US BANCORP \DE\ (Form: 10-Q, Received: 05/09/2005 14:22:59)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

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 Number)

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 X NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES X NO

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


Class Common Stock, $.01 Par Value		Outstanding as of April 30, 2005 1,832,752,013 shares

Table of Contents and Form 10-Q Cross Reference Index


Part I — Financial Information
1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)
	a) Overview	3
	b) Statement of Income Analysis	3
	c) Balance Sheet Analysis	7
	d) Accounting Changes	28
	e) Critical Accounting Policies	28
	f) 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 Risk Management	16
	d) Operational Risk Management	16
	e) Interest Rate Risk Management	17
	f) Market Risk Management	20
	g) Liquidity Risk Management	21
	h) Capital Management	22
3) Line of Business Financial Review		23
4) Financial Statements (Item 1)		30
Part II — Other Information
1) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)		44
2) Submission of Matters to a Vote of Security Holders (Item 4)		44
3) Exhibits (Item 6)		44
4) Signature		45
5) Exhibits		46
Restated Certificate of Incorporation
Appendix B-10 to Non-Qualified Executive Retirement Plan
Amendment No. 5 to Non-Qualified Executive Retirement Plan
Offer of Employment to Richard C. Hartnack

Forward-Looking Statements

This Form 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 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 the following, in addition to those contained in U.S. Bancorp’s reports on file with the SEC: (i) general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for credit losses, or a reduced demand for credit or fee-based products and services; (ii) changes in the domestic interest rate environment could reduce net interest income and could increase credit losses; (iii) inflation, changes in securities market conditions and monetary fluctuations could adversely affect the value or credit quality of our assets, or the availability and terms of funding necessary to meet our liquidity needs; (iv) changes in the extensive laws, regulations and policies governing financial services companies could alter our business environment or affect operations; (v) the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending; (vi) competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments or bank regulatory reform; (vii) changes in consumer spending and savings habits could adversely affect our results of operations; (viii) changes in the financial performance and condition of our borrowers could negatively affect repayment of such borrowers’ loans; (ix) acquisitions may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated, or may result in unforeseen integration difficulties; (x) capital investments in our businesses may not produce expected growth in earnings anticipated at the time of the expenditure; and (xi) acts or threats of terrorism, and/or political and military actions taken by the U.S. or other governments in response to acts or threats of terrorism or otherwise could adversely affect general economic or industry conditions. Forward-looking statements speak only as of the date they are made, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.


U.S. Bancorp	1

Table 1 Selected Financial Data


		Three Months Ended
		March 31,

								Percent
(Dollars and Shares in Millions, Except Per Share Data)		2005			2004			Change

Condensed Income Statement
Net interest income (taxable-equivalent basis) (a)		$	1,751		$	1,779			(1.6	)%
Noninterest income			1,441			1,318			9.3
Securities losses, net			(59	)		—			*

	Total net revenue		3,133			3,097			1.2
Noninterest expense			1,331			1,455			(8.5	)
Provision for credit losses			172			235			(26.8	)

	Income before taxes		1,630			1,407			15.8
Taxable-equivalent adjustment			7			7			—
Applicable income taxes			552			392			40.8

	Net income	$	1,071		$	1,008			6.3

Per Common Share
Earnings per share		$	.58		$	.53			9.4	%
Diluted earnings per share			.57			.52			9.6
Dividends declared per share			.30			.24			25.0
Book value per share			10.43			10.23			2.0
Market value per share			28.82			27.65			4.2
Average common shares outstanding			1,852			1,915			(3.3	)
Average diluted common shares outstanding			1,880			1,941			(3.1	)
Financial Ratios
Return on average assets			2.21	%		2.14	%
Return on average equity			21.9			20.7
Net interest margin (taxable-equivalent basis)			4.08			4.29
Efficiency ratio (b)			41.7			47.0
Average Balances
Loans		$	127,654		$	118,810			7.4	%
Loans held for sale			1,429			1,445			(1.1	)
Investment securities			42,813			44,744			(4.3	)
Earning assets			173,294			166,359			4.2
Assets			196,935			189,663			3.8
Noninterest-bearing deposits			28,417			29,025			(2.1	)
Deposits			119,423			116,019			2.9
Short-term borrowings			15,606			13,419			16.3
Long-term debt			35,440			34,553			2.6
Shareholders’ equity			19,803			19,584			1.1

			March 31, 2005		December 31, 2004

Period End Balances
Loans		$	128,905		$	126,315			2.1	%
Allowance for credit losses			2,269			2,269			—
Investment securities			43,103			41,481			3.9
Assets			198,466			195,104			1.7
Deposits			119,718			120,741			(.8	)
Long-term debt			38,071			34,739			9.6
Shareholders’ equity			19,208			19,539			(1.7	)
Regulatory capital ratios
	Tangible common equity		6.2	%		6.4	%
	Tier 1 capital		8.6			8.6
	Total risk-based capital		13.3			13.1
	Leverage		7.9			7.9


*		Not meaningful
(a)		Interest and rates are 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 $1,071 million for the first quarter of 2005, or $.57 per diluted share, compared with $1,008 million, or $.52 per diluted share, for the first quarter of 2004. Return on average assets and return on average equity were 2.21 percent and 21.9 percent, respectively, for the first quarter of 2005, compared with returns of 2.14 percent and 20.7 percent, respectively, for the first quarter of 2004. The Company’s results for the first quarter of 2005 improved over the same period of 2004, as net income rose by $63 million (6.3 percent), primarily due to lower credit costs and growth in fee-based products and services. During the first quarter of 2005, the Company recognized a $54 million reparation of its mortgage servicing rights (“MSR”) asset, reflecting rising longer–term interest rates in 2005, compared with the recognition of $109 million of MSR impairment in the first quarter of 2004. The yield on 10-year Treasury Notes and 30-year Fannie Mae commitments increased approximately 26 and 34 basis points, respectively. In connection with its asset/liability management activities, the Company sold certain investment securities during the first quarter of 2005, resulting in net securities losses of $59 million. The Company realized no securities gains or losses in the first quarter of 2004. Also included in the first quarter of 2004 results was a $35 million expense charge related to the prepayment of certain debt and a $90 million reduction in income tax expense related to the resolution of federal tax examinations.

Total net revenue, on a taxable-equivalent basis, was $3,133 million for the first quarter of 2005, compared with $3,097 million for the first quarter of 2004, a year-over-year increase of $36 million (1.2 percent). The increase in net revenue was comprised of a 4.9 percent increase in noninterest income and a 1.6 percent decline in net interest income. The increase in noninterest income over the first quarter of 2004 was driven by favorable variances in the majority of fee income categories, partially offset by a $59 million increase in losses on the sale of securities. The expansion of the Company’s merchant acquiring business in Europe accounted for approximately $26 million of the favorable change in noninterest income year-over-year. The 1.6 percent decline in net interest income reflected modest growth in average earning assets, offset by lower net interest margins. Average earning assets for the first quarter of 2005 increased over the same period of 2004 by $6.9 billion (4.2 percent), primarily driven by increases in retail loans and commercial loans, partially offset by a decline in investment securities. The net interest margin in the first quarter of 2005 was 4.08 percent, compared with 4.29 percent in the first quarter of 2004. The decline in the net interest margin reflected the current lending environment, asset/liability management decisions and the impact of changes in the yield curve from a year ago.

Total noninterest expense was $1,331 million for the first quarter of 2005, compared with $1,455 million for the first quarter of 2004. The year-over-year decrease in total noninterest expense of $124 million (8.5 percent), primarily reflected the $163 million favorable change in the valuation of mortgage servicing rights and the $35 million debt prepayment expense that was taken in the first quarter of 2004. The expansion of the Company’s merchant acquiring business in Europe added approximately $31 million of expense. In addition, expenses reflected incremental investments in in-store branches, marketing initiatives, technology and higher pension costs from a year ago. The efficiency ratio (the ratio of noninterest expense to taxable-equivalent net revenue excluding net securities gains or losses) was 41.7 percent for the first quarter of 2005, compared with 47.0 percent for the first quarter of 2004.

The provision for credit losses for the first quarter of 2005 was $172 million, a decrease of $63 million (26.8 percent) from the first quarter of 2004. The decrease in the provision for credit losses year-over-year reflected a decrease in total net charge-offs. Net charge-offs in the first quarter of 2005 were $172 million, compared with $234 million in the first quarter of 2004. The decline in losses from a year ago was primarily the result of declining levels of stressed and nonperforming loans, continuing collection efforts and improving economic conditions. 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 $1,751 million in the first quarter of 2005, compared with $1,779 million in the first quarter of 2004, a decrease of $28 million (1.6 percent). The decline in net interest income reflected modest growth in average earning assets, more than offset by


U.S. Bancorp	3

lower net interest margins. Average earning assets in the first quarter of 2005 increased over the first quarter of 2004 by $6.9 billion (4.2 percent), primarily driven by increases in retail loans and commercial loans, partially offset by a decline in investment securities. The net interest margin in the first quarter of 2005 was 4.08 percent, compared with 4.29 percent in the first quarter of 2004. The decline in the net interest margin reflected the current lending environment, asset/liability management decisions and the impact of changes in the yield curve from a year ago. Since the first quarter of 2004, credit spreads have tightened by approximately 14 basis points across most lending products due to competitive pricing and a higher proportion of lower spread credit products. The net interest margin also declined due to higher short-term rates and asset/liability decisions designed to maintain a neutral rate risk position, including a 40 percent reduction in the net receive fixed swap position between March 31, 2004, and March 31, 2005. Lower prepayment fees also contributed to the year-over-year decline. Increases in the value of deposits and net free funds helped to partially offset these factors.

Average loans for the first quarter of 2005 were $8.8 billion (7.4 percent) higher than the first quarter of 2004, driven by growth in average retail loans of $3.8 billion (9.5 percent), residential mortgages of $2.2 billion (16.3 percent) and total commercial loans of $2.5 billion (6.4 percent). Total commercial real estate loans also increased slightly year-over-year by $394 million (1.5 percent) relative to the first quarter of 2004.

Average investment securities in the first quarter of 2005 were $1.9 billion (4.3 percent) lower than in the first quarter of 2004. The decline principally reflected the repositioning of the investment portfolio in mid-2004 as part of asset/liability risk management decisions to acquire variable-rate and shorter-term fixed-rate securities while selling more longer-term fixed-rate mortgage-backed securities. During the first quarter of 2005, the Company retained its mix of approximately 39 percent variable-rate securities while investing in some principal-only and fixed-rate securities to economically hedge the MSR portfolio against a flattening yield curve. Refer to the “Interest Rate Risk Management” section for further information on the sensitivity of net interest income to changes in interest rates.

Average noninterest-bearing deposits for the first quarter of 2005 were lower than the first quarter of 2004 by $608 million (2.1 percent). The year-over-year change in the average balance of noninterest-bearing deposits was impacted by product changes in the Consumer Banking business line. In late 2004, the Company migrated approximately $1.3 billion of noninterest-bearing deposit balances to interest checking


Table 2		Analysis of Net Interest Income


		Three Months Ended
		March 31,

(Dollars in Millions)		2005			2004			Change

Components of net interest income
	Income on earning assets (taxable-equivalent basis) (a)	$	2,442		$	2,265		$	177
	Expense on interest-bearing liabilities		691			486			205

Net interest income (taxable-equivalent basis)		$	1,751		$	1,779		$	(28	)

Net interest income, as reported		$	1,744		$	1,772		$	(28	)

Average yields and rates paid
	Earning assets yield (taxable-equivalent basis)		5.69	%		5.47	%		.22	%
	Rate paid on interest-bearing liabilities		1.97			1.45			.52

Gross interest margin (taxable-equivalent basis)			3.72	%		4.02	%		(.30	)%

Net interest margin (taxable-equivalent basis)			4.08	%		4.29	%		(.21	)%

Average balances
	Investment securities	$	42,813		$	44,744		$	(1,931	)
	Loans		127,654			118,810			8,844
	Earning assets		173,294			166,359			6,935
	Interest-bearing liabilities		142,052			134,966			7,086
	Net free funds (b)		31,242			31,393			(151	)


(a)		Interest and rates are presented on a fully taxable-equivalent basis utilizing a tax rate of 35 percent.
(b)		Represents noninterest-bearing deposits, allowance for loan losses, unrealized gain (loss) on available-for-sale securities, non-earning assets, other noninterest-bearing liabilities and equity.


4	U.S. Bancorp

accounts as an enhancement to its Silver Elite Checking product. Average branch-based noninterest-bearing deposits in the first quarter of 2005, excluding the migration of certain high-value customers to Silver Elite Checking, were higher by approximately $599 million (5.4 percent) over the same quarter of 2004. Average noninterest-bearing deposits in other areas, including commercial banking, private client, corporate trust, and mortgage, also increased year-over-year. These favorable variances were offset, however, by expected declines in average noninterest-bearing deposits in corporate banking as business customers utilized their excess liquidity.

Average total savings products declined year-over-year by $1.9 billion (3.0 percent), principally due to a reduction in average money market account balances, partially offset by higher interest checking and savings accounts balances. Average branch-based interest checking deposits increased by $2.6 billion (18.0 percent) over the same quarter of 2004, in part, due to the change in the Silver Elite Checking product, as well as new account growth. Average branch-based interest checking deposits, excluding Silver Elite Checking, were higher by approximately $1.3 billion (9.2 percent) year-over-year. This positive variance in branch-based interest checking account deposits was partially offset by reductions in other areas, including broker dealer and institutional trust. Average money market account balances declined by $4.1 billion (12.0 percent) year-over-year, with the largest declines in government banking, national corporate banking, and the branches. These reductions were partially offset by strong growth in corporate trust deposits. The overall decrease in average money market account balances year-over-year was the result of the Company’s deposit pricing decisions in selected markets, given modest loan growth and excess liquidity throughout 2004. A portion of the money market balances migrated to time deposits greater than $100,000 as rates increased on the time deposit products.

Average time certificates less than $100,000 were lower in the first quarter of 2005 than the first quarter of 2004 by $640 million (4.7 percent), as older, higher rate certificates continued to mature. This reduction was more than offset by an increase year-over-year of average time deposits greater than $100,000, most notably in corporate banking.

Provision for Credit Losses The provision for credit losses was $172 million for the first quarter of 2005, and $235 million for the first quarter of 2004, a year-over-year decrease of $63 million (26.8 percent). The decrease in the provision for credit losses year-over-year reflected a decrease in total net charge-offs. Net charge-offs in the first quarter of 2005 were $172 million, compared with $234 million in the first quarter of 2004. The decline in losses from a year ago was primarily the result of declining levels of stressed and nonperforming loans, continuing collection efforts and improving economic conditions. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income in the first quarter of 2005 was $1,382 million, compared with $1,318 million in the first quarter of 2004. The increase in noninterest income of $64 million (4.9 percent), was driven by favorable variances in the majority of fee income categories, partially offset by a $59 million increase in losses on the sale of securities.

Credit and debit card revenue and corporate payment products revenue were both higher in the first quarter of 2005 than the first quarter of 2004 by $12 million, or 8.5 percent and 12.6 percent, respectively. The growth in credit and debit card revenue was driven by higher transaction volumes and rate changes. The corporate payment products revenue growth reflected growth in sales, card usage, rate changes and the recent acquisition of a small aviation card business. ATM processing services revenue was higher by $5 million (11.9 percent) in the first quarter of 2005 than the same quarter of the prior year due to increases in transaction volumes and sales. Merchant processing services revenue was higher in the first quarter of 2005 than the same quarter of 2004 by $37 million (26.2 percent), reflecting an increase in same store sales volume, new business, higher equipment fees, and the recent expansion of the Company’s merchant acquiring business in Europe. The recent European acquisitions accounted for approximately $26 million of the total increase . Deposit service charges were higher year-over-year by $25 million (13.5 percent) due to account growth, revenue enhancement initiatives and higher transaction-related fees. The favorable variance year-over-year in mortgage banking revenue of $8 million (8.5 percent) was primarily due to higher loan servicing revenue. Other income was higher by $51 million (49.5 percent), primarily due to higher income from equity investments relative to the same quarter of 2004. Partially offsetting these positive variances year-over-year were commercial products revenue, treasury management fees and trust and investment management fees, which declined by


U.S. Bancorp	5

$14 million (12.7 percent), $11 million (9.3 percent), and $2 million (.8 percent), respectively. Commercial products revenue declined due to reductions in loan syndication fees and leasing revenues. The decrease in treasury management fees was primarily due to higher earnings credit on customers’ compensating balances. Trust and investment management fees declined as revenues generated by favorable equity market valuations and core balance growth were more than offset by a change in the mix of fund balances and customers’ migration from paying for services with fees to paying with compensating balances.

Noninterest Expense Noninterest expense in the first quarter of 2005 was $1,331 million, compared with $1,455 million in the first quarter of 2004. The decrease of $124 million (8.5 percent) was primarily driven by the $163 million favorable change in the valuation of mortgage servicing rights, as well as the decrease of $35 million in debt prepayment charges relative to the first quarter of 2004. Offsetting these favorable variances were increases in compensation, employee benefits, professional services, marketing and business development, technology and communications, postage, printing and supplies and other expense. Included in the first quarter of 2005 was approximately $31 million related to the recent European merchant acquiring acquisitions completed during 2004. Compensation expense was higher year-over-year by $31 million (5.8 percent), principally due to business expansion of in-store branches, the expansion of the Company’s merchant acquiring business in Europe and other initiatives. Employee benefits increased year-over-year by $16 million (16.0 percent), primarily as a result of higher pension expense and payroll taxes. Professional services and marketing and business development were higher in the first quarter of 2005 than the first quarter of 2004 by $4 million (12.5 percent) and $8 million (22.9 percent), respectively, due to general growth in business activity and timing of marketing programs. Technology and communications expense rose by $4 million (3.9 percent), reflecting technology investments that increased software expense amortization, in addition to outside data processing. Other expense was higher in the first quarter than the same quarter of 2004 by $4 million (2.3 percent), primarily due to increases in loan-related expense, affordable housing operating costs and processing costs for payment services products, the result of increases in transaction volume year-over-year.


Table 3		Noninterest Income


		Three Months Ended
		March 31,

							Percent
(Dollars in Millions)		2005			2004		Change

Credit and debit card revenue		$	154		$	142		8.5	%
Corporate payment products revenue			107			95		12.6
ATM processing services			47			42		11.9
Merchant processing services			178			141		26.2
Trust and investment management fees			247			249		(.8	)
Deposit service charges			210			185		13.5
Treasury management fees			107			118		(9.3	)
Commercial products revenue			96			110		(12.7	)
Mortgage banking revenue			102			94		8.5
Investment products fees and commissions			39			39		—
Securities losses, net			(59	)		—		*
Other			154			103		49.5

	Total noninterest income	$	1,382		$	1,318		4.9	%


*		Not meaningful


6	U.S. Bancorp

Income Tax Expense The provision for income taxes was $552 million (an effective rate of 34.0 percent) for the first quarter of 2005, compared with $392 million (an effective rate of 28.0 percent) for the first quarter of 2004. The first quarter of 2004 included a $90 million reduction in income tax expense related to the resolution of federal tax examinations covering substantially all of the Company’s legal entities for the years 1995 through 1999. For further information on income taxes, refer to Note 10 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans The Company’s total loan portfolio was $128.9 billion at March 31, 2005, compared with $126.3 billion at December 31, 2004, an increase of $2.6 billion (2.1 percent). The increase in total loans was driven by growth in commercial loans, residential mortgages and to a lesser extent by retail loans. Commercial loans, including lease financing, totaled $41.5 billion at March 31, 2005, compared with $40.2 billion at December 31, 2004, an increase of $1.4 billion (3.4 percent). The increase in commercial loans was driven by new customer relationships, increases in corporate card balances and to a lesser extent, increased utilization under lines of credit by commercial customers. The Company’s portfolio of commercial real estate loans, which includes commercial mortgages and construction loans, was $27.4 billion at March 31, 2005, compared with $27.6 billion at December 31, 2004.

Residential mortgages held in the loan portfolio were $16.6 billion at March 31, 2005, compared with $15.4 billion at December 31, 2004, an increase of $1.2 billion (7.8 percent) from December 31, 2004. The increase in residential mortgages was primarily the result of an increase in consumer finance originations and asset/liability risk management decisions to retain a greater portion of the Company’s adjustable-rate loan production.

Total retail loans outstanding, which include credit card, retail leasing, home equity and second mortgages and other retail loans, were $43.4 billion at March 31, 2005, compared with $43.2 billion at December 31, 2004. The growth of $.2 billion was driven primarily by an increase in installment and student loans, partially offset by reduced credit card activity due to seasonality.

Loans Held for Sale Loans held for sale, consisting of residential mortgages to be sold in the secondary market, were $1.6 billion at March 31, 2005, compared with $1.4 billion at December 31, 2004. The increase of $.2 billion (13.6 percent) was primarily due to stronger mortgage banking activities caused by a mid-quarter decline in interest rates and the timing of loan originations and sales during the first quarter of 2005.

Investment Securities At March 31, 2005, investment securities, both available-for-sale and held-to-maturity, totaled $43.1 billion, compared with $41.5 billion at December 31, 2004. The $1.6 billion (3.9 percent) increase primarily reflected purchases of $6.6 billion of securities, partially offset by sales, along with maturities and prepayments. During the quarter, securities transactions were principally related to asset/liability management decisions intended to maintain a substantively neutral interest rate risk position. As of March 31, 2005, and December 31, 2004, approximately 39 percent of the investment securities


Table 4		Noninterest Expense


		Three Months Ended
		March 31,

								Percent
(Dollars in Millions)		2005			2004			Change

Compensation		$	567		$	536			5.8	%
Employee benefits			116			100			16.0
Net occupancy and equipment			154			156			(1.3	)
Professional services			36			32			12.5
Marketing and business development			43			35			22.9
Technology and communications			106			102			3.9
Postage, printing and supplies			63			62			1.6
Other intangibles			71			226			(68.6	)
Debt prepayment			—			35			*
Other			175			171			2.3

	Total noninterest expense	$	1,331		$	1,455			(8.5	)%

Efficiency ratio (a)			41.7	%		47.0	%


*		Not meaningful
(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.


