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U.S. Bancorp Reports Record Net Income for the Third Quarter of 2011
Results Driven by Record Total Net Revenue of $4.8 Billion

MINNEAPOLIS, Oct 19, 2011 (BUSINESS WIRE) --

U.S. Bancorp (NYSE: USB) today reported net income of $1,273 million for the third quarter of 2011, or $.64 per diluted common share. Earnings for the third quarter of 2011 were driven by year-over-year growth in total net revenue and a reduction in the provision for credit losses. Highlights for the third quarter of 2011 included:

  • Strong new lending activity of $59.5 billion (12.9 percent increase on a linked quarter basis) during the third quarter including:
    • $18.4 billion of new commercial and commercial real estate commitments
    • $22.0 billion of commercial and commercial real estate commitment renewals
    • $1.9 billion of lines related to new credit card accounts
    • $17.2 billion of mortgage and other retail originations
  • Growth in average total loans of 5.0 percent (4.5 percent excluding acquisitions) over the third quarter of 2010
    • Growth in average total commercial loans of 11.9 percent over the third quarter of 2010 (11.7 percent excluding acquisitions)
    • Growth in average total loans of 1.7 percent on a linked quarter basis, including average total commercial loan growth of 4.6 percent
    • Growth in quarterly average commercial and commercial real estate commitments of 16.8 percent year-over-year and 5.8 percent over the prior quarter
  • Significant growth in average deposits of 17.9 percent (13.2 percent excluding acquisitions) over the third quarter of 2010, including:
    • Growth in average noninterest-bearing deposits of 47.5 percent (45.7 percent excluding acquisitions)
    • Growth in average total savings deposits of 13.5 percent (7.3 percent excluding acquisitions)
    • Growth in average total deposits of 2.8 percent on a linked quarter basis, including a 20.3 percent increase in noninterest-bearing deposits
  • Total net revenue growth of 4.5 percent over the third quarter of 2010 (2.2 percent growth over the prior quarter)
  • Net interest income growth of 5.9 percent over the third quarter of 2010 (3.1 percent growth over the prior quarter):
    • Average earning assets growth of 13.6 percent year-over-year, including a planned increase in the investment securities portfolio
    • Average earning assets growth of 3.1 percent on a linked quarter basis, including growth in the investment securities portfolio
    • Exceptionally strong growth in lower cost core deposit funding
    • Net interest margin of 3.65 percent for the third quarter of 2011, compared with 3.91 percent for the third quarter of 2010, and 3.67 percent for the second quarter of 2011 (The year-over-year decline was due to increases in lower yielding investment securities and cash balances at the Federal Reserve.)
  • Year-over-year growth in fee-based revenue, driven by:
    • Higher payments-related revenue (6.0 percent) including higher credit and debit card revenue (5.5 percent), corporate payment products revenue (6.3 percent) and merchant processing services revenue (6.3 percent)
    • Higher deposit service charges (14.4 percent)
    • Higher commercial products revenue (7.6 percent)
  • Managed expense levels leading to positive operating leverage on a year-over-year and linked quarter basis
    • Total noninterest expense increase of 3.8 percent year-over-year
    • Efficiency ratio decreased to 51.5 percent compared with 51.9 percent in the third quarter of 2010 and 51.6 percent in the prior quarter
  • Net charge-offs and nonperforming assets declined on a linked quarter basis. Provision for credit losses was $150 million less than net charge-offs.
    • Net charge-offs declined 10.4 percent from the second quarter of 2011
    • Nonperforming assets (excluding covered assets) decreased 6.9 percent from the second quarter of 2011 (6.7 percent including covered assets)
    • On a linked quarter basis, early and late stage loan delinquencies remained relatively stable despite seasonal pressures, and declined as a percentage of ending loan balances in a majority of loan categories
    • Allowance to nonperforming assets (excluding covered assets) was 166 percent at September 30, 2011, compared with 159 percent at June 30, 2011, and 153 percent at September 30, 2010
    • Allowance to period-end loans (excluding covered loans) was 2.66 percent at September 30, 2011, compared with 2.83 percent at June 30, 2011, and 3.10 percent at September 30, 2010
  • Strong capital generation continues to strengthen capital position; ratios at September 30, 2011 were:
    • Tier 1 common equity ratio of 8.5 percent
    • Tier 1 capital ratio of 10.8 percent
    • Total risk based capital ratio of 13.5 percent
    • Tier 1 common ratio of 8.2 percent under anticipated Basel III guidelines
    • Repurchased 13 million shares of common stock during the current quarter

EARNINGS SUMMARY Table 1
($ in millions, except per-share data) Percent Percent
Change Change
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD Percent
2011 2011 2010 2Q11 3Q10 2011 2010 Change
Net income attributable to U.S. Bancorp $ 1,273 $ 1,203 $ 908 5.8 40.2 $ 3,522 $ 2,343 50.3
Diluted earnings per common share $ .64 $ .60 $ .45 6.7 42.2 $ 1.77 $ 1.24 42.7
Return on average assets (%) 1.57 1.54 1.26 1.50 1.11
Return on average common equity (%) 16.1 15.9 12.8 15.5 12.3
Net interest margin (%) 3.65 3.67 3.91 3.67 3.90
Efficiency ratio (%) 51.5 51.6 51.9 51.4 51.1
Tangible efficiency ratio (%) (a) 50.0 50.0 49.9 49.8 49.1
Dividends declared per common share $ .125 $ .125 $ .050 -- nm $ .375 $ .150 nm
Book value per common share (period-end) $ 16.01 $ 15.50 $ 14.19 3.3 12.8

(a)

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

Net income attributable to U.S. Bancorp was $1,273 million for the third quarter of 2011, 40.2 percent higher than the $908 million for the third quarter of 2010 and 5.8 percent higher than the $1,203 million for the second quarter of 2011. Diluted earnings per common share of $.64 in the third quarter of 2011 were $.19 higher than the third quarter of 2010 and $.04 higher than the previous quarter. Return on average assets and return on average common equity were 1.57 percent and 16.1 percent, respectively, for the third quarter of 2011, compared with 1.26 percent and 12.8 percent, respectively, for the third quarter of 2010. The provision for credit losses for the third quarter of 2011 was $150 million lower than net charge-offs, compared with a provision for credit losses that was $175 million lower than net charge-offs for the second quarter of 2011 and equal to net charge-offs for the third quarter of 2010.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "I am exceptionally proud of our third quarter results, as our Company was able to achieve record earnings in what many would describe as a difficult and uncertain economic environment. The results were driven by record total net revenue and lower credit costs, as well as managed expense levels. Total net revenue benefited from both our balance sheet and fee-based businesses and, coupled with our prudent expense management, led to positive operating leverage on both a year-over-year and linked quarter basis. Once again, we achieved industry-leading profitability metrics with a return on average assets of 1.57 percent and a return on average common equity of 16.1 percent.

"Contributing to the results was notable growth in both loans and deposits, as we continued to benefit from the investments we have made in our business lines and the overall flight to quality. Average total loans grew by 5.0 percent year-over-year and 1.7 percent over the previous quarter. Additionally, commercial and commercial real estate commitments grew at a faster pace; 16.8 percent year-over-year and 5.8 percent over the prior quarter, positioning us well for future loan growth as the economy improves and our customers' full confidence returns. Deposit growth was exceptionally strong on both the consumer and wholesale sides of the business this quarter, with noninterest bearing deposits growing by more than 47 percent year-over-year and 20 percent over the prior quarter. Significantly, recently published FDIC market share data indicates that our Company grew deposits by 15.8 percent between June 30, 2010, and June 30, 2011, while the total U.S. market grew by 6.8 percent, confirming that we have, in fact, increased our overall deposit market share.

"As expected, credit quality continued to improve. Net charge-offs declined by over 10 percent, while nonperforming assets fell by nearly 7 percent in the third quarter versus the prior quarter. The improvement led to a reserve release of $150 million in the third quarter, slightly lower than the previous quarter, as the outlook for charge-offs in a number of the consumer loan categories is stabilizing. We expect both net charge-offs and nonperforming asset levels to improve in the fourth quarter.

