Edgar Filing: US BANCORP \DE\

10-Q

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 March 31, 2009

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		41-0255900
(State or other jurisdiction of incorporation or organization)		(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 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o 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” in Rule 12b-2 of 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 in Rule 12b-2 of 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 April 30, 2009 1,758,762,596 shares

Table of Contents and Form 10-Q Cross Reference Index


Part I — Financial Information
1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)
a) Overview		3
b) Statement of Income Analysis		3
c) Balance Sheet Analysis		5
d) Non-GAAP Financial Measures		24
e) Critical Accounting Policies		24
f) Controls and Procedures (Item 4)		25
2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)
a) Overview		8
b) Credit Risk Management		8
c) Residual Value Risk Management		17
d) Operational Risk Management		17
e) Interest Rate Risk Management		17
f) Market Risk Management		18
g) Liquidity Risk Management		19
h) Capital Management		19
3) Line of Business Financial Review		20
4) Financial Statements (Item 1)		26
Part II — Other Information
1) Risk Factors (Item 1A)		49
2) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)		49
3) Submission of Matters to a Vote of Security Holders (Item 4)		49
4) Exhibits (Item 6)		49
5) Signature		50
6) Exhibits		51
EX-12
EX-31.1
EX-31.2
EX-32

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

This Quarterly Report on Form 10-Q contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. A continuation of the recent turbulence in the global financial markets, particularly if it worsens, could impact U.S. Bancorp’s performance, both directly by affecting its revenues and the value of its assets and liabilities, and indirectly by affecting its counterparties and the economy generally. Dramatic declines in the housing market in the past year have resulted in significant write-downs of asset values by financial institutions. Concerns about the stability of the financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction of business activity, and increased market volatility. There can be no assurance that any governmental program or legislation will help to stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely impact U.S. Bancorp’s business. 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, by changes in the creditworthiness and performance of its counterparties, 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 on Form 10-K for the year ended December 31, 2008, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile,” 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
	March 31,
							Percent
(Dollars and Shares in Millions, Except Per Share Data)	2009			2008			Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)	$	2,095		$	1,830			14.5	%
Noninterest income		1,986			2,295			(13.5	)
Securities gains (losses), net		(198	)		(251	)		21.1

Total net revenue		3,883			3,874			.2
Noninterest expense		1,871			1,779			5.2
Provision for credit losses		1,318			485				*

Income before taxes		694			1,610			(56.9	)
Taxable-equivalent adjustment		48			27			77.8
Applicable income taxes		101			476			(78.8	)

Net income		545			1,107			(50.8	)
Net income attributable to noncontrolling interests		(16	)		(17	)		5.9

Net income attributable to U.S. Bancorp	$	529		$	1,090			(51.5	)

Net income applicable to U.S. Bancorp common shareholders	$	419		$	1,077			(61.1	)

Per Common Share
Earnings per share	$	.24		$	.62			(61.3	)%
Diluted earnings per share		.24			.62			(61.3	)
Dividends declared per share		.050			.425			(88.2	)
Book value per share		10.96			11.55			(5.1	)
Market value per share		14.61			32.36			(54.9	)
Average common shares outstanding		1,754			1,731			1.3
Average diluted common shares outstanding		1,760			1,748			.7
Financial Ratios
Return on average assets		.81	%		1.85	%
Return on average common equity		9.0			21.2
Net interest margin (taxable-equivalent basis) (a)		3.59			3.55
Efficiency ratio (b)		45.8			43.1
Average Balances
Loans	$	185,705		$	155,232			19.6	%
Loans held for sale		5,191			5,118			1.4
Investment securities		42,321			43,891			(3.6	)
Earning assets		235,314			207,014			13.7
Assets		266,237			236,675			12.5
Noninterest-bearing deposits		36,020			27,119			32.8
Deposits		160,528			130,858			22.7
Short-term borrowings		32,217			35,890			(10.2	)
Long-term debt		37,784			39,822			(5.1	)
Total U.S. Bancorp shareholders’ equity		26,819			21,479			24.9


		March 31, 2009			December 31, 2008

Period End Balances
Loans	$	184,442		$	185,229			(.4	)%
Allowance for credit losses		4,105			3,639			12.8
Investment securities		39,266			39,521			(.6	)
Assets		263,624			265,912			(.9	)
Deposits		162,566			159,350			2.0
Long-term debt		38,825			38,359			1.2
Total U.S. Bancorp shareholders’ equity		27,223			26,300			3.5
Capital ratios
Tier 1 capital		10.9	%		10.6	%
Total risk-based capital		14.4			14.3
Leverage		9.8			9.8
Tangible common equity (c)		3.7			3.2
Tangible common equity, excluding accumulated other comprehensive income (loss) (d)		4.8			4.5
Tangible common equity to risk-weighted assets (e)		4.0			3.5


*		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)		Computed as tangible common equity divided by tangible assets, where tangible common equity equals total equity less preferred stock, goodwill, intangible assets other than mortgage servicing rights and deferred tax assets, and tangible assets equals total assets less goodwill, intangible assets other than mortgage servicing rights and deferred tax assets. See Non-GAAP Financial Measures on page 24.
(d)		Computed as in (c), except the numerator is increased by the amount of net accumulated other comprehensive income (loss). See Non-GAAP Financial Measures on page 24.
(e)		Computed as tangible common equity divided by risk-weighted assets, where tangible common equity is computed as in (c) and risk-weighted assets are determined in accordance with prescribed regulatory instructions and totaled $232 billion and $257 billion at March 31, 2009 and December 31, 2008, respectively. See Non-GAAP Financial Measures on page 24.


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 $529 million for the first quarter of 2009 or $.24 per diluted common share, compared with $1,090 million, or $.62 per diluted common share for the first quarter of 2008. Return on average assets and return on average common equity were .81 percent and 9.0 percent, respectively, for the first quarter of 2009, compared with 1.85 percent and 21.2 percent, respectively, for the first quarter of 2008. As a result of the current economic environment, the Company increased the allowance for credit losses by recording $530 million of provision for credit losses in excess of net charge-offs. Additional significant items in the first quarter of 2009 results included $198 million of net securities losses, principally related to impairment of investments in perpetual preferred stock of a large financial institution downgraded during the quarter and a $92 million gain from a corporate real estate transaction. The first quarter of 2008 also included several significant items, including a $492 million gain related to the Company’s ownership position in Visa, Inc. (“Visa Gain”), $192 million of provision for credit losses in excess of net charge-offs and $253 million of impairment charges on structured investment securities.

Total net revenue, on a taxable-equivalent basis, for the first quarter of 2009 was $9 million (.2 percent) higher than the first quarter of 2008, reflecting a 14.5 percent increase in net interest income and a 12.5 percent decrease in noninterest income. The increase in net interest income from a year ago was a result of growth in average earning assets and an increase in net interest margin. The net interest margin increased from 3.55 percent in the first quarter of 2008 to 3.59 percent in the first quarter of 2009, because of growth in higher-spread loans and the Company’s interest rate sensitivity position which benefited from declining market rates. Noninterest income declined from a year ago as payment products revenue, merchant processing services, trust and investment management fees and deposit service charges were affected by the impact of the slowing economy on equity markets and customer spending. In addition, noninterest income decreased due to the Visa Gain in the first quarter of 2008, higher retail lease residual losses and lower income from equity investments. These revenue declines were partially offset by higher mortgage banking revenue, a lower level of net securities losses and a $92 million corporate real estate gain related to acquiring a controlling interest in an entity that owns an office building in which the Company leases office space.

