Edgar Filing: US BANCORP \DE\

e10vq

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, 2011

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 þ NO o

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


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

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, 2011 1,926,650,215 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)		3
a) Overview		3
b) Statement of Income Analysis		3
c) Balance Sheet Analysis		5
d) Non-Regulatory Capital Ratios		24
e) Critical Accounting Policies		25
f) Controls and Procedures (Item 4)		25
2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)
a) Overview		7
b) Credit Risk Management		7
c) Residual Value Risk Management		18
d) Operational Risk Management		18
e) Interest Rate Risk Management		18
f) Market Risk Management		19
g) Liquidity Risk Management		20
h) Capital Management		20
3) Line of Business Financial Review		21
4) Financial Statements (Item 1)		26
Part II — Other Information
1) Risk Factors (Item 1A)		59
2) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)		59
3) Exhibits (Item 6)		59
4) Signature		60
5) Exhibits		61
EX-12
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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

This quarterly report 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 and are based on the information available to, and assumptions and estimates made by, management as of the date made. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Global and domestic economies could fail to recover from the recent economic downturn or could experience another severe contraction, which could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Continued stress in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets, could cause additional credit losses and deterioration in asset values. In addition, U.S. Bancorp’s business and financial performance is likely to be impacted by effects of recently enacted and future legislation and regulation. 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, residual value risk, market risk, operational risk, interest rate risk, and liquidity 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, 2010, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. Forward-looking statements speak only as of the date they are made, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.


U.S. Bancorp	1

Table 1 Selected Financial Data


	Three Months Ended
	March 31,
							Percent
(Dollars and Shares in Millions, Except Per Share Data)	2011			2010			Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)	$	2,507		$	2,403			4.3	%
Noninterest income		2,017			1,952			3.3
Securities gains (losses), net		(5	)		(34	)		85.3

Total net revenue		4,519			4,321			4.6
Noninterest expense		2,314			2,136			8.3
Provision for credit losses		755			1,310			(42.4	)

Income before taxes		1,450			875			65.7
Taxable-equivalent adjustment		55			51			7.8
Applicable income taxes		366			161				*

Net income		1,029			663			55.2
Net (income) loss attributable to noncontrolling interests		17			6				*

Net income attributable to U.S. Bancorp	$	1,046		$	669			56.4

Net income applicable to U.S. Bancorp common shareholders	$	1,003		$	648			54.8

Per Common Share
Earnings per share	$	.52		$	.34			52.9	%
Diluted earnings per share		.52			.34			52.9
Dividends declared per share		.125			.050				*
Book value per share		14.83			13.16			12.7
Market value per share		26.43			25.88			2.1
Average common shares outstanding		1,918			1,910			.4
Average diluted common shares outstanding		1,928			1,919			.5
Financial Ratios
Return on average assets		1.38	%		.96	%
Return on average common equity		14.5			10.5
Net interest margin (taxable-equivalent basis) (a)		3.69			3.90
Efficiency ratio (b)		51.1			49.0
Average Balances
Loans	$	197,570		$	192,878			2.4	%
Loans held for sale		6,104			3,932			55.2
Investment securities		56,405			46,211			22.1
Earning assets		273,940			248,828			10.1
Assets		307,896			281,722			9.3
Noninterest-bearing deposits		44,189			38,000			16.3
Deposits		204,305			182,531			11.9
Short-term borrowings		32,203			32,551			(1.1	)
Long-term debt		31,567			32,456			(2.7	)
Total U.S. Bancorp shareholders’ equity		30,009			26,414			13.6


		March 31, 2011			December 31, 2010


Period End Balances
Loans	$	198,038		$	197,061			.5	%
Allowance for credit losses		5,498			5,531			(.6	)
Investment securities		60,461			52,978			14.1
Assets		311,462			307,786			1.2
Deposits		208,293			204,252			2.0
Long-term debt		31,775			31,537			.8
Total U.S. Bancorp shareholders’ equity		30,507			29,519			3.3
Capital ratios
Tier 1 capital		10.8	%		10.5	%
Total risk-based capital		13.8			13.3
Leverage		9.0			9.1
Tier 1 common equity to risk-weighted assets using Basel I definition (c)		8.2			7.8
Tier 1 common equity to risk-weighted assets using anticipated Basel III definition (c)		7.7
Tangible common equity to tangible assets (c)		6.3			6.0
Tangible common equity to risk-weighted assets (c)		7.6			7.2


*		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 net securities gains (losses).
(c)		See Non-Regulatory Capital Ratios beginning 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 $1.0 billion for the first quarter of 2011, or $.52 per diluted common share, compared with $669 million, or $.34 per diluted common share for the first quarter of 2010. Return on average assets and return on average common equity were 1.38 percent and 14.5 percent, respectively, for the first quarter of 2011, compared with .96 percent and 10.5 percent, respectively, for the first quarter of 2010. Included in the first quarter of 2011 was a $46 million gain related to the acquisition of First Community Bank of New Mexico (“FCB”) in a transaction with the Federal Deposit Insurance Corporation (“FDIC”). The first quarter of 2010 results included net securities losses of $34 million. The provision for credit losses for the first quarter of 2011 was $50 million lower than net charge-offs, compared with $175 million in excess of net charge-offs for the first quarter of 2010.

Total net revenue, on a taxable-equivalent basis, for the first quarter of 2011 was $198 million (4.6 percent) higher than the first quarter of 2010, reflecting a 4.3 percent increase in net interest income and a 4.9 percent increase in total noninterest income. The increase in net interest income over a year ago was largely the result of an increase in average earning assets and continued growth in lower cost core deposit funding. Noninterest income increased over a year ago, primarily due to higher payments-related revenue, commercial products revenue and other income, as well as lower securities losses.

Total noninterest expense in the first quarter of 2011 was $178 million (8.3 percent) higher than the first quarter of 2010, primarily due to higher total compensation and employee benefits expense, including higher pension costs.

The provision for credit losses for the first quarter of 2011 was $755 million, or $555 million (42.4 percent) lower than the first quarter of 2010. Net charge-offs in the first quarter of 2011 were $805 million, compared with $1.1 billion in the first quarter of 2010. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

STATEMENT OF INCOME ANALYSIS

Net Interest Income Net interest income, on a taxable-equivalent basis, was $2.5 billion in the first quarter of 2011, compared with $2.4 billion in the first quarter of 2010. The $104 million (4.3 percent) increase was primarily the result of growth in average earning assets and lower cost core deposit funding. Average earning assets were $25.1 billion (10.1 percent) higher in the first quarter of 2011, compared with the first quarter of 2010, driven by increases of $4.7 billion (2.4 percent) in average loans, $10.2 billion (22.1 percent) in average investment securities and $8.1 billion in average other earning assets, which included balances held at the Federal Reserve. The net interest margin in the first quarter of 2011 was 3.69 percent, compared with 3.90 percent in the first quarter of 2010. The decrease in the net interest margin reflected higher balances in lower yielding investment securities and growth in cash balances held at the Federal Reserve. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” tables for further information on net interest income.

Total average loans for the first quarter of 2011 were $4.7 billion (2.4 percent) higher than the first quarter of 2010, driven by growth in residential mortgages (20.3 percent), commercial loans (3.0 percent), commercial real estate loans (3.0 percent) and retail loans (1.0 percent), partially offset by a 17.6 percent decrease in loans covered by loss sharing agreements with the FDIC. The increases were driven by demand for loans and lines by new and existing credit-worthy borrowers and the impact of the FCB acquisition. Average loans acquired in FDIC-assisted transactions that are covered by loss sharing agreements with the FDIC (“covered” loans) were $17.6 billion in the first quarter of 2011, compared with $21.4 billion in the same period of 2010.

