UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

 

 

Commission file number: 1-6880

U.S. Bancorp

(Exact name of registrant as specified in its charter)

 

800 Nicollet Mall, Minneapolis, Minnesota 55402

(Address of principal executive offices) (Zip Code)

 

(651) 446-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

 

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No þ

 

As of June 30, 2010, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $42.8 billion based on the closing sale price as reported on the New York Stock Exchange.

 

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

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

PART I

 

 

General Business Description

 

U.S. Bancorp (“U.S. Bancorp” or the “Company”) is a multi-state financial services holding company headquartered in Minneapolis, Minnesota. U.S. Bancorp was incorporated in Delaware in 1929 and operates as a financial holding company and a bank holding company under the Bank Holding Company Act of 1956. U.S. Bancorp provides a full range of financial services, including lending and depository services, cash management, foreign exchange and trust and investment management services. It also engages in credit card services, merchant and ATM processing, mortgage banking, insurance, brokerage and leasing.

 

U.S. Bancorp’s banking subsidiaries are engaged in the general banking business, principally in domestic markets. The subsidiaries range in size from $53 million to $211 billion in deposits and provide a wide range of products and services to individuals, businesses, institutional organizations, governmental entities and other financial institutions. Commercial and consumer lending services are principally offered to customers within the Company’s domestic markets, to domestic customers with foreign operations and within certain niche national venues. Lending services include traditional credit products as well as credit card services, financing and import/export trade, asset-backed lending, agricultural finance and other products. Leasing products are offered through bank leasing subsidiaries. Depository services include checking accounts, savings accounts and time certificate contracts. Ancillary services such as foreign exchange, treasury management and receivable lock-box collection are provided to corporate customers. U.S. Bancorp’s bank and trust subsidiaries provide a full range of asset management and fiduciary services for individuals, estates, foundations, business corporations and charitable organizations.

 

U.S. Bancorp’s non-banking subsidiaries primarily offer investment and insurance products to the Company’s customers principally within its markets, and mutual fund processing services to a broad range of mutual funds.

 

Banking and investment services are provided through a network of 3,031 banking offices principally operating in the Midwest and West regions of the United States. The Company operates a network of 5,310 ATMs and provides 24-hour, seven day a week telephone customer service. Mortgage banking services are provided through banking offices and loan production offices throughout the Company’s markets. Consumer lending products may be originated through banking offices, indirect correspondents, brokers or other lending sources, and a consumer finance division. The Company is also one of the largest providers of Visa^® corporate and purchasing card services and corporate trust services in the United States. A wholly-owned subsidiary, Elavon, Inc. (“Elavon”), provides merchant processing services directly to merchants and through a network of banking affiliations. Affiliates of Elavon provide similar merchant services in Canada and segments of Europe. These foreign operations are not significant to the Company.

 

On a full-time equivalent basis, as of December 31, 2010, U.S. Bancorp employed 60,584 people.

 

Competition

 

The commercial banking business is highly competitive. Subsidiary banks compete with other commercial banks and with other financial institutions, including savings and loan associations, mutual savings banks, finance companies, mortgage banking companies, credit unions and investment companies. In recent years, competition has increased from institutions not subject to the same regulatory restrictions as domestic banks and bank holding companies.

 

Government Policies

 

The operations of the Company’s various operating units are affected by federal and state legislative changes and by policies of various regulatory authorities, including those of the numerous states in which they operate, the United States and foreign governments. These policies include, for example, statutory maximum legal lending rates, domestic monetary policies of the Board of Governors of the Federal Reserve System, United States fiscal

policy, international currency regulations and monetary policies, U.S. Patriot Act and capital adequacy and liquidity constraints imposed by bank regulatory agencies.

 

Supervision and Regulation

 

U.S. Bancorp and its subsidiaries are subject to the extensive regulatory framework applicable to bank holding companies and their subsidiaries. This regulatory framework is intended primarily for the protection of depositors, the deposit insurance fund of the Federal Deposit Insurance Corporation (the “FDIC”), consumers and the banking system as a whole, and not necessarily for investors in bank holding companies such as the Company.

 

This section summarizes certain provisions of the principal laws and regulations applicable to the Company and its subsidiaries. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described below.

 

Substantial changes to the regulation of bank holding companies and their subsidiaries will also be forthcoming from the bank regulatory agencies as a result of the enactment in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Changes in applicable law or regulation, and in their application by regulatory agencies, cannot be predicted, but they may have a material effect on the business and results of the Company and its subsidiaries.

 

Dodd-Frank Act  The Dodd-Frank Act was enacted into law on July 21, 2010. The Dodd-Frank Act significantly changes the regulatory framework for financial services companies, and requires significant rulemaking and numerous studies and reports over the next several years. Among other things, it creates a new Financial Stability Oversight Council with broad authority to make recommendations or require enhanced prudential standards and more stringent supervision for large bank holding companies and certain non-bank financial services companies. The Dodd-Frank Act provides regulators with the power to require a company to sell or transfer assets and terminate activities, if they determine that the size or scope of the company’s activities pose a threat to the safety and soundness of the company or the financial stability of the United States.

 

The Dodd-Frank Act establishes the Bureau of Consumer Financial Protection, which has broad authority to regulate providers of credit, savings, payment and other consumer financial products and services. In addition, the Dodd-Frank Act does the following: creates a new structure for resolving troubled or failed financial institutions; requires certain over-the-counter derivative transactions to be cleared in a central clearinghouse and/or effected on an exchange; revises the assessment base for the calculation of the FDIC insurance assessments; restricts the amount of interchange fees on debit card transactions; restricts securities trading activities and support for and investments in private funds; increases capital requirements; and enhances the regulation of consumer mortgage banking and predatory lending activities. The Dodd-Frank Act also limits the pre-emption of local laws applicable to national banks.

 

In addition to the Dodd-Frank Act, other legislative proposals have been made both domestically and internationally. Among other things, these proposals include additional capital and liquidity requirements and limitations on size or types of activity in which banks may engage.

 

Federal Reserve Regulation  The Company elected to become a financial holding company as of March 13, 2000, pursuant to the provisions of the Gramm-Leach-Bliley Act (the “GLBA”). Under the GLBA’s system of “functional regulation,” the Board of Governors of the Federal Reserve System (the “Federal Reserve”) acts as an “umbrella regulator” for the Company, and certain of the Company’s subsidiaries are regulated directly by additional agencies based on the particular activities of those subsidiaries. The Company’s banking subsidiaries are regulated by the Office of the Comptroller of the Currency (the “OCC”) and also by the Federal Reserve and the FDIC in certain areas. Supervision and regulation by the responsible regulatory agency generally includes comprehensive annual reviews of all major aspects of a bank’s business and condition, and imposition of periodic reporting requirements and limitations on investments and certain types of activities.

 

If a financial holding company or a depository institution controlled by a financial holding company ceases to meet certain capital or management standards, the Federal Reserve may impose corrective capital and managerial requirements on the financial holding company, and place limitations on its ability to conduct all of the business activities that financial holding companies are generally permitted to conduct. See “Permissible Business

Activities” below. If the failure to meet these standards persists, a financial holding company may be required to divest its depository institution subsidiaries, or cease all activities other than those activities that may be conducted by bank holding companies that are not financial holding companies.

 

Federal Reserve regulations also provide that, if any depository institution controlled by a financial holding company fails to maintain a satisfactory rating under the Community Reinvestment Act (“CRA”), the Federal Reserve must prohibit the financial holding company and its subsidiaries from engaging in the additional activities in which only financial holding companies may engage. See “Community Reinvestment Act” below. At December 31, 2010, the Company’s depository-institution subsidiaries met the capital, management and CRA requirements necessary to permit the Company to conduct the broader activities permitted for financial holding companies under the GLBA.

 

The Dodd-Frank Act codified existing Federal Reserve policy requiring the Company to act as a source of financial strength to its bank subsidiaries, and to commit resources to support these subsidiaries in circumstances where it might not otherwise do so. However, because the GLBA provides for functional regulation of financial holding company activities by various regulators, the GLBA prohibits the Federal Reserve from requiring payment by a holding company to a depository institution if the functional regulator of the depository institution objects to the payment. In those cases, the Federal Reserve could instead require the divestiture of the depository institution and impose operating restrictions pending the divestiture. As a result of the Dodd-Frank Act, non-bank subsidiaries of a holding company that engage in activities permissible for an insured depository institution must be examined and regulated in a manner that is at least as stringent as if the activities were conducted by the lead depository institution of the holding company.

