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U.S. Bancorp Reports First Quarter 2016 Earnings

Returned 80 percent of first quarter earnings to shareholders through dividends and share buybacks

Average total loans grew 5.8 percent over the first quarter of 2015 and 2.2 percent on a linked quarter basis (1.6 percent excluding the credit card portfolio acquisition at the end of the fourth quarter 2015)

Average total commercial loans grew 10.2 percent over the first quarter of 2015 and 3.5 percent over the fourth quarter of 2015

Average total deposits grew 6.3 percent over the first quarter of 2015 and 0.5 percent on a linked quarter basis

Average low-cost deposits, including noninterest-bearing and total savings deposits, grew 9.7 percent year-over-year

Net interest income grew 4.9 percent year-over-year and 0.6 percent linked quarter

Average earnings assets grew 4.8 percent year-over-year, and 1.4 percent on a linked quarter basis

Net interest margin of 3.06 percent for the first quarter of 2016 was the same as the fourth quarter of 2015, down 2 basis points from 3.08 percent in the first quarter of 2015

Payments-related fee revenue grew 5.1 percent year-over-year, driven by an increase in credit and debit card revenue, including the impact of recent portfolio acquisitions, and merchant processing services revenue

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U.S. Bancorp Reports First Quarter 2016 Results

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Credit quality was relatively stable other than energy-related commercial loans, the deterioration of which impacted the amount of nonperforming assets and the provision for credit losses

Energy-related commercial nonperforming assets increased $257 million linked quarter

Reserves for energy-related commercial loans were 9.1 percent of outstanding balances at March 31, 2016, compared with 5.4 percent at December 31, 2015

Strong capital position. At March 31, 2016, the estimated common equity tier 1 capital to risk-weighted assets ratio was 9.2 percent using the Basel III fully implemented standardized approach and was 11.9 percent using the Basel III fully implemented advanced approaches method

EARNINGS SUMMARY

Table 1

($ in millions, except per-share data)

Percent

Change

1Q16 vs

Net income attributable to U.S. Bancorp

$1,476

Diluted earnings per common share

Return on average assets (%)

Return on average common equity (%)

Net interest margin (%)

Efficiency ratio (%) (a)

Tangible efficiency ratio (%) (a)

Dividends declared per common share

Book value per common share (period end)

$23.82

$23.28

$22.20

(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses), and for tangible efficiency ratio, intangible amortization.

Net income attributable to U.S. Bancorp was $1,386 million for the first quarter of 2016, 3.1 percent lower than the $1,431 million for the first quarter of 2015, and 6.1 percent lower than the $1,476 million for the fourth quarter of 2015. Diluted earnings per common share were $0.76 in the first quarter of 2016, the same as the first quarter of 2015 and $0.04 lower than the $0.80 reported for fourth quarter of 2015. The decrease in net income year-over-year was primarily due to a higher provision for credit losses driven by energy-related commercial loan downgrades, lower mortgage banking revenue due to lower production and higher noninterest expense driven by higher compensation expense related to the impact of merit increases

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and higher variable compensation expense, as well as compliance-related matters, partially offset by an increase in net interest income driven by strong loan growth. The decrease in net income on a linked quarter basis was principally due to typical seasonality in some of our business lines, a higher provision for credit losses driven by energy-related loans, as well as the impact of the fourth quarter 2015 gain on the sale of the Health Savings Account deposit portfolio (HSA deposit sale). The linked quarter seasonality reflects decreases in fee-based revenue, primarily related to payments and deposit services, and lower costs related to investments in tax-advantaged projects. Other expense increases included higher stock-based and other variable compensation expense.

U.S. Bancorp Chairman and Chief Executive Officer Richard K. Davis said, U.S. Bancorp is off to a solid start in 2016 as we once again delivered industry-leading performance metrics against a backdrop of global concerns driving long-term interest rates lower and continuing pressure in the energy sector. We continued to produce strong loan and deposit growth which combined with a stable net interest margin, resulted in growth in net interest income. Our payments-related businesses remain strong and we continue to invest in those businesses, as demonstrated by the acquisition of the $1.6 billion retail card portfolio at the end of 2015. Although the pressures from the energy industry negatively impacted the quarter, we took appropriate measures and remain confident that we are well positioned to continue delivering industry-leading returns throughout the year.