Average investment securities in the first quarter of 2011 were $10.2 billion (22.1 percent) higher than the first quarter of 2010, primarily due to purchases of U.S. Treasury and government agency-related securities, as the Company increased its on-balance sheet liquidity in response to anticipated regulatory requirements.

Average total deposits for the first quarter of 2011 were $21.8 billion (11.9 percent) higher than the first


U.S. Bancorp	3

Table 2 Noninterest Income


	Three Months Ended
	March 31,
							Percent
(Dollars in Millions)	2011			2010			Change
Credit and debit card revenue	$	267		$	258			3.5	%
Corporate payment products revenue		175			168			4.2
Merchant processing services		301			292			3.1
ATM processing services		112			105			6.7
Trust and investment management fees		256			264			(3.0	)
Deposit service charges		143			207			(30.9	)
Treasury management fees		137			137			–
Commercial products revenue		191			161			18.6
Mortgage banking revenue		199			200			(.5	)
Investment products fees and commissions		32			25			28.0
Securities gains (losses), net		(5	)		(34	)		85.3
Other		204			135			51.1

Total noninterest income	$	2,012		$	1,918			4.9	%

quarter of 2010. Excluding deposits from acquisitions, first quarter 2011 average total deposits increased $13.2 billion (7.3 percent) over the first quarter of 2010. Average noninterest-bearing deposits for the first quarter of 2011 were $6.2 billion (16.3 percent) higher than the same period of 2010, primarily due to growth in Wholesale Banking and Commercial Real Estate and Consumer and Small Business Banking balances. Average total savings deposits were $14.7 billion (14.9 percent) higher in the first quarter of 2011, compared with the first quarter of 2010, primarily the result of growth in corporate trust balances, including the impact of the December 30, 2010 acquisition of the securitization trust administration business of Bank of America, N.A. (“securitization trust acquisition”), and Consumer and Small Business Banking balances. Average time certificates of deposit less than $100,000 were lower in the first quarter of 2011 by $3.1 billion (16.7 percent), compared with the first quarter of 2010, as a result of expected decreases in acquired certificates of deposit and decreases in Consumer and Small Business Banking balances. Average time deposits greater than $100,000 were $4.0 billion (14.5 percent) higher in the first quarter of 2011, compared with the first quarter of 2010, principally due to higher balances in Wholesale Banking and Commercial Real Estate and institutional and corporate trust, including the impact of the securitization trust acquisition, and the FCB acquisition.

Provision for Credit Losses The provision for credit losses for the first quarter of 2011 decreased $555 million (42.4 percent) from the first quarter of 2010. Net charge-offs decreased $330 million (29.1 percent) in the first quarter of 2011, compared with the first quarter of 2010, principally due to improvement in the commercial, commercial real estate, credit card and other retail loan portfolios. Delinquencies also decreased in most major loan categories in the first quarter of 2011, compared to the first quarter of 2010. The provision for credit losses was $50 million lower than net charge-offs in the first quarter of 2011, but exceeded net charge-offs by $175 million in the first quarter of 2010. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income in the first quarter of 2011 was $2.0 billion, compared with $1.9 billion in the first quarter of 2010. The $94 million (4.9 percent) increase was due to higher payments-related revenues, principally due to increased transaction volumes and business expansion, and an increase in commercial products revenue attributable to higher standby letters of credit fees, commercial loan and syndication fees, foreign exchange income and other capital markets revenue. In addition, net securities losses decreased, primarily due to lower impairments in the current year, and other income increased principally due to the FCB gain and a gain related to the Company’s investment in Visa Inc. recorded during the first quarter of 2011. Offsetting these positive variances was a decrease in deposit service charges from the prior year, primarily due to Company-initiated and regulatory revisions to overdraft fee policies, partially offset by core account growth. In addition, trust and investment management fees declined as a result of the transfer of the Company’s long-term asset management business in the fourth quarter of 2010, partially offset by the positive impact of the securitization trust acquisition and improved market conditions.

Noninterest Expense Noninterest expense was $2.3 billion in the first quarter of 2011, compared with $2.1 billion in the first quarter of 2010, or an increase of $178 million (8.3 percent). The increase in noninterest expense from a year ago was principally due


4	U.S. Bancorp

Table 3 Noninterest Expense


	Three Months Ended
	March 31,
							Percent
(Dollars in Millions)	2011			2010			Change
Compensation	$	959		$	861			11.4	%
Employee benefits		230			180			27.8
Net occupancy and equipment		249			227			9.7
Professional services		70			58			20.7
Marketing and business development		65			60			8.3
Technology and communications		185			185			–
Postage, printing and supplies		74			74			–
Other intangibles		75			97			(22.7	)
Other		407			394			3.3

Total noninterest expense	$	2,314		$	2,136			8.3	%

Efficiency ratio (a)		51.1	%		49.0	%


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

to increased total compensation and employee benefits expense. Total compensation increased primarily due to acquisitions, branch expansion and other business initiatives. Employee benefits expense increased due to higher pension and medical costs and the impact of additional staff. Net occupancy and equipment expense increased principally due to business expansion and technology initiatives. Professional services expense increased due to technology-related and other projects across multiple business lines. Other expense increased over the prior year primarily due to insurance and litigation matters. These increases were partially offset by a decrease in other intangibles expense due to the reduction or completion of the amortization of certain intangibles.

Income Tax Expense The provision for income taxes was $366 million (an effective rate of 26.2 percent) for the first quarter of 2011, compared with $161 million (an effective rate of 19.5 percent) for the first quarter of 2010. The increase in the effective tax rate for the first quarter of 2011, compared with the same period of the prior year, principally reflected the marginal impact of higher pretax earnings year-over-year. For further information on income taxes, refer to Note 10 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans The Company’s total loan portfolio was $198.0 billion at March 31, 2011, compared with $197.1 billion at December 31, 2010, an increase of $977 million (.5 percent). The increase was driven primarily by increases in most major loan categories, partially offset by lower retail and covered loans. The $874 million (1.8 percent) increase in commercial loans and $742 million (2.1 percent) increase in commercial real estate loans were primarily driven by the FCB acquisition and higher loan demand from new and existing customers.

Residential mortgages held in the loan portfolio increased $1.6 billion (5.2 percent) at March 31, 2011, compared with December 31, 2010. 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, decreased $1.4 billion (2.2 percent) at March 31, 2011, compared with December 31, 2010. The decrease was primarily driven by lower credit card and home equity balances.

Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $4.1 billion at March 31, 2011, compared with $8.4 billion at December 31, 2010. The decrease in loans held for sale was principally due to a decrease in mortgage loan origination and refinancing activity, primarily driven by an increase in interest rates during the first quarter of 2011.

Investment Securities Investment securities totaled $60.5 billion at March 31, 2011, compared with $53.0 billion at December 31, 2010. The $7.5 billion (14.1 percent) increase primarily reflected $7.0 billion of net investment purchases and $.3 billion of securities acquired in the FCB acquisition, both primarily in the held-to-maturity investment portfolio. Held-to-maturity securities were $8.2 billion at March 31, 2011, compared with $1.5 billion at December 31, 2010, primarily reflecting increases in U.S. Treasury and agency mortgage-backed securities, as the Company increased its on-balance sheet liquidity in response to anticipated regulatory requirements.

