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 June 30, 2010

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from (not applicable)

Commission file number 1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)

Delaware	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 (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	Outstanding as of July 31, 2010
Common Stock, $.01 Par Value	1,917,160,774 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	4
c) Balance Sheet Analysis	6
d) Non-Regulatory Capital Ratios	26
e) Critical Accounting Policies	27
f) Controls and Procedures (Item 4)	27
2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)
a) Overview	9
b) Credit Risk Management	9
c) Residual Value Risk Management	19
d) Operational Risk Management	19
e) Interest Rate Risk Management	19
f) Market Risk Management	20
g) Liquidity Risk Management	21
h) Capital Management	21
3) Line of Business Financial Review	22
4) Financial Statements (Item 1)	28
Part II — Other Information
1) Risk Factors (Item 1A)	58
2) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)	58
4) Exhibits (Item 6)	58
5) Signature	59
6) Exhibits	60
EX-3.1
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. 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, 2009, 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									Six Months Ended
	June 30,									June 30,
							Percent									Percent
(Dollars and Shares in Millions, Except Per Share Data)	2010			2009			Change			2010			2009			Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)		$2,409			$2,104			14.5	%	$	4,812		$	4,199			14.6	%
Noninterest income		2,131			2,074			2.7			4,083			4,060			.6
Securities gains (losses), net		(21	)		(19	)		(10.5	)		(55	)		(217	)		74.7
Total net revenue		4,519			4,159			8.7			8,840			8,042			9.9
Noninterest expense		2,377			2,129			11.6			4,513			4,000			12.8
Provision for credit losses		1,139			1,395			(18.4	)		2,449			2,713			(9.7	)
Income before taxes		1,003			635			58.0			1,878			1,329			41.3
Taxable-equivalent adjustment		52			50			4.0			103			98			5.1
Applicable income taxes		199			100			99.0			360			201			79.1
Net income		752			485			55.1			1,415			1,030			37.4
Net (income) loss attributable to noncontrolling interests		14			(14	)		*			20			(30	)		*
Net income attributable to U.S. Bancorp		$766			$471			62.6		$	1,435		$	1,000			43.5
Net income applicable to U.S. Bancorp common shareholders		$862			$221			*		$	1,510		$	640			*
Per Common Share
Earnings per share		$.45			$.12			*	%	$	.79		$	.36			*	%
Diluted earnings per share		.45			.12			*			.79			.36			*
Dividends declared per share		.05			.05			–			.10			.10			–
Book value per share		13.69			11.86			15.4
Market value per share		22.35			17.92			24.7
Average common shares outstanding		1,912			1,833			4.3			1,911			1,794			6.5
Average diluted common shares outstanding		1,921			1,840			4.4			1,920			1,801			6.6
Financial Ratios
Return on average assets		1.09	%		.71	%					1.03	%		.76	%
Return on average common equity		13.4			4.2						12.0			6.4
Net interest margin (taxable-equivalent basis) (a)		3.90			3.60						3.90			3.59
Efficiency ratio (b)		52.4			51.0						50.7			48.4
Average Balances
Loans		$191,161			$183,878			4.0	%	$	192,015		$	184,786			3.9	%
Loans held for sale		4,048			6,092			(33.6	)		3,990			5,644			(29.3	)
Investment securities		47,140			42,189			11.7			46,678			42,255			10.5
Earning assets		247,446			234,265			5.6			248,133			234,786			5.7
Assets		281,340			266,107			5.7			281,530			266,171			5.8
Noninterest-bearing deposits		39,917			37,388			6.8			38,964			36,707			6.1
Deposits		183,318			163,220			12.3			182,927			161,880			13.0
Short-term borrowings		32,286			27,638			16.8			32,418			29,915			8.4
Long-term debt		30,242			38,768			(22.0	)		31,343			38,279			(18.1	)
Total U.S. Bancorp shareholders’ equity		27,419			28,202			(2.8	)		26,919			27,514			(2.2	)
		June 30, 2010			December 31, 2009
Period End Balances
Loans		$191,584			$194,755			(1.6	)%
Allowance for credit losses		5,536			5,264			5.2
Investment securities		48,367			44,768			8.0
Assets		283,243			281,176			.7
Deposits		183,123			183,242			(.1	)
Long-term debt		29,137			32,580			(10.6	)
Total U.S. Bancorp shareholders’ equity		28,169			25,963			8.5
Capital ratios
Tier 1 capital		10.1	%		9.6	%
Total risk-based capital		13.4			12.9
Leverage		8.8			8.5
Tier 1 common equity to risk-weighted assets (c)		7.4			6.8
Tangible common equity to tangible assets (c)		6.0			5.3
Tangible common equity to risk-weighted assets (c)		6.9			6.1

*	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 26.

  2 U.S. Bancorp

Management’s Discussion and Analysis

OVERVIEW

Earnings Summary U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $766 million for the second quarter of 2010 or $.45 per diluted common share, compared with $471 million, or $.12 per diluted common share for the second quarter of 2009. Return on average assets and return on average common equity were 1.09 percent and 13.4 percent, respectively, for the second quarter of 2010, compared with .71 percent and 4.2 percent, respectively, for the second quarter of 2009. Diluted earnings per common share for the second quarter of 2010 included a non-recurring $.05 benefit related to an exchange of newly issued perpetual preferred stock for outstanding income trust securities (“ITS exchange”), net of related debt extinguishment costs. Also impacting the second quarter of 2010 were $25 million of provision for credit losses in excess of net charge-offs, net securities losses of $21 million and a $28 million gain related to the Company’s investment in Visa Inc. The second quarter of 2009 included $466 million of provision for credit losses in excess of net charge-offs, net securities losses of $19 million, a $123 million accrual for a Federal Deposit Insurance Corporation (“FDIC”) special assessment and a reduction to earnings per share from recognition of $154 million of unaccreted preferred stock discount as a result of the redemption of preferred stock previously issued to the U.S. Department of the Treasury.

Total net revenue, on a taxable-equivalent basis, for the second quarter of 2010 was $360 million (8.7 percent) higher than the second quarter of 2009, reflecting a 14.5 percent increase in net interest income and a 2.7 percent increase in total noninterest income. The increase in net interest income over a year ago was largely the result of continued growth in lower cost core deposit funding and an increase in average earning assets, primarily related to acquisitions. Noninterest income increased over a year ago as a result of higher payments-related and commercial products revenue and other income.

Total noninterest expense in the second quarter of 2010 was $248 million (11.6 percent) higher than the second quarter of 2009, primarily due to the impact of acquisitions, higher compensation and employee benefits expense and costs related to investments in affordable housing and other tax-advantaged projects, partially offset by lower FDIC deposit insurance expense due to the FDIC special assessment in the second quarter of the prior year.

The provision for credit losses for the second quarter of 2010 was $1.1 billion, or $256 million (18.4 percent) lower than the second quarter of 2009. The provision for credit losses exceeded net charge-offs by $25 million in the second quarter of 2010, compared with $466 million in the second quarter of 2009. Net charge-offs in the second quarter of 2010 were $1.1 billion, compared with net charge-offs of $929 million in the second quarter of 2009. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

The Company reported net income attributable to U.S. Bancorp of $1.4 billion for the first six months of 2010 or $.79 per diluted common share, compared with $1.0 billion, or $.36 per diluted common share for the first six months of 2009. Return on average assets and return on average common equity were 1.03 percent and 12.0 percent, respectively, for the first six months of 2010, compared with .76 percent and 6.4 percent, respectively, for the first six months of 2009. The Company’s results for the first six months of 2010 reflected $200 million of provision for credit losses in excess of net charge-offs, $55 million of net securities losses and a $28 million gain related to the Company’s investment in Visa Inc. The first six months of 2009 included $996 million of provision for credit losses in excess of net charge-offs, $217 million of net securities losses, the $123 million FDIC special assessment, the $154 million preferred stock discount recognition and a $92 million gain from a corporate real estate transaction.

Total net revenue, on a taxable-equivalent basis, for the first six months of 2010 was $798 million (9.9 percent) higher than the first six months of 2009, reflecting a 14.6 percent increase in net interest income and a 4.8 percent increase in total noninterest income. The increase in net interest income over a year ago was largely the result of continued growth in lower cost core deposit funding and an increase in average earning assets. Noninterest income increased over a year ago, principally due to higher payments-related and commercial products revenue and a decrease in net securities losses, partially offset by lower mortgage banking revenue and other service charges.

  U.S. Bancorp 3

Total noninterest expense in the first six months of 2010 was $513 million (12.8 percent) higher than the first six months of 2009, primarily due to the impact of acquisitions, higher compensation and employee benefits expense and costs related to investments in affordable housing and other tax-advantaged projects, partially offset by lower FDIC deposit insurance expense due to the special assessment in the second quarter of 2009.

The provision for credit losses for the first six months of 2010 was $2.4 billion, or $264 million (9.7 percent) lower than the first six months of 2009. The provision for credit losses exceeded net charge-offs by $200 million in the first six months of 2010, compared with $996 million in the first six months of 2009. Net charge-offs in the first six months of 2010 were $2.2 billion, compared with net charge-offs of $1.7 billion in the first six months of 2009. 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 $2.4 billion in the second quarter of 2010, compared with $2.1 billion in the second quarter of 2009. Net interest income, on a taxable-equivalent basis, was $4.8 billion in the first six months of 2010, compared with $4.2 billion in the first six months of 2009. The increases were primarily the result of continued growth in lower cost core deposit funding, increases in average earning assets and a higher net interest margin. Average deposits increased $20.1 billion (12.3 percent) in the second quarter and $21.0 billion (13.0 percent) in the first six months of 2010, compared with the same periods of 2009. Average earning assets were $13.2 billion (5.6 percent) higher in the second quarter and $13.3 billion (5.7 percent) higher in the first six months of 2010, compared with the same periods of 2009, driven by increases in average loans and investment securities. The net interest margin in the second quarter and first six months of 2010 was 3.90 percent, compared with 3.60 percent in the second quarter of 2009 and 3.59 percent in the first six months of 2009. The increases in net interest margin were principally due to the impact of favorable funding rates as a result of the increase in deposits and improved credit spreads. 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 second quarter and first six months of 2010 were $7.3 billion (4.0 percent) and $7.2 billion (3.9 percent) higher, respectively, than the same periods of 2009, driven by growth in residential mortgages, retail loans, commercial real estate loans and acquired loans covered by loss sharing agreements with the FDIC, partially offset by a decline in commercial loans which was principally the result of lower utilization by customers of available commitments. Residential mortgage growth reflected an increase in activity throughout most of 2009 as a result of market interest rate declines, including an increase in government agency-guaranteed mortgages. Average retail loans increased year-over-year, driven by increases in credit card, home equity and other retail (primarily auto) loans. Average credit card balances for the second quarter and first six months of 2010 were $2.0 billion (14.0 percent) and $2.4 billion (17.1 percent) higher, respectively, than the same periods of 2009, reflecting growth in existing portfolios and portfolio purchases of $1.6 billion during 2009 and $.5 billion in the second quarter of 2010. Growth in average commercial real estate balances reflected the impact of new business activity, partially offset by customer debt deleveraging. Assets acquired in FDIC-assisted transactions that are covered by loss sharing agreements with the FDIC (“covered assets” or “covered loans”) relate to the fourth quarter 2008 acquisitions of the banking operations of Downey Savings and Loan Association, F.A. and PFF Bank and Trust (“Downey” and “PFF”, respectively) and the fourth quarter 2009 acquisition of the banking operations of First Bank of Oak Park Corporation (“FBOP”). Average covered loans were $20.5 billion and $20.9 billion in the second quarter and first six months of 2010, respectively, compared with $10.7 billion and $11.0 billion in the same periods of 2009, respectively.

Average investment securities in the second quarter and first six months of 2010 were $5.0 billion (11.7 percent) and $4.4 billion (10.5 percent) higher, respectively, than the same periods of 2009, primarily due to purchases of U.S. government agency-related securities and the consolidation of $.6 billion of held-to-maturity securities held in a variable interest entity (“VIE”) due to the adoption of new authoritative accounting guidance effective January 1, 2010. As a result, the composition of the Company’s investment portfolio shifted to a larger concentration in agency mortgage-backed securities, compared with a year ago.

Average total deposits for the second quarter and first six months of 2010 were $20.1 billion (12.3 percent) and $21.0 billion (13.0 percent) higher, respectively, than the same periods of 2009. Excluding deposits from acquisitions, second quarter 2010 average total deposits increased $6.7 billion (4.1 percent) over the second quarter of 2009. Average noninterest-bearing

  4 U.S. Bancorp

Table 2    Noninterest Income

	Three Months Ended									Six Months Ended
	June 30,									June 30,
							Percent									Percent
(Dollars in Millions)	2010			2009			Change			2010			2009			Change
Credit and debit card revenue	$	266		$	259			2.7	%	$	524		$	515			1.7	%
Corporate payment products revenue		178			168			6.0			346			322			7.5
Merchant processing services		320			278			15.1			612			536			14.2
ATM processing services		108			104			3.8			213			206			3.4
Trust and investment management fees		267			304			(12.2	)		531			598			(11.2	)
Deposit service charges		199			250			(20.4	)		406			476			(14.7	)
Treasury management fees		145			142			2.1			282			279			1.1
Commercial products revenue		205			144			42.4			366			273			34.1
Mortgage banking revenue		243			308			(21.1	)		443			541			(18.1	)
Investment products fees and commissions		30			27			11.1			55			55			–
Securities gains (losses), net		(21	)		(19	)		(10.5	)		(55	)		(217	)		74.7
Other		170			90			88.9			305			259			17.8
Total noninterest income	$	2,110		$	2,055			2.7	%	$	4,028		$	3,843			4.8	%

deposits for the second quarter and first six months of 2010 were $2.5 billion (6.8 percent) and $2.3 billion (6.1 percent) higher, respectively, than the same periods of 2009, primarily due to growth in corporate and institutional trust balances, higher Consumer and Wholesale Banking business line balances and the impact of acquisitions. Average total savings deposits were $22.9 billion (29.7 percent) higher in the second quarter and $25.7 billion (34.9 percent) higher in the first six months of 2010, compared with the same periods of 2009, the result of growth in Consumer Banking, broker-dealer, institutional and corporate trust balances, and the impact of acquisitions. Average time certificates of deposit less than $100,000 were lower in the second quarter and first six months of 2010 by $988 million (5.5 percent) and $396 million (2.2 percent), respectively, compared with the same periods in 2009, as decreases in Consumer Banking balances, reflecting the Company’s funding and pricing decisions, were partially offset by acquisition-related growth. Average time deposits greater than $100,000 were $4.3 billion (13.9 percent) and $6.5 billion (19.5 percent) lower in the second quarter and first six months of 2010, respectively, compared with the same periods of 2009, reflecting a decrease in overall wholesale funding requirements, partially offset by the impact of acquisitions.

Provision for Credit Losses The provision for credit losses for the second quarter and first six months of 2010 decreased $256 million (18.4 percent) and $264 million (9.7 percent), respectively, from the same periods of 2009. Net charge-offs increased $185 million (19.9 percent) and $532 million (31.0 percent) in the second quarter and first six months of 2010, respectively, compared with the same periods of 2009, as borrowers impacted by weak economic conditions and real estate markets defaulted on loans. Overall, however, the loan portfolio experienced decreases in delinquencies in all major loan categories in the second quarter of 2010, compared to the first quarter of 2010. The Company recorded provision for credit losses in excess of net charge-offs of $25 million in the second quarter and $200 million in the first six months of 2010, compared with $466 million in the second quarter and $996 million in the first six months of 2009. 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 second quarter and first six months of 2010 was $2.1 billion and $4.0 billion, respectively, compared with $2.1 billion and $3.8 billion in the same periods of 2009. The $55 million (2.7 percent) increase during the second quarter and $185 million (4.8 percent) increase during the first six months of 2010, compared with the same periods of 2009, were due to higher payments-related income, due to increased volumes, and increases in commercial products revenue attributable to higher standby letters of credit fees, commercial loan fees and syndication revenue. In addition, noninterest income for the first six months of 2010 also increased over the same period of the prior year due to a favorable variance in net securities losses of $162 million. Trust and investment management fees declined as low interest rates negatively impacted money market investment fees and lower money market fund balances led to a decline in account-level fees. Deposit service charges decreased as a result of Company-initiated revisions to overdraft fee policies and lower overdraft incidences. Mortgage banking revenue declined principally due to lower loan

  U.S. Bancorp 5

Table 3    Noninterest Expense

	Three Months Ended									Six Months Ended
	June 30,									June 30,
							Percent									Percent
(Dollars in Millions)	2010			2009			Change			2010			2009			Change
Compensation	$	946		$	764			23.8	%	$	1,807		$	1,550			16.6	%
Employee benefits		172			140			22.9			352			295			19.3
Net occupancy and equipment		226			208			8.7			453			419			8.1
Professional services		73			59			23.7			131			111			18.0
Marketing and business development		86			80			7.5			146			136			7.4
Technology and communications		186			157			18.5			371			312			18.9
Postage, printing and supplies		75			72			4.2			149			146			2.1
Other intangibles		91			95			(4.2	)		188			186			1.1
Other		522			554			(5.8	)		916			845			8.4
Total noninterest expense	$	2,377		$	2,129			11.6	%	$	4,513		$	4,000			12.8	%
Efficiency ratio (a)		52.4	%		51.0	%					50.7	%		48.4	%

(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.

production, partially offset by higher servicing income and favorable net changes in the valuation of mortgage servicing rights (“MSRs”) and related economic hedging activities. Other income increased in the second quarter and first six months of 2010, compared with the same periods of 2009, primarily due to the $28 million gain related to the Company’s investment in Visa Inc., lower retail lease residual valuation losses and improved equity investment income over the prior year. The increases in other income for the first six months of 2010, compared with the first six months of 2009, were partially offset by the $92 million gain on a corporate real estate transaction that occurred in the first quarter of 2009.

Noninterest Expense Noninterest expense was $2.4 billion in the second quarter and $4.5 billion in the first six months of 2010, compared with $2.1 billion in the second quarter and $4.0 billion in the first six months of 2009, or increases of $248 million (11.6 percent) and $513 million (12.8 percent), respectively. The increases in noninterest expense from a year ago were principally due to acquisitions, increased compensation and employee benefits expense, and higher costs related to investments in affordable housing and other tax-advantaged projects. Compensation and employee benefits expense increased reflecting acquisitions, ending a five percent cost reduction program that was in effect during the second quarter of 2009, higher incentives costs related to improved financial results, merit increases, and increased pension costs associated with previous declines in the value of pension assets. Net occupancy and equipment expense and professional services expense increased principally due to acquisitions and other business initiatives. Technology and communications expense increased as a result of payments-related initiatives and acquisitions. Other expense decreased in the second quarter and increased in the first six months of 2010, compared with the same periods of 2009, reflecting the net effect of the $123 million FDIC special assessment recorded in the second quarter of 2009, offset by higher costs related to investments in affordable housing and other tax-advantaged projects which benefit the Company’s income tax expense, higher merchant processing expense, increased other real estate owned (“OREO”) costs and debt extinguishment expense associated with the ITS exchange.

Income Tax Expense The provision for income taxes was $199 million (an effective rate of 20.9 percent) for the second quarter and $360 million (an effective rate of 20.3 percent) for the first six months of 2010, compared with $100 million (an effective rate of 17.1 percent) and $201 million (an effective rate of 16.3 percent) for the same periods of 2009. The increases in the effective tax rate for the second quarter and first six months of 2010, compared with the same periods of the prior year, primarily reflected the marginal impact of higher pre-tax 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 $191.6 billion at June 30, 2010, compared with $194.8 billion at December 31, 2009, a decrease of $3.2 billion (1.6 percent). The decrease was driven primarily by lower commercial and covered loans, partially offset by higher residential mortgages. The $2.0 billion (4.2 percent) decrease in commercial loans was primarily driven by lower capital spending and uncertain economic conditions decreasing utilization of existing commitments by business customers. The decrease was also due to the consolidation of a VIE and

  6 U.S. Bancorp

the elimination of a related loan balance, the result of the adoption of new authoritative accounting guidance effective January 1, 2010.

Commercial real estate loans decreased $149 million (.4 percent) at June 30, 2010, compared with December 31, 2009, reflecting customer debt deleveraging, partially offset by the impact of new business activity.

Residential mortgages held in the loan portfolio increased $1.2 billion (4.6 percent) at June 30, 2010, compared with December 31, 2009. 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 $316 million (.5 percent) at June 30, 2010, compared with December 31, 2009. The decrease was primarily driven by lower student loans and retail leasing balances, partially offset by higher installment loans.

Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages, were $4.9 billion at June 30, 2010, compared with $4.8 billion at December 31, 2009, as residential mortgage production volume was similar in the second quarter of 2010 to the fourth quarter of 2009.

Investment Securities Investment securities totaled $48.4 billion at June 30, 2010, compared with $44.8 billion at December 31, 2009. The $3.6 billion (8.0 percent) increase reflected $2.1 billion of net investment purchases, the consolidation of $.6 billion of held-to-maturity securities held in a VIE due to the adoption of new authoritative accounting guidance effective January 1, 2010, and a $.9 billion favorable change in net unrealized gains (losses) on available-for-sale securities.

The Company conducts a regular assessment of its investment portfolio to determine whether any securities are other-than-temporarily impaired. At June 30, 2010, the Company’s net unrealized gain on available-for-sale securities was $226 million, compared with a net unrealized loss of $635 million at December 31, 2009. The favorable change in net unrealized gains (losses) was primarily due to increases in the fair value of agency mortgage-backed securities. Unrealized losses on securities in an unrealized loss position totaled $948 million at June 30, 2010, compared with $1.3 billion at December 31, 2009. 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 June 30, 2010, the Company had no plans to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of their amortized cost.

There is limited market activity for structured investment related and 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 $21 million and $67 million of impairment charges in earnings during the second quarter and first six months of 2010, respectively, predominately on non-agency mortgage-backed and structured investment related securities. These impairment charges were due to changes in expected cash flows resulting from increases in defaults in the underlying mortgage pools and regulatory actions in the first quarter of 2010 related to an insurer of some of the securities. Further adverse changes in market conditions may result in additional impairment charges in future periods. Refer to Notes 3 and 12 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits Total deposits were $183.1 billion at June 30, 2010, compared with $183.2 billion at December 31, 2009, the result of increases in savings accounts and noninterest-bearing deposit balances, offset by decreases in time certificates of deposit, money market savings and interest checking balances. Savings account balances increased $4.1 billion (24.2 percent) primarily due to continued strong participation in a savings product offered by Consumer Banking beginning in 2008. Noninterest-bearing deposits increased $3.5 billion (9.1 percent) primarily due to increases in corporate and commercial banking, and corporate trust balances. Money market savings balances decreased $2.8 billion (7.0 percent), reflecting the Company’s deposit pricing decisions in relation to other funding sources. Interest checking balances decreased $861 million (2.2 percent) due to lower Consumer Banking balances. Time certificates of deposit less than $100,000 decreased $2.5 billion (13.2 percent), and time deposits greater than $100,000 decreased $1.5 billion (5.0 percent), reflecting the Company’s funding and pricing decisions. Time deposits greater than $100,000 are managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing.

  U.S. Bancorp 7

Table 4    Investment Securities

	Available-for-Sale									Held-to-Maturity
					Weighted-									Weighted-
					Average		Weighted-							Average		Weighted-
	Amortized		Fair		Maturity in		Average			Amortized		Fair		Maturity in		Average
June 30, 2010 (Dollars in Millions)	Cost		Value		Years		Yield (d)			Cost		Value		Years		Yield (d)
U.S. Treasury and Agencies
Maturing in one year or less	$	1,420	$	1,428		.1		2.29	%	$	–	$	–		–		–	%
Maturing after one year through five years		427		431		1.2		2.44			–		–		–		–
Maturing after five years through ten years		35		37		7.3		4.78			–		–		–		–
Maturing after ten years		651		651		13.7		2.16			63		63		11.5		1.78
Total	$	2,533	$	2,547		3.9		2.31	%	$	63	$	63		11.5		1.78	%
Mortgage-Backed Securities (a)
Maturing in one year or less	$	2,465	$	2,461		.7		1.86	%	$	–	$	–		–		–	%
Maturing after one year through five years		26,879		27,700		3.3		3.47			14		9		2.6		2.02
Maturing after five years through ten years		4,855		4,687		6.1		2.94			4		3		6.1		.84
Maturing after ten years		848		706		11.7		2.05			–		–		–		–
Total	$	35,047	$	35,554		3.7		3.25	%	$	18	$	12		3.3		1.78	%
Asset-Backed Securities (a)
Maturing in one year or less	$	–	$	3		.5		11.64	%	$	147	$	136		.6		.77	%
Maturing after one year through five years		367		366		2.8		8.76			97		95		2.9		.95
Maturing after five years through ten years		300		312		7.3		4.06			78		69		7.4		.99
Maturing after ten years		398		400		10.3		2.22			18		11		19.9		.95
Total	$	1,065	$	1,081		6.9		5.00	%	$	340	$	311		3.8		.88	%
Obligations of State and Political Subdivisions (b)
Maturing in one year or less	$	128	$	129		.3		1.27	%	$	2	$	1		.4		7.88	%
Maturing after one year through five years		779		784		4.4		6.75			5		6		3.7		7.97
Maturing after five years through ten years		4,412		4,409		6.4		6.77			8		9		6.5		6.85
Maturing after ten years		1,542		1,462		21.5		6.91			15		14		16.6		5.54
Total	$	6,861	$	6,784		9.4		6.70	%	$	30	$	30		10.9		6.43	%
Other Debt Securities
Maturing in one year or less	$	6	$	6		.4		.89	%	$	2	$	2		.3		.84	%
Maturing after one year through five years		67		54		1.9		6.36			16		12		3.0		1.17
Maturing after five years through ten years		31		28		7.3		6.33			88		71		7.6		1.41
Maturing after ten years		1,402		1,129		32.1		4.36			33		18		10.3		1.11
Total	$	1,506	$	1,217		30.1		4.48	%	$	139	$	103		7.6		1.31	%
Other Investments	$	539	$	594		13.3		3.50	%	$	–	$	–		–		–	%
Total investment securities (c)	$	47,551	$	47,777		5.5		3.78	%	$	590	$	519		5.9		1.38	%

(a)	Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.
(b)	Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount.
(c)	The weighted-average maturity of the available-for-sale investment securities was 7.1 years at December 31, 2009, with a corresponding weighted-average yield of 4.00 percent. The weighted-average maturity of the held-to-maturity investment securities was 8.4 years at December 31, 2009, with a corresponding weighted-average yield of 5.10 percent.
(d)	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.

	June 30, 2010					December 31, 2009
	Amortized		Percent			Amortized		Percent
(Dollars in Millions)	Cost		of Total			Cost		of Total
U.S. Treasury and agencies	$	2,596		5.4	%	$	3,415		7.5	%
Mortgage-backed securities		35,065		72.9			32,289		71.1
Asset-backed securities		1,405		2.9			559		1.2
Obligations of state and political subdivisions		6,891		14.3			6,854		15.1
Other debt securities and investments		2,184		4.5			2,286		5.1
Total investment securities	$	48,141		100.0	%	$	45,403		100.0	%

  8 U.S. Bancorp

Borrowings The Company utilizes both short-term and long-term borrowings to fund growth of assets in excess of deposit growth. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $33.8 billion at June 30, 2010, compared with $31.3 billion at December 31, 2009. The $2.5 billion (7.9 percent) increase in short-term borrowings reflected wholesale funding associated with the Company’s asset growth and asset/liability management activities.

