US BANCORP \DE\ - 10-K Annual Report

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USBANK
SERVICE GUARANTEED [GRAPHIC]

This changes banking forever.
2001 ANNUAL REPORT AND FORM 10-K

usbancorp(R)
Five Star Service Guaranteed [GRAPHIC]

Contents

DELIVERING

Five Star Service Guaranteed
This changes banking forever. Guaranteed customer service by every business line
and every employee for every transaction, every day. Our exclusive Five Star
Service Guarantee puts customer needs first and foremost.

Outstanding customer service is so fundamental to the way we do business
that our employees wear lapel pins with the inscription "Service Guaranteed" as
a visible symbol of our commitment to customers. A replica of that pin is on the
cover of this report, signifying its importance to U.S. Bank(R).

In 1996, we created the original Five Star Service Guarantee for all of our
customers who bank in a branch office. Our goal: to bring customers the highest
level of service they have ever experienced from a financial institution. Since
then, our pursuit of excellence has expanded to every line of business and
department at U.S. Bank. Each one has its own set of Five Star Service
Guarantees -- more than 80 guarantees in all, delivered by all business lines
throughout our organization.

This means that every employee is working every day not just to meet
customer needs, but to exceed them. And, if anyone at U.S. Bank fails to keep
any of our guarantees, we pay the customer for the inconvenience.

We recognize that our service is what differentiates U.S. Bank from our
competition. Product features and rates may be similar among banks, but
guaranteed, outstanding service makes U.S. Bank unique. We say that some banks
talk about great service, but only U.S. Bank guarantees it.

Circle of Service Excellence

Our Five Star Service Guarantee is built on the outstanding efforts of our
employees and their commitment and contribution to delivering the highest level
of quality service for our customers.

Each quarter we choose a select few employees who exemplify outstanding
service for induction into the Circle of Service Excellence. We honor them at a
luncheon hosted by U.S. Bancorp executives and at a Board of Directors meeting.
We prominently display their portraits at our Five Star Halls of Fame, located
in seven major markets. Stock options and local recognition are among the other
ways we reward these top performers. We invite you to nominate an outstanding
employee for our Circle of Service Excellence using the attached self-addressed,
postage-paid nomination form.

U.S. Bancorp 1

NET INCOME
(In millions of dollars)

Operating Earnings(a) Net Income

97 2,123.9 1,599.3
98 2,519.3 2,123.9
99 2,799.0 2,381.8
00 3,106.9 2,875.6
01 2,550.8 1,706.5

DILUTED EARNINGS PER COMMON SHARE
(In dollars)

Diluted Earnings Per Common Share Diluted Earnings Per Common Share
(Operating Basis)(a)

97 1.13 .85
98 1.30 1.10
99 1.45 1.23
00 1.62 1.50
01 1.32 .88

DIVIDENDS DECLARED PER COMMON SHARE (b)
(In dollars)

97 .27
98 .33
99 .46
00 .65
01 .75

RETURN ON AVERAGE ASSETS
(In percents)

Return on Average Assets Return on Average
(Operating Basis)(a) Assets

97 1.64 1.24
98 1.76 1.49
99 1.86 1.59
00 1.96 1.81
01 1.54 1.03

RETURN ON AVERAGE COMMON EQUITY
(In percents)

Return on Average Common Equity Return on Average Common Equity
(Operating Basis)(a)

97 19.5 14.7
98 20.3 17.2
99 21.2 18.0
00 21.6 20.0
01 15.7 10.5

DIVIDEND PAYOUT RATIO
(In percents)

Dividend Payout Ratio Dividend Payout Ratio
(Operating Basis)(a)

97 23.8 31.6
98 25.3 29.9
99 31.7 37.3
00 40.1 43.4
01 57.0 85.2

NET INTEREST MARGIN
(In percents)

97 4.72
98 4.44
99 4.44
00 4.36
01 4.45

EFFICIENCY RATIO
(In percents)

Efficiency Ratio Efficiency Ratio
(Operating Basis)(a)

97 52.2 59.9
98 52.2 58.3
99 50.5 55.7
00 48.8 51.9
01 49.5 57.5

BANKING EFFICIENCY RATIO (c)
(In percents)

Banking Efficiency Ratio Banking Efficiency Ratio
(Operating Basis)(a)

97 51.7 59.5
98 49.7 56.1
99 46.3 52.1
00 43.5 46.8
01 45.2 52.5

AVERAGE ASSETS
(In millions of dollars)

97 129,493
98 142,887
99 150,167
00 158,481
01 165,944

AVERAGE SHAREHOLDERS' EQUITY
(In millions of dollars)

97 10,882
98 12,383
99 13,221
00 14,365
01 16,201

AVERAGE EQUITY TO AVERAGE ASSETS
(In percents)

97 8.40
98 8.67
99 8.80
00 9.06
01 9.76

2 U.S. Bancorp

FINANCIAL SUMMARY

Percent Change Percent Change
(Dollars in Millions, Except Per Share Data) 2001 2000 1999 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

Operating earnings (a)...................................... $ 2,550.8 $ 3,106.9 $ 2,799.0 (17.9)% 11.0%
Merger and restructuring-related items (after-tax).......... (844.3) (231.3) (417.2)
--------------------------------------
Net income................................................ $ 1,706.5 $ 2,875.6 $ 2,381.8 (40.7) 20.7
--------------------------------------
PER COMMON SHARE
Earnings per share.......................................... $ .89 $ 1.51 $ 1.25 (41.1)% 20.8%
Diluted earnings per share.................................. .88 1.50 1.23 (41.3) 22.0
Dividends declared per share (b)............................ .75 .65 .46 15.4 41.3
Book value per share........................................ 8.43 7.97 7.23 5.8 10.2
Market value per share...................................... 20.93 23.25 21.13 (10.0) 10.0

FINANCIAL RATIOS
Return on average assets.................................... 1.03% 1.81% 1.59%
Return on average equity.................................... 10.5 20.0 18.0
Net interest margin (taxable-equivalent basis).............. 4.45 4.36 4.44
Efficiency ratio............................................ 57.5 51.9 55.7

FINANCIAL RATIOS EXCLUDING MERGER AND
RESTRUCTURING-RELATED ITEMS (A)
Return on average assets.................................... 1.54% 1.96% 1.86%
Return on average equity.................................... 15.7 21.6 21.2
Efficiency ratio............................................ 49.5 48.8 50.5
Banking efficiency ratio (c)................................ 45.2 43.5 46.3

AVERAGE BALANCES
Loans....................................................... $ 118,177 $ 118,317 $ 109,638 (.1)% 7.9%
Earning assets.............................................. 145,165 140,606 133,757 3.2 5.1
Assets...................................................... 165,944 158,481 150,167 4.7 5.5
Deposits.................................................... 104,956 103,426 99,920 1.5 3.5
Total shareholders' equity.................................. 16,201 14,365 13,221 12.8 8.7

PERIOD END BALANCES
Loans....................................................... $ 114,405 $ 122,365 $113,229 (6.5)% 8.1%
Allowance for credit losses................................. 2,457 1,787 1,710 37.5 4.5
Assets...................................................... 171,390 164,921 154,318 3.9 6.9
Deposits.................................................... 105,219 109,535 103,417 (3.9) 5.9
Total shareholders' equity.................................. 16,461 15,168 13,947 8.5 8.8
Regulatory capital ratios
Tangible common equity.................................... 5.7% 6.3% 6.7%
Tier 1 capital............................................ 7.7 7.2 7.4
Total risk-based capital.................................. 11.7 10.6 11.0
Leverage.................................................. 7.7 7.4 7.5
- ------------------------------------------------------------------------------------------------------------------------------------

(a) The Company analyzes its performance on a net income basis in accordance
with accounting principles generally accepted in the United States, as well
as on an operating basis before merger and restructuring-related items
referred to as "operating earnings." Operating earnings are presented as
supplemental information to enhance the reader's understanding of, and
highlight trends in, the Company's financial results excluding the impact
of merger and restructuring-related items of specific business acquisitions
and restructuring activities. Operating earnings should not be viewed as a
substitute for net income and earnings per share as determined in
accordance with accounting principles generally accepted in the United
States. Merger and restructuring-related items excluded from net income to
derive operating earnings may be significant and may not be comparable to
other companies.

(b) Dividends per share have not been restated for the 2001 merger of Firstar
and the former U.S. Bancorp ("USBM").

(c) Without investment banking and brokerage activity.

FORWARD-LOOKING STATEMENTS

This Annual Report and Form 10-K contains forward-looking statements. Statements
that are not historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. Forward-looking statements involve
inherent risks and uncertainties, and important factors could cause actual
results to differ materially from those anticipated, including the following, in
addition to those contained in the Company's reports on file with the SEC: (i)
general economic or industry conditions could be less favorable than expected,
resulting in a deterioration in credit quality, a change in the allowance for
credit losses, or a reduced demand for credit or fee-based products and
services; (ii) the Company could encounter unforeseen complications in
connection with the ongoing integration of the products, operations and
information systems of Firstar with USBM that could adversely affect the
Company's operations or customer relationships; (iii) changes in the domestic
interest rate environment could reduce net interest income and could increase
credit losses; (iv) the conditions of the securities markets could change,
adversely affecting revenues from capital markets businesses, the value or
credit quality of the Company's assets, or the availability and terms of funding
necessary to meet the Company's liquidity needs; (v) changes in the extensive
laws, regulations and policies governing financial services companies could
alter the Company's business environment or affect operations; (vi) the
potential need to adapt to industry changes in information technology systems,
on which the Company is highly dependent, could present operational issues or
require significant capital spending; (vii) competitive pressures could
intensify and affect the Company's profitability, including as a result of
continued industry consolidation, the increased availability of financial
services from non-banks, technological developments, or bank regulatory reform;
(viii) acquisitions may not produce revenue enhancements or cost savings at
levels or within time frames originally anticipated, or may result in unforeseen
integration difficulties; and (ix) capital investments in the Company's
businesses may not produce expected growth in earnings anticipated at the time
of the expenditure. Forward-looking statements speak only as of the date they
are made, and the Company undertakes no obligation to update them in light of
new information or future events.

U.S. Bancorp 3

[U.S. BANCORP PICTURE]

4 U.S. Bancorp

DEAR FELLOW SHAREHOLDERS:

We are pleased to tell you that the seamless integration of Firstar and
U.S. Bancorp proceeds on schedule to be completed by the end of the third
quarter of 2002. We continue to successfully convert major systems and products
to single operating platforms with virtually no customer disruption. The
integration process has been thoughtful and intentional. We have worked very
diligently to blend the best practices, people and products of both
organizations.

Your corporation ended 2001 with strong fourth quarter performance,
highlighted by revenue momentum, margin improvement and a companywide focus on
customer service quality. We are committed to seeing these trends continue
through 2002.

The year 2001 brought unprecedented challenges for our country and our
company. During the third quarter, we took action to increase our reserves for
potential loan losses and to strengthen our balance sheet. While we were
disappointed in the resulting adverse effect on earnings, U.S. Bancorp now ranks
among the top of our peer group in the strength of our credit reserves. We
prudently recognized the economic slowdown and our inability to predict its
length or the timing of a genuine recovery.

For a company that prides itself on consistent earnings, our third quarter
action was not an easy step to take. However, it helped us accomplish one of our
primary objectives: having a balance sheet and a risk profile among the
strongest in the industry. We have positioned ourselves to manage through the
current economic cycle. Our credit quality remained stable in the fourth
quarter, but we are prepared for the likelihood that nonperforming loans and
charge-offs will increase throughout 2002.

Providing outstanding service to all customers, backed by our exclusive
Five Star Service Guarantee, is an ongoing priority at U.S. Bancorp, as is
selling more of our products and services. You can read more about our Five Star
Service Guarantee at the front of this report. Our operating revenue growth in
the fourth quarter is a sure sign that our sales and service culture is taking
effect.

Although our combined franchise has yet to fulfill all of its potential, we
are off to a strong start on a solid foundation. The success of our integration
to date and the benefits of the merger became evident in our year-end results.
We operate in stable, moderately growing and fast-growing markets, and we have a
multi-tiered and comprehensive distribution system throughout those markets. Our
scope and scale make us a low-cost provider with significant competitive
advantages. We have a proven track record and skilled professionals who are the
best in the industry running our businesses.

We assure you that, as always, our highest priority is to increase the
value of your investment in U.S. Bancorp. It is the reason we come to work each
day.

Sincerely,

/s/ Jerry A. Grundhofer
Jerry A. Grundhofer
President and Chief Executive Officer

/s/ John F. Grundhofer
John F. Grundhofer
Chairman

February 22, 2002

U.S. Bancorp is well positioned to capitalize on growth opportunities.

U.S. Bancorp 5

GROWING DIVERSIFIED BUSINESSES

Each U. S. Bancorp business line focuses on unique customer segments, enabling
us to best meet the needs of our broad customer base.

* Treasury and Corporate Support contributed (1.0)% of 2001 operating income.
Operating income represents pretax earnings before the provision for credit
losses and merger and restructuring-related items.

** Assets are as of December 31, 2001 and reflect U.S. Bancorp Asset
Management, Inc. and its affiliated private asset management group within
U.S. Bank National Association. Investment products, including shares of
mutual funds, are not obligations of, or guaranteed by, any bank, including
U.S. Bank or any U.S. Bancorp affiliate, nor are they insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
agency. An investment in such products involves investment risk, including
possible loss of principal.

[PICTURE]

Consumer Banking

Delivers comprehensive financial products and services to the broad consumer and
small business markets through 2,147 banking offices, telesales and telephone
customer service, online banking, direct mail and 4,904 automated teller
machines (ATMs)

[PICTURE]

Wholesale Banking

Offers relationship-based lending, depository, treasury management, foreign
exchange, international banking, leasing and other financial services primarily
to middle market, large corporate, financial institution and public sector
clients

[PICTURE]

Payment Services

Includes consumer and business credit and debit cards, corporate and purchasing
card services, consumer lines of credit, ATM processing and merchant processing

[PICTURE]

Private Client, Trust and Asset Management

Provides a comprehensive array of private banking, personal, corporate and
institutional trust, investment management, financial advisory, mutual fund and
asset management services to affluent individuals, businesses, institutions and
mutual funds

[PICTURE]

Capital Markets

Under the U.S. Bancorp Piper Jaffray(R) brand, provides financial advisory and
securities brokerage services, mutual funds, annuities and insurance products to
individuals and businesses; for corporate and public sector clients, engages in
equity and fixed income trading activities and investment banking and
underwriting services

KEY BUSINESS UNITS [Consumer Banking]

- - Community Banking serves smaller and non-urban markets

- - Metropolitan Banking serves larger urban and high-growth markets

- - In-Store Banking complements traditional branches with accessible facilities
in supermarkets, convenience stores and other locations

- - Small Business Banking provides comprehensive financial solutions to
businesses with annual revenue up to $5 million

- - Consumer Lending provides student loans and serves consumers purchasing or
leasing vehicles or marine equipment through franchised dealers

- - Consumer Finance serves customers outside the traditional bank credit profile

- - Home Mortgage Lending originates, purchases, sells and services residential
mortgage loans

- - Retail Brokerage and Insurance provides mutual funds, variable and fixed
annuities, general securities and discount brokerage

STRENGTHS AND SUCCESSES

- - Segmented business model

- - Strong sales culture

- - Top 3 small business lender

- - Top 3 Small Business Administration bank lender

- - Top 4 bank branch network

- - Top 7 home equity lender

- - Top 8 consumer lender

CONTRIBUTION TO
2001 U.S. BANCORP
OPERATING INCOME*

37.5%
[GRAPH]

KEY BUSINESS UNITS [Wholesale Banking]

- - Commercial Banking serves middle market clients with annual sales between $5
million and $250 million, and clients in the commercial real estate,
commercial vehicle dealership and energy industries

- - Corporate Banking serves clients with annual sales greater than $250 million,
those with specialized lending, equipment finance and leasing needs, companies
in diverse specialty industries (such as agribusiness, health care, mortgage
banking and media/communications), correspondent banks, government entities,
and all wholesale clients in our headquarters market

- - Treasury Management provides comprehensive cash management solutions to
business clients, facilitating their deposits and the collection of funds,
payments, and information to assist in the management and optimization of
their cash position

STRENGTHS AND SUCCESSES

- - Strong distribution system

- - Comprehensive product set

- - Relationship manager tenure and expertise

- - Leading depository bank for federal, state and
municipal governments

- - Top 5 bank-owned leasing company

- - Top 7 treasury management provider

CONTRIBUTION TO
2001 U.S. BANCORP
OPERATING INCOME*

32.1%
[GRAPH]

KEY BUSINESS UNITS [Payment Services]

- - Corporate Payment Systems provides Visa(R) corporate and purchasing cards and
other payment solutions to companies with annual sales greater than $50
million, as well as federal, state and local governments

- - Card Services provides credit and debit card products to consumer and small
business customers of U.S. Bancorp, correspondent financial institutions and
co-brand partners

- - NOVA Information Systems, Inc. specializes in integrated credit and debit card
payment processing services, related software application products and
value-added services for more than 650,000 U.S. merchant locations

- - Transaction Services specializes in ATM processing, supporting U.S. Bank ATMs
and facilitating electronic transactions for other financial institutions and
corporations through ATMs, debit cards, two proprietary regional networks and
a network gateway

STRENGTHS AND SUCCESSES

- - Industry-leading products

- - Proprietary technology

- - Operational economies of scale

- - No. 1 Visa commercial card issuer

- - Top 2 universal fleet card provider

- - Top 3 bank-owned ATM network

- - Top 3 merchant processor

- - Top 6 Visa and MasterCard(R) issuer

CONTRIBUTION TO
2001 U.S. BANCORP
OPERATING INCOME*

18.9%
[GRAPH]

KEY BUSINESS UNITS [Private Client, Trust and Asset Management]

- - Private Client Group fulfills private banking, personal trust and investment
management needs for affluent clients and has $79 billion in assets under
administration

- - Corporate Trust Services provides trustee services for more than $650 billion
in municipal, corporate, asset-backed and international bonds

- - Institutional Trust and Custody provides retirement, investment and custodian
services to institutional clients

- - Fund Services provides transfer agent, fund accounting, fund administration/
compliance and distribution to mutual fund complexes

- - U.S. Bancorp Asset Management, Inc., with more than $121 billion** in assets
under management, advises the $54 billion** First American(R) family of mutual
funds and provides customized portfolio management for individuals,
corporations, endowments, foundations, pension funds, public entities and
labor unions

STRENGTHS AND SUCCESSES

- - Creative, needs-based solutions

- - Leading technology and operational economies of scale

- - Breadth of asset management products

- - Top 2 municipal trustee

- - Top 3 transfer agent

- - Top 5 bank-affiliated U.S. mutual fund family

- - Top 6 among banks in record keeping assets

CONTRIBUTION TO
2001 U.S. BANCORP
OPERATING INCOME*

10.7%
[GRAPH]

KEY BUSINESS UNITS {Capital Markets]

- - Private Advisory Services helps affluent clients meet their financial goals
through a network of 123 brokerage offices

- - Equity Capital Markets provides research, trading, sales and equity investment
banking activities, including public offerings and advisory services for
mergers and acquisitions, with niches in communications, consumer, health
care, financial institutions, industrial growth and technology

- - Fixed Income Capital Markets provides financing and investment expertise to
public finance issuers, corporate debt issuers and institutional investors

STRENGTHS AND SUCCESSES

- - Strong retail distribution network

- - "Middle Market Mergers & Acquisitions Bank of the Year," Mergers &
Acquisitions magazine, February 2001

- - Top-performing equity bookrunner for lead-managed IPOs and follow-on offerings

- - Record year for Fixed Income Capital Markets

- - Leading manager of fixed income new issuance, underwriting $11.5 billion in
agency securities and $6.3 billion in municipal bonds

CONTRIBUTION TO
2001 U.S. BANCORP
OPERATING INCOME*

1.8%
[GRAPH]

U.S. Bancorp 7

PROVIDING
CONVENIENT ACCESS

[PICTURE]

Our customers can choose the easiest way to bank, whether in person, by
telephone, via ATM or online.

CUTTING-EDGE
DELIVERY TECHNOLOGIES

24-Hour Banking: Our Consumer Banking customer service call centers handled
126,207,713 inbound inquiries in 2001, including 99,783,801 served by our
interactive voice response system.

ATM Banking: 4,904 leading-edge terminals are available around the clock
throughout our 24-state banking region.

Internet Banking: 1,155,733 consumer and small business customers are
registered to conduct most transactions and inquiries at the click of a mouse.

8 U.S. Bancorp

Consumer and business customers alike increasingly use technology to access
their accounts with us. They also frequent our extensive network of bank
branches and specialized offices, which remain the foundation of our commanding
presence in many of the highest growth, most diversified markets in the United
States. Wherever customers interact with us, they can count on consistent,
leading-edge service.

BRANCH BANKING

Our Community and Metropolitan Banking branches deliver all the products
and services U.S. Bank has to offer. In our larger markets, branch staff act as
concierges, connecting customers with experts across the company for specialized
services. Nontraditional branch locations bring banking directly to where our
customers live, work, study and shop inside retirement centers, workplaces and
corporate sites, colleges and universities, and grocery and convenience stores.
These dynamic locations feature special products, services and hours geared to
the unique needs of local customers. Additionally, many specialized offices
within and beyond our 24-state region serve unique customer segments such as
brokerage, home mortgage and trust.

TELEPHONE BANKING

Using 24-Hour Banking, consumers have anytime, anywhere access to their
accounts by telephone, including Spanish language options. Dedicated call
centers provide expertise to various business customer segments and others with
specialized needs. Our telesales efforts offer customers new products and
services to meet more of their financial needs while generating revenue growth
for the company. Consumer Banking alone handled 1,402,849 inbound and outbound
telesales calls in 2001.

ATM BANKING

Our ATM network is great in number as well as functionality. We are
upgrading approximately 1,500 branch terminals to Super ATMs, bringing the total
number of Super ATMs to 3,444. These state-of-the-art ATMs enable customers not
only to access funds, check balances and make deposits, but also to obtain
statements, order checks, request check copies, purchase stamps and phone
minutes... and more. Updated ATMs feature the new bright and colorful U.S. Bank
look--signaling the best ATM service available.

INTERNET BANKING

We offer comprehensive, fast, secure online service on all accounts across
all business lines. Consumers enjoy the latest Internet banking capabilities
available on www.usbank.com or www.firstar.com, where they can learn about
products, open deposit accounts in real time, apply for loans and lines of
credit, access account information, pay bills and more.

Businesses and investors also benefit from increasingly sophisticated,
specialized online tools. For example, we offer advanced capabilities to deliver
check images to commercial customers via the Internet. Our Customer Automation
Reporting Environment (C.A.R.E.) provides Internet access for corporate and
purchasing card customers, merchants and government clients, who can generate
customized reports at any time. And we recently became the first institution to
offer complete Web-based reporting and processing for money market instrument
issuers. It's all part of "e-enabling" our customers and employees with the
latest technology.

RELATIONSHIP BANKING

Relationships, complemented by comprehensive products and services, drive
several of our key businesses, including Wholesale Banking, Private Client,
Trust and Asset Management, and U.S. Bancorp Piper Jaffray. Clients of these
businesses not only want quick, convenient access to conduct transactions, they
also need expert advice and support. We offer both. Clients always have access
to an experienced relationship manager--an ambassador who can help fulfill
their day-to-day needs or direct them, as needed, to appropriate specialists
across our organization in areas as diverse as asset management, investment
banking and leasing.

BRANCH BANKING AND SPECIALIZED SERVICES/OFFICES

[MAP]

Branch Banking Specialized Services/Offices

/ / 2,147 branch - Commercial Banking - Hong Kong
banking offices - Consumer Banking - Canada
in 24 states - Corporate Banking - Buenos Aires
- Payment Services - Cayman Islands
All Firstar - Private Client, Trust and - London
locations will Asset Management - Tel Aviv
operate as - Technology and Operations
U.S. Bank Services
by mid-2002 - U.S. Bancorp Piper Jaffray

U.S. Bancorp 9

BUILDING THE
BEST BANK IN AMERICA

DISCIPLINED. DETAILED. DELIBERATE.

THE ONGOING INTEGRATION OF FIRSTAR AND U.S. BANK IS SEAMLESSLY CREATING ONE
FINANCIAL POWERHOUSE, UNITED BY A SINGLE BRAND.

STRUCTURE AND PROCESS

Every week for more than a year, corporate and line-of-business leaders
from across U.S. Bancorp have been gathering to execute our comprehensive plan
to integrate Firstar and U.S. Bank. They are united by a common goal: to ensure
a flawless, cost-effective integration for the benefit of customers,
shareholders and employees. Their stellar track record--years of experience
executing dozens of successful mergers--produces outstanding results.

The integration has been a textbook example of careful planning and smooth
execution. Thorough preparation, employee training, systems testing and customer
communication has ensured success. A series of systems conversions is bringing
all our markets together on common operating and delivery platforms. Together we
are equipped to handle increased capacity, enhanced functionality, and
high-quality, consistent service wherever customers interact with us.

[PICTURE]

10 U.S. Bancorp

QUALITY CONTROL AND MONITORING

Exacting quality control and monitoring--before and after conversion
events--ensure that our conversions proceed smoothly. Command centers track any
issues so that customer service continues uninterrupted.

Branch employee "ambassadors" with expert knowledge of our combined
products, systems and processes are on location at newly converted branches and
other front-office operations after conversion. They provide ongoing training
and support for employees and ensure that customers experience business as
usual. "Mystery shoppers" measure service levels before and after conversion
events.

KEY ACCOMPLISHMENTS

During the past year, we have worked diligently to combine our two
predecessor organizations into an even stronger company. Together, we have
created a better way to do business.

We have established a new, efficient organizational structure. We have
developed common employee benefits, programs and policies, including incentives
that drive employees to generate revenue while fulfilling customers' needs. We
have selected the best products and services from our combined resources-- or,
through expanded capabilities, created new ones.

Along the way, we have invested in cutting-edge, fully automated
infrastructure that lays a solid foundation for growth. In migrating to new,
cost-effective network technology, we have established greater connectivity
between our front and back offices. We have e-enabled employees and customers to
access information and conduct transactions with unprecedented accuracy and
efficiency. Gone are closed-end, self-contained processing systems. Evolving is
a dedicated open Internet protocol network that supports more than 300 million
transactions a month and is backed by the Five Star Service Guarantee--testament
to our confidence in our systems and staff.

