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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from (not applicable)

Commission file number 1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		41-0255900 (I.R.S. Employer Identification No.)

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices, including zip code)

651-466-3000

(Registrant’s telephone number, including area code)

(not applicable)

(Former name, former address and former fiscal year, if changed since last report)

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

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-Tduring the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2of the Exchange Act.


Large accelerated filer þ		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2of the Exchange Act).

YES o NO þ

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


Class Common Stock, $.01 Par Value		Outstanding as of October 31, 2009 1,912,423,877 shares

Table of Contents andForm 10-QCross 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		4
c) Balance Sheet Analysis		6
d) Non-Regulatory Capital Ratios		26
e) Critical Accounting Policies		27
f) Controls and Procedures (Item 4)		27
2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)
a) Overview		9
b) Credit Risk Management		9
c) Residual Value Risk Management		18
d) Operational Risk Management		18
e) Interest Rate Risk Management		18
f) Market Risk Management		19
g) Liquidity 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) Risk Factors (Item 1A)		56
2) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)		56
3) Exhibits (Item 6)		56
4) Signature		57
5) Exhibits		58
EX-12
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.

This Quarterly Report onForm 10-Qcontains 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 and are based on the information available to, and assumptions and estimates made by, management as of the date made. 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 important factors could cause actual results to differ materially from those anticipated. Global and domestic economies could fail to recover from the recent economic downturn or could experience another severe contraction, which could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Stress in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets, could cause additional credit losses and deterioration in asset values. In addition, U.S. Bancorp’s business and financial performance could be impacted as the financial industry restructures in the current environment, by increased regulation of financial institutions or other effects of recently enacted legislation, and by changes in the competitive landscape. U.S. Bancorp’s results could also be adversely affected by continued deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; 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; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report onForm 10-Kfor the year ended December 31, 2008, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. Forward-looking statements speak only as of the date they are made, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.


U.S. Bancorp	1

Table 1 Selected Financial Data


	Three Months Ended									Nine Months Ended
	September 30,									September 30,
							Percent									Percent
(Dollars and Shares in Millions, Except Per Share Data)	2009			2008			Change			2009			2008			Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)		$ 2,157			$ 1,967			9.7	%	$	6,356		$	5,705			11.4	%
Noninterest income		2,169			1,823			19.0			6,229			6,073			2.6
Securities gains (losses), net		(76	)		(411	)		81.5			(293	)		(725	)		59.6

Total net revenue		4,250			3,379			25.8			12,292			11,053			11.2
Noninterest expense		2,053			1,813			13.2			6,053			5,410			11.9
Provision for credit losses		1,456			748			94.7			4,169			1,829				*

Income before taxes		741			818			(9.4	)		2,070			3,814			(45.7	)
Taxable-equivalent adjustment		50			34			47.1			148			94			57.4
Applicable income taxes		86			198			(56.6	)		287			1,060			(72.9	)

Net income		605			586			3.2			1,635			2,660			(38.5	)
Net income attributable to noncontrolling interests		(2	)		(10	)		80.0			(32	)		(44	)		27.3

Net income attributable to U.S. Bancorp		$ 603			$ 576			4.7		$	1,603		$	2,616			(38.7	)

Net income applicable to U.S. Bancorp common shareholders		$ 583			$ 557			4.7		$	1,223		$	2,560			(52.2	)

Per Common Share
Earnings per share		$ .31			$ .32			(3.1	)%	$	.67		$	1.47			(54.4	)%
Diluted earnings per share		.30			.32			(6.3	)		.66			1.46			(54.8	)
Dividends declared per share		.050			.425			(88.2	)		.150			1.275			(88.2	)
Book value per share		12.38			11.50			7.7
Market value per share		21.86			36.02			(39.3	)
Average common shares outstanding		1,908			1,743			9.5			1,832			1,738			5.4
Average diluted common shares outstanding		1,917			1,756			9.2			1,840			1,753			5.0
Financial Ratios
Return on average assets		.90	%		.94	%					.81	%		1.45	%
Return on average common equity		10.0			10.8						7.7			16.6
Net interest margin (taxable-equivalent basis) (a)		3.67			3.65						3.62			3.60
Efficiency ratio (b)		47.5			47.8						48.1			45.9
Average Balances
Loans		$181,968			$166,560			9.3	%	$	183,837		$	161,639			13.7	%
Loans held for sale		7,359			3,495				*		6,222			4,008			55.2
Investment securities		42,558			42,548			–			42,357			43,144			(1.8	)
Earning assets		234,111			214,973			8.9			234,559			211,372			11.0
Assets		264,411			243,623			8.5			265,579			240,850			10.3
Noninterest-bearing deposits		36,982			28,322			30.6			36,800			27,766			32.5
Deposits		166,362			133,539			24.6			163,391			133,402			22.5
Short-term borrowings		28,025			40,277			(30.4	)		29,278			38,070			(23.1	)
Long-term debt		36,797			40,000			(8.0	)		37,780			39,237			(3.7	)
Total U.S. Bancorp shareholders’ equity		24,679			21,983			12.3			26,559			21,927			21.1


		September 30, 2009			December 31, 2008

Period End Balances
Loans		$183,056			$185,229			(1.2	)%
Allowance for credit losses		4,986			3,639			37.0
Investment securities		42,336			39,521			7.1
Assets		265,058			265,912			(.3	)
Deposits		169,755			159,350			6.5
Long-term debt		33,249			38,359			(13.3	)
Total U.S. Bancorp shareholders’ equity		25,171			26,300			(4.3	)
Capital ratios
Tier 1 capital		9.5	%		10.6	%
Total risk-based capital		13.0			14.3
Leverage		8.6			9.8
Tier 1 common equity to risk-weighted assets (c)		6.8			5.1
Tangible common equity to tangible assets (c)		5.4			3.3
Tangible common equity to risk-weighted assets (c)		6.0			3.7


*		Not meaningful.
(a)		Presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b)		Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net.
(c)		See Non-Regulatory Capital Ratios on page 26.


2	U.S. Bancorp

Management’s Discussion and Analysis

OVERVIEW

Earnings Summary U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $603 million for the third quarter of 2009 or $.30 per diluted common share, compared with $576 million, or $.32 per diluted common share for the third quarter of 2008. Return on average assets and return on average common equity were .90 percent and 10.0 percent, respectively, for the third quarter of 2009, compared with .94 percent and 10.8 percent, respectively, for the third quarter of 2008. During the third quarter of 2009, the Company strengthened its allowance for credit losses by recording $415 million of provision for credit losses in excess of net charge-offs in light of continued credit deterioration arising from the current economic environment. Other significant items in the third quarter of 2009 included $76 million of net securities losses and a $39 million gain related to the Company’s investment in Visa Inc. Significant items included in the third quarter of 2008 results were $250 million of provision for credit losses in excess of net charge-offs and net securities losses of $411 million.

Total net revenue, on a taxable-equivalent basis, for the third quarter of 2009 was $871 million (25.8 percent) higher than the third quarter of 2008, reflecting a 9.7 percent increase in net interest income and a 48.2 percent increase in noninterest income. The increase in net interest income from a year ago was principally the result of growth in average earning assets and an increase in core deposit funding. Noninterest income increased from a year ago, principally due to strong growth in mortgage banking revenue, a decrease in net securities losses, and lower retail lease residual losses.

Total noninterest expense in the third quarter of 2009 was $240 million (13.2 percent) higher than the third quarter of 2008, primarily due to the impact of acquisitions, higher Federal Deposit Insurance Corporation (“FDIC”) deposit insurance expense, and marketing expense principally associated with the introduction of a new credit card product.

The provision for credit losses for the third quarter of 2009 increased $708 million over the third quarter of 2008, reflecting weak economic conditions and the corresponding impact on the commercial, commercial real estate and consumer loan portfolios. It also reflected stress in the residential real estate markets. Net charge-offs in the third quarter of 2009 were $1.0 billion, compared with net charge-offs of $498 million in the third quarter of 2008. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

The Company reported net income attributable to U.S. Bancorp of $1.6 billion for the first nine months of 2009 or $.66 per diluted common share, compared with $2.6 billion, or $1.46 per diluted common share for the first nine months of 2008. Return on average assets and return on average common equity were .81 percent and 7.7 percent, respectively, for the first nine months of 2009, compared with 1.45 percent and 16.6 percent, respectively, for the first nine months of 2008. The Company’s results for the first nine months of 2009 reflected several significant items, including provision for credit losses in excess of net charge-offs of $1.4 billion, $293 million of net securities losses, a $123 million FDIC special assessment, a $92 million gain from a corporate real estate transaction and the $39 million gain related to the Company’s investment in Visa Inc. Significant items included in the first nine months of 2008 results were a $492 million gain related to the Company’s ownership position in Visa Inc. (“2008 Visa Gain”), $642 million provision for credit losses in excess of net charge-offs and net securities losses of $725 million.

Total net revenue, on a taxable-equivalent basis, for the first nine months of 2009 was $1.2 billion (11.2 percent) higher than the first nine months of 2008, reflecting an 11.4 percent increase in net interest income and an 11.0 percent increase in noninterest income. The increase in net interest income from a year ago was principally the result of growth in average earning assets and an increase in core deposit funding. Noninterest income increased due to strong growth in mortgage banking revenue, a significant decrease in net securities losses, higher commercial products revenue and treasury management fees, and gains from a corporate real estate transaction and the Company’s investment in Visa Inc. These revenue increases were partially offset by lower trust and investment management fees, lower deposit service charges and the 2008 Visa Gain.

Total noninterest expense in the first nine months of 2009 was $643 million (11.9 percent) higher than in the first nine months of 2008, primarily due to the impact of acquisitions, higher FDIC deposit insurance expense, and


U.S. Bancorp	3

marketing expense, principally related to credit card initiatives.

The provision for credit losses for the first nine months of 2009 increased $2.3 billion over the first nine months of 2008. The increase in the provision for credit losses reflected weak economic conditions and the corresponding impact on the commercial, commercial real estate and consumer loan portfolios. It also reflected stress in the residential real estate markets. Net charge-offs in the first nine months of 2009 were $2.8 billion, compared with net charge-offs of $1.2 billion in the first nine months of 2008. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

STATEMENT OF INCOME ANALYSIS

Net Interest Income Net interest income, on a taxable-equivalent basis, was $2.2 billion in the third quarter of 2009, compared with $2.0 billion in the third quarter of 2008. Net interest income, on a taxable-equivalent basis, was $6.4 billion in the first nine months of 2009, compared with $5.7 billion in the first nine months of 2008. The increases were due to growth in average earning assets and an increase in core deposit funding. Average earning assets were $19.1 billion (8.9 percent) higher in the third quarter of 2009 and $23.2 billion (11.0 percent) higher in the first nine months of 2009, compared with the same periods of 2008, primarily driven by increases in average loans, including originated and acquired loans. The net interest margin in the third quarter and first nine months of 2009 was 3.67 percent and 3.62 percent, respectively, compared with 3.65 percent and 3.60 percent, respectively, for the same periods of 2008. Given the current interest rate environment, the Company expects the net interest margin to remain relatively stable, with a bias toward modest improvement in the fourth quarter of 2009. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” tables for further information on net interest income.

Total average loans for the third quarter and first nine months of 2009 were $15.4 billion (9.3 percent) and $22.2 billion (13.7 percent) higher, respectively, than the same periods of 2008, driven by new loan originations, acquisitions and portfolio purchases. Retail loan growth,year-over-year,was driven by increases in credit card, home equity and federally-guaranteed student loans. Average credit card balances for the third quarter and first nine months of 2009 were $3.2 billion (25.9 percent) and $2.8 billion (24.4 percent) higher, respectively, than the same periods of 2008, reflecting both growth in existing portfolios and portfolio purchases of approximately $.3 billion and $1.3 billion during the second and third quarters of 2009, respectively. Commercial real estate loan growth reflected new business and higher utilization of existing credits driven by market conditions. Residential mortgage growth reflected increased origination activity as a result of market interest rate declines. Commercial loans decreased for the third quarter of 2009, compared with the same period of 2008, principally due to lower utilization of existing commitments and a reduction in demand for new loans. Assets covered by loss sharing agreements with the FDIC (“covered assets”) relate to the 2008 acquisitions of the banking operations of Downey Savings and Loan Association, F.A. and PFF Bank and Trust (“Downey and PFF”) and the average balances were $10.3 billion and $10.8 billion in the third quarter and first nine months of 2009, respectively.

Average investment securities in the third quarter of 2009 were essentially unchanged from the third quarter of 2008, as securities purchases offset repayments. Average investment securities for the first nine months of 2009 decreased $787 million (1.8 percent) from the same period of 2008 as a result of prepayments and sales. The composition of the Company’s investment portfolio remained essentially unchanged from a year ago.

Total average deposits for the third quarter and first nine months of 2009 increased $32.8 billion (24.6 percent) and $30.0 billion (22.5 percent), respectively, over the same periods of 2008. Excluding deposits from 2008 and 2009 acquisitions, third quarter 2009 average total deposits increased $21.5 billion (16.1 percent) over the third quarter of 2008. Average noninterest-bearing deposits for the third quarter and first nine months of 2009 increased $8.7 billion (30.6 percent) and $9.1 billion (32.5 percent), respectively, compared with same periods of 2008, primarily due to growth in the Consumer and Wholesale Banking business lines. Average total savings deposits increased $21.4 billion (33.5 percent) in the third quarter and $14.5 billion (23.0 percent) in the first nine months of 2009, compared with the same periods in 2008, the result of higher consumer, government, broker-dealer and institutional trust customer balances and the impact of acquisitions. Contributing to the increase in savings accounts was strong participation in a new savings product introduced across the franchise by Consumer Banking late in the third quarter of 2008. Average time certificates of deposit less than $100,000 were higher in the third quarter and first nine months of 2009 by $4.3 billion (34.1 percent) and $4.7 billion


4	U.S. Bancorp

Table 2 Noninterest Income


	Three Months Ended									Nine Months Ended
	September 30,									September 30,
							Percent									Percent
(Dollars in Millions)	2009			2008			Change			2009			2008			Change
Credit and debit card revenue	$	267		$	269			(.7	)%	$	782		$	783			(.1	)%
Corporate payment products revenue		181			179			1.1			503			517			(2.7	)
Merchant processing services		300			300			–			836			880			(5.0	)
ATM processing services		103			94			9.6			309			271			14.0
Trust and investment management fees		293			329			(10.9	)		891			1,014			(12.1	)
Deposit service charges		256			286			(10.5	)		732			821			(10.8	)
Treasury management fees		141			128			10.2			420			389			8.0
Commercial products revenue		157			132			18.9			430			361			19.1
Mortgage banking revenue		276			61				*		817			247				*
Investment products fees and commissions		27			37			(27.0	)		82			110			(25.5	)
Securities gains (losses), net		(76	)		(411	)		81.5			(293	)		(725	)		59.6
Other		168			8				*		427			680			(37.2	)

Total noninterest income	$	2,093		$	1,412			48.2	%	$	5,936		$	5,348			11.0	%

* Not meaningful

(36.4 percent), respectively, over the same periods in 2008, primarily due to acquisitions. Average time deposits greater than $100,000 decreased $1.6 billion (5.5 percent) in the third quarter of 2009, compared with the third quarter of 2008, reflecting a decrease in overall wholesale funding requirements. Average time deposits greater than $100,000 increased $1.7 billion (5.9 percent) in the first nine months of 2009, compared with the same period in the prior year, due primarily to acquisitions.

Provision for Credit Losses The provision for credit losses for the third quarter and first nine months of 2009 increased $708 million and $2.3 billion, respectively, over the same periods of 2008, reflecting the adverse impact of current economic conditions compared with a year ago. The provision for credit losses exceeded net charge-offs by $415 million and $1.4 billion in the third quarter and first nine months of 2009, respectively, compared with $250 million and $642 million in the same periods of 2008. The increases in the provision and allowance for credit losses reflected weak economic conditions and the corresponding impact on the commercial, commercial real estate and consumer loan portfolios. It also reflected stress in residential real estate markets. Net charge-offs were $1.0 billion in the third quarter and $2.8 billion in the first nine months of 2009, compared with net charge-offs of $498 million in the third quarter and $1.2 billion in the first nine months of 2008. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income was $2.1 billion in the third quarter and $5.9 billion in the first nine months of 2009, increasing $681 million (48.2 percent) and $588 million (11.0 percent), respectively, from the same periods of 2008. The increases in noninterest income from a year ago were principally due to a significant increase in mortgage banking revenue, as the lower rate environment drove strong mortgage loan production and related gains. Other increases in noninterest income included higher ATM processing services related to growth in transaction volumes and business expansion, higher treasury management fees resulting from increased new business activity and pricing, and higher commercial products revenue due to higher letters of credit, capital markets and other commercial loan fees. Net securities losses for the third quarter and first nine months of 2009 were also lower than the same periods a year ago. Other income increased in the third quarter of 2009, compared with the third quarter of 2008, due principally to a significant reduction in retail lease residual losses, a gain related to the Company’s investment in Visa Inc., and the impact of lower market-related valuation losses relative to the prior year, partially offset by higher valuation losses on equity investments. Other income decreased in the first nine months of 2009, compared with the same period of the prior year, due to the 2008 Visa Gain, partially offset by a reduction in residual lease valuation losses in the current year and the gain related to the Company’s investment in Visa Inc. recorded in the third quarter of 2009. Deposit service charges decreased primarily due to a decrease in the number of overdraft incidences, which more than offset account growth. Trust and investment management fees declined, as did investment product


U.S. Bancorp	5

Table 3 Noninterest Expense


	Three Months Ended									Nine Months Ended
	September 30,									September 30,
							Percent									Percent
(Dollars in Millions)	2009			2008			Change			2009			2008			Change
Compensation	$	769		$	763			.8	%	$	2,319		$	2,269			2.2	%
Employee benefits		134			125			7.2			429			391			9.7
Net occupancy and equipment		203			199			2.0			622			579			7.4
Professional services		63			61			3.3			174			167			4.2
Marketing and business development		137			75			82.7			273			220			24.1
Technology and communications		175			153			14.4			487			442			10.2
Postage, printing and supplies		72			73			(1.4	)		218			217			.5
Other intangibles		94			88			6.8			280			262			6.9
Other		406			276			47.1			1,251			863			45.0

Total noninterest expense	$	2,053		$	1,813			13.2	%	$	6,053		$	5,410			11.9	%

Efficiency ratio (a)		47.5	%		47.8	%					48.1	%		45.9	%


(a)		Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses).

fees and commissions, reflecting adverse equity market conditions.

Noninterest Expense Noninterest expense was $2.1 billion in the third quarter and $6.1 billion in the first nine months of 2009, increasing $240 million (13.2 percent) and $643 million (11.9 percent), respectively, from the same periods of 2008. The increases in noninterest expense from a year ago were principally due to the impact of acquisitions, higher FDIC deposit insurance expense and marketing expense. Compensation expense increased primarily due to acquisitions, partially offset by reductions from cost containment efforts. Employee benefits expense increased primarily due to increased pension costs associated with previous declines in the value of pension assets. Net occupancy and equipment expense, and technology and communications expense increased primarily due to acquisitions, as well as branch-based and other business expansion initiatives. Marketing and business development expense increased principally due to costs related to the introduction of new credit card products. Other intangibles expense increased due to acquisitions. Other expense increased due to an increase in FDIC deposit insurance expense. In addition, FDIC expense for the first nine months of 2009 further increased over the same period of the prior year due to a second quarter 2009 special assessment. Other expense included increased costs related to investments in affordable housing and other tax-advantaged projects, growth in mortgage servicing and costs associated with foreclosed real estate.

Income Tax Expense The provision for income taxes was $86 million (an effective rate of 12.4 percent) for the third quarter and $287 million (an effective rate of 14.9 percent) for the first nine months of 2009, compared with $198 million (an effective rate of 25.3 percent) and $1.1 billion (an effective rate of 28.5 percent) for the same periods of 2008. The declines in the effective tax rates in the third quarter and first nine months of 2009, compared with the same periods of the prior year, reflected the impact of the relative level of tax-exempt income, and investments in affordable housing and other tax-advantaged projects, combined with lower pre-tax earningsyear-over-year.For further information on income taxes, refer to Note 10 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans The Company’s total loan portfolio was $183.1 billion at September 30, 2009, compared with $185.2 billion at December 31, 2008, a decrease of $2.1 billion (1.2 percent). The decrease was driven primarily by lower commercial loans and covered assets, partially offset by growth in retail loans, residential mortgages and commercial real estate loans. The $5.9 billion (10.4 percent) decrease in commercial loans was primarily driven by lower capital spending and economic conditions impacting loan demand by business customers, along with improved access to the bond markets by those customers to refinance their bank debt.

Commercial real estate loans increased $683 million (2.1 percent) at September 30, 2009, compared with December 31, 2008, reflecting new business growth and higher utilization of existing credits, as current market conditions have limited borrower access to real estate capital markets.

Residential mortgages held in the loan portfolio increased $1.4 billion (5.8 percent) at September 30, 2009, compared with December 31, 2008, reflecting an increase in activity as a result of market interest rate declines. Most loans retained in the portfolio are to


6	U.S. Bancorp

customers with prime or near-prime credit characteristics at the date of origination.

Total retail loans outstanding, which include credit card, retail leasing, home equity and second mortgages and other retail loans, increased $3.3 billion (5.4 percent) at September 30, 2009, compared with December 31, 2008. The increase was primarily driven by growth in credit card balances and home equity and second mortgages, partially offset by decreases in installment loans and retail leasing balances.

Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages and student loans to be sold in the secondary market, were $6.0 billion at September 30, 2009, compared with $3.2 billion at December 31, 2008. The increase in loans held for sale was principally due to an increase in mortgage loan origination activity as a result of a decline in market interest rates.

Investment Securities Investment securities, totaled $42.3 billion at September 30, 2009, compared with $39.5 billion at December 31, 2008. The $2.8 billion increase principally reflected a decrease in unrealized losses. At September 30, 2009, adjustable-rate financial instruments comprised 47 percent of the investment securities portfolio, compared with 40 percent at December 31, 2008.