The Company conducts a regular assessment of its investment portfolio to determine whether any securities are other-than-temporarily impaired. At March 31, 2011, the Company’s net unrealized loss on


U.S. Bancorp	5

Table 4 Investment Securities


	Available-for-Sale									Held-to-Maturity
					Weighted-									Weighted-
					Average		Weighted-							Average		Weighted-
	Amortized		Fair		Maturity in		Average			Amortized		Fair		Maturity in		Average
March 31, 2011 (Dollars in Millions)	Cost		Value		Years		Yield (e)			Cost		Value		Years		Yield (e)
U.S. Treasury and Agencies
Maturing in one year or less	$	905	$	907		.3		2.01	%	$	–	$	–		–		–	%
Maturing after one year through five years		1,605		1,579		2.6		1.21			1,419		1,410		2.9		1.04
Maturing after five years through ten years		33		34		6.7		4.87			–		–		–		–
Maturing after ten years		18		17		12.0		3.66			62		62		11.0		1.76

Total	$	2,561	$	2,537		1.9		1.56	%	$	1,481	$	1,472		3.2		1.07	%

Mortgage-Backed Securities(a)
Maturing in one year or less	$	527	$	528		.7		2.51	%	$	105	$	105		.8		1.48	%
Maturing after one year through five years		16,224		16,466		3.7		3.09			3,126		3,130		3.7		2.77
Maturing after five years through ten years		18,359		18,377		6.2		3.01			2,573		2,569		6.1		3.14
Maturing after ten years		5,259		5,277		13.4		1.55			530		532		14.0		1.45

Total	$	40,369	$	40,648		6.1		2.84	%	$	6,334	$	6,336		5.5		2.79	%

Asset-Backed Securities(a)
Maturing in one year or less	$	3	$	12		.4		15.16	%	$	103	$	102		.1		.59	%
Maturing after one year through five years		173		191		2.8		13.55			55		59		2.1		.94
Maturing after five years through ten years		481		501		7.6		3.60			49		48		5.8		.90
Maturing after ten years		250		247		10.4		2.24			33		29		23.1		.80

Total	$	907	$	951		7.5		5.16	%	$	240	$	238		4.9		.76	%

Obligations of State and Political
Subdivisions(b)(c)
Maturing in one year or less	$	15	$	14		.7		5.92	%	$	–	$	–		.5		6.99	%
Maturing after one year through five years		991		992		3.9		6.03			6		6		3.6		8.02
Maturing after five years through ten years		856		845		6.4		6.62			5		6		6.1		6.56
Maturing after ten years		4,966		4,561		21.2		6.86			15		14		15.8		5.53

Total	$	6,828	$	6,412		16.8		6.71	%	$	26	$	26		10.9		6.30	%

Other Debt Securities
Maturing in one year or less	$	10	$	12		.7		4.30	%	$	–	$	–		–		–	%
Maturing after one year through five years		63		55		1.1		6.20			14		12		2.3		1.27
Maturing after five years through ten years		31		30		6.5		6.33			118		95		7.5		1.15
Maturing after ten years		1,332		1,218		31.7		4.17			–		–		–		–

Total	$	1,436	$	1,315		29.6		4.31	%	$	132	$	107		7.0		1.16	%

Other Investments	$	341	$	385		16.1		3.87	%	$	–	$	–		–		–	%

Total investment securities (d)	$	52,442	$	52,248		8.0		3.37	%	$	8,213	$	8,179		5.1		2.41	%


(a)		Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.


(b)		Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount.
(c)		Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and contractual maturity for securities with a fair value equal to or below par.
(d)		The weighted-average maturity of the available-for-sale investment securities was 7.4 years at December 31, 2010, with a corresponding weighted-average yield of 3.41 percent. The weighted-average maturity of the held-to-maturity investment securities was 6.3 years at December 31, 2010, with a corresponding weighted-average yield of 2.07 percent.
(e)		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.


	March 31, 2011					December 31, 2010
	Amortized		Percent			Amortized		Percent
(Dollars in Millions)	Cost		of Total			Cost		of Total
U.S. Treasury and agencies	$	4,042		6.7	%	$	2,724		5.1	%
Mortgage-backed securities		46,703		77.0			40,654		76.2
Asset-backed securities		1,147		1.9			1,197		2.3
Obligations of state and political subdivisions		6,854		11.3			6,862		12.9
Other debt securities and investments		1,909		3.1			1,887		3.5

Total investment securities	$	60,655		100.0	%	$	53,324		100.0	%

available-for-sale securities was $194 million, compared with $346 million at December 31, 2010. The favorable change in net unrealized losses was primarily due to increases in the fair value of non-agency mortgage-backed securities and trust preferred securities. Unrealized losses on available-for-sale securities in an unrealized loss position totaled $1.1 billion at March 31, 2011, compared with $1.2 billion at December 31, 2010. When assessing unrealized losses for other-than-temporary impairment, the Company considers the nature of the investment, the financial condition of the issuer, the extent and duration of unrealized loss, expected cash flows of underlying collateral or assets and market conditions. At March 31,


6	U.S. Bancorp

2011, the Company had no plans to sell securities with unrealized losses and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.

There is limited market activity for 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 other market factors, which are judgmental in nature. The Company recorded $6 million of impairment charges in earnings during the first quarter of 2011, predominately on non-agency mortgage-backed securities. These impairment charges were due to changes in expected cash flows resulting from increases in defaults in the underlying mortgage pools. Further adverse changes in market conditions may result in additional impairment charges in future periods. Refer to Notes 4 and 12 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits Total deposits were $208.3 billion at March 31, 2011, compared with $204.3 billion at December 31, 2010, the result of increases in savings, noninterest-bearing and time deposits, partially offset by decreases in money market and interest checking deposits. Savings account balances increased $2.1 billion (8.6 percent), primarily due to continued strong participation in a savings product offered by Consumer and Small Business Banking. Noninterest-bearing deposits increased $1.7 billion (3.8 percent), primarily due to increases in Wholesale Banking and Commercial Real Estate balances. Time certificates of deposit less than $100,000 increased $289 million (1.9 percent) primarily due to the FCB acquisition. Time deposits greater than $100,000 increased $2.4 billion (8.0 percent), principally due to higher Wholesale Banking and Commercial Real Estate and institutional trust balances and the FCB acquisition. Time deposits greater than $100,000 are managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing. Money market balances decreased $1.6 billion (3.4 percent) primarily due to lower broker dealer balances. Interest checking balances decreased $840 million (1.9 percent) primarily due to lower institutional trust balances.

Borrowings The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $31.0 billion at March 31, 2011, compared with $32.6 billion at December 31, 2010. The $1.6 billion (4.7 percent) decrease in short-term borrowings was primarily in repurchase agreements and reflected reduced borrowing needs as a result of increases in deposits. Long-term debt was $31.8 billion at March 31, 2011, compared with $31.5 billion at December 31, 2010. The $.3 billion (.8 percent) increase was primarily due to an increase in long-term debt related to certain consolidated variable interest entities. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.

CORPORATE RISK PROFILE

Overview Managing risks is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit, residual value, operational, interest rate, market and liquidity risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan, investment or derivative contract 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, processing errors, technology, breaches of internal controls and business continuation and disaster recovery. 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, mortgage servicing rights (“MSRs”) and derivatives that are accounted for on a fair value 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


U.S. Bancorp	7

allowance coverage relative to similar banking institutions and macroeconomic factors, such as changes in unemployment rates, gross domestic product and consumer bankruptcy filings. Refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, for a more detailed discussion on credit risk management processes.