U.S. Bancorp	7

portfolio represented adjustable-rate financial instruments. Adjustable-rate financial instruments include variable-rate collateralized mortgage obligations, mortgage-backed securities, agency securities, adjustable-rate money market accounts and asset-backed securities.

Deposits Total deposits were $119.7 billion at March 31, 2005, compared with $120.7 billion at December 31, 2004, a decrease of $1.0 billion (.8 percent). The decrease in total deposits was primarily the result of declines in non-interest bearing deposits and money market accounts, partially offset by increases in time deposits greater than $100,000, time


Table 5		Investment Securities


			Available-for-Sale									Held-to-Maturity

							Weighted-									Weighted-
							Average		Weighted-							Average		Weighted-
			Amortized		Fair		Maturity in		Average			Amortized		Fair		Maturity in		Average
March 31, 2005 (Dollars in Millions)			Cost		Value		Years		Yield (c)			Cost		Value		Years		Yield (c)

U.S. Treasury and agencies
	Maturing in one year or less		$	145	$	145		.34		2.97	%	$	—	$	—		—		—	%
	Maturing after one year through five years			52		53		3.05		5.21			—		—		—		—
	Maturing after five years through ten years			26		27		7.44		4.94			—		—		—		—
	Maturing after ten years			—		—		—		—			—		—		—		—

		Total	$	223	$	225		1.80		3.71	%	$	—	$	—		—		—	%

Mortgage-backed securities (a)
	Maturing in one year or less		$	1,037	$	1,040		.55		4.39	%	$	—	$	—		—		—	%
	Maturing after one year through five years			22,194		21,777		3.90		4.40			10		10		3.05		5.04
	Maturing after five years through ten years			17,929		17,590		6.71		4.67			—		—		—		—
	Maturing after ten years			1,233		1,241		13.85		4.21			—		—		—		—

		Total	$	42,393	$	41,648		5.30		4.51	%	$	10	$	10		3.05		5.04	%

Asset-backed securities (a)
	Maturing in one year or less		$	30	$	30		.58		5.61	%	$	—	$	—		—		—	%
	Maturing after one year through five years			15		15		1.76		5.36			—		—		—		—
	Maturing after five years through ten years			—		—		—		—			—		—		—		—
	Maturing after ten years			—		—		—		—			—		—		—		—

		Total	$	45	$	45		.97		5.53	%	$	—	$	—		—		—	%

Obligations of state and political subdivisions
	Maturing in one year or less		$	78	$	79		.44		7.32	%	$	2	$	3		.55		6.77	%
	Maturing after one year through five years			85		88		2.47		7.23			33		34		2.49		6.51
	Maturing after five years through ten years			6		6		6.36		7.69			21		23		7.28		7.24
	Maturing after ten years			1		1		17.50		5.25			37		38		15.47		6.74

		Total	$	170	$	174		1.76		7.28	%	$	93	$	98		8.72		6.77	%

Other debt securities
	Maturing in one year or less		$	265	$	264		.10		2.21	%	$	3	$	3		.37		6.75	%
	Maturing after one year through five years			71		72		2.35		12.99			11		11		2.75		5.81
	Maturing after five years through ten years			—		—		—		—			4		4		5.31		3.21
	Maturing after ten years			499		494		22.10		3.56			—		—		—		—

		Total	$	835	$	830		13.44		3.94	%	$	18	$	18		2.90		5.39	%

Other investments			$	62	$	60		—		—	%	$	—	$	—		—		—	%

Total investment securities (b)			$	43,728	$	42,982		5.42		4.50	%	$	121	$	126		7.38		6.42	%


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

(b)	The weighted average maturity of the available-for-sale investment securities was 4.45 years at December 31, 2004, with a corresponding weighted-average yield of 4.43%. The weighted-average maturity of the held-to-maturity investment securities was 6.19 years at December 31, 2004, with a corresponding weighted-average yield of 6.28%.

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


		March 31, 2005					December 31, 2004

		Amortized		Percent			Amortized		Percent
(Dollars in Millions)		Cost		of Total			Cost		of Total

U.S. Treasury and agencies		$	223		.5	%	$	684		1.6	%
Mortgage-backed securities			42,403		96.7			39,820		95.4
Asset-backed securities			45		.1			64		.2
Obligations of state and political subdivisions			263		.6			303		.7
Other securities and investments			915		2.1			881		2.1

	Total investment securities	$	43,849		100.0	%	$	41,752		100.0	%


8	U.S. Bancorp

certificates of deposit less than $100,000 and savings products.

Noninterest-bearing deposits were $28.9 billion at March 31, 2005, compared with $30.8 billion at December 31, 2004, a decrease of $1.9 billion (6.1 percent), primarily due to seasonality of corporate trust deposits and declining corporate banking deposits.

Interest-bearing deposits totaled $90.8 billion at March 31, 2005, compared with $90.0 billion at December 31, 2004, an increase of $.9 billion (.9 percent). The increase in interest-bearing deposits was primarily due to increases in time deposits greater than $100,000 of $1.0 billion (5.8 percent), along with increases in time certificates of deposit less than $100,000 of $.4 billion (2.9 percent) and savings accounts of $.2 billion (3.0 percent). The Company also experienced growth in interest checking deposits. These increases were partially offset by a decrease of $.8 billion (2.5 percent) in money market accounts. Time deposits greater than $100,000 are largely viewed as purchased funds and are managed to levels deemed appropriate given alternative funding sources. The decrease in money market savings account balances reflects the Company’s deposit pricing decisions in selected markets, given modest loan growth and excess liquidity and a migration of some customer balances to time deposits.

Borrowings The Company utilizes both short-term and long-term borrowings to fund growth of earning assets in excess of deposit growth. Short-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, were $14.3 billion at March 31, 2005, compared with $13.1 billion at December 31, 2004. Short-term funding is managed to levels deemed appropriate given alternative funding sources. The increase of $1.2 billion in short-term borrowings reflected wholesale funding associated with the Company’s earning asset growth. Long-term debt was $38.1 billion at March 31, 2005, compared with $34.7 billion at December 31, 2004, an increase of $3.3 billion. The increase in long-term debt was primarily driven by the issuance of $2.7 billion of bank notes and the addition of $2.0 billion of Federal Home Loan Bank (“FHLB”) advances, partially offset by long-term debt maturities of $2.0 billion. 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, operational, interest rate, market and liquidity risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Residual 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. Rate movements 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 equity 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 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. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and management reviews of loans experiencing deterioration of credit quality. The credit risk management strategy also includes a credit risk assessment process, independent of business line managers, that performs assessments of compliance with commercial and consumer credit policies, risk ratings, and other critical credit information. The Company strives to identify potential problem loans early, take any necessary charge-offs promptly and maintain adequate reserve levels for probable loan losses inherent in the portfolio. Commercial banking operations rely on a strong credit culture that combines prudent credit policies and individual lender accountability. Lenders are assigned lending grades based on their level of experience and customer service requirements. Lending grades represent the level of approval authority for the amount of credit exposure and level of risk. Credit officers reporting to an


U.S. Bancorp	9

independent credit administration function have higher levels of lending grades and support the business units in their credit decision process. Loan decisions are documented as to the borrower’s business, purpose of the loan, evaluation of the repayment source and the associated risks, evaluation of collateral, covenants and monitoring requirements, and risk rating rationale. The Company utilizes a credit risk rating system to measure the credit quality of individual commercial loan transactions. The Company uses the risk rating system for regulatory reporting, determining the frequency of review of the credit exposures, and evaluation and determination of specific allowance for commercial credit losses. The Company regularly forecasts potential changes in risk ratings, nonperforming status and potential for loss and the estimated impact on the allowance for credit losses. In the Company’s retail banking operations, standard credit scoring systems are used to assess credit risks of consumer, small business and small-ticket leasing customers and to price consumer products accordingly. The Company conducts the underwriting and collections of its retail products in loan underwriting and servicing centers specializing in certain retail products. Forecasts of delinquency levels, bankruptcies and losses in conjunction with projection of estimated losses by delinquency categories and vintage information are regularly prepared and are used to evaluate underwriting and collection and determine the specific allowance for credit losses for these products. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments. The Company also engages in non-lending activities that may give rise to credit risk, including interest rate swap and option contracts for balance sheet hedging purposes, foreign exchange transactions, deposit overdrafts and interest rate swap contracts for customers, and settlement risk, including Automated Clearing House transactions, and the processing of credit card transactions for merchants. These activities are also subject to credit review, analysis and approval processes.

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. Economic conditions during the first quarter of 2005 have improved from the first quarter of 2004, as reflected in improved unemployment rates and bankruptcy levels, favorable trends related to corporate profits and consumer spending for retail goods and services. Relative to December 31, 2004, economic conditions are relatively unchanged with somewhat higher energy costs and some increasing inflationary trends. The Federal Reserve Bank continued its measured approach to increasing short-term interest rates in an effort to prevent an acceleration of inflation and maintain the current rate of economic growth.

Analysis of Nonperforming Assets The level of nonperforming assets represents an indicator, among other considerations, of the potential for future credit losses. Nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms and other real estate and other nonperforming assets owned by the Company. Interest payments collected from assets on nonaccrual status are typically applied against the principal balance and not recorded as income. At March 31, 2005, total nonperforming assets were $665 million, compared with $748 million at December 31, 2004. The ratio of total nonperforming assets to total loans and other real estate decreased to .52 percent at March 31, 2005, compared with .59 percent at December 31, 2004. While nonperforming assets are expected to continue to decline slightly during the next few quarters, the ongoing level of nonperforming assets is not expected to decline much further after mid-2005.


10	U.S. Bancorp


Table 6		Nonperforming Assets (a)


				March 31,			December 31,
(Dollars in Millions)				2005			2004

Commercial
	Commercial			$	254		$	289
	Lease financing				70			91

		Total commercial			324			380
Commercial real estate
	Commercial mortgages				159			175
	Construction and development				21			25

		Total commercial real estate			180			200
Residential mortgages					41			43
Retail
	Retail leasing				—			—
	Other retail				16			17

		Total retail			16			17

			Total nonperforming loans		561			640
Other real estate					66			72
Other assets					38			36

			Total nonperforming assets	$	665		$	748

Restructured loans accruing interest (b)				$	7		$	10
Accruing loans 90 days or more past due				$	285		$	294
Nonperforming loans to total loans					.44	%		.51	%
Nonperforming assets to total loans plus other real estate					.52	%		.59	%

Changes in Nonperforming Assets


					Commercial and			Retail and
					Commercial			Residential
(Dollars in Millions)					Real Estate			Mortgages (d)			Total

Balance December 31, 2004					$	619		$	129		$	748
	Additions to nonperforming assets
		New nonaccrual loans and foreclosed properties				73			10			83
		Advances on loans				20			—			20

			Total additions			93			10			103
	Reductions in nonperforming assets
		Paydowns, payoffs				(69	)		(11	)		(80	)
		Net sales				(23	)		—			(23	)
		Return to performing status				(25	)		(4	)		(29	)
		Charge-offs (c)				(53	)		(1	)		(54	)

			Total reductions			(170	)		(16	)		(186	)

				Net reductions in nonperforming assets		(77	)		(6	)		(83	)

Balance March 31, 2005					$	542		$	123		$	665


(a)		Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)		Nonaccrual restructured loans are included in the respective nonperforming loan categories and excluded from restructured loans accruing 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.


U.S. Bancorp	11

The Company had restructured loans of $58 million at March 31, 2005, compared with $68 million at December 31, 2004. Commitments to lend additional funds under restructured loans were $2 million as of March 31, 2005, compared with $12 million as of December 31, 2004. Restructured loans performing under the restructured terms beyond a specific timeframe are reported as accruing. Of the Company’s total restructured loans at March 31, 2005, $7 million were reported as accruing.

Accruing loans 90 days or more past due totaled $285 million at March 31, 2005, compared with $294 million at December 31, 2004. These loans were 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 delinquent loans to total loans was .22 percent at March 31, 2005, compared with .23 percent at December 31, 2004.

To monitor credit risk associated with retail loans, the Company monitors delinquency ratios in the various stages of collection including nonperforming status.


Table 7		Delinquent Loan Ratios as a Percent of Ending Loan Balances


				March 31,			December 31,
90 days or more past due excluding nonperforming loans				2005			2004

Commercial
	Commercial				.06	%		.05	%
	Lease financing				—			.02

		Total commercial			.06			.05
Commercial real estate
	Commercial mortgages				—			—
	Construction and development				.07			—

		Total commercial real estate			.02			—
Residential mortgages					.41			.46
Retail
	Credit card				1.80			1.74
	Retail leasing				.04			.08
	Other retail				.24			.29

		Total retail			.43			.47

			Total loans		.22	%		.23	%


		March 31,			December 31,
90 days or more past due including nonperforming loans		2005			2004

Commercial			.84	%		.99	%
Commercial real estate			.68			.73
Residential mortgages (a)			.66			.74
Retail			.47			.51

	Total loans		.66	%		.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 was 4.68 percent at March 31, 2005, and 5.19 percent at December 31, 2004.


12	U.S. Bancorp

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


								As a Percent of Ending
				Amount				Loan Balances

				March 31,		December 31,		March 31,			December 31,
(Dollars in Millions)				2005		2004		2005			2004

Residential mortgages
		30-89 days		$	86	$	108		.52	%		.70	%
		90 days or more			68		70		.41			.46
		Nonperforming			41		43		.25			.28

			Total	$	195	$	221		1.18	%		1.44	%

Retail
	Credit card
		30-89 days		$	136	$	142		2.17	%		2.15	%
		90 days or more			113		115		1.80			1.74
		Nonperforming			—		—		—			—

			Total	$	249	$	257		3.97	%		3.89	%
	Retail leasing
		30-89 days		$	44	$	59		.61	%		.83	%
		90 days or more			3		6		.04			.08
		Nonperforming			—		—		—			—

			Total	$	47	$	65		.65	%		.91	%
	Other retail
		30-89 days		$	199	$	224		.67	%		.76	%
		90 days or more			72		84		.24			.29
		Nonperforming			16		17		.05			.05

			Total	$	287	$	325		.96	%		1.10	%

In general, delinquency ratios for retail loans continued to improve relative to December 31, 2004, reflecting current economic conditions and ongoing risk management and underwriting practices of the Company. The slight increase in credit card delinquencies principally reflects seasonal impacts subsequent to the holidays.

Analysis of Loan Net Charge-Offs Total loan net charge-offs decreased $62 million to $172 million in the first quarter of 2005, compared with $234 million in the first quarter of 2004. The ratio of total loan net charge-offs to average loans was .55 percent in the first quarter of 2005, compared with .79 percent in the first quarter of 2004. The overall level of net charge-offs in the first quarter of 2005 reflected the Company’s ongoing efforts to reduce the overall risk profile of the organization and the stable economic conditions.

Commercial and commercial real estate loan net charge-offs for the first quarter of 2005 were $33 million (.20 percent of average loans outstanding), compared with $84 million (.51 percent of average loans outstanding) in the first quarter of 2004. The year-over-year improvement from the first quarter of 2004 was broad-based across most industries within the commercial loan portfolio.

Retail loan net charge-offs for the first quarter of 2005 were $130 million (1.22 percent of average loans outstanding), compared with $143 million (1.45 percent of average loans outstanding) for the first quarter of 2004. Lower levels of retail loan net charge-offs principally reflected the Company’s ongoing improvement in collection efforts and risk management.


U.S. Bancorp	13

Table 8 Net Charge-offs as a Percent of Average Loans Outstanding


				Three Months Ended
				March 31,

				2005			2004

Commercial
	Commercial				.16	%		.65	%
	Lease financing				1.07			1.72

		Total commercial			.27			.78
Commercial real estate
	Commercial mortgages				.08			.08
	Construction and development				.11			.31

		Total commercial real estate			.09			.13
Residential mortgages					.23			.21
Retail
	Credit card				4.11			4.31
	Retail leasing				.45			.71
	Home equity and second mortgages				.46			.60
	Other retail				1.09			1.40

		Total retail			1.22			1.45

			Total loans		.55	%		.79	%

The Company’s retail lending business utilizes several distinct business processes and channels to originate retail credit including traditional branch credit, indirect lending and a consumer finance division. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles. Within Consumer Banking, U.S. Bank Consumer Finance (“USBCF”) participates in all facets of the Company’s consumer lending activities. USBCF specializes in serving channel-specific and alternative lending markets in residential mortgages, home equity and installment loan financing. USBCF manages loans originated through a broker network, correspondent relationships and U.S. Bank branch offices. Generally, loans managed by the Company’s consumer finance division exhibit higher credit risk characteristics, but are priced commensurate with the differing risk profile.

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


	Average Loan				Percent of
	Amount				Average Loans
Three Months Ended March 31
(Dollars in Millions)	2005		2004		2005			2004

Consumer Finance (a)
Residential mortgages	$	5,121	$	4,178		.55	%		.39	%
Home equity and second mortgages		2,657		2,174		1.68			2.41
Other retail		382		402		5.31			5.00
Traditional Branch
Residential mortgages	$	10,706	$	9,432		.08	%		.13	%
Home equity and second mortgages		12,187		11,202		.20			.25
Other retail		14,485		13,711		.98			1.29
Total Company
Residential mortgages	$	15,827	$	13,610		.23	%		.21	%
Home equity and second mortgages		14,844		13,376		.46			.60
Other retail		14,867		14,113		1.09			1.40


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

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. The evaluation of each element and the overall allowance is based on a continuing assessment of problem loans, recent loss experience and other factors, including regulatory guidance and economic conditions. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments, which is included in other liabilities in the Consolidated Balance Sheet. Both the allowance for loan losses and the liability for unfunded credit commitments are included in the Company’s analysis of credit losses.


14	U.S. Bancorp

Table 9 Summary of Allowance for Credit Losses


					Three Months Ended
					March 31,

(Dollars in Millions)					2005			2004

Balance at beginning of period					$	2,269		$	2,369
Charge-offs
	Commercial
		Commercial				32			83
		Lease financing				23			32

			Total commercial			55			115
	Commercial real estate
		Commercial mortgages				6			9
		Construction and development				2			5

			Total commercial real estate			8			14
	Residential mortgages					10			8
	Retail
		Credit card				73			70
		Retail leasing				11			13
		Home equity and second mortgages				21			23
		Other retail				53			62

			Total retail			158			168

				Total charge-offs		231			305
Recoveries
	Commercial
		Commercial				18			29
		Lease financing				10			11

			Total commercial			28			40
	Commercial real estate
		Commercial mortgages				2			5
		Construction and development				—			—

			Total commercial real estate			2			5
	Residential mortgages					1			1
	Retail
		Credit card				8			7
		Retail leasing				3			2
		Home equity and second mortgages				4			3
		Other retail				13			13

			Total retail			28			25

				Total recoveries		59			71
Net Charge-offs
	Commercial
		Commercial				14			54
		Lease financing				13			21

			Total commercial			27			75
	Commercial real estate
		Commercial mortgages				4			4
		Construction and development				2			5

			Total commercial real estate			6			9
	Residential mortgages					9			7
	Retail
		Credit card				65			63
		Retail leasing				8			11
		Home equity and second mortgages				17			20
		Other retail				40			49

			Total retail			130			143

				Total net charge-offs		172			234

Provision for credit losses						172			235

Balance at end of period					$	2,269		$	2,370

Components
	Allowance for loan losses				$	2,082		$	2,186
	Liability for unfunded credit commitments					187			184

		Total allowance for credit losses			$	2,269		$	2,370

Allowance for credit losses as a percentage of
	Period-end loans					1.76	%		1.98	%
	Nonperforming loans					404			258
	Nonperforming assets					341			226
	Annualized net charge-offs					325			252


U.S. Bancorp	15

At March 31, 2005, the allowance for credit losses was $2,269 million (1.76 percent of loans), compared with an allowance of $2,269 million (1.80 percent of loans) at December 31, 2004. The ratio of the allowance for credit losses to nonperforming loans was 404 percent at March 31, 2005, compared with 355 percent at December 31, 2004. The ratio of the allowance for credit losses to annualized loan net charge-offs was 325 percent at March 31, 2005, compared with 296 percent at December 31, 2004.

Several factors were taken into consideration in evaluating the allowance for credit losses at March 31, 2005, including the risk profile of the portfolios and loan net charge-offs during the period, the level of nonperforming assets, the accruing loans 90 days or more past due, and delinquency ratios in most loan categories compared with December 31, 2004. Management also considered the uncertainty related to certain industry sectors, including the airline industry, and the extent of credit exposure to highly leveraged enterprise-value 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 mortgages balances, and their relative credit risk were evaluated compared with other banks. Finally, the Company considers current economic conditions that might impact the portfolio.

Residual 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 asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. Commercial lease originations are subject to the same well-defined underwriting standards referred to in the “Credit Risk Management” section which includes an evaluation of the residual risk. Retail lease residual risk is mitigated further by originating longer-term vehicle leases and effective end-of-term marketing of off-lease vehicles. Also, to reduce the financial risk of potential changes in vehicle residual values, the Company maintains residual value insurance. The catastrophic insurance maintained by the Company provides for the potential recovery of losses on individual vehicle sales in an amount equal to the difference between: (a) 105 percent or 110 percent of the average wholesale auction price for the vehicle at the time of sale and (b) the vehicle residual value specified by the Automotive Lease Guide (an authoritative industry source) at the inception of the lease. The potential recovery is calculated for each individual vehicle sold in a particular policy year and is reduced by any gains realized on vehicles sold during the same period. The Company will receive claim proceeds under this insurance program if, in the aggregate, there is a net loss for such period. In addition, the Company obtains separate residual value insurance for all vehicles at lease inception where end-of-lease term settlement is based solely on the residual value of the individual leased vehicles. Under this program, the potential recovery is computed for each individual vehicle sold and does not allow the insurance carrier to offset individual determined losses with gains from other leases. This individual vehicle coverage is included in the calculation of minimum lease payments when making the capital lease assessment. To reduce the risk associated with collecting insurance claims, the Company monitors the financial viability of the insurance carrier based on insurance industry ratings and available financial information.