Long-term debt was $29.1 billion at June 30, 2010, compared with $32.6 billion at December 31, 2009, reflecting a $2.6 billion net decrease in Federal Home Loan Bank advances, $4.0 billion of medium-term note maturities and repayments and the extinguishment of $.6 billion of junior subordinated debentures in connection with the ITS exchange, partially offset by $2.3 billion of medium-term note and subordinated debt issuances and the consolidation of $1.7 billion of long-term debt related to certain VIEs at June 30, 2010. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.

CORPORATE RISK PROFILE

OverviewManaging 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 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 and derivatives 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 ManagementThe Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, the level of allowance coverage relative to similar banking institutions and macroeconomic factors, such as changes in unemployment rates, gross domestic product and consumer bankruptcy filings. Refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, 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.

  U.S. Bancorp 9

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 June 30, 2010 (excluding covered loans):

Residential mortgages	Interest						Percent
(Dollars in Millions)	Only		Amortizing		Total		of Total
Consumer Finance
Less than or equal to 80%	$	1,304	$	3,967	$	5,271		49.9	%
Over 80% through 90%		556		1,911		2,467		23.4
Over 90% through 100%		519		2,154		2,673		25.3
Over 100%		–		149		149		1.4
Total	$	2,379	$	8,181	$	10,560		100.0	%
Other Retail
Less than or equal to 80%	$	1,986	$	13,335	$	15,321		91.8	%
Over 80% through 90%		65		590		655		3.9
Over 90% through 100%		85		631		716		4.3
Over 100%		–		–		–		–
Total	$	2,136	$	14,556	$	16,692		100.0	%
Total Company
Less than or equal to 80%	$	3,290	$	17,302	$	20,592		75.6	%
Over 80% through 90%		621		2,501		3,122		11.5
Over 90% through 100%		604		2,785		3,389		12.4
Over 100%		–		149		149		.5
Total	$	4,515	$	22,737	$	27,252		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%	$	911	$	206	$	1,117		45.5	%
Over 80% through 90%		415		163		578		23.6
Over 90% through 100%		348		274		622		25.4
Over 100%		56		80		136		5.5
Total	$	1,730	$	723	$	2,453		100.0	%
Other Retail
Less than or equal to 80%	$	11,769	$	1,428	$	13,197		78.2	%
Over 80% through 90%		1,985		499		2,484		14.7
Over 90% through 100%		709		408		1,117		6.6
Over 100%		51		24		75		.5
Total	$	14,514	$	2,359	$	16,873		100.0	%
Total Company
Less than or equal to 80%	$	12,680	$	1,634	$	14,314		74.1	%
Over 80% through 90%		2,400		662		3,062		15.8
Over 90% through 100%		1,057		682		1,739		9.0
Over 100%		107		104		211		1.1
Total	$	16,244	$	3,082	$	19,326		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.

Within the consumer finance division, at June 30, 2010, approximately $2.3 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 $2.5 billion at December 31, 2009.

The following table provides further information on the loan-to-values of residential mortgages specifically for the consumer finance division at June 30, 2010:

	Interest						Percent of
(Dollars in Millions)	Only		Amortizing		Total		Division
Sub-Prime Borrowers
Less than or equal to 80%	$	6	$	1,012	$	1,018		9.7	%
Over 80% through 90%		3		529		532		5.0
Over 90% through 100%		14		697		711		6.7
Over 100%		–		60		60		.6
Total	$	23	$	2,298	$	2,321		22.0	%
Other Borrowers
Less than or equal to 80%	$	1,298	$	2,955	$	4,253		40.3	%
Over 80% through 90%		553		1,382		1,935		18.3
Over 90% through 100%		505		1,457		1,962		18.6
Over 100%		–		89		89		.8
Total	$	2,356	$	5,883	$	8,239		78.0	%
Total Consumer Finance	$	2,379	$	8,181	$	10,560		100.0	%

In addition to residential mortgages, at June 30, 2010, the consumer finance division had $.6 billion of home equity and second mortgage loans to customers that may be defined as sub-prime borrowers, unchanged from December 31, 2009.

The following table provides further information on the loan-to-values of home equity and second mortgages specifically for the consumer finance division at June 30, 2010:

							Percent
(Dollars in Millions)	Lines		Loans		Total		of Total
Sub-Prime Borrowers
Less than or equal to 80%	$	38	$	121	$	159		6.5	%
Over 80% through 90%		43		98		141		5.7
Over 90% through 100%		6		167		173		7.1
Over 100%		36		62		98		4.0
Total	$	123	$	448	$	571		23.3	%
Other Borrowers
Less than or equal to 80%	$	873	$	85	$	958		39.1	%
Over 80% through 90%		372		65		437		17.8
Over 90% through 100%		342		107		449		18.3
Over 100%		20		18		38		1.5
Total	$	1,607	$	275	$	1,882		76.7	%
Total Consumer Finance	$	1,730	$	723	$	2,453		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 1.0 percent of total assets at June 30, 2010, compared with 1.1 percent at December 31, 2009. Covered loans include $1.8 billion in loans with negative-amortization payment options at June 30, 2010, compared with $2.2 billion at December 31, 2009. Other than covered loans, the Company does not have any residential mortgages with payment schedules that would cause balances to increase over time.

  10 U.S. Bancorp

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

	June 30,			December 31,
90 days or more past due excluding nonperforming loans	2010			2009
Commercial
Commercial		.24	%		.25	%
Lease financing		.03			–
Total commercial		.21			.22
Commercial Real Estate
Commercial mortgages		.11			–
Construction and development		.04			.07
Total commercial real estate		.09			.02
Residential Mortgages		1.85			2.80
Retail
Credit card		2.38			2.59
Retail leasing		.05			.11
Other retail		.48			.57
Total retail		.95			1.07
Total loans, excluding covered loans		.72			.88
Covered Loans		4.91			3.59
Total loans		1.16	%		1.19	%

	June 30,			December 31,
90 days or more past due including nonperforming loans	2010			2009
Commercial		1.89	%		2.25	%
Commercial real estate		4.84			5.22
Residential mortgages (a)		4.08			4.59
Retail (b)		1.32			1.39
Total loans, excluding covered loans		2.61			2.87
Covered loans		11.72			9.76
Total loans		3.56	%		3.64	%

(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 12.67 percent at June 30, 2010, and 12.86 percent at December 31, 2009.

(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 1.53 percent at June 30, 2010, and 1.57 percent at December 31, 2009.

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 $2.2 billion ($1.2 billion excluding covered loans) at June 30, 2010, compared with $2.3 billion ($1.5 billion excluding covered loans) at December 31, 2009. The $286 million decrease, excluding covered loans, reflected a moderation in the level of stress in economic conditions in the first six months of 2010. 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 1.16 percent (.72 percent excluding covered loans) at June 30, 2010, compared with 1.19 percent (.88 percent excluding covered loans) at December 31, 2009.

  U.S. Bancorp 11

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

					As a Percent of Ending
	Amount				Loan Balances
	June 30,		December 31,		June 30,			December 31,
(Dollars in Millions)	2010		2009		2010			2009
Residential mortgages
30-89 days	$	477	$	615		1.75	%		2.36	%
90 days or more		504		729		1.85			2.80
Nonperforming		607		467		2.23			1.79
Total	$	1,588	$	1,811		5.83	%		6.95	%
Retail
Credit card
30-89 days	$	311	$	400		1.86	%		2.38	%
90 days or more		399		435		2.38			2.59
Nonperforming		175		142		1.04			.84
Total	$	885	$	977		5.28	%		5.81	%
Retail leasing
30-89 days	$	20	$	34		.46	%		.74	%
90 days or more		2		5		.05			.11
Nonperforming		–		–		–			–
Total	$	22	$	39		.51	%		.85	%
Home equity and second mortgages
30-89 days	$	172	$	181		.89	%		.93	%
90 days or more		131		152		.68			.78
Nonperforming		31		32		.16			.17
Total	$	334	$	365		1.73	%		1.88	%
Other retail
30-89 days	$	198	$	256		.85	%		1.10	%
90 days or more		73		92		.32			.40
Nonperforming		31		30		.13			.13
Total	$	302	$	378		1.30	%		1.63	%

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
	June 30,			December 31,			June 30,			December 31,
	2010			2009			2010			2009
Residential mortgages
30-89 days		2.63	%		3.99	%		1.19	%		1.30	%
90 days or more		2.48			4.00			1.45			2.02
Nonperforming		3.50			3.04			1.42			.98
Total		8.61	%		11.03	%		4.06	%		4.30	%
Retail
Credit card
30-89 days		–	%		–	%		1.86	%		2.38	%
90 days or more		–			–			2.38			2.59
Nonperforming		–			–			1.04			.84
Total		–	%		–	%		5.28	%		5.81	%
Retail leasing
30-89 days		–	%		–	%		.46	%		.74	%
90 days or more		–			–			.05			.11
Nonperforming		–			–			–			–
Total		–	%		–	%		.51	%		.85	%
Home equity and second mortgages
30-89 days		2.12	%		2.54	%		.71	%		.70	%
90 days or more		1.55			2.02			.55			.60
Nonperforming		.16			.20			.16			.16
Total		3.83	%		4.76	%		1.42	%		1.46	%
Other retail
30-89 days		3.93	%		5.17	%		.77	%		1.00	%
90 days or more		.65			1.17			.30			.37
Nonperforming		–			.16			.14			.13
Total		4.58	%		6.50	%		1.21	%		1.50	%

(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.

  12 U.S. Bancorp

Within the consumer finance division at June 30, 2010, approximately $425 million and $73 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 $557 million and $98 million, respectively, at December 31, 2009.

The following table provides summary delinquency information for covered loans:

					As a Percent of Ending
	Amount				Loan Balances
	June 30,		December 31,		June 30,			December 31,
(Dollars in Millions)	2010		2009		2010			2009
30-89 days	$	998	$	1,195		4.99	%		5.46	%
90 days or more		982		784		4.91			3.59
Nonperforming		1,360		1,350		6.81			6.18
Total	$	3,340	$	3,329		16.71	%		15.23	%

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 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.

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 June 30, 2010, loans modified under these programs represented less than 1.0 percent of total residential mortgage loan balances and less than 2.5 percent of credit card receivable balances, respectively. Because these changes have an insignificant impact on the economic return on the loan, the Company does not consider loans modified under these hardship programs to be TDRs. The Company determines applicable allowances for loan 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 1.1 percent of total commercial and commercial real estate loan balances at June 30, 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 loan loss 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 June 30, 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

  U.S. Bancorp 13

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
June 30, 2010	Performing		30-89 Days			90 Days or more			Nonperforming			Total
(Dollars in Millions)	TDRs		Past Due			Past Due			TDRs			TDRs
Commercial	$	51		8.9	%		5.4	%	$	77	(b)	$	128
Commercial real estate		69		–			–			104	(b)		173
Residential mortgages(a)		1,672		6.2			6.3			157			1,829
Credit card		234		12.5			10.3			175	(c)		409
Other retail		86		9.6			7.0			22			108
Total	$	2,112		6.9	%		6.6	%	$	535		$	2,647

(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%.
(c)	Represents consumer credit cards with a modified rate equal to 0%.

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

					As a Percent of Ending
	Amount				Loan Balances
	June 30,		December 31,		June 30,			December 31,
(Dollars in Millions)	2010		2009		2010			2009
Commercial	$	51	$	35		.11	%		.07	%
Commercial real estate		69		110		.20			.32
Residential mortgages (a)		1,672		1,354		6.14			5.20
Credit card		234		221		1.40			1.31
Other retail		86		74		.18			.16
Total	$	2,112	$	1,794		1.10	%		.92	%

(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 are performing in accordance with modified terms were $318 million higher at June 30, 2010, than at December 31, 2009, primarily reflecting loan modifications for certain residential mortgage and consumer credit card customers in light of current economic conditions. The Company continues to work with customers to modify loans for borrowers who are having financial difficulties, but expects increases in TDRs to moderate.

Nonperforming Assets  The level of nonperforming assets represents another indicator of the potential for future credit losses. At June 30, 2010, total nonperforming assets were $5.9 billion, unchanged from December 31, 2009. Excluding covered assets, nonperforming assets were $3.7 billion at June 30, 2010, compared with $3.9 billion at December 31, 2009. The $170 million (4.4 percent) decrease in nonperforming assets, excluding covered assets, was principally in the construction, land development and financial institution portfolios, as the Company continued to reduce the exposure to these assets. Nonperforming covered assets at June 30, 2010 were $2.2 billion, compared with $2.0 billion at December 31, 2009. These assets are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company. In addition, 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 3.05 percent (2.17 percent excluding covered assets) at June 30, 2010, compared with 3.02 percent (2.25 percent excluding covered assets) at December 31, 2009.

The Company expects nonperforming assets, excluding covered assets, to trend lower in the third quarter of 2010.

  14 U.S. Bancorp

Table 6    Nonperforming Assets (a)

	June 30,			December 31,
(Dollars in Millions)	2010			2009
Commercial
Commercial	$	669		$	866
Lease financing		115			125
Total commercial		784			991
Commercial Real Estate
Commercial mortgages		601			581
Construction and development		1,013			1,192
Total commercial real estate		1,614			1,773
Residential Mortgages		607			467
Retail
Credit card		175			142
Retail leasing		–			–
Other retail		62			62
Total retail		237			204
Total nonperforming loans, excluding covered loans		3,242			3,435
Covered Loans		1,360			1,350
Total nonperforming loans		4,602			4,785
Other Real Estate (b)(c)		469			437
Covered Other Real Estate (c)		791			653
Other Assets		23			32
Total nonperforming assets	$	5,885		$	5,907
Total nonperforming assets, excluding covered assets	$	3,734		$	3,904
Excluding covered assets:
Accruing loans 90 days or more past due	$	1,239		$	1,525
Nonperforming loans to total loans		1.89	%		1.99	%
Nonperforming assets to total loans plus other real estate (b)		2.17	%		2.25	%
Including covered assets:
Accruing loans 90 days or more past due	$	2,221		$	2,309
Nonperforming loans to total loans		2.40	%		2.46	%
Nonperforming assets to total loans plus other real estate (b)		3.05	%		3.02	%

Changes in Nonperforming Assets

	Commercial and			Retail and
	Commercial			Residential
(Dollars in Millions)	Real Estate			Mortgages (e)			Total
Balance December 31, 2009	$	4,727		$	1,180		$	5,907
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties		2,201			679			2,880
Advances on loans		118			–			118
Total additions		2,319			679			2,998
Reductions in nonperforming assets
Paydowns, payoffs		(1,043	)		(108	)		(1,151	)
Net sales		(259	)		(232	)		(491	)
Return to performing status		(335	)		(14	)		(349	)
Charge-offs (d)		(902	)		(127	)		(1,029	)
Total reductions		(2,539	)		(481	)		(3,020	)
Net additions to (reductions in) nonperforming assets		(220	)		198			(22	)
Balance June 30, 2010	$	4,507		$	1,378		$	5,885

(a)	Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)	Excludes $475 million and $359 million at June 30, 2010, and December 31, 2009, respectively, of foreclosed GNMA loans which continue to accrue interest.
(c)	Includes equity investments whose only asset is 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.

Other real estate, excluding covered assets, was $469 million at June 30, 2010, compared with $437 million at December 31, 2009, and was primarily related to foreclosed properties that previously secured loan balances. The increase in other real estate assets reflected continuing stress in residential construction and related supplier industries.

  U.S. Bancorp 15

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Commercial
Commercial		2.23	%		1.50	%		2.32	%		1.21	%
Lease financing		1.41			3.29			1.78			3.29
Total commercial		2.12			1.72			2.25			1.46
Commercial Real Estate
Commercial mortgages		1.11			.47			.92			.35
Construction and development		7.31			3.79			7.06			4.30
Total commercial real estate		2.67			1.44			2.47			1.51
Residential Mortgages		2.06			1.94			2.14			1.74
Retail
Credit card (a)		7.79			7.36			7.76			6.86
Retail leasing		.37			.80			.41			.91
Home equity and second mortgages		1.64			1.72			1.76			1.60
Other retail		1.70			1.80			1.81			1.77
Total retail		3.16			2.99			3.23			2.81
Total loans, excluding covered loans		2.61			2.15			2.64			1.98
Covered Loans		.10			.07			.08			.15
Total loans		2.34	%		2.03	%		2.36	%		1.87	%

(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 8.53 percent and 8.47 percent for the three months and six months ended June 30, 2010, respectively.

The following table provides an analysis of 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
	June 30,		December 31,		June 30,			December 31,
(Dollars in Millions)	2010		2009		2010			2009
Residential
Minnesota	$	26	$	27		.47	%		.49	%
California		17		15		.29			.27
Arizona		13		6		1.23			.58
Illinois		10		8		.36			.29
Missouri		8		7		.30			.26
All other states		134		110		.47			.39
Total residential		208		173		.45			.38
Commercial
Nevada		48		73		3.52			3.57
Oregon		33		28		.98			.81
California		25		43		.18			.30
Texas		21		3		.52			.07
Virginia		19		8		3.97			1.21
All other states		115		109		.20			.15
Total commercial		261		264		.32			.32
Total OREO	$	469	$	437		.27	%		.25	%

Analysis of Loan Net Charge-Offs Total net charge-offs were $1.1 billion and $2.2 billion for the second quarter and first six months of 2010, respectively, compared with net charge-offs of $929 million and $1.7 billion for the same periods of 2009. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the second quarter and first six months of 2010 was 2.34 percent and 2.36 percent, respectively, compared with 2.03 percent and 1.87 percent, for the same periods of 2009. The year-over-year increases in total net charge-offs were driven by the weakening economy and rising unemployment throughout most of 2009 affecting the residential housing markets, including homebuilding and related industries, commercial real estate properties and credit costs associated with credit card and other consumer and commercial loans. The Company expects the level of net charge-offs to trend lower in the third quarter of 2010.

Commercial and commercial real estate loan net charge-offs for the second quarter of 2010 were $472 million (2.35 percent of average loans outstanding on an annualized basis), compared with $353 million (1.61 percent of average loans outstanding on an annualized basis) for the second quarter of 2009. Commercial and commercial real estate loan net charge-offs for the first six months of 2010 were $941 million (2.34 percent of average loans outstanding on an annualized basis), compared with $650 million (1.48 percent of average loans outstanding on an annualized basis) for the first six months of 2009. The year-over-year increases in net charge-offs reflected stress in commercial real estate and residential housing, especially homebuilding and related industry sectors, along with the impact of current uncertain economic conditions on the Company’s commercial loan portfolios.

Residential mortgage loan net charge-offs for the second quarter of 2010 were $138 million (2.06 percent of average loans outstanding on an annualized basis), compared with $116 million (1.94 percent of average loans outstanding on an annualized basis) for the second quarter of 2009. Residential mortgage loan net charge-offs for the first six months of 2010 were $283 million (2.14 percent of average loans outstanding on an annualized basis), compared with $207 million

  16 U.S. Bancorp

(1.74 percent of average loans outstanding on an annualized basis) for the first six months of 2009. Retail loan net charge-offs for the second quarter of 2010 were $499 million (3.16 percent of average loans outstanding on an annualized basis), compared with $458 million (2.99 percent of average loans outstanding on an annualized basis) for the second quarter of 2009. Retail loan net charge-offs for the first six months of 2010 were $1.0 billion (3.23 percent of average loans outstanding on an annualized basis), compared with $852 million (2.81 percent of average loans outstanding on an annualized basis) for the first six months of 2009. The retail loan net charge-offs percentage was impacted by credit card portfolio purchases recorded at fair value beginning in the second quarter of 2009. The year-over-year increases in residential mortgage and retail loan net charge-offs reflected the continuing adverse impact of economic conditions on consumers, as rising unemployment levels increased losses in the prime-based residential mortgage and credit card portfolios.

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 June 30,										Six Months Ended June 30,
					Percent of										Percent of
	Average Loans				Average Loans						Average Loans				Average Loans
(Dollars in Millions)	2010		2009		2010			2009			2010		2009		2010			2009
Consumer Finance (a)
Residential mortgages	$	10,487	$	9,751		3.71	%		3.87	%	$	10,415	$	9,824		3.93	%		3.43	%
Home equity and second mortgages		2,462		2,457		5.38			7.02			2,468		2,437		5.80			6.62
Other retail		610		565		1.97			5.68			606		546		3.33			6.65
Other Retail
Residential mortgages	$	16,334	$	14,213		1.01	%		.62	%	$	16,201	$	14,116		1.00	%		.57	%
Home equity and second mortgages		16,870		16,857		1.09			.95			16,899		16,826		1.17			.87
Other retail		22,747		22,188		1.69			1.70			22,744		22,323		1.77			1.65
Total Company
Residential mortgages	$	26,821	$	23,964		2.06	%		1.94	%	$	26,616	$	23,940		2.14	%		1.74	%
Home equity and second mortgages		19,332		19,314		1.64			1.72			19,367		19,263		1.76			1.60
Other retail		23,357		22,753		1.70			1.80			23,350		22,869		1.81			1.77

(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.

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 June 30,										Six Months Ended June 30,
					Percent of										Percent of
	Average Loans				Average Loans						Average Loans				Average Loans
(Dollars in Millions)	2010		2009		2010			2009			2010		2009		2010			2009
Residential mortgages
Sub-prime borrowers	$	2,347	$	2,721		6.15	%		6.34	%	$	2,390	$	2,779		6.41	%		5.66	%
Other borrowers		8,140		7,030		3.01			2.91			8,025		7,045		3.19			2.55
Total	$	10,487	$	9,751		3.71	%		3.87	%	$	10,415	$	9,824		3.93	%		3.43	%
Home equity and second mortgages
Sub-prime borrowers	$	581	$	687		10.36	%		12.84	%	$	595	$	700		10.85	%		11.81	%
Other borrowers		1,881		1,770		3.84			4.76			1,873		1,737		4.20			4.53
Total	$	2,462	$	2,457		5.38	%		7.02	%	$	2,468	$	2,437		5.80	%		6.62	%

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 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 June 30, 2010, 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.

  U.S. Bancorp 17

Table 8    Summary of Allowance for Credit Losses

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2010			2009			2010		2009
Balance at beginning of period	$	5,439		$	4,105		$	5,264	$	3,639
Charge-offs
Commercial
Commercial		232			183			483		300
Lease financing		35			66			80		129
Total commercial		267			249			563		429
Commercial real estate
Commercial mortgages		71			28			118		42
Construction and development		159			94			310		211
Total commercial real estate		230			122			428		253
Residential mortgages		141			116			287		209
Retail
Credit card		333			279			661		504
Retail leasing		7			13			16		28
Home equity and second mortgages		83			85			177		157
Other retail		119			126			251		244
Total retail		542			503			1,105		933
Covered loans (a)		6			2			9		8
Total charge-offs		1,186			992			2,392		1,832
Recoveries
Commercial
Commercial		9			6			17		11
Lease financing		13			11			24		19
Total commercial		22			17			41		30
Commercial real estate
Commercial mortgages		–			–			1		1
Construction and development		3			1			8		1
Total commercial real estate		3			1			9		2
Residential mortgages		3			–			4		2
Retail
Credit card		16			16			32		29
Retail leasing		3			3			7		5
Home equity and second mortgages		4			2			8		4
Other retail		20			24			41		43
Total retail		43			45			88		81
Covered loans (a)		1			–			1		–
Total recoveries		72			63			143		115
Net Charge-offs
Commercial
Commercial		223			177			466		289
Lease financing		22			55			56		110
Total commercial		245			232			522		399
Commercial real estate
Commercial mortgages		71			28			117		41
Construction and development		156			93			302		210
Total commercial real estate		227			121			419		251
Residential mortgages		138			116			283		207
Retail
Credit card		317			263			629		475
Retail leasing		4			10			9		23
Home equity and second mortgages		79			83			169		153
Other retail		99			102			210		201
Total retail		499			458			1,017		852
Covered loans (a)		5			2			8		8
Total net charge-offs		1,114			929			2,249		1,717
Provision for credit losses		1,139			1,395			2,449		2,713
Net change for credit losses to be reimbursed by the FDIC		72			–			72		–
Acquisitions and other changes		–			–			–		(64	)
Balance at end of period	$	5,536		$	4,571		$	5,536	$	4,571
Components
Allowance for loan losses, excluding losses to be reimbursed by the FDIC	$	5,248		$	4,377
Allowance for credit losses to be reimbursed by the FDIC		72			–
Liability for unfunded credit commitments		216			194
Total allowance for credit losses	$	5,536		$	4,571
Allowance for credit losses as a percentage of
Period-end loans, excluding covered loans		3.18	%		2.66	%
Nonperforming loans, excluding covered loans		168			152
Nonperforming assets, excluding covered assets		146			137
Annualized net charge-offs, excluding covered loans		122			123
Period-end loans		2.89			2.51
Nonperforming loans		120			135
Nonperforming assets		94			114
Annualized net charge-offs		124			123

Note: At June 30, 2010, $2.4 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.

  18 U.S. Bancorp

At June 30, 2010, the allowance for credit losses was $5.5 billion (2.89 percent of total loans and 3.18 percent of loans excluding covered loans), compared with an allowance of $5.3 billion (2.70 percent of total loans and 3.04 percent of loans excluding covered loans) at December 31, 2009. During the second quarter of 2010, the Company increased the allowance for credit losses by $72 million to reflect covered loan losses reimbursable by the FDIC. The ratio of the allowance for credit losses to nonperforming loans was 120 percent (168 percent excluding covered loans) at June 30, 2010, compared with 110 percent (153 percent excluding covered loans) at December 31, 2009. The ratio of the allowance for credit losses to annualized loan net charge-offs was 124 percent at June 30, 2010, compared with 136 percent of full year 2009 net charge-offs at December 31, 2009.

Residual Value Risk ManagementThe 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 June 30, 2010, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 2009. 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, 2009, for further discussion on residual value risk management.

Operational Risk ManagementThe 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, 2009, 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 following table 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 June 30, 2010, and December 31, 2009, 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, 2009, 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

June 30, 2010

December 31, 2009

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

Immediate

Gradual*

Gradual

Immediate

Immediate

Gradual*

Gradual

Net interest income

*

1.00

%

*

1.65

%

*

.43

%

*

1.00

%

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

  U.S. Bancorp 19

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 3.4 percent decrease in the market value of equity at June 30, 2010, compared with a 4.3 percent decrease at December 31, 2009. A 200 bps decrease, where possible given current rates, would have resulted in a 6.7 percent decrease in the market value of equity at June 30, 2010, compared with a 2.8 percent decrease at December 31, 2009. 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, 2009, 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 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 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 June 30, 2010, the Company had $10.3 billion of forward commitments to sell mortgage loans hedging $4.7 billion of mortgage loans held for sale and $10.6 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedge activities, and the Company has elected the fair value option for the mortgage loans held for sale.