COMPLETING THE INTEGRATION

Our entire organization has embraced our exclusive Five Star Service
Guarantee. Soon we'll be completely united under one strong brand--the new U.S.
Bank.

Starting in January and continuing through July 2002, the distinctive new
red, white and blue U.S. Bank signs are rising market-by-market. All locations,
including our ATM network, are in the process of displaying the updated
identity, which promises "Five Star Service Guaranteed." In addition, all
advertising and marketing materials, business supplies and customer documents
reinforce our new brand.

After final systems conversions in the third quarter of 2002, all customers
will have convenient access to our new, improved product and service offerings
wherever we operate. They will be able to make deposits and conduct other
transactions at any of our branches across 24 states.

Including our specialized businesses, the new U.S. Bank brand is
recognizable from coast to coast. When customers see the U.S. Bank name, they
can expect familiar faces, convenient access, top-quality solutions and
unmatched service excellence--guaranteed!

INTEGRATION HIGHLIGHTS

U.S. Bancorp 11

CAPITALIZING
ON GROWTH OPPORTUNITIES

The combination of Firstar and U.S. Bancorp has created a larger, stronger
company with a solid foundation for growth. We will grow by using strategic cost
advantage to gain market share, emphasizing customer service and investing in
higher-growth businesses.

Our future begins with our basic banking operations. We already rank among
the top three commercial banks in 50 metropolitan areas based on deposits. We
are penetrating all our markets even further with our expanded, improved set of
high-quality products--backed everywhere by our Five Star Service Guarantee.

Consumers enjoy expanded access through 2,147 branches and 4,904 ATMs in 24
states, plus state-of-the-art telephone and Internet banking channels.
Businesses also benefit from our expanded geographic reach and technology
investments.

[PICTURE]

Outstanding products. High-growth markets. Flourishing businesses. Convenient,
efficient delivery. U.S. Bancorp is positioned to soar.

12 U.S. Bancorp

National retailers, in particular, are benefiting from enhanced depository and
treasury management products accessible through common accounts across the
region, including the expansion of our cash vault capabilities to new markets.
Trust customers benefit from our greater economies of scale and state-of-the-art
products and systems.

We continually strive to serve customers across business lines, gaining
more of their business. In 2001, for example, U.S. Bancorp Piper Jaffray Fixed
Income Capital Markets had a record year in corporate debt issuance, managing 35
issues with a par amount of more than $19 billion, including preferred stock and
note issues for U.S. Bancorp. Meanwhile, customers deposited more than $490
million into U.S. Bancorp Piper Jaffray Prime Accounts(SM) and other brokerage
accounts through U.S. Bank branches and ATMs--up over 134 percent from a year
earlier. When the integration is completed, investors will have access to their
brokerage accounts at all of our bank branches.

Ultimately, our growth depends on our people. We have created a sales
culture driven by customer needs and rewarded by incentives for outstanding,
measurable performance. Every employee, from the front line to the back office,
is eligible for incentives to strengthen existing customer relationships, build
new ones, and provide outstanding guaranteed service to all customers, whether
external or internal.

HISPANIC INITIATIVE TAPS SUCCESS

The U.S. Hispanic community numbers more than 35 million consumers with
$450 billion in spending and investment power. Approximately 1.2 million
Hispanic businesses have $200 billion in revenues. It's a remarkable success
story--and opportunity.

Our Hispanic Initiative, launched in 2001, is our coordinated program to be
an outstanding bank, responsive business partner and superior employer in key
markets. It focuses on more than 300 branches serving communities with large
Hispanic populations, both English- and Spanish-speaking. More than ever before,
we are hiring additional Hispanic employees who reflect the diversity of their
local communities and who communicate more effectively with customers. Our
employees are visible community leaders who have strong relationships with
Hispanic individuals, businesses and community organizations.

Our ATMs and 24-Hour Banking system feature expanded Spanish language
options. Additionally, we have telephone customer service representatives who
speak Spanish and other foreign languages. We also are displaying more signs and
materials in Spanish.

We offer many programs that help meet the needs of various segments of
Hispanic customers. To help first-time borrowers, we created the Credit Builder
Secured Loan. We also accept identification issued by the Consulate of Mexico,
issue the Visa(R) Payroll Card and offer a low-cost money transfer program.

Our Hispanic Initiative extends to partnerships with Hispanic Chambers of
Commerce and other organizations, and to community service. Free seminars, for
example, cover topics ranging from the basics of banking in the United States
(especially geared to Spanish-speaking immigrants) to first-time home ownership.
Hispanic customers know they can turn to U.S. Bank to turn their American Dream
into reality.

PAYMENT SERVICES: GROWTH ENGINE

Payment Services represents one of our greatest growth opportunities. We
continue to build our core commercial and consumer card businesses while
investing in other industry-leading, payment-related businesses.

PowerTrack(R), our innovative online payment processing and transaction
tracking system, has seemingly unlimited potential. First introduced to the
freight industry, this single-source information center provides powerful
control for the logistics process. On the Internet or via a private network,
shipment information is stored as a single electronic document that is instantly
available to both shipper and carrier. By eliminating manual reconciliation of
invoices and freight bills, companies can save significantly on each
transaction. With expansion into other industries, PowerTrack delivers the
future--faster, more accurate payments and exceptional analytical reporting
tools for better management decisions. The result is more efficiency and control
for both buyer and seller.

In 2001 we closed on our purchase of NOVA Corporation, now known as NOVA
Information Systems, Inc., a wholly owned subsidiary of U.S. Bancorp. This
merchant payment processor ranks as the third-largest in the United States,
serving 650,000 businesses of all sizes. Merchants benefit from our
industry-leading product offerings, including electronic check processing, a
variety of Web-enabled tools, and a full array of point-of-sale applications in
addition to credit card and debit card processing.

Within our Transaction Services division, Elan Financial Services serves
more than 3,000 financial institutions through a complete range of products and
services including credit card issuing, and ATM, debit card and merchant
processing. Elan also provides full-service support and management tools that
are offered uniquely through a single source. The suite of products enables
small- to mid-sized financial institution clients to compete effectively with
larger institutions. Elan leverages these unique capabilities to also provide
ATM driving and deployment, and debit gateway services to large corporate
clients.

U.S. Bancorp 13

[PICTURE]

Providing Local Market Leadership and Community Support

14 U.S. Bancorp

Local management. Local decisions. Local involvement. At U.S. Bancorp, we are
deeply rooted in the communities we serve, and we recognize that the best
solutions come most often from those who are closest to the market.

LOCAL MARKET LEADERSHIP

U.S. Bank markets are segmented into Metropolitan Banking in large urban
areas and Community Banking in smaller urban and non-urban locales. U.S. Bank
maximizes its ability to serve our Metropolitan Banking markets through the
independent management of our major lines of business. In Community Banking
markets, however, all lines of business are offered and marketed through branch
offices. In every market, large or small, our local management teams make the
decisions that most directly affect their customers. Local autonomy in resource
allocation, community affairs, pricing and business development enhances local
market control.

LOCAL BANK BOARDS

The best decisions and the best customer service come from knowing our
markets and our customers. To enhance our own management's understanding of
local economies, critical issues, business and public affairs, we have
established local bank boards throughout our markets. The boards include local
business and civic leaders in addition to U.S. Bank executives. The perspective
of these board members is invaluable.

COMMUNITY INVOLVEMENT

At U.S. Bancorp, community is more than a location. Community is the
corporate spirit of accepting the role as a facilitator for the people,
businesses and nonprofit organizations in our markets to achieve their financial
goals and enrich their lives.

To that end, we provide both corporate and local leadership on issues of
community importance; we tailor our products and services to our communities'
diverse needs; our local managers are visible and involved in community
organizations and economic development efforts; and we encourage and support our
employees' ongoing volunteer efforts. We believe that our success depends on the
vitality of the communities we serve, and we bring together many resources to
help make possible economic, educational and cultural development.

U.S. BANCORP FOUNDATION
2001 Charitable Contributions
by Program Area

[GRAPH]

- - 32% United Way & Human Services

- - 28% Economic Opportunity

- - 18% Arts & Culture

- - 16% Education

- - 5% Employee Matching Gifts

- - 1% Miscellaneous

Through the U.S. Bancorp Foundation, we contribute millions of dollars back
to the communities in which we do business through charitable grants to
nonprofit organizations. We provide critical financing for revitalization
efforts, job programs and affordable housing. We sponsor the United Way at
generous levels to meet critical human service needs. We sponsor a wide variety
of amateur and professional artistic groups; professional, college and high
school sporting events and teams; and neighborhood and civic events. From the
smallest towns to the largest cities, U.S. Bancorp is an integral part of the
fabric of every hometown.

DEVELOPMENT NETWORK

The U.S. Bancorp Development Network comprises 35 geographically based
employee chapters with a common mission--to promote the personal and
professional development of our employees, to provide networking opportunities
within our organization and to offer a framework for involvement in community
service. Individual Development Network chapters recruit public school tutors
and mentors from our employee base, raise funds for many charitable causes and
community efforts, participate in various walkathons and races, assist elderly
residents with simple home repairs and maintenance, build Habitat for Humanity
homes, and become involved in other community services.

U.S. Bancorp 15

Management's Discussion and Analysis

OVERVIEW

U.S. Bancorp and its subsidiaries ("the Company") compose the organization
created by the acquisition by Firstar Corporation ("Firstar") of the former U.S.
Bancorp of Minneapolis, Minnesota ("USBM"). The merger was completed on February
27, 2001, as a pooling-of-interests, and accordingly all financial information
has been restated to include the historical information of both companies. Each
share of Firstar stock was exchanged for one share of the Company's common stock
while each share of USBM stock was exchanged for 1.265 shares of the Company's
common stock. The new Company retained the U.S. Bancorp name.

EARNINGS SUMMARY The Company reported net income of $1.7 billion in 2001, or
$.88 per diluted share, compared with $2.9 billion, or $1.50 per diluted share,
in 2000. Return on average assets and return on average common equity were 1.03
percent and 10.5 percent in 2001, compared with returns of 1.81 percent and 20.0
percent in 2000. The year-over-year decline in earnings per diluted share and
return on average assets was primarily due to a decline in capital markets
activities, merger and restructuring-related items and a higher provision for
credit losses which reflected deterioration in economic conditions and credit
quality relative to a year ago. The reduction in the Company's return on average
common equity also reflected the impact of recent acquisitions, which were
accounted for using the purchase method. Net income included after-tax merger
and restructuring-related items of $844.3 million ($1.3 billion on a pre-tax
basis) in 2001 compared with $231.3 million ($348.7 million on a pre-tax basis)
in 2000. Merger and restructuring-related items, on a pre-tax basis, included a
$62.2 million gain on the sale of branches, $847.2 million of noninterest
expenses and $382.2 million of provision for credit losses associated with the
merger of Firstar and USBM. Merger and restructuring-related items also included
$50.7 million of expense for restructuring operations of U.S. Bancorp Piper
Jaffray, and $48.5 million related to the acquisition of NOVA Corporation
("NOVA") and other recent acquisitions. The efficiency ratio (the ratio of
expenses to revenues) increased to 57.5 percent in 2001 compared with 51.9
percent in 2000 primarily due to the impact of merger and restructuring-related
items. Refer to page 22 for further discussion of merger and
restructuring-related items.

The Company had operating earnings (net income excluding merger and
restructuring-related items) of $2.6 billion in 2001, or $1.32 per diluted
share, compared with $3.1 billion, or $1.62 per diluted share in 2000. Operating
earnings on a "cash basis" (calculated by adding amortization of goodwill and
other intangible assets to operating earnings) was $1.59 per diluted share in
2001, compared with $1.82 per diluted share in 2000. Return on average assets
and return on average common equity, excluding merger-related items, were 1.54
percent and 15.7 percent in 2001, compared with returns of 1.96 percent and 21.6
percent in 2000. Operating earnings in 2001 reflected total net revenue growth
on a taxable-equivalent basis, excluding merger-related gains, of 6.7 percent,
offset by growth in noninterest expenses, excluding merger and
restructuring-related charges, of 5.4 percent. On an operating basis, the
efficiency ratio was 49.5 percent in 2001, compared with 48.8 percent in 2000.
The banking efficiency ratio (the ratio of expenses to revenues without the
impact of investment banking and brokerage activity) before merger and
restructuring-related charges was 45.2 percent in 2001, compared with 43.5
percent in 2000. The increase in the banking efficiency ratio was primarily due
to the impact of recent acquisitions including NOVA.

Net income and operating earnings for 2001 included a number of significant
items. During 2001, the provision for credit losses was $2.5 billion, an
increase of $1.7 billion from a year ago. The change was due to an increased
level of nonperforming assets and charge-offs, deterioration in specific credit
portfolios, merger-related portfolio restructurings and specific actions taken
by management to accelerate the Company's workout strategy for nonperforming
assets. Results for 2001 also reflect the impairment of retail leasing residuals
due to sluggish pre-owned car markets, recognition of mortgage servicing rights
("MSR") impairment during the declining rate environment and asset write-downs
of commercial leasing partnerships and repossessed tractor/trailer property.
These asset impairments were partially offset by gains related to sales of
buildings and investment securities.

The Company analyzes its performance on a net income basis determined in
accordance with accounting principles generally accepted in the United States,
as well as on an operating basis before merger-related charges referred to in
this analysis as "operating earnings". Operating earnings and related
discussions are presented as supplementary information in this analysis to
enhance the readers' understanding of, and highlight trends in, the Company's
core financial results excluding the non-recurring

U.S. Bancorp
16

effects of discrete business acquisitions and restructuring activities.
Operating earnings should not be viewed as a substitute for net income and
earnings per share as determined in accordance with accounting principles
generally accepted in the United States. Merger and restructuring-related items
excluded from net income to derive operating earnings may be significant and may
not be comparable to other companies.

TABLE 1 Selected Financial Data

(a) Represents noninterest-bearing deposits, allowance for credit losses,
non-earning assets, other liabilities and equity.

U.S. Bancorp
19

to the restructuring of a co-branding credit card relationship. Refer to Note 4
of the Notes to Consolidated Financial Statements for further information on
merger and restructuring-related items.

The provision for credit losses in 2001, excluding merger and
restructuring-related items, was $2,146.6 million, an increase of $1,318.6
million over 2000. The increase was primarily due to a $160.0 million charge
during the first quarter of 2001 in connection with an accelerated loan workout
strategy and a $1,025.0 million incremental provision recognized in the third
quarter of 2001. The third quarter incremental provision for credit losses was
taken after extensive reviews of the Company's commercial portfolio in light of
declining economic conditions and company-specific trends. This action
recognized an increasing probability that the economic slowdown already
occurring had accelerated and may be more prolonged than previously anticipated.
Given the continuing economic stress in various industry sectors, increasing
unemployment and trends in consumer delinquencies and charge-offs, the Company
may experience higher levels of nonperforming loans and volatility in net
charge-offs during the next several quarters.

Refer to "Corporate Risk Profile" on pages 29 through 36, for further
information on the 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 2001 was $5.4 billion, compared with
$4.9 billion in 2000 and $4.2 billion in 1999. The increase of $476.2 million
(9.8 percent) in 2001 compared with 2000 included $62.2 million of merger and
restructuring-related gains in connection with the required sale of 14 branches
associated with the merger of Firstar and USBM. Refer to Note 4 of the Notes to
Consolidated Financial Statements for further information on merger and
restructuring-related items. Excluding merger and restructuring-related gains,
noninterest income was $5.3 billion in 2001, an increase of $414.0 million (8.5
percent) from 2000. Credit card fee revenue increased $12.5 million (1.6
percent) in 2001 compared to revenue growth of $113.6 million

TABLE 4 Net Interest Income -- Changes Due to Rate and Volume

This table shows the components of the change in net interest income by volume
and rate on a taxable-equivalent basis. The effect of changes in rates on volume
changes is allocated based on the percentage relationship of changes in volume
and changes in rate. This table does not take into account the level of
noninterest-bearing funding, nor does it fully reflect changes in the mix of
assets and liabilities.

U.S. Bancorp
20

(17.5 percent) in 2000 reflecting slower growth in corporate, purchasing and
retail card transaction volumes during the year. Corporate card transaction
volumes declined somewhat in late 2001 principally due to slower economic
conditions and declining business travel since the events of September 11, 2001.
Merchant and ATM processing revenue increased $198.5 million, or 86.2 percent,
principally due to the NOVA acquisition. Deposit service charges, commercial
product revenue, cash management fees, and mortgage banking revenue also
improved in 2001 compared with 2000 by $109.5 million (19.9 percent), $81.5
million (26.8 percent), $54.9 million (18.8 percent), and $44.1 million (23.2
percent), respectively. The increase in deposit service charges was primarily
due to the alignment and re-design of products and features following the merger
of Firstar and USBM. The increase in commercial product revenue and cash
management fees was primarily driven by the growth in core business, loan
conduit activities and product enhancements. Mortgage banking revenue increased
in 2001 compared with 2000 due to increased origination and sales fees and loan
servicing revenue, partially offset by a decrease in gains on the sale of
servicing rights. Trust and investment management fees declined $31.8 million
(3.4 percent) and capital markets-related revenue declined $145.4 million (13.4
percent) reflecting softness in equity capital markets since late 2000. Included
in noninterest income for 2001 was $329.1 million of gains on the sale of
investment securities and principal-only residuals compared with $8.1 million of
similar gains in 2000. Other income declined $179.9 million from a year ago,
primarily reflecting a $125.0 million decline in the level of earnings from
equity investments compared with 2000 and a $40.0 million impairment of retail
leasing residuals in 2001. The decline in other income for 2001 also reflected a
decline in building-related gains of $42.5 million from 2000.

Noninterest income in 2000 increased $638.3 million (15.0 percent) compared
with 1999. The increase was driven by a $165.5 million (18.0 percent) increase
in capital markets-related revenue, credit card fee revenue growth of $113.6
million (17.5 percent), increased commercial product revenue of $88.7 million
(41.1 percent), increased service charges on deposit accounts of $53.9 million
(10.8 percent), gains of $55.0 million on the disposal of the Company's
ownership in office buildings in Portland, Boise and Minneapolis, merchant and
ATM processing revenue growth of $40.7 million (21.5 percent), due in part to
the acquisition of the Mellon Network Services processing business, increased
insurance product revenue of $40.0 million (38.0 percent), growth in trust and
investment management revenue of $39.1 million (4.4 percent), and revenues
associated with equity investments, partially offset by a $20.0 million gain on
the sale of branches in Kansas and Iowa completed in 1999.

NONINTEREST EXPENSE Noninterest expense in 2001 was $6.6 billion compared with
$5.7 billion in both 2000 and 1999. Noninterest expense included merger and
restructuring-related charges of $946.4 million in 2001, compared with $348.7
million in 2000 and $532.8 million in 1999. Excluding merger and
restructuring-related charges, noninterest expense on an operating basis was
$5.7 billion in 2001, compared with $5.4 billion in 2000 and $5.1 billion in
1999. The increase in 2001 noninterest expense, on an operating basis, of $290.5
million (5.4 percent) was primarily the result of recent acquisitions, including
NOVA, Scripps Financial Corporation, Pacific Century Bank, Lyon Financial
Services, Inc. and 41 branches in Tennessee representing an aggregate increase
of

TABLE 5 Noninterest Income

U.S. Bancorp
21

approximately $241.7 million. In addition to the impact of acquisitions,
noninterest expense increased over 2000 due to recognition of mortgage servicing
rights ("MSR") impairments of $60.8 million related to increasing mortgage
prepayments during the declining rate environment, and asset write-downs of
$52.6 million related to commercial leasing partnerships and repossessed
tractor/trailer property. These increases were partially offset by a reduction
in expenses related to capital markets activity of $108.0 million and cost
savings related to merger and restructuring-related activities.

The increase in 2000 noninterest expenses, on an operating basis, of $239.8
million (4.7 percent) was primarily attributed to growth in expenses related to
investment banking and brokerage activity of $228.6 million, the impact of
purchase acquisitions and divestitures of $175.9 million and planned spending on
service-quality technology and other customer service initiatives of USBM. These
increases were somewhat offset by cost savings related to the integration of
Mercantile.

The efficiency ratio before merger-related charges increased slightly to
49.5 percent in 2001 compared with 48.8 percent in 2000 and 50.5 percent in
1999. The banking efficiency ratio before merger-related charges was 45.2
percent for 2001, compared with 43.5 percent in 2000 and 46.3 percent in 1999.
Both the efficiency ratio and the banking efficiency ratio increased in 2001
primarily due to the NOVA acquisition. The improved banking efficiency ratio in
2000 compared with 1999 reflects the results of integrating acquired banking
businesses.

MERGER AND RESTRUCTURING-RELATED ITEMS The Company incurred merger and
restructuring-related items in each of the last three years in conjunction with
its acquisitions. In 2001, merger and restructuring-related items included in
pretax earnings were $1,266.4 million, including $382.2 million in the provision
for credit losses, a $62.2 million gain on the required sale of branches and
$946.4 million of noninterest expense. The total merger and
restructuring-related items consisted of $1,167.2 million related to the Firstar
and USBM merger, $50.7 million of restructuring expenses for U.S. Bancorp Piper
Jaffray and $48.5 million related to NOVA and other acquisitions. With respect
to the Firstar and USBM merger, the $1,167.2 million of merger and
restructuring-related items included $268.2 million for severance and
employee-related costs and $477.6 million of charges to exit business lines and
products, sell credit portfolios or otherwise realign business practices in the
new Company. The Company also incurred $208.1 million of systems conversion and
business integration costs, $48.7 million for lease cancellation and other
building-related costs, $226.8 million for transaction costs, funding a
charitable foundation to reaffirm a commitment to its markets and other costs,
and a $62.2 million gain related to the required sale of branches. Total merger
and restructuring-related items associated with the Firstar and USBM merger are
expected to reach

TABLE 6 Noninterest Expense

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

(b) Without investment banking and brokerage activity.

U.S. Bancorp
22

$1.4 billion with integration activities substantively being completed in the
third quarter of 2002.

In response to significant changes in the securities markets during 2001,
including increased volatility, changes in equity valuations and the
increasingly competitive environment for the industry, U.S. Bancorp Piper
Jaffray restructured it operations. The restructuring is expected to improve the
operating efficiency of the business by removing excess capacity from its
product distribution network and by implementing more effective business
processes. These restructuring activities were completed in 2001.

In 2000, merger and restructuring-related items included noninterest
expenses consisting of $227.0 million related to the merger of Firstar and
Mercantile, $52.6 million related to the merger of Firstar and Star Banc and
$69.1 million primarily related to other acquisitions of USBM. Included in
merger and restructuring-related items were $59.4 for severance and
employee-related costs, $193.5 million for systems conversions, $47.3 million
for lease cancellations and other building-related costs and $48.5 million of
other business integration costs.

In 1999, merger and restructuring-related items included noninterest
expenses consisting of $417.0 million related to the merger of Firstar and
Mercantile, $95.9 million related to the merger of Firstar and Star Banc and
$27.4 million primarily related to other acquisitions by USBM. Included in
merger and restructuring-related items were $149.6 for severance and
employee-related costs, $132.5 million for systems conversions, $177.7 million
related to the restructuring of Mercantile's securities portfolio, $6.2 million
for lease cancellations and other building-related costs and $66.8 million to
fund charitable foundations and other business integration costs.

Refer to Note 3 and Note 4 of the Notes to Consolidated Financial Statements
for further information on these acquired businesses and merger and
restructuring-related items.

INCOME TAX EXPENSE The provision for income taxes was $927.7 million in 2001,
compared with $1,512.2 million in 2000 and $1,392.2 million in 1999. The
Company's effective tax rate was 35.2 percent in 2001, compared with 34.5
percent in 2000 and 36.9 percent in 1999. The effective tax rate increased in
2001 compared with 2000 primarily due to a decline in tax-exempt interest
related to sales of investment securities, the impact of unitary state tax
apportionment factors on the Company, non-deductible merger-related costs and
the acquisition of NOVA.

At December 31, 2001, the Company's net deferred tax liability was $573.2
million, compared with $512.8 million at December 31, 2000. For further
information on income

TABLE 7 Loan Portfolio Distribution

*Information not available

U.S. Bancorp
23

taxes, refer to Note 19 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Average earning assets were $145.2 billion in 2001 compared with $140.6 billion
in 2000. The increase of $4.6 billion (3.2 percent) was primarily driven by
increases in the investment portfolio, core retail loan growth, and the impact
of acquisitions. This growth was partially offset by a $2.7 billion decline in
lower margin residential mortgages and a $2.2 billion reduction related to
transfers of short-term, high credit quality, low margin commercial loans to the
loan conduit. The increase was funded with an increase in average
interest-bearing liabilities of $3.4 billion consisting principally of more
favorably priced long-term wholesale funds and an increase in net free funds of
$1.2 billion including an increase in average noninterest-bearing deposits of
$1.3 billion.

For average balance information, refer to Consolidated Daily Average Balance
Sheet and Related Yields and Rates on pages 86 and 87.

LOANS The Company's loan portfolio decreased $8.0 billion to $114.4 billion at
December 31, 2001, from $122.4 billion at December 31, 2000. The change in loans
outstanding was impacted by several management actions, including the sale of
high LTV home equity and indirect automobile portfolios, the transfer of a
discontinued unsecured small business product to loans held for sale, branch
divestitures required by the merger of Firstar and USBM, and transfers of
short-term, high credit quality, low margin commercial loans to the loan
conduit. In addition, the Company continued its business strategy to reduce the
lower margin residential mortgage portfolio. Average total loans decreased less
than one percent to $118.2 billion in 2001 compared with $118.3 billion in 2000.
Excluding residential mortgages, average loans for 2001 were $2.6 billion (2.4
percent) higher than 2000. Average loans on a core basis (excluding loan conduit
activities, transfer of loans to held for sale and residential mortgages)
increased by $4.6 billion (4.3 percent) relative to the prior year.

