0000036104 us-gaap:EquityContractMember usb:AssetAndLiabilityManagementPositionsMember us-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember 2020-01-01 2020-12-31
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form
10-Q

☑ 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

2021

OR

☐ 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from (not applicable)

Commission file number
1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)

Delaware
 
41-0255900

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices, including zip code)

651-466-3000

(Registrant’s telephone number, including area code)

(not applicable)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
symbols
Name of each exchange
on which registered
Common Stock, $.01 par value per share
USBNew York Stock Exchange
Depositary Shares (each representing 1/100th interest in a share of Series A
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
USB PrANew York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series B
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
USB PrHNew York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series F
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
USB PrMNew York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series K
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
USB PrPNew York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series L
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
USB PrQNew York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series M
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
USB PrRNew York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024
USB/24BNew York Stock Exchange
Indicate by check mark whether the registrant (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.

YES ☑    NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☑    NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule12b-2
of the Exchange Act. (Check one):

Large accelerated filer ☑  Accelerated filer ☐

Non-accelerated
filer ☐

(Do not check if a smaller reporting company)

  

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).

YES ☐    NO ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class  Outstanding as of October 31, 20172021
Common Stock, $0.01 Par Value  1,659,491,1661,482,797,679 shares

Table of Contents

Table of Contents and
Form 10-Q
Cross Reference Index

Part I — Financial Information

    

1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)

3

a) Overview

3

b) Statement of Income Analysis

     4 

a) Overview
4
b) Statement of Income Analysis
5
c) Balance Sheet Analysis

     68 

d)Non-GAAP Financial Measures

     3135 

e) Critical Accounting Policies

     3336 

f) Controls and Procedures (Item 4)

     3336 

2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)

     9 

a) Overview

     9 

b) Credit Risk Management

     1011 

c) Residual Value Risk Management

21

d) Operational Risk Management

21

e) Compliance Risk Management

21

f) Interest Rate Risk Management

21

g) Market Risk Management

23

h) Liquidity Risk Management

     24 

i) Capitald) Operational Risk Management

     2524 

3) Line of Business Financial Reviewe) Compliance Risk Management

24
f) Interest Rate Risk Management
24
g) Market Risk Management
     26 

h) Liquidity Risk Management
27
i) Capital Management
29
3) Line of Business Financial Review
30
4) Financial Statements (Item 1)

     3437 

Part II — Other Information

    

1) Legal Proceedings (Item 1)

     7880 

2) Risk Factors (Item 1A)

     7880 

3) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)

78

4) Exhibits (Item 6)

78

5) Signature

79

6) Exhibits

     80 
4) Exhibits (Item 6)
80
5) Signature
81
6) Exhibits
82

U.S. Bancorp
1
Table of Contents
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.

This quarterly report on
Form 10-Q
contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. A reversal or slowingThe
COVID-19
pandemic is adversely affecting U.S. Bancorp, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the currentimpacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic recoveryconditions or another severe contractionturbulence in domestic or global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which couldliabilities, reduce the availability of funding to certain financial institutions, and lead to a tightening of credit, a reduction of business activity, and increased marketincrease stock price volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets could cause credit losses and deterioration in asset values. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by deterioration in general business and economic conditions; changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio;securities; legal and regulatory developments; litigation; increased competition from both banks and
non-banks;
civil unrest; changes in customer behavior and preferences; breaches in data security;security, including as a result of work-from-home arrangements; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputationalreputation risk.

In addition, U.S. Bancorp’s proposed acquisition of MUFG Union Bank presents risks and uncertainties, including, among others: the risk that the cost savings, any revenue synergies and other anticipated benefits of the proposed acquisition may not be realized or may take longer than anticipated to be realized; the risk that U.S. Bancorp’s business could be disrupted as a result of the announcement and pendency of the proposed acquisition and diversion of management’s attention from ongoing business operations and opportunities; the possibility that the proposed acquisition, including the integration of MUFG Union Bank, may be more costly or difficult to complete than anticipated; delays in closing the proposed acquisition; and the failure of required governmental approvals to be obtained or any other closing conditions in the definitive purchase agreement to be satisfied.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form
10-K
for the year ended December 31, 2016,2020, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” and “Risk Factors” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However,In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factorsrisks to be a complete set of all potential risks or uncertainties. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.

U.S. Bancorp1

Table 1
2
 U.S. Bancorp
Table of Contents
 Table 1
   Selected Financial Data

  

Three Months Ended

September 30,

       

Nine Months Ended

September 30,

 
(Dollars and Shares in Millions, Except Per Share Data) 2017  2016  Percent
Change		       2017  2016  Percent
Change		 

Condensed Income Statement

         

Net interest income

 $3,135  $2,893   8.4%     $9,097  $8,573   6.1% 

Taxable-equivalent adjustment (a)

  51   50   2.0      152   154   (1.3) 

Net interest income (taxable-equivalent basis) (b)

  3,186   2,943   8.3      9,249   8,727   6.0 

Noninterest income

  2,413   2,435   (.9)      7,123   7,130   (.1) 

Securities gains (losses), net

  9   10   (10.0)      47   16   * 

Total net revenue

  5,608   5,388   4.1      16,419   15,873   3.4 

Noninterest expense

  3,039   2,931   3.7      9,006   8,672   3.9 

Provision for credit losses

  360   325   10.8      1,055   982   7.4 

Income before taxes

  2,209   2,132   3.6      6,358   6,219   2.2 

Income taxes and taxable-equivalent adjustment

  640   616   3.9      1,791   1,766   1.4 

Net income

  1,569   1,516   3.5      4,567   4,453   2.6 

Net (income) loss attributable to noncontrolling interests

  (6)   (14)   57.1      (31)   (43)   27.9 

Net income attributable to U.S. Bancorp

 $1,563  $1,502   4.1     $4,536  $4,410   2.9 

Net income applicable to U.S. Bancorp common shareholders

 $1,485  $1,434   3.6     $4,302  $4,198   2.5 

Per Common Share

         

Earnings per share

 $.89  $.84   6.0%     $2.56  $2.44   4.9% 

Diluted earnings per share

  .88   .84   4.8      2.55   2.43   4.9 

Dividends declared per share

  .30   .28   7.1      .86   .79   8.9 

Book value per share

  25.98   24.78   4.8       

Market value per share

  53.59   42.89   24.9       

Average common shares outstanding

  1,672   1,710   (2.2)      1,683   1,724   (2.4) 

Average diluted common shares outstanding

  1,678   1,716   (2.2)      1,689   1,730   (2.4) 

Financial Ratios

         

Return on average assets

  1.38%   1.36%       1.36%   1.37%  

Return on average common equity

  13.6   13.5       13.4   13.4  

Net interest margin (taxable-equivalent basis) (a)

  3.10   2.98       3.06   3.02  

Efficiency ratio (b)

  54.3   54.5       55.0   54.7  

Net charge-offs as a percent of average loans outstanding

  .47   .46       .49   .48  

Average Balances

         

Loans

 $277,626  $269,637   3.0%     $275,454  $266,179   3.5% 

Loans held for sale

  3,935   4,691   (16.1)      3,457   3,888   (11.1) 

Investment securities (c)

  111,832   108,109   3.4      111,325   107,095   3.9 

Earning assets

  408,825   393,783   3.8      404,031   385,816   4.7 

Assets

  450,630   437,863   2.9      446,049   429,421   3.9 

Noninterest-bearing deposits

  81,964   82,021   (.1)      81,808   79,928   2.4 

Deposits

  335,151   318,548   5.2      331,610   307,312   7.9 

Short-term borrowings

  15,505   15,929   (2.7)      14,423   21,457   (32.8) 

Long-term debt

  35,544   37,875   (6.2)      35,697   36,392   (1.9) 

Total U.S. Bancorp shareholders’ equity

  48,819   47,791   2.2      48,342   47,240   2.3 
 
  September 30,
2017		  December 31,
2016		                 

Period End Balances

         

Loans

 $278,719  $273,207   2.0%       

Investment securities

  111,790   109,275   2.3       

Assets

  459,227   445,964   3.0       

Deposits

  342,589   334,590   2.4       

Long-term debt

  34,515   33,323   3.6       

Total U.S. Bancorp shareholders’ equity

  48,723   47,298   3.0       

Asset Quality

         

Nonperforming assets

 $1,251  $1,603   (22.0)%       

Allowance for credit losses

  4,407   4,357   1.1       

Allowance for credit losses as a percentage ofperiod-end loans

  1.58%   1.59%        

Capital Ratios

         

Basel III transitional standardized approach:

         

Common equity tier 1 capital

  9.6%   9.4%        

Tier 1 capital

  11.1   11.0        

Total risk-based capital

  13.2   13.2        

Leverage

  9.1   9.0        

Common equity tier 1 capital to risk-weighted assets for the Basel III transitional advanced approaches

  12.1   12.2        

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (b)

  9.4   9.1        

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)

  11.8   11.7        

Tangible common equity to tangible assets (b)

  7.7   7.5        

Tangible common equity to risk-weighted assets (b)

  9.5   9.2                      

  
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
(Dollars and Shares in Millions, Except Per Share Data) 2021  2020  Percent
Change		   2021  2020  Percent
Change		 
Condensed Income Statement
 
       
Net interest income
 $3,171  $3,227   (1.7)%   $9,371  $9,650   (2.9)% 
Taxable-equivalent adjustment (a)
  26   25   4.0    79   73   8.2 
Net interest income (taxable-equivalent basis) (b)
  3,197   3,252   (1.7)    9,450   9,723   (2.8) 
Noninterest income
  2,693   2,712   (.7)    7,693   7,851   (2.0) 
Total net revenue
  5,890   5,964   (1.2)    17,143   17,574   (2.5) 
Noninterest expense
  3,429   3,371   1.7    10,195   10,005   1.9 
Provision for credit losses
  (163)   635   *    (1,160)   3,365   * 
Income before taxes
  2,624   1,958   34.0    8,108   4,204   92.9 
Income taxes and taxable-equivalent adjustment
  590   372   58.6    1,801   744   * 
Net income
  2,034   1,586   28.2    6,307   3,460   82.3 
Net (income) loss attributable to noncontrolling interests
  (6)   (6)   —    (17)   (20)   15.0 
Net income attributable to U.S. Bancorp
 $2,028  $1,580   28.4   $6,290  $3,440   82.8 
Net income applicable to U.S. Bancorp common shareholders
 $1,934  $1,494   29.5   $6,023  $3,196   88.5 
Per Common Share
 
       
Earnings per share
 $1.30  $.99   31.3%   $4.04  $2.12   90.6% 
Diluted earnings per share
  1.30   .99   31.3    4.04   2.11   91.5 
Dividends declared per share
  .46   .42   9.5    1.30   1.26   3.2 
Book value per share (c)
  32.22   30.93   4.2     
Market value per share
  59.44   35.85   65.8     
Average common shares outstanding
  1,483   1,506   (1.5)    1,491   1,510   (1.3) 
Average diluted common shares outstanding
  1,484   1,507   (1.5)    1,492   1,511   (1.3) 
Financial Ratios
        
Return on average assets
  1.45%   1.17%      1.53%   .87%  
Return on average common equity
  15.9   12.8      17.0   9.3  
Net interest margin (taxable-equivalent basis) (a)
  2.53   2.67      2.52   2.73  
Efficiency ratio (b)
  58.4   56.6      59.8   57.4  
Net charge-offs as a percent of average loans outstanding
  .20   .66      .25   .58  
Average Balances
 
       
Loans
 $296,739  $311,018   (4.6)%   $295,014  $308,935   (4.5)% 
Loans held for sale
  7,438   7,983   (6.8)    8,422   6,352   32.6 
Investment securities (d)
  151,755   128,565   18.0    152,653   123,444   23.7 
Earning assets
  503,325   486,104   3.5    500,616   476,018   5.2 
Assets
  553,446   536,902   3.1    551,199   525,380   4.9 
Noninterest-bearing deposits
  129,018   109,375   18.0    124,262   92,935   33.7 
Deposits
  431,487   405,523   6.4    429,039   390,598   9.8 
Short-term borrowings
  14,688   18,049   (18.6)    14,758   21,335   (30.8) 
Long-term debt
  35,972   43,542   (17.4)    37,196   44,587   (16.6) 
Total U.S. Bancorp shareholders’ equity
  54,273   52,416   3.5    53,327   51,936   2.7 
 
      September 30,
2021		  December 31,
2020		              
Period End Balances
 
       
Loans
 $297,608  $297,707   —%     
Investment securities
  149,376   136,840   9.2     
Assets
  567,495   553,905   2.5     
Deposits
  442,902   429,770   3.1     
Long-term debt
  35,671   41,297   (13.6)     
Total U.S. Bancorp shareholders’ equity
  53,743   53,095   1.2     
Asset Quality
        
Nonperforming assets
 $944  $1,298   (27.3)%     
Allowance for credit losses
  6,300   8,010   (21.3)     
Allowance for credit losses as a percentage of
period-end
loans
  2.12%   2.69%       
Capital Ratios
        
Common equity tier 1 capital
  10.2%   9.7%       
Tier 1 capital
  11.7   11.3       
Total risk-based capital
  13.4   13.4       
Leverage
  8.7   8.3       
Total leverage exposure
  7.0   7.3       
Tangible common equity to tangible assets (b)
  6.8   6.9       
Tangible common equity to risk-weighted assets (b)
  9.4   9.5       
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)
  9.7   9.3                  
*
Not meaningful
(a)
Utilizes
Based on a federal income tax rate of 3521 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
(b)
See
Non-GAAP
Financial Measures beginning on page 31.35.
(c)
Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period.
(d)
Excludes unrealized gains and losses on
available-for-sale
investment securities and any premiums or discounts recorded related to the transfer of investment securities at fair value from
available-for-sale
to
held-to-maturity.

2U.S. Bancorp U.S. Bancorp
3

Table of Contents

Management’s Discussion and Analysis

OVERVIEW

Earnings Summary
U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $1.6$2.0 billion for the third quarter of 2017,2021, or $0.88$1.30 per diluted common share, compared with $1.5$1.6 billion, or $0.84$0.99 per diluted common share, for the third quarter of 2016.2020. Return on average assets and return on average common equity were 1.381.45 percent and 13.615.9 percent, respectively, for the third quarter of 2017,2021, compared with 1.361.17 percent and 13.512.8 percent, respectively, for the third quarter of 2016.

2020.

Total net revenue for the third quarter of 20172021 was $220$74 million (4.1(1.2 percent) higherlower than the third quarter of 2016,2020, reflecting an 8.4a 1.7 percent increasedecrease in net interest income (8.3 percent onand a taxable-equivalent basis), partially offset by a 0.90.7 percent decrease in noninterest income. The increasedecrease in net interest income from the third quarter of 20162020 was mainly a result ofdue to changes in loan growthportfolio composition and lower average loan balances primarily driven by commercial loan paydowns by corporate customers accessing the capital markets and the impact of rising interest rates.Small Business Administration (“SBA”) Paycheck Protection Program, partially offset by changes in deposit and funding mix as well as higher loan fees related to the SBA Paycheck Protection Program. The noninterest income decrease was principally due todriven by lower mortgage banking revenue, primarily the result of a higher level of refinancing activities in the third quarter of 2016, partiallycommercial products revenue and other noninterest income, mostly offset by increasesimprovements in payment services revenue, trust and investment management fees, payment services revenue, anddeposit service charges, treasury management fees as well as higher equityand investment income.

products fees.

Noninterest expense in the third quarter of 20172021 was $108$58 million (3.7(1.7 percent) higher than the third quarter of 2016, primarily due to increased2020, reflecting increases in compensation expense, primarily related to hiring to supportperformance-based incentive compensation, as well as higher professional services expense, marketing and business growthdevelopment expense, and compliance programs, merit increasestechnology and higher variable compensation.

communications expense, partially offset by lower net occupancy and equipment expense and other noninterest expense.

The provision for credit losses for the third quarter of 20172021 was a benefit of $360$163 million, which was $35$798 million (10.8 percent) higher thanfavorable from the third quarter of 2016.2020, driven by a decrease in the allowance for credit losses during the third quarter of 2021 as a result of continued improvement in the global economy, as well as strong credit and collateral performance, compared with an increase in the allowance for credit losses during the third quarter of 2020. Net charge-offs in the third quarter of 20172021 were $330$147 million, compared with $315$515 million in the third quarter of 2016.2020. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Net income attributable to U.S. Bancorp for the first nine months of 20172021 was $4.5$6.3 billion, or $2.55$4.04 per diluted common share, compared with $4.4$3.4 billion, or $2.43$2.11 per diluted common share, for the first nine months of 2016.2020. Return on average assets and return on average common equity were 1.361.53 percent and 13.417.0 percent, respectively, for the first nine months of 2017,2021, compared with 1.370.87 percent and 13.49.3 percent, respectively, for the first nine months of 2016.

2020.

Total net revenue for the first nine months of 20172021 was $546$431 million (3.4(2.5 percent) lower than the first nine months of 2020, reflecting a 2.9 percent decrease in net interest income (2.8 percent on a taxable-equivalent basis) and a 2.0 percent decrease in noninterest income. The decrease in net interest income from the first nine months of 2020 was due to changes in loan portfolio composition, lower average loan balances, the impact of lower interest rates compared with the prior year and higher premium amortization in the investment portfolio related to mortgage refinance activities, partially offset by changes in deposit and funding mix as well as higher loan fees related to the SBA Paycheck Protection Program. The noninterest income decrease was driven by lower mortgage banking revenue, commercial products revenue and securities gains, partially offset by improvements in payment services revenue, trust and investment management fees, treasury management fees, investment products fees, deposit service charges and other noninterest income.
Noninterest expense in the first nine months of 2021 was $190 million (1.9 percent) higher than the first nine months of 2016,2020, reflecting a 6.1 percent increaseincreases in net interest income (6.0 percent on a taxable-equivalent basis)compensation expense, technology and a 0.3 percent increase in noninterest income. The increase in net interest income from a year ago was mainly a result of loan growthcommunications expense, professional services expense, and the impact of rising interest rates. The noninterest income increase was driven by higher payment services revenue, trustmarketing and investment management fees and treasury management fees,business development expense, partially offset by lower mortgage banking revenuenet occupancy and lower equity investment income, reflecting the impactequipment expense and other noninterest expense.
4
U.S. Bancorp
Table of the sale of the Company’s membership in Visa Europe Limited (“Visa Europe”) to Visa Inc. in the second quarter of 2016.

Noninterest expense in the first nine months of 2017 was $334 million (3.9 percent) higher than the first nine months of 2016, the result of increased compensation expense related to hiring to support business growth and compliance programs, merit increases and higher variable compensation, as well as the impact of a Federal Deposit Insurance Corporation (“FDIC”) insurance surcharge which began in late 2016. The increase from the first nine months of 2016 was partially offset by an increase in reserves related to legal and regulatory matters and a charitable contribution, both recognized in the second quarter of 2016.

Contents

The provision for credit losses for the first nine months of 20172021 was a benefit of $1.1$1.2 billion, which was $73 million (7.4 percent) higher than$4.5 billion favorable compared to the first nine months of 2016.2020, driven by a decrease in the allowance for credit losses during the first nine months of 2021 as a result of improvement in the global economy and strong credit and collateral performance, compared with an increase in the allowance for credit losses during the first nine months of 2020. Net charge-offs in the first nine months of 20172021 were $1.0 billion,$550 million, compared with $947 million$1.3 billion in the first nine months of 2016.2020. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

U.S. Bancorp3

Pending Acquisition

 In September 2021, the Company announced that it has entered into a definitive agreement to acquire MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group (“MUFG”), for a purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of U.S. Bancorp common stock. Upon close of the transaction, MUFG will hold approximately 2.9 percent of the Company’s common stock. The transaction excludes the purchase of MUFG Union Bank’s Global Corporate & Investment Bank, certain middle and back office functions, and other assets. MUFG Union Bank currently has approximately 300 branches in California, Washington and Oregon and is expected to add, based on MUFG Union Bank’s June 30, 2021 balance sheet, approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the Company’s consolidated balance sheet. The transaction is expected to close in the first half of 2022, subject to customary closing conditions, including regulatory approvals.
STATEMENT OF INCOME ANALYSIS

Net Interest Income
 Net interest income, on a taxable-equivalent basis, was $3.2 billion in the third quarter and $9.2$9.5 billion in the first nine months of 2017,2021, representing increasesdecreases of $243$55 million (8.3(1.7 percent) and $522$273 million (6.0(2.8 percent), respectively, overcompared with the same periods of 2016.2020. The increasesdecreases were principallyprimarily due to changes in loan mix and lower average loan balances driven by commercial loan growthpaydowns by corporate customers accessing the capital markets and the SBA Paycheck Protection Program, partially offset by changes in deposit and funding mix as well as higher loan fees related to the SBA Paycheck Protection Program. Net interest income further decreased in the first nine months of 2021, compared with the first nine months of 2020, due to higher premium amortization related to securities prepayments and the impact of risinglower interest rates.rates compared with the prior year. Average earning assets were $15.0$17.2 billion (3.8(3.5 percent) higher in the third quarter and $18.2$24.6 billion (4.7(5.2 percent) higher in the first nine months of 2017,2021, compared with the same periods of 2016,2020, reflecting increases in loans,investment securities and other earning assets, and investment securities.primarily driven by higher cash balances, while average loans decreased due to continued paydowns by corporate customers. The net interest margin, on a taxable-equivalent basis, in the third quarter and first nine months of 20172021 was 3.102.53 percent and 3.062.52 percent, respectively, compared with 2.982.67 percent and 3.022.73 percent in the third quarter and first nine months of 2016,2020, respectively. The increasesdecrease in the net interest margin from the same periods of the prior year werewas primarily due to the impact of declining interest rates on loan yields, the mix of earning assets and lower reinvestment yields in the investment portfolio, partially offset by the net benefit of funding composition and higher loan fees. The decrease in net interest margin in the first nine months of 2021, compared with the first nine months of 2020, was further due to higher interest rates and changes inpremium amortization within the loan portfolio mix, partially offset by higher funding costs and higher cash balances.investment portfolio. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” tables for further information on net interest income.

Average total loans in the third quarter and first nine months of 2021 were $14.3 billion (4.6 percent) and $13.9 billion (4.5 percent) lower, respectively, than the same periods of 2020. The decreases were primarily due to lower commercial loans driven by continued paydowns by corporate customers that accessed the capital markets and the SBA Paycheck Protection Program, lower commercial real estate loans as a result of customer paydowns, and lower credit card loans driven by higher customer payment rates. Average total loans further decreased in the third quarter of 2021, compared with the third quarter of 2020, due to lower residential mortgages driven by paydowns. These decreases were partially offset by higher other retail loans, driven by growth in installment loans due to strong auto and recreational vehicle lending, partially offset by lower home equity and second mortgages as more customers chose to refinance their existing first lien residential mortgage balances during the prior year due to the low interest rate environment.
Average investment securities in the third quarter and first nine months of 20172021 were $3.7$23.2 billion (3.4(18.0 percent) and $4.2$29.2 billion (3.9(23.7 percent) higher, respectively, than the same periods of 2016,2020, primarily due to purchases of mortgage-backed, U.S. Treasury and U.S. government mortgage-backedstate and political securities, net of prepayments and maturities, in supportmaturities.
U.S. Bancorp
5
Table of liquidity management.

Average total loans in the third quarter and first nine months of 2017 were $8.0 billion (3.0 percent) and $9.3 billion (3.5 percent) higher, respectively, than the same periods of 2016, due to growth in commercial loans, residential mortgages, other retail loans and credit card loans. The increases were driven by higher demand for loans from new and existing customers. These increases were partially offset by a decrease in commercial real estate loans due to disciplined underwriting of construction and development loans and customers paying down balances, as well as a decrease in loans covered by loss sharing agreements with the FDIC, arun-off portfolio.

Contents

 Table 2
   Noninterest Income
  Three Months Ended
September 30		   Nine Months Ended
September 30		 
(Dollars in Millions) 2021   2020   Percent
Change		   2021   2020   Percent
Change		 
Credit and debit card revenue
 $393   $388    1.3%   $1,125   $976    15.3% 
Corporate payment products revenue
  156    125    24.8    420    371    13.2 
Merchant processing services
  392    347    13.0    1,084    950    14.1 
Trust and investment management fees
  459    434    5.8    1,349    1,295    4.2 
Deposit service charges
  194    170    14.1    531    512    3.7 
Treasury management fees
  155    145    6.9    462    425    8.7 
Commercial products revenue
  277    303    (8.6)    837    904    (7.4) 
Mortgage banking revenue
  418    553    (24.4)    1,063    1,596    (33.4) 
Investment products fees
  62    48    29.2    177    142    24.6 
Securities gains (losses), net
  20    12    66.7    88    143    (38.5) 
Other
  167    187    (10.7)    557    537    3.7 
Total noninterest income
 $2,693   $2,712    (.7)%   $7,693   $7,851    (2.0)% 
Average total deposits for the third quarter and first nine months of 20172021 were $16.6$26.0 billion (5.2(6.4 percent) and $24.3$38.4 billion (7.9(9.8 percent) higher, respectively, than the same periods of 2016.2020, including the acquisition of deposit balances from State Farm Bank in the fourth quarter of 2020. Average noninterest-bearing deposit balancesdeposits for the third quarter and first nine months of 2021 were essentially unchanged$19.6 billion (18.0 percent) and $31.3 billion (33.7 percent) higher, respectively, than the same periods of 2020, primarily due to higher Corporate and Commercial Banking, and Wealth Management and Investment Services balances. The increase in noninterest-bearing deposits in the third quarter and increased $1.9 billion (2.4 percent) in the first nine months of 2017,2021, compared with the same periodsthird quarter of 2016, reflecting increases in Wealth Management and Securities Services, and Consumer and Small Business Banking balances,2020, was partially offset by decreasesa decrease in Wholesale Banking and Commercial Real EstatePayment Services balances. Average total savings deposits for the third quarter and first nine months of 2017 increased $12.72021 were $16.9 billion (6.2(6.4 percent) and $23.2$21.6 billion (12.0(8.4 percent), higher, respectively, overthan the same periods of 2016,the prior year, driven by increases in Consumer and Business Banking balances, partially offset by decreases in Corporate and Commercial Banking balances. The growth in average noninterest-bearing and total savings deposits was primarily a result of growth across all business lines.the actions by the federal government to increase liquidity in the financial system and government stimulus programs. Average time deposits were $3.9 billion (12.2 percent) higher and $787 million (2.4 percent) lower for the third quarter and first nine months of 2017,2021 were $10.5 billion (31.0 percent) and $14.5 billion (36.7 percent) lower, respectively, compared withthan the same periods of the prior year. Changes2020, primarily driven by decreases in time deposits are largely related to those deposits managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Provision for Credit Losses The provision for credit losses for the third quarter and first nine months of 2017 increased $35 million (10.8 percent) and $73 million (7.4 percent), respectively, over the same periods of 2016.
 The provision for credit losses was $30a benefit of $163 million higher than net charge-offs infor the third quarter and $50 million higher thannet-charge-offs in$1.2 billion for the first nine months of 2017.2021, representing decreases of $798 million and $4.5 billion, respectively, from the same periods of 2020. The provision for credit losses was $10 million higher than net charge-offs and $35 million higher than net charge-offs indecreases were driven by the third quarter and first nine months of 2016, respectively. The increase inCompany decreasing the allowance for credit losses during the third quarter and first nine monthsin 2021 as a result of 2017 reflected loan portfolio growth and exposures related to recent weather events, partially offset by improvementsimprovement in the energy loanglobal economy, as well as strong credit and residential mortgage portfolios. collateral performance, compared with the Company increasing the allowance for credit losses in 2020 due to deteriorating economic conditions related to
COVID-19.
Net charge-offs increased $15decreased $368 million (4.8(71.5 percent) and $58$795 million (6.1(59.1 percent) in the third quarter and first nine months of 2017,2021, respectively, compared with the same periods of the prior year, primarily due to higher credit card net charge-offs, partially offset by lower net charge-offs related to residential mortgages and commercial and commercial real estate loans.reflecting improvement across all loan categories. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

4U.S. Bancorp

Table 2   Noninterest Income

  Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
(Dollars in Millions) 2017   2016   Percent
Change		       2017   2016   Percent
Change		 

Credit and debit card revenue

 $308   $299    3.0%     $919   $861    6.7% 

Corporate payment products revenue

  201    190    5.8      564    541    4.3 

Merchant processing services

  405    412    (1.7)      1,190    1,188    .2 

ATM processing services

  92    87    5.7      267    251    6.4 

Trust and investment management fees

  380    362    5.0      1,128    1,059    6.5 

Deposit service charges

  192    192    –      553    539    2.6 

Treasury management fees

  153    147    4.1      466    436    6.9 

Commercial products revenue

  221    219    .9      638    654    (2.4) 

Mortgage banking revenue

  213    314    (32.2)      632    739    (14.5) 

Investment products fees

  39    41    (4.9)      120    120    – 

Securities gains (losses), net

  9    10    (10.0)      47    16    * 

Other

  209    172    21.5        646    742    (12.9) 

Total noninterest income

 $2,422   $2,445    (.9)%       $7,170   $7,146    .3% 

*Not meaningful.

Noninterest Income
 Noninterest income was $2.4$2.7 billion in the third quarter and $7.2$7.7 billion in the first nine months of 2017,2021, representing a decreasedecreases of $23$19 million (0.9(0.7 percent) and an increase of $24$158 million (0.3(2.0 percent), respectively, compared with the same periods of 2016.2020. The decrease in the third quarter of 2017, compared with the third quarter of 2016, was principally due todecreases from a year ago reflected lower mortgage banking revenue and commercial products revenue, partially offset by increases in trust and investment management fees, payment services revenue, treasury management fees, and other noninterest income. The increase in the first nine months of 2017, compared with the same period of the prior year, was driven by increases inhigher payment services revenue, trust and investment management fees, anddeposit service charges, treasury management fees as well as higher gains on salesand investment products fees. The decrease in noninterest income in the first nine months of investment2021, compared with the first nine months of 2020, was also due to lower securities partially offset by decreases in mortgage banking revenue and other noninterest income.gains. Mortgage banking revenue decreased due to lower origination and sales volumes from home refinancing, as refinancing activities were significantly higher in the second and third quarters of 2016 due to a decline in longer term interest rates during that period. Trust and investment management fees increased due to favorable market conditions, and net asset and account growth. Payment services revenue was higher due to increases in credit and debit card revenue and corporate payment products revenue, both driven by higher sales volumes. The increases in payment services revenue were partially offset by lower merchant processing services revenue in the third quarter of 20172021, compared with the third quarter of 2020, driven by lower production volume and related gain on sale margins, partially offset by increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities, as well as gains on higher Government National Mortgage Association (“GNMA”) loan sales. The decrease in mortgage banking revenue in the first nine months of 2021, compared with the first nine months of 2020, was due to lower production volume and related gain on sale margins, along with declines in MSR valuations, net of hedging activities. Commercial
6
U.S. Bancorp
Table of Contents
 Table 3
   Noninterest Expense
  Three Months Ended
September 30		   
Nine Months Ended
September 30
 
(Dollars in Millions) 2021  2020  Percent
Change		   2021  2020  Percent
Change		 
Compensation
 $1,847  $1,687   9.5%   $5,448  $4,992   9.1% 
Employee benefits
  336   335   .3    1,057   1,001   5.6 
Net occupancy and equipment
  259   276   (6.2)    780   823   (5.2) 
Professional services
  126   102   23.5    332   307   8.1 
Marketing and business development
  99   72   37.5    237   213   11.3 
Technology and communications
  361   334   8.1    1,082   932   16.1 
Postage, printing and supplies
  69   70   (1.4)    203   214   (5.1) 
Other intangibles
  41   44   (6.8)    119   129   (7.8) 
Other
  291   451   (35.5)    937   1,394   (32.8) 
Total noninterest expense
 $3,429  $3,371   1.7%   $10,195  $10,005   1.9% 
Efficiency ratio (a)
  58.4%   56.6%        59.8%   57.4%     
a)
See
Non-GAAP
Financial Measures beginning on page 35.
products revenue decreased in the third quarter and first nine months of 2021, compared with the same periods of the prior year, primarily due to lower capital markets activity and trading revenue, partially offset by higher syndication revenue and fees. The decrease in commercial products revenue in the first nine months of 2021, compared with the first nine months of 2020, was further offset by higher
non-yield
loan fees as a result of higher unused commitments. Other noninterest income decreased in the third quarter of 2021, compared with the third quarter of 2020, primarily due to the Company exitingthird quarter of 2020 impact of higher equity investment income and transition services agreement revenue associated with the sale of the Company’s ATM third-party servicing business, partially offset by certain joint venturesasset impairments as a result of branch optimization, and higher retail leasing end of term residual gains in the secondthird quarter of 20172021. During 2020, payment services revenue had been adversely affected by the impact of the
COVID-19
pandemic on consumer and the impacts of recent weather events. Treasury management feesbusiness spending, particularly related to travel and entertainment activities. However, spending has continued to strengthen across most sectors driven by government stimulus, local jurisdictions reducing restrictions and consumer behaviors normalizing. As a result, payment services revenue increased in the third quarter and first nine months of 2017,2021, compared with the same periods of 2020. The components of payment services revenue included higher credit and debit card revenue driven by higher net interchange revenue related to sales volume as well as stronger transaction and cash advance fees, partially offset by lower prepaid card processing activities as government stimulus programs dissipated, as well as higher investment in customer acquisition. Corporate payment products revenue increased primarily due to improving business spending, while merchant processing services revenue increased driven by higher sales volume as well as higher merchant and equipment fees. Trust and investment management fees increased primarily due to business growth and favorable market conditions, while deposit service charges increased primarily due to higher customer activity and ATM processing revenue. Treasury management fees increased due to core growth driven by the
COVID-19
economic recovery, while investment products fees increased primarily driven by favorable market conditions and core growth.
Noninterest Expense
 Noninterest expense was $3.4 billion in the third quarter and $10.2 billion in the first nine months of 2021, representing increases of $58 million (1.7 percent) and $190 million (1.9 percent), respectively, over the same periods of 2020. The increases from the prior year reflected higher compensation expense, professional services expense, marketing and business development expense, and technology and communications expense, partially offset by lower net occupancy and equipment expense, and other noninterest expense. Compensation expense increased due to higher performance-based incentives, merit increases and revenue-related compensation driven by business production. Professional services expense increased primarily due to an increase in business investment and related initiatives in the third quarter of 2021. Marketing and business development expense increased due to the timing of marketing campaigns supporting business development and lower marketing activities in 2020 during the pandemic. Technology and communications expense increased primarily due to higher expenditures supporting business technology investments. Employee benefits expense increased in the first nine months of 2021, compared with the first nine months of 2020, primarily due to higher payroll taxes and related benefits, and higher pension expense. Net occupancy and equipment expense decreased in the third quarter and first nine months of 2021, compared with the same periods of the prior year, due to higher transaction volume. Other revenue increased in the third quarter of 2017, compared to the third quarter of 2016, primarily due to higher equity investment income. Other revenue was lower in the first nine months of 2017, compared with the first nine months of 2016, primarily due to lower equity investment income, reflecting the impact of the second quarter 2016 Visa Europe sale.