Included in the retail leasing portfolio was approximately $4.1 billion of retail leasing residuals at March 31, 2005, compared with $4.0 billion at December 31, 2004. At March 31, 2005, the commercial leasing portfolio had $739 million of residuals, compared with $769 million at December 31, 2004. No significant change in the concentration of the portfolios has occurred since December 31, 2004.

Operational Risk Management Operational risk represents the risk of loss resulting from the Company’s operations, including, but not limited to, the risk of fraud by employees or persons outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements and business continuation and disaster recovery. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.

The Company operates in many different businesses in diverse markets and relies on the ability of its employees and systems to process a high number of transactions. Operational risk is inherent in all business activities, and the management of this risk is important to the achievement of the Company’s objectives. In the event of a breakdown in the internal control system, improper operation of systems or improper employees’ actions, the Company could suffer financial loss, face regulatory action and suffer damage to its reputation.


16	U.S. Bancorp

The Company manages operational risk through a risk management framework and its internal control processes. Within this framework, the Corporate Risk Committee (“Risk Committee”) provides oversight and assesses the most significant operational risks facing the Company within its business lines. Under the guidance of the Risk Committee, enterprise risk management personnel 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. Business managers maintain a system of controls with the objective of providing proper transaction authorization and execution, proper system operations, safeguarding of assets from misuse or theft, and ensuring the reliability of financial and other data. Business managers ensure that the controls are appropriate and are implemented as designed.

Each business line within the Company has designated risk managers. These risk managers are responsible for, among other things, coordinating the completion of ongoing risk assessments and ensuring that operational risk management is integrated into business decision-making activities. Business continuation and disaster recovery planning are also critical to effectively manage operational risks. Each business unit of the Company is required to develop, maintain and test these plans at least annually to ensure that recovery activities, if needed, can support mission critical functions including technology, networks and data centers supporting customer applications and business operations. The Company’s internal audit function validates the system of internal controls through risk-based, regular and ongoing audit procedures and reports on the effectiveness of internal controls to executive management and the Audit Committee of the Board of Directors.

Customer-related business conditions may also increase operational risk or the level of operational losses in certain transaction processing business units, including merchant processing activities. Ongoing risk monitoring of customer activities and their financial condition and operational processes serve to mitigate customer-related operational risk. Refer to Note 11 of the Notes to Consolidated Financial Statements for further discussion on merchant processing.

While the Company believes that it has designed effective methods to minimize operational risks, there is no absolute assurance that business disruption or operational losses would not occur in the event of a disaster. On an ongoing basis, management makes process changes and investments to enhance its systems of internal controls and business continuity and disaster recovery plans.

Interest Rate Risk Management In the banking industry, changes in interest rates is a significant risk that can impact earnings, market valuations and safety and soundness of the entity. To minimize the volatility of net interest income and of 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 One of the primary tools used to measure interest rate risk and the effect of interest rate changes on rate sensitive income and net interest income is simulation analysis. The monthly analysis incorporates substantially all of the Company’s assets and liabilities and off-balance sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through these simulations, management estimates the impact on interest rate sensitive income of a 300 basis point upward or downward gradual change of market interest rates over a one-year period. The simulations also estimate the effect of immediate and sustained parallel shifts in the yield curve of 50 basis points as well as the effect of immediate and sustained flattening or steepening of the yield curve. These simulations include assumptions about how the balance sheet is likely to be affected by changes in loan and deposit growth. Assumptions are made to project interest rates for new loans and deposits based on historical analysis, management’s outlook and repricing strategies. These assumptions are validated on a periodic basis. A sensitivity analysis is provided for key variables of the simulation. The results are reviewed by ALPC monthly and are used to guide hedging strategies. ALPC policy guidelines limit the estimated change in interest rate sensitive income to 5.0 percent of forecasted interest rate sensitive income over the succeeding 12 months.


U.S. Bancorp	17

Sensitivity of Net Interest Income and Rate Sensitive Income


	March 31, 2005												December 31, 2004

	Down 50			Up 50			Down 300			Up 300			Down 50			Up 50			Down 300			Up 300
	Immediate			Immediate			Gradual			Gradual			Immediate			Immediate			Gradual			Gradual

Net interest income		(.04)	%		(.18)	%		*	%		(.72)	%		(.49)	%		.04	%		*	%		(.19)	%
Rate sensitive income		.05	%		(.35)	%		*	%		(1.23	)%		(.40)	%		(.13)	%		*	%		(.69)	%


*		Given the current level of interest rates, a downward 300 basis point scenario can not be computed.

The table above summarizes the interest rate risk of net interest income and rate sensitive income based on forecasts over the succeeding 12 months. At March 31, 2005, the Company’s overall interest rate risk position was slightly liability sensitive to changes in interest rates. Rate sensitive income includes net interest income as well as other income items that are sensitive to interest rates, including asset management fees, mortgage banking and the impact from compensating deposit balances. The Company manages its interest rate risk position by holding assets on the balance sheet with desired interest rate risk characteristics, implementing certain pricing strategies for loans and deposits and through the selection of derivatives and various funding and investment portfolio strategies. The Company manages the overall interest rate risk profile within policy limits. At March 31, 2005, and December 31, 2004, the Company was within its policy guidelines.

Market Value of Equity Modeling The Company also utilizes the market value of equity as a measurement tool in managing interest rate sensitivity. The market value of equity 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 guidelines limit the change in market value of equity in a 200 basis point parallel rate shock to 15 percent of the market value of equity assuming interest rates at March 31, 2005. The up 200 basis point scenario resulted in a 4.0 percent decrease in the market value of equity at March 31, 2005, compared with a 2.7 percent decrease at December 31, 2004. The down 200 basis point scenario resulted in a 2.5 percent decrease in the market value of equity at March 31, 2005, compared with a 4.2 percent decrease at December 31, 2004. At March 31, 2005, and December 31, 2004, the Company was within its policy guidelines.

The valuation analysis is dependent upon certain key assumptions about the nature of assets and liabilities with non-contractual maturities. Management estimates the average life and rate characteristics of asset and liability accounts based upon historical analysis and management’s expectation of rate behavior. These assumptions are validated on a periodic basis. A sensitivity analysis of key variables of the valuation analysis is provided to ALPC monthly and is used to guide hedging strategies. The results of the valuation analysis as of March 31, 2005, were well within policy guidelines. The Company also uses duration of equity as a measure of interest rate risk. The duration of equity is a measure of the net market value sensitivity of the assets, liabilities and derivative positions of the Company. The duration of assets was 1.74 years at March 31, 2005, compared with 1.68 years at December 31, 2004. The duration of liabilities was 1.96 years at March 31, 2005, compared with 2.02 years at December 31, 2004. After giving effect to the Company’s derivative positions and mortgage servicing valuation, the estimated duration of equity was 1.39 years at March 31, 2005, compared with .12 years at December 31, 2004. The duration of equity measure shows that sensitivity of the market value of equity of the Company was slightly liability sensitive to changes in interest rates.

Use of Derivatives to Manage Interest Rate Risk In the ordinary course of business, the Company enters into derivative transactions to manage its interest rate, prepayment and foreign currency risks (“asset and liability management positions”) and to accommodate the business requirements of its customers (“customer-related positions”). To manage its interest rate risk, the Company may enter into interest rate swap agreements and interest rate options such as caps and floors. Interest rate swaps involve the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. Interest rate caps protect against rising interest rates while interest rate floors protect against declining interest rates. In connection with its mortgage banking operations, the Company enters into forward commitments to sell mortgage loans related to fixed-rate mortgage loans held for sale and fixed-rate mortgage loan commitments. The Company also acts as a seller and buyer of interest rate contracts and foreign exchange rate contracts on behalf of customers. The Company minimizes its market and liquidity risks by taking similar offsetting positions.


18	U.S. Bancorp

All interest rate derivatives that qualify for hedge accounting are recorded at fair value as other assets or liabilities on the balance sheet and are designated as either “fair value” or “cash flow” hedges. The Company performs an assessment, both at inception and quarterly thereafter, when required, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged items. Hedge ineffectiveness for both cash flow and fair value hedges is recorded in noninterest income. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income until income from the cash flows of the hedged items is realized. Customer-related interest rate swaps, foreign exchange rate contracts, and all other derivative contracts that do not qualify for hedge accounting are recorded at fair value and resulting gains or losses are recorded in trading account gains or losses or mortgage banking revenue.

By their nature, derivative instruments are subject to market risk. The Company does not utilize derivative instruments for speculative purposes. Of the Company’s $39 billion of total notional amount of asset and liability management derivative positions at March 31, 2005, $35 billion was designated as either fair value or cash flow hedges. The cash flow hedge positions are interest rate swaps that hedge the forecasted cash flows from the underlying variable-rate LIBOR loans and floating-rate debt. The fair value hedges are primarily interest rate contracts that hedge the change in fair value related to interest rate changes of underlying fixed-rate debt and subordinated obligations. In addition, the Company uses forward commitments to


Table 10		Derivative Positions


				March 31, 2005							December 31, 2004

									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		$	21,395	$	13			5.33	$	20,070	$	379			5.25
		Pay fixed/receive floating swaps			12,475		124			1.25		10,775		56			1.42
		Futures and forwards			2,978		16			.12		2,262		(4	)		.12
		Options
			Written		1,509		—			.14		1,059		1			.15
	Foreign exchange forward contracts				240		3			.03		314		(12	)		.04
	Equity contracts				55		(3	)		4.05		53		4			4.29

Customer-related Positions

	Interest rate contracts
		Receive fixed/pay floating swaps		$	6,902	$	(29	)		4.83	$	6,708	$	76			4.67
		Pay fixed/receive floating swaps			6,858		66			4.83		6,682		(40	)		4.67
		Options
			Purchased		1,188		9			2.83		1,099		7			3.00
			Written		1,188		(9	)		2.83		1,099		(7	)		3.00
	Risk participation agreements (a)
		Purchased			138		—			6.88		137		—			7.13
		Written			98		—			3.43		84		—			2.93
	Foreign exchange rate contracts
		Forwards, spots and swaps
			Buy		2,323		61			.33		2,047		80			.31
			Sell		2,280		(55	)		.34		2,015		(76	)		.33
		Options
			Purchased		67		1			.44		77		1			.59
			Written		67		(1	)		.44		77		(1	)		.59


(a)		At March 31, 2005, the credit equivalent amount was $1 million and $9 million, compared with $1 million and $7 million at December 31, 2004, for purchased and written risk participation agreements, respectively.


U.S. Bancorp	19

sell residential mortgage loans to hedge its interest rate risk related to residential mortgage loans held for sale. The Company commits to sell the loans at specified prices in a future period, typically within 90 days. The Company is exposed to interest rate risk during the period between issuing a loan commitment and the sale of the loan into the secondary market. Related to its mortgage banking operations, the Company held $1.5 billion of forward commitments to sell mortgage loans and $1.5 billion of unfunded mortgage loan commitments 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 10.

Derivative instruments are also subject to credit risk associated with counterparties to the derivative contracts. Credit risk associated with derivatives is measured based on the replacement cost should the counterparties with contracts in a gain position to the Company fail to perform under the terms of the contract. The Company manages this risk through diversification of its derivative positions among various counterparties, requiring collateral agreements with credit-rating thresholds, entering into master netting agreements in certain cases and entering into interest rate swap risk participation agreements. These agreements are credit derivatives that transfer the credit risk related to interest rate swaps from the Company to an unaffiliated third-party. The Company also provides credit protection to third-parties with risk participation agreements, for a fee, as part of a loan syndication transaction.

At March 31, 2005, the Company had $38 million in accumulated other comprehensive income related to unrealized gains on derivatives classified as cash flow hedges. The unrealized gains will be reflected in earnings when the related cash flows or hedged transactions occur and will offset the related performance of the hedged items. The estimated amount of gain to be reclassified from accumulated other comprehensive income into earnings during the remainder of 2005 and the next 12 months is $35 million and $45 million, respectively.

Gains or losses on customer-related derivative positions were not material for the first quarter of 2005. The change in fair value of forward commitments attributed to hedge ineffectiveness recorded in noninterest income was an increase of $3 million for the first quarter of 2005. The change in the fair value of all other asset and liability management derivative positions attributed to hedge ineffectiveness was not material for the first quarter of 2005.

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 its capital volatility risk associated with fluctuations in foreign currency exchange rates. The net amount of gains or losses included in the cumulative translation adjustment for first quarter of 2005 was not material.

The notional amount of receive fixed/pay floating interest rate swaps was $21.4 billion at March 31, 2005, compared with $20.1 billion at December 31, 2004. The $1.3 billion increase was related to the issuance of new long-term debt instruments. However, the Company’s overall strategy is to continue to decrease the level of receive fixed/pay floating interest rate swaps. Table 10 summarizes information on the Company’s derivative positions at March 31, 2005, and December 31, 2004.

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. Business activities that contribute to market risk include, among other things, proprietary trading and foreign exchange positions. 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.

VaR modeling of trading activities is subject to certain limitations. Additionally, it should be recognized that there are assumptions and estimates associated with VaR modeling, and actual results could differ from those assumptions and estimates. The Company mitigates these uncertainties through regular monitoring of trading activities by management and other risk management practices, including stop-loss and position limits related to its trading activities. Stress-test models are used to provide management with perspectives on market events that VaR models do not capture.

The Company establishes market risk limits, subject to approval by the Company’s Board of Directors. The Company’s VaR limit was $20 million at March 31, 2005, and December 31, 2004. The market valuation risk inherent in its customer-based derivative trading, mortgage banking pipeline and foreign exchange, as estimated by the VaR analysis, was $1 million at March 31, 2005, compared with $2 million at December 31, 2004.


20	U.S. Bancorp

Liquidity Risk 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, such as high levels of deposit withdrawals or loan demand, in a timely and cost-effective manner. The most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable supply of core deposits and wholesale funds. Ultimately, public confidence is generated through profitable operations, sound credit quality and a strong capital position. The Company’s performance in these areas has enabled it to develop a large and reliable base of core funding within its market areas and in domestic and global capital markets. 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.

The Company maintains strategic liquidity and contingency plans that are subject to the availability of asset liquidity in the balance sheet. Monthly, ALPC reviews the Company’s ability to meet funding requirements due to adverse business events. These funding needs are then matched with specific asset-based sources to ensure sufficient funds are available. Also, strategic liquidity policies require diversification of wholesale funding sources to avoid concentrations in any one market source. Subsidiary banks are members of various Federal Home Loan Banks (“FHLB”) that provide a source of funding through FHLB advances. The Company maintains a Grand Cayman branch for issuing eurodollar time deposits. The Company also issues commercial paper through its Canadian branch. In addition, the Company establishes relationships with dealers to issue national market retail and institutional savings certificates and short- and medium-term bank notes. The Company’s subsidiary banks also have significant correspondent banking networks and corporate accounts. Accordingly, the Company has access to national fed funds, funding through repurchase agreements and sources of more stable, regionally-based certificates of deposit and commercial paper.

The Company’s ability to raise negotiated funding at competitive prices is influenced by rating agencies’ views of the Company’s credit quality, liquidity, capital and earnings. On January 18, 2005, Moody’s Investors Service upgraded the Company’s senior long-term debt rating to “Aa2” and U.S. Bank National Association’s long-term debt and deposit ratings to “Aa1.” At January 18, 2005, the credit ratings outlook for the Company was considered “Stable” by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

The parent company’s routine funding requirements consist primarily of operating expenses, dividends to shareholders, debt service, repurchases of common stock and funds used for acquisitions. The parent company obtains funding to meet its obligations from dividends collected from its subsidiaries and the issuance of debt securities.

At both March 31, 2005, and December 31, 2004, parent company long-term debt outstanding was $6.9 billion. During the first quarter of 2005, the parent company had issuances of $.3 billion of junior subordinated debentures, offset by medium-term note maturities of $.3 billion. Total parent company debt scheduled to mature in the remainder of 2005 is $1.1 billion. These debt obligations may be met through medium-term note issuances and dividends from subsidiaries, as well as from parent company cash and cash equivalents. 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 $1.7 billion at March 31, 2005.

Off-Balance Sheet Arrangements Off-balance sheet arrangements include any contractual arrangement to which an unconsolidated entity is a party, under which the Company has an obligation to provide credit or liquidity enhancements or market risk support. Off-balance sheet arrangements include certain defined guarantees, asset securitization trusts and conduits. Off-balance sheet arrangements also include any obligation under a variable interest held by an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support.

In the ordinary course of business, the Company enters into an array of commitments to extend credit, letters of credit, lease commitments and various forms of guarantees that may be considered off-balance sheet arrangements. The nature and extent of these arrangements are provided in Note 11 of the Notes to Consolidated Financial Statements.

Asset securitization and conduits represent a source of funding for the Company through off-balance sheet structures. Credit, liquidity, operational and legal structural risks exist due to the nature and complexity of asset securitizations and other off-balance sheet structures. ALPC regularly monitors the performance of each off-balance sheet structure in an effort to minimize these risks and ensure compliance with the requirements of the structures.


U.S. Bancorp	21

The Company utilizes its credit risk management systems to evaluate the credit quality of underlying assets and regularly forecasts cash flows to evaluate any potential impairment of retained interests. Also, regulatory guidelines require consideration of asset securitizations in the determination of risk-based capital ratios. The Company does not rely significantly on off-balance sheet arrangements for liquidity or capital resources.

The Company sponsors an off-balance sheet conduit to which it transferred high-grade investment securities, funded by the issuance of commercial paper. The conduit held assets of $5.2 billion at March 31, 2005, and $5.7 billion at December 31, 2004. These investment securities include primarily (i) private label asset-backed securities, which are insurance “wrapped” by AAA/Aaa-rated monoline insurance companies and (ii) government agency mortgage-backed securities and collateralized mortgage obligations. The conduit had commercial paper liabilities of $5.2 billion at March 31, 2005, and $5.7 billion at December 31, 2004. The Company provides a liquidity facility to the conduit. Utilization of the liquidity facility would be triggered if the conduit is unable to, or does not, issue commercial paper to fund its assets. A liability for the estimate of the potential risk of loss the Company has as the liquidity facility provider is recorded on the balance sheet in other liabilities. The liability is adjusted downward over time as the underlying assets pay down with the offset recognized as other noninterest income. The liability for the liquidity facility was $29 million at March 31, 2005, and $32 million at December 31, 2004. In addition, the Company recorded at fair value its retained residual interest in the investment securities conduit of $48 million at March 31, 2005, and $57 million at December 31, 2004.

The Company also has an asset-backed securitization to fund an unsecured small business credit product. The unsecured small business credit securitization trust held assets of $348 million at March 31, 2005, of which the Company retained $70 million of subordinated securities and a residual interest-only strip of $34 million. This compared with $375 million in assets at December 31, 2004, of which the Company retained $85 million of subordinated securities and a residual interest-only strip of $36 million. The securitization trust issued asset-backed variable funding notes in various tranches. The Company provides credit enhancement in the form of subordinated securities and reserve accounts. The Company’s risk, primarily from losses in the underlying assets, was considered in determining the fair value of the Company’s retained interests in this securitization. From this securitization, the Company recognizes income from subordinated securities, an interest-only strip and servicing fees, net of impairment. The Company recognized a loss of $1 million in the first quarter of 2005, compared with income of $6 million in the first quarter of 2004. The unsecured small business credit securitization held average assets of $364 million and $486 million in the first quarter of 2005 and 2004, respectively.

Capital Management The Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. The Company has targeted returning 80 percent of earnings to our shareholders through a combination of dividends and share repurchases. In keeping with this target, the Company returned 108 percent of earnings in the first quarter of 2005. The Company continually assesses its business risks and capital position. The Company also manages its capital to exceed regulatory capital requirements for well-capitalized bank holding companies. To achieve these capital goals, the Company employs a variety of capital management tools including dividends, common share repurchases, and the issuance of subordinated debt and other capital instruments. Total shareholders’ equity was $19.2 billion at March 31, 2005, compared with $19.5 billion at December 31, 2004. The decrease was the result of share buybacks and dividends offset by corporate earnings.

Tangible common equity to assets was 6.2 percent at March 31, 2005, compared with 6.4 percent at December 31, 2004. The Tier 1 capital ratio was 8.6 percent at both March 31, 2005, and December 31, 2004. The total risk-based capital ratio was 13.3 percent at March 31, 2005, compared with 13.1 percent at December 31, 2004. The leverage ratio was 7.9 percent at both March 31, 2005, and December 31, 2004. All regulatory ratios continue to be in excess of stated “well-capitalized” requirements.


Table 11		Capital Ratios


		March 31,			December 31,
(Dollars in Millions)		2005			2004

Tangible common equity		$	11,894		$	11,950
	As a percent of tangible assets		6.2	%		6.4	%
Tier 1 capital		$	14,943		$	14,720
	As a percent of risk-weighted assets		8.6	%		8.6	%
	As a percent of adjusted quarterly average assets (leverage ratio)		7.9	%		7.9	%
Total risk-based capital		$	23,099		$	22,352
	As a percent of risk-weighted assets		13.3	%		13.1	%


22	U.S. Bancorp

On December 21, 2004, the Board of Directors approved an authorization to repurchase 150 million shares of common stock during the next 24 months.

