USB 10-Q Quarter ended Sept. 30, 2012

OVERVIEW

Earnings Summary U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $1.5 billion for the third quarter of 2012, or $.74 per diluted common share, compared with $1.3 billion, or $.64 per diluted common share for the third quarter of 2011. Return on average assets and return on average common equity were 1.70 percent and 16.5 percent, respectively, for the third quarter of 2012, compared with 1.57 percent and 16.1 percent, respectively, for the third quarter of 2011. During the third quarter of 2012, the Company recognized a gain on the sale of a credit card portfolio, recorded a charge related to an investment under the equity method of accounting and recorded incremental charge-offs related to a regulatory clarification in the treatment of residential mortgage and other consumer loans to borrowers who have had debt discharged through bankruptcy but continue to make payments on their loans. Taken together, these items had no impact on third quarter 2012 diluted earnings per common share. The provision for credit losses was $50 million lower than net charge-offs for the third quarter of 2012, compared with $150 million lower than net charge-offs for the third quarter of 2011.

Total net revenue, on a taxable-equivalent basis, for the third quarter of 2012 was $384 million (8.0 percent) higher than the third quarter of 2011, reflecting a 6.1 percent increase in net interest income and a 10.4 percent increase in noninterest income. The increase in net interest income over a year ago was the result of higher average earning assets, continued growth in lower cost core deposit funding and the positive impact of lower cost long-term debt. Noninterest income increased over a year ago, primarily due to higher mortgage banking revenue, partially offset by lower debit card revenue as a result of legislative changes.

Noninterest expense in the third quarter of 2012 was $133 million (5.4 percent) higher than the third quarter of 2011, primarily due to higher compensation expense, employee benefits costs and mortgage servicing review-related professional services costs.

The provision for credit losses for the third quarter of 2012 of $488 million was $31 million (6.0 percent) lower than the third quarter of 2011. The third quarter of 2012 provision for credit losses reflected $54 million in charge-offs related to a regulatory clarification in the treatment of residential mortgage and other consumer loans to borrowers who have had debt discharged through bankruptcy but continue to make payments on their loans.

Net charge-offs in the third quarter of 2012 were $538 million, compared with $669 million in the third quarter of 2011. 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.

The Company reported net income attributable to U.S. Bancorp of $4.2 billion for the first nine months of 2012, or $2.12 per diluted common share, compared with $3.5 billion, or $1.77 per diluted common share for the first nine months of 2011. Return on average assets and return on average common equity were 1.66 percent and 16.4 percent, respectively, for the first nine months of 2012, compared with 1.50 percent and 15.5 percent, respectively, for the first nine months of 2011. Included in the Company’s results for the first nine months of 2012 were the third quarter credit card portfolio sale gain, equity-method investment charge and incremental charge-offs related to consumer loans to borrowers who have had debt discharged through bankruptcy. Included in the Company’s results for the first nine months of 2011 was a $46 million gain related to the acquisition of First Community Bank of New Mexico (“FCB”) in a transaction with the Federal Deposit Insurance Corporation (“FDIC”). The provision for credit losses was $190 million lower than net charge-offs for the first nine months of 2012, compared with $375 million lower than net charge-offs for the first nine months of 2011.

Total net revenue, on a taxable-equivalent basis, for the first nine months of 2012 was $1.2 billion (8.4 percent) higher than the first nine months of 2011, reflecting a 6.7 percent increase in net interest income and a 10.4 percent increase in noninterest income. The increase in net interest income over a year ago was largely the result of an increase in average earning assets, continued growth in lower cost core deposit funding and lower rates on long-term debt. Noninterest income increased over a year ago, primarily due to higher mortgage banking revenue, merchant processing services revenue, trust and investment management fees, and commercial products revenue, partially offset by lower debit card revenue as a result of legislative changes.

Noninterest expense in the first nine months of 2012 was $555 million (7.7 percent) higher than the first nine months of 2011, primarily due to higher compensation expense, employee benefits costs, mortgage servicing review-related professional services costs, and other expense, including higher regulatory and insurance-related costs and an accrual recorded by

the Company in the first nine months of 2012 related to its portion of obligations associated with Visa Inc. litigation matters (“Visa accrual”).

