U.S. Bancorp (USB) 10-Q 2008 Q3 Quarterly report

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from (not applicable)

Commission file number 1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)

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

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices, including zip code)

651-466-3000

(Registrant’s telephone number, including area code)

(not applicable)

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

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

YES þ  NO o

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

YES o  NO þ

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

Class
Common Stock, $.01 Par Value Outstanding as of October 31, 2008
1,754,577,993 shares

Table of Contents andForm 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	7
d) Critical Accounting Policies	27
e) Controls and Procedures (Item 4)	28
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	16
d) Operational Risk Management	18
e) Interest Rate Risk Management	18
f) Market Risk Management	20
g) Liquidity Risk Management	20
h) Capital Management	21
3) Line of Business Financial Review	22
4) Financial Statements (Item 1)	30
Part II — Other Information
1) Risk Factors (Item 1A)	50
2) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)	51
3) Exhibits (Item 6)	51
4) Signature	52
5) Exhibits	53
EXHIBIT 12
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

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

This Quarterly Report onForm 10-Q contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including continued deterioration in general business and economic conditions and in the financial markets; changes in interest rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in our investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, legal risk and regulatory and compliance risk. For discussion of these and other risks that may cause actual results to differ from expectations, refer to the other information in this report, including the section entitled “Risk Factors,” and our Annual Report onForm 10-K for the year ended December 31, 2007, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile.” Forward-looking statements speak only as of the date they are made, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

  U.S. Bancorp 1

Table 1     Selected Financial Data

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
							Percent									Percent
(Dollars and Shares in Millions, Except Per Share Data)	2008			2007			Change			2008			2007			Change
Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)	$	1,967		$	1,685			16.7	%	$	5,705		$	5,001			14.1	%
Noninterest income		1,823			1,870			(2.5	)		6,073			5,474			10.9
Securities gains (losses), net		(411	)		7				*		(725	)		11				*
Total net revenue		3,379			3,562			(5.1	)		11,053			10,486			5.4
Noninterest expense		1,823			1,776			2.6			5,454			5,018			8.7
Provision for credit losses		748			199				*		1,829			567				*
Income before taxes		808			1,587			(49.1	)		3,770			4,901			(23.1	)
Taxable-equivalent adjustment		34			18			88.9			94			53			77.4
Applicable income taxes		198			473			(58.1	)		1,060			1,466			(27.7	)
Net income	$	576		$	1,096			(47.4	)	$	2,616		$	3,382			(22.6	)
Net income applicable to common equity	$	557		$	1,081			(48.5	)	$	2,563		$	3,337			(23.2	)
Per Common Share
Earnings per share	$	.32		$	.63			(49.2	)%	$	1.47		$	1.92			(23.4	)%
Diluted earnings per share		.32			.62			(48.4	)		1.46			1.89			(22.8	)
Dividends declared per share		.425			.400			6.3			1.275			1.200			6.3
Book value per share		11.50			11.41			.8
Market value per share		36.02			32.53			10.7
Average common shares outstanding		1,743			1,725			1.0			1,738			1,737			.1
Average diluted common shares outstanding		1,757			1,745			.7			1,754			1,762			(.5	)
Financial Ratios
Return on average assets		.94	%		1.95	%					1.45	%		2.04	%
Return on average common equity		10.8			21.7						16.6			22.4
Net interest margin (taxable-equivalent basis) (a)		3.65			3.44						3.60			3.46
Efficiency ratio (b)		48.1			50.0						46.3			47.9
Average Balances
Loans	$	166,560		$	147,517			12.9	%	$	161,639		$	145,965			10.7	%
Loans held for sale		3,495			4,547			(23.1	)		4,008			4,244			(5.6	)
Investment securities		42,548			41,128			3.5			43,144			40,904			5.5
Earning assets		214,973			194,886			10.3			211,372			192,788			9.6
Assets		243,623			223,505			9.0			240,850			221,694			8.6
Noninterest-bearing deposits		28,322			26,947			5.1			27,766			27,531			.9
Deposits		133,539			119,145			12.1			133,402			119,610			11.5
Short-term borrowings		40,277			29,155			38.1			38,070			28,465			33.7
Long-term debt		40,000			46,452			(13.9	)		39,237			44,696			(12.2	)
Shareholders’ equity		21,983			20,741			6.0			21,927			20,947			4.7
		September 30, 2008			December 31, 2007
Period End Balances
Loans	$	169,863		$	153,827			10.4	%
Allowance for credit losses		2,898			2,260			28.2
Investment securities		39,349			43,116			(8.7	)
Assets		247,055			237,615			4.0
Deposits		139,504			131,445			6.1
Long-term debt		40,110			43,440			(7.7	)
Shareholders’ equity		21,675			21,046			3.0
Regulatory capital ratios
Tier 1 capital		8.5	%		8.3	%
Total risk-based capital		12.3			12.2
Leverage		8.0			7.9
Tangible common equity		5.3			5.1

*	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 securities gains (losses), net.

  2 U.S. Bancorp

Management’s Discussion and Analysis

OVERVIEW

Earnings Summary U.S. Bancorp and its subsidiaries (the “Company”) reported net income of $576 million for the third quarter of 2008 or $.32 per diluted common share, compared with $1,096 million, or $.62 per diluted common share for the third quarter of 2007. Return on average assets and return on average common equity were .94 percent and 10.8 percent, respectively, for the third quarter of 2008, compared with returns of 1.95 percent and 21.7 percent, respectively, for the third quarter of 2007. The Company’s fundamental business performance continues to be strong despite the challenging financial markets, which impacted the third quarter of 2008 results. Included in the third quarter of 2008 results were $411 million of securities losses, which included valuation impairment charges on structured investment securities, perpetual preferred stock (including the stock of government sponsored enterprises (“GSEs”)) and certain non-agency mortgage-backed securities. In addition, the Company recorded other market valuation losses related to the bankruptcy of an investment banking firm and continued to build the allowance for credit losses by recording $250 million of provision for credit losses expense in excess of net charge-offs. These items reduced earnings per diluted common share by approximately $.28. Results for the third quarter of 2007 were impacted by a $115 million charge for the Company’s proportionate share of a litigation settlement between Visa U.S.A. Inc. and American Express (“Visa Charge”).

Total net revenue, on a taxable-equivalent basis, for the third quarter of 2008, was $183 million (5.1 percent) lower than the third quarter of 2007, reflecting a 16.7 percent increase in net interest income, offset by a 24.8 percent decrease in noninterest income. The increase in net interest income from a year ago was driven by growth in earning assets and an improvement in the net interest margin. Noninterest income declined from a year ago as strong growth in the majority of revenue categories was offset by securities impairments, other market valuation losses and higher retail lease residual losses.

Total noninterest expense in the third quarter of 2008 was $47 million (2.6 percent) higher than in the third quarter of 2007, principally due to higher costs associated with business initiatives designed to expand the Company’s geographical presence and strengthen customer relationships, including acquisitions and investments in relationship managers, branch initiatives and Payment Services’ businesses. The increase also included higher credit collection costs and incremental costs associated with investments in tax-advantaged projects. The increase from a year ago was partially reduced by the Visa Charge recognized in the third quarter of 2007.

The provision for credit losses for the third quarter of 2008 increased $549 million over the third quarter of 2007. This reflected an increase to the allowance for credit losses of $250 million in the third quarter of 2008. The increases in the provision and allowance for credit losses from a year ago reflected continuing stress in the residential real estate markets, including homebuilding and related supplier industries, driven by declining home prices in most geographic regions. It also reflected changes in economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the third quarter of 2008 were $498 million, compared with $199 million in the third quarter of 2007. 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 of $2,616 million for the first nine months of 2008, or $1.46 per diluted common share, compared with $3,382 million, or $1.89 per diluted common share for the first nine months of 2007. Return on average assets and return on average common equity were 1.45 percent and 16.6 percent, respectively, for the first nine months of 2008, compared with returns of 2.04 percent and 22.4 percent, respectively, for the first nine months of 2007. The Company’s results for the first nine months of 2008 declined from the same period of 2007, as strong growth in net interest income and the majority of noninterest income categories was more than offset by securities impairment charges, growth in operating expenses and higher credit costs. Included in the first nine months of 2008 was a $492 million gain related to the Visa Inc. initial public offering that occurred in March 2008 (“Visa Gain”), an unfavorable change in net securities gains (losses) of $736 million, which primarily reflected valuation impairment charges on various investment securities, and an incremental provision for credit losses, which has exceeded net charge-offs by $642 million. The first nine months of 2008 also included a $62 million reduction in pretax

  U.S. Bancorp 3

income related to the adoption of a new accounting standard, a $25 million contribution to the U.S. Bancorp Foundation and a $22 million accrual for certain litigation matters. Included in the Company’s results for the first nine months of 2007 was the $115 million Visa Charge.

Total net revenue, on a taxable-equivalent basis, for the first nine months of 2008, was $567 million (5.4 percent) higher than the first nine months of 2007, reflecting a 14.1 percent increase in net interest income, partially offset by a 2.5 percent decrease in noninterest income. The increase in net interest income from a year ago was driven by growth in earning assets and an improved net interest margin. The decrease in noninterest income included fundamentally strong organic business growth and the Visa Gain, more than offset by valuation impairment charges on investment securities, other valuation losses, higher retail lease residual losses and the adoption of a new accounting standard during the first nine months of 2008.

Total noninterest expense in the first nine months of 2008 was $436 million (8.7 percent) higher than in the first nine months of 2007, primarily due to investments in business initiatives, higher credit collection costs and incremental expenses associated with investments in tax-advantaged projects, partially offset by the Visa Charge recognized in the first nine months of 2007.

The provision for credit losses for the first nine months of 2008 increased $1,262 million over the same period of 2007. This reflected an increase to the allowance for credit losses of $638 million in the first nine months of 2008. The increases in the provision and allowance for credit losses from a year ago reflected continuing stress in the residential real estate markets, including homebuilding and related supplier industries, driven by declining home prices in most geographic regions. It also reflected changing economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs in the first nine months of 2008 were $1,187 million, compared with $567 million in the first nine months of 2007. 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 $1,967 million in the third quarter of 2008, compared with $1,685 million in the third quarter of 2007. Net interest income, on a taxable-equivalent basis, was $5,705 million in the first nine months of 2008, compared with $5,001 million in the first nine months of 2007. The increases were due to strong growth in average earning assets, as well as an improved net interest margin from a year ago. Average earning assets increased $20.1 billion (10.3 percent) and $18.6 billion (9.6 percent) in the third quarter and first nine months of 2008, respectively, compared with the same periods of 2007, primarily driven by increases in average loans and investment securities. The net interest margin in the third quarter and first nine months of 2008 was 3.65 percent and 3.60 percent, respectively, compared with 3.44 percent and 3.46 percent, respectively, for the same periods of 2007. The improvement in the net interest margin was due to several factors, including growth in higher spread assets, the benefit of the Company’s current asset/liability position in a declining interest rate environment and related asset/liability repricing dynamics. Also, given current market conditions, short-term funding rates were lower due to volatility and changing liquidity in the overnight federal funds markets. In addition, the Company’s net interest margin benefited from an increase in yield-related loan fees. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.

Average loans for the third quarter and first nine months of 2008 were $19.0 billion (12.9 percent) and $15.7 billion (10.7 percent) higher, respectively, than the same periods of 2007, driven by growth in all major loan categories. The increase in commercial loans was primarily driven by growth in corporate and commercial banking balances as business customers utilize bank credit facilities, rather than the capital markets, to fund business growth and liquidity requirements. Retail loans experienced strong growth in installment products, home equity lines and credit card balances, offset somewhat by lower retail leasing balances. In addition, retail loan growth in the third quarter and first nine months of 2008 included increases of $3.4 billion and $2.1 billion, respectively, in average federally guaranteed student loan balances due to both the transfer of balances from loans held for sale and a portfolio purchase during the first nine months of 2008. The growth in commercial real estate loans reflected strong new business growth driven by capital market conditions and the impact of an acquisition late in the second quarter of 2008. The increase in residential mortgages reflected an increase in mortgage banking activity and higher consumer finance originations.

Average investment securities in the third quarter and first nine months of 2008 were $1.4 billion

  4 U.S. Bancorp

(3.5 percent) and $2.2 billion (5.5 percent) higher, respectively, than the same periods of 2007. The increases were driven by the purchase in the fourth quarter of 2007 of structured investment securities from certain money market funds managed by an affiliate and an increase in tax-exempt municipal securities, partially offset by maturities of mortgage-backed and government agency securities, as well as realized and unrealized losses on certain investment securities recorded in the first nine months of 2008.

Average noninterest-bearing deposits for the third quarter and first nine months of 2008 increased $1.4 billion (5.1 percent) and $.2 billion (.9 percent), respectively, compared with the same periods of 2007. The increases reflected higher balances within Wealth Management & Securities Services and Corporate Banking and the impact of an acquisition near the end of the second quarter of 2008.

Average total savings deposits increased $7.6 billion (13.6 percent) in the third quarter and $7.0 billion (12.4 percent) in the first nine months of 2008, compared with the same periods of 2007, due primarily to an increase in interest checking balances driven by higher broker-dealer and institutional trust balances, and an increase in money market savings balances driven by higher broker-dealer and Consumer Banking balances and an acquisition near the end of the second quarter of 2008.

Average time certificates of deposit less than $100,000 were lower in the third quarter and first nine months of 2008 by $1.9 billion (13.2 percent) and $1.7 billion (11.7 percent), respectively, compared with the same periods of 2007. The decline in time certificates of deposit less than $100,000 was due to the Company’s funding and pricing decisions and competition for these deposits by other financial institutions that have more limited access to wholesale funding sources given the current market environment. Average time deposits greater than $100,000 increased by $7.3 billion (34.3 percent) and $8.3 billion (39.2 percent) in the third quarter and first nine months of 2008, respectively, compared with the same periods of 2007, as a result of both the Company’s wholesale funding decisions and the business lines’ ability to attract larger customer deposits, given current market conditions.

Provision for Credit Losses The provision for credit losses for the third quarter and first nine months of 2008 increased $549 million and $1,262 million, respectively, compared with the same periods of 2007. This reflected increases to the allowance for credit losses of $250 million in the third quarter and $638 million during the first nine months of 2008. The increases in the provision and allowance for credit losses from a year ago reflected continuing stress in the residential re al estate markets, including homebuilding and related supplier industries, driven by declining home prices in most geographic regions. It also reflected changing economic conditions and the corresponding impact on the commercial and consumer loan portfolios. Net charge-offs were $498 million in the third quarter and $1,187 million in the first nine months of 2008, compared with $199 million in the third quarter and $567 million in the first nine months of 2007. Given current economic conditions and the continuing decline in home and other collateral values, the Company expects net charge-offs to increase in the fourth quarter of 2008. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income in the third quarter and first nine months of 2008 was $1,412 million and $5,348 million, respectively, compared with $1,877 million and $5,485 million in the same periods of 2007. The $465 million (24.8 percent) decrease during the third quarter and $137 million (2.5 percent) decrease during the first nine months of 2008, compared with the same periods in 2007, were driven by strong fee-based revenue growth in a majority of revenue categories, offset by impairment charges related to structured investment securities, perpetual preferred stock (including the stock of GSEs), and certain non-agency mortgage-backed securities. In addition, retail lease residual losses increased from a year ago. Noninterest income for the first nine months of 2008 was also impacted by the recognition of the $492 million Visa Gain in the first quarter of 2008 and the adoption of Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements”, effective January 1, 2008. Upon adoption of SFAS 157, trading revenue decreased $62 million, as primary market and nonperformance risk is now required to be considered when determining the fair value of customer derivatives. In addition, under SFAS 157 mortgage production gains increased, because the deferral of costs related to the origination of mortgage loans held for sale (“MLHFS”) is not permitted under the new accounting standard.

The strong growth in credit and debit card revenue was primarily driven by an increase in customer accounts and higher customer transaction volumes over a year ago. Corporate payment products revenue growth reflected growth in sales volumes and business expansion. ATM processing services increased primarily due to growth in transaction volumes. Merchant

  U.S. Bancorp 5

Table 2    Noninterest Income

	Three Months Ended September 30,								Nine Months Ended September 30,
						Percent								Percent
(Dollars in Millions)	2008			2007		Change			2008			2007		Change
Credit and debit card revenue	$	269		$	237		13.5	%	$	783		$	673		16.3	%
Corporate payment products revenue		179			166		7.8			517			472		9.5
ATM processing services		94			84		11.9			271			243		11.5
Merchant processing services		300			289		3.8			880			827		6.4
Trust and investment management fees		329			331		(.6	)		1,014			995		1.9
Deposit service charges		286			276		3.6			821			800		2.6
Treasury management fees		128			118		8.5			389			355		9.6
Commercial products revenue		132			107		23.4			361			312		15.7
Mortgage banking revenue		61			76		(19.7	)		247			211		17.1
Investment products fees and commissions		37			36		2.8			110			108		1.9
Securities gains (losses), net		(411	)		7			*		(725	)		11			*
Other		8			150		(94.7	)		680			478		42.3
Total noninterest income	$	1,412		$	1,877		(24.8	)%	$	5,348		$	5,485		(2.5	)%

*    Not meaningful

processing services revenue growth reflected higher transaction volume and business expansion. Deposit service charges increased year-over-year primarily due to account growth and higher transaction-related fees. Higher transaction-related fees and the impact of continued growth in net new checking accounts were muted somewhat as deposit account-related revenue continued to migrate to yield-related loan fees, as customers utilized new consumer products. Treasury management fees increased due primarily to the favorable impact of declining rates on customer compensating balances, as well as core business growth. Commercial products revenue increased year-over-year due to higher customer syndication fees, letters of credit, capital markets and other commercial loan fees. Mortgage banking revenue for the third quarter of 2008 decreased from the same period of the prior year, due to an unfavorable net change in the valuation of mortgage servicing rights (“MSRs”) and related economic hedging activities, partially offset by increases in mortgage servicing income and production revenue. Mortgage banking revenue for the first nine months of 2008 increased from the same period of the prior year, due to an increase in mortgage servicing income and production revenue, partially offset by the unfavorable net change in the valuation of MSRs and related economic hedging activities. Securities gains (losses) were lower year-over-year due primarily to the impact of the impairment charges on various investment securities recognized in the third quarter and during the first nine months of 2008. Other income for the third quarter of 2008 declined from the third quarter of 2007, due to the adverse impact of higher retail lease residual losses, lower equity investment revenue and market valuation losses related to the bankruptcy of an investment banking firm. Other income for the first nine months of 2008 was higher than the same period of the prior year due to the $492 million Visa Gain recognized in the first quarter of 2008, partially offset by higher retail lease residual losses, lower equity investment revenue, market valuation losses and the $62 million unfavorable impact to trading income upon adoption of SFAS 157.

