Balance Sheet

Total average loans were $14.4 billion or 8.2% higher in 4Q09 than 4Q08, primarily driven by growth in covered assets and retail loan categories. Average total retail loans increased $4.5 billion, residential mortgages increased $2.2 billion and total commercial real estate loans increased $1.4 billion year over year. Growth in these categories was partially offset by a $7.0 billion decline in total commercial loans, principally due to lower utilization of existing commitments and reduced demand for new loans. Retail loan growth, year over year, was driven by increases in credit cards, home equity lines and federally-guaranteed student loans. Included in the growth of average credit card loans outstanding were portfolio purchases during the third quarter of approximately $1.3 billion.

Average investment securities in 4Q09 were $2.2 billion or 5.2% higher year over year and $1.6 billion or 3.7% higher than 3Q09. The increases over the prior year and linked quarter were primarily due to purchases of U.S. government agency-related securities.

Average total deposits in 4Q09 were $36.4 billion or 25.2% higher than 4Q08. Excluding deposits from acquisitions, average total deposits increased $21.3 billion or 15.3% over 4Q08. Non-interest-bearing deposits increased $9.4 billion or 29.6% year over year, primarily due to growth in the Consumer and Wholesale Banking business lines and the impact of acquisitions. Average total savings deposits were $30.0 billion or 46.8% higher year over year, the result of growth in Consumer Banking, government, broker-dealer and institutional trust customers and the impact of acquisitions. Contributing to the increase in savings accounts was strong participation in a new savings product introduced across the franchise by Consumer Banking late in 3Q08. Average time certificates of deposit less than $100,000 were $3.0 billion or 19.6% higher year over year primarily due to acquisitions, while average time deposits greater than $100,000 decreased $5.9 billion or 17.9%, reflecting a decrease in overall wholesale funding requirements.

Capital Structure

Return on average assets and return on average common equity were 0.86% and 9.6%, respectively, in 4Q09, compared with 0.51% and 5.3%, respectively, in 4Q08.

Total shareholders’ equity was $26.0 billion on December 31, 2009, compared with $25.2 billion on September 30, 2009, and $26.3 billion on December 31, 2008. The year-over-year decrease was a result of the Company’s 2Q09 redemption of $6.6 billion of preferred stock previously held by the U.S. Department of the Treasury, partially offset by earnings and a $2.7 billion (153 million shares) common stock offering in 2Q09. During 3Q09, the Company repurchased the warrant previously issued to the U.S. Department of the Treasury as part of the Company’s participation in the Treasury’s Capital Purchase Program for $139 million. The repurchase price was charged to equity. The Tier 1 capital ratio was 9.6% on December 31, 2009, compared with 9.5% on September 30, 2009, and 10.6% on December 31, 2008. The Tier 1 common equity ratio was 6.8% on both December 31, 2009, and September 30, 2009, compared with 5.1% on December 31, 2008. The tangible common equity ratio was 5.3% on December 31, 2009, compared with 5.4% on September 30, 2009, and 3.3% on December 31, 2008. All regulatory ratios continue to be in excess of “well-capitalized” requirements.

Given USB’s strong capital ratios, improving credit trends, and the fact the Company has got rid of all TARP restrictions, there is the strong likelihood that USB will raise its common dividend in 4Q09.

Credit Quality

Net charge offs and non-performing assets continued to trend higher, reflecting the recessionary economic environment, although excluding covered assets, the rate of increase continued to moderate during 4Q09. The allowance for credit losses was $5,264 million on December 31, 2009, compared with $4,986 million on September 30, 2009, and $3,639 million on December 31, 2008.

Total net charge offs in 4Q09 were $1,110 million, compared with $1,041 million in 3Q09, and $632 million in 4Q08. The increase in total net charge-offs compared with the previous year was driven by economic factors affecting the residential housing markets, including homebuilding and related industries, commercial real estate properties and credit costs associated with credit card and other consumer and commercial loans as the economy weakened. As a result of the stress in these areas, the Company recorded $278 million of provision for credit losses in excess of net charge-offs, increasing the allowance for credit losses during 4Q09.

Commercial and commercial real estate loan net charge offs increased to $457 million in 4Q09 (2.16% of average loans outstanding) compared with $433 million (2.02% of average loans outstanding) in 3Q09 and $216 million (0.96% of average loans outstanding) in 4Q08. This increasing trend reflected stress in commercial real estate, and residential housing, especially homebuilding and related industry sectors, along with the impact of current economic conditions on the Company’s commercial loan portfolios.