The provision for credit losses for the first nine months of 2012 of $1.4 billion was $407 million (22.0 percent) lower than the first nine months of 2011. Net charge-offs in the first nine months of 2012 were $1.6 billion, compared with $2.2 billion in the first nine months of 2011. 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.

Net Interest Income Net interest income, on a taxable-equivalent basis, was $2.8 billion in the third quarter of 2012, compared with $2.6 billion in the third quarter of 2011. Net interest income, on a taxable-equivalent basis, was $8.2 billion in the first nine months of 2012, compared with $7.7 billion in the first nine months of 2011. The increases were primarily the result of growth in both average earning assets and lower cost core deposit funding, as well as lower rates on long-term debt. Average earning assets increased $22.7 billion (7.9 percent) in the third quarter and $25.0 billion (8.9 percent) in the first nine months of 2012, compared with the same periods of 2011, driven by increases in loans and investment securities. The net interest margin in both the third quarter and first nine months of 2012 was 3.59 percent, compared with 3.65 percent and 3.67 percent in the third quarter and first nine months of 2011, respectively. The decreases in the net interest margin reflected higher average balances in lower-yielding investment securities, partially offset by lower rates on deposits and long-term debt, and the inclusion of credit card balance transfer fees in interest income beginning in the first quarter of 2012. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” tables for further information on net interest income.

Average total loans for the third quarter and first nine months of 2012 were $14.8 billion (7.3 percent) and $14.2 billion (7.1 percent) higher, respectively, than the same periods of 2011, driven by growth in commercial loans, residential mortgages, credit card loans and commercial real estate loans. During the third quarter of 2012, the Company sold a $735 million branded consumer and business credit card portfolio. This sale was offset by the impact of the purchase of approximately $700 million of consumer credit card

loans in the fourth quarter of 2011. The increases were partially offset by decreases in other retail loans and loans covered by loss sharing agreements with the FDIC. Average loans acquired in FDIC-assisted transactions that are covered by loss sharing agreements with the FDIC (“covered” loans) decreased $3.2 billion (20.2 percent) in the third quarter and $3.1 billion (18.5 percent) in the first nine months of 2012, compared with the same periods of 2011, respectively.

Average investment securities in the third quarter and first nine months of 2012 were $6.2 billion (9.4 percent) and $10.5 billion (16.9 percent) higher, respectively, than the same periods of 2011, primarily due to purchases of government agency mortgage-backed securities, as the Company increased its on-balance sheet liquidity in response to anticipated regulatory requirements.

Average total deposits for the third quarter and first nine months of 2012 were $23.9 billion (11.1 percent) and $23.2 billion (11.1 percent) higher, respectively, than the same periods of 2011. Average noninterest-bearing deposits for the third quarter and first nine months of 2012 were $9.5 billion (16.2 percent) and $14.9 billion (29.4 percent) higher, respectively, than the same periods of 2011, due to growth in average balances in a majority of the lines of business, including Wholesale Banking and Commercial Real Estate, Wealth Management and Securities Services, and Consumer and Small Business Banking. Average total savings deposits for the third quarter and first nine months of 2012 were $7.8 billion (6.9 percent) and $7.2 billion (6.3 percent) higher, respectively, than the same periods of 2011, primarily due to growth in Consumer and Small Business Banking and corporate trust balances, partially offset by lower government banking and broker-dealer balances. Average time certificates of deposit less than $100,000 were slightly lower in the third quarter and first nine months of 2012, compared with the same periods of 2011. Average time deposits greater than $100,000 for the third quarter and first nine months of 2012 were $7.5 billion (26.1 percent) and $1.8 billion (6.1 percent) higher, respectively, than the same periods of 2011. Time deposits greater than $100,000 are managed as an alternate to other funding sources such as wholesale borrowing, based largely on relative pricing.

