lehman brothers 2006 financial services...
TRANSCRIPT
1
Jerry A. GrundhoferChairman and CEO
May 18, 2006
Lehman BrothersLehman Brothers2006 Financial Services 2006 Financial Services
ConferenceConference
2
This presentation contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,”“believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,”“probably,” “projects,” “outlook” or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and many factors could cause actual results to differ materially from those anticipated, including changes in general business and economic conditions, changes in interest rates, legal and regulatory developments, increased competition from both banks and non-banks, changes in customer behavior and preferences, effects of mergers and acquisitions and related integration, and effects of critical accounting policies and judgments. Refer to the sections entitled “Risk Factors” and “Corporate Risk Profile” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, which you should read carefully, for further discussion of these and other risks. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.
Forward-looking Statements
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Executing For LongExecuting For Long--term Success term Success
10% Plus EPS Growth
20% Plus ROE
Reducing Credit and Earnings Volatility
Providing High-Quality Customer Service
Investing For Future Growth
Targeting 80% Return of Earnings to Shareholders
4
Diluted Earnings Per ShareDiluted Earnings Per Share
2.42
2.18
1.92
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
2003 2004 2005
14.3%
13.5%
11.0%
Year-Over-Year Growth10% Plus
EPS Growth
1Q06 = $0.63
1Q05 = $0.57
+ 10.5%
5
23.3%22.5%21.4%
19.1%
2.23%2.21%2.17%1.98%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
2003 2004 2005 1Q06
RO
E
1.20%
1.60%
2.00%
2.40%
2.80%
3.20%
RO
A
ROE ROAGAAP reported
ProfitabilityProfitability
20% PlusROE
6
ProfitabilityProfitability
2.23%
1.98%
2.17%2.21%
3.97%4.25%
4.49%
3.80%
1.75%
1.90%
2.05%
2.20%
2.35%
2.50%
2003 2004 2005 1Q06
RO
A
3.50%
3.80%
4.10%
4.40%
4.70%
5.00%
NIM
ROA NIM
7 Excluding securities gains (losses) net
Revenue MixRevenue Mix
40.8%41.2%41.3%41.6%42.6%
44.3%44.6%44.7%45.1%
46.7%46.8%47.2%48.3%
35.0%
38.0%
41.0%
44.0%
47.0%
50.0%
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06
Fee Income / Total Revenue
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Revenue MixRevenue Mix
Peer Banks are BAC, BBT, CMA, FITB, KEY, NCC, PNC, RF, STI, WB, WFC and WMFull year 2005, Source: company reports
Peer CompositeU.S. Bancorp
Net Interest IncomePayment RevenueTrust & InvestmentManagement
Service ChargesMortgageInv Bking / Trading/ Equity Invest
All Other
54% 56%
3%7%
10%
8%
17%5%
8%
10%
4%6%
11%
1%
PaymentsFocus
9
Revenue Per ShareRevenue Per Share
7.136.67
6.35
6.9%
5.0%
3.9%
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
2003 2004 20050.0%
2.0%
4.0%
6.0%
8.0%
10.0%
USB RPS USB Growth
Excluding securities gains (losses) net
1Q06 = $1.83
1Q05 = $1.70
+ 7.6%
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Efficiency RatioEfficiency Ratio
44.3%
49.8%
53.4% 53.6%
57.3% 57.4% 58.2%59.4% 60.1% 60.9%
62.9%64.3%
67.6%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
USB BAC BBT FITB WFC CMA WM NCC STI WB KEY RF PNC
Full Year 2005Full Year 2005
Source: company reports
11
Low Net ChargeLow Net Charge--offs Volatilityoffs Volatility
.33 .45
.46 .44 .55 .52 .53
.68 .79
.95
1.16 1.101.02
.16
0.00
0.30
0.60
0.90
1.20
1.50
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06
.61
4Q05 charge-off ratio increased 16 bps due to $56 million of bankruptcy related charge-offs
Percent
ReducingCredit
Volatility
12 Restated diluted EPS from continuing operations
Low Earnings VolatilityLow Earnings Volatility
.63 .62 .62
.60
.57 .56 .56
.54
.52
.50
.48 .47
.46
0.40
0.45
0.50
0.55
0.60
0.65
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06