The Company's loan portfolio inherently has credit risk, which may
ultimately result in loan charge-offs. The Company manages this risk through
stringent, centralized credit policies and review procedures, as well as
diversification along geographic and customer lines. Refer to "Corporate Risk
Profile" on pages 29 through 36, for a more detailed discussion of the
management of credit risk including the allowance for credit losses.

COMMERCIAL Commercial loans, including lease financing, totaled $46.3 billion at
December 31, 2001, down $6.5 billion (12.3 percent) from year-end 2000. The
decline in commercial loans reflected tighter credit underwriting throughout
2001, slower economic growth, the Company's transfer of approximately $3.7
billion of short-term, high credit quality, low margin commercial loans into the
loan conduit and the transfer of $680 million in unsecured small business
product to loans held for sale. This was offset somewhat by core growth in
equipment lease financing and bank acquisitions. Average commercial loans in
2001 were flat compared with 2000. On a core basis (without loan conduit
activities and transfers to loans held for sale), average commercial loans
increased by 2.1 percent from a year ago.

The Company offers a broad array of traditional commercial lending products
and specialized products such as asset-based lending, lease financing,
agricultural credit and correspondent banking. The Company monitors and manages
the portfolio diversification by industry, customer and geography. The
commercial portfolio reflects the Company's focus of serving small business
customers, middle market and larger corporate businesses throughout its 24 state
banking region and national customers within certain niche industry groups.

Table 9 provides a summary of the significant industry groups and geographic
locations of commercial loans outstanding at December 31, 2001 and 2000. The
commercial loan portfolio is diversified among various industries with somewhat
higher concentrations in consumer products and services, capital goods
(including manufacturing and commercial construction-related

TABLE 8 Selected Loan Maturity Distribution

U.S. Bancorp
24

businesses), and consumer staples industries. Additionally, the commercial
portfolio is diversified across the Company's geographical markets with 81.7
percent of total commercial loans within the 24 state banking region. Credit
relationships outside of the Company's banking region are typically niche
businesses including the mortgage banking and the leasing businesses. The
mortgage banking sector represented approximately 3.0 percent of commercial
loans at December 31, 2001, compared with 1.8 percent at December 31, 2000.
Loans to mortgage banking customers are primarily warehouse lines which are
collateralized with the underlying mortgages. The Company regularly monitors its
mortgage collateral position to manage its risk exposure.

The Company provides financing to enable customers to grow their businesses
through acquisitions of existing businesses, buyouts or other recapitalizations.
Such leveraged financings approximated $3.9 billion in loans outstanding at
December 31, 2001, compared with approximately $4.9 billion outstanding at
December 31, 2000. The decline was primarily due to tighter credit underwriting,
payoffs and the Company's aggressive workout strategies during 2001. During a
business cycle with slower economic growth, businesses with leveraged capital
structures may experience insufficient cash flows to service their debt. The
Company manages its exposure to leveraged financings by maintaining strong
underwriting standards, portfolio diversification and effectively managing the
relationship with the customer either directly or through reputable financial
intermediaries. At inception of the credit relationship, the Company's
underwriting standards require the businesses to have acceptable capital levels
and demonstrated sufficient cash flows to support debt service of the loans. The
Company's portfolio of leveraged financings is included in Table 9 and is
diversified among industry groups similar to the total commercial loan
portfolio.

COMMERCIAL REAL ESTATE The Company's portfolio of commercial real estate
mortgages and construction loans declined to $25.4 billion at December 31, 2001,
compared with $26.4 billion at December 31, 2000. Commercial mortgages
outstanding decreased to $18.8 billion at

TABLE 9 Commercial Loan Exposure by Industry Group and Geography

U.S. Bancorp
25

December 31, 2001, compared with $19.5 billion at December 31, 2000. Real estate
construction and development loans at December 31, 2001, totaled $6.6 billion
compared with $7.0 billion at year-end 2000. Average commercial real estate
loans were $26.1 billion in 2001; essentially flat compared with a year ago.

Table 10 provides a summary of commercial real estate exposures by property
type and geographic location. The Company maintains the real estate construction
designation until the project is producing sufficient cash flow to service
traditional mortgage financing, at which time, if retained, the loan is
transferred to the commercial mortgage portfolio. Approximately $601 million of
construction loans were transferred to the commercial mortgage portfolio in
2001.

At year-end 2001, real estate secured $207 million of tax-exempt industrial
development loans. The Company's commercial real estate mortgages and
construction loans had unfunded commitments of $6.0 billion at December 31,
2001.

The Company also finances the operations of real estate developers and other
entities with operations related to real estate. These loans are not secured
directly by real estate and are subject to terms and conditions similar to
commercial loans. These loans were included in the commercial loan category and
totaled $1.4 billion at December 31, 2001.

RESIDENTIAL MORTGAGES Residential mortgages, held in the loan portfolio,
decreased to $5.7 billion at December 31, 2001, from $7.8 billion at December
31, 2000. The decline reflected management's decision to reduce these lower
yielding loans and the related adverse prepayment risk by selling most
single-family residential real estate loan originations into the secondary
market.

RETAIL Total retail loans outstanding, which includes credit card, retail
leasing, home equity, and other retail loans, increased $1.6 billion (4.5
percent) to $37.0 billion at December 31, 2001, from $35.4 billion at December
31, 2000. This increase was primarily related to growth in retail leases of $753
million, and home equity lines and loans of $718 million. This growth was
tempered somewhat by

TABLE 10 Commercial Real Estate Exposure by Property Type and Geography

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26

portfolio sales of $1.3 billion related to the high LTV home equity portfolio
and indirect automobile loans completed in the first quarter of 2001. Average
retail loans increased $2.5 billion (7.7 percent) to $35.2 billion in 2001. On a
core basis, average retail loans increased 12.2 percent from a year ago with
growth in most retail loan categories. Of the total retail loans and residential
mortgages outstanding, approximately 93 percent are to customers located in the
Company's banking region.

LOANS HELD FOR SALE At December 31, 2001, loans held for sale ("LHFS"), which
consisted primarily of residential mortgage loans to be sold in the secondary
markets, were $2.8 billion compared with $764 million at December 31, 2000. The
increase reflected the surge in residential mortgage production volume in 2001
due to declining interest rates. Residential mortgage production increased to
$15.6 billion in 2001 compared with $6.7 billion in 2000.

SECURITIES The Company uses its investment securities portfolio for several
purposes. It serves as a vehicle to manage interest rate and prepayment risk,
generates interest and dividend income from the investment of excess funds
depending on loan demand, provides liquidity to meet liquidity requirements and
is used as collateral for public deposits and wholesale funding sources.

At December 31, 2001, investment securities of $26.6 billion consisted of
securities available-for-sale ($26.3 billion) and held-to-maturity ($.3
billion), compared with total investment securities of $17.6 billion at December
31, 2000. During the year, management realigned the portfolio to hedge against
interest rate changes and the

TABLE 11 Investment Securities

Note: Information related to asset-backed securities included above is presented
based upon weighted average maturities anticipating future prepayments.
Average yields are presented on a fully-taxable equivalent basis. Yields
on available-for-sale securities are computed based on historical cost
balances.

U.S. Bancorp
27

impact of prepayments in the mortgage servicing rights portfolio. The Company
purchased $32.3 billion and sold $19.2 billion of investment securities during
the realignment process and generated $329.1 million in securities gains in the
declining interest rate environment.

The weighted-average yield of the available-for-sale portfolio was 5.58
percent at December 31, 2001, compared with 7.23 percent at December 31, 2000.
The average maturity of the available-for-sale portfolio dropped to 5.4 years at
December 31, 2001, down from 9.5 years at December 31, 2000. The relative mix of
the type of investment securities maintained in the portfolio is provided in
Table 11. The change in investment portfolio mix reflected sales of tax-exempt
municipal securities which were replaced by collateralized mortgage obligations.
At December 31, 2001, the investment portfolio included a $15 million net
unrealized gain, compared with a net unrealized gain of $148 million at December
31, 2000.

DEPOSITS Total deposits were $105.2 billion at December 31, 2001, down $4.3
billion (3.9 percent) from $109.5 billion at year-end 2000. The decline since
December 31, 2000, was primarily due to the required sale of 14 branches related
to the merger of Firstar and USBM as well as management's funding decisions to
reduce higher cost time deposits greater than $100,000.

Noninterest-bearing deposits were $31.2 billion at December 31, 2001,
compared with $26.6 billion at December 31, 2000. Average noninterest-bearing
deposits increased to $25.1 billion in 2001 compared with $23.8 billion in 2000.
The increase in noninterest-bearing deposits was primarily attributable to
business demand accounts that maintain compensating balances with the Company
and to bank acquisitions. Core interest-bearing deposits, including savings
accounts, interest checking and money market accounts, increased $2.3 billion
(5.5 percent) from a year ago. Average core interest-bearing deposits increased
$2.6 billion (6.4 percent) during

TABLE 12 Deposits

The composition of deposits was as follows:

The maturity of time deposits greater than $100,000 was as follows:

U.S. Bancorp
28

2001. The downturn in equity capital markets in 2001 and the current interest
rate environment have prompted many customers to increase their liquidity in
accessible deposits. Time certificates of deposit less than $100,000 declined
$5.1 billion (19.6 percent) during the year. Large denomination deposits, both
domestic and foreign, decreased $6.2 billion (41.9 percent). These deposits are
largely viewed as purchased funds and are managed to levels deemed appropriate
given alternative funding sources. Average time certificates of deposit less
than $100,000 declined $2.5 billion (9.8 percent) and average large denomination
deposits were essentially flat compared with 2000. The decline in average time
certificates of deposit less than $100,000 reflected the net impact of bank
acquisitions and branch divestitures and management's pricing decisions to
change the mix of funding toward lower rate wholesale funding sources.

Table 12 provides a summary of total deposits by type of deposit.

BORROWINGS The Company utilizes both short-term and long-term borrowings to fund
growth of earning assets in excess of deposit growth. Short-term borrowings,
which include federal funds purchased, securities sold under agreements to
repurchase and other short-term borrowings, were $14.7 billion at December 31,
2001, up $2.8 billion (24.0 percent) from $11.8 billion at year-end 2000. Short-
term funding is managed to levels deemed appropriate given alternative funding
sources.

Long-term debt was $25.7 billion at December 31, 2001, up from $21.9 billion
at December 31, 2000. The increase in long-term funding reflects favorable
funding costs during the declining rate environment relative to rate reductions
for shorter-term borrowings or large denomination deposits. During 2001, the
Company issued $1.1 billion of senior contingent convertible debt as well as
$1.5 billion of "Company-obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trusts Holding Solely the Junior Subordinated Debentures of the
Parent Company" commonly referred to as "Trust Preferred Securities". The
Company's subsidiary U.S. Bank National Association issued $1.5 billion of
fixed-rate subordinated notes. In addition, the Company's bank subsidiaries
obtained $5.3 billion of long-term Federal Home Loan Bank advances in 2001.
Refer to "Liquidity Risk Management" on pages 38 through 40 for discussion of
liquidity management of the Company.

CORPORATE RISK PROFILE

OVERVIEW Managing risks is an essential part of successfully operating a
financial services company. The most prominent risk exposures are credit,
interest rate, market and liquidity. The Company also has exposure related to
changes in residual valuations and ongoing operational activities. Credit risk
is the risk of not collecting interest and/or the principal balance of a loan or
investment when it is due. Interest rate risk is the potential reduction of net
interest income as a result of changes in interest rates. Rate movements can
affect the repricing of assets and liabilities differently, as well as their
market value. Market risk arises from fluctuations in interest rates, foreign
exchange rates, and equity prices that may result in changes in the values of
financial instruments, such as trading account and available-for-sale securities
that are accounted for on a mark-to-market basis. Liquidity risk is the possible
inability to fund obligations to depositors, investors and borrowers. Residual
risk is the potential reduction in the "end-of-term" value of leased assets or
the residual cash flows related to asset securitization and other off-balance
sheet structures. Operational risk represents the possibility that transactions
are processed erroneously and that material errors are not detected by the
systems of internal accounting controls.

CREDIT RISK MANAGEMENT The Company's strategy for credit risk management
includes stringent, centralized credit policies and uniform underwriting
criteria for all loans, including specialized lending categories such as
mortgage banking, energy, commercial real estate and real estate construction,
leveraged financing and consumer credit. The strategy also emphasizes
diversification on a geographic, industry and customer level, regular credit
examinations, and quarterly management reviews of large loans and loans
experiencing deterioration of credit quality. The Company strives to identify
potential problem loans early, take any necessary charge-offs promptly, and
maintain adequate reserve levels. Commercial banking operations rely on a strong
credit culture that combines prudent credit policies and individual lender
accountability. In addition, the commercial lenders generally focus on middle
market companies within their regions or niche national markets. The Company
utilizes a credit risk rating system in order to measure the credit quality of
individual commercial loan transactions and regularly forecasts potential
changes in risk ratings and nonperforming status. The risk rating system is
intended to identify and measure the credit quality of lending relationships. In
the Company's retail banking operations, standard credit scoring systems are
used to assess consumer credit risks and to price consumer products accordingly.
The Company also engages in non-lending activities that may give rise to credit
risk, including interest rate swap contracts for customers or balance sheet
hedging purposes, foreign exchange transactions, and the processing of credit
card transactions for merchants. These activities are subject to the similar
credit review, analysis and approval processes as those applied to commercial
loans.

U.S. Bancorp
29

In evaluating its credit risk, the Company considers changes, if any, in
underwriting activities, the loan portfolio composition (including product mix
and geographic, industry or customer-specific concentrations), trends in loan
performance, and macroeconomic factors. Generally, the domestic economy has
experienced slower growth since late 2000. Accordingly, the Company began to
re-evaluate underwriting activities to tighten credit availability to certain
types of lending, industries and customers. Additionally, in connection with the
merger of Firstar and USBM, the Company has continued to integrate underwriting
standards throughout the organization. Core loan growth for the Company was 4.3
percent in 2001 with the majority of this growth in retail lending.

During 2001, corporate earnings growth rates continued to weaken and credit
quality indicators among certain industry sectors have continued to deteriorate.
Large corporate and middle market commercial businesses announced or continued
to implement restructuring activities in an effort to improve operating margins.
The stagnant economic growth is evidenced by the Federal Reserve Board's ("FRB")
recent actions during late 2000 and 2001 to stimulate economic growth through a
series of interest rate reductions. In response to declining economic
conditions, company-specific portfolio trends, and the Firstar/USBM merger, the
Company undertook an extensive review of its commercial and consumer loan
portfolios in early 2001. As a result of this review, the Company initiated
several actions during the first six months of 2001 including aligning the risk
management practices and charge-off policies of the companies and restructuring
and disposing of certain portfolios that did not align with the credit risk
profile of the combined company. Credit portfolio restructuring activities
included a specific segment of the Company's healthcare portfolio, selling
certain consumer loan portfolios of USBM, renegotiating a credit card co-
branding relationship and discontinuing an unsecured small business product that
did not align with the product offerings of the combined company. The Company
also implemented accelerated loan workout strategies for certain commercial
credits. By the end of the second quarter of 2001, economic stimulus by the FRB
as well as management's actions appeared to have reduced the rate of credit
quality deterioration. However, world events during the third quarter of 2001
had a profound impact on consumer confidence and related spending, governmental
priorities and business activities. As a result of these events, the Company
expected the economic slowdown to accelerate or be more prolonged than
originally estimated by management. Since September 11, 2001, the FRB has
reduced the discount rate four times in an effort to stabilize the financial
markets and economic growth. Accordingly, the Company conducted an additional
review of its credit portfolios and recognized the need to address the impact
that these events are expected to have on its credit portfolios. In response to
this evaluation, the Company increased the provision for credit losses
approximately $1,025.0 million in the third quarter of 2001 beyond expected
levels.

CREDIT DIVERSIFICATION Tables 7, 9 and 10 provide information with respect to
the overall diversification of the credit portfolio and changes in mix during
2001. Certain industry segments, including transportation, manufacturing, and
technology sectors have experienced economic stress in 2001. At December 31,
2001, the transportation sector represented 5.5 percent of the total commercial
loan portfolio. It has been impacted by reduced airline travel, slower economic
activity and higher fuel costs that adversely impacted trucking businesses. At
year-end 2001, the Company's transportation portfolio consisted of airline and
airfreight businesses (28.8 percent of the sector), trucking businesses (53.2
percent) and railroad and shipping. Capital goods represented 13.5 percent of
the total commercial portfolio at December 31, 2001. Included in this sector
were approximately 29.2 percent of loans to diversified manufacturing businesses
while engineering and construction equipment and machinery businesses were 30.7
percent and 22.8 percent, respectively, of the capital goods portfolio.
Manufacturing production levels and inventory reductions caused some
deterioration in these portfolios during late 2000 and 2001. During 2001, the
technology sector was adversely impacted by lower capital investments by
businesses over the past twelve to eighteen months. At December 31, 2001, the
technology industry represented only 2.4 percent of the commercial loan
portfolio.

Since mid-2000, the agriculture and paper and forestry products sectors have
been stressed. However, these sectors have improved relative to a year ago. At
December 31, 2001, the Company's agricultural portfolio was diversified with
36.9 percent of agricultural loans to livestock producers, 27.3 percent to crop
producers, 20.3 percent to food processors and 15.5 percent to wholesalers of
agricultural products. Volatility in crop prices continues to adversely affect
the cash flows of crop producers. Food processors and wholesalers have been less
negatively affected by commodity pricing and a rebound in livestock prices in
2001 has improved the credit exposure within this sector. At December 31, 2001,
loans to paper and forestry products businesses represented 2.2 percent of the
commercial loan portfolio. The industry continues to be adversely impacted by
foreign supplies and over-capacity within the industry; however, workout
strategies continue to reduce the credit exposure to this industry.

U.S. Bancorp
30

ANALYSIS OF NET CHARGE-OFFS Net charge-offs increased $721.1 million to $1,546.5
million in 2001, compared with $825.4 million in 2000 and $672.6 million in
1999. The ratio of total net charge-offs to average loans was 1.31 percent in
2001, compared with .70 percent in 2000 and .61 percent in 1999. The increase in
2001 net charge-offs was due to deterioration in economic conditions affecting
the commercial loan portfolio, actions taken by the Company during 2001, and an
increase in credit card net charge-offs. Also included in 2001 net charge-offs
were $90.0 million of write-offs to conform risk management practices, align
charge-off policies and expedite the transition out of a specific segment of the
healthcare portfolio not meeting the risk profile of the Company.

Commercial and commercial real estate loan net charge-offs for 2001 were
$884.6 million, compared with $289.2 million in 2000 and $179.3 million in 1999.
Approximately $313.2 million of the increase in charge-offs reflected several
factors including: a large cattle fraud, recent collateral deterioration
specific to transportation equipment caused by the impact of higher fuel prices
and the economy, further deterioration in the manufacturing, communications and
technology sectors and specific management decisions to accelerate its workout
strategy for certain borrowers. Commercial and commercial real estate net
charge-offs for 2001 also included $255.0 million in merger and
restructuring-related charge-offs and charge-offs associated with the
accelerated loan workout strategy announced in the first quarter of 2001. The
increase in commercial loan net charge-offs in 2000 included higher losses on a
growing portfolio of small business products, growth in the corporate card
portfolio, credit losses related to acquired leasing businesses and lower levels
of recoveries compared with 1999.

Retail loan net charge-offs in 2001 were $649.3 million, compared with
$523.8 million in 2000 and $478.5 million in 1999. The ratio of retail loan net
charge-offs to average loans in 2001 was 1.85 percent, up from 1.60 percent in
2000 and 1.57 percent in 1999. The increase in retail loan net charge-offs in
2001 was primarily due to higher bankruptcies and consumer delinquencies
reflecting the continuing downturn in economic conditions.

TABLE 13 Net Charge-offs as a Percentage of Average Loans Outstanding

*Information not available

ANALYSIS OF NONPERFORMING ASSETS Nonperforming assets include nonaccrual loans,
restructured loans, other real estate and other nonperforming assets owned by
the Company. Interest payments are typically applied against the principal
balance and not recorded as income.

At December 31, 2001, nonperforming assets totaled $1,120.0 million,
compared with $867.0 million at year-end 2000 and $588.5 million at year-end
1999. The $253.0 million increase in nonperforming assets from December 31, 2000
reflects an increase of $190.0 million of nonperforming commercial and
commercial real estate loans, a $22.2 million increase in nonperforming
residential mortgages and a $23.8 million increase in nonperforming retail
loans. The increase in nonperforming commercial loans was primarily due to:
merger and restructuring-related and risk management actions taken during the
year; loans being written down to secondary market valuations and placed on
nonperforming status; and continuing stress in sectors of the economy. The
increase was partially offset by the disposition of nonperforming loans
identified as part of the Company's accelerated workout programs and commercial
charge-offs taken during 2001. Certain industry sectors, including agriculture,
have stabilized or improved from a year ago. The increase in nonperforming
residential mortgages and retail loans generally reflects changes in portfolio
delinquencies and the national trends in

U.S. Bancorp
31

unemployment and personal bankruptcies during 2001. The ratio of nonperforming
assets to loans plus other real estate was .98 percent at December 31, 2001,
compared with .71 percent at year-end 2000 and .52 percent at year-end 1999.
Given the continued economic stress in various industry sectors, the Company may
experience higher levels of nonperforming assets during the next several
quarters.

Accruing loans 90 days or more past due totaled $462.9 million at December
31, 2001, compared with $385.2 million at December 31, 2000, and $248.6 million
at December 31, 1999. These loans are not included in nonperforming assets and
continue to accrue interest because they are secured by collateral and/or are in
the process of collection and are reasonably expected to result

TABLE 14 Nonperforming Assets(a)

Delinquent Loan Ratios(c)

(a) Throughout this document, nonperforming assets and related ratios do not
include accruing loans 90 days or more past due.

(b) These loans are not included in nonperforming assets and continue to accrue
interest because they are secured by collateral and/or are in the process of
collection and are reasonably expected to result in repayment or restoration
to current status.

(c) Ratios include nonperforming loans and are expressed as a percentage of
ending loan balances.

* Information not available

U.S. Bancorp
32

TABLE 15 Summary of Allowance for Credit Losses

*Information not available

U.S. Bancorp
33

in repayment or restoration to current status. Retail loans 30 days to 89 days
or more past due were 3.11 percent of the total retail portfolio at December 31,
2001, compared with 2.82 percent of the total retail portfolio at December 31,
2000. Retail loans 90 days or more past due totaled .98 percent of the total
retail loan portfolio at December 31, 2001, compared with .79 percent of the
total retail loan portfolio at December 31, 2000, and .59 percent at December
31, 1999. The increase in retail loan delinquencies was primarily related to the
credit card, home equity and revolving credit line portfolios and reflects the
economic slowdown and unemployment trends during 2001.

ANALYSIS AND DETERMINATION OF ALLOWANCE FOR CREDIT LOSSES The allowance for
credit losses provides coverage for probable losses inherent in the Company's
loan portfolio. Management evaluates the allowance each quarter to determine
that it is adequate to cover inherent losses. The evaluation of each element and
the overall allowance is based on a continuing assessment of problem loans and
related off-balance sheet items, recent loss experience, and other factors,
including regulatory guidance and economic conditions. Management has determined
that the allowance for credit losses is adequate.

At December 31, 2001, the allowance was $2.5 billion (2.15 percent of
loans). This compares with an allowance of $1.8 billion (1.46 percent of loans),
at year-end 2000, and $1.7 billion (1.51 percent of loans), at December 31,
1999. The ratio of the allowance for credit losses to nonperforming loans was
245 percent at December 31, 2001, compared with 233 percent at year-end 2000 and
329 percent at year-end 1999. The ratio of the allowance for credit losses to
net charge-offs was 159 percent at December 31, 2001, compared with 216 percent
at year-end 2000 and 254 percent at year-end 1999. The Company considers
historical charge-off levels in addition to existing conditions, among other
factors, when establishing the allowance for credit losses.

Several factors impacted the allowance for credit losses during 2001,
including merger and restructuring-related credit actions and management's
extensive review of the commercial loan portfolio in light of current economic
conditions. The level of the allowance was also impacted by risk rating changes
by regulators of shared national credits agented by other banks,
Company-specific portfolio trends discussed previously, and the transfer of the
unsecured small business product portfolio to loans held for sale. The increase
in the allowance for credit losses reflects the impact of changes in the economy
since December 31, 2000, and related deterioration in certain sectors of the
Company's credit portfolio. It also reflects management's recognition that the
current economic slowdown has accelerated and may be more prolonged as a result
of world events occurring in the third quarter of 2001.

Management determines the amount of allowance that is required for certain
loan categories based on relative risk characteristics of the loan portfolio.
Table 16 shows the amount of the allowance for credit losses by loan category.
During 2001, the Company, in connection with the merger of Firstar and USBM,
conformed its methodology for determining specific allowances for the elements
of the loan portfolio. While both predecessor companies utilized credit risk
rating processes, migration analysis and historical loss experience to determine
each element of its allowance for credit losses, Firstar specifically determined
its commercial allowance based on its net loss experience, while USBM utilized
its gross loss experience. Although diversity exists in practice, the Company
has adopted a net loss experience methodology in determining the allowance for
commercial credit losses. Adopting the net loss experience methodology is based,
in part, on regulatory guidelines promulgated with respect to evaluating the
allowance for credit losses. In addition to adopting a net loss experience
method, the Company enhanced its commercial migration methods for higher quality
commercial loan categories to better differentiate historical loss factors
within those categories. Also, given the current business cycle, historical loss
factors utilized in determining the allowance for commercial loans were weighted
to reflect the adverse impact of recent losses. Table 16 shows the determination
of each element of the allowance for credit losses on a consistent basis for
2001 and 2000. Due to the Company's inability to gather historical loss data on
a combined basis for 1997 through 1999, the methodologies and amounts assigned
to each element of the loan portfolio for these years have not been conformed.