Noninterest Expense Noninterest expense was $3.0 billion in the third quarter and $9.0 billion in the first nine months of 2017, representing increases of $108 million (3.7 percent) and $334 million (3.9 percent), respectively, over the same periods of 2016. The increases from a year ago were primarily due to higher compensation expense, partially offset by lower professional services expense. Compensation expense increased principally due to the impact of hiring to support business growth and compliance programs, merit increases and higher variable compensation. Professional services expense decreased primarily due to fewer consulting services as compliance programs near maturity. The increase in noninterest expense in the first nine months of 2017, compared with the same period of the prior year, was further offset by decreases in marketing and business development expense and other expense. Marketing and business development expense was lower, primarily due to the impact of the charitable contribution recorded in the second quarter of 2016. Other expense decreased, primarily due to the impact of the increase in reserves related to legal and regulatory matters recorded in the second quarter of 2016, partially offset by the FDIC insurance surcharge which began in late 2016.

U.S. Bancorp 5
7

Table of Contents
Table 3   Noninterest Expense

  Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
(Dollars in Millions) 2017  2016  Percent
Change		       2017  2016  Percent
Change		 

Compensation

 $1,440  $1,329   8.4%     $4,247  $3,855   10.2% 

Employee benefits

  281   280   .4      882   858   2.8 

Net occupancy and equipment

  258   250   3.2      760   741   2.6 

Professional services

  104   127   (18.1)      305   346   (11.8) 

Marketing and business development

  92   102   (9.8)      291   328   (11.3) 

Technology and communications

  246   243   1.2      723   717   .8 

Postage, printing and supplies

  82   80   2.5      244   236   3.4 

Other intangibles

  44   45   (2.2)      131   134   (2.2) 

Other

  492   475   3.6        1,423   1,457   (2.3) 

Total noninterest expense

 $3,039  $2,931   3.7%       $9,006  $8,672   3.9% 

Efficiency ratio (a)

  54.3%   54.5%            55.0%   54.7%     

(a)SeeNon-GAAP Financial Measures beginning on page 31.

branch closures. Other noninterest expense decreased primarily due to higher
COVID-19
related expenses in 2020 including recognizing liabilities related to future delivery exposures for merchant and airline processing, as well as lower costs related to
tax-advantaged
projects which were scaled back in 2020 during the pandemic.
Income Tax Expense
 The provision for income taxes was $589$564 million (an effective rate of 27.321.7 percent) for the third quarter and $1.6$1.7 billion (an effective rate of 26.421.4 percent) for the first nine months of 2017,2021, compared with $566$347 million (an effective rate of 27.218.0 percent) and $1.6 billion$671 million (an effective rate of 26.616.2 percent) for the same periods of 2016.2020, respectively. The increases in the tax rates were due to the marginal impact of providing taxes on higher pretax earnings in 2021. For further information on income taxes, refer to Note 1112 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans
 The Company’s loan portfolio was $278.7$297.6 billion at September 30, 2017,2021, compared with $273.2$297.7 billion at December 31, 2016, an increase2020, a decrease of $5.5 billion (2.0 percent).$99 million. The increasedecrease was driven primarily by higherlower commercial loans, residential mortgages, commercial real estate loans and other retailcredit card loans, partially offset by lower commercial real estate loans, credit card loans and coveredhigher other retail loans.

Commercial loans increased $3.5decreased $1.9 billion (3.8(1.8 percent) at September 30, 2017,2021, compared with December 31, 2016,2020, reflecting higher demand from newpaydowns by corporate customers that accessed the capital markets and existing customers.

the SBA Paycheck Protection Program during the first nine months of 2021.

Residential mortgages held in the loan portfolio increased $2.0decreased $1.2 billion (3.6(1.6 percent) at September 30, 2017,2021, compared with December 31, 2016, as origination activity more than offset the effect of2020, due to customers paying down balances in the first nine months of 2017.2021. Residential mortgages originated and placed in the Company’s loan portfolio include well-secured jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality.

Commercial real estate loans decreased $503 million (1.3 percent) at September 30, 2021, compared with December 31, 2020, the result of customers paying down balances.
Credit card loans decreased $209 million (0.9 percent) at September 30, 2021, compared with December 31, 2020, reflecting higher customer payment rates.
Other retail loans increased $3.0$3.7 billion (5.6(6.4 percent) at September 30, 2017,2021, compared with December 31, 2016, primarily driven by higher2020, due to increases in auto loans and installment and retail leasing loans, partially offset by decreases in student loans, home equity loans and revolving creditretail leasing balances.

Commercial real estate loans decreased $1.7 billion (3.9 percent) at September 30, 2017, compared with December 31, 2016, primarily the result of disciplined underwriting of construction and development loans and customers paying down balances.

Credit card loans decreased $826 million (3.8 percent) at September 30, 2017, compared with December 31, 2016, primarily the result of customers paying down balances.

The Company generally retains portfolio loans through maturity; however, the Company’s intent may change over time based upon various factors such as ongoing asset/liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company’s intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale.

Loans Held for Sale
 Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $3.8$6.2 billion at September 30, 2017,2021, compared with $4.8$8.8 billion at December 31, 2016.2020. The decrease in loans held for sale was principally due to a lower level of mortgage loan closings in the third quarter of 2017.2021, compared with the fourth quarter of 2020. Almost all of the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets; in particular in government agency transactions and to government-sponsored enterprises (“GSEs”).

Investment Securities Investment
 Available-for-sale
investment securities totaled $111.8$149.4 billion at September 30, 2017,2021, compared with $109.3$136.8 billion at December 31, 2016.2020. The $2.5$12.5 billion (2.3(9.2 percent) increase was primarily due to $2.2$15.7 billion of net investment purchases, andpartially offset by a $432 million favorable$3.1 billion unfavorable change in net unrealized gains (losses) on
available-for-sale
investment securities.

6U.S. Bancorp

The Company had no outstanding investment securities classified as
held-to-maturity
Table 4   Investment Securities

  Available-for-Sale       Held-to-Maturity 

At September 30, 2017

(Dollars in Millions)

 

Amortized

Cost

   Fair Value   Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (e)		       Amortized
Cost		   Fair Value   Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (e)		 

U.S. Treasury and Agencies

                 

Maturing in one year or less

 $5,188   $5,177    .5    .82%     $–   $–    –    –% 

Maturing after one year through five years

  13,124    13,066    3.1    1.51      1,546    1,548    3.5    1.80 

Maturing after five years through ten years

  3,851    3,825    5.5    1.86      3,647    3,590    6.2    1.81 

Maturing after ten years

  –    –    –    –        –    –    –    – 

Total

 $22,163   $22,068    2.9    1.41%       $5,193   $5,138    5.4    1.81% 

Mortgage-Backed Securities (a)

                 

Maturing in one year or less

 $99   $101    .6    4.27%     $129   $129    .5    3.08% 

Maturing after one year through five years

  17,946    17,889    4.4    2.03      23,627    23,525    3.8    2.07 

Maturing after five years through ten years

  19,291    19,149    5.9    2.11      14,745    14,635    5.7    2.21 

Maturing after ten years

  2,416    2,422    12.9    2.26        287    288    12.4    2.21 

Total

 $39,752   $39,561    5.6    2.09%       $38,788   $38,577    4.6    2.13% 

Asset-Backed Securities (a)

                 

Maturing in one year or less

 $–   $–    –    –%     $–   $1    .5    1.88% 

Maturing after one year through five years

  333    338    3.8    .95      5    6    3.2    1.91 

Maturing after five years through ten years

  85    87    5.3    2.92      2    2    6.1    2.02 

Maturing after ten years

  –    –    –    –        –    3    16.6    1.85 

Total

 $418   $425    4.1    1.35%       $7   $12    3.9    1.94% 

Obligations of State and Political
Subdivisions (b) (c)

                 

Maturing in one year or less

 $367   $369    .2    7.37%     $–   $–    –    –% 

Maturing after one year through five years

  580    608    3.2    6.04      1    1    3.3    8.15 

Maturing after five years through ten years

  3,519    3,548    8.7    5.41      5    6    8.3    2.77 

Maturing after ten years

  1,215    1,156    19.9    4.94        –    –    –    – 

Total

 $5,681   $5,681    10.0    5.50%       $6   $7    7.8    3.32% 

Other Debt Securities

                 

Maturing in one year or less

 $–   $–    –    –%     $2   $2    –    1.68% 

Maturing after one year through five years

  –    –    –    –      22    22    2.8    2.09 

Maturing after five years through ten years

  –    –    –    –      –    –    –    – 

Maturing after ten years

  –    –    –    –        –    –    –    – 

Total

 $–   $–    –    –%       $24   $24    2.6    2.05% 

Other Investments

 $27   $37    –    .01%       $–   $–    –    –% 

Total investment securities (d)

 $68,041   $67,772    5.1    2.15%       $44,018   $43,758    4.7    2.09% 

(a)Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.
(b)Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount.
(c)Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and contractual maturity for securities with a fair value equal to or below par.
(d)The weighted-average maturity of theavailable-for-sale investment securities was 5.1 years at December 31, 2016, with a corresponding weighted-average yield of 2.06 percent. The weighted-average maturity of theheld-to-maturity investment securities was 4.6 years at December 31, 2016, with a corresponding weighted-average yield of 1.93 percent.
(e)Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis under a federal income tax rate of 35 percent. Yields onavailable-for-sale andheld-to-maturity investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value fromavailable-for-sale toheld-to-maturity. Weighted-average yield and maturity calculations exclude equity securities that have no stated yield or maturity.

  September 30, 2017       December 31, 2016 
(Dollars in Millions) Amortized
Cost		   Percent
of Total		       Amortized
Cost		   Percent
of Total		 

U.S. Treasury and agencies

 $27,356    24.4%     $22,560    20.5% 

Mortgage-backed securities

  78,540    70.1      81,698    74.3 

Asset-backed securities

  425    .4      483    .4 

Obligations of state and political subdivisions

  5,687    5.1      5,173    4.7 

Other debt securities and investments

  51    –        62    .1 

Total investment securities

 $112,059    100.0%       $109,976    100.0% 

U.S. Bancorp7

at September 30, 2021 and December 31, 2020.

The Company’s

available-for-sale
investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a securityportion of a security’s unrealized loss is deemedrelated to be other-than-temporarily impaired.credit and an allowance for credit losses is necessary. At September 30, 2017,2021, the Company’s net unrealized lossesgains on
available-for-sale
investment securities were $269$138 million, compared with $701 million$3.2 billion at December 31, 2016.2020. The favorableunfavorable change in net unrealized gains (losses) was primarily due to increasesdecreases in the fair value of U.S. Treasury, U.S. government mortgage-backed and state and politicalU.S. Treasury securities as a result of changes in interest rates. Gross unrealized losses on
available-for-sale
investment securities totaled $596 million$1.7 billion at September 30, 2017,2021, compared with $1.0 billion$53 million at December 31, 2016.2020. At September 30, 2017,2021, the Company had no plans to sell securities with unrealized losses, and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.

Refer to Notes 34 and 1415 in the Notes to Consolidated Financial Statements for further information on investment securities.

8
U.S. Bancorp
Table of Contents
 Table 4
   Available-for-Sale
Investment Securities
  September 30, 2021   December 31, 2020 
(Dollars in Millions) Amortized
Cost		   Fair Value  Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (d)		   Amortized
Cost		   Fair Value  Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (d)		 
U.S. Treasury and agencies
 $18,460   $18,491   5.1    1.57%   $21,954   $22,391   3.8    1.37% 
Mortgage-backed securities (a)
  120,887    120,482   5.1    1.55    103,282    105,374   3.0    1.47 
Asset-backed securities (a)
  64    69   3.8    1.51    200    205   6.2    1.47 
Obligations of state and political subdivisions (b) (c)
  9,820    10,327   7.4    3.71    8,166    8,861   6.3    3.99 
Other
  7    7   3.7    2.07    9    9   .1    1.81 
Total investment securities
 $149,238   $149,376   5.3    1.69%   $133,611   $136,840   3.4    1.61% 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
Yields on investment securities are computed based on amortized cost balances. Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent.
Deposits
 Total deposits were $342.6$442.9 billion at September 30, 2017,2021, compared with $334.6$429.8 billion at December 31, 2016, the result of2020. The $13.1 billion (3.1 percent) increase in total deposits reflected increases in noninterest-bearing and total savings deposits and time deposits, partially offset by a decrease in noninterest-bearingtime deposits. Noninterest-bearing deposits increased $17.5 billion (14.8 percent) at September 30, 2021, compared with December 31, 2020, primarily due to higher Corporate and Commercial Banking, Wealth Management and Investment Services, and Consumer and Business Banking balances. Interest checking balances increased $3.7$7.8 billion (5.6(8.2 percent) primarily due to higher Wholesale Banking and Commercial Real Estate, and Consumer and Small Business Banking balances. Savingswhile savings account balances increased $1.9$7.0 billion (4.6(12.4 percent), primarily due toboth driven by higher Consumer and Small Business Banking balances. Money market deposit balances decreased $2.1$11.4 billion (1.9(8.9 percent) at September 30, 2017,2021, compared with December 31, 2016,2020, primarily due to lower Wholesale Banking and Commercial Real Estate balances, partially offset by higher Wealth Management and SecuritiesInvestment Services, and Corporate and Commercial Banking balances. Time deposits increased $8.4decreased $7.8 billion (27.5(25.5 percent) at September 30, 2017,2021, compared with December 31, 2016,2020, driven by an increasea decrease in those deposits managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing and liquidity characteristics, partially offset by loweralong with a decrease in Consumer and Small Business Banking balances resulting from maturities. Noninterest-bearing deposits decreased $3.9 billion (4.6 percent) at September 30, 2017, compared with December 31, 2016, primarily due to lower Wholesale Banking and Commercial Real Estate, and Wealth Management and Securities Services balances, partially offset by higher Consumer and Small Business Banking balances.

Borrowings
 The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $15.9$16.1 billion at September 30, 2017,2021, compared with $14.0$11.8 billion at December 31, 2016.2020. The $1.9$4.3 billion (13.6(36.7 percent) increase in short-term borrowings was primarily due to higher other short-term borrowings balances, partially offset by lowercommercial paper, repurchase agreement and federal funds purchased balances. Long-term debt was $34.5$35.7 billion at September 30, 2017,2021, compared with $33.3$41.3 billion at December 31, 2016.2020. The $1.2$5.6 billion (3.6(13.6 percent) increasedecrease was primarily due to issuances of $3.9 billion of medium-term notes and $3.4 billion of bank notes, partially offset by $2.8$3.7 billion of bank note repayments $1.3and maturities, $1.5 billion of medium-term note maturitiesrepayments and a $2.1$1.0 billion decrease in Federal Home Loan Bank (“FHLB”) advances.advances, partially offset by $1.0 billion of bank note issuances. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.

8U.S. Bancorp

CORPORATE RISK PROFILE

Overview
Managing risks is an essential part of successfully operating a financial services company. The Company’s Board of Directors has approved a risk management framework which establishes governance and risk management requirements for all risk-taking activities. This framework includes Company and business line risk appetite statements which set boundaries for the types and amount of risk that may be undertaken in pursuing business objectives and initiatives. The Board of Directors, primarily through its Risk Management Committee, oversees performance relative to the risk management framework, risk appetite statements, and other policy requirements.

The Executive Risk Committee (“ERC”), which is chaired by the Chief Risk Officer and includes the Chief Executive Officer and other members of the executive management team, oversees execution against the risk management framework and risk appetite statements. The ERC focuses on current and emerging risks, including strategic and reputationalreputation risks, by directing timely and comprehensive actions. Senior operating committees have also been established, each responsible for overseeing a specified category of risk.

U.S. Bancorp
9
Table of Contents
The Company’s most prominent risk exposures are credit, interest rate, market, liquidity, operational, compliance, strategic, and reputational.reputation. Leveraging the Company’s risk management framework, the specific impacts of
COVID-19
and related risks are identified for each of the most prominent exposures. With respect to direct impacts from
COVID-19,
oversight and governance is managed through a centralized command center with frequent reporting to the Managing Committee and ERC. The Board of Directors also oversees the Company’s responsiveness to the
COVID-19
pandemic. Credit risk is the risk of not collectingloss associated with a change in the interest and/credit profile or the principal balancefailure of a loan, investmentborrower or derivative contract when it is due.counterparty to meet its contractual obligations. Interest rate risk is the potential reduction of net interest incomecurrent or prospective risk to earnings and capital, or market valuations, as a resultarising from the impact of changes in interest rates. Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and
available-for-sale
securities, mortgage loans held for sale (“MLHFS”), mortgage servicing rights (“MSRs”)MSRs and derivatives that are accounted for on a fair value basis. Liquidity risk is the possiblerisk that financial condition or overall safety and soundness is adversely affected by the Company’s inability, or perceived inability, to fundmeet its cash flow obligations or new business at a reasonable cost and in a timely manner.and complete manner in either normal or stressed conditions. Operational risk is the risk of loss resultingto current or projected financial condition and resilience arising from inadequate or failed internal processes people or systems, people (including human errors or frommisconduct), or adverse external events, including the risk of loss resulting from breaches in data security. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business. Compliance risk is the risk of loss arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards, potentially exposingthat the Company may suffer legal or regulatory sanctions, financial losses, and reputational damage if it fails to fines, civil money penalties, payment of damagesadhere to compliance requirements and the voiding of contracts. Compliance risk also arises in situations where the laws or rules governing certain Company products or activities of the Company’s customers may be ambiguous or untested.compliance policies. Strategic risk is the risk to earningscurrent or capitalprojected financial condition and resilience arising from adverse business decisions, or improperpoor implementation of those decisions. Reputationalbusiness decisions, or lack of responsiveness to changes in the banking industry and operating environment. Reputation risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from negative public opinion. This risk may impair the Company’s competitiveness by affecting its ability to establish new relationships offer newor services, or continue serving existing relationships. In addition to the risks identified above, other risk factors exist that may impact the Company. Refer to “Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2016,2020, for a detailed discussion of these factors.

The Company’s Board and management-level governance committees are supported by a “three lines of defense” model for establishing effective checks and balances. The first line of defense, the business lines, manages risks in conformity with established limits and policy requirements. In turn, business line leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, which includes the Chief Risk Officer’s organization as well as policy and oversight activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors first line of defense conformity with limits and policies, and provides reporting and escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee of the Board of Directors and senior management with independent assessment and assurance regarding the effectiveness of the Company’s governance, risk management and control processes.

Management regularly provides reports to the Risk Management Committee of the Board of Directors. The Risk Management Committee discusses with management the Company’s risk management performance, and provides a summary of key risks to the entire Board of Directors, covering the status of existing matters, areas of potential future concern and specific information on certain types of loss events. The Risk Management Committee considers quarterly reports by management assessing the Company’s performance relative to the risk appetite statements and the associated risk limits, including:

Qualitative
Macroeconomic environment and other qualitative considerations, such as the macroeconomic environment, regulatory and compliance changes, litigation developments, and technology and cybersecurity;

U.S. Bancorp9

Capital ratios and projections, including regulatory measures and stressed scenarios;
Credit measures, including adversely rated and nonperforming loans, leveraged transactions, credit concentrations and lending limits;
Interest rate and market risk, including market value and net income simulation, and trading-related Value at Risk (“VaR”);
Liquidity risk, including funding projections under various stressed scenarios;
Operational and compliance risk, including losses stemming from events such as fraud, processing errors, control breaches, breaches in data security or adverse business decisions, as well as reporting on technology performance, and various legal and regulatory compliance measures;
Capital ratios and projections, including regulatory measures and stressed scenarios; and
Reputational
10
U.S. Bancorp
Table of Contents
Strategic and strategicreputation risk considerations, impacts and responses.

Credit Risk Management
 The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. 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), collateral values, trends in loan performance and macroeconomic factors, such as changes in unemployment rates, gross domestic product levels and consumer bankruptcy filings.filings, as well as the potential impact on customers and the domestic economy resulting from the
COVID-19
pandemic. The Risk Management Committee oversees the Company’s credit risk management process.

In addition, credit quality ratings as defined by the Company, are an important part of the Company’s overall credit risk management and evaluation of its allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Loans with a special mention or classified rating, including consumer lending and small business loans that are 90 days or more past due and still accruing, nonaccrual loans, those loans considered troubled debt restructurings (“TDRs”), and loans in a junior lien position that are current but are behind a modified or delinquent loan in a first lien position on nonaccrual, encompass all loans held by the Company that it considers to have a potential or well-defined weakness that may put full collection of contractual cash flows at risk. The Company’s internal credit quality ratings for consumer loans are primarily based on delinquency and nonperforming status, except for a limited population of larger loans within those portfolios that are individually evaluated. For this limited population, the determination of the internal credit quality rating may also consider collateral value and customer cash flows. Refer to Note 45 in the Notes to Consolidated Financial Statements for further discussion of the Company’s loan portfolios including internal credit quality ratings. In addition, refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016,2020, for a more detailed discussion on credit risk management processes.

The Company manages its credit risk, in part, through diversification of its loan portfolio andwhich is achieved through limit setting by product type criteria, such as industry, and identification of credit concentrations. As part of its normal business activities, the Company offers a broad array of lending products. The Company categorizes its loan portfolio into threetwo segments, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses. The Company’s threetwo loan portfolio segments are commercial lending and consumer lending and covered loans.

lending.

The commercial lending segment includes loans and leases made to small business, middle market, large corporate, commercial real estate, financial institution,
non-profit
and public sector customers. Key risk characteristics relevant to commercial lending segment loans include the industry and geography of the borrower’s business, purpose of the loan, repayment source, borrower’s debt capacity and financial flexibility, loan covenants, and nature of pledged collateral, if any.any, as well as macroeconomic factors such as unemployment rates, gross domestic product levels, corporate bond spreads and long-term interest rates, all of which have been impacted by the
COVID-19
pandemic. These risk characteristics, among others, are considered in determining estimates about the likelihood of default by the borrowers and the severity of loss in the event of default. The Company considers these risk characteristics in assigning internal risk ratings to, or forecasting losses on, these loans, which are the significant factors in determining the allowance for credit losses for loans in the commercial lending segment.

Included within the commercial lending segment are energy loans, which represented 0.9 percent of the Company’s total loans outstanding at September 30, 2017. The effects of low energy prices beginning in late 2014, have resulted in higher than historical levels of criticized commitments and nonperforming assets at September 30, 2017 and December 31, 2016.

The following table provides a summary of the Company’s energy loans:

(Dollars in Millions) 

September 30,

2017

  

December 31,

2016

 

Loans outstanding

 $2,498  $2,642 

Total commitments

  10,262   10,955 

Total criticized commitments

  1,282   2,847 

Nonperforming assets

  120   257 

Allowance for credit losses as a percentage of loans outstanding

  5.0%   7.8% 

10U.S. Bancorp

The consumer lending segment represents loans and leases made to consumer customers, including residential mortgages, credit card loans, and other retail loans such as revolving consumer lines, auto loans and leases, home equity loans and lines, and student loans, a

run-off
portfolio. Home equity or second mortgage loans are junior lien
closed-end
accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a
10-
or
15-year
fixed payment amortization schedule. Home equity lines are revolving accounts giving the borrower the ability to draw and repay balances repeatedly, up to a maximum commitment, and are secured by residential real estate. These include accounts in either a first or junior lien position. Typical terms on home equity lines in the portfolio are variable rates benchmarked to the prime rate, with a
10-
or
15-year
draw period during which a minimum payment is equivalent to the monthly interest, followed by a
20-
or
10-year
amortization period, respectively. At September 30, 2017,2021, substantially all of the Company’s home equity lines were in the draw period. Approximately $1.3$1.2 billion, or 912 percent, of the outstanding home equity line balances at September 30, 2017,2021, will enter the amortization period within the next 36 months. Key risk characteristics relevant to consumer
U.S. Bancorp
11
Table of Contents
lending segment loans primarily relate to the borrowers’ capacity and willingness to repay and include unemployment rates, consumer bankruptcy filings and other economicmacroeconomic factors, customer payment history and credit scores, and in some cases, updated
loan-to-value
(“LTV”) information reflecting current market conditions on real estate basedestate-based loans. These and other risk characteristics, among others,including risk resulting from the
COVID-19
pandemic, are reflected in forecasts of delinquency levels, bankruptcies and losses which are the primary factors in determining the allowance for credit losses for the consumer lending segment.

The covered loan segment represents loans acquired in FDIC-assisted transactions that are covered by loss sharing agreements with the FDIC that greatly reduce the risk of future credit losses to the Company. Key risk characteristics for covered segment loans are consistent with the segment they would otherwise be included in had the loss share coverage not been in place, but consider the indemnification provided by the FDIC.

The Company further disaggregates its loan portfolio segments into various classes based on their underlying risk characteristics. The two classes within the commercial lending segment are commercial loans and commercial real estate loans. The three classes within the consumer lending segment are residential mortgages, credit card loans and other retail loans. The covered loan segment consists of only one class.

The Company’s consumer lending segment utilizes several distinct business processes and channels to originate consumer credit, including traditional branch lending, mobile and
on-line
banking, indirect lending, portfolio acquisitions,alliance partnerships, correspondent banks and loan brokers. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles.

Residential mortgage originations are generally limited to prime borrowers and are performed through the Company’s branches, loan production offices, mobile and
on-line
services and a wholesale network of originators. The Company may retain residential mortgage loans it originates on its balance sheet or sell the loans into the secondary market while retaining the servicing rights and customer relationships. Utilizing the secondary markets enables the Company to effectively reduce its credit and other asset/liability risks. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is also diversified by geography and managed by adherence to LTV and borrower credit criteria during the underwriting process.

The Company estimates updated LTV information on its outstanding residential mortgages quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current estimate of property value. For home equity and second mortgages, combined
loan-to-value
(“CLTV”) is the combination of the first mortgage original principal balance and the second lien outstanding principal balance, relative to the current estimate of property value. Certain loans do not have aan LTV or CLTV, primarily due to lack of availability of relevant automated valuation model and/or home price indices values, or lack of necessary valuation data on acquired loans.

U.S. Bancorp11

The following tables provide summary information of residential mortgages and home equity and second mortgages by LTV and borrower type at September 30, 2017:

Residential Mortgages

(Dollars in Millions)

 Interest
Only		  Amortizing  Total  Percent
of Total		 

Loan-to-Value

    

Less than or equal to 80%

 $1,885  $49,598  $51,483   86.8% 

Over 80% through 90%

  7   3,254   3,261   5.5 

Over 90% through 100%

  11   560   571   1.0 

Over 100%

  5   537   542   .9 

No LTV available

  6   38   44   .1 

Loans purchased from GNMA mortgage pools (a)

  –   3,416   3,416   5.7 

Total

 $1,914  $57,403  $59,317   100.0% 

Borrower Type

    

Prime borrowers

 $1,914  $52,753  $54,667   92.2% 

Sub-prime borrowers

  –   845   845   1.4 

Other borrowers

  –   389   389   .7 

Loans purchased from GNMA mortgage pools (a)

  –   3,416   3,416   5.7 

Total

 $1,914  $57,403  $59,317   100.0% 

2021:
Residential Mortgages
(Dollars in Millions)		 Interest
Only		  Amortizing  Total  Percent
of Total		 
Loan-to-Value
    
Less than or equal to 80%
 $3,243  $60,169  $63,412   84.6% 
Over 80% through 90%
  4   1,706   1,710   2.3 
Over 90% through 100%
  —   179   179   .2 
Over 100%
  —   79   79   .1 
No LTV available
  —   32   32   — 
Loans purchased from GNMA mortgage pools (a)
  —   9,542   9,542   12.8 
Total (b)
 $3,247  $71,707  $74,954   100.0% 
(a)
Represents loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

Home Equity and Second Mortgages
(Dollars in Millions)		 Lines  Loans  Total  Percent
of Total		 

Loan-to-Value

    

Less than or equal to 80%

 $11,972  $605  $12,577   77.1% 

Over 80% through 90%

  2,129   711   2,840   17.4 

Over 90% through 100%

  390   117   507   3.1 

Over 100%

  261   25   286   1.8 

No LTV/CLTV available

  85   13   98   .6 

Total

 $14,837  $1,471  $16,308   100.0% 

Borrower Type

    

Prime borrowers

 $14,548  $1,387  $15,935   97.7% 

Sub-prime borrowers

  53   75   128   .8 

Other borrowers

  236   9   245   1.5 

Total

 $14,837  $1,471  $16,308   100.0% 

The total amount of consumer lending segment residential mortgage, home equity and second mortgage loans to customers that may be defined assub-prime borrowers represented only 0.2 percent of the Company’s total assets at September 30, 2017 and December 31, 2016. The Company considerssub-prime loans to be loans made to borrowers with a risk of default significantly higher than those approved for prime lending programs, as reflected in credit scores obtained from independent agencies at loan origination, in addition to other credit underwriting criteria.Sub-prime portfolios include only loans originated according to the Company’s underwriting programs specifically designed to serve customers with weakened credit histories. Thesub-prime designation indicators have been and will continue to be subject tore-evaluation over time as borrower characteristics, payment performance and economic conditions change. Thesub-prime loans originated during periods from June 2009 and after are with borrowers who met the Company’s program guidelines and have a credit score that generally is at or below a threshold of 620 to 650 depending on the program.Sub-prime loans originated during periods prior to June 2009 were based upon program level guidelines without regard to credit score.

(b)
At September 30, 2021, approximately $443 million of residential mortgage balances were considered
sub-prime.
Home Equity and Second Mortgages
(Dollars in Millions)
 Lines  Loans  Total  Percent
of Total		 
Loan-to-Value
    
Less than or equal to 80%
 $9,379  $636  $10,015   93.4% 
Over 80% through 90%
  266   244   510   4.8 
Over 90% through 100%
  48   26   74   .7 
Over 100%
  48   5   53   .5 
No LTV/CLTV available
  63   3   66   .6 
Total (a)
 $9,804  $914  $10,718   100.0% 
(a)
At September 30, 2021, approximately $37 million of home equity and second mortgage balances were considered
sub-prime.
Home equity and second mortgages were $16.3$10.7 billion at September 30, 2017,2021, compared with $16.4$12.5 billion at December 31, 2016,2020, and included $4.8$3.1 billion of home equity lines in a first lien position and $11.5$7.6 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at September 30, 2017,2021, included approximately $4.9$2.8 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $6.6$4.8 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines including delinquency, estimated average CLTV ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.

12
U.S. Bancorp
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The following table provides a summary of delinquency statistics and other credit quality indicators for the Company’s junior lien positions at September 30, 2017:

  Junior Liens Behind    
(Dollars in Millions) Company Owned
or Serviced
First Lien		  Third Party
First Lien		  Total 

Total

 $4,882  $6,653  $11,535 

Percent 30-89 days past due

  .27%   .44%   .37% 

Percent 90 days or more past due

  .06%   .07%   .06% 

Weighted-average CLTV

  72%   68%   69% 

Weighted-average credit score

  777   772   774 

2021:

  Junior Liens Behind    
(Dollars in Millions) Company Owned
or Serviced First
Lien		  Third Party
First Lien		  Total 
Total
 $2,750  $4,837  $7,587 
Percent 30—89 days past due
  .49%   .38%   .42% 
Percent 90 days or more past due
  .06%   .06%   .06% 
Weighted-average CLTV
  59%   56%   57% 
Weighted-average credit score
  782   781   781 
See the “Analysis and Determination of the Allowance for Credit Losses” section for additional information on how the Company determines the allowance for credit losses for loans in a junior lien position.