ReducingEarningsVolatility
13
62
64
66
68
70
72
74
2005
U.S. Bank
Bank ofAmericaWellsFargoJPMorganChase
In 4Q 2005, U.S. Bank engaged ACSI in the same measurement system used in their independent survey of Retail BanksScored very well against key peer competitors – Bank of America, Wells Fargo and JPMorgan Chase On track with the “ACSI Retail Bank Industry Average” of 75%
4th Quarter 2005 Results:The American Customer Satisfaction Index (ACSI)
Focusing on Customer ServiceFocusing on Customer Service
High-QualityCustomerService
14
0
125
250
375
500
625
2001 2002 2003 2004 2005 1Q06
($ in
mill
ions
)
Revenue Enhancing Cost Reduction Infrastracture All Other
Invested Over $2 Billion in Last 5 Years
Investing for the FutureInvesting for the Future
Investingfor Future
Growth
398339
361
600
437
146
15
Earnings Distributed to Earnings Distributed to ShareholdersShareholders
11%
62% 40%
107%
51%50%46%44%
0.0%
35.0%
70.0%
105.0%
140.0%
175.0%
2003 2004 2005 1Q06
Dividends Share Repurchase
90%
55%
108%
80% Returnof Earnings
158%
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Tier 1 Capital RatioTier 1 Capital Ratio
8.9%9.1%8.6% 8.2%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2003 2004 2005 1Q06
Tier 1 Capital Ratio Target
As of period end
Target8.5%
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Total RiskTotal Risk--Based Capital RatioBased Capital Ratio
13.6%13.1%
12.5%13.1%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
2003 2004 2005 1Q06
Total Risk-Based Capital Ratio Target
As of period end
Target12.0%
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U.S. Bancorp Dividends U.S. Bancorp Dividends Per SharePer Share
0.18 0.210.27
0.33
0.46
0.65
0.75 0.780.85
1.02
1.23
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0.18 0.210.27
0.33
0.46
0.65
0.75 0.780.85
1.02
1.23
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: FactSetPeer Banks are BAC, BBT, CMA, FITB, KEY, NCC, PNC, RF, STI, USB, WB, WFC and WM
Peer BankRank = #1
CAGR = 21.2%
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(Through 4/28/06)
U.S. Bank 6.3% 17.5% 17.2%
S&P 500Commercial Bank Index 9.9% 16.1% 17.1%
S&P 500 Index 5.6% 15.4% 14.7%
1 Year4/29/05 – 4/28/06
3 Year4/30/03 – 4/28/06
YTD12/30/05 – 4/28/06
Total Shareholder ReturnTotal Shareholder Return
Source: FactSet, 3 year TSR annualized
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Total Shareholder Return Total Shareholder Return 10 Year10 Year
$100
$225
$350
$475
$600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
USB S&P Commercial Bank Index S&P 500 Index
$100
$225
$350
$475
$600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
USB S&P Commercial Bank Index S&P 500 Index
$611$611
A $100 investment in U.S. Bancorp in 1995 A $100 investment in U.S. Bancorp in 1995 was worth $611 at yearwas worth $611 at year--end 2005end 2005
$337$337
$238$238
Source: FactSet, 12/31/95 = 100Peer Banks are BAC, BBT, CMA, FITB, KEY, NCC, PNC, RF, STI, USB, WB, WFC and WM
Peer BankRank = #1
CAGR19.8%
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Investing in High Return Investing in High Return BusinessesBusinesses
Payment Services
Merchant Payment ServicesRetail Payment SolutionsCorporate Payment SystemsTransaction Services
Private Client, Trust and Asset Management
Private Client GroupCorporate Trust ServicesInstitutional Trust & CustodyFAF AdvisorsU.S. Bancorp Fund Services
22
Revenue MixRevenue Mix
Mix as of full year 2005, excluding securities gains (losses) net
Revenue MixBy Business Line
ConsumerBanking
46%
Private Client& Trust
Payments21%Wholesale
Banking19%
Other 3%
11%
Fee Income MixBy Business Line
ConsumerBanking
33%Payments
36%
Private Client& Trust
17%
WholesaleBanking
13%
Other 1%
23 $ in millions
Payment Services Payment Services
590573579
547
486
632
681
733 734752
450
500
550
600
650
700
1Q05 2Q05 3Q05 4Q05 1Q06
Fee
Inco
me
550
600
650
700
750
800
Rev
enue
Fee Income Revenue