The allowance recorded for commercial loans is based on a quarterly review
of individual credit relationships. The Company's regular risk rating process is
an integral component of the methodology utilized in determining the allowance
for credit losses. An analysis of the migration of commercial and commercial
real estate loans and actual loss experience throughout the business cycle is
also conducted quarterly to assess reserves established for credits with similar
risk characteristics. An allowance is established for pools of commercial and
commercial real estate loans based on the risk ratings assigned. The amount is
supported by the results of the migration analysis that considers historical
loss experience by risk rating, as well as current and historical economic
conditions and industry risk factors. The Company separately analyzes the
carrying value of impaired loans to determine whether the carrying value is less
than or equal to the appraised collateral value or the present value of expected
cash flows. Based on this analysis, an allowance for credit losses may be
specifically established

U.S. Bancorp
34

for impaired loans. The allowance established for commercial and commercial real
estate loan portfolios, including impaired commercial and commercial real estate
loans, increased $931.7 million to $1,428.6 million in 2001. The change
reflected higher levels of nonperforming loans, increased loss severity
reflected in the historical migration, increasing sector risk in certain
industries and deterioration in credit risk ratings from a year ago.

The allowance recorded for retail portfolios is based on an analysis of
product mix, credit scoring and risk composition of the portfolio, loss and
bankruptcy experiences, economic conditions and historical and expected
delinquency and charge-off statistics for each homogenous category or group of
loans. Based on this information and analysis, an allowance is established
approximating a rolling twelve-month estimate of net charge-offs. The allowance
for retail loans increased $58.3 million to $711.1 million in 2001. The increase
primarily reflected the continuing downturn in economic conditions.

Regardless of the extent of the Company's analysis of customer performance,
portfolio trends or risk management processes, certain inherent but undetected
losses are probable within the loan portfolio. This is due to several factors
including inherent delays in obtaining information regarding a customer's
financial condition or changes in their unique business conditions, the
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends. Volatility of economic or customer-specific
conditions affecting the identification and estimation of losses for larger
non-homogeneous credits and the sensitivity of assumptions utilized to establish
allowances for homogenous groups of loans are among other factors. For each of
these factors, the estimated inherent loss is recorded as an unallocated
allowance. The Company estimates a range of inherent losses related to the
existence of these exposures and for the risk in concentrations to specific
borrowers, financings of highly leveraged transactions, products or industries.
The estimates are based upon the Company's evaluation of imprecision risk
associated with the commercial and retail allowance levels and the estimated
impact of the current economic environment on portfolio segments or
concentrations. The unallocated allowance decreased to $301.5 million at
December 31, 2001, from $627.6 million at December 31, 2000. The change in
unallocated allowance reflects deterioration in credit quality during 2001.
Although the Company determines the amount of each element of the allowance
separately and this process is an important credit management tool, the entire
allowance for credit losses is available for the entire loan portfolio. The
actual amount of losses incurred can vary significantly from the recorded
amounts. The Company's methodology includes several factors intended to minimize
the differences in recorded and actual losses. These factors allow the Company
to adjust its estimate of losses based on the most recent information available.
Refer to Note 1 of the Notes to Consolidated

TABLE 16 Elements of the Allowance for Credit Losses(a)

(a) During 2001, the Company changed its methodology for determining the
specific allowance for elements of the loan portfolio. Table 16 has been
restated for 2000. Due to the Company's inability to gather historical loss
data on a combined basis for 1997 through 1999, the methodologies and
amounts assigned to each element of the loan portfolio for these years have
not been conformed. Utilizing the prior methods the total assigned allowance
for 2000 was $1,397.3 million and the unallocated portion was $389.6
million. Refer to paragraph four in the section captioned "Analysis and
Determination of Allowance for Credit Losses" on page 34.

U.S. Bancorp
35

Financial Statements for accounting policies related to the allowance for credit
losses.

RESIDUAL RISK MANAGEMENT The Company manages its risk to changes in the value of
lease residual assets through disciplined residual setting and valuation at the
inception of a lease, diversification of its vehicles, a focus on longer term
vehicle leases, effective end-of-term marketing of off-leased vehicles, regular
asset valuation reviews and monitoring of residual value gains or losses upon
the disposition of assets. To reduce the financial impact of potential changes
in vehicle residuals, the Company maintains residual value risk insurance. Also,
equipment lease originations are subject to the same stringent underwriting
standards referred to in the segment captioned "Credit Risk Management".

Included in the retail leasing portfolio was approximately $2.8 billion of
retail leasing residuals at December 31, 2001, compared with $2.4 billion at
December 31, 2000. The Company monitors concentrations of leases by
manufacturer, vehicle "make" and vehicle type. At year-end 2001, no vehicle-type
concentration exceeded five percent of the aggregate portfolio. Because retail
residual valuations tend to be less volatile for longer-term leases, relative to
the estimated residual at inception of the lease, management actively manages
lease origination production to achieve a longer-term portfolio. At December 31,
2001, the weighted-average term of the portfolio was 51 months. Since 1998, the
used vehicle market has experienced a decline in used car prices. Several
factors have contributed to this deflationary cycle. Aggressive leasing programs
by automobile manufacturers and competitors within the banking industry included
a marketing focus on monthly lease payments, enhanced residuals at lease
inception, shorter-term leases and low mileage leases. These practices have
created a cyclical oversupply of certain off-lease vehicles. Recently,
automobile manufacturers and others have retreated from these marketing programs
or begun to exit the leasing business. Another factor impacting the used vehicle
market has been the trend in new vehicle prices that decreased in the late
1990's. This trend has been driven by surplus automobile manufacturing capacity
and related production and highly competitive Internet sales programs.
Recessionary factors are expected to moderate new car production during the next
several quarters. Also, many Internet marketers failed or transformed into
distribution channels of dealers rather than direct competitors. These recent
trends are expected to abate the deflationary pricing pressures of the past few
years. In response to factors impacting used vehicle prices, the Company
recognized a retail lease impairment of $40.0 million in 2001. Given the current
economic environment, it is difficult to assess the timing and degree of changes
in residual values that may impact financial results over the next several
quarters.

At December 31, 2001, the commercial leasing portfolio had $984.6 million of
residuals. At year-end 2001, lease residuals related to railcars were 16.2
percent. Trucks and other transportation equipment represented 30.2 percent of
the aggregate portfolio while aircraft and manufacturing were 14.9 percent and
12.7 percent, respectively. No other significant concentrations of more than 10
percent existed at December 31, 2001. During 2001, reduced airline travel and
higher fuel costs adversely impacted aircraft and transportation equipment lease
residual values. Although impairment of equipment lease residuals was not
significant in 2001, continuing economic stress in certain industries may
further impact used equipment values into next year.

INTEREST RATE RISK MANAGEMENT In the banking industry, a major risk exposure is
changing interest rates. To minimize the volatility of net interest income and
exposure to economic losses, the Company manages its exposure to changes in
interest rates through asset and liability management activities within
guidelines established by its Asset Liability Policy Committee ("ALPC") and
approved by the Board of Directors. ALPC has the responsibility for approving
and ensuring compliance with asset/liability management policies, including
interest rate risk exposure, off-balance sheet activity and the investment
portfolio. The Company uses three methods for measuring and analyzing
consolidated interest rate risk: Net Interest Income Simulation Analysis, Market
Value of Equity Modeling and Repricing Mismatch Analysis.

NET INTEREST INCOME SIMULATION ANALYSIS One of the primary tools used to measure
interest rate risk and the effect of interest rate changes on net interest
income and net interest margin is simulation analysis. The monthly analysis
incorporates substantially all of the Company's assets and liabilities and
off-balance sheet instruments, together with forecasted changes in the balance
sheet and assumptions that reflect the current interest rate environment.
Through these simulations, management estimates the impact on net interest
income of a 300 basis point upward or downward gradual change of market interest
rates over a one year period. The simulations also estimate the effect of
immediate and sustained parallel shifts in the yield curve of 50 basis points as
well as the effect of immediate and sustained flattening or steepening of the
yield curve. These simulations include assumptions about how the balance sheet
is likely to change with changes in loan and deposit growth. Assumptions are
made to project rates for new loans and deposits based on historical analysis,
management's outlook and repricing strategies. Loan prepayment and other options
risks are developed

U.S. Bancorp
36

from industry estimates of prepayment speeds. Because the results of these
simulations can be significantly influenced by assumptions utilized, management
evaluates the sensitivity of the simulation's results to changes in key
assumptions.

The results from the simulation are reviewed by ALPC monthly and are used to
guide hedging strategies. ALPC policy guidelines limit the estimated change in
net interest income to 5.0 percent of forecasted net interest income over the
succeeding 12 months. In simulations as of December 31, 2001, the interest rate
risk position of the Company was relatively neutral as the impact of a downward
movement in rates or an upward movement in rates of 300 basis points over a
twelve month period resulted in less than 1.0 percent change in net interest
income. At December 31, 2001, the Company was well within policy guidelines.

MARKET VALUE OF EQUITY MODELING The Company also utilizes the market value of
equity as a measurement tool in managing interest rate sensitivity. The market
value of equity measures the degree to which the market values of the Company's
assets and liabilities and off-balance sheet instruments will change given a
change in interest rates. ALPC guidelines limit the change in market value of
equity in a 200 basis point parallel rate shock to 15 percent of the base case.
Given the low level of rates currently the down 200 basis point scenario cannot
be computed. ALPC reviews other down rate scenarios to evaluate the impact of
falling rates.

The valuation analysis is dependent upon certain key assumptions about the
nature of indeterminate maturity of assets and liabilities. Management estimates
the average life and rate characteristics of asset and liability accounts based
upon historical analysis and management's expectation of rate behavior. The
results of the valuation analysis as of December 31, 2001, were well within
policy guidelines.

REPRICING MISMATCH ANALYSIS The Company also evaluates its interest rate
sensitivity position to maintain a balance between the amounts of
interest-bearing assets and interest-bearing liabilities which are expected to
mature or reprice at any point in time. While a traditional repricing mismatch
analysis ("gap analysis") provides a snapshot of interest rate risk, it does not
take into consideration that assets and liabilities with similar repricing
characteristics may not reprice at the same time or to the same degree. Also, it
does not necessarily predict the impact of changes in general levels of interest
rates on net interest income.

TABLE 17 Derivative Positions
ASSET AND LIABILITY MANAGEMENT POSITIONS

CUSTOMER INTERMEDIATED POSITIONS

U.S. Bancorp
37

USE OF DERIVATIVES TO MANAGE MARKET AND INTEREST RATE RISK In the ordinary
course of business, the Company enters into derivative transactions to manage
its market and prepayment risks and to accommodate the business requirements of
its customers. By their nature, derivative instruments are subject to market
risk. The Company does not utilize derivative instruments for speculative
purposes. To manage its interest rate risk, the Company may enter into interest
rate swap agreements and, to a lesser degree, basis swaps, and interest rate
options such as caps and floors. Interest rate swaps involve the exchange of
fixed-and variable-rate payments without the exchange of the underlying notional
amount on which the interest payments are calculated. Interest rate caps protect
against rising interest rates while interest rate floors protect against falling
interest rates. In connection with its mortgage banking business, the Company
may enter into forward commitments, futures and options to hedge interest rate
risk of fixed-rate mortgage loans held for sale and unfunded commitments. All
interest rate derivatives that qualify for hedge accounting are recorded at fair
value as other assets or liabilities on the balance sheet and designated as
either "fair value" or "cash flow" hedges. The Company performs an assessment,
both at the inception of the hedge and quarterly thereafter, to determine
whether these derivatives are highly effective in offsetting changes in the
value of the hedged items. Hedge ineffectiveness for both cash flow and fair
value hedges is immediately recorded in noninterest income.

The Company also enters into derivative contracts to accommodate the
business requirements of its customers. Customer intermediated transactions may
include interest rate derivatives and foreign exchange forward contracts and
options. Foreign exchange-based forward contracts provide for the delayed
delivery of a purchase or sale of foreign currency. Generally, the Company
enters into offsetting derivative positions to mitigate its market risk
associated with customer-based contracts. Intermediated interest rate swaps,
foreign exchange contracts and all other derivative contracts that do not
qualify for hedge accounting are recorded at fair value and resulting gains or
losses are recorded in trading account profits and commissions. Derivative
instruments are subject to credit risk associated with counterparties to the
derivative contracts. Credit risk associated with derivatives is measured based
on the replacement cost should the counterparties with contracts in a gain
position to the Company fail to perform under the terms of the contracts. The
Company manages this risk through diversification of its derivative positions
among dealers, primarily commercial banks, broker-dealers and corporations, with
established relationships and requiring collateral to support credit exposures
in excess of established guidelines. To minimize the risk, the Company enters
into legally enforceable master netting agreements, which permit the close out
and netting of transactions with the same counterparty upon the occurrence of
certain events. Also, a portion of the derivative activity involves
exchange-traded instruments. Because exchange-traded instruments conform to
standard terms and are subject to policies set by the exchange involved,
including counterparty approval, margin requirements and security deposit
requirements, the credit risk is substantively reduced.

Table 17 summarizes information on derivative positions as of December 31,
2001.

MARKET RISK MANAGEMENT In addition to interest rate risk and market risk
associated with derivatives, the Company is exposed to other forms of market
risk as a consequence of conducting normal business activities. Business
activities that contribute to market risk include, among other things, market
making, underwriting, proprietary trading and foreign exchange positions. Value
at Risk ("VaR") is a key measure of market risk for the Company. VaR represents
the maximum amount that the Company has placed at risk of loss, with a
ninety-nine percent degree of confidence, in the course of its risk taking
activities. Its purpose is to describe the amount of earnings at risk due to
potential losses from adverse market movements.

VaR modeling on trading activities is subject to certain limitations.
Additionally, it should be recognized that there are assumptions and estimates
associated with VaR modeling and actual results could differ from these
assumptions and estimates. The Company mitigates these uncertainties through
regular monitoring of trading activities by management and other risk management
practices including stop-loss limits and position limits. A stress-test model is
used to provide management with a perspective on market events that a VaR model
does not capture. In each case, the historical worst performance of each asset
class is observed and applied to current trading positions.

ALPC establishes market risk limits subject to approval by the Company's
Board of Directors. The Company's VaR limit was $40.0 million at December 31,
2001. The market risk inherent in the Company's customer-based derivative
trading, mortgage banking pipeline, broker-dealer activities, including
equities, fixed income, high yield securities and foreign exchange, as estimated
by the VaR analysis, was $10.9 million at December 31, 2001.

LIQUIDITY RISK MANAGEMENT ALPC establishes policies, as well as analyzes and
manages liquidity, to ensure that adequate funds are available to meet normal
operating requirements in addition to unexpected customer demands for funds,
such as high levels of deposit withdrawals or loan demand, in a timely and
cost-effective manner. The most important factor in the preservation of
liquidity is

U.S. Bancorp
38

maintaining public confidence that facilitates the retention and growth of a
large, stable supply of core deposits and wholesale funds. Ultimately, public
confidence is generated through profitable operations, sound credit quality and
a strong capital position. The Company's performance in these areas has enabled
it to develop a large and reliable base of core funding within its market areas
and in domestic and global capital markets. Liquidity management is viewed from
a long-term and short-term perspective, as well as from an asset and liability
perspective. Management monitors liquidity through a regular review of maturity
profiles, yield and rate behaviors, and loan and deposit forecasts to minimize
funding risk.

The Company maintains strategic liquidity and contingency plans that are
subject to the availability of asset liquidity in the balance sheet. ALPC
periodically reviews the Company's ability to meet funding deficiencies due to
adverse business events. These funding needs are then matched with specific
asset-based sources to ensure sufficient funds are available. Also, strategic
liquidity policies require diversification of wholesale funding sources to avoid
concentrations in any one market source. Subsidiary banks are members of various
Federal Home Loan Banks that provide a source of funding through FHLB advances.
The Company maintains a Grand Cayman office for issuing eurodollar certificates
of deposit. The Company also establishes relationships with dealers to issue
national market retail and institutional savings certificates and short-and
medium-term bank notes. Also, the Company's subsidiary banks have significant
correspondent banking networks and corporate accounts. Accordingly, it has
access to national fed funds, funding through repurchase agreements and sources
of more stable regionally based certificates of deposit.

Asset securitization and conduits represent another source of funding the
Company's growth through off-balance sheet structures. The Company has two
off-balance sheet conduits that hold high-grade assets. The conduits, which are
funded by issuing commercial paper, held average assets of $14.8 billion
including short-term participations in commercial loans, commercial paper and
investment securities. The Company provides liquidity facilities to both
conduits and credit enhancement to the loan conduit that may be triggered by
certain events. Based on the current performance of each structure the Company
does not anticipate these triggers will occur in the foreseeable future.
Included in noninterest income was $132.7 million of revenue related to these
conduits in 2001 including fees for servicing activities and liquidity
facilities and credit enhancements.

In November 2001, the Company established a $738 million securitization
structure related to an unsecured small business credit product that was being
discontinued. Additionally, the Company previously created asset-backed
securitizations to fund the noninterest-bearing corporate card loan portfolio
and indirect automobile loans. The corporate card securitization held $403
million in average assets in 2001 and is scheduled to be liquidated in February
2002. The indirect automobile securitization held $655 million of average assets
in 2001. The Company provided credit enhancements in the form of subordination
and reserve accounts at the inception of the transactions. The Company's risk,
primarily for losses in the underlying assets, is considered in determining the
fair value of the Company's retained interests in these securitizations. The
Company recognized income from residual interests and servicing fees for these
securitizations of $15.5 million in 2001. Refer to Note 8 of the Notes to
Consolidated Financial Statements for further information on these off-balance
sheet structures.

With respect to real estate and certain equipment, the Company enters into
capital or operating leases to meet its business requirements. Certain operating
lease arrangements involve third party lessors that acquire these business
assets through leveraged financing structures commonly referred to as "synthetic
leases". At December 31, 2001, synthetic lease structures held real estate
assets of $372.7 million and equipment of $41.6 million. The Company provides
guarantees to the lender in the event of default by the leveraged financing
structures or in the event that the Company does not exercise its option to
purchase the property at the end of the lease term and the fair value of the
assets is less than the purchase price. The Company's minimum lease obligations
for capital and operating arrangements, including those related to synthetic
leases, are disclosed in Note 22 of the Notes to Consolidated Financial
Statements.

Credit, liquidity, operational and legal structural risks exist due to the
nature and complexity of asset securitizations and other off-balance sheet
structures. ALPC regularly monitors the performance of each off-balance sheet
structure in an effort to minimize these risks and ensure compliance with the
requirements of the structures. The Company utilizes its credit risk management
systems to evaluate credit quality of underlying assets and regularly forecasts
cash flows to evaluate any potential impairment of retained interests. Also,
regulatory guidelines require consideration of asset securitizations in the
determination of risk-based capital ratios.

The Company's ability to raise negotiated funding at competitive prices is
influenced by rating agencies' views of the Company's credit quality, liquidity,
capital and earnings. The debt ratings noted in Table 18 reflect the rating
agencies' recognition of the strong, consistent financial performance of the
Company and quality of the balance sheet.

U.S. Bancorp
39

The parent company's routine funding requirements consist primarily of
operating expenses, dividends to shareholders, debt service and funds used for
acquisitions. The parent company obtains funding to meet its obligations from
dividends collected from its subsidiaries and the issuance of debt securities.
Subsidiary management fees fund operating expenses, while shareholder dividends
and debt service are satisfied primarily through dividends from its
subsidiaries.

At December 31, 2001, parent company long-term debt outstanding was $6.1
billion, compared with $6.6 billion at December 31, 2000. In 2001, the parent
company issued $1.1 billion of senior contingent convertible debt, offset by
$1.6 billion of maturities and other repayments of long-term debt. Total parent
company debt maturing in 2002 is $1.5 billion. These debt obligations are
expected to be met through medium-term note issuances and dividends from
subsidiaries, as well as from the approximately $3.2 billion of parent company
cash and cash equivalents at December 31, 2001. Federal banking laws regulate
the amount of dividends that may be paid by banking subsidiaries without prior
approval. The amount of dividends available to the parent company from its
banking subsidiaries was $1.2 billion at December 31, 2001. For further
information, see Note 23 of the Notes to Consolidated Financial Statements.

CAPITAL MANAGEMENT

The Company is committed to managing capital for maximum shareholder benefit and
maintaining strong protection for depositors and creditors. Total shareholders'
equity was $16.5 billion at December 31, 2001, compared with $15.2 billion at
December 31, 2000. The increase was primarily the result of corporate earnings
and the issuance of stock in connection with the NOVA acquisition, offset by
dividend payments, merger and restructuring-related items and share repurchases.

On February 27, 2001, the Company increased its dividend rate per common
share 15.4 percent from $.1625 per quarter to $.1875 per quarter. Excluding
merger and restructuring-related charges, the dividend payout ratio for 2001
increased to 57.0 percent compared with payout ratios of 40.1 percent in 2000
and 31.7 percent in 1999.

Management has established financial objectives which provide a framework to
monitor future capital needs. The Company's dividend policy is influenced by the
belief that most shareholders are interested in long-term performance as well as
current dividend yields. The current dividend payout level is considered
reasonable given the Company's present cash flow position, level of earnings and
the strength of its subsidiary banks' capital ratios. Future dividends will be
determined based on results of operations, growth expectations, financial
condition, regulatory constraints and other factors deemed relevant by the Board
of Directors.

On July 17, 2001, the Company's Board of Directors authorized the repurchase
of up to 56.4 million shares of the Company's common stock in connection with
the July 24, 2001, acquisition of NOVA. During 2001, the Company repurchased
19.7 million shares of common stock in both public and private transactions in
connection with this authorization. The Company had forward contracts to
purchase 26.7 million shares within this authorization. These contracts were
settled in January 2002. On December 18, 2001, the Board of Directors approved
an authorization to repurchase an additional 100 million shares of common stock
through 2003.

On February 16, 2000, the Board of Directors of USBM authorized the
repurchase of up to $2.5 billion of its common stock over a two year period
ending March 31, 2002. On April 11, 2000, Firstar's Board of Directors approved
a common stock repurchase program of 100 million shares. The stock repurchase
programs of both Firstar and USBM were rescinded on October 4, 2000, and January
17, 2001, respectively, in connection with the planned merger of the formerly
separate companies. For a complete analysis of activities impacting
shareholders' equity

TABLE 18 Debt Ratings

U.S. Bancorp
40

and capital management programs, refer to Note 15 of the Notes to Consolidated
Financial Statements.

Banking regulators define minimum capital requirements for banks and
financial services holding companies. Additionally, credit rating agencies
evaluate capital adequacy including tangible common equity as a percentage of
tangible assets. The Company manages various capital ratios to maintain
appropriate capital levels in accordance with Board-approved capital guidelines.
At December 31, 2001, tangible common equity was $9.4 billion (5.7 percent of
tangible assets), compared with 6.3 percent at year-end 2000. The decline in the
tangible common equity ratio was primarily due to the acquisition of NOVA during
the third quarter of 2001. As of December 31, 2001, tier 1 and total risk-based
capital ratios were 7.7 percent and 11.7 percent, respectively, well above the
minimum regulatory requirements of 4.0 percent for tier 1 and 8.0 percent for
total risk-based capital. This compared to tier 1 and total risk-based capital
ratios of 7.2 percent and 10.6 percent at December 31, 2000. The improvement in
the total risk-based capital ratio during 2001 primarily reflected changes in
the mix of investment securities in addition to the issuance of Trust Preferred
Securities. Regulatory authorities have also established a minimum "leverage"
ratio of 4.0 percent, which is defined as tier 1 equity to average quarterly
assets. For the fourth quarter of 2001, the Company's leverage ratio improved to
7.7 percent compared with 7.4 percent in the fourth quarter of a year ago.

With respect to each of its banking subsidiaries, the Company intends to
maintain sufficient capital to be "well capitalized" as defined by the
regulatory agencies. The "well capitalized" category requires tier 1 and total
risk-based capital ratios of at least 6.0 percent and 10.0 percent,
respectively, and a minimum leverage ratio of 5.0 percent. All banking
subsidiaries are considered "well capitalized" at December 31, 2001.

Table 19 provides a summary of tier 1 and total risk-based capital ratios as
of December 31, 2001 and 2000, as defined by the regulatory agencies.

FOURTH QUARTER SUMMARY

In the fourth quarter of 2001, the Company had net income of $695.4 million
($.36 per diluted share), compared with $768.7 million ($.40 per diluted share)
in the fourth quarter of 2000. The Company reported operating earnings (net
income excluding merger and restructuring-related items) of $785.2 million ($.40
per diluted share) in the fourth quarter of 2001, compared with operating
earnings of $824.2 million ($.43 per diluted share) in the fourth quarter of
2000. Fourth quarter net interest income on a taxable-equivalent basis increased
$122.6 million to $1,684.8 million, compared with the fourth quarter of

TABLE 19 Regulatory Capital Ratios

(a) These balances and ratios were prepared in accordance with regulatory
accounting principles as disclosed in the subsidiaries' regulatory reports.

U.S. Bancorp
41

2000, primarily reflecting increased earning assets driven by increases in the
investment portfolio, core retail loan growth and acquisitions, partially offset
by a $4.3 billion reduction in loans related to transfers of short-term, high
credit quality, low margin commercial loans to the loan conduit, a $2.8 billion
decline in residential mortgage loans, and the sale of indirect automobile and
high LTV home equity loans in the first quarter of 2001. The net interest margin
on a taxable-equivalent basis increased in the fourth quarter of 2001 to 4.60
percent, compared with 4.33 percent in the fourth quarter of 2000, reflecting
funding benefits during the declining rate environment, a more favorable funding
mix and improving loan spreads, partially offset by lower yields on the
investment portfolio.

The provision for credit losses increased to $265.8 million in the fourth
quarter of 2001, compared with $229.5 million in the fourth quarter of 2000. The
increase was the result of higher charge-offs from a year ago due to
deterioration in economic conditions and credit quality in the loan portfolio.

Noninterest income increased $58.7 million from the same quarter a year ago,
to $1,323.6 million. Credit card fee revenue declined quarter over quarter by
$18.6 million (8.8 percent) reflecting lower corporate card transaction volumes.
Merchant and ATM processing revenue increased $116.0 million principally due to
the acquisition of NOVA. Deposit service charges, cash management fees,
commercial product revenue and mortgage banking revenue improved in the fourth
quarter of 2001 from a year ago. The

TABLE 20 Fourth Quarter Summary

(a) The Company analyzes its performance on a net income basis in accordance
with accounting principles generally accepted in the United States, as well
as on an operating basis before merger and restructuring-related items
referred to as "operating earnings." Operating earnings are presented as
supplemental information to enhance the readers' understanding of, and
highlight trends in, the Company's financial results excluding the impact of
merger and restructuring-related items of specific business acquisitions and
restructuring activities. Operating earnings should not be viewed as a
substitute for net income and earnings per share as determined in accordance
with accounting principles generally accepted in the United States. Merger
and restructuring-related items excluded from net income to derive operating
earnings may be significant and may not be comparable to other companies.