Noninterest Expense Noninterest expense was $1,823 million in the third quarter and $5,454 million in the first nine months of 2008, reflecting increases of $47 million (2.6 percent) and $436 million (8.7 percent), respectively, from the same periods of 2007. Compensation expense was higher due to growth in ongoing bank operations, acquired businesses and other bank initiatives and the adoption of SFAS 157 in the first quarter of 2008. Under this new accounting standard, compensation expense is no longer deferred for the origination of MLHFS. Employee benefits expense increased year-over-year as higher payroll taxes and medical costs were partially offset by lower pension costs. Net occupancy and equipment expense increased over the prior year primarily due to acquisitions and branch-based and other business expansion initiatives. Professional services expense increased over the prior year due to increased litigation-related costs. Marketing and business development expense increased year-over-year due to costs incurred in the third quarter of 2008 for a national advertising campaign. In addition, marketing and business development expense further increased for the first nine months of 2008, due to $25 million recognized in the first quarter of 2008 for a charitable contribution to the Company’s foundation. Technology and communications expense increased primarily due to higher processing volumes and business expansion. Other expense decreased in the third quarter

  6 U.S. Bancorp

Table 3    Noninterest Expense

	Three Months Ended September 30,									Nine Months Ended September 30,
							Percent									Percent
(Dollars in Millions)	2008			2007			Change			2008			2007			Change
Compensation	$	763		$	656			16.3	%	$	2,269		$	1,950			16.4	%
Employee benefits		125			119			5.0			391			375			4.3
Net occupancy and equipment		199			189			5.3			579			550			5.3
Professional services		61			56			8.9			167			162			3.1
Marketing and business development		75			71			5.6			220			191			15.2
Technology and communications		153			140			9.3			442			413			7.0
Postage, printing and supplies		73			70			4.3			217			210			3.3
Other intangibles		88			94			(6.4	)		262			283			(7.4	)
Other		286			381			(24.9	)		907			884			2.6
Total noninterest expense	$	1,823		$	1,776			2.6	%	$	5,454		$	5,018			8.7	%
Efficiency ratio (a)		48.1	%		50.0	%					46.3	%		47.9	%

(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.

of 2008, compared with the same period in the prior year, due primarily to the $115 million Visa Charge recognized in the third quarter of 2007. Other expense was higher in the first nine months of 2008, compared with the same period of the prior year, as increases in credit-related costs for other real estate owned and loan collection activities, investments in tax-advantaged projects, and litigation and fraud costs, were partially offset by the $115 million Visa Charge recognized in the prior year.

Income Tax Expense The provision for income taxes was $198 million (an effective rate of 25.6 percent) for the third quarter and $1,060 million (an effective rate of 28.8 percent) for the first nine months of 2008, compared with $473 million (an effective rate of 30.1 percent) and $1,466 million (an effective rate of 30.2 percent) for the same periods of 2007. The decreases in the effective rates for the third quarter and first nine months of 2008, compared with the same periods of the prior year, reflected the marginal impact of lower pre-tax income, higher tax-exempt income from investment securities and insurance products, and incremental tax credits from affordable housing and other tax-advantaged investments. For further information on income taxes, refer to Note 8 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans The Company’s total loan portfolio was $169.9 billion at September 30, 2008, compared with $153.8 billion at December 31, 2007, an increase of $16.1 billion (10.4 percent). The increase was driven by growth in all major loan categories. The $5.4 billion (10.5 percent) increase in commercial loans was primarily driven by new and existing business customers utilizing bank credit facilities, rather than the capital markets, to fund business growth and liquidity requirements, as well as growth in corporate payment card balances.

Commercial real estate loans increased $3.0 billion (10.2 percent) at September 30, 2008, compared with December 31, 2007, reflecting changing market conditions that have limited borrower access to the capital markets, and the impact of an acquisition late in the second quarter of 2008.

Residential mortgages held in the loan portfolio increased $.6 billion (2.5 percent) at September 30, 2008, compared with December 31, 2007, reflecting an increase in mortgage banking activity and higher consumer finance originations.

Total retail loans outstanding, which include credit card, retail leasing, home equity and second mortgages and other retail loans, increased $7.1 billion (14.0 percent) at September 30, 2008, compared with December 31, 2007. The increase reflected higher student loans due to the purchase of a portfolio during the first nine months of 2008 and the reclassification of certain student loans held for sale into the student loan portfolio in response to a change in business strategy. The increase also reflected growth in home equity, credit card and installment loans. These increases were partially offset by a decrease in retail leasing balances.

Loans Held for Sale At September 30, 2008, loans held for sale, consisting primarily of residential mortgages and student loans to be sold in the secondary market, were $3.1 billion, compared with $4.8 billion at December 31, 2007. The decrease in loans held for sale was principally due to a change in business strategy to discontinue selling federally guaranteed student loans in the secondary market, and instead, hold them in the loan portfolio.

  U.S. Bancorp 7

Investment Securities Investment securities, both available-for-sale and held-to-maturity, totaled $39.3 billion at September 30, 2008, compared with $43.1 billion at December 31, 2007, reflecting purchases of $3.5 billion of securities, more than offset by sales, maturities, prepayments, securities impairments realized by the Company and unrealized losses on the available-for-sale portfolio due to changes in interest rates and liquidity premiums given current market conditions. As of September 30, 2008, approximately 38 percent of the investment securities portfolio represented adjustable-rate financial instruments, compared with 39 percent at December 31, 2007. Adjustable-rate financial instruments include collateralized mortgage obligations, mortgage-backed securities, agency securities, money market accounts, asset-backed securities, corporate debt securities and preferred stock.

The Company conducts a regular assessment of its investment portfolios to determine whether any securities are other-than-temporarily impaired. At September 30, 2008, the available-for-sale securities portfolio included a $2.5 billion net unrealized loss, compared with a net unrealized loss of $1.1 billion at December 31, 2007. The substantial portion of securities with unrealized losses were either government securities, issued by government-backed agencies or privately issued securities with high investment grade credit ratings and limited credit exposure. Some securities classified within obligations of state and political subdivisions are supported by mono-line insurers. As mono-line insurers have experienced credit rating downgrades, management continuously monitors the underlying credit quality of the issuers and the support of the mono-line insurers. As of September 30, 2008, approximately 8 percent of theavailable-for-sale securities portfolio represented perpetual preferred securities and trust preferred securities, primarily issued by the financial services sector, or structured investment securities. The unrealized losses for these securities were approximately $827 million at the end of the third quarter of 2008.

During the third quarter and first nine months of 2008, the Company’s assessment of the investment securities portfolio has resulted in the realization ofother-than-temporary impairments for several classes of investment securities.

In the third quarter and first nine months of 2008, the Company recorded $196 million and $207 million, respectively, of other-than-temporarily impaired charges on certain investment securities, including certain non-agency mortgage-backed securities and perpetual preferred stock, representing the stock of GSEs and certain failed institutions.

With respect to structured investment securities held by the Company, there is no active market for these securities so their valuation is determined through discounted cash flows using estimates of expected cash flows, discount rates and management’s assessment of various market factors, which are judgmental in nature. The lack of an active market for these structured investment securities is reflected in the rate used to discount the expected cash flows. As a result of the valuation of these securities and impairment assessment, the Company has recorded $215 million and $534 million of impairment charges during the third quarter and first nine months of 2008, respectively. These impairment charges were a result of wider market spreads for these types of securities due to market illiquidity, as well as changes in expected cash flows resulting from the continuing decline in housing prices and an increase in foreclosure activity. Further adverse changes in market conditions may result in additional impairment charges in future periods. The Company expects that approximately $439 million of principal payments will not be received for certain structured investment and non-agency mortgage-backed securities. During the first nine months of 2008, the Company exchanged its interest in certain structured investment securities and received its pro rata share of the underlying investment securities as an in-kind distribution according to the applicable restructuring agreements.

Refer to Note 3 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits Total deposits were $139.5 billion at September 30, 2008, compared with $131.4 billion at December 31, 2007, an increase of $8.1 billion (6.1 percent). The increase in total deposits was primarily the result of increases in interest checking accounts, non-interest-bearing deposits, money market savings accounts and time deposits greater than $100,000, partially offset by a decrease in time certificates of deposit less than $100,000. The $2.5 billion (8.5 percent) increase in interest checking account balances was due primarily to higher broker-dealer balances. Noninterest-bearing deposits increased $2.1 billion (6.4 percent), primarily reflecting higher trust demand deposit balances. The $2.1 billion (8.8 percent) increase in money market savings account balances reflected higher broker-dealer and branch-based balances and the impact of an acquisition. Time deposits greater than $100,000 increased $1.7 billion (6.5 percent) at September 30, 2008, compared with December 31, 2007. Time deposits greater than $100,000 are largely viewed as purchased funds and are

  8 U.S. Bancorp

managed to levels deemed appropriate given alternative funding sources. Time certificates of deposit less than $100,000 decreased $1.3 billion (9.2 percent) at September 30, 2008, compared with December 31, 2007, primarily within Consumer Banking, reflecting the Company’s funding and pricing decisions and competition for these deposits by other financial institutions that have more limited access to wholesale funding sources given the current market environment.

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 $37.4 billion at September 30, 2008, compared with $32.4 billion at December 31, 2007. Short-term funding is managed within approved liquidity policies. The increase of $5.0 billion (15.6 percent) in short-term borrowings reflected wholesale funding associated with the Company’s asset growth and asset/liability management activities. Long-term debt was $40.1 billion at September 30, 2008, compared with $43.4 billion at December 31, 2007, primarily reflecting repayments of $3.3 billion of convertible senior debentures and maturities of $6.2 billion of medium-term notes and $.3 billion of subordinated debt, partially offset by the issuance of $7.0 billion of medium-term notes, in the first nine months of 2008. The $3.3 billion (7.7 percent) decrease in long-term debt reflected asset/liability management decisions to fund balance sheet growth with other funding sources. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.

CORPORATE RISK PROFILE

Overview Managing risks is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit, residual value, operational, interest rate, market and liquidity risk. Credit risk is the risk of not collecting the interestand/or the principal balance of a loan or investment when it is due. Residual value risk is the potential reduction in the end-of-term value of leased assets or the residual cash flows related to asset securitization and other off-balance sheet structures. 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 repricing of assets and liabilities differently, as well as their market value. Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and available-for-sale securities that are accounted for on a mark-to-market basis. Liquidity risk is the possible inability to fund obligations to depositors, investors or borrowers. In addition, corporate strategic decisions, as well as the risks described above, could give rise to reputation risk. Reputation risk is the risk that negative publicity or press, whether true or not, could result in costly litigation or cause a decline in the Company’s stock value, customer base, funding sources or revenue.

Credit Risk Management The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, the level of allowance coverage relative to similar banking institutions and macroeconomic factors. Refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, for a more detailed discussion on credit risk management processes.

The Company manages its credit risk, in part, through diversification of its loan portfolio. As part of its normal business activities, the Company offers a broad array of commercial and retail lending products. The Company’s retail lending business utilizes several distinct business processes and channels to originate retail credit, including traditional branch lending, indirect lending, portfolio acquisitions and a consumer finance division. Generally, loans managed by the Company’s consumer finance division exhibit higher credit risk characteristics, but are priced commensurate with the differing risk profile. With respect to residential mortgages originated through these channels, the Company may either retain the loans on its balance sheet or sell its interest in the balances into the secondary market while retaining the servicing rights and customer relationships. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is also diversified by geography and monitoring loan-to-values 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 September 30, 2008:

Residential mortgages	Interest						Percent
(Dollars in Millions)	Only		Amortizing		Total		of Total
Consumer Finance
Less than or equal to 80%	$	886	$	2,639	$	3,525		35.6	%
Over 80% through 90%		754		1,588		2,342		23.6
Over 90% through 100%		790		3,092		3,882		39.2
Over 100%		–		158		158		1.6
Total	$	2,430	$	7,477	$	9,907		100.0	%
Other Retail
Less than or equal to 80%	$	2,362	$	9,746	$	12,108		90.1	%
Over 80% through 90%		88		568		656		4.9
Over 90% through 100%		152		518		670		5.0
Over 100%		–		–		–		–
Total	$	2,602	$	10,832	$	13,434		100.0	%
Total Company
Less than or equal to 80%	$	3,248	$	12,385	$	15,633		67.0	%
Over 80% through 90%		842		2,156		2,998		12.8
Over 90% through 100%		942		3,610		4,552		19.5
Over 100%		–		158		158		.7
Total	$	5,032	$	18,309	$	23,341		100.0	%

Note:   Loan-to-values determined as of the date of origination 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%	$	332	$	170	$	502		23.4	%
Over 80% through 90%		287		173		460		21.5
Over 90% through 100%		423		527		950		44.3
Over 100%		75		157		232		10.8
Total	$	1,117	$	1,027	$	2,144		100.0	%
Other Retail
Less than or equal to 80%	$	10,446	$	1,976	$	12,422		77.3	%
Over 80% through 90%		1,581		552		2,133		13.3
Over 90% through 100%		887		546		1,433		8.9
Over 100%		52		23		75		.5
Total	$	12,966	$	3,097	$	16,063		100.0	%
Total Company
Less than or equal to 80%	$	10,778	$	2,146	$	12,924		71.0	%
Over 80% through 90%		1,868		725		2,593		14.2
Over 90% through 100%		1,310		1,073		2,383		13.1
Over 100%		127		180		307		1.7
Total	$	14,083	$	4,124	$	18,207		100.0	%

(a) Consumer finance category included credit originated and managed by U.S. Bank Consumer Finance, 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 at current amortized loan balance, or maximum of current commitment or current balance on lines.

Within the consumer finance division approximately $3.0 billion of residential mortgages were to customers that may be defined as sub-prime borrowers at September 30, 2008, compared with $3.3 billion at December 31, 2007. The following table provides further information on residential mortgages for the consumer finance division:

	Interest						Percent of
(Dollars in Millions)	Only		Amortizing		Total		Division
Sub-Prime Borrowers
Less than or equal to 80%	$	4	$	1,113	$	1,117		11.3	%
Over 80% through 90%		6		745		751		7.6
Over 90% through 100%		20		1,049		1,069		10.8
Over 100%		–		105		105		1.0
Total	$	30	$	3,012	$	3,042		30.7	%
Other Borrowers
Less than or equal to 80%	$	882	$	1,526	$	2,408		24.3	%
Over 80% through 90%		748		843		1,591		16.1
Over 90% through 100%		770		2,043		2,813		28.4
Over 100%		–		53		53		.5
Total	$	2,400	$	4,465	$	6,865		69.3	%
Total Consumer Finance	$	2,430	$	7,477	$	9,907		100.0	%

In addition to residential mortgages, the consumer finance division had $.8 billion of home equity and second mortgage loans to customers that may be defined as sub-prime borrowers at September 30, 2008, compared with $.9 billion at December 31, 2007. The following table provides further information on home equity and second mortgages for the consumer finance division:

							Percent
(Dollars in Millions)	Lines		Loans		Total		of Total
Sub-Prime Borrowers
Less than or equal to 80%	$	25	$	116	$	141		6.6	%
Over 80% through 90%		25		116		141		6.6
Over 90% through 100%		9		335		344		16.0
Over 100%		51		106		157		7.3
Total	$	110	$	673	$	783		36.5	%
Other Borrowers
Less than or equal to 80%	$	307	$	54	$	361		16.8	%
Over 80% through 90%		262		57		319		14.9
Over 90% through 100%		414		192		606		28.3
Over 100%		24		51		75		3.5
Total	$	1,007	$	354	$	1,361		63.5	%
Total Consumer Finance	$	1,117	$	1,027	$	2,144		100.0	%

Including residential mortgages, and home equity and second mortgage loans, the total amount of loans to customers that may be defined as sub-prime borrowers represented only 1.5 percent of total assets at September 30, 2008, compared with 1.7 percent at December 31, 2007. The Company does not have any residential mortgages whose payment schedule would cause balances to increase over time.

  10 U.S. Bancorp

Table 4     Delinquent Loan Ratios as a Percent of Ending Loan Balances

	September 30,			December 31,
90 days or more past dueexcluding nonperforming loans	2008			2007
Commercial
Commercial		.13	%		.08	%
Lease financing		–			–
Total commercial		.11			.07
Commercial real estate
Commercial mortgages		.02			.02
Construction and development		.13			.02
Total commercial real estate		.05			.02
Residential mortgages		1.34			.86
Retail
Credit card		1.92			1.94
Retail leasing		.12			.10
Other retail		.37			.37
Total retail		.68			.68
Total loans		.46	%		.38	%

	September 30,			December 31,
90 days or more past dueincluding nonperforming loans	2008			2007
Commercial		.76	%		.43	%
Commercial real estate		2.25			1.02
Residential mortgages (a)		2.00			1.10
Retail (b)		.81			.73
Total loans		1.23	%		.74	%

(a)

Delinquent loan ratios exclude advances made pursuant to servicing agreements to Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Including the guaranteed amounts, the ratio of residential mortgages 90 days or more past due including nonperforming loans was 5.65 percent at September 30, 2008, and 3.78 percent at December 31, 2007.

(b)

Beginning in 2008, 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 .92 percent at September 30, 2008.

Loan Delinquencies Trends in delinquency ratios represent 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 $787 million at September 30, 2008, compared with $584 million at December 31, 2007. Consistent with banking industry practices, these loans are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral,and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status. The ratio of accruing loans 90 days or more past due to total loans was .46 percent at September 30, 2008, compared with .38 percent at December 31, 2007.