 

Permissible Business Activities  As a financial holding company, the Company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature. “Financial in nature” activities include the following: securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking; and activities that the Federal Reserve, in consultation with the Secretary of the U.S. Treasury, determines to be financial in nature or incidental to such financial activity. “Complementary activities” are activities that the Federal Reserve determines upon application to be complementary to a financial activity and that do not pose a safety and soundness risk.

 

The Company generally does not need Federal Reserve approval to acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. However, the Dodd-Frank Act added a provision requiring that approval if the total consolidated assets to be acquired exceed $10 billion. Financial holding companies are also required to obtain the approval of the Federal Reserve before they may acquire more than 5 percent of the voting shares or substantially all of the assets of an unaffiliated bank holding company, bank or savings association.

 

Interstate Banking  Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time (not to exceed five years). Also, such an acquisition is not permitted if the bank holding company controls, prior to or following the proposed acquisition, more than 10 percent of the total amount of deposits of insured depository institutions nationwide, or, if the acquisition is the bank holding company’s initial entry into the state, more than 30 percent of the deposits of insured depository institutions in the state (or any lesser or greater amount set by the state).

 

The Riegle-Neal Act also authorizes banks to merge across state lines to create interstate branches. Under the Dodd-Frank Act, banks are permitted to establish new branches in another state to the same extent as banks chartered in the other state.

 

Regulatory Approval for Acquisitions  In determining whether to approve a proposed bank acquisition, federal bank regulators will consider a number of factors, including the following: the effect of the acquisition on competition, financial condition and future prospects (including current and projected capital ratios and levels); the competence, experience and integrity of management and its record of compliance with laws and regulations; the

convenience and needs of the communities to be served (including the acquiring institution’s record of compliance under the CRA); and the effectiveness of the acquiring institution in combating money laundering activities. In addition, under the Dodd-Frank Act, approval of interstate transactions requires that the acquiror satisfy regulatory standards for well capitalized and well managed institutions.

 

Dividend Restrictions  The Company is a legal entity separate and distinct from its subsidiaries. Typically, the majority of the Company’s operating funds are received in the form of dividends paid to the Company by U.S. Bank National Association, its principal banking subsidiary. Federal law imposes limitations on the payment of dividends by national banks.

 

Dividends payable by U.S. Bank National Association, U.S. Bank National Association ND and the Company’s trust bank subsidiaries, as national banking associations, are limited to the lesser of the amounts calculated under a “recent earnings” test and an “undivided profits” test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year’s net income combined with the retained net income of the two preceding years, unless the bank obtains the approval of the OCC. Under the undivided profits test, a dividend may not be paid in excess of a bank’s “undivided profits.” See Note 23 of the Notes to Consolidated Financial Statements included in the Company’s 2010 Annual Report for the amount of dividends that the Company’s principal banking subsidiaries could pay to the Company at December 31, 2010, without the approval of their banking regulators.

 

In addition to the dividend restrictions described above, the OCC, the Federal Reserve and the FDIC have authority to prohibit or limit the payment of dividends by the banking organizations they supervise (including the Company and its bank subsidiaries), if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization. Subject to exceptions for well capitalized and well managed holding companies, Federal Reserve regulations also require approval of holding company purchases and redemptions of its securities if the gross consideration paid exceeds 10 percent of consolidated net worth for any 12-month period.

 

In addition, Federal Reserve policy on the payment of dividends, stock redemptions and stock repurchases requires that bank holding companies consult with and inform the Federal Reserve in advance of doing any of the following: declaring and paying dividends that could raise safety and soundness concerns (e.g., declaring and paying dividends that exceed earnings for the period for which dividends are being paid); redeeming or repurchasing capital instruments when experiencing financial weakness; and redeeming or repurchasing common stock and perpetual preferred stock, if the result will be a net reduction in the amount of such capital instruments outstanding for the quarter in which the reduction occurs.

 

In November 2010, the Federal Reserve issued an addendum to its policy on dividends, stock redemptions and stock repurchases that is specifically applicable to the 19 largest bank holding companies (including the Company) that are covered by the Supervisory Capital Assessment Program (“SCAP”). The addendum provides for Federal Reserve review of dividend increases, implementation of capital repurchase programs and other capital repurchases or redemptions. The addendum also requires that holding companies subject to SCAP prepare and file a comprehensive capital plan that includes a stress testing framework. These plans will be evaluated by the Federal Reserve based on the holding company’s risk profile, currently applicable capital standards and the reasonableness of plans to address future capital standards, including Basel III (discussed below) and relevant requirements under the Dodd-Frank Act.

 

Capital Requirements  Federal banking regulators have adopted risk-based capital and leverage guidelines that require the capital-to-assets ratios of financial institutions to meet certain minimum standards. The risk-based capital ratio is calculated by allocating assets and specified off-balance sheet financial instruments into risk weighted categories (with higher levels of capital being required for the categories perceived as representing greater risk), and is used to determine the amount of a financial institution’s total risk-weighted assets (“RWA”).

 

Under the guidelines, capital is divided into two tiers: Tier 1 capital and Tier 2 capital. The amount of Tier 2 capital may not exceed the amount of Tier 1 capital. Total capital is the sum of Tier 1 capital and Tier 2 capital. Under the guidelines, banking organizations are required to maintain a total capital ratio (total capital to RWA) of 8 percent and a Tier 1 capital ratio (Tier 1 capital to RWA) of 4 percent. At December 31, 2010, the Company’s

consolidated total capital ratio was 13.3 percent and its Tier 1 capital ratio was 10.5 percent. For a further description of these guidelines, see Note 15 of the Notes to Consolidated Financial Statements in the Company’s 2010 Annual Report.

 

The federal banking regulators also have established minimum leverage ratio guidelines. The leverage ratio is defined as Tier 1 capital divided by adjusted average total assets. The minimum leverage ratio is 3 percent for bank holding companies that are considered “strong” under Federal Reserve guidelines or which have implemented the Federal Reserve’s risk-based capital measure for market risk. Other bank holding companies must have a minimum leverage ratio of 4 percent. Bank holding companies may be expected to maintain ratios well above the minimum levels, depending upon their particular condition, risk profile and growth plans. At December 31, 2010, the Company’s leverage ratio was 9.1 percent.

 

The minimum risk-based capital requirements adopted by the federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision. In 2004, the Basel Committee published a revision to the accord (“Basel II”). U.S. banking regulators published a final Basel II rule in December 2007, which requires the Company to implement Basel II at the holding company level, as well as at its key U.S. bank subsidiaries. A further revision to the accord was published in December 2010 (“Basel III”), with implementation to be phased in beginning in 2013. Although banking regulators have not yet issued regulations implementing Basel III, the domestic implementation of Basel III will increase the Company’s capital requirements.

 

The Dodd-Frank Act contained amendments to holding company capital requirements. These amendments effectively eliminated differences between the minimum capital requirements applicable to insured depository institutions and their holding companies by phasing out the use of hybrid debt instruments (such as trust preferred securities) in determining holding company regulatory capital.

 

For additional information regarding the Company’s regulatory capital, see Capital Management in the Company’s 2010 Annual Report on pages 53 to 54.

 

Federal Deposit Insurance Corporation Improvement Act  The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) provides a framework for regulation of depository institutions and their affiliates (including parent holding companies) by federal banking regulators. As part of that framework, the FDICIA requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution, if that institution does not meet certain capital adequacy standards.

 

Supervisory actions by the appropriate federal banking regulator under the “prompt corrective action” rules generally depend upon an institution’s classification within five capital categories. The regulations apply only to banks and not to bank holding companies such as the Company; however, subject to limitations that may be imposed pursuant to the GLBA, the Federal Reserve is authorized to take appropriate action at the holding company level, based on the undercapitalized status of the holding company’s subsidiary banking institutions. In certain instances relating to an undercapitalized banking institution, the bank holding company would be required to guarantee the performance of the undercapitalized subsidiary’s capital restoration plan, and could be liable for civil money damages for failure to fulfill those guarantee commitments.

 

Deposit Insurance  Under current FDIC regulations, each depository institution is assigned to a risk category based on capital and supervisory measures. In 2009, the FDIC revised the method for calculating the assessment rate for depository institutions by introducing several adjustments to an institution’s initial base assessment rate. A depository institution is assessed premiums by the FDIC based on its risk category and the amount of deposits held. Higher levels of banks failures have dramatically increased FDIC resolution costs and depleted the deposit insurance fund. In addition, in 2008, the amount of FDIC insurance coverage for insured deposits was generally increased from $100,000 per depositor account ownership type to $250,000.