The Company conducts a regular assessment of its investment securities to determine whether any securities areother-than-temporarilyimpaired. During the first nine months of 2009, the Financial Accounting Standards Board issued new accounting guidance, which the Company adopted effective January 1, 2009, for the measurement and recognition ofother-than-temporaryimpairment for debt securities. This guidance requires the portion ofother-than-temporaryimpairment related to factors other than anticipated credit losses be recognized in other comprehensive income (loss), rather than earnings.

Net unrealized losses included in accumulated other comprehensive income (loss) were $.6 billion at September 30, 2009, compared with $2.8 billion at December 31, 2008. The decrease in unrealized losses was primarily due to increases in the fair value of agency mortgage-backed securities and obligations of state and political subdivisions, and to amounts recognized asother-than-temporaryimpairment in earnings.

During the third quarter and first nine months of 2009, the Company recognized impairment charges in earnings related to perpetual preferred securities, primarily issued by financial institutions, of $21 million and $228 million, respectively. The net unrealized loss for the Company’s remaining investments in perpetual preferred securities was $53 million at September 30, 2009.

There is limited market activity for the remaining structured investment security and the non-agency mortgage-backed securities held by the Company. As a result, the Company estimates the fair value of these securities using estimates of expected cash flows, discount rates and management’s assessment of various market factors, which are judgmental in nature. The Company recorded $51 million and $183 million of impairment charges in earnings on non-agency mortgage-backed and structured investment related securities during the third quarter and first nine months of 2009, respectively. These impairment charges were due to changes in expected cash flows resulting from the continuing decline in housing prices and an increase in foreclosure activity. Further adverse changes in market conditions may result in additional impairment charges in future periods. Refer to Notes 3 and 12 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits Total deposits were $169.8 billion at September 30, 2009, compared with $159.3 billion at December 31, 2008, an increase of $10.5 billion (6.5 percent) that reflected customer flight to quality. The increase in total deposits was primarily the result of increases in money market savings, savings accounts and interest checking balances, partially offset by decreases in noninterest-bearing deposit accounts and time deposits. Money market savings balances increased $10.5 billion (40.0 percent) due to higher corporate trust, institutional trust and custody, and broker-dealer balances. Savings account balances increased $5.6 billion (62.2 percent) due primarily to strong participation in a new savings product introduced late in the third quarter of 2008 by Consumer Banking and higher broker-dealer balances. Interest checking balances increased $5.3 billion (16.4 percent) due to higher government, branch-based, and broker-dealer balances. Noninterest-bearing deposits decreased $3.2 billion (8.7 percent) due primarily to declines in broker-dealer and corporate trust balances. Time certificates of deposit less than $100,000 decreased $2.3 billion (12.6 percent), and time deposits greater than $100,000 decreased $5.4 billion (15.1 percent), reflecting the Company’s funding and pricing decisions. Time deposits greater than $100,000 are managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing.


U.S. Bancorp	7

Table 4 Investment Securities


	Available-for-Sale									Held-to-Maturity
					Weighted-									Weighted-
					Average		Weighted-							Average		Weighted-
	Amortized		Fair		Maturity in		Average			Amortized		Fair		Maturity in		Average
September 30, 2009 (Dollars in Millions)	Cost		Value		Years		Yield(d)			Cost		Value		Years		Yield(d)
U.S. Treasury and Agencies
Maturing in one year or less	$	1,254	$	1,264		.6		3.25	%	$	–	$	–		–		–	%
Maturing after one year through five years		439		442		2.4		2.71			–		–		–		–
Maturing after five years through ten years		33		34		8.0		4.85			–		–		–		–
Maturing after ten years		1,600		1,586		14.3		2.04			–		–		–		–

Total	$	3,326	$	3,326		7.5		2.61	%	$	–	$	–		–		–	%

Mortgage-Backed Securities (a)
Maturing in one year or less	$	1,655	$	1,650		.7		1.89	%	$	–	$	–		–		–	%
Maturing after one year through five years		24,004		24,250		2.9		3.56			4		4		4.9		5.14
Maturing after five years through ten years		4,171		3,919		6.4		2.70			–		–		–		–
Maturing after ten years		365		245		12.0		2.23			–		–		–		–

Total	$	30,195	$	30,064		3.4		3.34	%	$	4	$	4		4.9		5.14	%

Asset-Backed Securities (a)
Maturing in one year or less	$	1	$	1		.8		1.48	%	$	–	$	–		–		–	%
Maturing after one year through five years		586		456		3.4		2.19			–		–		–		–
Maturing after five years through ten years		124		128		7.0		6.37			–		–		–		–
Maturing after ten years		14		8		22.4		1.28			–		–		–		–

Total	$	725	$	593		4.4		2.89	%	$	–	$	–		–		–	%

Obligations of State and Political Subdivisions (b)
Maturing in one year or less	$	32	$	32		.1		2.79	%	$	1	$	1		.3		7.43	%
Maturing after one year through five years		504		511		3.7		5.56			6		6		2.9		6.79
Maturing after five years through ten years		5,527		5,577		6.8		6.79			11		12		6.7		7.40
Maturing after ten years		608		565		23.0		6.91			16		16		17.2		5.53

Total	$	6,671	$	6,685		8.0		6.69	%	$	34	$	35		10.8		6.41	%

Other Debt Securities
Maturing in one year or less	$	–	$	1		.2		8.01	%	$	4	$	4		.5		1.52	%
Maturing after one year through five years		73		55		2.5		5.90			6		6		3.6		1.82
Maturing after five years through ten years		57		49		7.8		6.25			–		–		–		–
Maturing after ten years		1,465		1,104		33.6		4.72			–		–		–		–

Total	$	1,595	$	1,209		31.3		4.83	%	$	10	$	10		2.4		1.70	%

Other Investments	$	397	$	411		15.0		3.31	%	$	–	$	–		–		–	%

Total investment securities (c)	$	42,909	$	42,288		5.6		3.85	%	$	48	$	49		8.4		5.29	%


(a)		Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.
(b)		Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount.
(c)		The weighted-average maturity of theavailable-for-saleinvestment securities was 7.7 years at December 31, 2008, with a corresponding weighted-average yield of 4.56 percent. The weighted-average maturity of theheld-to-maturityinvestment securities was 8.5 years at December 31, 2008, with a corresponding weighted-average yield of 5.78 percent.
(d)		Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields onavailable-for-saleandheld-to-maturitysecurities are computed based on historical cost balances. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity.


	September 30, 2009					December 31, 2008
	Amortized		Percent			Amortized		Percent
(Dollars in Millions)	Cost		of Total			Cost		of Total
U.S. Treasury and agencies	$	3,326		7.7	%	$	664		1.6	%
Mortgage-backed securities		30,199		70.3			31,271		73.9
Asset-backed securities		725		1.7			616		1.4
Obligations of state and political subdivisions		6,705		15.6			7,258		17.1
Other debt securities and investments		2,002		4.7			2,527		6.0

Total investment securities	$	42,957		100.0	%	$	42,336		100.0	%


8	U.S. Bancorp

Borrowings The Company utilizes both short-term and long-term borrowings to fund growth of assets in excess of deposit growth. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $28.2 billion at September 30, 2009, compared with $34.0 billion at December 31, 2008. The decrease principally reflected reduced borrowing needs as a result of increases in deposits due to customer flight to quality.

Long-term debt was $33.3 billion at September 30, 2009, compared with $38.4 billion at December 31, 2008, primarily reflecting $4.4 billion of medium-term note maturities and a $4.7 billion net decrease in Federal Home Loan Bank advances, partially offset by $4.0 billion of issuances of medium-term notes in the first nine months of 2009. The $5.1 billion (13.3 percent) decrease in long-term debt reflected asset/liability management decisions to fund the balance sheet with other sources. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.

CORPORATE RISK PROFILE

Overview Managing risks is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit, residual value, operational, interest rate, market and liquidity risk. Credit risk is the risk of not collecting the interestand/or the principal balance of a loan or investment when it is due. Residual value risk is the potential reduction in theend-of-termvalue of leased assets. Operational risk includes risks related to fraud, legal and compliance risk, processing errors, technology, breaches of internal controls and business continuation and disaster recovery risk. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates, which can affect the re-pricing of assets and liabilities differently. Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading andavailable-for-salesecurities that are accounted for on amark-to-marketbasis. Liquidity risk is the possible inability to fund obligations to depositors, investors or borrowers. In addition, corporate strategic decisions, as well as the risks described above, could give rise to reputation risk. Reputation risk is the risk that negative publicity or press, whether true or not, could result in costly litigation or cause a decline in the Company’s stock value, customer base, funding sources or revenue.

Credit Risk Management The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, the level of allowance coverage relative to similar banking institutions and macroeconomic factors, such as changes in unemployment rates, gross domestic product and consumer bankruptcy filings. Refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for a more detailed discussion on credit risk management processes.

The Company manages its credit risk, in part through diversification of its loan portfolio. As part of its normal business activities, the Company offers a broad array of commercial and retail lending products. The Company’s retail lending business utilizes several distinct business processes and channels to originate retail credit, including traditional branch lending, indirect lending, portfolio acquisitions and a consumer finance division. Generally, loans managed by the Company’s consumer finance division exhibit higher credit risk characteristics, but are priced commensurate with the differing risk profile. With respect to residential mortgages originated through these channels, the Company may either retain the loans on its balance sheet or sell its interest in the balances into the secondary market while retaining the servicing rights and customer relationships. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is also diversified by geography and managed by adherence toloan-to-valueand borrower credit criteria during the underwriting process.


U.S. Bancorp	9

The following tables provide summary information of theloan-to-valuesof residential mortgages and home equity and second mortgages by distribution channel and type at September 30, 2009 (excluding covered assets):


Residential mortgages	Interest						Percent
(Dollars in Millions)	Only		Amortizing		Total		of Total
Consumer Finance
Less than or equal to 80%	$	1,144	$	3,315	$	4,459		44.2	%
Over 80% through 90%		643		1,647		2,290		22.7
Over 90% through 100%		640		2,565		3,205		31.7
Over 100%		–		142		142		1.4

Total	$	2,427	$	7,669	$	10,096		100.0	%
Other Retail
Less than or equal to 80%	$	2,140	$	11,443	$	13,583		91.5	%
Over 80% through 90%		69		554		623		4.2
Over 90% through 100%		94		551		645		4.3
Over 100%		–		–		–		–

Total	$	2,303	$	12,548	$	14,851		100.0	%
Total Company
Less than or equal to 80%	$	3,284	$	14,758	$	18,042		72.3	%
Over 80% through 90%		712		2,201		2,913		11.7
Over 90% through 100%		734		3,116		3,850		15.4
Over 100%		–		142		142		.6

Total	$	4,730	$	20,217	$	24,947		100.0	%


Note:	Loan-to-valuesdetermined as of the date of origination and adjusted for cumulative principal payments, and consider mortgage insurance, as applicable.


Home equity and second mortgages							Percent
(Dollars in Millions)	Lines		Loans		Total		of Total
Consumer Finance (a)
Less than or equal to 80%	$	816	$	202	$	1,018		41.0	%
Over 80% through 90%		383		180		563		22.7
Over 90% through 100%		381		354		735		29.6
Over 100%		63		103		166		6.7

Total	$	1,643	$	839	$	2,482		100.0	%
Other Retail
Less than or equal to 80%	$	11,631	$	1,590	$	13,221		78.0	%
Over 80% through 90%		1,857		530		2,387		14.1
Over 90% through 100%		782		479		1,261		7.5
Over 100%		51		25		76		.4

Total	$	14,321	$	2,624	$	16,945		100.0	%
Total Company
Less than or equal to 80%	$	12,447	$	1,792	$	14,239		73.3	%
Over 80% through 90%		2,240		710		2,950		15.2
Over 90% through 100%		1,163		833		1,996		10.3
Over 100%		114		128		242		1.2

Total	$	15,964	$	3,463	$	19,427		100.0	%


(a)		Consumer finance category included credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with aloan-to-valuegreater than 100 percent that were originated in the branches.


Note:	Loan-to-valuesdetermined on original appraisal value of collateral and the current amortized loan balance, or maximum of current commitment or current balance on lines.

Within the consumer finance division, at September 30, 2009, approximately $2.6 billion of residential mortgages were to customers that may be defined assub-primeborrowers based on credit scores from independent credit rating agencies at loan origination, compared with $2.9 billion at December 31, 2008.

The following table provides further information on residential mortgages for the consumer finance division:


	Interest						Percent of
(Dollars in Millions)	Only		Amortizing		Total		Division
Sub-PrimeBorrowers
Less than or equal to 80%	$	5	$	1,042	$	1,047		10.4	%
Over 80% through 90%		6		614		620		6.1
Over 90% through 100%		14		841		855		8.5
Over 100%		–		67		67		.6

Total	$	25	$	2,564	$	2,589		25.6	%
Other Borrowers
Less than or equal to 80%	$	1,139	$	2,273	$	3,412		33.8	%
Over 80% through 90%		637		1,033		1,670		16.5
Over 90% through 100%		626		1,724		2,350		23.3
Over 100%		–		75		75		.8

Total	$	2,402	$	5,105	$	7,507		74.4	%

Total Consumer Finance	$	2,427	$	7,669	$	10,096		100.0	%

In addition to residential mortgages, at September 30, 2009, the consumer finance division had $.6 billion of home equity and second mortgage loans to customers that may be defined assub-primeborrowers, compared with $.7 billion at December 31, 2008.

The following table provides further information on home equity and second mortgages for the consumer finance division:


							Percent of
(Dollars in Millions)	Lines		Loans		Total		Division
Sub-PrimeBorrowers
Less than or equal to 80%	$	31	$	126	$	157		6.3	%
Over 80% through 90%		40		114		154		6.2
Over 90% through 100%		2		219		221		8.9
Over 100%		40		76		116		4.7

Total	$	113	$	535	$	648		26.1	%
Other Borrowers
Less than or equal to 80%	$	785	$	76	$	861		34.7	%
Over 80% through 90%		343		66		409		16.5
Over 90% through 100%		379		135		514		20.7
Over 100%		23		27		50		2.0

Total	$	1,530	$	304	$	1,834		73.9	%

Total Consumer Finance	$	1,643	$	839	$	2,482		100.0	%

The total amount of residential mortgage, home equity and second mortgage loans, other than covered assets, to customers that may be defined assub-primeborrowers represented only 1.2 percent of total assets at September 30, 2009, compared with 1.4 percent at December 31, 2008. Covered assets include $2.4 billion in loans withnegative-amortizationpayment options at September 30, 2009, compared with $3.3 billion at December 31, 2008. The Company’s risk on covered assets is limited by loss sharing agreements with the FDIC. Other than covered assets, the Company does not have any residential mortgages with payment schedules that would cause balances to increase over time.


10	U.S. Bancorp

Table 5 Delinquent Loan Ratios as a Percent of Ending Loan Balances


	September 30,			December 31,
90 days or more past due excluding nonperforming loans	2009			2008
Commercial
Commercial		.19	%		.15	%
Lease financing		–			–

Total commercial		.17			.13
Commercial Real Estate
Commercial mortgages		.01			–
Construction and development		.39			.36

Total commercial real estate		.12			.11
Residential Mortgages		2.32			1.55
Retail
Credit card		2.41			2.20
Retail leasing		.11			.16
Other retail		.56			.45

Total retail		1.00			.82

Total loans, excluding covered assets		.78			.56

Covered Assets		7.92			5.13

Total loans		1.16	%		.84	%


	September 30,			December 31,
90 days or more past due including nonperforming loans	2009			2008
Commercial		2.19	%		.82	%
Commercial real estate		5.22			3.34
Residential mortgages (a)		3.86			2.44
Retail (b)		1.28			.97

Total loans, excluding covered assets		2.69			1.57

Covered assets		14.74			10.74

Total loans		3.34	%		2.14	%


(a)		Delinquent loan ratios exclude advances made pursuant to servicing agreements to Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Including the guaranteed amounts, the ratio of residential mortgages 90 days or more past due including nonperforming loans was 11.19 percent at September 30, 2009, and 6.95 percent at December 31, 2008.
(b)		Delinquent loan ratios exclude student loans that are guaranteed by the federal government. Including the guaranteed amounts, the ratio of retail loans 90 days or more past due including nonperforming loans was 1.44 percent at September 30, 2009, and 1.10 percent at December 31, 2008.

Loan Delinquencies Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. The Company measures delinquencies, both including and excluding nonperforming loans, to enable comparability with other companies. Accruing loans 90 days or more past due totaled $2.1 billion ($1.3 billion excluding covered assets) at September 30, 2009, compared with $1.6 billion ($967 million excluding covered assets) at December 31, 2008. The increase in 90 day delinquent loans related to covered assets was $194 million. The $377 million increase, excluding covered assets, reflected stress in residential mortgages, commercial loans, construction loans, credit cards and home equity loans. These loans are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, are in the process of collection and are reasonably expected to result in repayment or restoration to current status, or are managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans increased to 1.16 percent (.78 percent excluding covered assets) at September 30, 2009, from .84 percent (.56 percent excluding covered assets) at December 31, 2008. The Company expects delinquencies to continue to increase as difficult economic conditions affect more borrowers within both the consumer and commercial loan portfolios.


U.S. Bancorp	11

The following table provides summary delinquency information for residential mortgages and retail loans, excluding covered assets:


					As a Percent of Ending
	Amount				Loan Balances
	September 30,		December 31,		September 30,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
Residential mortgages
30-89 days	$	595	$	536		2.39	%		2.28	%
90 days or more		580		366		2.32			1.55
Nonperforming		383		210		1.54			.89

Total	$	1,558	$	1,112		6.25	%		4.72	%

Retail
Credit card
30-89 days	$	423	$	369		2.58	%		2.73	%
90 days or more		395		297		2.41			2.20
Nonperforming		126		67		.77			.49

Total	$	944	$	733		5.76	%		5.42	%
Retail leasing
30-89 days	$	37	$	49		.78	%		.95	%
90 days or more		5		8		.11			.16
Nonperforming		–		–		–			–

Total	$	42	$	57		.89	%		1.11	%
Home equity and second mortgages
30-89 days	$	194	$	170		1.00	%		.89	%
90 days or more		153		106		.78			.55
Nonperforming		25		14		.13			.07

Total	$	372	$	290		1.91	%		1.51	%
Other retail
30-89 days	$	262	$	255		1.13	%		1.13	%
90 days or more		86		81		.37			.36
Nonperforming		23		11		.10			.05

Total	$	371	$	347		1.60	%		1.54	%

Within these product categories, the following table provides information on delinquent and nonperforming loans as a percent of ending loan balances, by channel:


	Consumer Finance (a)						Other Retail
	September 30,			December 31,			September 30,			December 31,
	2009			2008			2009			2008
Residential mortgages
30-89 days		4.11	%		3.96	%		1.21	%		1.06	%
90 days or more		3.47			2.61			1.54			.79
Nonperforming		2.42			1.60			.94			.38

Total		10.00	%		8.17	%		3.69	%		2.23	%

Retail
Credit card
30-89 days		–	%		–	%		2.58	%		2.73	%
90 days or more		–			–			2.41			2.20
Nonperforming		–			–			.77			.49

Total		–	%		–	%		5.76	%		5.42	%
Retail leasing
30-89 days		–	%		–	%		.78	%		.95	%
90 days or more		–			–			.11			.16
Nonperforming		–			–			–			–

Total		–	%		–	%		.89	%		1.11	%
Home equity and second mortgages
30-89 days		2.78	%		3.24	%		.74	%		.59	%
90 days or more		2.18			2.36			.59			.32
Nonperforming		.16			.14			.12			.07

Total		5.12	%		5.74	%		1.45	%		.98	%
Other retail
30-89 days		5.54	%		6.91	%		1.02	%		1.00	%
90 days or more		1.18			1.98			.35			.32
Nonperforming		.17			–			.10			.05

Total		6.89	%		8.89	%		1.47	%		1.37	%


(a)		Consumer finance category included credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with aloan-to-valuegreater than 100 percent that were originated in the branches.


12	U.S. Bancorp

Within the consumer finance division at September 30, 2009, approximately $516 million and $107 million of these delinquent and nonperforming residential mortgages and other retail loans, respectively, were with customers that may be defined assub-primeborrowers, compared with $467 million and $121 million, respectively, at December 31, 2008.

The following table provides summary delinquency information for covered assets:


					As a Percent of Ending
	Amount				Loan Balances
	September 30,		December 31,		September 30,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
30-89 days	$	299	$	740		3.03	%		6.46	%
90 days or more		781		587		7.92			5.13
Nonperforming		672		643		6.82			5.62

Total	$	1,752	$	1,970		17.77	%		17.21	%

Restructured Loans Accruing Interest In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due. In most cases, the modification is either a reduction in interest rate, extension of the maturity date or a reduction in the principal balance. Restructured loans accrue interest as long as the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles.

The majority of the Company’s loan restructurings occur on acase-by-casebasis in connection with ongoing loan collection processes, however, the Company has also implemented certain restructuring programs. In late 2007 the consumer finance division began implementing a mortgage loan restructuring program for certain qualifying borrowers. In general, certain borrowers facing an interest rate reset that are current in their repayment status, are allowed to retain the lower of their existing interest rate or the market interest rate as of their interest reset date. In addition, the Company began participating in the U.S. Department of the Treasury Home Affordable Modification Program (“HAMP”) during the third quarter of 2009. HAMP gives qualifying homeowners an opportunity to refinance into more affordable monthly payments, with the U.S. Department of the Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program.

The Company has also modified certain Downey and PFF loans. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss sharing agreements.

Acquired loans restructured after acquisition are not considered restructured loans for purposes of the Company’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date.

The following table provides a summary of restructured loans, excluding covered assets, that are performing in accordance with modified terms, and therefore continue to accrue interest:


					As a Percent of Ending
	Amount				Loan Balances
	September 30,		December 31,		September 30,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
Commercial	$	78	$	35		.15	%		.06	%
Commercial real estate		138		138		.41			.42
Residential mortgages (a)		1,338		813		5.36			3.45
Credit card		598		450		3.65			3.33
Other retail		102		73		.22			.16

Total loans	$	2,254	$	1,509		1.23	%		.81	%


(a)		Excludes advances made pursuant to servicing agreements to GNMA mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.