The Company manages its credit risk, in part, through diversification of its loan portfolio and limit setting by product type criteria and concentrations. As part of its normal business activities, the Company offers a broad array of commercial and retail lending products. The Company’s retail lending business utilizes several distinct business processes and channels to originate retail credit, including traditional branch lending, indirect lending, portfolio acquisitions and a consumer finance division. Generally, loans managed by the Company’s consumer finance division exhibit higher credit risk characteristics, but are priced commensurate with the differing risk profile. With respect to residential mortgages originated through these channels, the Company may either retain the loans on its balance sheet or sell its interest in the balances into the secondary market while retaining the servicing rights and customer relationships. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is also diversified by geography and managed by adherence to loan-to-value and borrower credit criteria 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, 2011 (excluding covered loans):


Residential mortgages	Interest						Percent
(Dollars in Millions)	Only		Amortizing		Total		of Total
Consumer Finance
Less than or equal to 80%	$	1,415	$	5,162	$	6,577		54.9	%
Over 80% through 90%		463		2,573		3,036		25.3
Over 90% through 100%		425		1,789		2,214		18.5
Over 100%		–		162		162		1.3

Total	$	2,303	$	9,686	$	11,989		100.0	%
Other Retail
Less than or equal to 80%	$	1,900	$	17,010	$	18,910		92.9	%
Over 80% through 90%		53		686		739		3.6
Over 90% through 100%		66		640		706		3.5
Over 100%		–		–		–		–

Total	$	2,019	$	18,336	$	20,355		100.0	%
Total Company
Less than or equal to 80%	$	3,315	$	22,172	$	25,487		78.8	%
Over 80% through 90%		516		3,259		3,775		11.7
Over 90% through 100%		491		2,429		2,920		9.0
Over 100%		–		162		162		.5

Total	$	4,322	$	28,022	$	32,344		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.


Home equity and second mortgages							Percent
(Dollars in Millions)	Lines		Loans		Total		of Total
Consumer Finance(a)
Less than or equal to 80%	$	1,067	$	194	$	1,261		50.6	%
Over 80% through 90%		446		139		585		23.5
Over 90% through 100%		317		219		536		21.5
Over 100%		50		60		110		4.4

Total	$	1,880	$	612	$	2,492		100.0	%
Other Retail
Less than or equal to 80%	$	11,408	$	1,176	$	12,584		78.0	%
Over 80% through 90%		2,052		448		2,500		15.5
Over 90% through 100%		641		345		986		6.1
Over 100%		41		25		66		.4

Total	$	14,142	$	1,994	$	16,136		100.0	%
Total Company
Less than or equal to 80%	$	12,475	$	1,370	$	13,845		74.3	%
Over 80% through 90%		2,498		587		3,085		16.6
Over 90% through 100%		958		564		1,522		8.2
Over 100%		91		85		176		.9

Total	$	16,022	$	2,606	$	18,628		100.0	%


(a)		Consumer finance category includes 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.


8	U.S. Bancorp

Within the consumer finance division, at March 31, 2011, approximately $2.1 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, unchanged from December 31, 2010.

The following table provides further information on the loan-to-values of residential mortgages specifically for the consumer finance division at March 31, 2011:


	Interest						Percent of
(Dollars in Millions)	Only		Amortizing		Total		Division
Sub-Prime Borrowers
Less than or equal to 80%	$	5	$	946	$	951		7.9	%
Over 80% through 90%		2		474		476		4.0
Over 90% through 100%		13		574		587		4.9
Over 100%		–		44		44		.4

Total	$	20	$	2,038	$	2,058		17.2	%
Other Borrowers
Less than or equal to 80%	$	1,410	$	4,216	$	5,626		46.9	%
Over 80% through 90%		461		2,099		2,560		21.3
Over 90% through 100%		412		1,215		1,627		13.6
Over 100%		–		118		118		1.0

Total	$	2,283	$	7,648	$	9,931		82.8	%

Total Consumer Finance	$	2,303	$	9,686	$	11,989		100.0	%

In addition to residential mortgages, at March 31, 2011, the consumer finance division had $.5 billion of home equity and second mortgage loans to customers that may be defined as sub-prime borrowers, unchanged from December 31, 2010.

The following table provides further information on the loan-to-values of home equity and second mortgages specifically for the consumer finance division at March 31, 2011:


							Percent
(Dollars in Millions)	Lines		Loans		Total		of Total
Sub-Prime Borrowers
Less than or equal to 80%	$	63	$	115	$	178		7.1	%
Over 80% through 90%		41		78		119		4.8
Over 90% through 100%		7		133		140		5.6
Over 100%		33		48		81		3.3

Total	$	144	$	374	$	518		20.8	%
Other Borrowers
Less than or equal to 80%	$	1,004	$	79	$	1,083		43.4	%
Over 80% through 90%		405		61		466		18.7
Over 90% through 100%		310		86		396		15.9
Over 100%		17		12		29		1.2

Total	$	1,736	$	238	$	1,974		79.2	%

Total Consumer Finance	$	1,880	$	612	$	2,492		100.0	%

The total amount of residential mortgage, home equity and second mortgage loans, other than covered loans, to customers that may be defined as sub-prime borrowers represented only .8 percent of total assets at March 31, 2011, compared with .9 percent at December 31, 2010. Covered loans included $1.5 billion in loans with negative-amortization payment options at March 31, 2011, compared with $1.6 billion at December 31, 2010. Other than covered loans, the Company does not have any residential mortgages with payment schedules that would cause balances to increase over time.

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	2011			2010
Commercial
Commercial		.13	%		.15	%
Lease financing		.03			.02

Total commercial		.12			.13
Commercial Real Estate
Commercial mortgages		.02			–
Construction and development		.01			.01

Total commercial real estate		.02			–
Residential Mortgages		1.33			1.63
Retail
Credit card		1.62			1.86
Retail leasing		.04			.05
Other retail		.45			.49

Total retail		.71			.81

Total loans, excluding covered loans		.52			.61

Covered Loans		5.83			6.04

Total loans		.99	%		1.11	%


	March 31,			December 31,
90 days or more past due including nonperforming loans	2011			2010
Commercial		1.12	%		1.37	%
Commercial real estate		4.17			3.73
Residential mortgages (a)		3.45			3.70
Retail (b)		1.23			1.26

Total loans, excluding covered loans		2.17			2.19

Covered loans		12.51			12.94

Total loans		3.07	%		3.17	%


(a)		Delinquent loan ratios exclude loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Including the guaranteed amounts, the ratio of residential mortgages 90 days or more past due including nonperforming loans was 11.42 percent at March 31, 2011, and 12.28 percent at December 31, 2010.


(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 1.58 percent at March 31, 2011, and 1.60 percent at December 31, 2010.


U.S. Bancorp	9

Loan Delinquencies Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. The Company measures delinquencies, both including and excluding nonperforming loans, to enable comparability with other companies. Accruing loans 90 days or more past due totaled $2.0 billion ($949 million excluding covered loans) at March 31, 2011, compared with $2.2 billion ($1.1 billion excluding covered loans) at December 31, 2010. The $145 million (13.3 percent) decrease, excluding covered loans, reflected a moderation in the level of stress in economic conditions in the first quarter of 2011. These loans are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, are in the process of collection and are reasonably expected to result in repayment or restoration to current status, or are managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans was .99 percent (.52 percent excluding covered loans) at March 31, 2011, compared with 1.11 percent (.61 percent excluding covered loans) at December 31, 2010.