Provision for Credit Losses The provision for credit losses for the third quarter and first nine months of 2012 decreased $31 million (6.0 percent) and $407 million (22.0 percent), respectively, from the same periods of 2011. Net charge-offs decreased $131 million (19.6 percent) and $592 million (26.7 percent) in the third quarter and first nine months of 2012, respectively,

compared with the same periods of 2011, principally due to improvement in the commercial, commercial real estate and credit card portfolios. Charge-offs for the third quarter and first nine months of 2012 included $54 million related to a regulatory clarification in the treatment of residential mortgage and other consumer loans to borrowers who have had debt discharged through bankruptcy but continue to make payments on their loans. The provision for credit losses was lower than net charge-offs by $50 million in the third quarter and $190 million in the first nine months of 2012, compared with $150 million in the third quarter and $375 million in the first nine months of 2011. 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 the third quarter and first nine months of 2012 were $2.4 billion and $7.0 billion, respectively, compared with $2.2 billion and $6.3 billion in the same periods of 2011. The $225 million (10.4 percent) increase during the third quarter and the $661 million (10.4 percent) increase during the first nine months of 2012, compared with the same periods of 2011, were primarily driven by strong mortgage banking revenue, principally due to higher origination and sales revenue. In addition, merchant processing services revenue and investment products fees and commissions increased, primarily due to higher transaction volumes. Trust and investment management fees increased due to improved market conditions and business expansion. Commercial

products revenue was higher, principally driven by higher commercial loan fees and high-grade bond underwriting fees. The third quarter and first nine months of 2012 had favorable changes in net securities gains (losses), compared with the same periods of the prior year, primarily due to impairments recorded in 2011. Other income increased in the third quarter of 2012, compared with the same period of the prior year, reflecting the impact of the gain on the credit card portfolio sale, partially offset by the equity-method investment charge and lower retail lease residual revenue. Other income increased in the first nine months of 2012, compared with the same period of the prior year, primarily due to higher retail lease residual revenue and the gain on the credit card portfolio sale, partially offset by the FCB gain and a gain related to the Company’s investment in Visa Inc., both recorded in the first quarter of 2011, and lower equity investment income. Offsetting these positive variances were decreases in credit and debit card revenue due to lower debit card interchange fees as a result of fourth quarter of 2011 legislation (estimated impact of $82 million in the third quarter and $238 million in the first nine months of 2012), net of mitigation efforts, and the impact of the inclusion of credit card balance transfer fees in interest income beginning in the first quarter of 2012. These negative variances were partially offset by higher transaction volumes. ATM processing services revenue was also lower, due to excluding surcharge fees the Company passes through to others from revenue beginning in the first quarter of 2012, rather than reporting those amounts in occupancy expense as in previous periods.

Noninterest Expense Noninterest expense was $2.6 billion in the third quarter and $7.8 billion in the first nine months of 2012, compared with $2.5 billion and $7.2 billion in the same periods of 2011, or increases of $133 million (5.4 percent) and $555 million (7.7 percent), respectively. The increases in noninterest expense from a year ago were principally due to higher compensation expense, employee benefits expense and professional services expense. Compensation expense increased primarily as a result of growth in staffing for business initiatives and mortgage servicing-related activities, in addition to higher commissions and merit increases. Employee benefits expense increased principally due to higher pension costs and staffing levels. Professional services expense was higher, principally due to mortgage servicing review-related projects. Technology and communications expense was higher due to business expansion and technology projects. Marketing and business development expense increased in the first nine months of 2012 over the same period of the prior year due to the timing of charitable contributions and new national media promotions. Other expense increased in the first nine months of 2012, over the same period of the prior year, driven by higher mortgage servicing, regulatory and insurance-related costs and the 2012 Visa accrual, partially offset by lower FDIC assessments, and costs related to other real estate owned and investments in affordable housing and other tax-advantaged projects. These increases were partially offset by decreases in net occupancy and equipment expense, principally reflecting the change in presentation of ATM surcharge revenue passed through to others, and decreases in other intangibles expense due principally to completion of amortization of certain intangibles.

Income Tax Expense The provision for income taxes was $593 million (an effective rate of 29.3 percent) for the third quarter and $1.7 billion (an effective rate of 29.0 percent) for the first nine months of 2012, compared with $490 million (an effective rate of 28.1 percent) and $1.3 billion (an effective rate of 27.5 percent) for the same periods of 2011. The increases in the effective tax rate for the third quarter and first nine months of 2012, compared with the same periods of the prior year, principally reflected the impact of higher pretax earnings year-over-year. For further information on income taxes, refer to Note 9 of the Notes to Consolidated Financial Statements.

