U.S. Bancorp - 10-Q quarterly report FY

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UNITED STATES

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

For the quarterly period ended June 30, 2002

OR

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

For the transition period from (not applicable)

Commission file number 1-6880

U.S. BANCORP

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

225 South Sixth Street

612-973-1111

(not applicable)

     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 twelve months, and (2) has been subject to such filing requirements for the past 90 days.

YES   X  NO        

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

Class Common Stock, $.01 Par Value		Outstanding as of July 31, 2002 1,914,433,862 shares

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Financial Summary
Management’s 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
Consolidated Daily Average Balance Sheet and Related Yields and Rates
Part II -- Other Information

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Table of Contents and Form 10-Q Cross Reference Index

Part I — Financial Information
1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)
	a)		Overview		3
	b)		Statement of Income Analysis		7
	c)		Balance Sheet Analysis		11
	d)		Accounting Changes		26
2) Quantitative and Qualitative Disclosures About Market Risk / Corporate Risk Profile (Item 3)
	a)		Overview		12
	b)		Credit Risk Management		12
	c)		Interest Rate Risk Management		14
	d)		Market Risk Management		18
	e)		Liquidity Risk Management		18
	f)		Residual Risk Management		20
	g)		Operational Risk Management		20
	h)		Capital Management		20
3) Line of Business Financial Review					21
4) Financial Statements (Item 1)					28
Part II — Other Information
1) Exhibits and Reports on Form 8-K (Item 6)					44
2) Signature					44
3) Exhibit 12 — Computation of Ratio of Earnings to Fixed Charges					Inside Back Cover

Forward-Looking Statements

U.S. Bancorp	1

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Financial Summary" -->

			Three Months Ended June 30,												Six Months Ended June 30,
											Percent												Percent
(Dollars and Shares in Millions, Except Per Share Data)			2002				2001				Change				2002				2001				Change
Operating earnings (a)			$	869.8			$	818.6				6.3	%		$	1,711.4			$	1,615.9				5.9	%
Merger and restructuring-related items (after-tax)				(46.7	)			(256.3	)							(95.1	)			(643.5	)
Cumulative effect of change in accounting principles (after-tax)				—				—								(37.2	)			—
	Net income		$	823.1			$	562.3				46.4			$	1,579.1			$	972.4				62.4
Per Common Share
Earnings per share before cumulative effect of change in accounting principles			$	.43			$	.30				43.3	%		$	.84			$	.51				64.7	%
Diluted earnings per share before cumulative effect of change in accounting principles				.43				.29				48.3				.84				.51				64.7
Earnings per share				.43				.30				43.3				.82				.51				60.8
Diluted earnings per share				.43				.29				48.3				.82				.51				60.8
Dividends declared per share				.195				.1875				4.0				.39				.375				4.0
Book value per share				8.70				8.10				7.4
Market value per share				23.35				22.79				2.5
Average shares outstanding				1,913.2				1,905.3				.4				1,916.5				1,903.2				.7
Average diluted shares outstanding				1,926.9				1,917.2				.5				1,928.5				1,916.4				.6
Financial Ratios
Return on average assets				1.95	%			1.37	%							1.89	%			1.20	%
Return on average equity				20.0				14.4								19.5				12.6
Net interest margin (taxable-equivalent basis)				4.59				4.34								4.60				4.36
Efficiency ratio				49.1				55.3								48.9				60.2
Financial Ratios Excluding Merger and Restructuring-Related Items and Cumulative Effect of Change in Accounting Principles (a)
Return on average assets				2.06	%			1.99	%							2.05	%			1.99	%
Return on average equity				21.2				21.0								21.1				21.0
Efficiency ratio				46.8				47.6								46.5				49.1
Banking efficiency ratio (b)				43.3				42.7								42.9				44.2
Average Balances
Loans			$	114,017			$	119,469				(4.6	)%		$	113,866			$	120,613				(5.6	)%
Loans held for sale				2,142				1,500				42.8				2,248				1,203				86.9
Investment securities				28,016				21,257				31.8				27,325				19,575				39.6
Earning assets				147,641				145,289				1.6				146,797				144,581				1.5
Assets				169,147				164,807				2.6				168,466				163,985				2.7
Noninterest-bearing deposits				27,267				24,512				11.2				27,375				24,054				13.8
Deposits				102,450				107,268				(4.5	)			102,232				105,884				(3.4	)
Short-term borrowings				11,650				11,094				5.0				13,099				12,105				8.2
Long-term debt				30,152				24,202				24.6				28,311				23,921				18.4
Total shareholders’ equity				16,475				15,609				5.5				16,318				15,538				5.0
				June 30, 2002			December 31, 2001
Period End Balances
Loans			$	114,570			$	114,405				.1	%
Allowance for credit losses				2,466				2,457				.4
Investment securities				30,674				26,608				15.3
Assets				172,956				171,390				.9
Deposits				105,056				105,219				(.2	)
Long-term debt				33,008				25,716				28.4
Total shareholders’ equity				16,650				16,461				1.1
Regulatory capital ratios
	Tangible common equity			5.7	%			5.7	%
	Tier 1 capital			7.9				7.7
	Total risk-based capital			12.5				11.7
	Leverage			7.8				7.7

(a)		The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to as “operating earnings.” Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the impact of merger and restructuring-related items of specific business acquisitions and restructuring activities and cumulative effect of change in accounting principles. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies.
(b)		Without investment banking and brokerage activity.

2	U.S. Bancorp

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Management’s Discussion and Analysis" -->

OVERVIEW

Earnings SummaryU.S. Bancorp (the “Company”) reported net income of $823.1 million for the second quarter of 2002, or $.43 per diluted share, compared with $562.3 million, or $.29 per diluted share, for the second quarter of 2001. Return on average assets and return on average equity were 1.95 percent and 20.0 percent, respectively, for the second quarter of 2002, compared with 1.37 percent and 14.4 percent, respectively, for the second quarter of 2001. Net income includes after-tax merger and restructuring-related items of $46.7 million ($71.6 million on a pre-tax basis) for the second quarter of 2002, compared with $256.3 million ($391.9 million on a pre-tax basis) for the second quarter of 2001. For the second quarter of 2002, total merger and restructuring-related items on a pre-tax basis included $60.5 million of net expenses associated with the merger of Firstar Corporation (“Firstar”) and the former U.S. Bancorp (“USBM”) and $11.1 million associated with the acquisition of NOVA Corporation (“NOVA”) and other smaller acquisitions. For the second quarter of 2001, merger and restructuring-related items on a pre-tax basis included $62.2 million in gains on the sale of branches offset by $233.2 million of noninterest expenses and $201.3 million of provision for credit losses associated with the merger of Firstar and USBM. The second quarter of 2001 merger and restructuring-related items also included $5.4 million of restructuring charges for U.S. Bancorp Piper Jaffray and $14.2 million of noninterest expense for other acquisitions including the merger with Mercantile Bancorporation, Scripps Financial Corporation and the purchase of 41 branches in Tennessee from First Union National Bank.

U.S. Bancorp	3

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Table 1		Selected Financial Data

			Three Months Ended								Six Months Ended
			June 30,								June 30,
(Dollars and Shares in Millions, Except Per Share Data)			2002				2001				2002				2001
Condensed Income Statement
Interest income (taxable-equivalent basis)			$	2,384.6			$	2,832.6			$	4,756.3			$	5,860.1
Interest expense				694.8				1,257.8				1,396.1				2,721.0
	Net interest income (taxable-equivalent basis)			1,689.8				1,574.8				3,360.2				3,139.1
Securities gains, net				30.6				31.3				74.7				247.3
Noninterest income (a)				1,406.7				1,244.3				2,689.5				2,439.0
	Total net revenue			3,127.1				2,850.4				6,124.4				5,825.4
Noninterest expense (a)				1,448.8				1,341.9				2,811.4				2,736.2
Provision for credit losses (a)				335.0				240.0				670.0				605.8
	Income before taxes, merger and restructuring-related items and cumulative effect of change in accounting principles			1,343.3				1,268.5				2,643.0				2,483.4
Taxable-equivalent adjustment				9.0				16.8				18.1				35.3
Income taxes				464.5				433.1				913.5				832.2
	Operating earnings (a)			869.8				818.6				1,711.4				1,615.9
Merger and restructuring-related items (after-tax)				(46.7	)			(256.3	)			(95.1	)			(643.5	)
Cumulative effect of change in accounting principles (after-tax)				—				—				(37.2	)			—
	Net income in accordance with GAAP		$	823.1			$	562.3			$	1,579.1			$	972.4
Per Common Share
Earnings per share before cumulative effect of change in accounting principles			$	.43			$	.30			$	.84			$	.51
Diluted earnings per share before cumulative effect of change in accounting principles				.43				.29				.84				.51
Earnings per share				.43				.30				.82				.51
Diluted earnings per share				.43				.29				.82				.51
Dividends declared per share				.195				.1875				.39				.375
Book value per share				8.70				8.10
Market value per share				23.35				22.79
Average shares outstanding				1,913.2				1,905.3				1,916.5				1,903.2
Average diluted shares outstanding				1,926.9				1,917.2				1,928.5				1,916.4
Financial Ratios
Return on average assets				1.95	%			1.37	%			1.89	%			1.20	%
Return on average equity				20.0				14.4				19.5				12.6
Net interest margin (taxable-equivalent basis)				4.59				4.34				4.60				4.36
Efficiency ratio				49.1				55.3				48.9				60.2
Financial Ratios Excluding Merger and Restructuring-Related Items and Cumulative Effect of Change in Accounting Principles (a)
Return on average assets				2.06	%			1.99	%			2.05	%			1.99	%
Return on average equity				21.2				21.0				21.1				21.0
Efficiency ratio				46.8				47.6				46.5				49.1
Banking efficiency ratio (b)				43.3				42.7				42.9				44.2
Average Balances
Loans			$	114,017			$	119,469			$	113,866			$	120,613
Loans held for sale				2,142				1,500				2,248				1,203
Investment securities				28,016				21,257				27,325				19,575
Earning assets				147,641				145,289				146,797				144,581
Assets				169,147				164,807				168,466				163,985
Noninterest-bearing deposits				27,267				24,512				27,375				24,054
Deposits				102,450				107,268				102,232				105,884
Short-term borrowings				11,650				11,094				13,099				12,105
Long-term debt				30,152				24,202				28,311				23,921
Total shareholders’ equity				16,475				15,609				16,318				15,538
				June 30, 2002			December 31, 2001
Period End Balances
Loans			$	114,570			$	114,405
Allowance for credit losses				2,466				2,457
Investment securities				30,674				26,608
Assets				172,956				171,390
Deposits				105,056				105,219
Long-term debt				33,008				25,716
Total shareholders’ equity				16,650				16,461
Regulatory capital ratios
	Tangible common equity			5.7	%			5.7	%
	Tier 1 capital			7.9				7.7
	Total risk-based capital			12.5				11.7
	Leverage			7.8				7.7

(a)		The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to as “operating earnings.” Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the impact of merger and restructuring-related items of specific business acquisitions and restructuring activities and cumulative effect of change in accounting principles. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies.
(b)		Without investment banking and brokerage activity.

4	U.S. Bancorp

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Acquisition and Divestiture ActivityU.S. Bancorp and its subsidiaries compose the organization created by the acquisition by Firstar of USBM. The merger was completed on February 27, 2001, and was accounted for as a pooling-of-interests. Accordingly, all financial information has been restated to include the historical information of both companies. Each share of Firstar stock was exchanged for one share of the Company’s common stock while each share of USBM stock was exchanged for 1.265 shares of the Company’s common stock. The Company retained the U.S. Bancorp name.