12U.S. Bancorp

Table 5   Delinquent Loan Ratios as a Percent of Ending Loan Balances

90 days or more past dueexcluding nonperforming loans September 30,
2017		  December 31,
2016		 

Commercial

  

Commercial

  .06%   .06% 

Lease financing

  —   — 

Total commercial

  .05   .06 

Commercial Real Estate

  

Commercial mortgages

  —   .01 

Construction and development

  .03   .05 

Total commercial real estate

  .01   .02 

Residential Mortgages (a)

  .18   .27 

Credit Card

  1.20   1.16 

Other Retail

  

Retail leasing

  .03   .02 

Home equity and second mortgages

  .24   .25 

Other

  .13   .13 

Total other retail (b)

  .15   .15 

Total loans, excluding covered loans

  .18   .20 

Covered Loans

  4.66   5.53 

Total loans

  .23%   .28% 
90 days or more past dueincluding nonperforming loans September 30,
2017		  December 31,
2016		 

Commercial

  .33%   .57% 

Commercial real estate

  .30   .31 

Residential mortgages (a)

  .98   1.31 

Credit card

  1.20   1.18 

Other retail (b)

  .43   .45 

Total loans, excluding covered loans

  .55   .71 

Covered loans

  4.84   5.68 

Total loans

  .60%   .78% 

(a)Delinquent loan ratios exclude $1.8 billion at September 30, 2017, and $2.5 billion at December 31, 2016, of loans purchased from GNMA mortgage pools whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due including all nonperforming loans was 4.09 percent at September 30, 2017, and 5.73 percent at December 31, 2016.
(b)Delinquent loan ratios exclude student loans that are guaranteed by the federal government. Including these loans, the ratio of total other retail loans 90 days or more past due including all nonperforming loans was ..54 percent at September 30, 2017, and .63 percent at December 31, 2016.

Loan Delinquencies
Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. The Company measures delinquencies, both including and excluding nonperforming loans, to enable comparability with other companies. Accruing loans 90 days or more past due totaled $649$385 million ($497 million excluding covered loans) at September 30, 2017,2021, compared with $764$477 million ($552 million excluding covered loans) at December 31, 2016.2020. These balances exclude loans purchased from Government National Mortgage Association (“GNMA”)GNMA mortgage pools whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, as well as student loans guaranteed by the federal government.Affairs. Accruing loans 90 days or more past due are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, are in the process of collection and are reasonably expected to result in repayment or restoration to current status, or are managed in homogeneous portfolios with specified
charge-off
timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans was 0.230.13 percent (0.18 percent excluding covered loans) at September 30, 2017,2021 compared with 0.280.16 percent (0.20 percent excluding covered loans) at December 31, 2016.

2020.
 Table 5
   Delinquent Loan Ratios as a Percent of Ending Loan Balances
90 days or more past due
excluding
nonperforming loans		  September 30,
2021		  December 31,
2020		 
Commercial
   
Commercial
   .04%   .06% 
Lease financing
   —   — 
Total commercial
   .04   .05 
Commercial Real Estate
   
Commercial mortgages
   .01   — 
Construction and development
   .16   .02 
Total commercial real estate
   .05   .01 
Residential Mortgages (a)
   .15   .18 
Credit Card
   .66   .88 
Other Retail
   
Retail leasing
   .03   .05 
Home equity and second mortgages
   .37   .36 
Other
   .05   .10 
Total other retail
   .11   .15 
Total loans
   .13%   .16% 
90 days or more past due
including
nonperforming loans		  September 30,
2021		  December 31,
2020		 
Commercial
   .25%   .42% 
Commercial real estate
   .82   1.15 
Residential mortgages (a)
   .47   .50 
Credit card
   .66   .88 
Other retail
   .36   .42 
Total loans
   .43%   .57% 
(a)
Delinquent loan ratios exclude $1.5 billion at September 30, 2021, and $1.8 billion at December 31, 2020, of loans purchased from GNMA mortgage pools whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due including all nonperforming loans was 2.50 percent at September 30, 2021, and 2.87 percent at December 31, 2020.
U.S. Bancorp 
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The following table provides summary delinquency information for residential mortgages, credit card and other retail loans included in the consumer lending segment:

  Amount        

As a Percent of Ending

Loan Balances

 
(Dollars in Millions) September 30,
2017		   December 31,
2016		        September 30,
2017		  December 31,
2016		 

Residential Mortgages (a)

         

30-89 days

 $155   $151       .26%   .26% 

90 days or more

  107    156       .18   .27 

Nonperforming

  474    595         .80   1.04 

Total

 $736   $902       1.24%   1.57% 

Credit Card

         

30-89 days

 $296   $284       1.42%   1.31% 

90 days or more

  251    253       1.20   1.16 

Nonperforming

  1    3         —   .01 

Total

 $548   $540       2.62%   2.48% 

Other Retail

         

Retail Leasing

         

30-89 days

 $25   $18       .31%   .28% 

90 days or more

  2    1       .03   .02 

Nonperforming

  7    2         .09   .03 

Total

 $34   $21       .43%   .33% 

Home Equity and Second Mortgages

         

30-89 days

 $62   $60       .38%   .37% 

90 days or more

  39    41       .24   .25 

Nonperforming

  123    128         .75   .78 

Total

 $224   $229       1.37%   1.40% 

Other (b)

         

30-89 days

 $244   $206       .75%   .66% 

90 days or more

  42    41       .13   .13 

Nonperforming

  33    27         .10   .09 

Total

 $319   $274         .98%   .88% 

  Amount        
As a Percent of Ending
Loan Balances
 
(Dollars in Millions) September 30,
2021		   December 31,
2020		        September 30,
2021		  December 31,
2020		 
Residential Mortgages (a)
         
30-89
days
 $153   $244       .20%   .32% 
90 days or more
  114    137       .15   .18 
Nonperforming
  237    245         .32   .32 
Total
 $504   $626       .67%   .82% 
Credit Card
         
30-89
days
 $183   $231       .83%   1.04% 
90 days or more
  147    197       .66   .88 
Nonperforming
  —    —         —   — 
Total
 $330   $428       1.49%   1.92% 
Other Retail
         
Retail Leasing
         
30-89
days
 $  26   $  35       .34%   .43% 
90 days or more
  2    4       .03   .05 
Nonperforming
  11    13         .15   .16 
Total
 $  39   $  52       .52%   .64% 
Home Equity and Second Mortgages
         
30-89
days
 $  46   $  68       .43%   .54% 
90 days or more
  40    45       .37   .36 
Nonperforming
  120    107         1.12   .86 
Total
 $206   $220       1.92%   1.76% 
Other (b)
         
30-89
days
 $179   $215       .42%   .60% 
90 days or more
  22    37       .05   .10 
Nonperforming
  26    34         .06   .09 
Total
 $227   $286         .53%   .79% 
(a)
Excludes $297$946 million of loans
30-89
days past due and $1.8$1.5 billion of loans 90 days or more past due at September 30, 2017,2021, purchased from GNMA mortgage pools that continue to accrue interest, compared with $273 million$1.4 billion and $2.5$1.8 billion at December 31, 2016,2020, respectively.
(b)
Includes revolving credit, installment, automobile and student loans.

The following table provides summary delinquency information for covered loans:

  Amount      As a Percent of Ending
Loan Balances		 
(Dollars in Millions) September 30,
2017		  December 31,
2016		      September 30,
2017		  December 31,
2016		 

30-89 days

 $48  $55     1.48%   1.43% 

90 days or more

  152   212     4.66   5.53 

Nonperforming

  6   6       .18   .16 

Total

 $206  $273       6.32%   7.12% 

Restructured Loans
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered.

Troubled Debt Restructurings
Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in the payments to be received. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. At September 30, 2017,2021, performing TDRs were $4.0$3.3 billion, compared with $4.2$3.6 billion at December 31, 2016. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.

2020.

The Company continues to work with customers to modify loans for borrowers who are experiencing financial difficulties, including those loans acquired through FDIC-assisted acquisitions.difficulties. Many of the Company’s TDRs are determined on a
case-by-case
basis in connection with ongoing loan collection processes. The modifications vary within each of the Company’s loan classes. Commercial lending segment TDRs generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate. The Company may also work with the borrower to make other changes to the loan to mitigate losses, such as obtaining additional collateral and/or guarantees to support the loan.

The Company has also implemented certain residential mortgage loan restructuring programs that may result in TDRs. The Company modifies residential mortgage loans under Federal Housing Administration,

14U.S. Bancorp

United States Department of Veterans Affairs, and its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extensions of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.

14
U.S. Bancorp
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Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers modification solutions over a specified time period, generally up to 60 months.

In accordance with regulatory guidance, the Company considers secured consumer loans that have had debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs. If the loan amount exceeds the collateral value, the loan is charged down to collateral value and the remaining amount is reported as nonperforming.

Modifications

Loan modifications or concessions granted to loanscustomers resulting directly from the effects of the
COVID-19
pandemic, who were otherwise in the covered segment are similar in nature to that described above fornon-covered loans, and the evaluation and determination of TDRcurrent payment status, is similar, except that acquired loans restructured after acquisition are not considered TDRs for purposes of the Company’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. Losses associated with modifications on covered loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss sharing agreements.

to be TDRs.

The following table provides a summary of TDRs by loan class, including the delinquency status for TDRs that continue to accrue interest and TDRs included in nonperforming assets:

      As a Percent of Performing TDRs       

At September 30, 2017

(Dollars in Millions)

 Performing
TDRs		   30-89 Days
Past Due		  90 Days or More
Past Due		  Nonperforming
TDRs		  Total
TDRs		 

Commercial

 $323    2.8%   1.1%  $136(a)  $459 

Commercial real estate

  141    1.6   –   24(b)   165 

Residential mortgages

  1,590    2.8   3.7   348   1,938(d) 

Credit card

  230    10.5   5.9   1(c)   231 

Other retail

  135    3.9   4.6   50(c)   185(e) 

TDRs, excluding GNMA and covered loans

  2,419    3.5   3.4   559   2,978 

Loans purchased from GNMA mortgage pools (g)

  1,571    –   –   –   1,571(f) 

Covered loans

  29    4.8   10.3   4   33 

Total

 $4,019    2.1%   2.1%  $563  $4,582 

      As a Percent of Performing TDRs       
At September 30, 2021
(Dollars in Millions)
 Performing
TDRs		   
30-89 Days

Past Due		  90 Days or More
Past Due		  Nonperforming
TDRs		  Total
TDRs		 
Commercial
 $145    4.9%   2.6%  $112(a)  $257 
Commercial real estate
  122    1.0   —   163(b)   285 
Residential mortgages
  1,428    4.1   3.6   137   1,565(d) 
Credit card
  228    9.9   4.0   —   228 
Other retail
  175    13.3   6.0   42(c)   217(e) 
TDRs, excluding loans purchased from GNMA mortgage pools
  2,098    5.4   3.6   454   2,552 
Loans purchased from GNMA mortgage pools (g)
  1,208    —   —   —   1,208(f) 
Total
 $3,306    3.4%   2.3%  $454  $3,760 
(a)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and small business credit cards with a modified rate equal to 0 percent.
(b)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months).
(c)
Primarily represents loans with a modified rate equal to 0 percent.
(d)
Includes $324$242 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $45$24 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(e)
Includes $78$73 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $13$15 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(f)
Includes $217$193 million of Federal Housing Administration and United States Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $351$152 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(g)
Approximately 4.29.4 percent and 45.234.5 percent of the total TDR loans purchased from GNMA mortgage pools are
30-89
days past due and 90 days or more past due, respectively, but are not classified as delinquent as their repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

U.S. Bancorp 
15

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Short-term and Other Loan Modifications
The Company makes short-term and other modifications that it does not consider to be TDRs, in limited circumstances, to assist borrowers experiencing temporary financial hardships. ConsumerShort-term consumer lending modification programs include payment reductions, deferrals of up to three past due payments, and the ability to return to current status if the borrower makes required payments. The Company may also make short-term modifications to commercial lending loans, with the most common modification being an extension of the maturity date of three months or less. Such extensions generally are used when the maturity date is imminent and the borrower is experiencing some level of financial stress, but the Company believes the borrower will pay all contractual amounts owed. Short-term modified loans
COVID-19
Payment Relief
The Company has offered payment relief, including forbearance, payment deferrals and other customer accommodations, to assist borrowers that have experienced financial hardship resulting from the effects of the
COVID-19
pandemic. The majority of these borrowers were not materialdelinquent on payments at the time they received the payment relief. From March 2020 through September 30, 2021, the Company had approved approximately 384,000 loan modifications for these borrowers, representing approximately $22.0 billion. The loans modified consisted primarily of payment forbearance or deferrals of 90 days or less. A portion of the borrowers who received account modifications are no longer participating in these payment relief programs, as the programs are generally short-term; and at September 30, 2017.

2021, approximately 19,000 accounts, representing approximately $3.0 billion, were currently in an active payment relief program. The recognition of delinquent or nonaccrual loans and loan net charge-offs may be delayed for those customers enrolled in these payment relief programs who would have otherwise moved into past due or nonaccrual status, as these customer accounts do not continue to age during the period the payment delay is provided.

The following table summarizes borrowers enrolled in payment relief programs as a result of the
COVID-19
pandemic at September 30, 2021, as a percentage of the Company’s loans and loan balances:
    Percentage of Loan Accounts
in Payment Relief Programs		   Percentage of Loan Balances
in Payment Relief Programs		   Program Details
Commercial
   .01%    —%   Primarily 3 month payment deferral up to a maximum of 6 months; interest continues to accrue with various payment options
Commercial real estate
   .08    .60   Primarily 3 month payment deferral up to a maximum of 6 months; interest continues to accrue with various payment options
Residential mortgages (a)
   .97    .96   Primarily 6 month payment forbearance, which may be extended up to 18 months; interest continues to accrue; cumulative payments suspended during forbearance period are either
paid-off
immediately or under a short-term repayment plan, or addressed through a permanent loan modification that either requires repayment at maturity or through restructured payments over time
Credit cards
   .02    .04   Primarily payment reduction up to 6 months; payment relief of up to 3 months; interest continues to accrue
Other retail
   .07    .19   Home equity loan programs are similar to residential mortgage programs; programs for other loan portfolios are primarily 2 month payment deferral up to a maximum of 4 months; interest continues to accrue
Total loans (a)
   .04%    .35%    
Note:
Payment relief generally includes payment deferrals, forbearances, extensions and
re-ages,
and excludes loans made under the Small Business Administration’s (“SBA”) Paycheck Protection Program, as amounts due under that program are expected to be fully forgiven by the SBA.
(a)
Excludes loans purchased from GNMA mortgage pools, whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. At September 30, 2021, 19.44 percent of the total number of accounts and 20.91 percent of the total loan balances of loans purchased from GNMA mortgage pools were to borrowers enrolled in payment relief programs as a result of the
COVID-19
pandemic. Including these loans, 5.11 percent of the total number of accounts and 3.50 percent of the total balances of residential mortgages were to borrowers enrolled in payment relief programs as a result of the
COVID-19
pandemic. Including these loans, .15 percent of the total number of accounts and 1.01 percent of the total balances of all loans were to borrowers enrolled in payment relief programs as a result of the
COVID-19
pandemic.
16
U.S. Bancorp
Table of Contents
Nonperforming Assets
The level of nonperforming assets represents another indicator of the potential for future credit losses. Nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms and not accruing interest, restructured loans that have not met the performance period required to return to accrual status, other real estate owned (“OREO”) and other nonperforming assets owned by the Company. Nonperforming assets are generally either originated by the Company or acquired under FDIC loss sharing agreements that substantially reduce the risk of credit losses to the Company. Interest payments collected from assets on nonaccrual status are generally applied against the principal balance and not recorded as income. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.

At September 30, 2017,2021, total nonperforming assets were $1.3 billion,$944 million, compared with $1.6to $1.3 billion at December 31, 2016.2020. The $352$354 million (22.0(27.3 percent) decrease in nonperforming assets was driven by improvementsdecreases in nonperforming commercial loans, residential mortgages and OREO. Nonperforming covered assets were $32 million at September 30, 2017 and December 31, 2016.commercial real estate loans. The ratio of total nonperforming assets to total loans and other real estate was 0.450.32 percent at September 30, 2017,2021, compared with 0.590.44 percent at December 31, 2016.

2020. Nonperforming assets are expected to continue to decline over the next several quarters. However, some manageable levels of elevated nonperforming assets in certain industries and loan categories impacted by the pandemic may experience longer recovery periods.

OREO excluding covered assets, was $164$17 million at September 30, 2017,2021, compared with $186$24 million at December 31, 2016,2020, and was related to foreclosed properties that previously secured loan balances. These balances exclude foreclosed GNMA loans whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

The following table provides an analysis of OREO, excluding covered assets, as a percent of their related loan balances, including geographical location detail for residential (residential mortgage, home equity and second mortgage) and commercial (commercial and commercial real estate) loan balances:

  Amount      As a Percent of Ending
Loan Balances		 
(Dollars in Millions) September 30,
2017		  December 31,
2016		      September 30,
2017		  December 31,
2016		 

Residential

      

Illinois

 $16  $15     .37%   .35% 

Minnesota

  12   12     .19   .19 

Washington

  10   8     .22   .19 

Ohio

  8   9     .28   .31 

Wisconsin

  8   11     .37   .50 

All other states

  102   120       .18   .22 

Total residential

  156   175     .21   .24 

Commercial

      

California

  4   4     .02   .02 

Tennessee

  1   1     .04   .04 

Idaho

  1   –     .07   – 

Virginia

  –   1     –   .05 

New Mexico

  –   –     –   – 

All other states

  2   5       –   – 

Total commercial

  8   11       .01   .01 

Total

 $164  $186       .06%   .07% 

Analysis of Loan Net Charge-Offs Total loan net charge-offs were $330 million for the third quarter and $1.0 billion for the first nine months of 2017, compared with $315 million and $947 million for the same periods of 2016. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the third quarter and first nine months of 2017 was 0.47 percent and 0.49 percent, respectively, compared with 0.46 percent and 0.48 percent for the third quarter and first nine months of 2016, respectively. The year-over-year increases in total net charge-offs reflected higher credit card net charge-offs, partially offset by lower net charge-offs related to residential mortgages and commercial and commercial real estate loans.

16U.S. Bancorp

  Amount       
As a Percent of Ending
Loan Balances
 
(Dollars in Millions) September 30,
2021		  December 31,
2020		       September 30,
2021		  December 31,
2020		 
Residential
       
New York
             $2              $2      .14%   .17% 
California
  2   2      .01   .01 
Oregon
  2   2      .07   .07 
Illinois
  1   2      .02   .04 
Wisconsin
  1   1      .06   .06 
All other states
  9   14        .02   .03 
Total residential
  17   23      .02   .03 
Commercial
       
Iowa
  —   1      —   .04 
All other states
  —   —        —   — 
Total commercial
  —   1        —   — 
Total
             $17              $24        .01%   .01% 
Table 6U.S. Bancorp 
17
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 Table 6
   Nonperforming Assets (a)

(Dollars in Millions) September 30,
2017		  December 31,
2016		 

Commercial

  

Commercial

 $231  $443 

Lease financing

  38   40 

Total commercial

  269   483 

Commercial Real Estate

  

Commercial mortgages

  89   87 

Construction and development

  33   37 

Total commercial real estate

  122   124 

Residential Mortgages (b)

  474   595 

Credit Card

  1   3 

Other Retail

  

Retail leasing

  7   2 

Home equity and second mortgages

  123   128 

Other

  33   27 

Total other retail

  163   157 

Total nonperforming loans, excluding covered loans

  1,029   1,362 

Covered Loans

  6   6 

Total nonperforming loans

  1,035   1,368 

Other Real Estate (c)(d)

  164   186 

Covered Other Real Estate (d)

  26   26 

Other Assets

  26   23 

Total nonperforming assets

 $1,251  $1,603 

Total nonperforming assets, excluding covered assets

 $1,219  $1,571 

Excluding covered assets

  

Accruing loans 90 days or more past due (b)

 $497  $552 

Nonperforming loans to total loans

  .37%   .51% 

Nonperforming assets to total loans plus other real estate (c)

  .44%   .58% 

Including covered assets

  

Accruing loans 90 days or more past due (b)

 $649  $764 

Nonperforming loans to total loans

  .37%   .50% 

Nonperforming assets to total loans plus other real estate (c)

  .45%   .59% 

(Dollars in Millions) September 30,
2021		  December 31,
2020		 
Commercial
  
Commercial
         $179          $321 
Lease financing
  37   54 
Total commercial
  216   375 
Commercial Real Estate
  
Commercial mortgages
  215   411 
Construction and development
  81   39 
Total commercial real estate
  296   450 
Residential Mortgages (b)
  237   245 
Credit Card
  —   — 
Other Retail
  
Retail leasing
  11   13 
Home equity and second mortgages
  120   107 
Other
  26   34 
Total other retail
  157   154 
Total nonperforming loans
  906   1,224 
Other Real Estate (c)
  17   24 
Other Assets
  21   50 
Total nonperforming assets
         $944          $1,298 
Accruing loans 90 days or more past due (b)
         $385          $477 
Nonperforming loans to total loans
  .30%   .41% 
Nonperforming assets to total loans plus other real estate (c)
  .32%   .44% 
Changes in Nonperforming Assets

(Dollars in Millions)  Commercial and
Commercial
Real Estate		  Residential
Mortgages,
Credit Card and
Other Retail		  Covered
Assets		  Total 

Balance December 31, 2016

  $623  $948  $32  $1,603 

Additions to nonperforming assets

     

New nonaccrual loans and foreclosed properties

   377   312   20   709 

Advances on loans

   23   –   –   23 

Total additions

   400   312   20   732 

Reductions in nonperforming assets

     

Paydowns, payoffs

   (360)   (169)   (7)   (536) 

Net sales

   (38)   (126)   (13)   (177) 

Return to performing status

   (7)   (111)   –   (118) 

Charge-offs (e)

   (213)   (40)   –   (253) 

Total reductions

   (618)   (446)   (20)   (1,084) 

Net additions to (reductions in) nonperforming assets

   (218)   (134)   –   (352) 

Balance September 30, 2017

  $405  $814  $32  $1,251 

(Dollars in Millions) Commercial and
Commercial
Real Estate		  Residential
Mortgages,
Credit Card and
Other Retail		  Total 
Balance December 31, 2020
           $854              $444      $1,298 
Additions to nonperforming assets
   
New nonaccrual loans and foreclosed properties
  277   153   430 
Advances on loans
  8   1   9 
Total additions
  285   154   439 
Reductions in nonperforming assets
   
Paydowns, payoffs
  (235)   (79)   (314) 
Net sales
  (173)   (13)   (186) 
Return to performing status
  (111)   (65)   (176) 
Charge-offs (d)
  (105)   (12)   (117) 
Total reductions
  (624)   (169)   (793) 
Net additions to (reductions in) nonperforming assets
  (339)   (15)   (354) 
Balance September 30, 2021
           $515              $429      $944 
(a)
Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)
Excludes $1.8 billion and $2.5$1.5 billion at September 30, 2017,2021, and $1.8 billion at December 31, 2016, respectively,2020, of loans purchased from GNMA mortgage pools that are 90 days or more past due that continue to accrue interest, as their repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
(c)
Foreclosed GNMA loans of $300 million and $373$19 million at September 30, 2017,2021, and $33 million at December 31, 2016, respectively,2020, continue to accrue interest and are recorded as other assets and excluded from nonperforming assets because they are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
(d)
Includes equity investments in entities whose principal assets are other real estate owned.
(e)
Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the
charge-off
occurred.

U.S. Bancorp17

Table 7
18
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Table 7
   Net Charge-offs as a Percent of Average Loans Outstanding

  Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
   2017  2016       2017  2016 

Commercial

      

Commercial

  .34%   .38%     .33%   .37% 

Lease financing

  .29   .23        .27   .33 

Total commercial

  .34   .37     .33   .36 

Commercial Real Estate

      

Commercial mortgages

  (.03)   .06     (.04)   – 

Construction and development

  (.17)   (.14)        (.09)   (.04) 

Total commercial real estate

  (.07)   .01     (.06)   (.01) 

Residential Mortgages

  .05   .08     .06   .12 

Credit Card

  3.55   3.11     3.73   3.25 

Other Retail

      

Retail leasing

  .10   .07     .13   .10 

Home equity and second mortgages

  (.02)   .02     (.02)   .02 

Other

  .73   .68        .74   .68 

Total other retail

  .42   .41        .44   .41 

Total loans, excluding covered loans

  .48   .47     .49   .48 

Covered Loans

  –   –        –   – 

Total loans

  .47%   .46%        .49%   .48% 

  Three Months Ended
September 30		       Nine Months Ended
September 30		 
   2021  2020       2021  2020 
Commercial
       
Commercial
  .05%   .60%      .13%   .41% 
Lease financing
  .08   .78        .15   .52 
Total commercial
  .05   .61      .13   .42 
Commercial Real Estate
       
Commercial mortgages
  .01   1.13      (.05)   .46 
Construction and development
  .44   (.07)        .21   — 
Total commercial real estate
  .13   .81      .02   .34 
Residential Mortgages
  (.05)   (.02)      (.05)   (.01) 
Credit Card
  2.01   3.63      2.52   3.95 
Other Retail
       
Retail leasing
  .05   .94      .02   1.14 
Home equity and second mortgages
  (.11)   (.06)      (.09)   (.01) 
Other
  .20   .43        .26   .59 
Total other retail
  .13   .39        .16   .52 
Total loans
  .20%   .66%        .25%   .58% 
Analysis of Loan Net Charge-Offs
 Total loan net charge-offs were $147 million for the third quarter and $550 million for the first nine months of 2021, compared with $515 million and $1.3 billion, respectively, for the same periods of 2020. The year-over-year decreases in net charge-offs reflected improvement across most loan categories, associated with improving economic conditions, borrower liquidity and strong asset prices in the market that support repayment and recovery on problem loans. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the third quarter and first nine months of 2021 was 0.20 percent and 0.25 percent, respectively, compared with 0.66 percent and 0.58 percent, respectively, for the same periods of 2020. The Company expects net charge-offs to return to more normalized levels over time as the beneficial impact of government stimulus during the pandemic dissipates.
Analysis and Determination of the Allowance for Credit Losses
 The allowance for credit losses reservesis established for probable and estimablecurrent expected credit losses incurred inon the Company’s loan and lease portfolio, including unfunded credit commitments, and includes certain amounts that do not represent loss exposure tocommitments. The allowance considers expected losses for the Company because those losses are recoverable under loss sharing agreements withremaining lives of the FDIC.applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the adequacyappropriateness of the allowance for incurredcredit losses on a quarterly basis.

Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of uncertainties that exist. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments, which is included in other liabilities in the Consolidated Balance Sheet. Both the allowance for loan losses and the liability for unfunded credit commitments are included in the Company’s analysis of credit losses and reported reserve ratios.

The allowance recorded for loans in thecredit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels and corporate bonds spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial lending segment is based on reviews of individual credit relationships and considers the migration analysis of commercial lending segment loans and actual loss experience.consumer credit scores, delinquency status, collateral
U.S. Bancorp
19
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type and available valuation information, consideration of
end-of-term
losses on lease residuals, and the remaining term of the loan, adjusted for expected prepayments. For each loan type, this historical loss experience isportfolio, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or economic conditions. The resultsother factors that may affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously
charged-off
or expected recoveries on collateral-dependent loans where recovery is expected through sale of the collateral. Where loans do not exhibit similar risk characteristics, an individual analysis are evaluated quarterlyis performed to confirm an appropriate historical timeframe is selected for each commercial loan type. consider expected credit losses.
The allowance recorded for impairedindividually evaluated loans greater than $5 million in the commercial lending segment is based on an individual loan analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans rather thanas appropriate. For commercial TDRs individually evaluated for impairment, attributes of the migration analysis. Theborrower are the primary factors in determining the allowance recorded for all other commercialcredit losses. However, historical loss experience is also incorporated into the allowance methodology applied to this category of loans. Commercial lending segment TDR loans may be collectively evaluated for impairment where observed performance history, including defaults, is determined on a homogenous pool basis and includes consideration of product mix, risk characteristicsprimary driver of the portfolio, bankruptcy experience and historical losses, adjusted for current trends.

loss allocation.

The allowance recorded for TDR loans and purchased impaired loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool, orpool. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the prior quarter effective rate, respectively.borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the current fair value of the collateral less costs to sell. The allowance recorded for all other consumer lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status, refreshed LTV ratios when possible, portfolio growth and historical losses, adjusted for current trends. Credit card and other retail loans 90 days or more past due are generally not placed on nonaccrual status because of the relatively short period of time tocharge-off and, therefore, are excluded from nonperforming loans and measures that include nonperforming loans as part of the calculation.

When evaluating the appropriateness of the allowance for credit losses for any loans and lines in a junior lien position, the Company considers the delinquency and modification status of the first lien. At September 30, 2017,2021, the Company serviced the first lien on 4236 percent of the home equity loans and lines in a junior lien position. The Company also considers information received from its primary regulator on the status of the first liens that are serviced by other large servicers in the industry and the status of first lien mortgage accounts reported on customer credit bureau files.files when the first lien is not serviced by the Company. Regardless of whether or not the Company services the first lien, an assessment is made of economic conditions, problem loans, recent loss experience and

18U.S. Bancorp

other factors in determining the allowance for credit losses. Based on the available information, the Company estimated $296$247 million or 1.82.3 percent of theits total home equity portfolio at September 30, 2017,2021, represented

non-delinquent
junior liens where the first lien was delinquent or modified.

modified, excluding loans in COVID-related forbearance programs.

The Company usesconsiders historical loss experience on the loans and lines in a junior lien position where the first lien is serviced by the Company, or can be identified in credit bureau data, to establish loss estimates for junior lien loans and lines the Company services that are current, but the first lien is delinquent or modified. Historically, the number ofThe historical long-term average loss experience related to junior lien defaultsliens has been a small percentagerelatively limited (less than 1 percent of the total portfolio (approximately 1.1 percent annually), while the long-term average loss rate on loans that default has been approximately 90 percent. In addition, the Company obtainsand estimates are adjusted to consider current collateral support and portfolio risk characteristics. These include updated credit scores and collateral estimates obtained on itsthe Company’s home equity portfolio each quarter, and in some cases more frequently, and uses this information to qualitatively supplement its loss estimation methods. Credit score distributions for the portfolio are monitored monthly and any changes in the distribution are one of the factors considered in assessing the Company’s loss estimates.quarter. In its evaluation of the allowance for credit losses, the Company also considers the increased risk of loss associated with home equity lines that are contractually scheduled to convert from a revolving status to a fully amortizing paymentpayment.
Beginning January 1, 2020, when a loan portfolio is purchased, the acquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered purchased with residential linesmore than insignificant credit deterioration. An allowance is established for each population and loans that have a balloon payoff provision.

considers product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status and refreshed LTV ratios when possible. The allowance established for purchased loans not considered PCD is recognized through provision expense upon acquisition, whereas the covered loan segmentallowance established for loans considered PCD at acquisition is evaluated each quarteroffset by an increase in a manner similar to that described fornon-covered loans, and represents any decreases in expected cash flows on those loans after the acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.

In addition, the evaluationbasis of the appropriate allowance for credit losses for purchasednon-impaired loans acquired after January 1, 2009, in the various loan segments considers credit discounts recorded as a part of the initial determination of the fair value of the loans. For these loans, no allowance for credit losses is recorded at the purchase date. Credit discounts representing the principal losses expected over the life of the loans are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for credit losses only when the required allowance, net of any expected reimbursement under any loss sharing agreements with the FDIC, exceeds any remaining credit discounts.

The evaluation of the appropriate allowance for credit losses for purchased impaired loans in the various loan segments considers the expected cash flows to be collected from the borrower. These loans are initially recorded at fair valueAny subsequent increases and therefore, no allowance for credit losses is recorded at the purchase date.

Subsequent to the purchase date, the expected cash flows of purchased loans are subject to evaluation. Decreases in expected cash flows are recognized by recording an allowance for credit losses with the related provision for credit losses reduced for the amount reimbursable by the FDIC, where applicable. If the expected cash flows on the purchased loans increase such that a previously recorded impairment allowance can be reversed, the Company records a reductiondecreases in the allowance with a related reduction in losses reimbursable by the FDIC, where applicable. Increases in expected cash flows ofto purchased loans, when there are no reversalsregardless of previous impairment allowances,PCD status, are recognized overthrough provision expense, with charge-offs charged to the remaining lifeallowance. The Company did not have a material amount of thePCD loans and resulting decreasesincluded in expected cash flows of the FDIC indemnification assets are amortized over the shorter of the remaining contractual term of the indemnification agreements or the remaining life of the loans.

its loan portfolio at September 30, 2021.

The Company’s methodology for determining the appropriate allowance for credit losses for all the loan segments also considers the imprecision inherent in the methodologies used.used and allocated to the various loan portfolios. As a result, in addition to the amounts determined under the methodologies described above are adjusted by management also considersto consider the potential impact of other qualitative factors not captured in quantitative model adjustments which include, but are not limited to, the following: model imprecision,
20
U.S. Bancorp
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imprecision in economic factors; geographicscenario assumptions, and other concentration risks; delinquency and nonaccrual trends; current business conditions;emerging risks related to either changes in lending policy, underwriting standards and other relevant business practices; results of internal review; and the regulatory environment.economic environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio.
Although the Company determined the amount of the above loan segments.

Refer to “Management’s Discussion and Analysis—Analysis of the Allowance for Credit Losses” in the Company’s Annual Report on Form10-K for the year ended December 31, 2016, for further discussion on the analysis and determinationeach element of the allowance separately and considers this process to be an important credit management tool, the entire allowance for credit losses.

losses is available for the entire loan portfolio. The actual amount of losses can vary significantly from the estimated amounts.

At September 30, 2017,2021, the allowance for credit losses was $4.4$6.3 billion (1.58(2.12 percent of
period-end
loans), compared with an allowance of $4.4$8.0 billion (1.59(2.69 percent of
period-end
loans) at December 31, 2016.2020. The ratio of the allowance for credit losses to nonperforming loans was 426695 percent at September 30, 2017,2021, compared with 318654 percent at December 31, 2016.2020. The ratio of the allowance for credit losses to annualized loan net charge-offs was 3371,080 percent at September 30, 2017,2021, compared with 343448 percent of full year 20162020 net charge-offs at December 31, 2016.