Restructured loans, excluding covered assets, were $745 million higher at September 30, 2009, than at December 31, 2008, primarily reflecting modifications for residential mortgage and consumer credit card customers in light of current economic conditions. The Company expects this trend to continue as the Company works to modify loans for borrowers who are having financial difficulties.

Nonperforming Assets The level of nonperforming assets represents another indicator of the potential for future credit losses. At September 30, 2009, total nonperforming assets were $4.4 billion, compared with $2.6 billion at December 31, 2008. Nonperforming assets at September 30, 2009 included $672 million of covered assets, compared with $643 million at December 31, 2008. These assets are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses. The ratio of total nonperforming assets to total loans and other real estate was 2.39 percent (2.14 percent excluding covered assets) at September 30, 2009, compared with 1.42 percent (1.14 percent excluding covered assets) at December 31, 2008. The increase in nonperforming assets was driven primarily by the residential construction portfolio and related industries, as well as the residential mortgage portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers.


U.S. Bancorp	13

Table 6 Nonperforming Assets (a)


	September 30,			December 31,
(Dollars in Millions)	2009			2008
Commercial
Commercial	$	908		$	290
Lease financing		119			102

Total commercial		1,027			392
Commercial Real Estate
Commercial mortgages		502			294
Construction and development		1,230			780

Total commercial real estate		1,732			1,074
Residential Mortgages		383			210
Retail
Credit card		126			67
Retail leasing		–			–
Other retail		48			25

Total retail		174			92

Total nonperforming loans, excluding covered assets		3,316			1,768
Covered Assets		672			643

Total nonperforming loans		3,988			2,411
Other Real Estate (b)		366			190
Other Assets		38			23

Total nonperforming assets	$	4,392		$	2,624

Accruing loans 90 days or more past due, excluding covered assets	$	1,344		$	967
Accruing loans 90 days or more past due	$	2,125		$	1,554
Nonperforming loans to total loans, excluding covered assets		1.91	%		1.02	%
Nonperforming loans to total loans		2.18	%		1.30	%
Nonperforming assets to total loans plus other real estate, excluding covered assets (b)		2.14	%		1.14	%
Nonperforming assets to total loans plus other real estate (b)		2.39	%		1.42	%

Changes in Nonperforming Assets


	Commercial and			Retail and
	Commercial			Residential
(Dollars in Millions)	Real Estate			Mortgages (d)			Total
Balance December 31, 2008	$	1,896		$	728		$	2,624
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties		2,978			1,052			4,030
Advances on loans		78			–			78

Total additions		3,056			1,052			4,108
Reductions in nonperforming assets
Paydowns, payoffs		(339	)		(532	)		(871	)
Net sales		(118	)		–			(118	)
Return to performing status		(124	)		(8	)		(132	)
Charge-offs (c)		(1,046	)		(173	)		(1,219	)

Total reductions		(1,627	)		(713	)		(2,340	)

Net additions to nonperforming assets		1,429			339			1,768

Balance September 30, 2009	$	3,325		$	1,067		$	4,392


(a)		Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)		Excludes $319 million and $209 million at September 30, 2009, and December 31, 2008, respectively of foreclosed GNMA loans which continue to accrue interest.
(c)		Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
(d)		Residential mortgage information excludes changes related to residential mortgages serviced by others.

Included in nonperforming loans were restructured loans that are not accruing interest of $212 million at September 30, 2009, compared with $151 million at December 31, 2008.

Other real estate, excluding covered assets, was $366 million at September 30, 2009, compared with $190 million at December 31, 2008, and was primarily related to foreclosed properties that previously secured residential mortgages, home equity and second mortgage loan balances. The increase in other real estate assets reflected continuing stress in residential construction and related supplier industries.


14	U.S. Bancorp

Table 7 Net Charge-offs as a Percent of Average Loans Outstanding


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Commercial
Commercial		1.78	%		.47	%		1.39	%		.42	%
Lease financing		2.66			1.36			3.08			1.18

Total commercial		1.89			.58			1.60			.51
Commercial Real Estate
Commercial mortgages		.49			.16			.40			.12
Construction and development		6.62			2.36			5.06			1.09

Total commercial real estate		2.22			.81			1.75			.41
Residential Mortgages		2.10			1.21			1.86			.86
Retail
Credit card (a)		6.99			4.85			6.91			4.56
Retail leasing		.66			.69			.83			.58
Home equity and second mortgages		1.82			1.07			1.68			.98
Other retail		1.94			1.41			1.83			1.28

Total retail		3.05			1.98			2.89			1.81

Total loans, excluding covered assets		2.41			1.19			2.12			.98
Covered Assets		–			–			.10			–

Total loans		2.27	%		1.19	%		2.01	%		.98	%


(a)		Net charge-offs as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans were recorded at fair value at the purchase date, were 7.30 percent and 7.03 percent for the three months and nine months ended September 30, 2009, respectively.

The following table provides an analysis of other real estate owned (“OREO”), excluding covered assets, as a percent of their related loan balances, including further detail for residential mortgages and home equity and second mortgage loan balances by geographical location:


					As a Percent of Ending
	Amount				Loan Balances
	September 30,		December 31,		September 30,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
Residential
Minnesota	$	26	$	18		.48	%		.34	%
California		18		13		.33			.29
Michigan		10		12		2.07			2.39
Illinois		9		5		.35			.21
Ohio		8		9		.32			.37
All other states		118		88		.42			.32

Total residential		189		145		.43			.34
Commercial		177		45		.52			.14

Total OREO	$	366	$	190		.20	%		.10	%

The Company expects nonperforming assets, including OREO, to continue to increase, however at a decreasing rate as compared with prior periods, as difficult economic conditions affect more borrowers in both the commercial and consumer loan portfolios.

Analysis of Loan Net Charge-Offs Total net charge-offs were $1.0 billion and $2.8 billion for the third quarter and first nine months of 2009, respectively, compared with net charge-offs of $498 million and $1.2 billion for the same periods of 2008. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the third quarter and first nine months of 2009 was 2.27 percent and 2.01 percent, respectively, compared with 1.19 percent and .98 percent, for the same periods of 2008. Theyear-over-yearincreases in total net charge-offs were driven by factors affecting the residential housing markets, including homebuilding and related industries, commercial real estate properties and credit costs associated with credit card and other consumer and commercial loans as the economy weakened and unemployment increased. Given current economic conditions, the continuing weakness in home prices and high unemployment levels, the Company expects net charge-offs will continue to increase for the remainder of 2009, however at a decreasing rate as compared with prior periods.

Commercial and commercial real estate loan net charge-offs for the third quarter of 2009 increased to $433 million (2.02 percent of average loans outstanding on an annualized basis), compared with $144 million (.66 percent of average loans outstanding on an annualized basis) for the third quarter of 2008. Commercial and commercial real estate loan net charge-offs for the first nine months of 2009 increased to $1.1 billion (1.66 percent of average loans outstanding on an annualized basis), compared with $298 million (.47 percent of average loans outstanding on an annualized basis) for the first nine months of 2008. Theyear-over-yearincreases in net charge-offs reflected continuing stress in commercial real estate, residential housing, especially residential homebuilding and related industry sectors, along with the impact of the current economic conditions on the commercial loan portfolios.

Residential mortgage loan net charge-offs for the third quarter of 2009 were $129 million (2.10 percent of average loans outstanding on an annualized basis), compared with $71 million (1.21 percent of average loans outstanding on an annualized basis) for the third quarter of 2008. Residential mortgage loan net charge-offs for the first nine months of 2009 were $336 million (1.86 percent of average loans outstanding on an annualized basis), compared with $150 million (.86 percent of average loans outstanding on an


U.S. Bancorp	15

annualized basis) for the first nine months of 2008. Total retail loan net charge-offs for the third quarter of 2009 were $479 million (3.05 percent of average loans outstanding on an annualized basis), compared with $283 million (1.98 percent of average loans outstanding on an annualized basis) for the third quarter of 2008. Total retail loan net charge-offs for the first nine months of 2009 were $1.3 billion (2.89 percent of average loans outstanding on an annualized basis), compared with $739 million (1.81 percent of average loans outstanding on an annualized basis) for the first nine months of 2008. The increased residential mortgage and retail loan net charge-offs reflected the adverse impact of current economic conditions on consumers, as rising unemployment levels increased losses in prime-based residential portfolios and credit cards.

The following table provides an analysis of net charge-offs as a percent of average loans outstanding on an annualized basis managed by the consumer finance division, compared with other retail loans:


	Three Months Ended September 30,										Nine Months Ended September 30,
					Percent of										Percent of
	Average Loans				Average Loans						Average Loans				Average Loans

(Dollars in Millions)	2009		2008		2009			2008			2009		2008		2009			2008
Consumer Finance (a)
Residential mortgages	$	9,996	$	9,941		3.69	%		2.40	%	$	9,882	$	9,943		3.52	%		1.65	%
Home equity and second mortgages		2,476		2,139		5.93			5.77			2,450		2,015		6.38			5.70
Other retail		591		471		4.70			5.91			561		450		5.96			5.34
Other Retail
Residential mortgages	$	14,409	$	13,368		.99	%		.33	%	$	14,214	$	13,255		.71	%		.27	%
Home equity and second mortgages		16,892		15,719		1.22			.43			16,848		15,151		.99			.35
Other retail		22,056		21,184		1.87			1.31			22,234		19,692		1.73			1.19
Total Company
Residential mortgages	$	24,405	$	23,309		2.10	%		1.21	%	$	24,096	$	23,198		1.86	%		.86	%
Home equity and second mortgages		19,368		17,858		1.82			1.07			19,298		17,166		1.68			.98
Other retail		22,647		21,655		1.94			1.41			22,795		20,142		1.83			1.28


(a)		Consumer finance category included credit originated and managed by the consumer finance division, as well as the majority of home equity and second mortgages with aloan-to-valuegreater than 100 percent that were originated in the branches.

The following table provides further information on net charge-offs as a percent of average loans outstanding on an annualized basis for the consumer finance division:


	Three Months Ended September 30,										Nine Months Ended September 30,
					Percent of										Percent of
	Average Loans				Average Loans						Average Loans				Average Loans

(Dollars in Millions)	2009		2008		2009			2008			2009		2008		2009			2008
Residential mortgages
Sub-primeborrowers	$	2,620	$	3,070		6.06	%		4.28	%	$	2,726	$	3,147		5.79	%		3.01	%
Other borrowers		7,376		6,871		2.85			1.56			7,156		6,796		2.65			1.02

Total	$	9,996	$	9,941		3.69	%		2.40	%	$	9,882	$	9,943		3.52	%		1.65	%
Home equity and second mortgages
Sub-primeborrowers	$	657	$	778		10.87	%		10.23	%	$	685	$	813		11.52	%		9.69	%
Other borrowers		1,819		1,361		4.14			3.22			1,765		1,202		4.39			3.00

Total	$	2,476	$	2,139		5.93	%		5.77	%	$	2,450	$	2,015		6.38	%		5.70	%

Analysis and Determination of the Allowance for Credit Losses The allowance for loan losses reserves for probable and estimable losses incurred in the Company’s loan and lease portfolio, and considers credit loss protection from loss sharing agreements with the FDIC. Management evaluates the allowance each quarter to ensure it is sufficient to cover incurred losses. Several factors were taken into consideration in evaluating the allowance for credit losses at September 30, 2009, including the risk profile of the portfolios, net charge-offs during the period, the level of nonperforming assets, accruing loans 90 days or more past due, delinquency ratios and changes in restructured loan balances. Management also considered the uncertainty related to certain industry sectors, and the extent of credit exposure to specific borrowers within the portfolio. In addition, concentration risks associated with commercial real estate and the mix of loans, including credit cards, loans originated through the consumer finance division and residential mortgage balances, and their relative credit risks, were evaluated. Finally, the Company considered current economic conditions that might impact the portfolio.

At September 30, 2009, the allowance for credit losses was $5.0 billion (2.72 percent of total loans and 2.88 percent of loans excluding covered assets), compared with an allowance of $3.6 billion (1.96 percent of total loans and 2.09 percent of loans excluding covered assets) at December 31, 2008. The increase reflected weak economic conditions and the corresponding impact on the commercial, commercial real estate and consumer loan portfolios. It also reflected continued stress in the residential real estate markets.


16	U.S. Bancorp

Table 8 Summary of Allowance for Credit Losses


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2009			2008			2009			2008
Balance at beginning of period	$	4,571		$	2,648		$	3,639		$	2,260
Charge-offs
Commercial
Commercial		210			63			510			167
Lease financing		54			29			183			75

Total commercial		264			92			693			242
Commercial real estate
Commercial mortgages		31			9			73			20
Construction and development		159			56			370			76

Total commercial real estate		190			65			443			96
Residential mortgages		130			72			339			152
Retail
Credit card		287			164			791			447
Retail leasing		11			11			39			28
Home equity and second mortgages		92			49			249			130
Other retail		130			91			374			236

Total retail		520			315			1,453			841

Covered assets		1			–			9			–

Total charge-offs		1,105			544			2,937			1,331
Recoveries
Commercial
Commercial		10			6			21			20
Lease financing		10			7			29			19

Total commercial		20			13			50			39
Commercial real estate
Commercial mortgages		1			–			2			1
Construction and development		–			–			1			–

Total commercial real estate		1			–			3			1
Residential mortgages		1			1			3			2
Retail
Credit card		16			15			45			51
Retail leasing		3			2			8			4
Home equity and second mortgages		3			1			7			4
Other retail		19			14			62			43

Total retail		41			32			122			102

Covered assets		1			–			1			–

Total recoveries		64			46			179			144
Net Charge-offs
Commercial
Commercial		200			57			489			147
Lease financing		44			22			154			56

Total commercial		244			79			643			203
Commercial real estate
Commercial mortgages		30			9			71			19
Construction and development		159			56			369			76

Total commercial real estate		189			65			440			95
Residential mortgages		129			71			336			150
Retail
Credit card		271			149			746			396
Retail leasing		8			9			31			24
Home equity and second mortgages		89			48			242			126
Other retail		111			77			312			193

Total retail		479			283			1,331			739

Covered assets		–			–			8			–

Total net charge-offs		1,041			498			2,758			1,187

Provision for credit losses		1,456			748			4,169			1,829
Acquisitions and other changes		–			–			(64	)		(4	)

Balance at end of period	$	4,986		$	2,898		$	4,986		$	2,898

Components
Allowance for loan losses	$	4,825		$	2,767
Liability for unfunded credit commitments		161			131

Total allowance for credit losses	$	4,986		$	2,898

Allowance for credit losses as a percentage of
Period-end loans, excluding covered assets		2.88	%		1.71	%
Nonperforming loans, excluding covered assets		150			222
Nonperforming assets, excluding covered assets		134			194
Annualized net charge-offs, excluding covered assets		121			146
Period-end loans		2.72	%		1.71	%
Nonperforming loans		125			222
Nonperforming assets		114			194
Annualized net charge-offs		121			146


U.S. Bancorp	17

The ratio of the allowance for credit losses to nonperforming loans was 125 percent (150 percent excluding covered assets) at September 30, 2009, compared with 151 percent (206 percent excluding covered assets) at December 31, 2008, reflecting an increase in nonperforming assets. The ratio of the allowance for credit losses to annualized loan net charge-offs was 121 percent (both including and excluding covered assets) at September 30, 2009, compared with 200 percent of full year 2008 net charge-offs (201 percent excluding covered assets) at December 31, 2008, reflecting an increase in annualized net charge-offs.

Residual Value Risk Management The Company manages its risk to changes in the residual value of leased assets through disciplined residual valuation setting at the inception of a lease, diversification of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. As of September 30, 2009, no significant change in the amount of residuals or concentration of the portfolios has occurred since December 31, 2008. Refer to “Management’s Discussion and Analysis — Residual Value Risk Management” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for further discussion on residual value risk management.

Operational Risk Management The Company manages operational risk through a risk management framework and its internal control processes. Within this framework, the Corporate Risk Committee (“Risk Committee”) provides oversight and assesses the most significant operational risks facing the Company within its business lines. Under the guidance of the Risk Committee, enterprise risk management personnel establish policies and interact with business lines to monitor significant operating risks on a regular basis. Business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities. Refer to “Management’s Discussion and Analysis — Operational Risk Management” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for further discussion on operational risk management.

Interest Rate Risk Management In the banking industry, changes in interest rates are a significant risk that can impact earnings, market valuations and safety and soundness of an entity. To minimize the volatility of net interest income and the market value of assets and liabilities, the Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Policy Committee (“ALPC”) and approved by the Board of Directors. ALPC has the responsibility for approving and ensuring compliance with the ALPC management policies, including interest rate risk exposure. The Company uses net interest income simulation analysis and market value of equity modeling for measuring and analyzing consolidated interest rate risk.

Net Interest Income Simulation Analysis Management estimates the impact on net interest income of changes in market interest rates under a number of scenarios, including gradual shifts, immediate and sustained parallel shifts, and flattening or steepening of the yield curve. The table below summarizes the projected impact to net interest income over the next 12 months of various potential interest rate changes. The ALPC policy limits the estimated change in net interest income in a gradual 200 basis point (“bps”) rate change scenario to a 4.0 percent decline of forecasted net interest income over the next 12 months. At September 30, 2009, and December 31, 2008, the Company was within policy. Refer to “Management’s Discussion and Analysis — Net Interest Income Simulation Analysis” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for further discussion on net interest income simulation analysis.

Market Value of Equity Modeling The Company also manages interest rate sensitivity by utilizing market value of equity modeling, which 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 ALPC policy limits the change in market value of equity in a 200 bps parallel rate shock to a 15.0 percent decline. The up 200 bps scenario resulted in a 5.9 percent decrease in the market value of equity at September 30, 2009, compared with a 7.6 percent decrease at December 31, 2008. The down 200 bps scenario resulted in a 4.3 percent decrease in the market value of equity at

Sensitivity of Net Interest Income

September 30, 2009

December 31, 2008

Down 50 bps

Up 50 bps

Down 200 bps

Up 200 bps

Down 50 bps

Up 50 bps

Down 200 bps

Up 200 bps

Immediate

Gradual*

Gradual

Immediate

Gradual

Net interest income

*

.42

%

*

.92

%

*

.37

%

*

1.05

%


*		Given the current level of interest rates, a downward rate scenario can not be computed.


18	U.S. Bancorp

September 30, 2009, compared with a 2.8 percent decrease at December 31, 2008.

The Company also uses duration of equity as a measure of interest rate risk. The duration of equity is a measure of the net market value sensitivity of the assets, liabilities and derivative positions of the Company. At September 30, 2009, the duration of assets, liabilities and equity was 1.7 years, 1.8 years and 1.3 years, respectively, compared with 1.6 years, 1.7 years and 1.2 years, respectively, at December 31, 2008. Refer to “Management’s Discussion and Analysis — Market Value of Equity Modeling” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for further discussion on market value of equity modeling.

Use of Derivatives to Manage Interest Rate and Other Risks To reduce the sensitivity of earnings to interest rate, prepayment, credit, price and foreign currency fluctuations (“asset and liability management positions”), the Company enters into derivative transactions. The Company uses derivatives for asset and liability management purposes primarily in the following ways:


•	To convert fixed-rate debt, issued to finance the Company, from fixed-rate payments to floating-rate payments;
•	To convert the cash flows associated with floating-rate debt, issued to finance the Company, from floating-rate payments to fixed-rate payments; and
•	To mitigate changes in value of the Company’s mortgage origination pipeline, mortgage loans held for sale and mortgage servicing rights (“MSRs”).

To manage these risks, the Company may enter into exchange-traded andover-the-counterderivative contracts including interest rate swaps, swaptions, futures, forwards and options. In addition, the Company enters into interest rate and foreign exchange derivative contracts to accommodate the business requirements of its customers (“customer-related positions”). The Company minimizes the market and liquidity risks of customer-related positions by entering into similar offsetting positions with broker-dealers. The Company does not utilize derivatives for speculative purposes.

The Company does not designate all of the derivatives that it enters into for risk management purposes as accounting hedges because of the inefficiency of applying the accounting requirements. In particular, the Company enters into U.S. Treasury futures, options on U.S. Treasury futures contracts and forward commitments to buy residential mortgage loans to mitigate fluctuations in the value of its MSRs, but does not designate those derivatives as accounting hedges.

Additionally, the Company uses forward commitments to sell residential mortgage loans at specified prices to economically hedge the interest rate risk in its residential mortgage loan production activities. At September 30, 2009, the Company had $9.4 billion of forward commitments to sell mortgage loans hedging $5.7 billion of mortgage loans held for sale and $6.0 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedge activities, and the Company has elected the fair value option for the mortgage loans held for sale.

Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, entering into master netting agreements with its counterparties, requiring collateral agreements with credit-rating thresholds and, in certain cases, though insignificant, transferring the counterparty credit risk related to interest rate swaps to third-parties through the use of risk participation agreements.

For additional information on derivatives and hedging activities, refer to Note 11 in the Notes to Consolidated Financial Statements.

Market Risk Management In addition to interest rate risk, the Company is exposed to other forms of market risk as a consequence of conducting normal trading activities. These trading activities principally support the risk management processes of the Company’s customers including their management of foreign currency, interest rate risks and funding activities. The Company also manages market risk of non-trading business activities, including its MSRs and loansheld-for-sale.The Company uses a Value at Risk (“VaR”) approach to measure general market risk. Theoretically, VaR represents the amount the Company has at risk of loss to adverse market movements over a specified time horizon. The Company measures VaR at the ninety-ninth percentile using distributions derived from past market data. On average, the Company expects the one day VaR to be exceeded two to three times per year. The Company monitors the effectiveness of its risk program by back-testing the performance of its VaR models, regularly updating the historical data used by the VaR models and stress testing. As part of its market risk management approach, the Company sets and monitors VaR limits for each trading portfolio. The Company’s trading VaR did not exceed $3 million during the first


U.S. Bancorp	19

Table 9 Capital Ratios


	September 30,			December 31,
(Dollars in Millions)	2009			2008
Tier 1 capital	$	21,990		$	24,426
As a percent of risk-weighted assets		9.5	%		10.6	%
As a percent of adjusted quarterly average assets (leverage ratio)		8.6	%		9.8	%
Total risk-based capital	$	30,126		$	32,897
As a percent of risk-weighted assets		13.0	%		14.3	%

nine months of 2009 and $1 million during the first nine months of 2008.