 

In light of the increased stress on the deposit insurance fund caused by these developments, and in order to maintain a strong funding position and restore the reserve ratios of the deposit insurance fund, the FDIC (a) imposed a special assessment in June 2009, (b) has increased assessment rates of insured institutions generally, and (c) required insured institutions to prepay on December 30, 2009 the premiums that were expected to become due for 2010, 2011 and 2012. In addition, the Dodd-Frank Act alters the assessment base for deposit insurance assessments from a deposit to an asset base, and seeks to fund part of the cost of the Dodd-Frank Act by increasing

the deposit insurance reserve fund to 1.35 percent of estimated insured deposits. The Dodd-Frank Act also requires that FDIC assessments be set in a manner that offsets the cost of the assessment increases for institutions with consolidated assets of less than $10 billion. This provision effectively places the increased assessment costs on larger financial institutions such as the Company.

 

The Dodd-Frank Act also permanently increased deposit insurance coverage from $100,000 per account ownership type to $250,000, and extended the unlimited insurance of non-interest bearing transaction accounts under the FDIC Transaction Account Guaranty program to January 1, 2013.

 

Powers of the FDIC Upon Insolvency of an Insured Institution  If the FDIC is appointed the conservator or receiver of an insured depository institution upon its insolvency or in certain other events, the FDIC has the power to (a) transfer any of the depository institution’s assets and liabilities to a new obligor without the approval of the depository institution’s creditors; (b) enforce the terms of the depository institution’s contracts pursuant to their terms; or (c) repudiate or disaffirm any contracts (if the FDIC determines that performance of the contract is burdensome and that the repudiation or disaffirmation is necessary to promote the orderly administration of the depository institution). These provisions would be applicable to obligations and liabilities of the Company’s subsidiaries that are insured depository institutions, such as U.S. Bank National Association.

 

Depositor Preference  Under federal law, in the event of the liquidation or other resolution of an insured depository institution, the claims of a receiver of the institution for administrative expense and the claims of holders of U.S. deposit liabilities (including the FDIC, as subrogee of the depositors) have priority over the claims of other unsecured creditors of the institution, including holders of publicly issued senior or subordinated debt and depositors in non-U.S. offices. As a result, those noteholders and depositors would be treated differently from, and could receive, if anything, substantially less than, the depositors in U.S. offices of the depository.

 

Orderly Liquidation of Bank Holding Companies  The Dodd-Frank Act provides for the orderly liquidation of certain financial services companies (including bank holding companies) through the appointment of the FDIC as receiver upon insolvency and the occurrence of certain other events. Although these provisions became effective upon enactment of the Dodd-Frank Act, only some of the regulations have been proposed, and none have been adopted, to date.

 

In preparation for the potential exercise of this authority, the FDIC created the Office of Complex Financial Institutions. Its duties include the continuous review and oversight of bank holding companies with assets of more than $100 billion. The Dodd-Frank Act also requires each bank holding company with $50 billion or more in assets to prepare a “living will” to facilitate the company’s rapid and orderly liquidation in the event of material financial distress or failure.

 

Liability of Commonly Controlled Institutions  An FDIC-insured depository institution can be held liable for any loss incurred or expected to be incurred by the FDIC in connection with another FDIC-insured institution under common control with that institution being “in default” or “in danger of default” (commonly referred to as “cross-guarantee” liability). An FDIC claim for cross-guarantee liability against a depository institution is generally superior in right of payment to claims of the holding company and its affiliates against the depository institution.

 

Transactions with Affiliates  There are various legal restrictions on the extent to which the Company and its non-bank subsidiaries may borrow or otherwise obtain funding from the Company’s banking subsidiaries, including U.S. Bank National Association and U.S. Bank National Association ND. Under the Federal Reserve Act and Regulation W of the Federal Reserve, the Company’s banking subsidiaries (and their subsidiaries) may only engage in lending and other “covered transactions” with non-bank and non-savings bank affiliates to the following extent: (a) in the case of any single affiliate, the aggregate amount of covered transactions may not exceed 10 percent of the capital stock and surplus of the banking subsidiary; and (b) in the case of all affiliates, the aggregate amount of covered transactions may not exceed 20 percent of the capital stock and surplus of the banking subsidiary.

 

Covered transactions between the Company’s banking subsidiaries and their affiliates are also subject to certain collateralization requirements. All covered transactions, including transactions with a third party in which an affiliate of the banking subsidiary has a financial interest, must be conducted on market terms. “Covered transactions” are defined to include (a) a loan or extension of credit by a bank subsidiary to an affiliate, (b) a purchase of securities issued to a banking subsidiary by an affiliate, (c) a purchase of assets (unless otherwise

exempted by the Federal Reserve) by the banking subsidiary from an affiliate, (d) the acceptance of securities issued by an affiliate to the banking subsidiary as collateral for a loan, and (e) the issuance of a guarantee, acceptance or letter of credit by the banking subsidiary on behalf of an affiliate.

 

Anti-Money Laundering and Suspicious Activity  Several federal laws, including the Bank Secrecy Act, the Money Laundering Control Act and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) require all financial institutions (including banks and securities broker-dealers) to, among other things, implement policies and procedures relating to anti-money laundering, compliance, suspicious activities, and currency transaction reporting and due diligence on customers. The Patriot Act also requires federal bank regulators to evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a proposed bank acquisition.

 

Community Reinvestment Act  The Company’s banking subsidiaries are subject to the provisions of the CRA. Under the terms of the CRA, the banks have a continuing and affirmative obligation, consistent with safe and sound operation, to help meet the credit needs of their communities, including providing credit to individuals residing in low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, and does not limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community in a manner consistent with the CRA.

 

The OCC regularly assesses each of the Company’s banking subsidiaries on its record in meeting the credit needs of the community served by that institution, including low-income and moderate-income neighborhoods. The assessment also is considered when the Federal Reserve reviews applications by banking institutions to acquire, merge or consolidate with another banking institution or its holding company, to establish a new branch office that will accept deposits or to relocate an office. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the records of each subsidiary depository institution of the applicant bank holding company, and those records may be the basis for denying the application.

 

U.S. Bank National Association received an “outstanding” CRA rating and U.S. Bank National Association ND received a “satisfactory” CRA rating in their most recent examinations, covering the periods from January 1, 2006 through December 31, 2008.

 

Regulation of Brokerage, Investment Advisory and Insurance Activities  The Company conducts securities underwriting, dealing and brokerage activities in the United States through U.S. Bancorp Investments, Inc. (“USBII”) and other subsidiaries. These activities are subject to regulations of the Securities and Exchange Commission (the “SEC”), the Financial Industry Regulatory Authority and other authorities, including state regulators. These regulations generally include licensing of securities personnel, interactions with customers, trading operations and periodic examinations.

 

Securities regulators impose capital requirements on USBII and monitor its financial operations with periodical financial reviews. In addition, USBII is a member of the Securities Investor Protection Corporation.

 

The operations of First American Funds mutual funds also are subject to regulation by the SEC. The Company’s operations in the areas of insurance brokerage and reinsurance of credit life insurance are subject to regulation and supervision by various state insurance regulatory authorities, including the licensing of insurance brokers and agents.

 

Financial Privacy  Under the requirements imposed by the GLBA, the Company and its subsidiaries are required periodically to disclose to their retail customers the Company’s policies and practices with respect to the sharing of nonpublic customer information with its affiliates and others, and the confidentiality and security of that information. Under the GLBA, retail customers also must be given the opportunity to “opt out” of information-sharing arrangements with nonaffiliates, subject to certain exceptions set forth in the GLBA.

 

Other Supervision and Regulation  The activities of U.S. Bank National Association and U.S. Bank National Association ND as consumer lenders also are subject to regulation under various U.S. federal laws, including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt Collection Practice and Electronic Funds Transfer acts, as well as various state laws. These statutes impose requirements on consumer loan origination and collection practices.

The Company is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC, by virtue of the Company’s status as a public company. As a listed company on the New York Stock Exchange (the “NYSE”), the Company is subject to the rules of the NYSE for listed companies.

 

Website Access to SEC Reports

 

U.S. Bancorp’s internet website can be found at usbank.com. U.S. Bancorp makes available free of charge on its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act, as well as all other reports filed by U.S. Bancorp with the SEC as soon as reasonably practicable after electronically filed with, or furnished to, the United States Securities and Exchange Commission.