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

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

Market Risk ManagementIn addition to interest rate risk, the Company is exposed to other forms of market risk related to its trading activities, which are principally customer-based, supporting their management of 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 specified time horizon. The Company measures VaR at the ninety-ninth percentile using distributions derived from past market data. On average, the Company expects the one day VaR to be exceeded two to three times per year. The Company monitors the effectiveness of its risk program by back-testing the performance of its VaR models, regularly updating the historical data used by the VaR models and stress testing. The

  20 U.S. Bancorp

Table 9    Regulatory Capital Ratios

	June 30,			December 31,
(Dollars in Millions)	2010			2009
Tier 1 capital	$	24,021		$	22,610
As a percent of risk-weighted assets		10.1	%		9.6	%
As a percent of adjusted quarterly average assets (leverage ratio)		8.8	%		8.5	%
Total risk-based capital	$	31,890		$	30,458
As a percent of risk-weighted assets		13.4	%		12.9	%

Company’s trading VaR did not exceed $5 million during the first six months of 2010 and $2 million during the first six months of 2009.

Liquidity Risk ManagementThe 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.

Since 2008, the financial markets have been challenging for many financial institutions. As a result of these financial market conditions, many banks experienced liquidity constraints, substantially increased pricing to retain deposits or utilized the Federal Reserve System discount window to secure adequate funding. The Company’s profitable operations, sound credit quality and strong capital position 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 maintain a strong liquidity position, as depositors and investors in the wholesale funding markets seek stable 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, 2009, for further discussion on liquidity risk management.

At June 30, 2010, parent company long-term debt outstanding was $11.9 billion, compared with $14.5 billion at December 31, 2009. The $2.6 billion decrease was primarily due to repayments and maturities of $3.9 billion of medium-term notes and the extinguishment of $.6 billion of junior subordinated debentures in connection with the ITS exchange, partially offset by $1.8 billion of medium-term note issuances. As of June 30, 2010, total parent company debt scheduled to mature in the remainder of 2010 was $.9 billion.

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 $4.1 billion at June 30, 2010.

Capital ManagementThe 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 June 30, 2010, and December 31, 2009. All regulatory ratios exceeded regulatory “well-capitalized” requirements. Total U.S. Bancorp shareholders’ equity was $28.2 billion at June 30, 2010, compared with $26.0 billion at December 31, 2009. The increase was primarily the result of corporate earnings, the issuance of $.4 billion of perpetual preferred stock in connection with the ITS exchange, and changes in unrealized gains and losses on available-for-sale investment securities included in other comprehensive income, partially offset by dividends.

The Company believes certain capital ratios in addition to regulatory capital ratios are useful in evaluating its capital adequacy. The Company’s Tier 1 common and tangible common equity, as a percent of risk-weighted assets, were 7.4 percent and 6.9 percent, respectively, at June 30, 2010, compared with 6.8 percent and 6.1 percent, respectively, at December 31, 2009. The Company’s tangible common equity divided by tangible assets was 6.0 percent at June 30, 2010, compared with 5.3 percent at December 31, 2009. Refer to “Non-Regulatory Capital Ratios” for further information regarding the calculation of these measures.

On December 9, 2008, the Company announced its Board of Directors had approved an authorization to repurchase 20 million shares of common stock through December 31, 2010. All shares repurchased during the second quarter of 2010 were repurchased under this authorization in connection with the administration of

  U.S. Bancorp 21

the Company’s employee benefit plans in the ordinary course of business.

The following table provides a detailed analysis of all shares repurchased during the second quarter of 2010:

	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
April		26,509	$	27.55		19,049,008
May		3,415		24.16		19,045,593
June		1,855		24.21		19,043,738
Total		31,779	$	26.99		19,043,738

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, 2009, 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 2010, certain organization and methodology changes were made and, accordingly, 2009 results were restated and presented on a comparable basis.

Wholesale Banking Wholesale Banking offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution and public sector clients. Wholesale Banking contributed $82 million of the Company’s net income in the second quarter and $84 million in the first six months of 2010, or increases of $14 million (20.6 percent) and $27 million (47.4 percent), respectively, compared with the same periods of 2009. The increases were primarily driven by higher net revenue, partially offset by higher noninterest expense.

Total net revenue increased $50 million (6.7 percent) in the second quarter and $86 million (5.9 percent) in the first six months of 2010, compared with the same periods of 2009. Net interest income, on a taxable-equivalent basis, increased $5 million (1.0 percent) in the second quarter and decreased $24 million (2.4 percent) in the first six months of 2010, compared with the same periods of 2009. The decrease in the first six months of 2010, compared with the same period of 2009, was driven by a reduction in average loans as a result of lower utilization of existing commitments and reduced demand for new loans, as well as the impact of declining rates on the margin benefit from deposits, which were partially offset by improved spreads on loans and higher average deposit balances. Total noninterest income increased $45 million (18.4 percent) in the second quarter and $110 million (24.2 percent) in the first six months of 2010, compared with the same periods of 2009, due to strong growth in commercial products revenue, including standby letters of credit, syndication, commercial loan and capital markets fees and a favorable variance in income from equity investments relative to the prior year.

Total noninterest expense increased $38 million (13.4 percent) in the second quarter and $53 million (9.6 percent) in the first six months of 2010, compared with the same periods of 2009, primarily due to higher compensation and employee benefits expense and increased costs related to OREO. The provision for credit losses decreased $9 million (2.6 percent) in the second quarter and $5 million (.6 percent) in the first six months of 2010, compared with the same periods of 2009. The favorable changes were primarily due to decreases in the reserve allocation, partially offset by higher net charge-offs. Nonperforming assets were $2.2 billion at June 30, 2010, $2.5 billion at March 31, 2010, and $2.2 billion at June 30, 2009. Nonperforming assets as a percentage of period-end loans were 3.90 percent at June 30, 2010, 4.43 percent at March 31, 2010, and 3.60 percent at June 30, 2009. 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 $178 million of the Company’s net income in the second

  22 U.S. Bancorp

quarter and $374 million in the first six months of 2010, or decreases of $33 million (15.6 percent) and $53 million (12.4 percent), respectively, compared with the same periods of 2009.

Within Consumer Banking, the retail banking division contributed $42 million of the total net income in the second quarter and $137 million in the first six months of 2010, or decreases of $9 million (17.6 percent) and $9 million (6.2 percent) over the same periods of 2009. Mortgage banking contributed $136 million of the business line’s net income in the second quarter and $237 million in the first six months of 2010, or decreases of $24 million (15.0 percent) and $44 million (15.7 percent) from the same periods of 2009, reflecting lower mortgage loan production, including lower interest income on average mortgage loans held for sale.

Total net revenue decreased $60 million (3.4 percent) in the second quarter and $55 million (1.6 percent) in the first six months of 2010, compared with the same periods of 2009. Net interest income, on a taxable-equivalent basis, increased $34 million (3.4 percent) in the second quarter and $40 million (2.0 percent) in the first six months of 2010, compared with the same periods of 2009. The year-over-year increases in net interest income were due to increases in deposit balances and loan spreads, partially offset by a decline in the margin benefit of deposits. The year-over-year increases in average deposits primarily reflected increases in savings accounts. Total noninterest income decreased $94 million (12.0 percent) in the second quarter and $95 million (6.6 percent) in the first six months of 2010, compared with the same periods of 2009. The year-over-year decreases in noninterest income were driven by lower mortgage banking revenue, principally due to lower production, and lower deposit service charges due to the impact of Company-initiated revisions to overdraft fee policies and lower overdraft incidences, partially offset by improvement in retail lease residual valuation losses and higher ATM processing servicing fees.

Total noninterest expense increased $84 million (9.0 percent) in the second quarter and $160 million (8.8 percent) in the first six months of 2010, compared with the same periods of 2009. The increases reflected higher compensation and employee benefits expense, higher processing costs and net occupancy and equipment expenses related to business expansion, and higher servicing costs associated with OREO and foreclosures.

The provision for credit losses decreased $93 million (18.1 percent) in the second quarter and $133 million (14.4 percent) in the first six months of 2010, compared with the same periods of 2009, as stress within the residential mortgage, home equity, installment and other consumer loan portfolios moderated. As a percentage of average loans outstanding on an annualized basis, net charge-offs increased to 1.55 percent in the second quarter of 2010, compared with 1.46 percent in the second quarter of 2009. Nonperforming assets were $1.5 billion at June 30, 2010, $1.5 billion at March 31, 2010, and $1.2 billion at June 30, 2009. Nonperforming assets as a percentage of period-end loans were 1.51 percent at June 30, 2010, 1.52 percent at March 31, 2010, and 1.23 percent at June 30, 2009. 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 fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services.

In July 2010, the Company announced a strategic alliance with a third party under which it will receive an ownership interest in the third party in exchange for the long-term asset management business of FAF Advisors, primarily representing the equity and fixed income mutual funds. U.S. Bancorp Asset Management will retain the Company’s money market fund business.

Wealth Management & Securities Services contributed $60 million of the Company’s net income in the second quarter and $113 million in the first six months of 2010, or decreases of $25 million (29.4 percent) and $69 million (37.9 percent), respectively, compared with the same periods of 2009. The decreases were primarily attributable to lower net revenue and higher total noninterest expense.

Total net revenue decreased $10 million (2.7 percent) in the second quarter and $74 million (9.5 percent) in the first six months of 2010, compared with the same periods of 2009. Net interest income, on a taxable-equivalent basis, increased $11 million (15.5 percent) in the second quarter and decreased $13 million (8.0 percent) in the first six months of 2010, compared with the same periods of 2009. The increase in net interest income in the second quarter, compared with the same period of 2009, was primarily due to higher deposit volumes, partially offset by a decline in the related margin benefit. The decrease in net interest income in the first six months of 2010, compared with the same period of 2009, was primarily due to a decline in the margin benefit from deposits, partially offset by higher deposit volumes. Noninterest income decreased $21 million (6.9 percent) in the second quarter and $61 million (9.9 percent) in the first six months of 2010, compared with the same periods of 2009, as low interest rates negatively impacted money market investment fees and lower money market fund balances led to a decline in account-level fees.

  U.S. Bancorp 23

Table 10    Line of Business Financial Performance

	Wholesale								Consumer
	Banking								Banking
Three Months Ended June 30						Percent								Percent
(Dollars in Millions)	2010		2009			Change			2010			2009		Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	503	$	498			1.0	%	$	1,028		$	994		3.4	%
Noninterest income		290		245			18.4			692			786		(12.0	)
Securities gains (losses), net		–		–			–			–			–		–
Total net revenue		793		743			6.7			1,720			1,780		(3.4	)
Noninterest expense		317		277			14.4			1,002			911		10.0
Other intangibles		4		6			(33.3	)		17			24		(29.2	)
Total noninterest expense		321		283			13.4			1,019			935		9.0
Income before provision and income taxes		472		460			2.6			701			845		(17.0	)
Provision for credit losses		343		352			(2.6	)		420			513		(18.1	)
Income before income taxes		129		108			19.4			281			332		(15.4	)
Income taxes and taxable-equivalent adjustment		47		39			20.5			102			121		(15.7	)
Net income		82		69			18.8			179			211		(15.2	)
Net (income) loss attributable to noncontrolling interests		–		(1	)			*		(1	)		–			*
Net income attributable to U.S. Bancorp	$	82	$	68			20.6		$	178		$	211		(15.6	)
Average Balance Sheet
Commercial	$	34,002	$	41,080			(17.2	)%	$	5,987		$	6,306		(5.1	)%
Commercial real estate		21,561		21,499			.3			11,748			11,498		2.2
Residential mortgages		77		80			(3.8	)		26,363			23,494		12.2
Retail		45		58			(22.4	)		44,322			44,392		(.2	)
Total loans, excluding covered loans		55,685		62,717			(11.2	)		88,420			85,690		3.2
Covered loans		–		–			–			7,494			9,906		(24.3	)
Total loans		55,685		62,717			(11.2	)		95,914			95,596		.3
Goodwill		1,475		1,475			–			3,254			3,108		4.7
Other intangible assets		71		93			(23.7	)		1,880			1,570		19.7
Assets		61,081		67,528			(9.5	)		108,397			109,212		(.7	)
Noninterest-bearing deposits		18,159		17,343			4.7			14,604			14,296		2.2
Interest checking		10,687		12,369			(13.6	)		22,724			20,868		8.9
Savings products		10,036		7,076			41.8			32,073			25,672		24.9
Time deposits		10,890		12,630			(13.8	)		19,233			26,576		(27.6	)
Total deposits		49,772		49,418			.7			88,634			87,412		1.4
Total U.S. Bancorp shareholders’ equity		5,455		5,003			9.0			8,230			7,349		12.0

	Wholesale								Consumer
	Banking								Banking
Six Months Ended June 30						Percent								Percent
(Dollars in Millions)	2010		2009			Change			2010			2009		Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	985	$	1,009			(2.4	)%	$	2,017		$	1,977		2.0	%
Noninterest income		564		457			23.4			1,345			1,440		(6.6	)
Securities gains (losses), net		–		(3	)			*		–			–		–
Total net revenue		1,549		1,463			5.9			3,362			3,417		(1.6	)
Noninterest expense		597		539			10.8			1,948			1,775		9.7
Other intangibles		8		13			(38.5	)		34			47		(27.7	)
Total noninterest expense		605		552			9.6			1,982			1,822		8.8
Income before provision and income taxes		944		911			3.6			1,380			1,595		(13.5	)
Provision for credit losses		813		818			(.6	)		791			924		(14.4	)
Income before income taxes		131		93			40.9			589			671		(12.2	)
Income taxes and taxable-equivalent adjustment		48		36			33.3			214			244		(12.3	)
Net income		83		57			45.6			375			427		(12.2	)
Net (income) loss attributable to noncontrolling interests		1		–				*		(1	)		–			*
Net income attributable to U.S. Bancorp	$	84	$	57			47.4		$	374		$	427		(12.4	)
Average Balance Sheet
Commercial	$	34,604	$	42,021			(17.7	)%	$	6,006		$	6,380		(5.9	)%
Commercial real estate		21,584		21,352			1.1			11,711			11,542		1.5
Residential mortgages		77		84			(8.3	)		26,156			23,461		11.5
Retail		45		65			(30.8	)		44,440			44,519		(.2	)
Total loans, excluding covered loans		56,310		63,522			(11.4	)		88,313			85,902		2.8
Covered loans		–		–			–			7,702			9,970		(22.7	)
Total loans		56,310		63,522			(11.4	)		96,015			95,872		.1
Goodwill		1,474		1,475			(.1	)		3,252			3,171		2.6
Other intangible assets		73		96			(24.0	)		1,896			1,527		24.2
Assets		61,419		68,647			(10.5	)		108,326			109,182		(.8	)
Noninterest-bearing deposits		17,568		16,773			4.7			14,340			14,098		1.7
Interest checking		11,247		10,449			7.6			22,438			20,387		10.1
Savings products		10,746		7,362			46.0			31,303			24,931		25.6
Time deposits		10,991		14,047			(21.8	)		19,645			26,714		(26.5	)
Total deposits		50,552		48,631			4.0			87,726			86,130		1.9
Total U.S. Bancorp shareholders’ equity		5,493		4,982			10.3			8,250			7,438		10.9

*  Not meaningful

  24 U.S. Bancorp

Wealth Management &							Payment									Treasury and									Consolidated
Securities Services							Services									Corporate Support									Company
				Percent									Percent									Percent									Percent
2010		2009		Change			2010			2009			Change			2010			2009			Change			2010			2009			Change
$	82	$	71		15.5	%	$	332		$	276			20.3	%	$	464		$	265			75.1	%	$	2,409		$	2,104			14.5	%
	283		304		(6.9	)		788			723			9.0			78			16				*		2,131			2,074			2.7
	–		–		–			–			–			–			(21	)		(19	)		(10.5	)		(21	)		(19	)		(10.5	)
	365		375		(2.7	)		1,120			999			12.1			521			262			98.9			4,519			4,159			8.7
	255		218		17.0			415			352			17.9			297			276			7.6			2,286			2,034			12.4
	13		17		(23.5	)		49			46			6.5			8			2				*		91			95			(4.2	)
	268		235		14.0			464			398			16.6			305			278			9.7			2,377			2,129			11.6
	97		140		(30.7	)		656			601			9.2			216			(16	)			*		2,142			2,030			5.5
	2		6		(66.7	)		359			509			(29.5	)		15			15			–			1,139			1,395			(18.4	)
	95		134		(29.1	)		297			92				*		201			(31	)			*		1,003			635			58.0
	35		49		(28.6	)		108			33				*		(41	)		(92	)		55.4			251			150			67.3
	60		85		(29.4	)		189			59				*		242			61				*		752			485			55.1
	–		–		–			(9	)		(5	)		(80.0	)		24			(8	)			*		14			(14	)			*
$	60	$	85		(29.4	)	$	180		$	54				*	$	266		$	53				*	$	766		$	471			62.6
$	1,091	$	1,199		(9.0	)%	$	5,162		$	4,500			14.7	%	$	98		$	974			(89.9	)%	$	46,340		$	54,059			(14.3	)%
	580		569		1.9			–			–			–			275			161			70.8			34,164			33,727			1.3
	372		387		(3.9	)		–			–			–			9			3				*		26,821			23,964			11.9
	1,661		1,560		6.5			17,338			15,414			12.5			16			3				*		63,382			61,427			3.2
	3,704		3,715		(.3	)		22,500			19,914			13.0			398			1,141			(65.1	)		170,707			173,177			(1.4	)
	–		–		–			–			–			–			12,960			795				*		20,454			10,701			91.1
	3,704		3,715		(.3	)		22,500			19,914			13.0			13,358			1,936				*		191,161			183,878			4.0
	1,522		1,512		.7			2,335			2,348			(.6	)		413			–				*		8,999			8,443			6.6
	208		265		(21.5	)		971			873			11.2			132			8				*		3,262			2,809			16.1
	5,886		6,006		(2.0	)		27,231			24,093			13.0			78,745			59,268			32.9			281,340			266,107			5.7
	5,740		4,925		16.5			611			491			24.4			803			333				*		39,917			37,388			6.8
	4,817		4,071		18.3			115			83			38.6			1,160			2				*		39,503			37,393			5.6
	14,546		6,623			*		23			18			27.8			3,613			139				*		60,291			39,528			52.5
	5,880		6,575		(10.6	)		1			1			–			7,603			3,129				*		43,607			48,911			(10.8	)
	30,983		22,194		39.6			750			593			26.5			13,179			3,603				*		183,318			163,220			12.3
	2,121		2,067		2.6			5,286			4,717			12.1			6,327			9,066			(30.2	)		27,419			28,202			(2.8	)

Wealth Management &							Payment									Treasury and									Consolidated
Securities Services							Services									Corporate Support									Company
				Percent									Percent									Percent									Percent
2010		2009		Change			2010			2009			Change			2010			2009			Change			2010			2009			Change
$	150	$	163		(8.0	)%	$	677		$	546			24.0	%	$	983		$	504			95.0	%	$	4,812		$	4,199			14.6	%
	556		617		(9.9	)		1,529			1,414			8.1			89			132			(32.6	)		4,083			4,060			.6
	–		–		–			–			–			–			(55	)		(214	)		74.3			(55	)		(217	)		74.7
	706		780		(9.5	)		2,206			1,960			12.6			1,017			422				*		8,840			8,042			9.9
	494		449		10.0			795			682			16.6			491			369			33.1			4,325			3,814			13.4
	27		33		(18.2	)		101			91			11.0			18			2				*		188			186			1.1
	521		482		8.1			896			773			15.9			509			371			37.2			4,513			4,000			12.8
	185		298		(37.9	)		1,310			1,187			10.4			508			51				*		4,327			4,042			7.1
	6		14		(57.1	)		815			942			(13.5	)		24			15			60.0			2,449			2,713			(9.7	)
	179		284		(37.0	)		495			245				*		484			36				*		1,878			1,329			41.3
	66		102		(35.3	)		180			88				*		(45	)		(171	)		73.7			463			299			54.8
	113		182		(37.9	)		315			157				*		529			207				*		1,415			1,030			37.4
	–		–		–			(16	)		(12	)		(33.3	)		36			(18	)			*		20			(30	)			*
$	113	$	182		(37.9	)	$	299		$	145				*	$	565		$	189				*	$	1,435		$	1,000			43.5
$	1,065	$	1,289		(17.4	)%	$	5,023		$	4,394			14.3	%	$	107		$	1,007			(89.4	)%	$	46,805		$	55,091			(15.0	)%
	578		571		1.2			–			–			–			280			98				*		34,153			33,563			1.8
	374		392		(4.6	)		–			–			–			9			3				*		26,616			23,940			11.2
	1,630		1,536		6.1			17,375			15,045			15.5			12			5				*		63,502			61,170			3.8
	3,647		3,788		(3.7	)		22,398			19,439			15.2			408			1,113			(63.3	)		171,076			173,764			(1.5	)
	–		–		–			–			–			–			13,237			1,052				*		20,939			11,022			90.0
	3,647		3,788		(3.7	)		22,398			19,439			15.2			13,645			2,165				*		192,015			184,786			3.9
	1,518		1,512		.4			2,348			2,342			.3			413			–				*		9,005			8,500			5.9
	214		273		(21.6	)		987			886			11.4			140			4				*		3,310			2,786			18.8
	5,850		6,106		(4.2	)		27,113			23,724			14.3			78,822			58,512			34.7			281,530			266,171			5.8
	5,557		4,950		12.3			610			532			14.7			889			354				*		38,964			36,707			6.1
	4,825		3,812		26.6			110			80			37.5			1,127			2				*		39,747			34,730			14.4
	13,990		6,466			*		22			18			22.2			3,554			123				*		59,615			38,900			53.3
	5,642		6,496		(13.1	)		1			–				*		8,322			4,286			94.2			44,601			51,543			(13.5	)
	30,014		21,724		38.2			743			630			17.9			13,892			4,765				*		182,927			161,880			13.0
	2,120		2,081		1.9			5,318			4,706			13.0			5,738			8,307			(30.9	)		26,919			27,514			(2.2	)

  U.S. Bancorp 25

Total noninterest expense increased $33 million (14.0 percent) in the second quarter and $39 million (8.1 percent) in the first six months of 2010, compared with the same periods of 2009. The increases in noninterest expense were primarily due to higher compensation and employee benefits 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 contributed $180 million of the Company’s net income in the second quarter and $299 million in the first six months of 2010, or increases of $126 million and $154 million, respectively, compared with the same periods of 2009. The increases were primarily due to increases in total net revenue and decreases in the provision for credit losses, partially offset by higher noninterest expense.

Total net revenue increased $121 million (12.1 percent) in the second quarter and $246 million (12.6 percent) in the first six months of 2010, compared with the same periods of 2009. Net interest income, on a taxable-equivalent basis, increased $56 million (20.3 percent) in the second quarter and $131 million (24.0 percent) in the first six months of 2010, compared with the same periods of 2009, primarily due to strong growth in credit card loan balances and improved loan spreads, partially offset by the cost of rebates on the government card program. Noninterest income increased $65 million (9.0 percent) in the second quarter and $115 million (8.1 percent) in the first six months of 2010, compared with the same periods of 2009, driven by higher volumes across all products.

Total noninterest expense increased $66 million (16.6 percent) in the second quarter and $123 million (15.9 percent) in the first six months of 2010, compared with the same periods of 2009, due to higher compensation and employee benefits expense, higher technology and communications expense, the result of increased volume, and higher intangibles expense.

The provision for credit losses decreased $150 million (29.5 percent) in the second quarter and $127 million (13.5 percent) in the first six months of 2010, compared with the same periods of 2009, due to a favorable change in the reserve allocation due to lower delinquencies, partially offset by higher net charge-offs. As a percentage of average loans outstanding, net charge-offs were 6.72 percent in the second quarter of 2010, compared with 6.55 percent in the second quarter of 2009.

Treasury and Corporate Support Treasury and Corporate Support includes the Company’s investment portfolios, funding, recently acquired assets and assumed liabilities prior to assignment to business lines, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $266 million in the second quarter and $565 million in the first six months of 2010, compared with $53 million in the second quarter and $189 million in the first six months of 2009.

Total net revenue increased $259 million (98.9 percent) in the second quarter and $595 million in the first six months of 2010, compared with the same periods of 2009. Net interest income, on a taxable-equivalent basis, increased $199 million (75.1 percent) in the second quarter and $479 million (95.0 percent) in the first six months of 2010, compared with the same periods of 2009, reflecting the impact of the FBOP acquisition, the current interest rate environment, wholesale funding decisions and the Company’s asset/liability position. Total noninterest income increased $60 million in the second quarter of 2010, compared with the second quarter of 2009, primarily due to the $28 million gain related to the Company’s investment in Visa Inc. and higher syndication revenue on tax-advantaged transactions. Total noninterest income increased $116 million in the first six months of 2010, compared with the same period of 2009, primarily due to lower net securities losses in the current year and the $28 million gain on the Company’s investment in Visa Inc., partially offset by a gain on a corporate real estate transaction recognized in the first quarter of 2009.

Total noninterest expense increased $27 million (9.7 percent) in the second quarter and $138 million (37.2 percent) in the first six months of 2010, compared with the same periods of 2009. The increases in noninterest expense were driven by the FBOP acquisition, debt extinguishment costs and higher costs related to affordable housing and other tax advantaged projects, partially offset by the FDIC special assessment recognized in the second quarter of 2009.

Income taxes are assessed to each line of business at a managerial tax rate of 36.4 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support. The consolidated effective tax rate of the Company was 20.9 percent in the second quarter and 20.3 percent in the first six months of 2010, compared with 17.1 percent in the second quarter and 16.3 percent in the first six months of 2009. The year-over-year increases in the effective tax rate reflected the marginal impact of higher pre-tax earnings.

NON-REGULATORY CAPITAL RATIOS

In addition to capital ratios defined by banking regulators, the Company considers various other

  26 U.S. Bancorp

measures when evaluating capital utilization and adequacy, including:

•  Tangible common equity to tangible assets,

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

•  Tangible common equity to risk-weighted assets.

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

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

The following table shows the Company’s calculation of these measures.