"Our capital position remains strong with a Tier 1 common equity ratio of 8.5 percent and Tier 1 capital ratio of 10.8 percent at September 30th. Importantly, using anticipated Basel III guidelines, our Tier 1 common ratio was 8.2 percent at quarter end. Given the strength of our capital position and on-going ability to generate significant capital each quarter through earnings, we repurchased approximately 13 million shares of stock during the third quarter. At this point, we have not received final regulatory guidance regarding the amount of capital our Company will be expected to hold as a systematically important financial institution ("SIFI"). However, we expect that the strength of our current capital position and earnings will allow us to comply with the guideline, while continuing to buy back additional shares in the upcoming quarters, bringing us closer to our long term goal of returning 60 to 80 percent of earnings to shareholders through dividends and buybacks.

"We are a bank, and our ultimate success is tied to the health, financial well-being and sentiment of our customers, both large and small, as well as the economic environment in which we operate. Likewise, a vibrant and growing economy is directly tied to the health and strength of the banking industry. Consequently, we are all managing through this challenging time together and, as our results show, we are striving very hard to do our part. We have more branches, more employees, more customers, more loans, and more deposits than we had at the beginning of 2007 and, in fact, more than just one year ago, and we fully expect this trend to continue. Our success, past and present, is a direct result of our employees' dedication and focus, and I am proud of their efforts and thankful for their many contributions. They have earned our customers' trust - a vital factor for our continued success. We are providing our commercial, institutional and consumer customers with the financial products, services and trusted banking partnership that they need to succeed, while prudently managing a company that is profitable, growing, investing and focusing on the future, all for the benefit of our customers, employees, communities and shareholders."

INCOME STATEMENT HIGHLIGHTS Table 2

(Taxable-equivalent basis, $ in millions, except per-share data)

Percent
Change
Percent
Change
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD Percent
2011 2011 2010 2Q11 3Q10 2011 2010 Change
Net interest income $ 2,624 $ 2,544 $ 2,477 3.1 5.9 $ 7,675 $ 7,289 5.3
Noninterest income 2,171 2,146 2,110 1.2 2.9 6,329 6,138 3.1
Total net revenue 4,795 4,690 4,587 2.2 4.5 14,004 13,427 4.3
Noninterest expense 2,476 2,425 2,385 2.1 3.8 7,215 6,898 4.6
Income before provision and taxes 2,319 2,265 2,202 2.4 5.3 6,789 6,529 4.0
Provision for credit losses 519 572 995 (9.3 ) (47.8 ) 1,846 3,444 (46.4 )
Income before taxes 1,800 1,693 1,207 6.3 49.1 4,943 3,085 60.2
Taxable-equivalent adjustment 58 56 53 3.6 9.4 169 156 8.3
Applicable income taxes 490 458 260 7.0 88.5 1,314 620 nm
Net income 1,252 1,179 894 6.2 40.0 3,460 2,309 49.8

Net (income) loss attributable to noncontrolling interests

21 24 14 (12.5 ) 50.0 62 34 82.4
Net income attributable to U.S. Bancorp $ 1,273 $ 1,203 $ 908 5.8 40.2 $ 3,522 $ 2,343 50.3

Net income applicable to U.S. Bancorp common shareholders

$ 1,237 $ 1,167 $ 871 6.0 42.0 $ 3,407 $ 2,381 43.1
Diluted earnings per common share $ .64 $ .60 $ .45 6.7 42.2 $ 1.77 $ 1.24 42.7

Net income attributable to U.S. Bancorp for the third quarter of 2011 was $365 million (40.2 percent) higher than the third quarter of 2010 and $70 million (5.8 percent) higher than the second quarter of 2011. The increase in net income year-over-year and on a linked quarter basis was principally the result of growth in total net revenue, driven by increases in both net interest income and fee-based revenue, and a lower provision for credit losses. These positive variances were partially offset by an increase in total noninterest expense.

Total net revenue on a taxable-equivalent basis for the third quarter of 2011 was $4,795 million; $208 million (4.5 percent) higher than the third quarter of 2010, reflecting a 5.9 percent increase in net interest income and a 2.9 percent increase in noninterest income. The increase in net interest income year-over-year was largely the result of an increase in average earning assetsand continued growth in lower cost coredeposit funding. Noninterest income increased year-over-year, primarily due to higher payments-related revenue, deposit services charges and commercial products revenue. Total net revenue on a taxable-equivalent basis was $105 million (2.2 percent) higher on a linked quarter basis, due to a 3.1 percent increase in net interest income and a 1.2 percent increase in total noninterest income, driven by higher payments-related revenue and deposit services charges.

Total noninterest expense in the third quarter of 2011 was $2,476 million; $91 million (3.8 percent) higher than the third quarter of 2010 and $51 million (2.1 percent) higher than the second quarter of 2011. The increase in total noninterest expense year-over-year was primarily due to higher compensation expense, employee benefits costs, professional services expense and other business initiatives. The increase in total noninterest expense on a linked quarter basis was driven by increased compensation expense, professional services expense and marketing and business development expense.

The Company's provision for credit losses declined from a year ago and on a linked quarter basis. The provision for credit losses for the third quarter of 2011 was $519 million, $53 million lower than the second quarter of 2011 and $476 million lower than the third quarter of 2010. The provision for credit losses was $150 million lower than net charge-offs in the third quarter of 2011. In the second quarter of 2011, the provision for credit losses was $175 million lower than net charge-offs, while it was equal to net charge-offs in the third quarter of 2010. Net charge-offs in the third quarter of 2011 were $669 million, compared with $747 million in the second quarter of 2011, and $995 million in the third quarter of 2010. Given current economic conditions, the Company expects the level of net charge-offs to continue to trend lower in the fourth quarter of 2011.

Nonperforming assets include assets originated by the Company, as well as loans and other real estate acquired under FDIC loss sharing agreements ("covered assets") that substantially reduce the risk of credit losses to the Company. Excluding covered assets, nonperforming assets were $3,036 million at September 30, 2011, $3,262 million at June 30, 2011, and $3,563 million at September 30, 2010. The decline on a year-over-year basis was led by a reduction in nonperforming assets in commercial portfolios. In addition, there was improvement in construction and development assets, as the Company continued to resolve and reduce exposure to these problem assets. On a linked quarter basis, there was improvement in all portfolios, reflecting the stabilizing economy. While showing improvement on a linked quarter basis, there continues to be stress in the residential mortgage portfolio due to the decline in home values. Covered nonperforming assets were $1,303 million at September 30, 2011, $1,389 million at June 30, 2011, and $1,851 million at September 30, 2010. The ratio of the allowance for credit losses to period-end loans, excluding covered loans, was 2.66 percent at September 30, 2011, compared with 2.83 percent at June 30, 2011, and 3.10 percent at September 30, 2010. The ratio of the allowance for credit losses to period-end loans, including covered loans, was 2.53 percent at September 30, 2011, compared with 2.66 percent at June 30, 2011, and 2.85 percent at September 30, 2010. The Company expects total nonperforming assets to trend lower in the fourth quarter of 2011.

NET INTEREST INCOME Table 3
(Taxable-equivalent basis; $ in millions)
Change Change
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD
2011 2011 2010 2Q11 3Q10 2011 2010 Change
Components of net interest income
Income on earning assets $ 3,258 $ 3,177 $ 3,132 $ 81 $ 126 $ 9,592 $ 9,227 $ 365
Expense on interest-bearing liabilities 634 633 655 1 (21 ) 1,917 1,938 (21.0 )
Net interest income $ 2,624 $ 2,544 $ 2,477 $ 80 $ 147 $ 7,675 $ 7,289 $ 386
Average yields and rates paid
Earning assets yield 4.53 % 4.59 % 4.95 % (.06 )% (.42 )% 4.59 % 4.94 % (.35 )%
Rate paid on interest-bearing liabilities 1.15 1.14 1.25 .01 (.10 ) 1.16 1.25 (.09 )
Gross interest margin 3.38 % 3.45 % 3.70 % (.07 )% (.32 )% 3.43 % 3.69 % (.26 )%
Net interest margin 3.65 % 3.67 % 3.91 % (.02 )% (.26 )% 3.67 % 3.90 % (.23 )%
Average balances
Investment securities (a) $ 66,252 $ 62,955 $ 47,870 $ 3,297 $ 18,382 $ 61,907 $ 47,080 $ 14,827
Loans 202,169 198,810 192,541 3,359 9,628 199,533 192,192 7,341
Earning assets 286,269 277,571 251,916 8,698 34,353 279,305 249,408 29,897
Interest-bearing liabilities 218,969 221,881 208,653 (2,912 ) 10,316 221,560 208,037 13,523
Net free funds (b) 67,300 55,690 43,263 11,610 24,037 57,745 41,371 16,374

(a)

Excludes unrealized gain (loss)

(b)

Represents noninterest-bearing deposits, other noninterest-bearing liabilities and equity, allowance for loan losses and unrealized gain (loss) on available-for-sale securities less non-earning assets.