Table 2		Reconciliation of Operating Earnings to Net Income in Accordance with GAAP

				Three Months Ended								Six Months Ended
				June 30,								June 30,
(Dollars in Millions)				2002				2001				2002				2001
Operating earnings (a)				$	869.8			$	818.6			$	1,711.4			$	1,615.9
Merger and restructuring-related items
	Gains on the sale of branches				—				62.2				—				62.2
	Integration, conversion and other charges				(71.6	)			(252.8	)			(145.8	)			(657.0	)
	Provision for credit losses (b)				—				(201.3	)			—				(367.9	)
	Pre-tax impact				(71.6	)			(391.9	)			(145.8	)			(962.7	)
	Applicable tax benefit				24.9				135.6				50.7				319.2
		Total merger and restructuring-related items (after-tax)			(46.7	)			(256.3	)			(95.1	)			(643.5	)
Cumulative effect of change in accounting principles (after-tax)					—				—				(37.2	)			—
Net income in accordance with GAAP				$	823.1			$	562.3			$	1,579.1			$	972.4

(a)		The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis before merger and restructuring-related items and cumulative effect of change in accounting principles referred to as “operating earnings.” Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the impact of merger and restructuring-related items of specific business acquisitions and restructuring activities and cumulative effect of change in accounting principles. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies.
(b)		Provision for credit losses in 2001 includes losses of $201.3 million on the disposition of an unsecured small business credit line portfolio, losses of $76.6 million on the sales of high loan-to-value home equity and indirect automobile loan portfolios and $90.0 million of charges to align credit policies and risk management practices.

6	U.S. Bancorp

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STATEMENT OF INCOME ANALYSIS

Net Interest IncomeThe second quarter of 2002 net interest income, on a taxable-equivalent basis, of $1,689.8 million, compared with $1,574.8 million for the second quarter of 2001, represented a $115.0 million (7.3 percent) increase from a year ago. Year-to-date net interest income on a taxable-equivalent basis was $3,360.2 million, compared with $3,139.1 million for the first six months of 2001. The second quarter and year-to-date average earning assets increased $2.4 billion (1.6 percent) and $2.2 billion (1.5 percent), respectively, over the comparable periods of 2001. The growth in net interest income for the second quarter was primarily driven by increases in the investment portfolio, core retail loan growth and the impact of acquisitions, partially offset by a $1.0 billion reduction related to transfers of high credit quality, low margin commercial loans to Stellar Funding Group, Inc. (the “loan conduit”), a decline in residential mortgages and the securitization of a discontinued unsecured small business product in 2001. The net interest margin for the second quarter of 2002 was 4.59 percent, compared with 4.34 percent for the second quarter of 2001, while the year-to-date net interest margin increased from 4.36 percent in 2001 to 4.60 percent in 2002. The improvement in the net interest margin reflected the funding benefit of the declining rate environment, a more favorable funding mix and improving spreads due to product repricing dynamics and loan conduit transfers, partially offset by lower yields on the investment portfolio.

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Provision for Credit LossesThe provision for credit losses was $335.0 million for the second quarter of 2002, compared with $441.3 million for the second quarter of 2001. The provision for credit losses for the second quarter of 2001 included $201.3 million of merger and restructuring-related items primarily related to discontinuing an unsecured small business product. The provision for credit losses, excluding merger and restructuring-related items, for the second quarter of 2002 increased by $95.0 million (39.6 percent), from the second quarter of 2001, primarily reflecting higher net charge-offs given the sluggish economic conditions. The provision for credit losses in the first six months of 2002 was $670.0 million, a decrease of $303.7 million from $973.7 million in the same period of 2001. Included in the provision for credit losses during the first six months of 2001 were merger and restructuring-related provisions totaling $367.9 million consisting of: a $90.0 million charge to align risk management practices and charge-off policies and to expedite the transition out of a specific segment of the healthcare industry not meeting the risk profile of the Company; a $76.6 million provision for losses related to the sales of a high LTV home equity portfolio and an indirect automobile loan portfolio; and the $201.3 million provision associated with the discontinued unsecured small business product. Excluding the merger and restructuring-related provision, the provision for credit losses for the first half of 2002 increased by $64.2 million over the first half of 2001. Refer to the “Corporate Risk Profile” section for further information on 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 IncomeNoninterest income during the second quarter of 2002 was $1,437.3 million, an increase of $99.5 million (7.4 percent) from the second

Table 3		Analysis of Net Interest Income

			Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in Millions)			2002				2001				Change				2002				2001				Change
Components of net interest income
	Income on earning assets (taxable-equivalent basis)		$	2,384.6			$	2,832.6			$	(448.0	)		$	4,756.3			$	5,860.1			$	(1,103.8	)
	Expenses on interest-bearing liabilities			694.8				1,257.8				(563.0	)			1,396.1				2,721.0				(1,324.9	)
Net interest income (taxable-equivalent basis)			$	1,689.8			$	1,574.8			$	115.0			$	3,360.2			$	3,139.1			$	221.1
Net interest income, as reported			$	1,680.8			$	1,558.0			$	122.8			$	3,342.1			$	3,103.8			$	238.3
Average yields and rates paid
	Earning assets yield (taxable-equivalent basis)			6.47	%			7.81	%			(1.34	)%			6.52	%			8.15	%			(1.63	)%
	Rate paid on interest-bearing liabilities			2.32				4.21				(1.89	)			2.36				4.59				(2.23	)
Gross interest margin (taxable-equivalent basis)				4.15	%			3.60	%			.55	%			4.16	%			3.56	%			.60	%
Net interest margin (taxable-equivalent basis)				4.59	%			4.34	%			.25	%			4.60	%			4.36	%			.24	%
Average balances
	Investment securities		$	28,016			$	21,257			$	6,759			$	27,325			$	19,575			$	7,750
	Loans			114,017				119,469				(5,452	)			113,866				120,613				(6,747	)
	Earning assets			147,641				145,289				2,352				146,797				144,581				2,216
	Interest-bearing liabilities			119,851				119,877				(26	)			119,119				119,471				(352	)
	Net free funds (a)			27,790				25,412				2,378				27,678				25,110				2,568

(a)		Represents noninterest-bearing deposits, allowance for credit losses, non-earning assets, other liabilities and equity.

8	U.S. Bancorp

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Table 4		Noninterest Income

			Three Months Ended								Six Months Ended
			June 30,								June 30,
(Dollars in Millions)			2002				2001				2002				2001
Credit and debit card revenue			$	131.2			$	118.8			$	240.5			$	227.8
Corporate payment products revenue				82.5				77.4				157.7				156.2
Merchant processing services				144.4				31.4				278.0				61.7
ATM processing services				33.5				33.0				64.4				64.6
Trust and investment management fees				234.9				228.0				459.2				453.0
Deposit service charges				170.2				176.7				322.8				323.2
Cash management fees				104.3				84.9				208.5				161.7
Mortgage banking revenue				75.4				57.0				127.4				105.2
Trading account profits and commissions				49.5				55.8				99.4				127.7
Investment products fees and commissions				107.4				114.2				218.5				239.9
Investment banking revenue				70.5				71.1				123.7				131.3
Commercial product revenue				127.0				105.0				245.9				190.9
Securities gains, net				30.6				31.3				74.7				247.3
Other				75.9				91.0				143.5				195.8
	Total operating noninterest income			1,437.3				1,275.6				2,764.2				2,686.3
Merger and restructuring-related gains				—				62.2				—				62.2
	Total noninterest income		$	1,437.3			$	1,337.8			$	2,764.2			$	2,748.5

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Noninterest ExpenseSecond quarter of 2002 noninterest expense was $1,520.4 million, a decrease of $74.3 million (4.7 percent) from the second quarter of 2001. During the second quarter of 2002, noninterest expense included $71.6 million of merger and restructuring-related charges, compared with $252.8 million for the second quarter of 2001. Year-to-date noninterest expense was $2,957.2 million, a decrease of $436.0 million (12.8 percent) from the first six months of 2001. Year-to-date noninterest expense included $145.8 million of merger and restructuring-related charges, compared with $657.0 million for the same period of 2001. Also included in the June 30, 2001, year-to-date noninterest expense was $36.8 million relating to partnership and equity investments. Second quarter of 2002 noninterest expense, excluding merger and restructuring-related charges, totaled $1,448.8 million, an increase of $106.9 million (8.0 percent) from the second quarter of 2001. On a year-to-date basis, noninterest expense, excluding merger and restructuring-related charges, totaled $2,811.4 million, an increase of $75.2 million (2.7 percent) from the first half of 2001. The increase in noninterest expense from a year ago was primarily due to the costs associated with recent acquisitions, including NOVA, Pacific Century and Leader, which accounted for approximately $113.5 million of the increase in the second quarter of 2002. In addition, the second quarter of 2002 included $14.3 million of MSR impairment and higher expenses due to core banking growth. Offsetting the increases in expense were cost savings attributable to the Company’s ongoing integration activities and the impact of adopting new accounting standards relating to business combinations and the amortization of intangibles.

Merger and Restructuring-Related ItemsEarnings in the second quarter of 2002 included pre-tax merger and restructuring-related items of $71.6 million ($46.7 million after taxes), compared with $391.9 million ($256.3 million after taxes) in the same quarter a year ago. Total merger and restructuring-related items for the

Table 5		Noninterest Expense

			Three Months Ended								Six Months Ended
			June 30,								June 30,
(Dollars in Millions)			2002				2001				2002				2001
Salaries			$	607.6			$	570.5			$	1,195.9			$	1,161.0
Employee benefits				91.1				90.7				187.5				198.8
Net occupancy				101.8				101.4				201.9				211.5
Furniture and equipment				77.0				74.9				153.9				151.8
Professional services				36.2				30.6				63.7				61.2
Advertising and marketing				27.7				32.7				51.2				64.9
Travel and entertainment				23.1				24.6				41.2				49.7
Capitalized software				37.7				33.2				76.1				63.3
Data processing				26.6				14.5				51.7				41.3
Communication				44.1				50.3				89.8				89.0
Postage				44.4				43.8				91.0				90.7
Printing				18.2				18.3				38.9				39.4
Goodwill				—				58.6				—				126.4
Other intangible assets				104.7				54.0				184.9				100.6
Other				208.6				143.8				383.7				286.6
	Total operating noninterest expense			1,448.8				1,341.9				2,811.4				2,736.2
Merger and restructuring-related charges				71.6				252.8				145.8				657.0
	Total noninterest expense		$	1,520.4			$	1,594.7			$	2,957.2			$	3,393.2
Efficiency ratio (a)				49.1	%			55.3	%			48.9	%			60.2	%
Efficiency ratio, operating basis (b)				46.8				47.6				46.5				49.1
Banking efficiency ratio, operating basis (b) (c)				43.3				42.7				42.9				44.2

(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.
(b)		Operating basis represents the efficiency ratios excluding merger and restructuring-related items.
(c)		Without investment banking and brokerage activity.

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Income Tax ExpenseThe provision for income taxes was $439.6 million (an effective rate of 34.8 percent) for the second quarter of 2002 and $862.8 million (an effective rate of 34.8 percent) for the first six months of 2002, compared with $297.5 million (an effective rate of 34.6 percent) and $513.0 million (an effective rate of 34.5 percent) for the same periods of 2001. On an operating basis (excluding the impact of merger and restructuring-related items and the cumulative effect of change in accounting principles), the provision for income taxes was $464.5 million (an effective rate of 34.8 percent) for the second quarter of 2002 and $913.5 million (an effective rate of 34.8 percent) for the first six months of 2002, compared with $433.1 million (an effective rate of 34.6 percent) and $832.2 million (an effective rate of 34.0 percent) for the same periods of 2001. The increase in the effective rate is primarily due to the impact of adopting new accounting standards related to the amortization of goodwill.

BALANCE SHEET ANALYSIS

Loans The Company’s total loan portfolio was $114.6 billion at June 30, 2002, compared with $114.4 billion at December 31, 2001, an increase of $165 million (.1 percent). Commercial loans, including lease financing, totaled $44.5 billion at June 30, 2002, compared with $46.3 billion at December 31, 2001, a decrease of $1,839 million (4.0 percent). The Company’s portfolio of commercial mortgages and construction loans was $25.3 billion at June 30, 2002, essentially flat, compared with $25.4 billion at December 31, 2001. The decrease in commercial and commercial real estate loans was primarily driven by lower loan origination and lending activity given the current economic environment. Residential mortgages held in the loan portfolio were $8.1 billion at June 30, 2002, compared with $7.8 billion at December 31, 2001, an increase of $278 million (3.6 percent). Total retail loans outstanding, which include credit card, retail leasing, home equity and second mortgages and other retail loans, were $36.7 billion at June 30, 2002, compared with $34.9 billion at December 31, 2001. The increase of $1.8 billion (5.2 percent) was driven by an increase in home equity lines during the recent declining rate environment and an increase in the retail leasing business. This growth was partially offset by a decline in credit card activity due to seasonality.