	June 30,			December 31,
(Dollars in Millions)	2010			2009
Total equity	$	28,940		$	26,661
Preferred stock		(1,930)			(1,500)
Noncontrolling interests		(771)			(698)
Goodwill (net of deferred tax liability)		(8,425)			(8,482)
Intangible assets, other than mortgage servicing rights		(1,525)			(1,657)
Tangible common equity (a)		16,289			14,324
Tier 1 capital, determined in accordance with prescribed regulatory requirements		24,021			22,610
Trust preferred securities		(3,949)			(4,524)
Preferred stock		(1,930)			(1,500)
Noncontrolling interests, less preferred stock not eligible for Tier 1 capital		(694)			(692)
Tier 1 common equity (b)		17,448			15,894
Total assets		283,243			281,176
Goodwill (net of deferred tax liability)		(8,425)			(8,482)
Intangible assets, other than mortgage servicing rights		(1,525)			(1,657)
Tangible assets (c)		273,293			271,037
Risk-weighted assets, determined in accordance with prescribed regulatory requirements (d)		237,145			235,233
Ratios
Tangible common equity to tangible assets (a)/(c)		6.0	%		5.3	%
Tier 1 common equity to risk-weighted assets (b)/(d)		7.4			6.8
Tangible common equity to risk-weighted assets (a)/(d)		6.9			6.1

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Company’s financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Company’s financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Those policies considered to be critical accounting policies relate to the allowance for credit losses, fair value estimates, purchased loans and related indemnification assets, MSRs, goodwill and other intangibles and income taxes. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” and the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

CONTROLS AND PROCEDURES

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

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

  U.S. Bancorp 27

U.S. Bancorp

Consolidated Balance Sheet

	June 30,			December 31,
(Dollars in Millions)	2010			2009
	(Unaudited)
Assets
Cash and due from banks	$	5,033		$	6,206
Investment securities
Held-to-maturity (fair value $519 and $48, respectively)		590			47
Available-for-sale		47,777			44,721
Loans held for sale (included $4,650 and $4,327 of mortgage loans carried at fair value, respectively)		4,912			4,772
Loans
Commercial		46,766			48,792
Commercial real estate		33,944			34,093
Residential mortgages		27,252			26,056
Retail		63,639			63,955
Total loans, excluding covered loans		171,601			172,896
Covered loans		19,983			21,859
Total loans		191,584			194,755
Less allowance for loan losses		(5,320	)		(5,079	)
Net loans		186,264			189,676
Premises and equipment		2,257			2,263
Goodwill		9,002			9,011
Other intangible assets		3,068			3,406
Other assets		24,340			21,074
Total assets	$	283,243		$	281,176
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	$	41,673		$	38,186
Interest-bearing		113,024			115,135
Time deposits greater than $100,000		28,426			29,921
Total deposits		183,123			183,242
Short-term borrowings		33,797			31,312
Long-term debt		29,137			32,580
Other liabilities		8,246			7,381
Total liabilities		254,303			254,515
Shareholders’ equity
Preferred stock		1,930			1,500
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 6/30/10 and 12/31/09 — 2,125,725,742 shares		21			21
Capital surplus		8,292			8,319
Retained earnings		25,367			24,116
Less cost of common stock in treasury: 6/30/10 — 208,740,074 shares; 12/31/09 — 212,786,937 shares		(6,381	)		(6,509	)
Accumulated other comprehensive income (loss)		(1,060	)		(1,484	)
Total U.S. Bancorp shareholders’ equity		28,169			25,963
Noncontrolling interests		771			698
Total equity		28,940			26,661
Total liabilities and equity	$	283,243		$	281,176

See Notes to Consolidated Financial Statements.

  28 U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Income

	Three Months Ended						Six Months Ended
(Dollars and Shares in Millions, Except Per Share Data)	June 30,						June 30,
(Unaudited)	2010			2009			2010			2009
Interest Income
Loans	$	2,515		$	2,345		$	5,020		$	4,695
Loans held for sale		47			71			91			134
Investment securities		394			402			804			836
Other interest income		39			22			73			42
Total interest income		2,995			2,840			5,988			5,707
Interest Expense
Deposits		229			314			465			638
Short-term borrowings		137			131			265			274
Long-term debt		272			341			549			694
Total interest expense		638			786			1,279			1,606
Net interest income		2,357			2,054			4,709			4,101
Provision for credit losses		1,139			1,395			2,449			2,713
Net interest income after provision for credit losses		1,218			659			2,260			1,388
Noninterest Income
Credit and debit card revenue		266			259			524			515
Corporate payment products revenue		178			168			346			322
Merchant processing services		320			278			612			536
ATM processing services		108			104			213			206
Trust and investment management fees		267			304			531			598
Deposit service charges		199			250			406			476
Treasury management fees		145			142			282			279
Commercial products revenue		205			144			366			273
Mortgage banking revenue		243			308			443			541
Investment products fees and commissions		30			27			55			55
Securities gains (losses), net
Realized gains (losses), net		–			69			12			125
Total other-than-temporary impairment		(30	)		(331	)		(117	)		(712	)
Portion of other-than-temporary impairment recognized in other comprehensive income		9			243			50			370
Total securities gains (losses), net		(21	)		(19	)		(55	)		(217	)
Other		170			90			305			259
Total noninterest income		2,110			2,055			4,028			3,843
Noninterest Expense
Compensation		946			764			1,807			1,550
Employee benefits		172			140			352			295
Net occupancy and equipment		226			208			453			419
Professional services		73			59			131			111
Marketing and business development		86			80			146			136
Technology and communications		186			157			371			312
Postage, printing and supplies		75			72			149			146
Other intangibles		91			95			188			186
Other		522			554			916			845
Total noninterest expense		2,377			2,129			4,513			4,000
Income before income taxes		951			585			1,775			1,231
Applicable income taxes		199			100			360			201
Net income		752			485			1,415			1,030
Net (income) loss attributable to noncontrolling interests		14			(14	)		20			(30	)
Net income attributable to U.S. Bancorp	$	766		$	471		$	1,435		$	1,000
Net income applicable to U.S. Bancorp common shareholders	$	862		$	221		$	1,510		$	640
Earnings per common share	$	.45		$	.12		$	.79		$	.36
Diluted earnings per common share	$	.45		$	.12		$	.79		$	.36
Dividends declared per common share	$	.05		$	.05		$	.10		$	.10
Average common shares outstanding		1,912			1,833			1,911			1,794
Average diluted common shares outstanding		1,921			1,840			1,920			1,801

See Notes to Consolidated Financial Statements.

  U.S. Bancorp 29

U.S. Bancorp

Consolidated Statement of Shareholders’ Equity

	U.S. Bancorp Shareholders
																		Other			Total
(Dollars and Shares in Millions)	Common Shares			Preferred			Common		Capital			Retained			Treasury			Comprehensive			Shareholders’			Noncontrolling			Total
(Unaudited)	Outstanding			Stock			Stock		Surplus			Earnings			Stock			Income			Equity			Interests			Equity
Balance December 31, 2008		1,755		$	7,931		$	20	$	5,830		$	22,541		$	(6,659	)	$	(3,363	)	$	26,300		$	733		$	27,033
Change in accounting principle													141						(141	)		–						–
Net income													1,000									1,000			30			1,030
Changes in unrealized gains and losses on securities available-for-sale																			1,520			1,520						1,520
Other-than-temporary impairment not recognized in earnings on securities available-for-sale																			(370	)		(370	)					(370	)
Unrealized gain on derivatives																			394			394						394
Foreign currency translation																			40			40						40
Reclassification for realized losses																			222			222						222
Income taxes																			(686	)		(686	)					(686	)
Total comprehensive income																						2,120			30			2,150
Redemption of preferred stock					(6,599	)																(6,599	)					(6,599	)
Preferred stock dividends and discount accretion					168								(358	)								(190	)					(190	)
Common stock dividends													(184	)								(184	)					(184	)
Issuance of common and treasury stock		157						1		2,562						123						2,686						2,686
Purchase of treasury stock																(4	)					(4	)					(4	)
Net other changes in noncontrolling interests																						–			(18	)		(18	)
Distributions to noncontrolling interests																						–			(30	)		(30	)
Stock option and restricted stock grants										42												42						42
Balance June 30, 2009		1,912		$	1,500		$	21	$	8,434		$	23,140		$	(6,540	)	$	(2,384	)	$	24,171		$	715		$	24,886
Balance December 31, 2009		1,913		$	1,500		$	21	$	8,319		$	24,116		$	(6,509	)	$	(1,484	)	$	25,963		$	698		$	26,661
Change in accounting principle													(73	)								(73	)		(16	)		(89	)
Net income													1,435									1,435			(20	)		1,415
Changes in unrealized gains and losses on securities available-for-sale																			855			855						855
Other-than-temporary impairment not recognized in earnings on securities available-for-sale																			(50	)		(50	)					(50	)
Unrealized loss on derivatives																			(206	)		(206	)					(206	)
Foreign currency translation																			30			30						30
Reclassification for realized losses																			56			56						56
Income taxes																			(261	)		(261	)					(261	)
Total comprehensive income																						1,859			(20	)		1,839
Preferred stock dividends and discount accretion													(37	)								(37	)					(37	)
Common stock dividends													(192	)								(192	)					(192	)
Issuance of preferred stock					430					10			118									558						558
Issuance of common and treasury stock		5								(97	)					143						46						46
Purchase of treasury stock		(1	)													(15	)					(15	)					(15	)
Net other changes in noncontrolling interests																						–			145			145
Distributions to noncontrolling interests																						–			(36	)		(36	)
Stock option and restricted stock grants										60												60						60
Balance June 30, 2010		1,917		$	1,930		$	21	$	8,292		$	25,367		$	(6,381	)	$	(1,060	)	$	28,169		$	771		$	28,940

See Notes to Consolidated Financial Statements.

  30 U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Cash Flows

	Six Months Ended
(Dollars in Millions)	June 30,
(Unaudited)	2010			2009
Operating Activities
Net cash provided by operating activities		$3,960			$774
Investing Activities
Proceeds from sales of available-for-sale investment securities		1,060			3,810
Proceeds from maturities of investment securities		6,714			3,658
Purchases of investment securities		(9,968	)		(6,727	)
Net decrease in loans outstanding		507			366
Proceeds from sales of loans		1,030			1,881
Purchases of loans		(1,807	)		(1,277	)
Acquisitions, net of cash acquired		832			222
Other, net		(779	)		838
Net cash provided by (used in) investing activities		(2,411	)		2,771
Financing Activities
Net increase (decrease) in deposits		(602	)		4,307
Net increase (decrease) in short-term borrowings		1,832			(4,285	)
Proceeds from issuance of long-term debt		2,923			4,682
Principal payments or redemption of long-term debt		(6,684	)		(3,741	)
Fees paid on exchange of income trust securities for perpetual preferred stock		(4	)		–
Proceeds from issuance of common stock		43			2,684
Redemption of preferred stock		–			(6,599	)
Cash dividends paid on preferred stock		(38	)		(237	)
Cash dividends paid on common stock		(192	)		(834	)
Net cash used in financing activities		(2,722	)		(4,023	)
Change in cash and due from banks		(1,173	)		(478	)
Cash and due from banks at beginning of period		6,206			6,859
Cash and due from banks at end of period		$5,033			$6,381

See Notes to Consolidated Financial Statements.

  U.S. Bancorp 31

Notes to Consolidated Financial Statements

(Unaudited)

Note 1    Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Certain amounts in prior periods have been reclassified to conform to the current presentation.

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

Note 2    Accounting Changes

Accounting for Transfers of Financial Assets Effective January 1, 2010, the Company adopted accounting guidance issued by the Financial Accounting Standards Board (“FASB”) related to transfers of financial assets. This guidance removes the concept of qualifying special-purpose entities and the exception for guaranteed mortgage securitizations when a transferor had not surrendered control over the transferred financial assets. In addition, the guidance provides clarification of the requirements for isolation and limitations on sale accounting for portions of financial assets. The guidance also requires additional disclosure about transfers of financial assets and a transferor’s continuing involvement with transferred assets. The adoption of this guidance was not significant to the Company’s financial statements.

Variable Interest Entities Effective January 1, 2010, the Company adopted accounting guidance issued by the FASB related to variable interest entities (“VIEs”). Generally, a VIE is an entity with insufficient equity at risk requiring additional subordinated financial support, or an entity in which equity investors as a group, either (i) lack the power through voting or other similar rights, to direct the activities of the entity that most significantly impact its performance, (ii) lack the obligation to absorb the expected losses of the entity or (iii) lack the right to receive the expected residual returns of the entity. The new guidance replaces the previous quantitative-based risks and rewards calculation for determining whether an entity must consolidate a VIE with an assessment of whether the entity has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This guidance requires reconsideration of whether an entity is a VIE upon occurrence of certain events, as well as ongoing assessments of whether a variable interest holder is the primary beneficiary of a VIE. The Company consolidated approximately $1.6 billion of assets of previously unconsolidated entities, and deconsolidated approximately $84 million of assets of previously consolidated entities upon adoption of this guidance. Additionally, the adoption of this guidance reduced total equity by $89 million.

  32 U.S. Bancorp

Note 3    Investment Securities

The amortized cost, other-than-temporary impairment recorded in other comprehensive income, gross unrealized holding gains and losses, and fair value of held-to-maturity and available-for-sale securities were as follows:

	June 30, 2010											December 31, 2009
					Unrealized Losses											Unrealized Losses
	Amortized		Unrealized		Other-than-					Fair		Amortized		Unrealized		Other-than-					Fair
(Dollars in Millions)	Cost		Gains		Temporary		Other			Value		Cost		Gains		Temporary		Other			Value
Held-to-maturity (a)
U.S. Treasury and agencies	$	63	$	–	$	–	$	–		$	63	$	–	$	–	$	–	$	–		$	–
Mortgage-backed securities
Residential
Agency		4		–		–		–			4		4		–		–		–			4
Non-agency
Non-prime		4		–		–		–			4		–		–		–		–			–
Commercial		10		–		–		(6	)		4		–		–		–		–			–
Asset-backed securities													–		–		–		–			–
Collateralized debt obligations/Collaterized loan obligations		208		9		–		(29	)		188		–		–		–		–			–
Other		132		–		(2)		(7	)		123		–		–		–		–			–
Obligations of state and political subdivisions		30		2		–		(2	)		30		32		2		–		(1	)		33
Other debt securities		139		–		–		(36	)		103		11		–		–		–			11
Total held-to-maturity	$	590	$	11	$	(2)	$	(80	)	$	519	$	47	$	2	$	–	$	(1	)	$	48
Available-for-sale (b)
U.S. Treasury and agencies	$	2,533	$	14	$	–	$	–		$	2,547	$	3,415	$	10	$	–	$	(21	)	$	3,404
Mortgage-backed securities
Residential
Agency		32,461		993		–		(19	)		33,435		29,288		501		–		(47	)		29,742
Non-agency
Prime (c)		1,342		10		(104)		(51	)		1,197		1,624		8		(110)		(93	)		1,429
Non-prime		1,230		7		(294)		(36	)		907		1,359		11		(297)		(105	)		968
Commercial		14		1		–		–			15		14		–		(1)		–			13
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		147		24		(6)		–			165		199		11		(5)		–			205
Other		918		13		(6)		(9	)		916		360		12		(5)		(10	)		357
Obligations of state and political subdivisions		6,861		38		–		(115	)		6,784		6,822		30		–		(159	)		6,693
Obligations of foreign governments		6		–		–		–			6		6		–		–		–			6
Corporate debt securities		1,154		–		–		(227	)		927		1,179		–		–		(301	)		878
Perpetual preferred securities		482		29		–		(80	)		431		483		30		–		(90	)		423
Other investments (d)		403		45		–		(1	)		447		607		9		–		(13	)		603
Total available-for-sale	$	47,551	$	1,174	$	(410)	$	(538	)	$	47,777	$	45,356	$	622	$	(418)	$	(839	)	$	44,721

(a)	Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums and accretion of discounts and credit-related other-than-temporary impairment.
(b)	Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
(c)	Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
(d)	Includes securities covered under loss shaing agreements with the Federal Deposit Insurance Corporation (“FDIC”) with a fair value of $266 million and $231 million at June 30, 2010 and December 31, 2009, respectively.

The weighted-average maturity of the available-for-sale investment securities was 5.5 years at June 30, 2010, compared with 7.1 years at December 31, 2009. The corresponding weighted-average yields were 3.78 percent and 4.00 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 5.9 years at June 30, 2010, and 8.4 years at December 31, 2009. The corresponding weighted-average yields were 1.38 percent and 5.10 percent, respectively.

For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale securities outstanding at June 30, 2010, refer to Table 4 included in Management’s Discussion and Analysis, which is incorporated by reference into these Notes to Consolidated Financial Statements.

Securities carried at $31.5 billion at June 30, 2010, and $37.4 billion at December 31, 2009, were pledged to secure public, private and trust deposits, repurchase agreements and for other purposes required by law. Included in these amounts were securities sold under agreements to repurchase where the buyer/lender has the right to sell or pledge the securities and which were collateralized by securities with a carrying amount of $8.7 billion at June 30, 2010, and $8.9 billion at December 31, 2009.

  U.S. Bancorp 33

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in Millions)	2010		2009		2010		2009
Taxable	$	317	$	328	$	650	$	684
Non-taxable		77		74		154		152
Total interest income from investment securities	$	394	$	402	$	804	$	836

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(Dollars in Millions)	2010		2009			2010		2009
Realized gains	$	–	$	70		$	12	$	127
Realized losses		–		(1	)		–		(2	)
Net realized gains (losses)	$	–	$	69		$	12	$	125
Income tax (benefit) on realized gains (losses)	$	–	$	27		$	4	$	48

In the fourth quarter of 2007, the Company purchased certain structured investment securities (“SIVs”) from certain money market funds managed by FAF Advisors, Inc., an affiliate of the Company. Subsequent to the initial purchase, the Company exchanged its interests in certain SIVs for a pro-rata portion of the underlying investment securities according to the applicable restructuring agreements. The SIVs and the investment securities received are collectively referred to as “SIV-related securities.”

Some of the SIV-related securities, as well as certain acquired securities covered under loss sharing agreements with the FDIC, evidenced credit deterioration at the time of acquisition by the Company. Investment securities with evidence of credit deterioration at acquisition had an unpaid principal balance and fair value of $1.1 billion and $466 million, respectively, at June 30, 2010 and $1.2 billion and $483 million, respectively, at December 31, 2009. Changes in the accretable balance for these securities, were as follows:

	Three Months Ended						Six Months Ended
	June, 30,						June 30,
(Dollars in Millions)	2010			2009			2010			2009
Balance at beginning of period	$	319		$	224		$	292		$	349
Impact of other-than-temporary impairment accounting change		–			–			–			(124	)
Adjusted balance at beginning of period		319			224			292			225
Accretion		(8	)		(1	)		(15	)		(2	)
Other (a)		(9	)		(49	)		25			(49	)
Balance at end of period	$	302		$	174		$	302		$	174

(a) Represents changes in projected future cash flows on certain investment securities.

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

  34 U.S. Bancorp

The following table summarizes other-than-temporary impairment by investment category:

	2010									2009
	Losses									Losses
Three Months Ended June 30,	Recorded in			Other Gains						Recorded in			Other Gains
(Dollars in Millions)	Earnings			(Losses)			Total			Earnings			(Losses)			Total
Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a)	$	(1	)	$	(1	)	$	(2	)	$	(1	)	$	(10	)	$	(11	)
Non-prime		(11	)		(11	)		(22	)		(49	)		(96	)		(145	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		(4	)		–			(4	)		–			(1	)		(1	)
Other		(5	)		3			(2	)		(26	)		(136	)		(162	)
Perpetual preferred securities		–			–			–			(12	)		–			(12	)
Total available-for-sale	$	(21	)	$	(9	)	$	(30	)	$	(88	)	$	(243	)	$	(331	)

	2010									2009
	Losses									Losses
Six Months Ended June 30,	Recorded in			Other Gains						Recorded in			Other Gains
(Dollars in Millions)	Earnings			(Losses)			Total			Earnings			(Losses)			Total
Held-to-maturity
Asset-backed securities
Other	$	(2	)	$	–		$	(2	)	$	–		$	–		$	–
Total held-to-maturity	$	(2	)	$	–		$	(2	)	$	–		$	–		$	–
Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a)	$	(3	)	$	(10	)	$	(13	)	$	(8	)	$	(129	)	$	(137	)
Non-prime		(46	)		(43	)		(89	)		(77	)		(199	)		(276	)
Commercial		–			–			–			(1	)		(1	)		(2	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		(5	)		–			(5	)		(5	)		–			(5	)
Other		(10	)		2			(8	)		(41	)		(41	)		(82	)
Perpetual preferred securities		–			–			–			(207	)		–			(207	)
Corporate debt securities		–			–			–			(3	)		–			(3	)
Other debt securities		(1	)		1			–			–			–			–
Total available-for-sale	$	(65	)	$	(50	)	$	(115	)	$	(342	)	$	(370	)	$	(712	)

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

The Company determined the other-than-temporary impairment recorded in earnings for securities other than perpetual preferred securities by estimating the future cash flows of each individual security, using market information where available, and discounting the cash flows at the original effective rate of the security. Other-than-temporary impairment recorded in other comprehensive income was measured as the difference between that discounted amount and the fair value of each security. The following table includes the ranges for principal assumptions used at June 30, 2010 for those available-for-sale non-agency mortgage-backed securities determined to be other-than-temporarily impaired:

	Prime									Non-Prime
	Minimum			Maximum			Average			Minimum			Maximum			Average
Estimated lifetime prepayment rates		4	%		15	%		13	%		1	%		13	%		6	%
Lifetime probability of default rates		3			10			4			2			20			8
Lifetime loss severity rates		38			69			43			37			70			57

  U.S. Bancorp 35

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2010			2009			2010			2009
Balance at beginning of period	$	391		$	358		$	335		$	299
Credit losses on securities not previously considered other-than-temporarily impaired		2			21			15			75
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized		19			55			52			60
Increases in expected cash flows		(12	)		(27	)		(13	)		(27	)
Realized losses		(18	)		(7	)		(25	)		(7	)
Other		–			–			18			–
Balance at end of period	$	382		$	400		$	382		$	400

At June 30, 2010, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and length of time the individual securities have been in continuous unrealized loss positions, at June 30, 2010:

	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in Millions)	Value		Losses			Value		Losses			Value		Losses
Held-to-maturity
Mortgage-backed securities
Residential
Non-agency
Non-prime	$	–	$	–		$	3	$	–		$	3	$	–
Commercial		–		–			4		(6	)		4		(6	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		–		–			119		(29	)		119		(29	)
Other		–		–			22		(9	)		22		(9	)
Obligations of state and political subdivisions		1		–			9		(2	)		10		(2	)
Other debt securities		–		–			94		(36	)		94		(36	)
Total held-to-maturity	$	1	$	–		$	251	$	(82	)	$	252	$	(82	)
Available-for-sale
U.S. Treasury and agencies	$	401	$	–		$	51	$	–		$	452	$	–
Mortgage-backed securities
Residential
Agency		3,351		(18	)		100		(1	)		3,451		(19	)
Non-agency
Prime (a)		–		–			1,129		(155	)		1,129		(155	)
Non-prime		71		(10	)		779		(320	)		850		(330	)
Commercial		2		–			2		–			4		–
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		23		(3	)		8		(3	)		31		(6	)
Other		226		(2	)		27		(13	)		253		(15	)
Obligations of state and political subdivisions		1,582		(18	)		2,261		(97	)		3,843		(115	)
Obligations of foreign governments		6		–			–		–			6		–
Corporate debt securities		–		–			927		(227	)		927		(227	)
Perpetual preferred securities		–		–			317		(80	)		317		(80	)
Other investments		–		–			3		(1	)		3		(1	)
Total available-for-sale	$	5,662	$	(51	)	$	5,604	$	(897	)	$	11,266	$	(948	)

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

The Company does not consider these unrealized losses to be credit-related. These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. A substantial portion of securities that have unrealized losses are either corporate debt or non-agency mortgage-backed securities issued with high investment

  36 U.S. Bancorp

grade credit ratings. In general, the issuers of the investment securities are contractually prohibited from prepayment at less than par, and the Company did not pay significant purchase premiums for these securities. At June 30, 2010, the Company had no plans to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of their amortized cost.

Note 4    Loans

The composition of the loan portfolio was as follows:

	June 30, 2010					December 31, 2009
			Percent					Percent
(Dollars in Millions)	Amount		of Total			Amount		of Total
Commercial
Commercial	$	40,621		21.2	%	$	42,255		21.7	%
Lease financing		6,145		3.2			6,537		3.4
Total commercial		46,766		24.4			48,792		25.1
Commercial real estate
Commercial mortgages		25,573		13.3			25,306		13.0
Construction and development		8,371		4.4			8,787		4.5
Total commercial real estate		33,944		17.7			34,093		17.5
Residential mortgages
Residential mortgages		21,771		11.4			20,581		10.6
Home equity loans, first liens		5,481		2.9			5,475		2.8
Total residential mortgages		27,252		14.3			26,056		13.4
Retail
Credit card		16,762		8.7			16,814		8.6
Retail leasing		4,303		2.3			4,568		2.3
Home equity and second mortgages		19,326		10.1			19,439		10.0
Other retail
Revolving credit		3,467		1.8			3,506		1.8
Installment		5,588		2.9			5,455		2.8
Automobile		10,017		5.2			9,544		4.9
Student		4,176		2.2			4,629		2.4
Total other retail		23,248		12.1			23,134		11.9
Total retail		63,639		33.2			63,955		32.8
Total loans, excluding covered loans		171,601		89.6			172,896		88.8
Covered loans		19,983		10.4			21,859		11.2
Total loans	$	191,584		100.0	%	$	194,755		100.0	%

The Company had loans of $54.6 billion at June 30, 2010, and $55.6 billion at December 31, 2009, pledged at the Federal Home Loan Bank (“FHLB”), and loans of $43.8 billion at June 30, 2010, and $44.2 billion at December 31, 2009, pledged at the Federal Reserve Bank.

Originated loans are presented net of unearned interest and deferred fees and costs, which amounted to $1.3 billion at June 30, 2010, and December 31, 2009. In accordance with applicable authoritative accounting guidance effective for the Company January 1, 2009, all purchased loans and related indemnification assets are recorded at fair value at the date of purchase. The Company evaluates purchased loans for impairment in accordance with applicable authoritative accounting guidance. Purchased loans with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are considered impaired (“purchased impaired loans”). All other purchased loans are considered nonimpaired (“purchased nonimpaired loans”).

  U.S. Bancorp 37

Covered assets represent loans and other assets acquired from the FDIC subject to loss sharing agreements and included expected reimbursements from the FDIC of approximately $3.8 billion at June 30, 2010 and $3.9 billion at December 31, 2009. The carrying amount of the covered assets consisted of purchased impaired loans, purchased nonimpaired loans, and other assets as shown in the following table:

	June 30, 2010								December 31, 2009
	Purchased		Purchased						Purchased		Purchased
	impaired		nonimpaired		Other				impaired		nonimpaired		Other
(Dollars in Millions)	loans		loans		assets		Total		loans		loans		assets		Total
Commercial loans	$	76	$	410	$	–	$	486	$	86	$	443	$	–	$	529
Commercial real estate loans		2,383		6,448		–		8,831		3,035		6,724		–		9,759
Residential mortgage loans		4,061		1,797		–		5,858		4,712		1,918		–		6,630
Retail loans		–		974		–		974		30		978				1,008
Losses reimbursable by the FDIC		–		–		3,834		3,834		–		–		3,933		3,933
Covered loans		6,520		9,629		3,834		19,983		7,863		10,063		3,933		21,859
Foreclosed real estate		–		–		791		791		–		–		653		653
Total covered assets	$	6,520	$	9,629	$	4,625	$	20,774	$	7,863	$	10,063	$	4,586	$	22,512

At June 30, 2010, $.9 billion of the purchased impaired loans included in covered loans were classified as nonperforming assets, compared with $1.1 billion at December 31, 2009, because the expected cash flows are primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. Interest income is recognized on other purchased impaired loans in covered loans through accretion of the difference between the carrying amount of those loans and their expected cash flows. The initial determination of the fair value of the purchased loans includes the impact of expected credit losses and, therefore, no allowance for credit losses is recorded at the purchase date. To the extent credit deterioration occurs after the date of acquisition, the Company records an allowance for loan losses. There has not been any significant credit deterioration since the respective acquisition dates.

Changes in the accretable balance for purchased impaired loans for the Downey Savings and Loan Association, F.A., PFF Bank and Trust, and First Bank of Oak Park Corporation transactions were as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2010			2009			2010			2009
Balance at beginning of period	$	2,825		$	2,405		$	2,845		$	2,719
Accretion		(104	)		(87	)		(205	)		(183	)
Disposals		(11	)		(36	)		(18	)		(47	)
Reclassifications (to) from nonaccretable difference		68			(212	)		160			(233	)
Other		(29	)		4			(33	)		(182	)
Balance at end of period	$	2,749		$	2,074		$	2,749		$	2,074

Net gains on the sale of loans of $92 million and $253 million for the three months ended June 30, 2010 and 2009, respectively, and $203 million and $369 million for the six months ended June 30, 2010 and 2009, respectively, were included in noninterest income, primarily in mortgage banking revenue.