2020.
The decrease in the allowance for credit losses of $1.7 billion (21.3 percent) at September 30, 2021, compared with December 31, 2020, reflected factors affecting economic conditions during the first nine months of 2021, including the enactment of additional benefits from government stimulus programs and broad vaccine availability in the United States that has reduced the risks associated with
COVID-19,
contributing to an economic recovery. However, economic uncertainty remains associated with rising inflationary concerns, additional virus variants and lack of a clear path to government funding. In addition to these factors, expected loss estimates consider various factors including customer specific information impacting changes in risk ratings, projected delinquencies and potential effects of diminishing liquidity without support of mortgage forbearance and direct federal stimulus. Currently, consumer credit trends continue to perform better than expected, while select commercial portfolios most impacted by
COVID-19
continue to be monitored for structural shifts associated with the pandemic.
Changes in economic conditions during the first nine months of 2021 included improvements in projected gross domestic product and unemployment levels for 2021, which reflected the additional government stimulus and availability of vaccines. These factors are evaluated through a combination of quantitative calculations using economic scenarios and qualitative assessments that consider the high degree of uncertainty related to the unprecedented levels of both economic stress and the stimulus response.
The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for credit losses at September 30, 2021 and December 31, 2020:
   September 30,
2021		  December 31,
2020		 
United States unemployment rate for the three months ending (a)
  
September 30, 2021
  5.2%   7.0% 
December 31, 2021
  4.5   6.8 
United States real gross domestic product for the three months ending (b)
  
September 30, 2021
  1.8%   .1% 
December 31, 2021
  3.6   1.5 
(a)
Reflects quarterly average of forecasted reported United States unemployment rate.
(b)
Reflects cumulative change from December 31, 2019.
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Baseline economic forecasts are used in combination with alternative scenarios and historical loss experience as is considered reasonable and supportable to inform the Company’s allowance for credit losses. Changes in the allowance for credit losses are based on a variety of factors, including loan balance changes, portfolio credit quality and mix changes, and changes in general economic conditions and expectations (including for unemployment and gross domestic product), among other factors. Based on economic conditions at September 30, 2021, it was difficult to estimate the length and severity of the longer term effects on certain industry sectors that may result from
COVID-19
and the impact of other factors that may influence the level of eventual losses and corresponding requirements for the allowance for credit losses, including the impact of inflationary pressures on certain lending sectors and diminishing liquidity after economic stimulus programs and accommodations delaying mortgage and rent payments end. While reserves consider the uncertainty in these estimates, the unpredictability of the
COVID-19
pandemic could result in the recognition of credit losses in the Company’s loan portfolios and increases in the allowance for credit losses. Scenarios worse than the Company’s expected outcome at September 30, 2021 include risks that government stimulus in response to the
COVID-19
pandemic is less effective than expected, or that a longer or more severe health crisis prolongs the downturn in economic activity, potentially reducing the number of businesses that are ultimately able to resume operations after the crisis has passed. Other factors considered include concerns around inflationary pressures, new virus variants, sustainability of asset values and borrower liquidity, along with the lack of a clear path to government funding.
The allowance for credit losses related to commercial lending segment loans decreased $926 million during the first nine months of 2021, due to improvements in general economic conditions and portfolio credit quality that included some return of economic activity in certain industry sectors affected by
COVID-19.
The following table summarizes the Company’s commercial lending segment credit exposure to customers within the industry sectors most impacted by
COVID-19,
as a percentage of total loans and legal commitments outstanding at September 30, 2021:
   Loans  Outstanding
Commitments		 
Retail
  3.1%   4.7% 
Energy (includes Oil and gas)
  .7   2.1 
Media and entertainment
  1.6   2.1 
Lodging
  1.1   .8 
Airline
  .3   .5 
The allowance for credit losses related to consumer lending segment loans decreased $784 million during the first nine months of 2021, due to improving economic risks, including those due to decreased unemployment, along with continued strong underlying credit quality that supports expectations of long-term repayment.
Table 8
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Table 8
   Summary of Allowance for Credit Losses

  Three Months Ended
September 30,		      Nine Months Ended
September 30,		 
(Dollars in Millions) 2017  2016      2017  2016 

Balance at beginning of period

 $4,377  $4,329    $4,357  $4,306 

Charge-Offs

      

Commercial

      

Commercial

  109   98     296   301 

Lease financing

  6   6       19   21 

Total commercial

  115   104     315   322 

Commercial real estate

      

Commercial mortgages

  1   7     5   10 

Construction and development

  1   2       2   9 

Total commercial real estate

  2   9     7   19 

Residential mortgages

  16   19     49   67 

Credit card

  214   182     653   559 

Other retail

      

Retail leasing

  3   2     11   7 

Home equity and second mortgages

  8   12     25   31 

Other

  75   70       227   205 

Total other retail

  86   84     263   243 

Covered loans (a)

  –   –       –   – 

Total charge-offs

  433   398     1,287   1,210 

Recoveries

      

Commercial

      

Commercial

  30   14     71   65 

Lease financing

�� 2   3       8   8 

Total commercial

  32   17     79   73 

Commercial real estate

      

Commercial mortgages

  3   2     15   11 

Construction and development

  6   6       10   12 

Total commercial real estate

  9   8     25   23 

Residential mortgages

  9   7     22   19 

Credit card

  27   21     72   64 

Other retail

      

Retail leasing

  1   1     4   3 

Home equity and second mortgages

  9   11     28   29 

Other

  16   18       52   52 

Total other retail

  26   30     84   84 

Covered loans (a)

  –   –       –   – 

Total recoveries

  103   83     282   263 

Net Charge-Offs

      

Commercial

      

Commercial

  79   84     225   236 

Lease financing

  4   3       11   13 

Total commercial

  83   87     236   249 

Commercial real estate

      

Commercial mortgages

  (2)   5     (10)   (1) 

Construction and development

  (5)   (4)       (8)   (3) 

Total commercial real estate

  (7)   1     (18)   (4) 

Residential mortgages

  7   12     27   48 

Credit card

  187   161     581   495 

Other retail

      

Retail leasing

  2   1     7   4 

Home equity and second mortgages

  (1)   1     (3)   2 

Other

  59   52       175   153 

Total other retail

  60   54     179   159 

Covered loans (a)

  –   –       –   – 

Total net charge-offs

  330   315     1,005   947 

Provision for credit losses

  360   325     1,055   982 

Other changes (b)

  –   (1)       –   (3) 

Balance at end of period (c)

 $4,407  $4,338      $4,407  $4,338 

Components

      

Allowance for loan losses

 $3,908  $3,797     

Liability for unfunded credit commitments

  499   541       

Total allowance for credit losses

 $4,407  $4,338       

Allowance for Credit Losses as a Percentage of

      

Period-end loans, excluding covered loans

  1.59%   1.61%     

Nonperforming loans, excluding covered loans

  425   309     

Nonperforming and accruing loans 90 days or more past due, excluding covered loans

  287   225     

Nonperforming assets, excluding covered assets

  359   264     

Annualized net charge-offs, excluding covered loans

  334   343     

Period-end loans

  1.58%   1.60%     

Nonperforming loans

  426   310     

Nonperforming and accruing loans 90 days or more past due

  262   202     

Nonperforming assets

  352   261     

Annualized net charge-offs

  337   346             

  Three Months Ended
September 30		  Nine Months Ended
September 30		 
(Dollars in Millions) 2021  2020  2021  2020 
Balance at beginning of period
 $6,610  $7,890  $8,010  $4,491 
Change in accounting principle (a)
  —   —   —   1,499 
Charge-Offs
    
Commercial
    
Commercial
  37   180   171   378 
Lease financing
  3   13   13   28 
Total commercial
  40   193   184   406 
Commercial real estate
    
Commercial mortgages
  1   88   9   107 
Construction and development
  13   1   19   5 
Total commercial real estate
  14   89   28   112 
Residential mortgages
  3   4   13   15 
Credit card
  154   236   536   775 
Other retail
    
Retail leasing
  5   25   20   86 
Home equity and second mortgages
  3   3   9   14 
Other
  47   61   164   216 
Total other retail
  55   89   193   316 
Total charge-offs
  266   611   954   1,624 
Recoveries
    
Commercial
    
Commercial
  24   13   80   37 
Lease financing
  2   2   7   6 
Total commercial
  26   15   87   43 
Commercial real estate
    
Commercial mortgages
  —   3   20   4 
Construction and development
  1   3   2   5 
Total commercial real estate
  1   6   22   9 
Residential mortgages
  13   7   38   20 
Credit card
  43   35   133   111 
Other retail
    
Retail leasing
  4   5   19   14 
Home equity and second mortgages
  6   5   17   15 
Other
  26   23   88   67 
Total other retail
  36   33   124   96 
Total recoveries
  119   96   404   279 
Net Charge-Offs
    
Commercial
    
Commercial
  13   167   91   341 
Lease financing
  1   11   6   22 
Total commercial
  14   178   97   363 
Commercial real estate
    
Commercial mortgages
  1   85   (11)   103 
Construction and development
  12   (2)   17   — 
Total commercial real estate
  13   83   6   103 
Residential mortgages
  (10)   (3)   (25)   (5) 
Credit card
  111   201   403   664 
Other retail
    
Retail leasing
  1   20   1   72 
Home equity and second mortgages
  (3)   (2)   (8)   (1) 
Other
  21   38   76   149 
Total other retail
  19   56   69   220 
Total net charge-offs
  147   515   550   1,345 
Provision for credit losses
  (163)   635   (1,160)   3,365 
Balance at end of period
 $6,300  $8,010  $6,300  $8,010 
Components
    
Allowance for loan losses
 $5,792  $7,407   
Liability for unfunded credit commitments
  508   603   
Total allowance for credit losses
 $6,300  $8,010   
Allowance for Credit Losses as a Percentage of
    
Period-end
loans
  2.12%   2.61%   
Nonperforming loans
  695   678   
Nonperforming and accruing loans 90 days or more past due
  488   488   
Nonperforming assets
  667   631   
Annualized net charge-offs
  1,080   391         
(a)
Relates
Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to covered loan charge-offs and recoveries not reimbursable by the FDIC.a model that is based on expected losses rather than incurred losses.
(b)Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.
(c)At September 30, 2017 and 2016, $1.7 billion and $1.5 billion, respectively, of the total allowance for credit losses related to incurred losses on credit card and other retail loans.

20U.S. Bancorp U.S. Bancorp
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Residual Value Risk Management
 The Company manages its risk to changes in the residual value of leased vehicles, office and business equipment, and other assets through disciplined residual valuation setting at the inception of a lease, diversification of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. Retail leasing residual values were $5.8 billion at September 30, 2017, compared with $4.9 billion at December 31, 2016, reflecting overall growth in the retail leasing portfolio during the first nine months of 2017, while commercial leasing residual values were essentially unchanged. As of September 30, 2017,2021, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 2016.2020. Refer to “Management’s Discussion and Analysis — Residual Value Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016,2020, for further discussion on residual value risk management.

Operational Risk Management
 The Company operates in many different businesses in diverse markets and relies on the ability of its employees and systems to process a high number of transactions. Operational risk is inherent in all business activities, and the management of this risk is important to the achievement of the Company’s objectives. Business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities.activities, including those additional or increased risks created by the economic and financial disruptions, and the Company’s alternative working arrangements resulting from the
COVID-19
pandemic. The Company maintains a system of controls with the objective of providing proper transaction authorization and execution, proper system operations, proper oversight of third parties with whom it does business, safeguarding of assets from misuse or theft, and ensuring the reliability and security of financial and other data. Refer to “Management’s Discussion and Analysis — Operational Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016,2020, for further discussion on operational risk management.

Compliance Risk Management
 The Company may suffer legal or regulatory sanctions, material financial loss, or damage to its reputation through failure to comply with laws, regulations, rules, standards of good practice, and codes of conduct, including those related to compliance with Bank Secrecy Act/anti-money laundering requirements, sanctions compliance requirements as administered by the Office of Foreign Assets Control, consumer protectionsprotection and other requirements. The Company has controls and processes in place for the assessment, identification, monitoring, management and reporting of compliance risks and issues.issues including those created or increased by the economic and financial disruptions caused by the
COVID-19
pandemic. Refer to “Management’s Discussion and Analysis — Compliance Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016,2020, for further discussion on compliance risk management.

Interest Rate Risk Management
In the banking industry, changes in interest rates are a significant risk that can impact earnings market valuations and the safety and soundness of an entity. To manage the impact on net interest income and the market value of assets and liabilities, theThe Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset and Liability Management Committee (“ALCO”) and approved by the Board of Directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO management policies, including interest rate risk exposure. TheOne way the Company usesmeasures and analyzes its interest rate risk is through net interest income simulation analysis.
Simulation analysis incorporates substantially all of the Company’s assets and market value of equity modeling for measuringliabilities and analyzing consolidated
off-balance
sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate risk. The Company has established policy limits within which it manages the overall interest rate risk profile, and at September 30, 2017 and December 31, 2016, the Company was within those limits.

Net Interest Income Simulation Analysis Managementenvironment. Through this simulation, management estimates the impact on net interest income of various interest rate changes that differ in market interest rates under a numberthe direction, amount and speed of scenarios, including gradual shifts, immediate and sustained parallel shifts, and flattening or steepeningchange over time, as well as the shape of the yield curve. This simulation includes assumptions about how the balance sheet is likely to be affected by changes in loan and deposit growth. Assumptions are made to project interest rates for new loans and deposits based on historical analysis, management’s outlook and

re-pricing
strategies. These assumptions are reviewed and validated on a periodic basis with sensitivity analysis being provided for key variables of the simulation. The results are reviewed monthly by the ALCO and are used to guide asset/liability management strategies.
The Company manages its interest rate risk position by holding assets with desired interest rate risk characteristics on its balance sheet, implementing certain pricing strategies for loans and deposits and selecting derivatives and various funding and investment portfolio strategies.
Table 9 summarizes the projected impact to net interest income over the next 12 months of various potential interest rate changes. The sensitivity of the projected impact to net interest income over the next 12 months is dependent on balance sheet growth, product mix, deposit behavior, pricing and funding decisions. While the Company utilizes models and assumptions based on historical information and expected behaviors, actual outcomes could vary significantly. For example, if deposit outflows are more limited (“stable”) than the assumptions the Company used in preparing Table 9, the projected impact to net interest income would increase to 2.02 percent in the “Up 50 basis point (“bps”)” and 3.91

Table 9
24
 U.S. Bancorp
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Table 9
   Sensitivity of Net Interest Income

  September 30, 2017       December 31, 2016 
   Down 50 bps
Immediate		  Up 50 bps
Immediate		  Down 200 bps
Gradual		   Up 200 bps
Gradual		       Down 50 bps
Immediate		  Up 50 bps
Immediate		  Down 200 bps
Gradual		   Up 200 bps
Gradual		 

Net interest income

  (2.56)%   1.48%   *    1.99%        (2.82)%   1.52%   *    1.82% 

  September 30, 2021       December 31, 2020 
   Down 50 bps
Immediate		  Up 50 bps
Immediate		  Down 200 bps
Gradual		   Up 200 bps
Gradual		       Down 50 bps
Immediate		  Up 50 bps
Immediate		  Down 200 bps
Gradual		   Up 200 bps
Gradual		 
Net interest income
  (2.75)%   3.54%   *    5.84%        (4.48)%   4.58%   *    6.57% 
*
Given the level of interest rates, downward rate scenario is not computed.

U.S. Bancorp21

percent in the “Up 200 bps” scenarios. Refer to “Management’s Discussion and Analysis — Net Interest Income Simulation Analysis” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2016, for further discussion on net interest income simulation analysis.

Market Value of Equity Modeling The Company also manages interest rate sensitivity by utilizing market value of equity modeling, which measures the degree to which the market values of the Company’s assets and liabilities andoff-balance sheet instruments will change given a change in interest rates. Management measures the impact of changes in market interest rates under a number of scenarios, including immediate and sustained parallel shifts, and flattening or steepening of the yield curve. A 200 bps increase would have resulted in a 0.9 percent decrease in the market value of equity at September 30, 2017, compared with a 1.9 percent decrease at December 31, 2016. A 200 bps decrease, where possible given current rates, would have resulted in a 10.3 percent decrease in the market value of equity at September 30, 2017, compared with an 8.1 percent decrease at December 31, 2016. Refer to “Management’s Discussion and Analysis — Market Value of Equity Modeling” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2016, for further discussion on market value of equity modeling.

Use of Derivatives to Manage Interest Rate and Other Risks
 To manage the sensitivity of earnings and capital to interest rate, prepayment, credit, price and foreign currency fluctuations (asset and liability management positions), the Company enters into derivative transactions. The Company uses derivatives for asset and liability management purposes primarily in the following ways:

To convert fixed-rate debt and
available-for-sale
investment securities from fixed-rate payments to floating-rate payments;
To convert the cash flows associated with floating-rate debt from floating-rate payments to fixed-rate payments;
To mitigate changes in value of the Company’s unfunded mortgage loan commitments, funded MLHFS and MSRs;
To mitigate remeasurement volatility of foreign currency denominated balances; and
To mitigate the volatility of the Company’s net investment in foreign operations driven by fluctuations in foreign currency exchange rates.

The Company may enter into derivative contracts that are either exchange-traded, centrally cleared through clearinghouses orover-the-counter.

In addition, the Company enters into interest rate and foreign exchange derivative contracts to support the business requirements of its customers (customer-related positions). The Company minimizes the market and liquidity risks of customer-related positions by either entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or
non-derivative
financial instruments that partially or fully offset the exposure from these customer-related positions. The Company may enter into derivative contracts that are either exchange-traded, centrally cleared through clearinghouses or
over-the-counter.
The Company does not utilize derivatives for speculative purposes.

The Company does not designate all of the derivatives that it enters into for risk management purposes as accounting hedges because of the inefficiency of applying the accounting requirements and may instead elect fair value accounting for the related hedged items. In particular, the Company enters into interest rate swaps, swaptions, forward commitments to buy
to-be-announced
securities (“TBAs”), U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to mitigate fluctuations in the value of its MSRs, but does not designate those derivatives as accounting hedges.

Additionally, the Company uses forward commitments to sell TBAs and other commitments to sell residential mortgage loans at specified prices to economically hedge the interest rate risk in its residential mortgage loan production activities. At September 30, 2017,2021, the Company had $5.8$10.7 billion of forward commitments to sell, hedging $2.5$5.0 billion of MLHFS and $3.5$8.6 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments on loans intended to be sold are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedging activities. The Company has elected the fair value option for the MLHFS.

Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default.default, including consideration of the
COVID-19
pandemic. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into master netting arrangements, and, where possible, by requiring collateral arrangements. The Company may also transfer counterparty credit risk related to interest rate swaps to third parties through the use of risk participation agreements. In addition, certain interest rate swaps, interest rate forwards and credit contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk.

For additional information on derivatives and hedging activities, refer to Notes 1213 and 1314 in the Notes to Consolidated Financial Statements.

LIBOR Transition
 In July 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) announced that it would no longer require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021. In March 2021, the FCA and the administrator of LIBOR announced that LIBOR will no longer be published on a representative basis after December 31, 2021, except for the most commonly used tenors of United States Dollar LIBOR which will no longer be published on a representative basis after June 30, 2023. The Company holds financial instruments that will be impacted by the discontinuance of LIBOR, including
22U.S. Bancorp U.S. Bancorp
25

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certain loans, investment securities, derivatives, borrowings and other financial instruments that use LIBOR as the benchmark rate. The Company also provides various services to customers in its capacities as trustee and servicer, which involve financial instruments that will be similarly impacted by the discontinuance of LIBOR. The Company anticipates these financial instruments will require transition to a new reference rate. This transition will occur over time as many of these arrangements do not have an alternative rate referenced in their contracts or a clear path for the parties to agree upon an alternative reference rate.
In order to facilitate the transition process, the Company has instituted a LIBOR Transition Office and commenced an enterprise-wide project to identify, assess, monitor and mitigate risks associated with the expected discontinuance or unavailability of LIBOR, actively engage with industry working groups and regulators, achieve operational readiness for the use of alternative reference rates and engage impacted customers to remediate and transition impacted instruments. The Company has invested in its systems, models, procedures and internal infrastructure to accept alternative reference rates to LIBOR and has begun offering these alternatives to clients. The Company also adopted industry best practice guidelines for fallback language for new transactions, converted its cleared interest rate swaps discounting to Secured Overnight Financing Rate discounting, and distributed communications related to the transition to certain impacted parties, both inside and outside the Company. Refer to “Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020, for further discussion on potential risks that could adversely affect the Company’s financial results as a result of the LIBOR transition.
Market Risk Management
 In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support customers’ strategies to manage their own foreign currency, interest rate risk and funding activities. For purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities, as well as the remeasurement volatility of foreign currency denominated balances included on its Consolidated Balance Sheet (collectively, “Covered Positions”), employing methodologies consistent with the requirements of regulatory rules for market risk. The Company’s Market Risk Committee (“MRC”), within the framework of the ALCO, oversees market risk management. The MRC monitors and reviews the Company’s trading positionsCovered Positions and establishes policies for market risk management, including exposure limits for each portfolio. The Company uses a VaR approach to measure general market risk. Theoretically, VaR represents the statistical risk of loss the Company has to adverse market movements over a
one-day
time horizon. The Company uses the Historical Simulation method to calculate VaR for its trading businessesCovered Positions measured at the ninety-ninth percentile using a
one-year
look-back period for distributions derived from past market data. The market factors used in the calculations include those pertinent to market risks inherent in the underlying trading portfolios, principally those that affect the Company’s corporate bond trading business, foreign currency transaction business, client derivatives business, loan trading business and municipal securities business.business, as well as those inherent in the Company’s foreign denominated balances and the derivatives used to mitigate the related measurement volatility. On average, the Company expects the
one-day
VaR to be exceeded by actual losses two to three times per year for its trading businesses.related to these positions. The Company monitors the effectivenessaccuracy of its risk programsinternal VaR models and modeling processes by back-testing themodel performance, of its VaR models, regularly updating the historical data used by the VaR models and stress testing.regular model validations to assess the accuracy of the models’ input, processing, and reporting components. All models are required to be independently reviewed and approved prior to being placed in use. If the Company were to experience market losses in excess of the estimated VaR more often than expected, the VaR models and associated assumptions would be analyzed and adjusted.

The average, high, low andperiod-endone-day
period-end
one-day
VaR amounts for the Company’s trading positionsCovered Positions were as follows:

Nine Months Ended September 30,

(Dollars in Millions)

 2017   2016 

Average

 $1   $1 

High

  1    1 

Low

  1    1 

Period-end

  1    1 

Nine Months Ended September 30
(Dollars in Millions)
 2021   2020 
Average
 $2   $2 
High
  4    3 
Low
  1    1 
Period-end
  2    2 
The Company did not experience any actual trading losses for its combined trading businessesCovered Positions that exceeded VaR during the nine months ended September 30, 2017 and 2016.2021. Given the market volatility in the first quarter of 2020 resulting from effects of the
COVID-19
pandemic, the Company experienced actual losses for its combined Covered Positions that exceeded VaR five times during the nine months ended September 30, 2020. The Company stress tests its market risk measurements to provide management with perspectives on market events that may not be captured by its VaR models, including worst case historical market movement combinations that have not necessarily occurred on the same date.

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U.S. Bancorp
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The Company calculates Stressed VaR using the same underlying methodology and model as VaR, except that a historical continuous
one-year
look-back period is utilized that reflects a period of significant financial stress appropriate to the Company’s trading portfolio.Covered Positions. The period selected by the Company includes the significant market volatility of the last four months of 2008.

The average, high, low andperiod-endone-day
period-end
one-day
Stressed VaR amounts for the Company’s trading positionsCovered Positions were as follows:

Nine Months Ended September 30,

(Dollars in Millions)

 2017   2016 

Average

 $4   $4 

High

  6    7 

Low

  2    2 

Period-end

  6    5 

Nine Months Ended September 30
(Dollars in Millions)
 2021   2020 
Average
 $7   $6 
High
  9    8 
Low
  5    4 
Period-end
  7    7 
Valuations of positions in the client derivatives and foreign currency transaction businessesactivities are based on discounted cash flow or other valuation techniques using market-based assumptions. These valuations are compared to third party quotes or other market prices to determine if there are significant variances. Significant variances are approved by senior management in the Company’s market risk management department.corporate functions. Valuation of positions in the corporate bond trading, loan trading and municipal securities businesses are based on trader marks. These trader marks are evaluated against third partythird-party prices, with significant variances approved by senior management in the Company’s risk management department.

corporate functions.

The Company also measures the market risk of its hedging activities related to residential MLHFS and MSRs using the Historical Simulation method. The VaRs are measured at the ninety-ninth percentile and employ factors pertinent to the market risks inherent in the valuation of the assets and hedges. The Company monitors the effectiveness of the models through back-testing, updating the data and regular validations. A three-year
one-year
look-back period is used to obtain past market data for the models.

The average, high and low VaR amounts for the residential MLHFS and related hedges and the MSRs and related hedges were as follows:

Nine Months Ended September 30,

(Dollars in Millions)

 2017   2016 

Residential Mortgage Loans Held For Sale and Related Hedges

   

Average

 $–   $– 

High

  1    2 

Low

  –    – 

Mortgage Servicing Rights and Related Hedges

   

Average

 $8   $8 

High

  10    11 

Low

  6    4 

U.S. Bancorp23

Nine Months Ended September 30
(Dollars in Millions)
 2021   2020 
Residential Mortgage Loans Held For Sale and Related Hedges
   
Average
 $10   $8 
High
  19    22 
Low
  5    2 
Mortgage Servicing Rights and Related Hedges
   
Average
 $4   $19 
High
  11    54 
Low
  1    6 

Liquidity Risk Management
 The Company’s liquidity risk management process is designed to identify, measure, and manage the Company’s funding and liquidity risk to meet its daily funding needs and to address expected and unexpected changes in its funding requirements. The Company engages in various activities to manage its liquidity risk. These activities include diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity if needed. In addition, the Company’s profitable operations, sound credit quality and strong capital position have enabled it to develop a large and reliable base of core deposit funding within its market areas and in domestic and global capital markets.

The Company’s Board of Directors approves the Company’s liquidity policy. The Risk Management Committee of the Company’s Board of Directors oversees the Company’s liquidity risk management process and approves thea contingency funding plan. The ALCO reviews the Company’s liquidity policy and limits, and regularly assesses the Company’s ability to meet funding requirements arising from adverse company-specific or market events.

The Company regularly projects its funding needs under various stress scenarios and maintains a contingency funding plan consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of
on-balance
sheet and
off-balance
sheet funding sources. These liquidity sources include cash at the Federal Reserve Bank and certain European central banks, unencumbered liquid assets, and capacity to borrow atfrom the FHLB and theat Federal Reserve Bank’s Discount Window. At September 30, 2017,2021, the fair value of unencumberedavailable-for-sale andheld-to-maturity investment securities totaled $104.9$117.6 billion, compared with $100.6$125.9 billion at December 31, 2016.2020. Refer to TableNote 4 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on investment securities maturities and trends. Asset liquidity is further enhanced by the Company’s practice of pledging loans to access secured borrowing facilities through the FHLB and Federal Reserve Bank. At September 30, 2017,2021, the Company could have borrowed a total of an additional $90.2$97.4 billion from the FHLB and Federal Reserve Bank based on collateral available for additional borrowings.

The Company’s diversified deposit base provides a sizeable source of relatively stable and
low-cost
funding, while reducing the Company’s reliance on the wholesale markets. Total deposits were $342.6$442.9 billion at September 30, 2017,2021, compared with $334.6$429.8 billion at December 31, 2016.2020. Refer to “Balance Sheet Analysis” for further information on the Company’s deposits.

Additional funding is provided by long-term debt and short-term borrowings. Long-term debt was $34.5$35.7 billion at September 30, 2017,2021, and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were $15.9$16.1 billion at
U.S. Bancorp
27
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September 30, 2017,2021, and supplement the Company’s other funding sources. Refer to “Balance Sheet Analysis” for further information on the Company’s long-term debt and short-term borrowings.

In addition to assessing liquidity risk on a consolidated basis, the Company monitors the parent company’s liquidity. The Company establishes limits for the minimal number of months into the future where the parent company can meet existing and forecasted obligations with cash and securities held that can be readily monetized. The Company measures and manages this limit in both normal and adverse conditions. The Company maintains sufficient funding to meet expected capital and debt service obligations for 24 months without the support of dividends from subsidiaries and assuming access to the wholesale markets is maintained. The Company maintains sufficient liquidity to meet its capital and debt service obligations for 12 months under adverse conditions without the support of dividends from subsidiaries or access to the wholesale markets. The parent company is currently well in excess of required liquidity minimums.

At September 30, 2017,2021, parent company long-term debt outstanding was $15.8$19.2 billion, compared with $13.0$20.9 billion at December 31, 2016.2020. The increasedecrease was primarily due to the issuance of $3.9 billion of medium-term notes, partially offset by $1.3$1.5 billion of medium-term note maturities.repayments. As of September 30, 2017,2021, there was no parent company debt scheduled to mature in the remainder of 2017.

2021.

The Company is subject to a regulatory Liquidity Coverage Ratio (“LCR”) requirement which requires banks to maintain an adequate level of unencumbered high quality liquid assets to meet estimated liquidity needs over a
30-day
stressed period. At September 30, 2017,2021, the Company was compliant with this requirement.

Beginning July 1, 2021, the Company is also subject to a regulatory Net Stable Funding Ratio (“NSFR”) requirement which requires banks to maintain a minimum level of stable funding based on the liquidity characteristics of their assets, commitments, and derivative exposures over a
one-year
time horizon. At September 30, 2021, the Company was compliant with this requirement.
Refer to “Management’s Discussion and Analysis —Liquidity— Liquidity Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016,2020, for further discussion on liquidity risk management.

European Exposures
The Company provides merchant processing and corporate trust services in Europe either directly or through banking affiliations in Europe. Revenue generated from sources in Europe represented approximately 2 percent of the Company’s total net revenue for both the three and nine months ended September 30, 2021. Operating cash for these businesses is deposited on a short-term basis typically with certain European central banks. For deposits placed at other European banks,

24U.S. Bancorp

exposure is mitigated by the Company placing deposits at multiple banks and managing the amounts on deposit at any bank based on institution-specific deposit limits. At September 30, 2017,2021, the Company had an aggregate amount on deposit with European banks of approximately $8.1$10.1 billion, predominately with the Central Bank of Ireland and Bank of England.

In addition, the Company provides financing to domestic multinational corporations that generate revenue from customers in European countries, transacts with various European banks as counterparties to certain derivative-related activities, and through a subsidiary, manages money market funds that hold certain investments in European sovereign debt. Any further deterioration in economic conditions in Europe, including the potential negative impact of the United Kingdom’s withdrawal from the European Union (“Brexit”), is unlikelynot expected to have a significant effect on the Company related to these activities.

The Company is focused on providing continuity of services, with minimal disruption resulting from Brexit, to customers with activities in European countries. The Company has made certain structural changes to its legal entities and operations in the United Kingdom and European Union, where needed, and migrated certain business activities to the appropriate jurisdictions to continue to provide such services and generate revenue.

Off-Balance
Sheet Arrangements
 Off-balance
sheet arrangements include any contractual arrangements to which an unconsolidated entity is a party, under which the Company has an obligation to provide credit or liquidity enhancements or market risk support. In the ordinary course of business, the Company enters into an array of commitments to extend credit, letters of credit and various forms of guarantees that may be considered
off-balance
sheet arrangements. Refer to Note 1516 of the Notes to Consolidated Financial Statements for further information on these arrangements. The Company does not utilize private label asset securitizations as a source of funding.
Off-balance
sheet arrangements also include any obligation related to a variable interest held in an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support. Refer to Note 56 of the Notes to Consolidated Financial Statements for further information related to the Company’s interests in variable interest entities.

28
U.S. Bancorp
Table of Contents
Table 10
   Regulatory Capital Ratios
(Dollars in Millions)  September 30,
2021		  December 31,
2020		 
Basel III standardized approach:
   
Common equity tier 1 capital
  $41,014  $38,045 
Tier 1 capital
   47,426   44,474 
Total risk-based capital
   54,178   52,602 
Risk-weighted assets
   404,021   393,648 
Common equity tier 1 capital as a percent of risk-weighted assets
   10.2%   9.7% 
Tier 1 capital as a percent of risk-weighted assets
   11.7   11.3 
Total risk-based capital as a percent of risk-weighted assets
   13.4   13.4 
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
   8.7   8.3 
Tier 1 capital as a percent of total
on-
and
off-balance
sheet leverage exposure (total leverage exposure ratio)
   7.0   7.3 
Capital Management
 The Company is committed to managing capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit. The Company also manages its capital to exceed regulatory capital requirements for banking organizations. Beginning January 1, 2014, theThe regulatory capital requirements effective for the Company follow Basel III, with the Company being subject to certain transition provisions from Basel Icalculating its capital adequacy as a percentage of risk-weighted assets under the standardized approach. Beginning in 2020, the Company elected to adopt a rule issued in 2020 by its regulators which permits banking organizations who adopt accounting guidance related to the impairment of financial instruments based on the current expected credit losses (“CECL”) methodology during 2020, the option to defer the impact of the effect of that guidance at adoption plus 25 percent of its quarterly credit reserve increases over the following fournext two years on its regulatory capital requirements, followed by a three-year transition period to full implementation by January 1, 2018. Basel III includes two comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches, withphase in the Company’s capital adequacy being evaluated against the methodology that is most restrictive.cumulative deferred impact. Table 10 provides a summary of statutory regulatory capital ratios in effect for the Company at September 30, 20172021 and December 31, 2016.2020. All regulatory ratios exceeded regulatory “well-capitalized” requirements.