Loans Held for SaleAt June 30, 2002, loans held for sale, consisting primarily of residential mortgages to be sold in the secondary markets, were $1.9 billion, compared with $2.8 billion at December 31, 2001. The $890 million (31.6 percent) decrease primarily reflected the strong mortgage loan origination volume in late 2001 driven by record low rate levels and high refinancing activity relative to the first six months of 2002.

Investment SecuritiesAt June 30, 2002, investment securities, both available-for-sale and held-to-maturity, totaled $30.7 billion, compared with $26.6 billion at December 31, 2001. This $4.1 billion (15.3 percent) increase reflected the reinvestment of proceeds from loan sales and declines in commercial and commercial real estate loan balances. During the first six months of 2002, the Company sold $6.1 billion of fixed-rate securities. A portion of the fixed-rate securities sold was replaced with floating-rate securities in conjunction with the Company’s interest rate risk management strategies.

Deposits Total deposits were $105.1 billion at June 30, 2002, essentially flat, compared with $105.2 billion at December 31, 2001. Noninterest-bearing deposits were also essentially flat at $31.3 billion at June 30, 2002, compared with $31.2 billion at December 31, 2001. Interest-bearing deposits totaled $73.8 billion at June 30, 2002, compared with $74.0 billion at December 31, 2001. The decline in interest-bearing deposits was driven by declines in higher cost time certificates (7.6 percent) and money market accounts

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BorrowingsShort-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, were $9.2 billion at June 30, 2002, compared with $14.7 billion at December 31, 2001. The decrease of $5.5 billion (37.6 percent) in short-term borrowings reflected a shift toward longer-term funding sources in connection with certain asset/liability decisions related to the management of interest rate risk given the historically low rate environment. Long-term debt was $33.0 billion at June 30, 2002, compared with $25.7 billion at December 31, 2001. The $7.3 billion (28.4 percent) increase in long-term debt included the issuance of $1.0 billion of fixed-rate subordinated notes in February 2002, the $5.4 billion issuance of medium-term and long-term bank notes and the issuance of $3.1 billion in long-term Federal Home Loan Bank advances in the first six months of 2002. The increase in long-term debt was partially offset by repayments and maturities of $2.4 billion during the first six months of 2002.

CORPORATE RISK PROFILE

Overview Managing risks is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit, interest rate, market and liquidity. The Company also has exposure related to changes in residual valuations and ongoing operational activities. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. 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 account 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 and borrowers. 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 such as fraud, legal risk, processing errors and breaches of internal controls.

Credit Risk ManagementThe Company’s strategy for credit risk management includes stringent, centralized credit policies, and uniform underwriting criteria for all loans, including specialized lending categories such as mortgage banking, commercial real estate and real estate construction financing, leveraged financing and consumer credit. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and quarterly management reviews of large loans and loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take any necessary charge-offs promptly and maintain adequate reserve levels. Commercial banking operations rely on a strong credit culture that combines prudent credit policies and individual lender accountability. In addition, the commercial lenders generally focus on middle market companies within their regions or niche national markets. The Company utilizes a credit risk rating system to measure the credit quality of individual commercial loan transactions and regularly forecasts potential changes in risk ratings and nonperforming status. The risk rating system is intended to identify and measure the credit quality of lending relationships. In the Company’s retail banking operations, standard credit scoring systems are used to assess consumer credit risks and to price consumer products accordingly. The Company also engages in nonlending activities that may give rise to credit risk, including interest rate swap contracts for balance sheet hedging purposes, foreign exchange transactions and interest rate swap contracts for customers, and the processing of credit card transactions for merchants. These activities are also subject to a credit review, analysis and approval processes.

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Analysis of Net Loan Charge-offsTotal net loan charge-offs were $330.5 million and $665.5 million during the second quarter and the first six months of 2002, respectively, compared with net charge-offs of $240.3 million and $717.4 million, respectively, for the same periods of 2001. Included in the 2001 year-to-date net charge-offs were $90.0 million of merger and restructuring-related write-offs taken to conform risk management practices, align charge-off policies and expedite the transition out of a specific segment of the healthcare portfolio not meeting the risk profile of the Company. The 2001 year-to-date net charge-offs also included $160.0 million of charge-offs taken in the first quarter of 2001 related to the Company’s accelerated loan workout strategy. The level of net charge-offs during the second quarter and the first six months of 2002 reflected the impact of economic conditions and continued stress in various industry sectors. Management expects net charge-offs to remain at elevated levels but expects a lower trend by the end of the year.

Table 6		Net Charge-offs as a Percent of Average Loans Outstanding

					Three Months Ended								Six Months Ended
					June 30,								June 30,
					2002				2001				2002				2001
Commercial
	Commercial					1.14	%			.66	%			1.19	%			1.51	%
	Lease financing					2.52				.62				2.39				.99
		Total commercial				1.32				.66				1.34				1.45
Commercial real estate
	Commercial mortgages					.13				—				.16				.30
	Construction and development					.02				.14				.07				.09
		Total commercial real estate				.10				.04				.14				.24
Residential mortgages						.19				.15				.16				.15
Retail
	Credit card					5.23				4.86				5.03				4.51
	Retail leasing					.62				.63				.73				.61
	Home equity and second mortgages					.77				.66				.81				.78
	Other retail					2.24				1.98				2.23				2.11
		Total retail				1.93				1.83				1.94				1.85
			Total loans			1.16	%			.81	%			1.18	%			1.20	%

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Analysis of Nonperforming AssetsNonperforming assets include nonaccrual loans, restructured loans, other real estate and other nonperforming assets owned by the Company. Interest payments are typically applied against the principal balance and not recorded as income. At June 30, 2002, nonperforming assets totaled $1,147.7 million, compared with $1,120.0 million at December 31, 2001. The ratio of nonperforming assets to loans and other real estate was 1.00 percent at June 30, 2002, compared with a ratio of .98 percent at December 31, 2001. Nonperforming assets are expected to remain at elevated levels for the remainder of the year and may increase in the third quarter of 2002, primarily related to the telecommunications and cable industry sectors and leveraged enterprise financings. The Company does not expect to see a significant reduction in the level of nonperforming assets until the economy rebounds.

Analysis and Determination of the Allowance for Credit Losses The allowance for credit losses provides coverage for probable losses inherent in the Company’s loan 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.

Interest Rate Risk ManagementThe Company manages its exposure to adverse changes in interest rates through asset and liability management activities within guidelines established by its Asset/ Liability Policy Committee (“ALPC”). The Company limits the exposure of interest rate sensitive revenues, which includes both net interest income and selected other income, associated with interest rate movements through asset/ liability management strategies. ALPC uses simulation modeling and market value of equity as the primary methods for measuring and managing consolidated interest rate risk.

Interest Sensitive Revenue SimulationThe Company performs simulation analysis to estimate the impact of changes in interest rates on net interest income and

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Table 7		Nonperforming Assets (a)

					June 30,				December 31,
(Dollars in Millions)					2002				2001
Commercial
	Commercial				$	549.9			$	526.6
	Lease financing					202.0				180.8
		Total commercial				751.9				707.4
Commercial real estate
	Commercial mortgages					133.6				131.3
	Construction and development					43.4				35.9
		Total commercial real estate				177.0				167.2
Residential mortgages						62.0				79.1
Retail
	Retail leasing					.4				6.5
	Other retail					33.9				41.1
		Total retail				34.3				47.6
			Total nonperforming loans			1,025.2				1,001.3
Other real estate						49.8				43.8
Other assets						72.7				74.9
			Total nonperforming assets		$	1,147.7			$	1,120.0
Accruing loans 90 days or more past due (b)					$	392.6			$	462.9
Nonperforming loans to total loans						.89	%			.88	%
Nonperforming assets to total loans plus other real estate						1.00				.98

Delinquent Loan Ratios (c)

					June 30,				December 31,
90 days or more past due					2002				2001
Commercial
	Commercial					1.53	%			1.44	%
	Lease financing					3.61				3.53
		Total commercial				1.79				1.71
Commercial real estate
	Commercial mortgages					.78				.73
	Construction and development					1.07				.56
		Total commercial real estate				.85				.68
Residential mortgages						1.64				1.79
Retail
	Credit card					1.76				2.18
	Retail leasing					.11				.24
	Other retail					.64				.92
		Total retail				.74				1.03
			Total loans			1.24	%			1.28	%

(a)		Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)		These loans are not included in nonperforming assets and continue to accrue interest because they are secured by collateral and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status.
(c)		Ratios include nonperforming loans and are expressed as a percent of ending loan balances.

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Table 8		Summary of Allowance for Credit Losses

						Three Months Ended								Six Months Ended
						June 30,								June 30,
(Dollars in Millions)						2002				2001				2002				2001
Balance at beginning of period						$	2,461.5			$	1,729.1			$	2,457.3			$	1,786.9
Charge-offs
	Commercial
		Commercial					136.6				86.2				267.6				369.4
		Lease financing					45.4				15.3				87.4				44.4
			Total commercial				182.0				101.5				355.0				413.8
	Commercial real estate
		Commercial mortgages					8.3				4.0				18.3				35.5
		Construction and development					.5				2.7				2.5				4.1
			Total commercial real estate				8.8				6.7				20.8				39.6
	Residential mortgages						4.8				4.3				8.9				8.2
	Retail
		Credit card					79.8				74.7				152.7				139.2
		Retail leasing					11.0				8.2				22.7				15.1
		Home equity and second mortgages					27.4				22.1				55.2				52.8
		Other retail					79.2				73.3				163.4				157.8
			Total retail				197.4				178.3				394.0				364.9
				Total charge-offs			393.0				290.8				778.7				826.5
Recoveries
	Commercial
		Commercial					26.0				10.7				36.5				23.6
		Lease financing					10.2				6.2				20.1				15.7
			Total commercial				36.2				16.9				56.6				39.3
	Commercial real estate
		Commercial mortgages					2.3				4.2				3.5				7.2
		Construction and development					.1				.2				.2				.8
			Total commercial real estate				2.4				4.4				3.7				8.0
	Residential mortgages						.9				1.0				2.3				1.7
	Retail
		Credit card					6.4				6.2				12.3				12.9
		Retail leasing					2.7				1.2				3.9				1.9
		Home equity and second mortgages					2.1				3.4				3.8				7.6
		Other retail					11.8				17.4				30.6				37.7
			Total retail				23.0				28.2				50.6				60.1
				Total recoveries			62.5				50.5				113.2				109.1
Net Charge-offs
	Commercial
		Commercial					110.6				75.5				231.1				345.8
		Lease financing					35.2				9.1				67.3				28.7
			Total commercial				145.8				84.6				298.4				374.5
	Commercial real estate
		Commercial mortgages					6.0				(.2	)			14.8				28.3
		Construction and development					.4				2.5				2.3				3.3
			Total commercial real estate				6.4				2.3				17.1				31.6
	Residential mortgages						3.9				3.3				6.6				6.5
	Retail
		Credit card					73.4				68.5				140.4				126.3
		Retail leasing					8.3				7.0				18.8				13.2
		Home equity and second mortgages					25.3				18.7				51.4				45.2
		Other retail					67.4				55.9				132.8				120.1
			Total retail				174.4				150.1				343.4				304.8
				Total net charge-offs			330.5				240.3				665.5				717.4
Provision for credit losses							335.0				441.3				670.0				973.7
Losses from loan sales/transfers							—				(214.4	)			—				(328.0	)
Acquisitions and other changes							.4				—				4.6				.5
Balance at end of period						$	2,466.4			$	1,715.7			$	2,466.4			$	1,715.7
Allowance as a percentage of:
	Period-end loans						2.15	%			1.45	%
	Nonperforming loans						241				156
	Nonperforming assets						215				141
	Annualized net charge-offs						186				178

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Market Value of Equity ModelingThe 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 Company’s assets and liabilities and off-balance sheet instruments will change given a change in interest rates. The amount of market value risk is subject to a limit, approved by the Company’s Board of Directors, of a 15 percent change for an immediate 200 basis point rate shock. Given the low level of rates, currently the down 200 basis point scenario cannot be computed. ALPC reviews other down-rate scenarios to evaluate the impact of falling rates.