Total noninterest expense in the first quarter of 2009 was $92 million (5.2 percent) higher than in the first quarter of 2008, principally due to costs associated with businesses acquired in 2008, partially offset by focused reductions in costs from implementation of the Company’s cost containment plan in the first quarter of 2009. Operating expense in the first quarter of 2009 also included higher pension and credit collection costs.

The provision for credit losses for the first quarter of 2009 increased $833 million over the first quarter of 2008. The increase in the provision for credit losses reflected continuing stress in residential real estate markets, driven by declining home prices in most geographic regions, as well as deteriorating economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the first quarter of 2009 were $788 million, compared with net charge-offs of $293 million in the first quarter of 2008. At March 31, 2009, $11.1 billion of the Company’s assets were covered by loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”) (“covered assets”). 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 $2,095 million in the first quarter of 2009, compared with $1,830 million in the first quarter of 2008. The $265 million (14.5 percent) increase was due to growth in average earning assets, as well as a higher net interest margin percentage. Average earning assets were $28.3 billion (13.7 percent) higher in the first quarter of 2009 than the first quarter of 2008, primarily driven by an increase in average loans. During the first quarter of 2009, the net interest margin increased to 3.59 percent, compared with 3.55 percent in the first quarter of 2008. The net interest margin increased because of growth in higher-spread loans and asset/liability re-pricing in a declining interest rate


U.S. Bancorp	3

environment. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.

Total average loans for the first quarter of 2009 were $30.5 billion (19.6 percent) higher than the first quarter of 2008, driven by growth in most loan categories. This included growth in average retail loans of $9.9 billion (19.4 percent), commercial loans of $4.4 billion (8.6 percent), commercial real estate loans of $3.9 billion (13.1 percent) and residential mortgages of $.9 billion (4.1 percent). Retail loan growth, year-over-year, included a $4.7 billion increase in federally guaranteed student loan balances resulting from the transfer of loans held for sale to held for investment, a portfolio purchase and production growth. Retail loans also experienced strong growth in credit card and home equity loan balances. The increase in commercial loans was principally a result of growth in corporate and commercial banking balances as new and existing business customers used bank credit facilities to fund business growth and liquidity requirements. The growth in commercial real estate loans reflected new business growth driven by capital market conditions and an acquisition in the second quarter of 2008. The increase in residential mortgages reflected increased origination activity as a result of current market interest rate declines. Average covered assets related to the fourth quarter of 2008 acquisitions of Downey Savings and Loan Association, F.A. and PFF Bank and Trust (“Downey” and “PFF”, respectively) were $11.3 billion in the first quarter of 2009.

Average investment securities in the first quarter of 2009 were $1.6 billion (3.6 percent) lower than the first quarter of 2008, principally a result of prepayments and sales. The composition of the Company’s investment portfolio remained essentially unchanged from a year ago.

Average total deposits for the first quarter of 2009 increased $29.7 billion (22.7 percent) over the first quarter of 2008. Excluding deposits from 2008 acquisitions, average total deposits increased $16.1 billion (12.3 percent) over the first quarter of 2008. Average noninterest-bearing deposits increased $8.9 billion (32.8 percent) year-over-year, primarily due to growth in the Wealth Management & Securities Services and Wholesale Banking business lines and the impact of acquisitions. Average total savings deposits increased year-over-year by $9.3 billion (15.2 percent) primarily because of an increase in average savings accounts of $5.2 billion, primarily in Consumer Banking. The increase was also due to a $1.7 billion (5.7 percent) increase in average interest checking balances, the result of higher Consumer Banking and state and municipal government-related balances, and a $2.3 billion (9.1 percent) increase in average money market savings balances driven by higher balances from broker-dealer and institutional trust customers and the impact of acquisitions. Average time certificates of deposit less than $100,000 were higher year-over-year by $4.5 billion (33.3 percent), primarily due to acquisitions. Average time deposits greater than $100,000 increased by $7.0 billion (23.9 percent) year-over-year as a result of the business lines’ ability to attract larger customer deposits given current market conditions and the impact of acquisitions.

Provision for Credit Losses The provision for credit losses for the first quarter of 2009 increased $833 million over the first quarter of 2008. The provision for credit losses exceeded net charge-offs by $530 million in the first quarter of 2009 and $192 million in the first quarter of 2008. The increases in the provision and allowance for credit losses reflected continuing stress in residential real estate markets, driven by declining home prices in most geographic regions. The increases also reflected deteriorating economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the first quarter of 2009 were $788 million, compared with net charge-offs of $293 million in the first 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.

Noninterest Income Noninterest income in the first quarter of 2009 was $1,788 million, compared with $2,044 million in the first quarter of 2008. The $256 million (12.5 percent) decrease in the first quarter of 2009 from the first quarter of 2008 was principally due to the $492 million Visa Gain included in the first quarter of 2008. Offsetting this item was a significant increase in mortgage banking revenue due to an increase in gains on the sales of mortgage loans brought on by improving margins and higher production levels, the result of the current refinancing activities, given the lower rate environment. Other increases in noninterest income included higher ATM processing services related to growth in transaction volumes and business expansion, higher treasury management fees as declining rates reduced customer earnings credits, and higher commercial products revenue due to higher foreign exchange revenue, letters of credit and other commercial loan fees. Fee-based revenue in certain revenue categories decreased because weaker economic conditions adversely impacted consumer and business


4	U.S. Bancorp

Table 2 Noninterest Income


	Three Months Ended
	March 31,
							Percent
(Dollars in Millions)	2009			2008			Change
Credit and debit card revenue	$	256		$	248			3.2	%
Corporate payment products revenue		154			164			(6.1	)
ATM processing services		102			84			21.4
Merchant processing services		258			271			(4.8	)
Trust and investment management fees		294			335			(12.2	)
Deposit service charges		226			257			(12.1	)
Treasury management fees		137			124			10.5
Commercial products revenue		129			112			15.2
Mortgage banking revenue		233			105				*
Investment products fees and commissions		28			36			(22.2	)
Securities gains (losses), net		(198	)		(251	)		21.1
Other		169			559			(69.8	)

Total noninterest income	$	1,788		$	2,044			(12.5	)%

* Not meaningful.

behavior. Corporate payment products revenue and merchant processing services revenue decreased because transaction volumes declined. Deposit service charges decreased primarily due to lower overdraft fees, with a decrease in the volume of overdraft incidences more than offsetting account growth. Trust and investment management fees declined, as did investment product fees and commissions, reflecting a decline in equity market conditions. Other income decreased, primarily due to the net impact of the 2008 Visa Gain, offset by a $62 million reduction in income in 2008 from the adoption of an accounting standard and the corporate real estate gain in the current quarter. Net securities losses were lower than a year ago because the Company sold certain fixed-rate securities for gains in the first quarter of 2009. Impairment charges on securities were $254 million in the first quarter of 2009, approximately the same as recorded in the first quarter of 2008.