Effective January 1, 2018, the Company will be subject to a regulatory Supplementary Leverage Ratio (“SLR”) requirement for banks calculating capital adequacy using advanced approaches under Basel III. The SLR is defined as tier 1 capital divided by total leverage exposure, which includes bothon- andoff-balance sheet exposures. At September 30, 2017, the Company’s SLR exceeded the applicable minimum SLR requirement.

Total U.S. Bancorp shareholders’ equity was $48.7 billion at September 30, 2017, compared with $47.3 billion at December 31, 2016. The increase was primarily the result of corporate earnings, a preferred stock issuance and changes in unrealized gains and losses onavailable-for-sale investment securities included in other comprehensive income (loss). This increase was partially offset by common share repurchases, dividends and the redemption of $1.1 billion of preferred stock.

Table 10   Regulatory Capital Ratios

(Dollars in Millions) September 30,
2017		  December 31,
2016		 

Basel III transitional standardized approach:

  

Common equity tier 1 capital

 $34,876  $33,720 

Tier 1 capital

  40,411   39,421 

Total risk-based capital

  48,104   47,355 

Risk-weighted assets

  363,957   358,237 

Common equity tier 1 capital as a percent of risk-weighted assets

  9.6%   9.4% 

Tier 1 capital as a percent of risk-weighted assets

  11.1   11.0 

Total risk-based capital as a percent of risk-weighted assets

  13.2   13.2 

Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)

  9.1   9.0 

Basel III transitional advanced approaches:

  

Common equity tier 1 capital

 $34,876  $33,720 

Tier 1 capital

  40,411   39,421 

Total risk-based capital

  45,090   44,264 

Risk-weighted assets

  287,800   277,141 

Common equity tier 1 capital as a percent of risk-weighted assets

  12.1%   12.2% 

Tier 1 capital as a percent of risk-weighted assets

  14.0   14.2 

Total risk-based capital as a percent of risk-weighted assets

  15.7   16.0 

U.S. Bancorp25

The Company believes certain capital ratios in addition to statutory regulatoryother capital ratios are useful in evaluating its capital adequacy. The Company’s tangible common equity, as a percent of tangible assets and as a percent of risk-weighted assets calculateddetermined in accordance with transitional regulatory capital requirements related to the CECL methodology under the transitional standardized approach, was 7.76.8 percent and 9.4 percent, respectively, at September 30, 2021, compared with 6.9 percent and 9.5 percent, respectively, at September 30, 2017, compared with 7.5 percent and 9.2 percent, respectively, at December 31, 2016. The2020. In addition, the Company’s common equity tier 1 capital to risk-weighted assets ratio, usingreflecting the Basel III standardized approach as if fully implementedfull implementation of the CECL methodology was 9.49.7 percent at September 30, 2017,2021, compared with 9.19.3 percent at December 31, 2016. The Company’s common2020. Refer to

“Non-GAAP
Financial Measures” beginning on page 35 for further information on these other capital ratios.
Total U.S. Bancorp shareholders’ equity tier 1 capital to risk-weighted assets ratio using the Basel III advanced approaches as if fully implemented was 11.8 percent$53.7 billion at September 30, 2017,2021, compared with 11.7 percent$53.1 billion at December 31, 2016.

On June 28, 2017,2020. The increase was primarily the result of corporate earnings, partially offset by changes in unrealized gains and losses on

available-for-sale
investment securities included in other comprehensive income (loss), dividends and common share repurchases.
Beginning in March of 2020 and continuing through the remainder of 2020, the Company suspended all common stock repurchases except for those done exclusively in connection with its stock-based compensation programs. This action was initially taken to maintain strong capital levels given the impact and uncertainties of
COVID-19
on the economy and global markets. Due to continued economic uncertainty, the Federal Reserve Board implemented measures beginning in the third quarter of 2020 and extending through the second quarter of 2021, restricting capital distributions of all large bank holding companies, including the Company. These restrictions limited the aggregate amount of common stock dividends and share repurchases to an amount that did not exceed the average net income of the four preceding calendar quarters. Based on the results of the December 2020 Federal Reserve Board Stress Test, the Company announced on December 22, 2020 that its Board of Directors had approved an authorization to repurchase up to $2.6$3.0 billion of its common stock from Julybeginning January 1, 2017 through June 30, 2018.

2021, and repurchased $1.5 billion of its common stock during the first six months of 2021 under this program. The Company suspended all common stock repurchases at the beginning of the third quarter of 2021, except for those done exclusively in connection with its stock-based compensation programs, due to its recently announced acquisition of MUFG Union Bank’s core regional banking franchise. The Company does not expect to commence repurchasing its common stock again until the second half of 2022, or after the acquisition closes in order to build capital prior to the acquisition.

U.S. Bancorp
29
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The following table provides a detailed analysis of all shares purchased by the Company or any affiliated purchaser during the third quarter of 2017:

Period

 Total Number
of Shares
Purchased		   Average
Price Paid
Per Share		  Total Number of
Shares Purchased
as Part of Publicly
Announced
Program (a)		  

Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program

(In Millions)

 

July

  6,313,893   $52.67   6,313,893  $2,267 

August

  3,802,949    52.38   3,802,949   2,068 

September

  2,549,596    52.26   2,549,596   1,935 

Total

  12,666,438   $52.50   12,666,438  $1,935 

2021:
Period Total Number
of Shares
Purchased		  Average
Price Paid
Per Share		  Total Number of
Shares Purchased
as Part of Publicly
Announced
Program (a)		  
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program
(In Millions)
 
July
  80,295(b)  $58.05   5,295  $1,463 
August
  368   55.50   368   1,463 
September
  428   55.91   428   1,463 
Total
  81,091(b)  $58.03   6,091  $1,463 
(a)
All shares were purchased under the $3.0 billion common stock repurchase authorization program announced on June 28, 2017.December 22, 2020.

On September 19, 2017,

(b)
Includes 75,000 shares of common stock purchased, at an average price per share of $58.15, in open-market transactions by U.S. Bank National Association, the Company’s banking subsidiary, in its capacity as trustee of the U.S. Bank 401(k) Savings Plan, which is the Company’s employee retirement savings plan.
Based on the results of the 2021 Federal Reserve Board Annual Stress Test, the Company announced on September 14, 2021 that its Board of Directors had approved a 7.1regular quarterly dividend of $0.46 per common share, payable in October 2021. This represented a 9.5 percent increase inover the Company’sprevious dividend rate per common share from $0.28of $0.42 per quarterquarter.
The Company will continue to $0.30 per quarter.

monitor its capital position and may adjust its capital distributions based on economic conditions and its financial performance. Capital distributions, including dividends and stock repurchases, are subject to the approval of the Company’s Board of Directors and will align with regulatory requirements.

Refer to “Management’s Discussion and Analysis — Capital Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016,2020, for further discussion on capital management.

LINE OF BUSINESS FINANCIAL REVIEW

The Company’s major lines of business are Wholesale BankingCorporate and Commercial Real Estate,Banking, Consumer and Small Business Banking, Wealth Management and SecuritiesInvestment Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance.

Basis for Financial Presentation
 Business line results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. The allowance for credit losses and related provision expense are allocated to the lines of business based on the related loan balances managed. Refer to “Management’s Discussion and Analysis — LineNote 17 of Businessthe Notes to Consolidated Financial Review” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2016,Statements for further discussioninformation on the business lines’ basis for financial presentation.

Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2017,2021, certain organization and methodology changes were made and, accordingly, 20162020 results were restated and presented on a comparable basis.

Wholesale Banking

Corporate and Commercial Real Estate Wholesale Banking
Corporate and Commercial Real EstateBanking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution,
non-profit
and public sector clients. Wholesale BankingCorporate and Commercial Real EstateBanking contributed $282$403 million of the Company’s net income in the third quarter and $827 million$1.3 billion in the first nine months of 2017,2021, or increasesa decrease of $57$44 million (25.3(9.8 percent) and $253an increase of $61 million (44.1(5.0 percent), respectively, compared with the same periods of 2016.

2020.

Net revenue increased $48decreased $149 million (6.1(13.3 percent) in the third quarter and $186$564 million (8.0(16.0 percent) in the first nine months of 2017,2021, compared with the same periods of 2016.2020. Net interest income, on a taxable-equivalent basis, increased $53decreased $135 million (9.4(15.8 percent) in the third quarter and $168$451 million (10.3(17.2 percent) in the first nine months of 2017,2021, compared with the same periods of 2016.2020. The increasesdecreases were primarily due to lower average loan and deposit balances as well as the impact of risingdeclining interest rates on the margin benefit from deposits, and growth in average loan and deposit balances, partially offset by lower spread on loans reflecting a competitive marketplace.favorable deposit mix with higher noninterest-bearing deposit balances and slightly higher loan spreads. Average loan balances declined as significant liquidity draws during the early stages of the pandemic were paid down in the second half of 2020 and the first quarter of 2021. Noninterest income decreased $5$14 million (5.2 percent) in the third quarter and $113 million (12.6 percent) in the first nine months of 2021, compared with the same periods of 2020, primarily driven by lower capital markets activities and trading revenue, partially offset by continued stronger treasury management fees due to core growth driven by the economic recovery.
Noninterest expense decreased $10 million (2.3 percent) in the third quarter of 2017, compared with the third quarter of 2016, primarily due to higher loan related charges, partially offset by higher treasury management fees. Noninterest income increased $18and $53 million (2.7(4.0 percent) in the first nine months of 2017,2021, compared with the same periodperiods of 2016,2020, primarily due to lower FDIC insurance expense, lower production incentives, and higher capitalized loan costs, partially offset by an increase in net shared services expense driven by

investment in infrastructure and technology development.
26
30
 U.S. Bancorp

Table of Contents

increases in treasury management fees and capital markets volume, partially offset by higher loan related charges.

Noninterest expense increased $41

The provision for credit losses decreased $80 million (11.5(84.2 percent) in the third quarter and $122$592 million (11.4 percent) in the first nine months of 2017,2021, compared with the same periods of 2016,2020, primarily due to increases in variable costs allocated to manage the business and higher compensation expense, reflecting the impact of increased staffing, merit increases and variable compensation. In addition, the increase in the first nine months of 2017 included the impact of the FDIC insurance surcharge on deposit balances. The provision for credit losses decreased $82 million in the third quarter and $333 million (97.4 percent) in the first nine months of 2017, compared with the same periods of 2016, primarily due to favorable changesa decrease in the reserve allocation and continued stabilization ofdriven by improving portfolio credit quality in the energy sector.

current year, compared with deteriorating credit quality in the prior year.

Consumer and Small Business Banking
 Consumer and Small Business Banking delivers products and services through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking. Consumer and Small Business Banking contributed $363$628 million of the Company’s net income in the third quarter and $974 million$1.8 billion in the first nine months of 2017,2021, or a decrease of $21 million (3.2 percent) and an increase of $4$86 million (1.1 percent) and a decrease of $62 million (6.0(4.9 percent), respectively, compared with the same periods of 2016.

2020.

Net revenue increased $30decreased $56 million (1.6(2.4 percent) in the third quarter and $204$151 million (3.8(2.3 percent) in the first nine months of 2017,2021, compared with the same periods of 2016.2020. Net interest income, on a taxable-equivalent basis, increased $110$77 million (9.2(5.2 percent) in the third quarter and $266$364 million (7.6(8.6 percent) in the first nine months of 2017,2021, compared with the same periods of 2016. The increases were primarily due2020, reflecting continued strong growth in deposit balances as well as favorable deposit mix, favorable loan spreads driven by growth in installment loans, and higher loan fees driven by loan forgiveness related to the impact of rising rates on the margin benefit from deposits along with growthSBA’s Paycheck Protection Program. These increases in average loan and deposit balances,net interest income were partially offset by lower spread on loans.deposit spreads. Noninterest income decreased $80$133 million (11.2(15.7 percent) in the third quarter of 2021, compared with the third quarter of 2020, primarily due to lower mortgage banking revenue reflecting lower production volume and $62related gain on sale margins as refinancing activities declined, partially offset by an increase in the fair value of MSRs, net of hedging activities, as well as higher gains on GNMA loan sales. Partially offsetting the decline in mortgage banking revenue, retail product fees were stronger driven by retail leasing end of term residual gains, and deposit service charges increased as a result of customer activity and higher ATM processing revenue. Noninterest income decreased $515 million (3.3(21.2 percent) in the first nine months of 2017,2021, compared with the same periodsfirst nine months of 2016, principally driven by2020, primarily due to lower mortgage banking revenue due toreflecting lower originationproduction volume and sales volume related to refinancing activities, as refinancing activities were significantly highergain on sale margins, along with a reduction in the second and third quartersfair value of 2016. Partially offsetting the impactMSRs, net of lower mortgage banking revenue was growth in retail leasing revenue due to strongerend-of-termhedging activities, partially offset by higher gains on auto leasesGNMA loan sales and higher ATM processing services and treasury managementretail product fees.

Noninterest expense decreased $27increased $66 million (2.1(4.8 percent) in the third quarter of 2017, compared with the third quarter of 2016, primarily due to lower mortgage related costs and professional services expense. Partially offsetting these decreases were higher compensation expense, reflecting the impact of increased staffing and merit increases, and higher net shared services expense. Noninterest expense increased $73$146 million (1.9(3.6 percent) in the first nine months of 2017,2021, compared with the same periodperiods of 2016, principally2020, primarily due to higher compensation and employee benefits expenses, higherincreases in net shared services expense due to investments in digital capabilities and the impact of the FDIC insurance surcharge on deposit balances, partially offsethigher compensation expense related to merit increases, business hiring related to mortgage forbearance loss mitigation and revenue-related compensation driven by lower mortgage related costs and professional services expense.business production. The provision for credit losses increased $52decreased $94 million in the third quarter and $230$412 million in the first nine months of 2017,2021, compared with the same periods of 2016, primarily2020, due to a decrease in the reserve allocation primarily reflecting lower delinquency rates in consumer portfolios and a reduction in end of period outstanding loan balances in the first nine months of 2021, compared with loan growth in other retail loans, exposures as a resultthe first nine months of recent weather events, and higher releases of reserves related to residential mortgages in the prior year as a result of improvements in the portfolio.

2020.

Wealth Management and SecuritiesInvestment Services
 Wealth Management and SecuritiesInvestment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through fivefour businesses: Wealth Management, Global Corporate Trust Services,& Custody, U.S. Bancorp Asset Management Institutional Trust & Custody and Fund Services. Wealth Management and SecuritiesInvestment Services contributed $125$196 million of the Company’s net income in the third quarter and $363$618 million in the first nine months of 2017,2021, or increasesdecreases of $30$31 million (31.6(13.7 percent) and $90$119 million (33.0(16.1 percent), respectively, compared with the same periods of 2016.

2020.

Net revenue increased $65decreased $23 million (12.1(2.9 percent) in the third quarter and $223$112 million (14.3(4.5 percent) in the first nine months of 2017,2021, compared with the same periods of 2016.2020. Net interest income, on a taxable-equivalent basis, increased $57decreased $76 million (42.2(25.2 percent) in the third quarter and $184$243 million (49.2(25.2 percent) in the first nine months of 2017,2021, compared with the same periods of 2016. The increases were principally2020, primarily due to the impact of rising rates on thedeclining margin benefit from deposits along withgiven lower interest rates, partially offset by higher noninterest-bearing deposit balances, favorable deposit mix and higher average loan and deposit balances. Noninterest income increased $8$53 million (2.0(10.5 percent) in the third quarter and $39$131 million (3.3(8.7 percent) in the first nine months of 2017,2021, compared with the same periods of 2016, principally2020, primarily due to core business growth in trust and investment management fees and investment products fees, both driven by favorable market conditions, and net asset and account growth.

partially offset by higher fee waivers related to money market funds.
U.S. Bancorp 27
31

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Table 11
    Line of Business Financial Performance

  Wholesale Banking and
Commercial Real Estate		      Consumer and Small
Business Banking		     

Three Months Ended September 30,

(Dollars in Millions)

 2017  2016  Percent
Change		      2017  2016  Percent
Change		     

Condensed Income Statement

          

Net interest income (taxable-equivalent basis)

 $616  $563   9.4%    $1,309  $1,199   9.2%   

Noninterest income

  215   220   (2.3)     632   712   (11.2)   

Securities gains (losses), net

  –   –   –     –   –   –   

Total net revenue

  831   783   6.1     1,941   1,911   1.6   

Noninterest expense

  396   355   11.5     1,266   1,293   (2.1)   

Other intangibles

  1   1   –     8   8   –   

Total noninterest expense

  397   356   11.5     1,274   1,301   (2.1)   

Income before provision and income taxes

  434   427   1.6     667   610   9.3   

Provision for credit losses

  (9)   73   *     97   45   *   

Income before income taxes

  443   354   25.1     570   565   .9   

Income taxes and taxable-equivalent adjustment

  161   129   24.8     207   206   .5   

Net income

  282   225   25.3     363   359   1.1   

Net (income) loss attributable to noncontrolling interests

  –   –   –     –   –   –   

Net income attributable to U.S. Bancorp

 $282  $225   25.3    $363  $359   1.1   

Average Balance Sheet

          

Commercial

 $73,882  $70,814   4.3%    $10,317  $10,546   (2.2)%   

Commercial real estate

  20,115   21,466   (6.3)     18,353   18,307   .3   

Residential mortgages

  6   8   (25.0)     56,131   53,933   4.1   

Credit card

  –   –   –     –   –   –   

Other retail

  –   2   *     53,932   50,786   6.2   

Total loans, excluding covered loans

  94,003   92,290   1.9     138,733   133,572   3.9   

Covered loans

  –   –   –     3,347   4,107   (18.5)   

Total loans

  94,003   92,290   1.9     142,080   137,679   3.2   

Goodwill

  1,647   1,647   –     3,681   3,681   –   

Other intangible assets

  13   16   (18.8)     2,701   2,270   19.0   

Assets

  102,327   100,864   1.5     156,737   153,501   2.1   

Noninterest-bearing deposits

  35,353   36,685   (3.6)     28,705   28,355   1.2   

Interest checking

  9,710   9,629   .8     47,401   43,834   8.1   

Savings products

  45,143   44,301   1.9     60,821   57,759   5.3   

Time deposits

  19,611   13,489   45.4     12,899   14,282   (9.7)   

Total deposits

  109,817   104,104   5.5     149,826   144,230   3.9   

Total U.S. Bancorp shareholders’ equity

  9,952   8,997   10.6       11,489   11,312   1.6     
  Wholesale Banking and
Commercial Real Estate		      Consumer and Small
Business Banking		     

Nine Months Ended September 30,

(Dollars in Millions)

 2017  2016  Percent
Change		      2017  2016  Percent
Change		     

Condensed Income Statement

          

Net interest income (taxable-equivalent basis)

 $1,806  $1,638   10.3%    $3,789  $3,523   7.6%   

Noninterest income

  697   676   3.1     1,837   1,899   (3.3)   

Securities gains (losses), net

  (3)   –   *     –   –   –   

Total net revenue

  2,500   2,314   8.0     5,626   5,422   3.8   

Noninterest expense

  1,188   1,066   11.4     3,821   3,746   2.0   

Other intangibles

  3   3   –     22   24   (8.3)   

Total noninterest expense

  1,191   1,069   11.4     3,843   3,770   1.9   

Income before provision and income taxes

  1,309   1,245   5.1     1,783   1,652   7.9   

Provision for credit losses

  9   342   (97.4)     252   22   *   

Income before income taxes

  1,300   903   44.0     1,531   1,630   (6.1)   

Income taxes and taxable-equivalent adjustment

  473   329   43.8     557   594   (6.2)   

Net income

  827   574   44.1     974   1,036   (6.0)   

Net (income) loss attributable to noncontrolling interests

  –   –   –     –   –   –   

Net income attributable to U.S. Bancorp

 $827  $574   44.1    $974  $1,036   (6.0)   

Average Balance Sheet

          

Commercial

 $73,236  $70,414   4.0%    $10,157  $10,367   (2.0)%   

Commercial real estate

  20,742   21,089   (1.6)     18,469   18,150   1.8   

Residential mortgages

  7   7   –     55,725   53,127   4.9   

Credit card

  –   –   –     –   –   –   

Other retail

  1   2   (50.0)     52,710   49,738   6.0   

Total loans, excluding covered loans

  93,986   91,512   2.7     137,061   131,382   4.3   

Covered loans

  –   –   –     3,531   4,289   (17.7)   

Total loans

  93,986   91,512   2.7     140,592   135,671   3.6   

Goodwill

  1,647   1,647   –     3,682   3,681   –   

Other intangible assets

  14   17   (17.6)     2,733   2,394   14.2   

Assets

  102,580   99,932   2.6     154,894   150,711   2.8   

Noninterest-bearing deposits

  36,217   36,543   (.9)     27,666   27,092   2.1   

Interest checking

  9,505   8,202   15.9     47,035   43,184   8.9   

Savings products

  46,563   40,043   16.3     60,452   57,035   6.0   

Time deposits

  15,238   12,999   17.2     12,975   14,394   (9.9)   

Total deposits

  107,523   97,787   10.0     148,128   141,705   4.5   

Total U.S. Bancorp shareholders’ equity

  9,852   8,927   10.4       11,482   11,138   3.1     

  
Corporate and
Commercial Banking
       
Consumer and
Business Banking
    
Three Months Ended September 30
(Dollars in Millions)
 2021   2020   Percent
Change		       2021  2020   Percent
Change		    
Condensed Income Statement
              
Net interest income (taxable-equivalent basis)
 $717   $852    (15.8)%     $1,551  $1,474    5.2%   
Noninterest income
  253    267    (5.2)      715   848    (15.7)   
Total net revenue
  970    1,119    (13.3)      2,266   2,322    (2.4)   
Noninterest expense
  418    428    (2.3)      1,450   1,383    4.8   
Other intangibles
  —    —    —      3   4    (25.0)   
Total noninterest expense
  418    428    (2.3)      1,453   1,387    4.8   
Income (loss) before provision and income taxes
  552    691    (20.1)      813   935    (13.0)   
Provision for credit losses
  15    95    (84.2)      (25)   69    *   
Income (loss) before income taxes
  537    596    (9.9)      838   866    (3.2)   
Income taxes and taxable-equivalent adjustment
  134    149    (10.1)      210   217    (3.2)   
Net income (loss)
  403    447    (9.8)      628   649    (3.2)   
Net (income) loss attributable to noncontrolling interests
  —    —    —      —   —    —   
Net income (loss) attributable to U.S. Bancorp
 $403   $447    (9.8)     $628  $649    (3.2)   
Average Balance Sheet
              
Commercial
 $77,474   $89,435    (13.4)%     $8,158  $11,173    (27.0)%   
Commercial real estate
  24,916    26,083    (4.5)      10,975   11,916    (7.9)   
Residential mortgages
  29    19    52.6      66,787   69,945    (4.5)   
Credit card
  —    —    —      —   —    —   
Other retail
  12    10    20.0      54,913   52,195    5.2   
Total loans
  102,431    115,547    (11.4)      140,833   145,229    (3.0)   
Goodwill
  1,650    1,647    .2      3,506   3,475    .9   
Other intangible assets
  5    6    (16.7)      2,754   1,942    41.8   
Assets
  114,629    128,369    (10.7)      160,882   164,246    (2.0)   
Noninterest-bearing deposits
  62,642    48,058    30.3      34,416   34,288    .4   
Interest checking
  12,843    12,673    1.3      70,953   57,593    23.2   
Savings products
  47,073    56,945    (17.3)      76,367   63,577    20.1   
Time deposits
  9,001    17,940    (49.8)      12,951   11,925    8.6   
Total deposits
  131,559    135,616    (3.0)      194,687   167,383    16.3   
Total U.S. Bancorp shareholders’ equity
  13,772    15,051    (8.5)        12,277   13,562    (9.5)   
  
Corporate and
Commercial Banking
       
Consumer and
Business Banking
    
Nine Months Ended September 30
(Dollars in Millions)
 2021  2020   Percent
Change		       2021  2020   Percent
Change		    
Condensed Income Statement
             
Net interest income (taxable-equivalent basis)
 $2,172  $2,623    (17.2)%     $4,603  $4,239    8.6%   
Noninterest income
  786   899    (12.6)      1,918   2,433    (21.2)   
Total net revenue
  2,958   3,522    (16.0)      6,521   6,672    (2.3)   
Noninterest expense
  1,257   1,310    (4.0)      4,210   4,061    3.7   
Other intangibles
  —   —    —      9   12    (25.0)   
Total noninterest expense
  1,257   1,310    (4.0)      4,219   4,073    3.6   
Income (loss) before provision and income taxes
  1,701   2,212    (23.1)      2,302   2,599    (11.4)   
Provision for credit losses
  (20)   572    *      (143)   269    *   
Income (loss) before income taxes
  1,721   1,640    4.9      2,445   2,330    4.9   
Income taxes and taxable-equivalent adjustment
  430   410    4.9      612   583    5.0   
Net income (loss)
  1,291   1,230    5.0      1,833   1,747    4.9   
Net (income) loss attributable to noncontrolling interests
  —   —    —      —   —    —   
Net income (loss) attributable to U.S. Bancorp
 $1,291  $1,230    5.0     $1,833  $1,747    4.9   
Average Balance Sheet
             
Commercial
 $77,339  $92,959    (16.8)%     $9,447  $8,601    9.8%   
Commercial real estate
  24,744   25,696    (3.7)      11,009   12,166    (9.5)   
Residential mortgages
  23   20    15.0      67,301   67,093    .3   
Credit card
  —   —    —      —   —    —   
Other retail
  11   11    —      53,463   52,121    2.6   
Total loans
  102,117   118,686    (14.0)      141,220   139,981    .9   
Goodwill
  1,648   1,647    .1      3,485   3,508    (.7)   
Other intangible assets
  5   6    (16.7)      2,692   2,095    28.5   
Assets
  114,182   131,106    (12.9)      162,316   157,177    3.3   
Noninterest-bearing deposits
  59,841   41,091    45.6      33,734   29,397    14.8   
Interest checking
  13,246   14,266    (7.1)      68,596   53,815    27.5   
Savings products
  47,576   55,451    (14.2)      74,542   60,404    23.4   
Time deposits
  9,177   20,864    (56.0)      13,683   12,715    7.6   
Total deposits
  129,840   131,672    (1.4)      190,555   156,331    21.9   
Total U.S. Bancorp shareholders’ equity
  13,995   15,201    (7.9)        12,378   12,797    (3.3)   
*
Not meaningful

28
32
 U.S. Bancorp

Table of Contents

    

Wealth Management and

Securities Services

  

Payment

Services

  

Treasury and

Corporate Support

  

Consolidated

Company

 
    2017  2016  Percent
Change		      2017      2016  Percent
Change		      2017  2016  Percent
Change		      2017  2016  Percent
Change		 
                   
 $192  $135   42.2%    $563   $538   4.6%    $506  $508   (.4)%    $3,186  $2,943   8.3% 
  411   403   2.0     920    912   .9     235   188   25.0     2,413   2,435   (.9) 
     –   –   –     –       –   –     9   10   (10.0)     9   10   (10.0) 
  603   538   12.1     1,483    1,450   2.3     750   706   6.2     5,608   5,388   4.1 
  401   384   4.4     707    662   6.8     225   192   17.2     2,995   2,886   3.8 
     5   6   (16.7)     30       30   –     –   –   –     44   45   (2.2) 
     406   390   4.1     737       692   6.5     225   192   17.2     3,039   2,931   3.7 
  197   148   33.1     746    758   (1.6)     525   514   2.1     2,569   2,457   4.6 
     1   (1)   *     270       208   29.8     1   –   *     360   325   10.8 
  196   149   31.5     476    550   (13.5)     524   514   1.9     2,209   2,132   3.6 
     71   54   31.5     173       200   (13.5)     28   27   3.7     640   616   3.9 
  125   95   31.6     303    350   (13.4)     496   487   1.8     1,569   1,516   3.5 
     –   –   –     –       (8)   *     (6)   (6)   –     (6)   (14)   57.1 
    $125  $95   31.6    $303      $342   (11.4)    $490  $481   1.9    $1,563  $1,502   4.1 
                   
 $3,504  $2,892   21.2%    $8,233   $7,766   6.0%    $697  $351   98.6%    $96,633  $92,369   4.6% 
  514   516   (.4)     –    –   –     2,639   3,085   (14.5)     41,621   43,374   (4.0) 
  2,893   2,343   23.5     –    –   –     –   –   –     59,030   56,284   4.9 
  –   –   –     20,926    20,628   1.4     –   –   –     20,926   20,628   1.4 
     1,684   1,548   8.8     453       515   (12.0)     –   –   –     56,069   52,851   6.1 
  8,595   7,299   17.8     29,612    28,909   2.4     3,336   3,436   (2.9)     274,279   265,506   3.3 
     –   –   –     –       –   –     –   24   *     3,347   4,131   (19.0) 
  8,595   7,299   17.8     29,612    28,909   2.4     3,336   3,460   (3.6)     277,626   269,637   3.0 
  1,568   1,567   .1     2,469    2,463   .2     –   –   –     9,365   9,358   .1 
  79   99   (20.2)     385    494   (22.1)     –   –   –     3,178   2,879   10.4 
  11,495   10,383   10.7     35,035    34,715   .9     145,036   138,400   4.8     450,630   437,863   2.9 
  14,715   13,803   6.6     1,029    954   7.9     2,162   2,224   (2.8)     81,964   82,021   (.1) 
  10,917   9,958   9.6     –    –   –     38   35   8.6     68,066   63,456   7.3 
  42,209   37,966   11.2     103    98   5.1     445   492   (9.6)     148,721   140,616   5.8 
     3,521   3,776   (6.8)     –       –   –     369   908   (59.4)     36,400   32,455   12.2 
  71,362   65,503   8.9     1,132    1,052   7.6     3,014   3,659   (17.6)     335,151   318,548   5.2 
     2,381   2,378   .1       6,206       6,385   (2.8)       18,791   18,719   .4       48,819   47,791   2.2 
    Wealth Management and
Securities Services		  

Payment

Services

      

Treasury and

Corporate Support

      

Consolidated

Company

 
    2017  2016  Percent
Change		      2017      2016  Percent
Change		      2017  2016  Percent
Change		      2017  2016  Percent
Change		 
                   
 $558  $374   49.2%    $1,653   $1,579   4.7%    $1,443  $1,613   (10.5)%    $9,249  $8,727   6.0% 
  1,222   1,183   3.3     2,686    2,651   1.3     681   721   (5.5)     7,123   7,130   (.1) 
     –   –   –     –       –   –     50   16   *     47   16   * 
  1,780   1,557   14.3     4,339    4,230   2.6     2,174   2,350   (7.5)     16,419   15,873   3.4 
  1,194   1,113   7.3     2,069    1,941   6.6     603   672   (10.3)     8,875   8,538   3.9 
     15   18   (16.7)     91       89   2.2     –   –   –     131   134   (2.2) 
     1,209   1,131   6.9     2,160       2,030   6.4     603   672   (10.3)     9,006   8,672   3.9 
  571   426   34.0     2,179    2,200   (1.0)     1,571   1,678   (6.4)     7,413   7,201   2.9 
     1   (2)   *     794       615   29.1     (1)   5   *     1,055   982   7.4 
  570   428   33.2     1,385    1,585   (12.6)     1,572   1,673   (6.0)     6,358   6,219   2.2 
     207   155   33.5     504       577   (12.7)     50   111   (55.0)     1,791   1,766   1.4 
  363   273   33.0     881    1,008   (12.6)     1,522   1,562   (2.6)     4,567   4,453   2.6 
     –   –   –     (13)       (25)   48.0     (18)   (18)   –     (31)   (43)   27.9 
    $363  $273   33.0    $868      $983   (11.7)    $1,504  $1,544   (2.6)    $4,536  $4,410   2.9 
                   
 $3,356  $2,874   16.8%    $7,942   $7,438   6.8%    $656  $358   83.2%    $95,347  $91,451   4.3% 
  511   524   (2.5)     –    –   –     2,715   3,159   (14.1)     42,437   42,922   (1.1) 
  2,764   2,200   25.6     –    –   –     –   –   –     58,496   55,334   5.7 
  –   –   –     20,801    20,339   2.3     –   –   –     20,801   20,339   2.3 
     1,658   1,537   7.9     466       532   (12.4)     –   –   –     54,835   51,809   5.8 
  8,289   7,135   16.2     29,209    28,309   3.2     3,371   3,517   (4.2)     271,916   261,855   3.8 
     –   –   –     –       –   –     7   35   (80.0)     3,538   4,324   (18.2) 
  8,289   7,135   16.2     29,209    28,309   3.2     3,378   3,552   (4.9)     275,454   266,179   3.5 
  1,567   1,567   –     2,459    2,466   (.3)     –   –   –     9,355   9,361   (.1) 
  83   104   (20.2)     409    502   (18.5)     –   –   –     3,239   3,017   7.4 
  11,454   10,251   11.7     34,794    34,226   1.7     142,327   134,301   6.0     446,049   429,421   3.9 
  14,836   13,249   12.0     1,023    947   8.0     2,066   2,097   (1.5)     81,808   79,928   2.4 
  10,438   9,319   12.0     –    –   –     43   41   4.9     67,021   60,746   10.3 
  42,559   35,520   19.8     101    97   4.1     446   496   (10.1)     150,121   133,191   12.7 
     4,182   3,742   11.8     –       –   –     265   2,312   (88.5)     32,660   33,447   (2.4) 
  72,015   61,830   16.5     1,124    1,044   7.7     2,820   4,946   (43.0)     331,610   307,312   7.9 
     2,383   2,379   .2       6,280       6,361   (1.3)       18,345   18,435   (.5)       48,342   47,240   2.3 