Use of Derivatives to Manage Interest Rate Risk In the ordinary course of business, the Company enters into derivative transactions to manage interest rate risk and to accommodate the business requirements of its customers. 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. In connection with its mortgage banking operations, the Company enters into forward commitments to sell mortgage loans related to

Table 9		Derivative Positions

Asset and Liability Management Positions																																				Weighted-
				Maturing																																Average
																																				Remaining
																																Fair				Maturity
June 30, 2002 (Dollars in Millions)				2002				2003				2004				2005				2006				Thereafter				Total				Value				In Years
Receive fixed/pay floating swaps
	Notional amount			$	5,273			$	736			$	473			$	1,361			$	370			$	10,060			$	18,273			$	449.4				6.25
	Weighted-average
		Receive rate			4.98	%			6.01	%			6.86	%			6.00	%			4.83	%			5.85	%			5.62	%
		Pay rate			1.86				1.89				1.87				2.05				1.84				2.10				2.01
Pay fixed/receive floating swaps
	Notional amount			$	—			$	2,200			$	2,050			$	365			$	—			$	—			$	4,615			$	(39.2	)			1.67
	Weighted-average
		Receive rate			—	%			1.84	%			1.85	%			1.98	%			—	%			—	%			1.86	%
		Pay rate			—				2.74				3.81				4.28				—				—				3.34
Future and forwards				$	2,846			$	—			$	—			$	—			$	—			$	—			$	2,846			$	(27.7	)		$	.13
Options					—				—				—				—				45				—				45				—				4.38
Intermediated for Customers
Receive fixed/pay floating swaps
	Notional amount			$	155			$	778			$	407			$	551			$	491			$	886			$	3,268			$	99.0				3.83
Pay fixed/receive floating swaps
	Notional amount				155				773				407				551				491				944				3,321				(85.3	)			3.92
Basis swaps					—				—				2				—				—				—				2				—				2.18
Options					391				603				74				21				30				73				1,192				—				1.25
Foreign exchange contracts
	Purchase				1,110				874				1				—				—				—				1,985				99.7				.25
	Sell				1,117				847				1				—				—				—				1,965				(108.9	)			.25

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Market Risk ManagementMarket risk is subject to regular monitoring by management. The Company uses a value-at-risk (“VaR”) model to measure and manage market risk in its trading activities. The VaR model uses an estimate of volatility appropriate to each instrument and a ninety-ninth percentile adverse move in the underlying markets. The Company establishes market risk limits, subject to approval by the Company’s Board of Directors. The Company’s VaR limit was $40 million at June 30, 2002. The market valuation risk inherent in its customer-based derivative trading, mortgage banking pipeline, broker-dealer activities (including equities, fixed-income, and high-yield securities) and foreign exchange, as estimated by the VaR analysis, was $11.2 million at June 30, 2002.

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

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Residual Risk ManagementThe Company manages its risk to changes in the value of lease residual assets through disciplined residual setting and valuation at the inception of a lease, diversification of its vehicles, a focus on a longer term vehicle leases, effective end-of-term marketing of off-lease vehicles, regular asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. To reduce the financial impact of potential changes in vehicle residuals, the Company maintains residual value risk insurance. Also, equipment lease originations are subject to the same stringent underwriting standards referred to in the segment captioned “Credit Risk Management.”

Operational Risk ManagementOperational risk represents the risk of loss resulting from the 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 systems, and breaches of the internal control system and compliance requirements. 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.

Capital ManagementThe Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. Total shareholders’ equity was $16.7 billion at June 30, 2002, compared with $16.5 billion at December 31, 2001. The increase was the result of increased corporate earnings, including merger and restructuring-related items and cumulative effect of change in accounting principles, offset by dividends, share buybacks and acquisitions.

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LINE OF BUSINESS FINANCIAL REVIEW

Wholesale BankingWholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $378.9 million of the Company’s net operating earnings in the second quarter of 2002 and $771.7 million in the first six months of 2002, a 5.2 percent decrease and 32.9 percent increase, respectively, over the same periods of 2001.

Table 10		Capital Ratios

			June 30,				December 31,
(Dollars in Millions)			2002				2001
Tangible common equity				$9,511			$	9,374
	As a percent of tangible assets			5.7	%			5.7	%
Tier 1 capital				$12,628			$	12,488
	As a percent of risk-weighted assets			7.9	%			7.7	%
	As a percent of adjusted quarterly average assets (leverage ratio)			7.8	%			7.7	%
Total risk-based capital				$19,937			$	19,148
	As a percent of risk-weighted assets			12.5	%			11.7	%

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Table 11		Line of Business Financial Performance

				Wholesale												Consumer												Private Client, Trust
				Banking												Banking												and Asset Management
												Percent												Percent												Percent
For the Three Months Ended June 30 (Dollars in Millions)				2002				2001				Change				2002				2001				Change				2002				2001				Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)				$	492.7			$	545.6				(9.7	)%		$	820.2			$	820.5				—	%		$	81.5			$	78.6				3.7	%
Noninterest income					185.3				156.6				18.3				344.2				333.8				3.1				226.9				224.0				1.3
	Total net revenue				678.0				702.2				(3.4	)			1,164.4				1,154.3				.9				308.4				302.6				1.9
Noninterest expense					107.0				94.8				12.9				414.3				423.8				(2.2	)			111.0				102.4				8.4
Other intangible amortization					5.2				6.5				(20.0	)			52.5				33.1				58.6				7.9				7.7				2.6
Goodwill amortization					—				—				—				—				—				—				—				—				—
	Total noninterest expense				112.2				101.3				10.8				466.8				456.9				2.2				118.9				110.1				8.0
		Operating income			565.8				600.9				(5.8	)			697.6				697.4				—				189.5				192.5				(1.6	)
Provision for credit losses					(29.8	)			(27.3	)			9.2				73.2				88.3				(17.1	)			2.2				4.0				(45.0	)
Income before income taxes					595.6				628.2				(5.2	)			624.4				609.1				2.5				187.3				188.5				(.6	)
Income taxes and taxable-equivalent adjustment					216.7				228.6				(5.2	)			227.2				221.7				2.5				68.1				68.6				(.7	)
Operating earnings, before merger and restructuring- related items and cumulative effect of change in accounting principles				$	378.9			$	399.6				(5.2	)		$	397.2			$	387.4				2.5			$	119.2			$	119.9				(.6	)
Merger and restructuring-related items (after-tax)
Cumulative effect of change in accounting principles
Net income
Average Balance Sheet Data
Commercial				$	32,054			$	38,606				(17.0	)		$	7,366			$	8,779				(16.1	)		$	1,829			$	1,726				6.0
Commercial real estate					15,899				17,332				(8.3	)			8,501				8,144				4.4				593				578				2.6
Residential mortgages					174				155				12.3				7,775				8,475				(8.3	)			237				170				39.4
Retail					165				226				(27.0	)			26,635				23,246				14.6				2,030				1,875				8.3
	Total loans				48,292				56,319				(14.3	)			50,277				48,644				3.4				4,689				4,349				7.8
Goodwill					1,314				1,360				(3.4	)			1,720				1,717				.2				289				278				4.0
Other intangible assets					130				146				(11.0	)			1,000				721				38.7				232				249				(6.8	)
Assets					54,497				63,514				(14.2	)			58,387				56,444				3.4				5,730				5,678				.9
Noninterest-bearing deposits					11,966				10,366				15.4				12,549				11,848				5.9				2,330				2,046				13.9
Savings products					4,912				4,111				19.5				35,275				34,270				2.9				4,268				4,516				(5.5	)
Time deposits					2,292				2,481				(7.6	)			22,905				27,379				(16.3	)			489				571				(14.4	)
	Total deposits				19,170				16,958				13.0				70,729				73,497				(3.8	)			7,087				7,133				(.6	)
Shareholders’ equity					5,340				6,402				(16.6	)			4,698				5,076				(7.4	)			1,351				1,407				(4.0	)

				Wholesale												Consumer												Private Client, Trust
				Banking												Banking												and Asset Management
												Percent												Percent												Percent
For the Six Months Ended June 30 (Dollars in Millions)				2002				2001				Change				2002				2001				Change				2002				2001				Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)				$	986.7			$	1,105.3				(10.7	)%		$	1,619.8			$	1,638.4				(1.1	)%		$	162.1			$	154.8				4.7	%
Noninterest income					366.3				294.2				24.5				637.9				629.1				1.4				448.0				444.2				.9
	Total net revenue				1,353.0				1,399.5				(3.3	)			2,257.7				2,267.5				(.4	)			610.1				599.0				1.9
Noninterest expense					199.2				196.0				1.6				826.9				849.4				(2.6	)			222.9				226.6				(1.6	)
Other intangible amortization					10.4				12.5				(16.8	)			81.0				60.4				34.1				15.5				15.2				2.0
Goodwill amortization					—				—				—				—				—				—				—				—				—
	Total noninterest expense				209.6				208.5				.5				907.9				909.8				(.2	)			238.4				241.8				(1.4	)
		Operating income			1,143.4				1,191.0				(4.0	)			1,349.8				1,357.7				(.6	)			371.7				357.2				4.1
Provision for credit losses					(69.7	)			278.2				*				193.2				200.6				(3.7	)			5.9				5.8				1.7
Income before income taxes					1,213.1				912.8				32.9				1,156.6				1,157.1				—				365.8				351.4				4.1
Income taxes and taxable-equivalent adjustment					441.4				332.2				32.9				420.9				421.1				—				133.1				127.9				4.1
Operating earnings, before merger and restructuring- related items and cumulative effect of change in accounting principles				$	771.7			$	580.6				32.9			$	735.7			$	736.0				—			$	232.7			$	223.5				4.1
Merger and restructuring-related items (after-tax)
Cumulative effect of change in accounting principles
Net income
Average Balance Sheet Data
Commercial				$	32,521			$	39,202				(17.0	)		$	7,477			$	8,764				(14.7	)		$	1,819			$	1,714				6.1
Commercial real estate					15,886				17,393				(8.7	)			8,506				8,130				4.6				595				575				3.5
Residential mortgages					157				159				(1.3	)			7,689				8,684				(11.5	)			226				171				32.2
Retail					174				224				(22.3	)			26,179				23,597				10.9				1,982				1,842				7.6
	Total loans				48,738				56,978				(14.5	)			49,851				49,175				1.4				4,622				4,302				7.4
Goodwill					1,347				1,415				(4.8	)			1,709				1,731				(1.3	)			288				291				(1.0	)
Other intangible assets					132				165				(20.0	)			892				604				47.7				233				259				(10.0	)
Assets					55,233				64,204				(14.0	)			58,101				56,577				2.7				5,760				5,662				1.7
Noninterest-bearing deposits					12,119				10,083				20.2				12,450				11,709				6.3				2,315				1,978				17.0
Savings products					4,873				3,750				29.9				35,308				34,121				3.5				4,258				4,466				(4.7	)
Time deposits					2,271				2,488				(8.7	)			23,346				28,115				(17.0	)			473				589				(19.7	)
	Total deposits				19,263				16,321				18.0				71,104				73,945				(3.8	)			7,046				7,033				.2
Shareholders’ equity					5,362				6,507				(17.6	)			4,617				4,962				(7.0	)			1,352				1,424				(5.1	)