Noninterest Expense Noninterest expense was $1,871 million in the first quarter of 2009, an increase of $92 million (5.2 percent) from the first quarter of 2008. Compensation expense increased primarily due to businesses acquired in 2008. Employee benefits expense increased partially due to acquired businesses, but also because of increased pension costs associated with previous period declines in the value of pension assets. Net occupancy and equipment expense, and technology and communications expense increased over the first quarter of 2008, primarily due to acquisitions, as well as branch-based and other business expansion initiatives. Other expense increased year-over-year as a result of increased costs for other real estate owned, mortgage servicing, tax-advantaged projects and acquisition integration. Marketing and business development expense decreased year-over-year due to a contribution to the U.S. Bancorp Foundation in the first quarter of 2008.

Income Tax Expense The provision for income taxes was $101 million (an effective rate of 15.6 percent) for the first quarter of 2009, compared with $476 million (an effective rate of 30.1 percent) for the first quarter of 2008. The decline in the effective tax rate from the first quarter of 2008 reflected the impact of the decline in pre-tax earnings and the relative level of tax-advantaged investments. 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 $184.4 billion at March 31, 2009, compared with $185.2 billion at December 31, 2008, a decrease of $.8 billion (.4 percent). The decrease was driven by a decrease in commercial loans and covered assets, partially offset by growth in retail loans, residential mortgages and commercial real estate loans. The $1.7 billion (3.0 percent) decrease in commercial loans was primarily driven by business customers’ lower capital spending and utilization of bank credit facilities to fund business growth and liquidity requirements.

Commercial real estate loans increased $.4 billion (1.3 percent) at March 31, 2009, compared with December 31, 2008, reflecting new business growth, as current market conditions have limited borrower access to capital markets.

Residential mortgages held in the loan portfolio increased $.4 billion (1.9 percent) at March 31, 2009, compared with December 31, 2008, reflecting an increase in mortgage banking origination activity as a


U.S. Bancorp	5

Table 3 Noninterest Expense


	Three Months Ended
	March 31,
							Percent
(Dollars in Millions)	2009			2008			Change
Compensation	$	786		$	745			5.5	%
Employee benefits		155			137			13.1
Net occupancy and equipment		211			190			11.1
Professional services		52			47			10.6
Marketing and business development		56			79			(29.1	)
Technology and communications		155			140			10.7
Postage, printing and supplies		74			71			4.2
Other intangibles		91			87			4.6
Other		291			283			2.8

Total noninterest expense	$	1,871		$	1,779			5.2	%

Efficiency ratio		45.8	%		43.1	%

result of current market interest rate declines. Most loans retained in the portfolio are to 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 $.4 billion (.7 percent) at March 31, 2009, compared with December 31, 2008. The increase was primarily driven by growth in student loan and credit card balances, partially offset by a decrease in installment loan 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 $4.7 billion at March 31, 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 due to a decline in rates and seasonal loan originations during the first quarter of 2009.

Investment Securities Investment securities, including available-for-sale and held-to-maturity, totaled $39.3 billion at March 31, 2009, compared with $39.5 billion at December 31, 2008. At March 31, 2009, adjustable-rate financial instruments comprised 44 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 are other-than-temporarily impaired. On April 9, 2009, the Financial Accounting Standards Board issued FASB Staff Position No. FAS 115-2 and FAS 124-2 (“FSP 115-2”), “Recognition and Presentation of Other-Than-Temporary Impairments”, which the Company adopted effective January 1, 2009. FSP 115-2 provides guidance for the measurement and recognition of other-than-temporary impairment for debt securities, and requires the portion of other-than-temporary impairment related to factors other than credit losses be recognized in other comprehensive income (loss), rather than earnings. The effect of the adoption of FSP 115-2 was not significant.

Net unrealized losses included in accumulated other comprehensive income (loss) were $2.3 billion at March 31, 2009, compared with $2.8 billion at December 31, 2008. The decrease in unrealized losses was primarily due to amounts recognized as other-than-temporary impairment, and an increase in fair value of agency mortgage-backed securities and obligations of state and political subdivisions. Many of the state and political subdivision obligations are supported by mono-line insurers. As a result, management monitors the underlying credit quality of the issuers and the support of the mono-line insurers.

As of March 31, 2009, approximately 1 percent of the available-for-sale securities portfolio consisted of perpetual preferred securities, primarily issued by financial institutions. The unrealized losses for these securities were $274 million at March 31, 2009, compared to $387 million at December 31, 2008. The decrease was principally a result of impairment recognized on the perpetual preferred stock of a large domestic bank downgraded during the first quarter of 2009.

There is limited market activity for the remaining structured investment security and certain 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 $56 million of impairment charges on non-agency mortgage-backed and structured investment vehicle related securities during the first


6	U.S. Bancorp

Table 4 Investment Securities


	March 31, 2009									December 31, 2008
					Weighted-									Weighted-
					Average		Weighted-							Average		Weighted-
	Amortized		Fair		Maturity		Average			Amortized		Fair		Maturity		Average
(Dollars in Millions)	Cost		Value		in Years		Yield (c)			Cost		Value		in Years		Yield (c)

Held-to-maturity
Mortgage-backed securities (a)	$	5	$	5		5.2		5.74	%	$	5	$	5		5.2		5.89	%
Obligations of state and political subdivisions (b)		36		37		10.8		6.34			38		39		10.9		6.27
Other debt securities		10		10		1.3		3.26			10		10		1.6		3.92

Total held-to-maturity securities	$	51	$	52		8.4		5.66	%	$	53	$	54		8.5		5.78	%

Available-for-sale
U.S. Treasury and agencies	$	750	$	764		1.8		4.02	%	$	664	$	682		1.0		4.64	%
Mortgage-backed securities (a)
Agency		25,976		26,336		2.1		3.60			26,512		26,527		3.3		3.91
Non-agency		4,768		3,733		6.4		4.24			4,754		3,605		2.6		4.73
Asset-backed securities (a)		679		581		3.7		2.48			616		610		3.8		4.73
Obligations of state and political subdivisions (b)		6,992		6,378		20.2		6.71			7,220		6,416		21.3		6.73
Perpetual preferred securities		579		307		33.9		8.10			777		391		37.2		6.17
Other investments		1,752		1,116		23.5		3.52			1,740		1,237		24.0		4.21

Total available-for-sale securities	$	41,496	$	39,215		7.0		4.25	%	$	42,283	$	39,468		7.7		4.56	%


(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 politcal 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)		Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity securities are computed based on historical cost balances. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity.

quarter of 2009. These impairment charges were a result of 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 Note 3 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits Total deposits were $162.6 billion at March 31, 2009, compared with $159.3 billion at December 31, 2008, an increase of $3.2 billion (2.0 percent). The increase in total deposits was primarily the result of increases in savings accounts, interest checking accounts and noninterest-bearing deposit balances, partially offset by a decrease in time deposits greater than $100,000. The $2.7 billion (29.3 percent) increase in savings account balances was due primarily to strong participation in a new savings product offered by Consumer Banking and higher broker-dealer balances. The $2.1 billion (6.5 percent) increase in interest checking balances was due to higher government, broker-dealer and branch-based balances. The $1.2 billion (3.2 percent) increase in noninterest-bearing deposits was primarily due to increases in broker-dealer and commercial banking balances, partially offset by the seasonal decline in corporate trust deposits. Time deposits greater than $100,000 decreased $2.8 billion (7.8 percent) at March 31, 2009, compared with December 31, 2008. Time deposits greater than $100,000 are managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing.

