Treasury management fees Commercial products revenue Mortgage banking revenue Investment products fees...

  • Page 66
    ... Common Stock Capital Surplus Retained Earnings Treasury Stock Other Comprehensive Income Total Shareholders' Equity Balance December 31, 2002 Net income Unrealized loss on securities available for sale ******** Unrealized loss on derivatives Foreign currency translation adjustment Realized...

  • Page 67
    ... equipment Amortization of intangibles Provision for deferred income taxes Gain) loss on sales of securities and other assets, net Mortgage loans originated for sale in the secondary market, net of repayments Proceeds from sales of mortgage loans Stock-based compensation Other, net Net cash...

  • Page 68
    ...sales, on-line services, direct mail and automated teller machines (''ATMs''). It encompasses community banking, metropolitan banking, in-store banking, small business banking, including lending guaranteed by the Small Business Administration, small-ticket leasing, consumer lending, mortgage banking...

  • Page 69
    ... accrued interest is reversed. Future interest payments are generally applied against principal. Revolving consumer lines and credit cards are charged off by 180 days past due and closed-end consumer loans other than loans secured by 1-4 family properties are charged off at 120 days past due and...

  • Page 70
    ... to sell loans receivable, the loans are transferred at the lower of cost or fair value. Loans transferred to LHFS are marked-to-market (''MTM'') at the time of transfer. MTM losses related to the sale/transfer of non-homogeneous loans that are predominantly credit-related are reï¬,ected in charge...

  • Page 71
    ... value of the mortgage servicing rights, precluding subsequent reversals. Pensions For purposes of its retirement plans, the Company acquired businesses (''goodwill'') is not amortized. Other intangible assets are amortized over their estimated useful lives, using straight-line and accelerated...

  • Page 72
    ...(revised 2004) (''SFAS 123R''), ''Share-Based Payment'', a revision of Statement of Financial Accounting Standards No. 123 (''SFAS 123''), ''Accounting for Stock-Based Compensation.'' SFAS 123R requires companies to measure the cost of employee services in exchange for an award of equity instruments...

  • Page 73
    ...-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. U.S. BANCORP 71

  • Page 74
    ... from increases in interest rates since the purchase of the securities. All principal and interest payments on available-for-sale debt securities are expected to be collected given the high credit quality of the U.S. government agency debt securities and bank holding company issuers. As of December...

  • Page 75
    ... real estate Commercial mortgages Construction and development Total commercial real estate Residential mortgages Retail Credit card Retail leasing Home equity and second mortgages Other retail Revolving credit Installment Automobile Student Total other retail Total retail Total loans...

  • Page 76
    ...balance of impaired loans during the year Interest income recognized on impaired loans during the year $388 - $388 $412 2 $37 - $37 $489 - $489 $600 1 $64 - $64 $841 - $841 $970 - $108 - $108 Commitments to lend additional funds to customers whose commercial or commercial real estate loans...

  • Page 77
    ... for retained interests, the Company estimates fair value based on the present value of future expected cash ï¬,ows using management's best estimates of the key assumptions including credit losses, prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved...

  • Page 78
    ... Small Business Receivables (a) Investment Securities Year Ended December 31 (Dollars in Millions) 2005 Proceeds from Collections used by trust to purchase new receivables in revolving securitizations Servicing and other fees received and cash ï¬,ows on retained interests 50 62 $- 22 2004...

  • Page 79
    ...Commercial real estate Commercial mortgages Construction and development ******** Total commercial real estate ******** Residential mortgages Retail Credit card Retail leasing Other retail Total retail Total managed loans *********** Investment securities Total managed assets Less Assets...

  • Page 80
    ... 2004 2003 Balance at beginning of year Additions charged (reductions credited) to operations Direct write-downs charged against the allowance Balance at end of year $172 (53) (49) $ 70 $160 57 (45) $172 $ 207 209 (256) $ 160 Changes in net carrying value of capitalized mortgage servicing...

  • Page 81
    ... line method AC = accelerated methods generally based on cash ï¬,ows Aggregate amortization expense consisted of the following: Year Ended December 31 (Dollars in Millions) 2005 2004 2003 Merchant processing contracts Core deposit benefits Mortgage servicing rights (a Trust relationships...