The following table provides a detailed analysis of all shares repurchased under this authorization during the first quarter of 2005:


	Number		Average		Remaining Shares
	of Shares		Price Paid		Available to be
Time Period	Purchased (a)		Per Share		Purchased

January		4,104,459	$	30.33		140,855,329
February		10,013,387		30.07		130,841,942
March		6,173,569		29.00		124,668,373

Total		20,291,415	$	29.80		124,668,373


(a)		All shares purchased during the first quarter of 2005 were purchased under the publicly announced December 21, 2004, repurchase authorization.

LINE OF BUSINESS FINANCIAL REVIEW

Within the Company, financial performance is measured by major lines of business, which include Wholesale Banking, Consumer Banking, Private Client, Trust and Asset Management, 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. Goodwill and other intangible assets are assigned to the lines of business based on the mix of business of the acquired entity. Funds transfer-pricing methodologies are utilized to allocate a cost of funds used or credit for funds provided to all business line assets and liabilities using a matched funding concept. Also, the business unit is allocated the taxable-equivalent benefit of tax-exempt products. Noninterest income and expenses directly managed by each business line, including fees, service charges, salaries and benefits, and other direct costs are accounted for within each segment’s financial results in a manner similar to the consolidated financial statements. Occupancy costs are allocated based on utilization of facilities by the lines of business. Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Certain corporate activities that do not directly support the operations of the lines of business are not charged to the lines of business. The provision for credit losses within the Wholesale Banking, Consumer Banking, Private Client, Trust and Asset Management and Payment Services lines of business is based on net charge-offs, while Treasury and Corporate Support reflects the residual component of the Company’s total consolidated provision for credit losses determined in accordance with accounting principles generally accepted in the United States. Income taxes are assessed to each line of business at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support. Within the Company, capital levels are evaluated and managed centrally; however, capital is allocated to the operating segments to support evaluation of business performance. Capital allocations to the business lines are based on the amount of goodwill and other intangibles, the extent of off-balance sheet managed assets and lending commitments and the ratio of on-balance sheet assets relative to the total Company. Certain lines of business, such as Trust and Asset Management, have no significant balance sheet components. For these business units, capital is allocated taking into consideration fiduciary and operational risk, capital levels of independent organizations operating similar businesses, and regulatory requirements.

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 our diverse customer base. During 2005, certain organization and methodology changes were made and, accordingly, 2004 results were restated and presented on a comparable basis.


U.S. Bancorp	23

Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Wholesale Banking contributed $270 million of the Company’s net income in the first quarter of 2005, compared with $240 million in the first quarter of 2004, an increase of $30 million (12.5 percent). The increase in net income in the first quarter of 2005 was driven by higher total net revenue and a reduction in the provision for credit losses, partially offset by an increase in noninterest expense, compared with the first quarter of 2004.

Total net revenue increased $23 million (3.9 percent) in the first quarter of 2005, compared with the first quarter of 2004. Net interest income, on a taxable-equivalent basis, increased $8 million (2.1 percent) in the first quarter of 2005, compared with the first quarter of 2004. The increase in net interest income was driven by growth in average loan balances (4.7 percent) and increased net interest spread on total deposits due to the funding benefit associated with the impact of rising interest rates during the last three quarters, partially offset by reduced loan spreads due to competitive pricing. The increase in average loans was driven by stronger commercial loan demand in late 2004 and the first quarter of 2005. Total deposits increased 10.1 percent year-over-year driven by growth in time deposits, partially offset by decreases in noninterest-bearing deposits, interest checking and saving products. Total noninterest income increased $15 million (7.5 percent) in the first quarter of 2005 to $214 million, compared with $199 million in the first quarter of 2004. The increase in noninterest income in the first quarter of 2005 was due to higher revenue from equity investments, partially offset by reductions in treasury management-related fees, equipment leasing, syndication fees and securities gains (losses). Treasury management-related fees were lower primarily due to higher interest earnings credit on customers’ compensating balances and the impact of an industry-wide shift of payments from paper-based to electronic and card-based transactions. Equipment leasing revenue declined due to lower end of term lease residual gains.

Noninterest expense was $184 million in the first quarter of 2005, compared with $178 million in the first quarter of 2004. The $6 million (3.4 percent) increase was primarily driven by higher personnel-related costs, loan workout expenses and net shared services expense. The increase in loan workout expenses was due to higher leasing inventory write-downs.


Table 12		Line of Business Financial Performance


		Wholesale								Consumer
		Banking								Banking

							Percent								Percent
Three Months Ended March 31 (Dollars in Millions)		2005			2004		Change			2005			2004		Change

Condensed Income Statement
Net interest income (taxable-equivalent basis)		$	398		$	390		2.1	%	$	959		$	876		9.5	%
Noninterest income			218			198		10.1			465			438		6.2
Securities gains (losses), net			(4	)		1		*			(54	)		—		*

	Total net revenue		612			589		3.9			1,370			1,314		4.3
Noninterest expense			180			173		4.0			643			628		2.4
Other intangibles			4			5		(20.0	)		10			170		(94.1	)

	Total noninterest expense		184			178		3.4			653			798		(18.2	)

Income before provision and income taxes			428			411		4.1			717			516		39.0
Provision for credit losses			3			34		(91.2	)		80			108		(25.9	)

Income before income taxes			425			377		12.7			637			408		56.1
Income taxes and taxable-equivalent adjustment			155			137		13.1			232			148		56.8

Net income		$	270		$	240		12.5		$	405		$	260		55.8


Average Balance Sheet Data
Commercial		$	27,913		$	25,767		8.3	%	$	8,130		$	8,127		—	%
Commercial real estate			15,660			15,828		(1.1	)		11,122			10,517		5.8
Residential mortgages			61			65		(6.2	)		15,389			13,253		16.1
Retail			48			51		(5.9	)		33,132			29,983		10.5

	Total loans		43,682			41,711		4.7			67,773			61,880		9.5
Goodwill			1,225			1,225		—			2,243			2,243		—
Other intangible assets			76			95		(20.0	)		1,116			986		13.2
Assets			49,605			47,958		3.4			75,472			69,423		8.7
Noninterest-bearing deposits			11,920			12,396		(3.8	)		13,077			13,765		(5.0	)
Interest checking			3,594			3,846		(6.6	)		17,020			14,418		18.0
Savings products			5,213			7,217		(27.8	)		25,540			27,813		(8.2	)
Time deposits			11,041			5,393		*			16,484			16,524		(.2	)

	Total deposits		31,768			28,852		10.1			72,121			72,520		(.6	)
Shareholders’ equity			5,091			5,100		(.2	)		6,415			6,336		1.2


*		Not meaningful


24	U.S. Bancorp

The provision for credit losses was $3 million and $34 million in the first quarter of 2005 and the first quarter of 2004, respectively, a decline of $31 million (91.2 percent). The decrease in the provision for credit losses for Wholesale Banking was due to lower net charge-offs, which declined to .03 percent of average loans in the first quarter of 2005 from .33 percent of average loans in the first quarter of 2004. The reduction in net charge-offs was attributable to improvements in credit quality driven by initiatives taken by the Company during the past three years, including asset workout strategies and reductions in commitments to certain industries and customers. Nonperforming assets within Wholesale Banking were $330 million at March 31, 2005, $387 million at December 31, 2004, and $616 million at March 31, 2004. Nonperforming assets as a percentage of end-of-period loans were .75 percent at March 31, 2005, .90 percent at December 31, 2004, and 1.45 percent at March 31, 2004. Refer to the “Corporate Risk Profile” section for further information on factors impacting the credit quality of the loan portfolios.

Consumer Banking delivers products and services through banking offices, telemarketing, on-line services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, including lending guaranteed by the Small Business Administration, small-ticket leasing, consumer lending, mortgage banking, workplace banking, student banking, 24-hour banking and investment product and insurance sales. Consumer Banking contributed $405 million of the Company’s net income for the first quarter of 2005 and $260 million for the first quarter of 2004, an increase of $145 million (55.8 percent). While the retail banking business grew net income 26.4 percent from a year ago, the contribution of mortgage banking business increased 169.2 percent from the first quarter of 2004.

Total net revenue increased $56 million (4.3 percent) in the first quarter of 2005, compared with the first quarter of 2004, as growth in net interest income and noninterest income was partially offset by a $54 million increase in securities losses associated with the mortgage banking business. Net interest income, on a taxable-equivalent basis, increased $83 million (9.5 percent) in the first quarter of 2005 compared with the first quarter of 2004. The year-over-year increase in net interest income was due to growth in average loans and the funding benefit of total deposits due to rising interest rates. Partially offsetting these increases were reduced spreads on commercial and retail loans due to competitive pricing, a reduction in noninterest-bearing


Private Client, Trust							Payment							Treasury and									Consolidated
and Asset Management							Services							Corporate Support									Company

				Percent							Percent									Percent								Percent
2005		2004		Change			2005		2004		Change			2005			2004			Change			2005			2004		Change

$	104	$	82		26.8	%	$	141	$	146		(3.4	)%	$	149		$	285			(47.7	)%	$	1,751		$	1,779		(1.6	)%
	253		254		(.4	)		481		414		16.2			24			14			71.4			1,441			1,318		9.3
	—		—		—			—		—		—			(1	)		(1	)		—			(59	)		—		*

	357		336		6.3			622		560		11.1			172			298			(42.3	)		3,133			3,097		1.2
	163		157		3.8			234		193		21.2			40			78			(48.7	)		1,260			1,229		2.5
	15		15		—			41		35		17.1			1			1			—			71			226		(68.6	)

	178		172		3.5			275		228		20.6			41			79			(48.1	)		1,331			1,455		(8.5	)

	179		164		9.1			347		332		4.5			131			219			(40.2	)		1,802			1,642		9.7
	—		1		*			89		93		(4.3	)		—			(1	)		*			172			235		(26.8	)

	179		163		9.8			258		239		7.9			131			220			(40.5	)		1,630			1,407		15.8
	65		59		10.2			94		87		8.0			13			(32	)		*			559			399		40.1

$	114	$	104		9.6		$	164	$	152		7.9		$	118		$	252			(53.2	)	$	1,071		$	1,008		6.3

$	1,579	$	1,668		(5.3	)%	$	3,210	$	2,837		13.1	%	$	165		$	132			25.0	%	$	40,997		$	38,531		6.4	%
	626		602		4.0			—		—		—			96			163			(41.1	)		27,504			27,110		1.5
	367		279		31.5			—		—		—			10			13			(23.1	)		15,827			13,610		16.3
	2,284		2,107		8.4			7,813		7,375		5.9			49			43			14.0			43,326			39,559		9.5

	4,856		4,656		4.3			11,023		10,212		7.9			320			351			(8.8	)		127,654			118,810		7.4
	843		769		9.6			1,941		1,815		6.9			—			—			*			6,252			6,052		3.3
	331		357		(7.3	)		907		649		39.8			12			9			33.3			2,442			2,096		16.5
	6,638		6,415		3.5			14,498		13,084		10.8			50,722			52,783			(3.9	)		196,935			189,663		3.8
	3,356		2,999		11.9			140		106		32.1			(76	)		(241	)		(68.5	)		28,417			29,025		(2.1	)
	2,523		2,685		(6.0	)		—		—		—			9			(1	)		*			23,146			20,948		10.5
	5,450		5,239		4.0			14		11		27.3			15			15			—			36,232			40,295		(10.1	)
	970		493		96.8			—		—		—			3,133			3,341			(6.2	)		31,628			25,751		22.8

	12,299		11,416		7.7			154		117		31.6			3,081			3,114			(1.1	)		119,423			116,019		2.9
	2,133		2,064		3.3			3,432		3,025		13.5			2,732			3,059			(10.7	)		19,803			19,584		1.1


U.S. Bancorp	25

deposits and lower saving products balances. The increase in average loan balances of 9.5 percent reflected retail loan growth of 10.5 percent and growth in residential mortgages of 16.1 percent in the first quarter of 2005, compared with the first quarter of 2004. Included within the retail loan category are second-lien home equity loans and retail leases that had a year-over-year growth rate of 11.0 percent and 16.2 percent, respectively. Residential mortgages, which includes traditional residential mortgages, grew $2.6 billion (35.2 percent) year-over-year, reflecting the company’s decision to retain adjustable-rate residential mortgages. This increase was partially offset by a decline in first-lien home equity loans of $465 million (7.9 percent). Commercial real estate loan balances increased 5.8 percent in the first quarter of 2005, compared with the first quarter of 2004. The year-over-year decrease in average deposits was due to a reduction in noninterest-bearing deposits and saving products, offset by growth in interest checking. The decline in noninterest-bearing deposits of $.7 billion was due to the Company’s decision to migrate $1.3 billion of certain high-value customer accounts to interest checking as an enhancement to its Silver Elite Checking product. The increase in interest checking of $2.6 billion reflects this migration of the Silver Elite product and strong branch-based new account deposit growth. On a combined basis, the Consumer Banking line of business generated growth of $1.9 billion (6.8 percent) in average checking account balances from a year ago, driven by 6.3 percent growth in net new checking accounts. Offsetting this growth was a reduction in average savings balances of $2.3 billion (8.2 percent) from first quarter of 2004, principally related to money market accounts.

Fee-based noninterest income was $465 million in the first quarter of 2005, $27 million (6.2 percent) higher than the first quarter of 2004. The year-over-year growth in fee-based revenue was driven by strong deposit service charges, mortgage banking revenue and commercial products revenue, partially offset by lower other revenue and treasury management related fees. Securities losses were $54 million in the first quarter of 2005. The Consumer Banking business line had no securities gains or losses in 2004.

Noninterest expense was $653 million in the first quarter of 2005, compared with $798 million for the first quarter of 2004, a decrease of $145 million (18.2 percent). The year-over-year decrease in noninterest expense was primarily attributable to changes in the valuation of its mortgage servicing rights portfolio, reductions in occupancy, depreciation and professional services expense, partially offset by increases in compensation, net shared services and higher amortization costs from growth in the mortgage servicing portfolio. The first quarter of 2005 reflected a $54 million reparation of MSR impairment, compared with the recognition of $109 million of MSR impairment in the first quarter of 2004, a favorable change of $163 million year-over-year. The change in MSR valuations was driven by rising interest rates and slower prepayment speeds in the first quarter of 2005, compared with the declining interest rates and refinancing activities in the same period in 2004.

The provision for credit losses decreased $28 million (25.9 percent) in the first quarter of 2005, compared with the first quarter of 2004. The improvement in the provision for credit losses was primarily attributable to lower net charge-offs. As a percentage of average loans, net charge-offs declined to .48 percent in the first quarter of 2005, compared with .70 percent in the first quarter of 2004. The decline in net charge-offs included the commercial, commercial real estate and retail loan portfolios. The improvement in commercial and commercial real estate loan net charge-offs within Consumer Banking of $19 million was broad-based across most industry and geographical regions. Retail loan net charge-offs declined by $11 million, primarily resulting from ongoing collection efforts and risk management activities. Nonperforming assets within Consumer Banking were $326 million at March 31, 2005, $354 million at December 31, 2004, and $421 million at March 31, 2004. Nonperforming assets as a percentage of end-of-period loans were .50 percent at March 31, 2005, .56 percent at December 31, 2004, and .71 percent at March 31, 2004. Refer to the “Corporate Risk Profile” section for further information on factors impacting the credit quality of the loan portfolios.

Private Client, Trust and Asset Management provides trust, private banking, financial advisory, investment management and mutual fund servicing through five businesses: Private Client Group, Corporate Trust, Asset Management, Institutional Trust and Custody and Fund Services, LLC. Private Client, Trust and Asset Management contributed $114 million of the Company’s net income in the first quarter of 2005, compared with $104 million in the first quarter of 2004, an increase of $10 million (9.6 percent). The growth was attributable to higher total net revenue partially offset by higher noninterest expense.

Total net revenue was $357 million in the first quarter of 2005, an increase of 6.3 percent, compared with the first quarter of 2004. Net interest income, on a


26	U.S. Bancorp

taxable-equivalent basis, increased $22 million (26.8 percent) in the first quarter of 2005, compared with the first quarter of 2004. The increase in net interest income in the first quarter of 2005 was due to growth in total average deposits of 7.7 percent, the favorable impact of rising interest rates on the funding benefit of customer deposits, and higher average loan balances of 4.3 percent, partially offset by a decline in loan spreads. The increase in total deposits was attributable to growth in noninterest-bearing deposits, savings products and time deposits, primarily within corporate trust and private banking. Noninterest income decreased $1 million (.4 percent) in the first quarter of 2005, compared with the first quarter of 2004. The decrease in noninterest income was primarily attributable to a reduction in trust and investment management fees due to revenues generated by favorable equity market valuations and core balance growth more than offset by a change in the mix of fund balances and customers’ migration from paying for services with fees to paying with compensating balances.

Noninterest expense increased $6 million (3.5 percent) in the first quarter of 2005, compared with the first quarter of 2004, primarily attributable to an increase in personnel-related costs, legal expenses, and net shared services expense partially offset by a decline in occupancy expenses.

The provision for credit losses decreased $1 million in the first quarter of 2005, compared with the first quarter of 2004 due to a reduction in net charge-offs.

Payment Services includes consumer and business credit cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Payment Services contributed $164 million of the Company’s net income in the first quarter of 2005, compared with $152 million in the first quarter of 2004, a 7.9 percent increase. The increase was due to growth in total net revenue driven by higher transaction volumes, partially offset by an increase in total noninterest expense.

Total net revenue was $622 million in the first quarter of 2005, an increase of $62 million (11.1 percent), compared with the first quarter of 2004. Net interest income decreased 3.4 percent in the first quarter 2005, compared with the first quarter of 2004, primarily due to lower retail loan spreads, higher corporate card rebates and higher corporate payment card noninterest-bearing loan balances, partially offset by increases in retail credit card balances and customer late fees. Noninterest income increased 16.2 percent in the first quarter of 2005, compared with the first quarter of 2004. The increase in fee-based revenue was driven by strong growth in credit card and debit card revenue (9.2 percent), corporate payment product revenues (12.6 percent), ATM processing services revenue (13.8 percent) and merchant processing revenue (26.2 percent). Credit and debit card revenue increased $13 million due to higher sales volume and increases in interchange rates, partially offset by higher reward expenses. Corporate payment products revenue increased $12 million due to increases in sales volume and the acquisition of a small aviation card business in the first quarter of 2005. ATM processing services revenue increased $4 million primarily due to transaction volume related revenue. Merchant processing revenue increased $37 million due to increases in sales and transaction processing volumes and the expansion of the merchant acquiring business in Europe, which accounted for approximately $26 million of the revenue growth.

Noninterest expense was $275 million in the first quarter of 2005, an increase of $47 million (20.6 percent), compared with the first quarter of 2004. The increase in noninterest expense was primarily attributable to higher compensation and employee benefit costs for processing associated with increased credit and debit card transaction volumes, higher corporate payment products and merchant processing sales volumes, and higher merchant acquiring costs resulting from the expansion of the merchant acquiring business in Europe, which accounted for approximately $31 million of the increase in the first quarter of 2005.

The provision for credit losses decreased $4 million (4.3 percent) in the first quarter of 2005, compared with the first quarter of 2004, due to lower net charge-offs of the business line. As a percentage of average loans, net charge-offs were 3.27 percent in the first quarter of 2005, compared with 3.66 percent of average loans in the first quarter of 2004. The favorable change in credit losses was due to improvements in ongoing collection efforts and risk management activities, as well as improvements in economic conditions from a year ago.

Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management and asset securitization activities, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $118 million in the first quarter of 2005, a decrease of 53.2 percent, compared with the first quarter of 2004.

Total net revenue was $172 million in the first quarter of 2005, compared with $298 million in the


U.S. Bancorp	27

first quarter of 2004. The year-over-year decrease of $126 million (42.3 percent) in total net revenue was attributable to a reduction in net interest income of $136 million (47.7 percent), partially offset by an increase in fee-based noninterest income of $10 million (71.4 percent). The decrease in net interest income was primarily attributable to an increase in short-term rates and the Company’s asset/liability management decisions to continue to invest in adjustable-rate securities and utilize higher-cost fixed-rate funding given the current rising interest rate environment. It also reflects the residual effect of transfer pricing caused by changes in the mix of earning assets and the yield curve from a year ago. The increase in fee-based noninterest income was primarily attributable to higher equity investment revenue.

Noninterest expense was $41 million in the first quarter of 2005, compared with $79 million in the first quarter of 2004, a $38 million (48.1 percent) decrease. The decrease in noninterest expense was principally driven by the $35 million decrease in debt prepayment charges relative to the first quarter of 2004.

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. There was no expense related to the provision for credit losses in the first quarter of 2005, compared with a net recovery of $1 million in the first quarter of 2004. 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 standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support. The first quarter of 2004 reflected a $90 million reduction in income tax expense related to the resolution of federal examinations covering substantially all of the company’s legal entities for the years 1995 through 1999.

ACCOUNTING CHANGES

Note 2 of the Notes to Consolidated Financial Statements discusses accounting standards recently issued but not yet required to be adopted and the expected impact of the changes in accounting standards. To the extent the adoption of new accounting standards affects the Company’s financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of the Management’s Discussion and Analysis and the Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The 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. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third-parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under generally accepted accounting principles. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” and the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

CONTROLS AND PROCEDURES

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


28	U.S. Bancorp

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 in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


U.S. Bancorp	29

U.S. Bancorp

Consolidated Balance Sheet


				March 31,			December 31,
(Dollars in Millions)				2005			2004

				(Unaudited)
Assets
Cash and due from banks				$	5,881		$	6,336
Investment securities
	Held-to-maturity (fair value $126 and $132, respectively)				121			127
	Available-for-sale				42,982			41,354
Loans held for sale					1,635			1,439
Loans
	Commercial				41,540			40,173
	Commercial real estate				27,363			27,585
	Residential mortgages				16,572			15,367
	Retail				43,430			43,190

		Total loans			128,905			126,315
			Less allowance for loan losses		(2,082	)		(2,080	)

			Net loans		126,823			124,235
Premises and equipment					1,877			1,890
Customers’ liability on acceptances					91			95
Goodwill					6,277			6,241
Other intangible assets					2,533			2,387
Other assets					10,246			11,000

		Total assets		$	198,466		$	195,104

Liabilities and Shareholders’ Equity
Deposits
	Noninterest-bearing			$	28,880		$	30,756
	Interest-bearing				71,751			71,936
	Time deposits greater than $100,000				19,087			18,049

		Total deposits			119,718			120,741
Short-term borrowings					14,273			13,084
Long-term debt					38,071			34,739
Acceptances outstanding					91			95
Other liabilities					7,105			6,906

		Total liabilities			179,258			175,565
Shareholders’ equity
	Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares issued: 03/31/05 and 12/31/04 — 1,972,643,007 shares				20			20
	Capital surplus				5,889			5,902
	Retained earnings				17,276			16,758
	Less cost of common stock in treasury: 03/31/05 — 130,189,640 shares; 12/31/04 — 115,020,064 shares				(3,590	)		(3,125	)
	Other comprehensive income				(387	)		(16	)

		Total shareholders’ equity			19,208			19,539

		Total liabilities and shareholders’ equity		$	198,466		$	195,104

See Notes to Consolidated Financial Statements.