In addition to these strong fundamentals of our business, we also created value for our shareholders as we returned 80 percent of our first quarter earnings back to shareholders through dividends and share buybacks. We remain committed to balancing decisions about operating efficiencies with opportunities for investments in our franchise as we navigate through a slowly recovering economy. This focus by our management team is vital in order to protect our strong financial position and to ensure that we are delivering the products and services that our customers value.

I am extremely proud that once again, during the first quarter, U.S. Bancorp was named one of the Most Ethical Companies in the World

by the Ethisphere Institute, and for the sixth year in a row, the number one Superregional bank by FORTUNE magazine. It is a perfect example of how our 67,000 employees work hard every day to be the most trusted choice for our shareholders, customers, and communities. Every quarter we introduce new products and services to our customers that are designed to improve and unify our customers experience with us. We have continued to invest heavily in our mobile banking app and were recognized as a leader in this space by both Keynote and Corporate Insights. These are important developments in a dynamic marketplace where customer needs and expectations are evolving

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rapidly. We are proud to have an innovation focus built on a foundation of trust backing all our financial and competitive strength.

U.S. Bancorp continues to deliver consistent, predictable, repeatable, industry-leading financial results. Our shareholders, customers, and communities know that we will do it well and we will do it right. We have a proven track record of success and we remain confident in our ability to address our customers and clients distinct financial objectives.

INCOME STATEMENT HIGHLIGHTS

Table 2

(Taxable-equivalent basis, $ in millions, except per-share data)

$2,888

$2,871

$2,752

Noninterest income

Total net revenue

Noninterest expense

Income before provision and taxes

Provision for credit losses

Income before taxes

Taxable-equivalent adjustment

Applicable income taxes

Net (income) loss attributable to noncontrolling interests

Net income applicable to U.S. Bancorp common shareholders

$1,329

$1,404

$1,365

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NET INTEREST INCOME

Table 3

(Taxable-equivalent basis; $ in millions)

Components of net interest income

Income on earning assets

$3,275

$3,209

$3,116

Expense on interest-bearing liabilities

Average yields and rates paid

Earning assets yield

(.01)%

Rate paid on interest-bearing liabilities

.01

Gross interest margin

(.02)%

Average balances

Investment securities (a)

$106,031

$105,536

$100,712

$5,319

262,281

256,692

247,950

14,331

378,208

373,091

360,841

17,367

Interest-bearing liabilities

279,516

269,940

267,882

11,634

(a) Excludes unrealized gain (loss)

Net Interest Income

Net interest income on a taxable-equivalent basis in the first quarter of 2016 was $2,888 million, an increase of $136 million (4.9 percent) over the first quarter of 2015. The increase was driven by loan growth and higher rates, partially offset by the impact of a continued shift in loan portfolio mix. Average earning assets were $17.4 billion (4.8 percent) higher than the first quarter of 2015, driven by increases of $14.3 billion (5.8 percent) in average total loans and $5.3 billion (5.3 percent) in average investment securities. Net interest income increased $17 million (0.6 percent) on a linked quarter basis, primarily due to growth in average total loans and the impact of higher rates, partially offset by one less day in the current quarter. Average total loans were $5.6 billion (2.2 percent) higher on a linked quarter basis ($4.1 billion (1.6 percent) excluding the credit card portfolio acquisition at the end of the fourth quarter of 2015.)

The net interest margin in the first quarter of 2016 was 3.06 percent, compared with 3.08 percent in the first quarter of 2015, and 3.06 percent in the fourth quarter of 2015. The decrease in the net interest margin on a year-over-year basis primarily reflected the impact of higher rates offset by a continued shift in loan portfolio mix, as well as lower average rates on new securities purchases and lower reinvestment rates on

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maturing securities. On a linked quarter basis, the stable net interest margin was principally due to the impact of higher rates, partially offset by the continued change in loan portfolio mix.

Investment Securities

Average investment securities in the first quarter of 2016 were $5.3 billion (5.3 percent) higher year-over-year and $495 million (0.5 percent) higher than the prior quarter. These increases were primarily due to purchases of U.S. Treasury securities, net of prepayments and maturities, to support regulatory liquidity coverage ratio requirements.