  • Page 82
    ...the changes in the carrying value of goodwill for the years ended December 31, 2004 and 2005: Wholesale Banking Consumer Banking Private Client, Trust and Asset Management Payment Services Consolidated Company (Dollars in Millions) Balance at December 31, 2003 Goodwill acquired Other (a Balance...

  • Page 83
    ... due 2015 Floating-rate subordinated notes 4.42% due 2014 Federal Home Loan Bank advances Bank notes Capitalized lease obligations, mortgage indebtedness and other (a Subtotal Total (a) Other includes debt issuance fees and unrealized gains and losses and deferred fees relating to derivative...

  • Page 84
    ... 3.80 percent per annum. The Company presents these foreign notes in U.S. dollars on the balance sheet. In October 2004, USBNA issued ï¬,oating-rate subordinated notes of $350 million, due October 14, 2014. These notes bear ï¬,oating-rate interest of three-month LIBOR plus .28 percent. The interest...

  • Page 85
    ... related to the trusts increased $79 million upon de-consolidation with the increase representing the Company's common equity ownership in the trusts. The Trust Preferred Securities held by the trusts qualify as Tier 1 capital for the Company under the Federal Reserve Board guidelines. The banking...

  • Page 86
    ...Mercantile Capital Trust I U.S. Bancorp Capital I Firstar Capital Trust I FBS Capital I Total (a) The variable-rate Trust Preferred Securities and Debentures reprice quarterly based on three-month LIBOR. Note 16 S H A R E H O L D E R S ' E Q U I T Y At December 31, 2005 and 2004, the Company...

  • Page 87
    ...Income included in shareholders' equity for the years ended December 31, is as follows: Transactions (Dollars in Millions) Pre-tax Tax-effect Net-of-tax Balances Net-of-Tax 2005 Unrealized loss on securities available-for-sale Unrealized loss on derivatives Foreign currency translation adjustment...

  • Page 88
    ... discount rate and the long-term rate of return (LTROR). At least annually, an independent consultant is engaged to assist U.S. Bancorp's Compensation Committee (''the Committee'') in evaluating plan objectives, funding policies and plan investment policies considering its long-term investment time...

  • Page 89
    ... relative to assumed rates of return and asset allocation and LTROR information for a peer group in establishing its assumptions. Post-Retirement Medical Plans In addition to providing pension benefits, the Company provides health care and death benefits to certain retired employees through one...

  • Page 90
    ...U.S. Bancorp retained the qualified pension plan obligation for the inactive participants, relating to employees of the Piper Jaffray Companies. Therefore, all liabilities and plan assets related to inactive participants in the qualified pension plan associated with the Piper Jaffray Companies are...

  • Page 91
    ...long-term return on plan assets Discount rate in determining benefit obligations (a Rate of increase in future compensation Post-retirement medical plan actuarial computations Expected long-term return on plan assets Discount rate in determining benefit obligations Health care cost trend rate...

  • Page 92
    ...provide for grants of shares of common stock or stock units that are subject to restriction on transfer. Most stock awards vest over three to five years and are subject to forfeiture if certain vesting requirements are not met. Stock incentive plans of acquired companies are generally terminated at...

  • Page 93
    ... and $158 million in 2004 and 2003, respectively. At the time employee stock options expire, are exercised or cancelled, the Company determines the tax benefit associated with the stock award and under certain circumstances may be required to recognize an adjustment to tax expense. On an after...

  • Page 94
    ...The tax effects of fair value adjustments on securities available-for-sale, derivative instruments in cash ï¬,ow hedges and certain tax benefits related to stock options are recorded directly to shareholders' equity as part of other comprehensive income. In preparing its tax returns, the Company is...

  • Page 95
    ... of the Company's net deferred tax liability as of December 31 were: (Dollars in Millions) 2005 2004 Deferred tax assets Allowance for credit losses Stock compensation Securities available-for-sale and financial instruments Intangible asset basis Federal AMT credits and capital losses Accrued...