Liquidity Risk Management The ALPC establishes policies and guidelines, 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 in a timely and cost-effective manner. Liquidity management is viewed from long-term and short-term perspectives, as well as from an asset and liability perspective. Management monitors liquidity through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk.

During 2008 and 2009, the financial markets have been challenging for many financial institutions. As a result of these market conditions, liquidity premiums widened and many banks experienced liquidity constraints, substantially increased pricing to retain deposits or utilized the Federal Reserve System discount window to secure adequate funding. The Company’s profitable operations, sound credit quality and strong balance sheet have enabled it to develop a large and reliable base of core deposit funding within its market areas and in domestic and global capital markets. As depositors and investors in the wholesale funding markets have migrated to stable financial institutions, the Company has maintained a strong liquidity position. Refer to “Management’s Discussion and Analysis — Liquidity Risk Management” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for further discussion on liquidity risk management.

At September 30, 2009, parent company long-term debt outstanding was $13.6 billion, compared with $10.8 billion at December 31, 2008. The $2.8 billion increase was primarily due to the issuances during the first nine months of 2009 of $2.7 billion of medium-term notes guaranteed under the FDIC Temporary Liquidity Guarantee Program and $1.3 billion of notes not guaranteed under this program. These issuances were partially offset by $1.0 billion of medium-term note maturities. At September 30, 2009, there was no parent company debt scheduled to mature during the remainder of 2009, and $4.8 billion scheduled to mature in 2010. During the second quarter of 2009, the Company raised $2.7 billion through the sale of its common stock.

Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. The amount of dividends available to the parent company from its banking subsidiaries after meeting the regulatory capital requirements for well-capitalized banks was approximately $2.9 billion at September 30, 2009.

Capital Management The Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. The Company also manages its capital to exceed regulatory capital requirements for well-capitalized bank holding companies. On May 7, 2009, the Federal Reserve completed an assessment of the capital adequacy of the nineteen largest domestic bank holding companies. Based on the results of their capital adequacy assessment, the Federal Reserve projected the Company’s capital would be sufficient under the Federal Reserve’s projected scenarios. Following a $2.7 billion sale of common stock and issuance of $1.0 billion of non-guaranteed medium-term notes, the Company received approval to redeem the $6.6 billion of preferred stock previously issued to the U.S. Department of the Treasury and completed the redemption on June 17, 2009. On July 15, 2009, the Company repurchased the related common stock warrant from the U.S. Department of the Treasury for $139 million.

Table 9 provides a summary of regulatory capital ratios as of September 30, 2009, and December 31, 2008. All regulatory ratios exceeded regulatory “well-capitalized” requirements. Total U.S. Bancorp shareholders’ equity was $25.2 billion at September 30, 2009, compared with $26.3 billion at December 31, 2008. The decrease was principally the result of the preferred stock redemption and repurchase of the common stock warrant, partially offset by corporate earnings, the proceeds from the public offering of the Company’s common stock and changes in unrealized gains and losses onavailable-for-saleinvestment securities and derivatives included in other comprehensive income.


20	U.S. Bancorp

The Company believes certain capital ratios in addition to regulatory capital ratios are useful in evaluating its capital adequacy. The Company’s Tier 1 common and tangible common equity, as a percent of risk-weighted assets, was 6.8 percent and 6.0 percent, respectively, at September 30, 2009, compared with 5.1 percent and 3.7 percent, respectively, at December 31, 2008. The Company’s tangible common equity divided by tangible assets was 5.4 percent at September 30, 2009, compared with 3.3 percent at December 31, 2008. Refer to “Non-Regulatory Capital Ratios” for further information regarding the calculation of these measures.

On December 9, 2008, the Company announced its Board of Directors had approved an authorization to repurchase 20 million shares of common stock through December 31, 2010. All shares repurchased during the third quarter of 2009 were repurchased under this authorization. The following table provides a detailed analysis of all shares repurchased during the third quarter of 2009:


	Total Number				Maximum Number
	of Shares				of Shares that May
	Purchased as		Average		Yet Be Purchased
	Part of the		Price Paid		Under the
Time Period	Program		per Share		Program
July		13,150	$	18.46		19,704,671
August		783		22.27		19,703,888
September		704		22.25		19,703,184

Total		14,637	$	18.85		19,703,184

LINE OF BUSINESS FINANCIAL REVIEW

The Company’s major lines of business are Wholesale Banking, Consumer Banking, Wealth Management & Securities Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance.

Basis for Financial Presentation Business line results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. Refer to “Management’s Discussion and Analysis — Line of Business Financial Review” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for further discussion on the business lines’ basis for financial presentation.

Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2009, business line results were restated and presented on a comparable basis for organization and methodology changes to more closely align capital allocation with Basel II requirements and to allocate the provision for credit losses based on net charge-offs and changes in the risks of specific loan portfolios. Previously, the provision in excess of net charge-offs remained in Treasury and Corporate Support, and the other lines of business’ results included only the portion of the provision for credit losses equal to net charge-offs.

Wholesale Banking Wholesale Banking offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution and public sector clients. Wholesale Banking contributed $29 million of the Company’s net income in the third quarter and $142 million in the first nine months of 2009, or decreases of $253 million (89.7 percent) and $665 million (82.4 percent), respectively, compared with the same periods of 2008. The decreases were primarily driven by higher provision for credit losses and noninterest expense, partially offset by higher net revenue.

Total net revenue increased $51 million (7.0 percent) in the third quarter and $190 million (9.0 percent) in the first nine months of 2009, compared with the same periods of 2008. Net interest income, on a taxable-equivalent basis, increased $37 million (7.3 percent) in the third quarter and $143 million (9.7 percent) in the first nine months of 2009, compared with the same periods of 2008, driven by strong growth in deposits and improved spreads on loans, partially offset by the impact of declining rates on the margin benefit of deposits. Noninterest income increased $14 million (6.3 percent) in the third quarter and $47 million (7.3 percent) in the first nine months of 2009, compared with the same periods of 2008. The increases were primarily due to higher treasury management, letters of credit, commercial loan, and capital markets fees, partially offset by declining valuations on equity investments.

Total noninterest expense increased $19 million (7.5 percent) in the third quarter and $49 million (6.3 percent) in the first nine months of 2009, compared with the same periods of 2008, primarily due to higher FDIC deposit insurance expense. The provision for credit losses increased $426 million in the third quarter and $1.2 billion in the first nine months of 2009, compared


U.S. Bancorp	21

Table 10 Line of Business Financial Performance


	Wholesale								Consumer
	Banking								Banking
Three Months Ended September 30						Percent							Percent
(Dollars in Millions)	2009		2008			Change			2009		2008		Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	542	$	505			7.3	%	$	1,021	$	973		4.9	%
Noninterest income		237		234			1.3			774		505		53.3
Securities gains (losses), net		–		(11	)			*		–		–		–

Total net revenue		779		728			7.0			1,795		1,478		21.4
Noninterest expense		267		248			7.7			886		793		11.7
Other intangibles		6		6			–			22		14		57.1

Total noninterest expense		273		254			7.5			908		807		12.5

Income before provision and income taxes		506		474			6.8			887		671		32.2
Provision for credit losses		460		34				*		480		433		10.9

Income before income taxes		46		440			(89.5	)		407		238		71.0
Income taxes and taxable-equivalent adjustment		17		160			(89.4	)		148		87		70.1

Net income		29		280			(89.6	)		259		151		71.5
Net (income) loss attributable to noncontrolling interests		–		2				*		–		–		–

Net income attributable to U.S. Bancorp	$	29	$	282			(89.7	)	$	259	$	151		71.5


Average Balance Sheet
Commercial	$	38,268	$	39,907			(4.1	)%	$	6,183	$	6,943		(10.9	)%
Commercial real estate		21,565		19,861			8.6			11,384		11,346		.3
Residential mortgages		83		93			(10.8	)		23,938		22,826		4.9
Retail		43		77			(44.2	)		44,140		42,131		4.8

Total loans, excluding covered assets		59,959		59,938			–			85,645		83,246		2.9
Covered assets		–		–			–			9,299		–			*

Total loans		59,959		59,938			–			94,944		83,246		14.1
Goodwill		1,475		1,494			(1.3	)		3,101		2,420		28.1
Other intangible assets		87		94			(7.4	)		1,762		1,853		(4.9	)
Assets		63,892		65,119			(1.9	)		109,879		93,552		17.5
Noninterest-bearing deposits		17,462		10,867			60.7			13,913		12,293		13.2
Interest checking		13,447		8,861			51.8			20,992		18,677		12.4
Savings products		10,548		6,694			57.6			27,190		20,535		32.4
Time deposits		12,465		14,196			(12.2	)		25,098		17,559		42.9

Total deposits		53,922		40,618			32.8			87,193		69,064		26.2
Total U.S. Bancorp shareholders’ equity		5,527		6,468			(14.5	)		6,839		5,692		20.2


	Wholesale									Consumer
	Banking									Banking
Nine Months Ended September 30							Percent							Percent
(Dollars in Millions)	2009			2008			Change			2009		2008		Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	1,611		$	1,468			9.7	%	$	3,018	$	2,862		5.5	%
Noninterest income		695			667			4.2			2,224		1,672		33.0
Securities gains (losses), net		(3	)		(22	)		86.4			–		–		–

Total net revenue		2,303			2,113			9.0			5,242		4,534		15.6
Noninterest expense		809			764			5.9			2,654		2,327		14.1
Other intangibles		18			14			28.6			69		43		60.5

Total noninterest expense		827			778			6.3			2,723		2,370		14.9

Income before provision and income taxes		1,476			1,335			10.6			2,519		2,164		16.4
Provision for credit losses		1,254			62				*		1,441		1,026		40.4

Income before income taxes		222			1,273			(82.6	)		1,078		1,138		(5.3	)
Income taxes and taxable-equivalent adjustment		81			466			(82.6	)		393		413		(4.8	)

Net income		141			807			(82.5	)		685		725		(5.5	)
Net (income) loss attributable to noncontrolling interests		1			–				*		–		–		–

Net income attributable to U.S. Bancorp	$	142		$	807			(82.4	)	$	685	$	725		(5.5	)


Average Balance Sheet
Commercial	$	40,778		$	39,402			3.5	%	$	6,294	$	6,827		(7.8	)%
Commercial real estate		21,435			18,701			14.6			11,477		11,320		1.4
Residential mortgages		84			88			(4.5	)		23,621		22,722		4.0
Retail		58			76			(23.7	)		44,396		40,229		10.4

Total loans, excluding covered assets		62,355			58,267			7.0			85,788		81,098		5.8
Covered assets		–			–			–			9,796		–			*

Total loans		62,355			58,267			7.0			95,584		81,098		17.9
Goodwill		1,474			1,402			5.1			3,145		2,419		30.0
Other intangible assets		93			58			60.3			1,607		1,692		(5.0	)
Assets		67,046			63,456			5.7			109,475		91,894		19.1
Noninterest-bearing deposits		17,027			10,641			60.0			14,016		12,058		16.2
Interest checking		11,462			8,611			33.1			20,595		18,663		10.4
Savings products		8,442			6,348			33.0			25,699		20,195		27.3
Time deposits		13,514			14,710			(8.1	)		26,169		17,953		45.8

Total deposits		50,445			40,310			25.1			86,479		68,869		25.6
Total U.S. Bancorp shareholders’ equity		5,567			6,181			(9.9	)		6,866		5,700		20.5

* Not meaningful


22	U.S. Bancorp


Wealth Management &								Payment									Treasury and									Consolidated
Securities Services								Services									Corporate Support									Company
					Percent									Percent									Percent									Percent
2009		2008			Change			2009			2008			Change			2009			2008			Change			2009			2008			Change
$	85	$	100			(15.0	)%	$	299		$	244			22.5	%	$	210		$	145			44.8	%	$	2,157		$	1,967			9.7	%
	299		311			(3.9	)		782			765			2.2			77			8				*		2,169			1,823			19.0
	–		–			–			–			–			–			(76	)		(400	)		81.0			(76	)		(411	)		81.5

	384		411			(6.6	)		1,081			1,009			7.1			211			(247	)			*		4,250			3,379			25.8
	208		233			(10.7	)		409			346			18.2			189			105			80.0			1,959			1,725			13.6
	16		19			(15.8	)		50			49			2.0			–			–			–			94			88			6.8

	224		252			(11.1	)		459			395			16.2			189			105			80.0			2,053			1,813			13.2

	160		159			.6			622			614			1.3			22			(352	)			*		2,197			1,566			40.3
	9		(2	)			*		506			283			78.8			1			–				*		1,456			748			94.7

	151		161			(6.2	)		116			331			(65.0	)		21			(352	)			*		741			818			(9.4	)
	55		59			(6.8	)		42			120			(65.0	)		(126	)		(194	)		35.1			136			232			(41.4	)

	96		102			(5.9	)		74			211			(64.9	)		147			(158	)			*		605			586			3.2
	–		–			–			(7	)		(7	)		–			5			(5	)			*		(2	)		(10	)		80.0

$	96	$	102			(5.9	)	$	67		$	204			(67.2	)	$	152		$	(163	)			*	$	603		$	576			4.7



$	1,053	$	1,677			(37.2	)%	$	4,845		$	4,866			(.4	)%	$	873		$	1,180			(26.0	)%	$	51,222		$	54,573			(6.1	)%
	561		513			9.4			–			–			–			319			28				*		33,829			31,748			6.6
	381		387			(1.6	)		–			–			–			3			3			–			24,405			23,309			4.7
	1,568		1,490			5.2			16,472			13,231			24.5			1			1			–			62,224			56,930			9.3

	3,563		4,067			(12.4	)		21,317			18,097			17.8			1,196			1,212			(1.3	)		171,680			166,560			3.1
	–		–			–			–			–			–			989			–				*		10,288			–				*

	3,563		4,067			(12.4	)		21,317			18,097			17.8			2,185			1,212			80.3			181,968			166,560			9.3
	1,562		1,562			–			2,316			2,364			(2.0	)		–			–			–			8,454			7,840			7.8
	249		318			(21.7	)		939			994			(5.5	)		7			–				*		3,044			3,259			(6.6	)
	5,921		6,407			(7.6	)		25,314			23,152			9.3			59,405			55,393			7.2			264,411			243,623			8.5
	4,818		4,438			8.6			538			494			8.9			251			230			9.1			36,982			28,322			30.6
	3,691		4,722			(21.8	)		86			41				*		2			3			(33.3	)		38,218			32,304			18.3
	9,281		4,389				*		19			19			–			173			61				*		47,211			31,698			48.9
	5,352		3,602			48.6			1			2			(50.0	)		1,035			5,856			(82.3	)		43,951			41,215			6.6

	23,142		17,151			34.9			644			556			15.8			1,461			6,150			(76.2	)		166,362			133,539			24.6
	2,107		2,248			(6.3	)		4,719			4,563			3.4			5,487			3,012			82.2			24,679			21,983			12.3


Wealth Management &							Payment									Treasury and									Consolidated
Securities Services							Services									Corporate Support									Company
				Percent									Percent									Percent									Percent
2009		2008		Change			2009			2008			Change			2009			2008			Change			2009			2008			Change
$	266	$	302		(11.9	)%	$	852		$	737			15.6	%	$	609		$	336			81.3	%	$	6,356		$	5,705			11.4	%
	903		1,007		(10.3	)		2,195			2,228			(1.5	)		212			499			(57.5	)		6,229			6,073			2.6
	–		–		–			–			–			–			(290	)		(703	)		58.7			(293	)		(725	)		59.6

	1,169		1,309		(10.7	)		3,047			2,965			2.8			531			132				*		12,292			11,053			11.2
	656		697		(5.9	)		1,092			1,009			8.2			562			351			60.1			5,773			5,148			12.1
	50		58		(13.8	)		143			147			(2.7	)		–			–			–			280			262			6.9

	706		755		(6.5	)		1,235			1,156			6.8			562			351			60.1			6,053			5,410			11.9

	463		554		(16.4	)		1,812			1,809			.2			(31	)		(219	)		85.8			6,239			5,643			10.6
	22		1			*		1,449			740			95.8			3			–				*		4,169			1,829				*

	441		553		(20.3	)		363			1,069			(66.0	)		(34	)		(219	)		84.5			2,070			3,814			(45.7	)
	160		201		(20.4	)		132			387			(65.9	)		(331	)		(313	)		(5.8	)		435			1,154			(62.3	)

	281		352		(20.2	)		231			682			(66.1	)		297			94				*		1,635			2,660			(38.5	)
	–		–		–			(19	)		(19	)		–			(14	)		(25	)		44.0			(32	)		(44	)		27.3

$	281	$	352		(20.2	)	$	212		$	663			(68.0	)	$	283		$	69				*	$	1,603		$	2,616			(38.7	)



$	1,208	$	1,756		(31.2	)%	$	4,546		$	4,563			(.4	)%	$	961		$	877			9.6	%	$	53,787		$	53,425			.7	%
	567		533		6.4			–			–			–			174			36				*		33,653			30,590			10.0
	388		385		.8			–			–			–			3			3			–			24,096			23,198			3.9
	1,543		1,505		2.5			15,526			12,615			23.1			3			1				*		61,526			54,426			13.0

	3,706		4,179		(11.3	)		20,072			17,178			16.8			1,141			917			24.4			173,062			161,639			7.1
	–		–		–			–			–			–			979			–				*		10,775			–				*

	3,706		4,179		(11.3	)		20,072			17,178			16.8			2,120			917				*		183,837			161,639			13.7
	1,562		1,563		(.1	)		2,303			2,364			(2.6	)		–			–			–			8,484			7,748			9.5
	265		337		(21.4	)		903			1,015			(11.0	)		5			1				*		2,873			3,103			(7.4	)
	6,072		6,541		(7.2	)		24,256			22,033			10.1			58,730			56,926			3.2			265,579			240,850			10.3
	4,903		4,316		13.6			534			484			10.3			320			267			19.9			36,800			27,766			32.5
	3,765		4,384		(14.1	)		82			36				*		2			3			(33.3	)		35,906			31,697			13.3
	7,400		4,784		54.7			18			19			(5.3	)		142			64				*		41,701			31,410			32.8
	6,111		3,728		63.9			1			1			–			3,189			6,137			(48.0	)		48,984			42,529			15.2

	22,179		17,212		28.9			635			540			17.6			3,653			6,471			(43.5	)		163,391			133,402			22.5
	2,128		2,288		(7.0	)		4,576			4,541			.8			7,422			3,217				*		26,559			21,927			21.1


U.S. Bancorp	23

with the same periods of 2008. The unfavorable changes were primarily due to an increase in net charge-offs and deterioration in the credit quality of commercial and commercial real estate loans. Nonperforming assets were $2.5 billion at September 30, 2009, $2.2 billion at June 30, 2009, and $940 million at September 30, 2008. Nonperforming assets as a percentage of period-end loans were 4.22 percent at September 30, 2009, 3.60 percent at June 30, 2009, and 1.51 percent at September 30, 2008. Refer to the “Corporate Risk Profile” section for further information on factors impacting the credit quality of the loan portfolios.

Consumer Banking Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATM processing. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking and24-hourbanking. Consumer Banking contributed $259 million of the Company’s net income in the third quarter and $685 million in the first nine months of 2009, or an increase of $108 million (71.5 percent) and a decrease of $40 million (5.5 percent), respectively, compared with the same periods of 2008. Within Consumer Banking, the retail banking division contributed $111 million of the total net income in the third quarter and $254 million in the first nine months of 2009, or decreases of $18 million (14.0 percent) and $370 million (59.3 percent), respectively, from the same periods in the prior year. Mortgage banking contributed $148 million of the business line’s net income in the third quarter and $431 million in the first nine months of 2009, or increases of $126 million and $330 million, respectively, over the same periods in the prior year, reflecting strong mortgage loan production and improved loan sale profitability.

Total net revenue increased $317 million (21.4 percent) in the third quarter and $708 million (15.6 percent) in the first nine months of 2009, compared with the same periods of 2008. Net interest income, on a taxable-equivalent basis, increased $48 million (4.9 percent) in the third quarter and $156 million (5.5 percent) in the first nine months of 2009, compared with the same periods of 2008. Theyear-over-yearincreases in net interest income were due to increases in average loan and deposit balances, offset by declines in the margin benefit from deposits in a declining interest rate environment. The increases in average loan balances reflected core growth in most loan categories, with the largest increases in retail loans and residential mortgages. In addition, average loan balances increased due to the Downey and PFF acquisitions in the fourth quarter of 2008, reflected primarily in covered assets. The favorable changes in retail loans were principally driven by increases in home equity and federally guaranteed student loan balances. Theyear-over-yearincreases in average deposits reflected core increases, primarily within savings and time deposits. In addition, average deposit balances increased due to the Downey and PFF acquisitions in the fourth quarter of 2008. Fee-based noninterest income increased $269 million (53.3 percent) in the third quarter and $552 million (33.0 percent) in the first nine months of 2009, compared with the same periods of 2008. Theyear-over-yearincreases in fee-based revenue were driven by higher mortgage banking revenue due to strong mortgage loan production and improved loan sale profitability, an improvement in retail lease residual losses, and higher ATM processing services fees, partially offset by lower deposit service charges.

Total noninterest expense increased $101 million (12.5 percent) in the third quarter and $353 million (14.9 percent) in the first nine months of 2009, compared with the same periods of 2008. The increases included the net addition, including the impact of fourth quarter 2008 acquisitions, of 169 in-store branches and 126 traditional branches at September 30, 2009, compared with September 30, 2008. In addition, the increases in noninterest expense were also attributable to higher FDIC deposit insurance expense, mortgage and ATM volume-related expenses, and higher credit related costs associated with other real estate owned and foreclosures.