  U.S. Bancorp 11

To monitor credit risk associated with retail loans, the Company monitors delinquency ratios in the various stages of collection, including nonperforming status. The following table provides summary delinquency information for residential mortgages and retail loans:

					As a Percent of Ending
	Amount				Loan Balances
	September 30,		December 31,		September 30,			December 31,
(Dollars in Millions)	2008		2007		2008			2007
Residential Mortgages
30-89 days		$418		$233		1.79	%		1.02	%
90 days or more		312		196		1.34			.86
Nonperforming		155		54		.66			.24
Total		$885		$483		3.79	%		2.12	%
Retail
Credit card
30-89 days		$315		$268		2.52	%		2.44	%
90 days or more		240		212		1.92			1.94
Nonperforming		51		14		.41			.13
Total		$606		$494		4.85	%		4.51	%
Retail leasing
30-89 days		$42		$39		.83	%		.65	%
90 days or more		6		6		.12			.10
Nonperforming		–		–		–			–
Total		$48		$45		.95	%		.75	%
Home equity and second mortgages
30-89 days		$127		$107		.70	%		.65	%
90 days or more		85		64		.47			.39
Nonperforming		13		11		.07			.07
Total		$225		$182		1.24	%		1.11	%
Other retail
30-89 days		$208		$177		.94	%		1.02	%
90 days or more		64		62		.29			.36
Nonperforming		10		4		.04			.02
Total		$282		$243		1.27	%		1.40	%

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

	Consumer Finance (a)						Other Retail
	September 30,			December 31,			September 30,			December 31,
	2008			2007			2008			2007
Residential mortgages
30-89 days		3.03	%		1.58	%		.88	%		.61	%
90 days or more		2.15			1.33			.74			.51
Nonperforming		1.14			.31			.31			.18
Total		6.32	%		3.22	%		1.93	%		1.30	%
Retail
Credit card
30-89 days		–	%		–	%		2.52	%		2.44	%
90 days or more		–			–			1.92			1.94
Nonperforming		–			–			.41			.13
Total		–	%		–	%		4.85	%		4.51	%
Retail leasing
30-89 days		–	%		–	%		.83	%		.65	%
90 days or more		–			–			.12			.10
Nonperforming		–			–			–			–
Total		–	%		–	%		.95	%		.75	%
Home equity and second mortgages
30-89 days		2.66	%		2.53	%		.44	%		.41	%
90 days or more		1.86			1.78			.28			.21
Nonperforming		.14			.11			.06			.06
Total		4.66	%		4.42	%		.78	%		.68	%
Other retail
30-89 days		6.09	%		6.38	%		.83	%		.88	%
90 days or more		1.68			1.66			.26			.33
Nonperforming		–			–			.04			.02
Total		7.77	%		8.04	%		1.13	%		1.23	%

(a) Consumer finance category included credit originated and managed by U.S. Bancorp Consumer Finance, 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 September 30, 2008, approximately $381 million and $102 million of these delinquent and nonperforming residential mortgages and retail loans, respectively, were with customers that may be defined as sub-prime borrowers, compared with $227 million and $89 million, respectively, at December 31, 2007.

The Company expects delinquencies to continue to increase due to deteriorating economic conditions and continuing stress in the residential mortgage portfolio and residential construction industry.

Restructured Loans Accruing InterestIn certain circumstances, management may modify the terms of a loan to maximize the collection of the loan balance. In most cases, the modification is either a reduction in interest rate, extension of the maturity date or a reduction in the principal balance. Generally, the borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term so concessionary modification is granted to the borrower that would otherwise not be considered. Restructured loans, except those where the principal balance has been reduced, accrue interest as long as the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. Loans restructured at a rate equal to or greater than a market rate for a new loan with comparable risk at the time the contract is modified, are classified as restructured loans in the calendar year the restructuring occurs, but are excluded from restructured loans in subsequent years once repayment performance, in accordance with the modified agreement, has been demonstrated. Loans that have interest rates reduced below market rates for borrowers with comparable risk remain classified as restructured loans for the remaining life of the loan.

The majority of the Company’s loan restructurings occur on acase-by-case basis in connection with ongoing loan collection processes. However, in late 2007, the Company began implementing a mortgage loan restructuring program for certain qualifying borrowers. In general, certain borrowers in the consumer finance division facing an interest rate reset that are current in their repayment status, are allowed to retain the lower of their existing interest rate or the market interest rate as of their interest reset date.

The following table provides a summary of restructured loans that are performing, and therefore, continue to accrue interest:

					As a Percent of Ending
	Amount				Loan Balances
	September 30,		December 31,		September 30,			December 31,
(Dollars in Millions)	2008		2007		2008			2007
Commercial	$	35	$	21		.06	%		.04	%
Commercial real estate		81		–		.25			–
Residential mortgages		589		157		2.52			.69
Credit card		412		324		3.30			2.96
Other retail		63		49		.14			.12
Total	$	1,180	$	551		.69	%		.36	%

Restructured loans that continue to accrue interest were $629 million higher at September 30, 2008, compared with December 31, 2007, reflecting the impact of restructurings for certain commercial real estate, residential mortgage and credit card customers in light of current economic conditions. The Company expects this trend to continue in the near term as residential home valuations continue to decline and certain borrowers take advantage of the Company’s mortgage loan restructuring programs.

Nonperforming AssetsThe level of nonperforming assets represents another indicator of the potential for future credit losses. At September 30, 2008, total nonperforming assets were $1,492 million, compared with $690 million at December 31, 2007. The ratio of total nonperforming assets to total loans and other real estate was .88 percent at September 30, 2008, compared with .45 percent at December 31, 2007. The increase in nonperforming assets was driven primarily by the residential construction portfolio and related industries, as well as the residential mortgage portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers.

Included in nonperforming loans were restructured loans that are not accruing interest of $100 million at September 30, 2008, compared with $17 million at December 31, 2007. At September 30, 2008, the Company had $4 million of commitments to lend additional funds under restructured loans, compared with no commitments at December 31, 2007.

Other real estate included in nonperforming assets was $164 million at September 30, 2008, compared with $111 million at December 31, 2007, and was primarily related to properties that the Company has taken ownership of which previously secured residential mortgages and home equity and second mortgage loan

  U.S. Bancorp 13

Table 5    Nonperforming Assets (a)

	September 30,			December 31,
(Dollars in Millions)	2008			2007
Commercial
Commercial	$	280		$	128
Lease financing		85			53
Total commercial		365			181
Commercial real estate
Commercial mortgages		164			84
Construction and development		545			209
Total commercial real estate		709			293
Residential mortgages		155			54
Retail
Credit card		51			14
Retail leasing		–			–
Other retail		23			15
Total retail		74			29
Total nonperforming loans		1,303			557
Other real estate (b)		164			111
Other assets		25			22
Total nonperforming assets	$	1,492		$	690
Accruing loans 90 days or more past due	$	787		$	584
Nonperforming loans to total loans		.77	%		.36	%
Nonperforming assets to total loans plus other real estate (b)		.88	%		.45	%

Changes in Nonperforming Assets

	Commercial and			Retail and
	Commercial			Residential
(Dollars in Millions)	Real Estate			Mortgages (d)			Total
Balance December 31, 2007	$	485		$	205		$	690
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties		1,139			221			1,360
Advances on loans		18			–			18
Total additions		1,157			221			1,378
Reductions in nonperforming assets
Paydowns, payoffs		(187	)		(26	)		(213	)
Net sales		(23	)		–			(23	)
Return to performing status		(24	)		(6	)		(30	)
Charge-offs (c)		(275	)		(35	)		(310	)
Total reductions		(509	)		(67	)		(576	)
Net additions to nonperforming assets		648			154			802
Balance September 30, 2008	$	1,133		$	359		$	1,492

(a)	Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)	Excludes $170 million and $102 million at September 30, 2008, and December 31, 2007, respectively, of foreclosed GNMA loans which continue to accrue interest.
(c)	Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
(d)	Residential mortgage information excludes changes related to residential mortgages serviced by others.

balances. The increase in other real estate assets reflected continuing stress in the residential construction and related supplier industries and higher residential mortgage loan foreclosures as customers experienced financial difficulties, given inflationary factors, changing interest rates and other current economic conditions.

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

					As a Percent of Ending
	Amount				Loan Balances
	September 30,		December 31,		September 30,			December 31,
(Dollars in Millions)	2008		2007		2008			2007
Residential
Minnesota	$	18	$	12		.34	%		.23	%
Michigan		13		22		2.48			3.47
California		10		5		.23			.15
Ohio		8		10		.31			.40
Florida		7		6		.94			.70
All other states		65		55		.23			.21
Total residential		121		110		.29			.28
Commercial		43		1		.13			–
Total OREO	$	164	$	111		.10	%		.07	%

  14 U.S. Bancorp

Table 6    Net Charge-offs as a Percent of Average Loans Outstanding

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Commercial
Commercial		.47	%		.25	%		.42	%		.25	%
Lease financing		1.36			.76			1.18			.52
Total commercial		.58			.31			.51			.29
Commercial real estate
Commercial mortgages		.16			.02			.12			.06
Construction and development		2.36			.04			1.09			.04
Total commercial real estate		.81			.03			.41			.06
Residential mortgages		1.21			.30			.86			.27
Retail
Credit card		4.85			3.09			4.56			3.36
Retail leasing		.69			.19			.58			.20
Home equity and second mortgages		1.07			.49			.98			.44
Other retail		1.41			1.00			1.28			.93
Total retail		1.98			1.15			1.81			1.13
Total loans		1.19	%		.54	%		.98	%		.52	%

Within other real estate, approximately $47 million at September 30, 2008, and $61 million at December 31, 2007, were from portfolios that may be defined as sub-prime.

The Company expects nonperforming assets to continue to increase due to general economic conditions and continuing stress in the residential mortgage portfolio and residential construction and related industries.

Analysis of Loan Net Charge-OffsTotal loan net charge-offs were $498 million and $1,187 million during the third quarter and first nine months of 2008, respectively, compared with net charge-offs of $199 million and $567 million, respectively, for the same periods of 2007. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis in the third quarter and first nine months of 2008 was 1.19 percent and .98 percent, respectively, compared with .54 percent and .52 percent, respectively, for the same periods of 2007. The year-over-year increases in total net charge-offs were driven by the factors affecting the residential housing markets, as well as credit costs associated with credit card and other consumer loan growth over the past several quarters.

Commercial and commercial real estate loan net charge-offs for the third quarter of 2008 increased to $144 million (.66 percent of average loans outstanding on an annualized basis), compared with $39 million (.20 percent of average loans outstanding on an annualized basis) for the third quarter of 2007. Commercial and commercial real estate loan net charge-offs for the first nine months of 2008 increased to $298 million (.47 percent of average loans outstanding on an annualized basis), compared with $113 million (.20 percent of average loans outstanding on an annualized basis) for the first nine months of 2007. The year-over-year increases in commercial and commercial real estate losses reflected the continuing stress within the portfolios, especially residential homebuilding and related industry sectors.

Residential mortgage loan net charge-offs for the third quarter of 2008 were $71 million (1.21 percent of average loans outstanding on an annualized basis), compared with $17 million (.30 percent of average loans outstanding on an annualized basis) for the third quarter of 2007. Residential mortgage loan net charge-offs for the first nine months of 2008 were $150 million (.86 percent of average loans outstanding on an annualized basis), compared with $44 million (.27 percent of average loans outstanding on an annualized basis) for the first nine months of 2007. The year-over-year increases in residential mortgage losses were primarily related to loans originated within the consumer finance division and reflected the impact of rising foreclosures on sub-prime mortgages and current economic conditions.

Retail loan net charge-offs for the third quarter of 2008 were $283 million (1.98 percent of average loans outstanding on an annualized basis), compared with $143 million (1.15 percent of average loans outstanding on an annualized basis) for the third quarter of 2007. Retail loan net charge-offs for the first nine months of 2008 were $739 million (1.81 percent of average loans outstanding on an annualized basis), compared with $410 million (1.13 percent of average loans outstanding on an annualized basis) for the first nine months of 2007. The year-over-year increase in retail loan credit losses reflected the Company’s growth in credit card and other consumer loan balances, as well as the adverse impact of current economic conditions on consumers.

  U.S. Bancorp 15

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

	Three Months Ended September 30,										Nine Months Ended September 30,
					Percent of										Percent of
	Average Loans				Average Loans						Average Loans				Average Loans
(Dollars in Millions)	2008		2007		2008			2007			2008		2007		2008			2007
Consumer Finance (a)
Residential mortgages		$9,941		$9,360		2.40	%		.64	%		$9,943		$8,943		1.65	%		.58	%
Home equity and second mortgages		2,139		1,837		5.77			3.02			2,015		1,848		5.70			2.53
Other retail		471		421		5.91			3.77			450		410		5.34			2.93
Other Retail
Residential mortgages		$13,368		$12,898		.33	%		.06	%		$13,255		$12,945		.27	%		.05	%
Home equity and second mortgages		15,719		14,211		.43			.17			15,151		13,933		.35			.16
Other retail		21,184		16,619		1.31			.93			19,692		16,286		1.19			.88
Total Company
Residential mortgages		$23,309		$22,258		1.21	%		.30	%		$23,198		$21,888		.86	%		.27	%
Home equity and second mortgages		17,858		16,048		1.07			.49			17,166		15,781		.98			.44
Other retail		21,655		17,040		1.41			1.00			20,142		16,696		1.28			.93

(a) Consumer finance category included credit originated and managed by U.S. Bank Consumer Finance, as well as the majority of home equity and second mortgages with a loan-to-value greater than 100 percent that were originated in the branches.

Within the consumer finance division, the Company originates loans to customers that may be defined as sub-prime borrowers. The following table provides further information on net charge-offs as a percent of average loans outstanding for this division:

	Three Months Ended September 30,										Nine Months Ended September 30,
					Percent of										Percent of
	Average Loans				Average Loans						Average Loans				Average Loans
(Dollars in Millions)	2008		2007		2008			2007			2008		2007		2008			2007
Residential mortgages
Sub-prime borrowers		$3,070		$3,203		4.28	%		1.24	%		$3,147		$3,115		3.01	%		1.16	%
Other borrowers		6,871		6,157		1.56			.32			6,796		5,828		1.02			.28
Total		$9,941		$9,360		2.40	%		.64	%		$9,943		$8,943		1.65	%		.58	%
Home equity and second mortgages
Sub-prime borrowers		$778		$914		10.23	%		3.91	%		$813		$912		9.69	%		3.23	%
Other borrowers		1,361		923		3.22			2.15			1,202		936		3.00			1.86
Total		$2,139		$1,837		5.77	%		3.02	%		$2,015		$1,848		5.70	%		2.53	%

Analysis and Determination of the Allowance for Credit Losses The allowance for loan losses provides coverage for probable and estimable losses inherent in the Company’s loan and lease portfolio. Management evaluates the allowance each quarter to determine that it is adequate to cover these inherent losses. Several factors were taken into consideration in evaluating the allowance for credit losses at September 30, 2008, 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 restructured loan balances compared with December 31, 2007. Management also considered the uncertainty related to certain industry sectors, and the extent of credit exposure to specific borrowers within the portfolio. In addition, concentration risks associated with commercial real estate and the mix of loans, including credit cards, loans originated through the consumer finance division and residential mortgage balances, and their relative credit risks, were evaluated. Finally, the Company considered current economic conditions that might impact the portfolio.

At September 30, 2008, the allowance for credit losses was $2,898 million (1.71 percent of loans), compared with an allowance of $2,260 million (1.47 percent of loans) at December 31, 2007. The $638 million (28.2 percent) increase in the allowance for credit losses reflected deterioration in the credit quality within the loan portfolios related to the continued stress in the residential housing markets, homebuilding and related industry sectors. It also reflected growth of the commercial and consumer loan portfolios. The ratio of the allowance for credit losses to nonperforming loans was 222 percent at September 30, 2008, compared with 406 percent at December 31, 2007. The ratio of the allowance for credit losses to annualized loan net charge-offs was 146 percent at September 30, 2008, compared with 285 percent at December 31, 2007.

Residual Value Risk Management The Company manages its risk to changes in the residual value of leased assets through disciplined residual valuation setting at the inception of a lease, diversification of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. As of September 30, 2008, no significant change in the amount of residuals or concentration of the portfolios had occurred since December 31, 2007. 

  16 U.S. Bancorp

Table 7    Summary of Allowance for Credit Losses

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2008			2007			2008			2007
Balance at beginning of period	$	2,648		$	2,260		$	2,260		$	2,256
Charge-offs
Commercial
Commercial		63			38			167			117
Lease financing		29			16			75			45
Total commercial		92			54			242			162
Commercial real estate
Commercial mortgages		9			3			20			13
Construction and development		56			1			76			3
Total commercial real estate		65			4			96			16
Residential mortgages		72			17			152			45
Retail
Credit card		164			93			447			280
Retail leasing		11			5			28			16
Home equity and second mortgages		49			22			130			58
Other retail		91			61			236			168
Total retail		315			181			841			522
Total charge-offs		544			256			1,331			745
Recoveries
Commercial
Commercial		6			12			20			38
Lease financing		7			5			19			23
Total commercial		13			17			39			61
Commercial real estate
Commercial mortgages		–			2			1			4
Construction and development		–			–			–			–
Total commercial real estate		–			2			1			4
Residential mortgages		1			–			2			1
Retail
Credit card		15			16			51			48
Retail leasing		2			2			4			6
Home equity and second mortgages		1			2			4			6
Other retail		14			18			43			52
Total retail		32			38			102			112
Total recoveries		46			57			144			178
Net Charge-offs
Commercial
Commercial		57			26			147			79
Lease financing		22			11			56			22
Total commercial		79			37			203			101
Commercial real estate
Commercial mortgages		9			1			19			9
Construction and development		56			1			76			3
Total commercial real estate		65			2			95			12
Residential mortgages		71			17			150			44
Retail
Credit card		149			77			396			232
Retail leasing		9			3			24			10
Home equity and second mortgages		48			20			126			52
Other retail		77			43			193			116
Total retail		283			143			739			410
Total net charge-offs		498			199			1,187			567
Provision for credit losses		748			199			1,829			567
Acquisitions and other changes		–			–			(4	)		4
Balance at end of period	$	2,898		$	2,260		$	2,898		$	2,260
Components
Allowance for loan losses	$	2,767		$	2,041
Liability for unfunded credit commitments		131			219
Total allowance for credit losses	$	2,898		$	2,260
Allowance for credit losses as a percentage of
Period-end loans		1.71	%		1.52	%
Nonperforming loans		222			441
Nonperforming assets		194			353
Annualized net charge-offs		146			286

  U.S. Bancorp 17

However, the Company’s portfolio has experienced deterioration in residual values of sport utility vehicles and luxury models as higher fuel prices increased during the year through mid-third quarter of 2008. These higher fuel prices have resulted in lower used vehicle prices and higherend-of-term average losses during the past nine months. As of September 30, 2008, the Company has recognized residual value impairments of approximately 4 percent of the residual portfolio. During the third quarter of 2008, used vehicle values improved somewhat as fuel prices began to decline. As a result of recent changes in fuel prices, the Company expects residual valuations to stabilize somewhat over the next few quarters. Refer to “Management’s Discussion and Analysis — Residual Value Risk Management” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, for further discussion on residual value risk management and portfolio deterioration.