30	U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Income


		Three Months Ended
		March 31,
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)		2005			2004

Interest Income
Loans		$	1,911		$	1,747
Loans held for sale			21			20
Investment securities			476			469
Other interest income			27			22

	Total interest income		2,435			2,258
Interest Expense
Deposits			308			227
Short-term borrowings			112			50
Long-term debt			271			209

	Total interest expense		691			486

Net interest income			1,744			1,772
Provision for credit losses			172			235

Net interest income after provision for credit losses			1,572			1,537
Noninterest Income
Credit and debit card revenue			154			142
Corporate payment products revenue			107			95
ATM processing services			47			42
Merchant processing services			178			141
Trust and investment management fees			247			249
Deposit service charges			210			185
Treasury management fees			107			118
Commercial products revenue			96			110
Mortgage banking revenue			102			94
Investment products fees and commissions			39			39
Securities losses, net			(59	)		—
Other			154			103

	Total noninterest income		1,382			1,318
Noninterest Expense
Compensation			567			536
Employee benefits			116			100
Net occupancy and equipment			154			156
Professional services			36			32
Marketing and business development			43			35
Technology and communications			106			102
Postage, printing and supplies			63			62
Other intangibles			71			226
Debt prepayment			—			35
Other			175			171

	Total noninterest expense		1,331			1,455

Income before income taxes			1,623			1,400
Applicable income taxes			552			392

Net income		$	1,071		$	1,008

Earnings per share		$	.58		$	.53
Diluted earnings per share		$	.57		$	.52
Dividends declared per share		$	.30		$	.24
Average common shares outstanding			1,852			1,915
Average diluted common shares outstanding			1,880			1,941

See Notes to Consolidated Financial Statements.


U.S. Bancorp	31

U.S. Bancorp

Consolidated Statement of Shareholders’ Equity


																Other			Total
(Dollars in Millions)		Common Shares			Common		Capital			Retained			Treasury			Comprehensive			Shareholders’
(Unaudited)		Outstanding			Stock		Surplus			Earnings			Stock			Income			Equity

Balance December 31, 2003			1,922,920,151		$	20	$	5,851		$	14,508		$	(1,205	)	$	68		$	19,242
Net income											1,008									1,008
Unrealized gain on securities available for sale																	484			484
Unrealized gain on derivatives																	53			53
Foreign currency translation adjustment																	(2	)		(2	)
Realized gain on derivatives																	3			3
Reclassification adjustment for gains realized in net income																	(12	)		(12	)
Income taxes																	(200	)		(200	)

	Total comprehensive income																			1,334
Cash dividends declared on common stock											(457	)								(457	)
Issuance of common and treasury stock			12,514,253					(40	)					311						271
Purchase of treasury stock			(33,824,803	)										(947	)					(947	)
Stock option and restricted stock grants								12												12
Shares reserved to meet deferred compensation obligations			(442,411	)				9						(12	)					(3	)

Balance March 31, 2004			1,901,167,190		$	20	$	5,832		$	15,059		$	(1,853	)	$	394		$	19,452

Balance December 31, 2004			1,857,622,943		$	20	$	5,902		$	16,758		$	(3,125	)	$	(16	)	$	19,539
Net income											1,071									1,071
Unrealized loss on securities available for sale																	(541	)		(541	)
Unrealized loss on derivatives																	(98	)		(98	)
Foreign currency translation adjustment																	5			5
Realized gain on derivatives																	1			1
Reclassification adjustment for losses realized in net income																	35			35
Income taxes																	227			227

	Total comprehensive income																			700
Cash dividends declared on common stock											(553	)								(553	)
Issuance of common and treasury stock			5,180,499					(36	)					142						106
Purchase of treasury stock			(20,291,415	)										(605	)					(605	)
Stock option and restricted stock grants								22												22
Shares reserved to meet deferred compensation obligations			(58,660	)				1						(2	)					(1	)

Balance March 31, 2005			1,842,453,367		$	20	$	5,889		$	17,276		$	(3,590	)	$	(387	)	$	19,208

See Notes to Consolidated Financial Statements.


32	U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Cash Flows


		Three Months Ended
		March 31,

(Dollars in Millions)
(Unaudited)		2005			2004

Operating Activities
	Net cash provided by (used in) operating activities	$	871		$	1,240
Investing Activities
Proceeds from sales of available-for-sale investment securities			2,824			335
Proceeds from maturities of investment securities			2,497			1,974
Purchases of investment securities			(6,596	)		(3,913	)
Net (increase) decrease in loans outstanding			(1,869	)		(1,749	)
Proceeds from sales of loans			351			459
Purchases of loans			(1,033	)		(598	)
Proceeds from sales of premises and equipment			1			7
Purchases of premises and equipment			(44	)		(31	)
Other, net			(113	)		(118	)

	Net cash provided by (used in) investing activities		(3,982	)		(3,634	)
Financing Activities
Net increase (decrease) in deposits			(1,023	)		(89	)
Net increase (decrease) in short-term borrowings			1,189			2,582
Principal payments on long-term debt			(2,028	)		(4,390	)
Proceeds from issuance of long-term debt			5,544			3,951
Proceeds from issuance of common stock			90			231
Repurchase of common stock			(638	)		(966	)
Cash dividends paid			(558	)		(462	)

	Net cash provided by (used in) financing activities		2,576			857

	Change in cash and cash equivalents		(535	)		(1,537	)
Cash and cash equivalents at beginning of period			6,537			8,782

	Cash and cash equivalents at end of period	$	6,002		$	7,245

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 to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. 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 12 “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

Loan Commitments On March 9, 2004, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 105 (“SAB 105”), “Application of Accounting Principles to Loan Commitments,” which provides guidance regarding loan commitments accounted for as derivative instruments and is effective for commitments entered into after March 31, 2004. The guidance clarifies that expected future cash flows related to the servicing of the loan may be recognized only when the servicing asset has been contractually separated from the underlying loan by sale with servicing retained. The adoption of SAB 105 did not have a material impact on the Company’s financial statements.

Stock-Based Compensation In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment,” a revision of Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-based Compensation.” SFAS 123R requires companies to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award. This statement eliminates the use of the alternative intrinsic value method of accounting that was allowed when SFAS 123 was originally issued. The provisions of this statement are effective for the Company on January 1, 2006. Because the Company retroactively adopted the fair value method in 2003, the revised statement will not have a significant impact on the Company’s financial statements.


34	U.S. Bancorp


Note 3		Investment Securities

The detail of the amortized cost, gross unrealized holding gains and losses, and fair value of held-to-maturity and available-for-sale securities was as follows:


			March 31, 2005									December 31, 2004

			Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(Dollars in Millions)			Cost		Gains		Losses			Value		Cost		Gains		Losses			Value

Held-to-maturity (a)
	Mortgage-backed securities		$	10	$	—	$	—		$	10	$	11	$	—	$	—		$	11
	Obligations of state and political subdivisions			93		7		(2	)		98		98		7		(2	)		103
	Other debt securities			18		—		—			18		18		—		—			18

		Total held-to-maturity securities	$	121	$	7	$	(2	)	$	126	$	127	$	7	$	(2	)	$	132

Available-for-sale (b)
	U.S. Treasury and agencies		$	223	$	2	$	—		$	225	$	684	$	3	$	(8	)	$	679
	Mortgage-backed securities			42,393		72		(817	)		41,648		39,809		65		(337	)		39,537
	Asset-backed securities			45		—		—			45		64		—		—			64
	Obligations of state and political subdivisions			170		4		—			174		205		6		—			211
	Other securities and investments			897		2		(9	)		890		863		11		(11	)		863

		Total available-for-sale securities	$	43,728	$	80	$	(826	)	$	42,982	$	41,625	$	85	$	(356	)	$	41,354


(a)		Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums and accretion of discounts.
(b)		Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within other comprehensive income in shareholders’ equity.

The fair value of available-for-sale securities shown above includes securities totaling $3.6 billion with unrealized losses of $163 million which have been in an unrealized loss position for greater than 12 months. All principal and interest payments on available-for-sale debt securities in an unrealized loss position for greater than 12 months are expected to be collected given the high credit quality of the U.S. government agency debt securities and bank holding company issuers and the Company’s ability and intent to hold the securities until such time as the value recovers or maturity. All other available-for-sale securities with unrealized losses have an aggregate fair value of $31.9 billion and have been in an unrealized loss position for less than 12 months and represent both fixed-rate securities and adjustable-rate securities with temporary impairment resulting from increases in interest rates since the purchase of the securities.

The weighted average maturity of the available-for-sale investment securities was 5.42 years at March 31, 2005, compared with 4.45 years at December 31, 2004. The corresponding weighted average yields were 4.50% and 4.43%, respectively. The weighted average maturity of the held-to-maturity investment securities was 7.38 years at March 31, 2005, compared with 6.19 years at December 31, 2004. The corresponding weighted average yields were 6.42% and 6.28%, respectively.

Securities carried at $28.7 billion at March 31, 2005, and $28.0 billion at December 31, 2004, were pledged to secure public, private and trust deposits and for other purposes required by law. Securities sold under agreements to repurchase were collateralized by securities with an amortized cost of $6.0 billion at March 31, 2005, and $4.8 billion at December 31, 2004.

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


		Three Months Ended
		March 31,

(Dollars in Millions)		2005		2004

Taxable		$	473	$	464
Non-taxable			3		5

	Total interest income from investment securities	$	476	$	469


U.S. Bancorp	35

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


		Three Months Ended
		March 31,

(Dollars in Millions)		2005			2004

Realized gains		$	11		$	1
Realized losses			(70	)		(1	)

	Net realized gains (losses)	$	(59	)	$	—

Income tax (benefit) on realized gains (losses)		$	(22	)	$	—

For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale securities outstanding at March 31, 2005, refer to Table 5 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.


Note 4		Loans

The composition of the loan portfolio was as follows:


				March 31, 2005					December 31, 2004

						Percent					Percent
(Dollars in Millions)				Amount		of Total			Amount		of Total

Commercial
	Commercial			$	36,623		28.4	%	$	35,210		27.9	%
	Lease financing				4,917		3.8			4,963		3.9

		Total commercial			41,540		32.2			40,173		31.8
Commercial real estate
	Commercial mortgages				20,134		15.6			20,315		16.1
	Construction and development				7,229		5.6			7,270		5.7

		Total commercial real estate			27,363		21.2			27,585		21.8
Residential mortgages
	Residential mortgages				10,747		8.4			9,722		7.7
	Home equity loans, first liens				5,825		4.5			5,645		4.5

		Total residential mortgages			16,572		12.9			15,367		12.2
Retail
	Credit card				6,276		4.9			6,603		5.2
	Retail leasing				7,253		5.6			7,166		5.7
	Home equity and second mortgages				14,867		11.5			14,851		11.8
	Other retail
		Revolving credit			2,480		1.9			2,541		2.0
		Installment			3,006		2.4			2,767		2.2
		Automobile			7,445		5.8			7,419		5.9
		Student			2,103		1.6			1,843		1.4

			Total other retail		15,034		11.7			14,570		11.5

		Total retail			43,430		33.7			43,190		34.2

			Total loans	$	128,905		100.0	%	$	126,315		100.0	%

Loans are presented net of unearned interest and deferred fees and costs, which amounted to $1.3 billion and $1.4 billion at March 31, 2005, and December 31, 2004, respectively.


36	U.S. Bancorp


Note 5		Mortgage Servicing Rights

The Company’s portfolio of residential mortgages serviced for others was $63.3 billion and $63.2 billion at March 31, 2005, and December 31, 2004, respectively.

Changes in the valuation allowance for capitalized mortgage servicing rights are summarized as follows:


		Three Months Ended			Year Ended
(Dollars in Millions)		March 31, 2005			December 31, 2004

Balance at beginning of period		$	172		$	160
	Additions charged (reductions credited) to operations		(54	)		57
	Direct write-downs charged against the allowance		(10	)		(45	)

Balance at end of period		$	108		$	172

Changes in net carrying value of capitalized mortgage servicing rights are summarized as follows:


		Three Months Ended			Year Ended
(Dollars in Millions)		March 31, 2005			December 31, 2004

Balance at beginning of period		$	866		$	670
	Rights purchased		2			139
	Rights capitalized		75			300
	Amortization		(49	)		(186	)
	Rights sold		—			—
	Reparation (impairment) (a)		54			(57	)

Balance at end of period			948			866
	Impairment valuation allowance		108			172

Initial carrying value, net of amortization		$	1,056		$	1,038


(a)		Mortgage servicing rights reparation of $54 million and impairment of $109 million were recognized during the first quarter of 2005 and 2004, respectively.

The key economic assumptions used to estimate the value of the mortgage servicing rights portfolio were as follows:


	March 31,		December 31,
(Dollars in Millions)	2005		2004

Fair value		$960		$872
Expected weighted-average life (in years)		6.1		5.5
Discount rate		9.8%		9.9%

The estimated sensitivity of the fair value of the mortgage servicing rights portfolio to changes in interest rates at March 31, 2005, was as follows:


	Down Scenario						Up Scenario

(Dollars in Millions)	50 bps			25 bps			25 bps		50 bps

Fair value	$	(144	)	$	(65	)	$	44	$	90

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


U.S. Bancorp	37

A summary of the Company’s mortgage servicing rights and related characteristics by portfolio as of March 31, 2005, was as follows:


(Dollars in Millions)	MRBP			Government			Conventional			Total

Servicing portfolio	$	7,429		$	9,259		$	46,564		$	63,252
Fair market value	$	133		$	148		$	679		$	960
Value (bps)		179			160			146			152
Weighted-average servicing fees (bps)		43			45			35			37
Multiple (value/servicing fees)		4.16			3.56			4.17			4.11
Weighted-average note rate		6.19	%		6.03	%		5.69	%		5.80	%
Age (in years)		3.7			2.4			1.8			2.1
Expected life (in years)		6.8			5.4			6.1			6.1
Discount rate		10.1	%		10.7	%		9.6	%		9.8	%


Note 6		Intangible Assets

The following table reflects the changes in the carrying value of goodwill for the three months ended March 31, 2005:


						Private Client,
		Wholesale		Consumer		Trust and Asset		Payment		Consolidated
(Dollars in Millions)		Banking		Banking		Management		Services		Company

Balance at December 31, 2004		$	1,225	$	2,242	$	843	$	1,931	$	6,241
	Goodwill acquired		—		—		—		34		34
	Other (a)		—		—		—		2		2

Balance at March 31, 2005		$	1,225	$	2,242	$	843	$	1,967	$	6,277


(a)		Other changes in goodwill include foreign exchange effects on non-dollar-denominated goodwill.

Intangible assets consisted of the following:


		Estimated		Amortization		March 31,		December 31,
(Dollars in Millions)		Life (a)		Method (b)		2005		2004

Goodwill			—		—	$	6,277	$	6,241
Merchant processing contracts			9 years/8 years		SL/AC		748		714
Core deposit benefits			10 years/6 years		SL/AC		317		336
Mortgage servicing rights			6 years		AC		948		866
Trust relationships			15 years/8 years		SL/AC		285		297
Other identified intangibles			7 years/4 years		SL/AC		235		174

	Total					$	8,810	$	8,628


(a)		Estimated life represents the amortization period for assets subject to the straight line method and the weighted average amortization period for intangibles subject to accelerated methods. If more than one amortization method is used for a category, the estimated life for each method is calculated and reported separately.
(b)		Amortization methods: SL = straight line method AC = accelerated methods generally based on cash flows

Aggregate amortization expense consisted of the following:


		Three Months Ended
		March 31,

(Dollars in Millions)		2005			2004

Merchant processing contracts		$	33		$	28
Core deposit benefits			19			21
Mortgage servicing rights (a)			(5	)		154
Trust relationships			12			12
Other identified intangibles			12			11

	Total	$	71		$	226


(a)		Includes mortgage servicing rights reparation of $54 million and impairment of $109 million for the three months ended March 31, 2005 and 2004, respectively.


38	U.S. Bancorp

Below is the estimated amortization expense for the years ending:


(Dollars in Millions)

Remaining 2005	$	443
2006		421
2007		360
2008		294
2009		243


Note 7		Shareholders’ Equity

At March 31, 2005, and December 31, 2004, the Company had authority to issue 4 billion shares of common stock and 10 million shares of preferred stock. The Company had 1,842 million and 1,858 million shares of common stock outstanding at March 31, 2005, and December 31, 2004, respectively.

On December 16, 2003, the Board of Directors approved an authorization to repurchase 150 million shares of common stock during the following 24 months. During 2004, the Company purchased 89 million shares of common stock under the plan. On December 21, 2004, the Board of Directors approved an authorization to repurchase 150 million shares of common stock during the following 24 months. This new repurchase program replaces the Company’s December 16, 2003 program. In the fourth quarter of 2004 and first quarter of 2005, the Company repurchased 5 million shares and 20 million shares, respectively, of common stock under the plan.


Note 8		Earnings Per Share

The components of earnings per share were:


	Three Months Ended
	March 31,

(Dollars and Shares in Millions, Except Per Share Data)	2005		2004

Net income	$	1,071	$	1,008

Average common shares outstanding		1,852		1,915
Net effect of the assumed purchase of stock based on the treasury stock method for options and stock plans		28		26

Average diluted common shares outstanding		1,880		1,941

Earnings per share	$	.58	$	.53
Diluted earnings per share	$	.57	$	.52

For the three months ended March 31, 2005 and 2004, options to purchase 15 million and 39 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were antidilutive.


Note 9		Employee Benefits

Retirement Plans The following table sets forth the components of net periodic benefit cost (income) for the retirement plans for the three months ended March 31:


		2005					2004

					Post-					Post-
					Retirement					Retirement
		Pension			Medical		Pension			Medical
(Dollars in Millions)		Plans			Plans		Plans			Plans

Components of net periodic benefit cost (income)
	Service cost	$	16		$	1	$	15		$	1
	Interest cost		28			4		27			5
	Expected return on plan assets		(49	)		—		(51	)		(1	)
	Net amortization and deferral		(2	)		—		(2	)		—
	Recognized actuarial loss		15			—		8			1

Net periodic benefit cost (income)		$	8		$	5	$	(3	)	$	6


U.S. Bancorp	39


Note 10		Income Taxes

The components of income tax expense were:


		Three Months Ended
		March 31,

(Dollars in Millions)		2005		2004

Federal
Current		$	423	$	278
Deferred			64		66

	Federal income tax		487		344
State
Current			60		36
Deferred			5		12

	State income tax		65		48

	Total income tax provision	$	552	$	392

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


		Three Months Ended
		March 31,

(Dollars in Millions)		2005			2004

Tax at statutory rate (35%)		$	568		$	490
State income tax, at statutory rates, net of federal tax benefit			42			31
Tax effect of
	Resolution of federal income tax examinations		—			(90	)
	Tax credits		(40	)		(31	)
	Tax-exempt interest, net		(5	)		(5	)
	Other items		(13	)		(3	)

Applicable income taxes		$	552		$	392

Included in the first quarter of 2004 was a reduction in income tax expense related to the resolution of federal income tax examinations covering substantially all of the Company’s legal entities for the years 1995 through 1999. The resolution of these cycles was the result of a series of negotiations held between the Company and representatives of the Internal Revenue Service at both the examination and appellate levels. The resolution of these matters and the taxing authorities’ acceptance of submitted claims and tax return adjustments resulted in the reduction of estimated income tax liabilities.

The Company’s net deferred tax liability was $1,739 million at March 31, 2005, and $1,899 million at December 31, 2004.


Note 11		Guarantees and Contingent Liabilities

COMMITMENTS TO EXTEND CREDIT

Commitments to extend credit are legally binding and generally have fixed expiration dates or other termination clauses. The contractual amount represents the Company’s exposure to credit loss, in the event of default by the borrower. The Company manages this credit risk by using the same credit policies it applies to loans. Collateral is obtained to secure commitments based on management’s credit assessment of the borrower. The collateral may include marketable securities, receivables, inventory, equipment and real estate. Since the Company expects many of the commitments to expire without being drawn, total commitment amounts do not necessarily represent the Company’s future liquidity requirements. In addition, the commitments include consumer credit lines that are cancelable upon notification to the consumer.


40	U.S. Bancorp

LETTERS OF CREDIT

Standby letters of credit are commitments the Company issues to guarantee the performance of a customer to a third-party. The guarantees frequently support public and private borrowing arrangements, including commercial paper issuances, bond financings and other similar transactions. The Company issues commercial letters of credit on behalf of customers to ensure payment or collection in connection with trade transactions. In the event of a customer’s nonperformance, the Company’s credit loss exposure is the same as in any extension of credit, up to the letter’s contractual amount. Management assesses the borrower’s credit to determine the necessary collateral, which may include marketable securities, receivables, inventory, equipment and real estate. Since the conditions requiring the Company to fund letters of credit may not occur, the Company expects its liquidity requirements to be less than the total outstanding commitments. The maximum potential future payments guaranteed by the Company under standby letter of credit arrangements at March 31, 2005, were approximately $10.6 billion with a weighted-average term of approximately 23 months. The estimated fair value of standby letters of credit was approximately $71 million at March 31, 2005.