The provision for credit losses increased $47 million (10.9 percent) in the third quarter and $415 million (40.4 percent) in the first nine months of 2009, compared with the same periods of 2008. The increases were due to growth in net charge-offs and stress in residential mortgages, home equity and other installment and consumer loan portfolios from a year ago. As a percentage of average loans outstanding on an annualized basis, net charge-offs increased to 1.61 percent in the third quarter of 2009, compared with 1.05 percent in the third quarter of 2008. Commercial and commercial real estate loan net charge-offs increased $41 million and retail loan and residential mortgage net charge-offs increased $125 million in the third quarter of 2009, compared with the third quarter of 2008. Nonperforming assets were $1.2 billion at September 30, 2009, $1.2 billion at June 30, 2009, and $482 million at September 30, 2008. Nonperforming assets as a percentage of period-end loans were 1.28 percent at September 30, 2009, 1.41 percent at June 30, 2009, and .58 percent at September 30, 2008. Refer to the “Corporate Risk Profile” section for further


24	U.S. Bancorp

information on factors impacting the credit quality of the loan portfolios.

Wealth Management & Securities Services Wealth Management & Securities Services provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services. Wealth Management & Securities Services contributed $96 million of the Company’s net income in the third quarter and $281 million in the first nine months of 2009, or decreases of $6 million (5.9 percent) and $71 million (20.2 percent), respectively, compared with the same periods of 2008. The decreases were primarily attributable to unfavorable equity market conditions relative to a year ago.

Total net revenue decreased $27 million (6.6 percent) in the third quarter and $140 million (10.7 percent) in the first nine months of 2009, compared with the same periods of 2008. Net interest income, on a taxable-equivalent basis, decreased $15 million (15.0 percent) in the third quarter and $36 million (11.9 percent) in the first nine months of 2009, compared with the same periods of 2008. The decreases in net interest income were primarily due to the reduction in the margin benefit from deposits partially offset by higher deposit volumes. Noninterest income decreased $12 million (3.9 percent) in the third quarter and $104 million (10.3 percent) in the first nine months of 2009, compared with the same periods of 2008, primarily driven by unfavorable equity market conditions.

Total noninterest expense decreased $28 million (11.1 percent) in the third quarter and $49 million (6.5 percent) in the first nine months of 2009, compared with the same periods of 2008. The decreases in noninterest expense were primarily due to lower compensation and employee benefits expense, litigation-related costs and other intangibles expense, partially offset by higher FDIC deposit insurance expense.

Payment Services Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services’ offerings are highly inter-related with banking products and services of the other lines of business and rely on access to the bank subsidiary’s settlement network, lower cost funding available to the Company, cross-selling opportunities and operating efficiencies. Payment Services contributed $67 million of the Company’s net income in the third quarter and $212 million in the first nine months of 2009, or decreases of $137 million (67.2 percent) and $451 million (68.0 percent), respectively, compared with the same periods of 2008. The decreases were primarily due to a higher provision for credit losses.

Total net revenue increased $72 million (7.1 percent) in the third quarter and $82 million (2.8 percent) in the first nine months of 2009, compared with the same periods of 2008. Net interest income, on a taxable-equivalent basis, increased $55 million (22.5 percent) in the third quarter and $115 million (15.6 percent) in the first nine months of 2009, compared with the same periods of 2008, primarily due to growth in credit card loan balances partially offset by the cost of rebates on the government card program. Noninterest income increased $17 million (2.2 percent) in the third quarter and decreased $33 million (1.5 percent) in the first nine months of 2009, compared with the same periods of 2008. The increase in the third quarter of 2009 over the same period in 2008 was due to higher corporate payment products revenue and income from other payments related initiatives. The decline in the first nine months of 2009 compared to the same period in 2008 was driven by lower transaction volumes.

Total noninterest expense increased $64 million (16.2 percent) in the third quarter and $79 million (6.8 percent) in the first nine months of 2009, compared with the same periods of 2008, due to marketing and business development expense related to new credit card products.

The provision for credit losses increased $223 million (78.8 percent) in the third quarter and $709 million (95.8 percent) in the first nine months of 2009, compared with the same periods of 2008, due to higher net charge-offs, retail credit card portfolio growth, higher delinquency rates and changing economic conditions from a year ago. As a percentage of average loans outstanding, net charge-offs were 6.29 percent in the third quarter of 2009, compared with 4.11 percent in the third quarter of 2008.

Treasury and Corporate Support Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $152 million in the third quarter and $283 million in the first nine months of 2009, compared with a loss of $163 million in the third quarter and net income of $69 million in the first nine months of 2008.


U.S. Bancorp	25

Total net revenue increased $458 million in the third quarter and $399 million in the first nine months of 2009, compared with the same periods of 2008. Net interest income, on a taxable-equivalent basis, increased $65 million (44.8 percent) in the third quarter and $273 million (81.3 percent) in the first nine months of 2009, compared with the same periods of 2008, reflecting the impact of the declining rate environment, wholesale funding decisions and the Company’s asset/liability position. Noninterest income increased $393 million in the third quarter and $126 million in the first nine months of 2009, compared with the same periods of 2008. The increase in noninterest income in the third quarter of 2009, compared with the third quarter of 2008, was primarily due to lower net securities losses. The increase in noninterest income for the first nine months of 2009, compared with the same period of a year ago, was primarily due to lower impairment charges on structured investment related securities, a gain on a corporate real estate transaction, and higher gains on the sale of investment securities in 2009, partially offset by the net impact of the 2008 Visa Gain and impairments on preferred securities and non-agency mortgage-backed securities in 2009.

Total noninterest expense increased $84 million (80.0 percent) in the third quarter and $211 million (60.1 percent) in the first nine months of 2009, compared with the same periods of 2008. The increases in noninterest expense were driven by increased litigation, costs related to affordable housing and other tax advantaged projects, and higher acquisition integration costs. In addition, the increase for the first nine months of 2009 was due to an FDIC special assessment recorded in the second quarter of 2009.

Income taxes are assessed to each line of business at a managerial tax rate of 36.4 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support. The consolidated effective tax rate of the Company was 12.4 percent in the third quarter and 14.9 percent in the first nine months of 2009, compared with 25.3 percent in the third quarter and 28.5 percent in the first nine months of 2008. Theyear-over-yeardecreases in the effective tax rate reflected the marginal impact of lower pre-tax income and the relative level of tax-exempt income and tax-advantaged investments.

NON-REGULATORY CAPITAL RATIOS

In addition to capital ratios defined by banking regulators, the Company considers other ratios when evaluating capital utilization and adequacy, including:


	•	Tangible common equity to tangible assets,
	•	Tier 1 common equity to risk-weighted assets, and
	•	Tangible common equity to risk-weighted assets.

These non-regulatory capital ratios are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market conditions. Additionally, presentation of these ratios allows readers to compare the Company’s capitalization to other financial services companies. These ratios differ from capital ratios defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies among different financial services companies. These ratios are not determined in accordance with generally accepted accounting principals (“GAAP”) and are not defined in federal banking regulations. These non-regulatory capital ratios disclosed by the Company may be considered non-GAAP financial measures.

Despite the importance of these non-regulatory capital ratios to the Company, there are no standardized definitions for them, and, as a result, the Company’s calculation methods may differ from those used by other financial services companies. Also, there may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this report in their entirety, and not to rely on any single financial measure.

The following table shows the Company’s calculation of the non-regulatory capital ratios:


	September 30,			December 31,
(Dollars in Millions)	2009			2008
Total equity	$	25,880		$	27,033
Preferred stock		(1,500)			(7,931)
Noncontrolling interests		(709)			(733)
Goodwill (net of deferred tax liability)		(8,161)			(8,153)
Intangible assets, other than mortgage servicing rights		(1,604)			(1,640)


Tangible common equity (a)		13,906			8,576
Tier 1 capital, determined in accordance with prescribed regulatory requirements		21,990			24,426
Trust preferred securities		(4,024)			(4,024)
Preferred stock		(1,500)			(7,931)
Noncontrolling interests, less preferred stock not eligible for Tier 1 capital		(692)			(693)

Tier 1 common equity (b)		15,774			11,778
Total assets		265,058			265,912
Goodwill (net of deferred tax liability)		(8,161)			(8,153)
Intangible assets, other than mortgage servicing rights		(1,604)			(1,640)

Tangible assets (c)		255,293			256,119
Risk-weighted assets, determined in accordance with prescribed regulatory requirements (d)		231,993			230,628
Ratios
Tangible common equity to tangible assets (a)/(c)		5.4	%		3.3	%
Tier 1 common equity to risk-weighted assets (b)/(d)		6.8			5.1
Tangible common equity to risk-weighted assets (a)/(d)		6.0			3.7


26	U.S. Bancorp

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Company’s financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Company’s financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Those policies considered to be critical accounting policies relate to the allowance for credit losses, fair value estimates, MSRs, goodwill and other intangibles and income taxes. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” and the Notes to Consolidated Financial Statements in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined inRules 13a-15(e)and15d-15(e)under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon this evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

During the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial reporting (as defined inRules 13a-15(f)and15d-15(f)under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


U.S. Bancorp	27

U.S. Bancorp

Consolidated Balance Sheet


	September 30,			December 31,
(Dollars in Millions)	2009			2008
	(Unaudited)
Assets
Cash and due from banks	$	5,016		$	6,859
Investment securities
Held-to-maturity(fair value $49 and $54, respectively)		48			53
Available-for-sale		42,288			39,468
Loans held for sale (included $5,674 and $2,728 of mortgage loans carried at fair value, respectively)		6,030			3,210
Loans
Commercial		50,712			56,618
Commercial real estate		33,896			33,213
Residential mortgages		24,947			23,580
Retail		63,642			60,368

Total loans, excluding covered assets		173,197			173,779
Covered assets		9,859			11,450

Total loans		183,056			185,229
Less allowance for loan losses		(4,825	)		(3,514	)

Net loans		178,231			181,715
Premises and equipment		2,251			1,790
Goodwill		8,597			8,571
Other intangible assets		3,158			2,834
Other assets		19,439			21,412

Total assets	$	265,058		$	265,912

Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	$	34,250		$	37,494
Interest-bearing		104,950			85,886
Time deposits greater than $100,000		30,555			35,970

Total deposits		169,755			159,350
Short-term borrowings		28,166			33,983
Long-term debt		33,249			38,359
Other liabilities		8,008			7,187

Total liabilities		239,178			238,879
Shareholders’ equity
Preferred stock		1,500			7,931
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 9/30/09 — 2,125,725,742 shares and 12/31/08 — 1,972,643,007 shares		21			20
Capital surplus		8,308			5,830
Retained earnings		23,629			22,541
Less cost of common stock in treasury: 9/30/09 — 213,637,356 shares; 12/31/08 — 217,610,679 shares		(6,534	)		(6,659	)
Accumulated other comprehensive income (loss)		(1,753	)		(3,363	)

Total U.S. Bancorp shareholders’ equity		25,171			26,300
Noncontrolling interests		709			733

Total equity		25,880			27,033

Total liabilities and equity	$	265,058		$	265,912

See Notes to Consolidated Financial Statements.


28	U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Income


	Three Months Ended						Nine Months Ended
(Dollars and Shares in Millions, Except Per Share Data)	September 30,						September 30,
(Unaudited)	2009			2008			2009			2008
Interest Income
Loans	$	2,373		$	2,487		$	7,068		$	7,476
Loans held for sale		87			52			221			174
Investment securities		374			478			1,210			1,507
Other interest income		23			40			65			120

Total interest income		2,857			3,057			8,564			9,277
Interest Expense
Deposits		299			425			937			1,489
Short-term borrowings		138			276			412			861
Long-term debt		313			423			1,007			1,316

Total interest expense		750			1,124			2,356			3,666

Net interest income		2,107			1,933			6,208			5,611
Provision for credit losses		1,456			748			4,169			1,829

Net interest income after provision for credit losses		651			1,185			2,039			3,782
Noninterest Income
Credit and debit card revenue		267			269			782			783
Corporate payment products revenue		181			179			503			517
Merchant processing services		300			300			836			880
ATM processing services		103			94			309			271
Trust and investment management fees		293			329			891			1,014
Deposit service charges		256			286			732			821
Treasury management fees		141			128			420			389
Commercial products revenue		157			132			430			361
Mortgage banking revenue		276			61			817			247
Investment products fees and commissions		27			37			82			110
Securities gains (losses), net
Realized gains (losses), net		1			–			126			16
Totalother-than-temporaryimpairment		(148	)		(411	)		(860	)		(741	)
Portion ofother-than-temporaryimpairment recognized in other comprehensive income		71			–			441			–

Total securities gains (losses), net		(76	)		(411	)		(293	)		(725	)
Other		168			8			427			680

Total noninterest income		2,093			1,412			5,936			5,348
Noninterest Expense
Compensation		769			763			2,319			2,269
Employee benefits		134			125			429			391
Net occupancy and equipment		203			199			622			579
Professional services		63			61			174			167
Marketing and business development		137			75			273			220
Technology and communications		175			153			487			442
Postage, printing and supplies		72			73			218			217
Other intangibles		94			88			280			262
Other		406			276			1,251			863

Total noninterest expense		2,053			1,813			6,053			5,410

Income before income taxes		691			784			1,922			3,720
Applicable income taxes		86			198			287			1,060

Net income		605			586			1,635			2,660
Net income attributable to noncontrolling interests		(2	)		(10	)		(32	)		(44	)

Net income attributable to U.S. Bancorp	$	603		$	576		$	1,603		$	2,616

Net income applicable to U.S. Bancorp common shareholders	$	583		$	557		$	1,223		$	2,560

Earnings per common share	$	.31		$	.32		$	.67		$	1.47
Diluted earnings per common share	$	.30		$	.32		$	.66		$	1.46
Dividends declared per common share	$	.050		$	.425		$	.150		$	1.275
Average common shares outstanding		1,908			1,743			1,832			1,738
Average diluted common shares outstanding		1,917			1,756			1,840			1,753

See Notes to Consolidated Financial Statements.


U.S. Bancorp	29

U.S. Bancorp

Consolidated Statement of Shareholders’ Equity


	U.S. Bancorp Shareholders
																					Total
																		Other			U.S. Bancorp
(Dollars and Shares in Millions)	Common Shares			Preferred			Common		Capital			Retained			Treasury			Comprehensive			Shareholders’			Noncontrolling			Total
(Unaudited)	Outstanding			Stock			Stock		Surplus			Earnings			Stock			Income (Loss)			Equity			Interests			Equity
Balance December 31, 2007		1,728		$	1,000		$	20	$	5,749		$	22,693		$	(7,480	)	$	(936	)	$	21,046		$	780		$	21,826
Net income													2,616									2,616			44			2,660
Changes in unrealized gains and losses on securitiesavailable-for-sale																			(2,156	)		(2,156	)					(2,156	)
Unrealized gain on derivatives																			1			1						1
Foreign currency translation																			(37	)		(37	)					(37	)
Realized loss on derivatives																			(15	)		(15	)					(15	)
Reclassification for realized losses																			763			763						763
Change in retirement obligation																			6			6						6
Income taxes																			546			546						546

Total comprehensive income																						1,724			44			1,768
Preferred stock dividends													(53	)								(53	)					(53	)
Common stock dividends													(2,224	)								(2,224	)					(2,224	)
Issuance of preferred stock					500					(9	)											491						491
Issuance of common and treasury stock		28								(80	)					880						800						800
Purchase of treasury stock		(2	)													(90	)					(90	)					(90	)
Net other changes in noncontrolling interests																						–			(76	)		(76	)
Stock option and restricted stock grants										(14	)											(14	)					(14	)
Shares reserved to meet deferred compensation obligations																(5	)					(5	)					(5	)

Balance September 30, 2008		1,754		$	1,500		$	20	$	5,646		$	23,032		$	(6,695	)	$	(1,828	)	$	21,675		$	748		$	22,423

Balance December 31, 2008		1,755		$	7,931		$	20	$	5,830		$	22,541		$	(6,659	)	$	(3,363	)	$	26,300		$	733		$	27,033
Change in accounting principle													141						(141	)		–						–
Net income													1,603									1,603			32			1,635
Changes in unrealized gains and losses on securitiesavailable-for-sale																			2,569			2,569						2,569
Other-than-temporaryimpairment not recognized in earnings on securitiesavailable-for-sale																			(441	)		(441	)					(441	)
Unrealized gain on derivatives																			375			375						375
Foreign currency translation																			25			25						25
Reclassification for realized losses																			297			297						297
Income taxes																			(1,074	)		(1,074	)					(1,074	)

Total comprehensive income																						3,354			32			3,386
Redemption of preferred stock					(6,599	)																(6,599	)					(6,599	)
Repurchase of common stock warrant										(139	)											(139	)					(139	)
Preferred stock dividends and discount accretion					168								(377	)								(209	)					(209	)
Common stock dividends													(279	)								(279	)					(279	)
Issuance of common and treasury stock		157						1		2,561						129						2,691						2,691
Purchase of treasury stock																(4	)					(4	)					(4	)
Net other changes in noncontrolling interests																						–			(12	)		(12	)
Distributions to noncontrolling interests																						–			(44	)		(44	)
Stock option and restricted stock grants										56												56						56

Balance September 30, 2009		1,912		$	1,500		$	21	$	8,308		$	23,629		$	(6,534	)	$	(1,753	)	$	25,171		$	709		$	25,880

See Notes to Consolidated Financial Statements.


30	U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Cash Flows


	Nine Months Ended
(Dollars in Millions)	September 30,
(Unaudited)	2009			2008
Operating Activities
Net cash provided by operating activities		$4,220			$4,046
Investing Activities
Proceeds from sales ofavailable-for-saleinvestment securities		4,622			2,084
Proceeds from maturities of investment securities		5,743			3,800
Purchases of investment securities		(10,220	)		(3,413	)
Net (increase) decrease in loans outstanding		113			(11,871	)
Proceeds from sales of loans		2,226			115
Purchases of loans		(3,598	)		(2,862	)
Acquisitions, net of cash acquired		220			637
Other, net		839			(291	)

Net cash used in investing activities		(55	)		(11,801	)
Financing Activities
Net increase in deposits		10,179			5,280
Net increase (decrease) in short-term borrowings		(5,817	)		4,980
Proceeds from issuance of long-term debt		5,032			8,533
Principal payments or redemption of long-term debt		(10,167	)		(11,700	)
Proceeds from issuance of preferred stock		–			491
Proceeds from issuance of common stock		2,688			658
Redemption of preferred stock		(6,599	)		–
Repurchase of common stock warrant		(139	)		–
Cash dividends paid on preferred stock		(256	)		(49	)
Cash dividends paid on common stock		(929	)		(2,204	)

Net cash provided by (used in) financing activities		(6,008	)		5,989

Change in cash and due from banks		(1,843	)		(1,766	)
Cash and due from banks at beginning of period		6,859			8,884

Cash and due from banks at end of period		$5,016			$7,118

See Notes to Consolidated Financial Statements.


U.S. Bancorp	31

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the instructions toForm 10-Qand, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Accounting policies for the lines of business are generally the same as those used in preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs, expenses and other financial elements to each line of business. Table 10 “Line of Business Financial Performance” included in Management’s Discussion and Analysis provides details of segment results. This information is incorporated by reference into these Notes to Consolidated Financial Statements.

Note 2 Accounting Changes

Fair Value Measurements On April 9, 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance, which the Company adopted effective January 1, 2009, for determining fair value for an asset or liability if there has been a significant decrease in the volume and level of activity in relation to normal market activity. In that circumstance, transactions or quoted prices may not be determinative of fair value. Significant adjustments may be necessary to quoted prices or alternative valuation techniques may be required in order to determine the fair value of the asset or liability under current market conditions. The adoption of this guidance resulted in the use of valuation techniques other than quoted prices for the valuation of the Company’s non-agency mortgage-backed securities, but the effect was not significant. For additional information on the fair value of certain financial assets and liabilities, refer to Note 12.

Other-Than-TemporaryImpairments On April 9, 2009, the FASB issued new accounting guidance, which the Company adopted effective January 1, 2009, for the measurement and recognition ofother-than-temporaryimpairment for debt securities. If an entity does not intend to sell, and it is more likely than not that the entity will not be required to sell, a debt security before recovery of its cost basis,other-than-temporaryimpairment should be separated into (a) the amount representing credit loss and (b) the amount related to all other factors. The amount ofother-than-temporaryimpairment related to credit loss is recognized in earnings andother-than-temporaryimpairment related to other factors is recognized in other comprehensive income (loss). To determine the amount related to credit loss, the Company applied a methodology similar to that used for accounting by creditors for impairment of loans. The Company’s adoption of this guidance resulted in the recognition of a cumulative-effect adjustment to January 1, 2009 retained earnings, with a corresponding adjustment to accumulated other comprehensive income (loss), of $141 million. For additional information on investment securities, refer to Note 3.

Business Combinations Effective January 1, 2009, the Company adopted accounting guidance issued by the FASB which establishes principles and requirements for the acquirer in a business combination, including the recognition and measurement of the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity as of the acquisition date; the recognition and measurement of the goodwill acquired in the business combination or gain from a bargain purchase as of the acquisition date; and additional disclosures related to the nature and financial effects of the business combination. Under this guidance, nearly all acquired assets and liabilities assumed are required to be recorded at fair value at the acquisition date, including loans. The recognition at the acquisition date of an allowance for loan losses on acquired loans was eliminated, as credit-related factors are now


32	U.S. Bancorp

incorporated directly into the fair value of the loans. Other significant changes include recognizing transaction costs and most restructuring costs as expenses when incurred. These accounting requirements are applied on a prospective basis for all transactions completed after the effective date. As a result of applying this guidance, the Company recognized a $92 million gain in the first quarter of 2009 associated with the increase in value of a partnership interest in a commercial office building upon the purchase by the Company of the other partner’s interest.

Noncontrolling Interests Effective January 1, 2009, the Company adopted accounting guidance issue by the FASB which changes the accounting and reporting for third-party ownership interests in the Company’s consolidated subsidiaries. Under the new guidance, these interests are characterized as noncontrolling interests and classified as a component of equity, separate from U.S. Bancorp’s own equity. In addition, the amount of net income attributable to the entity and to the noncontrolling interests is required to be shown separately on the consolidated statement of income. Upon adoption of this guidance, the Company reclassified $733 million in noncontrolling interests from other liabilities to equity and reclassified noncontrolling interests’ share of net income from other noninterest expense to income attributable to noncontrolling interests.