Net Interest Income

Net interest income on a taxable-equivalent basis in the third quarter of 2011 was $2,624 million, compared with $2,477 million in the third quarter of 2010, an increase of $147 million (5.9 percent). The increase was principally the result of growth in average earning assets and growth in lower cost core deposit funding. Average earning assets were $34.4 billion (13.6 percent) higher than the third quarter of 2010, driven by increases of $18.4 billion (38.4 percent) in average investment securities, $9.6 billion (5.0 percent) in average loans and $8.9 billion in average other earning assets, which included cash balances held at the Federal Reserve. Net interest income increased $80 million (3.1 percent) on a linked quarter basis, due to growth in average earning assets, principally lower yielding investment securities and average loans. The net interest margin was 3.65 percent in the third quarter of 2011, compared with 3.91 percent in the third quarter of 2010, and 3.67 percent in the second quarter of 2011. The decline in the net interest margin year-over-year reflected higher balances in lower yielding investment securities and growth in cash balances held at the Federal Reserve, compared with the third quarter of 2010. On a linked quarter basis, the decline in net interest margin reflected the impact of the continued growth in lower yielding investment securities.

AVERAGE LOANS Table 4
($ in millions) Percent Percent
Change Change
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD Percent
2011 2011 2010 2Q11 3Q10 2011 2010 Change
Commercial $ 46,484 $ 44,135 $ 40,726 5.3 14.1 $ 44,448 $ 40,550 9.6
Lease financing 5,860 5,919 6,058 (1.0 ) (3.3 ) 5,935 6,248 (5.0 )
Total commercial 52,344 50,054 46,784 4.6 11.9 50,383 46,798 7.7
Commercial mortgages 28,979 28,429 26,008 1.9 11.4 28,377 25,688 10.5
Construction and development 6,590 7,070 8,182 (6.8 ) (19.5 ) 7,040 8,477 (17.0 )
Total commercial real estate 35,569 35,499 34,190 .2 4.0 35,417 34,165 3.7
Residential mortgages 34,026 32,734 27,890 3.9 22.0 32,854 27,045 21.5
Credit card 16,057 15,884 16,510 1.1 (2.7 ) 16,022 16,403 (2.3 )
Retail leasing 5,097 4,808 4,289 6.0 18.8 4,852 4,387 10.6
Home equity and second mortgages 18,510 18,634 19,289 (.7 ) (4.0 ) 18,648 19,340 (3.6 )
Other 24,773 24,498 24,281 1.1 2.0 24,654 23,664 4.2
Total other retail 48,380 47,940 47,859 .9 1.1 48,154 47,391 1.6
Total loans, excluding covered loans 186,376 182,111 173,233 2.3 7.6 182,830 171,802 6.4
Covered loans 15,793 16,699 19,308 (5.4 ) (18.2 ) 16,703 20,390 (18.1 )
Total loans $ 202,169 $ 198,810 $ 192,541 1.7 5.0 $ 199,533 $ 192,192 3.8

Total average loans were $9.6 billion (5.0 percent) higher in the third quarter of 2011 than the third quarter of 2010, driven by growth in residential mortgages (22.0 percent), total commercial loans (11.9 percent), total commercial real estate loans (4.0 percent), and total other retail loans (1.1 percent). These increases were partially offset by declines in credit card balances (2.7 percent) and in covered loans (18.2 percent). Total average loans, excluding covered loans, were higher by 7.6 percent year-over-year. Total average loans were $3.4 billion (1.7 percent) higher in the third quarter of 2011 than the second quarter of 2011, with increases in a majority of loan categories, including total commercial loans (4.6 percent), residential mortgages (3.9 percent), commercial mortgages (1.9 percent), credit cards (1.1 percent), and total other retail loans (.9 percent). Excluding covered loans, total average loans grew by 2.3 percent on a linked quarter basis. The increases were driven by demand for loans and lines by new and existing credit-worthy borrowers.

Average investment securities in the third quarter of 2011 were $18.4 billion (38.4 percent) higher year-over-year and $3.3 billion (5.2 percent) higher than the prior quarter. The increases over the prior year and linked quarter were primarily due to purchases of U.S. Treasury and government agency-backed securities, as the Company continued to move liquidity on-balance sheet.

AVERAGE DEPOSITS Table 5
($ in millions) Percent Percent
Change Change
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD Percent
2011 2011 2010 2Q11 3Q10 2011 2010 Change
Noninterest-bearing deposits $ 58,606 $ 48,721 $ 39,732 20.3 47.5 $ 50,558 $ 39,223 28.9
Interest-bearing savings deposits
Interest checking 41,042 43,334 39,308 (5.3 ) 4.4 42,335 39,599 6.9
Money market savings 44,623 45,014 38,005 (.9 ) 17.4 45,091 39,710 13.6
Savings accounts 27,042 26,522 22,008 2.0 22.9 26,304 20,038 31.3
Total of savings deposits 112,707 114,870 99,321 (1.9 ) 13.5 113,730 99,347 14.5

Time certificates of deposit less than $100,000

15,251 15,368 16,024 (.8 ) (4.8 ) 15,294 17,105 (10.6 )
Time deposits greater than $100,000 28,805 30,452 27,583 (5.4 ) 4.4 30,153 27,162 11.0
Total interest-bearing deposits 156,763 160,690 142,928 (2.4 ) 9.7 159,177 143,614 10.8
Total deposits $ 215,369 $ 209,411 $ 182,660 2.8 17.9 $ 209,735 $ 182,837 14.7

Average total deposits for the third quarter of 2011 were $32.7 billion (17.9 percent) higher than the third quarter of 2010. Noninterest-bearing deposits increased $18.9 billion (47.5 percent) year-over-year, with growth in average balances in a majority of the lines of business including, Wholesale Banking, Wealth Management and Securities Services and Consumer and Small Business Banking. Average total savings deposits were $13.4 billion (13.5 percent) higher year-over-year, the result of growth in corporate and institutional trust balances, including the impact of the December 30, 2010, acquisition of the securitization trust administration business of Bank of America, N.A. ("securitization trust administration acquisition"), as well as an increase in Consumer and Small Business Banking average balances, partially offset by lower broker-dealer average balances. Average time certificates of deposit less than $100,000 were $.8 billion (4.8 percent) lower year-over-year, reflecting maturities and fewer renewals given the current rate environment. Time deposits greater than $100,000 increased by $1.2 billion (4.4 percent), principally due to higher average balances in Wholesale Banking and the impact of the securitization trust administration acquisition and the first quarter of 2011 acquisition of First Community Bank of New Mexico ("FCB").

Average total deposits increased $6.0 billion (2.8 percent) over the second quarter of 2011. Noninterest-bearing deposits increased $9.9 billion (20.3 percent) principally due to higher Wholesale Banking and corporate trust average balances. Total average savings deposits decreased $2.2 billion (1.9 percent) on a linked quarter basis as lower institutional trust average balances were partially offset by higher Consumer and Small Business Banking balances. Average time deposits less than $100,000 remained relatively unchanged, while average time deposits over $100,000 were $1.6 billion (5.4 percent) lower on a linked quarter basis, reflecting maturities and wholesale funding decisions.