 

Additional Information

 

Additional information in response to this Item 1 can be found in the Company’s 2010 Annual Report on page 20 under the heading “Acquisitions”; and on pages 55 to 60 under the heading “Line of Business Financial Review.” That information is incorporated into this report by reference.

 

 

Information in response to this Item 1A can be found in the Company’s 2010 Annual Report on pages 131 to 138 under the heading “Risk Factors.” That information is incorporated into this report by reference.

 

 

None.

 

 

U.S. Bancorp and its significant subsidiaries occupy headquarter offices under a long-term lease in Minneapolis, Minnesota. The Company also leases nine freestanding operations centers in Cincinnati, Denver, Milwaukee, Minneapolis, Overland Park, Portland and St. Paul. The Company owns 11 principal operations centers in Cincinnati, Coeur d’Alene, Fargo, Milwaukee, Olathe, Owensboro, Portland, St. Louis and St. Paul. At December 31, 2010, the Company’s subsidiaries owned and operated a total of 1,507 facilities and leased an additional 1,975 facilities, all of which are well maintained. The Company believes its current facilities are adequate to meet its needs. Additional information with respect to premises and equipment is presented in Notes 9 and 22 of the Notes to Consolidated Financial Statements included in the Company’s 2010 Annual Report. That information is incorporated into this report by reference.

 

 

During 2010, the Company paid an $800,000 penalty imposed under section 6707 A(b)(2) of the Internal Revenue Code for failure to include certain reportable transaction information in its 2004 — 2007 federal income tax returns related to a listed transaction.

 

 

Capital Covenants

 

The Company has entered into several transactions involving the issuance of capital securities (“Capital Securities”) by Delaware statutory trusts formed by the Company (the “Trusts”), the issuance by the Company of preferred stock (“Preferred Stock”) or the issuance by an indirect subsidiary of U.S. Bank National Association of preferred stock exchangeable for the Company’s Preferred Stock under certain circumstances (“Exchangeable Preferred Stock”). Simultaneously with the closing of each of those transactions, the Company entered into a replacement capital covenant (each, a “Replacement Capital Covenant” and collectively, the “Replacement Capital Covenants”) for the benefit of persons that buy, hold or sell a specified series of long-term indebtedness of the

Company or U.S. Bank National Association (the “Covered Debt”). Each of the Replacement Capital Covenants provides that neither the Company nor any of its subsidiaries (including any of the Trusts) will repay, redeem or purchase any of the Preferred Stock, Exchangeable Preferred Stock or the Capital Securities and the securities held by the Trust (the “Other Securities”), as applicable, on or before the date specified in the applicable Replacement Capital Covenant, with certain limited exceptions, except to the extent that, during the 180 days prior to the date of that repayment, redemption or purchase, the Company has received proceeds from the sale of qualifying securities that (i) have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the Preferred Stock, the Exchangeable Preferred Stock, the Capital Securities or Other Securities, as applicable, at the time of repayment, redemption or purchase, and (ii) the Company has obtained the prior approval of the Federal Reserve Board, if such approval is then required by the Federal Reserve Board or, in the case of the Exchangeable Preferred Stock, the approval of the Office of the Comptroller of the Currency.

 

The Company will provide a copy of any Replacement Capital Covenant to a holder of the relevant Covered Debt. For copies of any of these documents, holders should write to Investor Relations, U.S. Bancorp, 800 Nicollet Mall, Minneapolis, Minnesota 55402, or call (866) 775-9668.

 

The following table identifies the (i) closing date for each transaction, (ii) issuer, (iii) series of Capital Securities, Preferred Stock or Exchangeable Preferred Stock issued in the relevant transaction, (iv) Other Securities, if any, and (v) applicable Covered Debt.

 

 

 

 

PART II

 

 

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

 

 

 

 

Additional Information

 

Additional information in response to this Item 5 can be found in the Company’s 2010 Annual Report on page 130 under the heading “U.S. Bancorp Supplemental Financial Data (Unaudited).” That information is incorporated into this report by reference.

 

 

Information in response to this Item 6 can be found in the Company’s 2010 Annual Report on page 19 under the heading “Table 1 — Selected Financial Data.” That information is incorporated into this report by reference.

 

 

Information in response to this Item 7 can be found in the Company’s 2010 Annual Report on pages 18 to 64 under the heading “Management’s Discussion and Analysis.” That information is incorporated into this report by reference.

 

 

Information in response to this Item 7A can be found in the Company’s 2010 Annual Report on pages 33 to 54 under the heading “Corporate Risk Profile.” That information is incorporated into this report by reference.

 

 

Information in response to this Item 8 can be found in the Company’s 2010 Annual Report on pages 65 to 130 under the headings “Report of Management,” “Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements,” “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting,” “U.S. Bancorp Consolidated Balance Sheet,” “U.S. Bancorp Consolidated Statement of Income,” “U.S. Bancorp Consolidated Statement of Shareholders’ Equity,” “U.S. Bancorp Consolidated Statement of Cash Flows,” “Notes to Consolidated Financial Statements,” “U.S. Bancorp Consolidated Balance Sheet — Five Year Summary (Unaudited),” “U.S. Bancorp Consolidated Statement of Income — Five Year Summary (Unaudited),” “U.S. Bancorp Quarterly Consolidated Financial Data (Unaudited),” “U.S. Bancorp Consolidated Daily Average Balance Sheet and Related Yields and Rates (Unaudited)” and “U.S. Bancorp Supplemental Financial Data (Unaudited).” That information is incorporated into this report by reference.

 

 

None.

 

 

Information in response to this Item 9A can be found in the Company’s 2010 Annual Report on page 64 under the heading “Controls and Procedures” and on pages 65 and 67 under the headings “Report of Management” and “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.” That information is incorporated into this report by reference.

 

 

None.

PART III

 

 

Executive Officers of the Registrant

 

Richard K. Davis

 

Mr. Davis is Chairman, President and Chief Executive Officer of U.S. Bancorp. Mr. Davis, 53, has served as Chairman of U.S. Bancorp since December 2007, Chief Executive Officer since December 2006 and President since October 2004. He also served as Chief Operating Officer from October 2004 until December 2006. From the time of the merger of Firstar Corporation and U.S. Bancorp in February 2001 until October 2004, Mr. Davis served as Vice Chairman of U.S. Bancorp. From the time of the merger, Mr. Davis was responsible for Consumer Banking, including Retail Payment Solutions (card services), and he assumed additional responsibility for Commercial Banking in 2003. Mr. Davis has held management positions with the Company since joining Star Banc Corporation, one of its predecessors, in 1993 as Executive Vice President.

 

Jennie P. Carlson

 

Ms. Carlson is Executive Vice President, Human Resources, of U.S. Bancorp. Ms. Carlson, 50, has served in this position since January 2002. Until that time, she served as Executive Vice President, Deputy General Counsel and Corporate Secretary of U.S. Bancorp since the merger of Firstar Corporation and U.S. Bancorp in February 2001. From 1995 until the merger, she was General Counsel and Secretary of Firstar Corporation and Star Banc Corporation.

 

Andrew Cecere

 

Mr. Cecere is Vice Chairman and Chief Financial Officer of U.S. Bancorp. Mr. Cecere, 50, has served in this position since February 2007. Until that time, he served as Vice Chairman, Wealth Management and Securities Services, since the merger of Firstar Corporation and U.S. Bancorp in February 2001. Previously, he had served as an executive officer of the former U.S. Bancorp, including as Chief Financial Officer from May 2000 through February 2001.

 

Terrance R. Dolan

 

Mr. Dolan is Vice Chairman, Wealth Management and Securities Services, of U.S. Bancorp. Mr. Dolan, 49, has served in this position since July 2010. From September 1998 to July 2010, Mr. Dolan served as U.S. Bancorp’s Controller. He additionally held the title of Executive Vice President from January 2002 until June 2010 and Senior Vice President from September 1998 until January 2002.

 

Richard C. Hartnack

 

Mr. Hartnack is Vice Chairman, Consumer and Small Business Banking, of U.S. Bancorp. Mr. Hartnack, 65, has served in this position since April 2005, when he joined U.S. Bancorp. Prior to joining U.S. Bancorp, he served as Vice Chairman of Union Bank of California from 1991 to 2005 with responsibility for Community Banking and Investment Services.

 

Richard J. Hidy

 

Mr. Hidy is Executive Vice President and Chief Risk Officer of U.S. Bancorp. Mr. Hidy, 48, has served in this position since 2005. From 2003 until 2005, he served as Senior Vice President and Deputy General Counsel of U.S. Bancorp, having served as Senior Vice President and Associate General Counsel of U.S. Bancorp and Firstar Corporation since 1999.