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


					As a Percent of Ending
	Amount				Loan Balances
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2011		2010		2011			2010
Residential mortgages
30-89 days	$	395	$	456		1.22	%		1.48	%
90 days or more		432		500		1.33			1.63
Nonperforming		685		636		2.12			2.07

Total	$	1,512	$	1,592		4.67	%		5.18	%

Retail
Credit card
30-89 days	$	228	$	269		1.44	%		1.60	%
90 days or more		258		313		1.62			1.86
Nonperforming		255		228		1.61			1.36

Total	$	741	$	810		4.67	%		4.82	%
Retail leasing
30-89 days	$	12	$	17		.26	%		.37	%
90 days or more		2		2		.04			.05
Nonperforming		–		–		–			–

Total	$	14	$	19		.30	%		.42	%
Home equity and second mortgages
30-89 days	$	151	$	175		.81	%		.93	%
90 days or more		133		148		.71			.78
Nonperforming		42		36		.23			.19

Total	$	326	$	359		1.75	%		1.90	%
Other retail
30-89 days	$	154	$	212		.63	%		.85	%
90 days or more		60		66		.25			.26
Nonperforming		33		29		.13			.12

Total	$	247	$	307		1.01	%		1.23	%


10	U.S. Bancorp

The following table provides information on delinquent and nonperforming loans, excluding covered loans, as a percent of ending loan balances, by channel:


	Consumer Finance (a)						Other Retail
	March 31,			December 31,			March 31,			December 31,
	2011			2010			2011			2010
Residential mortgages
30-89 days		1.90	%		2.38	%		.82	%		.95	%
90 days or more		1.85			2.26			1.03			1.24
Nonperforming		2.93			2.99			1.64			1.52

Total		6.68	%		7.63	%		3.49	%		3.71	%

Retail
Credit card
30-89 days		–	%		–	%		1.44	%		1.60	%
90 days or more		–			–			1.62			1.86
Nonperforming		–			–			1.61			1.36

Total		–	%		–	%		4.67	%		4.82	%
Retail leasing
30-89 days		–	%		–	%		.26	%		.37	%
90 days or more		–			–			.04			.05
Nonperforming		–			–			–			–

Total		–	%		–	%		.30	%		.42	%
Home equity and second mortgages
30-89 days		1.61	%		1.98	%		.69	%		.76	%
90 days or more		1.40			1.82			.60			.62
Nonperforming		.20			.20			.23			.19

Total		3.21	%		4.00	%		1.52	%		1.57	%
Other retail
30-89 days		3.16	%		4.42	%		.57	%		.77	%
90 days or more		.66			.68			.23			.25
Nonperforming		–			–			.14			.12

Total		3.82	%		5.10	%		.94	%		1.14	%


(a)		Consumer finance category includes 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.

Within the consumer finance division at March 31, 2011, approximately $364 million and $59 million of these delinquent and nonperforming residential mortgages and home equity and other retail loans, respectively, were to customers that may be defined as sub-prime borrowers, compared with $412 million and $75 million, respectively, at December 31, 2010.

The following table provides summary delinquency information for covered loans:


					As a Percent of
					Ending
	Amount				Loan Balances
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2011		2010		2011			2010
30-89 days	$	743	$	757		4.31	%		4.19	%
90 days or more		1,005		1,090		5.83			6.04
Nonperforming		1,151		1,244		6.68			6.90

Total	$	2,899	$	3,091		16.82	%		17.13	%

Restructured Loans In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered. Concessionary modifications are classified as troubled debt restructurings (“TDRs”) unless the modification is short-term, or results in only an insignificant delay or shortfall in the payments to be received. TDRs accrue interest if 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.

Short-Term Modifications The Company makes short-term modifications to assist borrowers experiencing temporary hardships. Consumer programs include short-term interest rate reductions (three months or less for residential mortgages and twelve months or less for credit cards), deferrals of up to three past due payments, and the ability to return to current status if the borrower makes required payments during the short-term modification period. At March 31, 2011, loans modified under these programs, excluding loans purchased from GNMA mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, represented less than 1.0 percent of total residential mortgage loan balances and 1.5 percent of credit card receivable balances, compared with less than 1.0 percent of total mortgage loan balances and 1.9 percent of credit card receivable balances at December 31, 2010. Because these changes have an insignificant impact on the economic return on the loan, the Company does not consider loans modified


U.S. Bancorp	11

under these hardship programs to be TDRs. The Company determines applicable allowances for credit losses for these loans in a manner consistent with other homogeneous loan portfolios.

The Company may also modify commercial loans on a short-term basis, with the most common modification being an extension of the maturity date of twelve months or less. Such extensions generally are used when the maturity date is imminent and the borrower is experiencing some level of financial stress but the Company believes the borrower will ultimately pay all contractual amounts owed. These extended loans represented approximately 1.3 percent of total commercial and commercial real estate loan balances at March 31, 2011, compared with approximately 1.1 percent at December 31, 2010. Because interest is charged during the extension period (at the original contractual rate or, in many cases, a higher rate), the extension has an insignificant impact on the economic return on the loan. Therefore, the Company does not consider such extensions to be TDRs. The Company determines the applicable allowance for credit losses on these loans in a manner consistent with other commercial loans.

Troubled Debt Restructurings Many of the Company’s TDRs are determined on a case-by-case basis in connection with ongoing loan collection processes. However, the Company has also implemented certain restructuring programs that may result in TDRs. The consumer finance division has a mortgage loan restructuring program, where certain qualifying borrowers facing an interest rate reset who are current in their repayment status, are allowed to retain the lower of their existing interest rate or the market interest rate as of their interest reset date. The Company also participates in the U.S. Department of the Treasury Home Affordable Modification Program (“HAMP”). HAMP gives qualifying homeowners an opportunity to refinance into more affordable monthly payments, with the U.S. Department of the Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program. Both the consumer finance division modification program and the HAMP program require the customer to complete a trial period, where the loan modification is contingent on the customer satisfactorily completing the trial period and the loan documents are not modified until that time. The Company reports loans that are modified following the satisfactory completion of the trial period as TDRs. Loans in the pre-modification trial phase represented less than 1.0 percent of residential mortgage loan balances at March 31, 2011 and December 31, 2010.

In addition, the Company has also modified certain mortgage loans according to provisions in FDIC-assisted transaction loss sharing agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss sharing agreements.

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

The following table provides a summary of TDRs by loan type, including the delinquency status for TDRs that continue to accrue interest and TDRs included in nonperforming assets (excluding covered loans):


			As a Percent of Performing TDRs
March 31, 2011	Performing		30-89 Days			90 Days or more			Nonperforming			Total
(Dollars in Millions)	TDRs		Past Due			Past Due			TDRs			TDRs
Commercial	$	59		43.2	%		3.4	%	$	66	(b)	$	125
Commercial real estate		184		–			–			152	(b)		336
Residential mortgages (a)		1,890		4.9			5.3			156			2,046
Credit card		212		10.2			7.0			255	(c)		467
Other retail		86		7.8			5.7			31			117

Total	$	2,431		6.0	%		5.0	%	$	660		$	3,091


(a)		Excludes loans purchased from GNMA mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, and loans in the trial period under HAMP or the Company’s program where a legal modification of the loan is contingent on the customer successfully completing the trial modification period.


(b)		Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and, for commercial, small business credit cards with a modified rate equal to 0 percent.
(c)		Represents consumer credit cards with a modified rate equal to 0 percent.


12	U.S. Bancorp

The following table provides a summary of TDRs, excluding covered loans, that continue to accrue interest:


					As a Percent of
					Ending
	Amount				Loan Balances
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2011		2010		2011			2010
Commercial	$	59	$	77		.12	%		.16	%
Commercial real estate		184		15		.52			.04
Residential mortgages (a)		1,890		1,804		5.84			5.87
Credit card		212		224		1.34			1.33
Other retail		86		87		.18			.18

Total	$	2,431	$	2,207		1.23	%		1.12	%


(a)		Excludes loans purchased from GNMA mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, and loans in the trial period under HAMP or the Company’s program where a legal modification of the loan is contingent on the customer successfully completing the trial modification period.