*		Not meaningful

22	U.S. Bancorp

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Payment												Capital												Treasury and												Consolidated
Services												Markets												Corporate Support												Company
								Percent												Percent												Percent												Percent
2002				2001				Change				2002				2001				Change				2002				2001				Change				2002				2001				Change
$	168.4			$	145.9				15.4	%		$	3.8			$	9.0				(57.8	)%		$	123.2			$	(24.8	)			*	%		$	1,689.8			$	1,574.8				7.3	%
	406.2				275.5				47.4				194.0				217.5				(10.8	)			80.7				68.2				18.3				1,437.3				1,275.6				12.7
	574.6				421.4				36.4				197.8				226.5				(12.7	)			203.9				43.4				*				3,127.1				2,850.4				9.7
	161.6				108.7				48.7				180.9				195.5				(7.5	)			369.3				304.1				21.4				1,344.1				1,229.3				9.3
	38.8				6.3				*				—				—				—				.3				.4				(25.0	)			104.7				54.0				93.9
	—				—				—				—				—				—				—				58.6				*				—				58.6				*
	200.4				115.0				74.3				180.9				195.5				(7.5	)			369.6				363.1				1.8				1,448.8				1,341.9				8.0
	374.2				306.4				22.1				16.9				31.0				(45.5	)			(165.7	)			(319.7	)			48.2				1,678.3				1,508.5				11.3
	108.1				130.3				(17.0	)			—				—				—				181.3				44.7				*				335.0				240.0				39.6
	266.1				176.1				51.1				16.9				31.0				(45.5	)			(347.0	)			(364.4	)			4.8				1,343.3				1,268.5				5.9
	96.8				64.1				51.0				6.1				11.3				(46.0	)			(141.4	)			(144.4	)			2.1				473.5				449.9				5.2
$	169.3			$	112.0				51.2			$	10.8			$	19.7				(45.2	)		$	(205.6	)		$	(220.0	)			6.5				869.8				818.6				6.3
																																					(46.7	)			(256.3	)
																																				$	823.1			$	562.3
$	2,807			$	2,574				9.1			$	243			$	187				29.9			$	128			$	(375	)			*			$	44,427			$	51,497				(13.7	)
	—				—				—				—				—				—				236				297				(20.5	)			25,229				26,351				(4.3	)
	—				—				—				—				—				—				8				10				(20.0	)			8,194				8,810				(7.0	)
	7,291				7,394				(1.4	)			1				1				—				45				69				(34.8	)			36,167				32,811				10.2
	10,098				9,968				1.3				244				188				29.8				417				1				*				114,017				119,469				(4.6	)
	1,813				298				*				306				311				(1.6	)			—				—				—				5,442				3,964				37.3
	773				130				*				—				—				—				14				—				*				2,149				1,246				72.5
	13,157				10,767				22.2				3,184				3,065				3.9				34,192				25,339				34.9				169,147				164,807				2.6
	219				165				32.7				204				164				24.4				(1	)			(77	)			(98.7	)			27,267				24,512				11.2
	4				3				33.3				—				—				—				200				499				(59.9	)			44,659				43,399				2.9
	—				—				—				—				—				—				4,838				8,926				(45.8	)			30,524				39,357				(22.4	)
	223				168				32.7				204				164				24.4				5,037				9,348				(46.1	)			102,450				107,268				(4.5	)
	3,216				1,030				*				437				461				(5.2	)			1,433				1,233				16.2				16,475				15,609				5.5

Payment												Capital												Treasury and												Consolidated
Services												Markets												Corporate Support												Company
								Percent												Percent												Percent												Percent
2002				2001				Change				2002				2001				Change				2002				2001				Change				2002				2001				Change
$	340.9			$	291.9				16.8	%		$	11.9			$	17.7				(32.8	)%		$	238.8			$	(69.0	)			*	%		$	3,360.2			$	3,139.1				7.0	%
	770.8				538.2				43.2				364.6				438.9				(16.9	)			176.6				341.7				(48.3	)			2,764.2				2,686.3				2.9
	1,111.7				830.1				33.9				376.5				456.6				(17.5	)			415.4				272.7				52.3				6,124.4				5,825.4				5.1
	324.5				215.2				50.8				336.9				389.8				(13.6	)			716.1				632.2				13.3				2,626.5				2,509.2				4.7
	77.4				12.5				*				—				—				—				.6				—				*				184.9				100.6				83.8
	—				—				—				—				—				—				—				126.4				*				—				126.4				*
	401.9				227.7				76.5				336.9				389.8				(13.6	)			716.7				758.6				(5.5	)			2,811.4				2,736.2				2.7
	709.8				602.4				17.8				39.6				66.8				(40.7	)			(301.3	)			(485.9	)			38.0				3,313.0				3,089.2				7.2
	217.9				217.3				.3				—				—				—				322.7				(96.1	)			*				670.0				605.8				10.6
	491.9				385.1				27.7				39.6				66.8				(40.7	)			(624.0	)			(389.8	)			(60.1	)			2,643.0				2,483.4				6.4
	179.0				140.1				27.8				14.4				24.3				(40.7	)			(257.2	)			(178.1	)			(44.4	)			931.6				867.5				7.4
$	312.9			$	245.0				27.7			$	25.2			$	42.5				(40.7	)		$	(366.8	)		$	(211.7	)			(73.3	)			1,711.4				1,615.9				5.9
																																					(95.1	)			(643.5	)
																																					(37.2	)			—
																																				$	1,579.1			$	972.4
$	2,762			$	2,533				9.0			$	245			$	183				33.9			$	78			$	(364	)			*			$	44,902			$	52,032				(13.7	)
	—				—				—				—				—				—				220				306				(28.1	)			25,207				26,404				(4.5	)
	—				—				—				—				—				—				6				9				(33.3	)			8,078				9,023				(10.5	)
	7,301				7,396				(1.3	)			1				1				—				42				94				(55.3	)			35,679				33,154				7.6
	10,063				9,929				1.3				246				184				33.7				346				45				*				113,866				120,613				(5.6	)
	1,817				307				*				306				331				(7.6	)			—				3				*				5,467				4,078				34.1
	786				132				*				—				—				—				11				—				*				2,054				1,160				77.1
	13,201				10,751				22.8				3,202				3,109				3.0				32,969				23,682				39.2				168,466				163,985				2.7
	273				161				69.6				210				162				29.6				8				(39	)			*				27,375				24,054				13.8
	3				3				—				—				—				—				249				597				(58.3	)			44,691				42,937				4.1
	—				—				—				—				—				—				4,076				7,701				(47.1	)			30,166				38,893				(22.4	)
	276				164				68.3				210				162				29.6				4,333				8,259				(47.5	)			102,232				105,884				(3.4	)
	3,208				1,024				*				434				480				(9.6	)			1,345				1,141				17.9				16,318				15,538				5.0

U.S. Bancorp	23

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Consumer BankingConsumer 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, small business banking, consumer lending, mortgage banking, workplace banking, student banking, 24-hour banking and investment product and insurance sales. Consumer Banking contributed $397.2 million of the Company’s net operating earnings for the second quarter of 2002 and $735.7 million for the first six months of 2002, a 2.5 percent increase and no change, respectively, over the same periods of 2001.

24	U.S. Bancorp

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Private Client, Trust and Asset ManagementPrivate Client, Trust and Asset Management provides mutual fund processing services, trust, private banking and financial advisory services through four businesses, including: the Private Client Group, Corporate Trust, Institutional Trust and Custody, and Mutual Fund Services, LLC. The business segment also offers investment management services to several client segments including mutual funds, institutional customers, and private asset management. Private Client, Trust and Asset Management contributed $119.2 million of the Company’s net operating earnings for the second quarter of 2002 and $232.7 million in the first six months of 2002, a .6 percent decrease and 4.1 percent increase, respectively, from the same periods in 2001.

Payment ServicesPayment Services includes consumer and business credit cards, corporate and purchasing card services, consumer lines of credit, ATM processing, merchant processing and debit cards. Payment Services contributed $169.3 million of the Company’s net operating earnings for the second quarter of 2002 and $312.9 million for the first six months of 2002, a 51.2 percent and 27.7 percent increase, respectively, over the second quarter and the first six months of 2001. The business unit’s financial results were, in part, driven by the impact of the NOVA acquisition completed during the third quarter of 2001.

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Capital MarketsCapital Markets engages in equity and fixed income trading activities, offers investment banking and underwriting services for corporate and public sector customers and provides financial advisory services and securities, mutual funds, annuities and insurance products to consumers and regionally based businesses through a network of brokerage offices. Capital Markets contributed $10.8 million of the Company’s net operating earnings for the second quarter of 2002 and $25.2 million for the first six months of 2002, a 45.2 percent and 40.7 percent decline, respectively, from the second quarter and the first six months of 2001. The unfavorable variance in net operating income from the second quarter and the first six months of 2001 was due to a decline in fees related to trading, investment product fees and commissions, investment banking fees and mark to market valuation adjustments reflecting the recent adverse capital markets conditions. Capital markets activities continued to experience weak sales volumes and lower levels of investment banking and merger and acquisition transactions. Management anticipates continued softness in sales activities and related revenue growth throughout the next several quarters. In response to the adverse market conditions, the Company restructured the division beginning in the second quarter of 2001 to improve the operating model and rationalize the distribution network.

Treasury and Corporate SupportTreasury and Corporate Support includes the Company’s 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 change in residual allocations associated with the provision for loan losses. It also includes business activities managed on a corporate basis, including enterprise-wide operations and administrative support functions. Treasury and Corporate Support recorded net operating losses of $205.6 million in the second quarter of 2002 and $366.8 million for the first six months of 2002, a 6.5 percent improvement and 73.3 percent decline, respectively, from the comparable periods of 2001. During the second quarter of 2002, total net revenue was $203.9 million, compared with $43.4 million in the second quarter of 2001. The $160.5 million increase was attributable to an increase in net interest income. The increase in net interest income was primarily due to an increase in average investments of $6.7 billion from a year ago and the benefit of changes in the mix of funding during the declining rate environment. Noninterest income decreased $165.1 million during the first six months of 2002, compared with the same period for 2001 with securities gains of $73.3 million and $238.2 million, respectively. Noninterest expense was $369.6 million in the second quarter of 2002, compared with $363.1 million for the same period of 2001. The provision for credit losses for this business unit represents the residual aggregate of the credit losses allocated to the reportable business units and the Company’s recorded provision determined in accordance with generally accepted accounting principles in the United States. The provision for credit losses was $181.3 million for the second quarter of 2002 and $322.7 million for the first six months of 2002, compared with $44.7 million and a net recovery of $96.1 million, respectively, for the comparable periods in 2001. The increase in provision expense period over period reflected continued elevated levels of net charge-offs and nonperforming assets on a consolidated level, despite the improving credit risk profile in the other reportable business units which was driven by reductions in higher risk loan commitments and the Company’s workout strategies. Refer to the “Corporate Risk Profile” section for further information on 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.

ACCOUNTING CHANGES

Accounting for Business Combinations and Goodwill and Other Intangible AssetsIn June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations,” and Statement of Financial Accounting Standard No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 141 mandates the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS 142 addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The Company adopted SFAS 142 on January 1, 2002. The most significant changes made by SFAS 142 are that goodwill and indefinite lived intangible assets are no longer amortized and will be tested for impairment at least

26	U.S. Bancorp

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Consolidated Balance Sheet" -->

					June 30,				December 31,
(Dollars in Millions)					2002				2001
					(Unaudited)
Assets
Cash and due from banks					$	7,531			$	9,120
Money market investments						1,113				625
Trading account securities						703				982
Investment securities
	Held-to-maturity (fair value $296 and $306, respectively)					290				299
	Available-for-sale					30,384				26,309
Loans held for sale						1,930				2,820
Loans
	Commercial					44,491				46,330
	Commercial real estate					25,300				25,373
	Residential mortgages					8,107				7,829
	Retail					36,672				34,873
		Total loans				114,570				114,405
			Less allowance for credit losses			2,466				2,457
			Net loans			112,104				111,948
Premises and equipment						1,718				1,741
Customers’ liability on acceptances						157				178
Goodwill						5,442				5,459
Other intangible assets						2,176				1,953
Other assets						9,408				9,956
		Total assets			$	172,956			$	171,390
Liabilities and Shareholders’ Equity
Deposits
	Noninterest-bearing				$	31,272			$	31,212
	Interest-bearing					63,172				65,447
	Time deposits greater than $100,000					10,612				8,560
		Total deposits				105,056				105,219
Short-term borrowings						9,156				14,670
Long-term debt						33,008				25,716
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company						2,894				2,826
Acceptances outstanding						157				178
Other liabilities						6,035				6,320
		Total liabilities				156,306				154,929
Shareholders’ equity
	Common stock, par value $0.01 a share authorized: 6/30/02 and 12/31/01 — 4,000,000,000 shares issued: 6/30/02 — 1,972,773,566 shares; 12/31/01 — 1,972,777,763 shares					20				20
	Capital surplus					4,875				4,906
	Retained earnings					12,756				11,918
	Less cost of common stock in treasury: 6/30/02 — 58,593,417 shares; 12/31/01 — 21,068,251 shares					(1,341	)			(478	)
	Other comprehensive income					340				95
		Total shareholders’ equity				16,650				16,461
		Total liabilities and shareholders’ equity			$	172,956			$	171,390