NONINTEREST INCOME Table 6
($ in millions) Percent Percent
Change Change
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD Percent
2011 2011 2010 2Q11 3Q10 2011 2010 Change
Credit and debit card revenue $ 289 $ 286 $ 274 1.0 5.5 $ 842 $ 798 5.5
Corporate payment products revenue 203 185 191 9.7 6.3 563 537 4.8
Merchant processing services 338 338 318 -- 6.3 977 930 5.1
ATM processing services 115 114 105 .9 9.5 341 318 7.2
Trust and investment management fees 241 258 267 (6.6 ) (9.7 ) 755 798 (5.4 )
Deposit service charges 183 162 160 13.0 14.4 488 566 (13.8 )
Treasury management fees 137 144 139 (4.9 ) (1.4 ) 418 421 (.7 )
Commercial products revenue 212 218 197 (2.8 ) 7.6 621 563 10.3
Mortgage banking revenue 245 239 310 2.5 (21.0 ) 683 753 (9.3 )
Investment products fees and commissions 31 35 27 (11.4 ) 14.8 98 82 19.5
Securities gains (losses), net (9 ) (8 ) (9 ) (12.5 ) -- (22 ) (64 ) 65.6
Other 186 175 131 6.3 42.0 565 436 29.6
Total noninterest income $ 2,171 $ 2,146 $ 2,110 1.2 2.9 $ 6,329 $ 6,138 3.1

Noninterest Income

Third quarter noninterest income was $2,171 million; $61 million (2.9 percent) higher than the third quarter of 2010 and $25 million (1.2 percent) higher than the second quarter of 2011. Year-over-year, noninterest income benefited from a $47 million (6.0 percent) increase in payments-related revenue and a $10 million (9.5 percent) increase in ATM processing services income, largely due to increased transaction volumes. Deposit services charges increased $23 million (14.4 percent) primarily due to new account growth, higher transaction volumes and recent product redesign initiatives, partially offset by the impact of 2010 legislative and pricing changes. Commercial products revenue was $15 million (7.6 percent) higher, attributable to higher commercial leasing revenue, syndication fees and other commercial loan fees. In addition, other income increased $55 million (42.0 percent) primarily due to higher retail lease residual revenue and customer-related derivative revenue. Offsetting these positive variances was a decrease in trust and investment management fees of $26 million (9.7 percent), primarily due to the sale of the long-term asset management business to Nuveen Investments in the fourth quarter of 2010 and money market investment fee waivers. The decline was partially offset by the positive impact of the securitization trust administration acquisition and improved market conditions. Mortgage banking revenue was $65 million (21.0 percent) lower than the third quarter of last year, as a result of lower origination and sales revenue.

Noninterest income was $25 million (1.2 percent) higher in the third quarter of 2011 than the second quarter of 2011. Payments-related revenue increased $21 million (2.6 percent), primarily driven by seasonally higher transaction volumes in corporate payment products. Deposit service charges increased $21 million (13.0 percent) on a linked quarter basis principally due to higher transaction volumes and product redesign initiatives. Other income was higher by $11 million (6.3 percent) on a linked quarter basis due to increases in equity investment income, retail lease residual revenue and income from sales of investments in tax-advantaged projects, partially offset by lower customer-related derivative revenue. Offsetting these increases was a $17 million (6.6 percent) decrease in trust and investment management fees due principally to the impact of market conditions on account-level fees and money market investment fees waivers.

NONINTEREST EXPENSE Table 7
($ in millions) Percent Percent
Change Change
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD Percent
2011 2011 2010 2Q11 3Q10 2011 2010 Change
Compensation $ 1,021 $ 1,004 $ 973 1.7 4.9 $ 2,984 $ 2,780 7.3
Employee benefits 203 210 171 (3.3 ) 18.7 643 523 22.9
Net occupancy and equipment 252 249 229 1.2 10.0 750 682 10.0
Professional services 100 82 78 22.0 28.2 252 209 20.6
Marketing and business development 102 90 108 13.3 (5.6 ) 257 254 1.2
Technology and communications 189 189 186 -- 1.6 563 557 1.1
Postage, printing and supplies 76 76 74 -- 2.7 226 223 1.3
Other intangibles 75 75 90 -- (16.7 ) 225 278 (19.1 )
Other 458 450 476 1.8 (3.8 ) 1,315 1,392 (5.5 )
Total noninterest expense $ 2,476 $ 2,425 $ 2,385 2.1 3.8 $ 7,215 $ 6,898 4.6

Noninterest Expense

Noninterest expense in the third quarter of 2011 totaled $2,476 million, an increase of $91 million (3.8 percent) over the third quarter of 2010, and a $51 million (2.1 percent) increase over the second quarter of 2011. The increase in noninterest expense over the same quarter of last year was principally due to increased compensation, employee benefits, net occupancy and equipment expense and professional services expense, partially offset by decreases in other intangibles expense and other expense. Compensation and employee benefits expense increased over the prior year by $48 million (4.9 percent) and $32 million (18.7 percent), respectively. Compensation expense increased primarily as a result of an increase in staffing related to branch expansion and other business initiatives, in addition to merit increases. Employee benefits expense increased due to higher pension costs and the impact of additional staff. Net occupancy and equipment expense increased by $23 million (10.0 percent) year-over-year largely due to business expansion and technology initiatives. Professional services expense was $22 million (28.2 percent) higher year-over-year due to mortgage servicing-related projects. These increases were partially offset by a decrease in other intangibles expense of $15 million (16.7 percent) due to the reduction or completion of the amortization of certain intangibles. Other expense was lower year-over-year by $18 million (3.8 percent), due to lower costs related to other real estate owned, insurance and litigation matters, partially offset by an increase in costs related to investments in affordable housing and other tax-advantaged projects.

Noninterest expense was $51 million (2.1 percent) higher than the second quarter of 2011. Compensation expense increased $17 million (1.7 percent), principally due to additions to staff and higher incentives related to the Company's improved financial results. Professional services expense was higher on a linked quarter basis by $18 million (22.0 percent) as a result of mortgage servicing-related projects, while marketing and business development expense was higher by $12 million (13.3 percent) due to the timing of payments-related initiatives and an increase in the contribution to the Company's charitable foundation. In addition, other expense was $8 million (1.8 percent) more than the previous quarter, as higher costs related to investments in affordable housing and other tax-advantaged projects were partially offset by lower FDIC deposit insurance expense.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2011 resulted in a tax rate on a taxable-equivalent basis of 30.4 percent (effective tax rate of 28.1 percent), compared with 25.9 percent (effective tax rate of 22.5 percent) in the third quarter of 2010 and 30.4 percent (effective tax rate of 28.0 percent) in the second quarter of 2011. The increase in the effective tax rate year-over-year primarily reflected the marginal impact of higher pretax earnings.

ALLOWANCE FOR CREDIT LOSSES Table 8
($ in millions) 3Q 2Q 1Q 4Q 3Q
2011 2011 2011 2010 2010
Balance, beginning of period $ 5,308 $ 5,498 $ 5,531 $ 5,540 $ 5,536
Net charge-offs
Commercial 90 83 125 117 153
Lease financing 9 13 14 17 18
Total commercial 99 96 139 134 171
Commercial mortgages 68 64 40 90 113
Construction and development 57 100 85 129 94
Total commercial real estate 125 164 125 219 207
Residential mortgages 122 119 129 131 132
Credit card 178 216 247 275 296
Retail leasing (1 ) -- 1 1 2
Home equity and second mortgages 74 76 81 83 79
Other 69 71 81 91 101
Total other retail 142 147 163 175 182
Total net charge-offs, excluding covered loans 666 742 803 934 988
Covered loans 3 5 2 3 7
Total net charge-offs 669 747 805 937 995
Provision for credit losses 519 572 755 912 995
Net change for credit losses to be reimbursed by the FDIC 32 (15 ) 17 16 4
Balance, end of period $ 5,190 $ 5,308 $ 5,498 $ 5,531 $ 5,540
Components

Allowance for loan losses, excluding losses to be reimbursed by the FDIC

$ 4,823 $ 4,977 $ 5,161 $ 5,218 $ 5,245

Allowance for credit losses to be reimbursed by the FDIC

127 94 109 92 76
Liability for unfunded credit commitments 240 237 228 221 219
Total allowance for credit losses $ 5,190 $ 5,308 $ 5,498 $ 5,531 $ 5,540
Gross charge-offs $ 762 $ 850 $ 899 $ 1,035 $ 1,069
Gross recoveries $ 93 $ 103 $ 94 $ 98 $ 74
Allowance for credit losses as a percentage of
Period-end loans, excluding covered loans 2.66 2.83 2.97 3.03 3.10
Nonperforming loans, excluding covered loans 196 188 180 192 181
Nonperforming assets, excluding covered assets 166 159 154 162 153
Period-end loans 2.53 2.66 2.78 2.81 2.85
Nonperforming loans 145 140 133 136 133
Nonperforming assets 120 114 110 110 102

Credit Quality

Net charge-offs and nonperforming assets declined on a linked quarter and year-over-year basis as economic conditions stabilized. The allowance for credit losses was $5,190 million at September 30, 2011, compared with $5,308 million at June 30, 2011, and $5,540 million at September 30, 2010. Total net charge-offs in the third quarter of 2011 were $669 million, compared with $747 million in the second quarter of 2011, and $995 million in the third quarter of 2010. The decrease in total net charge-offs was principally due to improvement in the commercial real estate, credit card and other retail portfolios, compared with the second quarter of 2011. The Company recorded $519 million of provision for credit losses, $150 million less than net charge-offs, during the third quarter of 2011. The allowance for credit losses reimbursable by the FDIC was higher than the prior quarter by $32 million.