Operational Risk ManagementThe Company manages operational risk through a risk management framework and its internal control processes. Within this framework, the Corporate Risk Committee (“Risk Committee”) provides oversight and assesses the most significant operational risks facing the Company within its business lines. Under the guidance of the Risk Committee, enterprise risk management personnel establish policies and interact with business lines to monitor significant operating risks on a regular basis. Business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities. Refer to “Management’s Discussion and Analysis — Operational Risk Management” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, for further discussion on operational risk management.

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

Net Interest Income Simulation Analysis Through this simulation, management estimates the impact on net interest income of gradual upward or downward changes of market interest rates over a one-year period, the effect of immediate and sustained parallel shifts in the yield curve and the effect of immediate and sustained flattening or steepening of the yield curve. The table below summarizes the interest rate risk of net interest income based on forecasts over the succeeding 12 months. At September 30, 2008, the Company’s overall interest rate risk position was liability sensitive to changes in interest rates. ALPC policy limits the estimated change in net interest income to 4.0 percent of forecasted net interest income over the succeeding 12 months. At September 30, 2008, and December 31, 2007, the Company was within policy. Refer to “Management’s Discussion and Analysis — Net Interest Income Simulation Analysis” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, 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. ALPC policy limits the change in market value of equity in a 200 basis point parallel rate shock to 15.0 percent of the market value of equity assuming interest rates at September 30, 2008. The up 200 basis point scenario resulted in a 7.7 percent decrease in the market value of equity at September 30, 2008, compared with a 7.6 percent decrease at December 31, 2007. The down 200 basis point scenario resulted in a 1.3 percent decrease in the market value of equity at September 30, 2008, compared with a 3.5 percent decrease at December 31, 2007. At September 30, 2008, and December 31, 2007, the Company was within its policy.

The Company also uses duration of equity as a measure of interest rate risk. The duration of equity is a measure of the net market value sensitivity of the assets,

Sensitivity of Net Interest Income

September 30, 2008

December 31, 2007

Down 50

Up 50

Down 200

Up 200

Down 50

Up 50

Down 200

Up 200

Immediate

Immediate

Gradual

Gradual

Immediate

Immediate

Gradual

Gradual

Net interest income

.50%

(.48)%

*

(.68)%

.54

%

(1.01)

%

1.28

%

(2.55)

%

* Given the current level of interest rates, a downward 200 basis point scenario can not be computed.

  18 U.S. Bancorp

Table 8    Derivative Positions

	September 30, 2008							December 31, 2007
						Weighted-							Weighted-
						Average							Average
						Remaining							Remaining
	Notional		Fair			Maturity		Notional		Fair			Maturity
(Dollars in Millions)	Amount		Value			In Years		Amount		Value			In Years
Asset and Liability Management Positions
Interest rate contracts
Receive fixed/pay floating swaps	$	4,500	$	(28	)		35.17	$	3,750	$	17			40.87
Pay fixed/receive floating swaps		13,554		(331	)		3.25		15,979		(307	)		3.00
Futures and forwards
Buy		10,655		(40	)		.05		12,459		(51	)		.12
Sell		7,225		2			.12		11,427		(33	)		.16
Options
Written		13,385		3			.07		10,689		10			.12
Foreign exchange contracts
Cross-currency swaps		1,830		107			8.06		1,913		196			8.80
Forwards		1,034		(9	)		.04		1,111		(15	)		.03
Equity contracts		58		12			1.57		73		(3	)		2.33
Credit default swaps		51		2			2.54		56		1			3.60
Customer-related Positions
Interest rate contracts
Receive fixed/pay floating swaps	$	18,822	$	303			4.93	$	14,260	$	386			5.10
Pay fixed/receive floating swaps		18,815		(284	)		5.01		14,253		(309	)		5.08
Options
Purchased		2,162		(9	)		1.90		1,939		1			2.25
Written		2,158		9			1.91		1,932		1			2.25
Risk participation agreements (a)
Purchased		587		1			5.08		370		1			6.23
Written		1,017		(1	)		3.28		628		(1	)		4.98
Foreign exchange rate contracts
Forwards and swaps
Buy		3,961		172			.37		3,486		109			.44
Sell		3,905		(163	)		.37		3,426		(95	)		.44
Options
Purchased		456		15			.96		308		6			.68
Written		456		(15	)		.96		293		(6	)		.71

(a) At September 30, 2008, the credit equivalent amount was $6 million and $80 million, compared with $4 million and $69 million at December 31, 2007, for purchased and written risk participation agreements, respectively.

NOTE:  On September 25, 2008, the Company entered into a support agreement with a money market fund managed by FAF Advisors, Inc., an affiliate of the Company. Although this financial guarantee is a derivative and accounted for at fair value, it is excluded from the table above. Refer to Note 10, Guarantees and Contingent Liabilities in the Notes to Consolidated Financial Statements.

liabilities and derivative positions of the Company. At September 30, 2008, the duration of assets, liabilities and equity was 1.7 years, 1.7 years and 1.8 years, respectively, compared with 1.8 years, 1.9 years and 1.2 years, respectively, at December 31, 2007. The change in duration of equity reflects a change in market rates and credit spreads. Refer to “Management’s Discussion and Analysis — Market Value of Equity Modeling” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, for further discussion on market value of equity modeling.

Use of Derivatives to Manage Interest Rate and Other RisksIn the ordinary course of business, the Company enters into derivative transactions to manage its interest rate, prepayment, credit, price and foreign currency risks (“asset and liability management positions”) and to accommodate the business requirements of its customers (“customer-related positions”). Refer to “Management’s Discussion and Analysis — Use of Derivatives to Manage Interest Rate and Other Risks” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, for further discussion on the use of derivatives to manage interest rate and other risks.

By their nature, derivative instruments are subject to market risk. The Company does not utilize derivative instruments for speculative purposes. Of the Company’s $52.3 billion of total notional amount of asset and liability management positions at September 30, 2008, $19.2 billion was designated as either fair value or cash flow hedges or net investment hedges of foreign operations. The cash flow hedge derivative positions are interest rate swaps that hedge the forecasted cash flows from the underlying variable-rate debt. The fair value

  U.S. Bancorp 19

hedges are primarily interest rate swaps that hedge the change in fair value related to interest rate changes of underlying fixed-rate debt and subordinated obligations.

At September 30, 2008, the Company had $204 million in accumulated other comprehensive income related to realized and unrealized losses on derivatives classified as cash flow hedges. Unrealized gains and losses are reflected in earnings when the related cash flows or hedged transactions occur and offset the related performance of the hedged items. The estimated amount to be reclassified from accumulated other comprehensive income into earnings during the remainder of 2008 and the next 12 months is a loss of $15 million and $56 million, respectively.

The change in the fair value of all other asset and liability management positions attributed to hedge ineffectiveness recorded in noninterest income was not material for the third quarter and first nine months of 2008. Gains or losses on customer-related positions were not material for the third quarter and first nine months of 2008. The impact of adopting SFAS 157 in the first quarter of 2008 reduced noninterest income by $62 million for the first nine months of 2008 as it required the Company to consider the primary market and nonperformance risk in determining the fair value of derivative positions. On an ongoing basis, the Company considers the risk of nonperformance in its derivative liability and asset positions. 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 Company enters into derivatives to protect its net investment in certain foreign operations. The Company uses forward commitments to sell specified amounts of certain foreign currencies to hedge fluctuations in foreign currency exchange rates. The net amount of gains or losses included in the cumulative translation adjustment for the third quarter and first nine months of 2008 was not material.

The Company uses forward commitments to sell residential mortgage loans to economically hedge its interest rate risk related to residential MLHFS. In connection with its mortgage banking operations, the Company held $5.9 billion of forward commitments to sell mortgage loans and $4.4 billion of unfunded mortgage loan commitments at September 30, 2008, that were derivatives in accordance with the provisions of the Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedge Activities”. The unfunded mortgage loan commitments are reported at fair value as options in Table 8.

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, and elected to measure certain MLHFS originated on or after January 1, 2008, at fair value. The fair value election for MLHFS will reduce certain timing differences and better match changes in the value of these mortgage loans with changes in the value of the derivatives used as economic hedges for these mortgage loans. The Company also utilizes U.S. Treasury futures, options on U.S. Treasury futures contracts, interest rate swaps and forward commitments to buy residential mortgage loans to economically hedge the change in fair value of its residential MSRs.

Market Risk Management In addition to interest rate risk, the Company is exposed to other forms of market risk as a consequence of conducting normal trading activities. These trading activities principally support the risk management processes of the Company’s customers including their management of foreign currency and interest rate risks. The Company also manages market risk of non-trading business activities, including its MSRs and loans held-for-sale. Value at Risk (“VaR”) is a key measure of market risk for the Company. Theoretically, VaR represents the maximum amount that the Company has placed at risk of loss, with a ninety-ninth percentile degree of confidence, to adverse market movements in the course of its risk taking activities.

The Company’s market valuation risk for trading and non-trading positions, as estimated by the VaR analysis, was $2 million and $13 million, respectively, at September 30, 2008, compared with $1 million and $15 million at December 31, 2007, respectively. The Company’s VaR limit was $45 million at September 30, 2008. Refer to “Management’s Discussion and Analysis — Market Risk Management” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, for further discussion on market risk management.

Liquidity Risk Management In conjunction with the Company’s liquidity management, ALPC establishes policies, as well as analyzes and manages liquidity, to ensure that adequate funds are available to meet normal operating requirements in addition to unexpected customer demands for funds in a timely and cost-effective manner. Liquidity management is viewed from long-term and short-term perspectives, as well as from an asset and liability perspective. Management monitors liquidity through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk.

  20 U.S. Bancorp

Table 9    Capital Ratios

	September 30,			December 31,
(Dollars in Millions)	2008			2007
Tier 1 capital	$	18,877		$	17,539
As a percent of risk-weighted assets		8.5	%		8.3	%
As a percent of adjusted quarterly average assets (leverage ratio)		8.0	%		7.9	%
Total risk-based capital	$	27,403		$	25,925
As a percent of risk-weighted assets		12.3	%		12.2	%
Tangible common equity	$	12,662		$	11,820
As a percent of tangible assets		5.3	%		5.1	%

During the past several quarters, the financial markets have been challenging for many financial institutions. As a result of these market conditions, liquidity premiums have widened and many banks have experienced certain liquidity constraints, substantially increased pricing to retain deposit balances or utilized the Federal Reserve System discount window to secure adequate funding. Because of the Company’s relative credit quality and strong balance sheet, the Company has not experienced any significant liquidity constraints through the end of the third quarter of 2008. During the past several quarters, the Company’s liquidity position has been strong as depositors and investors in the wholesale funding markets seek strong financial institutions. Refer to “Management’s Discussion and Analysis — Liquidity Risk Management” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, for further discussion on liquidity risk management.

At September 30, 2008, parent company long-term debt outstanding was $10.6 billion, compared with $10.7 billion at December 31, 2007. The $.1 billion decrease reflected $3.8 billion of medium-term note issuances, offset by $3.3 billion of convertible senior debenture repayments and $.5 billion of medium-term note maturities during the first nine months of 2008. As of September 30, 2008, there was no parent company debt scheduled to mature in the remainder of 2008.

Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. The amount of dividends available to the parent company from its banking subsidiaries after meeting the regulatory capital requirements for well-capitalized banks was approximately $1.5 billion at September 30, 2008.

Off-Balance Sheet Arrangements The Company sponsors an off-balance sheet conduit to which it transferred high-grade investment securities, initially funded by the issuance of commercial paper. These investment securities include primarily (i) private label asset-backed securities, which are insurance “wrapped” by mono-line insurance companies and (ii) collateralized mortgage obligations. The conduit held assets with a fair value of $.9 billion at September 30, 2008, and $1.2 billion at December 31, 2007. In March 2008, the conduit ceased issuing commercial paper and began to draw upon a Company-provided liquidity facility to replace outstanding commercial paper as it matured. The draws upon the liquidity facility resulted in the conduit becoming a non-qualifying special purpose entity. However, the Company is not the primary beneficiary and, therefore, does not consolidate the conduit. At September 30, 2008, the amount advanced to the conduit under the liquidity facility was $.9 billion, which is recorded on the Company’s balance sheet in commercial loans. The conduit’s remaining commercial paper ($9 million) will mature during 2008, resulting in additional draws against the liquidity facility. Proceeds from the conduit’s investment securities, including payments from mono-line insurance companies to the extent necessary, will be used to repay draws on the liquidity facility. The Company believes there is sufficient collateral and insurance to repay all liquidity draws.

Capital Management The Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. In the first nine months of 2008, the Company returned 89 percent of earnings to its common shareholders primarily through dividends and limited net share repurchases. The Company also manages its capital to exceed regulatory capital requirements for well-capitalized bank holding companies. Table 9 provides a summary of capital ratios as of September 30, 2008, and December 31, 2007. All regulatory ratios continue to be in excess of regulatory “well-capitalized” requirements. Total shareholders’ equity was $21.7 billion at September 30, 2008, compared with $21.0 billion at December 31, 2007. The increase was the result of corporate earnings, proceeds received from the exercise of stock options and the issuance of $.5 billion of non-cumulative, perpetual preferred stock, partially offset by dividends and share repurchases.

On August 3, 2006, the Company announced that the Board of Directors approved an authorization to repurchase 150 million shares of common stock through December 31, 2008. Given the current market

  U.S. Bancorp 21

conditions, the Company does not anticipate significant repurchases for the remainder of 2008 as the Company utilizes capital to support high quality customer loan growth.

On November 3, 2008, the Company announced its plan, as authorized by its Board of Directors, to issue $6.6 billion of cumulative preferred stock and related warrants to the United States Treasury under the Capital Purchase Program of the Emergency Economic Stabilization Act of 2008. Under the program, the cumulative preferred stock’s dividend rate will be 5 percent per annum for five years, increasing to 9 percent per annum, thereafter, if the cumulative preferred shares are not redeemed by the Company. In addition to the cumulative preferred stock, the United States Treasury will receive warrants entitling it to purchase, during the next ten years, a number of shares of common stock of the Company equal to 15 percent of the amount of preferred stock issued, at a price per common share determined based on the average market price of the Company’s common stock, for a 20 day period prior to issuance of the preferred stock. Participation in this program limits the Company’s ability to increase its quarterly dividend and repurchase its common stock for up to three years or for as long as the preferred stock issued under the program remains outstanding, if shorter. It also subjects the Company to certain restrictions with respect to the compensation of certain executives. On a pro forma basis, the Company’s Tier 1 capital ratio at September 30, 2008, after the issuance of the $6.6 billion of preferred stock to the United States Treasury, would have been approximately 11.4 percent. Refer to Note 11 in the Notes to Consolidated Financial Statements for further information.

The following table provides a detailed analysis of all shares repurchased under this authorization during the third quarter of 2008:

	Total Number				Maximum Number
	of Shares				of Shares that May
	Purchased as		Average		Yet Be Purchased
	Part of the		Price Paid		Under the
Time Period	Program		per Share		Program
July		5,631	$	28.28		61,639,027
August		1,133		31.68		61,637,894
September		60,415		35.59		61,577,479
Total		67,179	$	34.91		61,577,479

LINE OF BUSINESS FINANCIAL REVIEW

Within the Company, financial performance is measured by major lines of business, which include 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 available and is evaluated regularly in deciding how to allocate resources and assess performance.

Basis for Financial Presentation Business line results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. Refer to “Management’s Discussion and Analysis — Line of Business Financial Review” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007, 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 2008, certain organization and methodology changes were made and, accordingly, 2007 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 and public sector clients. Wholesale Banking contributed $237 million of the Company’s net income in the third quarter and $746 million in the first nine months of 2008, or decreases of $28 million (10.6 percent) and $63 million (7.8 percent), respectively, compared with the same periods of 2007. The decreases were primarily driven by an increase in the provision for credit losses and higher noninterest expense, partially offset by higher total net revenue.

Total net revenue increased $59 million (8.9 percent) in the third quarter and $93 million (4.6 percent) in the first nine months of 2008, compared with the same periods of 2007. Net interest income, on a taxable-equivalent basis, increased $50 million (10.9 percent) in the third quarter and $116 million (8.5 percent) in the first nine months of 2008, compared with the same periods of 2007, driven by strong growth in earning assets and deposits, partially offset by declining margins in the loan portfolio and a decrease in the margin benefit of deposits. Noninterest income increased $9 million (4.4 percent) in the third quarter and decreased $23 million (3.5 percent) in the first nine months of 2008, compared with the same periods of 2007. The increase in the third quarter of 2008,

  22 U.S. Bancorp

compared to the same period of 2007, was primarily due to growth in treasury management, letter of credit, commercial lending-related and foreign exchange fees, partially offset by securities valuation losses and lower earnings from equity investments. The decline for the first nine months of 2008, compared to the same period in 2007, was primarily due to market-related valuation losses and lower earnings from equity investments, including an investment in a commercial real estate business, partially offset by higher treasury management and commercial lending-related fees, foreign exchange and commercial leasing revenue.

Total noninterest expense increased $20 million (8.4 percent) in the third quarter and $55 million (7.7 percent) in the first nine months of 2008, compared with the same periods of 2007. The increases were primarily due to higher compensation and employee benefits expenses attributable to the expansion of the business line’s national corporate banking presence, investments to enhance customer relationship management, and an acquisition. The provision for credit losses increased $83 million in the third quarter and $141 million in the first nine months of 2008, compared with the same periods of 2007. The unfavorable change was due to continued credit deterioration in the homebuilding and commercial home supplier industries. Nonperforming assets were $940 million at September 30, 2008, $652 million at June 30, 2008, and $292 million at September 30, 2007. Nonperforming assets as a percentage of period-end loans were 1.51 percent at September 30, 2008, 1.09 percent at June 30, 2008, and .56 percent at September 30, 2007. Refer to the “Corporate Risk Profile” section for further information on factors impacting the credit quality of the loan portfolios.

Consumer Banking Consumer Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail and ATM processing. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking and24-hour banking. Consumer Banking contributed $272 million of the Company’s net income in the third quarter and $983 million in the first nine months of 2008, or decreases of $199 million (42.3 percent) and $422 million (30.0 percent), respectively, compared with the same periods of 2007. Within Consumer Banking, the retail banking division contributed $241 million of the total net income in the third quarter and $873 million in the first nine months of 2008, or decreases of 44.9 percent and 33.7 percent, respectively, compared with the same periods in the prior year. Mortgage banking contributed $31 million and $110 million of the business line’s net income in the third quarter and first nine months of 2008, respectively, or a decrease of 8.8 percent and an increase of 25.0 percent, respectively, compared with the same periods in the prior year.