TDRs, excluding covered loans, that continue to accrue interest were $224 million higher at March 31, 2011, than at December 31, 2010, primarily reflecting loan modifications for certain commercial real estate and residential mortgage customers in light of current economic conditions. The Company continues to actively work with customers to modify loans for borrowers who are having financial difficulties, including those acquired through FDIC-assisted acquisitions.

Nonperforming Assets The level of nonperforming assets represents another indicator of the potential for future credit losses. Nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms, other real estate and other nonperforming assets owned by the Company, and are generally either originated by the Company or acquired under FDIC loss sharing agreements that substantially reduce the risk of credit losses to the Company. Additionally, nonperforming assets at March 31, 2011 included $287 million of loans and other real estate acquired through the recent acquisition of FCB from the FDIC, which were not covered by a loss sharing agreement. Assets associated with the FCB transaction were recorded at their estimated fair value, including any discount for expected losses, at the acquisition date and included in the related asset categories. At March 31, 2011, total nonperforming assets were $5.0 billion, unchanged from December 31, 2010. Excluding covered assets, nonperforming assets were $3.5 billion at March 31, 2011, compared with $3.4 billion at December 31, 2010. Nonperforming assets, excluding covered assets and nonperforming assets from the FCB acquisition, at March 31, 2011, were $3.2 billion, a $159 million (4.7 percent) decrease from December 31, 2010. This decline was principally in the commercial real estate portfolios, as the Company continued to resolve and reduce the exposure to these assets. There was also an improvement in other commercial portfolios, reflecting the stabilizing economy. However, stress continued in the residential mortgage portfolio due to the overall duration of the economic slowdown. Nonperforming covered assets at March 31, 2011, were $1.5 billion, compared with $1.7 billion at December 31, 2010. The majority of the nonperforming covered assets were considered credit-impaired at acquisition and recorded at their estimated fair value at acquisition. The ratio of total nonperforming assets to total loans and other real estate was 2.52 percent (1.92 percent excluding covered assets) at March 31, 2011, compared with 2.55 percent (1.87 percent excluding covered assets) at December 31, 2010.


U.S. Bancorp	13

Table 6 Nonperforming Assets (a)


	March 31,			December 31,
(Dollars in Millions)	2011			2010
Commercial
Commercial	$	439		$	519
Lease financing		54			78

Total commercial		493			597
Commercial Real Estate
Commercial mortgages		635			545
Construction and development		835			748

Total commercial real estate		1,470			1,293
Residential Mortgages		685			636
Retail
Credit card		255			228
Retail leasing		–			–
Other retail		75			65

Total retail		330			293

Total nonperforming loans, excluding covered loans		2,978			2,819
Covered Loans		1,151			1,244

Total nonperforming loans		4,129			4,063
Other Real Estate (b)(c)		480			511
Covered Other Real Estate (c)		390			453
Other Assets		21			21

Total nonperforming assets	$	5,020		$	5,048

Total nonperforming assets, excluding covered assets	$	3,479		$	3,351

Excluding covered assets:
Accruing loans 90 days or more past due	$	949		$	1,094
Nonperforming loans to total loans		1.65	%		1.57	%
Nonperforming assets to total loans plus other real estate (b)		1.92	%		1.87	%
Including covered assets:
Accruing loans 90 days or more past due	$	1,954		$	2,184
Nonperforming loans to total loans		2.08	%		2.06	%
Nonperforming assets to total loans plus other real estate (b)		2.52	%		2.55	%

Changes in Nonperforming Assets


	Commercial and			Retail and
	Commercial			Residential
(Dollars in Millions)	Real Estate			Mortgages (e)			Total
Balance December 31, 2010	$	3,596		$	1,452		$	5,048
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties		780			194			974
Advances on loans		13			–			13

Total additions		793			194			987
Reductions in nonperforming assets
Paydowns, payoffs		(330	)		(39	)		(369	)
Net sales		(154	)		(47	)		(201	)
Return to performing status		(113	)		(12	)		(125	)
Charge-offs (d)		(266	)		(54	)		(320	)

Total reductions		(863	)		(152	)		(1,015	)

Net additions to (reductions in) nonperforming assets		(70	)		42			(28	)

Balance March 31, 2011	$	3,526		$	1,494		$	5,020


(a)		Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.


(b)		Excludes $563 million and $575 million at March 31, 2011, and December 31, 2010, respectively, of foreclosed GNMA loans which continue to accrue interest.
(c)		Includes equity investments in entities whose only assets are other real estate owned.
(d)		Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
(e)		Residential mortgage information excludes changes related to residential mortgages serviced by others.


14	U.S. Bancorp

The Company expects total nonperforming assets, excluding covered assets, to trend lower in the second quarter of 2011.

Other real estate, excluding covered assets, was $480 million at March 31, 2011, compared with $511 million at December 31, 2010, and was related to foreclosed properties that previously secured loan balances.

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


					As a Percent of
					Ending
	Amount				Loan Balances
	March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)	2011		2010		2011			2010
Residential
Minnesota	$	28	$	28		.52	%		.53	%
California		19		21		.29			.34
Illinois		16		16		.55			.57
Nevada		11		11		1.52			1.49
Washington		9		9		.29			.29
All other states		121		133		.37			.42

Total residential		204		218		.40			.44
Commercial
Nevada		52		58		3.67			3.93
Oregon		30		26		.86			.74
Ohio		20		20		.48			.48
Colorado		19		16		.52			.44
California		19		23		.14			.18
All other states		136		150		.23			.26

Total commercial		276		293		.33			.35

Total OREO	$	480	$	511		.27	%		.29	%

Analysis of Loan Net Charge-Offs Total net charge-offs were $805 million for the first quarter of 2011, compared with net charge-offs of $1.1 billion for the first quarter of 2010. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the first quarter of 2011 was 1.65 percent, compared with 2.39 percent for the first quarter of 2010. The decrease in total net charge-offs for the first quarter 2011, compared with the first quarter of 2010, was due to improvement in all major loan portfolios. The Company expects the level of net charge-offs to continue to trend lower in the second quarter of 2011.

Commercial and commercial real estate loan net charge-offs for the first quarter of 2011 were $264 million (1.28 percent of average loans outstanding on an annualized basis), compared with $469 million (2.34 percent of average loans outstanding on an annualized basis) for the first quarter of 2010. The decrease reflected the impact of efforts to resolve and reduce exposure to problem assets in the Company’s commercial real estate portfolios and improvement in the other commercial portfolios due to the stabilizing economy.

Residential mortgage loan net charge-offs for the first quarter of 2011 were $129 million (1.65 percent of average loans outstanding on an annualized basis), compared with $145 million (2.23 percent of average loans outstanding on an annualized basis) for the first quarter of 2010. Retail loan net charge-offs for the first quarter of 2011 were $410 million (2.59 percent of average loans outstanding on an annualized basis), compared with $518 million (3.30 percent of average loans outstanding on an annualized basis) for the first quarter of 2010. The decreases in residential mortgage and retail loan net charge-offs for the first quarter of

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


	Three Months Ended
	March 31,
	2011			2010
Commercial
Commercial		1.19	%		2.41	%
Lease financing		.94			2.14

Total commercial		1.16			2.38
Commercial Real Estate
Commercial mortgages		.59			.73
Construction and development		4.61			6.80

Total commercial real estate		1.44			2.28
Residential Mortgages		1.65			2.23
Retail
Credit card (a)		6.21			7.73
Retail leasing		.09			.45
Home equity and second mortgages		1.75			1.88
Other retail		1.33			1.93

Total retail		2.59			3.30

Total loans, excluding covered loans		1.81			2.68
Covered Loans		.05			.06

Total loans		1.65	%		2.39	%


(a)		Net charge-offs as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans were recorded at fair value at the purchase date, were 6.45 and 8.42 percent for the three months ended March 31, 2011 and 2010, respectively.