GUARANTEES

Guarantees are contingent commitments issued by the Company to customers or other third-parties. The Company’s guarantees primarily include parent guarantees related to subsidiaries’ third-party borrowing arrangements; third-party performance guarantees inherent in the Company’s business operations such as indemnified securities lending programs and merchant charge-back guarantees; indemnification or buy-back provisions related to certain asset sales; and contingent consideration arrangements related to acquisitions. For certain guarantees, the Company has recorded a liability related to the potential obligation, or has access to collateral to support the guarantee or through the exercise of other recourse provisions can offset some or all of the maximum potential future payments made under these guarantees.

Third-Party Borrowing Arrangements The Company provides guarantees to third-parties as a part of certain subsidiaries’ borrowing arrangements, primarily representing guaranteed operating or capital lease payments or other debt obligations with maturity dates extending through 2013. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $1.9 billion at March 31, 2005. The Company’s recorded liabilities as of March 31, 2005, included $8 million representing outstanding amounts owed to these third-parties and required to be recorded on the Company’s balance sheet in accordance with accounting principles generally accepted in the United States.

Commitments from Securities Lending The Company participates in securities lending activities by acting as the customer’s agent involving the lending of securities. The Company indemnifies customers for the difference between the market value of the securities lent and the market value of the collateral received. Cash collateralizes these transactions. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $13.0 billion at March 31, 2005, and represented the market value of the securities lent to third-parties. At March 31, 2005, the Company held assets with a market value of $13.4 billion as collateral for these arrangements.

Asset Sales The Company has provided guarantees to certain third-parties in connection with the sale of certain assets, primarily loan portfolios and low-income housing tax credits. These guarantees are generally in the form of asset buy-back or make-whole provisions that are triggered upon a credit event or a change in the tax-qualifying status of the related projects, as applicable, and remain in effect until the loans are collected or final tax credits are realized, respectively. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $4.1 billion at March 31, 2005, and represented the total proceeds received from the buyer in these transactions where the buy-back or make-whole provisions have not yet expired. Recourse available to the Company includes guarantees from the Small Business Administration (for SBA loans sold), recourse against the correspondent that originated the loan or to the private mortgage issuer, the right to collect payments from the debtors, and/or the right to liquidate the underlying collateral, if any, and retain the proceeds. Based on its established loan-to-value guidelines, the Company believes the recourse available is sufficient to recover future payments, if any, under the loan buy-back guarantees. At March 31, 2005, the Company had a recorded liability for potential losses of $6 million.


U.S. Bancorp	41

Merchant Processing The Company, through its subsidiaries NOVA Information Systems, Inc. and NOVA European Holdings Company, 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.

A cardholder, through its issuing bank, generally has until the latter of up to four months after the date the transaction is processed or the receipt of the product or service to present a charge-back to the Company as the merchant processor. The absolute maximum potential liability is estimated to be the total volume of credit card transactions that meet the associations’ requirements to be valid charge-back transactions at any given time. Management estimates that the maximum potential exposure for charge-backs would approximate the total amount of merchant transactions processed through the credit card associations for the last four months. For the last four months this amount totaled approximately $46.5 billion. In most cases, this contingent liability is unlikely to arise, as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. However, where the product or service is not provided until a future date (“future delivery”), the potential for this contingent liability increases. To mitigate this risk, the Company may require the merchant to make an escrow deposit, may place maximum volume limitations on future delivery transactions processed by the merchant at any point in time, or may require various credit policy enhancements (including letters of credit and bank guarantees). Also, merchant processing contracts may include event triggers to provide the Company more financial and operational control in the event of financial deterioration of the merchant. At March 31, 2005, the Company held $33 million of merchant escrow deposits as collateral.

The Company currently processes card transactions for several of the largest airlines in the United States. In the event of liquidation of these airlines, 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 an airline is evaluated in a manner similar to credit risk assessments and merchant processing contracts consider the potential risk of default. At March 31, 2005, the transaction amounts of future delivery airline tickets purchased was approximately $2.0 billion, and the Company held collateral of $247 million in escrow deposits and letters of credit related to airline customer transactions. At March 31, 2005, the Company had a $62 million liability for guarantee obligations associated with its airline processing business.

In the normal course of business, the Company has unresolved charge-backs that are in process of resolution. The Company assesses the likelihood of its potential liability based on the extent and nature of unresolved charge-backs and its historical loss experience. At March 31, 2005, the Company had a recorded liability for potential losses of $28 million.

Other Guarantees The Company provides liquidity and credit enhancement facilities to a Company-sponsored conduit, as more fully described in the “Off-Balance Sheet Arrangements” section within Management’s Discussion and Analysis. Although management believes a draw against these facilities is remote, the maximum potential future payments guaranteed by the Company under these arrangements were approximately $5.2 billion at March 31, 2005. The recorded fair value of the Company’s liability for the credit enhancement recourse obligation and liquidity facility was $29 million at March 31, 2005, and was included in other liabilities.

OTHER CONTINGENT LIABILITIES

In connection with the spin-off of Piper Jaffray Companies, the Company has agreed to indemnify Piper Jaffray Companies against losses that may result from third-party claims relating to certain specified matters. The Company’s indemnification obligation related to these specified matters is capped at approximately $18 million and can be terminated by the Company if there is a change in control event for Piper Jaffray Companies. Through March 31, 2005, the Company has paid approximately $3 million to Piper Jaffray Companies under this agreement.

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.


42	U.S. Bancorp

U.S. Bancorp

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


			For the Three Months Ended March 31,
			2005								2004

								Yields								Yields			% Change
(Dollars in Millions)			Average					and			Average					and			Average
(Unaudited)			Balances			Interest		Rates			Balances			Interest		Rates			Balances

Assets
Investment securities			$	42,813		$	477		4.46	%	$	44,744		$	472		4.22	%		(4.3	)%
Loans held for sale				1,429			21		5.83			1,445			20		5.52			(1.1	)
Loans (b)
	Commercial			40,997			577		5.69			38,531			545		5.69			6.4
	Commercial real estate			27,504			413		6.09			27,110			374		5.55			1.5
	Residential mortgages			15,827			218		5.55			13,610			197		5.82			16.3
	Retail			43,326			709		6.63			39,559			635		6.46			9.5

		Total loans		127,654			1,917		6.08			118,810			1,751		5.93			7.4
Other earning assets				1,398			27		7.88			1,360			22		6.49			2.8

		Total earning assets		173,294			2,442		5.69			166,359			2,265		5.47			4.2
Allowance for loan losses				(2,114	)							(2,431	)							(13.0	)
Unrealized gain (loss) on available-for-sale securities				(261	)							(14	)							*
Other assets				26,016								25,749								1.0

		Total assets	$	196,935							$	189,663								3.8

Liabilities and Shareholders’ Equity
Noninterest-bearing deposits			$	28,417							$	29,025								(2.1	)
Interest-bearing deposits
	Interest checking			23,146			31		.54			20,948			19		.36			10.5
	Money market accounts			30,264			70		.93			34,397			67		.79			(12.0	)
	Savings accounts			5,968			4		.31			5,898			4		.31			1.2
	Time certificates of deposit less than $100,000			12,978			86		2.70			13,618			91		2.68			(4.7	)
	Time deposits greater than $100,000			18,650			117		2.54			12,133			46		1.51			53.7

		Total interest-bearing deposits		91,006			308		1.37			86,994			227		1.05			4.6
Short-term borrowings				15,606			112		2.91			13,419			50		1.50			16.3
Long-term debt				35,440			271		3.09			34,553			209		2.43			2.6

		Total interest-bearing liabilities		142,052			691		1.97			134,966			486		1.45			5.3
Other liabilities				6,663								6,088								9.4
Shareholders’ equity				19,803								19,584								1.1

		Total liabilities and shareholders’ equity	$	196,935							$	189,663								3.8	%

Net interest income						$	1,751							$	1,779

Gross interest margin									3.72	%							4.02	%

Gross interest margin without taxable-equivalent increments									3.70								4.00

Percent of Earning Assets
Interest income									5.69	%							5.47	%
Interest expense									1.61								1.18

Net interest margin									4.08	%							4.29	%

Net interest margin without taxable-equivalent increments									4.06	%							4.27	%


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


U.S. Bancorp	43

Part II — Other Information

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 first quarter of 2005.

Item 4. Submission of Matters to a Vote of Security Holders — The 2005 Annual Meeting of Shareholders of U.S. Bancorp was held Tuesday, April 19, 2005, at the Grand Hyatt Denver, Denver, Colorado. Jerry A. Grundhofer, Chairman and Chief Executive Officer, presided.

The holders of 1,636,954,901 shares of common stock, 88.3 percent of the outstanding shares entitled to vote as of the record date, were represented at the meeting in person or by proxy. The candidates for election as Class I Directors listed in the proxy statement were elected to serve three-year terms expiring at the annual shareholders’ meeting in 2008, and the selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2005, was ratified. The proposal to amend our restated certificate of incorporation to eliminate the supermajority voting provisions was approved, and received a vote of 85.1 percent of our outstanding shares of common stock. The shareholder proposal regarding performance-vesting shares and the shareholder proposal to prohibit tax and other non-audit work by our independent auditor were not approved.

Summary of Matters Voted Upon by Shareholders


	Number of Shares

	For	Withheld

Election of Class I Directors:
Joel W. Johnson	1,331,540,117	305,414,784
David B. O’Maley	1,591,755,615	45,199,286
O’dell M. Owens, M.D., M.P.H.	1,599,769,147	37,185,754
Craig D. Schnuck	1,095,595,833	541,359,068
Warren R. Staley	1,543,131,308	93,823,593

	For	Against	Abstain	Broker Non-Vote

Ratification of Independent Auditors	1,494,643,535	129,549,246	12,762,120	N/A
Proposal to Amend Certificate of Incorporation to Eliminate Supermajority Voting	1,576,890,435	40,060,091	20,001,957	2,418
Proposal Regarding Performance Vesting Shares	564,918,964	758,255,538	36,874,865	276,905,534
Proposal to Prohibit Tax and Non-Audit Work by Independent Auditor	202,647,365	1,120,782,638	36,647,900	276,876,998

For a copy of the meeting minutes, please write to the Office of the Secretary, U.S. Bancorp, 800 Nicollet Mall, Minneapolis, Minnesota 55402.

Item 6. Exhibits


3.1		Restated Certificate of Incorporation, as amended through May 5, 2005.
10.1		Appendix B-10 to U.S. Bancorp Non-Qualified Executive Retirement Plan.
10.2		Amendment No. 5 to U.S. Bancorp Non-Qualified Executive Retirement Plan.
10.3		Offer of Employment to Richard C. Hartnack.
12		Computation of Ratio of Earnings to Fixed Charges.
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.


44	U.S. Bancorp

SIGNATURE

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


	U.S. BANCORP


	By:	/s/ Terrance R. Dolan



	Terrance R. Dolan
	Executive Vice President and Controller
	(Chief Accounting Officer and Duly Authorized Officer)

DATE: May 9, 2005


U.S. Bancorp	45

EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges


		Three Months Ended
(Dollars in Millions)		March 31, 2005

Earnings
1. Net income		$	1,071
2. Applicable income taxes			552

3. Net income before taxes (1 + 2)		$	1,623

4. Fixed charges:
	a. Interest expense excluding interest on deposits	$	383
	b. Portion of rents representative of interest and amortization of debt expense		17

	c. Fixed charges excluding interest on deposits (4a + 4b)		400
	d. Interest on deposits		308

	e. Fixed charges including interest on deposits (4c + 4d)	$	708

5. Amortization of interest capitalized		$	—
6. Earnings excluding interest on deposits (3 + 4c + 5)			2,023
7. Earnings including interest on deposits (3 + 4e + 5)			2,331
8. Fixed charges excluding interest on deposits (4c)			400
9. Fixed charges including interest on deposits (4e)			708
Ratio of Earnings to Fixed Charges
10. Excluding interest on deposits (line 6/line 8)			5.06
11. Including interest on deposits (line 7/line 9)			3.29


46	U.S. Bancorp

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

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

I, Jerry A. Grundhofer, Chief Executive Officer of U.S. Bancorp, a Delaware corporation, certify that:


(1)	I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp;

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

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

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


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


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


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


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


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


	/s/ Jerry A. Grundhofer

	Jerry A. Grundhofer
	Chief Executive Officer

Dated: May 9, 2005


U.S. Bancorp	47

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

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

I, David M. Moffett, Chief Financial Officer of U.S. Bancorp, a Delaware corporation, certify that:


(1)	I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp;

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

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

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


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


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


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


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


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


	/s/ David M. Moffett

	David M. Moffett
	Chief Financial Officer

Dated: May 9, 2005


48	U.S. Bancorp

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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


(1)	The Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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


/s/ Jerry A. Grundhofer		/s/ David M. Moffett

Jerry A. Grundhofer		David M. Moffett
Chief Executive Officer		Chief Financial Officer

Dated: May 9, 2005


U.S. Bancorp	49



	First Class
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	Minneapolis, MN

Corporate Information

Executive Offices

U.S. Bancorp

800 Nicollet Mall

Minneapolis, MN 55402

Common Stock Transfer Agent and Registrar

Mellon Investor Services acts as our transfer agent and registrar, dividend paying agent and investor services program 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:

Mellon Investor Services

P.O. Box 3315

South Hackensack, NJ 07606-1915

Phone: 888-778-1311 or 201-329-8660

Internet: melloninvestor.com

For Registered or Certified Mail:

Mellon Investor Services

85 Challenger Road

Ridgefield Park, NJ 07660

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 Mellon’s Internet site by clicking on the “Investor ServiceDirect ^sm ” link.

Independent Auditors

Ernst & Young LLP serves as the independent auditors of U.S. Bancorp.

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 prior approval by our Board of Directors. U.S. Bancorp shareholders can choose to participate in an investor services program 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, Mellon Investor Services. See above.

Investment Community Contacts

Howell D. McCullough

Senior Vice President, Investor Relations

howell.mccullough@usbank.com

Phone: 612-303-0786

Judith T. Murphy

Vice President, Investor Relations

judith.murphy@usbank.com

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

Financial Information

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

Web site. 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 and click on Investor/Shareholder Information.

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

U.S. Bancorp Investor Relations

800 Nicollet Mall

Minneapolis, Minnesota 55402

corporaterelations@usbank.com

Phone: 612-303-0799 or 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, skills and abilities, rather than race, color, religion, national origin or ancestry, gender, age, disability, veteran status, sexual orientation or any other factors protected by law. The corporation complies with municipal, state and federal fair employment laws, including regulations applying to federal contractors.

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

U.S. Bancorp

Member FDIC

This report has been produced on recycled paper. (RECYCLING LOGO)

RESTATED
CERTIFICATE OF INCORPORATION
OF
U.S. BANCORP

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

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

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

FOURTH : The total number of shares of all classes of stock which the corporation shall have the authority to issue is 1,550,000,000, consisting of 50,000,000 shares of Preferred Stock of the par value of $1.00 each and 1,500,000,000 shares of Common Stock of the par value of $1.25 each.

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

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

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

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

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

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

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

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

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

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

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

Pursuant to the authority conferred by this Article FOURTH, the following series of Preferred Stock have been designated, each such series

consisting of such number of shares, with such voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as are stated and expressed in the exhibit with respect to such series attached hereto as specified below and incorporated herein by reference:

Exhibit A Adjustable Rate Cumulative Preferred Stock, Series 1990A

Exhibit B 8 1/8% Cumulative Preferred Stock, Series A

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

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

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

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

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

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

SIXTH : The affairs of the Corporation shall be conducted by a Board of Directors. Except as otherwise provided by this Article Sixth, the number of directors, not less than twelve (12) nor more than thirty (30), shall be fixed from time to time by the Bylaws. Commencing with the annual election of directors by the stockholders in 1986, the directors shall be divided into three classes: Class I, Class II and Class III, each such class, as nearly as possible, to have the same number of directors. Such classified directors may be removed by vote of the stockholders only for cause. The term of office of the initial Class I directors shall expire at the annual election of directors by the stockholders in 1987, the term of office of the initial Class II directors shall expire at the annual election of directors by the stockholders in 1988, and the term of office of the initial Class III directors shall expire at the annual election of directors by the stockholders in 1989. At each annual election of directors by the stockholders held after 1985, the directors chosen to succeed those whose terms have then expired shall be identified as being of the same class as the directors they succeed and shall be elected by the stockholders for a term expiring at the third succeeding annual election of directors. In all cases, directors shall hold office until their respective successors are elected by the stockholders and have qualified.

In the event that the holders of any class or series of stock of the Corporation having a preference as to dividends or upon liquidation of the Corporation shall be entitled, by a separate class vote, to elect directors as may be specified pursuant to Article Fourth, then the provisions of such class or series of stock with respect to their rights shall apply. The number of directors that may be elected by the holders of any such class or series of stock shall be in addition to the number fixed pursuant to the preceding paragraph of this Article Sixth. Except as otherwise expressly provided pursuant to Article Fourth, the number of directors that may be so elected by the holders of any such class or series of stock shall be elected for terms expiring at the next annual meeting of stockholders and without regard to the classification of the remaining members of the Board of Directors and vacancies among directors so elected by the separate class vote of any such class or series of stock shall be filled by the remaining directors elected by such class or series, or, if there are no such remaining directors, by the holders of such class or series in the same manner in which such class or series initially elected a director.

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

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

Notwithstanding any other provisions of this Amended Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding that a lesser percentage may be specified by law), the provisions of this Article Sixth may not be amended or repealed (except an amendment hereto to reduce the maximum number of directors of the Corporation to not less than the greater of (A) the number of directors then in office and (B) twenty-four (24)) unless such action is approved by the affirmative vote of the holders of not less than eighty percent (80%) of the voting power of all of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for purposes of this Article Sixth as a single class.

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

EIGHTH : (a) In addition to the requirements of the provision of any series of preferred stock which may be outstanding, and whether or not a vote of the stockholders is otherwise required, the affirmative vote of the holders of not less than eighty percent (80%) of the voting power of the Voting Stock shall be required for the approval or authorization of any Business Transaction with a Related Person, or any Business Transaction in which a Related Person has an interest (other than only a proportionate interest as a stockholder of the Corporation); provided, however, that the eighty percent (80%) voting requirement shall not be applicable if (i) the Business Transaction is Duly Approved by the Continuing Directors, or (ii) all of the following conditions are satisfied:

(A) the Business Transaction is a merger or consolidation or sale of substantially all of the assets of the corporation, and the aggregate amount of cash and the fair market value of the property, securities or other consideration to be received per share (on the date of effectiveness of such merger or consolidation or on the date of distribution to stockholders of the Corporation of the proceeds from such sale of assets) by holders of common stock of the corporation (other than such Related Person) in connection with such Business Transaction is at least equal in value to such Related Person’s Highest Common Stock Purchase Price;

(B) after such Related Person has become the Beneficial Owner of not less than ten percent (10%) of the voting power of the Voting Stock and prior to the consummation of such Business Transaction, such Related Person shall not have become the Beneficial Owner of any additional shares of Voting Stock or securities convertible into Voting Stock, except (i) as a part of the transaction which resulted in such Related Person becoming the Beneficial Owner of not less than ten percent (10%) of the voting power of the Voting Stock, or (ii) as a result of a pro rata stock dividend or stock split; and

(C) prior to the consummation of such Business Transaction, such Related Person shall not have, directly or indirectly, (i) received the benefit (other than only a proportionate benefit as a stockholder of the Corporation) of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the corporation or any of its subsidiaries, (ii) caused any material change in the corporation’s business or equity capital structure, including, without limitation, the issuance of shares of capital stock of the corporation or (iii) except as Duly Approved by the Continuing Directors, caused the corporation to fail to declare and pay quarterly cash dividends on the outstanding common stock on a per share basis at least equal to the cash dividends being paid thereon by the corporation immediately prior to the date on which the Related Person became a Related Person.

(b) For the purpose of this Article Eighth:

(i) The term “Business Transaction” shall mean (a) any merger or consolidation involving the corporation or a subsidiary of the corporation, (b) any sale, lease, exchange, transfer or other disposition (in one transaction or a series of related transactions), including, without limitation, a mortgage or any other security device, of all or any Substantial Part of the assets either of the corporation or of a subsidiary of the corporation, (c) any sale, lease, exchange, transfer or other disposition (in one transaction or a series of related transactions) of all or any Substantial Part of the assets of an entity to the corporation or a subsidiary of the corporation, (d) the issuance, sale, exchange, transfer or other disposition (in one transaction or a series of related transactions) by the corporation or a subsidiary of the corporation of any securities of the corporation or any subsidiary of the corporation having an aggregate fair market value of $100 million or more, (e) any recapitalization or reclassification of the securities of the Corporation (including, without limitation, any reverse stock split) or other transaction that would have the effect of increasing the voting power of a Related Person or reducing the number of shares of each class of Voting Securities outstanding, (f) any liquidation, spinoff, splitoff, splitup or dissolution of the corporation, and (g) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Transaction.

(ii) The term “Related Persons” shall mean and include (a) any individual, corporation, partnership, group, association or other person or entity which, together with its Affiliates and Associates, is the Beneficial Owner of not less than ten percent (10%) of the voting power of the Voting Stock or was the Beneficial Owner of not less than ten percent (10%) of the voting power of the Voting Stock (x) at the time the definitive agreement providing for the Business Transaction (including any amendment thereof) was entered into, (y) at the time a resolution approving the Business Transaction was adopted by the Board of Directors of the Corporation or (z) as of the record date for the determination of stockholders entitled to notice of and vote on, or consent to, the Business Transaction, and (b) any Affiliate or Associate of any such individual, corporation, partnership, group, association or other person or entity; provided, however, and notwithstanding anything in the foregoing to the contrary, the term “Related Person” shall not include the corporation, a wholly-owned subsidiary of the corporation, any employee stock ownership or other employee benefit plan of the corporation or any wholly-owned subsidiary of the corporation, or any trustee of, or fiduciary with respect to, any such plan when acting in such capacity.