Commercial and commercial real estate loan net charge-offs decreased to $224 million in the third quarter of 2011 (1.01 percent of average loans outstanding), compared with $260 million (1.22 percent of average loans outstanding) in the second quarter of 2011 and $378 million (1.85 percent of average loans outstanding) in the third quarter of 2010. The decrease primarily reflected efforts to resolve and reduce exposure to problem assets in the construction and development portfolio.

Residential mortgage loan net charge-offs remained relatively stable at $122 million (1.42 percent of average loans outstanding) in the third quarter of 2011, compared with $119 million (1.46 percent of average loans outstanding) in the second quarter of 2011 and $132 million (1.88 percent of average loans outstanding) in the third quarter of 2010. Credit card loan net charge-offs decreased to $178 million (4.40 percent of average loans outstanding) in the third quarter of 2011, compared with $216 million (5.45 percent of average loans outstanding) in the second quarter of 2011 and $296 million (7.11 percent of average loans outstanding) in the third quarter of 2010. Total other retail loan net charge-offs were $142 million (1.16 percent of average loans outstanding) in the third quarter of 2011, lower than the $147 million (1.23 percent of average loans outstanding) in the second quarter of 2011 and the $182 million (1.51 percent of average loans outstanding) in the third quarter of 2010.

The ratio of the allowance for credit losses to period-end loans was 2.53 percent (2.66 percent excluding covered loans) at September 30, 2011, compared with 2.66 percent (2.83 percent excluding covered loans) at June 30, 2011, and 2.85 percent (3.10 percent excluding covered loans) at September 30, 2010. The ratio of the allowance for credit losses to nonperforming loans was 145 percent (196 percent excluding covered loans) at September 30, 2011, compared with 140 percent (188 percent excluding covered loans) at June 30, 2011, and 133 percent (181 percent excluding covered loans) at September 30, 2010.

CREDIT RATIOS Table 9
(Percent) 3Q 2Q 1Q 4Q 3Q
2011 2011 2011 2010 2010
Net charge-offs ratios (a)
Commercial .77 .75 1.19 1.11 1.49
Lease financing .61 .88 .94 1.12 1.18
Total commercial .75 .77 1.16 1.11 1.45
Commercial mortgages .93 .90 .59 1.33 1.72
Construction and development 3.43 5.67 4.61 6.54 4.56
Total commercial real estate 1.39 1.85 1.44 2.51 2.40
Residential mortgages 1.42 1.46 1.65 1.75 1.88
Credit card (b) 4.40 5.45 6.21 6.65 7.11
Retail leasing (.08 ) -- .09 .09 .19
Home equity and second mortgages 1.59 1.64 1.75 1.72 1.62
Other 1.11 1.16 1.33 1.45 1.65
Total other retail 1.16 1.23 1.37 1.43 1.51
Total net charge-offs, excluding covered loans 1.42 1.63 1.81 2.09 2.26
Covered loans .08 .12 .05 .06 .14
Total net charge-offs 1.31 1.51 1.65 1.90 2.05
Delinquent loan ratios - 90 days or more past due excluding nonperforming loans (c)
Commercial .08 .09 .12 .13 .19
Commercial real estate .08 .01 .02 -- .05
Residential mortgages 1.03 1.13 1.33 1.63 1.75
Credit card 1.28 1.32 1.62 1.86 2.09
Other retail .36 .35 .41 .45 .44
Total loans, excluding covered loans .43 .44 .52 .61 .66
Covered loans 5.14 5.66 5.83 6.04 4.96
Total loans .78 .87 .99 1.11 1.08
Delinquent loan ratios - 90 days or more past due including nonperforming loans (c)
Commercial .79 .86 1.12 1.37 1.67
Commercial real estate 3.51 3.85 4.17 3.73 4.20
Residential mortgages 2.88 3.16 3.45 3.70 3.90
Credit card 2.81 2.91 3.23 3.22 3.29
Other retail .50 .51 .56 .58 .57
Total loans, excluding covered loans 1.79 1.94 2.17 2.19 2.37
Covered loans 11.70 12.01 12.51 12.94 11.12
Total loans 2.53 2.77 3.07 3.17 3.23

(a)

Annualized and calculated on average loan balances

(b)

Net charge-offs as a percent of average loans outstanding, excluding portfolio purchases where the acquired loans were recorded at fair value at the purchase date were 4.54 percent for the third quarter of 2011, 5.62 percent for the second quarter of 2011, 6.45 percent for the first quarter of 2011, 7.21 percent for the fourth quarter of 2010 and 7.84 percent for the third quarter of 2010.

(c)

Ratios are expressed as a percent of ending loan balances.

ASSET QUALITY Table 10
($ in millions)
Sep 30 Jun 30 Mar 31 Dec 31 Sep 30
2011 2011 2011 2010 2010
Nonperforming loans
Commercial $ 342 $ 349 $ 439 $ 519 $ 594
Lease financing 40 43 54 78 111
Total commercial 382 392 493 597 705
Commercial mortgages 600 650 635 545 624
Construction and development 620 714 835 748 799
Total commercial real estate 1,220 1,364 1,470 1,293 1,423
Residential mortgages 650 671 685 636 614
Credit card 250 256 255 228 199
Other retail 66 73 75 65 63
Total nonperforming loans, excluding covered loans 2,568 2,756 2,978 2,819 3,004
Covered loans 1,010 1,041 1,151 1,244 1,172
Total nonperforming loans 3,578 3,797 4,129 4,063 4,176
Other real estate (a) 452 489 480 511 537
Covered other real estate (a) 293 348 390 453 679
Other nonperforming assets 16 17 21 21 22
Total nonperforming assets (b) $ 4,339 $ 4,651 $ 5,020 $ 5,048 $ 5,414
Total nonperforming assets, excluding covered assets $ 3,036 $ 3,262 $ 3,479 $ 3,351 $ 3,563

Accruing loans 90 days or more past due, excluding covered loans

$ 814 $ 804 $ 949 $ 1,094 $ 1,165
Accruing loans 90 days or more past due $ 1,606 $ 1,732 $ 1,954 $ 2,184 $ 2,110

Performing restructured loans, excluding GNMA and covered loans

$

3,095

$ 2,532 $ 2,431 $ 2,207 $ 2,180
Performing restructured GNMA and covered loans (c) $ 1,025

Nonperforming assets to loans plus ORE, excluding covered assets (%)

1.60 1.77 1.92 1.87 2.02

Nonperforming assets to loans plus ORE (%)

2.11 2.32 2.52 2.55 2.76

(a)

Includes equity investments in entities whose only asset is other real estate owned

(b)

Does not include accruing loans 90 days or more past due or restructured loans that continue to accrue interest

(c)

Prior to new accounting guidance in the third quarter of 2011 restructured covered loans and loans purchased from Government National Mortgage Association ("GNMA") mortgage pools, whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veteran Affairs, were not included in restructured loans

Nonperforming assets at September 30, 2011, totaled $4,339 million, compared with $4,651 million at June 30, 2011, and $5,414 million at September 30, 2010. Total nonperforming assets at September 30, 2011, included $1,303 million of assets covered under loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company. The ratio of nonperforming assets to loans and other real estate was 2.11 percent (1.60 percent excluding covered assets) at September 30, 2011, compared with 2.32 percent (1.77 percent excluding covered assets) at June 30, 2011, and 2.76 percent (2.02 percent excluding covered assets) at September 30, 2010. The decrease in nonperforming assets, excluding covered assets, compared with a year ago was driven primarily by the construction and development portfolios, as well as by improvement in other commercial and retail portfolios. Given current economic conditions, the Company expects nonperforming assets to trend lower in the fourth quarter of 2011.

Accruing loans 90 days or more past due were $1,606 million ($814 million excluding covered loans) at September 30, 2011, compared with $1,732 million ($804 million excluding covered loans) at June 30, 2011, and $2,110 million ($1,165 million excluding covered loans) at September 30, 2010. Performing restructured loans, excluding GNMA and covered loans, increased $563 million compared with June 30, 2011, and $915 million compared with September 30, 2010, principally due to the impact of new accounting guidance adopted in the current quarter.