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 $26.0 billion at March 31, 2009, compared with $34.0 billion at December 31, 2008. The decrease reflected continued increases in deposits due to customer flight to quality, as well as asset/liability management decisions to fund balance sheet growth with other funding sources, such as deposits and long-term debt.

Long-term debt was $38.8 billion at March 31, 2009, compared with $38.4 billion at December 31, 2008, primarily reflecting issuances of $1.6 billion of medium-term notes, partially offset by $.6 billion of medium-term note maturities and the net decrease of $.5 billion of Federal Home Loan Bank Advances in the first quarter of 2009. The $.5 billion (1.2 percent) increase in long-term debt reflected wholesale funding associated with the Company’s asset growth and asset/liability management activities. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.


U.S. Bancorp	7

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 interest and/or the principal balance of a loan or investment when it is due. Residual value risk is the potential reduction in the end-of-term value 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 and available-for-sale securities that are accounted for on a mark-to-market basis. Liquidity risk is the possible inability to fund obligations to depositors, investors 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. Refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report on Form 10-K for 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 monitoring loan-to-values during the underwriting process.

The following tables provide summary information of the loan-to-values of residential mortgages and home equity and second mortgages by distribution channel and type at March 31, 2009 (excluding covered assets):


Residential mortgages	Interest						Percent
(Dollars in Millions)	Only		Amortizing		Total		of Total


Consumer Finance
Less than or equal to 80%	$	1,035	$	2,872	$	3,907		39.7	%
Over 80% through 90%		699		1,538		2,237		22.7
Over 90% through 100%		721		2,829		3,550		36.1
Over 100%		–		148		148		1.5


Total	$	2,455	$	7,387	$	9,842		100.0	%
Other Retail
Less than or equal to 80%	$	2,218	$	10,505	$	12,723		89.7	%
Over 80% through 90%		76		574		650		4.6
Over 90% through 100%		204		603		807		5.7
Over 100%		–		–		–		–


Total	$	2,498	$	11,682	$	14,180		100.0	%
Total Company
Less than or equal to 80%	$	3,253	$	13,377	$	16,630		69.2	%
Over 80% through 90%		775		2,112		2,887		12.0
Over 90% through 100%		925		3,432		4,357		18.2
Over 100%		–		148		148		.6


Total	$	4,953	$	19,069	$	24,022		100.0	%


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


8	U.S. Bancorp


Home equity and second mortgages							Percent
(Dollars in Millions)	Lines		Loans		Total		of Total


Consumer Finance (a)
Less than or equal to 80%	$	691	$	198	$	889		36.5	%
Over 80% through 90%		340		189		529		21.7
Over 90% through 100%		405		422		827		34.0
Over 100%		67		124		191		7.8


Total	$	1,503	$	933	$	2,436		100.0	%
Other Retail
Less than or equal to 80%	$	11,416	$	1,662	$	13,078		78.0	%
Over 80% through 90%		1,811		462		2,273		13.6
Over 90% through 100%		940		400		1,340		8.0
Over 100%		53		21		74		.4


Total	$	14,220	$	2,545	$	16,765		100.0	%
Total Company
Less than or equal to 80%	$	12,107	$	1,860	$	13,967		72.7	%
Over 80% through 90%		2,151		651		2,802		14.6
Over 90% through 100%		1,345		822		2,167		11.3
Over 100%		120		145		265		1.4


Total	$	15,723	$	3,478	$	19,201		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 a loan-to-value greater than 100 percent that were originated in the branches.


Note:	Loan-to-values determined 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 March 31, 2009, approximately $2.8 billion of residential mortgages were to customers that may be defined as sub-prime borrowers 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-Prime Borrowers
Less than or equal to 80%	$	4	$	1,076	$	1,080		11.0	%
Over 80% through 90%		6		675		681		6.9
Over 90% through 100%		18		942		960		9.8
Over 100%		–		81		81		.8


Total	$	28	$	2,774	$	2,802		28.5	%
Other Borrowers
Less than or equal to 80%	$	1,031	$	1,796	$	2,827		28.7	%
Over 80% through 90%		693		863		1,556		15.8
Over 90% through 100%		703		1,887		2,590		26.3
Over 100%		–		67		67		.7


Total	$	2,427	$	4,613	$	7,040		71.5	%


Total Consumer Finance	$	2,455	$	7,387	$	9,842		100.0	%

In addition to residential mortgages, at March 31, 2009, the consumer finance division had $.7 billion of home equity and second mortgage loans to customers that may be defined as sub-prime borrowers, unchanged from December 31, 2008.

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


							Percent
(Dollars in Millions)	Lines		Loans		Total		of Total


Sub-Prime Borrowers
Less than or equal to 80%	$	25	$	130	$	155		6.4	%
Over 80% through 90%		30		123		153		6.3
Over 90% through 100%		2		264		266		10.9
Over 100%		44		90		134		5.5


Total	$	101	$	607	$	708		29.1	%
Other Borrowers
Less than or equal to 80%	$	666	$	68	$	734		30.1	%
Over 80% through 90%		310		66		376		15.4
Over 90% through 100%		403		158		561		23.0
Over 100%		23		34		57		2.4


Total	$	1,402	$	326	$	1,728		70.9	%


Total Consumer Finance	$	1,503	$	933	$	2,436		100.0	%

Including residential mortgages, and home equity and second mortgage loans, the total amount of loans, other than covered assets, to customers that may be defined as sub-prime borrowers represented only 1.3 percent of total assets at March 31, 2009, compared with 1.4 percent at December 31, 2008. Covered assets include $3.1 billion in loans with negative-amortization payment options at March 31, 2009, compared with $3.3 billion at December 31, 2008. Other than covered assets, the Company does not have any residential mortgages with payment schedules that would cause balances to increase over time.


U.S. Bancorp	9

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


	March 31,			December 31,
90 days or more past due excluding nonperforming loans	2009			2008


Commercial
Commercial		.22	%		.15	%
Lease financing		–			–


Total commercial		.19			.13
Commercial Real Estate
Commercial mortgages		–			–
Construction and development		.23			.36


Total commercial real estate		.07			.11
Residential Mortgages		2.03			1.55
Retail
Credit card		2.56			2.20
Retail leasing		.14			.16
Other retail		.50			.45


Total retail		.94			.82


Total loans, excluding covered assets		.68			.56


Covered Assets		6.76			5.13


Total loans		1.05	%		.84	%


	March 31,			December 31,
90 days or more past due including nonperforming loans	2009			2008


Commercial		1.59	%		.82	%
Commercial real estate		3.87			3.34
Residential mortgages (a)		3.02			2.44
Retail (b)		1.16			.97


Total loans, excluding covered assets		2.08			1.57


Covered assets		13.11			10.74


Total loans		2.74	%		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 9.90 percent at March 31, 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 1.29 percent at March 31, 2009, and 1.10 percent at December 31, 2008.