Joseph C. Hoesley

 

Mr. Hoesley is Vice Chairman, Commercial Real Estate, of U.S. Bancorp. Mr. Hoesley, 56, has served in this position since June 2006. From June 2002 until June 2006, he served as Executive Vice President and National Group Head of Commercial Real Estate at U.S. Bancorp, having previously served as Senior Vice President and Group Head of Commercial Real Estate since joining U.S. Bancorp in 1992.

 

Pamela A. Joseph

 

Ms. Joseph is Vice Chairman, Payment Services, of U.S. Bancorp. Ms. Joseph, 52, has served in this position since December 2004. Since November 2004, she has been Chairman and Chief Executive Officer of Elavon Inc., a wholly owned subsidiary of U.S. Bancorp. Prior to that time, she had been President and Chief Operating Officer of Elavon Inc. since February 2000.

 

Howell D. McCullough III

 

Mr. McCullough is Executive Vice President and Chief Strategy Officer of U.S. Bancorp and Head of U.S. Bancorp’s Enterprise Revenue Office. Mr. McCullough, 54, has served in these positions since September 2007. From July 2005 until September 2007, he served as Director of Strategy and Acquisitions of the Payment Services business of U.S. Bancorp. He also served as Chief Financial Officer of the Payment Services business from October 2006 until September 2007. From March 2001 until July 2005, he served as Senior Vice President and Director of Investor Relations at U.S. Bancorp.

 

Lee R. Mitau

 

Mr. Mitau is Executive Vice President and General Counsel of U.S. Bancorp. Mr. Mitau, 62, has served in this position since 1995. Mr. Mitau also serves as Corporate Secretary. Prior to 1995 he was a partner at the law firm of Dorsey & Whitney LLP.

 

P.W. Parker

 

Mr. Parker is Executive Vice President and Chief Credit Officer of U.S. Bancorp. Mr. Parker, 54, has served in this position since October 2007. From March 2005 until October 2007, he served as Executive Vice President of Credit Portfolio Management of U.S. Bancorp, having served as Senior Vice President of Credit Portfolio Management of U.S. Bancorp since January 2002.

 

Richard B. Payne, Jr.

 

Mr. Payne is Vice Chairman, Wholesale Banking, of U.S. Bancorp. Mr. Payne, 63, has served in this position since November 2010, when he assumed the additional responsibility for Commercial Banking at U.S. Bancorp. From July 2006, when he joined U.S. Bancorp, until November 2010, Mr. Payne served as Vice Chairman, Corporate Banking at U.S. Bancorp. Prior to joining U.S. Bancorp, he served as Executive Vice President for National City Corporation in Cleveland, with responsibility for Capital Markets, from 2001 to 2006.

 

Jeffry H. von Gillern

 

Mr. von Gillern is Vice Chairman, Technology and Operations Services, of U.S. Bancorp. Mr. von Gillern, 45, has served in this position since July 2010. From April 2001, when he joined U.S. Bancorp, until July 2010, Mr. von Gillern served as Executive Vice President of U.S. Bancorp, additionally serving as Chief Information Officer from July 2007 until July 2010.

 

Code of Ethics and Business Conduct

 

The Company has adopted a Code of Ethics and Business Conduct that applies to its principal executive officer, principal financial officer and principal accounting officer. The Company’s Code of Ethics and Business Conduct can be found at www.usbank.com by clicking on “About U.S. Bank” and then clicking on “Ethics” under the “Investor/Shareholder Information” heading, which is located at the left side of the bottom of the page. The

Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, certain provisions of the Code of Ethics and Business Conduct that apply to its principal executive officer, principal financial officer and principal accounting officer by posting such information on its website, at the address and location specified above.

 

Additional Information

 

Additional information in response to this Item 10 can be found in the Company’s Proxy Statement under the headings “Section 16(a) Beneficial Ownership Reporting Compliance,” “Proposal 1 — Election of Directors” and “Board Meetings and Committees.” That information is incorporated into this report by reference.

 

 

Information in response to this Item 11 can be found in the Company’s Proxy Statement under the headings “Executive Compensation” and “Director Compensation.” That information is incorporated into this report by reference.

 

 

Equity Compensation Plan Information

 

The following table summarizes information regarding the Company’s equity compensation plans in effect as of December 31, 2010:

 

 

 

 

As of December 31, 2010, options to purchase an aggregate of 1,231,625 shares were outstanding under the 2001 Stock Plan. Under the 2001 Stock Plan, nonqualified stock options were granted to full-time or part-time employees actively employed by U.S. Bancorp on the grant date, other than individuals eligible to participate in any of the Company’s executive stock incentive plans. All options outstanding under the plan were granted on February 27, 2001.

 

No further options will be granted under the 2001 Stock Plan. Under this plan the exercise price of the options equals the fair market value of the underlying common stock on the grant date. All options granted under the plan have a term of 10 years from the grant date and become exercisable over a period of time set forth in the relevant plan or as determined by the committee administering the relevant plan. Options granted under the plan are nontransferable and, during the optionee’s lifetime, are exercisable only by the optionee.

 

If an optionee is terminated as a result of his or her gross misconduct or offense, all options terminate immediately, whether or not vested. Under the 2001 Stock Plan in the event an optionee is terminated immediately following a change-in-control (as defined in the plan) of U.S. Bancorp, and the termination is due to business needs resulting from the change-in-control and not as a result of the optionee’s performance or conduct, all of the optionee’s outstanding options will become immediately vested and exercisable as of the date of termination.

 

If the outstanding shares of the Company’s common stock are changed into or exchanged for a different number or kind of stock or other securities as a result of a reorganization, recapitalization, stock dividend, stock split, combination of shares, reclassification, merger, consolidation or similar event, the number of shares underlying outstanding options also may be adjusted. The plans may be terminated, amended or modified by the Board of Directors at any time.

 

The deferred compensation plans allow non-employee directors and members of the Company’s senior management to defer all or part of their compensation until the earlier of retirement or termination of employment. The deferred compensation is deemed to be invested in one of several investment alternatives at the option of the participant, including shares of U.S. Bancorp common stock. Deferred compensation deemed to be invested in U.S. Bancorp stock may be received at the time of distribution at the election of the participant, in the form of shares of U.S. Bancorp common stock. The 2,513,904 shares included in the table assume that participants in the plans whose deferred compensation had been deemed to be invested in U.S. Bancorp common stock had elected to receive all of that deferred compensation in shares of U.S. Bancorp common stock on December 31, 2010. The U.S. Bank Executive Employee Deferred Compensation Plan (2005 Statement) and the U.S. Bank Outside Directors Deferred Compensation Plan (2005 Statement) are the Company’s only deferred compensation plans under which compensation may currently be deferred.

 

Additional Information

 

Additional information in response to this Item 12 can be found in the Company’s Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management.” That information is incorporated into this report by reference.

 

 

Information in response to this Item 13 can be found in the Company’s Proxy Statement under the headings “Director Independence” and “Certain Relationships and Related Transactions.” That information is incorporated into this report by reference.

 

Information in response to this Item 14 can be found in the Company’s Proxy Statement under the headings “Fees to Independent Auditor” and “Administration of Engagement of Independent Auditor.” That information is incorporated into this report by reference.

 

PART IV

 

 

List of documents filed as part of this report

 

 

 

 

All financial statement schedules for the Company have been included in the consolidated financial statements or the related footnotes, or are either inapplicable or not required.

 

Shareholders may obtain a copy of any of the exhibits to this report upon payment of a fee covering the Company’s reasonable expenses in furnishing the exhibits. You can request exhibits by writing to Investor Relations, U.S. Bancorp, 800 Nicollet Mall, Minneapolis, Minnesota 55402.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on February 28, 2011, on its behalf by the undersigned, thereunto duly authorized.

 

U.S. BANCORP

 

Richard K. Davis

Chairman, President and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 28, 2011, by the following persons on behalf of the registrant and in the capacities indicated.

 

 

 

 

Dated: February 28, 2011

Lee R. Mitau

Attorney-In-Fact

Executive Vice President,

General Counsel and Corporate Secretary

Exhibit 10.11(l)

TWELFTH AMENDMENT
OF
U.S. BANK NON-QUALIFIED RETIREMENT PLAN

     The U.S. Bank Non-Qualified Retirement Plan (the “Plan”) is amended as provided below. This amendment is intended to clarify the Plan. The amendment below is not intended to make any changes that would cause a violation of section 409A of the Internal Revenue Code or its accompanying regulations. If a change in this amendment is determined to be a violation of section 409A, the amendment shall not be effective and shall be disregarded with respect to the rules governing benefits under the Plan.