Accounting for Transfers of Financial Assets In June 2009, the FASB issued accounting guidance, effective for the Company January 1, 2010, related to the transfer of financial assets. This guidance removes the exception for qualifying special-purpose entities from consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor had not surrendered control over the transferred financial assets. In addition, the guidance provides clarification of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The guidance also requires additional disclosure about transfers of financial assets and a transferor’s continuing involvement with transferred assets. The Company expects the adoption of this guidance will not be significant to its financial statements.

Variable Interest Entities In June 2009, the FASB issued accounting guidance, effective for the Company January 1, 2010, related to variable interest entities. This guidance replaces a quantitative-based risks and rewards calculation for determining which entity, if any, has both (a) a controlling financial interest in a variable interest entity with an approach focused on identifying which entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This guidance requires reconsideration of whether an entity is a variable interest entity when any changes in facts or circumstances occur such that the holders of the equity investment at risk, as a group, lose the power to direct the activities of the entity that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether a variable interest holder is the primary beneficiary of a variable interest entity. The Company is currently assessing the impact of this guidance on its financial statements.


U.S. Bancorp	33

Note 3 Investment Securities

The amortized cost,other-than-temporaryimpairment recorded in other comprehensive income, gross unrealized holding gains and losses, and fair value ofheld-to-maturityandavailable-for-salesecurities were as follows:


	September 30, 2009											December 31, 2008
					Unrealized Losses
	Amortized		Unrealized		Other-than-					Fair		Amortized		Unrealized		Unrealized			Fair
(Dollars in Millions)	Cost		Gains		Temporary		Other			Value		Cost		Gains		Losses			Value
Held-to-maturity(a)
Agency residential mortgage-backed securities	$	4	$	–	$	–	$	–		$	4	$	5	$	–	$	–		$	5
Obligations of state and political subdivisions		34		2		–		(1	)		35		38		2		(1	)		39
Other debt securities		10		–		–		–			10		10		–		–			10

Totalheld-to-maturity	$	48	$	2	$	–	$	(1	)	$	49	$	53	$	2	$	(1	)	$	54

Available-for-sale(b)
U.S. Treasury and agencies	$	3,326	$	15	$	–	$	(15	)	$	3,326	$	664	$	18	$	–		$	682
Mortgage-backed securities
Residential
Agency		26,464		617		–		(72	)		27,009		26,512		426		(410	)		26,528
Non-agency
Prime (c)		2,289		6		(108)		(158	)		2,029		3,160		–		(729	)		2,431
Non-prime		1,428		10		(298)		(127	)		1,013		1,574		3		(423	)		1,154
Commercial		14		–		(1)		–			13		17		–		–			17
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		205		10		(8)		–			207		101		1		(11	)		91
Other		520		10		(134)		(10	)		386		533		7		(14	)		526
Obligations of state and political subdivisions		6,671		88		–		(74	)		6,685		7,220		4		(808	)		6,416
Obligations of foreign governments		6		–		–		–			6		7		–		–			7
Corporate debt securities		1,229		–		–		(325	)		904		1,238		–		(482	)		756
Perpetual preferred securities		498		44		–		(97	)		445		777		1		(387	)		391
Other investments		259		7		–		(1	)		265		480		–		(11	)		469

Totalavailable-for-sale	$	42,909	$	807	$	(549)	$	(879	)	$	42,288	$	42,283	$	460	$	(3,275	)	$	39,468


(a)		Held-to-maturitysecurities are carried at historical cost adjusted for amortization of premiums and accretion of discounts.
(b)		Available-for-salesecurities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
(c)		Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.

The weighted-average maturity of theavailable-for-saleinvestment securities was 5.6 years at September 30, 2009, compared with 7.7 years at December 31, 2008. The corresponding weighted-average yields were 3.85 percent and 4.56 percent, respectively. The weighted-average maturity of theheld-to-maturityinvestment securities was 8.4 years at September 30, 2009, and 8.5 years at December 31, 2008. The corresponding weighted-average yields were 5.29 percent and 5.78 percent, respectively.

For amortized cost, fair value and yield by maturity date ofheld-to-maturityandavailable-for-salesecurities outstanding at September 30, 2009, refer to Table 4 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

Securities carried at $30.3 billion at September 30, 2009, and $33.4 billion at December 31, 2008, were pledged to secure public, private and trust deposits, repurchase agreements and for other purposes required by law. Included in these amounts were securities sold under agreements to repurchase where the buyer/lender has the right to sell or pledge the securities and which were collateralized by securities with a carrying amount of $8.5 billion at September 30, 2009, and $9.5 billion at December 31, 2008, respectively.


34	U.S. Bancorp

The following table provides information about the amount of interest income from taxable and non-taxable investment securities:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in Millions)	2009		2008		2009		2008
Taxable	$	300	$	398	$	984	$	1,268
Non-taxable		74		80		226		239

Total interest income from investment securities	$	374	$	478	$	1,210	$	1,507

The following table provides information about the amount of gross gains and losses realized through the sales ofavailable-for-saleinvestment securities:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in Millions)	2009		2008		2009			2008
Realized gains	$	1	$	–	$	128		$	16
Realized losses		–		–		(2	)		–

Net realized gains (losses)	$	1	$	–	$	126		$	16

Income tax (benefit) on realized gains (losses)	$	–	$	–	$	48		$	6

Included inavailable-for-saleinvestment securities are structured investment securities (“SIVs”) purchased in the fourth quarter of 2007 from certain money market funds managed by FAF Advisors, Inc., an affiliate of the Company. Subsequent to the initial purchase, the Company exchanged its interest in certain SIVs for a pro rata portion of the underlying investment securities according to the applicable restructuring agreements. The SIVs and the investment securities received are collectively referred to as “SIV-related investments.” Some of these securities evidenced credit deterioration at the time of acquisition by the Company.

Changes in the amortized cost and accretable balance of the securities that evidenced credit deterioration at the time of acquisition were as follows:


	Three Months Ended September 30,												Nine Months Ended September 30,
							Amortized Cost of												Amortized Cost of
	Accretable Balance						Debt Securities						Accretable Balance						Debt Securities
(Dollars in Millions)	2009			2008			2009			2008			2009			2008			2009			2008
Balance at beginning of period	$	174		$	191		$	569		$	1,055		$	349		$	105		$	508		$	2,427
Impact ofother-than-temporaryimpairment accounting change		–			–			–			–			(124	)		–			124			–

Adjusted balance at beginning of period		174			191			569			1,055			225			105			632			2,427
Purchases (a)		–			–			–			7			–			49			–			141
Payments received		–			–			(30	)		(60	)		–			–			(50	)		(205	)
Impairment writedowns		–			(57	)		(10	)		(105	)		–			126			(55	)		(410	)
Accretion		(1	)		(14	)		1			14			(3	)		(29	)		3			29
Transfers in/(out) (b)		3			–			–			–			(46	)		(131	)		–			(1,071	)

Balance at end of period	$	176		$	120		$	530		$	911		$	176		$	120		$	530		$	911


(a)		Represents the fair value of the securities at acquisition.
(b)		Represents investment securities that did not evidence credit deterioration at acquisition date, received in exchange for SIVs or investment securities with changes in projected future cash flows.

The Company conducts a regular assessment of its investment securities with unrealized losses to determine whether securities areother-than-temporarilyimpaired considering, among other factors, the nature of the securities, credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows of underlying collateral, market conditions and whether the Company intends to sell or it is more likely than not the Company will be required to sell the securities. To determine whether perpetual preferred securities areother-than-temporarilyimpaired, the Company considers the issuer’s credit ratings, historical financial performance and strength, the ability to sustain earnings, and other factors such as market presence and management experience.


U.S. Bancorp	35

The following table summarizesother-than-temporaryimpairment by investment category:


	Three Months Ended September 30, 2009									Nine Months Ended September 30, 2009
	Credit									Credit
	Losses			Losses			Total			Losses			Losses			Total
	Recorded in			Other than			Losses			Recorded in			Other than			Losses
(Dollars in Millions)	Earnings			Credit			Recognized			Earnings			Credit			Recognized
Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a)	$	(1	)	$	(23	)	$	(24	)	$	(9	)	$	(152	)	$	(161	)
Non-prime		(41	)		(45	)		(86	)		(118	)		(244	)		(362	)
Commercial		–			–			–			(1	)		(1	)		(2	)
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		(6	)		(7	)		(13	)		(11	)		(7	)		(18	)
Other		(9	)		4			(5	)		(50	)		(37	)		(87	)
Corporate debt securities		(4	)		–			(4	)		(7	)		–			(7	)
Perpetual preferred securities		(16	)		–			(16	)		(223	)		–			(223	)

Totalavailable-for-sale	$	(77	)	$	(71	)	$	(148	)	$	(419	)	$	(441	)	$	(860	)


(a)		Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.

The Company determined theother-than-temporaryimpairment recorded in earnings for securities other than perpetual preferred securities by estimating the future cash flows of each individual security, using market information where available, and discounting the cash flows at the original effective rate of the security.Other-than-temporaryimpairment recorded in other comprehensive income was measured as the difference between that discounted amount and the fair value of each security. The following table includes the ranges for principal assumptions used for the third quarter of 2009 for those debt securities determined to beother-than-temporarilyimpaired:


	Prime									Non-Prime
	Minimum			Maximum			Average			Minimum			Maximum			Average
Estimated lifetime prepayment rates		6	%		15	%		13	%		5	%		15	%		7	%
Lifetime probability of default rates		–			10			1			1			20			9
Lifetime loss severity rates		38			69			49			10			79			56

Changes in the amount of unrealized losses on non-agency mortgage-backed securities, including SIV-related investments, and other debt securities attributed to credit loss are summarized as follows:


	Three Months Ended			Nine Months Ended
(Dollars in Millions)	September 30, 2009			September 30, 2009
Balance at beginning of period	$	400		$	299
Credit losses on securities not previously consideredother-than-temporarilyimpaired		17			92
Decreases in expected cash flows on securities for whichother-than-temporaryimpairment was previously recognized		44			104
Increases in expected cash flows		(2	)		(29	)
Realized losses		(3	)		(10	)
Credit losses on security sales		(1	)		(1	)

Balance at end of period	$	455		$	455


36	U.S. Bancorp

At September 30, 2009, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and length of time the individual securities have been in continuous unrealized loss positions, at September 30, 2009:


	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in Millions)	Value		Losses			Value		Losses			Value		Losses
Held-to-maturity
Obligations of state and political subdivisions	$	–	$	–		$	10	$	(1	)	$	10	$	(1	)

Totalheld-to-maturity	$	–	$	–		$	10	$	(1	)	$	10	$	(1	)

Available-for-sale
U.S. Treasury and agencies	$	1,747	$	(15	)	$	1	$	–		$	1,748	$	(15	)
Mortgage-backed securities
Residential
Agency		4,839		(30	)		4,005		(42	)		8,844		(72	)
Non-agency
Prime		31		(6	)		1,933		(260	)		1,964		(266	)
Non-prime		348		(128	)		604		(297	)		952		(425	)
Commercial		9		(1	)		–		–			9		(1	)
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		25		(2	)		3		(6	)		28		(8	)
Other		317		(135	)		16		(9	)		333		(144	)
Obligations of state and political subdivisions		6		–			2,486		(74	)		2,492		(74	)
Corporate debt securities		21		(12	)		883		(313	)		904		(325	)
Perpetual preferred securities		4		(1	)		335		(96	)		339		(97	)
Other investments		–		–			3		(1	)		3		(1	)

Totalavailable-for-sale	$	7,347	$	(330	)	$	10,269	$	(1,098	)	$	17,616	$	(1,428	)

The Company does not consider these unrealized losses to be credit-related. These unrealized losses relate to changes in interest rates and market spreads subsequent to purchase. A substantial portion of securities that have unrealized losses are either corporate debt or non-agency mortgage-backed securities issued with high investment grade credit ratings and limited credit exposure. In general, the issuers of the investment securities are contractually prohibited from prepayment at less than par, and the Company did not pay significant purchase premiums for these securities. At September 30, 2009, the Company had no plans to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of their amortized cost.


U.S. Bancorp	37

Note 4 Loans

The composition of the loan portfolio was as follows:


	September 30, 2009					December 31, 2008
			Percent					Percent
(Dollars in Millions)	Amount		of Total			Amount		of Total
Commercial
Commercial	$	44,166		24.1	%	$	49,759		26.9	%
Lease financing		6,546		3.6			6,859		3.7

Total commercial		50,712		27.7			56,618		30.6
Commercial real estate
Commercial mortgages		24,649		13.5			23,434		12.6
Construction and development		9,247		5.0			9,779		5.3

Total commercial real estate		33,896		18.5			33,213		17.9
Residential mortgages
Residential mortgages		19,634		10.7			18,232		9.8
Home equity loans, first liens		5,313		2.9			5,348		2.9

Total residential mortgages		24,947		13.6			23,580		12.7
Retail
Credit card		16,402		9.0			13,520		7.3
Retail leasing		4,696		2.6			5,126		2.8
Home equity and second mortgages		19,427		10.6			19,177		10.3
Other retail
Revolving credit		3,428		1.9			3,205		1.7
Installment		5,532		3.0			5,525		3.0
Automobile		9,426		5.1			9,212		5.0
Student		4,731		2.6			4,603		2.5

Total other retail		23,117		12.6			22,545		12.2

Total retail		63,642		34.8			60,368		32.6

Total loans, excluding covered assets		173,197		94.6			173,779		93.8
Covered Assets		9,859		5.4			11,450		6.2

Total loans	$	183,056		100.0	%	$	185,229		100.0	%

Loans are presented net of unearned interest and deferred fees and costs, which amounted to $1.4 billion at September 30, 2009, and $1.5 billion at December 31, 2008.

Covered assets represent assets acquired from the FDIC subject to loss sharing agreements and included expected reimbursements from the FDIC of approximately $1.9 billion at September 30, 2009, and $2.4 billion at December 31, 2008. The carrying amount of the covered assets consisted of loans subject to specialized accounting rules related to purchased impaired loans (“purchased impaired loans”), loans not subject to those rules, and other assets as shown in the following table:


	September 30, 2009								December 31, 2008
	Purchased								Purchased
	impaired		Other		Other				impaired		Other		Other
(Dollars in Millions)	loans		loans		Assets		Total		loans		loans		Assets		Total
Residential mortgage loans	$	4,925	$	1,745	$	–	$	6,670	$	5,763	$	2,022	$	–	$	7,785
Commercial real estate loans		435		436		–		871		427		455		–		882
Commercial loans		–		86		–		86		–		127		–		127
Foreclosed real estate		–		–		310		310		–		–		274		274
Losses reimbursable by the FDIC		–		–		1,922		1,922		–		–		2,382		2,382

Total	$	5,360	$	2,267	$	2,232	$	9,859	$	6,190	$	2,604	$	2,656	$	11,450

At September 30, 2009, $260 million of the purchased impaired loans in covered assets were classified as nonperforming assets, compared with $298 million at December 31, 2008, because the expected cash flows are primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. Interest income is recognized on other purchased impaired loans in covered assets through


38	U.S. Bancorp

accretion of the difference between the carrying amount of those loans and their expected cash flows. The allowance for credit losses related to purchased impaired loans represents only credit deterioration subsequent to acquisition date because they were recorded at fair value, including expected credit losses, at acquisition. There has not been any significant credit deterioration since that date. The Company also classified approximately $.1 billion of loans not subject to loss sharing agreements as purchased impaired loans.

Changes in the accretable balance for purchased impaired loans were as follows for the three and nine months ended September 30, 2009:


	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
(Dollars in Millions)	2009			2009
Balance at beginning of period	$	2,074		$	2,719
Accretion		(82	)		(265	)
Disposals		(3	)		(50	)
Reclassifications (to) from nonaccretable difference, net		94			(139	)
Other, including purchase accounting adjustments		(17	)		(199	)

Balance at end of period	$	2,066		$	2,066

Note 5 Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities

When the Company sells financial assets, it may retain servicing rightsand/or other beneficial interests in the transferred financial assets. The gain or loss on sale depends, in part, on the previous carrying amount of the transferred financial assets and the consideration other than beneficial interests in the transferred assets received in exchange. Upon transfer, any servicing assets are initially recognized at fair value. The remaining carrying amount of the transferred financial asset is allocated between the assets sold and any interest(s) that continues to be held by the Company based on the relative fair values as of the date of transfer.

The Company is involved in various entities that are considered to be variable interest entities (“VIEs”) as defined by applicable authoritative accounting guidance. Generally, a VIE is a corporation, partnership, trust or any other legal structure that does not have equity investors with substantive voting rights or has equity investors that do not have sufficient equity at risk for the entity to independently finance its activities. The Company’s investments in VIEs primarily represent private investment funds or partnerships that make equity investments, provide debt financing or support community-based investments in affordable housing, development entities that provide capital for communities located in low-income districts and historic rehabilitation projects that may enable the Company to ensure regulatory compliance with the Community Reinvestment Act. In addition, the Company sponsors entities to which it transfers a pool of tax credit investments. These entities are consolidated by the Company as it continues to absorb the majority of the entities’ expected losses.

The Company sponsors an off-balance sheet conduit to which it transferred high-grade investment securities, initially funded by the conduit’s issuance of commercial paper. These investment securities include primarily (i) non-agency asset-backed securities, which are guaranteed by third-party insurers, and (ii) collateralized mortgage obligations. The conduit held assets of $.7 billion at September 30, 2009, compared with $.8 billion at December 31, 2008. During 2008, the conduit ceased issuing commercial paper and began to draw upon a Company-provided liquidity facility to replace outstanding commercial paper as it matured. The Company determined its liquidity facility variable interest does not absorb the majority of the variability of the conduit’s cash flows or fair value because of third-party insurance protection. As a result, the Company is not the primary beneficiary of the conduit and, therefore, does not consolidate the conduit. At September 30, 2009, the amount advanced to the conduit under the liquidity facility was $.7 billion, compared with $.9 billion at December 31, 2008, and was recorded on the Company’s balance sheet in commercial loans. Proceeds from the conduit’s investment securities will be used to repay draws on the liquidity facility. The Company believes there is sufficient collateral to repay all liquidity facility advances.

The Company consolidates VIEs in which it is the primary beneficiary. At September 30, 2009, approximately $470 million of total assets related to various VIEs were consolidated by the Company in its financial statements, compared with $479 million at December 31, 2008. Creditors of these VIEs have no recourse to the general credit of the Company. The Company is not required to consolidate other VIEs as it is not the primary beneficiary. In such


U.S. Bancorp	39

cases, the Company does not absorb the majority of the entities’ expected losses nor does it receive a majority of the entities’ expected residual returns. The Company’s investments in unconsolidated VIEs, other than the off-balance sheet conduit, ranged from less than $1 million to $49 million, with an aggregate amount of approximately $2.2 billion at September 30, 2009, and from less than $1 million to $55 million, with an aggregate amount of $2.1 billion at December 31, 2008. While the Company believes potential losses from these investments is remote, the Company’s maximum exposure to these unconsolidated VIEs, including any tax implications, was approximately $4.5 billion at September 30, 2009, compared with $3.9 billion at December 31, 2008, if all of the separate investments within the individual private funds were to become worthless and the community-based business and housing projects, and related tax credits completely failed and did not meet certain government compliance requirements.

Note 6 Mortgage Servicing Rights

The Company serviced $145.0 billion of residential mortgage loans for others at September 30, 2009, and $120.3 billion at December 31, 2008. The net impact included in mortgage banking revenue of assumption changes on the fair value of mortgage servicing rights (“MSRs”) and fair value changes of derivatives used to offset MSR value changes was a $67 million net gain and $25 million net loss for the three months ended September 30, 2009 and 2008, respectively, and a $114 million net gain and $52 million net loss for the nine months ended September 30, 2009 and 2008, respectively. Loan servicing fees, not including valuation changes included in mortgage banking revenue, were $131 million and $102 million for the three months ended September 30, 2009 and 2008, respectively, and $374 million and $295 million for the nine months ended September 30, 2009 and 2008, respectively.

Changes in fair value of capitalized MSRs are summarized as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2009			2008			2009			2008
Balance at beginning of period	$	1,482		$	1,731		$	1,194		$	1,462
Rights purchased		16			6			91			23
Rights capitalized		254			127			686			406
Changes in fair value of MSRs
Due to change in valuation assumptions (a)		(118	)		(56	)		(122	)		43
Other changes in fair value (b)		(80	)		(58	)		(295	)		(184	)

Balance at end of period	$	1,554		$	1,750		$	1,554		$	1,750


(a)		Principally reflects changes in discount rates and prepayment speed assumptions, primarily arising from interest rate changes.
(b)		Primarily represents changes due to collection/realization of expected cash flows over time (decay).

The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments at September 30, 2009, was as follows:


	Down Scenario						Up Scenario
(Dollars in Millions)	50 bps			25 bps			25 bps			50 bps
Net fair value	$	(20	)	$	(17	)	$	(1	)	$	(4	)

Note 7 Preferred Stock

At September 30, 2009 and December 31, 2008, the Company had authority to issue 50 million shares of preferred stock. The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock was as follows:


	September 30, 2009				December 31, 2008
	Shares Issued		Carrying		Shares Issued		Carrying
(Dollars in Millions)	and Outstanding		Amount		and Outstanding		Amount
Series B		40,000	$	1,000		40,000	$	1,000
Series D		20,000		500		20,000		500
Series E		–		–		6,599,000		6,431

Total preferred stock (a)		60,000	$	1,500		6,659,000	$	7,931


(a)		The par value of all shares issued and outstanding at September 30, 2009 and December 31, 2008, was $1.00 a share.