Loan Delinquencies Trends in delinquency ratios are one 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 $1,932 million ($1,185 million excluding covered assets) at March 31, 2009, compared with $1,554 million ($967 million excluding covered assets) at December 31, 2008. The increase in 90 day delinquent loans was primarily related to residential mortgages, commercial loans, credit cards, home equity loans and covered assets. These loans are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status. The ratio of accruing loans 90 days or more past due to total loans was 1.05 percent (.68 percent excluding covered assets) at March 31, 2009, compared with .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, both consumer and commercial.


10	U.S. Bancorp

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


					As a Percent of Ending
	Amount				Loan Balances
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
Residential mortgages
30-89 days	$	478	$	536		1.99	%		2.28	%
90 days or more		487		366		2.03			1.55
Nonperforming		239		210		.99			.89

Total	$	1,204	$	1,112		5.01	%		4.72	%

Retail
Credit card
30-89 days	$	359	$	369		2.62	%		2.73	%
90 days or more		352		297		2.56			2.20
Nonperforming		90		67		.66			.49

Total	$	801	$	733		5.84	%		5.42	%
Retail leasing
30-89 days	$	43	$	49		.85	%		.95	%
90 days or more		7		8		.14			.16
Nonperforming		–		–		–			–

Total	$	50	$	57		.99	%		1.11	%
Home equity and second mortgages
30-89 days	$	160	$	170		.83	%		.89	%
90 days or more		122		106		.63			.55
Nonperforming		30		14		.16			.07

Total	$	312	$	290		1.62	%		1.51	%
Other retail
30-89 days	$	228	$	255		1.00	%		1.13	%
90 days or more		89		81		.39			.36
Nonperforming		15		11		.07			.05

Total	$	332	$	347		1.46	%		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
	March 31,			December 31,			March 31,			December 31,
	2009			2008			2009			2008
Residential mortgages
30-89 days		3.15	%		3.96	%		1.18	%		1.06	%
90 days or more		3.24			2.61			1.18			.79
Nonperforming		1.76			1.60			.47			.38

Total		8.15	%		8.17	%		2.83	%		2.23	%

Retail
Credit card
30-89 days		–	%		–	%		2.62	%		2.73	%
90 days or more		–			–			2.56			2.20
Nonperforming		–			–			.66			.49

Total		–	%		–	%		5.84	%		5.42	%
Retail leasing
30-89 days		–	%		–	%		.85	%		.95	%
90 days or more		–			–			.14			.16
Nonperforming		–			–			–			–

Total		–	%		–	%		.99	%		1.11	%
Home equity and second mortgages
30-89 days		2.18	%		3.24	%		.64	%		.59	%
90 days or more		2.26			2.36			.40			.32
Nonperforming		.45			.14			.11			.07

Total		4.89	%		5.74	%		1.15	%		.98	%
Other retail
30-89 days		4.80	%		6.91	%		.91	%		1.00	%
90 days or more		1.29			1.98			.37			.32
Nonperforming		.18			–			.06			.05

Total		6.27	%		8.89	%		1.34	%		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 a loan-to-value greater than 100 percent that were originated in the branches.


U.S. Bancorp	11

Within the consumer finance division at March 31, 2009, approximately $426 million and $96 million of these delinquent and nonperforming residential mortgages and other retail loans, respectively, were with customers that may be defined as sub-prime borrowers, 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
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
Covered assets
30-89 days	$	724	$	740		6.55	%		6.46	%
90 days or more		747		587		6.76			5.13
Nonperforming		702		643		6.35			5.62

Total	$	2,173	$	1,970		19.66	%		17.21	%

Restructured Loans Accruing Interest In certain circumstances, management may modify the terms of a loan to maximize the collection of the loan balance. 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, except those where the principal balance has been reduced, 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 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
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
Commercial	$	47	$	35		.09	%		.06	%
Commercial real estate		128		138		.38			.42
Residential mortgages		1,129		813		4.70			3.45
Credit card		509		450		3.71			3.33
Other retail		88		73		.19			.16

Total loans	$	1,901	$	1,509		1.03	%		.81	%

Restructured loans, excluding covered assets, were $392 million higher at March 31, 2009, compared with December 31, 2008, reflecting the impact of restructurings for certain residential mortgage customers in light of current economic conditions. The Company expects this trend to continue as the Company assists borrowers who are having financial difficulties.

The Company has also modified certain covered loans in accordance with the terms of agreements with the FDIC in connection with the acquisitions of Downey and PFF. Losses associated with modifications on covered assets, including the economic impact of interest rate reductions, are generally eligible for credit loss protection under the loss sharing agreements.

Nonperforming Assets The level of nonperforming assets represents another indicator of the potential for future credit losses. At March 31, 2009, total nonperforming assets were $3,410 million, compared with $2,624 million at December 31, 2008. Nonperforming assets at March 31, 2009 included $702 million of covered assets, compared with $643 million at December 31, 2008. The ratio of total nonperforming assets to total loans and other real estate was 1.85 percent (1.56 percent excluding covered assets) at March 31, 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.

Included in nonperforming loans were restructured loans that are not accruing interest, of $169 million at March 31, 2009, compared with $151 million at December 31, 2008.

Other real estate, excluding covered assets, was $257 million at March 31, 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 and higher residential mortgage loan foreclosures.


12	U.S. Bancorp

Table 6 Nonperforming Assets (a)


	March 31,			December 31,
(Dollars in Millions)	2009			2008

Commercial
Commercial	$	651		$	290
Lease financing		119			102

Total commercial		770			392
Commercial Real Estate
Commercial mortgages		392			294
Construction and development		887			780

Total commercial real estate		1,279			1,074
Residential Mortgages		239			210
Retail
Credit card		90			67
Retail leasing		–			–
Other retail		45			25

Total retail		135			92

Total nonperforming loans, excluding covered assets		2,423			1,768
Covered Assets		702			643


Total nonperforming loans		3,125			2,411
Other Real Estate (b)		257			190
Other Assets		28			23

Total nonperforming assets	$	3,410		$	2,624

Accruing loans 90 days or more past due, excluding covered assets	$	1,185		$	967
Accruing loans 90 days or more past due	$	1,932		$	1,554
Nonperforming loans to total loans, excluding covered assets		1.40	%		1.02	%
Nonperforming loans to total loans		1.69	%		1.30	%
Nonperforming assets to total loans plus other real estate, excluding covered assets (b)		1.56	%		1.14	%
Nonperforming assets to total loans plus other real estate (b)		1.85	%		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		1,100			298			1,398
Advances on loans		27			–			27

Total additions		1,127			298			1,425
Reductions in nonperforming assets
Paydowns, payoffs		(67	)		(138	)		(205	)
Net sales		(8	)		–			(8	)
Return to performing status		(53	)		(4	)		(57	)
Charge-offs (c)		(312	)		(57	)		(369	)

Total reductions		(440	)		(199	)		(639	)

Net additions to nonperforming assets		687			99			786

Balance March 31, 2009	$	2,583		$	827		$	3,410


(a)		Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)		Excludes $237 million and $209 million at March 31, 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.