1. TERMINATION AND SEPARATION FROM SERVICE. Effective January 1, 2009, to the extent there is ambiguity with respect to the payment of non-Grandfathered benefits under the Plan, if payment of the benefits is subject to section 409A and is triggered upon a participant’s termination of employment then the term “termination” and phrase “termination of employment” shall be interpreted as being contingent upon a participant’s separation from service as defined under the Plan.

2. NEW CASH BALANCE PLAN. Effective January 1, 2010, contingent upon receipt of a favorable determination letter from the Internal Revenue Service, the Employer adopted Appendix I to the U.S. Bank Pension Plan and that Appendix I contains a cash balance plan formula as an alternative to the accrual of benefits under the final average pay formula contained in the U.S. Bank Pension Plan. In general, participants in the U.S. Bank Pension Plan were given an opportunity to elect whether (i) to accrue future benefits under the new cash balance formula, or (ii) to continue to accrue benefits under the final average pay formula. With respect to a participant who elected or became covered under the new cash balance formula, the participant’s benefits under Article IV of the Plan (the U.S. Bank Non-Qualified Retirement Plan) that accrue on and after that date the participant became covered under the new cash balance formula shall be determined as an excess benefit using the new cash balance benefit formula. With respect to a participant who elected or became covered under the new cash balance formula, the participant’s Projected Pension Plan Benefit under Appendices A of this Plan that accrues on and after that date the participant became covered under the new cash balance formula shall be determined using the new cash balance benefit formula (past accruals are determined under the formula in effect at the time accrued). The projected interest credits for such a participant’s benefits under Appendices A that accrue on and after January 1, 2010 shall be determined by using an annual interest rate that is 3 percentage points greater than the rate at which Projected Compensation is deemed to increase. Projected annual pay credits for such a participant shall be made based on Projected Compensation under the terms of the new cash balance formula as they exist on the date as of which the Projected Pension Plan Benefit is determined.

3. DOMESTIC RELATIONS ORDER. The Benefits Administration Committee has determined that the Plan should be amended to permit division of vested benefits under the Plan for the Participant named in Appendix B-11 under a court-approved domestic relations order that is also approved by the plan administrator. Therefore, by this amendment, effective as of January 1, 2010, the Plan is amended to permit division of vested benefits under the Plan for the Participant named in Appendix B-11 under a court-approved domestic relations order that is also approved by the plan administrator.

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

Exhibit 10.13(c)

SECOND AMENDMENT OF
U.S. BANK EXECUTIVE EMPLOYEE DEFERRED COMPENSATION
PLAN (2005 Statement)

     The U.S. Bank Executive Employee Deferred Compensation Plan (2005 Statement) (the “Plan”) is amended in the following respects:

1. DEFERRALS. Effective January 1, 2010, a new Section 3.3 shall be added to the Plan that reads as follows:

     3.3 Suspension of Deferral. If a Participant obtains a hardship distribution from a 401(k) plan sponsored by the Company (or an entity under common control with the Company for purposes of sections 414(b) and (c) of the Code), then as required under 26 C.F.R. § 1.401(k)-1(d)(3)(iv)(E)(2) and as permitted under 26 C.F.R. § 1.409A-3(j)(4)(viii), the Participant’s contributions this Plan shall be suspended for the minimum period required under the Code and accompanying regulations.

2. INTERNAL REVENUE CODE. Effective January 1, 2010, Section 10.9 shall be amended to add a new sentence after the first sentence that reads in full as follows:

Each provision shall be interpreted and administered in accordance with section 409A of the Code and guidance provided thereunder.

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

EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges

Year Ended December 31 (Dollars in Millions)		2010				2009				2008				2007				2006
Earnings
1. Net income attributable to U.S. Bancorp		$	3,317			$	2,205			$	2,946			$	4,324			$	4,751
2. Applicable income taxes, including expense related to unrecognized tax positions			935				395				1,087				1,883				2,112
3. Net income attributable to U.S. Bancorp before income taxes (1 + 2)		$	4,252			$	2,600			$	4,033			$	6,207			$	6,863
4. Fixed charges:
a. Interest expense excluding interest on deposits*		$	1,651			$	1,818			$	2,805			$	3,693			$	3,133
b. Portion of rents representative of interest and amortization of debt expense			101				94				83				76				71
c. Fixed charges excluding interest on deposits (4a + 4b)			1,752				1,912				2,888				3,769				3,204
d. Interest on deposits			928				1,202				1,881				2,754				2,389
e. Fixed charges including interest on deposits (4c + 4d)		$	2,680			$	3,114			$	4,769			$	6,523			$	5,593
5. Amortization of interest capitalized		$	—			$	—			$	—			$	—			$	—
6. Earnings excluding interest on deposits (3 + 4c + 5)			6,004				4,512				6,921				9,976				10,067
7. Earnings including interest on deposits (3 + 4e + 5)			6,932				5,714				8,802				12,730				12,456
8. Fixed charges excluding interest on deposits (4c)			1,752				1,912				2,888				3,769				3,204
9. Fixed charges including interest on deposits (4e)			2,680				3,114				4,769				6,523				5,593
Ratio of Earnings to Fixed Charges
10. Excluding interest on deposits (line 6/line 8)			3.43				2.36				2.40				2.65				3.14
11. Including interest on deposits (line 7/line 9)			2.59				1.83				1.85				1.95				2.23

Management’s Discussion and Analysis

For the fiscal year ended December 31, 2010

 

OVERVIEW

 

The financial performance of U.S. Bancorp and its subsidiaries (the “Company”) in 2010 reflected the strength and quality of its business lines, prudent risk management and recent investments. In 2010, the Company achieved record total net revenue, increased its capital, experienced lower credit costs, and grew both its balance sheet and fee-based businesses. Though business and consumer customers continue to be affected by the tepid economic conditions and high unemployment levels in the United States, the Company’s comparative financial strength and enhanced product offerings attracted a significant number of new customer relationships in 2010, resulting in loan growth and significant increases in deposits as the Company continues to benefit from a “flight-to-quality” by customers. Additionally, in 2010 the Company invested opportunistically in businesses and products that strengthened its presence and ability to serve customers. Weakness in domestic real estate markets, both residential and commercial, continued to affect the Company’s loan portfolios, though the Company’s credit costs have declined since late 2009.

Despite significant legislative and regulatory challenges, and an economic environment which continues to adversely impact the banking industry, the Company earned $3.3 billion in 2010, an increase of 50.4 percent over 2009. Growth in total net revenue of $1.5 billion (8.9 percent) was attributable to an increase in net interest income, the result of higher earning assets and expanded net interest margin. Noninterest income grew year-over-year as increases in payments-related revenue and other fee-based businesses were partially offset by expected decreases from recent legislative actions and current economic conditions. The Company’s total net charge-offs and nonperforming assets both peaked in the first quarter of 2010, and declined throughout the remainder of the year. Additionally, the Company continued its focus on effectively managing its cost structure while making investments to increase revenue, improve efficiency and enhance customer service, with an efficiency ratio (the ratio of noninterest expense to taxable-equivalent net revenue, excluding net securities gains and losses) in 2010 of 51.5 percent, one of the lowest in the industry.

The Company’s capital position remained strong and grew during 2010, with a Tier 1 (using Basel I definition) common equity to risk-weighted assets ratio of 7.8 percent and a Tier 1 capital ratio of 10.5 percent at December 31, 2010. In addition, at December 31, 2010, the Company’s total risk-based capital ratio was 13.3 percent, and its tangible common equity to risk-weighted assets ratio was 7.2 percent (refer to “Non-Regulatory Capital Ratios” for further information on the calculation of the Tier 1 common equity to risk-weighted assets and tangible common equity to risk-weighted assets ratios). On January 7, 2011, the Company submitted its plan to the Federal Reserve System requesting regulatory approval to increase its dividend, and expects to receive feedback from the Federal Reserve System late in the first quarter of 2011. Credit rating organizations rate the Company’s debt among the highest of its large domestic banking peers. This comparative financial strength provides the Company with favorable funding costs, and the ability to attract new customers, leading to growth in loans and deposits.

In 2010, the Company grew its loan portfolio and significantly increased deposits. Average loans and deposits increased $7.2 billion (3.9 percent) and $16.9 billion (10.1 percent), respectively, over 2009, including the impact of a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction in the fourth quarter of 2009. Average loan growth reflected increases in residential mortgages, retail loans and commercial real estate loans, offset by a decline in commercial loans, the result of lower utilization of available commitments.