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Income" -->

				Three Months Ended								Six Months Ended
				June 30,								June 30,
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)				2002				2001				2002				2001
Interest Income
Loans				$	1,936.9			$	2,426.7			$	3,868.8			$	5,077.8
Loans held for sale					36.6				25.9				75.8				42.5
Investment securities
	Taxable				346.1				287.8				693.9				541.1
	Non-taxable				11.7				27.8				24.9				59.0
Money market investments					2.2				7.4				5.5				16.3
Trading securities					9.4				14.1				17.6				30.0
Other interest income					32.7				26.1				51.7				58.1
		Total interest income			2,375.6				2,815.8				4,738.2				5,824.8
Interest Expense
Deposits					375.8				783.0				771.3				1,666.7
Short-term borrowings					68.3				124.4				147.2				310.6
Long-term debt					197.9				315.0				371.0				680.7
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company					52.8				35.4				106.6				63.0
		Total interest expense			694.8				1,257.8				1,396.1				2,721.0
Net interest income					1,680.8				1,558.0				3,342.1				3,103.8
Provision for credit losses					335.0				441.3				670.0				973.7
Net interest income after provision for credit losses					1,345.8				1,116.7				2,672.1				2,130.1
Noninterest Income
Credit and debit card revenue					131.2				118.8				240.5				227.8
Corporate payment products revenue					82.5				77.4				157.7				156.2
Merchant processing services					144.4				31.4				278.0				61.7
ATM processing services					33.5				33.0				64.4				64.6
Trust and investment management fees					234.9				228.0				459.2				453.0
Deposit service charges					170.2				176.7				322.8				323.2
Cash management fees					104.3				84.9				208.5				161.7
Mortgage banking revenue					75.4				57.0				127.4				105.2
Trading account profits and commissions					49.5				55.8				99.4				127.7
Investment products fees and commissions					107.4				114.2				218.5				239.9
Investment banking revenue					70.5				71.1				123.7				131.3
Commercial product revenue					127.0				105.0				245.9				190.9
Securities gains, net					30.6				31.3				74.7				247.3
Merger and restructuring-related gains					—				62.2				—				62.2
Other					75.9				91.0				143.5				195.8
		Total noninterest income			1,437.3				1,337.8				2,764.2				2,748.5
Noninterest Expense
Salaries					607.6				570.5				1,195.9				1,161.0
Employee benefits					91.1				90.7				187.5				198.8
Net occupancy					101.8				101.4				201.9				211.5
Furniture and equipment					77.0				74.9				153.9				151.8
Capitalized software					37.7				33.2				76.1				63.3
Communication					44.1				50.3				89.8				89.0
Postage					44.4				43.8				91.0				90.7
Goodwill					—				58.6				—				126.4
Other intangible assets					104.7				54.0				184.9				100.6
Merger and restructuring-related charges					71.6				252.8				145.8				657.0
Other					340.4				264.5				630.4				543.1
		Total noninterest expense			1,520.4				1,594.7				2,957.2				3,393.2
Income before income taxes and cumulative effect of change in accounting principles					1,262.7				859.8				2,479.1				1,485.4
Applicable income taxes					439.6				297.5				862.8				513.0
Income before cumulative effect of change in accounting principles					823.1				562.3				1,616.3				972.4
Cumulative effect of change in accounting principles					—				—				(37.2	)			—
Net income				$	823.1			$	562.3			$	1,579.1			$	972.4
Earnings Per Share
	Income before cumulative effect of change in accounting principles			$	.43			$	.30			$	.84			$	.51
	Cumulative effect of change in accounting principles				—				—				(.02	)			—
	Net income			$	.43			$	.30			$	.82			$	.51
Diluted Earnings Per Share
	Income before cumulative effect of change in accounting principles			$	.43			$	.29			$	.84			$	.51
	Cumulative effect of change in accounting principles				—				—				(.02	)			—
	Net income			$	.43			$	.29			$	.82			$	.51
Dividends declared per share					.195				.1875				.39				.375
Average common shares					1,913.2				1,905.3				1,916.5				1,903.2
Average diluted common shares					1,926.9				1,917.2				1,928.5				1,916.4

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Shareholders’ Equity" -->

																							Other				Total
(Dollars in Millions)			Common Shares				Common				Capital				Retained				Treasury				Comprehensive				Shareholders’
(Unaudited)			Outstanding				Stock				Surplus				Earnings				Stock				Income				Equity
Balance December 31, 2000				1,902,083,434			$	19.4			$	4,275.6			$	11,658.0			$	(880.1	)		$	95.5			$	15,168.4
Net income																972.4												972.4
Unrealized gain on securities available for sale																								106.4				106.4
Unrealized gain on derivatives																								8.9				8.9
Foreign currency translation adjustment																								(.5	)			(.5	)
Reclassification adjustment for gains realized in net income																								(247.3	)			(247.3	)
Income taxes																								50.2				50.2
	Total comprehensive income																											890.1
Cash dividends declared on common stock																(714.9	)											(714.9	)
Issuance of common and treasury stock				5,475,093				.1				39.1								31.4								70.6
Retirement of treasury stock								(.4	)			(823.2	)							823.6								—
Shares reserved to meet deferred compensation obligations												.5								(.5	)							—
Amortization of restricted stock												42.1																42.1
Balance June 30, 2001				1,907,558,527			$	19.1			$	3,534.1			$	11,915.5			$	(25.6	)		$	13.2			$	15,456.3
Balance December 31, 2001				1,951,709,512			$	19.7			$	4,906.2			$	11,918.0			$	(478.1	)		$	95.4			$	16,461.2
Net income																1,579.1												1,579.1
Unrealized gain on securities available for sale																								490.0				490.0
Unrealized loss on derivatives																								(82.9	)			(82.9	)
Foreign currency translation adjustment																								8.2				8.2
Realized gain on derivatives																								63.2				63.2
Reclassification adjustment for gains realized in net income																								(84.6	)			(84.6	)
Income taxes																								(149.6	)			(149.6	)
	Total comprehensive income																											1,823.4
Cash dividends declared on common stock																(741.1	)											(741.1	)
Issuance of common and treasury stock				7,333,432								(42.2	)							171.5								129.3
Purchase of treasury stock				(44,814,685	)															(1,032.3	)							(1,032.3	)
Shares reserved to meet deferred compensation obligations				(48,110	)							2.2								(2.2	)							—
Amortization of restricted stock												9.0																9.0
Balance June 30, 2002				1,914,180,149			$	19.7			$	4,875.2			$	12,756.0			$	(1,341.1	)		$	339.7			$	16,649.5

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows" -->

			Six Months Ended
			June 30,
(Dollars in Millions)
(Unaudited)			2002				2001
Operating Activities
	Net cash provided by (used in) operating activities		$	4,045.3			$	829.0
Investing Activities
Securities
	Sales			6,407.3				11,735.3
	Maturities			3,094.7				1,377.5
	Purchases			(13,076.3	)			(16,449.3	)
Loans
	Sales and securitization			952.6				3,451.0
	Purchases			(1,655.0	)			(38.5	)
Net (increase) decrease in loans outstanding				74.1				(1,469.5	)
Net (purchases) sales of bank premises and equipment				(115.1	)			(67.6	)
Acquisitions, net of cash acquired				(62.7	)			—
Divestitures of branches				—				(340.0	)
Other, net				(121.8	)			(131.7	)
	Net cash provided by (used in) investing activities			(4,502.2	)			(1,932.8	)
Financing Activities
Net increase (decrease) in deposits				(154.2	)			(1,820.7	)
Net increase (decrease) in short-term borrowings				(5,956.9	)			2,286.0
Principal payments on long-term debt				(2,391.0	)			(3,876.6	)
Proceeds from issuance of long-term debt				9,515.0				3,225.0
Proceeds from issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company				—				700.0
Proceeds from issuance of common stock				109.1				47.6
Repurchase of common stock				(1,032.3	)			—
Cash dividends paid				(733.8	)			(511.6	)
	Net cash provided by (used in) financing activities			(644.1	)			49.7
	Change in cash and cash equivalents			(1,101.0	)			(1,054.1	)
Cash and cash equivalents at beginning of period				9,745.3				9,131.6
	Cash and cash equivalents at end of period		$	8,644.3			$	8,077.5

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements" -->

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 footnotes 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, and the Company believes such presentation is adequate to make the information presented not misleading. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Note 2		Accounting Changes

Accounting for Business Combinations and Goodwill and Other Intangible AssetsIn June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations” and Statement of Financial Accounting Standard No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 141 mandates that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS 142 addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The Company adopted SFAS 142 on January 1, 2002. The most significant changes made by SFAS 142 are that goodwill and indefinite lived intangible assets are no longer amortized and will be tested for impairment at least annually, thereafter. Impairment charges from the initial impairment test were recognized as a “cumulative effect of change in accounting principles” in the income statement. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization provisions of SFAS 142 were effective upon adoption of SFAS 142.

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Note 3		Business Combinations

On February 27, 2001, Firstar Corporation (“Firstar”) and the former U.S. Bancorp (“USBM”) merged in a pooling-of-interests transaction and accordingly all financial information has been restated to include the historical information of both companies. Each share of Firstar stock was exchanged for one share of the Company’s common stock while each share of USBM stock was exchanged for 1.265 shares of the Company’s common stock. The new Company retained the U.S. Bancorp name.

The following table summarizes acquisitions by the Company completed since January 1, 2001, treating Firstar as the original acquiring company:

(Dollars and Shares in Millions)		Date		Assets  (a		)		Deposits				Goodwill and Other Intangibles				Cash Paid/ (Received		)			Shares Issued			Accounting Method
The Leader Mortgage Company, LLC		April 2002		$	517			$	—				$	185		$	81				—					Purchase
Pacific Century Bank		September 2001			570				712					134			(43	)			—					Purchase
NOVA Corporation		July 2001			949				—					2,231			842				56.9					Purchase
U.S. Bancorp		February 2001			86,602				51,335					—			—				952.4					Pooling

(a)		Assets acquired do not include purchase accounting adjustments.

Note 4		Merger and Restructuring-Related Items

The Company recorded pre-tax merger and restructuring-related items of $145.8 million in the first six months of 2002. In 2002, merger-related items were primarily incurred in connection with the merger of Firstar and USBM, the NOVA acquisition and the Company’s various other acquisitions. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information regarding business combinations.

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The components of the merger and restructuring-related items are shown below:

		Six Months Ended
		June 30, 2002
(Dollars in Millions)		USBM				NOVA				Other (a)				Total
Severance and employee-related		$	(4.5	)		$	—			$	—			$	(4.5	)
Systems conversions and integration			122.5				14.0				6.9				143.4
Asset write-downs and lease terminations			32.2				—				—				32.2
Balance sheet restructurings			(28.7	)			—				—				(28.7	)
Other merger-related items			3.4				—				—				3.4
Total		$	124.9			$	14.0			$	6.9			$	145.8

(a)		“Other” primarily includes merger and restructuring-related items pertaining to the Leader, Lyon Financial Services, Inc. and Pacific Century Bank acquisitions.

The Company determines merger and restructuring-related items and related accruals based on its integration strategy and formulated plans. These plans are established as of the acquisition date and are regularly evaluated during the integration process.

The following table presents a summary of activity with respect to the merger and restructuring-related accruals:

											Piper
(Dollars in Millions)			USBM				NOVA				Restructuring				Other (a)				Total
Balance at December 31, 2001			$	124.3			$	48.4			$	18.1			$	14.6			$	205.4
	Provision charged to operating expense			124.9				14.0				—				6.9				145.8
	Additions related to purchase acquisitions			—				.4				—				2.7				3.1
	Cash outlays			(189.1	)			(15.1	)			(6.2	)			(12.3	)			(222.7	)
	Noncash write-downs and other			2.3				—				(1.4	)			(1.4	)			(.5	)
Balance at June 30, 2002			$	62.4			$	47.7			$	10.5			$	10.5			$	131.1

(a)		“Other” primarily includes the acquisitions of Leader, Lyon Financial Services, Inc. and Pacific Century Bank.