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

The Company sells financial assets in the normal course of business. The majority of the Company’s financial asset sales are residential mortgage loan sales primarily to government-sponsored enterprises through established programs, the sale or syndication of tax-advantaged investments, commercial loan sales through participation agreements, and other individual or portfolio loan and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. For loans sold under participation agreements, the Company also considers the terms of the loan participation agreement and whether they meet the definition of a participating interest and thus qualify for derecognition. With the exception of servicing and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses. The guarantees provided to certain third parties in connection with the sale or syndication of certain assets, primarily loan portfolios and tax-advantaged investments, is further discussed in Note 22 in the

  38 U.S. Bancorp

Company’s Annual Report on Form 10-K for the year ended December 31, 2009. When the Company sells financial assets, it may retain servicing rights and/or other interests in the transferred financial assets. The gain or loss on sale depends on the previous carrying amount of the transferred financial assets and the consideration received and any liabilities incurred in exchange for the transferred assets. Upon transfer, any servicing assets and other interests that continue to be held by the Company are initially recognized at fair value. For further information on mortgage servicing rights, refer to Note 6. The Company has no asset securitizations or similar asset-backed financing arrangements that are off-balance sheet.

The Company is involved in various entities that are considered to be VIEs. The Company’s investments in VIEs primarily represent private investment funds or partnerships that make equity investments, provide debt financing or support community-based investments in affordable housing, development entities that provide capital for communities located in low-income districts and for historic rehabilitation projects that may enable the Company to ensure regulatory compliance with the Community Reinvestment Act. In addition, the Company sponsors entities to which it transfers tax-advantaged investments.

As a result of adopting new accounting guidance, the Company consolidated certain community development and tax-advantaged investment entities on January 1, 2010 that it had not previously consolidated. The consolidation of these VIEs increased assets and liabilities by approximately $1.0 billion. The equity impact of consolidating these VIEs was a $9 million decrease, which represents the recognition of noncontrolling interests in the consolidated VIEs. At June 30, 2010, approximately $2.5 billion of the Company’s assets and liabilities related to community development and tax-advantaged investment entities VIEs. The majority of the assets of these consolidated VIEs are reported in other assets, and the liabilities are reported in long-term debt on the consolidated balance sheet. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIEs do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIEs is generally limited to the carrying value of its variable interests plus any related tax credits previously recognized.

The Company also deconsolidated certain community development and tax-advantaged investment entities as a result of adopting the new accounting guidance, principally because the Company did not have power to direct the activities that most significantly impact the VIEs. The deconsolidation of these VIEs resulted in an $84 million decrease in assets and $77 million decrease in liabilities. The deconsolidation also resulted in a $7 million decrease to equity, which was principally the removal of the noncontrolling interests in these VIEs.

In addition, the Company sponsors a conduit to which it previously transferred high-grade investment securities. Under accounting rules effective prior to January 1, 2010, the Company was not the primary beneficiary of the conduit as it did not absorb the majority of the conduit’s expected losses or residual returns. Under the new accounting guidance, the Company consolidated the conduit on January 1, 2010, because of its ability to manage the activities of the conduit. Consolidation of the conduit increased held-to-maturity investment securities $.6 billion, decreased loans $.7 billion, and reduced retained earnings $73 million. At June 30, 2010, $.5 billion of the held-to-maturity investment securities on the Company’s consolidated balance sheet were related to the conduit.

The Company is not required to consolidate other VIEs in which it is not the primary beneficiary. In such cases, the Company does not control the entities’ most significant activities or does not have the obligation to absorb losses or right to receive benefits that are significant to the VIE. The Company’s investments in unconsolidated VIEs ranged from less than $1 million to $107 million, with an aggregate amount of approximately $2.2 billion at June 30, 2010, and from less than $1 million to $63 million, with an aggregate amount of $2.4 billion at December 31, 2009. The Company’s investments in these unconsolidated VIEs generally are carried in other assets on the balance sheet. While the Company believes potential losses from these investments is remote, the Company’s maximum exposure to these unconsolidated VIEs, including any tax implications, was approximately $5.0 billion at June 30, 2010, compared with $4.7 billion at December 31, 2009. This maximum exposure is determined by assuming a scenario where the separate investments within the individual private funds were to become worthless, and the community-based business and housing projects and related tax credits completely failed and did not meet certain government compliance requirements.

  U.S. Bancorp 39

Note 6    Mortgage Servicing Rights

The Company serviced $163.2 billion of residential mortgage loans for others at June 30, 2010, and $150.8 billion at December 31, 2009. The net impact included in mortgage banking revenue of assumption changes on the fair value of mortgage servicing rights (“MSRs”) and fair value changes of derivatives used to offset MSR value changes was a net gain of $55 million and $45 million for the three months ended June 30, 2010, and 2009, respectively, and a net gain of $97 million and $47 million for the six months ended June 30, 2010 and 2009, respectively. Loan servicing fees, not including valuation changes included in mortgage banking revenue, were $143 million and $126 million for the three months ended June 30, 2010 and 2009, respectively, and $285 million and $243 million for the six months ended June 30, 2010 and 2009, respectively.

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2010			2009			2010			2009
Balance at beginning of period	$	1,778		$	1,182		$	1,749		$	1,194
Rights purchased		33			42			38			75
Rights capitalized		117			239			249			432
Changes in fair value of MSRs:
Due to change in valuation assumptions (a)		(314	)		131			(350	)		(4	)
Other changes in fair value (b)		(71	)		(112	)		(143	)		(215	)
Balance at end of period	$	1,543		$	1,482		$	1,543		$	1,482

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

The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments at June 30, 2010, was as follows:

	Down Scenario				Up Scenario
(Dollars in Millions)	50 bps		25 bps		25 bps		50 bps
Net fair value	$	10	$	4	$	8	$	15

The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages, and Mortgage Revenue Bond Programs (“MRBP”). The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-rate or jumbo mortgage loans. The MRBP division specializes in servicing loans made under state and local housing authority programs. These programs provide mortgages to low-income and moderate-income borrowers and are generally government-insured programs with a favorable rate subsidy, down payment and/or closing cost assistance. Mortgage loans originated as part of government agency and state loans programs tend to experience slower prepayment rates and better cash flows than conventional mortgage loans.

A summary of the Company’s MSRs and related characteristics by portfolio at June 30, 2010 was as follows:

(Dollars in Millions)	MRBP		Government			Conventional		Total
Servicing portfolio	$	12,068	$	24,454		$	126,709	$	163,231
Fair value	$	160	$	281		$	1,102	$	1,543
Value (bps) (a)		133		115			87		95
Weighted-average servicing fees (bps)		40		39			31		33
Multiple (fair value/weighted-average servicing fees)		3.33		2.95			2.81		2.88
Weighted-average note rate		5.88%		5.54	%		5.44%		5.49	%
Age (in years)		4.1		2.2			2.6		2.7
Expected life (in years)		6.4		4.2			4.2		4.4
Discount rate		11.9%		11.4	%		10.6%		10.8	%

(a) Value is calculated as fair value divided by the servicing portfolio.

  40 U.S. Bancorp

Note 7    Preferred Stock

At June 30, 2010 and December 31, 2009, the Company had authority to issue 50 million shares of preferred stock. The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock was as follows:

	June 30, 2010								December 31, 2009
	Shares								Shares
	Issued and		Liquidation				Carrying		Issued and		Liquidation				Carrying
(Dollars in Millions)	Outstanding		Preference		Discount		Amount		Outstanding		Preference		Discount		Amount
Series A		5,746	$	575	$	145	$	430		–	$	–	$	–	$	–
Series B		40,000		1,000		–		1,000		40,000		1,000		–		1,000
Series D		20,000		500		–		500		20,000		500		–		500
Total preferred stock (a)		65,746	$	2,075	$	145	$	1,930		60,000	$	1,500	$	–	$	1,500

(a) The par value of all shares issued and outstanding at June 30, 2010 and December 31, 2009, was $1.00 a share.

On June 10, 2010, the Company exchanged depositary shares representing an ownership interest in 5,746 shares of Series A Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $100,000 per share (the “Series A Preferred Stock”) for approximately 46 percent of the outstanding Income Trust Securities (“ITS”) issued by USB Capital IX to third party investors, retired a pro-rata portion of the related junior subordinated debentures and cancelled a pro-rata portion of the related stock purchase contracts. The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable semi-annually, in arrears, at a rate per annum equal to 7.189 percent through a specified stock purchase date for the remaining untendered ITS expected to be April 15, 2011, and thereafter, payable quarterly, at a rate per annum equal to the greater of three-month LIBOR plus 1.02 percent or 3.50 percent. The Series A Preferred Stock is redeemable at the Company’s option subsequent to the stock purchase date, subject to prior approval by the Federal Reserve Board.

For further information on junior subordinated debentures and preferred stock, refer to Notes 14 and 15, respectively, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Note 8    Earnings Per Share

The components of earnings per share were:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars and Shares in Millions, Except Per Share Data)	2010			2009			2010			2009
Net income attributable to U.S. Bancorp	$	766		$	471		$	1,435		$	1,000
Preferred dividends		(18	)		(90	)		(37	)		(190	)
Equity portion of gain on ITS exchange transaction, net of tax		118			–			118			–
Accretion of preferred stock discount		–			(6	)		–			(14	)
Deemed dividend on preferred stock redemption		–			(154	)		–			(154	)
Earnings allocated to participating stock awards		(4	)		–			(6	)		(2	)
Net income applicable to U.S. Bancorp common shareholders	$	862		$	221		$	1,510		$	640
Average common shares outstanding		1,912			1,833			1,911			1,794
Net effect of the exercise and assumed purchase of stock awards and conversion of outstanding convertible notes		9			7			9			7
Average diluted common shares outstanding		1,921			1,840			1,920			1,801
Earnings per common share	$	.45		$	.12		$	.79		$	.36
Diluted earnings per common share	$	.45		$	.12		$	.79		$	.36

Options and warrants to purchase 56 million and 109 million common shares for the three months ended June 30, 2010 and 2009, respectively, and 56 million and 109 million common shares for the six months ended June 30, 2010 and 2009, respectively, were outstanding but not included in the computation of diluted earnings per share because they were antidilutive.

  U.S. Bancorp 41

Note 9    Employee Benefits

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

	Three Months Ended June 30,												Six Months Ended June 30,
							Postretirement												Postretirement
	Pension Plans						Welfare Plan						Pension Plans						Welfare Plan
(Dollars in Millions)	2010			2009			2010			2009			2010			2009			2010			2009
Service cost	$	23		$	20		$	2		$	2		$	46		$	40		$	4		$	3
Interest cost		39			38			3			3			78			76			5			6
Expected return on plan assets		(53	)		(53	)		(1	)		(2	)		(107	)		(107	)		(2	)		(3	)
Prior service (credit) cost and transition (asset) obligation amortization		(3	)		(2	)		–			–			(6	)		(3	)		–			–
Actuarial (gain) loss amortization		16			12			(2	)		(2	)		32			24			(3	)		(4	)
Net periodic benefit cost	$	22		$	15		$	2		$	1		$	43		$	30		$	4		$	2

Note 10    Income Taxes

The components of income tax expense were:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2010			2009			2010			2009
Federal
Current	$	301		$	310		$	455		$	684
Deferred		(123	)		(225	)		(143	)		(520	)
Federal income tax		178			85			312			164
State
Current		32			36			61			85
Deferred		(11	)		(21	)		(13	)		(48	)
State income tax		21			15			48			37
Total income tax provision	$	199		$	100		$	360		$	201

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in Millions)	2010			2009			2010			2009
Tax at statutory rate	$	333		$	205		$	622		$	431
State income tax, at statutory rates, net of federal tax benefit		14			10			31			24
Tax effect of
Tax credits		(110	)		(76	)		(210	)		(151	)
Tax-exempt income		(53	)		(49	)		(105	)		(98	)
Noncontrolling interests		5			(4	)		7			(10	)
Other items		10			14			15			5
Applicable income taxes	$	199		$	100		$	360		$	201

The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of June 30, 2010, the federal taxing authority has completed its examination of the Company through the fiscal year ended December 31, 2006. The years open to examination by foreign, state and local government authorities vary by jurisdication.

The Company’s net deferred tax liability was $309 million at June 30, 2010, and $190 million at December 31, 2009.

  42 U.S. Bancorp

Note 11    Derivative Instruments

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

Of the Company’s $46.9 billion of total notional amount of asset and liability management positions at June 30, 2010, $9.5 billion was designated as a fair value, cash flow or net investment hedge. When a derivative is designated as either a fair value, cash flow or net investment hedge, the Company performs an assessment, at inception and quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).

Fair Value Hedges These derivatives are primarily interest rate swaps that hedge the change in fair value related to interest rate changes of underlying fixed-rate debt and junior subordinated debentures. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings. All fair value hedges were highly effective for the six months ended June 30, 2010, and the change in fair value attributed to hedge ineffectiveness was not material.

Cash Flow Hedges These derivatives are interest rate swaps that are hedges of the forecasted cash flows from the underlying variable-rate debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until expense from the cash flows of the hedged items is realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately. At June 30, 2010, the Company had $454 million of realized and unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss). The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the remainder of 2010 and the next 12 months is a loss of $64 million and $124 million, respectively. This includes gains and losses related to hedges that were terminated early for which the forecasted transactions are still probable. All cash flow hedges were highly effective for the six months ended June 30, 2010, and the change in fair value attributed to hedge ineffectiveness was not material.

Net Investment Hedges The Company uses forward commitments to sell specified amounts of certain foreign currencies to hedge the volatility of its investment in foreign operations driven by fluctuations in foreign currency exchange rates. The net amount of related gains or losses included in the cumulative translation adjustment for the first six months of 2010 was not material.

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

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

  U.S. Bancorp 43

The following table provides information on the fair value of the Company’s derivative positions:

	June 30, 2010						December 31, 2009
	Asset			Liability			Asset			Liability
(Dollars in millions)	Derivatives			Derivatives			Derivatives			Derivatives
Total fair value of derivative positions	$	1,960		$	2,440		$	1,582		$	1,854
Netting (a)		(244	)		(1,375	)		(421	)		(995	)
Total	$	1,716		$	1,065		$	1,161		$	859

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

(a) Represents netting of derivative asset and liability balances, and related collateral, with the same counterparty subject to master netting agreements. Authoritative accounting guidance permits the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a derivative counterparty. A master netting agreement is an agreement between two counterparties who have multiple derivative contracts with each other that provide for the net settlement of contracts through a single payment, in a single currency, in the event of default on or termination of any one contract. At June 30, 2010, the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $92 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $1.2 billion. At December 31, 2009, the amount of cash collateral posted by counterparties that was netted against derivative assets was $116 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $691 million.

The following table summarizes the asset and liability management derivative positions of the Company:

	Asset Derivatives						Liability Derivatives
					Weighted-Average						Weighted-Average
					Remaining						Remaining
	Notional		Fair		Maturity		Notional		Fair		Maturity
(Dollars in Millions)	Value		Value		In Years		Value		Value		In Years
June 30, 2010
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps	$	2,575	$	128		51.30	$	–	$	–		–
Foreign exchange cross-currency swaps		424		61		5.12		1,224		51		6.67
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps		–		–		–		4,788		748		5.53
Net investment hedges
Foreign exchange forward contracts		–		–		–		462		–		.04
Other economic hedges
Interest rate contracts
Futures and forwards
Buy		16,810		185		.08		27		–		.13
Sell		765		–		.17		9,520		173		.11
Options
Purchased		3,500		–		.11		–		–		–
Written		3,928		56		.10		7		–		.13
Foreign exchange forward contracts		505		8		.06		145		–		.09
Equity contracts		–		–		–		58		6		2.05
Credit contracts		830		5		3.27		1,353		1		2.88
December 31, 2009
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps		3,235		70		32.71		1,950		32		20.52
Foreign exchange cross-currency swaps		1,864		272		6.81		–		–		–
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps		–		–		–		8,363		556		3.58
Net investment hedges
Foreign exchange forward contracts		536		15		.08		–		–		–
Other economic hedges
Interest rate contracts
Futures and forwards
Buy		1,250		6		.07		9,862		190		.05
Sell		7,533		91		.11		1,260		3		.06
Options
Purchased		5,250		–		.06		–		–		–
Written		2,546		9		.08		594		2		.09
Foreign exchange forward contracts		113		1		.08		293		2		.08
Equity contracts		27		2		1.58		29		1		.29
Credit contracts		863		2		3.68		1,261		1		3.05

  44 U.S. Bancorp

The following table summarizes the customer-related derivative positions of the Company:

	Asset Derivatives						Liability Derivatives
					Weighted-Average						Weighted-Average
					Remaining						Remaining
	Notional		Fair		Maturity		Notional		Fair		Maturity
(Dollars in Millions)	Value		Value		In Years		Value		Value		In Years
June 30, 2010
Interest rate contracts
Receive fixed/pay floating swaps	$	18,702	$	1,178		4.60	$	129	$	2		5.93
Pay fixed/receive floating swaps		221		2		6.00		18,570		1,136		4.64
Options
Purchased		1,959		13		1.83		294		36		.39
Written		495		36		.43		1,745		13		2.00
Foreign exchange rate contracts
Forwards, spots and swaps (a)		5,758		280		.47		5,670		266		.47
Options
Purchased		234		8		.38		–		–		–
Written		–		–		–		234		8		.38
December 31, 2009
Interest rate contracts
Receive fixed/pay floating swaps		18,700		854		4.46		1,083		19		7.00
Pay fixed/receive floating swaps		1,299		24		7.36		18,490		821		4.45
Options
Purchased		1,841		20		1.68		231		12		.85
Written		477		12		.56		1,596		20		1.90
Foreign exchange rate contracts
Forwards, spots and swaps (a)		5,607		193		.46		5,563		184		.45
Options
Purchased		311		11		.64		–		–		–
Written		–		–		–		311		11		.64

(a) Reflects the net of long and short positions.

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

	Three Months Ended June 30,												Six Months Ended June 30
	Gains (Losses)						Gains (Losses)						Gains (Losses)						Gains (Losses)
	Recognized in Other						Reclassified from Other Comprehensive						Recognized in Other						Reclassified from Other Comprehensive
	Comprehensive						Income (Loss)						Comprehensive						Income (Loss)
	Income (Loss)						into Earnings						Income (Loss)						into Earnings
(Dollars in Millions)	2010			2009			2010			2009			2010			2009			2010			2009
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps (a)	$	(103	)	$	172		$	(36	)	$	(2	)	$	(127	)	$	248		$	(79	)	$	(5	)
Net investment hedges
Foreign exchange forward contracts		48			(29	)		–			–			17			(9	)		–			–

Note: Ineffectiveness on cash flow and net investment hedges was not material for the three months and six months ended June 30, 2010 and 2009.

(a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income (expense) on long-term debt.

  U.S. Bancorp 45

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

			Gains (Losses) Recognized in Earnings
	Location of		Three Months Ended June 30,						Six Months Ended June 30,
	Gains (Losses)
(Dollars in Millions)	Recognized in Earnings		2010			2009			2010			2009
Asset and Liability Management Positions
Fair value hedges (a)
Interest rate contracts		Other noninterest income	$	12		$	(75	)	$	(84	)	$	(105	)
Foreign exchange cross-currency swaps		Other noninterest income		(161	)		104			(231	)		51
Other economic hedges
Interest rate contracts
Futures and forwards		Mortgage banking revenue		249			116			269			273
Purchased and written options		Mortgage banking revenue		121			48			191			157
Foreign exchange forward contracts		Commercial products revenue		20			(31	)		9			(20	)
Equity contracts		Compensation expense		2			5			2			(14	)
Credit contracts		Other noninterest income/expense		–			–			–			35
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps		Other noninterest income		285			(440	)		354			(571	)
Pay fixed/receive floating swaps		Other noninterest income		(282	)		451			(349	)		601
Purchased and written options		Other noninterest income		–			(1	)		–			(1	)
Foreign exchange rate contracts
Forwards, spots and swaps		Commercial products revenue		11			13			21			28
Purchased and written options		Commercial products revenue		–			1			–			1

(a) Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $(11) million and $161 million for the three months ended June 30, 2010, respectively, and $73 million and $(104) million for the three months ended June 30, 2009, respectively. Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $83 million and $230 million for the six months ended June 30, 2010, respectively, and $103 million and $(50) million for the six months ended June 30, 2009, respectively. The ineffective portion was immaterial for the three months and six months ended June 30, 2010 and 2009.

Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk based on its assessment of the probability of counterparty default and includes that within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into master netting agreements and by requiring collateral agreements which allow the Company to call for immediate, full collateral coverage when credit-rating thresholds are triggered by counterparties.

The Company’s collateral agreements are bilateral and, therefore, contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on certain net liability thresholds and contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral agreements, the counterparties to the derivatives could request immediate full collateral coverage for derivatives in net liability positions. The aggregate fair value of all derivatives under collateral agreements that were in a net liability position at June 30, 2010, was $1.8 billion. At June 30, 2010, the Company had $1.2 billion of cash posted as collateral against this net liability position.

  46 U.S. Bancorp

Note 12    Fair Values of Assets and Liabilities

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

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

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

• Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury and exchange-traded instruments.

• Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are valued using third party pricing services; derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes residential MSRs, certain debt securities, including the Company’s SIV-related investments and non-agency mortgage-backed securities, and certain derivative contracts.

When the Company changes its valuation inputs for measuring financial assets and financial liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the second quarter and first six months of 2010 and 2009, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels, except for the transfer of non-agency mortgage-backed securities from Level 2 to Level 3 in the first quarter of 2009, as discussed below.

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

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

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

For other securities, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar securities where a price for the identical security is not observable. Prices are

  U.S. Bancorp 47

verified, where possible, to prices of observable market trades as obtained from independent sources. Securities measured at fair value by such methods are classified as Level 2.

The fair value of securities for which there are no market trades, or where trading is inactive as compared to normal market activity, are categorized as Level 3. Securities classified as Level 3 include non-agency mortgage-backed securities, SIV-related, commercial mortgage-backed and asset-backed securities, collateralized debt obligations and collateralized loan obligations, and certain corporate debt securities. Beginning in the first quarter of 2009, due to the limited number of trades of non-agency mortgage-backed securities and lack of reliable evidence about transaction prices, the Company determines the fair value of these securities using a cash flow methodology and incorporating observable market information, where available. The use of a cash flow methodology resulted in the Company transferring some non-agency mortgage-backed securities to Level 3 in the first quarter of 2009. This transfer did not impact earnings and was not significant to shareholders’ equity of the Company or the carrying amount of the securities.

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

The following table shows the valuation assumption ranges for Level 3 available-for-sale non-agency mortgage-backed securities at June 30, 2010:

	Prime (a)									Non-prime
	Minimum			Maximum			Average			Minimum			Maximum			Average
Estimated lifetime prepayment rates		4	%		28	%		13	%		1	%		13	%		6	%
Lifetime probability of default rates		–			10			1			–			20			7
Lifetime loss severity rates		–			100			45			10			79			55
Discount margin		3			26			6			2			27			12

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

Certain mortgage loans held for sale MLHFS measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by comparison to instruments with similar collateral and risk profiles. Included in mortgage banking revenue was a $84 million net gain and a $67 million net loss for the second quarter of 2010 and 2009, respectively, and a $126 million net gain and a $35 million net loss for the first six months of 2010 and 2009, respectively, from the changes to fair value of these MLHFS under fair value option accounting guidance. Changes in fair value due to instrument specific credit risk were immaterial. The fair value of MLHFS was $4.7 billion as of June 30, 2010, which exceeded the unpaid principal balance by $198 million as of that date. MLHFS are Level 2. Related interest income for MLHFS is measured based on contractual interest rates and reported as interest income in the Consolidated Statement of Income. Electing to measure MLHFS at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.

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

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

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

  48 U.S. Bancorp

The majority of derivatives held by the Company are executed over-the-counter and are valued using standard cash flow, Black-Scholes and Monte Carlo valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. In addition, all derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Company’s evaluation of credit risk as well as external assessments of credit risk, where available. In its assessment of nonperformance risk, the Company considers its ability to net derivative positions under master netting agreements, as well as collateral received or provided under collateral support agreements. The majority of these derivatives are classified within Level 2 of the fair value hierarchy as the significant inputs to the models are observable. An exception to the Level 2 classification is certain derivative transactions for which the risk of nonperformance cannot be observed in the market. These derivatives are classified within Level 3 of the fair value hierarchy. In addition, commitments to sell, purchase and originate mortgage loans that meet the requirements of a derivative, are valued by pricing models that include market observable and unobservable inputs. Due to the significant unobservable inputs, these commitments are classified within Level 3 of the fair value hierarchy.

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

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

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

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

  U.S. Bancorp 49

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

(Dollars in Millions)	Level 1		Level 2		Level 3		Netting			Total
June 30, 2010
Available-for-sale securities
U.S. Treasury and agencies	$	9	$	2,538	$	–	$	–		$	2,547
Mortgage-backed securities
Residential
Agency		–	$	33,435		–		–			33,435
Non-agency
Prime		–		–		1,197		–			1,197
Non-prime		–		–		907		–			907
Commercial		–		–		15		–			15
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		90		75		–			165
Other		–		588		328		–			916
Obligations of state and political subdivisions		–		6,784		–		–			6,784
Obligations of foreign governments		–		6		–		–			6
Corporate debt securities		–		917		10		–			927
Perpetual preferred securities		–		431		–		–			431
Other investments		177		4		266		–			447
Total available-for-sale		186		44,793		2,798		–			47,777
Mortgage loans held for sale		–		4,650		–		–			4,650
Mortgage servicing rights		–		–		1,543		–			1,543
Derivative assets		–		632		1,328		(244	)		1,716
Other assets		–		432		–		–			432
Total	$	186	$	50,507	$	5,669	$	(244	)	$	56,118
Derivative liabilities	$	–	$	2,406	$	34	$	(1,375	)	$	1,065
Other liabilities		–		434		–		–			434
Total	$	–	$	2,840	$	34	$	(1,375	)	$	1,499
December 31, 2009
Available-for-sale securities
U.S. Treasury and agencies	$	9	$	3,395	$	–	$	–		$	3,404
Mortgage-backed securities
Residential
Agency		–	$	29,742		–		–			29,742
Non-agency
Prime		–		–		1,429		–			1,429
Non-prime		–		–		968		–			968
Commercial		–		–		13		–			13
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		107		98		–			205
Other		–		–		357		–			357
Obligations of state and political subdivisions		–		6,693		–		–			6,693
Obligations of foreign governments		–		6		–		–			6
Corporate debt securities		–		868		10		–			878
Perpetual preferred securities		–		423		–		–			423
Other investments		372		–		231		–			603
Total available-for-sale		381		41,234		3,106		–			44,721
Mortgage loans held for sale		–		4,327		–		–			4,327
Mortgage servicing rights		–		–		1,749		–			1,749
Derivative assets		–		713		869		(421	)		1,161
Other assets		–		247		–		–			247
Total	$	381	$	46,521	$	5,724	$	(421	)	$	52,205
Derivative liabilities	$	–	$	1,800	$	54	$	(995	)	$	859
Other liabilities		–		256		–		–			256
Total	$	–	$	2,056	$	54	$	(995	)	$	1,115

  50 U.S. Bancorp

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

						Net Gains										Net Change in
						(Losses)			Purchases,							Unrealized Gains
			Net Gains			Included in			Sales, Principal							(Losses) Relating
	Beginning		(Losses)			Other			Payments,					End		to Assets
Three Months Ended June 30,	of Period		Included in			Comprehensive			Issuances and			Transfers into		of Period		Still Held at
(Dollars in Millions)	Balance		Net Income			Income (Loss)			Settlements			Level 3		Balance		End of Period
2010
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime	$	1,304	$	–		$	21		$	(128	)	$	–	$	1,197	$	19
Non-prime		900		(6	)		52			(39	)		–		907		52
Commercial		14		–			1			–			–		15		1
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		79		(2	)		(2	)		–			–		75		(1	)
Other		335		(3	)		4			(8	)		–		328		5
Corporate debt securities		10		–			–			–			–		10		–
Other securities and investments		237		4			34			(9	)		–		266		34
Total available-for-sale		2,879		(7	)(a)		110			(184	)		–		2,798		110
Mortgage servicing rights		1,778		(385	)(b)		–			150			–		1,543		(385	)(b)
Net derivative assets and liabilities		905		472	(c)		–			(83	)		–		1,294		68	(d)
2009
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime	$	2,560	$	1		$	100		$	(230	)	$	–	$	2,431	$	100
Non-prime		1,060		(49	)		103			(56	)		–		1,058		103
Commercial		15		–			–			–			–		15		–
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		82		–			3			(1	)		–		84		3
Other		502		(25	)		(41	)		(1	)		–		435		(42	)
Corporate debt securities		10		–			–			–			–		10		–
Total available-for-sale		4,229		(73	)(a)		165			(288	)		–		4,033		164
Mortgage servicing rights		1,182		19	(b)		–			281			–		1,482		19	(b)
Net derivative assets and liabilities		1,556		(602	)(b)		–			13			1		968		(595	)(e)

(a)	Included in securities gains (losses).
(b)	Included in mortgage banking revenue.
(c)	Approximately $158 million included in other noninterest income and $314 million included in mortgage banking revenue.
(d)	Approximately $260 million included in other noninterest income and $(192) million included in mortgage banking revenue.
(e)	Approximately $(478) million included in other noninterest income and $(117) million included in mortgage banking revenue.