Total net revenue decreased $104 million (6.6 percent) in the third quarter and $126 million (2.7 percent) in the first nine months of 2008, compared with the same periods of 2007. Net interest income, on a taxable-equivalent basis, decreased $13 million (1.3 percent) in the third quarter and $52 million (1.8 percent) in the first nine months of 2008, compared with same periods of 2007. Net interest income declined year-over-year as increases in average loan balances and yield-related loan fees were more than offset by lower deposit balances and a decline in the margin benefit of deposits, given the declining interest rate environment. The increase in average loan balances reflected growth in most loan categories, with the largest increases in residential mortgages and retail loans. The favorable change in retail loans was principally driven by an increase in installment products, home equity lines and federally guaranteed student loan balances due to both the transfer of balances from loans held for sale and a portfolio purchase. The year-over-year decrease in average deposits primarily reflected a reduction in time deposit products. Average time deposit balances declined $2.7 billion (13.5 percent) in the third quarter and $2.2 billion (11.2 percent) in the first nine months of 2008, compared with the same periods of 2007. These declines reflected the Company’s funding and pricing decisions and competition for these deposits by other financial institutions that have more limited access to the wholesale funding sources given the current market environment. Fee-based noninterest income decreased $91 million (15.8 percent) in the third quarter and $74 million (4.4 percent) in the first nine months of 2008, compared with the same periods of 2007. The declines in fee-based revenue were driven by lower retail lease revenue, related to higher retail lease residual losses, partially offset by growth in revenue from ATM processing services and higher deposit service charges.

Total noninterest expense increased $82 million (11.2 percent) in the third quarter and $256 million (12.0 percent) in the first nine months of 2008, compared with the same periods of 2007. The increases included the net addition of 38 in-store and 6 traditional branches at September 30, 2008, compared with September 30, 2007. In addition, the increases were primarily attributable to higher compensation and employee benefit expense, which reflected business investments in customer service and various promotional

  U.S. Bancorp 23

Table 10     Line of Business Financial Performance

	Wholesale								Consumer
	Banking								Banking
						Percent							Percent
Three Months Ended September 30 (Dollars in Millions)	2008			2007		Change			2008		2007		Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	507		$	457		10.9	%	$	976	$	989		(1.3	)%
Noninterest income		226			206		9.7			484		575		(15.8	)
Securities gains (losses), net		(11	)		–			*		–		–		–
Total net revenue		722			663		8.9			1,460		1,564		(6.6	)
Noninterest expense		253			235		7.7			802		717		11.9
Other intangibles		6			4		50.0			14		17		(17.6	)
Total noninterest expense		259			239		8.4			816		734		11.2
Income before provision and income taxes		463			424		9.2			644		830		(22.4	)
Provision for credit losses		90			7			*		217		90			*
Income before income taxes		373			417		(10.6	)		427		740		(42.3	)
Income taxes and taxable-equivalent adjustment		136			152		(10.5	)		155		269		(42.4	)
Net income	$	237		$	265		(10.6	)	$	272	$	471		(42.3	)
Average Balance Sheet Data
Commercial	$	39,931		$	34,342		16.3	%	$	6,851	$	6,577		4.2	%
Commercial real estate		19,879			16,653		19.4			11,262		11,124		1.2
Residential mortgages		93			79		17.7			22,763		21,757		4.6
Retail		77			68		13.2			41,489		36,315		14.2
Total loans		59,980			51,142		17.3			82,365		75,773		8.7
Goodwill		1,494			1,329		12.4			2,420		2,420		–
Other intangible assets		94			36			*		1,854		1,744		6.3
Assets		65,340			56,044		16.6			92,769		87,406		6.1
Noninterest-bearing deposits		10,838			10,150		6.8			12,104		12,006		.8
Interest checking		8,871			5,394		64.5			18,125		17,766		2.0
Savings products		6,681			5,410		23.5			20,180		19,369		4.2
Time deposits		14,033			10,753		30.5			17,442		20,173		(13.5	)
Total deposits		40,423			31,707		27.5			67,851		69,314		(2.1	)
Shareholders’ equity		6,794			5,712		18.9			7,155		6,741		6.1

	Wholesale								Consumer
	Banking								Banking
						Percent							Percent
Nine Months Ended September 30 (Dollars in Millions)	2008			2007		Change			2008		2007		Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	1,477		$	1,361		8.5	%	$	2,867	$	2,919		(1.8	)%
Noninterest income		660			660		–			1,592		1,666		(4.4	)
Securities gains (losses), net		(22	)		1			*		–		–		–
Total net revenue		2,115			2,022		4.6			4,459		4,585		(2.7	)
Noninterest expense		756			703		7.5			2,352		2,089		12.6
Other intangibles		14			12		16.7			44		51		(13.7	)
Total noninterest expense		770			715		7.7			2,396		2,140		12.0
Income before provision and income taxes		1,345			1,307		2.9			2,063		2,445		(15.6	)
Provision for credit losses		172			31			*		517		237			*
Income before income taxes		1,173			1,276		(8.1	)		1,546		2,208		(30.0	)
Income taxes and taxable-equivalent adjustment		427			467		(8.6	)		563		803		(29.9	)
Net income	$	746		$	809		(7.8	)	$	983	$	1,405		(30.0	)
Average Balance Sheet Data
Commercial	$	39,427		$	34,492		14.3	%	$	6,733	$	6,544		2.9	%
Commercial real estate		18,718			16,705		12.1			11,239		11,141		.9
Residential mortgages		89			69		29.0			22,662		21,391		5.9
Retail		76			66		15.2			39,627		35,904		10.4
Total loans		58,310			51,332		13.6			80,261		74,980		7.0
Goodwill		1,403			1,329		5.6			2,420		2,415		.2
Other intangible assets		59			40		47.5			1,693		1,712		(1.1	)
Assets		63,698			56,545		12.7			91,174		86,183		5.8
Noninterest-bearing deposits		10,624			10,716		(.9	)		11,856		12,126		(2.2	)
Interest checking		8,622			4,933		74.8			18,086		17,917		.9
Savings products		6,340			5,423		16.9			19,832		19,619		1.1
Time deposits		14,565			10,679		36.4			17,830		20,071		(11.2	)
Total deposits		40,151			31,751		26.5			67,604		69,733		(3.1	)
Shareholders’ equity		6,515			5,746		13.4			7,041		6,717		4.8

*  Not meaningful

  24 U.S. Bancorp

Wealth Management &							Payment							Treasury and									Consolidated
Securities Services							Services							Corporate Support									Company
				Percent							Percent									Percent								Percent
2008		2007		Change			2008		2007		Change			2008			2007			Change			2008			2007		Change
$	113	$	120		(5.8	)%	$	247	$	192		28.6	%	$	124		$	(73	)			*%	$	1,967		$	1,685		16.7	%
	334		365		(8.5	)		765		706		8.4			14			18			(22.2	)		1,823			1,870		(2.5	)
	—		–		–			–		–		–			(400	)		7				*		(411	)		7			*
	447		485		(7.8	)		1,012		898		12.7			(262	)		(48	)			*		3,379			3,562		(5.1	)
	243		223		9.0			354		317		11.7			83			190			(56.3	)		1,735			1,682		3.2
	19		23		(17.4	)		49		50		(2.0	)		–			–			–			88			94		(6.4	)
	262		246		6.5			403		367		9.8			83			190			(56.3	)		1,823			1,776		2.6
	185		239		(22.6	)		609		531		14.7			(345	)		(238	)		(45.0	)		1,556			1,786		(12.9	)
	2		1			*		186		100		86.0			253			1				*		748			199			*
	183		238		(23.1	)		423		431		(1.9	)		(598	)		(239	)			*		808			1,587		(49.1	)
	67		87		(23.0	)		154		157		(1.9	)		(280	)		(174	)		(60.9	)		232			491		(52.7	)
$	116	$	151		(23.2	)	$	269	$	274		(1.8	)	$	(318	)	$	(65	)			*	$	576		$	1,096		(47.4	)
$	1,744	$	2,027		(14.0	)%	$	4,866	$	4,301		13.1	%	$	1,181		$	143				*%	$	54,573		$	47,390		15.2	%
	578		635		(9.0	)		–		–		–			29			50			(42.0	)		31,748			28,462		11.5
	450		419		7.4			–		–		–			3			3			–			23,309			22,258		4.7
	2,099		2,061		1.8			13,231		10,924		21.1			34			39			(12.8	)		56,930			49,407		15.2
	4,871		5,142		(5.3	)		18,097		15,225		18.9			1,247			235				*		166,560			147,517		12.9
	1,562		1,553		.6			2,364		2,295		3.0			–			–			–			7,840			7,597		3.2
	318		402		(20.9	)		993		1,037		(4.2	)		–			(1	)			*		3,259			3,218		1.3
	7,235		7,655		(5.5	)		23,204		20,672		12.2			55,075			51,728			6.5			243,623			223,505		9.0
	4,645		4,301		8.0			495		348		42.2			240			142			69.0			28,322			26,947		5.1
	5,264		2,876		83.0			41		13			*		3			3			–			32,304			26,052		24.0
	4,757		5,454		(12.8	)		19		21		(9.5	)		61			47			29.8			31,698			30,301		4.6
	3,739		3,402		9.9			2		5		(60.0	)		5,999			1,512				*		41,215			35,845		15.0
	18,405		16,033		14.8			557		387		43.9			6,303			1,704				*		133,539			119,145		12.1
	2,353		2,438		(3.5	)		4,858		4,637		4.8			823			1,213			(32.2	)		21,983			20,741		6.0

Wealth Management &							Payment							Treasury and										Consolidated
Securities Services							Services							Corporate Support										Company
				Percent							Percent									Percent									Percent			��
2008		2007		Change			2008		2007		Change			2008			2007			Change				2008			2007		Change
$	341	$	355		(3.9	)%	$	743	$	533		39.4	%	$	277		$	(167	)			*%		$	5,705		$	5,001		14.1	%
	1,090		1,097		(.6	)		2,225		2,018		10.3			506			33				*			6,073			5,474		10.9
	—		–		–			–		–		–			(703	)		10				*			(725	)		11			*
	1,431		1,452		(1.4	)		2,968		2,551		16.3			80			(124	)			*			11,053			10,486		5.4
	721		677		6.5			1,034		920		12.4			329			346			(4.9	)			5,192			4,735		9.7
	58		70		(17.1	)		146		150		(2.7	)		–			–			–				262			283		(7.4	)
	779		747		4.3			1,180		1,070		10.3			329			346			(4.9	)			5,454			5,018		8.7
	652		705		(7.5	)		1,788		1,481		20.7			(249	)		(470	)		47.0				5,599			5,468		2.4
	5		2			*		488		293		66.6			647			4				*			1,829			567			*
	647		703		(8.0	)		1,300		1,188		9.4			(896	)		(474	)		(89.0	)			3,770			4,901		(23.1	)
	236		256		(7.8	)		472		431		9.5			(544	)		(438	)		(24.2	)			1,154			1,519		(24.0	)
$	411	$	447		(8.1	)	$	828	$	757		9.4		$	(352	)	$	(36	)			*		$	2,616		$	3,382		(22.6	)
$	1,824	$	1,948		(6.4	)%	$	4,563	$	4,075		12.0	%	$	878		$	141				*%		$	53,425		$	47,200		13.2	%
	596		639		(6.7	)		–		–		–			37			51			(27.5	)			30,590			28,536		7.2
	444		424		4.7			–		–		–			3			4			(25.0	)			23,198			21,888		6.0
	2,073		2,059		.7			12,615		10,272		22.8			35			40			(12.5	)			54,426			48,341		12.6
	4,937		5,070		(2.6	)		17,178		14,347		19.7			953			236				*			161,639			145,965		10.7
	1,563		1,552		.7			2,362		2,280		3.6			–			9				*			7,748			7,585		2.1
	337		426		(20.9	)		1,013		1,044		(3.0	)		1			14			(92.9	)	��		3,103			3,236		(4.1	)
	7,328		7,618		(3.8	)		22,099		19,397		13.9			56,551			51,951			8.9				240,850			221,694		8.6
	4,521		4,243		6.6			485		367		32.2			280			79				*			27,766			27,531		.9
	4,950		2,802		76.7			36		11			*		3			3			–				31,697			25,666		23.5
	5,155		5,366		(3.9	)		19		21		(9.5	)		64			54			18.5				31,410			30,483		3.0
	3,876		3,591		7.9			1		4		(75.0	)		6,257			1,585				*			42,529			35,930		18.4
	18,502		16,002		15.6			541		403		34.2			6,604			1,721				*			133,402			119,610		11.5
	2,373		2,456		(3.4	)		4,832		4,557		6.0			1,166			1,471			(20.7	)			21,927			20,947		4.7

  U.S. Bancorp 25

activities, including further deployment of the PowerBank initiative, the adoption of SFAS 157 and higher credit related costs associated with other real estate owned and foreclosures.

The provision for credit losses increased $127 million in the third quarter and $280 million in the first nine months of 2008, compared with the same periods of 2007. The increases were attributable to higher net charge-offs, reflecting portfolio growth and credit deterioration in residential mortgages, home equity and other installment and consumer loan portfolios from a year ago. As a percentage of average loans outstanding on an annualized basis, net charge-offs were 1.05 percent in the third quarter of 2008, compared with .47 percent in the third quarter of 2007. Commercial and commercial real estate loan net charge-offs increased $9 million (50.0 percent) in the third quarter of 2008, compared with the third quarter of 2007. Retail loan and residential mortgage net charge-offs increased $118 million in the third quarter of 2008, compared with the third quarter of 2007. Nonperforming assets were $479 million at September 30, 2008, $417 million at June 30, 2008, and $316 million at September 30, 2007. Nonperforming assets as a percentage of period-end loans were .60 percent at September 30, 2008, .58 percent at June 30, 2008, and .43 percent at September 30, 2007. Refer to the “Corporate Risk Profile” section for further information on factors impacting the credit quality of the loan portfolios.

Wealth Management & Securities Services Wealth Management & Securities Services provides trust, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Wealth Management, Corporate Trust, FAF Advisors, Institutional Trust & Custody and Fund Services. Wealth Management & Securities Services contributed $116 million of the Company’s net income in the third quarter and $411 million in the first nine months of 2008, or decreases of $35 million (23.2 percent) and $36 million (8.1 percent), respectively, compared with the same periods of 2007.

Total net revenue decreased $38 million (7.8 percent) in the third quarter and $21 million (1.4 percent) in the first nine months of 2008, compared with the same periods of 2007. Net interest income, on a taxable-equivalent basis, decreased $7 million (5.8 percent) in the third quarter and $14 million (3.9 percent) in the first nine months of 2008, compared with the same periods of 2007, primarily due to a reduction in the margin benefit of deposits, partially offset by deposit growth. Noninterest income decreased $31 million (8.5 percent) in the third quarter and $7 million (.6 percent) in the first nine months of 2008, compared with the same periods of 2007, primarily driven by unfavorable equity market conditions compared with a year ago, partially offset by core account growth.

Total noninterest expense increased $16 million (6.5 percent) in the third quarter and $32 million (4.3 percent) in the first nine months of 2008, compared with the same periods of 2007. The increases in noninterest expense were primarily due to higher compensation and employee benefits expenses and legal related costs, partially offset by lower other intangibles expense.

Payment Services Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services’ offerings are highly inter-related with banking products and services of the other lines of business and rely on access to the bank subsidiary’s settlement network, lower cost funding available to the Company, cross-selling opportunities and operating efficiencies. Payment Services contributed $269 million of the Company’s net income in the third quarter and $828 million in the first nine months of 2008, or a decrease of $5 million (1.8 percent) and an increase of $71 million (9.4 percent), respectively, compared with the same periods of 2007. The decrease in the third quarter compared to the same period of 2007 was due to growth in total net revenue, driven by loan growth and higher transaction volumes, offset by an increase in total noninterest expense and a higher provision for credit losses.

Total net revenue increased $114 million (12.7 percent) in the third quarter and $417 million (16.3 percent) in the first nine months of 2008, compared with the same periods of 2007. Net interest income, on a taxable-equivalent basis, increased $55 million (28.6 percent) in the third quarter and $210 million (39.4 percent) in the first nine months of 2008, compared with the same periods of 2007. The increases were primarily due to strong growth in credit card balances and the timing of asset repricing in a declining rate environment. Noninterest income increased $59 million (8.4 percent) in the third quarter and $207 million (10.3 percent) in the first nine months of 2008, compared with the same periods of 2007. The increases in fee-based revenue were driven by account growth, higher transaction volumes and business expansion initiatives. On October 29, 2008, Delta Airlines and Northwest Airlines announced the completion of their merger. In connection with this merger, the Company will retain its merchant processing arrangement with the combined airline. The final determination of the status of the Company’s

  26 U.S. Bancorp

WorldPerks^® co-branded credit card program is still being evaluated by Delta Airlines. At this time, the Company continues to evaluate its strategy with respect to the program and anticipates that the financial impact to its financial statements of any changes to the program will not be material to the operations of the Company.

Total noninterest expense increased $36 million (9.8 percent) in the third quarter and $110 million (10.3 percent) in the first nine months of 2008, compared with the same periods of 2007, due primarily to new business initiatives, including costs associated with transaction processing and recent acquisitions.

The provision for credit losses increased $86 million (86.0 percent) in the third quarter and $195 million (66.6 percent) in the first nine months of 2008, compared with the same periods of 2007, due to higher net charge-offs, which reflected average retail credit card portfolio growth, higher delinquency rates and changing economic conditions from a year ago. As a percentage of average loans outstanding on an annualized basis, net charge-offs were 4.09 percent in the third quarter of 2008, compared with 2.61 percent in the third quarter of 2007.

Treasury and Corporate Support Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of $318 million in the third quarter and $352 million in the first nine months of 2008, compared with net losses of $65 million and $36 million in the same periods of the prior year, respectively.

Total net revenue decreased $214 million in the third quarter and increased $204 million in the first nine months of 2008, compared with the same periods of 2007. Net interest income, on a taxable-equivalent basis, increased $197 million in the third quarter and $444 million in the first nine months of 2008, compared with the same periods of 2007, reflecting the impact of the declining rate environment, wholesale funding decisions and the Company’s asset and liability position. Noninterest income decreased $411 million in the third quarter and $240 million in the first nine months of 2008, compared with the same periods of 2007. The decrease in the third quarter of 2008, compared with the same period of 2007, was primarily due to the impairment charges for structured investment securities, perpetual preferred stock (including the stock of GSEs), and certain non-agency mortgage backed securities. The decrease for the first nine months of 2008, compared with the same period of the prior year, was primarily due to the impairment charges on investment securities and the transition impact of adopting SFAS 157 during the first quarter of 2008, partially offset by the impact of the Visa Gain in the first quarter of 2008.