Loans The Company’s total loan portfolio was $218.2 billion at September 30, 2012, compared with $209.8 billion at December 31, 2011, an increase of $8.3 billion (4.0 percent). The increase was driven primarily by increases in commercial loans, residential mortgages and commercial real estate loans, partially offset by lower credit card, other retail and covered loans.

The $6.3 billion (11.1 percent) increase in commercial loans was driven by higher demand from new and existing customers.

Residential mortgages held in the loan portfolio increased $4.8 billion (13.0 percent) at September 30, 2012, compared with December 31, 2011, reflecting origination and refinancing activity due to the low interest rate environment. Residential mortgages held in the Company’s loan portfolio are primarily well secured jumbo mortgages to borrowers with high credit quality. The Company generally retains portfolio loans through maturity; however, the Company’s intent may change over time based upon various factors such as ongoing

asset/liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company’s intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale.

Commercial real estate loans increased $962 million (2.7 percent) at September 30, 2012, compared with December 31, 2011, reflecting higher demand from new and existing customers.

Total credit card loans decreased $958 million (5.5 percent) at September 30, 2012, compared with December 31, 2011, reflecting the impact of the sale of a branded credit card portfolio during 2012 and customers paying down their balances. Other retail loans, which include retail leasing, home equity and second mortgages and other retail loans, decreased $142 million (.3 percent) at September 30, 2012, compared with December 31, 2011. The decrease was primarily driven by lower home equity and second mortgages and student loan balances, partially offset by higher installment loan and retail leasing balances.

Loans Held for Sale Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $9.9 billion at September 30, 2012, compared with $7.2 billion at December 31, 2011. The increase in loans held for sale was principally due to an increase in mortgage loan origination and refinancing activity due to the low interest rate environment.

Most of the residential mortgage loans the Company originates follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets; in particular in government agency transactions and to government sponsored enterprises (“GSEs”).

Investment Securities Investment securities totaled $74.1 billion at September 30, 2012, compared with $70.8 billion at December 31, 2011. The $3.3 billion (4.7 percent) increase primarily reflected $2.6 billion of net investment purchases and a $.5 billion favorable change in net unrealized gains (losses) on available-for-sale securities. Held-to-maturity securities were $34.5 billion at September 30, 2012, compared with $18.9 billion at December 31, 2011, due to a transfer of approximately $11.7 billion of available-for-sale investment securities to the held-to-maturity category during the first nine months of 2012, reflecting the Company’s intent to hold those securities to maturity, and growth in government agency mortgage-backed securities as the Company continued to increase its on-balance sheet liquidity in response to anticipated regulatory requirements.

The Company’s available-for-sale securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a security is deemed to be other-than-temporarily impaired. At September 30, 2012, the Company’s net unrealized gains on available-for-sale securities were $1.1 billion, compared with $581 million at December 31, 2011. The favorable change in net unrealized gains was primarily due to increases in the fair value of non-agency mortgage-backed and state and political securities. Gross unrealized losses on available-for-sale securities totaled $229 million at September 30, 2012, compared with $691 million at December 31, 2011.

The Company conducts a regular assessment of its investment portfolio to determine whether any securities are other-than-temporarily impaired. When assessing unrealized losses for other-than-temporary impairment, the Company considers the nature of the investment, the financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows of underlying assets and market conditions. At September 30, 2012, the Company had no plans to sell securities with unrealized losses and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.

There is limited market activity for non-agency mortgage-backed securities held by the Company. As a result, the Company estimates the fair value of these securities using estimates of expected cash flows, discount rates and management’s assessment of various other market factors, which are judgmental in nature. The Company recorded $15 million and $36 million of impairment charges in earnings during the third quarter and first nine months of 2012, respectively, on non-agency mortgage-backed securities. These impairment charges were due to changes in expected cash flows primarily resulting from increases in defaults in the underlying mortgage pools. During the first nine months of 2012, the Company also recognized impairment charges of $27 million in earnings related to certain perpetual preferred securities issued by financial institutions, following the downgrades of money center banks by a rating agency. The unrealized loss on perpetual preferred securities in a loss position at September 30, 2012, was $19 million. Further adverse changes in market conditions may result in additional impairment charges in future periods. Refer to Notes 2 and 11 in the Notes to Consolidated Financial Statements for further information on investment securities.