(b) Dividends per share have not been restated for the 2001 merger of Firstar
and USBM.

(c) Without investment banking and brokerage activity.

U.S. Bancorp
42

improvements reflected core business growth, product enhancements, loan conduit
activities and strong mortgage originations. Capital markets-related revenue
declined $31.6 million (12.0 percent) reflecting softness in equity capital
markets since late 2000. Other income declined $99.6 million from the same
quarter a year ago primarily due to a $10.0 million retail lease residual
impairment recognized in the fourth quarter of 2001 and a decline in the level
of equity investment earnings.

Fourth quarter noninterest expense totaled $1,644.5 million in the fourth
quarter of 2001 compared with $1,431.9 million in the fourth quarter of 2000.
Excluding merger-related charges, noninterest expense totaled $1,503.9 million,
an increase of $156.1 million (11.6 percent) from the fourth quarter of 2000.
Approximately $100 million of the increase was the result of acquisitions. In
addition to the impact of acquisitions, noninterest expenses were higher due to
recognizing a $27.3 million MSR impairment in the fourth quarter of 2001 and
increases due to core business growth, offset somewhat by a reduction in
expenses related to capital markets activities.

LINE OF BUSINESS FINANCIAL REVIEW

Operating segments are components of the Company about which financial
information is available and is evaluated regularly in deciding how to allocate
resources and assess performance. Prior to the merger of Firstar and USBM, the
Company operated its business units separately in 2000 and 1999 and the basis of
financial presentation differed significantly. Accordingly, the presentation of
comparative business line results for 1999 is not practicable at this time.

At the date of the merger of Firstar and USBM, the Company reorganized into
the following operating segments: Wholesale Banking, Consumer Banking, Private
Client, Trust and Asset Management, Payment Services, Capital Markets, and
Treasury and Corporate Support. Units providing central support and other
corporate activities are reported as part of Treasury and Corporate Support and
allocated as appropriate. For detailed descriptions of these operating segments
see "BUSINESS SEGMENTS" in Note 1 of the Notes to Consolidated Financial
Statements.

BASIS OF FINANCIAL PRESENTATION Business line results are derived from the
Company's business unit profitability reporting system by specifically
attributing managed balance sheet assets, deposits and other liabilities and
their related interest income or expense. Funds transfer pricing methodologies
are utilized to allocate a cost for funds used or credit for funds provided to
all business line assets and liabilities using a matched funding concept. Also,
the business unit is allocated the taxable-equivalent benefit of tax-exempt
products. The provision for credit losses recorded by each operating segment was
primarily based on the net charge-offs of each line of business. The difference
between the provision for credit losses determined in accordance with accounting
principles generally accepted in the United States recognized by the Company on
a consolidated basis and the provision recorded by the business lines is
recorded in Treasury and Corporate Support. Noninterest income and expenses
directly managed by each business line, including fees, service charges,
salaries and benefits, and other direct expenses are accounted for within each
segment's financial results in a manner similar to the consolidated financial
statements. Noninterest expenses incurred by centrally managed operations or a
business line that directly supports another business line's operations are not
charged to the applicable business line. Income taxes are assessed to each line
of business at a standard tax rate with the residual tax expense or benefit to
arrive at the consolidated effective tax rate included in Treasury and Corporate
Support. Merger and restructuring-related items are not identified by or
allocated to lines of business. Because capital levels are evaluated and managed
centrally, capital is not allocated to the business units. Designations,
assignments and allocations may change from time to time as management
accounting systems are enhanced or product lines change. During 2001, certain
organization and methodology changes were made to reflect the merger. All
results for 2001 and 2000 have been restated to present consistent methodologies
for all business lines.

WHOLESALE BANKING offers lending, depository, treasury management and other
financial services to middle market, large corporate and public sector clients.
Wholesale Banking contributed $1,364.4 million of the Company's pre-tax income
in 2001, compared with $1,667.3 million in 2000, a decrease of $302.9 million
(18.2 percent). The decline was primarily driven by an increase in the provision
for credit losses and certain asset write-downs taken by the business line. The
line of business generated operating income of $1,956.8 million in 2001 and
$1,827.8 million in 2000, a 7.1 percent increase. Total net revenue grew by
$175.9 million (8.0 percent) in 2001. Net interest income on a
taxable-equivalent basis increased 4.7 percent for the year primarily due to
core deposit growth, as well as the impact of banking and equipment finance
leasing acquisitions. The increase is offset somewhat by the transfer of
short-term, high credit quality, low margin commercial loans to the loan conduit
and the impact of declining rates on the funding benefit of deposits.
Noninterest income increased 19.4 percent in 2001 reflecting revenue related to
the leasing acquisitions, core growth in syndication and cash management-related
fees and growth in securitization fee

U.S. Bancorp
43

income related to the loan conduit. Net fee income growth included a $6.0
million impairment of commercial leasing residuals and lower earnings of
approximately $33.4 million from relationship-based equity investments managed
by the line of business. Offsetting the net growth in revenue was an increase in
noninterest expenses of $46.9 million (12.9 percent), primarily due to bank and
lease acquisitions, planned growth in targeted markets and certain asset
write-downs. Included in expenses during the year were asset write-downs of
commercial leasing partnerships of $38.4 million and repossessed tractor/trailer
and other related property of $14.0 million. Cost savings from business
integration activities during 2001 substantively offset the core and
acquisition-related expense growth. Additionally, the provision for credit
losses increased $431.9 million during 2001. The increase reflected increasing
net charge-offs due to the deterioration in credit quality reflected by an
increase in nonperforming commercial loans. Refer to "Corporate Risk Profile" on
pages 29 through 36 for further information on factors impacting the credit
quality of the loan portfolios.

CONSUMER BANKING delivers products and services to the broad consumer market and
small businesses through banking offices, telemarketing, on-line services,
direct mail and automated teller machines ("ATMs"). It encompasses community
banking, metropolitan banking, small business banking, consumer lending,
mortgage banking and investment product sales. Consumer Banking contributed
$1,866.4 million of the Company's pre-tax income in 2001 compared with $2,039.4
million in 2000, a decrease of 8.5 percent. The decline was driven by the impact
of declining rates on the funding benefit of deposits, an increase in the
provision for credit losses, banking acquisitions and certain asset write-downs
taken by the Company. The line of business generated operating income of
$2,287.7 million in 2001, a decline of 4.2 percent from 2000. Total net revenue
grew by 1.3 percent during 2001, or $53.9 million over 2000. Fee-based revenue
growth was strong, increasing by 19.0 percent over 2000, while net interest
income declined 4.7 percent. The decline in net interest income reflected the
impact of declining interest rates on the funding benefit of consumer deposits.
It also reflects the sale of approximately $1.3 billion of high LTV home equity
and indirect automobile loans in the first quarter of 2001, and the divestiture
of branches with $771.0 million of deposits during the second quarter of 2001 in
connection with the merger of Firstar and USBM.

TABLE 21 Line of Business Financial Performance

(a) Merger and restructuring-related items are not allocated to the business
lines.

* Not meaningful.

U.S. Bancorp
44

The decline was partially offset by a funding benefit of deposits related to the
acquisition of 41 branches in Tennessee. Growth in fee-based revenue was
primarily attributed to an increase in retail deposit and cash management fees,
mortgage banking originations, the alignment and redesign of products and
features in connection with the merger of Firstar and USBM, and fee revenue
related to the Tennessee branch acquisition. Fee income growth for 2001 was
tempered somewhat by the recognition of an impairment of retail leasing
residuals of $40.0 million during the third and fourth quarters. Consumer
Banking results reflect an increase in noninterest expense of $154.6 million
(9.1 percent) primarily related to impairments of MSRs of $60.8 million and the
Tennessee branch acquisition. Additionally, the provision for credit losses
increased $72.3 million (20.7 percent) during the year. The increase reflects
deterioration in asset quality, higher consumer bankruptcies and economic trends
impacting the business unit's loan and retail leasing portfolios.

PRIVATE CLIENT, TRUST AND ASSET MANAGEMENT provides mutual fund processing
services, trust, private banking and financial advisory services through four
businesses, including: the Private Client Group, Corporate Trust Services,
Institutional Trust and Custody, and Fund Services. The business segment also
offers investment management services to several client segments including
mutual funds, institutional customers, and private asset management. Private
Client, Trust and Asset Management contributed $641.3 million of the Company's
pre-tax income in 2001 compared with $649.2 million in 2000, a 1.2 percent
decline. Growth in net interest income during 2001 compared with 2000, was
driven by core loan and deposit growth partially offset by the impact of
declining rates on the funding benefit of deposits. Noninterest income declined
3.5 percent during 2001 compared with a year ago primarily due to trust and
investment management fees being adversely affected by the current capital
markets conditions. Noninterest expense decreased 2.3 percent ($11.1 million) in
2001. Cost savings related to integration activities primarily drove the decline
in noninterest expense.

PAYMENT SERVICES includes consumer and business credit cards, corporate and
purchasing card services, consumer lines of credit, ATM processing and merchant
processing. Payment Services contributed $724.3 million of the Company's pre-tax
income in 2001 compared with $708.6 million in 2000, a 2.2 percent increase. The
business unit's financial results were, in part, impacted by an increase in the
provision for credit losses and the NOVA acquisition

U.S. Bancorp
45

completed during the third quarter of 2001. The line of business generated
operating income of $1,156.1 million in 2001, an 8.9 percent increase compared
with 2000. Total net revenue growth was 15.9 percent, or $239.4 million,
compared with 2000 including the impact of the NOVA acquisition of $134.3
million. Excluding the NOVA acquisitions, total net revenue growth was
approximately 7.0 percent. Total net revenue growth was partially offset by
increased in noninterest expense of 32.3 percent, primarily driven by the NOVA
acquisition. Excluding the impact of the NOVA acquisition, noninterest expenses
for the business line were essentially flat relative to a year ago.
Additionally, the provision for credit losses increased $79.2 million (22.5
percent) in 2001. The increase in provision reflects deterioration in
delinquencies, higher bankruptcies and credit losses in the credit card
portfolio and the economic slowdown impacting consumers.

CAPITAL MARKETS engages in equity and fixed income trading activities, offers
investment banking and underwriting services for corporate and public sector
customers and provides financial advisory services and securities, mutual funds,
annuities and insurance products to consumers and regionally based businesses
through a network of brokerage offices. Capital Markets contributed $93.1
million of the Company's pre-tax income in 2001, compared with $214.3 million in
2000, a decrease of 56.6 percent. The unfavorable variance in pre-tax income
from 2000 was due to significant decreases in fees related to trading,
investment product fees and commissions and investment banking revenues
reflecting the recent adverse capital markets conditions. In response to
significant changes in the securities markets including increased volatility,
changes in equity valuations, a slowdown in the market for new and secondary
issuances of equity and the increasingly competitive environment for the
industry, U.S. Bancorp Piper Jaffray restructured its operations during 2001.
Additionally, in June 2001, the Company decided to discontinue its U.S. Bancorp
Libra operations, a business unit that specialized in underwriting and trading
high-yield debt and mezzanine securities. These restructuring activities are
expected to improve operating efficiency of the business unit by removing excess
capacity from the product distribution system and brokerage operations.

TREASURY AND CORPORATE SUPPORT includes the Company's investment and residential
mortgage portfolios, funding, capital management and asset securitization
activities, interest rate risk management, the net effect of transfer pricing
related to loan and deposit balances, and the change in residual allocations
associated with the provision for loan losses. It also includes business
activities managed on a corporate basis, including income and expense of
enterprise-wide operations and administrative support functions. Treasury and
Corporate Support recorded a pre-tax loss of $733.0 million in 2001, compared to
a loss of $456.9 million in 2000. The incremental loss was driven by an increase
in the provision for credit losses, lower earnings from equity investments and
non-recurring gains from the disposal of office buildings in 2000. During 2001,
total net revenue was $1,537.3 million compared with $978.3 million a year ago.
The $559.0 million increase was primarily due to an increase in average
investment securities and the residual benefit of declining interest rates given
the Company's interest rate risk management position. Also included in 2001 were
approximately $289.8 million of securities gains compared with $8.1 million in
2000, offset somewhat by lower earnings from equity investments of $78.0 million
and gains from the disposal of office buildings in 2000. Noninterest expenses
were $1,596.8 million in 2001 compared with $1,471.3 million for the same period
of 2000. The increase was primarily related to core business operations and
higher costs related to increased affordable housing projects. Provision for
credit losses for this business unit represents the residual aggregate of the
credit losses allocated to the reportable business units (based on net
charge-offs for the accounting period) and the Company's recorded provision
determined in accordance with generally accepted accounting principles in the
United States. Provision for credit losses for the year ended December 31, 2001,
was $673.5 million compared with a net recovery of $36.1 million in 2000. The
change in the provision reflects the Company's decision in the third quarter of
2001 to increase the allowance for credit losses in light of recent events,
declining economic conditions and deterioration in the credit quality of the
loan portfolio from a year ago. Refer to "Corporate Risk Profile" for further
information on provision for credit losses, nonperforming assets and factors
considered by the Company in assessing the credit quality of the loan portfolio
and establishing the allowance for credit losses.

ACCOUNTING CHANGES

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended, establishes accounting and
reporting standards for all derivative instruments and criteria for designation
and effectiveness of hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value. The changes in the fair value of
the derivatives are recognized currently in earnings unless specific hedge
accounting criteria are met. If the derivative qualifies as a hedge, the
accounting treatment varies based on the type of risk being hedged. On

U.S. Bancorp
46

January 1, 2001, the Company adopted SFAS 133. Transition adjustments related to
adoption resulted in an after-tax loss of approximately $4.1 million recorded in
net income and an after-tax increase of $5.2 million to other comprehensive
income. The transition adjustments related to adoption were not material to the
Company's financial statements, and as such, were not separately reported in the
consolidated statement of income.

ACCOUNTING FOR BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS In
June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations" and
Statement of Financial Accounting Standard No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets". SFAS 141 mandates the purchase method of accounting be
used for all business combinations initiated after June 30, 2001, and
establishes specific criteria for the recognition of intangible assets
separately from goodwill. SFAS 142 addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. The Company is required to
adopt SFAS 142 on January 1, 2002. The most significant changes made by SFAS 142
are that goodwill and indefinite lived intangible assets will no longer be
amortized and will be tested for impairment at least annually, thereafter. Any
impairment charges from the initial impairment test at the time of adoption
would be recognized as a "cumulative effect of change in accounting principles"
in the income statement. The amortization provisions of SFAS 142 apply to
goodwill and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the amortization
provisions of SFAS 142 are effective upon adoption of SFAS 142.

The Company will apply the amortization provisions of SFAS 142 during the
first quarter of 2002. Management anticipates that applying the provisions of
SFAS 141 to recent acquisitions and the provisions of SFAS 142 to purchase
acquisitions completed prior to July 1, 2001, will increase after-tax income for
the year ending December 31, 2002, by approximately $200 to $210 million, or
$.10 per diluted share. This considers the application of SFAS 142's definition
of a business and the impact of reclassifying certain assets from goodwill to
intangibles and changes in estimated useful lives of certain intangible assets.
The Company has not yet fully determined the impact on earnings of impairments
related to goodwill and indefinite lived intangible assets under the new
guidelines required by SFAS 142. Any material impairment charge resulting from
these transitional accounting rules will be reflected as a "cumulative effect of
a change in accounting principles" in the first quarter of 2002. Because banking
regulations exclude 100 percent of goodwill from the determination of capital
adequacy, the impact of any impairment on the Company's capital adequacy will
not be significant.

U.S. Bancorp
47

Responsibility for Financial

Statements of U.S. Bancorp

Responsibility for the financial statements and other information presented
throughout the Annual Report on Form 10-K rests with the management of U.S.
Bancorp. The Company believes that the consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the
United States and present fairly the substance of transactions based on the
circumstances and management's best estimates and judgment. All financial
information throughout the Annual Report on Form 10-K is consistent with that in
the financial statements.

In meeting its responsibilities for the reliability of the financial statements,
the Company depends on its system of internal controls. The system is designed
to provide reasonable assurance that assets are safeguarded and transactions are
executed in accordance with the appropriate corporate authorization and recorded
properly to permit the preparation of the financial statements. To test
compliance, the Company carries out an extensive audit program. This program
includes a review for compliance with written policies and procedures and a
comprehensive review of the adequacy and effectiveness of the internal control
systems. Although control procedures are designed and tested, it must be
recognized that there are limits inherent in all systems of internal accounting
control and, as such, errors and irregularities may nevertheless occur. Also,
estimates and judgments are required to assess and balance the relative cost and
expected benefits of the controls. The Company believes that its system of
internal controls provides reasonable assurance that errors or irregularities
that could be material to the financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned functions.

The Board of Directors of the Company has an Audit Committee composed of
directors who are not officers or employees of U.S. Bancorp. The committee meets
periodically with management, the internal auditors and the independent
accountants to consider audit results and to discuss internal accounting
control, auditing and financial reporting matters.

The Company's independent accountants, PricewaterhouseCoopers LLP, have been
engaged to render an independent professional opinion on the financial
statements and to assist in carrying out certain aspects of the audit program
described above. Their opinion on the financial statements is based on
procedures conducted in accordance with auditing standards generally accepted in
the United States and forms the basis for their report as to the fair
presentation, in the financial statements, of the Company's financial position,
operating results and cash flows.

/s/ Jerry A. Grundhofer /s/ David M. Moffett
Jerry A. Grundhofer David M. Moffett
President and Vice Chairman and
Chief Executive Officer Chief Financial Officer

Report of Independent Accountants

To the Shareholders and Board of Directors of U.S. Bancorp:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of U.S. Bancorp and its
subsidiaries at December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP

Minneapolis, Minnesota

January 15, 2002

U.S. Bancorp
48

Consolidated Balance Sheet

See Notes to Consolidated Financial Statements.

U.S. Bancorp
49

Consolidated Statement of Income

See Notes to Consolidated Financial Statements.

U.S. Bancorp
50

Consolidated Statement of Shareholders' Equity

See Notes to Consolidated Financial Statements.

U.S. Bancorp
51

Consolidated Statement of Cash Flows

See Notes to Consolidated Financial Statements.

U.S. Bancorp
52

Notes to Consolidated Financial Statements

NOTE 1 Significant Accounting Policies

U.S. Bancorp and its subsidiaries (the "Company") compose the organization
created by the acquisition by Firstar Corporation ("Firstar") of the former U.S.
Bancorp ("USBM"). The new Company retained the U.S. Bancorp name. The Company is
a multi-state financial services holding company headquartered in Minneapolis,
Minnesota. The Company provides a full range of financial services including
lending and depository services through banking offices principally in 24
states. The Company also engages in credit card, merchant, and ATM processing,
mortgage banking, insurance, trust and investment management, brokerage, leasing
and investment banking activities principally in domestic markets.

BASIS OF PRESENTATION The consolidated financial statements include the accounts
of the Company and its subsidiaries. The consolidation eliminates all
significant intercompany accounts and transactions. Certain items in prior
periods have been reclassified to conform to the current presentation.

USES OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual experience could differ from those estimates.

BUSINESS SEGMENTS

Within the Company, financial performance is measured by major lines of business
based on the products and services provided to customers through its
distribution channels. The Company has six reportable operating segments:

Wholesale Banking offers lending, depository, treasury management and other
financial services to middle market, large corporate and public sector clients.

Consumer Banking delivers products and services to the broad consumer market
and small businesses through banking offices, telemarketing, on-line services,
direct mail and automated teller machines ("ATMs"). It encompasses community
banking, metropolitan banking, small business banking, consumer lending,
mortgage banking, and investment product sales.

Private Client, Trust and Asset Management provides mutual fund processing
services, trust, private banking and financial advisory services through four
businesses including: the Private Client Group, Corporate Trust Services,
Institutional Trust and Custody and Fund Services. The business segment also
offers investment management services to several client segments including
mutual funds, institutional customers, and private asset management.

Payment Services includes consumer and business credit cards, corporate and
purchasing card services, consumer lines of credit, ATM processing and merchant
processing.

Capital Markets engages in equity and fixed income trading activities,
offers investment banking and underwriting services for corporate and public
sector customers and provides financial advisory services and securities, mutual
funds, annuities and insurance products to consumers and regionally based
businesses through a network of brokerage offices.

Treasury and Corporate Support includes the Company's investment and
residential mortgage portfolios, funding, capital management and asset
securitization activities, interest rate risk management, the net effect of
transfer pricing related to loan and deposit balances, and the change in
residual allocations associated with the provision for loan losses. It also
includes business activities managed on a corporate basis, including income and
expense of enterprise-wide operations and administrative support functions.

SEGMENT RESULTS Accounting policies for the lines of business are the same as
those used in preparation of the consolidated financial statements with respect
to activities specifically attributable to each business line. However, the
preparation of business line results requires management to establish
methodologies to allocate funding costs and benefits, expenses and other
financial elements to each line of business. For details of these methodologies
and segment results, see "Basis for Financial Presentation" on page 43 and Table
21 "Line of Business Financial Performance" included in Management's Discussion
and Analysis which is incorporated by reference into these Notes to Consolidated
Financial Statements.

SECURITIES

TRADING ACCOUNT SECURITIES Debt and equity securities held for resale are
classified as trading account securities and reported at fair value. Realized
and unrealized gains or losses are determined on a trade date basis and reported
in noninterest income.

AVAILABLE-FOR-SALE SECURITIES These securities are not trading account
securities but may be sold before maturity in response to changes in the
Company's interest rate risk

U.S. Bancorp
53

profile or demand for collateralized deposits by public entities.
Available-for-sale securities are carried at fair value with unrealized net
gains or losses reported within other comprehensive income in shareholders'
equity. When sold, the amortized cost of the specific securities is used to
compute the gain or loss.

HELD-TO-MATURITY SECURITIES Debt securities for which the Company has the
positive intent and ability to hold to maturity are reported at historical cost
adjusted for amortization of premiums and accretion of discounts.

LOANS

Loans are reported net of unearned income. Interest income is accrued on the
unpaid principal balances as earned. Loan and commitment fees are deferred and
recognized over the life of the loan and/or commitment period as yield
adjustments.

ALLOWANCE FOR CREDIT LOSSES Management determines the adequacy of the allowance
for credit losses based on evaluations of the loan portfolio, recent loss
experience, and other pertinent factors, including economic conditions. This
evaluation is inherently subjective as it requires estimates, including amounts
of future cash collections expected on nonaccrual loans, that may be susceptible
to significant change. The allowance for credit losses relating to impaired
loans is based on the loan's observable market price, the collateral for certain
collateral-dependent loans, or the discounted cash flows using the loan's
effective interest rate.

The Company determines the amount of the allowance required for certain
sectors based on relative risk characteristics of the loan portfolio. The
allowance recorded for commercial loans is based on quarterly reviews of
individual credit relationships and an analysis of the migration of commercial
loans and actual loss experience. The allowance recorded for homogeneous
consumer loans is based on an analysis of product mix, risk characteristics of
the portfolio, fraud loss and bankruptcy experiences, and historical losses,
adjusted for current trends, for each homogenous category or group of loans. The
allowance is increased through provisions charged to operating earnings and
reduced by net charge-offs.

NONACCRUAL LOANS Generally commercial loans (including impaired loans) are
placed on nonaccrual status when the collection of interest or principal has
become 90 days past due or is otherwise considered doubtful. When a loan is
placed on nonaccrual status, unpaid interest is reversed. Future interest
payments are generally applied against principal. Revolving consumer lines and
credit cards are charged off by 180 days past due and closed-end consumer loans
other than loans secured by 1-4 family properties are charged off at 120 days
past due and are, therefore, not placed on nonaccrual status.

IMPAIRED LOANS A loan is considered to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due (both interest and principal) according to the
contractual terms of the loan agreement.

LEASES The Company engages in both direct and leveraged lease financing. The net
investment in direct financing leases is the sum of all minimum lease payments
and estimated residual values, less unearned income. Unearned income is added to
interest income over the terms of the leases to produce a level yield.

The investment in leveraged leases is the sum of all lease payments (less
nonrecourse debt payments) plus estimated residual values, less unearned income.
Income from leveraged leases is recognized over the term of the leases based on
the unrecovered equity investment.

LOANS HELD FOR SALE Loans held for sale ("LHFS") represent mortgage loan
originations intended to be sold in the secondary market and other loans that
management has an active plan to sell. LHFS are carried at the lower of cost or
market value as determined on an aggregate basis by type of loan. In the event
management decides to sell loans receivable, the loans are transferred at the
lower of cost or fair value. Any credit-related loss at the time of transfer is
recorded as a reduction in the allowance for credit losses. Subsequent decreases
in fair value are recognized in noninterest income.

OTHER REAL ESTATE Other real estate ("ORE"), which is included in other assets,
is property acquired through foreclosure or other proceedings. ORE is carried at
the lower of cost or fair value, less estimated selling costs. The property is
evaluated regularly and any decreases in the carrying amount are included in
noninterest expense.

DERIVATIVE FINANCIAL INSTRUMENTS

In the ordinary course of business, the Company enters into derivative
transactions to manage its market and prepayment risks and to accommodate the
business requirements of its customers. All derivative instruments are recorded
as either assets or liabilities at fair value. Subsequent changes in a
derivative's fair value are recognized currently in earnings unless specific
hedge accounting criteria are met.

All derivative instruments that qualify for specific hedge accounting are
recorded at fair value and classified either as a hedge of the fair value of a
recognized asset or liability ("fair value" hedge) or as a hedge of the
variability of cash flows to be received or paid related to a recognized asset
or liability or a forecasted transaction ("cash flow" hedge).