  • Page 96
    ... fair value of fixed-rate certificates of deposit was estimated by discounting the contractual cash ï¬,ow using the discount rates implied by high-grade corporate bond yield curves. Short-term Borrowings Federal funds purchased, securities sold under agreements to repurchase, commercial paper and

  • Page 97
    ... no premium or discount was ascribed to loan commitments because funding could occur at market rates. The Company estimates the fair value of loan commitments, letters of credit and guarantees based on the related amount of unamortized deferred commitment fees adjusted for the probable losses...

  • Page 98
    ... the Company's 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...

  • Page 99
    ... 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...

  • Page 100
    ...or cash ï¬,ows of the Company. business, the Company may enter into revenue share agreements with third party business partners who generate customer referrals or provide marketing or other services related to the generation of revenue. In certain of these agreements, the Company may guarantee that...

  • Page 101
    ... Short-term funds borrowed Long-term debt Other liabilities Shareholders' equity Total liabilities and shareholders' equity 782 10,854 993 20,086 $ 683 6,899 959 19,539 $32,715 $28,080 Condensed Statement of Income Year Ended December 31 (Dollars in Millions) 2005 2004 2003 Income Dividends...

  • Page 102
    ... activities Change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Transfer of funds (dividends, loans or advances) from bank subsidiaries to the Company is restricted. Federal law prohibits loans unless they are secured...

  • Page 103
    ... of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Board of Directors of the Company has an Audit Committee composed of directors who are independent of U.S. Bancorp. The committee meets periodically with management, the internal auditors...

  • Page 104
    ...Directors and Shareholders of U.S. Bancorp: We have audited the accompanying consolidated balance sheets of U.S. Bancorp as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity, and cash ï¬,ows for each of the three years in the period ended December...

  • Page 105
    ... of U.S. Bancorp as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity, and cash ï¬,ows for each of the three years in the period ended December 31, 2005 and our report dated February 17, 2006 expressed an unqualified opinion thereon. Minneapolis...

  • Page 106
    ... BANCORP CONSOLIDATED BALANCE SHEET - FIVE-YEAR SUMMARY December 31 (Dollars in Millions) 2005 2004 2003 2002 2001 % Change 2005 v 2004 Assets Cash and due from banks Held-to-maturity securities Available-for-sale securities Loans held for sale Loans Less allowance for loan losses Net loans...

  • Page 107
    ... Income Credit and debit card revenue Corporate payment products revenue ATM processing services Merchant processing services Trust and investment management fees Deposit service charges Treasury management fees Commercial products revenue Mortgage banking revenue Investment products fees...

  • Page 108
    ... Income Credit and debit card revenue Corporate payment products revenue ATM processing services Merchant processing services Trust and investment management fees Deposit service charges Treasury management fees Commercial products revenue Mortgage banking revenue Investment products fees...

  • Page 109
    ...68 (.01) (.02) 1.65 $ .79 (.02) - .77 .79 (.03) - .76 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Ratios Return on average assets Return on average equity Average total equity to average assets Dividends per share to net income per share 2.21% 22.5 9.8 50.2 2.17% 21.4 10.2 46.2 1.99% 19.2 10.3 44...

  • Page 110
    U.S. BANCORP CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND Year Ended December 31 Average Balances 2005 Yields and Rates Average Balances 2004 Yields and Rates (Dollars in Millions) Interest Interest Assets Investment securities Loans held for sale Loans (b) Commercial Commercial real estate ...

  • Page 111
    RELATED YIELDS AND RATES (a) 2003 Average Balances Yields and Rates Average Balances 2002 Yields and Rates Average Balances 2001 Yields and Rates 2005 v 2004 % Change Average Balances Interest...8.3 7.3 2.5 6.1% 5.77% 1.28 4.49% 4.47% 6.46% 1.81 4.65% 4.63% 7.67% 3.21 4.46% 4.43% U.S. BANCORP 109

  • Page 112
    ... 20549 Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2005 Commission File Number 1-6880 U.S. Bancorp Incorporated in the State of Delaware IRS Employer Identification #41-0255900 Address: 800 Nicollet Mall Minneapolis...