    Wealth Management and
Investment Services		   Payment Services   Treasury and Corporate Support   Consolidated Company 
    2021  2020   Percent
Change		   2021   2020   Percent
Change		   2021  2020  Percent
Change		   2021  2020  Percent
Change		 
 
 
    
 
                    
 $225  $301    (25.2)%   $616   $643    (4.2)%   $88  $(18)   *%   $3,197  $3,252   (1.7)% 
     558   505    10.5    946    867    9.1    221   225   (1.8)    2,693   2,712   (.7) 
  783   806    (2.9)    1,562    1,510    3.4    309   207   49.3    5,890   5,964   (1.2) 
  507   489    3.7    817    797    2.5    196   230   (14.8)    3,388   3,327   1.8 
     4   3    33.3    34    37    (8.1)    —   —   —    41   44   (6.8) 
     511   492    3.9    851    834    2.0    196   230   (14.8)    3,429   3,371   1.7 
  272   314    (13.4)    711    676    5.2    113   (23)   *    2,461   2,593   (5.1) 
     11   11    —    166    246    (32.5)    (330)   214   *    (163)   635   * 
  261   303    (13.9)    545    430    26.7    443   (237)   *    2,624   1,958   34.0 
     65   76    (14.5)    136    108    25.9    45   (178)   *    590   372   58.6 
  196   227    (13.7)    409    322    27.0    398   (59)   *    2,034   1,586   28.2 
     —   —    —    —    —    —    (6)   (6)   —    (6)   (6)   — 
    $196  $227    (13.7)   $409   $322    27.0   $392  $(65)   *   $2,028  $1,580   28.4 
                     
 $5,551  $4,721    17.6%   $9,271   $8,859    4.7%   $1,378  $1,301   5.9%   $101,832  $115,489   (11.8)% 
  767   776    (1.2)    —    —    —    2,263   2,154   5.1    38,921   40,929   (4.9) 
  7,286   5,819    25.2    —    —    —    2   3   (33.3)    74,104   75,786   (2.2) 
  —   —    —    21,905    22,052    (.7)    —   —   —    21,905   22,052   (.7) 
     4,850   4,300    12.8    202    257    (21.4)    —   —   —    59,977   56,762   5.7 
  18,454   15,616    18.2    31,378    31,168    .7    3,643   3,458   5.3    296,739   311,018   (4.6) 
  1,618   1,618    —    3,168    3,123    1.4    —   —   —    9,942   9,863   .8 
  80   37    *    496    602    (17.6)    —   —   —    3,335   2,587   28.9 
  21,566   18,708    15.3    37,173    36,191    2.7    219,196   189,388   15.7    553,446   536,902   3.1 
  24,453   17,719    38.0    4,913    6,886    (28.7)    2,594   2,424   7.0    129,018   109,375   18.0 
  18,784   14,041    33.8    —    —    —    456   187   *    103,036   84,494   21.9 
  51,564   56,245    (8.3)    150    123    22.0    776   724   7.2    175,930   177,614   (.9) 
     1,493   3,571    (58.2)    —    1    *    58   603   (90.4)    23,503   34,040   (31.0) 
  96,294   91,576    5.2    5,063    7,010    (27.8)    3,884   3,938   (1.4)    431,487   405,523   6.4 
     3,172   2,968    6.9    7,561    7,716    (2.0)    17,491   13,119   33.3    54,273   52,416   3.5 
    Wealth Management and
Investment Services		   
Payment
Services
   
Treasury and
Corporate Support
   
Consolidated
Company
 
    2021  2020   Percent
Change		   2021   2020   Percent
Change		   2021  2020  Percent
Change		   2021  2020  Percent
Change		 
                     
 $721  $964    (25.2)%   $1,841   $1,910    (3.6)%   $113  $(13)   *%   $9,450  $9,723   (2.8)% 
     1,638   1,507    8.7    2,644    2,319    14.0    707   693   2.0    7,693   7,851   (2.0) 
  2,359   2,471    (4.5)    4,485    4,229    6.1    820   680   20.6    17,143   17,574   (2.5) 
  1,499   1,445    3.7    2,381    2,296    3.7    729   764   (4.6)    10,076   9,876   2.0 
     10   9    11.1    100    108    (7.4)    —   —   —    119   129   (7.8) 
     1,509   1,454    3.8    2,481    2,404    3.2    729   764   (4.6)    10,195   10,005   1.9 
  850   1,017    (16.4)    2,004    1,825    9.8    91   (84)   *    6,948   7,569   (8.2) 
     26   34    (23.5)    216    477    (54.7)    (1,239)   2,013   *    (1,160)   3,365   * 
  824   983    (16.2)    1,788    1,348    32.6    1,330   (2,097)   *    8,108   4,204   92.9 
     206   246    (16.3)    447    338    32.2    106   (833)   *    1,801   744   * 
  618   737    (16.1)    1,341    1,010    32.8    1,224   (1,264)   *    6,307   3,460   82.3 
     —   —    —    —    —    —    (17)   (20)   15.0    (17)   (20)   15.0 
    $618  $737    (16.1)   $1,341   $1,010    32.8   $1,207  $(1,284)   *   $6,290  $3,440   82.8 
                     
 $5,315  $4,676    13.7%   $8,752   $8,977    (2.5)%   $1,445  $1,288   12.2%   $102,298  $116,501   (12.2)% 
  711   736    (3.4)    —    —    —    2,293   2,101   9.1    38,757   40,699   (4.8) 
  6,889   5,496    25.3    —    —    —    2   3   (33.3)    74,215   72,612   2.2 
  —   —    —    21,391    22,465    (4.8)    —   —   —    21,391   22,465   (4.8) 
     4,669   4,243    10.0    210    283    (25.8)    —   —   —    58,353   56,658   3.0 
  17,584   15,151    16.1    30,353    31,725    (4.3)    3,740   3,392   10.3    295,014   308,935   (4.5) 
  1,618   1,617    .1    3,174    3,027    4.9    —   —   —    9,925   9,799   1.3 
  69   40    72.5    519    584    (11.1)    —   —   —    3,285   2,725   20.6 
  20,676   18,324    12.8    35,972    36,497    (1.4)    218,053   182,276   19.6    551,199   525,380   4.9 
  23,024   16,285    41.4    5,068    3,852    31.6    2,595   2,310   12.3    124,262   92,935   33.7 
  18,885   13,584    39.0    —    —    —    553   225   *    101,280   81,890   23.7 
  55,375   59,442    (6.8)    141    117    20.5    796   770   3.4    178,430   176,184   1.3 
     1,838   3,710    (50.5)    —    2    *    369   2,298   (83.9)    25,067   39,589   (36.7) 
  99,122   93,021    6.6    5,209    3,971    31.2    4,313   5,603   (23.0)    429,039   390,598   9.8 
     3,099   2,924    6.0    7,544    7,269    3.8    16,311   13,745   18.7    53,327   51,936   2.7 
U.S. Bancorp 29
33

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Noninterest expense increased $16$19 million (4.1(3.9 percent) in the third quarter and $78$55 million (6.9(3.8 percent) in the first nine months of 2017,2021, compared with the same periods of 2016. The increases were primarily the result of2020, reflecting higher compensation expense reflecting the impactas a result of higher staffing and merit increases, higher performance-based incentives related to investment sales volumes and core business growth, and an increase in net shared services expense, and higher FDIC insurance surcharges.

partially offset by lower other noninterest expense due to the allocation to the business line of previously reserved legal matters in the third quarter of 2020. The provision for credit losses was flat in the third quarter of 2021, compared with the third quarter of 2020, reflecting stable credit quality in the current quarter, compared with credit quality deterioration in the third quarter of 2020, offset by stronger balance growth in the current period compared with the third quarter of 2021. The provision for credit losses decreased $8 million (23.5 percent) in the first nine months of 2021, compared with the first nine months of 2020, reflecting a decrease in the reserve allocation in the first quarter of 2021 driven by stable credit quality.

Payment Services
 Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing. Payment Services contributed $303$409 million of the Company’s net income in the third quarter and $868 million$1.3 billion in the first nine months of 2017,2021, or decreasesincreases of $39$87 million (11.4(27.0 percent) and $115$331 million (11.7(32.8 percent), respectively, compared with the same periods of 2016.

2020.

Net revenue increased $33$52 million (2.3(3.4 percent) in the third quarter and $109$256 million (2.6(6.1 percent) in the first nine months of 2017,2021, compared with the same periods of 2016.2020. Net interest income, on a taxable-equivalent basis, increased $25decreased $27 million (4.6(4.2 percent) in the third quarter and $74$69 million (4.7(3.6 percent) in the first nine months of 2017,2021, compared with the same periods of 2016,2020, primarily due to loan mix and lower loan balances resulting from higher averagecredit card payment rates by customers. Net interest income further decreased in the third quarter of 2021, compared with the third quarter of 2020, due to slightly lower loan volumesyields and rising interest rates, in addition to growth in loan fees.lower deposit balances driven by lower prepaid card processing activities as government stimulus dissipated. Noninterest income increased $8$79 million (0.9(9.1 percent) in the third quarter and $35$325 million (1.3(14.0 percent) in the first nine months of 2017,2021, compared with the same periods of 2016, primarily2020, mainly due to continued strengthening of consumer and business spending across most sectors driven by government stimulus, local jurisdictions reducing restrictions and consumer behaviors normalizing. As a result, there was strong growth in merchant processing services revenue driven by increased sales volume and higher merchant fees and equipment income, partially offset by higher rebates. There was also solid growth in corporate payment products revenue driven by improving business spending across all product groups. Credit and debit card revenue increased, driven by higher net interchange revenue related to sales volume. The increase in credit and debit card revenue and corporate payment products revenue, both driven by higher sales. These increases were partially offset by lower merchant processing services revenue in the third quarter of 2017 due to2021, compared with the Company exiting certain joint ventures in the secondthird quarter of 2017 and the impacts of recent weather events. The increase in noninterest income for the first nine months of 20172020, was furthermostly offset by the impact of a gain on the sale of an equity investment in the prior year.

lower prepaid card processing activities as government stimulus programs dissipated.

Noninterest expense increased $45$17 million (6.5(2.0 percent) in the third quarter of 2021, compared with the third quarter of 2020, reflecting the timing of marketing campaigns and $130higher net shared services expense, partially offset by higher incremental costs related to the prepaid card business in the third quarter of 2020. Noninterest expense increased $77 million (6.4(3.2 percent) in the first nine months of 2017,2021, compared with the same periodsfirst nine months of 2016, principally2020, due to higher net shared services expense, driven by implementationincremental costs related to the prepaid card business in the first six months of capital investments to support business growth,2021 and higher compensation and employee benefits expenses, reflecting higher staffing to support business investment and compliance programs and merit increases.lower marketing costs during 2020. The provision for credit losses increased $62decreased $80 million (29.8(32.5 percent) in the third quarter and $179$261 million (29.1(54.7 percent) in the first nine months of 2017,2021, compared with the same periods of 2016, due2020, primarily driven by improved credit quality relative to unfavorable changes in the reserve allocation related to portfolio growth and higher loss rates, as well as higher net charge-offs.

prior year.

Treasury and Corporate Support
 Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in
tax-advantaged
projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of $490$392 million in the third quarter and $1.5$1.2 billion in the first nine months of 2017,2021, compared with $481net losses of $65 million and $1.5$1.3 billion in the same periods of 2016,2020, respectively.

Net revenue increased $44$102 million (6.2(49.3 percent) in the third quarter and decreased $176$140 million (7.5(20.6 percent) in the first nine months of 2017,2021, compared with the same periods of 2016.2020. Net interest income, on a taxable-equivalent basis, increased $106 million in the third quarter of 2021, compared with the third quarter of 2020, primarily due to favorable funding and deposit mix and lower premium amortization within the investment portfolio compared with the prior year. Net interest income, on a taxable-equivalent basis, increased $126 million in the first nine months of 2021, compared with the first nine months of 2020, due to favorable
34
U.S. Bancorp
Table of Contents
funding and deposit mix, partially offset by higher premium amortization within the investment portfolio compared with the prior year. Noninterest income decreased $2$4 million (0.4(1.8 percent) in the third quarter and $170increased $14 million (10.5(2.0 percent) in the first nine months of 2017,2021, compared with the same periods of 2016, principally due to2020, reflecting changes in other noninterest income driven by lower equity investment income in 2021, offset by the impact of rising rates onasset impairments in 2020 as a result of branch closures. The increase in noninterest income in the margin benefit on deposits credited tofirst nine months of 2021, compared with the business lines, partiallyfirst nine months of 2020, was further offset by growthlower gains on sales of businesses in the investment portfolio. Total noninterest income increased $462021 and lower securities gains.
Noninterest expense decreased $34 million (23.2(14.8 percent) in the third quarter of 2017, compared with the third quarter of 2016, principally due to higher equity investment income. Total noninterest income decreased $6and $35 million (0.8(4.6 percent) in the first nine months of 2017,2021, compared with the same periodperiods of 2016,2020, primarily due to lower
COVID-19
related expenses compared with the impact ofprior year, including recognizing liabilities related to future delivery exposures for merchant and airline processing, lower net shared services expense and lower amortization related to
tax-advantaged
investments which were scaled back in 2020 during the 2016 Visa Europe sale,pandemic. These decreases were partially offset by higher income from other equity investmentscompensation expense as a result of merit increases and higher gains on sales of investment securities in the current year.

Noninterest expense increased $33performance-based incentives. The provision for credit losses decreased $544 million (17.2 percent) in the third quarter of 2017, compared with the third quarter of 2016, principally due to higher compensation expense, reflecting the impact of increased staffing and merit increases including variable compensation, and higher accruals for legal and regulatory matters, partially offset by lower net shared services expense. Noninterest expense decreased $69 million (10.3 percent)$3.3 billion in the first nine months of 2017,2021, compared with the same periodperiods of 2016, principally due to lower net shared services expense2020, reflecting the residual impact of changes in the allowance for credit losses being impacted by improving economic conditions in the current year, and the impacts of an increase in reserves relatedcompared to legal and regulatory matters and a charitable contribution, both recordeddeteriorating conditions in the second quarter of 2016. These decreases were partially offset by increased compensation expense recorded in the current

30U.S. Bancorp

prior year.

year. The provision for credit losses was $6 million lower in the first nine months of 2017, compared with the same period of 2016, primarily due to lower net charge-offs.

Income taxes are assessed to each line of business at a managerial tax rate of 36.425.0 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.

NON-GAAP
FINANCIAL MEASURES

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

Tangible common equity to tangible assets,
Tangible common equity to risk-weighted assets, and
Common equity tier 1 capital to risk-weighted assets, estimated forreflecting the Basel III fully implemented standardized approach, andfull implementation of the CECL methodology.
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches.

These capital measures are viewed by management as useful additional methods of reflectingevaluating the Company’s utilization of its capital held and the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These measures differ from currently effective capital ratios defined by banking regulations principally in that the numerator of the currently effective ratios, which are subject to certain transitional provisions, temporarily excludes a portion of unrealized gains and losses related toavailable-for-sale securities and retirement plan obligations, and includes a portion of capital related to intangible assets, other than MSRs. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in federal banking regulations. In addition, certain of these measures differ from currently effective capital ratios defined by banking regulations principally in that the currently effective ratios, which are subject to certain transitional provisions, temporarily exclude the impact of the 2020 adoption of accounting guidance related to impairment of financial instruments based on the CECL methodology. As a result, these capital measures disclosed by the Company may be considered
non-GAAP
financial measures.

Management believes this information helps investors assess trends in the Company’s capital adequacy.

The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered
non-GAAP
financial measures. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and
tax-exempt
sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.

There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this report in their entirety, and not to rely on any single financial measure.

U.S. Bancorp 31
35

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The following table shows the Company’s calculation of these
non-GAAP
financial measures:

(Dollars in Millions) September 30,
2017		  December 31,
2016		 

Total equity

 $49,351  $47,933 

Preferred stock

  (5,419)   (5,501) 

Noncontrolling interests

  (628)   (635) 

Goodwill (net of deferred tax liability) (1)

  (8,141)   (8,203) 

Intangible assets, other than mortgage servicing rights

  (595)   (712) 

Tangible common equity (a)

  34,568   32,882 

Tangible common equity (as calculated above)

  34,568   32,882 

Adjustments (2)

  (52)   (55) 

Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (b)

  34,516   32,827 

Total assets

  459,227   445,964 

Goodwill (net of deferred tax liability) (1)

  (8,141)   (8,203) 

Intangible assets, other than mortgage servicing rights

  (595)   (712) 

Tangible assets (c)

  450,491   437,049 

Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory
requirements (d)

  363,957   358,237 

Adjustments (3)

  3,907   4,027 

Risk-weighted assets estimated for the Basel III fully implemented standardized approach (e)

  367,864   362,264 

Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements

  287,800   277,141 

Adjustments (4)

  4,164   4,295 

Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (f)

  291,964   281,436 

Ratios

  

Tangible common equity to tangible assets (a)/(c)

  7.7%   7.5% 

Tangible common equity to risk-weighted assets (a)/(d)

  9.5   9.2 

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized
approach (b)/(e)

  9.4   9.1 

Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)/(f)

  11.8   11.7 

  Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
  2017  2016       2017  2016 

Net interest income

 $3,135  $2,893     $9,097  $8,573 

Taxable-equivalent adjustment (5)

  51   50        152   154 

Net interest income, on a taxable-equivalent basis

  3,186   2,943      9,249   8,727 
 

Net interest income, on a taxable-equivalent basis (as calculated above)

  3,186   2,943      9,249   8,727 

Noninterest income

  2,422   2,445      7,170   7,146 

Less: Securities gains (losses), net

  9   10        47   16 

Total net revenue, excluding net securities gains (losses) (g)

  5,599   5,378      16,372   15,857 
 

Noninterest expense (h)

  3,039   2,931      9,006   8,672 
 

Efficiency ratio (h)/(g)

  54.3%   54.5%        55.0%   54.7% 

(Dollars in Millions) September 30,
2021		  December 31,
2020		 
Total equity
     $54,378  $53,725 
Preferred stock
  (5,968)   (5,983) 
Noncontrolling interests
  (635)   (630) 
Goodwill (net of deferred tax liability) (1)
  (9,063)   (9,014) 
Intangible assets, other than mortgage servicing rights
  (618)   (654) 
Tangible common equity (a)
  38,094   37,444 
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation
  41,014   38,045 
Adjustments (2)
  (1,733)   (1,733) 
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology (b)
  39,281   36,312 
Total assets
  567,495   553,905 
Goodwill (net of deferred tax liability) (1)
  (9,063)   (9,014) 
Intangible assets, other than mortgage servicing rights
  (618)   (654) 
Tangible assets (c)
  557,814   544,237 
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)
  404,021   393,648 
Adjustments (3)
  (684)   (1,471) 
Risk-weighted assets, reflecting the full implementation of the CECL methodology (e)
  403,337   392,177 
Ratios
  
Tangible common equity to tangible assets (a)/(c)
  6.8%   6.9% 
Tangible common equity to risk-weighted assets (a)/(d)
  9.4   9.5 
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology (b)/(e)
  9.7   9.3 
  Three Months Ended
September 30		  Nine Months Ended
September 30		 
  2021  2020  2021  2020 
Net interest income
 $3,171  $3,227  $9,371  $9,650 
Taxable-equivalent adjustment (4)
  26   25   79   73 
Net interest income, on a taxable-equivalent basis
  3,197   3,252   9,450   9,723 
Net interest income, on a taxable-equivalent basis (as calculated above)
  3,197   3,252   9,450   9,723 
Noninterest income
  2,693   2,712   7,693   7,851 
Less: Securities gains (losses), net
  20   12   88   143 
Total net revenue, excluding net securities gains (losses) (f)
  5,870   5,952   17,055   17,431 
 
Noninterest expense (g)
  3,429   3,371   10,195   10,005 
 
Efficiency ratio (g)/(f)
  58.4%   56.6%   59.8%   57.4% 
(1)
Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.
(2)
Includes the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology net (gains) losses on cash flow hedges included in accumulated other comprehensive income (loss) and other adjustments.of deferred taxes.    
(3)
Includes higher risk-weightingthe impact of the estimated increase in the allowance for unfunded loan commitments, investment securities, residential mortgages, MSRs and other adjustments.credit losses related to the adoption of the CECL methodology.    
(4)
Primarily reflects higher risk-weighting for MSRs.
(5)Utilizes
Based on a federal income tax rate of 3521 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.

32U.S. Bancorp

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Company’s financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Company’s financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. Those policies considered to be critical accounting policies relate to the allowance for credit losses, fair value estimates, purchased loans and related indemnification assets, MSRs, goodwill and other intangibles and income taxes. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” and the Notes to Consolidated Financial Statements in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016.

2020.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon this evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

During the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial reporting (as defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

U.S. Bancorp
36
 33U.S. Bancorp

Table of Contents

U.S. Bancorp

Consolidated Balance Sheet

(Dollars in Millions) September 30,
2017		  December 31,
2016		 
  (Unaudited)  

Assets

  

Cash and due from banks

 $20,540  $15,705 

Investment securities

  

Held-to-maturity (fair value $43,758 and $42,435, respectively)

  44,018   42,991 

Available-for-sale ($686 and $755 pledged as collateral, respectively) (a)

  67,772   66,284 

Loans held for sale (including $3,754 and $4,822 of mortgage loans carried at fair value, respectively)

  3,757   4,826 

Loans

  

Commercial

  96,928   93,386 

Commercial real estate

  41,430   43,098 

Residential mortgages

  59,317   57,274 

Credit card

  20,923   21,749 

Other retail

  56,859   53,864 

Total loans, excluding covered loans

  275,457   269,371 

Covered loans

  3,262   3,836 

Total loans

  278,719   273,207 

Less allowance for loan losses

  (3,908)   (3,813) 

Net loans

  274,811   269,394 

Premises and equipment

  2,402   2,443 

Goodwill

  9,370   9,344 

Other intangible assets

  3,193   3,303 

Other assets (including $445 and $314 of trading securities at fair value pledged as collateral, respectively) (a)

  33,364   31,674 

Total assets

 $459,227  $445,964 

Liabilities and Shareholders’ Equity

  

Deposits

  

Noninterest-bearing

 $82,152  $86,097 

Interest-bearing (b)

  260,437   248,493 

Total deposits

  342,589   334,590 

Short-term borrowings

  15,856   13,963 

Long-term debt

  34,515   33,323 

Other liabilities

  16,916   16,155 

Total liabilities

  409,876   398,031 

Shareholders’ equity

  

Preferred stock

  5,419   5,501 

Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 9/30/17 and 12/31/16 — 2,125,725,742 shares

  21   21 

Capital surplus

  8,457   8,440 

Retained earnings

  53,023   50,151 

Less cost of common stock in treasury: 9/30/17 — 458,958,607 shares; 12/31/16 — 428,813,585 shares

  (16,978)   (15,280) 

Accumulated other comprehensive income (loss)

  (1,219)   (1,535) 

Total U.S. Bancorp shareholders’ equity

  48,723   47,298 

Noncontrolling interests

  628   635 

Total equity

  49,351   47,933 

Total liabilities and equity

 $459,227  $445,964 

(Dollars in Millions) 
September 30,
2021
  
December 31,
2020
 
  (Unaudited)    
   
Assets
        
Cash and due from banks
 $ 63,904  $ 62,580 
Available-for-sale investment securities ($850 and $402 pledged as collateral, respectively) (a)
  149,376   136,840 
Loans held for sale (including $6,176 and $8,524 of mortgage loans carried at fair value, respectively)
  6,191   8,761 
Loans
        
Commercial
  101,013   102,871 
Commercial real estate
  38,808   39,311 
Residential mortgages
  74,954   76,155 
Credit card
  22,137   22,346 
Other retail
  60,696   57,024 
Total loans
  297,608   297,707 
Less allowance for loan losses
  (5,792)   (7,314) 
Net loans
  291,816   290,393 
Premises and equipment
  3,262   3,468 
Goodwill
  9,996   9,918 
Other intangible assets
  3,528   2,864 
Other assets (including $1,426 and $1,255 of trading securities at fair value pledged as collateral, respectively) (a)
  39,422   39,081 
Total assets
 $567,495  $553,905 
   
Liabilities and Shareholders’ Equity
        
Deposits
        
Noninterest-bearing
 $135,549  $118,089 
Interest-bearing (b)
  307,353   311,681 
Total deposits
  442,902   429,770 
Short-term borrowings
  16,088   11,766 
Long-term debt
  35,671   41,297 
Other liabilities
  18,456   17,347 
Total liabilities
  513,117   500,180 
Shareholders’ equity
        
Preferred stock
  5,968   5,983 
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares; issued: 9/30/21 and 12/31/20— 2,125,725,742 shares
  21   21 
Capital surplus
  8,550   8,511 
Retained earnings
  68,297   64,188 
Less cost of common stock in treasury: 9/30/21—643,035,053 shares; 12/31/20—618,618,084 shares
  (27,301)   (25,930) 
Accumulated other comprehensive income (loss)
  (1,792)   322 
Total U.S. Bancorp shareholders’ equity
  53,743   53,095 
Noncontrolling interests
  635   630 
Total equity
  54,378   53,725 
Total liabilities and equity
 $567,495  $553,905 
(a)
Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
(b)
Includes
lncludes time deposits greater than $250,000 balances of $7.4$2.4 billion and $3.0$4.4 billion at September 30, 20172021 and December 31, 2016,2020, respectively.

See Notes to Consolidated Financial Statements.

34U.S. Bancorp

U.S. Bancorp

Consolidated Statement of Income

  Three Months Ended
September 30,		   Nine Months Ended
September 30,		 

(Dollars and Shares in Millions, Except Per Share Data)

(Unaudited)

         2017  2016           2017  2016 

Interest Income

      

Loans

 $3,059  $2,731   $8,757  $8,039 

Loans held for sale

  40   43    104   110 

Investment securities

  568   515    1,653   1,555 

Other interest income

  47   31    131   89 

Total interest income

  3,714   3,320    10,645   9,793 

Interest Expense

      

Deposits

  293   161    730   452 

Short-term borrowings

  90   70    233   201 

Long-term debt

  196   196    585   567 

Total interest expense

  579   427    1,548   1,220 

Net interest income

  3,135   2,893    9,097   8,573 

Provision for credit losses

  360   325    1,055   982 

Net interest income after provision for credit losses

  2,775   2,568    8,042   7,591 

Noninterest Income

      

Credit and debit card revenue

  308   299    919   861 

Corporate payment products revenue

  201   190    564   541 

Merchant processing services

  405   412    1,190   1,188 

ATM processing services

  92   87    267   251 

Trust and investment management fees

  380   362    1,128   1,059 

Deposit service charges

  192   192    553   539 

Treasury management fees

  153   147    466   436 

Commercial products revenue

  221   219    638   654 

Mortgage banking revenue

  213   314    632   739 

Investment products fees

  39   41    120   120 

Securities gains (losses), net

      

Realized gains (losses), net

  9   12    47   19 

Total other-than-temporary impairment

  –   (2)    –   (4) 

Portion of other-than-temporary impairment recognized in other comprehensive income (loss)

  –   –    –   1 

Total securities gains (losses), net

  9   10    47   16 

Other

  209   172    646   742 

Total noninterest income

  2,422   2,445    7,170   7,146 

Noninterest Expense

      

Compensation

  1,440   1,329    4,247   3,855 

Employee benefits

  281   280    882   858 

Net occupancy and equipment

  258   250    760   741 

Professional services

  104   127    305   346 

Marketing and business development

  92   102    291   328 

Technology and communications

  246   243    723   717 

Postage, printing and supplies

  82   80    244   236 

Other intangibles

  44   45    131   134 

Other

  492   475    1,423   1,457 

Total noninterest expense

  3,039   2,931    9,006   8,672 

Income before income taxes

  2,158   2,082    6,206   6,065 

Applicable income taxes

  589   566    1,639   1,612 

Net income

  1,569   1,516    4,567   4,453 

Net (income) loss attributable to noncontrolling interests

  (6)   (14)    (31)   (43) 

Net income attributable to U.S. Bancorp

 $1,563  $1,502   $4,536  $4,410 

Net income applicable to U.S. Bancorp common shareholders

 $1,485  $1,434   $4,302  $4,198 

Earnings per common share

 $.89  $.84   $2.56  $2.44 

Diluted earnings per common share

 $.88  $.84   $2.55  $2.43 

Dividends declared per common share

 $.30  $.28   $.86  $.79 

Average common shares outstanding

  1,672   1,710    1,683   1,724 

Average diluted common shares outstanding

  1,678   1,716    1,689   1,730 

See Notes to Consolidated Financial Statements.

U.S. Bancorp 35
37

Table of Contents

U.S. Bancorp

Consolidated Statement of Comprehensive Income

  Three Months Ended
September 30,		   Nine Months Ended
September 30,		 

(Dollars in Millions)

(Unaudited)

         2017          2016           2017          2016 

Net income

 $1,569  $1,516   $4,567  $4,453 

Other Comprehensive Income (Loss)

      

Changes in unrealized gains and losses on securitiesavailable-for-sale

  24   (105)    479   716 

Other-than-temporary impairment not recognized in earnings on securitiesavailable-for-sale

  –   –    –   (1) 

Changes in unrealized gains and losses on derivative hedges

  (3)   31    (33)   (152) 

Foreign currency translation

  2   6    11   (30) 

Reclassification to earnings of realized gains and losses

  21   54    58   196 

Income taxes related to other comprehensive income (loss)

  (17)   (3)    (199)   (289) 

Total other comprehensive income (loss)

  27   (17)    316   440 

Comprehensive income

  1,596   1,499    4,883   4,893 

Comprehensive (income) loss attributable to noncontrolling interests

  (6)   (14)    (31)   (43) 

Comprehensive income attributable to U.S. Bancorp

 $1,590  $1,485   $4,852  $4,850 

(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)
 Three Months Ended
September 30		       Nine Months Ended
September 30		 
 2021  2020       2021  2020 
Interest Income
                     
Loans
 $2,711  $2,892       $8,112  $9,152 
Loans held for sale
  54   61        176   157 
Investment securities
  606   586        1,741   1,908 
Other interest income
  38   34        103   144 
Total interest income
  3,409   3,573        10,132   11,361 
Interest Expense
                     
Deposits
  78   130        245   849 
Short-term borrowings
  18   19        52   124 
Long-term debt
  142   197        464   738 
Total interest expense
  238   346        761   1,711 
Net interest income
  3,171   3,227        9,371   9,650 
Provision for credit losses
  (163)   635        (1,160)   3,365 
Net interest income after provision for credit losses
  3,334   2,592        10,531   6,285 
Noninterest Income
                     
Credit and debit card revenue
  393   388        1,125   976 
Corporate payment products revenue
  156   125        420   371 
Merchant processing services
  392   347        1,084   950 
Trust and investment management fees
  459   434        1,349   1,295 
Deposit service charges
  194   170        531   512 
Treasury management fees
  155   145        462   425 
Commercial products revenue
  277   303        837   904 
Mortgage banking revenue
  418   553        1,063   1,596 
Investment products fees
  62   48        177   142 
Securities gains (losses), net
  20   12        88   143 
Other
  167   187        557   537 
Total noninterest income
  2,693   2,712        7,693   7,851 
Noninterest Expense
                     
Compensation
  1,847   1,687        5,448   4,992 
Employee benefits
  336   335        1,057   1,001 
Net occupancy and equipment
  259   276        780   823 
Professional services
  126   102        332   307 
Marketing and business development
  99   72        237   213 
Technology and communications
  361   334        1,082   932 
Postage, printing and supplies
  69   70        203   214 
Other intangibles
  41   44        119   129 
Other
  291   451        937   1,394 
Total noninterest expense
  3,429   3,371        10,195   10,005 
Income before income taxes
  2,598   1,933        8,029   4,131 
Applicable income taxes
  564   347        1,722   671 
Net income
  2,034   1,586        6,307   3,460 
Net (income) loss attributable to noncontrolling interests
  (6)   (6)        (17)   (20) 
Net income attributable to U.S. Bancorp
 $2,028  $1,580       $6,290  $3,440 
Net income applicable to U.S. Bancorp common shareholders
 $1,934  $1,494       $6,023  $3,196 
Earnings per common share
 $  1.30  $    .99       $  4.04  $  2.12 
Diluted earnings per common share
 $  1.30  $    .99       $  4.04  $  2.11 
Average common shares outstanding
  1,483   1,506        1,491   1,510 
Average diluted common shares outstanding
  1,484   1,507        1,492   1,511 
See Notes to Consolidated Financial Statements.