(iii) The term “Beneficial Owner” shall be defined by reference to Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on January 16, 1986; provided, however, that any individual, corporation, partnership, group, association or other person or entity which has the right to acquire any Voting Stock at any time in the future, whether such right is contingent or absolute, pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed the Beneficial Owner of Voting Stock.

(iv) The term “Highest Common Stock Purchase Price” shall mean the highest amount of consideration paid by such Related Person for a share of Common Stock of the Corporation (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) in the transaction which resulted in such Related Person becoming a Related Person or within one year prior to the date such Related Person became a Related Person, whichever is higher; provided, however, that the Highest Common Stock Purchase Price shall be appropriately adjusted to reflect the occurrence of any reclassification, recapitalization, stock split, reverse stock split or other similar corporate readjustment in the number of outstanding shares of common stock of the corporation between the last date upon which such Related Person paid the Highest Common Stock Purchase Price to the effective date of the merger or consolidation or the date of distribution to stockholders of the corporation of the proceeds from the sale of substantially all of the assets of the corporation referred to in subparagraph (A) of Section 1 of this Article Eighth.

(v) The term “Substantial Part” shall mean more than twenty percent (20%) of the fair market value of the total assets of the entity in question, as reflected on the most recent consolidated balance sheet of such entity existing at the time the stockholders of the corporation would be required to approve or authorize the Business Transaction involving the assets constituting any such Substantial Part.

(vi) In the event of a merger in which the corporation is the surviving corporation, for the purpose of subparagraph (A) of Section 1 of this Article Eighth, the phrase “property, securities or other consideration to be received” shall include, without limitation, Common Stock of the Corporation retained by its stockholders (other than such Related Person).

(vii) The term “Voting Stock” shall mean all outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Eighth as one class.

(viii) The term “Preferred Stock” shall mean each class or series of capital stock which may from time to time be authorized in or by Article Fourth of the Amended and Restated Certificate of Incorporation which is not designated as “Common Stock”.

(ix) The term “Continuing Director” shall mean a director who either was a member of the Board of Directors of the corporation on April 24, 1986 or who became a director of the corporation subsequent to such date and whose election, or nomination for election by the corporation’s stockholders, was Duly Approved by the Continuing Directors then on the Board either by a specific vote or by approval of the proxy statement issued by the corporation on behalf of the Board of Directors in which such person is named as nominee for director, without due objection to such nomination; provided, however, that in no event shall a director be considered a “Continuing Director” if such director is a Related Person and the Business Transaction to be voted upon is with such Related Person or is one in which such Related Person has an interest (other than only a proportionate interest as a stockholder of the corporation).

(x) The term “Duly Approved by the Continuing Directors” shall mean an action approved by the vote of at least a majority of the Continuing Directors then on the Board, except, if the votes of such Continuing Directors in favor of such action would be insufficient to constitute an act of the Board of Directors (if a vote by the entire Board of Directors were to have been taken), then such term shall mean an action approved by the unanimous vote of the Continuing Directors so long as there are at least three Continuing Directors on the Board at the time of such unanimous vote.

(xi) The term “Affiliate”, used to indicate a relationship to a specified person, shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person.

(xii) The term “Associate”, used to indicate a relationship with a specified person, shall mean (A) any Corporation, partnership or other organization of which such specified person is an officer or partner (B) any trust or other estate in which such specified person has a substantial beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity, (C) any relative or spouse of such specified person, or any relative of such spouse, who has the same home as such specified person or who is a director or officer of the Corporation or any of its subsidiaries, and (D) any person who is a director, officer or partner of such specified person or of any corporation (other than the corporation or any wholly-owned subsidiary of the corporation), partnership or other entity which is an Affiliate of such specified person.

(c) For the purpose of this Article Eighth, so long as Continuing Directors constitute at least two-thirds of the entire Board of Directors, the Board of Directors shall have the power to make a good faith determination, on the basis of information known to them, of: (i) the number of shares of Voting Stock of which any person is the Beneficial Owner, (ii) whether a person is a Related Person or is an Affiliate or Associate of another, (iii) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of Beneficial Owner herein, (iv) whether the assets subject to any Business Transaction constitute a Substantial Part, (v) whether any Business Transaction is with a Related Person or is one in which a Related Person has an interest (other than only a proportionate interest as a stockholder of the corporation), (vi) whether a Related Person has, directly or indirectly, received the benefits or caused any of the changes referred to in subparagraph (C) of Section 1 of this Article Eighth, and (vii) such other matters with respect to which a determination is required under this Article Eighth; and such determination by the Board of Directors shall be conclusive and binding for all purposes of this Article Eighth.

(d) Nothing contained in this Article Eighth shall be construed to relieve any Related Person of any fiduciary obligation imposed by law.

(e) The fact that any Business Transaction complies with the provisions of Section 1 of this Article Eighth shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Transaction or recommend its adoption or approval to the stockholders of the corporation.

(f) Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding that a lesser percentage may be specified by law), the provisions of this Article Eighth may not be repealed or amended in any respect, unless such action is approved by the affirmative vote of the holders of not less than eighty percent (80%) of the Voting Stock.

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

Exhibit A

U.S. Bancorp

Adjustable Rate Cumulative Preferred Stock, Series 1990A

(a) Designation . The designation of the series of Preferred Stock created by this resolution shall be “Adjustable Rate Cumulative Preferred Stock, Series 1990A” (hereinafter referred to as this “Series”) and the number of shares constituting this Series shall be twelve thousand seven hundred fifty (12,750). The number of authorized shares of this Series may be increased or reduced by further resolution duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction or increase, as the case may be, has been so authorized.

(b) Dividends . (1) Dividend periods (“Dividend Periods”) shall commence on January 1, April 1, July 1, and October 1 in each year and shall end on and include the day next preceding the first day of the next Dividend Period. Such dividends shall be cumulative from the date of original issue of shares of this Series and shall be payable, when and as declared by the Board of Directors or by any duly authorized committee of the Board of Directors of the Corporation, on March 31, June 30, September 30 and December 31 of each year, commencing [insert first dividend payment date]. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors of the Corporation or by any duly authorized committee of the Board of Directors of the Corporation. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors of the Corporation or by any duly authorized committee of the Board of Directors of the Corporation.

(2) No full dividends shall be declared or paid or set apart for payment on the Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the shares of this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the

shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Except as provided in the preceding sentence, unless full cumulative dividends on all outstanding shares of this Series shall have been paid or declared and set aside for payment for the then-current dividend payment period and all past dividend payment periods, no dividends (other than a dividend in the Common Stock, par value $1.25 per share, of the Corporation (the “Common Stock”), or another stock ranking junior to this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation). Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments which may be in arrears.

(3) Dividends payable on this Series for each full Dividend Period shall be computed by dividing the dividend rate for such Dividend Period (stated on an annualized basis) by four (4) and applying such rate against the liquidation preference per share of this Series. Dividends payable on this Series for any period less than a full Dividend Period, including the Initial Dividend Period (as defined in Section (c) below), shall be computed on the basis of 30-day months, a 360-day year, and the actual number of days elapsed in the period.

(c) Dividend Rate . (1) The dividend rate on the shares of this Series shall be: (i) for the period (the “Initial Dividend Period”) from the date of original issue thereof to and including [insert first dividend payment date], [insert rate for Initial Dividend Period]% per annum of the liquidation preference thereof (excluding any accrued but unpaid dividends) and (ii) for each Dividend Period thereafter a rate per annum of the liquidation preference thereof (excluding any accrued but unpaid dividends) equal to the Applicable Rate (as defined in paragraph (2) of this Section (c)) in respect of such Dividend Period, in each case, as adjusted as described under paragraph 9 of this Section (c).

(2) Except as provided below in this paragraph, the “Applicable Rate” for any Dividend Period shall be (a) [insert amount]% greater than (b) the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Thirty Year Constant Maturity Rate (each as hereinafter defined) for such Dividend Period. If the Corporation determines in good faith that for any reason one or more of such rates cannot be determined for any Dividend Period, then the Applicable Rate for such Dividend Period shall be [insert amount]% greater than the higher of whichever of such rates can be so determined. If the Corporation determines in good faith that for any reason none of such rates can be determined for any Dividend Period, then the Applicable Rate in effect for the preceding Dividend Period shall be continued for such Dividend Period. Anything herein to the contrary notwithstanding, the Applicable Rate for any Dividend Period shall in no event be less than [insert minimum rate]% per annum.

(3) Except as provided below in this paragraph, the “Treasury Bill Rate” for each Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period (as defined below)) for three-month U.S. Treasury bills, as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the last ten calendar days immediately preceding the first day of the Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum market discount rate during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or any U.S. Government department or agency selected by the Corporation. In the event that a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Federal Reserve Board or, if the Federal

Reserve Board shall not publish during such rates, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason no such U.S. Treasury bill rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable noninterest bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized dealers in U.S. Government securities selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Treasury Bill Rate for any Dividend Period as provided above in this paragraph, the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable interest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized dealers in U.S. Government securities selected by the Corporation.

(4) Except as provided below in this paragraph, the “Ten Year Constant Maturity Rate” for each Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (as defined below) (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the last ten calendar days immediately preceding the first day of the Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such weekly per annum Ten Year Average Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only such Yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Ten Year Average Yield shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall

be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities (as defined below)) then having maturities of not less than eight nor more than twelve years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Ten Year Constant Maturity Rate for any Dividend Period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than twelve years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized dealers in U.S. Government securities selected by the Corporation.

(5) Except as provided below in this paragraph, the “Thirty Year Constant Maturity Rate” for each Dividend Period shall be the arithmetic average of the two most recent weekly per annum Thirty Year Average Yields (as defined below) (or the one weekly per annum Thirty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the last ten calendar days immediately preceding the first day of the Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Thirty Year Average Yield during such Calendar Period, then the Thirty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Thirty Year Average Yields (or the one weekly per annum Thirty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Thirty Year Average Yield shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Thirty Year Constant Maturity Rate for such Dividend Period will be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury

fixed interest rate securities (other than Special Securities) then having maturities of not less than twenty-eight nor more than thirty years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Thirty Year Constant Maturity Rate for any Dividend Period as provided above in this paragraph, then the Thirty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than twenty-eight nor more than thirty years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized dealers in U.S. Government securities selected by the Corporation.

(6) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate shall each be rounded to the nearest five one-hundredths of a percentage point.

(7) For purposes of paragraphs (3) through (6) of this Section (c), the term

(i) “Calendar Period” means 14 calendar days;

(ii) “Special Securities” means securities which can, at the option of the holder, be surrendered at face value in payment of any Federal estate tax or which provide tax benefits to the holder and are priced to reflect such tax benefits or which were originally issued at a deep or substantial discount;

(iii) “Ten Year Average Yield” means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years); and

(iv) “Thirty Year Average Yield” means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of thirty years).

(8) The Corporation will calculate the Applicable Rate with respect to each Dividend Period as promptly as practicable prior to the commencement thereof according to the appropriate method described herein. The Corporation will cause notice of such Applicable Rate to be enclosed with the dividend payment checks next mailed to the holders of shares of this Series.

(9) If, after the day on which shares of this Series are first issued, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that change the percentage specified in Section 243(a)(1) of the Code or any successor provision (the “Dividends Received Percentage”), the amount of each dividend payable per share of this Series after the effective date of any such change shall be adjusted by multiplying the amount of dividends determined as described under Section (c)(1) (before adjustment) by a factor, which shall be the number determined in accordance with the following formula, and rounding the result to the nearest cent:

1 — FTR (1 — OLD)
1 — FTR (1 — DRP)

For the purposes of the above formula, “FTR” means the federal income tax rate applicable to corporations under the Code as in effect on the date shares of this Series are first issued, “OLD” means the Dividend Received Percentage as in effect on such date and “DRP” means the Dividends Received Percentage applicable to the dividend in question. Notwithstanding the foregoing provisions, in the event that, with respect to any such amendment, the Corporation shall receive either an unqualified opinion of independent recognized tax counsel or a private letter ruling or similar form of authorization from the Internal Revenue Service to the effect that such an amendment would not apply to dividends payable on this Series, then any such amendment shall not result in the adjustment provided for pursuant to this Section (c)(9). For purposes of these Resolutions, all references to dividends shall mean dividends as adjusted pursuant to the provisions of this Section (c)(9). The Corporation’s calculations of the dividends payable as so adjusted and as certified accurate as to calculation and reasonable as to method by the independent certified public accountants then regularly engaged by the Corporation, shall be final and not subject to review.

In the event that the amount of dividends payable per share of this Series shall be adjusted pursuant to the provisions of the foregoing paragraph, the Corporation shall cause notice of each such adjustment, together with the Applicable Rate with respect to such dividend, to be included with the dividend payment checks next mailed to the holders of this Series, each as provided in Section (c)(8) of these Resolutions.

(d) Redemption .

(1) Except as set forth in Section (d)(2), the shares of this Series shall not be redeemable prior to the date that is the tenth anniversary of the day on which shares of this Series are first issued. The Corporation, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time on or after such date, at a redemption price equal to the aggregate liquidation value of the shares so redeemed, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption.

(2) Notwithstanding the provisions of Section (d)(1), in the event that an amendment to the Code is enacted that would effect a change in the Dividends Received Percentage so as to result in the amount of dividend payable being adjusted upward pursuant to Section (c)(9), the Corporation, at its option, may redeem the issued and outstanding shares of this Series as a whole, at any time after the effective date of any such change in the Dividends Received Percentage, at a redemption price of $100,000 per share, plus, in each case, an amount equal to accrued and unpaid dividends (whether or not declared) to the date fixed for redemption.

(3) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation or by any other method as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation in its sole discretion to be equitable, provided that such method satisfies any applicable requirements of any securities exchange on which this Series is listed.

(4) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder’s address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.

(5) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the applicable redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the applicable redemption price) shall cease. Upon surrender in

accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the applicable redemption price. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof.

(6) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation.

(7) Notwithstanding the foregoing provisions of this Section (d), in the event that full cumulative dividends on the shares of this Series have not been paid, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or acquire any shares of this Series otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of outstanding shares of this Series.

(e) Conversion or Exchange . The holders of shares of this Series shall not have any rights to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation.

(f) Voting Rights . The shares of this Series shall not have any voting powers either general or special, except as expressly required by applicable law and except that:

(1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of this Series at the time outstanding, voting separately as a class, shall be required to authorize any amendment of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any certificate of designation or any similar document relating to any series of Preferred Stock) which will adversely affect the powers, preferences, privileges or rights of this Series;

(2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least 66-2/3% of all of the shares of this Series and all other series of shares of Preferred Stock ranking on a parity with the shares of this Series, either as to dividends or upon liquidation, at the time outstanding, voting as a single class without regard to series, shall be required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any additional class or series of stock ranking prior to the shares of this Series as to dividends or upon liquidation; and

(3) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends on the shares of this Series shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by one, and the holders of the shares of this Series shall have the right at such meeting, voting together as a single class, to the exclusion of the holders of Common Stock, to elect one director of the Corporation to fill such newly created directorship. Such right shall continue until there are no dividends in arrears upon the shares of this Series. Each director elected by the holders of shares of this Series (herein called a “Preferred Director”) shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of this Series, voting together as a single class, at a meeting of the stockholders, or of the holders of shares of this Series, called for the purpose. So long as a default in any preference dividends on the shares of this Series shall exist any vacancy in the office of a Preferred Director may be filled by the vote of the holders of the outstanding shares of this Series voting together as a single class, at a meeting of the stockholders or of the holders of shares of this Series called for the purpose. Whenever the term of office of the Preferred Director shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by one. For the purposes hereof, a “default in preference dividends” on the shares of this Series shall be deemed to have occurred whenever the amount of accrued but unpaid dividends on such shares shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all such shares then outstanding shall have been paid to the end of the last preceding dividend period. Notwithstanding anything contained in this Certificate of Designation or any other Certificate of Designation, whether currently in effect or adopted hereafter, or the Certificate of Incorporation, as amended from time to time, to the contrary, the holders of shares of this Series shall not be entitled to vote for the election of directors except as set forth in this Section (f)(3).

(g) Liquidation Rights .

(1) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of this Series shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, before any payment or distribution of assets shall be made on the Common Stock or on any other class of stock of the Corporation ranking junior to this Series upon liquidation, the amount of $100,000 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.

(2) For the purposes of this Section (g), a voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall not include the consolidation or merger of the Corporation with or into any other corporation, or any sale, lease or conveyance of all or any part of the property or business of the Corporation.

(3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (g), the holders of this Series as such shall not be entitled to any further participation in any distribution of assets of the Corporation.

(4) If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to the holders of shares of this Series and of any other shares of stock of the Corporation ranking on a parity with this Series upon liquidation shall not be sufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (g), the holders of shares of this Series and of such other shares shall share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled.

(h) Relative Rank . For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank:

(1) Prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series;

(2) On a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if the holders of

such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and

(3) Junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes.

The outstanding shares of the Corporation’s Adjustable Rate Cumulative Preferred Stock, Series 1983A, the Corporation’s Adjustable Rate Cumulative Preferred Stock, Series 1989A, the Corporation’s Adjustable Rate Cumulative Preferred Stock, Series 1989B and the Corporation’s Adjustable Rate Cumulative Preferred Stock, Series 1990B shall be deemed to rank on a parity with the outstanding shares of this Series with respect to the payment of dividends and upon liquidation. The Series A Junior Participating Preferred Stock shall be deemed to rank junior to this Series with respect to the payment of dividends and upon liquidation.

Exhibit B

U.S. Bancorp

8 1/8% Cumulative Preferred Stock, Series A

Section 1. Designation and Amount. The shares of the series shall be designated as the 8 1/8% Cumulative Preferred Stock, Series A (the “Series”), and the number of shares constituting the Series shall be 6,000,000. The number of shares constituting the Series may be decreased from time to time by action of the Board, but not below the number of shares of the Series then outstanding. The Series shall rank senior to the common stock, par value $1.25 per share (“Common Stock”), of the Corporation and on a parity with the Adjustable Rate Cumulative Preferred Stock, Series 1990A, par value $1.00 per share, of the Corporation, as to dividends and upon liquidation.

Section 2. Dividends.

(a) Right to Receive Cash Dividends. The holders of shares of the Series shall be entitled to receive when, as and if declared by the Board out of assets legally available therefor, cumulative cash dividends, payable quarterly in arrears on the fifteenth day of February, May, August and November of each year (each quarterly period ending on any such date being hereinafter referred to as a “dividend period”) commencing on the First Payment Date (as defined below) at the rate per annum set forth in Section 2(b). Each such dividend shall be paid to the holders of record of shares of the Series as they appear on the stock books of the Corporation on such record dates, not exceeding 45 days preceding the dividend payment dates therefor, as shall be fixed by the Board. Dividends on shares of the Series shall be cumulative from the date of original issuance of the shares of 8 1/8% Cumulative Preferred Stock, Series A (the “Old Shares”), of U. S. Bancorp, an Oregon corporation (“Old USB”) from which the Series shares are converted in the merger (the “Merger”) of Old USB and the Corporation and shall include any arrearage on the Old Shares whether or not there shall be assets legally available for the payment of such dividends; provided , that if Old USB shall have set a record date with respect to the Old Shares which record date is prior to the effective date of the Merger for a dividend payment date after the effective date of the Merger, dividends in respect of the Old Shares shall be deemed to accrue to such dividend payment date notwithstanding the intervening occurrence of the Merger, and no dividends shall accrue on the shares of the Series until the first date following such dividend payment date.

The “First Payment Date” shall be (i) if Old USB shall have set a record date with respect to the Old Shares which record date is prior to the effective date of the Merger for a dividend payment date after the effective date of the Merger, the next succeeding dividend payment date

following such dividend payment date; provided , that the Corporation shall pay the dividend declared on the Old Shares to the holders of record of Old Shares as of such record date or (ii) if no such record date shall have been set by Old USB, the first dividend payment date after the effective date of the Merger (it being the intention that no dividend shall be payable with respect to both the Old Shares and the shares of the Series with respect to the same period of time or that any loss of dividends result from the conversion of Old Shares into shares of the Series).

(b) Rate. The dividend rate per annum on the shares of the Series shall be 8 1/8% of the liquidating preference of $25 per share.

(c) Restrictions. No full dividends shall be declared or paid or set aside for payment on any stock of the Corporation ranking, as to dividends, on a parity with or junior to the Series for any period unless full cumulative dividends on the Series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set aside for such payment on the Series for all dividend periods terminating on or prior to the date of payment of such dividends. When dividends are not paid in full on the Series and any other preferred stock of the Corporation ranking on a parity as to dividends with the Series, all dividends declared or paid upon shares of the Series and such other preferred stock shall be declared and paid pro rata so that the amount of dividends declared and paid per share on the Series and such other preferred stock shall in all cases bear to each other the same ratio that accrued dividends per share (which in the case of noncumulative preferred stock shall not include any accumulation in respect of unpaid dividends for prior dividend periods) on shares of the Series and such other preferred stock bear to each other. Except as provided in the preceding sentence, unless full cumulative dividends on the Series have been paid or declared and set aside for payment, no dividends (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Common Stock or any other stock of the Corporation ranking junior to the Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or any other distribution declared or made upon the Common Stock or any other stock of the Corporation ranking junior to or on a parity with the Series as to dividends or upon liquidation. No Common Stock or any other stock of the Corporation ranking junior to or on a parity with the Series as to dividends or upon liquidation shall be redeemed, purchased or otherwise acquired for any consideration (and no moneys shall be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to the Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on the Series shall have been paid or declared and set aside for payment. Holders of shares of the Series shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of the full dividends on such shares. No interest shall be payable in respect of any dividend payment which may be in arrears on the Series.