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
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2009		2008		2009			2008
Residential
Minnesota	$	20	$	18		.37	%		.34	%
California		18		13		.39			.29
Michigan		12		12		2.49			2.39
Missouri		9		7		.34			.26
Florida		9		9		1.24			1.20
All other states		98		86		.33			.30

Total residential		166		145		.38			.34
Commercial		91		45		.27			.14

Total OREO	$	257	$	190		.14	%		.10	%


U.S. Bancorp	13

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


	Three Months Ended
	March 31,
	2009			2008

Commercial
Commercial		.92	%		.34	%
Lease financing		3.29			1.03

Total commercial		1.21			.43
Commercial Real Estate
Commercial mortgages		.22			.08
Construction and development		4.82			.35

Total commercial real estate		1.58			.16
Residential Mortgages		1.54			.46
Retail
Credit card		6.32			3.93
Retail leasing		1.03			.49
Home equity and second mortgages		1.48			.73
Other retail		1.75			1.25

Total retail		2.62			1.58

Total loans, excluding covered assets		1.82			.76
Covered Assets		.21			–


Total loans		1.72	%		.76	%

The Company expects nonperforming assets, including OREO, to continue to increase as difficult economic conditions affect more borrowers, both consumer and commercial.

Analysis of Loan Net Charge-Offs Total loan net charge-offs were $788 million for the first quarter of 2009, compared with net charge-offs of $293 million for the first quarter of 2008. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the first quarter of 2009 was 1.72 percent, compared with .76 percent, for the first quarter of 2008. The year-over-year increase in total net charge-offs was driven by factors affecting the residential housing markets, including homebuilding and related industries, and credit costs associated with credit card and other consumer loans as the economy weakened. Given current economic conditions and the continuing weakness in home prices and the economy in general, the Company expects net charge-offs will remain elevated during 2009.

Commercial and commercial real estate loan net charge-offs for the first quarter of 2009 increased to $297 million (1.35 percent of average loans outstanding on an annualized basis), compared with $67 million (.33 percent of average loans outstanding on an annualized basis) for the first quarter of 2008. The year-over-year increase in net charge-offs reflected continuing stress in housing, especially residential homebuilding and related industry sectors.

Residential mortgage loan net charge-offs for the first quarter of 2009 were $91 million (1.54 percent of average loans outstanding on an annualized basis), compared with $26 million (.46 percent of average loans outstanding on an annualized basis) for the first quarter of 2008. Total retail loan net charge-offs for the first quarter of 2009 were $394 million (2.62 percent of average loans outstanding on an annualized basis), compared with $200 million (1.58 percent of average loans outstanding on an annualized basis) for the first quarter of 2008. The increased residential mortgage and retail loan net charge-offs reflected the adverse impact of current economic conditions on consumers.


14	U.S. Bancorp

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


	Three Months Ended March 31
					Percent of
	Average Loans				Average Loans
(Dollars in Millions)	2009		2008		2009			2008
Consumer Finance (a)
Residential mortgages	$	9,898	$	9,898		2.99	%		.85	%
Home equity and second mortgages		2,417		1,873		6.21			4.29
Other retail		525		429		7.72			5.63
Other Retail
Residential mortgages	$	14,017	$	13,080		.52	%		.15	%
Home equity and second mortgages		16,798		14,654		.80			.27
Other retail		22,462		17,202		1.61			1.15
Total Company
Residential mortgages	$	23,915	$	22,978		1.54	%		.46	%
Home equity and second mortgages		19,215		16,527		1.48			.73
Other retail		22,987		17,631		1.75			1.25


(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 a loan-to-value greater 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 for the consumer finance division:


	Three Months Ended March 31
					Percent of
	Average Loans				Average Loans
(Dollars in Millions)	2009		2008		2009			2008
Residential mortgages
Sub-prime borrowers	$	2,838	$	3,220		5.00	%		1.62	%
Other borrowers		7,060		6,678		2.18			.48

Total	$	9,898	$	9,898		2.99	%		.85
Home equity and second mortgages
Sub-prime borrowers	$	713	$	854		10.81	%		6.59	%
Other borrowers		1,704		1,019		4.28			2.37

Total	$	2,417	$	1,873		6.21	%		4.29	%

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 March 31, 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.


U.S. Bancorp	15

Table 8 Summary of Allowance for Credit Losses


	Three Months Ended
	March 31,
(Dollars in Millions)	2009			2008
Balance at beginning of period	$	3,639		$	2,260
Charge-offs
Commercial
Commercial		117			46
Lease financing		63			22

Total commercial		180			68
Commercial real estate
Commercial mortgages		14			4
Construction and development		117			8

Total commercial real estate		131			12
Residential mortgages		93			26
Retail
Credit card		225			131
Retail leasing		15			8
Home equity and second mortgages		72			32
Other retail		118			71

Total retail		430			242

Covered assets		6			–

Total charge-offs		840			348
Recoveries
Commercial
Commercial		5			7
Lease financing		8			6

Total commercial		13			13
Commercial real estate
Commercial mortgages		1			–
Construction and development		–			–

Total commercial real estate		1			–
Residential mortgages		2			–
Retail
Credit card		13			23
Retail leasing		2			1
Home equity and second mortgages		2			2
Other retail		19			16

Total retail		36			42

Covered assets		–			–

Total recoveries		52			55
Net Charge-offs
Commercial
Commercial		112			39
Lease financing		55			16

Total commercial		167			55
Commercial real estate
Commercial mortgages		13			4
Construction and development		117			8

Total commercial real estate		130			12
Residential mortgages		91			26
Retail
Credit card		212			108
Retail leasing		13			7
Home equity and second mortgages		70			30
Other retail		99			55

Total retail		394			200

Covered assets		6			–

Total net charge-offs		788			293

Provision for credit losses		1,318			485
Acquisitions and other changes		(64	)		(17	)

Balance at end of period	$	4,105		$	2,435

Components
Allowance for loan losses	$	3,947		$	2,251
Liability for unfunded credit commitments		158			184

Total allowance for credit losses	$	4,105		$	2,435

Allowance for credit losses as a percentage of
Period-end loans, excluding covered assets		2.37	%		1.54	%
Nonperforming loans, excluding covered assets		169			358
Nonperforming assets, excluding covered assets		152			288
Annualized net charge-offs, excluding covered assets		129			207

Period-end loans		2.23	%		1.54	%
Nonperforming loans		131			358
Nonperforming assets		120			288
Annualized net charge-offs		128			207


16	U.S. Bancorp

At March 31, 2009, the allowance for credit losses was $4,105 million (2.23 percent of total loans and 2.37 percent of loans excluding covered assets), compared with an allowance of $3,639 million (1.96 percent of total loans and 2.09 percent of loans excluding covered assets) at December 31, 2008. The ratio of the allowance for credit losses to nonperforming loans was 131 percent (169 percent excluding covered assets) at March 31, 2009, compared with 151 percent (206 percent excluding covered assets) at December 31, 2008. The ratio of the allowance for credit losses to annualized loan net charge-offs was 128 percent (129 percent excluding covered assets) at March 31, 2009, compared with 200 percent (201 percent excluding covered assets for full year 2008 net charge-offs) at December 31, 2008.

