USB

Business Context and Reporting Period

Company: U.S. Bancorp
Filing Type: Form 8-K (Current Report)
Date of Report: December 21, 2006
Reporting Period: Events occurring on December 21 and 22, 2006.

Key Financial Metrics and Capital Structure

This filing details a capital transaction rather than standard operating performance metrics. Revenue, profit, cash flow, and operating margins are not reported in this document.

• Capital Raised: $500,000,000 via the sale of Fixed-to-Floating Rate Exchangeable Non-Cumulative Perpetual Series A Preferred Stock.
• Instrument Details: Liquidation preference of $100,000 per security; no stated maturity date.
• Regulatory Capital: The minority interest associated with the Series A securities qualifies as Tier 1 bank regulatory capital for U.S. Bank and is expected to be treated as Tier 1 capital at the U.S. Bancorp level.
• Asset Exchange: A portfolio of mortgage-backed securities was conveyed to USB Realty Corp. in exchange for 100% of its common stock and the net proceeds from the offering.

Material Changes and Corporate Actions

The filing reports two primary corporate actions:

1. Amendment to Articles of Incorporation: On December 21, 2006, U.S. Bancorp filed a Certificate of Designation to establish the rights of its Series C Non-Cumulative Perpetual Preferred Stock (liquidation preference of $100,000 per share).
2. Preferred Stock Offering: On December 22, 2006, USB Realty Corp. (an indirect subsidiary) closed the $500 million Series A preferred securities offering. These securities were sold to qualified institutional buyers under Rule 144A.

Outlook, Risks, and Contingencies

Redemption and Exchange Terms:

• The Series A securities are not redeemable at the option of holders.
• They are redeemable at the option of USB Realty subject to OCC approval and potential "make-whole" payments.
• Conditional Exchange Event: If U.S. Bank becomes "undercapitalized," is placed into conservatorship/receivership, or if the OCC directs an exchange to prevent undercapitalization, the Series A securities will automatically exchange for Series C Preferred Stock.

Replacement Capital Covenant (RCC):

• U.S. Bancorp entered into an RCC with specified debtholders.
• The Company agreed not to purchase or redeem the Series A preferred securities unless funded by the proceeds of issuing certain qualified securities.

Use of Proceeds: Proceeds are available to U.S. Bank and its affiliates for general corporate purposes.

Investor Verification Checklist

• Verify the specific terms of the "Conditional Exchange Event" and the mechanics of the automatic exchange into Series C Preferred Stock.
• Confirm the impact of the $500 million issuance on the company's overall Tier 1 capital ratio.
• Review the Replacement Capital Covenant (Exhibit 99.1) to understand restrictions on future redemptions of the Series A securities.
• Assess the composition and risk profile of the mortgage-backed securities portfolio transferred to USB Realty.