AVERAGE LOANS

Table 4

($ in millions)

Commercial

$84,582

$81,592

$76,183

Lease financing

Total commercial

89,820

86,803

81,508

Commercial mortgages

31,836

31,830

33,119

Construction and development

10,565

10,401

Total commercial real estate

42,401

42,231

42,671

Residential mortgages

54,208

52,970

51,426

Credit card

20,244

18,838

17,823

Retail leasing

Home equity and second mortgages

16,368

16,241

15,897

29,550

29,556

27,604

Total other retail

51,097

51,062

49,320

Total loans, excluding covered loans

257,770

251,904

242,748

Covered loans

$262,281

$256,692

$247,950

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Loans

Average total loans were $14.3 billion (5.8 percent) higher in the first quarter of 2016 than the first quarter of 2015, due to growth in total commercial loans (10.2 percent), credit card loans (13.6 percent), residential mortgages (5.4 percent), and total other retail loans (3.6 percent). These increases were partially offset by a decline in total commercial real estate loans (0.6 percent) and covered loans (13.3 percent). Average total loans were $5.6 billion (2.2 percent) higher in the first quarter of 2016 than the fourth quarter of 2015. The increase was driven by growth in total commercial loans (3.5 percent), residential mortgages (2.3 percent) and credit card loans (7.5 percent). At the end of the fourth quarter of 2015, the Company acquired a credit card portfolio which increased first quarter of 2016 average credit card loans by approximately $1.5 billion. Excluding the credit card portfolio acquisition, average total loans in the first quarter of 2016 were approximately $4.1 billion (1.6 percent) higher than the fourth quarter of 2015 and $12.8 billion (5.2 percent) higher than the first quarter of 2015.

AVERAGE DEPOSITS

Table 5

Noninterest-bearing deposits

78,569

83,894

74,511

Interest-bearing savings deposits

Interest checking

57,910

57,109

54,658

Money market savings

86,462

82,828

73,889

Savings accounts

39,250

37,991

36,033

Total of savings deposits

183,622

177,928

164,580

Time deposits

33,687

32,683

39,369

Total interest-bearing deposits

217,309

210,611

203,949

Total deposits

295,878

294,505

278,460

Deposits

Average total deposits for the first quarter of 2016 were $17.4 billion (6.3 percent) higher than the first quarter of 2015. Average noninterest-bearing deposits increased $4.1 billion (5.4 percent) year-over-year, mainly in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking. Average total savings deposits were $19.0 billion (11.6 percent) higher year-over-year, the result of growth

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in Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, and Wealth Management and Securities Services. Growth in Consumer and Small Business Banking total savings deposits included net new account growth of 3.2 percent. Average time deposits were $5.7 billion (14.4 percent) lower than the prior year quarter. Changes in time deposits are largely related to those deposits managed as an alternative to other wholesale funding sources, based on funding needs and relative pricing.

Average total deposits increased $1.4 billion (0.5 percent) over the fourth quarter of 2015. Average noninterest-bearing deposits decreased $5.3 billion (6.3 percent) on a linked quarter basis, due to seasonally lower balances in corporate trust and Wholesale Banking and Commercial Real Estate. Average total savings deposits increased $5.7 billion (3.2 percent), reflecting increases in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking. Average time deposits, which are managed based on funding needs and relative pricing, increased $1.0 billion (3.1 percent) on a linked quarter basis.

NONINTEREST INCOME

Table 6

Credit and debit card revenue

Corporate payment products revenue

Merchant processing services

ATM processing services

Trust and investment management fees

Deposit service charges

Treasury management fees

Commercial products revenue

Mortgage banking revenue

Investment products fees

Securities gains (losses), net

Total noninterest income

Noninterest Income

First quarter noninterest income was $2,149 million, which was $5 million (0.2 percent) lower than the first quarter of 2015. The year-over-year decrease in noninterest income was primarily due to a decrease in mortgage banking revenue, partially offset by increases in credit and debit card revenue, trust and investment management fees, and merchant processing services revenue. Mortgage banking revenue decreased $53

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million (22.1 percent) primarily due to lower origination and sales revenue driven by lower volume (a 10 percent decline) and lower pricing as a result of market competition. Credit and debit card revenue increased $25 million (10.4 percent) reflecting higher transaction volumes including acquired portfolios. Trust and investment management fees increased $17 million (5.3 percent), reflecting lower fee waivers. Merchant processing services revenue increased $14 million (3.9 percent) as a result of higher...


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