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 March 31, 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 on Form 10-K for 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 on Form 10-K for 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 to a 4.0 percent decline of forecasted net interest income over the next 12 months. At March 31, 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 on Form 10-K for 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 basis point parallel rate shock to a 15.0 percent decline of the market value of equity assuming interest rates at

Sensitivity of Net Interest Income

March 31, 2009

December 31, 2008

Down 50

Up 50

Down 200

Up 200

Down 50

Up 50

Down 200

Up 200

Immediate

Gradual*

Gradual

Immediate

Gradual

Net interest income

.63%

1.10%

.37

1.05


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


U.S. Bancorp	17

March 31, 2009. The up 200 basis point scenario resulted in a 6.5 percent decrease in the market value of equity at March 31, 2009, compared with a 7.6 percent decrease at December 31, 2008. The down 200 basis point scenario resulted in a 2.5 percent decrease in the market value of equity at March 31, 2009, compared with a 2.8 percent decrease at December 31, 2008. At March 31, 2009, and December 31, 2008, the Company was within policy.

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 March 31, 2009, the duration of assets, liabilities and equity was 1.6 years, 1.7 years and 1.1 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 on Form 10-K for 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, funded mortgage loans and mortgage servicing rights (“MSRs”).

To manage these risks, the Company may enter into exchange-traded and over-the-counter derivative 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 March 31, 2009, the Company had $11.8 billion of forward commitments to sell mortgage loans hedging $4.1 billion of mortgage loans held for sale and $12.6 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments are derivatives in accordance with the provisions of Statement of Financial Accounting Standards No. 133 “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 and interest rate risks. The Company also manages market risk of non-trading business activities, including its MSRs and loans held-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. The Company measures VaR at the ninety-ninth percentile using distributions derived from past market data. On average, the Company expects the one


18	U.S. Bancorp

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 $1 million during the first quarter of 2009 or the first quarter 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 the past several quarters, the financial markets have been challenging for many financial institutions. As a result of these market conditions, liquidity premiums have widened and many banks have 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. This has allowed the Company to experience strong liquidity, as depositors and investors in the wholesale funding markets seek strong financial institutions. Refer to “Management’s Discussion and Analysis — Liquidity Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, for further discussion on liquidity risk management.

At March 31, 2009, parent company long-term debt outstanding was $12.3 billion, compared with $10.8 billion at December 31, 2008. The $1.5 billion increase was primarily due to the issuance of $1.6 billion of medium-term notes during the first three months of 2009. As of March 31, 2009, $1.0 billion of parent company debt was scheduled to mature during the remainder of 2009.

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 $1.8 billion at March 31, 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. During the first quarter of 2009, the Company reduced its quarterly common dividend to $.05 per common share. This reduction preserved common equity and had a positive impact on the Company’s capital ratios. Table 9 provides a summary of capital ratios as of March 31, 2009, and December 31, 2008. All regulatory ratios exceeded regulatory “well-capitalized” requirements. Total U.S. Bancorp shareholders’ equity was $27.2 billion at March 31, 2009, compared with $26.3 billion at December 31, 2008. The increase was the result of corporate earnings, partially offset by dividends.

On May 7, 2009, the Federal Reserve completed its assessment of the capital adequacy of the nineteen largest domestic bank holding companies. The assessment involved each institution’s performance under projected market conditions, including various macroeconomic and credit loss assumptions over a two-year period ending December 31, 2010.

The Federal Reserve’s analysis was completed based on projected conditions under two scenarios — a “baseline” scenario representing the consensus forecast of economic conditions from numerous economists, and a “more adverse” scenario. The Federal Reserve projected each bank’s capital at December 31, 2010 under these scenarios based on each Company’s operating performance considering their fundamental business and the quality of the Company’s securities and credit portfolios. Based on the results of their capital

Table 9 Capital Ratios


	March 31,			December 31,
(Dollars in Millions)	2009			2008
Tier 1 capital	$	25,284		$	24,426
As a percent of risk-weighted assets		10.9	%		10.6	%
As a percent of adjusted quarterly average assets (leverage ratio)		9.8	%		9.8	%
Total risk-based capital	$	33,504		$	32,897
As a percent of risk-weighted assets		14.4	%		14.3	%


U.S. Bancorp	19

adequacy assessment, the Federal Reserve projected the Company’s capital would be sufficient under either scenario, and as such, it would not require the Company to raise additional capital.

The capital projections were based on assumptions developed by the Federal Reserve and cover, among other things, factors that may affect anticipated revenues and expenses, potential credit losses and other uncertainties. Important factors could cause actual results to differ materially from those estimated by the Federal Reserve, which were based on a certain set of assumptions about future macroeconomic conditions and credit losses. Investors are cautioned against placing undue reliance on the Federal Reserve’s projections.

The Company’s tangible common equity as a percent of risk-weighted assets calculated in accordance with regulatory guidelines was 4.0 percent at March 31, 2009, compared with 3.5 percent at December 31, 2008. The Company’s tangible common equity divided by tangible assets was 3.7 percent at March 31, 2009, compared with 3.2 percent at December 31, 2008.

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 first quarter of 2009 were repurchased under this authorization. The following table provides a detailed analysis of all shares repurchased during the first 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
January		26,439	$	17.32		19,972,283
February		236,456		12.76		19,735,827
March		583		13.49		19,735,244

Total		263,478	$	13.21		19,735,244

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 on Form 10-K for 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 and public sector clients. Wholesale Banking contributed $26 million of the Company’s net income in the first quarter of 2009, or a decrease of $231 million (89.9 percent), compared with the first quarter of 2008. The decrease was primarily driven by an increase in the provision for credit losses and higher noninterest expense partially offset by higher net revenue.

Total net revenue increased $89 million (13.1 percent) in the first quarter of 2009, compared with the first quarter of 2008. Net interest income, on a taxable-equivalent basis, increased $67 million (13.8 percent) in the first quarter of 2009, compared with the first quarter of 2008, driven by growth in earning assets and deposits, partially offset by declining margins in the loan portfolio and a decrease in the margin benefit of deposits. Noninterest income increased $22 million (11.5 percent) in the first quarter of 2009, compared with the first quarter of 2008. The increase was primarily due to higher treasury management fees, capital markets fees and foreign exchange revenue in the first quarter of 2009 and market related valuation losses in the first quarter of 2008. These favorable items were partially offset by lower earnings from equity investments.

Total noninterest expense increased $11 million (4.3 percent) in the first quarter of 2009 compared with the first quarter of 2008, primarily due to higher compensation and employee benefits expense related to expanding the business line’s national corporate banking presence, investments to enhance customer relationship management, and an acquisition in the second quarter of


20	U.S. Bancorp

2008. The provision for credit losses increased $442 million in the first quarter of 2009, compared with the first quarter of 2008. The unfavorable change was primarily due to continued credit deterioration in the homebuilding and commercial home supplier industries. Nonperforming assets were $1,376 million at March 31, 2009, $1,251 million at December 31, 2008, and $423 million at March 31, 2008. Nonperforming assets as a percentage of period-end loans were 2.16 percent at March 31, 2009, 1.95 percent at December 31, 2008, and .74 percent at March 31, 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 and 24-hour banking. Consumer Banking contributed $205 million of the Company’s net income in the first quarter of 2009, or a decrease of $124 million (37.7 percent), compared with the first quarter of 2008. Within Consumer Banking, the retail banking division contributed $77 million of the total net income in the first quarter of 2009, or a decrease of $209 million (73.1 percent) from the same period in the prior year. Mortgage banking contributed $128 million of the business line’s net income in the first quarter of 2009, or an increase of $85 million over the same period in the prior year.