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The adequacy of the accrued liabilities is reviewed regularly taking into consideration actual and projected payments. Adjustments are made to increase or decrease these accruals as needed. Reversals of expenses can reflect a lower utilization of benefits by affected staff, changes in initial assumptions as a result of subsequent mergers and alterations of business plans.

The following table presents a summary of activity with respect to the merger of Firstar and USBM:

			Severance				Systems				Asset
			and				Conversions				Write-downs				Balance
			Employee-				and				and Lease				Sheet
(Dollars in Millions)			Related				Integration				Terminations				Restructurings				Other				Total
Balance at December 31, 2001			$	88.3			$	—			$	33.1			$	2.1			$	.8			$	124.3
	Provision charged to operating expense			(6.7	)			57.6				14.8				(3.8	)			2.5				64.4
	Cash outlays			(37.6	)			(57.6	)			(3.1	)			—				(.1	)			(98.4	)
	Noncash write-downs and other			9.0				—				(14.5	)			3.8				(2.5	)			(4.2	)
Balance at March 31, 2002			$	53.0			$	—			$	30.3			$	2.1			$	.7			$	86.1
	Provision charged to operating expense			2.2				64.9				17.4				(24.9	)			.9				60.5
	Cash outlays			(21.1	)			(64.9	)			(4.7	)			—				—				(90.7	)
	Noncash write-downs and other			—				—				(17.5	)			24.9				(.9	)			6.5
Balance at June 30, 2002			$	34.1			$	—			$	25.5			$	2.1			$	.7			$	62.4

The components of the merger and restructuring-related accruals for all acquisitions were as follows:

			June 30,				December 31,
(Dollars in Millions)			2002				2001
Severance			$	46.0			$	106.3
Other employee-related costs				3.7				4.7
Lease termination and facility costs				54.0				64.3
Contracts and system write-offs				18.7				18.3
Other				8.7				11.8
	Total		$	131.1			$	205.4

The merger and restructuring-related accrual by significant acquisition or business restructuring was as follows:

			June 30,				December 31,
(Dollars in Millions)			2002				2001
USBM			$	62.4			$	124.3
NOVA				47.7				48.4
Piper Jaffray Companies, Inc.				10.9				20.8
Leader				2.0				—
Pacific Century Bank				1.8				3.1
Lyon Financial Services, Inc.				1.0				1.0
Other acquisitions				5.3				7.8
	Total		$	131.1			$	205.4

In connection with the merger of Firstar and USBM, management estimates the Company will incur pre-tax merger-related charges of approximately $126.0 million for the remainder of 2002. These are currently estimated to include $71.7 in occupancy and equipment charges (elimination of duplicate facilities and write-offs of equipment), $49.2 million for conversions of systems and consolidation of operations, and $5.1 million in severance and employee-related costs.

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Note 5		Investment Securities

The amortized cost and fair value of held-to-maturity and available-for-sale securities consisted of the following:

			June 30, 2002								December 31, 2001
			Amortized				Fair				Amortized				Fair
(Dollars in Millions)			Cost				Value				Cost				Value
Held-to-maturity (a)
	Mortgage-backed securities		$	23			$	23			$	28			$	28
	Obligations of state and political subdivisions			267				273				271				278
	Total held-to-maturity securities		$	290			$	296			$	299			$	306
Available-for-sale (b)
	U.S. Treasuries and agencies		$	423			$	434			$	439			$	449
	Mortgage-backed securities			26,349				26,751				21,937				21,964
	Other asset-backed securities			1,715				1,739				2,091				2,064
	Obligations of state and political subdivisions			685				705				877				891
	Other			797				755				950				941
	Total available-for-sale securities		$	29,969			$	30,384			$	26,294			$	26,309

(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.

Note 6		Loans

The composition of the loan portfolio was as follows:

					June 30, 2002								December 31, 2001
									Percent								Percent
(Dollars in Millions)					Amount				of Total				Amount				of Total
Commercial
	Commercial				$	38,889				33.9	%		$	40,472				35.4	%
	Lease financing					5,602				4.9				5,858				5.1
		Total commercial				44,491				38.8				46,330				40.5
Commercial real estate
	Commercial mortgages					18,875				16.5				18,765				16.4
	Construction and development					6,425				5.6				6,608				5.8
		Total commercial real estate				25,300				22.1				25,373				22.2
Residential mortgages						8,107				7.1				7,829				6.8
Retail
	Credit card					5,699				5.0				5,889				5.1
	Retail leasing					5,466				4.8				4,906				4.3
	Home equity and second mortgages					13,434				11.7				12,235				10.7
	Other retail
		Revolving credit				2,638				2.3				2,673				2.3
		Installment				2,259				2.0				2,292				2.0
		Automobile				5,811				5.1				5,660				5.0
		Student				1,365				1.1				1,218				1.1
			Total other retail			12,073				10.5				11,843				10.4
		Total retail				36,672				32.0				34,873				30.5
			Total loans		$	114,570				100.0	%		$	114,405				100.0	%

Loans are presented net of unearned interest which amounted to $1.6 billion at June 30, 2002, and December 31, 2001.

36	U.S. Bancorp

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Note 7		Intangible Assets

Amortizable intangible assets consisted of the following:

			June 30,				December 31,
(Dollars in Millions)			2002				2001
Merchant processing contracts			$	649				$	680
Core deposit benefits				490					530
Mortgage servicing rights				656					360
Other identified intangibles				381					383
	Total		$	2,176				$	1,953

Below is the estimated amortization expense for the years ended:

(Dollars in Millions)
Remaining 2002			$	188.7
2003				356.7
2004				338.1
2005				324.3
2006				309.9

The following table reflects the changes in the carrying value of goodwill for the six months ended June 30, 2002:

										Private Client,
		Wholesale				Consumer				Trust and Asset				Payment				Capital				Consolidated
(Dollars in Millions)		Banking				Banking				Management				Services				Markets				Company
Balance at December 31, 2001		$	1,348			$	1,706			$	289			$	1,811			$	305				$	5,459
Goodwill acquired			25				15				—				2				—					42
Impairment losses			(59	)			—				—				—				—					(59	)
Balance at June 30, 2002		$	1,314			$	1,721			$	289			$	1,813			$	305				$	5,442

Prior to the adoption of SFAS 142, the Company evaluated goodwill for impairment under a projected undiscounted cash flow model. As a result of the initial impairment test from the adoption of SFAS 142, the Company recognized an impairment loss of $58.8 million resulting in an after-tax loss of $37.2 million in the first quarter of 2002. The impairment was primarily related to the purchase of a transportation leasing company in 1998 by the equipment leasing business. This charge was recognized as a “cumulative effect of change in accounting principles” in the income statement. The fair value of that reporting unit was estimated using the present value of future expected cash flows.

Note 8		Mortgage Servicing Rights

Changes in capitalized mortgage servicing rights are summarized as follows:

		Six Months Ended				Year Ended
(Dollars in Millions)		June 30, 2002				December 31, 2001
Balance at beginning of period		$	360				$	229
Rights purchased			203					25
Rights capitalized			169					315
Amortization			(38	)				(45	)
Rights sold			(24	)				(103	)
Impairment			(14	)				(61	)
Balance at end of period		$	656				$	360

During the second quarter of 2002, the Company purchased $188 million in mortgage servicing rights, primarily resulting from the Leader acquisition, and recognized MSR amortization and impairments of $24 million and $14 million, respectively.

U.S. Bancorp	37

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Note 9		Deposits

The composition of deposits was as follows:

					June 30, 2002								December 31, 2001
									Percent								Percent
(Dollars in Millions)					Amount				of Total				Amount				of Total
Noninterest-bearing deposits					$	31,272				29.8	%		$	31,212				29.7	%
Interest-bearing deposits
	Savings accounts					4,951				4.7				4,637				4.4
	Interest checking					15,168				14.4				15,251				14.5
	Money market accounts					23,898				22.8				24,835				23.6
		Subtotal				44,017				41.9				44,723				42.5
	Time certificates of deposit less than $100,000					19,155				18.2				20,724				19.7
	Time deposits greater than $100,000
		Domestic				9,250				8.8				7,286				6.9
		Foreign				1,362				1.3				1,274				1.2
			Total interest-bearing deposits			73,784				70.2				74,007				70.3
		Total deposits			$	105,056				100.0	%		$	105,219				100.0	%

Note 10		Long-Term Debt

Long-term debt (debt with original maturities of more than one year) consisted of the following:

			June 30,				December 31,
(Dollars in Millions)			2002				2001
Fixed-rate subordinated notes (5.70% to 8.35%) — maturities to June 2026			$	6,511			$	5,746
Medium-term notes (1.99% to 7.50%) — maturities to July 2007				3,841				3,215
Convertible senior notes (1.50%) — due August 2021				1,108				1,100
Federal Home Loan Bank advances (.50% to 8.25%) — maturities to October 2026				9,755				7,196
Bank notes (1.76% to 6.25%) — maturities to November 2005				10,763				7,550
Euro medium-term notes (2.13%) — due April 2004				400				400
Other				630				509
	Total		$	33,008			$	25,716

In February 2002, the Company’s subsidiary U.S. Bank National Association issued $1.0 billion of fixed-rate subordinated notes due February 4, 2014. The interest rate is 6.30% per annum. Also during the first six months of 2002, the Company issued $5.4 billion of medium-term and long-term bank notes, $3.1 billion in long-term Federal Home Loan Bank advances and had debt repayments and maturities of $2.4 billion.

38	U.S. Bancorp

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Note 11		Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely the Junior Subordinated Debentures of the Parent Company

The following table is a summary of the Trust Preferred Securities at June 30, 2002:

Trust

Preferred

Rate at

Issuance

Securities

Debentures

Rate

June 30,

Redemption

Issuance Trust (Dollars in Millions)

Date

Amount

Amount

Type (a)

2002

Maturity Date

Date (b)

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

USB Capital II

April 1998

350

361

Fixed

7.20

April 2028

April 1, 2003

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

2.76

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)		The variable-rate Trust Preferred Securities reprice quarterly.
(b)		Earliest date of redemption.

Note 12		Shareholders’ Equity

At December 31, 2000, the Company had the authority to issue 2 billion shares of common stock and 10 million shares of preferred stock. In connection with the merger of Firstar and USBM, on February 27, 2001, the number of authorized common shares for the Company was increased to 4 billion. Additionally, on February 27, 2001, in connection with the merger of Firstar and USBM, the par value of the Company’s common stock was reduced from $1.25 per share to $.01 per share. The Company had 1,914.2 million and 1,951.7 million shares of common stock outstanding at June 30, 2002, and December 31, 2001, respectively.