  U.S. Bancorp 51

						Net Gains										Net Change in
						(Losses)			Purchases,							Unrealized Gains
			Net Gains			Included in			Sales, Principal							(Losses) Relating
	Beginning		(Losses)			Other			Payments,					End		to Assets
Six Months Ended June 30,	of Period		Included in			Comprehensive			Issuances and			Transfers into		of Period		Still Held at
(Dollars in Millions)	Balance		Net Income			Income (Loss)			Settlements			Level 3		Balance		End of Period
2010
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime	$	1,429	$	–		$	50		$	(282	)	$	–	$	1,197	$	44
Non-prime		968		(37	)		68			(92	)		–		907		68
Commercial		13		–			2			–			–		15		1
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		98		–			(2	)		(21	)		–		75		–
Other		357		(5	)		(2	)		(22	)		–		328		(1	)
Corporate debt securities		10		–			–			–			–		10		–
Other securities and investments		231		2			47			(14	)		–		266		47
Total available-for-sale		3,106		(40	)(a)		163			(431	)		–		2,798		159
Mortgage servicing rights		1,749		(493	)(b)		–			287			–		1,543		(493	)(b)
Net derivative assets and liabilities		815		492	(c)		–			(13	)		–		1,294		42	(d)
2009
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime	$	183	$	(5	)	$	368		$	(363	)	$	2,248	$	2,431	$	360
Non-prime		1,022		(75	)		81			(103	)		133		1,058		(42	)
Commercial		17		(1	)		(1	)		–			–		15		(1	)
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		86		(5	)		5			(6	)		4		84		4
Other		523		(40	)		(37	)		(14	)		3		435		(134	)
Corporate debt securities		13		(3	)		–			–			–		10		–
Total available-for-sale		1,844		(129	)(a)		416			(486	)		2,388		4,033		187
Mortgage servicing rights		1,194		(219	)(b)		–			507			–		1,482		(219	)(b)
Net derivative assets and liabilities		1,698		(639	)(e)		–			(92	)		1		968		(1,002	)(f)

(a)	Included in securities gains (losses).
(b)	Included in mortgage banking revenue.
(c)	Approximately $46 million included in other noninterest income and $446 million included in mortgage banking revenue.
(d)	Approximately $339 million included in other noninterest income and $(297) million included in mortgage banking revenue.
(e)	Approximately $(921) million included in other noninterest income and $282 million included in mortgage banking revenue.
(f)	Approximately $(663) million included in other noninterest income and $(339) million included in mortgage banking revenue.

  52 U.S. Bancorp

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

	June 30, 2010								December 31, 2009
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans held for sale (a)	$	–	$	–	$	–	$	–	$	–	$	276	$	–	$	276
Loans (b)		–		165		31		196		–		235		5		240
Other real estate owned (c)		–		164		–		164		–		183		–		183
Other intangible assets		–		–		–		–		–		–		3		3

(a)	Represents carrying value of loans held for sale for which adjustments are based on what secondary markets are currently offering for portfolios with similar characteristics.
(b)	Represents carrying value of loans for which adjustments are based on the appraised value of the collateral, excluding loans fully charged-off.
(c)	Represents the fair value of foreclosed properties that were measured at fair value based on the appraisal value of the collateral subsequent to their initial acquisition.

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

	Three Months				Six Months
	Ended June 30,				Ended June 30,
(Dollars in Millions)	2010		2009		2010		2009
Loans held for sale	$	–	$	–	$	–	$	1
Loans (a)		92		59		213		145
Other real estate owned (b)		65		42		115		64
Other intangible assets		–		1		–		1

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

Fair Value Option

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

	June 30, 2010							December 31, 2009
					Excess of							Excess of
					Carrying							Carrying
	Fair Value		Aggregate		Amount Over			Fair Value		Aggregate		Amount Over
	Carrying		Unpaid		(Under) Unpaid			Carrying		Unpaid		(Under) Unpaid
(Dollars in Millions)	Amount		Principal		Principal			Amount		Principal		Principal
Total loans	$	4,650	$	4,452	$	198		$	4,327	$	4,264	$	63
Loans 90 days or more past due		19		27		(8	)		23		30		(7	)

  U.S. Bancorp 53

Disclosures about Fair Value of Financial Instruments The following table summarizes the estimated fair value for financial instruments as of June 30, 2010 and December 31, 2009, and includes financial instruments that are not accounted for at fair value. In accordance with disclosure guidance related to fair values of financial instruments, the Company did not include assets and liabilities that are not financial instruments, such as the value of goodwill, long-term relationships with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities.

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

	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
(Dollars in Millions)	Amount		Value		Amount		Value
Financial Assets
Cash and due from banks	$	5,033	$	5,033	$	6,206	$	6,206
Investment securities held-to-maturity		590		519		47		48
Mortgages held for sale (a)		5		5		29		29
Other loans held for sale		257		257		416		416
Loans		186,264		186,568		189,676		184,157
Financial Liabilities
Deposits		183,123		183,666		183,242		183,504
Short-term borrowings		33,797		34,204		31,312		31,674
Long-term debt		29,137		29,784		32,580		32,808

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

The fair value of unfunded commitments, standby letters of credit and other guarantees is approximately equal to their carrying value. The carrying value of unfunded commitments and standby letters of credit was $358 million and $356 million at June 30, 2010 and December 31, 2009, respectively. The carrying value of other guarantees was $279 million and $285 million at June 30, 2010 and December 31, 2009, respectively.

Note 13    Guarantees and Contingent Liabilities

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

In 2007 and 2008, Visa announced settlement agreements relating to certain of the Visa Litigation matters. Visa U.S.A. member banks remain obligated to indemnify Visa Inc. for potential losses arising from the remaining Visa Litigation. Using proceeds from its initial IPO and through subsequent reductions to the conversion ratio applicable to the Class B shares held by Visa U.S.A. member banks, Visa Inc. has established an escrow account for the benefit of member financial institutions to fund the expenses of the Visa Litigation, as well as the members’ proportionate share of any judgments or settlements that may arise out of the Visa Litigation. The receivable related to the escrow account is classified in other liabilities as a direct offset to the related Visa Litigation contingent liability, and will decline as amounts are paid out of the escrow account. During the third quarter of 2009 and the second quarter of 2010, Visa deposited additional funds into the escrow account and further reduced the conversion ratio applicable to the Class B shares. As a result, the Company recognized gains of $39 million and $28 million during the third quarter of 2009 and second quarter of 2010, respectively, related to the effective repurchase of a portion of its Class B shares.

  54 U.S. Bancorp

At June 30, 2010, the carrying amount of the Company’s liability related to the remaining Visa Litigation matters was $91 million. Class B shares are non-transferable, except for transfers to other Visa U.S.A. member banks. The remaining Class B shares held by the Company will be eligible for conversion to Class A shares in 2011 or upon resolution of the Visa Litigation, whichever is later.

The following table is a summary of other guarantees and contingent liabilities of the Company at June 30, 2010:

			Maximum
			Potential
	Carrying		Future
(Dollars in Millions)	Amount		Payments
Standby letters of credit	$	111	$	18,498
Third-party borrowing arrangements		–		133
Securities lending indemnifications		–		7,139
Asset sales (a)		96		1,216
Merchant processing		68		72,058
Other guarantees		3		5,794
Other contingent liabilities		21		2,008

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

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

The Company currently processes card transactions in the United States, Canada and Europe for airline companies. In the event of liquidation of these merchants, the Company could become financially liable for refunding tickets purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in a manner similar to credit risk assessments and, as such, merchant processing contracts contain various provisions to protect the Company in the event of default. At June 30, 2010, the value of airline tickets purchased to be delivered at a future date was $5.6 billion. The Company held collateral of $551 million in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets.

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

For additional information on the nature of the Company’s guarantees and contingent liabilities, refer to Note 22 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Note 14    Subsequent Events

The Company has evaluated the impact of events that have occurred subsequent to June 30, 2010 through the date the consolidated financial statements were filed with the United States Securities and Exchange Commission. Based on this evaluation, the Company has determined none of these events were required to be recognized in the consolidated financial statements.

  U.S. Bancorp 55

U.S. Bancorp

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

	For the Three Months Ended June 30,
	2010								2009
						Yields								Yields			% Change
(Dollars in Millions)	Average					and			Average					and			Average
(Unaudited)	Balances			Interest		Rates			Balances			Interest		Rates			Balances
Assets
Investment securities	$	47,140		$	434		3.69	%	$	42,189		$	443		4.20	%		11.7	%
Loans held for sale		4,048			47		4.61			6,092			71		4.65			(33.6	)
Loans (b)
Commercial		46,340			488		4.22			54,059			523		3.89			(14.3	)
Commercial real estate		34,164			377		4.43			33,727			361		4.29			1.3
Residential mortgages		26,821			351		5.24			23,964			338		5.64			11.9
Retail		63,382			1,061		6.71			61,427			1,011		6.60			3.2
Total loans, excluding covered loans		170,707			2,277		5.35			173,177			2,233		5.17			(1.4	)
Covered loans		20,454			252		4.93			10,701			124		4.66			91.1
Total loans		191,161			2,529		5.30			183,878			2,357		5.14			4.0
Other earning assets		5,097			39		3.03			2,106			22		4.16			*
Total earning assets		247,446			3,049		4.94			234,265			2,893		4.95			5.6
Allowance for loan losses		(5,443	)							(4,260	)							(27.8	)
Unrealized gain (loss) on available-for-sale securities		(19	)							(1,857	)							99.0
Other assets		39,356								37,959								3.7
Total assets	$	281,340							$	266,107								5.7
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits	$	39,917							$	37,388								6.8
Interest-bearing deposits
Interest checking		39,503			18		.19			37,393			21		.23			5.6
Money market savings		40,256			33		.34			27,250			34		.50			47.7
Savings accounts		20,035			30		.59			12,278			16		.52			63.2
Time certificates of deposit less than $100,000		16,980			75		1.77			17,968			123		2.73			(5.5	)
Time deposits greater than $100,000		26,627			73		1.09			30,943			120		1.56			(13.9	)
Total interest-bearing deposits		143,401			229		.64			125,832			314		1.00			14.0
Short-term borrowings		32,286			139		1.72			27,638			134		1.96			16.8
Long-term debt		30,242			272		3.60			38,768			341		3.53			(22.0	)
Total interest-bearing liabilities		205,929			640		1.25			192,238			789		1.65			7.1
Other liabilities		7,328								7,565								(3.1	)
Shareholders’ equity
Preferred equity		1,599								6,951								(77.0	)
Common equity		25,820								21,251								21.5
Total U.S. Bancorp shareholders’ equity		27,419								28,202								(2.8	)
Noncontrolling interests		747								714								4.6
Total equity		28,166								28,916								(2.6	)
Total liabilities and equity	$	281,340							$	266,107								5.7	%
Net interest income				$	2,409							$	2,104
Gross interest margin							3.69	%							3.30	%
Gross interest margin without taxable-equivalent increments							3.61								3.21
Percent of Earning Assets
Interest income							4.94	%							4.95	%
Interest expense							1.04								1.35
Net interest margin							3.90	%							3.60	%
Net interest margin without taxable-equivalent increments							3.82	%							3.51	%

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

  56 U.S. Bancorp

U.S. Bancorp

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

	For the Six Months Ended June 30,
	2010								2009
						Yields								Yields			% Change
(Dollars in Millions)	Average					and			Average					and			Average
(Unaudited)	Balances			Interest		Rates			Balances			Interest		Rates			Balances
Assets
Investment securities	$	46,678		$	885		3.79	%	$	42,255		$	920		4.35	%		10.5	%
Loans held for sale		3,990			91		4.56			5,644			134		4.75			(29.3	)
Loans (b)
Commercial		46,805			971		4.17			55,091			1,057		3.86			(15.0	)
Commercial real estate		34,153			747		4.41			33,563			718		4.31			1.8
Residential mortgages		26,616			698		5.25			23,940			684		5.73			11.2
Retail		63,502			2,125		6.75			61,170			2,003		6.60			3.8
Total loans, excluding covered loans		171,076			4,541		5.34			173,764			4,462		5.17			(1.5	)
Covered loans		20,939			505		4.85			11,022			255		4.66			90.0
Total loans		192,015			5,046		5.29			184,786			4,717		5.14			3.9
Other earning assets		5,450			73		2.69			2,101			42		4.00			*
Total earning assets		248,133			6,095		4.94			234,786			5,813		4.98			5.7
Allowance for loan losses		(5,378	)							(4,009	)							34.1
Unrealized gain (loss) on available-for-sale securities		(212	)							(2,215	)							90.4
Other assets		38,987								37,609								3.7
Total assets	$	281,530							$	266,171								5.8
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits	$	38,964							$	36,707								6.1
Interest-bearing deposits
Interest checking		39,747			37		.19			34,730			36		.21			14.4
Money market savings		40,577			70		.35			27,586			71		.52			47.1
Savings accounts		19,038			55		.58			11,314			30		.54			68.3
Time certificates of deposit less than $100,000		17,654			155		1.77			18,050			251		2.80			(2.2	)
Time deposits greater than $100,000		26,947			148		1.11			33,493			250		1.50			(19.5	)
Total interest-bearing deposits		143,963			465		.65			125,173			638		1.03			15.0
Short-term borrowings		32,418			269		1.67			29,915			282		1.90			8.4
Long-term debt		31,343			549		3.52			38,279			694		3.65			(18.1	)
Total interest-bearing liabilities		207,724			1,283		1.24			193,367			1,614		1.68			7.4
Other liabilities		7,210								7,863								(8.3	)
Shareholders’ equity
Preferred equity		1,550								7,440								(79.2	)
Common equity		25,369								20,074								26.4
Total U.S. Bancorp shareholders’ equity		26,919								27,514								(2.2	)
Noncontrolling interests		713								720								(1.0	)
Total equity		27,632								28,234								(2.1	)
Total liabilities and equity	$	281,530							$	266,171								5.8	%
Net interest income				$	4,812							$	4,199
Gross interest margin							3.70	%							3.30	%
Gross interest margin without taxable-equivalent increments							3.62								3.22
Percent of Earning Assets
Interest income							4.94	%							4.98	%
Interest expense							1.04								1.39
Net interest margin							3.90	%							3.59	%
Net interest margin without taxable-equivalent increments							3.82	%							3.51	%

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

  U.S. Bancorp 57

Part II — Other Information

Item 1A. Risk Factors — The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010. This legislation will have an adverse impact on the Company’s financial results upon full implementation. Among other impacts, this legislation establishes a Consumer Financial Protection Bureau, changes the base for deposit insurance assessments, introduces regulatory rate-setting for interchange fees charged to merchants for debit card transactions, and excludes certain instruments currently included in determining the Tier 1 regulatory capital ratio. The capital instrument exclusion will be phased-in over a three-year period beginning in 2013. Currently the instruments subject to that exclusion increase the Company’s Tier 1 capital ratio by 1.4 percent. Using currently approved deposit insurance assessment rates, the change in assessment base would increase the assessments the Company pays by approximately $200 million annually. Most of the legislation’s other provisions require rulemaking by various regulatory agencies. The Company cannot currently quantify the future impact of this legislation and the related future rulemaking, but expects them to have a detrimental impact on revenues and expenses once fully implemented.

There are a number of other factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, for discussion of these risks.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds — Refer to the “Capital Management” section within Management’s Discussion and Analysis in Part I for information regarding shares repurchased by the Company during the second quarter of 2010.

Capital Covenants — In December 2005, the Company entered into a Replacement Capital Covenant in connection with the issuance of USB Capital VIII’s 6.35 percent Income Capital Obligation Notes due 2035. There has been a redesignation of the series of covered debt benefiting from such Replacement Capital Covenant. Effective July 29, 2008, the Company’s 4.50 percent Medium-Term Notes, Series P ceased being the covered debt and the Company’s 5.875 percent junior subordinated debentures due 2035 became the covered debt benefiting from the Replacement Capital Covenant.

Item 6. Exhibits

3	.1	Restated Certificate of Incorporation, as amended
12		Computation of Ratio of Earnings to Fixed Charges
31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
101		Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2010, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements.

  58 U.S. Bancorp

SIGNATURE

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

U.S. BANCORP

By:  /s/  Craig E. Gifford

Craig E. Gifford

Executive Vice President and Controller

(Principal Accounting Officer and Duly Authorized Officer)

DATE: August 6, 2010

  U.S. Bancorp 59

EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges

				Three Months Ended		Six Months Ended
(Dollars in Millions)				June 30, 2010		June 30, 2010
Earnings
	1.	Net income attributable to U.S. Bancorp		$	766	$	1,435
	2.	Applicable income taxes, including interest expense related to unrecognized tax positions			199		360
	3.	Net income attributable to U.S Bancorp before income taxes (1 + 2)		$	965	$	1,795
	4.	Fixed charges:
		a.	Interest expense excluding interest on deposits*	$	409	$	814
		b.	Portion of rents representative of interest and amortization of debt expense		26		52
		c.	Fixed charges excluding interest on deposits (4a + 4b)		435		866
		d.	Interest on deposits		229		465
		e.	Fixed charges including interest on deposits (4c + 4d)	$	664	$	1,331
	5.	Amortization of interest capitalized		$	–	$	–
	6.	Earnings excluding interest on deposits (3 + 4c + 5)			1,400		2,661
	7.	Earnings including interest on deposits (3 + 4e + 5)			1,629		3,126
	8.	Fixed charges excluding interest on deposits (4c)			435		866
	9.	Fixed charges including interest on deposits (4e)			664		1,331
Ratio of Earnings to Fixed Charges
	10.	Excluding interest on deposits (line 6/line 8)			3.22		3.07
	11.	Including interest on deposits (line 7/line 9)			2.45		2.35

* Excludes interest expense related to unrecognized tax positions.

  60 U.S. Bancorp

EXHIBIT 31.1

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

I, Richard K. Davis, certify that:

(1)	I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Richard K. Davis

Richard K. Davis

Chief Executive Officer

Dated: August 6, 2010

  U.S. Bancorp 61

EXHIBIT 31.2

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

I, Andrew Cecere, certify that:

(1)	I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

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

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Andrew Cecere

Andrew Cecere

Chief Financial Officer

Dated: August 6, 2010

  62 U.S. Bancorp

EXHIBIT 32

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

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

(1)	The Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

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

Dated: August 6, 2010

  U.S. Bancorp 63

First Class

U.S. Postage

PAID

Permit No. 2440

Minneapolis, MN

Corporate Information

Executive Offices

U.S. Bancorp

800 Nicollet Mall

Minneapolis, MN 55402

Common Stock Transfer Agent and Registrar

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

BNY Mellon Shareowner Services

P.O. Box 358015

Pittsburgh, PA 15252-8015

Phone: 888-778-1311 or 201-680-6578 (international calls)

Internet: bnymellon.com/shareowner

For Registered or Certified Mail:

BNY Mellon Shareowner Services

500 Ross St., 6th Floor

Pittsburgh, PA 15219

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

Independent Auditor

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

Common Stock Listing and Trading

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

Dividends and Reinvestment Plan

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

Investor Relations Contacts

Judith T. Murphy

Executive Vice President, Corporate Investor and Public Relations

judith.murphy@usbank.com

Phone: 612-303-0783 or 866-775-9668

Financial Information

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

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

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

U.S. Bancorp Investor Relations

800 Nicollet Mall

Minneapolis, MN 55402

investorrelations@usbank.com

Phone: 866-775-9668

Media Requests

Steven W. Dale

Senior Vice President, Media Relations

steve.dale@usbank.com

Phone: 612-303-0784

Privacy

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

Code of Ethics

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

Diversity

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

Equal Employment Opportunity/Affirmative Action

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

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

    U.S. Bancorp

    Member FDIC

This report has been produced on recycled paper.

EX-3.1

Exhibit 3.1

RESTATED
CERTIFICATE OF INCORPORATION
OF
U.S. BANCORP

     FIRST: The name of this corporation is U.S. Bancorp.

     SECOND: The registered office of the corporation in the State of Delaware is to be located at 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent at such address is The Corporation Trust Company.

     THIRD: The purpose of the corporation is to engage in any part of the world in any capacity in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware, and the corporation shall be authorized to exercise and enjoy all powers, rights and privileges which corporations organized under the General Corporation Law of Delaware may have under the laws of the State of Delaware as in force from time to time, including without limitation all powers, rights and privileges necessary or convenient to carry out all those acts and activities in which it may lawfully engage.

     FOURTH: The total number of shares of all classes of stock which the corporation shall have the authority to issue is 4,050,000,000, consisting of 50,000,000 shares of Preferred Stock of the par value of $1.00 each and 4,000,000,000 shares of Common Stock of the par value of $.01 each.

     The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of each class of stock are as follows:

     The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of preferred stock in one or more series, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the board of directors, subject to the limitations prescribed by law and in accordance with the provisions hereof, including (but without limiting the generality thereof) the following:

     (a) The designation of the series and the number of shares to constitute the series.

     (b) The dividend rate of the series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock, and whether such dividends shall be cumulative or noncumulative.

     (c) Whether the shares of the series shall be subject to redemption by the corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption.

     (d) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of the series.

     (e) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange.

     (f) The extent, if any, to which the holders of the shares of the series shall be entitled to vote with respect to the election of directors or otherwise.

     (g) The restrictions, if any on the issue or reissue of any additional preferred stock.

     (h) The rights of the holders of the shares of the series upon the dissolution, liquidation, or winding up of the corporation.

     Subject to the prior or equal rights, if any, of the preferred stock of any and all series stated and expressed by the board of directors in the resolution or resolutions providing for the issuance of such preferred stock, the holders of common stock shall be entitled (i) to receive dividends when and as declared by the board of directors out of any funds legally available therefore, (ii) in the event of any dissolution, liquidation or winding up of the corporation, to receive the remaining assets of the corporation, ratably according to the number of shares of common stock held, and (iii) to one vote for each share of common stock held. No holder of common stock shall have any preemptive right to purchase or subscribe for any part of any issue of stock or of securities of the corporation convertible into stock of any class whatsoever, whether now or hereafter authorized.

     Pursuant to the authority conferred by this Article FOURTH, the following series of Preferred Stock have been designated, each such series consisting of such number of shares, with such voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as are stated and expressed in the exhibit with respect to such series attached hereto as specified below and incorporated herein by reference:

          Exhibit A            Series A Non-Cumulative Perpetual Preferred Stock

          Exhibit B            Series B Non-Cumulative Perpetual Preferred Stock

          Exhibit C            Series C Non-Cumulative Perpetual Preferred Stock

          Exhibit D            Series D Non-Cumulative Perpetual Preferred Stock

     FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:

2

     (a) To fix, determine and vary from time to time the amount to be maintained as surplus and the amount or amounts to be set apart as working capital.

     (b) To adopt, amend, alter or repeal by-laws of the corporation, without any action on the part of the shareholders. The by-laws adopted by the directors may be amended, altered, changed, added to or repealed by the shareholders.

     (c) To authorize and cause to be executed mortgages and liens, without limit as to amount, upon the real and personal property of this corporation.

     (d) To sell, assign, convey or otherwise dispose of a part of the property, assets and effects of this corporation, less than the whole, or less than substantially the whole thereof, on such terms and conditions as they shall deem advisable, without the assent of the shareholders; and also to sell, assign, transfer, convey and otherwise dispose of the whole or substantially the whole of the property, assets, effects, franchises and good will of this corporation on such terms and conditions as they shall deem advisable, but only pursuant to the affirmative vote of the holders of a majority in amount of the stock then having voting power and at the time issued and outstanding, but in any event not less than the amount required by law.

     (e) All of the powers of this corporation, insofar as the same lawfully may be vested by this certificate in the board of directors, are hereby conferred upon the board of directors of this corporation.

     SIXTH: The affairs of the Corporation shall be conducted by a Board of Directors. Except as otherwise provided by this Article Sixth, the number of directors, not less than twelve (12) nor more than thirty (30), shall be fixed from time to time by the Bylaws. Commencing with the 2008 annual meeting of the stockholders, directors shall be elected annually for terms of one year and shall hold office until the next succeeding annual meeting. Directors elected at the 2005 annual meeting of stockholders shall hold office until the 2008 annual meeting of stockholders; directors elected at the 2006 annual meeting of stockholders shall hold office until the 2009 annual meeting of stockholders and directors elected at the 2007 annual meeting of stockholders shall hold office until the 2010 annual meeting of stockholders. In all cases, directors shall hold office until their respective successors are elected by the stockholders and have qualified.

     In the event that the holders of any class or series of stock of the Corporation having a preference as to dividends or upon liquidation of the Corporation shall be entitled, by a separate class vote, to elect directors as may be specified pursuant to Article Fourth, then the provisions of such class or series of stock with respect to their rights shall apply. The number of directors that may be elected by the holders of any such class or series of stock shall be in addition to the number fixed pursuant to the preceding paragraph of this Article Sixth. Except as otherwise expressly provided pursuant to Article Fourth, the number of directors that may be so elected by the holders of any such class or series of stock shall be elected for terms expiring at the next annual meeting of stockholders and vacancies among directors so elected by the separate class vote of any such class or series of stock shall be filled by the remaining directors elected by such class or series, or, if there are no such remaining directors, by the holders of such class or series in the same manner in which such class or series initially elected a director.