Total net revenue increased $130 million (8.6 percent) in the first quarter of 2009, compared with the first quarter of 2008. Net interest income, on a taxable-equivalent basis, increased $50 million (5.3 percent) in the first quarter of 2009, compared with the first quarter of 2008. The year-over-year increase in net interest income was due to an increase in average loan and deposit balances, offset by a decline in the margin benefit of deposits, given the declining interest rate environment. The increase 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 change in retail loans was principally driven by an increase in installment products, home equity lines and federally guaranteed student loan balances due to both the transfer of balances from loans held for sale and a portfolio purchase in the second quarter of 2008. The year-over-year increase 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 $80 million (14.2 percent) in the first quarter of 2009, compared with the first quarter of 2008. The year-over-year increase in fee-based revenue was driven by higher mortgage banking and ATM revenue partially offset by lower deposit service charges and retail product fees.

Total noninterest expense increased $121 million (15.7 percent) in the first quarter of 2009, compared with the first quarter of 2008. The increase included the net addition, including the impact of fourth quarter 2008 acquisitions, of 192 in-store branches, 126 traditional branches and 7 on-site branches at March 31, 2009, compared with March 31, 2008. In addition, the increase was primarily attributable to higher 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 $204 million (93.2 percent) in the first quarter of 2009, compared with the first quarter of 2008. The increase reflected portfolio growth and credit deterioration in residential mortgages, home equity and other installment and consumer loan portfolios from a year ago. As a percentage of average loans outstanding, net charge-offs increased to 1.31 percent in the first quarter of 2009, compared with .64 percent in the first quarter of 2008. Commercial and commercial real estate loan net charge-offs increased $35 million and retail loan and residential mortgage net charge-offs increased $148 million in the first quarter of 2009, compared with the first quarter of 2008. In addition, there were $6 million of net charge-offs in the first quarter of 2009 related to covered assets. Nonperforming assets were $2,615 million at March 31, 2009, $1,919 million at December 31, 2008, and $371 million at March 31, 2008. Nonperforming assets as a percentage of period-end loans were 2.83 percent at March 31, 2009, 2.08 percent at December 31, 2008, and .49 percent at March 31, 2008. Refer to the “Corporate Risk Profile” section for further 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


U.S. Bancorp	21

Table 10 Line of Business Financial Performance


	Wholesale								Consumer
	Banking								Banking
						Percent							Percent
Three Months Ended March 31 (Dollars in Millions)	2009			2008		Change			2009		2008		Change

Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	553		$	486		13.8	%	$	993	$	943		5.3	%
Noninterest income		216			191		13.1			643		563		14.2
Securities gains (losses), net		(3	)		–			*		–		–		–

Total net revenue		766			677		13.1			1,636		1,506		8.6
Noninterest expense		261			253		3.2			867		754		15.0
Other intangibles		6			3			*		23		15		53.3

Total noninterest expense		267			256		4.3			890		769		15.7

Income before provision and income taxes		499			421		18.5			746		737		1.2
Provision for credit losses		460			18			*		423		219		93.2

Income before income taxes		39			403		(90.3	)		323		518		(37.6	)
Income taxes and taxable-equivalent adjustment		14			147		(90.5	)		118		189		(37.6	)

Net income		25			256		(90.2	)		205		329		(37.7	)
Net (income) loss attributable to noncontrolling interests		1			1		–			–		–		–

Net income attributable to U.S. Bancorp	$	26		$	257		(89.9	)	$	205	$	329		(37.7	)


Average Balance Sheet
Commercial	$	43,034		$	38,690		11.2	%	$	6,347	$	6,483		(2.1	)%
Commercial real estate		21,309			17,694		20.4			11,481		11,178		2.7
Residential mortgages		91			94		(3.2	)		23,361		22,450		4.1
Retail		72			72		–			43,971		36,789		19.5

Total loans, excluding covered assets		64,506			56,550		14.1			85,160		76,900		10.7
Covered assets		–			–		–			11,344		–			*

Total loans		64,506			56,550		14.1			96,504		76,900		25.5
Goodwill		1,475			1,329		11.0			3,230		2,420		33.5
Other intangible assets		101			29			*		1,483		1,510		(1.8	)
Assets		69,824			61,646		13.3			109,713		88,935		23.4
Noninterest-bearing deposits		16,254			10,312		57.6			13,648		11,515		18.5
Interest checking		8,552			8,043		6.3			19,313		17,859		8.1
Savings products		7,816			5,825		34.2			23,762		19,322		23.0
Time deposits		15,323			14,404		6.4			26,709		18,801		42.1

Total deposits		47,945			38,584		24.3			83,432		67,497		23.6
Total U.S. Bancorp shareholders’ equity		6,978			6,211		12.3			8,185		6,799		20.4

* Not meaningful

$117 million of the Company’s net income in the first quarter of 2009, or a decrease of $29 million (19.9 percent), compared with the first quarter of 2008. The decrease was attributable to unfavorable equity market conditions relative to a year ago.

Total net revenue decreased $52 million (10.7 percent) in the first quarter of 2009, compared with the first quarter of 2008. Net interest income, on a taxable-equivalent basis, decreased $7 million (5.9 percent) in the first quarter of 2009, compared with the first quarter of 2008. The decrease in net interest income was primarily due to the reduction in the margin benefit of deposits partially offset by higher deposit volumes. Noninterest income decreased $45 million (12.2 percent) in the first quarter of 2009, compared with the first quarter of 2008, primarily driven by unfavorable equity market conditions.

Total noninterest expense decreased $7 million (2.7 percent) in the first quarter of 2009, compared with the first quarter of 2008. The decrease in noninterest expense was primarily due to lower employee compensation benefit expense and intangibles 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 $98 million of the Company’s net income in the first quarter of 2009, or a decrease of $109 million (52.7 percent), compared with the first quarter of 2008. The decrease was due to a higher provision for credit losses partially offset by higher net revenue.

Total net revenue increased $13 million (1.4 percent) in the first quarter of 2009, compared with the first quarter of 2008. Net interest income, on a taxable-equivalent basis, increased $23 million (9.1 percent) in the first quarter of 2009, compared with the first quarter of 2008, primarily due to growth in credit card loan balances. Noninterest income decreased


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

$	111	$	118		(5.9	)%	$	277	$	254		9.1	%	$	161		$	29				*%	$	2,095		$	1,830			14.5	%
	323		368		(12.2	)		688		698		(1.4	)		116			475			(75.6	)		1,986			2,295			(13.5	)
	–		–		–			–		–		–			(195	)		(251	)		22.3			(198	)		(251	)		21.1

	434		486		(10.7	)		965		952		1.4			82			253			(67.6	)		3,883			3,874			.2
	231		235		(1.7	)		326		323		.9			95			127			(25.2	)