1Q06 vs 1Q05Fee Income + 21.4% Total Revenue +19.0%
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Payment ServicesPayment Services
1Q06
Revenue MixBy Business Unit
RetailPaymentSolutions
52%
MerchantProcessing
30%
CorporatePayment
12%
TransactionServices
6%
Fee Income / Total Revenue
Fee Income78%
Net InterestIncome
22%
25
Retail Payment SolutionsRetail Payment Solutions
5,000
6,000
7,000
8,000
9,000
10,000
1Q03 1Q04 1Q05 1Q06
Cha
rge
Volu
me
Credit Card Charge Volume Growth
+ 8.1%
+ 7.9%
+ 14.5%
$ in millions
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Retail Payment SolutionsRetail Payment Solutions
2,000
3,000
4,000
5,000
6,000
7,000
1Q03 1Q04 1Q05 1Q06
Tran
sact
ion
Volu
me
Debit Card Transaction Growth
+ 21.3%
+ 22.3%
+ 22.7%
$ in millions
27
Merchant ProcessingMerchant Processing
100,000
200,000
300,000
400,000
500,000
600,000
1Q03 1Q04 1Q05 1Q06
Tran
sact
ion
Volu
me
(000
's)
Merchant Transaction Growth
+ 18.3%
+ 52.1%
+ 10.7%
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Merchant ProcessingMerchant ProcessingBuilding Transaction Processing Capabilities in Europe
United Kingdom
Spain
Denmark
Poland
Estonia
France
Spain
Ireland Netherlands
NorwaySweden
GermanyBelgium
Austria
Italy
Denmark
Existing eCx footprint
New countries - CCA acquisition
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Corporate PaymentsCorporate Payments
3,000
4,000
5,000
6,000
7,000
8,000
1Q03 1Q04 1Q05 1Q06
Cha
rge
Volu
me
Card Charge Volume Growth
+ 18.6%
+ 16.4%
+ 9.0%
$ in millions
30
Corporate PaymentsCorporate Payments
Full year 2005
Charge VolumeBy Product
Revenue IncomeBy Product
PurchasingCard21%
CorporateCard25%
PurchasingGovernment
28%
PowerTrack15%
Fleet11%
PurchasingCard19%
CorporateCard28%
PurchasingGovernment
29%
PowerTrack8%Fleet
16%
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Transaction ServicesTransaction Services
• 38,515 ATM’s driven
• 2nd largest bank-owned ATM fleet
• 3rd largest third-party ATM processor
• 3rd largest Surcharge Free ATM Network
• Processor of ATM/Debit/Credit transactionfor 21 percent of all banks in the U.S.
32 $ in millions
Private Client, Trust andPrivate Client, Trust andAsset ManagementAsset Management
307
268260259
253
352364
370
385
431
230
250
270
290
310
330
1Q05 2Q05 3Q05 4Q05 1Q06
Fee
Inco
me
320
345
370
395
420
445
Rev
enue
Fee Income Revenue
1Q06 vs 1Q05Fee Income +21.3%Revenue +22.4%
33
Private Client, Trust andPrivate Client, Trust andAsset ManagementAsset Management
1Q06
Revenue MixBy Business Unit
PrivateClient42%
Corp Trust29%
AssetMgmt10%
InstitutionalTrust
Fund Services
10%
Fee Income / Total Revenue
Fee Income71%
9%
Net InterestIncome
29%
34
Client focus model
Planning Services
Brokerage
Insurance
Business Banking Investment
Management
Mortgage
Personal Trust
Private Banking
Outside Advisors
Team Leader
ClientClient
Private Client GroupPrivate Client Group
35
Private Client GroupPrivate Client Group
563
620
681
500
540
580
620
660
700
2003 2004 2005
($ in
mill
ions
)
Total Revenue9.8%
10.1%
1Q06 = $176
1Q05 = $163
+ 8.0%
36
Corporate Trust ServicesCorporate Trust Services
303
321
358
275
300
325
350
375
400
2003 2004 2005
($ in
mill
ions
)
Total Revenue
11.5%
6.2%
1Q06 = $125
1Q05 = $82
+ 52.4%
37
Tax-Exempt Debt Trustee Rank – 1Q06No. of Mkt Share
Rank Trustee Issues on Issues1 U.S. Bancorp 218 27.5%2 Bank of NY 126 15.9%3 Well Fargo 107 13.5%4 JP Morgan 90 11.3%5 Deutsche Bank 27 3.4%
ABS/MBS/CDO Rank – 1Q06Proceeds MktShr
Rank Trustee (US $MM) on $1 U.S. Bancorp 98,709.1 26.6%2 Deutsche Bank 81,645.7 22.0%3 JP Morgan 56,198.3 15.1%4 Bank of NY 54,598.2 14.7%5 Wells Fargo 30,936.7 8.3%
Corporate Trust ServicesCorporate Trust Services
38
• Adds significant scale to U.S. Bancorp’s current business
• Makes U.S. Bancorp premier player among mid-tier custodians
• Meaningful cost take-out opportunity
• Wachovia to enter into referral agreement post-close with U.S. Bancorp