CAPITAL POSITION Table 11
($ in millions) Sep 30 Jun 30 Mar 31 Dec 31 Sep 30
2011 2011 2011 2010 2010
Total U.S. Bancorp shareholders' equity $33,230 $32,452 $30,507 $29,519 $29,151
Tier 1 capital 28,081 27,795 26,821 25,947 24,908
Total risk-based capital 35,369 35,109 34,198 33,033 32,265
Tier 1 capital ratio 10.8 % 11.0 % 10.8 % 10.5 % 10.3 %
Total risk-based capital ratio 13.5 13.9 13.8 13.3 13.3
Leverage ratio 9.0 9.2 9.0 9.1 9.0
Tier 1 common equity ratio 8.5 8.4 8.2 7.8 7.6
Tangible common equity ratio 6.6 6.5 6.3 6.0 6.2

Tangible common equity as a percent of risk-weighted assets

8.1 8.0 7.6 7.2 7.2

Total U.S. Bancorp shareholders' equity was $33.2 billion at September 30, 2011, compared with $32.5 billion at June 30, 2011, and $29.2 billion at September 30, 2010. During the third quarter of 2011, the Company repurchased approximately 13 million shares of common stock under a 50 million share repurchase authorization announced March 18, 2011. The Tier 1 capital ratio was 10.8 percent at September 30, 2011, compared with 11.0 percent at June 30, 2011, and 10.3 percent at September 30, 2010. The Tier 1 common equity ratio was 8.5 percent at September 30, 2011, compared with 8.4 percent at June 30, 2011, and 7.6 percent at September 30, 2010. The tangible common equity ratio was 6.6 percent at September 30, 2011, compared with 6.5 percent at June 30, 2011, and 6.2 percent at September 30, 2010. All regulatory ratios continue to be in excess of "well-capitalized" requirements. Additionally, the Tier 1 common ratio under anticipated Basel III guidelines was 8.2 percent as of September 30, 2011, compared with 8.1 percent as of June 30, 2011.

COMMON SHARES Table 12
(Millions) 3Q 2Q 1Q 4Q 3Q
2011 2011 2011 2010 2010
Beginning shares outstanding 1,925 1,927 1,921 1,918 1,917

Shares issued for stock option and stock purchase plans, acquisitions and other corporate purposes

1 -- 7 3 1
Shares repurchased (13 ) (2 ) (1 ) -- --
Ending shares outstanding 1,913 1,925 1,927 1,921 1,918
LINE OF BUSINESS FINANCIAL PERFORMANCE (a) Table 13
($ in millions)
Net Income Attributable Net Income Attributable
to U.S. Bancorp Percent Change to U.S. Bancorp 3Q 2011
3Q 2Q 3Q 3Q11 vs 3Q11 vs YTD YTD Percent Earnings
Business Line 2011 2011 2010 2Q11 3Q10 2011 2010 Change Composition

Wholesale Banking and Commercial Real Estate

$ 304 $ 269 $ 144 13.0 nm $ 781 $ 255 nm 24 %

Consumer and Small Business Banking

228 188 227 21.3 .4 556 540 3.0 18

Wealth Management and Securities Services

42 50 54 (16.0 ) (22.2 ) 141 170 (17.1 ) 3
Payment Services 357 364 217 (1.9 ) 64.5 1,012 517 95.7 28
Treasury and Corporate Support 342 332 266 3.0 28.6 1,032 861 19.9 27
Consolidated Company $ 1,273 $ 1,203 $ 908 5.8 40.2 $ 3,522 $ 2,343 50.3 100 %
(a) preliminary data

Lines of Business

The Company's major lines of business are Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth Management and Securities Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. 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. Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company's diverse customer base. During 2011, certain organization and methodology changes were made and, accordingly, prior period results were restated and presented on a comparable basis.

Wholesale Banking and Commercial Real Estate offers lending, equipment finance and small-ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution and public sector clients. Wholesale Banking and Commercial Real Estate contributed $304 million of the Company's net income in the third quarter of 2011, compared with $144 million in the third quarter of 2010 and $269 million in the second quarter of 2011. Wholesale Banking and Commercial Real Estate's net income increased $160 million over the same quarter of 2010 due to higher total net revenue and a lower provision for credit losses, partially offset by an increase in total noninterest expense. Net interest income increased $26 million (5.0 percent) year-over-year primarily due to higher average loan and deposit balances and an increase in loan fees. Total noninterest income increased $43 million (15.6 percent), mainly due to growth in commercial products revenue, including syndication fees, commercial leasing revenue and commercial loan fees. In addition, other revenue increased primarily due to higher equity investment revenue and customer-related derivative revenue. Total noninterest expense increased $12 million (3.9 percent) over a year ago, primarily due to higher compensation and employee benefits expense and net shared services expense. The provision for credit losses was $198 million (75.3 percent) lower year-over-year due to a reduction in net charge-offs and a reduction in the reserve allocation.

Wholesale Banking and Commercial Real Estate's contribution to net income in the third quarter of 2011 was $35 million (13.0 percent) higher than the second quarter of 2011. This improvement was due to higher total net revenue, a reduction in the provision for credit losses and a decrease in total noninterest expense. Total net revenue was higher by $5 million (.6 percent). Net interest income increased $13 million (2.4 percent) on a linked quarter basis, as higher average loan and deposit balances, partially offset by an $8 million (2.5 percent) decrease in total noninterest income, the result of seasonally lower government-related treasury management fees and a decrease in commercial products revenue. Total noninterest expense decreased by $11 million (3.3 percent), largely due to lower net shared services expense and a reduction in FDIC deposit insurance expense. The provision for credit losses decreased $47 million (42.0 percent) on a linked quarter basis, due to lower net charge-offs and a decrease in the reserve allocation.

Consumer and Small Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and over mobile devices. It encompasses community banking, metropolitan banking, in-store banking, small business banking, consumer lending, mortgage banking, consumer finance, workplace banking, student banking and 24-hour banking. Consumer and Small Business Banking contributed $228 million of the Company's net income in the third quarter of 2011, a $1 million (.4 percent) increase over the third quarter of 2010, and a $40 million (21.3 percent) increase over the prior quarter. Within Consumer and Small Business Banking, the retail banking division reported a $76 million increase in its contribution over the same quarter of last year. The increase in the retail banking division's contribution over the same period of 2010 was principally due to higher total net revenue and a lower provision for credit losses, partially offset by higher total noninterest expense. Retail banking's total net revenue was 6.0 percent higher, compared with the third quarter of 2010. Net interest income increased 4.4 percent primarily due to higher loan and deposit volumes and an increase in loan fees, partially offset by the impact of lower rates on the margin benefit from deposits. Total noninterest income for the retail banking division increased 9.7 percent from a year ago, due to an increase in deposit service charges, primarily due to new account growth, higher transaction volumes and recent product redesign initiatives, partially offset by the impact of 2010 legislative and pricing changes. In addition, other income increased year-over-year due to higher retail lease residual revenue and ATM processing services income. Total noninterest expense for the retail banking division in the third quarter of 2011 was 3.0 percent higher year-over-year, principally due to higher compensation and employee benefits expense, higher net shared services costs and net occupancy and equipment expense related to business initiatives, partially offset by lower other intangibles expense. The provision for credit losses for the retail banking division decreased 18.8 percent on a year-over-year basis due to lower net charge-offs and a reduction in the reserve allocation. The contribution of the mortgage banking division decreased 40.3 percent from the third quarter of 2010. The division's 18.4 percent decrease in total net revenue was driven by a 14.8 percent reduction in net interest income due to a decrease in average loans held-for-sale and a 20.4 percent decline in total noninterest income due to lower mortgage origination and sales revenue. Total noninterest expense was 18.6 percent higher principally due to mortgage servicing-related professional services projects. The provision for credit losses increased 6.1 percent primarily due to a change in the allowance allocation.