U.S. Bancorp	15

2011, compared with the first quarter of 2010, reflected the impact of more stable economic conditions.

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 loans:


	Three Months Ended March 31,
					Percent of
	Average Loans				Average Loans
(Dollars in Millions)	2011		2010		2011			2010
Consumer Finance (a)
Residential mortgages	$	11,895	$	10,341		3.20	%		4.16	%
Home equity and second mortgages		2,507		2,474		5.01			6.23
Other retail		606		602		4.68			4.72
Other Retail
Residential mortgages	$	19,882	$	16,067		.71	%		.98	%
Home equity and second mortgages		16,294		16,928		1.24			1.25
Other retail		24,085		22,741		1.25			1.85
Total Company
Residential mortgages	$	31,777	$	26,408		1.65	%		2.23	%
Home equity and second mortgages		18,801		19,402		1.75			1.88
Other retail		24,691		23,343		1.33			1.93


(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)	2011		2010		2011			2010
Residential mortgages
Sub-prime borrowers	$	2,081	$	2,432		6.43	%		6.67	%
Other borrowers		9,814		7,909		2.52			3.38

Total	$	11,895	$	10,341		3.20	%		4.16	%
Home equity and second mortgages
Sub-prime borrowers	$	527	$	609		10.77	%		11.32	%
Other borrowers		1,980		1,865		3.48			4.57

Total	$	2,507	$	2,474		5.01	%		6.23	%

Analysis and Determination of the Allowance for Credit Losses The allowance for credit losses reserves for probable and estimable losses incurred in the Company’s loan and lease portfolio and includes certain amounts that do not represent loss exposure to the Company because those losses are recoverable under loss sharing agreements with the FDIC. Management evaluates the allowance each quarter to ensure it appropriately reserves for incurred losses. Several factors were taken into consideration in evaluating the allowance for credit losses at March 31, 2011, including the risk profile of the portfolios, loan net charge-offs during the period, the level of nonperforming assets, accruing loans 90 days or more past due, delinquency ratios and changes in TDR 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. Refer to “Management’s Discussion and Analysis — Analysis and Determination of the Allowance for Credit Losses” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, for further discussion on the analysis and determination of the allowance for credit losses.


16	U.S. Bancorp

Table 8 Summary of Allowance for Credit Losses


	Three Months Ended
	March 31,
(Dollars in Millions)	2011			2010
Balance at beginning of period	$	5,531		$	5,264
Charge-offs
Commercial
Commercial		137			251
Lease financing		24			45

Total commercial		161			296
Commercial real estate
Commercial mortgages		45			47
Construction and development		95			151

Total commercial real estate		140			198
Residential mortgages		133			146
Retail
Credit card		268			328
Retail leasing		4			9
Home equity and second mortgages		85			94
Other retail		106			132

Total retail		463			563

Covered loans (a)		2			3

Total charge-offs		899			1,206
Recoveries
Commercial
Commercial		12			8
Lease financing		10			11

Total commercial		22			19
Commercial real estate
Commercial mortgages		5			1
Construction and development		10			5

Total commercial real estate		15			6
Residential mortgages		4			1
Retail
Credit card		21			16
Retail leasing		3			4
Home equity and second mortgages		4			4
Other retail		25			21

Total retail		53			45

Covered loans (a)		–			–

Total recoveries		94			71
Net Charge-offs
Commercial
Commercial		125			243
Lease financing		14			34

Total commercial		139			277
Commercial real estate
Commercial mortgages		40			46
Construction and development		85			146

Total commercial real estate		125			192
Residential mortgages		129			145
Retail
Credit card		247			312
Retail leasing		1			5
Home equity and second mortgages		81			90
Other retail		81			111

Total retail		410			518

Covered loans (a)		2			3

Total net charge-offs		805			1,135

Provision for credit losses		755			1,310
Net change for credit losses to be reimbursed by the FDIC		17			–
Acquisitions and other changes		–			–

Balance at end of period	$	5,498		$	5,439

Components
Allowance for loan losses, excluding losses to be reimbursed by the FDIC	$	5,161		$	5,235
Allowance for credit losses to be reimbursed by the FDIC		109			–
Liability for unfunded credit commitments		228			204

Total allowance for credit losses	$	5,498		$	5,439

Allowance for credit losses as a percentage of
Period-end loans, excluding covered loans		2.97	%		3.20	%
Nonperforming loans, excluding covered loans		180			156
Nonperforming assets, excluding covered assets		154			136
Annualized net charge-offs, excluding covered loans		165			118
Period-end loans		2.78	%		2.85	%
Nonperforming loans		133			109
Nonperforming assets		110			85
Annualized net charge-offs		168			118


Note:		At March 31, 2011, $2.1 billion of the total allowance for credit losses related to incurred losses on retail loans.


(a)		Relates to covered loan charge-offs and recoveries not reimbursable by the FDIC.


U.S. Bancorp	17

At March 31, 2011, the allowance for credit losses was $5.5 billion (2.78 percent of total loans and 2.97 percent of loans excluding covered loans), compared with an allowance of $5.5 billion (2.81 percent of total loans and 3.03 percent of loans excluding covered loans) at December 31, 2010. During the first quarter of 2011, the Company increased the allowance for credit losses by $17 million to reflect covered loan losses reimbursable by the FDIC. The ratio of the allowance for credit losses to nonperforming loans was 133 percent (180 percent excluding covered loans) at March 31, 2011, compared with 136 percent (192 percent excluding covered loans) at December 31, 2010. The ratio of the allowance for credit losses to annualized loan net charge-offs was 168 percent at March 31, 2011, compared with 132 percent of full year 2010 net charge-offs at December 31, 2010.

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, 2011, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 2010. 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, 2010, 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 Risk Management Committee of the Company’s Board of Directors provides oversight and assesses the most significant operational risks facing the Company within its business lines. Under the guidance of the Risk Management 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, 2010, 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 the 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 Committee (“ALCO”) and approved by the Board of Directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO 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 ALCO policy limits the estimated change in net interest income in a gradual 200 basis point (“bps”) rate change scenario to a 4.0 percent decline of forecasted net interest income over the next 12 months. At March 31, 2011, and December 31, 2010, 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, 2010, 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. Management measures the impact of changes in market interest rates under a number of scenarios, including immediate and sustained parallel shifts, and flattening or steepening of the yield