• Geographically complementary to current business
• Potential for revenue enhancements
Offers product expansion opportunities with insurance companies, registered investment advisors, public funds and corporations
Institutional Trust & CustodyInstitutional Trust & Custody
Acquisition of Wachovia’s Institutional Custody business
39
Global Assets Under Custody – 2005Rank Trustee Assets ($B)1 JP Morgan 11,2002 Bank of NY 10,9003 State Street 10,7004 Citigroup 8,6005 Mellon 3,9086 Northern Trust 2,9007 Investors B&T 1,9308 Brown Brothers 1,3409 U.S. Bancorp 831
Institutional Trust & CustodyInstitutional Trust & Custody
Bolsters Market Position in Custody
40
• Provides services for third-party mutual fundsTransfer Agency/Shareholder Servicing
Custody
Fund Accounting
Fund Administration and Compliance
Distribution, tax and partnership accounting
Consulting and marketing
• Target market: Entities with fewer than 500,000 accounts and assets less than $25 billion
• One of the top 5 full service, 3rd party providers of mutual fund services
Fund ServicesFund Services
41
Fund ServicesFund Services
103
119
141
85
100
115
130
145
160
2003 2004 2005
($ in
mill
ions
)
Total Revenue
18.0%
15.8%
1Q06 = $39
1Q05 = $33
+ 18.2%
42
Asset ManagementAsset Management
130.4134.0
137.8
100.0
110.0
120.0
130.0
140.0
150.0
2003 2004 2005
($ in
bill
ions
)
Amounts reported reflect end of year balances reported on a one month lag
Assets Under Management
43
Award-winning mutual funds
“Best Overall” is for three-year, risk-adjusted performance among 31 large U.S. fund groups for the period ended Dec. 31, 2004. “Best Mixed Equity” is for three-year, risk-adjusted performance among 32 large fund groups using a combination of stocks and bonds to achieve consistent return as of Dec. 31, 2004.
Past performance is no guarantee of future results. Each fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about First American Funds, and it may be obtained by calling First American Investor Services at 800.677.FUND or visiting firstamericanfunds.com. Read the prospectus carefully before investing.Mutual fund investing involves risk; principal loss is possible. Investing in certain funds involves special risks, such as those related to investments in small- and mid-capitalization stocks, foreign, debt and high-yield securities, and funds that focus their investments in a particular industry. Please refer to the prospectus for more details pertaining to these risks. Lipper determined the large fund group awards by averaging the decile rank of the three-year Consistent Return scores for all of the firm's funds within the asset class, and the eligible group with the lowest average decile rank received the award for that asset class. In case of a tie, the group with the lower average percentile rank received the award. Large fund groups with at least five equity, five bond, or three mixed equity portfolios that received Consistent Return scores as of Dec. 31, 2004, are eligible for a fund group award in the respective asset class. Large fund groups with at least five equity, five bond, and three mixed equity portfolios that received Consistent Return scores as of Dec. 31, 2004, are eligible for an overall fund group award. Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities.FAF Advisors, Inc., serves as the investment advisor to First American Funds. First American Funds are distributed by Quasar Distributors,LLC, an affiliate of the investment advisor.
Asset ManagementAsset Management
44
Executing For LongExecuting For Long--term Success term Success
10% Plus EPS Growth
20% Plus ROE
Reducing Credit and Earnings Volatility
Providing High-Quality Customer Service
Investing For Future Growth
Targeting 80% Return of Earnings to Shareholders
45
Jerry A. GrundhoferChairman and CEO
May 18, 2006
Lehman BrothersLehman Brothers2006 Financial2006 Financial
Services ConferenceServices Conference