On November 14, 2008, the Company issued 6.6 million shares of Series E Fixed Rate Cumulative Perpetual Preferred Stock (the “Series E Preferred Stock”) and a warrant to purchase 33 million shares of the Company’s


40	U.S. Bancorp

common stock, at a price of $30.29 per common share, to the U.S. Department of the Treasury under the Capital Purchase Program of the Emergency Economic Stabilization Act of 2008 for proceeds of $6.6 billion. The Company allocated $172 million of the proceeds to the warrant, with the resulting discount on the Series E Preferred Stock being accreted over five years and reported as a reduction to income applicable to common equity over that period. On June 17, 2009, the Company redeemed the Series E Preferred Stock. The Company included in its computation of earnings per diluted common share for the first nine months of 2009 the impact of a deemed dividend of $154 million, representing the unaccreted preferred stock discount remaining on the redemption date. On July 15, 2009, the Company repurchased the warrant from the U.S. Department of the Treasury for $139 million.

On March 27, 2006, the Company issued depositary shares representing an ownership interest in 40,000 shares of Series B Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series B Preferred Stock”), and on March 17, 2008, the Company issued depositary shares representing an ownership interest in 20,000 shares of Series D Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series D Preferred Stock”). The Series B Preferred Stock and Series D Preferred Stock have no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to the greater of three-month LIBOR plus .60 percent, or 3.50 percent on the Series B Preferred Stock, and 7.875 percent per annum on the Series D Preferred Stock. Both series are redeemable at the Company’s option, subject to the prior approval of the Federal Reserve Board.

For further information on preferred stock, refer to Note 15 in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008.

Note 8 Earnings Per Share

The components of earnings per share were:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars and Shares in Millions, Except Per Share Data)	2009			2008			2009			2008
Net income attributable to U.S. Bancorp	$	603		$	576		$	1,603		$	2,616
Preferred dividends		(19	)		(19	)		(209	)		(53	)
Accretion of preferred stock discount		–			–			(14	)		–
Deemed dividend on preferred stock redemption		–			–			(154	)		–
Earnings allocated to participating stock awards		(1	)		–			(3	)		(3	)

Net income applicable to U.S. Bancorp common shareholders	$	583		$	557		$	1,223		$	2,560

Average common shares outstanding		1,908			1,743			1,832			1,738
Net effect of the exercise and assumed purchase of stock awards and conversion of outstanding convertible notes		9			13			8			15

Average diluted common shares outstanding		1,917			1,756			1,840			1,753

Earnings per common share	$	.31		$	.32		$	.67		$	1.47
Diluted earnings per common share	$	.30		$	.32		$	.66		$	1.46

Options outstanding at September 30, 2009 to purchase 70 million and 75 million common shares were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2009, respectively, because they were antidilutive. Options outstanding at September 30, 2008 to purchase 35 million and 27 million common shares were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2008, respectively, because they were antidilutive.


U.S. Bancorp	41

Note 9 Employee Benefits

The components of net periodic benefit cost for the Company’s retirement plans were:


	Three Months Ended September 30,												Nine Months Ended September 30,
							Postretirement												Postretirement
	Pension Plans						Welfare Plan						Pension Plans						Welfare Plan
(Dollars in Millions)	2009			2008			2009			2008			2009			2008			2009			2008
Service cost	$	20		$	19		$	1		$	1		$	60		$	57		$	4		$	4
Interest cost		38			35			2			3			114			105			8			9
Expected return on plan assets		(54	)		(56	)		(1	)		(1	)		(161	)		(168	)		(4	)		(4	)
Prior service (credit) cost and transition (asset) obligation amortization		(2	)		(1	)		–			–			(5	)		(4	)		–			–
Actuarial (gain) loss amortization		13			8			(1	)		(1	)		37			24			(5	)		(3	)

Net periodic benefit cost	$	15		$	5		$	1		$	2		$	45		$	14		$	3		$	6

Note 10 Income Taxes

The components of income tax expense were:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2009			2008			2009			2008
Federal
Current	$	327		$	525		$	1,011		$	1,344
Deferred		(282	)		(378	)		(802	)		(462	)

Federal income tax		45			147			209			882
State
Current		67			81			152			214
Deferred		(26	)		(30	)		(74	)		(36	)

State income tax		41			51			78			178

Total income tax provision	$	86		$	198		$	287		$	1,060

A reconciliation of expected income tax expense at the federal statutory rate of 35 percent to the Company’s applicable income tax expense follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2009			2008			2009			2008
Tax at statutory rate (35 percent)	$	242		$	274		$	673		$	1,302
State income tax, at statutory rates, net of federal tax benefit		27			33			51			115
Tax effect of
Tax credits		(134	)		(72	)		(285	)		(212	)
Tax-exempt income		(52	)		(44	)		(150	)		(129	)
Noncontrolling interests		(1	)		(3	)		(11	)		(15	)
Other items		4			10			9			(1	)

Applicable income taxes	$	86		$	198		$	287		$	1,060

The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of September 30, 2009, the federal taxing authority has completed its examination of the Company through the fiscal year ended December 31, 2006. The years open to examination by foreign, state and local government authorities vary by jurisdiction.

The Company’s net deferred tax asset was $652 million at September 30, 2009, and $1.1 billion at December 31, 2008.


42	U.S. Bancorp

Note 11 Derivative Instruments

The Company recognizes all derivatives in the consolidated balance sheet at fair value as other assets or liabilities. On the date the Company enters into a derivative contract, the derivative is designated as either a hedge of the fair value of a recognized asset or liability, including hedges of foreign currency exposure (“fair value hedge”); a hedge of a forecasted transaction or the variability of cash flows to be paid related to a recognized asset or liability (“cash flow hedge”); or a customer accommodation or an economic hedge for asset/liability risk management purposes (“free-standing derivative”).

Of the Company’s $46.2 billion of total notional amount of asset and liability management positions at September 30, 2009, $17.0 billion was designated as a fair value or cash flow hedge. When a derivative is designated as either a fair value or cash flow hedge, the Company performs an assessment, at inception and quarterly thereafter to determine the effectiveness of the derivative in offsetting changes in the value of the hedged item(s).

Fair Value Hedges These derivatives are primarily interest rate swaps that hedge the change in fair value related to interest rate changes of underlying fixed-rate debt and junior subordinated debentures. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings. All fair value hedges were highly effective for the nine months ended September 30, 2009, and the change in fair value attributed to hedge ineffectiveness was not material.

The Company also uses forward commitments to sell specified amounts of certain foreign currencies and foreign denominated debt to hedge the volatility of its investment in foreign operations as driven by fluctuations in foreign currency exchange rates. The net amount of gains or losses included in the cumulative translation adjustment for the third quarter and first nine months of 2009 was not material.

Cash Flow Hedges These derivatives are interest rate swaps that are hedges of the forecasted cash flows from the underlying variable-rate debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until income from the cash flows of the hedged items is realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately. At September 30, 2009, the Company had $415 million of realized and unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss). The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the remainder of 2009 and the next 12 months is a loss of $37 million and $147 million, respectively. This includes gains and losses related to hedges that were terminated early for which the forecasted transactions are still probable. All cash flow hedges were highly effective for the nine months ended September 30, 2009, and the change in fair value attributed to hedge ineffectiveness was not material.

Other Derivative Positions The Company enters into free standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell residential mortgage loans which are used to economically hedge the interest rate risk related to residential mortgage loans held for sale. The Company also enters into U.S. Treasury futures, options on U.S. Treasury futures contracts and forward commitments to buy residential mortgage loans to economically hedge the change in the fair value of the Company’s residential MSRs. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions.

For additional information on the Company’s purpose for entering into derivative transactions and its overall risk management strategies, refer to “Management Discussion and Analysis — Use of Derivatives to Manage Interest Rate and Other Risks” which is incorporated by reference into these Notes to Consolidated Financial Statements.


U.S. Bancorp	43

The following table summarizes the derivative positions of the Company at September 30, 2009:


	Asset Derivatives							Liability Derivatives
						Remaining							Remaining
	Notional		Fair			Maturity		Notional		Fair			Maturity
(Dollars in Millions)	Value		Value			In Years		Value		Value			In Years
Asset and Liability Management Positions
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps	$	5,930	$	157			25.09	$	350	$	–			3.42
Foreign exchange cross-currency swaps		1,884		288			7.08		–		–			–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps		–		–			–		8,863		698			3.55
Net investment hedges
Foreign exchange forward contracts (a)		–		–			–		548		3			.08
Other economic hedges
Interest rate contracts
Futures and forwards
Buy		11,816		115			.05		18		–			.12
Sell		191		–			.20		9,254		130			.10
Options
Purchased		1,600		–			.6		–		–			–
Written		2,750		34			.09		5		–			.13
Foreign exchange forward contracts		117		–			.08		288		2			.08
Equity contracts		45		2			1.05		–		–			–
Credit contracts		885		3			3.78		1,683		2			2.87
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps		20,691		1,081			4.50		318		7			7.12
Pay fixed/receive floating swaps		619		10			7.47		20,388		1,053			4.50
Options
Purchased		1,661		19			1.86		256		24			1.15
Written		348		23			.92		1,569		19			1.95
Foreign exchange rate contracts
Forwards, spots and swaps (a)		5,510		250			.48		5,504		234			.48
Options
Purchased		361		13			.75		–		–			–
Written		–		–			–		361		13			.75

Total fair value of derivative positions				1,995							2,185
Netting (b)				(473	)						(1,283	)

Total			$	1,522						$	902


(a)		Reflects the net of long and short positions.
(b)		Represents netting of derivative asset and liability balances, and related cash collateral, with the same counterparty subject to master netting agreements. Authoritative accounting guidance permits the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a derivative counterparty. A master netting agreement is an agreement between two counterparties who have multiple derivative contracts with each other that provide for the net settlement of contracts through a single payment, in a single currency, in the event of default on or termination of any one contract. At September 30, 2009, the amount of cash collateral posted by counterparties that was netted against derivative assets was $148 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $957 million.

Note: The fair value of asset and liability derivatives are included in Other assets and Other liabilities on the Consolidated Balance Sheet, respectively.


44	U.S. Bancorp

The table below shows the effective portion of the gains (losses) recognized in other comprehensive income and the gains (losses) reclassified from other comprehensive income (loss) into earnings:

Three Months Ended September 30, 2009

Nine Months Ended September 30, 2009

Gains (Losses)

Reclassified from

Gains (Losses)

Reclassified from

Recognized in Other

Other Comprehensive

Recognized in Other

Other Comprehensive

Comprehensive

Income (Loss)

Comprehensive

Income (Loss)

(Dollars in Millions)

Income (Loss)

into Earnings

Income (Loss)

into Earnings

Asset and Liability Management Positions

Cash flow hedges

Interest rate contracts

Pay fixed/receive floating swaps (a)

$

415

$

–

$

1,393

$

(5

)

Net investment hedges

Foreign exchange forward contracts

(23

)

–

(32

)

–

Note: Ineffectiveness on cash flow and net investment hedges was not material for the three months and nine months ended September 30, 2009.


(a)		Gains (Losses) reclassified from other comprehensive income (loss) into interest income (loss).

The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and customer-related positions:


	Location of		Gains (Losses) Recognized in Earnings
	Gains (Losses)		Three Months Ended			Nine Months Ended
(Dollars in Millions)	Recognized in Earnings		September 30, 2009			September 30, 2009
Asset and Liability Management Positions
Fair value hedges (a)
Interest rate contracts		Other noninterest income	$	(31	)	$	(136	)
Foreign exchange cross-currency swaps		Other noninterest income		97			148
Other economic hedges
Interest rate contracts
Futures and forwards		Mortgage banking revenue		(10	)		263
Purchased and written options		Mortgage banking revenue		87			244
Foreign exchange forward contracts		Commercial products revenue		(30	)		(50	)
Equity contracts		Compensation expense		(8	)		(22	)
Credit contracts		Other noninterest income/expense		(5	)		30
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps		Other noninterest income		142			(429	)
Pay fixed/receive floating swaps		Other noninterest income		(143	)		458
Purchased and written options		Other noninterest income		–			(1	)
Foreign exchange rate contracts
Forwards, spots and swaps		Commercial products revenue		9			37
Purchased and written options		Commercial products revenue		–			1


(a)		Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $30 million and $(96) million for the three months ended September 30, 2009, respectively, and $133 million and $(146) million for the nine months September 30, 2009, respectively. Ineffective portion was immaterial for the three months and nine months ended September 30, 2009.

Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk based on its assessment of the probability of counterparty default and includes that within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into master netting agreements and by requiring collateral agreements which allow the Company to call for immediate, full collateral coverage when credit-rating thresholds are triggered by counterparties. The balances in the table above do not reflect the impact of these risk mitigation techniques.

The Company’s collateral agreements are bilateral, and therefore contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on certain net liability thresholds and contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral agreements, the counterparties to the derivatives could request immediate full collateral coverage for derivatives in net liability positions. The aggregate fair value of all derivatives under collateral agreements that were in a net liability


U.S. Bancorp	45

position at September 30, 2009, was $1.5 billion. At September 30, 2009, the Company had $1.0 billion of cash and marketable securities posted as collateral against this net liability position.

Note 12 Fair Values of Assets and Liabilities

The Company uses fair value measurements for the initial recording of certain assets and liabilities, periodic remeasurement of certain assets and liabilities, and disclosures. Derivatives, investment securities, certain mortgage loans held for sale (“MLHFS”) and MSRs are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application oflower-of-cost-or-fairvalue accounting or impairment write-downs of individual assets.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance.

The Company groups its assets and liabilities measured at fair value into a three-level hierarchy for valuation techniques used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:


•		Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury and exchange-traded instruments.
•		Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are valued using third party pricing services; derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data.
•		Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes residential MSRs, certain debt securities, including the Company’s SIV-related investments and non-agency mortgaged-backed securities, and certain derivative contracts.

The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities at fair value and for estimating fair value for financial instruments not recorded at fair value as required under disclosure guidance related to the fair value of financial instruments. In addition, for financial assets and liabilities measured at fair value, the following section includes an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the description includes information about the valuation models and key inputs to those models.

Cash and Cash Equivalents The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements was assumed to approximate fair value.

Investment Securities When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy.

For other securities, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar securities where a price for the identical security is not observable. Prices are verified, where possible, to prices of observable market trades as obtained from independent sources. Securities measured at fair value by such methods are classified as Level 2.

The fair value of securities for which there are no market trades, or where trading is inactive as compared to normal market activity, are categorized as Level 3. Securities classified as Level 3 include non-agency mortgage-backed securities, SIVs, commercial mortgage-backed and asset-backed securities, collateralized debt obligations and


46	U.S. Bancorp

collateralized loan obligations, and certain corporate debt securities. In the first nine months of 2009, due to the limited number of trades of non-agency mortgage-backed securities and lack of reliable evidence about transaction prices, the Company determined the fair value of these securities using a cash flow methodology and incorporating observable market information, where available. The use of a cash flow methodology resulted in the Company transferring some non-agency mortgage-backed securities to Level 3. This transfer did not impact earnings and was not significant to shareholders’ equity of the Company or the carrying amount of the securities.

Cash flow methodologies and other market valuation techniques involving management judgment use assumptions regarding housing prices, interest rates and borrower performance. Inputs are refined and updated to reflect market developments. The primary valuation drivers of these securities are the prepayment rates, default rates and default severities associated with the underlying collateral, as well as the discount rate used to calculate the present value of the projected cash flows.

The following table shows the assumption ranges for the third quarter of 2009:


	Prime (a)									Non-prime
	Minimum			Maximum			Average			Minimum			Maximum			Average
Estimated prepayment rates		5	%		19	%		14	%		3	%		15	%		8	%
Probability of default rates		–			10			1			–			28			7
Loss severity rates		–			100			44			10			100			54
Discount margin		3			22			6			4			31			13


(a)		Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.

Certain mortgage loans held for sale MLHFS measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by comparison to instruments with similar collateral and risk profiles. Included in mortgage banking revenue for the third quarter of 2009 and 2008, was $206 million and $43 million of net gains, respectively, and $171 million of net gains and $15 million of net losses for the first nine months of 2009 and 2008, respectively, from the initial measurement and subsequent changes to fair value of these MLHFS under fair value option accounting guidance. Changes in fair value due to instrument specific credit risk were immaterial. The fair value of MLHFS was $5.7 billion as of September 30, 2009, which exceeded the unpaid principal balance by $173 million as of that date. MLHFS are Level 2. Related interest income for MLHFS is measured based on contractual interest rates and reported as interest income in the Consolidated Statement of Income. Electing to measure MLHFS at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.

Loans The loan portfolio includes adjustable and fixed-rate loans, the fair value of which was estimated using discounted cash flow analyses and other valuation techniques. To calculate discounted cash flows, the loans were aggregated into pools of similar types and expected repayment terms. The expected cash flows of loans considered historical prepayment experiences and estimated credit losses for nonperforming loans and were discounted using current rates offered to borrowers of similar credit characteristics. Generally, loan fair values reflect Level 3 information.

Mortgage servicing rights MSRs are valued using a cash flow methodology and third party prices, if available. Accordingly, MSRs are classified in Level 3. The Company determines fair value by estimating the present value of the asset’s future cash flows using market-based prepayment rates, discount rates, and other assumptions validated through comparison to trade information, industry surveys, and independent third party appraisals. Risks inherent in MSRs valuation include higher than expected prepayment ratesand/ordelayed receipt of cash flows.

Derivatives Exchange-traded derivatives are measured at fair value based on quoted market (i.e. exchange) prices. Because prices are available for the identical instrument in an active market, these fair values are classified within Level 1 of the fair value hierarchy.

The majority of derivatives held by the Company are executedover-the-counterand are valued using standard cash flow, Black-Scholes and Monte Carlo valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. In addition, all derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Company’s evaluation of credit risk as well as external assessments of credit risk, where available. In its assessment of nonperformance risk, the Company considers its ability to net derivative positions under master netting agreements, as well as collateral


U.S. Bancorp	47

received or provided under collateral support agreements. The majority of these derivatives are classified within Level 2 of the fair value hierarchy as the significant inputs to the models are observable. An exception to the Level 2 classification is certain derivative transactions for which the risk of nonperformance cannot be observed in the market. These derivatives are classified within Level 3 of the fair value hierarchy. In addition, commitments to sell, purchase and originate mortgage loans that meet the requirements of a derivative, are valued by pricing models that include market observable and unobservable inputs. Due to the significant unobservable inputs, these commitments are classified within Level 3 of the fair value hierarchy.

Deposit Liabilities The fair value of demand deposits, savings accounts and certain money market deposits is equal to the amount payable on demand. The fair value of fixed-rate certificates of deposit was estimated by discounting the contractual cash flow using current market rates.

Short-term Borrowings Federal funds purchased, securities sold under agreements to repurchase, commercial paper and other short-term funds borrowed have floating rates or short-term maturities. The fair value of short-term borrowings was determined by discounting contractual cash flows using current market rates.

Long-term Debt The fair value for most long-term debt was determined by discounting contractual cash flows using current market rates. Junior subordinated debt instruments were valued using market quotes.

Loan Commitments, Letters of Credit and Guarantees The fair value of commitments, letters of credit and guarantees represents the estimated costs to terminate or otherwise settle the obligations with a third-party. The fair value of residential mortgage commitments is estimated based on observable inputs. Other loan commitments, letters of credit and guarantees are not actively traded, and the Company estimates their fair value based on the related amount of unamortized deferred commitment fees adjusted for the probable losses for these arrangements.


48	U.S. Bancorp

The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:


(Dollars in Millions)	Level 1		Level 2		Level 3		Netting			Total
September 30, 2009
Available-for-sale securities
U.S. Treasury and agencies	$	6	$	3,320	$	–	$	–		$	3,326
Mortgage-backed securities
Residential
Agency		–		27,009		–		–			27,009
Non-agency
Prime		–		–		2,029		–			2,029
Non-prime		–		–		1,013		–			1,013
Commercial		–		–		13		–			13
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		106		101		–			207
Other		–		–		386		–			386
Obligations of state and political subdivisions		–		6,685		–		–			6,685
Obligations of foreign governments		–		6		–		–			6
Corporate debt securities		–		894		10		–			904
Perpetual preferred securities		–		445		–		–			445
Other investments		265		–		–		–			265

Total available-for-sale		271		38,465		3,552		–			42,288
Mortgage loans held for sale		–		5,674		–		–			5,674
Mortgage servicing rights		–		–		1,554		–			1,554
Other assets (a)		–		949		1,170		(473	)		1,646

Total	$	271	$	45,088	$	6,276	$	(473	)	$	51,162

Other liabilities (a)	$	–	$	2,211	$	25	$	(1,283	)	$	953

December 31, 2008
Available-for-sale securities	$	474	$	37,150	$	1,844	$	–		$	39,468
Mortgage loans held for sale		–		2,728		–		–			2,728
Mortgage servicing rights		–		–		1,194		–			1,194
Other assets (a)		–		814		1,744		(151	)		2,407

Total	$	474	$	40,692	$	4,782	$	(151	)	$	45,797

Other liabilities (a)	$	–	$	3,127	$	46	$	(1,251	)	$	1,922


(a)		Represents primarily derivatives and trading securities.


U.S. Bancorp	49

The table below presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).