Consumer and Small Business Banking's contribution in the third quarter of 2011 was $40 million (21.3 percent) higher than the second quarter of 2011 due to higher total net revenue and a reduction in the provision for credit losses, partially offset by higher total noninterest expense. Within Consumer and Small Business Banking, the retail banking division's contribution increased by $64 million on a linked quarter basis. Total net revenue for the retail banking division increased 2.2 percent. Net interest income improved 1.8 percent due to higher average deposit balances and loan volumes and an increase in loan fees. The retail banking division's total noninterest income increased 3.2 percent, reflecting higher deposit services charges, due to higher transaction volumes and product redesign initiatives. Total noninterest expense for the retail banking division was 1.7 percent lower primarily due to a reduction in FDIC deposit insurance expense. The provision for credit losses for the division decreased 15.7 percent due to lower net charge-offs and a reduction in the reserve allocation. The contribution of the mortgage banking division decreased 17.8 percent from the second quarter of 2011 due to higher total noninterest expense and an increase in the provision for credit losses, partially offset by an increase in total net revenue. Total net revenue increased 3.9 percent due to a 5.9 percent increase in net interest income driven by higher average loans held-for-sale. In addition, total noninterest income increased 2.8 percent, driven by increased revenue from mortgage origination and sales, partially offset by a lower net valuation of mortgage servicing rights. Total noninterest expense increased 33.3 percent due to higher commission expense and mortgage servicing-related professional services projects. The mortgage banking division's provision for credit losses increased 30.0 percent on a linked quarter basis due to an increase in the reserve allocation.

Wealth Management and Securities Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through five businesses: Wealth Management, Corporate Trust Services, U.S. Bancorp Asset Management, Institutional Trust & Custody and Fund Services. Wealth Management and Securities Services contributed $42 million of the Company's net income in the third quarter of 2011, a 22.2 percent decrease from the third quarter of 2010, and a 16.0 percent decrease compared with the second quarter of 2011. The decrease in the business line's contribution, compared with the same quarter of 2010, was due to lower total net revenue and higher total noninterest expense, partially offset by a reduction in the provision for credit losses. Total net revenue decreased by $12 million (3.4 percent) year-over-year. Net interest income was higher by $11 million (13.9 percent), primarily due to higher average deposit balances, including the impact of the securitization trust administration acquisition. However, total noninterest income decreased by $23 million (8.3 percent), compared with the third quarter of 2010. Trust and investment management fees declined, primarily due to the sale of the long-term asset management business to Nuveen Investments and money market investment fee waivers, partially offset by the positive impact of the securitization trust administration acquisition and improved market conditions. Additionally, there was an increase in investment products fees and commissions due to increased sales volumes. Total noninterest expense increased by $20 million (7.8 percent), due to higher compensation and employee benefits expense, net shared services expense and the impact of the securitization trust administration acquisition, partially offset by a reduction in other intangibles expense and expenses related to the sale to Nuveen Investments. The provision for credit losses was lower due to a decrease in the reserve allocation and lower net charge-offs.

The business line's contribution in the third quarter of 2011 was $8 million (16.0 percent) lower on a linked quarter basis. Total net revenue decreased $9 million (2.5 percent) as a $7 million (8.4 percent) increase in net interest income, driven by the impact of higher average deposit balances, was more than offset by a $16 million (5.9 percent) decrease in total noninterest income due primarily to the impact of market conditions on account-level fees and money market investment fees waivers. Total noninterest expense declined $3 million (1.1 percent) compared with the prior quarter, principally due to a reduction in processing costs and FDIC deposit insurance expense. The provision for credit losses was $6 million higher than the prior quarter due to an increase in net charge-offs and a change in the reserve allocation.

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing. Payment Services contributed $357 million of the Company's net income in the third quarter of 2011, an increase of $140 million (64.5 percent) over the same period of 2010, and a decrease of $7 million (1.9 percent) from the prior quarter. The increase year-over-year was primarily due to a lower provision for credit losses and higher total net revenue, partially offset by an increase in total noninterest expense. Total net revenue increased $50 million (4.4 percent) year-over-year. Net interest income was relatively flat, while noninterest income increased $51 million (6.3 percent) year-over-year, primarily due to increased transaction volumes. Total noninterest expense increased $8 million (1.7 percent), driven by higher compensation and employee benefits expense, partially offset by lower other intangibles expense. The provision for credit losses decreased $181 million (59.3 percent) due to lower net charge-offs and a favorable change in the reserve allocation due to improved loss rates.

Payment Services' contribution in the third quarter of 2011 was $7 million (1.9 percent) lower than the second quarter of 2011, driven by increases in the provision for credit losses and total noninterest expense, partially offset by higher total net revenue. Total net revenue was higher by $32 million (2.8 percent), compared with the second quarter of 2011, due to an $8 million (2.5 percent) increase in net interest income, driven by loan fees and improved loan rates, partially offset by the cost of rebates on the government card program. In addition, total noninterest income was higher by $24 million (2.9 percent), principally due to seasonally higher corporate payment products transaction volumes. Total noninterest expense increased $8 million (1.7 percent) on a linked quarter basis, principally due to the timing of marketing programs. The provision for credit losses increased $35 million (39.3 percent) due to a change in the reserve allocation, partially offset by lower net charge-offs.

Treasury and Corporate Support includes the Company's investment portfolios, most covered commercial and commercial real estate loans and related other real estate owned, funding, capital management, asset securitization, interest rate risk management, the net effect of transfer pricing related to average balances and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $342 million in the third quarter of 2011, compared with net income of $266 million in the third quarter of 2010 and net income of $332 million in the second quarter of 2011. Net interest income increased $93 million (22.7 percent) over the third quarter of 2010, reflecting the impact of wholesale funding decisions and the Company's asset/liability position. Total noninterest income increased by $15 million (75.0 percent) year-over-year, principally due to income from sales of investments in tax-advantaged projects and higher commercial products revenue. Total noninterest expense decreased $5 million (2.2 percent) due to a favorable change in net shared services expense and lower litigation and insurance costs, partially offset by increased compensation and employee benefits expense.

Net income in the third quarter of 2011 was higher on a linked quarter basis, principally due to an increase in total net revenue and lower provision for credit losses, partially offset by higher total noninterest expense. Total net revenue was higher than the second quarter of 2011 by $30 million (5.9 percent), largely due to a 5.5 percent increase in net interest income, reflecting the impact of wholesale funding decisions and the Company's asset/liability position. The $31 million (16.5 percent) increase in total noninterest expense from the second quarter of 2011 was primarily due to an increase in costs related to affordable housing and other tax-advantaged projects and net shared services expense.

Additional schedules containing more detailed information about the Company's business line results are available on the web at usbank.com or by calling Investor Relations at 612-303-0781.

On Wednesday, October 19, 2011, at 8:00 a.m. (CDT) Richard K. Davis, chairman, president and chief executive officer, and Andrew Cecere, vice chairman and chief financial officer, will host a conference call to review the financial results.The conference call will be available by telephone or on the Internet.A presentation will be used during the call and will be available on the Company's website at www.usbank.com.To access the conference call from locations within the United States and Canada, please dial 866-316-1409.Participants calling from outside the United States and Canada, please dial 706-634-9086.The conference ID number for all participants is 10166729.For those unable to participate during the live call, a recording of the call will be available approximately two hours after the conference call ends on Wednesday, October 19th, and will run through Wednesday, October 26th, at 11:00 p.m. (CDT).To access the recorded message within the United States and Canada, dial 855-859-2056.If calling from outside the United States and Canada, please dial 404-537-3406 to access the recording.The conference ID is 10166729.To access the webcast and presentation go to www.usbank.com and click on "About U.S. Bank".The "Webcasts & Presentations" link can be found under the Investor/Shareholder information heading, which is at the left side of the bottom of the page.

Minneapolis-based U.S. Bancorp ("USB"), with $330 billion in assets as of September 30, 2011, is the parent company of U.S. Bank National Association, the 5th largest commercial bank in the United States. The Company operates 3,089 banking offices in 25 states and 5,092 ATMs and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp and its employees are dedicated to improving the communities they serve, for which the company earned the 2011 Spirit of America Award, the highest honor bestowed on a company by United Way. Visit U.S. Bancorp on the web at usbank.com.

Forward-Looking Statements

The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:

This press release contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date made. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Global and domestic economies could fail to recover from the recent economic downturn or could experience another severe contraction, which could adversely affect U.S. Bancorp's revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Continued stress in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets, could cause additional credit losses and deterioration in asset values. In addition, U.S. Bancorp's business and financial performance is likely to be negatively impacted by effects of recently enacted and future legislation and regulation. U.S. Bancorp's results could also be adversely affected by continued deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management's ability to effectively manage credit risk, residual value risk, market risk, operational risk, interest rate risk, and liquidity risk.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp's Annual Report on Form 10-K for the year ended December 31, 2010, on file with the Securities and Exchange Commission, including the sections entitled "Risk Factors" and "Corporate Risk Profile" contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. Forward-looking statements speak only as of the date they are made, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

Non-Regulatory Capital Ratios

In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:

- Tangible common equity to tangible assets,

- Tier 1 common equity to risk-weighted assets using Basel I definition,

- Tier 1 common equity to risk-weighted assets using anticipated Basel III definition, and

- Tangible common equity to risk-weighted assets using Basel I definition.