The Company’s provision for credit losses decreased $1.2 billion (21.6 percent) in 2010, compared with 2009. Real estate markets continue to experience stress, and the Company had 8 percent higher net charge-offs in 2010 than in 2009. However, net charge-offs began to decline in early 2010 and the Company’s net charge-offs in the fourth quarter of 2010 were 16 percent lower than the fourth quarter of 2009. The Company recorded a provision in excess of net charge-offs of $200 million in the first six months of 2010, but improving credit trends and risk profile of the Company’s loan portfolio resulted in the Company recording a provision that was less than net charge-offs by $25 million in the fourth quarter of 2010.

In January, 2011, U.S. federal banking regulators communicated to the Company the preliminary results of an interagency examination of the Company’s policies, procedures, and internal controls related to residential mortgage foreclosure practices. This examination was part of a review by the regulators of the foreclosure practices of 14 large mortgage servicers. As a result of the review, the Company expects the regulators will require the Company to address certain aspects of its foreclosure processes, including developing plans related to control procedures and monitoring of loss mitigation and foreclosure activities, and taking certain other remedial actions. Though the Company

18  U.S. BANCORP

 

Table 1    SELECTED FINANCIAL DATA

 

 

U.S. BANCORP  19

 

believes its policies, procedures and internal controls related to foreclosure practices materially follow established safeguards and legal requirements, the Company intends to comply with the expected requirements of the regulators in all respects. The Company does not believe those requirements will materially affect its financial position, results of operations, or ability to conduct normal business activities. In addition, the Company expects monetary penalties may be assessed but does not know the amount of any such penalties.

The Company’s financial strength, business model, credit culture and focus on efficiency have enabled it to deliver consistently profitable financial performance while operating in a very turbulent environment. Given the current economic environment, the Company will continue to focus on managing credit losses and operating costs, while also utilizing its financial strength to grow market share and profitability. Despite the expectation of significant impacts to the industry from recently enacted legislation, the Company believes it is well positioned for long-term growth in earnings per common share and an industry-leading return on common equity. The Company intends to achieve these financial objectives by providing high-quality customer service, ensuring regulatory compliance, continuing to carefully manage costs and, where appropriate, strategically investing in businesses that diversify and generate revenues, enhance the Company’s distribution network and expand its product offerings.

 

Earnings Summary The Company reported net income attributable to U.S. Bancorp of $3.3 billion in 2010, or $1.73 per diluted common share, compared with $2.2 billion, or $.97 per diluted common share, in 2009. Return on average assets and return on average common equity were 1.16 percent and 12.7 percent, respectively, in 2010, compared with .82 percent and 8.2 percent, respectively, in 2009. Diluted earnings per common share for 2010 included a non-recurring $.05 benefit related to an exchange of newly issued perpetual preferred stock for outstanding income trust securities (“ITS exchange”), net of related debt extinguishment costs. Also impacting 2010 were $175 million of provision for credit losses in excess of net charge-offs, net securities losses of $78 million, and a $103 million gain ($41 million after tax) resulting from the exchange of the Company’s long-term asset management business for an equity interest in Nuveen Investments and cash consideration (“Nuveen Gain”). The results for 2009 included $1.7 billion of provision for credit losses in excess of net charge-offs, net securities losses of $451 million, a $123 million FDIC special assessment, a $92 million gain from a corporate real estate transaction and a reduction to earnings per share from the recognition of $154 million of unaccreted preferred stock discount as a result of the redemption of preferred stock previously issued to the U.S. Department of the Treasury.

Total net revenue, on a taxable-equivalent basis, for 2010 was $1.5 billion (8.9 percent) higher than 2009, reflecting a 12.3 percent increase in net interest income and a 5.1 percent increase in total noninterest income. Net interest income increased in 2010 as a result of an increase in average earning assets and continued growth in low cost core deposit funding. Noninterest income increased principally due to higher payments-related and commercial products revenue and a decrease in net securities losses, partially offset by lower deposit service charges, trust and investment management fees and mortgage banking revenue.

Total noninterest expense in 2010 increased $1.1 billion (13.3 percent), compared with 2009, primarily due to the impact of acquisitions, higher total compensation and employee benefits expense and costs related to investments in affordable housing and other tax-advantaged projects, partially offset by lower FDIC deposit insurance expense due to the special assessment in 2009.

 

Acquisitions In 2009, the Company acquired the banking operations of First Bank of Oak Park Corporation (“FBOP”) in an FDIC assisted transaction, and in 2008 the Company acquired the banking operations of Downey Savings and Loan Association, F.A. and PFF Bank and Trust (“Downey” and “PFF”, respectively) in FDIC assisted transactions. Through these acquisitions, the Company increased its deposit base and branch franchise. In total, the Company acquired approximately $35 billion of assets in these acquisitions, most of which are covered under loss sharing agreements with the FDIC (“covered” assets). Under the terms of the loss sharing agreements, the FDIC will reimburse the Company for most of the losses on the covered assets.

In 2010, the Company acquired the securitization trust administration business of Bank of America, N.A. This transaction included the acquisition of $1.1 trillion of assets under administration and provided the Company with approximately $8 billion of deposits as of December 31, 2010.

In January 2011, the Company acquired the banking operations of First Community Bank of New Mexico (“FCB”) from the FDIC. The FCB transaction did not include a loss sharing agreement. The Company acquired 38 branch locations and approximately $2.1 billion in assets, assumed approximately $1.8 billion in liabilities, and received approximately $412 million in cash from the FDIC.

20  U.S. BANCORP

 

Table 2    ANALYSIS OF NET INTEREST INCOME (a)

 

 

 

STATEMENT OF INCOME ANALYSIS

 

Net Interest Income Net interest income, on a taxable-equivalent basis, was $9.8 billion in 2010, compared with $8.7 billion in 2009 and $7.9 billion in 2008. The $1.1 billion (12.3 percent) increase in net interest income in 2010, compared with 2009, was primarily the result of continued growth in lower cost core deposit funding and increases in average earning assets. Average earning assets were $14.8 billion (6.2 percent) higher in 2010, compared with 2009, driven by increases in average loans and investment securities. Average deposits increased $16.9 billion (10.1 percent) in 2010, compared with 2009. The net interest margin in 2010 was 3.88 percent, compared with 3.67 percent in 2009 and 3.66 percent in 2008. The increase in net interest margin was principally due to the impact of favorable funding rates, the result of the increase in deposits and improved credit spreads. Refer to the “Interest Rate Risk Management” section for further information on the sensitivity of the Company’s net interest income to changes in interest rates.

Average total loans were $193.0 billion in 2010, compared with $185.8 billion in 2009. The $7.2 billion (3.9 percent) increase was driven by growth in residential mortgages, retail loans, commercial real estate loans and acquisition-related covered loans, partially offset by a $5.8 billion (11.0 percent) decline in commercial loans, which was principally the result of lower utilization of available commitments by customers. Residential mortgage growth of $3.2 billion (13.2 percent) reflected increased origination and refinancing activity throughout most of 2009 and the second half of 2010 as a result of market interest rate declines. Average retail loans increased $2.1 billion (3.3 percent) year-over-year, driven by increases in credit card and installment (primarily automobile) loans. Average credit card balances for 2010 were $1.5 billion (9.8 percent) higher than 2009, reflecting growth in existing portfolios and portfolio purchases during 2009 and the second quarter of 2010. Growth in average commercial real estate balances of $518 million (1.5 percent) reflected the impact of new business activity, partially offset by customer debt deleveraging. Average covered loans were $19.9 billion in 2010, compared with $12.7 billion in 2009, reflecting the FBOP acquisition in the fourth quarter of 2009.

Average investment securities in 2010 were $5.0 billion (11.6 percent) higher than 2009, primarily due to purchases of U.S. government agency-backed securities and the consolidation of $.6 billion of held-to-maturity securities held in a variable interest entity (“VIE”) due to the adoption of new authoritative accounting guidance effective January 1, 2010.