U.S. Bancorp
54

Changes in the fair value of a derivative that is highly effective and
designated as a fair value hedge and the offsetting changes in the fair value of
the hedged item are recorded in income. Changes in the fair value of a
derivative that is highly effective and designated as a cash flow hedge are
recognized in other comprehensive income until income from the cash flows of the
hedged item are recognized. The Company performs an assessment, both at the
inception of the hedge and on a quarterly basis thereafter, to determine whether
these derivatives are highly effective in offsetting changes in the value of the
hedged items. Any change in fair value resulting from hedge ineffectiveness is
immediately recorded in noninterest income.

If a derivative designated as a hedge is terminated or ceases to be highly
effective, the gain or loss is amortized to earnings over the remaining life of
the hedged asset or liability (fair value hedge) or over the same period(s) that
the forecasted hedged transactions impact earnings (cash flow hedge). If the
hedged item is disposed of, or the forecasted transaction is no longer probable,
the derivative is recorded at fair value with any resulting gain or loss
included in the gain or loss from the disposition of the hedged item or, in the
case of a forecasted transaction that is no longer probable, included in
earnings immediately.

OTHER SIGNIFICANT POLICIES

PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation and depreciated primarily on a straight-line basis over
the estimated life of the assets.

Capital leases, less accumulated amortization, are included in premises and
equipment. The lease obligations are included in long-term debt. Capitalized
leases are amortized on a straight-line basis over the lease term and the
amortization is included in depreciation expense.

MORTGAGE SERVICING RIGHTS Mortgage servicing rights associated with loans
originated and sold, where servicing is retained, are capitalized and included
in other intangible assets in the consolidated balance sheet. The value of these
capitalized servicing rights is amortized in proportion to, and over the period
of, estimated net servicing revenue and recorded in noninterest expense as
amortization of intangible assets. The carrying value of these rights is
periodically reviewed for impairment based on fair value. For purposes of
measuring impairment, the servicing rights are stratified based on the
underlying loan type and note rate and compared to a valuation prepared based on
a discounted cash flow methodology, utilizing current prepayment speeds and
discount rates. Impairment is recognized through a valuation allowance for each
impaired stratum and recorded as amortization of intangible assets.

INTANGIBLE ASSETS For all purchase acquisitions completed prior to July 1, 2001,
the price paid over the net fair value of the acquired businesses ("goodwill")
is amortized over periods ranging up to 25 years. For purchase acquisitions
completed subsequent to June 30, 2001, goodwill is not amortized. Other
intangible assets are amortized over their estimated useful lives, which range
from seven to fifteen years, using straight-line and accelerated methods. The
recoverability of goodwill and other intangible assets is evaluated if events or
circumstances indicate a possible inability to realize the carrying amount. The
evaluation includes assessing the estimated fair value of the intangible asset
based on market prices for similar assets, where available, and the present
value of the estimated future cash flows associated with the intangible asset.

INCOME TAXES Deferred taxes are recorded to reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
the financial reporting amounts at each year-end.

STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash
equivalents include cash and money market investments, defined as
interest-bearing amounts due from banks, federal funds sold and securities
purchased under agreements to resell.

STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of
shares to employees and directors with an exercise price equal to the fair value
of the shares at the date of grant. The Company accounts for stock option grants
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25") and accordingly recognizes no
compensation expense for the stock option grants.

PER SHARE CALCULATIONS Earnings per share is calculated by dividing net income
(less preferred stock dividends) by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is calculated by
adjusting income and outstanding shares, assuming conversion of all potentially
dilutive securities, using the treasury stock method. All per share amounts have
been restated for stock splits.

U.S. Bancorp
55

NOTE 2 Accounting Changes

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended, establishes accounting and
reporting standards for all derivative instruments and criteria for designation
and effectiveness of hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value. The changes in the fair value of
the derivatives are recognized currently in earnings unless specific hedge
accounting criteria are met. If the derivative qualifies as a hedge, the
accounting treatment varies based on the type of risk being hedged. On January
1, 2001, the Company adopted SFAS 133. Transition adjustments related to
adoption resulted in an after-tax loss of approximately $4.1 million recorded in
net income and an after-tax increase of $5.2 million recorded in other
comprehensive income. The transition adjustments related to adoption were not
material to the Company's financial statements, and as such, were not separately
reported in the consolidated statement of income.

ACCOUNTING FOR BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS In
June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations" and
Statement of Financial Accounting Standard No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets." SFAS 141 mandates the purchase method of accounting be
used for all business combinations initiated after June 30, 2001, and
establishes specific criteria for the recognition of intangible assets
separately from goodwill. SFAS 142 addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. The Company is required to
adopt SFAS 142 on January 1, 2002. The most significant changes made by SFAS 142
are that goodwill and indefinite lived intangible assets will no longer be
amortized and will be tested for impairment at least annually, thereafter. Any
impairment charges from the initial impairment test at the date of adoption
would be recognized as a "cumulative effect of change in accounting principles"
in the income statement. The amortization provisions of SFAS 142 apply to
goodwill and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the amortization
provisions of SFAS 142 are effective upon adoption of SFAS 142.

The Company will apply the amortization provisions of SFAS 142 during the
first quarter of 2002. Management anticipates that applying the provisions of
SFAS 141 to recent acquisitions and the provisions of SFAS 142 to purchase
acquisitions completed prior to July 1, 2001, will increase after-tax income for
the year ending December 31, 2002, by approximately $200 to $210 million, or
$.10 per diluted share. This considers the application of SFAS 142's definition
of a business and the impact of reclassifying certain assets from goodwill to
intangibles and changes in estimated useful lives of certain intangible assets.
The Company has not yet fully determined the impact on earnings of impairments
related to goodwill and indefinite lived intangible assets under the new
guidelines required by SFAS 142. Any material impairment charge resulting from
these transitional accounting rules will be reflected as a "cumulative effect of
a change in accounting principles" in the first quarter of 2002. Because banking
regulations exclude 100 percent of goodwill from the determination of capital
adequacy, the impact of any impairment on the Company's capital adequacy will
not be significant.

U.S. Bancorp
56

NOTE 3 Business Combinations

On February 27, 2001, Firstar and USBM merged in a pooling-of-interests
transaction and accordingly all financial information has been restated to
include the historical information of both companies. Each share of Firstar
stock was exchanged for one share of the Company's common stock while each share
of USBM stock was exchanged for 1.265 shares of the Company's common stock. The
new Company retained the U.S. Bancorp name.

On September 20, 1999, Firstar and Mercantile Bancorporation, Inc.,
("Mercantile") merged in a pooling-of-interests transaction and accordingly all
financial information has been restated to include the historical information of
both companies. Each share of Mercantile stock was exchanged for 2.091 shares of
Firstar common stock.

On July 24, 2001, the Company acquired NOVA Corporation ("NOVA"), a merchant
processor, in a stock and cash transaction valued at approximately $2.1 billion.
The transaction, representing total assets acquired of $2.9 billion and total
liabilities assumed of $773 million, was accounted for as a purchase. Included
in total assets are merchant contracts and other intangibles of $650 million and
the excess of the purchase price over the fair value of identifiable net assets
("goodwill") of $1.6 billion.

In addition to these mergers, the Company has completed several strategic
acquisitions to enhance its presence in certain growth markets and businesses.
The following table summarizes acquisitions by the Company and its acquirees
completed since January 1, 1999, treating Firstar as the original acquiring
company:

Separate results of operations as originally reported on a condensed basis of
Firstar and USBM, for the period prior to the merger, were as follows:

On January 18, 2002, the Company announced a definitive agreement to acquire
The Leader Mortgage Company, LLC ("Leader"), a wholly owned subsidiary of First
Defiance Financial Corporation, in a cash transaction. Leader specializes in
acquiring servicing of loans originated for state and local housing authorities.
Leader had $506 million in assets at December 31, 2001. In 2001, it had $2.1
billion in mortgage production and an $8.6 billion servicing portfolio at
December 31, 2001. The transaction is expected to close in the second quarter of
2002.

U.S. Bancorp
57

NOTE 4 Merger and Restructuring-related Items

The Company recorded in pre-tax earnings merger and restructuring-related items
of $1,266.4 million, $348.7 million and $540.3 million in 2001, 2000, and 1999,
respectively. In 2001, merger-related items were primarily incurred in
connection with the merger of Firstar and USBM, the NOVA acquisition and the
Company's various other acquisitions noted below and in Note 3 -- Business
Combinations. In response to significant changes in the securities markets
during 2001, including increased volatility, declines in equity valuations and
the increasingly competitive environment for the industry, the Company also
incurred a charge to restructure its subsidiary, U.S. Bancorp PiperJaffray, Inc.
("Piper Restructuring"). The components of the merger and restructuring-related
items are shown below:

(a) Represents the 1998 acquisition of the former Firstar Corporation by Star
Banc. Star Banc was renamed Firstar Corporation.

(b) In 2001, "Other" includes merger and restructuring-related items pertaining
to the First Union branch acquisition and the Pacific Century Bank
acquisition.

The Company determines merger and restructuring-related charges and related
accruals based on its integration strategy and formulated plans. These plans are
established as of the acquisition date and regularly evaluated during the
integration process.

Severance and employee-related charges include the cost of severance, other
benefits and outplacement costs associated with the termination of employees
primarily in branch offices and centralized corporate support and data
processing functions. The severance amounts are determined based on the
Company's existing severance pay programs and are paid out over a benefit period
of up to two years from the time of termination. The total number of employees
included in severance amounts were approximately 2,820 for USBM, 2,400 for
Mercantile, 2,000 for Firstar, 160 for NOVA, 300 for the Piper Restructuring and
520 for all other acquisitions. Severance and employee-related costs are
included in the determination of goodwill for groups of acquired employees
identified at closing to be severed. Severance and employee-related costs are
recorded

U.S. Bancorp
58

as incurred for groups of employees not specifically identified at the time of
closing or acquired in business combinations accounted for as "poolings".

Systems conversion and integration costs are recorded as incurred and are
associated with the preparation and mailing of numerous customer communications
for the acquisitions and conversion of customer accounts, printing and
distribution of training materials and policy and procedure manuals, outside
consulting fees, and other expenses related to systems conversions and the
integration of acquired branches and operations.

Asset writedowns and lease terminations represent lease termination costs
and impairment of assets for redundant office space, branches that will be
vacated and equipment disposed of as part of the integration plan. These costs
are recognized in the accounting period that contract terminations occur or the
asset becomes impaired and is abandoned.

In connection with certain mergers, the Company has made charitable
contributions to reaffirm a commitment to its market or as part of specific
conditions necessary to achieve regulatory approval. These contributions were
funded up front and represent costs that would not have been incurred had the
merger not occurred. Charitable contributions are charged to merger and
restructuring expenses or considered in determining the acquisition cost at the
applicable closing date.

Balance sheet restructurings primarily represent gains or losses incurred by
the Company related to the disposal of certain businesses, products, or customer
and business relationships that no longer align with the long-term strategy of
the Company. It may also include charges to realign risk management practices
related to certain credit portfolios. In connection with the merger of Firstar
and USBM, balance sheet restructuring charges of $457.6 million were comprised
of a $201.3 million provision associated with the Company's integration of
certain small business products and management's decision to discontinue an
unsecured small business product of USBM; $90.0 million of charge-offs to align
risk management practices, align charge-off policies and to expedite the
Company's transition out of a specific segment of the healthcare industry; and
$76.6 million of losses related to the sales of two higher credit risk retail
loan portfolios of USBM. Also, the amount included $89.7 million related to the
Company's decision to discontinue a high-yield investment banking business, to
restructure a co-branding credit card relationship of USBM, and for the planned
disposition of certain equity investments that no longer align with the long-
term strategy of the Company. The alignment of risk management practices
included a write-down of several large commercial loans originally held
separately by both Firstar and USBM, primarily to allow the Company to exit or
reduce these credits to conform with the credit exposure policy of the combined
entity.

Other merger-related expenses of $108.1 million primarily included $69.1
million and $24.2 million of investment banking fees, legal fees and stock
registration fees associated with the merger of Firstar and USBM and the
acquisition of NOVA Corporation, respectively. Also, it included $10.0 million
of goodwill impairment related to the Piper Restructuring and $4.8 million of
other costs.

The following table presents a summary of activity with respect to the merger
and restructuring-related accruals:

(a) "Other" includes the 1997 acquisition of the former U.S. Bancorp of
Portland, Oregon by First Bank System, Inc. ("FBS"). FBS was renamed U.S.
Bancorp. "Other" also includes the 1998 acquisition of Piper Jaffray, Inc.,
the 1999 acquisitions of Libra Investments, Inc., Bank of Commerce, and
Western Bancorp, and the 2000 acquisitions of Peninsula Bank, Oliver-Allen
Corporation, Lyon Financial Services, Inc., Scripps Financial Corporation
and 41 branches acquired from First Union. Refer to Note 3 for further
information.

(b) The liability relates to certain severance-related items.

U.S. Bancorp
59

The adequacy of the accrued liabilities is reviewed regularly taking into
consideration actual and projected payments. Adjustments are made to increase or
decrease these accruals as needed. Reversals of expenses can
reflect a lower utilization of benefits by affected staff, changes in initial
assumptions as a result of subsequent mergers and alterations of business plans.

The following table presents a summary of activity with respect to the merger of
Firstar and USBM:

(a) Other accruable merger and restructuring-related items included charitable
contributions of $76.0 million, a branch sale gain of ($62.2) million, $20.0
million to consolidate and rationalize the branch network, capitalized
software impairments of $81.7 million, and other charges of $2.9 million.

The components of the merger and restructuring-related accruals for all
acquisitions were as follows:

The merger and restructuring-related accrual by significant acquisition or
business restructuring was as follows:

In connection with the merger of Firstar and USBM, management estimates the
Company will incur pre-tax merger-related charges of approximately $271.1
million in 2002. These are currently estimated to include $14.0 million in
employee-related costs, $170.9 million for conversions of systems and
consolidation of operations, $57.8 million in occupancy and equipment charges
(elimination of duplicate facilities and write-off of equipment) and $28.4
million in other merger-related costs (including legal fees, balance sheet
restructuring charges and other costs).

With respect to the NOVA acquisition, the Company expects to incur
approximately $68.3 million of merger-related charges through 2003. The Piper
Restructuring was substantially completed by December 31, 2001. In addition, the
Company anticipates an additional $15.1 million of merger-related expenses in
2002 as a result of other acquisitions.

NOTE 5 Restrictions on Cash and Due from Banks

Bank subsidiaries are required to maintain minimum average reserve balances with
the Federal Reserve Bank. The amount of those reserve balances was approximately
$916 million at December 31, 2001.

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NOTE 6 Investment Securities

The detail of the amortized cost, gross unrealized holding gains and losses, and
fair value of held-to-maturity and available-for-sale securities at December 31
was as follows:

Securities carried at $18.1 billion at December 31, 2001, and $13.3 billion
at December 31, 2000, were pledged to secure public, private and trust deposits
and for other purposes required by law. Securities sold under agreements to
repurchase were collateralized by securities and securities purchased under
agreements to resell with an amortized cost of $3.0 billion and $1.0 billion at
December 31, 2001, and 2000, respectively.

The following table provides information as to the amount of gross gains and
losses realized through the sales of available-for-sale investment securities.

(a) Included in the gross realized losses for 1999 is $177.7 million related to
the Mercantile balance sheet restructuring. These losses were included in
merger and restructuring-related expense.

For amortized cost, fair value and yield by maturity date of
held-to-maturity and available-for-sale securities outstanding as of December
31, 2001, see Table 11 included in Management's Discussion and Analysis which is
incorporated by reference into these Notes to Consolidated Financial Statements.

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61

NOTE 7 Loans and Allowance for Credit Losses

The composition of the loan portfolio at December 31 was as follows:

Loans are presented net of unearned interest which amounted to $1.6 billion
and $1.7 billion at December 31, 2001 and 2000, respectively. The Company had
loans of $28.0 billion at December 31, 2001, and $7.8 billion at December 31,
2000, pledged at the Federal Home Loan Bank. Loans of $7.2 billion at December
31, 2001, and $3.6 billion at December 31, 2000, were pledged at the Federal
Reserve Bank.

The Company primarily lends to borrowers in the 24 states where it has
banking offices. Collateral for commercial loans may include marketable
securities, accounts receivable, inventory and equipment. For detail
of the Company's commercial portfolio by industry type and geography as of
December 31, 2001, and 2000, see Table 9 included in Management's Discussion and
Analysis which is incorporated by reference into these Notes to Consolidated
Financial Statements.

For detail of the Company's commercial real estate portfolio by property
type and geography as of December 31, 2001, and 2000, see Table 10 included in
Management's Discussion and Analysis which is incorporated by reference into
these Notes to Consolidated Financial Statements. Such loans are collateralized
by the related property.

The following table lists information related to nonperforming loans as of
December 31:

U.S. Bancorp
62

Activity in the allowance for credit losses was as follows:

(a) In 2001, $382.2 million of the provision for credit losses was incurred in
connection with the merger of Firstar and USBM.

A portion of the allowance for credit losses is allocated to loans deemed
impaired. All impaired loans are included in non-performing assets. A summary of
these loans and their related allowance for loan losses is as follows:

Commitments to lend additional funds to customers whose loans were
classified as nonaccrual or renegotiated at December 31, 2001, totaled $82.5
million. During 2001 there were no loans that were restructured at market
interest rates and returned to a fully performing status.

NOTE 8 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities

RECEIVABLE SALES

When the Company sells receivables, it may retain interest-only strips,
servicing rights, a cash reserve account, and/or other interests in the
receivables. The gain or loss on sale of the receivables depends in part on the
previous carrying amount of the financial assets involved in the transfer, and
is allocated between the assets sold and the retained interests based on their
relative fair values at the date of transfer. Market prices are used to
determine retained interest fair values when readily available. However, quotes
are generally not available for retained interests, so the Company generally
estimates fair value based on the present value of future expected cash flows
using management's best estimates of the key assumptions--credit losses,
prepayment speeds, forward yield curves, and discount rates commensurate with
the risks involved. Retained interests are valued at inception and updated
quarterly using a discounted cash flow methodology.

On November 16, 2001, the Company sold $737.8 million of unsecured small
business receivables. The transaction generated a loss on sale of $64.7 million.
The Company retained interest-only strips, a cash collateral reserve, and
subordinated securities. Key assumptions used in measuring retained interests at
the date of securitization are consistent with those presented in the table
below captioned "Residual Economic Assumptions and Adverse Changes." These
products are similar in nature to revolving credit card receivables. Each month
new advances on these accounts are sold. The proceeds from these sales are
netted against the cash collected for the month. The net cash collected is
distributed accordingly to pay down the outstanding securities. The Company
receives a fee to continue to service the receivables. Since the Company
receives adequate compensation relative to current market servicing prices, no
servicing asset or liability regarding this securitization is recognized.

During 2001 and 2000, the Company administered a loan conduit which holds
short-term participations in commercial loans originated by the Company. These
loans totaled $5.9 billion at December 31, 2001 and included net sales of
originated loans to the loan conduit of

U.S. Bancorp
63

approximately $3.7 billion during 2001. The Company received fee revenue of
$57.6 million and $18.0 million from the loan conduit in 2001 and 2000,
respectively. Under a credit enhancement agreement with the conduit, the Company
would be required to make payments to the conduit in specified amounts if the
conduit experiences payment defaults on its loans. No credit enhancements were
needed during 2001 or 2000. In addition, the Company maintains a reserve to
reflect its obligation to provide credit enhancements to the conduit.
For the years ended December 31, 2001 and 2000, the Company sold $147.5
million and $255.7 million of the U.S. government guaranteed portions of loans
originated under Small Business Administration (SBA) programs, recognizing a
pre-tax gain on sale of $6.3 million and $10.6 million, respectively. The SBA
covers losses occurring on these guaranteed portions. Although the Company
retains no credit recourse relating to these sales, it does continue to own a
portion of the non-guaranteed elements of the loans. The Company continues to
service the loans and is required under the SBA programs to retain specified
yield amounts. A portion of the yield is recognized as servicing fee income as
it occurs and the remainder is capitalized as a servicing asset, and included in
the gain on sale calculation.

SERVICING ASSET POSITION

No valuation allowances were required during 2001 or 2000 on servicing
assets. Servicing assets are reported in aggregate but measured on a transaction
specific basis. Market values were determined using discounted cash flows,
utilizing the assumptions noted in the table below.

Key economic assumptions used in valuing servicing assets at the date of sale
resulting from sales completed during 2001 and 2000 were as follows:

(a) All were adjustable rate loans based on the Wall Street Journal prime rate.

(b) The Company used a prepayment vector based on loan seasoning for valuation.
The given speed was the effective prepayment speed that yields the same
weighted-average life calculated using the prepayment vector.

The Company also established a securitization trust which held credit card
receivables originated by the Company. This trust was terminated in December
2000. At termination, $509 million of credit card receivables were transferred
from the trust to the Company in exchange for the seller's certificates held by
the Company. In 2000, $665 million of proceeds from collections of credit card
receivables were reinvested in the trust. The Company received $18.0 million in
servicing fee revenue from the trust in 2000 and recorded a $2.2 million gain
upon the termination of the trust.

U.S. Bancorp
64

RESIDUAL ECONOMIC ASSUMPTIONS AND ADVERSE CHANGES

The Company has retained interests on the following asset sales: $1.8 billion
sale of indirect automobile loans on September 24, 1999; $420 million sale of
corporate and purchasing card receivables on February 27, 1997; $737.8 million
sale of unsecured small business receivables on November 16, 2001; and sales of
SBA loans since 1988. At December 31, 2001, key economic assumptions and the
sensitivity of the current fair value of residual cash flows to immediate 10
percent and 20 percent adverse changes in those assumptions were as follows:

(a) Credit losses are covered by the appropriate SBA loan program and are not
included in retained interests. Principal reductions caused by defaults are
included in the prepayment assumption.

(b) Residual interest is effectively a single period receivable that is paid and
renewed each month during the revolving period. Therefore, no assumptions
are used in its estimate. Losses are recognized in the period they occur.

(c) The Company uses prepayment vectors based on loan seasoning for valuation.
The given speed is the effective prepayment speed that yields the same
weighted-average life calculated using the prepayment vector.

(d) ABS = absolute prepayment rate and is the auto industry's standard measure
of prepayment speed. CPR = constant prepayment rate.

(e) Monthly repayment rate on small business lines of credit.

These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10 percent variation in
assumptions generally cannot be extrapolated because the relationship of the
change in the assumptions to the change in fair value may not be linear. Also,
in this table the effect of a variation in a particular assumption on the fair
value of the retained interest is calculated without changing any other
assumption; in reality, changes in one factor may result in changes in another
(for example, increases in market interest rates may result in lower prepayments
and increased credit losses), which might magnify or counteract the
sensitivities.

The table below summarizes certain cash flows received from and paid to conduit
or structured entities for the loan sales described above:

(a) Gross proceeds from commercial loan sales were $69.5 billion for 2001. The
net cash flows for these sales were $3.7 billion. For 2000, gross commercial
loan sale proceeds were $37.6 billion, with net cash flows of ($30.3)
million.

(b) The corporate card and unsecured small business receivables securitizations
are revolving transactions where proceeds are reinvested until their legal
terminations. The indirect automobile and SBA loan sales are amortizing
transactions where the cash flow is used to pay off investors.

(c) This amount represents total cash flows received from retained interests by
the transferor other than servicing fees. Other cash flows include, for
example, all cash flows from interest-only strips and cash above the minimum
required level in cash collateral accounts.

U.S. Bancorp
65

Quantitative information relating to loan sales and managed assets was as
follows:

(a) Reported in "other retail" loans.

(b) Reported in "commercial" loans.

NOTE 9 Premises and Equipment

Premises and equipment at December 31 consisted of the following:

U.S. Bancorp
66

NOTE 10 Mortgage Servicing Rights

Changes in capitalized mortgage servicing rights are summarized as follows:

The fair value of capitalized mortgage servicing rights was $360 million at
December 31, 2001, and $245 million at December 31, 2000. At December 31, 2001,
the reduction in the current fair value of mortgage servicing rights to
immediate 25 and 50 basis point adverse interest rate changes would be
approximately $32 million and $63 million, respectively. The Company has
purchased principal-only securities that act as a partial economic hedge to this
possible adverse interest rate change. The Company serviced $22.0 billion and
$17.0 billion of mortgage loans for other investors as of December 31, 2001 and
2000, respectively.

NOTE 11 Intangible Assets

The following is a summary of intangible assets as of December 31, which are
included in the consolidated balance sheet:

NOTE 12 Short-Term Borrowings

The following table is a summary of short-term borrowings for the last three
years:

U.S. Bancorp
67

NOTE 13 Long-Term Debt

Long-term debt (debt with original maturities of more than one year) at December
31 consisted of the following:

In August 2001, the Company issued $1.1 billion of senior contingent
convertible debt due August 6, 2021. The interest rate is 1.50% per annum. The
debt would be convertible into the Company's stock only if the Company's stock
price increases to the contractual strike price. The convertible strike price
decreases over the term of the bond. The notes are callable in August 2003 and
putable in August 2002 and on specified dates thereafter.

In July 2001, the Company's subsidiary U.S. Bank National Association issued
$1.5 billion of fixed-rate subordinated notes due August 1, 2011. The interest
rate is 6.375% per annum.

Medium-term notes ("MTNs") outstanding at December 31, 2001, mature from
January 2002 through December 2004. The MTNs bear fixed or floating interest
rates ranging from 2.01 percent to 7.50 percent. The weighted-average interest
rate of MTNs at December 31, 2001, was 3.85 percent.

Federal Home Loan Bank ("FHLB") advances outstanding at December 31, 2001,
mature from February 2002 through October 2026. The advances bear fixed or
floating interest rates ranging from 0.50 percent to 8.25 percent. The Company
has an arrangement with the FHLB whereby based on collateral available
(residential and commercial mortgages), the Company could have borrowed an
additional $10.6 billion at December 31, 2001. The weighted-average interest
rate of FHLB advances at December 31, 2001, was 3.36 percent.

Bank notes outstanding at December 31, 2001, mature from January 2002
through November 2005. The Bank notes bear fixed or floating interest rates
ranging from 1.79 percent to 6.30 percent. The weighted-average interest

U.S. Bancorp
68

rate of Bank notes at December 31, 2001, was 2.69 percent. Euro medium-term
notes outstanding at December 31, 2001, bear floating rate interest at
three-month LIBOR plus .15 percent. The interest rate at December 31, 2001, was
2.58 percent.