Sensitivity of Net Interest Income

March 31, 2011

December 31, 2010

Down 50 bps

Up 50 bps

Down 200 bps

Up 200 bps

Down 50 bps

Up 50 bps

Down 200 bps

Up 200 bps

Immediate

Gradual*

Gradual

Immediate

Gradual*

Gradual

Net interest income

1.57

3.11

1.64

3.14

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


18	U.S. Bancorp

curve. The ALCO policy limits the change in market value of equity in a 200 bps parallel rate shock to a 15.0 percent decline. A 200 bps increase would have resulted in a 5.0 percent decrease in the market value of equity at March 31, 2011, compared with a 3.6 percent decrease at December 31, 2010. A 200 bps decrease, where possible given current rates, would have resulted in a 4.9 percent decrease in the market value of equity at March 31, 2011, compared with a 5.2 percent decrease at December 31, 2010. 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, 2010, 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 from fixed-rate payments to floating-rate payments;
•	To convert the cash flows associated with floating-rate debt from floating-rate payments to fixed-rate payments; and
•	To mitigate changes in value of the Company’s mortgage origination pipeline, funded mortgage loans held for sale and 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 support 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 and may instead elect fair value accounting for the related hedged items. In particular, the Company enters into U.S. Treasury futures, options on U.S. Treasury futures contracts, interest rate swaps 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, 2011, the Company had $6.5 billion of forward commitments to sell mortgage loans hedging $3.9 billion of mortgage loans held for sale and $4.3 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedging 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 where possible 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, principally related to trading activities which support customers’ strategies to manage their own foreign currency, interest rate risks and funding activities. The ALCO established the Market Risk Committee (“MRC”), which oversees market risk management. The MRC monitors and reviews the Company’s trading positions and establishes policies for market risk management, including exposure limits for each portfolio. 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 over a one-day time horizon. The Company measures VaR at the ninety-ninth percentile using distributions derived from past market data. On average, the Company expects the one-day VaR to be exceeded two to three times per year. The Company monitors the effectiveness of its risk program by back-testing the performance of its VaR models, regularly updating the historical data used by the VaR models and stress testing. The


U.S. Bancorp	19

Table 9 Regulatory Capital Ratios


	March 31,			December 31,
(Dollars in Millions)	2011			2010
Tier 1 capital	$	26,821		$	25,947
As a percent of risk-weighted assets		10.8	%		10.5	%
As a percent of adjusted quarterly average assets (leverage ratio)		9.0	%		9.1	%
Total risk-based capital	$	34,198		$	33,033
As a percent of risk-weighted assets		13.8	%		13.3	%

Company’s trading VaR did not exceed $2 million during the first quarter of 2011 and $5 million during the first quarter of 2010.

Liquidity Risk Management The ALCO establishes policies and guidelines, as well as analyzes and manages liquidity, to ensure adequate funds are available to meet normal operating requirements, and unexpected customer demands for funds in a timely and cost-effective manner. Liquidity management is viewed from long-term and short-term perspectives, including various stress scenarios, 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. 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, 2010, for further discussion on liquidity risk management.

At March 31, 2011, parent company long-term debt outstanding was $13.0 billion, unchanged from December 31, 2010. As of March 31, 2011, there was no parent company debt scheduled to mature in the remainder of 2011.

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 $5.9 billion at March 31, 2011.

Capital Management The Company is committed to managing capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit. The Company also manages its capital to exceed regulatory capital requirements for well-capitalized bank holding companies. Table 9 provides a summary of regulatory capital ratios as of March 31, 2011, and December 31, 2010. All regulatory ratios exceeded regulatory “well-capitalized” requirements. Total U.S. Bancorp shareholders’ equity was $30.5 billion at March 31, 2011, compared with $29.5 billion at December 31, 2010. The increase was primarily the result of corporate earnings, and changes in unrealized gains and losses on available-for-sale investment securities included in other comprehensive income, partially offset by dividends. Refer to “Management’s Discussion and Analysis — Capital Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, for further discussion on capital management.

The Company believes certain capital ratios in addition to regulatory capital ratios are useful in evaluating its capital adequacy. The Company’s Tier 1 common (using Basel I definition) and tangible common equity, as a percent of risk-weighted assets, were 8.2 percent and 7.6 percent, respectively, at March 31, 2011, compared with 7.8 percent and 7.2 percent, respectively, at December 31, 2010. The Company’s tangible common equity divided by tangible assets was 6.3 percent at March 31, 2011, compared with 6.0 percent at December 31, 2010. Additionally, the Company’s Tier 1 common as a percent of risk-weighted assets, under anticipated Basel III guidelines, was 7.7 percent at March 31, 2011. Refer to “Non-Regulatory Capital Ratios” for further information regarding the calculation of these measures.

During the first quarter of 2011, the Company received regulatory approval to increase its quarterly common stock dividend, and on March 18, 2011, increased its dividend rate per common share by 150 percent, from $.05 per quarter to $.125 per quarter.

On December 13, 2010, the Company announced its Board of Directors had approved an authorization to repurchase 20 million shares of common stock through December 31, 2011. On March 18, 2011, the Company announced its Board of Directors had approved an authorization to repurchase 50 million shares of common stock through December 31, 2011. This new authorization replaced the December 13, 2010 authorization. All shares repurchased during the first quarter of 2011 were repurchased under the December 13, 2010 and March 18, 2011 repurchase programs in connection with the administration of the Company’s employee benefit plans in the ordinary course of business.


U.S. Bancorp	20

The following table provides a detailed analysis of all shares repurchased during the first quarter of 2011:


	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	Programs		per Share		Programs
January (a)		43,657	$	27.45		19,956,172
February (a)		741,149		28.50		19,215,023
March (b)		80,417		27.18		49,998,820

Total		865,223	$	28.32		49,998,820


(a)		All shares purchased during January and February of 2011 were purchased under the publicly announced December 13, 2010 authorization.


(b)		During March of 2011, 79,237 shares were purchased under the publicly announced December 13, 2010 authorization and 1,180 shares were purchased under the publicly announced March 18, 2011 authorization.

LINE OF BUSINESS FINANCIAL REVIEW

The Company’s major lines of business are Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth Management and 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, 2010, 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 2011, certain organization and methodology changes were made and, accordingly, 2010 results were restated and presented on a comparable basis.

Wholesale Banking and Commercial Real Estate Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution and public sector clients. Wholesale Banking and Commercial Real Estate contributed $206 million of the Company’s net income in the first quarter of 2011, or an increase of $197 million, compared with the first quarter of 2010. The increase was primarily driven by higher net revenue and lower provision for credit losses, partially offset by higher noninterest expense.

Total net revenue increased $73 million (10.0 percent) in the first quarter of 2011, compared with the first quarter of 2010. Net interest income, on a taxable-equivalent basis, increased $45 million (9.7 percent) in the first quarter of 2011, compared with the first quarter of 2010. The increase was primarily due to higher average loan and deposit balances, improved spreads on new loans and an increase in loan fees, partially offset by the impact of declining rates on the margin benefit from deposits. Total noninterest income increased $28 million (10.5 percent) in the first quarter of 2011, compared with the first quarter of 2010, mainly due to strong growth in commercial products revenue, including syndication and other capital markets fees, foreign exchange and international trade revenue, and commercial loan and standby letters of credit fees.

Total noninterest expense increased $26 million (9.5 percent) in the first quarter of 2011, compared with the first quarter of 2010, primarily due to higher total compensation and employee benefits expense and increased shared services costs. The provision for credit losses decreased $263 million (59.5 percent) in the first quarter of 2011, compared with the first quarter of 2010. The favorable change was primarily due to a decrease in the reserve allocation and lower net charge-offs for the first quarter of 2011, compared with the first quarter of 2010. Nonperforming assets were $1.4 billion at March 31, 2011, $1.6 billion at December 31, 2010, and $2.3 billion at March 31, 2010. Nonperforming assets as a percentage of period-end loans were 2.50 percent at March 31, 2011, 2.87 percent at December 31, 2010, and 4.20 percent at March 31, 2010. Refer to the “Corporate Risk Profile” section for further information on factors impacting the credit quality of the loan portfolios.

Consumer and Small Business Banking Consumer and Small Business 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 and Small Business Banking contributed $132 million of the Company’s net income in the first quarter of 2011, or a decrease of $42 million (24.1 percent), compared with the first quarter of 2010. The decrease was due to higher total noninterest expense, partially offset by an increase in total net revenue.


21	U.S. Bancorp

Table 10 Line of Business Financial Performance