Average total deposits for 2010 were $16.9 billion (10.1 percent) higher than 2009. Of this increase,

U.S. BANCORP  21

 

Table 3    NET INTEREST INCOME — CHANGES DUE TO RATE AND VOLUME (a)

 

 

$12.0 billion related to deposits assumed in the FBOP acquisition. Excluding deposits from acquisitions, 2010 average total deposits increased $6.8 billion (4.1 percent) over 2009. Average noninterest-bearing deposits in 2010 were $2.3 billion (6.1 percent) higher than 2009, primarily due to growth in Consumer and Small Business Banking and Wholesale Banking and Commercial Real Estate balances. Average total savings deposits were $19.0 billion (23.2 percent) higher in 2010, compared with 2009, due to an increase in savings account balances of $7.8 billion (59.5 percent) resulting from continued strong participation in a product offered by Consumer and Small Business Banking, higher money market savings balances of $7.9 billion (24.8 percent) from higher corporate trust and Consumer and Small Business Banking balances, and higher interest checking account balances of $3.3 billion (9.0 percent) resulting from increases in Consumer and Small Business Banking and institutional trust accounts. Average time certificates of deposit less than $100,000 were lower in 2010 by $1.3 billion (7.0 percent), compared with 2009, reflecting the net impact of balances assumed in the FBOP acquisition, more than offset by expected run-off of balances assumed in the PFF and Downey acquisitions and lower renewals given the current interest rate environment. Average time deposits greater than $100,000 were $3.1 billion (10.3 percent) lower in 2010, compared with 2009, reflecting the net impact of acquisitions, more than offset by a decrease in required overall wholesale funding. Time deposits greater than $100,000 are managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing.

The $.8 billion (10.8 percent) increase in net interest income in 2009, compared with 2008, was attributable to growth in average earning assets and lower cost core deposit

22  U.S. BANCORP

funding. The $22.2 billion (10.3 percent) increase in average earning assets in 2009 over 2008 was principally a result of growth in total average loans, including originated and acquired loans, and loans held for sale.

Average total loans increased $20.3 billion (12.2 percent) in 2009, compared with 2008, driven by new loan originations, acquisitions and portfolio purchases. Average covered loans increased $11.4 billion, due to the timing of the Downey, PFF and FBOP acquisitions. Average retail loans increased $6.5 billion (11.6 percent), driven by increases in credit card, home equity and student loans, reflecting both growth in existing portfolios and portfolio purchases during 2009.

Average investment securities in 2009 were essentially unchanged from 2008, as security purchases offset maturities and sales. In 2009, the composition of the Company’s investment portfolio shifted to a larger proportion in U.S. Treasury, agency and agency mortgage-backed securities, compared with 2008.

Average noninterest-bearing deposits in 2009 were $9.1 billion (31.7 percent) higher than 2008. The increase reflected higher business demand deposit balances, partially offset by lower trust demand deposits. Average total savings products increased $18.4 billion (29.0 percent) in 2009, compared with 2008, principally as a result of a $7.2 billion increase in savings accounts from higher Consumer and Small Business Banking balances, a $5.7 billion (18.4 percent) increase in interest checking balances from higher government and consumer banking customer balances and acquisitions, and a $5.5 billion (20.9 percent) increase in money market savings balances from higher broker-dealer, corporate trust and institutional trust customer balances and acquisitions. Average time certificates of deposit less than $100,000 increased $4.3 billion (31.6 percent) primarily due to acquisitions. Average time deposits greater than $100,000 decreased $.2 billion (.7 percent) in 2009, compared with 2008.

 

Provision for Credit Losses The provision for credit losses reflects changes in the credit quality of the entire portfolio of loans, and is maintained at a level considered appropriate by management for probable and estimable incurred losses, based on factors discussed in the “Analysis and Determination of Allowance for Credit Losses” section.

In 2010, the provision for credit losses was $4.4 billion, compared with $5.6 billion and $3.1 billion in 2009 and 2008, respectively. The provision for credit losses exceeded net charge-offs by $175 million in 2010, $1.7 billion in 2009 and $1.3 billion in 2008. The $1.2 billion decrease in provision for credit losses in 2010, compared with 2009, reflected improving credit trends and the underlying risk profile of the loan portfolio as economic conditions continued to stabilize. Accruing loans ninety days or more past due decreased by $431 million (excluding covered loans) from December 31, 2009 to December 31, 2010, reflecting a moderation in the level of stress in economic conditions during 2010. Delinquencies in most major loan categories began to decrease in the third quarter of 2010. Nonperforming assets decreased $553 million (excluding covered assets) from December 31, 2009 to December 31, 2010, principally in the construction and land development portfolios, as the Company continued to resolve and reduce exposure to these assets. However, net charge-offs increased $313 million (8.1 percent) over 2009, as borrowers still impacted by weak economic conditions and real estate markets defaulted on loans.

The $2.5 billion increase in the provision for credit losses in 2009, compared with 2008 and the increase in the allowance for credit losses from December 31, 2008 to December 31, 2009 reflected deterioration in economic conditions during most of 2009 and the corresponding impact on the commercial, commercial real estate and consumer loan portfolios. It also reflected stress in the residential real estate markets. Nonperforming assets increased $1.9 billion (excluding covered assets) from December 31, 2008 to December 31, 2009. The increase was driven primarily by stress in residential home construction and related industries, deterioration in the residential mortgage portfolio, as well as an increase in foreclosed properties and the impact of the economic slowdown on commercial and consumer customers. Net charge-offs increased $2.1 billion in 2009, compared with 2008, primarily due to economic factors affecting the residential housing markets, including homebuilding and related industries, commercial real estate properties, and credit card and other consumer and commercial loans, as the economy weakened and unemployment increased during the period.

Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

 

Noninterest Income Noninterest income in 2010 was $8.4 billion, compared with $8.0 billion in 2009 and $6.8 billion in 2008. The $408 million (5.1 percent) increase in 2010 over 2009, was due to higher payments-related revenues of 6.3 percent, principally due to increased

U.S. BANCORP  23

 

Table 4    NONINTEREST INCOME

 

 

transaction volumes and business expansion; an increase in commercial products revenue of 25.4 percent, attributable to higher standby letters of credit fees, commercial loan and syndication fees and other capital markets revenue; a decrease in net securities losses of 82.7 percent, primarily due to lower impairments in the current year; and an increase in other income. The increase in other income of 8.8 percent, reflected the Nuveen Gain, higher 2010 gains related to the Company’s investment in Visa Inc. and higher retail lease residual valuation income, partially offset by the $92 million gain on a corporate real estate transaction in 2009, a payments-related contract termination gain that occurred in 2009 and lower customer derivative revenue. Mortgage banking revenue decreased 3.1 percent, principally due to lower origination and sales revenue and an unfavorable net change in the valuation of mortgage servicing rights (“MSRs”) and related economic hedging activities, partially offset by higher servicing income. Deposit service charges decreased 26.8 percent as a result of Company-initiated and regulatory revisions to overdraft fee policies, partially offset by core account growth. Trust and investment management fees declined 7.5 percent because low interest rates negatively impacted money market investment fees and money market fund balances declined as a result of customers migrating balances from money market funds to deposits.

The $1.2 billion (16.8 percent) increase in noninterest income in 2009 over 2008 was principally due to a $765 million increase in mortgage banking revenue, the result of strong mortgage loan production, as the Company gained market share and low interest rates drove refinancing, and an increase in the valuation of MSRs net of related economic hedging instruments. Other increases in noninterest income included higher ATM processing services of 12.0 percent, related to growth in transaction volumes and business expansion, higher treasury management fees of 6.8 percent, resulting from increased new business activity and pricing, and a 25.0 percent increase in commercial products revenue due to higher letters of credit, capital markets and other commercial loan fees. Net securities losses in 2009 were 53.9 percent lower than 2008. Other income decreased 9.3 percent due to higher gains in 2008 related to the Company’s ownership position in Visa Inc., partially offset by the gain from a corporate real estate transaction and the payments-related contract termination gain. Deposit service charges decreased 10.3 percent primarily due to a decrease in the number of transaction-related fees, which more than offset account growth. Trust and investment management fees declined 11.1 percent, reflecting lower assets under management account volume and the impact of low interest rates on money market investment fees. Investment product fees and commissions declined 25.9 percent due to lower sales levels in 2009, compared with 2008.

The Company expects recently enacted legislation will have a negative impact on noninterest income, principally related to debit interchange fee revenue, in future years.

 

Noninterest Expense Noninterest expense in 2010 was $9.4 billion, compared with $8.3 billion in 2009 and $7.3 billion in 2008. The Company’s efficiency ratio was 51.5 percent in 2010, compared with 48.4 percent in 2009. The $1.1 billion (13.3 percent) increase in noninterest expense in 2010 over 2009 was principally due to acquisitions, increased total compensation and employee benefits expense and higher costs related to investments in affordable housing and other tax-advantaged projects. Total

24  U.S. BANCORP

 

Table 5    NONINTEREST EXPENSE