  • Page 113
    ... a bank holding company under the Bank Holding Company Act of 1956. U.S. Bancorp provides a full range of financial services, including lending and depository services, cash management, foreign exchange and trust and investment management services. It also engages in credit card services, merchant...

  • Page 114
    ...the allowance for credit losses, investments, loans, mergers, issuance of securities, payment of dividends, establishment of branches and other aspects of operations. Risk Factors There are a number of factors, including those funds) generally pay higher rates of return than financial institutions...

  • Page 115
    ...'s operations, including, but not limited to, the risk of fraud by employees or persons outside of 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...

  • Page 116
    ... information, refer to ''Critical Accounting Policies'' in this Annual Report and Form 10-K. Changes in accounting standards could materially impact the Company's financial statements. From time to time, 114 to acquire financial services businesses or assets and may also consider opportunities...

  • Page 117
    ... the Company's business. Third party vendors provide key components of the Company's business infrastructure such as internet connections, network access and mutual fund distribution. While the Company has selected these third party vendors carefully, it does not control their actions. Any problems...

  • Page 118
    ... them at [email protected] or calling (866) 775-9668. occupy headquarter offices under a long-term lease in Minneapolis, Minnesota. The Company also leases eight freestanding operations centers in Cincinnati, Denver, Milwaukee, Minneapolis, Portland and St. Paul. The 116 U.S. BANCORP

  • Page 119
    ...that buy, hold or sell a specified series of long-term indebtedness of the Company or U.S. Bank National Association (''ICONs Covered Debt''). We will provide a copy of the ICONs Replacement Capital Covenant to holders of ICONs Covered Debt upon request made to the Investor Relations contact listed...

  • Page 120
    (1)(2) 10.8 Star Banc Corporation 1996 Starshare Stock Incentive Plan for Employees. Filed as Exhibit 10.8 to Form 10-K for the year ended December 31, 2002 U.S. Bancorp Executive Incentive Plan. Filed as Exhibit 10.2 to Form 10-K for the year ended December 31, 2001 (1)(2) 10.21 Amendment No. 6...

  • Page 121
    ...for the quarterly period ended September 30, 2004 (2) (1)(2) (1)(2) (1)(2) 10.39 Information Regarding the 2006 Compensation of the Non-Employee Members of the Board of Directors of U.S. Bancorp 12 Statement re: Computation of Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Registrant...

  • Page 122
    ... March 7, 2006, on its behalf by the undersigned, thereunto duly authorized. U.S. Bancorp By: Jerry A. Grundhofer Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 7, 2006, by the following persons on...

  • Page 123
    ... 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 Annual Report on Form 10-K of U.S. Bancorp; (2) Based on my knowledge, this report does not contain any untrue...

  • Page 124
    ... 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: (1) I have reviewed this Annual Report on Form 10-K of U.S. Bancorp; (2) Based on my knowledge, this report does not contain any untrue...

  • Page 125
    ... of U.S. Bancorp, a Delaware corporation (the ''Company''), do hereby certify that: (1) The Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the ''Form 10-K'') of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934...

  • Page 126
    ... Bancorp. From the time of the merger, Mr. Davis was responsible for Consumer Banking, including Retail Payment Solutions (card services), and he assumed additional responsibility for Commercial Banking in 2003. Previously, he had been Vice Chairman of Consumer Banking of Firstar Corporation from...

  • Page 127
    ... Banking and Dealer Services. He assumed additional responsibility for Commercial Real Estate in September 2005. Previously, he served as Executive Vice President, East Commercial Banking Group of U.S. Bancorp from June 2003 to April 2005. He served as Market President of U.S. Bank in Oregon...

  • Page 128
    ... 4. 5. 6. Executive Committee Compensation Committee Audit Committee Community Outreach and Fair Lending Committee Governance Committee Credit and Finance Committee David B. O'Maley1,2,5 Chairman, President and Chief Executive Officer Ohio National Financial Services, Inc. Cincinnati, Ohio O'dell...

  • Page 129
    ... Privacy 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 dividend reinvestment plan administrator, and maintains all shareholder records for the corporation...

  • Page 130
    U.S. Bancorp 800 Nicollet Mall Minneapolis, MN 55402 usbank.com