Maturities of long-term debt outstanding at December 31, 2001, were:

NOTE 14 Company-obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Junior Subordinated Debentures of
the Parent Company

The Company has issued $2.9 billion of company-obligated mandatorily
redeemable preferred securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company ("Trust Preferred Securities")
through nine separate issuances by nine wholly owned subsidiary grantor trusts
("Trusts"). The Trust Preferred Securities accrue and pay distributions
periodically at specified rates as provided in the indentures. The Trusts used
the net proceeds from the offerings to purchase a like amount of junior
subordinated deferrable interest debentures (the "Debentures") of the Company.
The Debentures are the sole assets of the Trusts and are eliminated, along with
the related income statement effects, in the consolidated financial statements.

The Company's obligations under the Debentures and related documents, taken
together, constitute a full and unconditional guarantee by the Company of the
obligations of the Trusts. The guarantee covers the distributions and payments
on liquidation or redemption of the Trust Preferred Securities, but only to the
extent of funds held by the Trusts.

The Trust Preferred Securities are mandatorily redeemable upon the maturity
of the Debentures, or upon earlier redemption as provided in the indentures. The
Company has the right to redeem retail Debentures in whole or in part on or
after specific dates, at a redemption price specified in the indentures plus any
accrued but unpaid interest to the redemption date. The Company has the right to
redeem institutional Debentures in whole, (but not in part), on or after
specific dates, at a redemption price specified in the indentures plus any
accrued but unpaid interest to the redemption date. The Trust Preferred
Securities are redeemable in whole or in part in 2003, 2006 and 2007 in the
amounts of $350 million, $2,250 million and $300 million, respectively.

The Trust Preferred Securities qualify as tier I capital of the Company for
regulatory capital purposes. The Company used the proceeds from the sales of the
Debentures for general corporate purposes.

The following table is a summary of the Trust Preferred Securities as of
December 31, 2001:

(a) The variable rate Trust Preferred Securities re-price quarterly.

(b) Earliest date of redemption.

U.S. Bancorp
69

NOTE 15 Shareholders' Equity

At December 31, 2001 and 2000, the Company had authority to issue 4 billion and
2 billion shares of common stock, respectively, and 10 million shares of
preferred stock. The Company had 1,951.7 million and 1,902.1 million shares of
common stock outstanding at December 31, 2001 and 2000, respectively. At
December 31, 2001, the Company had 279.1 million shares of common stock reserved
for future issuances. These shares are primarily reserved for stock option
plans, dividend reinvestment plans and deferred compensation plans. In
connection with the merger of Firstar and USBM, the number of authorized common
shares for U.S. Bancorp was increased from 2 billion to 4 billion effective
February 27, 2001. Additionally, the par value of the Company's common stock was
reduced from $1.25 per share to $.01 per share.

The Company has a Preferred Share Purchase Rights Plan intended to preserve
the long-term value of the Company by discouraging a hostile takeover of the
Company. Under the plan, each share of common stock carries a right to purchase
one one-thousandth of a share of preferred stock. The rights become exercisable
in certain limited circumstances involving a potential business combination
transaction or an acquisition of shares of the Company and are exercisable at a
price of $100 per right, subject to adjustment. Following certain other events,
each right entitles its holder to purchase for $100 an amount of common stock of
the Company, or, in certain circumstances, securities of the acquirer, having a
then-current market value of twice the exercise price of the right. The dilutive
effect of the rights on the acquiring company is intended to encourage it to
negotiate with the Company's Board of Directors prior to attempting a takeover.
If the Board of Directors believes a proposed acquisition is in the best
interests of the Company and its shareholders, the Board may amend the plan or
redeem the rights for a nominal amount in order to permit the acquisition to be
completed without interference from the plan. Until a right is exercised, the
holder of a right has no rights as a shareholder of the Company. The rights
expire on February 27, 2011.

The Company issued 57.2 million and 18.2 million shares of common stock with
an aggregate value of $1.9 billion and $298 million in connection with purchase
acquisitions during 2001 and 2000, respectively.

On February 16, 2000, USBM's Board of Directors authorized the repurchase of
up to $2.5 billion of its common stock over a two-year period ending March 31,
2002. This USBM repurchase program replaced a program that was scheduled to
expire on March 31, 2000. On April 11, 2000, Firstar's Board of Directors
approved a common stock repurchase program of 100 million shares. The stock
repurchase programs of Firstar and USBM were rescinded on October 4, 2000, and
January 17, 2001, respectively, in connection with the planned merger of the
formerly separate companies. On July 17, 2001, the Company's Board of Directors
authorized the repurchase of up to 56.4 million shares of the Company's common
stock to replace shares issued in connection with the July 24, 2001 acquisition
of NOVA Corporation. The stock repurchase authorization will expire on July 23,
2003. Under this program the Company has repurchased 19.7 million shares for
$467.9 million in 2001. The Company had forward contracts to purchase 26.7
million shares within this authorization. These contracts were settled in
January of 2002. On December 18, 2001, the Board of Directors approved an
authorization to repurchase an additional 100 million shares of outstanding
common stock over the following 24 months.

The following table summarizes the Company's common stock repurchased in each of
the last three years:

USBM offered employees and directors an Employee Stock Purchase Plan
("ESPP") that permitted all eligible employees with at least one year of service
and directors to purchase common stock. In connection with the merger with
Firstar, the ESPP was terminated effective October 13, 2000.

USBM's Dividend Reinvestment Plan providing for automatic reinvestment of
dividends and optional cash purchases was suspended on November 9, 2000,
following the announcement of the definitive agreement to merge with Firstar.

U.S. Bancorp
70

Shareholders' equity is affected by transactions and valuations of asset and
liability positions that require adjustments to Accumulated Other Comprehensive
Income. The reconciliation of transactions affecting Accumulated Other
Comprehensive Income included in shareholders' equity for the years ended
December 31, is as follows:

NOTE 16 Earnings Per Share

The components of earnings per share were:

NOTE 17 Employee Benefits

RETIREMENT PLANS Pension benefits are provided to substantially all employees
based on years of service and employees' compensation while employed with the
Company. Employees are fully vested after five years of service. The Company's
funding policy is to contribute amounts to its plans sufficient to meet the
minimum funding requirements of the Employee Retirement Income Security Act of
1974, plus such additional amounts as the Company determines to be appropriate.
The actuarial cost method used to compute the pension liabilities and expense is
the projected unit credit method. Prior to their acquisition dates, employees of
certain acquired companies were covered by separate, noncontributory pension
plans that provided benefits based on years of service and compensation.
Generally, the Company merges plans of acquired companies into its existing
pension plans when it becomes practicable.

As a result of the Firstar and USBM merger, the Company maintained two
different qualified pension plans, with three different pension benefit
structures during 2001: the former USBM's cash balance pension benefit
structure, a final average pay benefit structure for the former Firstar
organization, and a cash balance pension benefit structure related to the
Mercantile acquisition. The two pension plans were merged as of January 1, 2002,
under a new final average pay benefit structure; however, the benefit structure
of the new plan does not become effective for the Mercantile acquisition until
January 1, 2003. Under the new plan's benefit structure, a participant's future
retirement benefits are based on a participant's highest five-year average
annual compensation during his or her last 10 years before retirement or
termination from the Company. Generally, under the two previous cash balance
pension benefit structures the participants' earned retirement benefits were
based on their average compensation over their career. Retirement benefits under
the former Firstar benefit

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structure were earned based on final average pay and years of service, similar
to the new plan. Plan assets primarily consist of various equity mutual funds,
listed stocks and other miscellaneous assets.

The Company also maintains several unfunded, non-qualified, supplemental
executive retirement programs that provide additional defined pension benefits
for senior managers and executive employees. Because all the non-qualified plans
are unfunded, the aggregate accumulated benefit obligations exceed the assets. A
supplemental executive retirement plan of USBM was frozen for substantially all
participants as of September 30, 2001, but with service credit running through
December 31, 2001. The assumptions used in computing the present value of the
accumulated benefit obligation, the projected benefit obligation and net pension
expense are substantially consistent with those assumptions used for the funded
qualified plans. The Company anticipates recognizing curtailment gains of
approximately $11.7 million in early 2002 in connection with changes to
non-qualified pension plans.

POST-RETIREMENT MEDICAL PLANS In addition to providing pension benefits, the
Company provides health care and death benefits to certain retired employees
through several retiree medical programs. As a result of the merger of USBM with
Firstar, there were three major retiree medical programs in place during 2001
with various terms and subsidy schedules. Effective January 1, 2002, the Company
adopted one retiree medical program for all future retirees. For certain
eligible employees, the provisions of the USBM retiree medical plan and the
Mercantile retiree medical plan will remain in place until December 31, 2002.
Generally, all employees may become eligible for retiree health care benefits by
meeting defined age and service requirements. The Company may also subsidize the
cost of coverage for employees meeting certain age and service requirements. The
medical plan contains other cost-sharing features such as deductibles and
coinsurance. The estimated cost of these retiree benefit payments is accrued
during the employees' active service.

Information presented in the four tables below reflects a measurement date of
September 30.

The following table sets forth the components of net periodic benefit cost for
the retirement plans:

The following table sets forth the weighted average plan assumptions and other
data:

* The Firstar plan had no assets as of December 31, 2001, 2000 and 1999.

(a) The pre-65 and post-65 rates are assumed to decrease gradually to 5.5% and
6.0% respectively by 2011 and remain at these levels thereafter.

(b) In connection with the merger of Firstar and USBM, the asset management
practices and investment strategies of the plan were conformed. At December
31, 2001, the investment asset allocation was weighted toward equities and
diversified by industry and companies with varying market capitalization
levels.

U.S. Bancorp
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The following table summarizes benefit obligation and plan asset activity for
the retirement plans:

The following table provides information for pension plans with benefit
obligations in excess of plan assets:

EMPLOYEE INVESTMENT PLAN The Company has defined contribution retirement savings
plans which allow qualified employees, at their option, to make contributions up
to certain percentages of pre-tax base salary through salary deductions under
Section 401(k) of the Internal Revenue Code. Employee contributions are
invested, at the employees' direction, among a variety of investment
alternatives. Employee contributions are 100 percent matched by the Company, up
to the first four percent of an employee's compensation. The Company's matching
contribution vests immediately; however, a participant must be employed on
December 31st to receive that year's matching contribution. Although the
matching contribution is initially invested in the Company's common stock,
effective in 2002 an employee will be allowed to reinvest the matching
contributions among various investment alternatives. Total expense was $53.7
million, $53.6 million and $57.3 million in 2001, 2000 and 1999, respectively.

NOTE 18 Stock Options and Compensation Plans

As part of its employee and director compensation programs, the Company may
grant certain stock awards under the provisions of the existing stock option and
compensation plans. The Company has stock options outstanding under various
plans at December 31, 2001, including plans assumed in acquisitions. The plans
provide for grants of options to purchase shares of common stock generally at
the stock's fair market value at the date of

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grant. In addition, the plans provide for grants of shares of common stock which
are subject to restriction on transfer and to forfeiture if certain vesting
requirements are not met.

With respect to stock option and stock compensation plans, the Company has
elected to follow APB 25 in accounting for its employee stock incentive and
purchase plans. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. On the date exercised, if
new shares are issued, the option proceeds equal to the par value of the shares
are credited to common stock and additional proceeds are credited to capital
surplus. If treasury shares are issued, the option proceeds equal to the average
treasury share price are credited to treasury stock and additional proceeds are
credited to capital surplus.

Option grants are generally exercisable up to ten years from the date of
grant and vest over three to five years. Restricted shares vest over three to
seven years. Compensation expense for restricted stock is based on the market
price of the Company stock at the time of the grant and amortized on a
straight-line basis over the vesting period. Compensation expense related to the
restricted stock was $71.9 million, $43.4 million and $69.5 million in 2001,
2000 and 1999, respectively.

Stock incentive plans of acquired companies are generally terminated at the
merger closing dates. Option holders under such plans receive the Company's
common stock, or options to buy the Company's stock, based on the conversion
terms of the various merger agreements. The historical option information
presented below has been restated to reflect the options originally granted
under acquired companies' plans.

At December 31, 2001, there were 64.4 million shares (subject to adjustment
for forfeitures) available for grant under various plans.

The following is a summary of stock options outstanding and exercised under
various stock option plans of the Company:

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Additional information regarding options outstanding as of December 31, 2001, is
as follows:

Pro forma information regarding net income and earnings per share is
required under Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting and Disclosure of Stock-Based Compensation" and has been determined
as if the Company accounted for its employee stock option plans under the fair
value method of SFAS 123. The fair value of options was estimated at the grant
date using a Black-Scholes option pricing model. Option valuation models require
use of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, the existing models do not necessarily provide a
reliable single measure of the fair value of employee stock options.

The pro forma disclosures include options granted in 2001, 2000, 1999 and
1998 and are not likely to be representative of the pro forma disclosures for
future years. The estimated fair value of the options is amortized to expense
over the options' respective vesting periods.

(a) Pro forma earnings per share for 2001 was impacted by changes in control
provisions that accelerated the vesting of stock options granted to USBM
employees.

U.S. Bancorp
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NOTE 19 Income Taxes

The components of income tax expense were:

The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:

Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for the same items for income
tax reporting purposes.

Significant components of the Company's deferred tax assets and liabilities as
of December 31 were as follows:

U.S. Bancorp
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At December 31, 2001, for income tax purposes, the Company had federal net
operating loss carryforwards of $1.2 million available, which expire in years
2002 through 2009. A valuation allowance has been established to offset deferred
tax assets related to state net operating loss carryforwards totaling
approximately $437 million, which expire at various times within the next 15
years.

Certain events covered by Internal Revenue Code section 593(e), which was
not repealed, will trigger a recapture of base year reserves of acquired thrift
institutions. The base year reserves of acquired thrift institutions would be
recaptured if an entity ceases to qualify as a bank for federal income tax
purposes. The base year reserves of thrift institutions also remain subject to
income tax penalty provisions that, in general, require recapture upon certain
stock redemptions of, and excess distributions to, stockholders. At December 31,
2001, retained earnings included approximately $101.8 million of base year
reserves for which no deferred federal income tax liability has been recognized.

NOTE 20 Derivative and Other Off-Balance Sheet Instruments

In the normal course of business, the Company uses various derivative and other
off-balance sheet instruments to manage its interest rate risk and market risks
and accommodate the business requirements of its customers. These instruments
carry varying degrees of credit, interest rate, and market or liquidity risks.

DERIVATIVES

The Company requires the recognition of derivative instruments as either assets
or liabilities and the measurement of those instruments at fair value.
Subsequent changes in the derivatives' fair values are recognized currently in
earnings unless specific hedge accounting criteria are met.

FAIR VALUE HEDGES The Company's interest rate swaps designated as fair value
hedges of underlying fixed-rate debt and deposit obligations have a fair value
of $276.5 million and fair value hedges of Trust Preferred Securities have a
fair value of $(43.5) million at December 31, 2001. Each period the changes in
fair value of both the hedge instruments and the underlying debt obligations are
recorded as gains or losses in trading account profits and commissions. All fair
value hedges are intended to reduce the interest rate risk associated with the
underlying hedged item. The fair value hedge transactions were considered highly
effective for the year ended December 31, 2001, and the change in fair value of
the swaps attributed to hedge ineffectiveness was not material.

The Company enters into forward commitments to sell groups of residential
mortgage loans that it originates or purchases as part of its mortgage banking
activities. The Company commits to sell the loans at specified prices in a
future period, typically within 90 days. The Company is exposed to interest rate
risk during the period between issuing a loan commitment and the sale of the
loan into the secondary market. Specific forward commitments are designated as a
hedge against changes in the fair value of fixed-rate mortgage loans held for
sale attributed to changes in interest rates. The fair value of these forward
commitments was $52.5 million at December 31, 2001. The change in fair value of
the forward commitments attributed to hedge ineffectiveness recorded in
noninterest income was $17.9 million for the year ended December 31, 2001.

CASH FLOW HEDGES The Company has interest rate swaps designated as cash flow
hedges linked to the cash flows of variable rate LIBOR loans and floating rate
debt. The swaps have a fair value of $106 million at December 31, 2001. The gain
will be reclassified from other comprehensive income into earnings during the
same period the forecasted transactions occur. The estimated amount of the gain
to be reclassified into earnings within the next 12 months is $64.4 million,
which includes cash flow hedges terminated early where the forecasted
transaction is still probable. The Company has determined that the occurrence of
the hedged forecasted transactions remains probable. The change in fair value of
the swaps attributed to hedge ineffectiveness was not material for the year
ended December 31, 2001.

OTHER DERIVATIVE ACTIVITY The Company acts as an intermediary for interest rate
swaps, caps, floors and foreign exchange contracts on behalf of its customers.
The Company minimizes its market and liquidity risks by taking offsetting
positions. The Company manages its credit risk, or potential risk of loss from
default by counterparties, through credit limit approval and monitoring
procedures. Market value changes on intermediated swaps and other derivatives
are recognized in income in the period of change. Gains or losses on
intermediated transactions were not significant for the year ended December 31,
2001.

In addition, the Company enters into interest rate swaps and other
derivative contracts to protect against interest rate risk and credit risk that
do not meet the criteria to receive hedge accounting treatment. These
derivatives are recorded at fair value on the balance sheet as trading account
assets or liabilities and any changes in fair value are recorded in trading
profits/losses and commissions.

The Company also enters into forward commitments to sell groups of
residential mortgage loans to protect against changes in the fair value of
fixed-rate mortgage loan commitments not yet funded. These forward commitment

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transactions and unfunded loan commitments are recorded on the balance sheet at
fair value and changes in fair value are recorded in income. The fair value of
the forward commitments and the loan commitments was $19.2 million and $(20.3)
million, respectively, at December 31, 2001.

Futures and forward contracts are agreements for the delayed delivery of
securities or cash settlement money market instruments. The Company enters into
futures contracts to reduce market risk on its fixed income inventory positions.
The Company manages its credit risk on forward contracts, which arises from the
potential nonperformance by counterparties, through credit approval and limit
procedures.

OTHER OFF-BALANCE SHEET INSTRUMENTS

COMMITMENTS TO EXTEND CREDIT Commitments to extend credit are legally binding
and generally have fixed expiration dates or other termination clauses. The
contractual amount represents the Company's exposure to credit loss in the event
of default by the borrower. The Company manages this credit risk by using the
same credit policies it applies to loans. Collateral is obtained to secure
commitments based on management's credit assessment of the borrower. The
collateral may include marketable securities, receivables, inventory, equipment
and real estate. Since the Company expects many of the commitments to expire
without being drawn, total commitment amounts do not necessarily represent the
Company's future liquidity requirements. In addition, the commitments include
consumer credit lines that are cancelable upon notification to the consumer.

LETTERS OF CREDIT Standby letters of credit are conditional commitments the
Company issues to guarantee the performance of a customer to a third party. The
guarantees frequently support public and private borrowing arrangements,
including commercial paper issuances, bond financings and other similar
transactions. The Company issues commercial letters of credit on behalf of
customers to ensure payment or collection in connection with trade transactions.
In the event of a customer's nonperformance, the Company's credit loss exposure
is the same as in any extension of credit, up to the letter's contractual
amount. Management assesses the borrower's credit to determine the necessary
collateral, which may include marketable securities, real estate, accounts
receivable and inventory. Since the conditions requiring the Company to fund
letters of credit may not occur, the Company expects its liquidity requirements
to be less than the total outstanding commitments.

Notional amounts of commitments to extend credit and letters of credit were as
follows:

COMMITMENTS FROM SECURITIES LENDING The Company participates in securities
lending activities by acting as the customer's agent involving the loan or sale
of securities. The Company indemnifies customers for the difference between the
market value of the securities lent and the market value of the collateral
received. Cash collateralizes these transactions.

For further information on derivatives and other off-balance sheet instruments,
see Table 17 included in Management's Discussion and Analysis which is
incorporated by reference into these Notes to Consolidated Financial Statements.

NOTE 21 Fair Values of Financial Instruments

Due to the nature of its business and its customers' needs, the Company offers a
large number of financial instruments, most of which are not actively traded.
When market quotes are unavailable, valuation techniques including discounted
cash flow calculations and pricing models or services are used. The Company also
uses various aggregation methods and assumptions, such as the discount rate and
cash flow timing and amounts. As a result, the fair value estimates can neither
be substantiated by independent market comparisons, nor realized by the
immediate sale or settlement of the financial instrument. Also, the estimates
reflect a point in time and could change significantly based on changes in
economic factors, such as interest rates. Furthermore, the disclosure of certain
financial and nonfinancial assets and liabilities are not required. Finally, the
fair value disclosure is not intended to estimate a market value of the Company
as a whole. A summary of the Company's valuation techniques and assumptions
follows.

U.S. Bancorp
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CASH AND CASH EQUIVALENTS The carrying value of cash, amounts due from banks,
federal funds sold and securities purchased under resale agreements was assumed
to approximate fair value.

SECURITIES Generally, trading account securities and investment securities were
valued using available market quotes. In some instances, for securities that are
not widely traded, market quotes for comparable securities were used.

LOANS The loan portfolio consists of both floating and fixed-rate loans, the
fair value of which was estimated using discounted cash flow analyses and other
valuation techniques. To calculate discounted cash flows, the loans were
aggregated into pools of similar types and expected repayment terms. The
expected cash flows of loans considered historical prepayment experiences and
estimated credit losses for nonperforming loans and were discounted using
current rates offered to borrowers of similar credit characteristics.

DEPOSIT LIABILITIES The fair value of demand deposits, savings accounts and
certain money market deposits is equal to the amount payable on demand at
year-end. The fair value of fixed-rate certificates of deposit was estimated by
discounting the contractural cash flow using the discount rates implied by the
high-grade corporate bond yield curve.

SHORT-TERM BORROWINGS Federal funds purchased, securities sold under agreements
to repurchase and other short-term funds borrowed are at floating rates or have
short-term maturities. Their carrying value is assumed to approximate their fair
value.

LONG-TERM DEBT AND COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF THE
PARENT COMPANY Estimated fair value for medium-term notes, Euro medium-term
notes, bank notes, Federal Home Loan Bank advances, capital lease obligations
and mortgage note obligations was determined using a discounted cash flow
analysis based on current market rates of similar maturity debt securities to
discounted cash flows. Other long-term debt instruments and company-obligated
mandatorily redeemable preferred securities of subsidiary trusts holding solely
the junior subordinated debentures of the parent company were valued using
available market quotes.

INTEREST RATE SWAPS AND OPTIONS The interest rate swap cash flows were estimated
using a third party pricing model and discounted based on appropriate LIBOR,
Eurodollar futures and swap yield curves.

LOAN COMMITMENTS, LETTERS OF CREDIT AND GUARANTEES The Company's commitments
have floating rates and do not expose the Company to interest rate risk, with
the exception of mortgage commitments. No premium or discount was ascribed to
the loan commitments because virtually all funding would be at current market
rates.

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The estimated fair values of the Company's financial instruments at December 31
are shown in the table below.

NOTE 22 Commitments and Contingent Liabilities

Rental expense for operating leases amounted to $165.2 million in 2001, $219.3
million in 2000 and $193.8 million in 1999. Future minimum payments, net of
sublease rentals, under capitalized leases and noncancelable operating leases
with initial or remaining terms of one year or more, consisted of the following
at December 31, 2001:

Various legal proceedings are currently pending against the Company. Due to
their complex nature, it may be years before some matters are resolved. In the
opinion of management, the aggregate liability, if any, will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations.

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NOTE 23 U.S. Bancorp (Parent Company)

CONDENSED BALANCE SHEET

CONDENSED STATEMENT OF INCOME

U.S. Bancorp
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CONDENSED STATEMENT OF CASH FLOWS

Transfer of funds (dividends, loans or advances) from bank subsidiaries to
the Company is restricted. Federal law prohibits loans unless they are secured
and generally limits any loan to the Company or individual affiliate to 10
percent of the bank's equity. In aggregate, loans to the Company and all
affiliates cannot exceed 20 percent of the bank's equity.

Dividend payments to the Company by its subsidiary banks are subject to
regulatory review and statutory limitations and, in some instances, regulatory
approval. The approval of the Comptroller of the Currency is required if total
dividends by a national bank in any calendar year exceed the bank's net income
for that year combined with its retained net income for the preceding two
calendar years or if the bank's retained earnings are less than zero.
Furthermore, dividends are restricted by the Comptroller of the Currency's
minimum capital constraints for all national banks. Within these guidelines, all
bank subsidiaries have the ability to pay dividends without prior regulatory
approval. The amount of dividends available to the parent company from the bank
subsidiaries at December 31, 2001, was $1,183 million.

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NOTE 24 Supplemental Disclosures to the Consolidated Financial Statements

CONSOLIDATED STATEMENT OF CASH FLOWS Listed below are supplemental disclosures
to the Consolidated Statement of Cash Flows:

MONEY MARKET INVESTMENTS are included with cash and due from banks as part of
cash and cash equivalents. Money market investments were comprised of the
following at December 31:

REGULATORY CAPITAL The measures used to assess capital include the capital
ratios established by bank regulatory agencies, including the specific ratios
for the "well capitalized" designation. For a description of the regulatory
capital requirements and the actual ratios as of December 31, 2001 and 2000, for
the Company and its bank subsidiaries, see Table 19 included in Management's
Discussion and Analysis which is incorporated by reference into these Notes to
Consolidated Financial Statements.

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Consolidated Balance Sheet -- Five-Year Summary

*Not meaningful

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84

Consolidated Statement of Income -- Five-Year Summary

*Information not available

**Not meaningful

U.S. Bancorp
85

Consolidated Daily Average Balance Sheet and Related Yields and Rates

Interest and rates are presented on a fully taxable-equivalent basis under a
tax rate of 35 percent.

Interest income and rates on loans include loan fees. Nonaccrual loans are
included in average loan balances.

(a) Before deducting the allowance for credit losses and excluding the
unrealized gain (loss) on available-for-sale securities.

U.S. Bancorp
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Consolidated Daily Average Balance Sheet and Related Yields and Rates

U.S. Bancorp
87

Quarterly Consolidated Financial Data

U.S. Bancorp
88

Supplemental Financial Data

(a) Defined as total common shares less common stock held in treasury.