						Net Gains									Net Change in
						(Losses)		Purchases,							Unrealized Gains
			Net Gains			Included in		Sales, Principal							(Losses) Relating
	Beginning		(Losses)			Other		Payments,					End		to Assets
Three Months Ended September 30,	of Period		Included in			Comprehensive		Issuances and			Transfers into		of Period		Still Held at
(Dollars in Millions)	Balance		Net Income			Income (Loss)		Settlements			Level 3		Balance		End of Period
2009
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime	$	2,431	$	1		$	110	$	(513	)	$	–	$	2,029	$	105
Non-prime		1,058		(40	)		46		(51	)		–		1,013		46
Commercial		15		–			–		(2	)		–		13		–
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		84		–			–		17			–		101		–
Other		435		(8	)		7		(48	)		–		386		8
Corporate debt securities		10		–			–		–			–		10		–

Total		4,033		(47	)(a)		163		(597	)		–		3,552		159
Mortgage servicing rights		1,482		(198	)(b)		–		270			–		1,554		(198	)(b)
Net other assets and liabilities		968		193	(c)		–		(16	)		–		1,145		(329	)(d)
2008
Available-for-sale securities	$	1,991	$	(227	)(a)	$	26	$	(188	)	$	7	$	1,609	$	26
Mortgage servicing rights		1,731		(114	)(b)		–		133			–		1,750		(114	)(b)
Net other assets and liabilities		270		(31	)(e)		–		56			–		295		7	(f)


						Net Gains										Net Change in
						(Losses)			Purchases,							Unrealized Gains
			Net Gains			Included in			Sales, Principal							(Losses) Relating
	Beginning		(Losses)			Other			Payments,					End		to Assets
Nine Months Ended September 30,	of Period		Included in			Comprehensive			Issuances and			Transfers into		of Period		Still Held at
(Dollars in Millions)	Balance		Net Income			Income (Loss)			Settlements			Level 3		Balance		End of Period
2009
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime	$	183	$	(4	)	$	477		$	(875	)	$	2,248	$	2,029	$	465
Non-prime		1,022		(115	)		127			(154	)		133		1,013		5
Commercial		17		(1	)		(1	)		(3	)		1		13		(1	)
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		86		(4	)		4			11			4		101		4
Other		523		(48	)		(30	)		(62	)		3		386		(127	)
Corporate debt securities		13		(3	)		–			–			–		10		–

Total		1,844		(175	)(a)		577			(1,083	)		2,389		3,552		346
Mortgage servicing rights		1,194		(417	)(b)		–			777			–		1,554		(416	)(b)
Net other assets and liabilities		1,698		(446	)(g)		–			(108	)		1		1,145		(61	)(h)
2008
Available-for-sale securities	$	2,923	$	(521	)(a)	$	(61	)	$	(764	)	$	32	$	1,609	$	(62	)
Mortgage servicing rights		1,462		(141	)(b)		–			429			–		1,750		(141	)(b)
Net other assets and liabilities		338		(215	)(i)		–			172			–		295		(5	)(j)


(a)		Included in securities gains (losses)
(b)		Included in mortgage banking revenue.
(c)		Approximately $(40) million included in other noninterest income and $233 million included in mortgage banking revenue.
(d)		Approximately $(149) million included in other noninterest income and $(180) million included in mortgage banking revenue.
(e)		Approximately $(60) million included in other noninterest income and $29 million included in mortgage banking revenue.
(f)		Approximately $41 million included in other noninterest income and $(34) million included in mortgage banking revenue.
(g)		Approximately $(961) million included in other noninterest income and $515 million included in mortgage banking revenue.
(h)		Approximately $458 million included in other noninterest income and $(519) million included in mortgage banking revenue.
(i)		Approximately $(214) million included in other noninterest income and $(1) million included in mortgage banking revenue.
(j)		Approximately $1 million included in other noninterest income and $(6) million included in mortgage banking revenue.


50	U.S. Bancorp

The Company may also be required periodically to measure certain other financial assets at fair value on a nonrecurring basis. These measurements of fair value usually result from the application of lower-of-cost-or-fair value accounting or write-downs of individual assets. The following table summarizes the adjusted carrying values and the level of valuation assumptions for assets measured at fair value on a nonrecurring basis:


	September 30, 2009								December 31, 2008
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans held for sale	$	–	$	243	$	–	$	243	$	–	$	12	$	–	$	12
Loans (a)		–		87		–		87		–		117		–		117
Other real estate owned (b)		–		141		–		141		–		66		–		66
Other intangible assets		–		–		–		–		–		–		1		1


(a)		Represents carrying value of loans for which adjustments are based on the appraised value of the collateral, excluding loans fully charged-off.
(b)		Represents the fair value of foreclosed properties that were measured at fair value subsequent to their initial acquisition.

The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in Millions)	2009		2008		2009		2008
Loans held for sale	$	1	$	1	$	2	$	7
Loans (a)		72		51		217		72
Other real estate owned (b)		60		18		124		48
Other intangible assets		–		–		1		–


(a)		Represents write-downs of loans which are based on the appraised value of the collateral, excluding loans fully charged-off.
(b)		Represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.

Fair Value Option

The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:


	September 30, 2009							December 31, 2008
					Excess of							Excess of
					Carrying							Carrying
	Fair Value		Aggregate		Amount Over			Fair Value		Aggregate		Amount Over
	Carrying		Unpaid		(Under) Unpaid			Carrying		Unpaid		(Under) Unpaid
(Dollars in Millions)	Amount		Principal		Principal			Amount		Principal		Principal
Total loans	$	5,674	$	5,501	$	173		$	2,728	$	2,649	$	79
Loans 90 days or more past due		22		28		(6	)		11		13		(2	)

Disclosures about Fair Value of Financial Instruments The following table summarizes the estimated fair value for financial instruments as of September 30, 2009 and December 31, 2008, and includes financial instruments that are not accounted for at fair value. In accordance with disclosure guidance related to fair values of financial instruments, the Company did not include assets and liabilities that are not financial instruments, such as the value of goodwill, long-term relationships with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities.


U.S. Bancorp	51

The estimated fair values of the Company’s financial instruments are shown in the table below.


	September 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
(Dollars in Millions)	Amount		Value		Amount		Value
Financial Assets
Cash and due from banks	$	5,016	$	5,016	$	6,859	$	6,859
Investment securitiesheld-to-maturity		48		49		53		54
Mortgages held for sale (a)		7		7		14		14
Other loans held for sale		349		347		468		470
Loans		178,231		177,128		181,715		180,311
Financial Liabilities
Deposits		169,755		170,226		159,350		161,196
Short-term borrowings		28,166		28,556		33,983		34,333
Long-term debt		33,249		33,393		38,359		38,135


(a)		Balance excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.

The fair value of unfunded commitments, standby letters of credit and other guarantees is approximately equal to their carrying value. The carrying value of unfunded commitments and standby letters of credit was $316 million and $238 million at September 30, 2009, and December 31, 2008, respectively. The carrying value of other guarantees was $255 million and $302 million at September 30, 2009, and December 31, 2008, respectively.

Note 13 Guarantees and Contingent Liabilities

Visa Restructuring and Card Association Litigation The Company’s payment services business issues and acquires credit and debit card transactions through the Visa U.S.A. Inc. card association or its affiliates (collectively “Visa”). In 2007, Visa completed a restructuring and issued shares of Visa Inc. common stock to its financial institution members in contemplation of its initial public offering (“IPO”) completed in the first quarter of 2008 (the “Visa Reorganization”). As a part of the Visa Reorganization, the Company received its proportionate number of shares of Visa Inc. common stock. In addition, the Company and certain of its subsidiaries have been named as defendants along with Visa U.S.A. Inc. (“Visa U.S.A.”) and MasterCard International (collectively, the “Card Associations”), as well as several other banks, in antitrust lawsuits challenging the practices of the Card Associations (the “Visa Litigation”). Visa U.S.A. member banks have a contingent obligation to indemnify Visa Inc. under the Visa U.S.A. bylaws (which were modified at the time of the restructuring in October 2007) for potential losses arising from the Visa Litigation. The contingent obligation of member banks under the Visa U.S.A. bylaws has no specific maximum amount. The Company has also entered into judgment and loss sharing agreements with Visa U.S.A. and certain other banks in order to apportion financial responsibilities arising from any potential adverse judgment or negotiated settlements related to the Visa Litigation.

In 2007 and 2008, Visa announced settlement agreements with American Express and Discover Financial Services, respectively. In addition to these settlements, Visa U.S.A. member banks remain obligated to indemnify Visa Inc. for potential losses arising from the remaining Visa litigation. Using proceeds from its initial IPO and through subsequent reductions to the conversion ratio applicable to the Class B shares held by member financial institutions, Visa Inc. has funded an escrow account for the benefit of member financial institutions to fund the expenses of the Visa Litigation, as well as the members’ proportionate share of any judgments or settlements that may arise out of the Visa Litigation. The receivable related to the escrow account is classified in other liabilities as a direct offset to the related Visa Litigation liabilities and will decline as amounts are paid out of the escrow account. On July 16, 2009, Visa deposited additional funds into the escrow account and further reduced the conversion ratio applicable to the Class B shares. As a result, the Company recognized a $39 million gain related to the effective repurchase of a portion of its Class B shares.

At September 30, 2009, the carrying amount of the Company’s liability related to the remaining Visa Litigation, was $113 million. The remaining Class B shares held by the Company will be eligible for conversion to Class A shares three years after the IPO or upon settlement of the Visa Litigation, whichever is later.


52	U.S. Bancorp

The following table is a summary of other guarantees and contingent liabilities of the Company at September 30, 2009:


			Maximum
			Potential
	Carrying		Future
(Dollars in Millions)	Amount		Payments
Standby letters of credit	$	112	$	17,615
Third-party borrowing arrangements		–		136
Securities lending indemnifications		–		6,646
Asset sales (a)		44		551
Merchant processing		65		67,788
Other guarantees		4		5,900
Other contingent liabilities		29		2,059


(a)		The maximum potential future payments does not include loan sales where the Company provides standard representations and warranties to the buyer against losses related to loan underwriting documentation. For these types of loan sales, the maximum potential future payments are not readily determinable because the Company’s obligation under these agreements depends upon the occurrence of future events.

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

The Company currently processes card transactions in the United States, Canada and Europe for airlines. In the event of liquidation of these merchants, the Company could become financially liable for refunding tickets purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in a manner similar to credit risk assessments and, as such, merchant processing contracts contain various provisions to protect the Company in the event of default. At September 30, 2009, the value of airline tickets purchased to be delivered at a future date was $4.0 billion. The Company held collateral of $489 million in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets.

The Company currently has a support agreement with a money market fund managed by FAF Advisors, Inc., an affiliate of the Company, and a separate support agreement with a customer. Under the terms of the agreements, the Company is obligated to pay amounts to the counterparties upon the occurrence of specified events related to certain assets held by the counterparties. The maximum potential payments under the agreements are $59 million and the Company has recognized an insignificant liability at September 30, 2009 for these obligations.

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

For additional information on the nature of the Company’s guarantees and contingent liabilities, refer to Note 22 in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008.

Note 14 Subsequent Events

The Company has evaluated the impact of events that occurred subsequent to September 30, 2009 through November 6, 2009, the date the consolidated financial statements were filed with the United States Securities and Exchange Commission. Based on this evaluation, the Company determined none of these events require adjustment to the consolidated financial statements.

On October 30, 2009, the Company acquired the nine banking subsidiaries of FBOP Corporation of Oak Park, Illinois, from the FDIC. The Company received approximately $18.4 billion of assets and assumed $18.3 billion of liabilities, including $15.4 billion of deposits. Substantially all loans are subject to a loss sharing agreement with the FDIC.


U.S. Bancorp	53

U.S. Bancorp

Consolidated Daily Average Balance Sheet and Related Yields and Rates

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


	For the Three Months Ended September 30,
	2009								2008
						Yields								Yields			% Change
(Dollars in Millions)	Average					and			Average					and			Average
(Unaudited)	Balances			Interest		Rates			Balances			Interest		Rates			Balances
Assets
Investment securities	$	42,558		$	414		3.89	%	$	42,548		$	521		4.90	%		–	%
Loans held for sale		7,359			87		4.74			3,495			52		6.03			*
Loans (b)
Commercial		51,222			513		3.98			54,573			661		4.83			(6.1	)
Commercial real estate		33,829			367		4.30			31,748			440		5.50			6.6
Residential mortgages		24,405			343		5.62			23,309			354		6.08			4.7
Retail		62,224			1,047		6.67			56,930			1,041		7.27			9.3

Total loans, excluding covered assets		171,680			2,270		5.25			166,560			2,496		5.97			3.1
Covered assets		10,288			115		4.40			–			–		–			*

Total loans		181,968			2,385		5.21			166,560			2,496		5.97			9.3
Other earning assets		2,226			23		4.06			2,370			41		6.83			(6.1	)

Total earning assets		234,111			2,909		4.94			214,973			3,110		5.77			8.9
Allowance for loan losses		(4,673	)							(2,686	)							(74.0	)
Unrealized gain (loss) onavailable-for-salesecurities		(1,318	)							(2,368	)							44.3
Other assets		36,291								33,704								7.7

Total assets	$	264,411							$	243,623								8.5

Liabilities and Shareholders’ Equity
Noninterest-bearing deposits	$	36,982							$	28,322								30.6
Interest-bearing deposits
Interest checking		38,218			21		.22			32,304			66		.81			18.3
Money market savings		33,387			37		.43			26,167			79		1.20			27.6
Savings accounts		13,824			19		.55			5,531			4		.24			*
Time certificates of deposit less than $100,000		16,985			115		2.69			12,669			102		3.21			34.1
Time deposits greater than $100,000		26,966			107		1.58			28,546			174		2.43			(5.5	)

Total interest-bearing deposits		129,380			299		.92			105,217			425		1.61			23.0
Short-term borrowings		28,025			140		1.97			40,277			295		2.91			(30.4	)
Long-term debt		36,797			313		3.38			40,000			423		4.22			(8.0	)

Total interest-bearing liabilities		194,202			752		1.54			185,494			1,143		2.45			4.7
Other liabilities		7,838								7,069								10.9
Shareholders’ equity
Preferred equity		1,500								1,500								–
Common equity		23,179								20,483								13.2

Total U.S. Bancorp shareholders’ equity		24,679								21,983								12.3
Noncontrolling interests		710								755								(6.0	)

Total equity		25,389								22,738								11.7

Total liabilities and equity	$	264,411							$	243,623								8.5	%

Net interest income				$	2,157							$	1,967

Gross interest margin							3.40	%							3.32	%

Gross interest margin without taxable-equivalent increments							3.31								3.26

Percent of Earning Assets
Interest income							4.94	%							5.77	%
Interest expense							1.27								2.12

Net interest margin							3.67	%							3.65	%

Net interest margin without taxable-equivalent increments							3.58	%							3.59	%


*		Not meaningful
(a)		Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b)		Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.


54	U.S. Bancorp

U.S. Bancorp

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


	For the Nine Months Ended September 30,
	2009								2008
						Yields								Yields			% Change
(Dollars in Millions)	Average					and			Average					and			Average
(Unaudited)	Balances			Interest		Rates			Balances			Interest		Rates			Balances
Assets
Investment securities	$	42,357		$	1,334		4.20	%	$	43,144		$	1,639		5.07	%		(1.8	)%
Loans held for sale		6,222			221		4.74			4,008			174		5.80			55.2
Loans (b)
Commercial		53,787			1,570		3.90			53,425			2,027		5.07			.7
Commercial real estate		33,653			1,085		4.31			30,590			1,332		5.81			10.0
Residential mortgages		24,096			1,027		5.69			23,198			1,066		6.13			3.9
Retail		61,526			3,050		6.63			54,426			3,076		7.55			13.0

Total loans, excluding covered assets		173,062			6,732		5.20			161,639			7,501		6.20			7.1
Covered assets		10,775			370		4.58			–			–		–			*

Total loans		183,837			7,102		5.16			161,639			7,501		6.20			13.7
Other earning assets		2,143			65		4.02			2,581			121		6.23			(17.0	)

Total earning assets		234,559			8,722		4.97			211,372			9,435		5.96			11.0
Allowance for loan losses		(4,233	)							(2,352	)							(80.0	)
Unrealized gain (loss) onavailable-for-salesecurities		(1,913	)							(1,676	)							(14.1	)
Other assets		37,166								33,506								10.9

Total assets	$	265,579							$	240,850								10.3

Liabilities and Shareholders’ Equity
Noninterest-bearing deposits	$	36,800							$	27,766								32.5
Interest-bearing deposits
Interest checking		35,906			57		.21			31,697			221		.93			13.3
Money market savings		29,541			108		.49			26,062			272		1.39			13.3
Savings accounts		12,160			49		.54			5,348			9		.22			*
Time certificates of deposit less than $100,000		17,691			366		2.76			12,969			350		3.61			36.4
Time deposits greater than $100,000		31,293			357		1.53			29,560			637		2.88			5.9

Total interest-bearing deposits		126,591			937		.99			105,636			1,489		1.88			19.8
Short-term borrowings		29,278			422		1.93			38,070			925		3.25			(23.1	)
Long-term debt		37,780			1,007		3.56			39,237			1,316		4.48			(3.7	)

Total interest-bearing liabilities		193,649			2,366		1.63			182,943			3,730		2.72			5.9
Other liabilities		7,855								7,454								5.4
Shareholders’ equity
Preferred equity		5,438								1,361								*
Common equity		21,121								20,566								2.7

Total U.S. Bancorp shareholders’ equity		26,559								21,927								21.1
Noncontrolling interests		716								760								(5.8	)

Total equity		27,275								22,687								20.2

Total liabilities and equity	$	265,579							$	240,850								10.3	%

Net interest income				$	6,356							$	5,705

Gross interest margin							3.34	%							3.24	%

Gross interest margin without taxable-equivalent increments							3.26								3.18

Percent of Earning Assets
Interest income							4.97	%							5.96	%
Interest expense							1.35								2.36

Net interest margin							3.62	%							3.60	%

Net interest margin without taxable-equivalent increments							3.54	%							3.54	%


*		Not meaningful
(a)		Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b)		Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.


U.S. Bancorp	55

Part II — Other Information

Item 1A. Risk Factors — There are a number of factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report onForm 10-Kfor the year ended December 31, 2008, for discussion of these risks.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds — Refer to the “Capital Management” section within Management’s Discussion and Analysis in Part I for information regarding shares repurchased by the Company during the third quarter of 2009.

Item 6. Exhibits


12		Computation of Ratio of Earnings to Fixed Charges
31	.1	Certification of Chief Executive Officer pursuant toRule 13a-14(a)under the Securities Exchange Act of 1934
31	.2	Certification of Chief Financial Officer pursuant toRule 13a-14(a)under the Securities Exchange Act of 1934
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
101		Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2009, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text.


56	U.S. Bancorp

SIGNATURE

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

U.S. BANCORP


	By:	/s/ Terrance R. Dolan

Terrance R. Dolan

Executive Vice President and Controller

(Principal Accounting Officer and Duly Authorized Officer)

DATE: November 6, 2009


U.S. Bancorp	57

EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges


				Three Months Ended		Nine Months Ended
(Dollars in Millions)				September 30, 2009		September 30, 2009
Earnings
	1.	Net income attributable to U.S. Bancorp		$	603	$	1,603
	2.	Applicable income taxes, including interest expense related to unrecognized tax positions			86		287

	3.	Income before income taxes (1 + 2)		$	689	$	1,890

	4.	Fixed charges:
		a.	Interest expense excluding interest on deposits*	$	451	$	1,419
		b.	Portion of rents representative of interest and amortization of debt expense		22		70

		c.	Fixed charges excluding interest on deposits (4a + 4b)		473		1,489
		d.	Interest on deposits		299		937

		e.	Fixed charges including interest on deposits (4c + 4d)	$	772	$	2,426

	5.	Amortization of interest capitalized		$	–	$	–
	6.	Earnings excluding interest on deposits (3 + 4c + 5)			1,162		3,379
	7.	Earnings including interest on deposits (3 + 4e + 5)			1,461		4,316
	8.	Fixed charges excluding interest on deposits (4c)			473		1,489
	9.	Fixed charges including interest on deposits (4e)			772		2,426
Ratio of Earnings to Fixed Charges
	10.	Excluding interest on deposits (line 6/line 8)			2.46		2.27
	11.	Including interest on deposits (line 7/line 9)			1.89		1.78


*		Excludes interest expense related to unrecognized tax positions.


58	U.S. Bancorp

EXHIBIT 31.1

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

I, Richard K. Davis, certify that:


(1)	I have reviewed this Quarterly Report onForm 10-Qof U.S. Bancorp;

(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e)and15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f)and15d-15(f))for the registrant and have:


	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

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


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


	(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Richard K. Davis

Richard K. Davis

Chief Executive Officer

Dated: November 6, 2009


U.S. Bancorp	59

EXHIBIT 31.2

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

I, Andrew Cecere, certify that:


(1)	I have reviewed this Quarterly Report onForm 10-Qof U.S. Bancorp;

(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e)and15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f)and15d-15(f))for the registrant and have:


	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

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


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


	(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Andrew Cecere

Andrew Cecere

Chief Financial Officer

Dated: November 6, 2009


60	U.S. Bancorp

EXHIBIT 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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


(1)	The Quarterly Report onForm 10-Qfor the quarter ended September 30, 2009 (the“Form 10-Q”)of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in theForm 10-Qfairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Richard K. Davis		/s/ Andrew Cecere
Richard K. Davis		Andrew Cecere
Chief Executive Officer		Chief Financial Officer

Dated: November 6, 2009


U.S. Bancorp	61

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Corporate Information

Executive Offices

U.S. Bancorp

800 Nicollet Mall

Minneapolis, MN 55402

Common Stock Transfer Agent and Registrar

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

BNY Mellon Shareowner Services

P.O. Box 358015

Pittsburgh, PA 15252-8015

Phone: 888-778-1311 or 201-680-6578

Internet: bnymellon.com/shareowner

For Registered or Certified Mail:

BNY Mellon Shareowner Services

500 Ross St., 6th Floor

Pittsburgh, PA 15219

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

Independent Auditor

Ernst & Young LLP serves as the independent auditor for U.S. Bancorp’s financial statements.

Common Stock Listing and Trading

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

Dividends and Reinvestment Plan

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

Investor Relations Contacts

Judith T. Murphy

Executive Vice President, Investor and Public Relations

judith.murphy@usbank.com

Phone: 612-303-0783 or866-775-9668

Financial Information

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

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

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

U.S. Bancorp Investor Relations

800 Nicollet Mall

Minneapolis, MN 55402

investorrelations@usbank.com

Phone:866-775-9668

Media Requests

Steven W. Dale

Senior Vice President, Media Relations

steve.dale@usbank.com

Phone: 612-303-0784

Privacy

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

Code of Ethics

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

Diversity

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

Equal Employment Opportunity/Affirmative Action

U.S. Bancorp and our subsidiaries are committed to providing Equal Employment Opportunity to all employees and applicants for employment. In keeping with this commitment, employment decisions are made based upon performance, skill and abilities, not race, color, religion, national origin or ancestry, gender, age, disability, veteran status, sexual orientation or any other factors protected by law. The corporation complies with municipal, state and federal fair employment laws, including regulations applying to federal contractors.

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

U.S. Bancorp

Member FDIC

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