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

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

U.S. Bancorp
Consolidated Statement of Income
Three Months Ended Nine Months Ended
(Dollars and Shares in Millions, Except Per Share Data) September 30, September 30,
(Unaudited) 2011 2010 2011 2010
Interest Income
Loans $ 2,621 $ 2,560 $ 7,736 $ 7,580
Loans held for sale 42 71 139 162
Investment securities 470 400 1,357 1,204
Other interest income 67 46 187 119
Total interest income 3,200 3,077 9,419 9,065
Interest Expense
Deposits 202 231 646 696
Short-term borrowings 143 149 407 414
Long-term debt 289 273 860 822
Total interest expense 634 653 1,913 1,932
Net interest income 2,566 2,424 7,506 7,133
Provision for credit losses 519 995 1,846 3,444
Net interest income after provision for credit losses 2,047 1,429 5,660 3,689
Noninterest Income
Credit and debit card revenue 289 274 842 798
Corporate payment products revenue 203 191 563 537
Merchant processing services 338 318 977 930
ATM processing services 115 105 341 318
Trust and investment management fees 241 267 755 798
Deposit service charges 183 160 488 566
Treasury management fees 137 139 418 421
Commercial products revenue 212 197 621 563
Mortgage banking revenue 245 310 683 753
Investment products fees and commissions 31 27 98 82
Securities gains (losses), net (9 ) (9 ) (22 ) (64 )
Other 186 131 565 436
Total noninterest income 2,171 2,110 6,329 6,138
Noninterest Expense
Compensation 1,021 973 2,984 2,780
Employee benefits 203 171 643 523
Net occupancy and equipment 252 229 750 682
Professional services 100 78 252 209
Marketing and business development 102 108 257 254
Technology and communications 189 186 563 557
Postage, printing and supplies 76 74 226 223
Other intangibles 75 90 225 278
Other 458 476 1,315 1,392
Total noninterest expense 2,476 2,385 7,215 6,898
Income before income taxes 1,742 1,154 4,774 2,929
Applicable income taxes 490 260 1,314 620
Net income 1,252 894 3,460 2,309
Net (income) loss attributable to noncontrolling interests 21 14 62 34
Net income attributable to U.S. Bancorp $ 1,273 $ 908 $ 3,522 $ 2,343
Net income applicable to U.S. Bancorp common shareholders $ 1,237 $ 871 $ 3,407 $ 2,381
Earnings per common share $ .65 $ .46 $ 1.78 $ 1.25
Diluted earnings per common share $ .64 $ .45 $ 1.77 $ 1.24
Dividends declared per common share $ .125 $ .050 $ .375 $ .150
Average common shares outstanding 1,915 1,913 1,918 1,911
Average diluted common shares outstanding 1,922 1,920 1,926 1,920
U.S. Bancorp
Consolidated Ending Balance Sheet
September 30, December 31, September 30,
(Dollars in Millions) 2011 2010 2010
Assets (Unaudited) (Unaudited)
Cash and due from banks $ 13,708 $ 14,487 $ 4,470
Investment securities
Held-to-maturity 16,269 1,469 557
Available-for-sale 52,109 51,509 48,406
Loans held for sale 5,375 8,371 8,438
Loans
Commercial 53,832 48,398 47,627
Commercial real estate 35,603 34,695 34,318
Residential mortgages 35,124 30,732 28,587
Credit card 16,332 16,803 16,490
Other retail 48,479 48,391 48,557
Total loans, excluding covered loans 189,370 179,019 175,579
Covered loans 15,398 18,042 19,038
Total loans 204,768 197,061 194,617
Less allowance for loan losses (4,950 ) (5,310 ) (5,321 )
Net loans 199,818 191,751 189,296
Premises and equipment 2,581 2,487 2,304
Goodwill 8,933 8,954 9,024
Other intangible assets 2,675 3,213 2,856
Other assets 28,673 25,545 25,303
Total assets $ 330,141 $ 307,786 $ 290,654
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $ 64,228 $ 45,314 $ 40,750
Interest-bearing 130,332 129,381 118,863
Time deposits greater than $100,000 28,072 29,557 27,793
Total deposits 222,632 204,252 187,406
Short-term borrowings 32,029 32,557 34,341
Long-term debt 30,624 31,537 30,353
Other liabilities 10,646 9,118 8,611
Total liabilities 295,931 277,464 260,711
Shareholders' equity
Preferred stock 2,606 1,930 1,930
Common stock 21 21 21
Capital surplus 8,248 8,294 8,310
Retained earnings 29,704 27,005 26,147
Less treasury stock (6,419 ) (6,262 ) (6,363 )
Accumulated other comprehensive income (loss) (930 ) (1,469 ) (894 )
Total U.S. Bancorp shareholders' equity 33,230 29,519 29,151
Noncontrolling interests 980 803 792
Total equity 34,210 30,322 29,943
Total liabilities and equity $ 330,141 $ 307,786 $ 290,654
U.S. Bancorp
Non-Regulatory Capital Ratios
September 30, June 30, March 31, December 31, September 30,
(Dollars in Millions, Unaudited) 2011 2011 2011 2010 2010
Total equity $ 34,210 $ 33,341 $ 31,335 $ 30,322 $ 29,943
Preferred stock (2,606 ) (2,606 ) (1,930 ) (1,930 ) (1,930 )
Noncontrolling interests (980 ) (889 ) (828 ) (803 ) (792 )
Goodwill (net of deferred tax liability) (8,265 ) (8,300 ) (8,317 ) (8,337 ) (8,429 )
Intangible assets, other than mortgage servicing rights (1,209 ) (1,277 ) (1,342 ) (1,376 ) (1,434 )
Tangible common equity (a) 21,150 20,269 18,918 17,876 17,358

Tier 1 capital, determined in accordance with prescribed regulatory requirements using Basel I definition

28,081 27,795 26,821 25,947 24,908
Trust preferred securities (2,675 ) (3,267 ) (3,949 ) (3,949 ) (3,949 )
Preferred stock (2,606 ) (2,606 ) (1,930 ) (1,930 ) (1,930 )

Noncontrolling interests, less preferred stock not eligible for Tier 1 capital

(695 ) (695 ) (694 ) (692 ) (694 )
Tier 1 common equity using Basel I definition (b) 22,105 21,227 20,248 19,376 18,335

Tier 1 capital, determined in accordance with prescribed regulatory requirements using anticipated Basel III definition

24,902 23,931 21,855 20,854
Preferred stock (2,606 ) (2,606 ) (1,930 ) (1,930 )
Noncontrolling interests of real estate investment trusts (667 ) (667 ) (667 ) (667 )
Tier 1 common equity using anticipated Basel III definition (c) 21,629 20,658 19,258 18,257
Total assets 330,141 320,874 311,462 307,786 290,654
Goodwill (net of deferred tax liability) (8,265 ) (8,300 ) (8,317 ) (8,337 ) (8,429 )
Intangible assets, other than mortgage servicing rights (1,209 ) (1,277 ) (1,342 ) (1,376 ) (1,434 )
Tangible assets (d) 320,667 311,297 301,803 298,073 280,791

Risk-weighted assets, determined in accordance with prescribed regulatory requirements using Basel I definition (e)

261,115 * 252,882 247,486 247,619 242,490
Risk-weighted assets using anticipated Basel III definition (f) 264,103

*

256,205 250,931 251,704
Ratios *
Tangible common equity to tangible assets (a)/(d) 6.6 % 6.5 % 6.3 % 6.0 % 6.2 %

Tier 1 common equity to risk-weighted assets using Basel I definition (b)/(e)

8.5 8.4 8.2 7.8 7.6

Tier 1 common equity to risk-weighted assets using anticipated Basel III definition (c)/(f)

8.2 8.1 7.7 7.3
Tangible common equity to risk-weighted assets (a)/(e) 8.1 8.0 7.6 7.2 7.2
*Preliminary data. Subject to change prior to filings with applicable regulatory agencies.
Note: Anticipated Basel III definitions reflect adjustments for changes to the related elements as proposed in December 2010 by regulatory authorities.

SOURCE: U.S. Bancorp

U.S. Bancorp
Thomas Joyce, Media, 612-303-3167
or
Judith T. Murphy, Investors/Analysts, 612-303-0783
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding U.S. Bancorp's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.



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