Total noninterest expense decreased $107 million (56.3 percent) in the third quarter of 2008, compared with the same period in the prior year, primarily due to the Visa Charge recognized in the third quarter of 2007. Total noninterest expense decreased $17 million (4.9 percent) in the first nine months of 2008, compared with the same period of 2007, primarily due to the Visa Charge recognized in the third quarter of 2007, offset by higher compensation and employee benefits expense, higher litigation costs, incremental costs associated with investments in tax-advantaged projects and a charitable contribution made to the U.S. Bancorp Foundation.

The provision for credit losses for this business unit represents the residual aggregate of the net credit losses allocated to the reportable business units and the Company’s recorded provision determined in accordance with accounting principles generally accepted in the United States. The provision for credit losses increased $252 million in the third quarter and $643 million in the first nine months of 2008, compared with the same periods of the prior year, driven by incremental provision expense recorded in the first nine months of 2008, reflecting deterioration in the credit quality within the loan portfolios related to stress in the residential real estate markets, including homebuilding and related supplier industries, and the impact of economic conditions on the loan portfolios. Refer to the “Corporate Risk Profile” section for further information on the provision for credit losses, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

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 25.6 percent in the third quarter and 28.8 percent in the first nine months of 2008, compared with 30.1 in the third quarter and 30.2 percent in the first nine months of 2007.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally

  U.S. Bancorp 27

accepted accounting principles requires management to make estimates and assumptions. The 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 that 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, estimations of fair value, MSRs, goodwill and other intangibles and income taxes. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” and the Notes to Consolidated Financial Statements in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007.

CONTROLS AND PROCEDURES

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

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

  28 U.S. Bancorp

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  U.S. Bancorp 29

U.S. Bancorp

Consolidated Balance Sheet

	September 30,			December 31,
(Dollars in Millions, Except Per Share Data)	2008			2007
	(Unaudited)
Assets
Cash and due from banks	$	7,118		$	8,884
Investment securities
Held-to-maturity (fair value $64 and $78, respectively)		64			74
Available-for-sale		39,285			43,042
Loans held for sale (included $2,686 of mortgage loans carried at fair value at 9/30/08)		3,116			4,819
Loans
Commercial		56,454			51,074
Commercial real estate		32,177			29,207
Residential mortgages		23,341			22,782
Retail		57,891			50,764
Total loans		169,863			153,827
Less allowance for loan losses		(2,767	)		(2,058	)
Net loans		167,096			151,769
Premises and equipment		1,775			1,779
Goodwill		7,816			7,647
Other intangible assets		3,242			3,043
Other assets		17,543			16,558
Total assets	$	247,055		$	237,615
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	$	35,476		$	33,334
Interest-bearing		76,697			72,458
Time deposits greater than $100,000		27,331			25,653
Total deposits		139,504			131,445
Short-term borrowings		37,423			32,370
Long-term debt		40,110			43,440
Other liabilities		8,343			9,314
Total liabilities		225,380			216,569
Shareholders’ equity
Preferred stock, par value $1.00 a share (liquidation preference of $25,000 per share) — authorized: 50,000,000 shares; issued and outstanding: 9/30/08 — 60,000 shares and 12/31/07 — 40,000 shares		1,500			1,000
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 9/30/08 and 12/31/07 — 1,972,643,007 shares		20			20
Capital surplus		5,646			5,749
Retained earnings		23,032			22,693
Less cost of common stock in treasury: 9/30/08 — 218,801,772 shares; 12/31/07 - 244,786,039 shares		(6,695	)		(7,480	)
Other comprehensive income		(1,828	)		(936	)
Total shareholders’ equity		21,675			21,046
Total liabilities and shareholders’ equity	$	247,055		$	237,615

See Notes to Consolidated Financial Statements.

  30 U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Income

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)	2008			2007		2008			2007
Interest Income
Loans	$	2,487		$	2,703	$	7,476		$	7,897
Loans held for sale		52			76		174			205
Investment securities		478			522		1,507			1,554
Other interest income		40			33		120			101
Total interest income		3,057			3,334		9,277			9,757
Interest Expense
Deposits		425			694		1,489			2,032
Short-term borrowings		276			374		861			1,081
Long-term debt		423			599		1,316			1,696
Total interest expense		1,124			1,667		3,666			4,809
Net interest income		1,933			1,667		5,611			4,948
Provision for credit losses		748			199		1,829			567
Net interest income after provision for credit losses		1,185			1,468		3,782			4,381
Noninterest Income
Credit and debit card revenue		269			237		783			673
Corporate payment products revenue		179			166		517			472
ATM processing services		94			84		271			243
Merchant processing services		300			289		880			827
Trust and investment management fees		329			331		1,014			995
Deposit service charges		286			276		821			800
Treasury management fees		128			118		389			355
Commercial products revenue		132			107		361			312
Mortgage banking revenue		61			76		247			211
Investment products fees and commissions		37			36		110			108
Securities gains (losses), net		(411	)		7		(725	)		11
Other		8			150		680			478
Total noninterest income		1,412			1,877		5,348			5,485
Noninterest Expense
Compensation		763			656		2,269			1,950
Employee benefits		125			119		391			375
Net occupancy and equipment		199			189		579			550
Professional services		61			56		167			162
Marketing and business development		75			71		220			191
Technology and communications		153			140		442			413
Postage, printing and supplies		73			70		217			210
Other intangibles		88			94		262			283
Other		286			381		907			884
Total noninterest expense		1,823			1,776		5,454			5,018
Income before income taxes		774			1,569		3,676			4,848
Applicable income taxes		198			473		1,060			1,466
Net income	$	576		$	1,096	$	2,616		$	3,382
Net income applicable to common equity	$	557		$	1,081	$	2,563		$	3,337
Earnings per common share	$	.32		$	.63	$	1.47		$	1.92
Diluted earnings per common share	$	.32		$	.62	$	1.46		$	1.89
Dividends declared per common share	$	.425		$	.400	$	1.275		$	1.200
Average common shares outstanding		1,743			1,725		1,738			1,737
Average diluted common shares outstanding		1,757			1,745		1,754			1,762

See Notes to Consolidated Financial Statements.

  U.S. Bancorp 31

U.S. Bancorp

Consolidated Statement of Shareholders’ Equity

																	Other			Total
(Dollars and Shares in Millions)	Common Shares			Preferred		Common		Capital			Retained			Treasury			Comprehensive			Shareholders’
(Unaudited)	Outstanding			Stock		Stock		Surplus			Earnings			Stock			Income			Equity
Balance December 31, 2006		1,765		$	1,000	$	20	$	5,762		$	21,242		$	(6,091	)	$	(736	)	$	21,197
Net income												3,382									3,382
Unrealized loss on securities available-for-sale																		(482	)		(482	)
Unrealized loss on derivatives																		(73	)		(73	)
Foreign currency translation																		11			11
Reclassification for realized losses																		72			72
Change in retirement obligation																		1			1
Income taxes																		179			179
Total comprehensive income																					3,090
Cash dividends declared
Preferred												(45	)								(45	)
Common												(2,079	)								(2,079	)
Issuance of common and treasury stock		18							(34	)					544						510
Purchase of treasury stock		(58	)												(2,003	)					(2,003	)
Stock option and restricted stock grants									20												20
Shares reserved to meet deferred compensation obligations															(4	)					(4	)
Balance September 30, 2007		1,725		$	1,000	$	20	$	5,748		$	22,500		$	(7,554	)	$	(1,028	)	$	20,686
Balance December 31, 2007		1,728		$	1,000	$	20	$	5,749		$	22,693		$	(7,480	)	$	(936	)	$	21,046
Net income												2,616									2,616
Unrealized loss on securities available-for-sale																		(2,156	)		(2,156	)
Unrealized gain on derivatives																		1			1
Foreign currency translation																		(37	)		(37	)
Realized loss on derivatives																		(15	)		(15	)
Reclassification for realized losses																		763			763
Change in retirement obligation																		6			6
Income taxes																		546			546
Total comprehensive income																					1,724
Cash dividends declared
Preferred												(53	)								(53	)
Common												(2,224	)								(2,224	)
Issuance of preferred stock					500				(9	)											491
Issuance of common and treasury stock		28							(80	)					880						800
Purchase of treasury stock		(2	)												(90	)					(90	)
Stock option and restricted stock grants									(14	)											(14	)
Shares reserved to meet deferred compensation obligations															(5	)					(5	)
Balance September 30, 2008		1,754		$	1,500	$	20	$	5,646		$	23,032		$	(6,695	)	$	(1,828	)	$	21,675

See Notes to Consolidated Financial Statements.

  32 U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Cash Flows

	Nine Months Ended
	September 30,
(Dollars in Millions)
(Unaudited)	2008			2007
Operating Activities
Net cash provided by operating activities		$3,973			$2,018
Investing Activities
Proceeds from sales of available-for-sale investment securities		2,084			1,269
Proceeds from maturities of investment securities		3,800			3,419
Purchases of investment securities		(3,413	)		(5,389	)
Net increase in loans outstanding		(11,871	)		(3,661	)
Proceeds from sales of loans		115			382
Purchases of loans		(2,862	)		(1,907	)
Acquisitions, net of cash acquired		637			(73	)
Other, net		(308	)		(1,182	)
Net cash used in investing activities		(11,818	)		(7,142	)
Financing Activities
Net increase (decrease) in deposits		5,280			(2,442	)
Net increase in short-term borrowings		5,053			1,869
Proceeds from issuance of long-term debt		8,533			21,077
Principal payments or redemption of long-term debt		(11,700	)		(13,590	)
Proceeds from issuance of preferred stock		491			–
Proceeds from issuance of common stock		658			374
Repurchase of common stock		–			(1,983	)
Cash dividends paid on preferred stock		(49	)		(45	)
Cash dividends paid on common stock		(2,204	)		(2,095	)
Net cash provided by financing activities		6,062			3,165
Change in cash and cash equivalents		(1,783	)		(1,959	)
Cash and cash equivalents at beginning of period		9,185			8,805
Cash and cash equivalents at end of period		$7,402			$6,846

See Notes to Consolidated Financial Statements.

  U.S. Bancorp 33

Notes to Consolidated Financial Statements

(Unaudited)

Note 1    Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the instructions toForm 10-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. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007. 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 and benefits, expenses and other financial elements to each line of business. Table 10 “Line of Business Financial Performance” provides details of segment results. This information is incorporated by reference into these Notes to Consolidated Financial Statements.

Note 2    Accounting Changes

Fair Value Option In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities”, effective for the Company beginning on January 1, 2008. This Statement provides entities with an irrevocable option to measure and report selected financial assets and liabilities at fair value, with the objective to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The Company elected the fair value option pursuant to SFAS 159 on January 1, 2008, for certain mortgage loans held for sale (“MLHFS”) originated on or after January 1, 2008. There was no impact of adopting SFAS 159 on the Company’s financial statements as of the date of adoption. MLHFS subject to the fair value option are initially measured at fair value with subsequent changes in fair value recognized as a component of mortgage banking revenue. For additional information on the fair value of certain financial assets and liabilities, refer to Note 9 in the Notes to Consolidated Financial Statements.

Fair Value Measurements In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements”, effective for the Company beginning on January 1, 2008. This Statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement provides a consistent definition of fair value which focuses on exit price and prioritizes market-based inputs obtained from sources independent of the entity over those from the entity’s own inputs that are not corroborated by observable market data. SFAS 157 also requires consideration of nonperformance risk when determining fair value measurements. This statement expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The disclosures focus on the inputs used to measure fair value, and for recurring fair value measurements using significant unobservable inputs, the effect of the measurements on earnings or changes in net assets for the period. The adoption of SFAS 157 reduced the Company’s net income by approximately $62 million ($38 million after-tax) for the nine months ended September 30, 2008. For additional information on the fair value of certain financial assets and liabilities, refer to Note 9 in the Notes to Consolidated Financial Statements.

Written Loan Commitments In November 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 109 (“SAB 109”), “Written Loan Commitments Recorded at Fair Value Through Earnings”, effective for the Company beginning on January 1, 2008. SAB 109 expresses the SEC’s view that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written

  34 U.S. Bancorp

loan commitments that are accounted for at fair value through earnings. The adoption of SAB 109 did not have a material impact on the Company’s financial statements. For additional information on the fair value of certain financial assets and liabilities, refer to Note 9 in the Notes to Consolidated Financial Statements.

Business Combinations In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations”, effective for the Company beginning on January 1, 2009. SFAS 141R establishes principles and requirements for the acquirer in a business combination, including the recognition and measurement of the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity as of the acquisition date; the recognition and measurement of the goodwill acquired in the business combination or gain from a bargain purchase as of the acquisition date; and the determination of additional disclosures needed to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Under SFAS 141R, nearly all acquired assets and liabilities assumed are required to be recorded at fair value at the acquisition date, including loans. This will eliminate separate recognition of the acquired allowance for loan losses on the acquirer’s balance sheet as credit related factors will be incorporated directly into the fair value of the loans recorded at the acquisition date. Other significant changes include recognizing transaction costs and most restructuring costs as expenses when incurred. The accounting requirements of SFAS 141R are applied on a prospective basis for all transactions completed after the effective date and early adoption is not permitted.

Noncontrolling Interests In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”, effective for the Company beginning on January 1, 2009. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity, separate from the Company’s own equity, in the consolidated balance sheet. This Statement also requires the amount of net income attributable to the entity and to the noncontrolling interests to be shown separately on the face of the consolidated statement of income. SFAS 160 also requires expanded disclosures that clearly identify and distinguish between the interests of the entity and those of the noncontrolling owners. The Company is currently assessing the impact of this guidance on its financial statements.

Note 3    Investment Securities

The amortized cost, fair value, weighted-average maturity and weighted-average yield of held-to-maturity and available-for-sale securities was as follows:

	September 30, 2008									December 31, 2007
					Weighted-									Weighted-
					Average		Weighted-							Average		Weighted-
	Amortized		Fair		Maturity		Average			Amortized		Fair		Maturity		Average
(Dollars in Millions)	Cost		Value		in Years		Yield (c)			Cost		Value		in Years		Yield (c)
Held-to-maturity
Mortgage-backed securities (a)	$	5	$	5		3.1		6.13	%	$	6	$	6		3.1		6.29	%
Obligations of state and political subdivisions (b)		49		49		10.2		5.74			56		60		10.2		6.03
Other debt securities		10		10		1.8		4.08			12		12		1.8		5.26
Total held-to-maturity securities	$	64	$	64		8.3		5.50	%	$	74	$	78		8.3		5.92	%
Available-for-sale
U.S. Treasury and agencies	$	96	$	96		5.3		4.28	%	$	407	$	405		7.5		5.95	%
Mortgage-backed securities (a)		31,370		30,345		6.4		4.65			31,300		30,603		5.6		5.12
Asset-backed securities (a)(d)		861		871		3.9		5.66			2,922		2,928		5.2		5.72
Obligations of state and political subdivisions (b)		7,126		6,414		22.1		6.82			7,131		7,055		10.7		6.78
Other debt securities		1,931		1,285		28.2		5.46			1,840		1,603		29.8		6.19
Other investments		396		274		43.0		5.88			506		448		33.5		7.16
Total available-for-sale securities	$	41,780	$	39,285		10.3		5.09	%	$	44,106	$	43,042		7.7		5.51	%

(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 market price is above par, yield to maturity if market price is below par.
(c)	Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity securities are computed based on historical cost balances.
(d)	Primarily includes investments in structured investment vehicles with underlying collateral that includes a mix of various mortgage and other asset-backed securities. Certain amounts included in asset-backed securities at December 31, 2007, are reflected in other categories at September 30, 2008, based on the collateral received upon the exchange of the structured investment vehicle securities.

  U.S. Bancorp 35

Included in available-for-sale investment securities are structured investment vehicle securities (“SIVs”) which were purchased in the fourth quarter of 2007 from certain money market funds managed by FAF Advisors, Inc., an affiliate of the Company. During the first nine months of 2008, the Company exchanged its interest in certain SIVs and received its share of the underlying investment securities as in-kind distributions according to the applicable restructuring agreements. The SIVs and the investment securities received are collectively referred to as “SIV-related investments.” Some of these securities evidenced credit deterioration at time of acquisition by the Company. Statement of PositionNo. 03-3(“SOP 03-3”), “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”, requires the difference between the total expected cash flows for these securities and the initial recorded investment to be recognized in earnings over the life of the securities, using a level yield. If subsequent decreases in the fair value of these securities are accompanied by an adverse change in the expected cash flows, an other-than-temporary impairment will be recorded through earnings. Subsequent increases in the expected cash flows will be recognized as income prospectively over the remaining life of the security by increasing the level yield. During the third quarter and first nine months of 2008, the Company recorded $105 million and $410 million, respectively, of impairment charges on these investments, primarily as a result of widening market spreads and changes in expected cash flows during these time periods.

Upon acquiring the underlying investment securities, the Company evaluated each individual security to determine whether there was evidence of credit deterioration at the acquisition date to determine which securities were subject toSOP 03-3 accounting. The reconciliation below of the securities subject toSOP 03-3 accounting reflects the removal of $1,071 million of SIVs that were exchanged during the first nine months of 2008, and the addition of $7 million and $141 million of underlying investment securities received in the exchange during the third quarter and first nine months of 2008, respectively, that have evidence of credit deterioration as of their acquisition date.

The gross undiscounted cash flows that were due under the contractual terms of the securities subject toSOP 03-3, were $1.3 billion at September 30, 2008, compared with $2.5 billion at December 31, 2007, which included payments receivable of $28 million and $33 million at September 30, 2008, and December 31, 2007, respectively.

Changes in the carrying amount and accretable yield of these securities subject toSOP 03-3 were as follows:

	Three Months Ended						Nine Months Ended
	September 30, 2008						September 30, 2008
				Carrying						Carrying
				Amount of						Amount of
	Accretable			Debt			Accretable			Debt
(Dollars in Millions)	Yield			Securities			Yield			Securities
Balance at beginning of period	$	191		$	1,055		$	105		$	2,427
Transfers in (a)		–			7			49			141
Payments received		–			(60	)		–			(205	)
Impairment writedowns		(57	)		(105	)		126			(410	)
Accretion		(14	)		14			(29	)		29
Transfers out (b)		–			–			(131	)		(1,071	)
Balance at end of period	$	120		$	911		$	120		$	911

(a)	Represents the fair value of the securities at their transfer date. Includes certain securities received upon the exchange of certain SIV securities.
(b)	Includes SIV securities exchanged for underlying investment securities as of September 30, 2008.