(b) Based on number of common stock shareholders of record.

STOCK PRICE RANGE AND DIVIDENDS

The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under
the ticker symbol "USB."

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Annual Report on Form 10-K

Securities and Exchange Commission
Washington, D.C. 20549

Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 2001

Commission File Number 1-6880

U.S. BANCORP
Incorporated in the State of Delaware
IRS Employer Identification #41-0255900
Address: 225 South Sixth Street
Minneapolis, Minnesota 55402-4302
Telephone: (612) 973-1111

Securities registered pursuant to Section 12(b) of the Act (and listed on the
New York Stock Exchange): Common Stock, Par Value $.01. Prior to the merger of
U.S. Bancorp with Firstar Corporation, the par value of U.S. Bancorp common
stock was $1.25.

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

As of January 31, 2002, U.S. Bancorp had 1,918,425,072 shares of common
stock outstanding. The aggregate market value of common stock held by non-
affiliates as of January 31, 2002, was approximately $39.0 billion.

U.S. Bancorp (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.

Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the registrant's definitive proxy statement incorporated by
reference in Part III of this Form 10-K and any amendment to this Form 10-K.

This Annual Report and Form 10-K incorporates into a single document the
requirements of the accounting profession and the Securities and Exchange
Commission. Only those sections of the Annual Report referenced in the following
cross-reference index and the information under the caption "Forward-Looking
Statements" are incorporated in the Form 10-K.

*U.S. Bancorp's definitive proxy statement for the 2002 Annual Meeting of
Shareholders is incorporated herein by reference, other than the sections
entitled "Report of the Compensation and Human Resources Committee on Executive
Compensation" and "Comparative Stock Performance."

U.S. Bancorp
90

GENERAL U.S. Bancorp is a multi-state financial services holding company
headquartered in Minneapolis, Minnesota and was created by the acquisition by
Firstar Corporation of the former U.S. Bancorp of Minneapolis, Minnesota. The
merger was completed on February 27, 2001, and the combined company retained the
U.S. Bancorp name. U.S. Bancorp was incorporated in Delaware in 1929 and
operates as a financial holding company and a bank holding company under the
Bank Holding Company Act of 1956. U.S. Bancorp provides a full range of
financial services, including lending and depository services, cash management,
foreign exchange and trust and investment management services. It also engages
in credit card services, merchant and automated teller machine ("ATM")
processing, mortgage banking, insurance, brokerage, leasing and investment
banking.

U.S. Bancorp's banking subsidiaries are engaged in the general banking
business, principally in domestic markets. The subsidiaries range in size from
$312 million to $108 billion in deposits and provide a wide range of products
and services to individuals, businesses, institutional organizations,
governmental entities and other financial institutions. Commercial and consumer
lending services are principally offered to customers within the Company's
domestic markets, to domestic customers with foreign operations and within
certain niche national venues. Lending services include traditional credit
products as well as credit card services, financing and import/export trade,
asset-backed lending, agricultural finance and other products. Leasing products
are offered through non-bank subsidiaries. Depository services include checking
accounts, savings accounts and time certificate contracts. Ancillary services
such as foreign exchange, treasury management and receivable lock-box collection
are provided to corporate customers. U.S. Bancorp's bank and trust subsidiaries
provide a full range of fiduciary services for individuals, estates,
foundations, business corporations and charitable organizations.

Banking and investment services are provided through a network of 2,147
banking offices principally operating in 24 states in the Midwest and West. The
Company operates a network of 4,904 branded ATMs and provides 24-hour, seven
days-a-week telephone customer service. Mortgage banking services are provided
through banking offices and loan production offices throughout the Company's
markets.

The Company is one of the largest providers of Visa(R) corporate and
purchasing card services and corporate trust services in the United States. Its
wholly owned subsidiary Nova Information Systems, Inc. provides merchant
processing services directly to merchants and through a network of banking
affiliations.

U.S. Bancorp's other non-banking subsidiaries offer a variety of products
and services to the Company's customers. Its wholly-owned subsidiary U.S.
Bancorp Piper Jaffray Inc. engages in equity and fixed income trading activities
and offers investment banking and underwriting services to corporate and public
sector customers. This non-bank subsidiary also provides brokerage products,
including securities, mutual funds and annuities, and insurance products to
consumers and regionally based businesses through a network of 123 brokerage
offices.

On a full-time equivalent basis, employment during 2001 averaged a total of
50,461 employees.

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

GOVERNMENT POLICIES The operations of the Company's various operating units are
affected by state and federal legislative changes and by policies of various
regulatory authorities, including those of the numerous states in which they
operate, the United States and foreign governments. These policies include, for
example, statutory maximum legal lending rates, domestic monetary policies of
the Board of Governors of the Federal Reserve System, United States fiscal
policy, international currency regulations and monetary policies, and capital
adequacy and liquidity constraints imposed by bank regulatory agencies.

SUPERVISION AND REGULATION U.S. Bancorp is a registered bank holding company and
financial holding company under the Bank Holding Company Act of 1956 (the "Act")
and is subject to the supervision of, and regulation by, the Board of Governors
of the Federal Reserve System (the "Board").

Under the Act, a financial holding company may engage in banking, managing
or controlling banks, furnishing or performing services for banks it controls,
and conducting other financial activities. U.S. Bancorp must obtain the prior
approval of the Board before acquiring more than 5 percent of the outstanding
shares of another bank or bank holding company, and must provide notice to, and
in some situations obtain the prior approval of, the Board in connection with
engaging in, or acquiring more than 5 percent of the outstanding shares of a
company engaged in, a new financial activity.

Under the Act, as amended by the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act"), U.S. Bancorp may
acquire banks throughout the United States, subject only to state or

U.S. Bancorp
91

federal deposit caps and state minimum age requirements. The Interstate Act
authorizes interstate branching by acquisition and consolidations in those
states that have not opted out of interstate branching.

National banks are subject to the supervision of, and are examined by, the
Comptroller of the Currency. All subsidiary banks of the Company are members of
the Federal Deposit Insurance Corporation ("FDIC") and are subject to
examination by the FDIC. In practice, the primary federal regulator makes
regular examinations of each subsidiary bank subject to its regulatory review or
participates in joint examinations with other federal regulators. Areas subject
to regulation by federal authorities include the allowance for credit losses,
investments, loans, mergers, issuance of securities, payment of dividends,
establishment of branches and other aspects of operations.

PROPERTIES U.S. Bancorp and its significant subsidiaries occupy their
headquarter offices under long-term leases and are located in Minneapolis,
Minnesota and Cincinnati, Ohio. The Company also leases seven principal
freestanding operations centers in St. Paul, Portland, Nashville and Denver, and
owns five principal freestanding operations centers in Cincinnati, Kansas City,
St. Louis, Fargo and Milwaukee. At December 31, 2001, U.S. Bancorp's
subsidiaries owned and operated a total of 1,383 facilities and leased an
additional 1,388 facilities, all of which are well maintained. The Company
believes its current facilities are adequate to meet its needs. Additional
information with respect to premises and equipment is presented in Notes 9 and
22 of the Notes to Consolidated Financial Statements.

EXHIBITS

Schedules to the consolidated financial statements required by Regulation
S-X are omitted since the required information is included in the footnotes or
is not applicable.

During the three months ended December 31, 2001, the Company filed the
following Current Reports on Form 8-K:

Form 8-K filed October 17, 2001, relating to third quarter 2001 and
anticipated full year 2001 earnings;

Form 8-K filed October 31, 2001, announcing commencement of an underwritten
offering of trust preferred securities;

Form 8-K filed December 6, 2001, announcing commencement of an underwritten
offering of trust preferred securities.

The following Exhibit Index lists the Exhibits to the Annual Report on Form
10-K.

(1)3.1 Restated Certificate of Incorporation, as
amended. Filed as Exhibit 3.1 to Form 10-K
for the year ended December 31, 2000.
3.2 Restated bylaws, as amended.
4.1 [Pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K, copies of instruments
defining the rights of holders of
long-term debt are not filed. U.S. Bancorp
agrees to furnish a copy thereof to the
Securities and Exchange Commission upon
request.]
(1)4.2 Warrant Agreement, dated as of October 2,
1995, between U.S. Bancorp and First
Chicago Trust Company of New York, as
Warrant Agent and Form of Warrant. Filed
as Exhibits 4.18 and 4.19 to Registration
Statement on Form S-3, File No. 33-61667.
(2)10.1 U.S. Bancorp 2001 Stock Incentive Plan.
(2)10.2 U.S. Bancorp Executive Incentive Plan.
(1)(2)10.3 U.S. Bancorp Executive Deferral Plan, as
amended. Filed as Exhibit 10.7 to Form
10-K for the year ended December 31, 1999.
(2)10.4 Summary of Nonqualified Supplemental
Executive Retirement Plan, as amended, of
the former U.S. Bancorp.
(1)(2)10.5 1991 Performance and Equity Incentive Plan
of the former U.S. Bancorp. Filed as
Exhibit 10.13 to Form 10-K for the year
ended December 31, 1997.
(1)(2)10.6 Description of Retirement Benefits of
Joshua Green III. Filed as Exhibit 10.14
to Form 10-K for the year ended December
31, 1997.
(1)(2)10.7 Form of Director Indemnification Agreement
entered into with former directors of the
former U.S. Bancorp. Filed as Exhibit
10.15 to Form 10-K for the year ended
December 31, 1997.
(1)(2)10.8 U.S. Bancorp Independent Director
Retirement and Death Benefit Plan, as
amended. Filed as Exhibit 10.17 to Form
10-K for the year ended December 31, 1999.
(1)(2)10.9 U.S. Bancorp Deferred Compensation Plan
for Directors, as amended. Filed as
Exhibit 10.18 to Form 10-K for the year
ended December 31, 1999.

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92

(2)10.10 Summary of U.S. Bancorp Supplemental Executive
Retirement Plan.
(2)10.11 U.S. Bancorp Deferred Compensation Plan.
(2)10.12 Form of Change in Control Agreement, effective
November 16, 2001, between U.S. Bancorp and
certain executive officers of U.S. Bancorp.
(2)10.13 Employment Agreement with Jerry A. Grundhofer.
(2)10.14 Employment Agreement with John F. Grundhofer.
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP.

(1) Exhibit has previously been filed with the Securities and Exchange
Commission and is incorporated herein as an exhibit by reference.

(2) Management contracts or compensatory plans or arrangements required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on February
28, 2002, on its behalf by the undersigned thereunto duly authorized.

U.S. Bancorp

By: Jerry A. Grundhofer

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 28, 2002, by the following persons on behalf
of the registrant and in the capacities indicated.

JERRY A. GRUNDHOFER
President, Chief Executive Officer and Director
(principal executive officer)

DAVID M. MOFFETT
Vice Chairman and Chief Financial Officer
(principal financial officer)

TERRANCE R. DOLAN
Executive Vice President and Controller
(principal accounting officer)

JOHN F. GRUNDHOFER
Chairman

LINDA L. AHLERS
Director

VICTORIA BUYNISKI GLUCKMAN
Director

ARTHUR D. COLLINS, JR.
Director

PETER H. COORS
Director

JOHN C. DANNEMILLER
Director

JOSHUA GREEN III
Director

J.P. HAYDEN, JR.
Director

ROGER L. HOWE
Director

THOMAS H. JACOBSEN
Director

DELBERT W. JOHNSON
Director

JOEL W. JOHNSON
Director

JERRY W. LEVIN
Director

SHELDON B. LUBAR
Director

FRANK LYON, JR.
Director

DANIEL F. MCKEITHAN, JR.
Director

DAVID B. O'MALEY
Director

O'DELL M. OWENS, M.D., M.P.H.
Director

THOMAS E. PETRY
Director

RICHARD G. REITEN
Director

S. WALTER RICHEY
Director

WARREN R. STALEY
Director

PATRICK T. STOKES
Director

JOHN J. STOLLENWERK
Director

U.S. Bancorp
93

EXECUTIVE OFFICERS

JERRY A. GRUNDHOFER

Mr. Grundhofer, 57, has served as President and Chief Executive Officer of U.S.
Bancorp and Chairman, President and Chief Executive Officer of U.S. Bank
National Association since the merger of Firstar Corporation and U.S. Bancorp in
February 2001. Prior to the merger, Mr. Grundhofer was President and Chief
Executive Officer of Firstar Corporation, having served as Chairman, President
and Chief Executive Officer of Star Banc Corporation from 1993 until its merger
with Firstar Corporation in 1998.

JENNIE P. CARLSON

Ms. Carlson, 41, has served as Executive Vice President, Human Resources since
January 2002. Until that time, she served as Executive Vice President, Deputy
General Counsel and Corporate Secretary of U.S. Bancorp since the merger of
Firstar Corporation and U.S. Bancorp in February 2001. From 1995 until the
merger, she was General Counsel and Secretary of Firstar Corporation and Star
Banc Corporation, a predecessor company, as well as Senior Vice President from
1994 to 1999 and Executive Vice President from 1999 to 2001.

ANDREW CECERE

Mr. Cecere, 41, has served as Vice Chairman of U.S. Bancorp since the merger of
Firstar Corporation and U.S. Bancorp in February 2001. He assumed responsibility
for Private Client and Trust Services in February 2001 and U.S. Bancorp Asset
Management in November 2001. Previously, he had served as Chief Financial
Officer of U.S. Bancorp from May 2000 through February 2001. Additionally, he
served as Vice Chairman of U.S. Bank with responsibility for Commercial Services
from 1999 to 2001, having been a Senior Vice President of Finance since 1992.

WILLIAM L. CHENEVICH

Mr. Chenevich, 58, has served as Vice Chairman of U.S. Bancorp since the merger
of Firstar Corporation and U.S. Bancorp in February 2001, when he assumed
responsibility for Technology and Operations Services. Previously, he had served
as Vice Chairman of Technology and Operations Services of Firstar Corporation
from 1999 to 2001. Prior to joining Firstar he was Group Executive Vice
President at Visa International from 1994 to 1999.

RICHARD K. DAVIS

Mr. Davis, 44, has served as Vice Chairman of U.S. Bancorp since the merger of
Firstar Corporation and U.S. Bancorp in February 2001, when he assumed
responsibility for Consumer Banking and Payment Services. Previously, he had
been Vice Chairman of Consumer Banking of Firstar Corporation from 1998 until
2001 and Executive Vice President, Consumer Banking of Star Banc Corporation
from 1993 until its merger with Firstar Corporation in 1998.

ANDREW S. DUFF

Mr. Duff, 44, has served as Vice Chairman of U.S. Bancorp, responsible for
Private Advisory Services, Equity Capital Markets and Fixed Income Capital
Markets, since November 2001, and until that time as Vice Chairman responsible
for Wealth Management and Capital Markets since 1999. He has served as President
and Chief Executive Officer of U.S. Bancorp Piper Jaffray since January 2000.
Prior to that time, he had served as President of Piper Jaffray Inc., the
broker-dealer subsidiary of Piper Jaffray Companies, since January 1996.

U.S. Bancorp
94

EDWARD GRZEDZINSKI

Mr. Grzedzinski, 46, has served as Vice Chairman of U.S. Bancorp since July
2001. He is President and Chief Executive Officer of NOVA Information Systems,
which he co-founded in 1991 and which became a wholly owned subsidiary of U.S.
Bancorp in connection with the acquisition of NOVA Corporation in July 2001. Mr.
Grzedzinski served as Chairman of NOVA Corporation from 1995 until July 2001.

JOSEPH E. HASTEN

Mr. Hasten, 50, has served as Vice Chairman of U.S. Bancorp since the merger of
Firstar Corporation and U.S. Bancorp in February 2001, when he assumed
responsibility for Corporate Banking. Previously, he had been Vice Chairman of
Wholesale Banking of Firstar Corporation, after joining Mercantile
Bancorporation, a predecessor company, as President of its St. Louis bank and of
Corporate Banking in 1995.

J. ROBERT HOFFMANN

Mr. Hoffman, 56, has served as Executive Vice President and Chief Credit Officer
of U.S. Bancorp since 1990.

LEE R. MITAU

Mr. Mitau, 53, has served as Executive Vice President and General Counsel of
U.S. Bancorp since 1995. Mr. Mitau also serves as Corporate Secretary. Prior to
1995 he was a partner at the law firm of Dorsey & Whitney LLP.

DAVID M. MOFFETT

Mr. Moffett, 50, has served as Vice Chairman and Chief Financial Officer of U.S.
Bancorp since the merger of Firstar Corporation and U.S. Bancorp in February
2001. Prior to the merger, he was Vice Chairman and Chief Financial Officer of
Firstar Corporation, and had served as Chief Financial Officer of Star Banc
Corporation from 1993 until its merger with Firstar Corporation in 1998.

DANIEL M. QUINN

Mr. Quinn, 45, Vice Chairman of U.S. Bancorp, assumed responsibility for
Commercial Banking in April 1999 and for Regional Commercial Real Estate in
August 1999. Previously, he had been President of U.S. Bank in Colorado
(formerly Colorado National Bank) since 1996.

STEPHEN E. SMITH

Mr. Smith, 54, has served as Executive Vice President and Director of Human
Resources of U.S. Bancorp since the merger of Firstar Corporation and U.S.
Bancorp in February 2001. Prior to the merger, he was Executive Vice President
and Corporate Director of Human Resources of Firstar Corporation and Star Banc
Corporation, a predecessor company, since 1995, having served as Director of
Human Resources of Star Banc Corporation since 1993.

U.S. Bancorp
95

DIRECTORS

JOHN F. GRUNDHOFER(1)
Chairman
U.S. Bancorp

JERRY A. GRUNDHOFER(1)
President and Chief Executive Officer
U.S. Bancorp

LINDA L. AHLERS(3,4)
President
Marshall Field's
Minneapolis, Minnesota

VICTORIA BUYNISKI GLUCKMAN(3,4)
President and Chief Executive Officer
United Medical Resources, Inc.
Cincinnati, Ohio

ARTHUR D. COLLINS, JR.(1,2,5)
President and Chief Executive Officer
Medtronic, Inc.
Minneapolis, Minnesota

PETER H. COORS(2,4,5)
Chairman
Coors Brewing Company
Golden, Colorado

JOHN C. DANNEMILLER(4,5)
Retired Chairman
Applied Industrial Technologies
Cleveland, Ohio

JOSHUA GREEN III(3,4)
Chairman and Chief Executive Officer
Joshua Green Corporation
Seattle, Washington

J.P. HAYDEN, JR.(1,2,5)
Chairman of the Executive Committee
The Midland Company
Amelia, Ohio

ROGER L. HOWE(1,2,3)
Chairman Emeritus
U.S. Precision Lens, Inc.
Cincinnati, Ohio

THOMAS H. JACOBSEN(4)
Former Chairman
Firstar Corporation
Milwaukee, Wisconsin

DELBERT W. JOHNSON(1,3,4)
Vice President
Safeguard Scientifics, Inc.
Wayne, Pennsylvania

JOEL W. JOHNSON(4,5)
Chairman, President and
Chief Executive Officer
Hormel Foods Corporation
Austin, Minnesota

JERRY W. LEVIN(2,5)
Chairman and Chief Executive Officer
Sunbeam Corporation
Boca Raton, Florida

SHELDON B. LUBAR(1,5)
Chairman
Lubar & Company
Milwaukee, Wisconsin

FRANK LYON, JR.(2,4)
President
Wingmead Farms
North Little Rock, Arkansas

DANIEL F. MCKEITHAN, JR.(1,3,5)
President and Chief Executive Officer
Tamarack Petroleum Company, Inc.
Milwaukee, Wisconsin

DAVID B. O'MALEY(1,2)
Chairman, President and
Chief Executive Officer
Ohio National Financial Services
Cincinnati, Ohio

O'DELL M. OWENS, M.D., M.P.H.(3,4)
Medical Director
United Healthcare
Cincinnati, Ohio

THOMAS E. PETRY(1,2,3)
Retired Chairman and
Chief Executive Officer
Eagle-Picher Industries, Inc.
Cincinnati, Ohio

RICHARD G. REITEN(1,2,3)
Chairman and Chief Executive Officer
Northwest Natural Gas Company
Portland, Oregon

S. WALTER RICHEY(1,2)
Former Chairman and
Chief Executive Officer
Meritex, Inc.
Roseville, Minnesota

WARREN R. STALEY(1,3)
Chairman and Chief Executive Officer
Cargill, Inc.
Minneapolis, Minnesota

PATRICK T. STOKES(1,5)
President and Chief Executive Officer
Anheuser-Busch, Inc.
St. Louis, Missouri

JOHN J. STOLLENWERK(2,3,4)
President and Chief Executive Officer
Allen-Edmonds Shoe Corporation
Port Washington, Wisconsin

1. Executive Committee

2. Compensation Committee

3. Audit Committee

4. Community Outreach and Fair Lending Committee

5. Governance Committee

U.S. Bancorp
96

Corporate Information

EXECUTIVE OFFICES
U.S. Bancorp
225 South Sixth Street
Minneapolis, Minnesota 55402

After June 2002
800 Nicollet Mall
Minneapolis, Minnesota 55402

COMMON STOCK TRANSFER AGENT AND REGISTRAR
U.S. Bank National Association, a subsidiary of U.S. Bancorp, acts as our
transfer agent and registrar, dividend paying agent and dividend reinvestment
plan agent, and maintains all shareholder records, stock transfers, changes of
ownership, changes of address and dividend payment should be sent to the
transfer agent at the following address:

U.S. Bank National Association
1555 North River Center Drive, Suite 301
Milwaukee, Wisconsin 53212
Phone: 800-637-7549
Fax: 414-905-5049
Internet: www.investorservice.usbank.com

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP serves as the independent accountants of U.S.
Bancorp.

COMMON STOCK LISTING AND TRADING
U.S. Bancorp common stock is listed and traded on the New York Stock Exchange
under the ticker symbol USB.

DIVIDENDS AND DIVIDEND REINVESTMENT PLAN
U.S. Bancorp currently pays quarterly dividends on our common stock on or about
the 15th day of January, April, July and October, subject to prior approval by
our Board of Directors. U.S. Bancorp shareholders can choose to participate in
a plan that provides automatic reinvestment of dividends and/or optional cash
purchase of additional shares of U.S. Bancorp common stock. For more
information, please contact:

U.S. Bank National Association
Dividend Reinvestment Department
1555 North River Center Drive, Suite 301
Milwaukee, Wisconsin 53212
Phone: 800-637-7549

INVESTMENT COMMUNITY CONTACTS
Howell D. McCullough
Senior Vice President, Investor Relations
[email protected]
Phone: 612-973-2261

Judith T. Murphy
Vice President, Investor Relations
[email protected]
Phone: 612-973-2264

FINANCIAL INFORMATION
U.S. Bancorp news and financial results are available through our Web site and
by mail.

WEB SITE. For information about U.S. Bancorp, including news and financial
results and online annual reports, access our home page on the Internet at
www.usbank.com.

MAIL. At your request, we will mail to you our quarterly earnings news
releases, quarterly financial data reported on Form 10-Q and additional copies
of our annual reports. To be added to the U.S. Bancorp mailing list for
quarterly earnings news releases or to request other information, please
contact:

U.S. Bancorp Investor Relations
225 South Sixth Street
Minneapolis, Minnesota 55402
Phone: 612-973-2263
[email protected]

MEDIA REQUESTS
Steve Dale
Senior Vice President, Media Relations
Phone: 612-973-0898

OTHER BUSINESS INFORMATION
For product and service information, branch office and ATM locations,
information about lines of business, account access, employment opportunities
and more, visit www.usbank.com or www.firstar.com.

DIVERSITY
U.S. Bancorp and our subsidiaries are committed to developing and maintaining a
workplace that reflects the diversity of the communities we serve. We support a
work environment where individual differences are valued and respected and
where each individual who shares the fundamental values of the company has an
opportunity to contribute and grow based on individual merit.

EQUAL EMPLOYMENT OPPORTUNITY/AFFIRMATIVE ACTION
U.S. Bancorp and our subsidiaries are committed to providing Equal Employment
Opportunity to all employees and applicants for employment. In keeping with this
commitment, employment decisions are made based upon performance, skill and
abilities, rather than race, color, religion, nation origin or ancestry, sex,
age, disability, veteran status, sexual orientation or any other factors
protected by law. The corporation complies with municipal, state and federal
fair employment laws, including regulations applying to federal contractors.

U.S. Bancorp, including each of our subsidiaries, is an Equal Opportunity
Employer and a Drug-Free Workplace.

[LOGO]
Equal U.S. Bank and Firstar Bank
Housing Members FDIC
LENDER

[RECYCLING This report is printed on recycled paper containing
LOGO] a minimum 10 percent post-consumer recycled waste.

[GRAPHIC] Corporate Profile
U.S. Bancorp is a multi-state financial holding company with
headquarters in Minneapolis, Minnesota. The merger of Firstar
Corporation and the former U.S. Bancorp closed on February 27,
2001, making the new U.S. Bancorp the 8TH LARGEST financial
holding company in the United States, with total assets exceeding
$171 BILLION. We place NO. 41 in The Super 100, a Forbes magazine
composite ranking based on sales, profits, assets and market
value.
Through U.S. Bank, First Bank and other subsidiaries, U.S.
Bancorp serves more than 10 MILLION CUSTOMERS principally through
2,147 full-service branch offices in 24 STATES, additional
specialized offices across the country and in several foreign
countries, 4,904 ATMs, and Internet and telephone banking.
U.S. Bancorp and our subsidiaries provide a comprehensive
selection of premium financial products and services to
individuals, businesses, nonprofit organizations, institutions and
government entities.
U.S. Bancorp, our subsidiary full-service banks and other
subsidiaries operate the following major lines of business:
Consumer Banking, Wholesale Banking, Payment Services, and Private
Client, Trust and Asset Management. U.S. Bancorp Piper Jaffray
offers full securities brokerage, equity capital, fixed income
capital and individual investment services.
U.S. Bancorp is home of the exclusive FIVE STAR SERVICE
GUARANTEE, which assures customers of certain key banking
standards.

usbancorp(R)
Five Star Service Guaranteed [GRAPHIC]

U.S. Bancorp
225 South Sixth Street
Minneapolis, Minnesota 55402

www.usbank.com
www.firstar.com