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     If at any meeting for the election of directors, more than one class of stock, voting separately as classes, shall be entitled to elect one or more directors and there shall be a quorum of only one such class of stock, that class of stock shall be entitled to elect its quota of directors notwithstanding the absence of a quorum of the other class or classes of stock.

     Vacancies and newly created directorships resulting from an increase in the number of directors, subject to the provision of Article Fourth, shall be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and such directors so chosen shall hold office until the next election of directors, and until their successors shall be elected and shall have qualified.

     SEVENTH: No action required to be taken or which may be taken at any annual meeting or special meeting of stockholders may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

     EIGHTH: No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty by such director as a director; provided, however, that this Article Eighth shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Eighth shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

4

Exhibit A

CERTIFICATE OF DESIGNATIONS

OF

SERIES A NON-CUMULATIVE PERPETUAL PREFERRED STOCK

     Section 1. Designation. The designation of the series of Preferred Stock created by this resolution shall be Series A Non-Cumulative Perpetual Preferred Stock (hereinafter referred to as the “Series A Preferred Stock”). Each share of Series A Preferred Stock shall be identical in all respects to every other share of Series A Preferred Stock. Series A Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 2. Number of Shares. The number of authorized shares of Series A Preferred Stock shall be 20,010. Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock) or decreased (but not below the number of shares of Series A Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized. The Corporation shall have the authority to issue fractional shares of Series A Preferred Stock.

     Section 3. Definitions. As used herein with respect to Series A Preferred Stock:

          “Business Day” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in Minneapolis, Minnesota, New York, New York or Wilmington, Delaware are not authorized or obligated by law, regulation or executive order to close.

          “Depositary Company” shall have the meaning set forth in Section 6(d) hereof.

          “Dividend Payment Date” shall have the meaning set forth in Section 4(a) hereof.

          “Dividend Period” shall have the meaning set forth in Section 4(a) hereof.

          “DTC” means The Depositary Trust Company, together with its successors and assigns.

          “Junior Stock” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series A Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

5

          “London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England.

          “Parity Stock” means any other class or series of stock of the Corporation that ranks on a par with Series A Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

          “Preferred Director” shall have the meaning set forth in Section 7 hereof.

          “Series A Preferred Stock” shall have the meaning set forth in Section 1 hereof.

          “Telerate Page 3750” means the display page so designated on the Moneyline/Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to the London Interbank Offered Rate for U.S. dollar deposits).

          “Three-Month LIBOR” means, with respect to any Dividend Period, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the second London Banking Day preceding the first day of that Dividend Period. If such rate does not appear on Telerate Page 3750, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Corporation, at approximately 11:00 A.M., London time on the second London Banking Day preceding the first day of that Dividend Period. U.S. Bank National Association, or such other bank as may be acting as calculation agent for the Corporation, will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of such quotations. If fewer than two quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of the rates quoted by three major banks in New York City selected by the calculation agent, at approximately 11:00 a.m., New York City time, on the first day of that Dividend Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000. However, if the banks selected by the calculation agent to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had Series A Preferred Stock been outstanding. The calculation agent’s establishment of Three-Month LIBOR and calculation of the amount of dividends for each Dividend Period will be on file at the principal offices of the Corporation, will be made available to any holder of Series A Preferred Stock upon request and will be final and binding in the absence of manifest error.

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     Section 4. Dividends.

     (a) Rate. Holders of Series A Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference of $100,000 per share of Series A Preferred Stock, and no more, payable on the following dates: (1) if the Series A Preferred Stock is issued prior to April 15, 2011, semi-annually in arrears on each April 15 and October 15 through April 15, 2011, and (2) from and including the later of April 15, 2011 and the date of issuance, quarterly in arrears on each July 15, October 15, January 15 and April 15; provided, however, if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of such delay) (each such day on which dividends are payable a “Dividend Payment Date”). The period from and including the date of issuance of the Series A Preferred Stock or any Dividend Payment Date to but excluding the next Dividend Payment Date is a “Dividend Period.” Dividends on each share of Series A Preferred Stock will accrue on the liquidation preference of $100,000 per share (i) to but not including the Dividend Payment Date in April 2011 at a rate per annum equal to 6.189%, and (ii) thereafter for each related Dividend Period at a rate per annum equal to the greater of (x) Three-Month LIBOR plus 1.02% or (y) 3.50%. The record date for payment of dividends on the Series A Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls. The amount of dividends payable for any period prior to the later of the Dividend Payment Day in April 2011 and the date of original issuance of the Series A Preferred Stock shall be computed on the basis of a 360-day year consisting of twelve 30-day months and dividends for periods thereafter shall be computed on the basis of a 360-day year and the actual number of days elapsed.

     (b) Non-Cumulative Dividends. Dividends on shares of Series A Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series A Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series A Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series A Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.

     (c) Priority of Dividends. So long as any share of Series A Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation and (iii) no shares of Parity Stock shall

7

be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series A Preferred Stock and such Parity Stock except by conversion into or exchange for Junior Stock, in each case unless full dividends on all outstanding shares of Series A Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside. The foregoing shall not restrict the ability of the Corporation, or any affiliate of the Corporation, to engage in any market-making transactions in the Junior Stock or Parity Stock in the ordinary course of business. When dividends are not paid in full upon the shares of Series A Preferred Stock and any Parity Stock, all dividends declared upon shares of Series A Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series A Preferred Stock, and accrued dividends, including any accumulations on Parity Stock, bear to each other. No interest will be payable in respect of any dividend payment on shares of Series A Preferred Stock that may be in arrears. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice to the holders of the Series A Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any Junior Stock from time to time out of any funds legally available therefor, and the shares of Series A Preferred Stock shall not be entitled to participate in any such dividend.

     Section 5. Liquidation Rights.

     (a) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series A Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series A Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $100,000 per share, plus any authorized, declared and unpaid dividends for the then-current Dividend Period to the date of liquidation. The holder of Series A Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

     (b) Partial Payment. If the assets of the Corporation are not sufficient to pay in full the liquidation preference to all holders of Series A Preferred Stock and the liquidation preferences of any Parity Stock to all holders of such Parity Stock, the amounts paid to the holders of Series A Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences of Series A Preferred Stock and all such Parity Stock.

     (c) Residual Distributions. If the liquidation preference has been paid in full to all holders of Series A Preferred Stock and all holders of any Parity Stock, the holders of Junior

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Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

     (d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

     Section 6. Redemption.

     (a) Optional Redemption. So long as full dividends on all outstanding shares of Series A Preferred Stock for the then-current Dividend Period have been paid or declared and a sum sufficient for the payment thereof set aside, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series A Preferred Stock at the time outstanding, at any time on or after the later of the Dividend Payment Date in April 2011 and the date of original issuance of the Series A Preferred Stock, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series A Preferred Stock shall be $100,000 per share plus dividends that have been declared but not paid plus accrued and unpaid dividends for the then-current Dividend Period to the redemption date.

     (b) Notice of Redemption. Notice of every redemption of shares of Series A Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series A Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series A Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series A Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series A Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed by such holder; (iii) the redemption price; (iv) the place or places where the certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.

     (c) Partial Redemption. In case of any redemption of only part of the shares of Series A Preferred Stock at the time outstanding, the shares of Series A Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series A Preferred Stock in proportion to the number of Series A Preferred Stock held by such holders or by lot or in such

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other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series A Preferred Stock shall be redeemed from time to time.

     (d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all assets necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “Depositary Company”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date from the funds so deposited, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

     Section 7. Voting Rights. The holders of Series A Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law.

     Section 8. Conversion. The holders of Series A Preferred Stock shall not have any rights to convert such Series A Preferred Stock into shares of any other class of capital stock of the Corporation.

     Section 9. Rank. Notwithstanding anything set forth in the Certificate of incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, the Committee or any authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series A Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or any class of securities ranking senior to the Series A Preferred Stock as to dividends and upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 10. Repurchase. Subject to the limitations imposed herein, the Corporation may purchase and sell Series A Preferred Stock from time to time to such extent, in such manner,

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and upon such terms as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine; provided, however, that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

     Section 11. Unissued or Reacquired Shares. Shares of Series A Preferred Stock not issued or which have been issued and converted, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.

     Section 12. No Sinking Fund. Shares of Series A Preferred Stock are not subject to the operation of a sinking fund.

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Exhibit B

CERTIFICATE OF DESIGNATION

OF

SERIES B NON-CUMULATIVE PERPETUAL PREFERRED STOCK

     Section 1. Designation. The designation of the series of preferred stock shall be Series B Non-Cumulative Perpetual Preferred Stock (hereinafter referred to as the “Series B Preferred Stock”). Each share of Series B Preferred Stock shall be identical in all respects to every other share of Series B Preferred Stock. Series B Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 2. Number of Shares. The number of authorized shares of Series B Preferred Stock shall be 40,000. Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock) or decreased (but not below the number of shares of Series B Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such increase or reduction, as the case may be, has been so authorized. The Corporation shall have the authority to issue fractional shares of Series B Preferred Stock.

     Section 3. Definitions. As used herein with respect to Series B Preferred Stock:

          “Business Day” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions are not authorized or obligated by law, regulation or executive order to close in New York, New York.

          “Depositary Company” shall have the meaning set forth in Section 6(d) hereof.

          “Dividend Payment Date” shall have the meaning set forth in Section 4(a) hereof.

          “Dividend Period” shall have the meaning set forth in Section 4(a) hereof.

          “DTC” means The Depositary Trust Company, together with its successors and assigns.

          “Junior Stock” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series B Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

          “London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England.

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          “Parity Stock” means any other class or series of stock of the Corporation that ranks on a par with Series B Preferred Stock in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

          “Preferred Director” shall have the meaning set forth in Section 7 hereof.

          “Series B Preferred Stock” shall have the meaning set forth in Section 1 hereof.

          “Telerate Page 3750” means the display page so designated on the Moneyline/Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to the London Interbank Offered Rate for U.S. dollar deposits).

          “Three-Month LIBOR” means, with respect to any Dividend Period, the offered rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the second London Banking Day immediately preceding the first day of that Dividend Period. If such rate does not appear on Telerate Page 3750, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Corporation, at approximately 11:00 A.M., London time on the second London Banking Day immediately preceding the first day of that Dividend Period. U.S. Bank National Association, or such other bank as may be acting as calculation agent for the Corporation, will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of such quotations. If fewer than two quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of the rates quoted by three major banks in New York City selected by the Corporation, at approximately 11:00 a.m., New York City time, on the first day of that Dividend Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000. However, if fewer than three banks selected by the Corporation to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had Series B Preferred Stock been outstanding. The calculation agent’s establishment of Three-Month LIBOR and calculation of the amount of dividends for each Dividend Period will be on file at the principal offices of the Corporation, will be made available to any holder of Series B Preferred Stock upon request and will be final and binding in the absence of manifest error.

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     Section 4. Dividends.

     (a) Rate. Holders of Series B Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference of $25,000 per share of Series B Preferred Stock, and no more, payable quarterly in arrears on each January 15, April 15, July 15 and October 15; provided, however, if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of such delay) (each such day on which dividends are payable a “Dividend Payment Date”). The period from and including the date of issuance of the Series B Preferred Stock or any Dividend Payment Date to but excluding the next Dividend Payment Date is a “Dividend Period.” Dividends on each share of Series B Preferred Stock will accrue on the liquidation preference of $25,000 per share at a rate per annum equal to the greater of (i) Three-Month LIBOR plus 0.60%% or (ii) 3.50%. The record date for payment of dividends on the Series B Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls. The amount of dividends payable shall be computed on the basis of a 360-day year and the actual number of days elapsed.

     (b) Non-Cumulative Dividends. Dividends on shares of Series B Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series B Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series B Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series B Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.

     (c) Priority of Dividends. So long as any share of Series B Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation and (iii) no shares of Parity Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series B Preferred Stock and such Parity Stock except by conversion into or exchange for Junior Stock, in each case unless full dividends on all outstanding shares of Series B Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside. When dividends are not paid in full upon the shares of Series B Preferred Stock and any Parity Stock, all dividends declared upon shares of Series B Preferred

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Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series B Preferred Stock, and accrued dividends, including any accumulations on Parity Stock, bear to each other. No interest will be payable in respect of any dividend payment on shares of Series B Preferred Stock that may be in arrears. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice to the holders of the Series B Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any Junior Stock from time to time out of any assets legally available therefor, and the shares of Series B Preferred Stock shall not be entitled to participate in any such dividend.

     Section 5. Liquidation Rights.

     (a) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series B Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series B Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $25,000 per share, plus any authorized, declared and unpaid dividends, without accumulation of any undeclared dividends, to the date of liquidation. The holder of Series B Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

     (b) Partial Payment. If the assets of the Corporation are not sufficient to pay in full the liquidation preference plus any authorized, declared and unpaid dividends to all holders of Series B Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series B Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences plus any authorized, declared and unpaid dividends of Series B Preferred Stock and all such Parity Stock.

     (c) Residual Distributions. If the liquidation preference plus any authorized, declared and unpaid dividends has been paid in full to all holders of Series B Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

     (d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person

15

into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

     Section 6. Redemption.

     (a) Optional Redemption. The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series B Preferred Stock at the time outstanding, at any time on or after the Dividend Payment Date in April 2011, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series B Preferred Stock shall be $25,000 per share plus dividends that have been declared but not paid.

     (b) Notice of Redemption. Notice of every redemption of shares of Series B Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series B Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series B Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series B Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series B Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed by such holder; (iii) the redemption price; (iv) the place or places where the certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.

     (c) Partial Redemption. In case of any redemption of only part of the shares of Series B Preferred Stock at the time outstanding, the shares of Series B Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series B Preferred Stock in proportion to the number of Series B Preferred Stock held by such holders or by lot or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series B Preferred Stock shall be redeemed from time to time.

     (d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “Depositary Company”) in trust for the pro rata benefit of the holders of

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the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date from the funds so deposited, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

     Section 7. Voting Rights. The holders of Series B Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law and except that:

     (a) Supermajority Voting Rights—Amendments. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares the Series B Preferred Stock at the time outstanding, voting separately as a class, shall be required to authorize any amendment of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any certificate of designation or any similar document relating to any series of preferred stock) which will materially and adversely affect the powers, preferences, privileges or rights of the Series B Preferred Stock, taken as a whole; provided, however, that any increase in the amount of the authorized or issued Series B Preferred Stock or authorized preferred stock of the Corporation or the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock ranking equally with and/or junior to the Series B Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the powers, preferences, privileges or rights of the Series B Preferred Stock.

     (b) Supermajority Voting Rights—Priority. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of the Series B Preferred Stock and all other Parity Stock, at the time outstanding, voting as a single class without regard to series, shall be required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any additional class or series of stock ranking prior to the shares of the Series B Preferred Stock and all other Parity Stock as to dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation;

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     (c) Special Voting Right.

          (i) Voting Right. If and whenever dividends on the Series B Preferred Stock or any other class or series of preferred stock that ranks on parity with the Series B Preferred Stock as to payment of dividends, and upon which voting rights equivalent to those granted by this Section 7(c) have been conferred and are exercisable, have not been paid in an aggregate amount equal, as to any class or series, to at least six quarterly Dividend Periods (whether consecutive or not), the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Series B Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist), shall have the right, voting separately as a single class without regard to series, to the exclusion of the holders of common stock, to elect two directors of the Corporation to fill such newly created directorships (and to fill any vacancies in the terms of such directorships), provided that the election of such directors must not cause the Corporation to violate the corporate governance requirements of the New York Stock Exchange (or other exchange on which the Corporation’s securities may be listed) that listed companies must have a majority of independent directors and further provided that the Board of Directors of the Corporation shall at no time include more than two such directors. Each such director elected by the holders of shares of Series B Preferred Stock and any other class or series of preferred stock that ranks on parity with the Series B Preferred Stock as to payment of dividends is a “Preferred Director”.

          (ii) Election. The election of the Preferred Directors will take place at any annual meeting of stockholders or any special meeting of the holders of Series B Preferred Stock and any other class or series of our stock that ranks on parity with Series B Preferred Stock as to payment of dividends and for which dividends have not been paid, called as provided herein. At any time after the special voting power has vested pursuant to Section 7(c)(i) above, the secretary of the Corporation may, and upon the written request of any holder of Series B Preferred Stock (addressed to the secretary at the Corporation’s principal office) must (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the stockholders, in which event such election shall be held at such next annual or special meeting of stockholders), call a special meeting of the holders of Series B Preferred Stock and any other class or series of preferred stock that ranks on parity with Series B Preferred Stock as to payment of dividends and for which dividends have not been paid for the election of the two directors to be elected by them as provided in Section 7(c)(iii) below. The Preferred Directors shall each be entitled to one vote per director on any matter.

          (iii) Notice for Special Meeting. Notice for a special meeting will be given in a similar manner to that provided in the Corporation’s by-laws for a special meeting of the stockholders. If the secretary of the Corporation does not call a special meeting within 20 days after receipt of any such request, then any holder of Series B Preferred Stock may (at our expense) call such meeting, upon notice as provided in this Section 7(c)(iii), and for that purpose will have access to the stock register of the Corporation. The Preferred Directors elected at any such special meeting will hold office

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until the next annual meeting of our stockholders unless they have been previously terminated or removed pursuant to Section 7(c)(iv). In case any vacancy in the office of a Preferred Director occurs (other than prior to the initial election of the Preferred Directors), the vacancy may be filled by the written consent of the Preferred Director remaining in office, or if none remains in office, by the vote of the holders of the Series B Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) to serve until the next annual meeting of the stockholders.

          (iv) Termination; Removal. Whenever full dividends have been paid regularly on the Series B Preferred Stock and any other class or series of preferred stock that ranks on parity with Series B Preferred Stock as to payment of dividends, if any, for at least four Dividend Periods, then the right of the holders of Series B Preferred Stock to elect such additional two directors will cease (but subject always to the same provisions for the vesting of the special voting rights in the case of any similar non-payment of dividends in respect of future Dividend Periods). The terms of office of the Preferred Directors will immediately terminate and the number of directors constituting our board of directors will be reduced accordingly. Any Preferred Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of the Series B Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) when they have the voting rights described in this Section 7(c).

     Section 8. Conversion. The holders of Series B Preferred Stock shall not have any rights to convert such Series B Preferred Stock into shares of any other class of capital stock of the Corporation.

     Section 9. Rank. Notwithstanding anything set forth in the Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, the Committee or any authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series B Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or, subject to the voting rights granted in Section 7(b), any class of securities ranking senior to the Series B Preferred Stock as to dividends and the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 10. Repurchase. Subject to the limitations imposed herein, the Corporation may purchase and sell Series B Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine; provided, however, that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

     Section 11. Unissued or Reacquired Shares. Shares of Series B Preferred Stock not issued or which have been issued and converted, redeemed or otherwise purchased or acquired

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by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.

     Section 12. No Sinking Fund. Shares of Series B Preferred Stock are not subject to the operation of a sinking fund.

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Exhibit C

CERTIFICATE OF DESIGNATION

OF

SERIES C NON-CUMULATIVE PERPETUAL PREFERRED STOCK

     Section 1. Designation. The designation of the series of preferred stock shall be Series C Non-Cumulative Perpetual Preferred Stock (hereinafter referred to as the “Series C Preferred Stock”). Each share of Series C Preferred Stock shall be identical in all respects to every other share of Series C Preferred Stock. Series C Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 2. Number of Shares. The number of authorized shares of Series C Preferred Stock shall be five thousand (5,000). Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock) or decreased (but not below the number of shares of Series C Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such increase or reduction, as the case may be, has been so authorized. The Corporation shall have the authority to issue fractional shares of Series C Preferred Stock.

     Section 3. Definitions. As used herein with respect to Series C Preferred Stock:

          “Business Day” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions are not authorized or obligated by law, regulation or executive order to close in New York, New York.

          “Depositary Company” shall have the meaning set forth in Section 6(d) hereof.

          “Dividend Payment Date” shall have the meaning set forth in Section 4(a) hereof.

          “Dividend Period” shall have the meaning set forth in Section 4(a) hereof.

          “DTC” means The Depositary Trust Company, together with its successors and assigns.

          “Junior Stock” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series C Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

          “London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England.

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          “Parity Stock” means any other class or series of stock of the Corporation that ranks on a par with Series C Preferred Stock in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

          “Preferred Director” shall have the meaning set forth in Section 7 hereof.

          “Series C Preferred Stock” shall have the meaning set forth in Section 1 hereof.

          “Telerate Page 3750” means the display page so designated on the Moneyline/Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to the London Interbank Offered Rate for U.S. dollar deposits).

          “Three-Month LIBOR” means, with respect to any Dividend Period beginning on or after January 15, 2012 and each Dividend Period thereafter, the offered rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the second London Banking Day immediately preceding the first day of that Dividend Period. If such rate does not appear on Telerate Page 3750, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Corporation, at approximately 11:00 A.M., London time on the second London Banking Day immediately preceding the first day of that Dividend Period. U.S. Bank National Association, or such other bank as may be acting as calculation agent for the Corporation, will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of such quotations. If fewer than two quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of the rates quoted by three major banks in New York City selected by the Corporation, at approximately 11:00 a.m., New York City time, on the first day of that Dividend Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000. However, if fewer than three banks selected by the Corporation to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had Series C Preferred Stock been outstanding. The calculation agent’s establishment of Three-Month LIBOR and calculation of the amount of dividends for each Dividend Period will be on file at the principal offices of the Corporation, will be made available to any holder of Series C Preferred Stock upon request and will be final and binding in the absence of manifest error.

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     Section 4. Dividends.

     (a) Rate. Holders of Series C Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference of $100,000 per share of Series C Preferred Stock, and no more, payable quarterly in arrears on each January 15, April 15, July 15 and October 15; provided, however, if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of such delay) (each such day on which dividends are payable a “Dividend Payment Date”). The period from and including the date of issuance of the Series C Preferred Stock or any Dividend Payment Date to but excluding the next Dividend Payment Date is a “Dividend Period.” Dividends on each share of Series C Preferred Stock will accrue on the liquidation preference of $100,000 per share (i) to but not including the Dividend Payment Date in January 2012 at a rate per annum equal to 6.091%, and (ii) thereafter for each related Dividend Period at a rate per annum equal to Three-Month LIBOR plus 1.147%.

     (b) Non-Cumulative Dividends. Dividends on shares of Series C Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series C Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series C Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series C Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.

     (c) Priority of Dividends. So long as any share of Series C Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation and (iii) no shares of Parity Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series C Preferred Stock and such Parity Stock except by conversion into or exchange for Junior Stock, in each case unless full dividends on all outstanding shares of Series C Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside. When dividends are not paid in full upon the shares of Series C Preferred Stock and any Parity Stock, all dividends declared upon shares of Series C Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for

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the then-current Dividend Period per share on Series C Preferred Stock, and accrued dividends, including any accumulations on Parity Stock, bear to each other. No interest will be payable in respect of any dividend payment on shares of Series C Preferred Stock that may be in arrears. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice to the holders of the Series C Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any Junior Stock from time to time out of any assets legally available therefor, and the shares of Series C Preferred Stock shall not be entitled to participate in any such dividend.

     Section 5. Liquidation Rights.

     (a) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series C Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series C Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $100,000 per share, plus any authorized, declared and unpaid dividends, without accumulation of any undeclared dividends, to the date of liquidation. The holder of Series C Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

     (b) Partial Payment. If the assets of the Corporation are not sufficient to pay in full the liquidation preference plus any authorized, declared and unpaid dividends to all holders of Series C Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series C Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences plus any authorized, declared and unpaid dividends of Series C Preferred Stock and all such Parity Stock.

     (c) Residual Distributions. If the liquidation preference plus any authorized, declared and unpaid dividends has been paid in full to all holders of Series C Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

     (d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

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     Section 6. Redemption.

     (a) Optional Redemption. The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series C Preferred Stock at the time outstanding at any time upon notice given as provided in Section 6(b) below. The redemption price for shares of Series C Preferred Stock shall be $100,000 per share plus dividends that have been declared but not paid.

     (b) Notice of Redemption. Notice of every redemption of shares of Series C Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series C Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series C Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series C Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed by such holder; (iii) the redemption price; (iv) the place or places where the certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.

     (c) Partial Redemption. In case of any redemption of only part of the shares of Series C Preferred Stock at the time outstanding, the shares of Series C Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series C Preferred Stock in proportion to the number of Series C Preferred Stock held by such holders or by lot or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series C Preferred Stock shall be redeemed from time to time.

     (d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “Depositary Company”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to

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such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date from the funds so deposited, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

     Section 7. Voting Rights. The holders of Series C Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law and except that:

     (a) Special Voting Right.

          (i) Voting Right. If and whenever dividends on the Series C Preferred Stock or any other class or series of preferred stock that ranks on parity with the Series C Preferred Stock as to payment of dividends, and upon which voting rights equivalent to those granted by this Section 7(a) have been conferred and are exercisable, have not been paid in an aggregate amount equal, as to any class or series, to at least six quarterly Dividend Periods (whether consecutive or not), the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Series C Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist), shall have the right, voting separately as a single class without regard to series, to the exclusion of the holders of common stock, to elect two directors of the Corporation to fill such newly created directorships (and to fill any vacancies in the terms of such directorships), provided that the election of such directors must not cause the Corporation to violate the corporate governance requirements of the New York Stock Exchange (or other exchange on which the Corporation’s securities may be listed) that listed companies must have a majority of independent directors and further provided that the Board of Directors of the Corporation shall at no time include more than two such directors. Each such director elected by the holders of shares of Series C Preferred Stock and any other class or series of preferred stock that ranks on parity with the Series C Preferred Stock as to payment of dividends is a “Preferred Director”.

          (ii) Election. The election of the Preferred Directors will take place at any annual meeting of stockholders or any special meeting of the holders of Series C Preferred Stock and any other class or series of our stock that ranks on parity with Series C Preferred Stock as to payment of dividends and for which dividends have not been paid, called as provided herein. At any time after the special voting power has vested pursuant to Section 7(a)(i) above, the secretary of the Corporation may, and upon the

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written request of any holder of Series C Preferred Stock (addressed to the secretary at the Corporation’s principal office) must (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the stockholders, in which event such election shall be held at such next annual or special meeting of stockholders), call a special meeting of the holders of Series C Preferred Stock and any other class or series of preferred stock that ranks on parity with Series C Preferred Stock as to payment of dividends and for which dividends have not been paid for the election of the two directors to be elected by them as provided in Section 7(a)(iii) below. The Preferred Directors shall each be entitled to one vote per director on any matter.

          (iii) Notice for Special Meeting. Notice for a special meeting will be given in a similar manner to that provided in the Corporation’s by-laws for a special meeting of the stockholders. If the secretary of the Corporation does not call a special meeting within 20 days after receipt of any such request, then any holder of Series C Preferred Stock may (at our expense) call such meeting, upon notice as provided in this Section 7(a)(iii), and for that purpose will have access to the stock register of the Corporation. The Preferred Directors elected at any such special meeting will hold office until the next annual meeting of our stockholders unless they have been previously terminated or removed pursuant to Section 7(a)(iv). In case any vacancy in the office of a Preferred Director occurs (other than prior to the initial election of the Preferred Directors), the vacancy may be filled by the written consent of the Preferred Director remaining in office, or if none remains in office, by the vote of the holders of the Series C Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) to serve until the next annual meeting of the stockholders.