The Company conducts a regular assessment of its investment portfolios to determine whether any 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 the Company’s ability to hold the securities through the anticipated recovery period. In addition to the impairment taken on the securities subject toSOP 03-3 accounting, the Company recorded other-than-temporary impairment charges of $306 million in the third quarter and $331 million in the first nine months of 2008, on certain other SIV-related and other investment securities.

At September 30, 2008, certain investment securities included in the held-to-maturity and available-for-sale categories had a fair value that was below their amortized cost.

  36 U.S. Bancorp

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired based on the period the investments have been in a continuous unrealized loss position at September 30, 2008:

	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in Millions)	Value		Losses			Value		Losses			Value		Losses
Held-to-maturity
Obligations of state and political subdivisions	$	15	$	(2	)	$	6	$	–		$	21	$	(2	)
Total	$	15	$	(2	)	$	6	$	–		$	21	$	(2	)
Available-for-sale
U.S. Treasury and agencies	$	63	$	(1	)	$	–	$	–		$	63	$	(1	)
Mortgage-backed securities		13,278		(436	)		12,404		(623	)		25,682		(1,059	)
Asset-backed securities		30		(4	)		–		–			30		(4	)
Obligations of state and political subdivisions		3,852		(362	)		2,491		(351	)		6,343		(713	)
Other securities and investments		341		(123	)		964		(646	)		1,305		(769	)
Total	$	17,564	$	(926	)	$	15,859	$	(1,620	)	$	33,423	$	(2,546	)

The unrealized losses within each investment category have occurred as a result of changes in interest rates and credit spreads. The substantial portion of securities that have unrealized losses are either government securities, issued by government-backed agencies or privately issued securities with high investment grade credit ratings and limited credit exposure. Unrealized losses within other securities and investments are also the result of a widening of market spreads since the initial purchase date. In general, the issuers of the investment securities are contractually prohibited from paying them off at less than par at maturity or any earlier call date. As of the reporting date, the Company expected to receive all contractual principal and interest related to securities in an unrealized loss position. As of the reporting date, the Company expected that approximately $439 million of principal payments will not be received for certain SIV-related investments and non-agency mortgage-backed securities for which it has recorded impairment charges. The Company has the intent and ability to hold all of its investment securities that are in an unrealized loss position at September 30, 2008, until their anticipated recovery in value or maturity. As a result, none of these securities were considered to be other-than-temporarily impaired at September 30, 2008.

  U.S. Bancorp 37

Note 4    Loans

The composition of the loan portfolio was as follows:

	September 30, 2008					December 31, 2007
			Percent					Percent
(Dollars in Millions)	Amount		of Total			Amount		of Total
Commercial
Commercial	$	49,938		29.4	%	$	44,832		29.1	%
Lease financing		6,516		3.8			6,242		4.1
Total commercial		56,454		33.2			51,074		33.2
Commercial real estate
Commercial mortgages		22,671		13.4			20,146		13.1
Construction and development		9,506		5.6			9,061		5.9
Total commercial real estate		32,177		19.0			29,207		19.0
Residential mortgages
Residential mortgages		17,899		10.5			17,099		11.1
Home equity loans, first liens		5,442		3.2			5,683		3.7
Total residential mortgages		23,341		13.7			22,782		14.8
Retail
Credit card		12,501		7.4			10,956		7.1
Retail leasing		5,065		3.0			5,969		3.9
Home equity and second mortgages		18,207		10.7			16,441		10.7
Other retail
Revolving credit		3,041		1.8			2,731		1.8
Installment		5,587		3.3			5,246		3.4
Automobile		9,235		5.4			8,970		5.8
Student		4,255		2.5			451		.3
Total other retail		22,118		13.0			17,398		11.3
Total retail		57,891		34.1			50,764		33.0
Total loans	$	169,863		100.0	%	$	153,827		100.0	%

Loans are presented net of unearned interest and deferred fees and costs, which amounted to $1.4 billion at September 30, 2008, and December 31, 2007.

Note 5    Mortgage Servicing Rights

The Company’s portfolio of residential mortgages serviced for others was $112.9 billion and $97.0 billion at September 30, 2008 and December 31, 2007, respectively. The Company records mortgage servicing rights (“MSRs”) initially at fair value and at each subsequent reporting date, and records changes in fair value in noninterest income in the period in which they occur. In conjunction with its MSRs, the Company may utilize derivatives, including futures, forwards and interest rate swaps to offset the effect of interest rate changes on the fair value of MSRs. The net impact of assumption changes on the fair value of MSRs, excluding decay, and the related derivatives included in mortgage banking revenue was a net loss of $25 million and a net gain of $4 million for the three months ended September 30, 2008 and 2007, respectively, and a net loss of $52 million and $1 million for the nine months ended September 30, 2008 and 2007, respectively. Loan servicing fees, not including valuation changes, included in mortgage banking revenue were $102 million and $87 million for the three months ended September 30, 2008 and 2007, respectively, and $295 million and $260 million for the nine months ended September 30, 2008 and 2007, respectively.

  38 U.S. Bancorp

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2008			2007			2008			2007
Balance at beginning of period	$	1,731		$	1,649		$	1,462		$	1,427
Rights purchased		6			4			23			10
Rights capitalized		127			130			406			316
Rights sold		–			(130	)		–			(130	)
Changes in fair value of MSRs
Due to change in valuation assumptions (a)		(56	)		(86	)		43			38
Other changes in fair value (b)		(58	)		(45	)		(184	)		(139	)
Balance at end of period	$	1,750		$	1,522		$	1,750		$	1,522

(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 Company determines fair value by estimating the present value of the asset’s future cash flows utilizing 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 the valuation of MSRs include higher than expected prepayment rates or return requirements,and/or delayed receipt of cash flows. The estimated sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments at September 30, 2008, was as follows:

	Down Scenario					Up Scenario
(Dollars in Millions)	50 bps			25 bps		25 bps			50 bps
Net fair value	$	(9	)	$	–	$	(20	)	$	(61	)

Note 6    Earnings Per Common Share

The components of earnings per common share were:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars and Shares in Millions, Except Per Share Data)	2008			2007			2008			2007
Net income	$	576		$	1,096		$	2,616		$	3,382
Preferred dividends		(19	)		(15	)		(53	)		(45	)
Net income applicable to common equity	$	557		$	1,081		$	2,563		$	3,337
Average common shares outstanding		1,743			1,725			1,738			1,737
Net effect of the exercise and assumed purchase of stock awards and conversion of outstanding convertible notes		14			20			16			25
Average diluted common shares outstanding		1,757			1,745			1,754			1,762
Earnings per common share	$	.32		$	.63		$	1.47		$	1.92
Diluted earnings per common share	$	.32		$	.62		$	1.46		$	1.89

Options to purchase 35 million and 14 million common shares for the three months ended September 30, 2008 and 2007, respectively, and 27 million and 10 million common shares for the nine months ended September 30, 2008 and 2007, respectively, were outstanding but not included in the computation of diluted earnings per common share because they were antidilutive.

  U.S. Bancorp 39

Note 7    Employee Benefits

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

	Three Months Ended September 30,												Nine Months Ended September 30,
							Postretirement												Postretirement
	Pension Plans						Medical Plan						Pension Plans						Medical Plan
(Dollars in Millions)	2008			2007			2008			2007			2008			2007			2008			2007
Service cost	$	19		$	18		$	1		$	1		$	57		$	53		$	4		$	4
Interest cost		35			31			3			4			105			94			9			11
Expected return on plan assets		(56	)		(50	)		(1	)		(2	)		(168	)		(149	)		(4	)		(5	)
Prior service (credit) cost and transition (asset) obligation amortization		(1	)		(1	)		–			–			(4	)		(4	)		–			–
Actuarial (gain) loss amortization		8			16			(1	)		–			24			47			(3	)		–
Net periodic benefit cost	$	5		$	14		$	2		$	3		$	14		$	41		$	6		$	10

Note 8    Income Taxes

The components of income tax expense were:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Millions)	2008			2007			2008			2007
Federal
Current	$	525		$	486		$	1,344		$	1,423
Deferred		(378	)		(78	)		(462	)		(146	)
Federal income tax		147			408			882			1,277
State
Current		81			72			214			203
Deferred		(30	)		(7	)		(36	)		(14	)
State income tax		51			65			178			189
Total income tax provision	$	198		$	473		$	1,060		$	1,466

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2008			2007			2008			2007
Tax at statutory rate (35 percent)	$	271		$	590		$	1,287		$	1,697
State income tax, at statutory rates, net of federal tax benefit		33			41			115			122
Tax effect of
Tax credits		(58	)		(75	)		(181	)		(215	)
Tax-exempt income		(44	)		(39	)		(129	)		(97	)
Other items		(4	)		(4	)		(32	)		(41	)
Applicable income taxes	$	198		$	473		$	1,060		$	1,466

The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of September 30, 2008, the federal taxing authority has completed its examination of the Company through the fiscal year ended December 31, 2004. The years open to examination by foreign, state and local government authorities vary by jurisdiction.

The Company’s net deferred tax liability was $346 million at September 30, 2008, and $1,279 million at December 31, 2007.

  40 U.S. Bancorp

Note 9    Fair Values of Assets and Liabilities

Effective January 1, 2008, the Company adopted SFAS 157 which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under SFAS 157 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. Under SFAS 157, a fair value measurement should reflect 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. Upon adoption of SFAS 157, the Company considered the principal market and nonperformance risk when determining the fair value measurements for derivatives which reduced trading revenue by $62 million. SFAS 157 no longer allows the deferral of origination fees or compensation expense related to the closing of MLHFS for which the fair value option is elected, resulting in additional mortgage banking revenue and recognition of compensation expense in the period the MLHFS are originated.

SFAS 157 specifies 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 generally includes residential MSRs, certain debt securities and derivative contracts.

The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities at fair value and includes an indication of the level in the fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the description includes details of the valuation models and key inputs to those models.

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

The majority of derivatives held by the Company are executed over-the-counter and are valued using standard cash flow, Black-Scholes and Monte Carlo valuation techniques. The models incorporate various 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 which is measured based on the Company’s evaluation of credit risk and incorporates 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 are 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.

  U.S. Bancorp 41

Investments 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. An example is U.S. Treasury securities.

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

When there are no market trades of securities, the Company determines that securities cannot be valued based on observable market transactions. Securities that are not valued based on observable transactions are classified as Level 3. The fair value of these securities is based on management’s best estimates of fair value. Level 3 securities include SIV-related investments and certain trust-preferred securities. For the SIV-related investments, the majority of the collateral is residential mortgage-backed securities with the remaining collateral consisting of commercial mortgage-backed and asset-backed securities, collateralized debt obligations and collateralized loan obligations.

The estimation process for Level 3 securities involves the use of a cash-flow methodology and other market valuation techniques involving management judgment. The cash flow methodology uses assumptions that reflect housing price changes, interest rates, borrower loan-to-value and borrower credit scores. Inputs used for estimation are refined and updated to reflect market developments. The fair value of these securities are sensitive to changes in the estimated cash flows and related assumptions used so these variables are updated on a regular basis. The cash flows are aggregated and passed through a distribution waterfall to determine allocation to tranches. Cash flows are discounted at an interest rate to estimate the fair value of the security held by the Company. Discount rates reflect current market conditions including the relative risk and market liquidity of these investment securities. The primary drivers that impact the valuations of these securities are the prepayment and default rates associated with the underlying collateral, as well as the discount rate used to calculate the present value of the projected cash flows. Securities measured at fair value by this methodology are classified as Level 3. Related interest income for investment securities is recorded in interest income in the Consolidated Statement of Income.

Certain mortgage loans held for sale Effective January 1, 2008, the Company elected the fair value option under SFAS 159 for MLHFS originated on or after January 1, 2008, for which an active secondary market and readily available market prices exist to reliably support fair value pricing models used for these loans. These MLHFS loans are initially measured at fair value, with subsequent changes in fair value recognized as a component of mortgage banking revenue. Electing to measure these 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 under SFAS 133. There was no transition adjustment required upon adoption of SFAS 159 for MLHFS, because the Company continued to account for MLHFS originated prior to 2008 under the lower-of-cost-or-market accounting method.

MLHFS measured at fair value 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 in the third quarter and first nine months of 2008 was $43 million of net gains and $15 million of net losses, respectively, from the initial measurement and subsequent changes to fair value of the MLHFS under the fair value option. Changes in fair value due to instrument specific credit risk was immaterial. The fair value of MLHFS under the fair value option was $2.7 billion as of September 30, 2008, which exceeded the unpaid principal balance by $54 million as of that date. Related interest income for MLHFS continues to be measured based on contractual interest rates and reported as interest income in the Consolidated Statement of Income.

Mortgage servicing rights MSRs are valued using a cash flow methodology and third party prices, if available. Accordingly, MSRs are classified in Level 3. Refer to Note 5 in the Notes to Consolidated Financial Statements for further information on the methodology used by the Company in determining the fair value of its MSRs.

  42 U.S. Bancorp

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

							FIN 39
September 30, 2008 (Dollars in Millions)	Level 1		Level 2		Level 3		Netting (a)			Total
Investment securities available-for-sale	$	2	$	37,674	$	1,609	$	–		$	39,285
Mortgage loans held for sale		–		2,686		–		–			2,686
Mortgage servicing rights		–		–		1,750		–			1,750
Other assets (b)		–		786		408		(111	)		1,083
Total	$	2	$	41,146	$	3,767	$	(111	)	$	44,804
Derivative liabilities	$	–	$	1,059	$	113	$	(111	)	$	1,061

(a)

Financial Accounting Standards Board Interpretation No. 39 (“FIN 39”), “Offsetting of Amounts Related to Certain Contracts”, permits the netting of derivative receivables and derivative 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.

(b)

Represents primarily derivative receivables and trading securities.

At September 30, 2008, MLHFS excluded $17 million of mortgage loans that were not subject to the fair value option election, and therefore, are excluded from the table above.

The table below presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). Level 3 instruments presented in the table include SIV-related and certain trust-preferred securities investments, MSRs and derivatives:

	Three Months Ended September 30, 2008									Nine Months Ended September 30, 2008
	Investment									Investment
	Securities			Mortgage			Net Other			Securities			Mortgage			Net Other
	Available-for-			Servicing			Assets and			Available-for-			Servicing			Assets and
(Dollars in Millions)	Sale			Rights			Liabilities			Sale			Rights			Liabilities
Balance at beginning of period	$	1,991		$	1,731		$	270		$	2,923		$	1,462		$	338
Net gains (losses) included in net income		(220	)(a)		(114	)(b)		(31	)(c)		(539	)(a)		(141	)(b)		(215	)(e)
Net gains (losses) included in other comprehensive income		26			–			–			(61	)		–			–
Discount accretion		(7	)		–			–			18			–			–
Purchases, sales, issuances and settlements		(188	)		133			56			(764	)		429			172
Transfers in and/or out of Level 3		7			–			–			32			–			–
Balance at end of period	$	1,609		$	1,750		$	295		$	1,609		$	1,750		$	295
Net change in unrealized gains (losses) relating to assets still held at September 30, 2008	$	26		$	(114	)(b)	$	7	(d)	$	(62	)	$	(141	)(b)	$	(5	)(f)

(a)	Included in securities gains (losses)
(b)	Included in mortgage banking revenue.
(c)	Approximately $(60) million included in other noninterest income and $29 million included in mortgage banking revenue.
(d)	Approximately $41 million included in other noninterest income and $(34) million included in mortgage banking revenue.
(e)	Approximately $(214) million included in other noninterest income and $(1) million included in mortgage banking revenue.
(f)	Approximately $1 million included in other noninterest income and $(6) million included in mortgage banking revenue.

The Company may also be required periodically to measure certain other financial assets at fair value on a nonrecurring basis in accordance with accounting principles generally accepted in the United States. These measurements of fair value usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the adjusted carrying values and the level of valuation assumptions used to determine each adjustment to the related individual assets or portfolios at September 30, 2008:

									Total Losses Recognized
									Three Months		Nine Months
									Ended		Ended
	Carrying Value at September 30, 2008								September 30,		September 30,
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		2008		2008
Loans held for sale	$	–	$	37	$	–	$	37	$	1	$	7
Loans (a)		–		159		–		159		51		72
Other real estate owned (b)		–		44		–		44		18		48
Other intangible assets		–		–		1		1		–		–

(a)	Represents carrying value and related write-downs of loans for which adjustments are based on the appraised value of the collateral. The carrying value of loans fully charged-off is zero.
(b)	Represents the fair value and related losses of properties that the Company has taken ownership of that once secured residential mortgages and home equity and second mortgage loan balances that were measured at fair value subsequent to their initial classification as other real estate owned.

  U.S. Bancorp 43

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:

					Excess of
					Carrying
	Fair Value		Aggregate		Amount Over
	Carrying		Unpaid		(Under) Unpaid
September 30, 2008 (Dollars in Millions)	Amount		Principal		Principal
Total loans	$	2,686	$	2,632	$	54
Nonaccrual loans		–		–		–
Loans 90 days or more past due		4		4		–

Note 10    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”). On October 3, 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 Reorganziation, the Company received its proportionate number of Class U.S.A. shares of Visa Inc. common stock. In addition, the Company and certain of its subsidiaries have been named as defendants along with Visa U.S.A. Inc. 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 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.

On November 7, 2007, Visa announced the settlement of the portion of the Visa Litigation involving American Express, and accordingly, the Company recorded a $115 million charge in the third quarter of 2007 for its proportionate share of this settlement. In addition to the liability related to the settlement with American Express, Visa U.S.A. member banks were required to recognize the contingent obligation to indemnify Visa Inc. under the Visa U.S.A. bylaws for potential losses arising from the remaining Visa Litigation at the estimated fair value of such obligation in accordance with Financial Accounting Standards Board Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The contingent obligation of member banks under the Visa U.S.A. bylaws has no specific maximum amount. While the estimation of any potential losses related to this litigation is highly judgmental, the Company recognized a charge of approximately $215 million in the fourth quarter of 2007.

In March 2008, Visa Inc. completed its IPO, redeemed a portion of the Class U.S.A. shares, and set aside $3.0 billion of the proceeds from the IPO in 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 Company recorded a $339 million gain for the portion of its shares that were redeemed for cash and a $153 million gain for its porportionate share of the escrow account in the first quarter of 2008. The receivable related to the escrow account is classified in other liabilities as a direct offset to the related Visa Litigation liabilities and will decline as amounts are paid out of the escrow account. As of September 30, 2008, the carrying amount of the liability related to the Visa litigation, net of the related escrow account receivable, was $171 million, and is not reflected in the following summary of guarantees and contingent liabilities. The remaining Visa Inc. shares held by the Company will be eligible for conversion to Class A shares three years after the IPO or upon settlement of the Visa Litigation, whichever is later.