(d) Computation. Dividends payable on shares of the Series (i) for any period other than a full dividend period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months and (ii) for each full dividend period, shall be computed by dividing the annual dividend rate by four. Any dividend payment made on shares of the Series shall first be credited against the earliest accumulated but unpaid dividend due with respect to shares of the Series.

Section 3. Redemption.

(a) Redemption Prices and Dates. The Corporation at its option may redeem shares of the Series, at any time or from time to time, on or after July 23, 1997, at a cash redemption price of $25 per share plus an amount equal to any accrued and unpaid dividends (including any accumulated dividends) thereon to and including the date fixed for redemption (the “Redemption Price”).

Notwithstanding the foregoing, if at the time the Corporation proposes to give a notice of redemption pursuant to Section 3(d), the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), or a successor Federal agency responsible for supervision of bank holding companies under the Bank Holding Company Act of 1956, as amended, requires that, in order to be counted as “Tier 1” or “core” capital for capital adequacy purposes, bank holding company preferred stock may not be redeemed without the prior approval of the Federal Reserve Board or such successor agency, then the Corporation may not redeem any shares of the Series or give a notice of redemption unless the Federal Reserve Board or such successor agency shall have consented to such redemption.

(b) Pro Rata Redemption. If fewer than all the outstanding shares of the Series are to be redeemed, the shares to be redeemed shall be selected pro rata as nearly as practicable or by lot as may be determined by the Board or by any other method as the Board may determine to be fair and appropriate.

(c) Restrictions on Redemption. Notwithstanding the foregoing, if any quarterly dividend payable on shares of the Series shall be in arrears and until all such dividends in arrears shall have been paid or declared and a sum sufficient for the payment thereof set aside for payment, the Corporation shall not redeem any shares of the Series unless all outstanding shares of the Series are simultaneously redeemed and

shall not purchase or otherwise acquire any shares of the Series except pursuant to a purchase or exchange offer made on the same terms to all holders of shares of the Series for the purchase of all outstanding shares thereof.

(d) Notice. Notice of any redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date to each record holder of the shares to be redeemed at the address of such holder appearing in the stock books of the Corporation. Each such notice shall state: (1) the redemption date, (2) the number of shares of the Series to be redeemed, (3) the Redemption Price, (4) that dividends on the shares to be redeemed shall cease to accrue on such redemption date and (5) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price. If fewer than all the shares of the Series held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares to be redeemed from such holder.

(e) Cessation of Dividends. If notice of redemption has been given, from and after the redemption date for the shares of the Series called for redemption (unless default shall be made by the Corporation in providing for the payment of the Redemption Price of the shares so called for redemption), dividends on the shares of the Series so called for redemption shall cease to accrue and such shares shall no longer be deemed to be outstanding, and all rights of the holders thereof (except the right to receive the Redemption Price) shall cease. Upon surrender in accordance with such notice of the certificates representing any shares of the Series so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so state), the applicable Redemption Price shall be paid out of funds provided by the Corporation. If fewer than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof.

(f) Status of Redeemed and Reacquired Shares. Shares of the Series which have been redeemed or otherwise acquired by the Corporation shall be retired and canceled and shall be restored to the status of authorized but unissued shares of preferred stock, par value $1.00 per share, without designation as to series, and may thereafter be issued, but not as shares of the Series.

Section 4. Liquidation Rights.

(a) Payment on Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of the Series shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders, before

any distribution of assets is made to holders of the Common Stock or any other class or series of stock of the Corporation ranking junior to the Series upon liquidation, a liquidating distribution in an amount equal to $25 per share plus an amount equal to any accrued and unpaid dividends (including any accumulated dividends) thereon to and including the date of such distribution. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to the holders of shares of the Series and any other preferred stock of the Corporation ranking as to any such distribution on a parity with the Series shall be insufficient to pay in full all amounts to which such holders are entitled, the holders of shares of the Series and other preferred stock shall share ratably in such distribution of assets of the Corporation in proportion to the sums that would be payable to such holders if all sums were paid in full. After payment of the full amount of the liquidation distribution plus accrued and unpaid dividends to which they are entitled, the holders of shares of the Series shall have no right or claim to any of the remaining assets of the Corporation.

(b) Definition. None of the consolidation or merger of the Corporation into or with another corporation or corporations, or the sale, lease or exchange of all or substantially all of the Corporation’s assets, shall be deemed a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 4.

Section 5. Voting Rights.

(a) Generally. Except as hereinafter provided or as expressly required by applicable law, the holders of shares of the Series will not be entitled to vote. When holders of shares of the Series are entitled to vote, each holder shall be entitled to one vote per share.

(b) Arrearages. If at any time the equivalent of six quarterly dividends, whether or not consecutive, payable on the Series are unpaid or not declared and set aside for payment, the number of directors of the Corporation shall be increased by two and the holders of shares of the Series outstanding at the time (voting separately as a single class with the holders of shares of any one or more series of preferred stock of the Corporation ranking on a parity with the Series as to dividends or upon liquidation and upon which like voting rights have been conferred and are exercisable) shall have the right to elect two directors to serve as such until all arrearages of dividends on the Series have been paid or declared and set aside for payment at which time the terms of office of the two directors so elected shall terminate and the number of directors of the Corporation shall be reduced by two (subject to any additional rights as to the election of directors provided for the holders of shares of

other preferred stock of the Corporation). Any director so elected may be removed by, and shall not be removed except by, the vote of the holders of shares of the Series outstanding at the time (voting separately as a single class with the holders of shares of any one or more series of preferred stock of the Corporation ranking on a parity with the Series as to dividends or upon liquidation and upon which like voting rights have been conferred and are exercisable).

(c) Certain Corporate Actions. So long as any shares of the Series remain outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least two-thirds of the shares of the Series and of any other similarly affected series of preferred stock of the Corporation ranking on a parity with the Series as to dividends or upon liquidation and upon which like voting rights have been conferred and are exercisable outstanding at the time (voting separately as a single class without regard to series), given in person or by proxy, either in writing or at a meeting, (i) authorize, create or issue, or increase the authorized or issued amount of, any class or series of stock ranking prior to the Series as to dividends or upon liquidation or (ii) amend, alter or repeal, whether by merger or otherwise, the provisions of the Certificate so as to materially and adversely affect any of the preferences, limitations, and relative rights of the Series; provided, however, that any increase in the amount of the authorized preferred stock of the Corporation or the creation and issuance of other series of preferred stock of the Corporation, in each case ranking on a parity with or junior to the Series as to dividends or upon liquidation, will not be deemed to materially and adversely affect such preferences, limitations and relative rights. Without limiting the foregoing, under any circumstances in which the Series would have additional rights under Oregon law if the Corporation were incorporated under the Oregon Business Corporation Act (rather than the Delaware General Corporation Law), holders of shares of the Series shall be entitled to such rights, including, without limitation, voting rights under Section 60.441, voting and notice rights under Section 60.487 and dissenters’ rights under Sections 60.551-60.594 of the Oregon Business Corporation Act (as such Sections may be amended from time to time).

Section 6. No Sinking Fund. Shares of the Series are not subject to a sinking fund or other obligation of the Corporation to redeem or retire the Series.

CERTIFICATE OF MERGER

MERGER

FIRSTAR CORPORATION
A WISCONSIN CORPORATION,

INTO

U.S. BANCORP
A DELAWARE CORPORATION

UNDER SECTION 252 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE

U.S. Bancorp hereby certifies that:

1. The name and state of incorporation of each of the constituent corporations are:

(a) U.S. Bancorp, a Delaware corporation; and

(b) Firstar Corporation, a Wisconsin corporation.

2. An agreement and plan of merger (the “Merger Agreement”) has been approved, adopted, certified, executed and acknowledged by each of U.S. Bancorp and Firstar Corporation in accordance with the provisions of Section 252 of the General Corporation Law of the State of Delaware.

3. The name of the surviving corporation is U.S. Bancorp.

4. The certificate of incorporation of the surviving corporation shall be the certificate of incorporation of U.S. Bancorp as in effect as of the date hereof, except that

the first sentence of Article Fourth thereof shall be amended at the effective time of the merger to read in its entirety as follows:

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

5. The surviving corporation is a corporation organized under the General Corporation Law of the State of Delaware.

6. The executed Merger Agreement is on file at the office of U.S. Bancorp, U.S. Bank Place, 601 Second Avenue South, Minneapolis, Minnesota 55402.

7. A copy of the Merger Agreement will be furnished by U.S. Bancorp, on request and without cost, to any stockholder of U.S. Bancorp or Firstar Corporation.

8. The authorized capital stock of Firstar Corporation as of the date hereof consists of (a) 2,000,000,000 shares of common stock, $0.01 par value per share, and (b) 10,000,000 shares of preferred stock, $1.00 par value per share.

9. This Certificate of Merger shall become effective at 12:01 a.m., Eastern Daylight Time on February 27, 2001.

IN WITNESS WHEREOF, U.S. Bancorp, the surviving corporation, has caused this certificate to be signed by James L. Chosy, its authorized officer, on the 26th day of February, 2001.

U.S. BANCORP

/s/ James L. Chosy

James L. Chosy

Vice President, Associate General Counsel and Secretary

CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
U.S. BANCORP

The Restated Certificate of Incorporation of U.S. Bancorp is hereby amended in the following respects:

1.   The last paragraph of Article SIXTH is hereby deleted in its entirety.

2.   Article EIGHTH is hereby deleted in its entirety.

3.   Article NINTH is hereby renumbered to become Article EIGHTH and all references to “Article NINTH” are hereby changed to “Article EIGHTH.”

The undersigned hereby certifies that such amendments have been duly adopted in accordance with Section 242 of the Delaware General Corporation Law by the stockholders of U.S. Bancorp at a meeting duly called and held on April 19, 2005. Except as otherwise set forth herein, the provisions of the Restated Certificate of Incorporation of U.S. Bancorp remain unmodified and in full force and effect.

IN WITNESS WHEREOF, U.S. Bancorp has caused this certificate to be executed by Laura F. Bednarski, its Vice President and Assistant Secretary, on the 5th day of May, 2005.

/s/ Laura F. Bednarski

Laura F. Bednarski

Vice President and Assistant Secretary

Exhibit 10.1

APPENDIX B-10

SUPPLEMENTAL BENEFITS

This Appendix B-10 summarizes the supplemental benefits payable to the named Participant under the Plan.


Participant	:	Joseph M. Otting

Formula — Part A	:	A pension benefit calculated in accordance with the formula and provisions of the Qualified Plan based on 16 years of post-2001 service, plus any unvested years of “Benefit Service” under the Qualified Plan.

Formula — Part B	:	A pension benefit determined as in Formula — Part A above, except that any limitation imposed by Section 401(a)(17) or Section 415 of the Code shall be ignored, less the pension benefit determined in Part A above.

Formula Offset	:	The benefits provided under Formula A, Formula B and the Excess Portion of the Plan shall, in total, be reduced by the Participant’s pension benefits under the qualified and non-qualified pension plans of Union Bank of California (each of which shall be considered an “offsetting benefit” for purposes of this Appendix B-10).

Form of Payment	:	Life annuity

Vesting Service Start Date	:	From date of hire

Vesting — Part A	:	Five (5) Years of Vesting Service, or, if earlier, when employment is terminated without Cause by the Company or the employee terminates for Good Reason following a Change of Control

Vesting — Part B	:	Age 55 and ten (10) Years of Vesting Service, or, if earlier, when employment is terminated without Cause by the Company or the employee terminates for Good Reason following a Change of Control

Unreduced Retirement Age	:	65

Early Retirement Reduction	:	The early commencement factors set forth in Section 4 of Appendix C of the Qualified Plan.

Earliest Payout Date	:	Age 55

Defined Terms	:	For purposes of this Appendix B-10, the terms “Cause”, “Good Reason”, and “Change of Control” shall have the same meaning as such terms have for purposes of the named Participant’s written employment agreement.

Exhibit 10.2

FIFTH AMENDMENT
OF
U.S. BANCORP NON-QUALIFIED RETIREMENT PLAN

The U.S. Bancorp Non-Qualified Retirement Plan (the “Plan Statement”) is amended in the following respects:

1. Appendix B-15. Effective April 5, 2005, the Plan Statement shall be amended by the addition of the attached Appendix B-15.

2. SAVINGS CLAUSE. Save and except as expressly amended above, the Plan Statement shall continue in full force and effect.

APPENDIX B-15
SUPPLEMENTAL BENEFITS

This Appendix B-15 summarizes the supplemental benefits payable to the named Participant under the Plan.


Participant	:	Richard C. Hartnack

Formula	:	Annual supplemental payment of $500,000 reduced by all of the following (each of which shall be considered an “offsetting benefit” for purposes of this Appendix B-15): the Participant’s benefit under the Qualified Plan, the Participant’s Excess Benefit under this Plan and all qualified and nonqualified retirement benefits earned by the Participant for his service with the Union Bank of California and First Chicago Corp.

Normal Form of Payment	:	Life annuity with ten (10) years certain

Vesting Service Start Date	:	From date of hire

Vesting	:	100% vested upon reaching age 65 if continuously employed by U.S. Bancorp from the Vesting Service Start Date. If employment is terminated after a change in control or by mutual consent prior to age 65, benefit will be 100% vested.

Unreduced Retirement Age	:	65

Early Retirement Reduction	:	1/180 per month prior to age 65

Earliest Payout Date	:	Age 62

Exhibit 10.3

(US BANK LOGO)

March 14, 2005

Mr. Richard C. Hartnack
2625 Via Ramon
Palos Verdes Estates, CA 90274

Dear Rick:

I am pleased to offer you employment with U.S. Bancorp and U.S. Bank as Vice Chair, Consumer Banking, reporting to me. Your first day of employment with us will be April 5, 2005.

The terms of this offer are as follows:

1.   Your base salary will be $510,000 per year, payable semi-monthly. We will recommend to the Board of Directors that you be named a Vice Chair of U.S. Bancorp and U.S. Bank, and you will become a member of our Managing Committee. Your job grade will be 99.

2.   You will be eligible to participate in our corporate cash bonus plan, the Executive Incentive Plan (EIP). Your cash bonus under the EIP will be based on a combination of corporate financial performance, line of business financial performance, and your individual performance against your annual business objectives. The 2005 EIP target award opportunity for you is 140% of annual base salary, or $714,000. The actual bonus paid may be higher or lower than your target amount based on performance. EIP awards are typically paid within 31 days of year end, or each January 31.

3.   You are also eligible to participate in our Annual Long Term Incentive Award Program (LTI). You will receive LTI compensation in the form of nonqualified options to purchase shares of U.S. Bancorp common stock valued by us at $2,000,000 on your first date of employment with us. Based on a USB stock price of $30, we estimate you will receive options to purchase approximately 300,000 shares of U.S. Bancorp. Options have a four year vesting schedule. Your actual exercise price will be based on the opening price of our common stock on your first date of employment with us. You must be actively employed for vesting to occur.

4.   You will receive a grant of USB common shares valued at $2,000,000, or approximately 67,000 shares. These shares will be granted to you on June 15, 2005. You agree to repay the after-tax value of those shares to U.S. Bancorp if you voluntarily terminate your employment with us during the six years immediately following your date of hire. Attached is a draft of a repayment agreement with respect to those shares.

-1-

(US BANK LOGO)

5.   You will receive an Executive Severance Agreement that will provide you with three times salary and bonus in the event U.S. Bancorp experiences a change in control and you lose your job. Without regard to the actual terms of the Executive Severance Agreement, we agree to use the initial target bonus amount of $714,000 as a floor for purposes of the bonus calculation in the Executive Severance Agreement. In other words, your bonus amount used in the calculation will never be less than $714,000 but may be more. The Executive Severance Agreement is attached.

6.   We will ensure that you receive a supplemental employee retirement plan actuarially valued at $500,000 annually, beginning when you reach age 65. For purposes of these plans, we will subtract from the $500,000 amount all qualified and nonqualified pension benefits you are entitled to receive from Union Bank and First Chicago. If you retire before reaching age 65 because of a change in control of U.S. Bancorp or upon mutual agreement in writing between you and U.S. Bancorp, you will receive an amount actuarially reduced to reflect your age at retirement, less the value of all qualified and nonqualified pension benefits you are entitled to receive from Union Bank and First Chicago.

7.   You will be eligible for various employee benefit programs on the same basis as other, similarly situated employees. In addition, you are eligible for an annual physical at the Mayo Clinic, paid parking in our building in Minneapolis, initiation fee and monthly dues for a luncheon club and initiation fee for a country club, both in Minneapolis, if you choose to join such clubs. Other current benefits include group health and dental insurance, life insurance, disability insurance, defined benefit pension, 401(k) defined contribution plan, deferred compensation, ten paid holidays each year, free checking, and various other bank services. You will be entitled to four weeks of vacation in 2005.

8.   You will be eligible to participate in the U.S. Bancorp Deferred Compensation Plan under which you may elect to defer any portion of your 2005 base salary and incentive bonus.

9.   You will be eligible for reimbursement for specified personal financial planning expenses up to a maximum of $20,000 for a given three year period.

10.   You are eligible for our executive relocation plan. A copy of that plan is attached.

This offer is contingent on your acceptance and execution of our standard nonsolicitation agreement, attached.

This offer is contingent on your satisfactory completion of the requirements of our pre-employment screening process, as outlined in the U.S. Bank Employment Application, which includes drug testing and background inquiries.

On behalf of Jerry Grundhofer and the U.S. Bancorp management team, welcome to U.S. Bank. We are excited about working with you. Please call me with questions.

-2-

(US BANK LOGO)

Sincerely,

/s/ Richard K. Davis

Richard K. Davis
President and Chief Operating Officer


Accepted:		/s/ Richard C. Hartnack

		Richard C. Hartnack

Date:		March 14, 2005

-3-


Table 8		Net Charge-offs as a Percent of Average Loans Outstanding


	U.S. BANCORP
	/s/ James L. Chosy
	James L. Chosy
	Vice President, Associate General Counsel and Secretary

1.	The last paragraph of Article SIXTH is hereby deleted in its entirety.

2.	Article EIGHTH is hereby deleted in its entirety.

3.	Article NINTH is hereby renumbered to become Article EIGHTH and all references to “Article NINTH” are hereby changed to “Article EIGHTH.”



	/s/ Laura F. Bednarski
	Laura F. Bednarski
	Vice President and Assistant Secretary

1.	Your base salary will be $510,000 per year, payable semi-monthly. We will recommend to the Board of Directors that you be named a Vice Chair of U.S. Bancorp and U.S. Bank, and you will become a member of our Managing Committee. Your job grade will be 99.

2.	You will be eligible to participate in our corporate cash bonus plan, the Executive Incentive Plan (EIP). Your cash bonus under the EIP will be based on a combination of corporate financial performance, line of business financial performance, and your individual performance against your annual business objectives. The 2005 EIP target award opportunity for you is 140% of annual base salary, or $714,000. The actual bonus paid may be higher or lower than your target amount based on performance. EIP awards are typically paid within 31 days of year end, or each January 31.

3.	You are also eligible to participate in our Annual Long Term Incentive Award Program (LTI). You will receive LTI compensation in the form of nonqualified options to purchase shares of U.S. Bancorp common stock valued by us at $2,000,000 on your first date of employment with us. Based on a USB stock price of $30, we estimate you will receive options to purchase approximately 300,000 shares of U.S. Bancorp. Options have a four year vesting schedule. Your actual exercise price will be based on the opening price of our common stock on your first date of employment with us. You must be actively employed for vesting to occur.

4.	You will receive a grant of USB common shares valued at $2,000,000, or approximately 67,000 shares. These shares will be granted to you on June 15, 2005. You agree to repay the after-tax value of those shares to U.S. Bancorp if you voluntarily terminate your employment with us during the six years immediately following your date of hire. Attached is a draft of a repayment agreement with respect to those shares.

5.	You will receive an Executive Severance Agreement that will provide you with three times salary and bonus in the event U.S. Bancorp experiences a change in control and you lose your job. Without regard to the actual terms of the Executive Severance Agreement, we agree to use the initial target bonus amount of $714,000 as a floor for purposes of the bonus calculation in the Executive Severance Agreement. In other words, your bonus amount used in the calculation will never be less than $714,000 but may be more. The Executive Severance Agreement is attached.

6.	We will ensure that you receive a supplemental employee retirement plan actuarially valued at $500,000 annually, beginning when you reach age 65. For purposes of these plans, we will subtract from the $500,000 amount all qualified and nonqualified pension benefits you are entitled to receive from Union Bank and First Chicago. If you retire before reaching age 65 because of a change in control of U.S. Bancorp or upon mutual agreement in writing between you and U.S. Bancorp, you will receive an amount actuarially reduced to reflect your age at retirement, less the value of all qualified and nonqualified pension benefits you are entitled to receive from Union Bank and First Chicago.

7.	You will be eligible for various employee benefit programs on the same basis as other, similarly situated employees. In addition, you are eligible for an annual physical at the Mayo Clinic, paid parking in our building in Minneapolis, initiation fee and monthly dues for a luncheon club and initiation fee for a country club, both in Minneapolis, if you choose to join such clubs. Other current benefits include group health and dental insurance, life insurance, disability insurance, defined benefit pension, 401(k) defined contribution plan, deferred compensation, ten paid holidays each year, free checking, and various other bank services. You will be entitled to four weeks of vacation in 2005.

8.	You will be eligible to participate in the U.S. Bancorp Deferred Compensation Plan under which you may elect to defer any portion of your 2005 base salary and incentive bonus.

9.	You will be eligible for reimbursement for specified personal financial planning expenses up to a maximum of $20,000 for a given three year period.

10.	You are eligible for our executive relocation plan. A copy of that plan is attached.