          (iv) Termination; Removal. Whenever full dividends have been paid regularly on the Series C Preferred Stock and any other class or series of preferred stock that ranks on parity with Series C Preferred Stock as to payment of dividends, if any, for three consecutive Dividend Periods and full dividends have been paid or declared and set aside for payment for the fourth consecutive Dividend Period, then the right of the holders of Series C Preferred Stock to elect such additional two directors will cease (but subject always to the same provisions for the vesting of the special voting rights in the case of any similar non-payment of dividends in respect of future Dividend Periods). The terms of office of the Preferred Directors will immediately terminate and the number of directors constituting our board of directors will be reduced accordingly. Any Preferred Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of the Series C Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) when they have the voting rights described in this Section 7(a).

     Section 8. Conversion. The holders of Series C Preferred Stock shall not have any rights to convert such Series C Preferred Stock into shares of any other class of capital stock of the Corporation.

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     Section 9. Rank. Notwithstanding anything set forth in the Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, the Committee or any authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series C Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or, subject to the voting rights granted in Section 7(a), any class of securities ranking senior to the Series C Preferred Stock as to dividends and the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 10. Repurchase. Subject to the limitations imposed herein, the Corporation may purchase and sell Series C Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine; provided, however, that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

     Section 11. Unissued or Reacquired Shares. Shares of Series C Preferred Stock not issued or which have been issued and converted, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.

     Section 12. No Sinking Fund. Shares of Series C Preferred Stock are not subject to the operation of a sinking fund.

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Exhibit D

CERTIFICATE OF DESIGNATIONS

OF

SERIES D NON-CUMULATIVE PERPETUAL PREFERRED STOCK

     Section 1. Designation. The designation of the series of preferred stock shall be Series D Non-Cumulative Perpetual Preferred Stock (hereinafter referred to as the “Series D Preferred Stock”). Each share of Series D Preferred Stock shall be identical in all respects to every other share of Series D Preferred Stock. Series D Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 2. Number of Shares. The number of authorized shares of Series D Preferred Stock shall be 20,000. Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock) or decreased (but not below the number of shares of Series D Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such increase or reduction, as the case may be, has been so authorized. The Corporation shall have the authority to issue fractional shares of Series D Preferred Stock.

     Section 3. Definitions. As used herein with respect to Series D Preferred Stock:

          “Business Day” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions are not authorized or obligated by law, regulation or executive order to close in New York, New York.

          “Depositary Company” shall have the meaning set forth in Section 6(d) hereof.

          “Dividend Payment Date” shall have the meaning set forth in Section 4(a) hereof.

          “Dividend Period” shall have the meaning set forth in Section 4(a) hereof.

          “DTC” means The Depository Trust Company, together with its successors and assigns.

          “Junior Stock” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series D Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

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          “Parity Stock” means any other class or series of stock of the Corporation that ranks on a parity with Series D Preferred Stock in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

          “Preferred Director” shall have the meaning set forth in Section 7 hereof.

          “Series D Preferred Stock” shall have the meaning set forth in Section 1 hereof.

     Section 4. Dividends.

     (a) Rate. Holders of Series D Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference of $25,000 per share of Series D Preferred Stock, and no more, payable quarterly in arrears on each January 15, April 15, July 15 and October 15; provided, however, if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of such delay) (each such day on which dividends are payable a “Dividend Payment Date”). The period from and including the date of issuance of the Series D Preferred Stock or any Dividend Payment Date to but excluding the next Dividend Payment Date is a “Dividend Period.” Dividends on each share of Series D Preferred Stock will accrue on the liquidation preference of $25,000 per share at a rate per annum equal to 7.875%. The record date for payment of dividends on the Series D Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls. The amount of dividends payable shall be computed on the basis of a 360-day year and the actual number of days elapsed.

     (b) Non-Cumulative Dividends. Dividends on shares of Series D Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series D Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series D Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series D Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.

     (c) Priority of Dividends. So long as any share of Series D Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation and (iii) no shares of Parity Stock shall

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be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series D Preferred Stock and such Parity Stock except by conversion into or exchange for Junior Stock, in each case unless full dividends on all outstanding shares of Series D Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside. When dividends are not paid in full upon the shares of Series D Preferred Stock and any Parity Stock, all dividends declared upon shares of Series D Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series D Preferred Stock, and accrued dividends, including any accumulations, on Parity Stock, bear to each other. No interest will be payable in respect of any dividend payment on shares of Series D Preferred Stock that may be in arrears. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice to the holders of the Series D Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any Junior Stock from time to time out of any assets legally available therefor, and the shares of Series D Preferred Stock or Parity Stock shall not be entitled to participate in any such dividend.

     Section 5. Liquidation Rights.

     (a) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series D Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series D Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $25,000 per share, plus any authorized, declared and unpaid dividends, without accumulation of any undeclared dividends, to the date of liquidation. The holder of Series D Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

     (b) Partial Payment. If the assets of the Corporation are not sufficient to pay in full the liquidation preference plus any authorized, declared and unpaid dividends to all holders of Series D Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series D Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences plus any authorized, declared and unpaid dividends of Series D Preferred Stock and all such Parity Stock.

     (c) Residual Distributions. If the liquidation preference plus any authorized, declared and unpaid dividends has been paid in full to all holders of Series D Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

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     (d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

     Section 6. Redemption.

     (a) Optional Redemption. The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series D Preferred Stock at the time outstanding, at any time on or after the Dividend Payment Date in April 2013, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series D Preferred Stock shall be $25,000 per share plus dividends that have been declared but not paid.

     (b) Notice of Redemption. Notice of every redemption of shares of Series D Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series D Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series D Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series D Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series D Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed by such holder; (iii) the redemption price; (iv) the place or places where the certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.

     (c) Partial Redemption. In case of any redemption of only part of the shares of Series D Preferred Stock at the time outstanding, the shares of Series D Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series D Preferred Stock in proportion to the number of Series D Preferred Stock held by such holders or by lot or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series D Preferred Stock shall be redeemed from time to time.

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     (d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “Depositary Company”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date from the funds so deposited, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

     Section 7. Voting Rights. The holders of Series D Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law and except that:

     (a) Supermajority Voting Rights—Amendments. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares the Series D Preferred Stock at the time outstanding, voting separately as a class, shall be required to authorize any amendment of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any certificate of designations or any similar document relating to any series of preferred stock) which will materially and adversely affect the powers, preferences, privileges or rights of the Series D Preferred Stock, taken as a whole; provided, however, that any increase in the amount of the authorized or issued Series D Preferred Stock or authorized preferred stock of the Corporation or the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock ranking equally with and/or junior to the Series D Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the powers, preferences, privileges or rights of the Series D Preferred Stock.

     (b) Supermajority Voting Rights—Priority. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of the Series D Preferred Stock and all other Parity Stock, at the time outstanding, voting as a single class without regard to series,

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shall be required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any additional class or series of stock ranking prior to the shares of the Series D Preferred Stock and all other Parity Stock as to dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation;

     (c) Special Voting Right.

          (i) Voting Right. If and whenever dividends on the Series D Preferred Stock or any other class or series of preferred stock that ranks on parity with the Series D Preferred Stock as to payment of dividends, and upon which voting rights equivalent to those granted by this Section 7(c) have been conferred and are exercisable, have not been paid in an aggregate amount equal, as to any class or series, to at least six quarterly Dividend Periods (whether consecutive or not), the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Series D Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist), shall have the right, voting separately as a single class without regard to series, to the exclusion of the holders of common stock, to elect two directors of the Corporation to fill such newly created directorships (and to fill any vacancies in the terms of such directorships), provided that the election of such directors must not cause the Corporation to violate the corporate governance requirements of the New York Stock Exchange (or other exchange on which the Corporation’s securities may be listed) that listed companies must have a majority of independent directors and further provided that the Board of Directors of the Corporation shall at no time include more than two such directors. Each such director elected by the holders of shares of Series D Preferred Stock and any other class or series of preferred stock that ranks on parity with the Series D Preferred Stock as to payment of dividends is a “Preferred Director”.

          (ii) Election. The election of the Preferred Directors will take place at any annual meeting of stockholders or any special meeting of the holders of Series D Preferred Stock and any other class or series of the Corporation’s stock that ranks on parity with Series D Preferred Stock as to payment of dividends and for which dividends have not been paid, called as provided herein. At any time after the special voting power has vested pursuant to Section 7(c)(i) above, the secretary of the Corporation may, and upon the written request of any holder of Series D Preferred Stock (addressed to the secretary at the Corporation’s principal office) must (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the stockholders, in which event such election shall be held at such next annual or special meeting of stockholders), call a special meeting of the holders of Series D Preferred Stock and any other class or series of preferred stock that ranks on parity with Series D Preferred Stock as to payment of dividends and for which dividends have not been paid for the election of the two directors to be elected by them as provided in Section 7(c)(iii) below. The Preferred Directors shall each be entitled to one vote per director on any matter.

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          (iii) Notice for Special Meeting. Notice for a special meeting will be given in a similar manner to that provided in the Corporation’s by-laws for a special meeting of the stockholders. If the secretary of the Corporation does not call a special meeting within 20 days after receipt of any such request, then any holder of Series D Preferred Stock may (at the Corporation’s expense) call such meeting, upon notice as provided in this Section 7(c)(iii), and for that purpose will have access to the stock register of the Corporation. The Preferred Directors elected at any such special meeting will hold office until the next annual meeting of the Corporation’s stockholders unless they have been previously terminated or removed pursuant to Section 7(c)(iv). In case any vacancy in the office of a Preferred Director occurs (other than prior to the initial election of the Preferred Directors), the vacancy may be filled by the written consent of the Preferred Director remaining in office, or if none remains in office, by the vote of the holders of the Series D Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) to serve until the next annual meeting of the stockholders.

          (iv) Termination; Removal. Whenever full dividends have been paid regularly on the Series D Preferred Stock and any other class or series of preferred stock that ranks on parity with Series D Preferred Stock as to payment of dividends, if any, for at least four consecutive Dividend Periods, then the right of the holders of Series D Preferred Stock to elect such additional two directors will cease (but subject always to the same provisions for the vesting of the special voting rights in the case of any similar non-payment of dividends in respect of future Dividend Periods). The terms of office of the Preferred Directors will immediately terminate and the number of directors constituting the Corporation’s board of directors will be reduced accordingly. Any Preferred Director may be removed at any time without cause by the holders of record of a majority of the outstanding             shares of Series D Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) when they have the voting rights described in this Section 7(c).

     Section 8. Conversion. The holders of Series D Preferred Stock shall not have any rights to convert such Series D Preferred Stock into shares of any other class of capital stock of the Corporation.

     Section 9. Rank. Notwithstanding anything set forth in the Certificate of Incorporation or this Certificate of Designations to the contrary, the Board of Directors of the Corporation, the Committee or any authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series D Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or, subject to the voting rights granted in Section 7(b), any class of securities ranking senior to the Series D Preferred Stock as to dividends and the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

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     Section 10. Repurchase. Subject to the limitations imposed herein, the Corporation may purchase and sell Series D Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine; provided, however, that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

     Section 11. Unissued or Reacquired Shares. Shares of Series D Preferred Stock not issued or which have been issued and converted, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.

     Section 12. No Sinking Fund. Shares of Series D Preferred Stock are not subject to the operation of a sinking fund.

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AMENDED CERTIFICATE OF DESIGNATIONS
OF
SERIES A NON-CUMULATIVE PERPETUAL PREFERRED STOCK
OF
U.S. BANCORP

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware

     U.S. Bancorp, a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify that:

     1. The Risk Management Committee (the “Committee”) of the Board of Directors of the Corporation (the “Board”), pursuant to authority conferred upon the Committee by the Board, and by Section 141(c)(2) of the General Corporation Law of the State of Delaware, duly adopted the following resolutions at a meeting duly convened and held on April 19, 2010 to amend in its entirety the designations of the series of preferred stock of the Corporation previously designated as Series A Non-Cumulative Perpetual Preferred Stock:

     “RESOLVED, that pursuant to Section 151(g) of the Delaware General Corporation Law, the designations of the series of preferred stock of the Corporation previously designated “Series A Non-Cumulative Perpetual Preferred Stock” shall be amended in its entirety so that the voting powers, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions on the shares of such series are substantially in the form as set forth on Exhibit A attached hereto, with such changes as the Authorized Officers (as defined below) or the Subcommittee may approve, which is incorporated herein by reference;”

     2. No shares of Series A Non-Cumulative Perpetual Preferred Stock of the Corporation have, as of the date of this Amended Certificate of Designations, been issued.

     IN WITNESS WHEREOF, this Amended Certificate of Designations is executed on behalf of the Corporation by its Vice Chairman and Chief Financial Officer this 9th day of June, 2010.

U.S. BANCORP
By:	/s/ Andrew Cecere
	Andrew Cecere
	Vice Chairman and Chief Financial Officer

EXHIBIT A
TO
AMENDED
CERTIFICATE OF DESIGNATIONS
OF
SERIES A NON-CUMULATIVE PERPETUAL PREFERRED STOCK

     Section 1. Designation. The designation of the series of Preferred Stock shall be Series A Non-Cumulative Perpetual Preferred Stock (hereinafter referred to as the “Series A Preferred Stock”). Each share of Series A Preferred Stock shall be identical in all respects to every other share of Series A Preferred Stock. Series A Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 2. Number of Shares. The number of authorized shares of Series A Preferred Stock shall be 20,010. Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock) or decreased (but not below the number of shares of Series A Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such increase or reduction, as the case may be, has been so authorized. The Corporation shall have the authority to issue fractional shares of Series A Preferred Stock.

     Section 3. Definitions. As used herein with respect to Series A Preferred Stock:

     “Business Day” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in Minneapolis, Minnesota, New York, New York or Wilmington, Delaware are not authorized or obligated by law, regulation or executive order to close.

     “Depositary Company” shall have the meaning set forth in Section 6(d) hereof.

     “Dividend Payment Date” shall have the meaning set forth in Section 4(a) hereof.

     “Dividend Period” shall have the meaning set forth in Section 4(a) hereof.

     “DTC” means The Depository Trust Company, together with its successors and assigns.

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     “Junior Stock” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series A Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

     “London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England.

     “Parity Stock” means any other class or series of stock of the Corporation that ranks on a par with Series A Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

     “Preferred Director” shall have the meaning set forth in Section 7 hereof.

     “Reuters Screen LIBOR01 Page” means the display designated on the Reuters 3000 Xtra (or such other page as may replace that page on that service or such other service as may be nominated by the British Bankers’ Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits).

     “Series A Preferred Stock” shall have the meaning set forth in Section 1 hereof.

     Stock Purchase Date” means the first to occur of any January 15, April 15, July 15 and October 15, or if any such day is not a Business Day, the next Business Day, after the Remarketing Settlement Date or the Remarketing Date of a Failed Remarketing, as such terms are defined in that certain Third Supplemental Indenture, dated as of March 17, 2006, between the Corporation and Wilmington Trust Company, as successor indenture trustee, amending and supplementing that certain Junior Subordinated Indenture dated as of August 28, 2005, between the Company and Delaware Trust Company, National Association, as thereby amended from time to time.

     “Three-Month LIBOR” means, with respect to any Dividend Period, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period, as that rate appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time) on the second London Banking Day preceding the first day of that Dividend Period. If such rate does not appear on Reuters Screen LIBOR01 Page, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Corporation, at approximately 11:00 A.M., London time on the second London Banking Day preceding the first day of that Dividend Period. U.S. Bank National Association, or such other

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bank as may be acting as calculation agent for the Corporation, will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of such quotations. If fewer than two quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of the rates quoted by three major banks in New York City selected by the calculation agent, at approximately 11:00 a.m., New York City time, on the first day of that Dividend Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000. However, if the banks selected by the calculation agent to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had Series A Preferred Stock been outstanding. The calculation agent’s establishment of Three-Month LIBOR and calculation of the amount of dividends for each Dividend Period will be on file at the principal offices of the Corporation, will be made available to any holder of Series A Preferred Stock upon request and will be final and binding in the absence of manifest error.

     Section 4. Dividends.

          (a) Rate. Holders of Series A Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation , but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference of $100,000 per share of Series A Preferred Stock, and no more, payable on the following dates: (1) if the Series A Preferred Stock is issued prior to April 15, 2011, semi-annually in arrears on each April 15 and October 15 through April 15, 2011, and (2) from and including the later of April 15, 2011 and the Stock Purchase Date, quarterly in arrears on each July 15, October 15, January 15 and April 15; provided, however, if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of such delay) (each such day on which dividends are payable a “Dividend Payment Date”). The period from and including the date of issuance of the Series A Preferred Stock or any Dividend Payment Date to but excluding the next Dividend Payment Date is a “Dividend Period.” Dividends on each share of Series A Preferred Stock will accrue on the liquidation preference of $100,000 per share (i) from the date of issuance to but not including the later of the Dividend Payment Date in April 2011 and the Stock Purchase Date at a rate per annum equal to 7.189%, and

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(ii) thereafter for each related Dividend Period at a rate per annum equal to the greater of (x) Three-Month LIBOR plus 1.02% or (y) 3.50%.The record date for payment of dividends on the Series A Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls. The amount of dividends payable for any period prior to the later of the Dividend Payment Day in April 2011 and the date of original issuance of the Series A Preferred Stock shall be computed on the basis of a 360-day year consisting of twelve 30-day months and dividends for periods thereafter shall be computed on the basis of a 360-day year and the actual number of days elapsed.

          (b) Non-Cumulative Dividends. Dividends on shares of Series A Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series A Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series A Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series A Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.

          (c) Priority of Dividends. So long as any share of Series A Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation and (iii) no shares of Parity Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series A Preferred Stock and such Parity Stock except by conversion into or exchange for Junior Stock, in each case unless full dividends on all outstanding shares of Series A Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside. The foregoing shall not restrict the ability of the Corporation, or any affiliate of the Corporation, to engage in any market-making transactions in the Junior Stock or Parity Stock in the ordinary course of business. When dividends are not paid in full upon the shares of Series A Preferred Stock and any

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Parity Stock, all dividends declared upon shares of Series A Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series A Preferred Stock, and accrued dividends, including any accumulations on Parity Stock, bear to each other. No interest will be payable in respect of any dividend payment on shares of Series A Preferred Stock that may be in arrears. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice to the holders of the Series A Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any Junior Stock from time to time out of any assets legally available therefor, and the shares of Series A Preferred Stock or Parity Stock shall not be entitled to participate in any such dividend.

     Section 5. Liquidation Rights.

          (a) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series A Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series A Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $100,000 per share, plus any authorized, declared and unpaid dividends for the then-current Dividend Period to the date of liquidation. The holder of Series A Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

          (b) Partial Payment. If the assets of the Corporation are not sufficient to pay in full the liquidation preference plus any authorized, declared and unpaid dividends to all holders of Series A Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series A Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences plus any authorized, declared and unpaid dividends of Series A Preferred Stock and all such Parity Stock.

          (c) Residual Distributions. If the liquidation preference plus any authorized, declared and unpaid dividends has been paid in full to all holders of Series A Preferred

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Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

          (d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

     Section 6. Redemption.

          (a) Optional Redemption. So long as full dividends on all outstanding shares of Series A Preferred Stock for the then-current Dividend Period have been paid or declared and a sum sufficient for the payment thereof set aside, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series A Preferred Stock at the time outstanding, at any time on or after the later of the Dividend Payment Date in April 2011 and the date of original issuance of the Series A Preferred Stock, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series A Preferred Stock shall be $100,000 per share plus dividends that have been declared but not paid plus accrued and unpaid dividends for the then-current Dividend Period to the redemption date.

          (b) Notice of Redemption. Notice of every redemption of shares of Series A Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series A Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series A Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series A Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series A Preferred

A-6

Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed by such holder; (iii) the redemption price; (iv) the place or places where the certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.

          (c) Partial Redemption. In case of any redemption of only part of the shares of Series A Preferred Stock at the time outstanding, the shares of Series A Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series A Preferred Stock in proportion to the number of Series A Preferred Stock held by such holders or by lot or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation, the Committee or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series A Preferred Stock shall be redeemed from time to time.

          (d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all assets necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “Depositary Company”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date from the funds so deposited, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above

A-7

for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

     Section 7. Voting Rights. The holders of Series A Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law and except that:

     (a) Supermajority Voting Rights—Amendments. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of the Series A Preferred Stock at the time outstanding, voting separately as a class, shall be required to authorize any amendment of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any certificate of designations or any similar document relating to any series of preferred stock) which will materially and adversely affect the powers, preferences, privileges or rights of the Series A Preferred Stock, taken as a whole; provided, however, that any increase in the amount of the authorized or issued Series A Preferred Stock or authorized preferred stock of the Corporation or the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock ranking equally with and/or junior to the Series A Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the powers, preferences, privileges or rights of the Series A Preferred Stock.

     (b) Supermajority Voting Rights—Priority. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of the Series A Preferred Stock and all other Parity Stock, at the time outstanding, voting as a single class without regard to series, shall be required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any additional class or series of stock ranking prior to the shares of the Series A Preferred Stock and all other Parity Stock as to dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation.

     (c) Special Voting Right.

          (i) Voting Right. If and whenever dividends on the Series A Preferred Stock or any other class or series of preferred stock that ranks on parity with the Series A Preferred Stock as to payment of dividends, and upon which voting rights equivalent to those granted by this Section 7(c) have been conferred and are exercisable, have not been paid in an aggregate amount equal, as to any class or series, to at least six quarterly Dividend Periods (whether consecutive or not), the number of directors

A-8

constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Series A Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist), shall have the right, voting separately as a single class without regard to series, to the exclusion of the holders of common stock, to elect two directors of the Corporation to fill such newly created directorships (and to fill any vacancies in the terms of such directorships), provided that the election of such directors must not cause the Corporation to violate the corporate governance requirements of the New York Stock Exchange (or other exchange on which the Corporation’s securities may be listed) that listed companies must have a majority of independent directors and further provided that the Board of Directors of the Corporation shall at no time include more than two such directors. Each such director elected by the holders of shares of Series A Preferred Stock and any other class or series of preferred stock that ranks on parity with the Series A Preferred Stock as to payment of dividends is a “Preferred Director”.

          (ii) Election. The election of the Preferred Directors will take place at any annual meeting of stockholders or any special meeting of the holders of Series A Preferred Stock and any other class or series of the Corporation’s stock that ranks on parity with Series A Preferred Stock as to payment of dividends and for which dividends have not been paid, called as provided herein. At any time after the special voting power has vested pursuant to Section 7(c)(i) above, the secretary of the Corporation may, and upon the written request of any holder of Series A Preferred Stock (addressed to the secretary at the Corporation’s principal office) must (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the stockholders, in which event such election shall be held at such next annual or special meeting of stockholders), call a special meeting of the holders of Series A Preferred Stock and any other class or series of preferred stock that ranks on parity with Series A Preferred Stock as to payment of dividends and for which dividends have not been paid for the election of the two directors to be elected by them as provided in Section 7(c)(iii) below. The Preferred Directors shall each be entitled to one vote per director on any matter.

          (iii) Notice for Special Meeting. Notice for a special meeting will be given in a similar manner to that provided in the Corporation’s by-laws for a special meeting of the stockholders. If the secretary of the Corporation does not call a special meeting within 20 days after receipt of any such request, then any holder of Series A Preferred Stock may (at the Corporation’s expense) call such meeting, upon notice as provided in this Section 7(c)(iii), and for that purpose will have access to the stock register of the Corporation. The Preferred Directors elected at any such special meeting will hold office until the next annual meeting of the Corporation’s stockholders unless they have

A-9

been previously terminated or removed pursuant to Section 7(c)(iv). In case any vacancy in the office of a Preferred Director occurs (other than prior to the initial election of the Preferred Directors), the vacancy may be filled by the written consent of the Preferred Director remaining in office, or if none remains in office, by the vote of the holders of the Series A Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) to serve until the next annual meeting of the stockholders.

          (iv) Termination; Removal. Whenever full dividends have been paid regularly on the Series A Preferred Stock and any other class or series of preferred stock that ranks on parity with Series A Preferred Stock as to payment of dividends, if any, for at least four consecutive Dividend Periods, then the right of the holders of Series A Preferred Stock to elect such additional two directors will cease (but subject always to the same provisions for the vesting of the special voting rights in the case of any similar non-payment of dividends in respect of future Dividend Periods). The terms of office of the Preferred Directors will immediately terminate and the number of directors constituting the Corporation’s board of directors will be reduced accordingly. Any Preferred Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of Series A Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock having equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) when they have the voting rights described in this Section 7(c).

     Section 8. Conversion. The holders of Series A Preferred Stock shall not have any rights to convert such Series A Preferred Stock into shares of any other class of capital stock of the Corporation.

     Section 9. Rank. Notwithstanding anything set forth in the Certificate of Incorporation or this Certificate of Designations to the contrary, the Board of Directors of the Corporation, the Committee or any authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series A Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or, subject to the voting rights granted in Section 7(b), any class of securities ranking senior to the Series A Preferred Stock as to dividends and upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

     Section 10. Repurchase. Subject to the limitations imposed herein, the Corporation may purchase and sell Series A Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors of the Corporation or any duly

A-10

authorized committee of the Board of Directors of the Corporation may determine; provided, however, that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

     Section 11. Unissued or Reacquired Shares. Shares of Series A Preferred Stock not issued or which have been issued and converted, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.

     Section 12. No Sinking Fund. Shares of Series A Preferred Stock are not subject to the operation of a sinking fund.

* * * **

A-11

EX-12

EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges

				Three Months Ended		Six Months Ended
(Dollars in Millions)				June 30, 2010		June 30, 2010
Earnings
	1.	Net income attributable to U.S. Bancorp		$	766	$	1,435
	2.	Applicable income taxes, including interest expense related to unrecognized tax positions			199		360
	3.	Net income attributable to U.S Bancorp before income taxes (1 + 2)		$	965	$	1,795
	4.	Fixed charges:
		a.	Interest expense excluding interest on deposits*	$	409	$	814
		b.	Portion of rents representative of interest and amortization of debt expense		26		52
		c.	Fixed charges excluding interest on deposits (4a + 4b)		435		866
		d.	Interest on deposits		229		465
		e.	Fixed charges including interest on deposits (4c + 4d)	$	664	$	1,331
	5.	Amortization of interest capitalized		$	–	$	–
	6.	Earnings excluding interest on deposits (3 + 4c + 5)			1,400		2,661
	7.	Earnings including interest on deposits (3 + 4e + 5)			1,629		3,126
	8.	Fixed charges excluding interest on deposits (4c)			435		866
	9.	Fixed charges including interest on deposits (4e)			664		1,331
Ratio of Earnings to Fixed Charges
	10.	Excluding interest on deposits (line 6/line 8)			3.22		3.07
	11.	Including interest on deposits (line 7/line 9)			2.45		2.35

* Excludes interest expense related to unrecognized tax positions.

  60 U.S. Bancorp

EX-31.1

EXHIBIT 31.1

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

I, Richard K. Davis, certify that:

(1)	I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Richard K. Davis

Richard K. Davis

Chief Executive Officer

Dated: August 6, 2010

  U.S. Bancorp 61

EX-31.2

EXHIBIT 31.2

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

I, Andrew Cecere, certify that:

(1)	I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

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

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Andrew Cecere

Andrew Cecere

Chief Financial Officer

Dated: August 6, 2010

  62 U.S. Bancorp

EX-32

EXHIBIT 32

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

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

(1)	The Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

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

Dated: August 6, 2010

  U.S. Bancorp 63