On October 27, 2008, Visa announced the settlement of certain litigation matters with Discover Financial Services. The Company previously recorded an estimated liability for its proportionate share of the settlement. Based on the settlement terms, the impact to the Company’s financial statements is not material.

  44 U.S. Bancorp

Other Guarantees and Contingent Liabilities

The following table is a summary of other guarantees and contingent liabilities of the Company at September 30, 2008:

			Maximum
			Potential
	Carrying		Future
(Dollars in Millions)	Amount		Payments
Standby letters of credit	$	90	$	15,131
Third-party borrowing arrangements		–		312
Securities lending indemnifications		–		10,740
Asset sales (a)		9		595
Merchant processing		53		73,876
Other guarantees		45		6,858
Other contingent liabilities		68		2,232

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

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

The Company currently processes card transactions in the United States, Canada and Europe for airlines, cruise lines and large tour operators. In the event of liquidation of these merchants, the Company could become financially liable for refunding tickets purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in a manner similar to credit risk assessments and, as such, merchant processing contracts contain various provisions to protect the Company in the event of default. At September 30, 2008, the value of airline, cruise line and large tour operator tickets purchased to be delivered at a future date was $5.4 billion, with airline tickets representing 93 percent of that amount. The Company held collateral of $1.3 billion in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets.

On September 25, 2008, the Company entered into a support agreement with a money market fund managed by FAF Advisors, Inc., an affiliate of the Company. Under the terms of this agreement, the Company will provide a contribution to the fund upon the occurrence of specified events related to certain assets held by the fund. The Company is required to recognize the contingent obligation to provide a contribution to the fund at the estimated fair value in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives and Hedge Activities” and FIN 45. The maximum potential payments under the agreement are $68 million. While the estimation of any potential losses related to this agreement requires judgment, the Company recognized a derivative liability and related charge of approximately $27 million in the third quarter of 2008. This financial guarantee is included in the table above and therefore is excluded from Table 8 “Derivative Positions” of Management’s Discussion and Analysis.

Due to the current market illiquidity for auction rate securities, in the third quarter of 2008, the Company voluntarily offered to purchase from its customers certain auction rate securities originally sold by the Company in its role as a downstream distributor. At September 30, 2008, the Company recorded a liability for the obligation to purchase these securities. The amount recorded considers both the probability that customers will exercise the put option and the price the Company expects to pay for the securities. The offset to this liability was investment securities. As of the reporting date, the Company purchased approximately $152 million of these securities.

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 21 in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007.

  U.S. Bancorp 45

Note 11    Subsequent Event

Participation in the United States Treasury Capital Purchase Program On November 3, 2008, the Company announced that it has received approval from the United States Treasury Department for the sale of $6.6 billion of preferred stock and related warrants to the United States Treasury under the Capital Purchase Program of the Emergency Economic Stabilization Act of 2008.

Under the agreement, The Company will issue cumulative preferred stock to the United States Treasury at a rate of 5 percent per annum for five years. The rate will increase to 9 percent per annum, thereafter, if the cumulative preferred shares are not redeemed by the Company. The cumulative preferred stock may not be redeemed for a period of three years from the date of issuance, except with the proceeds received from the sale of Tier 1 capital qualifying perpetual preferred stock or common stock. After the third anniversary date of the issuance, the cumulative preferred stock may be redeemed, in whole or in part, at any time and from time to time, at the option of the Company. All redemptions of the cumulative preferred stock shall be at 100 percent of its issue price, plus any accrued and unpaid dividends. The cumulative preferred stock shall be non-voting, other than for class voting rights on any authorization or issuance of senior ranking shares, any amendment to its rights, or any merger, exchange or similar transaction which would adversely affect its rights.

For as long as the cumulative preferred stock is outstanding, no dividends may be declared or paid on junior preferred shares, preferred shares ranking equal to the cumulative preferred stock, or common shares, nor may the Company repurchase or redeem any such shares, unless all accrued and unpaid dividends for all past dividend periods on the cumulative preferred stock are fully paid. The consent of the United States Treasury is required for any increase in the quarterly dividends per share of the Company’s common stock or for any share repurchases of junior preferred or common shares, until the shorter of the third anniversary date of the cumulative preferred stock issuance or the date the cumulative preferred stock is redeemed in whole. Participation in this program also subjects the Company to certain restrictions with respect to the compensation of certain executives.

In conjunction with the cumulative preferred stock issuance, the United States Treasury will receive warrants entitling it to purchase, during the next ten years, a number of common shares of the Company having an aggregate market price equal to 15 percent of the preferred stock on the issuance date. The exercise price, and market price for determining the number of shares of common stock subject to the warrants, shall be based on the a 20-trading day average market price for the Company’s common stock prior to the issuance date.

On a pro forma basis, the Company’s Tier 1 capital ratio at September 30, 2008, after the issuance of the $6.6 billion of preferred stock to the United States Treasury, would have been approximately 11.4 percent.

  46 U.S. Bancorp

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  U.S. Bancorp 47

U.S. Bancorp

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

	For the Three Months Ended September 30,
	2008								2007
						Yields								Yields			% Change
(Dollars in Millions)	Average					and			Average					and			Average
(Unaudited)	Balances			Interest		Rates			Balances			Interest		Rates			Balances
Assets
Investment securities	$	42,548		$	521		4.90	%	$	41,128		$	559		5.44	%		3.5	%
Loans held for sale		3,495			52		6.03			4,547			76		6.63			(23.1	)
Loans (b)
Commercial		54,573			661		4.83			47,390			792		6.63			15.2
Commercial real estate		31,748			440		5.50			28,462			525		7.33			11.5
Residential mortgages		23,309			354		6.08			22,258			345		6.18			4.7
Retail		56,930			1,041		7.27			49,407			1,049		8.42			15.2
Total loans		166,560			2,496		5.97			147,517			2,711		7.30			12.9
Other earning assets		2,370			41		6.83			1,694			33		7.92			39.9
Total earning assets		214,973			3,110		5.77			194,886			3,379		6.90			10.3
Allowance for loan losses		(2,686	)							(2,041	)							(31.6	)
Unrealized gain (loss) on available-for-sale securities		(2,368	)							(1,206	)							(96.4	)
Other assets		33,704								31,866								5.8
Total assets	$	243,623							$	223,505								9.0
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits	$	28,322							$	26,947								5.1
Interest-bearing deposits
Interest checking		32,304			66		.81			26,052			93		1.41			24.0
Money market savings		26,167			79		1.20			25,018			168		2.67			4.6
Savings accounts		5,531			4		.24			5,283			5		.37			4.7
Time certificates of deposit less than $100,000		12,669			102		3.21			14,590			163		4.42			(13.2	)
Time deposits greater than $100,000		28,546			174		2.43			21,255			265		4.95			34.3
Total interest-bearing deposits		105,217			425		1.61			92,198			694		2.99			14.1
Short-term borrowings		40,277			295		2.91			29,155			401		5.46			38.1
Long-term debt		40,000			423		4.22			46,452			599		5.12			(13.9	)
Total interest-bearing liabilities		185,494			1,143		2.45			167,805			1,694		4.01			10.5
Other liabilities		7,824								8,012								(2.3	)
Shareholders’ equity
Preferred equity		1,500								1,000								50.0
Common equity		20,483								19,741								3.8
Total shareholders’ equity		21,983								20,741								6.0
Total liabilities and shareholders’ equity	$	243,623							$	223,505								9.0	%
Net interest income				$	1,967							$	1,685
Gross interest margin							3.32	%							2.89	%
Gross interest margin without taxable-equivalent increments							3.26								2.85
Percent of Earning Assets
Interest income							5.77	%							6.90	%
Interest expense							2.12								3.46
Net interest margin							3.65	%							3.44	%
Net interest margin without taxable-equivalent increments							3.59	%							3.40	%

(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.

  48 U.S. Bancorp

U.S. Bancorp

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

	For the Nine Months Ended September 30,
	2008								2007
						Yields								Yields			% Change
(Dollars in Millions)	Average					and			Average					and			Average
(Unaudited)	Balances			Interest		Rates			Balances			Interest		Rates			Balances
Assets
Investment securities	$	43,144		$	1,639		5.07	%	$	40,904		$	1,653		5.39	%		5.5	%
Loans held for sale		4,008			174		5.80			4,244			205		6.43			(5.6	)
Loans (b)
Commercial		53,425			2,027		5.07			47,200			2,347		6.64			13.2
Commercial real estate		30,590			1,332		5.81			28,536			1,569		7.35			7.2
Residential mortgages		23,198			1,066		6.13			21,888			999		6.09			6.0
Retail		54,426			3,076		7.55			48,341			3,004		8.31			12.6
Total loans		161,639			7,501		6.20			145,965			7,919		7.25			10.7
Other earning assets		2,581			121		6.23			1,675			101		8.09			54.1
Total earning assets		211,372			9,435		5.96			192,788			9,878		6.85			9.6
Allowance for loan losses		(2,352	)							(2,039	)							(15.4	)
Unrealized gain (loss) on available-for-sale securities		(1,676	)							(867	)							(93.3	)
Other assets		33,506								31,812								5.3
Total assets	$	240,850							$	221,694								8.6
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits	$	27,766							$	27,531								.9
Interest-bearing deposits
Interest checking		31,697			221		.93			25,666			253		1.32			23.5
Money market savings		26,062			272		1.39			25,108			490		2.61			3.8
Savings accounts		5,348			9		.22			5,375			15		.38			(.5	)
Time certificates of deposit less than $100,000		12,969			350		3.61			14,693			483		4.39			(11.7	)
Time deposits greater than $100,000		29,560			637		2.88			21,237			791		4.98			39.2
Total interest-bearing deposits		105,636			1,489		1.88			92,079			2,032		2.95			14.7
Short-term borrowings		38,070			925		3.25			28,465			1,149		5.40			33.7
Long-term debt		39,237			1,316		4.48			44,696			1,696		5.07			(12.2	)
Total interest-bearing liabilities		182,943			3,730		2.72			165,240			4,877		3.95			10.7
Other liabilities		8,214								7,976								3.0
Shareholders’ equity
Preferred equity		1,361								1,000								36.1
Common equity		20,566								19,947								3.1
Total shareholders’ equity		21,927								20,947								4.7
Total liabilities and shareholders’ equity	$	240,850							$	221,694								8.6	%
Net interest income				$	5,705							$	5,001
Gross interest margin							3.24	%							2.90	%
Gross interest margin without taxable-equivalent increments							3.18								2.86
Percent of Earning Assets
Interest income							5.96	%							6.85	%
Interest expense							2.36								3.39
Net interest margin							3.60	%							3.46	%
Net interest margin without taxable-equivalent increments							3.54	%							3.42	%

(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 49

Part II — Other Information

Item 1A. Risk Factors — There are a number of factors, including those specified below, that may adversely affect the Company’s business, financial results or stock price. These risks are described elsewhere in this report or the Company’s other filings with the Securities and Exchange Commission, including the Company’s Annual Report onForm 10-K for the year ended December 31, 2007. Additional risks that the Company currently does not know about or currently views as immaterial may also impair the Company’s business or adversely impact its financial results or stock price.

The risks identified in the Annual Report onForm 10-K for the year ended December 31, 2007, have not changed in any material respect, except that additional risk factors are added at the end of the list of risk factors under Item 1A to read in its entirety as follows:

Recent Market, Legislative, and Regulatory Events

Difficult market conditions have adversely affected the Company’s industry. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures and unemployment, have negatively impacted the credit performance of real estate related loans and resulted in significant write-downs of asset values by financial institutions. These write-downs, initially of asset-backed securities but spreading to other securities and loans, have caused many financial institutions to seek additional capital, to reduce or eliminate dividends, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has already adversely affected the Company’s business, financial condition and results of operations. Market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact the Company’s charge-offs and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on the Company and others in the financial institutions industry.

The Company could experience an unexpected inability to obtain needed liquidity. The Company’s liquidity could be constrained by an inability to access the capital markets due to a variety of unforeseen market dislocations or interruptions. If the Company is unable to meet its funding needs on a timely basis, its business would be adversely affected.

Current levels of market volatility are unprecedented. The market for certain investment securities has become highly volatile or inactive, and may not stabilize or resume in the near term. This volatility can result in significant fluctuations in the prices of those securities, which may affect the Company’s results of operations.

The soundness of other financial institutions could adversely affect the Company. The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. The Company has exposure to many different counterparties, and the Company routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by the Company or by other institutions. Many of these transactions expose the Company to credit risk in the event of default of the Company’s counterparty or client. In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due the Company. There is no assurance that any such losses would not materially and adversely affect the Company’s results of operations.

  50 U.S. Bancorp

There can be no assurance that recently enacted legislation will stabilize the U.S. financial markets. On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the “EESA”) which authorizes, among other things, the U.S. Treasury to purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. On October 14, 2008, the U.S. Treasury announced a program under the EESA pursuant to which it would make senior preferred stock investments in participating financial institutions (the “TARP Capital Purchase Program”). Also, on October 14, 2008, the Federal Deposit Insurance Corporation (“FDIC”) announced the development of a guarantee program under which the FDIC would offer a guarantee of certain financial institution indebtedness in exchange for an insurance premium to be paid to the FDIC by issuing financial institutions (the “FDIC Temporary Liquidity Guarantee Program”).

There can be no assurance, however, that the EESA and its implementing regulations, the FDIC programs, or any other governmental program will have a positive impact on the financial markets. The failure of the EESA, the FDIC, or the U.S. government to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect the Company’s business, financial condition, results of operations, access to credit or the trading price of the Company’s common stock.

The Company may be adversely affected by the recently enacted legislation and actions by the FDIC. The programs established or to be established under the EESA and Troubled Asset Relief Program may adversely affect the Company. The Company may face increased regulation of the Company’s business and increased costs associated with these programs. Also, the Company’s anticipated participation in the TARP Capital Purchase Program limits (without the consent of the Department of Treasury) the Company’s ability to increase the Company’s dividend and to repurchase the Company’s common stock for up to three years. Similarly, programs established by the FDIC, whether or not the Company participates, may have an adverse effect on the Company. Participation in the FDIC Temporary Liquidity Guarantee Program likely will require the payment of additional insurance premiums to the FDIC. The Company may be required to pay significantly higher Federal Deposit Insurance Corporation premiums even if the Company does not participate in the FDIC Temporary Liquidity Guarantee Program, because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds — Refer to the “Capital Management” section within Management’s Discussion and Analysis in Part I for information regarding shares repurchased by the Company during the third quarter of 2008.

Item 6. Exhibits

12	Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Chief Executive Officer pursuant toRule 13a-14(a) under the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant toRule 13a-14(a) under the Securities Exchange Act of 1934
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

  U.S. Bancorp 51

SIGNATURE

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

U.S. BANCORP

By:  /s/  Terrance R. Dolan

Terrance R. Dolan

Executive Vice President and Controller

(Chief Accounting Officer and Duly Authorized Officer)

DATE: November 10, 2008

  52 U.S. Bancorp

EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges

		Three Months Ended		Nine Months Ended
		September 30,		September 30,
(Dollars in Millions)		2008		2008
Earnings
1.	Net income	$	576	$	2,616
2.	Applicable income taxes, including interest expense related to unrecognized tax positions		198		1,060
3.	Income before income taxes (1 + 2)	$	774	$	3,676
4.	Fixed charges:
	a.  Interest expense excluding interest on deposits*	$	699	$	2,177
	b.  Portion of rents representative of interest and amortization of debt expense		21		61
	c.  Fixed charges excluding interest on deposits (4a + 4b)		720		2,238
	d.  Interest on deposits		425		1,489
	e.  Fixed charges including interest on deposits (4c + 4d)	$	1,145	$	3,727
5.	Amortization of interest capitalized	$	–	$	–
6.	Earnings excluding interest on deposits (3 + 4c + 5)		1,494		5,914
7.	Earnings including interest on deposits (3 + 4e + 5)		1,919		7,403
8.	Fixed charges excluding interest on deposits (4c)		720		2,238
9.	Fixed charges including interest on deposits (4e)		1,145		3,727
Ratio of Earnings to Fixed Charges
10.	Excluding interest on deposits (line 6/line 8)		2.08		2.64
11.	Including interest on deposits (line 7/line 9)		1.68		1.99

* Excludes interest expense related to unrecognized tax positions.

  U.S. Bancorp 53

EXHIBIT 31.1

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

I, Richard K. Davis, certify that:

(1)	I have reviewed this Quarterly Report onForm 10-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 ActRules 13a-15(e) and15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and15d-15(f)) for the registrant and have:

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

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

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

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

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

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

/s/  Richard K. Davis

Richard K. Davis

Chief Executive Officer

Dated: November 10, 2008

  54 U.S. Bancorp

EXHIBIT 31.2

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

I, Andrew Cecere, certify that:

(1)	I have reviewed this Quarterly Report onForm 10-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 ActRules 13a-15(e) and15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and15d-15(f)) for the registrant and have:

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

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

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

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

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

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

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

/s/  Andrew Cecere

Andrew Cecere

Chief Financial Officer

Dated: November 10, 2008

  U.S. Bancorp 55

EXHIBIT 32

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

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

(1)	The Quarterly Report onForm 10-Q for the quarter ended September 30, 2008 (the“Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in theForm 10-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: November 10, 2008

  56 U.S. Bancorp

First Class

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Corporate Information

Executive Offices

U.S. Bancorp

800 Nicollet Mall

Minneapolis, MN 55402

Common Stock Transfer Agent and Registrar

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

BNY Mellon Shareowner Services

P.O. Box 358015

Pittsburgh, PA 15252-8015

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

Internet: bnymellon.com/shareowner

For Registered or Certified Mail:

BNY Mellon Shareowner Services

500 Ross St., 6th Floor

Pittsburgh, PA 15219

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

Independent Auditor

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

Common Stock Listing and Trading

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

Dividends and Reinvestment Plan

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

Investor Relations Contacts

Judith T. Murphy

Executive Vice President, Investor and Public Relations

judith.murphy@usbank.com

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

Financial Information

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

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

Mail At your request, we will mail to you our quarterly earnings, news releases, quarterly financial data reported onForm 10-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. Bancorp, then Ethics at U.S. Bank.

Diversity

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

Equal Employment Opportunity/Affirmative Action

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

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

    U.S. Bancorp

    Member FDIC

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