Residential mortgage loan net charge offs were $153 million in 4Q09 (2.37% of average loans outstanding) compared with $129 million (2.10% of average loans outstanding) in 3Q09 and $84 million (1.43% of average loans outstanding) in 4Q08. Total retail loan net charge-offs were $497 million (3.11% of average loans outstanding) in 4Q09 compared with $479 million (3.05% of average loans outstanding) in 3Q09 and $327 million (2.21% of average loans outstanding) in 4Q08. The increased residential mortgage and retail loan credit losses reflected the adverse impact of current economic conditions on consumers, as rising unemployment levels increased losses in prime-based residential portfolios.

The ratio of the allowance for credit losses to period-end loans was 2.69% (3.04% excluding covered assets) on December 31, 2009, compared with 2.72% (2.88% excluding covered assets) on September 30, 2009, and 1.96% (2.09% excluding covered assets) on December 31, 2008. The ratio of the allowance for credit losses to non-performing loans was 97% (153% excluding covered assets) on December 31, 2009, compared with 125% (150% excluding covered assets) on September 30, 2009, and 151% (206% excluding covered assets) on December 31, 2008.

Non-performing assets on December 31, 2009, totaled $5,907 million, compared with $4,392 million on September 30, 2009, and $2,624 million on December 31, 2008. Included in December 31, 2009, non-performing assets were $2,003 million of assets covered under loss sharing agreement with the FDIC that substantially reduces the risk of credit losses to the Company. The increase in non-performing covered assets was due to $1,442 million of loans and other real estate acquired as part of the FBOP Banks acquisition. The ratio of non-performing assets to loans and other real estate was 3.02% (2.25% excluding covered assets) on December 31, 2009, compared with 2.39% (2.14% excluding covered assets) on September 30, 2009, and 1.42% (1.14% excluding covered assets) on December 31, 2008. The increase in non-performing assets (excluding covered assets) compared with a year ago was driven primarily by the residential construction portfolio and related industries and the residential mortgage portfolio, as well as an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial and consumer customers.

The Company expects non-performing assets, including other real estate owned, to continue to increase, however at a decreasing rate as compared with prior periods, as difficult economic conditions affect more borrowers in both the commercial and consumer loan portfolios.

Accruing loans 90 days or more past due increased to $2,309 million ($1,525 million excluding covered assets) on December 31, 2009, compared with $2,125 million ($1,344 million excluding covered assets) on September 30, 2009, and $1,554 million ($967 million excluding covered assets) on December 31, 2008. The year-over-year increase of $558 million (excluding covered assets) reflected stress in residential mortgages, commercial, construction, credit cards, and home equity loans. Restructured loans that continue to accrue interest have also increased compared with the fourth quarter of 2008 and the third quarter of 2009, reflecting the impact of loan modifications for certain residential mortgage and consumer credit card customers in light of current economic conditions.

The Company expects this trend to continue as the Company actively works with customers to modify loans for borrowers, who are having financial difficulties.

Management expects net charge offs and NPAs to continue to increase, but at a decreasing rate (approaching an inflection point) with reserve builds to continue at a lesser rate than in 4Q09. Management indicated that reserve builds are likely until there are several quarters of sustained credit stabilization.

Dividend

On January 15, 2010, USB paid a quarterly dividend of $0.05 per common share, to shareholders of record at the close of business on December 31, 2009. At this quarterly dividend rate, the annual dividend is equivalent to $0.20 per common share. It also paid a regular quarterly dividend of $223.61 per share (equivalent to $0.22361 per depositary share) on the U.S. Bancorp’s Series B Non-Cumulative Perpetual Preferred Stock, to stockholders of record at the close of business on December 31, 2009. Additionally, it paid a regular quarterly dividend of $503.13 per share (equivalent to $0.50313 per depositary share) on the U.S. Bancorp’s Series D Non-Cumulative Perpetual Preferred Stock, to stockholders of record at the close of business on December 31, 2009.

On October 15, 2009, USB paid a quarterly dividend of $0.05 per common share, to shareholders of record at the close of business on September 30, 2009. At this quarterly dividend rate, the annual dividend is equivalent to $0.20 per common share.

USB paid a regular quarterly dividend of $223.61 per share (equivalent to $0.22361 per depositary share) on the U.S. Bancorp’s Series B Non-Cumulative Perpetual Preferred Stock, to stockholders of record at the close of business on September 30, 2009.

Additionally, USB paid a regular quarterly dividend of $503.13 per share (equivalent to $0.50313 per depositary share) on the U.S. Bancorp’s Series D Non-Cumulative Perpetual Preferred Stock, to stockholders of record at the close of business on September 30, 2009.