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Note 13		Earnings Per Share

The components of earnings per share were:

			Three Months Ended								Six Months Ended
			June 30,								June 30,
(Dollars and Shares in Millions, Except Per Share Data)			2002				2001				2002				2001
Income before cumulative effect of change in accounting principles			$	823.1			$	562.3			$	1,616.3			$	972.4
Cumulative effect of change in accounting principles				—				—				(37.2	)			—
	Net income		$	823.1			$	562.3			$	1,579.1			$	972.4
Weighted average common shares outstanding				1,913.2				1,905.3				1,916.5				1,903.2
Net effect of the assumed purchase of stock based on the treasury stock method for options and stock plans				13.7				11.9				12.0				13.2
Weighted average dilutive common shares outstanding				1,926.9				1,917.2				1,928.5				1,916.4
Earnings per share
	Income before cumulative effect of change in accounting principles		$	.43			$	.30			$	.84			$	.51
	Cumulative effect of change in accounting principles			—				—				(.02	)			—
	Net income		$	.43			$	.30			$	.82			$	.51
Diluted earnings per share
	Income before cumulative effect of change in accounting principles		$	.43			$	.29			$	.84			$	.51
	Cumulative effect of change in accounting principles			—				—				(.02	)			—
	Net income		$	.43			$	.29			$	.82			$	.51

Note 14		Income Taxes

The components of income tax expense were:

			Three Months Ended								Six Months Ended
			June 30,								June 30,
(Dollars in Millions)			2002				2001				2002				2001
Federal
Current			$	299.7			$	220.8			$	631.2			$	325.1
Deferred				101.4				39.1				158.5				121.1
	Federal income tax			401.1				259.9				789.7				446.2
State
Current				26.9				23.3				49.9				51.3
Deferred				11.6				14.3				23.2				15.5
	State income tax			38.5				37.6				73.1				66.8
	Total income tax provision		$	439.6			$	297.5			$	862.8			$	513.0

The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate was as follows:

			Three Months Ended								Six Months Ended
			June 30,								June 30,
(Dollars in Millions)			2002				2001				2002				2001
Tax at statutory rate (35%)			$	442.0			$	300.9			$	867.7			$	519.9
State income tax, at statutory rates, net of federal tax benefit				25.0				24.4				48.6				43.4
Tax effect of
	Tax-exempt interest, net			(7.5	)			(11.2	)			(14.1	)			(23.2	)
	Amortization of nondeductible goodwill			—				22.8				—				45.6
	Tax credits			(21.7	)			(17.4	)			(42.5	)			(35.0	)
	Nondeductible merger charges			2.1				14.0				2.1				49.0
	Other items			(.3	)			(36.0	)			1.0				(86.7	)
Applicable income taxes			$	439.6			$	297.5			$	862.8			$	513.0

The Company’s net deferred tax liability was $900.0 million at June 30, 2002, and $573.2 million at December 31, 2001.

40	U.S. Bancorp

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Note 15		Supplemental Disclosures to the Consolidated Financial Statements

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

				Six Months Ended
				June 30,
(Dollars in Millions)				2002				2001
Acquisitions and divestitures
	Assets acquired (sold)			$	534.6				$	(369.7	)
	Liabilities (assumed) sold				(446.2	)				771.1
		Net		$	88.4				$	401.4

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

			June 30,				December 31,
(Dollars in Millions)			2002				2001
Interest-bearing deposits			$	100				$	104
Federal funds sold				760					123
Securities purchased under agreements to resell				253					398
	Total money market investments		$	1,113				$	625

Transfers and Servicing of Financial AssetsThe Company transferred $32.1 billion and $30.9 billion of high credit quality, low margin commercial loans to the conduit, Stellar Funding Group, Inc., in the first six months of 2002 and 2001, respectively. The amount of these transfers are reported on a gross basis representing new participations and the renewal of participations. The amount of loan transfers net of repayments was approximately $(1.5) billion and $1.6 billion in the first six months of 2002 and 2001, respectively.

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Consolidated Daily Average Balance Sheet and Related Yields and Rates" -->

				For the Three Months Ended June 30,
				2002												2001
												Yields												Yields				% Change
(Dollars in Millions)												and												and				Average
(Unaudited)				Balance				Interest				Rates				Balance				Interest				Rates				Balance
Assets
Money market investments				$	779			$	2.2				1.09	%		$	637			$	7.4				4.62	%			22.3	%
Trading account securities					1,022				10.1				3.96				769				14.9				7.72				32.9
Taxable securities					27,051				346.1				5.12				19,064				287.8				6.04				41.9
Non-taxable securities					965				16.5				6.87				2,193				40.1				7.32				(56.0	)
Loans held for sale					2,142				36.6				6.84				1,500				25.9				6.92				42.8
Loans
	Commercial				44,427				670.0				6.05				51,497				952.6				7.42				(13.7	)
	Commercial real estate				25,229				403.4				6.41				26,351				517.3				7.87				(4.3	)
	Residential mortgages				8,194				147.1				7.18				8,810				171.6				7.80				(7.0	)
	Retail				36,167				719.9				7.98				32,811				788.9				9.64				10.2
		Total loans			114,017				1,940.4				6.82				119,469				2,430.4				8.16				(4.6	)
Other earning assets					1,665				32.7				7.88				1,657				26.1				6.29				.5
	Allowance for credit losses				2,546												1,764												44.3
		Total earning assets (a)			147,641				2,384.6				6.47				145,289				2,832.6				7.81				1.6
Other assets					24,052												21,282												13.0
		Total assets		$	169,147											$	164,807												2.6
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits				$	27,267											$	24,512												11.2
Interest-bearing deposits
	Interest checking				15,318				25.4				.67				13,846				55.2				1.60				10.6
	Money market accounts				24,384				76.3				1.26				25,020				199.0				3.19				(2.5	)
	Savings accounts				4,957				6.6				.54				4,533				11.6				1.03				9.4
	Time certificates of deposit less than $100,000				19,653				192.8				3.93				23,933				327.2				5.48				(17.9	)
	Time deposits greater than $100,000				10,871				74.7				2.76				15,424				190.0				4.94				(29.5	)
		Total interest-bearing deposits			75,183				375.8				2.00				82,756				783.0				3.79				(9.2	)
Short-term borrowings					11,650				68.3				2.35				11,094				124.4				4.49				5.0
Long-term debt					30,152				197.9				2.63				24,202				315.0				5.22				24.6
Company-obligated mandatorily redeemable preferred securities					2,866				52.8				7.39				1,825				35.4				7.78				57.0
		Total interest-bearing liabilities			119,851				694.8				2.32				119,877				1,257.8				4.21				—
Other liabilities					5,554												4,809												15.5
Shareholders’ equity					16,475												15,609												5.5
		Total liabilities and shareholders’ equity		$	169,147											$	164,807												2.6	%
Net interest income								$	1,689.8											$	1,574.8
Gross interest margin													4.15	%											3.60	%
Gross interest margin without taxable-equivalent increments													4.13												3.55
Percent of Earning Assets
Interest income													6.47	%											7.81	%
Interest expense													1.88												3.47
Net interest margin													4.59												4.34
Net interest margin without taxable-equivalent increments													4.57	%											4.29	%

Interest and rates are presented on a fully taxable-equivalent basis under a tax rate of 35 percent.

(a)		Before deducting the allowance for credit losses and excluding the unrealized gain (loss) on available-for-sale securities.

42	U.S. Bancorp

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Consolidated Daily Average Balance Sheet and Related Yields and Rates" -->

				For the Six Months Ended June 30,
				2002												2001
												Yields												Yields				% Change
(Dollars in Millions)												and												and				Average
(Unaudited)				Balance				Interest				Rates				Balance				Interest				Rates				Balance
Assets
Money market investments				$	746			$	5.5				1.47	%		$	685			$	16.3				4.78	%			8.9	%
Trading account securities					963				18.6				3.87				752				31.2				8.29				28.1
Taxable securities					26,304				693.9				5.28				17,233				541.1				6.28				52.6
Non-taxable securities					1,021				35.2				6.91				2,342				85.4				7.29				(56.4	)
Loans held for sale					2,248				75.8				6.75				1,203				42.5				7.07				86.9
Loans
	Commercial				44,902				1,340.2				6.01				52,032				2,025.0				7.84				(13.7	)
	Commercial real estate				25,207				810.6				6.48				26,404				1,070.4				8.17				(4.5	)
	Residential mortgages				8,078				290.9				7.22				9,023				353.1				7.84				(10.5	)
	Retail				35,679				1,433.9				8.10				33,154				1,637.0				9.94				7.6
		Total loans			113,866				3,875.6				6.86				120,613				5,085.5				8.49				(5.6	)
Other earning assets					1,649				51.7				6.33				1,753				58.1				6.68				(5.9	)
	Allowance for credit losses				2,540												1,792												41.7
		Total earning assets (a)			146,797				4,756.3				6.52				144,581				5,860.1				8.15				1.5
Other assets					24,209												21,196												14.2
		Total assets		$	168,466											$	163,985												2.7
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits				$	27,375											$	24,054												13.8
Interest-bearing deposits
	Interest checking				15,236				51.7				.68				13,787				125.6				1.84				10.5
	Money market accounts				24,589				151.9				1.25				24,635				444.9				3.64				(.2	)
	Savings accounts				4,866				13.1				.54				4,515				24.3				1.09				7.8
	Time certificates of deposit less than $100,000				20,056				407.2				4.09				24,629				689.7				5.65				(18.6	)
	Time deposits greater than $100,000				10,110				147.4				2.94				14,264				382.2				5.40				(29.1	)
		Total interest-bearing deposits			74,857				771.3				2.08				81,830				1,666.7				4.11				(8.5	)
Short-term borrowings					13,099				147.2				2.27				12,105				310.6				5.17				8.2
Long-term debt					28,311				371.0				2.64				23,921				680.7				5.73				18.4
Company-obligated mandatorily redeemable preferred securities					2,852				106.6				7.54				1,615				63.0				7.87				76.6
		Total interest-bearing liabilities			119,119				1,396.1				2.36				119,471				2,721.0				4.59				(.3	)
Other liabilities					5,654												4,922												14.9
Shareholders’ equity					16,318												15,538												5.0
		Total liabilities and shareholders’ equity		$	168,466											$	163,985												2.7	%
Net interest income								$	3,360.2											$	3,139.1
Gross interest margin													4.16	%											3.56	%
Gross interest margin without taxable-equivalent increments													4.14												3.51
Percent of Earning Assets
Interest income													6.52	%											8.15	%
Interest expense													1.92												3.79
Net interest margin													4.60												4.36
Net interest margin without taxable-equivalent increments													4.58	%											4.31	%

Interest and rates are presented on a fully taxable-equivalent basis under a tax rate of 35 percent.

(a)		Before deducting the allowance for credit losses and excluding the unrealized gain (loss) on available-for-sale securities.

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Part II -- Other Information" -->

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

(b) Reports on Form 8-K

	•	Form 8-K dated April 16, 2002, relating to the Company’s first quarter 2002 financial results.
	•	Form 8-K dated July 17, 2002, relating to the Company’s second quarter 2002 financial results.

SIGNATURE

	U.S. BANCORP

	By:	/s/ TERRANCE R. DOLAN

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

44	U.S. Bancorp

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EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges

			Three Months Ended				Six Months Ended
			June 30,				June 30,
(Dollars in Millions)			2002				2002
Earnings
	1.  Income before cumulative effect of change in accounting principles		$	823.1			$	1,616.3
	2.  Applicable income taxes			439.6				862.8
	3.  Income before income taxes and cumulative effect of change in accounting principles (1 + 2)		$	1,262.7			$	2,479.1
	4.  Fixed charges:
	a.  Interest expense excluding interest on deposits		$	319.0			$	624.8
	b.  Portion of rents representative of interest and amortization of debt expense			19.7				39.1
	c.  Fixed charges excluding interest on deposits (4a + 4b)			338.7				663.9
	d.  Interest on deposits			375.8				771.3
	e.  Fixed charges including interest on deposits (4c + 4d)		$	714.5			$	1,435.2
	5.  Amortization of interest capitalized		$	—			$	—
	6.  Earnings excluding interest on deposits (3 + 4c + 5)			1,601.4				3,143.0
	7.  Earnings including interest on deposits (3 + 4e + 5)			1,977.2				3,914.3
	8.  Fixed charges excluding interest on deposits (4c)			338.7				663.9
	9.  Fixed charges including interest on deposits (4e)			714.5				1,435.2
Ratio of Earnings to Fixed Charges
10.  Excluding interest on deposits (line 6/ line 8)				4.73				4.73
11.  Including interest on deposits (line 7/ line 9)				2.77				2.73

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Table of Contents

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Executive Offices

U.S. Bancorp

After August 2002:

Common Stock Transfer Agent and Registrar

U.S. Bank National Association

Independent Accountants

Common Stock Listing and Trading

Dividends and Reinvestment Plan

U.S. Bank National Association

Investment Community Contacts

Judith T. Murphy

Financial Information

Web site. For information about U.S. Bancorp, including news and financial results and online annual reports, access our home page on the Internet at usbank.com.

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. To be added to U.S. Bancorp’s mailing list for quarterly earnings news releases or to request other information, please contact:

U.S. Bancorp Investor Relations

Media Requests

Other Business Information

Diversity

Equal Employment Opportunity/Affirmative Action

U.S. Bancorp, including each of our subsidiaries, is an Equal Opportunity Employer and a Drug-Free Workplace.

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