36
38
 U.S. Bancorp

Table of Contents

U.S. Bancorp

Consolidated Statement of Shareholders’ Equity

  U.S. Bancorp Shareholders       

(Dollars and Shares in Millions)

(Unaudited)

 Common Shares
Outstanding		  Preferred
Stock		  Common
Stock		  Capital
Surplus		  Retained
Earnings		  Treasury
Stock		  Accumulated
Other
Comprehensive
Income (Loss)		  Total
U.S. Bancorp
Shareholders’
Equity		  Noncontrolling
Interests		  Total
Equity		 

Balance December 31, 2015

  1,745  $5,501  $21  $8,376  $46,377  $(13,125)  $(1,019)  $46,131  $686  $46,817 

Net income (loss)

      4,410     4,410   43   4,453 

Other comprehensive income (loss)

        440   440    440 

Preferred stock dividends

      (201)     (201)    (201) 

Common stock dividends

      (1,364)     (1,364)    (1,364) 

Issuance of common and treasury stock

  7     (59)    228    169    169 

Purchase of treasury stock

  (47)       (1,947)    (1,947)    (1,947) 

Distributions to noncontrolling interests

         –   (38)   (38) 

Purchase of noncontrolling interests

     1   9     10   (50)   (40) 

Net other changes in noncontrolling interests

         –   (1)   (1) 

Stock option and restricted stock grants

              111               111       111 

Balance September 30, 2016

  1,705  $5,501  $21  $8,429  $49,231  $(14,844)  $(579)  $47,759  $640  $48,399 

Balance December 31, 2016

  1,697  $5,501  $21  $8,440  $50,151  $(15,280)  $(1,535)  $47,298  $635  $47,933 

Net income (loss)

      4,536     4,536   31   4,567 

Other comprehensive income (loss)

        316   316    316 

Preferred stock dividends

      (204)     (204)    (204) 

Common stock dividends

      (1,450)     (1,450)    (1,450) 

Issuance of preferred stock

   993        993    993 

Redemption of preferred stock

   (1,075)     (10)     (1,085)    (1,085) 

Issuance of common and treasury stock

  7     (115)    257    142    142 

Purchase of treasury stock

  (37)       (1,955)    (1,955)    (1,955) 

Distributions to noncontrolling interests

         –   (41)   (41) 

Net other changes in noncontrolling interests

         –   3   3 

Stock option and restricted stock grants

              132               132       132 

Balance September 30, 2017

  1,667  $5,419  $21  $8,457  $53,023  $(16,978)  $(1,219)  $48,723  $628  $49,351 

Comprehensive Income

(Dollars in Millions)
(Unaudited)
 
Three Months Ended
September 30
       
Nine Months Ended
September 30
 
 2021  2020       2021  2020 
Net income
 $2,034  $1,586       $6,307  $3,460 
Other Comprehensive Income (Loss)
                     
Changes in unrealized gains and losses on investment securities available-for-sale
  (825)   (305)        (3,008)   2,935 
Changes in unrealized gains and losses on derivative hedges
  8   27        121   (230) 
Foreign currency translation
  (1)   6        23   (6) 
Reclassification to earnings of realized gains and losses
  27   23        34   (42) 
Income taxes related to other comprehensive income (loss)
  201   63        716   (672) 
Total other comprehensive income (loss)
  (590)   (186)        (2,114)   1,985 
Comprehensive income (loss)
  1,444   1,400        4,193   5,445 
Comprehensive (income) loss attributable to noncontrolling interests
  (6)   (6)        (17)   (20) 
      
Comprehensive income (loss) attributable to U.S. Bancorp
 $1,438  $1,394       $4,176  $5,425 
See Notes to Consolidated Financial Statements.

U.S. Bancorp 37
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U.S. Bancorp

Consolidated Statement of Cash Flows

(Dollars in Millions)

(Unaudited)

 Nine Months Ended
September 30,		 
 2017  2016 

Operating Activities

  

Net income attributable to U.S. Bancorp

 $4,536  $4,410 

Adjustments to reconcile net income to net cash provided by operating activities

  

Provision for credit losses

  1,055   982 

Depreciation and amortization of premises and equipment

  219   219 

Amortization of intangibles

  131   134 

(Gain) loss on sale of loans held for sale

  (544)   (753) 

(Gain) loss on sale of securities and other assets

  (387)   (463) 

Loans originated for sale in the secondary market, net of repayments

  (26,080)   (31,975) 

Proceeds from sales of loans held for sale

  27,481   30,033 

Other, net

  230   651 

Net cash provided by operating activities

  6,641   3,238 

Investing Activities

  

Proceeds from sales ofavailable-for-sale investment securities

  3,063   8,171 

Proceeds from maturities ofheld-to-maturity investment securities

  6,348   7,116 

Proceeds from maturities ofavailable-for-sale investment securities

  9,459   10,252 

Purchases ofheld-to-maturity investment securities

  (7,403)   (6,428) 

Purchases ofavailable-for-sale investment securities

  (13,575)   (22,897) 

Net increase in loans outstanding

  (5,698)   (11,063) 

Proceeds from sales of loans

  1,348   1,782 

Purchases of loans

  (2,245)   (2,136) 

Other, net

  (617)   (38) 

Net cash used in investing activities

  (9,320)   (15,241) 

Financing Activities

  

Net increase in deposits

  7,999   34,197 

Net increase (decrease) in short-term borrowings

  1,893   (12,182) 

Proceeds from issuance of long-term debt

  7,726   10,631 

Principal payments or redemption of long-term debt

  (6,561)   (4,806) 

Proceeds from issuance of preferred stock

  993   – 

Proceeds from issuance of common stock

  138   159 

Repurchase of preferred stock

  (1,085)   – 

Repurchase of common stock

  (1,950)   (1,902) 

Cash dividends paid on preferred stock

  (213)   (206) 

Cash dividends paid on common stock

  (1,426)   (1,331) 

Purchase of noncontrolling interests

  –   (40) 

Net cash provided by financing activities

  7,514   24,520 

Change in cash and due from banks

  4,835   12,517 

Cash and due from banks at beginning of period

  15,705   11,147 

Cash and due from banks at end of period

 $20,540  $23,664 

Shareholders’ Equity

  U.S. Bancorp Shareholders       
(Dollars and Shares in Millions, Except Per
Share Data) (Unaudited)		 
Common
Shares
Outstanding
  
Preferred
Stock
  
Common
Stock
  
Capital
Surplus
  
Retained
Earnings
  
Treasury
Stock
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
U.S. Bancorp
Shareholders’
Equity
  
Noncontrolling
Interests
  
Total
Equity
 
Balance June 30, 2020
  1,506  $5,984  $21  $8,483  $62,526  $(25,962)  $798  $51,850  $630  $52,480 
Net income (loss)
                  1,580           1,580   6   1,586 
Other comprehensive income (loss)
                          (186)   (186)       (186) 
Preferred stock dividends (a)
                  (79)           (79)       (79) 
Common stock dividends ($.42 per share)
                  (636)           (636)       (636) 
Issuance of common and treasury stock
              (1)       3       2       2 
Distributions to noncontrolling interests
                              —   (5)   (5) 
Net other changes in noncontrolling interests
                              —   (1)   (1) 
Stock option and restricted stock grants
              34               34       34 
           
Balance September 30, 2020
  1,506  $5,984  $21  $8,516  $63,391  $(25,959)  $612  $52,565  $630  $53,195 
Balance June 30, 2021
  1,483  $5,968  $21  $8,518  $67,039  $(27,305)  $(1,202)  $53,039  $635  $53,674 
Net income (loss)
                  2,028           2,028   6   2,034 
Other comprehensive income (loss)
                          (590)   (590)       (590) 
Preferred stock dividends (b)
                  (84)           (84)       (84) 
Common stock dividends ($.46 per share)
                  (686)           (686)       (686) 
Issuance of common and treasury stock
              (1)       4       3       3 
Distributions to noncontrolling interests
                              —   (5)   (5) 
Net other changes in noncontrolling interests
                              —   (1)   (1) 
Stock option and restricted stock grants
              33               33       33 
           
Balance September 30, 2021
  1,483  $5,968  $21  $8,550  $68,297  $(27,301)  $(1,792)  $53,743  $635  $54,378 
Balance December 31, 2019
  1,534  $5,984  $21  $8,475  $63,186  $(24,440)  $(1,373)  $51,853  $630  $52,483 
Change in accounting principle (c)
                  (1,099)           (1,099)       (1,099) 
Net income (loss)
                  3,440           3,440   20   3,460 
Other comprehensive income (loss)
                          1,985   1,985       1,985 
Preferred stock dividends (d)
                  (229)           (229)       (229) 
Common stock dividends ($1.26 per share)
                  (1,907)           (1,907)       (1,907) 
Issuance of common and treasury stock
  3           (118)       130       12       12 
Purchase of treasury stock
  (31)                   (1,649)       (1,649)       (1,649) 
Distributions to noncontrolling interests
                              —   (19)   (19) 
Net other changes in noncontrolling interests
                              —   (1)   (1) 
Stock option and restricted stock grants
              159               159       159 
           
Balance September 30, 2020
  1,506  $5,984  $21  $8,516  $63,391  $(25,959)  $612  $52,565  $630  $53,195 
Balance December 31, 2020
  1,507  $5,983  $21  $8,511  $64,188  $(25,930)  $322  $53,095  $630  $53,725 
Net income (loss)
                  6,290           6,290   17   6,307 
Other comprehensive income (loss)
                          (2,114)   (2,114)       (2,114) 
Preferred stock dividends (e)
                  (232)           (232)       (232) 
Common stock dividends ($1.30 per share)
                  (1,944)           (1,944)       (1,944) 
Issuance of preferred stock
      730                       730       730 
Redemption of preferred stock
      (745)           (5)           (750)       (750) 
Issuance of common and treasury stock
  4           (127)       166       39       39 
Purchase of treasury stock
  (28)                   (1,537)       (1,537)       (1,537) 
Distributions to noncontrolling interests
                              —   (16)   (16) 
Net other changes in noncontrolling interests
                              —   4   4 
Stock option and restricted stock grants
              166               166       166 
           
Balance September 30, 2021
  1,483  $5,968  $21  $8,550  $68,297  $(27,301)  ($1,792)  $53,743  $635  $54,378 
(a)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series H, Series J and Series K Non-Cumulative Perpetual Preferred Stock of $894.444, $223.61, $406.25, $321.88, $662.50 and $343.75, respectively.
(b)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series J, Series K, Series L and Series M Non-Cumulative Perpetual Preferred Stock of $894.444, $223.611, $406.25, $662.50, $343.75, $234.375 and $250.00, respectively.
(c)
Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than incurred losses. Upon adoption, the Company increased its allowance for credit losses and reduced retained earnings net of deferred tax liabilities through a cumulative-effect adjustment.
(d)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series H, Series I, Series J and Series K Non-Cumulative Perpetual Preferred Stock of $2,663.888, $665.97, $1,218.75, $965.64, $640.625, $1,325.00 and $1,031.25, respectively.
(e)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series I, Series J, Series K, Series L and Series M Non-Cumulative Perpetual Preferred Stock of $2,654.166, $663.542, $1,218.75, $232.953, $1,325.00, $1,031.25, $703.125 and $702.778, respectively.
See Notes to Consolidated Financial Statements.

38
40
 U.S. Bancorp

Table of Contents

U.S. Bancorp
Consolidated Statement of Cash Flows
(Dollars in Millions)
(Unaudited)
 
Nine Months Ended
September 30
 
 2021  2020 
Operating Activities
        
Net income attributable to U.S. Bancorp
 $6,290  $3,440 
Adjustments to reconcile net income to net cash provided by operating activities
        
Provision for credit losses
  (1,160)   3,365 
Depreciation and amortization of premises and equipment
  253   264 
Amortization of intangibles
  119   129 
(Gain) loss on sale of loans held for sale
  (950)   (1,613) 
(Gain) loss on sale of securities and other assets
  (297)   (274) 
Loans originated for sale, net of repayments
  (56,256)   (46,456) 
Proceeds from sales of loans held for sale
  58,517   45,469 
Other, net
  2,651   461 
Net cash provided by operating activities
  9,167   4,785 
Investing Activities
        
Proceeds from sales of available-for-sale investment securities
  13,383   13,920 
Proceeds from maturities of available-for-sale investment securities
  33,740   24,992 
Purchases of available-for-sale investment securities
  (62,764)   (48,481) 
Net increase in loans outstanding
  (1,157)   (3,915) 
Proceeds from sales of loans
  4,228   1,429 
Purchases of loans
  (3,278)   (9,561) 
Net (increase) decrease in securities purchased under agreements to resell
  (41)   732 
Other, net
  120   (966) 
Net cash used in investing activities
  (15,769)   (21,850) 
Financing Activities
        
Net increase in deposits
  13,132   51,301 
Net increase (decrease) in short-term borrowings
  4,322   (10,000) 
Proceeds from issuance of long-term debt
  1,211   14,282 
Principal payments or redemption of long-term debt
  (6,603)   (13,088) 
Proceeds from issuance of preferred stock
  730   —   
Proceeds from issuance of common stock
  38   11 
Repurchase of preferred stock
  (1,250)   —   
Repurchase of common stock
  (1,537)   (1,660) 
Cash dividends paid on preferred stock
  (223)   (222) 
Cash dividends paid on common stock
  (1,894)   (1,917) 
Net cash provided by financing activities
  7,926   38,707 
Change in cash and due from banks
  1,324   21,642 
Cash and due from banks at beginning of period
  62,580   22,405 
Cash and due from banks at end of period
 $63,904  $44,047 
See Notes to Consolidated Financial Statements

(Unaudited)

Statements.
Note 1U.S. Bancorp 
41
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
 Note 1
   Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the instructions toForm
10-Q
and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2016.2020. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Accounting policies for the lines of business are generally 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, expenses and other financial elements to each line of business. Table 11 “Line of Business Financial Performance” included in Management’s Discussion and Analysis provides details of segment results. This information is incorporated by reference into these Notes to Consolidated Financial Statements.

Note 2
 
   Accounting Changes

Stock-Based Compensation Effective January 1, 2017,

Reference Interest Rate Transition
In March 2020, the Company adoptedFASB issued accounting guidance, issuedproviding temporary optional expedients and exceptions to the guidance in United States generally accepted accounting principles on contract modifications and hedge accounting, to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. Under the guidance, a company can elect not to apply certain modification accounting requirements to contracts affected by reference rate transition, if certain criteria are met. A company that makes this election would not be required to remeasure the Financial Accounting Standards Board (“FASB”) in March 2016, simplifyingcontracts at the modification date or reassess a previous accounting determination. This guidance also permits a company to elect various optional expedients that would allow it to continue applying hedge accounting for stock-based compensation awards issued to employees.hedging relationships affected by reference rate transition, if certain criteria are met. The guidance requires all excess tax benefitsis effective upon issuance and deficiencies that pertain to stock-based compensation awards togenerally can be recognized within income tax expense insteadapplied through December 31, 2022. The Company is in the process of within capital surplus.evaluating and applying, as applicable, the optional expedients and exceptions in accounting for eligible contract modifications, eligible existing hedging relationships and new hedging relationships available through December 31, 2022. The adoption of this guidance didhas not had, and is expected to continue to not have, a material impact on the Company’s financial statements.

Revenue Recognition In May 2014, the FASB issued accounting guidance, effective for the Company on January 1, 2018, clarifying the principles for recognizing revenue from certain contracts with customers. The guidance does not apply to revenue associated with financial instruments, such as loans and securities. The Company is currently evaluating the adoption of this guidance using either a fully retrospective approach, where the guidance would be applied to all periods presented in the financial statements, or a modified retrospective approach, where the guidance would only be applied to existing contracts in effect at the adoption date and new contracts going forward. The Company expects the adoption of this guidance will not be material to its financial statements.

Accounting for Leases In February 2016, the FASB issued accounting guidance, effective for the Company on January 1, 2019, related to the accounting for leases. This guidance requires lessees to recognize all leases on the Consolidated Balance Sheet as lease assets and lease liabilities based primarily on the present value of future lease payments. Lessor accounting is largely unchanged. A modified retrospective approach is required at adoption which requires all prior periods presented in the financial statements to be restated, with a cumulative effect adjustment to retained earnings as of the beginning of the earliest period presented. This guidance also requires additional disclosures regarding leasing arrangements. The Company expects the adoption of this guidance will not be material to its financial statements.

Financial Instruments—Credit Losses In June 2016, the FASB issued accounting guidance, effective for the Company no later than January 1, 2020, related to the impairment of financial instruments. This guidance changes existing impairment recognition to a model that is based on expected losses rather than incurred losses, which is intended to result in more timely recognition of credit losses. This guidance is also intended to reduce the complexity of current accounting guidance by decreasing the number of credit impairment models that entities use to account for debt instruments. A modified retrospective approach is required at adoption with a cumulative effect adjustment to retained earnings as of the adoption date. The guidance also requires additional credit quality disclosures for loans. The Company is currently evaluating the impact of this guidance on its financial statements, and expects its allowance for credit losses to increase upon adoption. The extent of this increase will continue to be evaluated and will depend on economic conditions and the composition of the Company’s loan portfolio at the time of adoption.

U.S. Bancorp
 Note 3
 39
   Business Combinations

Financial Instruments—Hedge Accounting

In August 2017, the FASB issued accounting guidance, effective forSeptember 2021, the Company no later than January 1, 2019, relatedannounced that it has entered into a definitive agreement to hedge accounting. This guidance makes targeted changesacquire MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group (“MUFG”), for a purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. Upon close of the transaction, MUFG will hold approximately 2.9 percent of the Company’s common stock. The transaction excludes the purchase of MUFG Union Bank’s Global Corporate & Investment Bank, certain middle and back office functions, and other assets. MUFG Union Bank currently has approximately 300 branches in California, Washington and Oregon and is expected to add, based on MUFG Union Bank’s June 30, 2021 balance sheet, approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the hedge accounting modelCompany’s consolidated balance sheet. The transaction is expected to simplifyclose in the applicationfirst half of hedge accounting and more closely align financial reporting2022, subject to an entity’s risk management activities. This guidance expands risk management strategies that qualify for hedge accounting, simplifies certain effectiveness assessment requirements, eliminates separate measurement and reporting of ineffectiveness and changes certain presentation and disclosure requirements for hedge accounting activities. The Company expects the adoption of this guidance will not be material to its financial statements.

customary closing conditions, including regulatory approvals.
Note 3
42
 U.S. Bancorp
Table of Contents
 Note 4
   Investment Securities

The amortized cost, other-than-temporary impairment recorded inCompany’s available-for-sale investment securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss), in shareholders’ equity. The Company had no outstanding investment securities classified as held-to-maturity at September 30, 2021 and December 31, 2020.
The amortized cost, gross unrealized holding gains and losses, and fair value ofheld-to-maturity andavailable-for-sale investment securities were as follows:

  September 30, 2017      December 31, 2016 
        Unrealized Losses              Unrealized Losses    

(Dollars in Millions)

 

Amortized

Cost

  

Unrealized

Gains

  Other-than-
Temporary (e)		  

Other (f)

  

Fair

Value

      

Amortized

Cost

  

Unrealized

Gains

  Other-than-
Temporary (e)		  

Other (f)

  

Fair

Value

 

Held-to-maturity (a)

            

U.S. Treasury and agencies

 $5,193  $17  $–  $(72)  $5,138    $5,246  $12  $–  $(132)  $5,126 

Mortgage-backed securities

            

Residential

            

Agency

  38,787   101   –   (312)   38,576     37,706   85   –   (529)   37,262 

Non-agencynon-prime (d)

  1   –   –   –   1     1   –   –   –   1 

Asset-backed securities

            

Collateralized debt obligations/Collateralized loan obligations

  –   3   –   –   3     –   5   –   –   5 

Other

  7   2   –   –   9     8   3   –   –   11 

Obligations of state and political subdivisions

  6   1   –   –   7     6   1   –   –   7 

Obligations of foreign governments

  9   –   –   –   9     9   –   –   –   9 

Other debt securities

  15   –   –   –   15       15   –   –   (1)   14 

Totalheld-to-maturity

 $44,018  $124  $–  $(384)  $43,758      $42,991  $106  $–  $(662)  $42,435 

Available-for-sale (b)

            

U.S. Treasury and agencies

 $22,163  $25  $–  $(120)  $22,068    $17,314  $11  $–  $(198)  $17,127 

Mortgage-backed securities

            

Residential

            

Agency

  39,744   197   –   (388)   39,553     43,558   225   –   (645)   43,138 

Non-agency

            

Prime (c)

  –   –   –   –   –     240   6   (3)   (1)   242 

Non-prime (d)

  –   –   –   –   –     178   20   (3)   –   195 

Commercial agency

  8   –   –   –   8     15   –   –   –   15 

Other asset-backed securities

  418   7   –   –   425     475   8   –   –   483 

Obligations of state and political subdivisions

  5,681   88   –   (88)   5,681     5,167   55   –   (183)   5,039 

Corporate debt securities

  –   –   –   –   –     11   –   –   (2)   9 

Other investments

  27   10   –   –   37       27   9   –   –   36 

Totalavailable-for-sale

 $68,041  $327  $–  $(596)  $67,772      $66,985  $334  $(6)  $(1,029)  $66,284 

(a)Held-to-maturity investment securities are carried at historical cost or at fair value at the time of transfer from theavailable-for-sale toheld-to-maturity category, adjusted for amortization of premiums and accretion of discounts and credit-related other-than-temporary impairment.
(b)Available-for-sale investment securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
(c)Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics (such as weighted-average credit score,loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads). When the Company determines the designation, prime securities typically have a weighted-average credit score of 725 or higher and aloan-to-value of 80 percent or lower; however, other pool characteristics may result in designations that deviate from these credit score andloan-to-value thresholds.
(d)Includes all securities not meeting the conditions to be designated as prime.
(e)Represents impairment not related to credit for those investment securities that have been determined to be other-than-temporarily impaired.
(f)Represents unrealized losses on investment securities that have not been determined to be other-than-temporarily impaired.

The weighted-average maturity of theavailable-for-sale investment securities was 5.1 years at September 30, 2017 and December 31, 2016. The corresponding weighted-average yields were 2.15 percent and 2.06 percent, respectively. The weighted-average maturity of theheld-to-maturity investment securities was 4.7 years at September 30, 2017 and 4.6 years at December 31, 2016. The corresponding weighted-average yields were 2.09 percent and 1.93 percent, respectively.

For amortized cost, fair value and yield by maturity date ofheld-to-maturity andavailable-for-sale investment securities outstanding at September 30, 2017, refer to Table 4 included in Management’s Discussion and Analysis, which is incorporated by reference into these Notes to Consolidated Financial Statements.

40U.S. Bancorp

  September 30, 2021   December 31, 2020 
(Dollars in Millions) 
Amortized
Cost
   Unrealized
Gains		   Unrealized
Losses		  
Fair
Value
   
Amortized
Cost
   Unrealized
Gains		   Unrealized
Losses		  
Fair
Value
 
U.S. Treasury and agencies
 $18,460   $230   $(199)  $18,491   $21,954   $462   $(25)  $22,391 
Mortgage-backed securities
                                     
Residential agency
  113,137    996    (1,337)   112,796    98,031    1,950    (13)   99,968 
Commercial agency
  7,750    77    (141)   7,686    5,251    170    (15)   5,406 
Asset-backed securities
  64    5    –   69    200    5    –   205 
Obligations of state and political subdivisions
  9,820    560    (53)   10,327    8,166    695    –   8,861 
Other
  7    –    –   7    9    –    –   9 
Total available-for-sale
 $149,238   $1,868   $(1,730)  $149,376   $133,611   $3,282   $(53)  $136,840 
Investment securities with a fair value of $11.9$31.7 billion at September 30, 2017,2021, and $11.3$11.0 billion at December 31, 2016,2020, were pledged to secure public, private and trust deposits, repurchase agreements and for other purposes required by contractual obligation or law. Included in these amounts were securities where the Company and certain counterparties have agreements granting the counterparties the right to sell or pledge the securities. Investment securities securing these types of arrangements had a fair value of $686$850 million at September 30, 2017,2021, and $755$402 million at December 31, 2016.

2020.

The following table provides information about the amount of interest income from taxable andnon-taxable investment securities:

  Three Months Ended
September 30,		        Nine Months Ended
September 30,		 
(Dollars in Millions) 2017   2016        2017  2016 

Taxable

 $523   $467      $1,513  $1,403 

Non-taxable

  45    48         140   152 

Total interest income from investment securities

 $568   $515        $1,653  $1,555 

 

The following table provides information about the amount of gross gains and losses realized through the sales ofavailable-for-sale investment securities:

 

 

  Three Months Ended
September 30,		        Nine Months Ended
September 30,		 
(Dollars in Millions) 2017   2016        2017  2016 

Realized gains

 $9   $12      $65  $31 

Realized losses

  –    –         (18)   (12) 

Net realized gains (losses)

 $9   $12        $47  $19 

Income tax (benefit) on net realized gains (losses)

 $3   $4        $18  $7 

  
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
(Dollars in Millions)         2021           2020       2021       2020 
Taxable
 $539   $528   $1,548   $1,741 
Non-taxable
  67    58    193    167 
Total interest income from investment securities
 $606   $586   $1,741   $1,908 
The following table provides information about the amount of gross gains and losses realized through the sales of available-for-sale investment securities:
  
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
(Dollars in Millions)         2021          2020        2021       2020 
Realized gains
 $39  $12   $107  $166 
Realized losses
  (19)   –    (19)   (23) 
Net realized gains
 $20  $12   $88  $143 
Income tax on net realized gains
 $5  $3   $22  $36 
The Company conducts a regular assessment of its available-for-sale investment securities with unrealized losses to determine whether investment securities are other-than-temporarily impaired considering, among other factors, the natureall or some portion of the investment securities, the credit ratings or financial condition of the issuer, the extent and duration of thea security’s unrealized loss expected cash flows of underlying collateral, the existence of any government or agency guarantees, market conditionsis related to credit and whetheran allowance for credit losses is necessary. If the Company intends to sell or it is more likely than not the Company will be required to sell an investment security, the amortized cost of the security is written down to fair value. When evaluating credit losses, the Company considers various factors such as the nature of the investment securities. The Company determines other-than-temporary impairment recorded in earnings for debt securities not intended to be sold by estimatingsecurity, the futurecredit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows of each individual investment security,underlying collateral, the existence of any government or agency guarantees, and market conditions. The Company measures the allowance for credit losses using market information where available and discounting the cash flows at the original effective rate of the investment security. Other-than-temporary impairment recorded in other comprehensive income (loss)The allowance for credit losses is measured asadjusted each period through earnings and can be subsequently recovered. The allowance for credit losses on the difference between that discounted amount and the fair value of eachCompany’s available-for-sale investment security. The total amount of other-than-temporary impairment recordedsecurities was immaterial for the three and nine months endedat September 30, 20172021 and 2016.

December 31, 2020.

U.S. Bancorp
43
Table of Contents
At September 30, 2017,2021, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at September 30, 2017:

  Less Than 12 Months   12 Months or Greater       Total 
(Dollars in Millions) 

Fair

Value

   Unrealized
Losses		       Fair
Value		   Unrealized
Losses		       

Fair

Value

   Unrealized
Losses		 

Held-to-maturity

               

U.S. Treasury and agencies

 $2,886   $(62)     $241   $(10)     $3,127   $(72) 

Residential agency mortgage-backed securities

  19,913    (237)      3,989    (75)      23,902    (312) 

Other asset-backed securities

  –    –      5    –      5    – 

Other debt securities

  15    –        –    –        15    – 

Totalheld-to-maturity

 $22,814   $(299)       $4,235   $(85)       $27,049   $(384) 

Available-for-sale

               

U.S. Treasury and agencies

 $15,241   $(98)     $1,389   $(22)     $16,630   $(120) 

Residential agency mortgage-backed securities

  19,025    (281)      7,914    (107)      26,939    (388) 

Commercial agency mortgage-backed securities

  6    –      –    –      6    – 

Obligations of state and political subdivisions

  1,857    (35)      627    (53)      2,484    (88) 

Other investments

  1    –        –    –        1    – 

Totalavailable-for-sale

 $36,130   $(414)       $9,930   $(182)       $46,060   $(596) 

U.S. Bancorp41

2021:

The Company does not consider these unrealized losses to be credit-related.

  Less Than 12 Months   12 Months or Greater   Total 
(Dollars in Millions) 
Fair
Value
   Unrealized
Losses		   
Fair
Value
   Unrealized
Losses		   
Fair
Value
   Unrealized
Losses		 
U.S. Treasury and agencies
 $6,023   $(163)   $980           $(36)   $7,003   $(199) 
Residential agency mortgage-backed securities
  66,781    (1,328)    375    (9)    67,156    (1,337) 
Commercial agency mortgage-backed securities
  3,947    (88)    1,122    (53)    5,069    (141) 
Asset-backed securities
  –    –    2    –    2    – 
Obligations of state and political subdivisions
  2,145    (53)    –    –    2,145    (53) 
Other
  4    –    –    –    4    – 
Total investment securities
 $78,900   $(1,632)   $2,479           $(98)   $81,379   $(1,730) 
These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. A substantial portionpurchase of the investment securities that have unrealized losses are eithersecurities. U.S. Treasury and agencies securities and agency mortgage-backed securities are issued, guaranteed or otherwise supported by the United States government. The Company’s obligations of state and political securities.subdivisions are generally high grade. Accordingly, the Company does not consider these unr
e
alized losses to be credit-related and an allowance for credit losses is not necessary. In general, the issuers of the investment securities are contractually prohibited from prepayment at less than par, and the Company did not pay significant purchase premiums for these investment securities. At September 30, 2017,2021, the Company had no plans to sell investment securities with unrealized losses, and believes it is more likely than not it would not be required to sell such investment securities before recovery of their amortized cost.

During the nine months ended September 30, 2021 and 2020, the Company did not purchase any available-for-sale investment securities that had more-than-insignificant credit deterioration.
Note 4
44
 U.S. Bancorp
Table of Contents
The following table provides information about the amortized cost, fair value and yield by maturity date of the available-for-sale investment securities outstanding at September 30, 2021:
(Dollars in Millions) 
Amortized
Cost
   
Fair
Value
   
Weighted-
Average
Maturity in
Years
   
Weighted-
Average
Yield (e)
 
U.S. Treasury and Agencies
                   
Maturing in one year or less
 $2,873   $2,894    .5    1.87% 
Maturing after one year through five years
  6,835    6,977    2.4    1.61 
Maturing after five years through ten years
  7,146    7,041    7.9    1.33 
Maturing after ten years
  1,606    1,579    12.6    1.91 
Total
 $18,460   $18,491    5.1    1.57% 
Mortgage-Backed Securities (a)
                   
Maturing in one year or less
 $140   $138    .5    1.70% 
Maturing after one year through five years
  54,361    55,259    3.4    1.57 
Maturing after five years through ten years
  66,370    65,068    6.5    1.53 
Maturing after ten years
  16    17    12.2    1.27 
Total
 $120,887   $120,482    5.1    1.55% 
Asset-Backed Securities (a)
                   
Maturing in one year or less
 $–   $–    .6    2.69% 
Maturing after one year through five years
  63    66    3.8    1.50 
Maturing after five years through ten years
  1    2    6.2    2.58 
Maturing after ten years
  –    1    12.9    2.41 
Total
 $64   $69    3.8    1.51% 
Obligations of State and Political Subdivisions (b) (c)
                   
Maturing in one year or less
 $349   $355    .6    4.28% 
Maturing after one year through five years
  2,492    2,663    4.1    4.24 
Maturing after five years through ten years
  5,595    5,964    6.9    3.73 
Maturing after ten years
  1,384    1,345    17.4    2.50 
Total
 $9,820   $10,327    7.4    3.71% 
Other
                   
Maturing in one year or less
 $–   $–    –    –% 
Maturing after one year through five years
  7    7    3.7    2.07 
Maturing after five years through ten years
  –    –    –    – 
Maturing after ten years
  –    –    –    – 
Total
 $7   $7    3.7    2.07% 
Total investment securities (d)
 $149,238   $149,376    5.3    1.69% 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
The weighted-average maturity of total available-for-sale investment securities was 3.4 years at December 31, 2020, with a corresponding weighted-average yield of 1.61 percent.
(e)
Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on investment securities are computed based on amortized cost balances.
U.S. Bancorp
45
Table of Contents
 Note 5
   Loans and Allowance for Credit Losses

The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:

  September 30, 2017       December 31, 2016 
(Dollars in Millions) Amount   Percent
of Total		       Amount   Percent
of Total		 

Commercial

         

Commercial

 $91,449    32.8%     $87,928    32.2% 

Lease financing

  5,479    2.0        5,458    2.0 

Total commercial

  96,928    34.8      93,386    34.2 

Commercial Real Estate

         

Commercial mortgages

  29,902    10.7      31,592    11.6 

Construction and development

  11,528    4.1        11,506    4.2 

Total commercial real estate

  41,430    14.8      43,098    15.8 

Residential Mortgages

         

Residential mortgages

  46,107    16.6      43,632    16.0 

Home equity loans, first liens

  13,210    4.7        13,642    5.0 

Total residential mortgages

  59,317    21.3      57,274    21.0 

Credit Card

  20,923    7.5      21,749    7.9 

Other Retail

         

Retail leasing

  7,923    2.8      6,316    2.3 

Home equity and second mortgages

  16,308    5.9      16,369    6.0 

Revolving credit

  3,225    1.2      3,282    1.2 

Installment

  8,900    3.2      8,087    3.0 

Automobile

  18,530    6.6      17,571    6.4 

Student

  1,973    .7        2,239    .8 

Total other retail

  56,859    20.4        53,864    19.7 

Total loans, excluding covered loans

  275,457    98.8      269,371    98.6 

Covered Loans

  3,262    1.2        3,836    1.4 

Total loans

 $278,719    100.0%       $273,207    100.0% 

​​​​​​​

  September 30, 2021       December 31, 2020 
(Dollars in Millions) Amount   Percent
of Total		       Amount   Percent
of Total		 
Commercial
                       
Commercial
 $95,876    32.2%       $97,315    32.7% 
Lease financing
  5,137    1.8        5,556    1.9 
Total commercial
  101,013    34.0        102,871    34.6 
Commercial Real Estate
                       
Commercial mortgages
  28,029    9.4        28,472    9.6 
Construction and development
  10,779    3.6        10,839    3.6 
Total commercial real estate
  38,808    13.0        39,311    13.2 
Residential Mortgages
                       
Residential mortgages
  65,941    22.2        66,525    22.4 
Home equity loans, first liens
  9,013    3.0        9,630    3.2 
Total residential mortgages
  74,954    25.2        76,155    25.6 
Credit Card
  22,137    7.4        22,346    7.5 
Other Retail
                       
Retail leasing
  7,505    2.5        8,150    2.7 
Home equity and second mortgages
  10,718    3.6        12,472    4.2 
Revolving credit
  2,682    .9        2,688    .9 
Installment
  16,166    5.5        13,823    4.6 
Automobile
  23,488    7.9        19,722    6.6 
Student
  137    –        169    .1 
Total other retail
  60,696    20.4        57,024    19.1 
Total loans
 $297,608    100.0%       $297,707    100.0% 
The Company had loans of $85.2$89.8 billion at September 30, 2017,2021, and $84.5$96.1 billion at December 31, 2016,2020, pledged at the Federal Home Loan Bank, and loans of $66.8$73.1 billion at September 30, 2017,2021, and $66.5$67.8 billion at December 31, 2016,2020, pledged at the Federal Reserve Bank.

Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs.costs, and any partial charge-offs recorded. Net unearned interest and deferred fees and costs amounted to $825$567 million at September 30, 2017,2021 and $672$763 million at December 31, 2016.2020. All purchased loans and related indemnification assets are recorded at fair value at the date of purchase. TheBeginning January 1, 2020, the Company evaluates purchased loans for impairmentmore-than-insignificant deterioration at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans with evidence of creditthat have experienced more-than-insignificant deterioration sincefrom origination for which it is probable that all contractually required payments will not be collected are considered “purchased impairedpurchased credit deteriorated loans.” All other purchased loans are considered “purchased nonimpaired
non-purchased
credit deteriorated loans.”

Changes in the accretable balance for purchased impaired loans were as follows:

  Three Months Ended
September 30,		           Nine Months Ended    
    September 30,    		 
(Dollars in Millions) 2017  2016       2017  2016 

Balance at beginning of period

 $546  $891     $698  $957 

Accretion

  (107)   (102)      (286)   (297) 

Disposals

  (17)   (23)      (68)   (77) 

Reclassifications from nonaccretable difference (a)

  47   31      130   214 

Other

  (3)   –        (8)   – 

Balance at end of period

 $466  $797       $466  $797 

(a)Primarily relates to changes in expected credit performance.

42U.S. Bancorp

Allowance for Credit Losses The
Beginning January 1, 2020, the allowance for credit losses is established for probable and estimablecurrent expected credit losses incurred inon the Company’s loan and lease portfolio, including unfunded credit commitments, and includes certain amounts that do not represent loss exposure tocommitments. The allowance considers expected losses for the Company because those losses are recoverable under loss sharing agreements withremaining lives of the Federal Deposit Insurance Corporation (“FDIC”).applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the adequacyappropriateness of the allowance for incurredcredit losses on a quarterly basis.

Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates, from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of uncertainties that exist. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions.

The allowance recorded for loans in thecredit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rate, real estate prices, gross domestic product levels and corporate bonds spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial lending segment is based on reviews of individual credit relationships and considers the migration analysis of commercial lending segment loans and actual loss experience.consumer credit scores, delinquency
46
U.S. Bancorp
Table of Contents
status, collateral type and available valuation information, consideration of
end-of-term
losses on lease residuals, and the remaining term of the loan, adjusted for expected prepayments. For each loan type, this historical loss experience isportfolio, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or economic conditions. The resultsother factors that would affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously
charged-off
or expected recoveries on collateral dependent loans where recovery is expected through sale of the collateral. Where loans do not exhibit similar risk characteristics, an individual analysis are evaluated quarterlyis performed to confirm an appropriate historical time frame is selected for each commercial loan type.consider expected credit losses. The allowance recorded for impairedindividually evaluated loans greater than $5 million in the commercial lending segment is based on an individual loan analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans rather than the migration analysis. The allowance recorded for all other commercial lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, portfolio growth and historical losses, adjusted for current trends. The Company also considers the impacts of any loan modifications made to commercial lending segment loans and any subsequent payment defaults to its expectations of cash flows, principal balance, and current expectations about the borrower’s ability to pay in determining the allowance for credit losses.

as appropriate.

The allowance recorded for Troubled Debt Restructuring (“TDR”) loans and purchased impaired loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool, orpool. TDRs generally do not include loan modifications granted to customers resulting directly from the prior quarter effective rate, respectively.economic effects of the
COVID-19
pandemic, who were otherwise in current payment status. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral less costs to sell. The allowance recorded for all other consumer lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status, refreshedloan-to-value ratios when possible, portfolio growth and historical losses, adjusted for current trends. The Company also considers any modifications made to consumer lending segment loans including the impacts of any subsequent payment defaults since modification in determining the allowance for credit losses, such as the borrower’s ability to pay under the restructured terms, and the timing and amount of payments.

The allowance for the covered loan segment is evaluated each quarter in a manner similar to that described fornon-covered loans and reflects decreases in expected cash flows of those loans after the acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.

In addition, subsequent payment defaults on loan modifications considered TDRs are considered in the underlying factors used in the determination of the appropriateness of the allowance for credit losses. For each loan segment, the Company estimates future loan charge-offs through a variety of analysis, trends and underlying assumptions. With respect to the commercial lending segment, TDRs may be collectively evaluated for impairment where observed performance history, including defaults, is a primary driver of the loss allocation. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. However, historical loss experience is also incorporated into the allowance methodology applied to this category of loans. With respect to

Beginning January 1, 2020, when a loan portfolio is purchased, the consumer lending segment, performanceacquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered purchased with more than insignificant credit deterioration. An allowance is established for each population and considers product mix, risk characteristics of the portfolio, including defaults on TDRs,bankruptcy experience, delinquency status and refreshed LTV ratios when possible. The allowance established for purchased loans not considered PCD is recognized through provision expense upon acquisition, whereas the allowance established for loans considered when estimating future cash flows.

PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to purchased loans, regardless of PCD status, are recognized through provision expense, with charge-offs charged to the allowance. The Company did not have a material amount of PCD loans included in its loan portfolio at September 30, 2021.

The Company’s methodology for determining the appropriate allowance for credit losses for each loan segment also considers the imprecision inherent in the methodologies used.used and allocated to the various loan portfolios. As a result, in addition to the amounts determined under the methodologies described above, are adjusted by management also considersto consider the potential impact of other qualitative factors not captured in the quantitative model adjustments which include, but are not limited to the following: model imprecision, imprecision in economic factors; geographicscenario assumptions, and other concentration risks; delinquency and nonaccrual trends; current business conditions;emerging risks related to either changes in lending policy, underwriting standards and other relevant business practices; results of internal review; and the regulatory environment.environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each of the above loan segments.

portfolio.

The Company also assesses the credit risk associated with
off-balance
sheet loan commitments, letters of credit, investment securities and derivatives. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. The liability for
off-balance
sheet credit exposure related to loan commitments and other credit guarantees is included in

U.S. Bancorp43

other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments.

Prior to January 1, 2020, the allowance for credit losses was established based on an incurred loss model. The allowance recorded for loans in the commercial lending segment was based on the migration analysis of commercial loans and actual loss experience. The allowance recorded for loans in the consumer lending segment was determined on a homogenous pool basis and primarily included consideration of delinquency status and historical losses. In addition to the amounts determined under the methodologies described above, management also considered the potential impact of qualitative factors.
U.S. Bancorp
47
Table of Contents
Activity in the allowance for credit losses by portfolio class was as follows:

Three Months Ended September 30,

(Dollars in Millions)

 Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total Loans,
Excluding
Covered Loans		  Covered
Loans		  Total
Loans		 

2017

        

Balance at beginning of period

 $1,395  $856  $455  $990  $648  $4,344  $33  $4,377 

Add

        

Provision for credit losses

  71   (12)   2   216   84   361   (1)   360 

Deduct

        

Loanscharged-off

  115   2   16   214   86   433   –   433 

Less recoveries of loanscharged-off

  (32)   (9)   (9)   (27)   (26)   (103)   –   (103) 

Net loanscharged-off

  83   (7)   7   187   60   330   –   330 

Other changes (a)

  –   –   –   –   –   –   –   – 

Balance at end of period

 $1,383  $851  $450  $1,019  $672  $4,375  $32  $4,407 

2016

        

Balance at beginning of period

 $1,473  $748  $544  $884  $643  $4,292  $37  $4,329 

Add

        

Provision for credit losses

  90   34   (12)   178   37   327   (2)   325 

Deduct

        

Loanscharged-off

  104   9   19   182   84   398   –   398 

Less recoveries of loanscharged-off

  (17)   (8)   (7)   (21)   (30)   (83)   –   (83) 

Net loanscharged-off

  87   1   12   161   54   315   –   315 

Other changes (a)

  –   –   –   –   –   –   (1)   (1) 

Balance at end of period

 $1,476  $781  $520  $901  $626  $4,304  $34  $4,338 

Three Months Ended September 30
(Dollars in Millions)
 Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total
Loans		 
2021
                        
Balance at beginning of period
  $1,838   $1,409   $478   $1,891   $   994   $6,610 
Add
                        
Provision for credit losses
  (75)   (104)   3   (23)   36   (163) 
Deduct
                        
Loans
charged-off
  40   14   3   154   55   266 
Less recoveries of loans
charged-off
  (26)   (1)   (13)   (43)   (36)   (119) 
Net loan charge-offs (recoveries)
  14   13   (10)   111   19   147 
Balance at end of period
  $1,749   $1,292   $491   $1,757   $1,011   $6,300 
2020
                        
Balance at beginning of period
  $2,645   $1,269   $633   $2,156   $1,187   $7,890 
Add
                        
Provision for credit losses
  20   263   (49)   369   32   635 
Deduct
                        
Loans
charged-off
  193   89   4   236   89   611 
Less recoveries of loans
charged-off
  (15)   (6)   (7)   (35)   (33)   (96) 
Net loan charge-offs (recoveries)
  178   83   (3)   201   56   515 
Balance at end of period
  $2,487   $1,449   $587   $2,324   $1,163   $8,010 
Nine Months Ended September 30
(Dollars in Millions)
 Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total
Loans		 
2021
                        
Balance at beginning of period
  $2,423   $1,544   $573   $2,355   $1,115   $8,010 
Add
                        
Provision for credit losses
  (577)   (246)   (107)   (195)   (35)   (1,160) 
Deduct
                        
Loans
charged-off
  184   28   13   536   193   954 
Less recoveries of loans
charged-off
  (87)   (22)   (38)   (133)   (124)   (404) 
Net loan charge-offs (recoveries)
  97   6   (25)   403   69   550 
Balance at end of period
  $1,749   $1,292   $491   $1,757   $1,011   $6,300 
2020
                        
Balance at beginning of period
  $1,484   $   799   $433   $1,128   $   647   $4,491 
Add
                        
Change in accounting principle (a)
  378   (122)   (30)   872   401   1,499 
Provision for credit losses
  988   875   179   988   335   3,365 
Deduct
                        
Loans
charged-off
  406   112   15   775   316   1,624 
Less recoveries of loans
charged-off
  (43)   (9)   (20)   (111)   (96)   (279) 
Net loan charge-offs (recoveries)
  363   103   (5)   664   220   1,345 
Balance at end of period
  $2,487   $1,449   $587   $2,324   $1,163   $8,010 
(a)
Includes net changes in credit
Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associatedrather than incurred losses.
The decrease in the indemnification asset, and the impact of any loan sales.

Nine Months Ended September 30,

(Dollars in Millions)

 Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total Loans,
Excluding
Covered Loans		  Covered
Loans		  Total
Loans		 

2017

        

Balance at beginning of period

 $1,450  $812  $510  $934  $617  $4,323  $34  $4,357 

Add

        

Provision for credit losses

  169   21   (33)   666   234   1,057   (2)   1,055 

Deduct

        

Loanscharged-off

  315   7   49   653   263   1,287   –   1,287 

Less recoveries of loanscharged-off

  (79)   (25)   (22)   (72)   (84)   (282)   –   (282) 

Net loanscharged-off

  236   (18)   27   581   179   1,005   –   1,005 

Other changes (a)

  –   –   –   –   –   –   –   – 

Balance at end of period

 $1,383  $851  $450  $1,019  $672  $4,375  $32  $4,407 

2016

        

Balance at beginning of period

 $1,287  $724  $631  $883  $743  $4,268  $38  $4,306 

Add

        

Provision for credit losses

  438   53   (63)   514   42   984   (2)   982 

Deduct

        

Loanscharged-off

  322   19   67   559   243   1,210   –   1,210 

Less recoveries of loanscharged-off

  (73)   (23)   (19)   (64)   (84)   (263)   –   (263) 

Net loanscharged-off

  249   (4)   48   495   159   947   –   947 

Other changes (a)

  –   –   –   (1)   –   (1)   (2)   (3) 

Balance at end of period

 $1,476  $781  $520  $901  $626  $4,304  $34  $4,338 

(a)Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.

44U.S. Bancorp

Additional detail of the allowance for credit losses byfrom December 31, 2020 to September 30, 2021 primarily reflected factors affecting economic conditions during the first nine months of 2021, including the enactment of additional benefits from government stimulus programs and broad vaccine availability in the United States that has reduced the risks associated with

COVID-19,
contributing to an economic recovery and strong portfolio class was as follows:

(Dollars in Millions) Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total Loans,
Excluding
Covered Loans		  Covered
Loans		  Total
Loans		 

Allowance Balance at September 30, 2017 Related to

        

Loans individually evaluated for impairment (a)

 $25  $2  $–  $–  $–  $27  $–  $27 

TDRs collectively evaluated for impairment

  12   4   139   62   16   233   1   234 

Other loans collectively evaluated for impairment

  1,346   840   311   957   656   4,110   –   4,110 

Loans acquired with deteriorated credit quality

  –   5   –   –   –   5   31   36 

Total allowance for credit losses

 $1,383  $851  $450  $1,019  $672  $4,375  $32  $4,407 

Allowance Balance at December 31, 2016 Related to

        

Loans individually evaluated for impairment (a)

 $50  $4  $–  $–  $–  $54  $–  $54 

TDRs collectively evaluated for impairment

  12   4   180   65   20   281   1   282 

Other loans collectively evaluated for impairment

  1,388   798   330   869   597   3,982   –   3,982 

Loans acquired with deteriorated credit quality

  –   6   –   –   –   6   33   39 

Total allowance for credit losses

 $1,450  $812  $510  $934  $617  $4,323  $34  $4,357 

(a)Represents the allowance for credit losses related to loans greater than $5 million classified as nonperforming or TDRs.

Additional detailcredit performance. Other factors considered include concerns around inflationary pressures, new virus variants, sustainability of loan balances by portfolio class was as follows:

(Dollars in Millions) Commercial   Commercial
Real Estate		   Residential
Mortgages		   Credit
Card		   Other
Retail		   Total Loans,
Excluding
Covered Loans		   Covered
Loans (b)		   Total
Loans		 

September 30, 2017

               

Loans individually evaluated for impairment (a)

 $386   $44   $–   $–   $–   $430   $–   $430 

TDRs collectively evaluated for impairment

  138    143    3,509    231    185    4,206    33    4,239 

Other loans collectively evaluated for impairment

  96,404    41,166    55,807    20,692    56,673    270,742    1,177    271,919 

Loans acquired with deteriorated credit quality

  –    77    1    –    1    79    2,052    2,131 

Total loans

 $96,928   $41,430   $59,317   $20,923   $56,859   $275,457   $3,262   $278,719 

December 31, 2016

               

Loans individually evaluated for impairment (a)

 $623   $70   $–   $–   $–   $693   $–   $693 

TDRs collectively evaluated for impairment

  145    146    3,678    222    173    4,364    35    4,399 

Other loans collectively evaluated for impairment

  92,611    42,751    53,595    21,527    53,691    264,175    1,553    265,728 

Loans acquired with deteriorated credit quality

  7    131    1    –    –    139    2,248    2,387 

Total loans

 $93,386   $43,098   $57,274   $21,749   $53,864   $269,371   $3,836   $273,207 

(a)Represents loans greater than $5 million classified as nonperforming or TDRs.
(b)Includes expected reimbursements from the FDIC under loss sharing agreements.

asset values and borrower liquidity, along with the lack of a clear path to government funding.

Credit Quality
The credit quality of the Company’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.

For all loan portfolio classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractuallycont
r
actually required payments not made (for example, two missed payments is considered 30 days delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed, reducing interest income in the current period.

Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is placed on nonaccrual.

Consumer lending segment loans are generally
charged-off
at a specific number of days or payments past due. Residential mortgages and other retail loans secured by
1-4
family properties are generally charged down to the fair
48
U.S. Bancorp
Table of Contents
value of the collateral securing the loan, less costs to sell, at 180 days past due. Residential mortgage loans and lines in a first lien position are placed on nonaccrual status in instances where a partial
charge-off
occurs unless the loan is well secured and in the process of collection. Residential mortgage loans and lines in a junior lien position secured by
1-4
family properties are placed on nonaccrual status at 120 days past due or when they are behind a first lien that has become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account is
charged-off.
Credit cards are
charged-off
at 180 days past due. Other retail loans not secured by
1-4
family properties are
charged-off
at 120 days past due; and revolving consumer lines are
charged-off
at 180 days past due. Similar to credit cards, other retail loans are generally not placed on nonaccrual status because of the relative short period of time to
charge-off.
Certain retail customers having financial difficulties may have the terms of their credit card and other loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.

U.S. Bancorp45

For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or when the loan becomes well secured and is in the process of collection. Loans where there has been a partial

charge-off
may be returned to accrual status if all principal and interest (including amounts previously
charged-off)
is expected to be collected and the loan is current.

Covered loans not considered to be purchased impaired are evaluated for delinquency, nonaccrual status andcharge-off consistent with the class of loan they would be included in had the loss share coverage not been in place. Generally, purchased impaired loans are considered accruing loans. However, the timing and amount of future cash flows for some loans is not reasonably estimable, and those loans are classified as nonaccrual loans with interest income not recognized until the timing and amount of the future cash flows can be reasonably estimated.

The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that are nonperforming:

  Accruing         
(Dollars in Millions) Current   30-89 Days
Past Due		   90 Days or
More Past Due		   Nonperforming   Total 

September 30, 2017

         

Commercial

 $96,389   $218   $52   $269   $96,928 

Commercial real estate

  41,242    62    4    122    41,430 

Residential mortgages (a)

  58,581    155    107    474    59,317 

Credit card

  20,375    296    251    1    20,923 

Other retail

  56,282    331    83    163    56,859 

Total loans, excluding covered loans

  272,869    1,062    497    1,029    275,457 

Covered loans

  3,056    48    152    6    3,262 

Total loans

 $275,925   $1,110   $649   $1,035   $278,719 

December 31, 2016

         

Commercial

 $92,588   $263   $52   $483   $93,386 

Commercial real estate

  42,922    44    8    124    43,098 

Residential mortgages (a)

  56,372    151    156    595    57,274 

Credit card

  21,209    284    253    3    21,749 

Other retail

  53,340    284    83    157    53,864 

Total loans, excluding covered loans

  266,431    1,026    552    1,362    269,371 

Covered loans

  3,563    55    212    6    3,836 

Total loans

 $269,994   $1,081   $764   $1,368   $273,207 

  Accruing         
(Dollars in Millions) Current   
30-89 Days

Past Due		   90 Days or
More Past Due		   Nonperforming (b)   Total 
September 30, 2021
                        
Commercial
 $100,595    $   163    $  39    $   216    $101,013 
Commercial real estate
  38,459    32    21    296    38,808 
Residential mortgages (a)
  74,450    153    114    237    74,954 
Credit card
  21,807    183    147    –    22,137 
Other retail
  60,224    251    64    157    60,696 
Total loans
 $295,535    $   782    $385    $   906    $297,608 
December 31, 2020
                        
Commercial
 $102,127    $   314    $  55    $   375    $102,871 
Commercial real estate
  38,676    183    2    450    39,311 
Residential mortgages (a)
  75,529    244    137    245    76,155 
Credit card
  21,918    231    197    –    22,346 
Other retail
  56,466    318    86    154    57,024 
Total loans
 $294,716    $1,290    $477    $1,224    $297,707 
(a)
At September 30, 2017, $2972021, $946 million of loans 30–89 days past due and $1.8$1.5 billion of loans 90 days or more past due purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, were classified as current, compared with $273 million$1.4 billion and $2.5$1.8 billion at December 31, 2016,2020, respectively.

(b)
Substantially all nonperforming loans at September 30, 2021 and December 31, 2020, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $4 million and $9 million for the three months ended September 30, 2021 and 2020, respectively, and $11 million and $19 million for the nine months ended September 30, 2021 and 2020, respectively.
At September 30, 2017,2021, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $182$17 million, ($156 million excluding covered assets), compared with $201$23 million ($175 million excluding covered assets) at December 31, 2016.2020. These amounts exclude $300excluded $19 million and $373$33 million at September 30, 20172021 and December 31, 2016,2020, respectively, of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at September 30, 20172021 and December 31, 2016,2020, was $1.7 billion$778 million and $2.1$1.0 billion, respectively, of which $1.3 billion$620 million and $1.6 billion,$812 million, respectively, related to loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

U.S. Bancorp
49
Table of Contents
The Company classifies its loan portfoliosportfolio classes using internal credit quality ratings on a quarterly basis. These ratings include pass, special mention and classified, and are an important part of the Company’s overall credit risk management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those loans that have a potential weakness deserving management’s close attention. Classified loans are those loans where a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.

46U.S. Bancorp

The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:

      Criticized     
(Dollars in Millions) Pass   Special
Mention		   Classified (a)   Total
Criticized		   Total 

September 30, 2017

         

Commercial (b)

 $94,127   $1,328   $1,473   $2,801   $96,928 

Commercial real estate

  39,998    640    792    1,432    41,430 

Residential mortgages (c)

  58,671    3    643    646    59,317 

Credit card

  20,671    –    252    252    20,923 

Other retail

  56,567    5    287    292    56,859 

Total loans, excluding covered loans

  270,034    1,976    3,447    5,423    275,457 

Covered loans

  3,209    –    53    53    3,262 

Total loans

 $273,243   $1,976   $3,500   $5,476   $278,719 

Total outstanding commitments

 $579,628   $3,232   $4,684   $7,916   $587,544 

December 31, 2016

         

Commercial (b)

 $89,739   $1,721   $1,926   $3,647   $93,386 

Commercial real estate

  41,634    663    801    1,464    43,098 

Residential mortgages (c)

  56,457    10    807    817    57,274 

Credit card

  21,493    –    256    256    21,749 

Other retail

  53,576    6    282    288    53,864 

Total loans, excluding covered loans

  262,899    2,400    4,072    6,472    269,371 

Covered loans

  3,766    –    70    70    3,836 

Total loans

 $266,665   $2,400   $4,142   $6,542   $273,207 

Total outstanding commitments

 $562,704   $4,920   $5,629   $10,549   $573,253 

  September 30, 2021        December 31, 2020 
     Criticized             Criticized    
(Dollars in Millions) Pass  Special
Mention		  Classified (a)  Total
Criticized		  Total        Pass  Special
Mention		  Classified (a)  Total
Criticized		  Total 
Commercial
                                              
Originated in 2021
  $  32,826   $   346   $   277   $     623   $  33,449         $          –   $       –   $       –   $         –   $          – 
Originated in 2020
  17,202   637   252   889   18,091           34,557   1,335   1,753   3,088   37,645 
Originated in 2019
  11,851   198   63   261   12,112         17,867   269   349   618   18,485 
Originated in 2018
  6,853   77   51   128   6,981         12,349   351   176   527   12,876 
Originated in 2017
  3,213   14   53   67   3,280         5,257   117   270   387   5,644 
Originated prior to 2017
  3,373   30   40   70   3,443         4,954   128   115   243   5,197 
Revolving
  23,204   353   100   453   23,657         22,445   299   280   579   23,024 
Total commercial
  98,522   1,655   836   2,491   101,013         97,429   2,499   2,943   5,442   102,871 
            
Commercial real estate
                                              
Originated in 2021
  9,456   50   772   822   10,278         –   –   –   –   – 
Originated in 2020
  8,238   119   435   554   8,792         9,446   461   1,137   1,598   11,044 
Originated in 2019
  7,382   298   694  ��992   8,374         9,514   454   1,005   1,459   10,973 
Originated in 2018
  3,662   142   330   472   4,134         6,053   411   639   1,050   7,103 
Originated in 2017
  1,943   25   150   175   2,118         2,650   198   340   538   3,188 
Originated prior to 2017
  3,239   26   103   129   3,368         4,762   240   309   549   5,311 
Revolving
  1,556   1   187   188   1,744         1,445   9   238   247   1,692 
Total commercial real estate
  35,476   661   2,671   3,332   38,808         33,870   1,773   3,668   5,441   39,311 
            
Residential mortgages (b)
                                              
Originated in 2021
  21,045   –   –   –   21,045         –   –   –   –   – 
Originated in 2020
  18,043   1   5   6   18,049         23,262   1   3   4   23,266 
Originated in 2019
  8,508   1   18   19   8,527         13,969   1   17   18   13,987 
Originated in 2018
  3,492   –   21   21   3,513         5,670   1   22   23   5,693 
Originated in 2017
  4,494   –   21   21   4,515         6,918   1   24   25   6,943 
Originated prior to 2017
  19,002   –   302   302   19,304         25,921   2   342   344   26,265 
Revolving
  1   –   –   –   1         1   –   –   –   1 
Total residential mortgages
  74,585   2   367   369   74,954         75,741   6   408   414   76,155 
            
Credit card (c)
  21,990   –   147   147   22,137         22,149   –   197   197   22,346 
            
Other retail
                                              
Originated in 2021
  17,248   –   3   3   17,251         –   –   –   –   – 
Originated in 2020
  13,318   –   8   8   13,326         17,589   –   7   7   17,596 
Originated in 2019
  8,300   –   16   16   8,316         11,605   –   23   23   11,628 
Originated in 2018
  4,332   –   16   16   4,348         6,814   –   27   27   6,841 
Originated in 2017
  2,130   –   11   11   2,141         3,879   –   22   22   3,901 
Originated prior to 2017
  2,259   –   16   16   2,275         3,731   –   29   29   3,760 
Revolving
  12,400   –   123   123   12,523         12,647   –   110   110   12,757 
Revolving converted to term
  473   –   43   43   516         503   –   38   38   541 
Total other retail
  60,460   –   236   236   60,696         56,768   –   256   256   57,024 
Total loans
  $291,033   $2,318   $4,257   $  6,575   $297,608         $285,957   $4,278   $7,472   $11,750   $297,707 
Total outstanding commitments
  $645,955   $4,606   $6,342   $10,948   $656,903         $627,606   $8,772   $9,374   $18,146   $645,752 
(a)
Note:
Year of origination is based on the origination date of a loan, or for existing loans the date when the maturity date, pricing or commitment amount is amended.
(a)
Classified rating on consumer loans primarily based on delinquency status.
(b)
At September 30, 2017, $611 million of energy loans ($1.3 billion of total outstanding commitments) had a special mention or classified rating, compared with $1.2 billion of energy loans ($2.8 billion of total outstanding commitments) at December 31, 2016.
(c)At September 30, 2017, $1.82021, $1.5 billion of GNMA loans 90 days or more past due and $1.6$1.2 billion of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $2.5$1.8 billion and $1.6$1.4 billion at December 31, 2016,2020, respectively.

For all loan classes, a loan is considered to be impaired when, based on current events or information, it is probable the Company will be unable to collect all amounts due per the contractual terms of the loan agreement. Impaired loans include all nonaccrual and TDR loans. For all loan classes, interest income on TDR loans is recognized under the modified terms and conditions if the borrower has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. Interest income is generally not recognized on other impaired loans until the loan is paid off. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.

Factors used by the Company in determining whether all principal and interest payments due on commercial and commercial real estate loans will be collected and, therefore, whether those loans are impaired include, but are not limited to, the financial condition of the borrower, collateral and/or guarantees on the loan, and the borrower’s estimated future ability to pay based on industry, geographic location and certain financial ratios. The evaluation of impairment on residential mortgages, credit card loans and other retail loans is primarily driven by delinquency status of individual loans or whether a loan has been modified, and considers any government guarantee where applicable. Individual covered loans, whose future losses are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company, are evaluated for impairment and accounted for in a manner consistent with the class of loan they would have been included in had the loss sharing coverage not been in place.

(c)
U.S. Bancorp47
All credit card loans are considered revolving loans.

A summary of impaired loans, which include all nonaccrual and TDR loans, by portfolio class was as follows:

(Dollars in Millions) Period-end
Recorded
Investment (a)		   Unpaid
Principal
Balance		   Valuation
Allowance		   Commitments
to Lend
Additional
Funds		 

September 30, 2017

       

Commercial

 $592   $1,040   $39   $168 

Commercial real estate

  263    545    11    – 

Residential mortgages

  2,064    2,471    121    1 

Credit card

  231    231    62    – 

Other retail

  298    508    19    4 

Total loans, excluding GNMA and covered loans

  3,448    4,795    252    173 

Loans purchased from GNMA mortgage pools

  1,571    1,571    20    – 

Covered loans

  35    43    1    – 

Total

 $5,054   $6,409   $273   $173 

December 31, 2016

       

Commercial

 $849   $1,364   $68   $284 

Commercial real estate

  293    697    10    – 

Residential mortgages

  2,274    2,847    153    – 

Credit card

  222    222    64    – 

Other retail

  281    456    22    4 

Total loans, excluding GNMA and covered loans

  3,919    5,586    317    288 

Loans purchased from GNMA mortgage pools

  1,574    1,574    28    – 

Covered loans

  36    42    1    1 

Total

 $5,529   $7,202   $346   $289 

(a)Substantially all loans classified as impaired at September 30, 2017 and December 31, 2016, had an associated allowance for credit losses.

Additional information on impaired loans follows:

  2017        2016 
(Dollars in Millions) Average
Recorded
Investment		   Interest
Income
Recognized		        Average
Recorded
Investment		   Interest
Income
Recognized		 

Three Months Ended September 30

          

Commercial

 $624   $3      $845   $2 

Commercial real estate

  272    2       334    6 

Residential mortgages

  2,111    25       2,381    30 

Credit card

  231    1       214    1 

Other retail

  288    4         287    3 

Total loans, excluding GNMA and covered loans

  3,526    35       4,061    42 

Loans purchased from GNMA mortgage pools

  1,672    17       1,458    23 

Covered loans

  38    –         38    – 

Total

 $5,236   $52        $5,557   $65 
 

Nine Months Ended September 30

          

Commercial

 $720   $5      $786   $6 

Commercial real estate

  274    7       321    12 

Residential mortgages

  2,178    82       2,457    93 

Credit card

  229    3       212    3 

Other retail

  282    11         296    9 

Total loans, excluding GNMA and covered loans

  3,683    108       4,072    123 

Loans purchased from GNMA mortgage pools

  1,688    54       1,674    71 

Covered loans

  37    –         38    1 

Total

 $5,408   $162        $5,784   $195 

Troubled Debt Restructurings
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties
50
U.S. Bancorp
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in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.

48U.S. Bancorp

The following table provides a summary of loans modified as TDRs duringfor the periods presented by portfolio class:

  2017        2016 
(Dollars in Millions) Number
of Loans		   Pre-Modification
Outstanding
Loan Balance		   Post-Modification
Outstanding
Loan Balance		        Number
of Loans		   Pre-Modification
Outstanding
Loan Balance		   Post-Modification
Outstanding
Loan Balance		 

Three Months Ended September 30

              

Commercial

  616   $40   $27       638   $200   $169 

Commercial real estate

  29    18    16       26    225    223 

Residential mortgages

  141    15    16       700    81    87 

Credit card

  8,106    38    38       8,051    38    40 

Other retail

  1,949    39    32         593    9    9 

Total loans, excluding GNMA and covered loans

  10,841    150    129       10,008    553    528 

Loans purchased from GNMA mortgage pools

  1,340    169    171       2,609    317    308 

Covered loans

  3    –    –         15    3    3 

Total loans

  12,184   $319   $300         12,632   $873   $839 

Nine Months Ended September 30

              

Commercial

  2,117   $239   $195       1,734   $692   $567 

Commercial real estate

  93    56    55       70    242    240 

Residential mortgages

  641    72    73       1,192    129    136 

Credit card

  25,657    123    124       22,693    109    111 

Other retail

  3,210    65    55         1,669    27    28 

Total loans, excluding GNMA and covered loans

  31,718    555    502       27,358    1,199    1,082 

Loans purchased from GNMA mortgage pools

  5,312    697    686       6,978    770    761 

Covered loans

  10    2    2         35    6    6 

Total loans

  37,040   $1,254   $1,190         34,371   $1,975   $1,849 

  2021        2020 
(Dollars in Millions) Number
of Loans		   
Pre-Modification

Outstanding
Loan Balance		   
Post-Modification

Outstanding
Loan Balance		        Number
of Loans		   
Pre-Modification

Outstanding
Loan Balance		   
Post-Modification

Outstanding
Loan Balance		 
Three Months Ended September 30
                                  
Commercial
  506    $     46    $  47         699    $   262    $   159 
Commercial real estate
  14    12    13         51    105    81 
Residential mortgages
  171    54    54         374    108    108 
Credit card
  6,656    38    38         4,699    27    27 
Other retail
  382    9    9         508    26    26 
Total loans, excluding loans purchased from GNMA mortgage pools
  7,729    159    161         6,331    528    401 
Loans purchased from GNMA mortgage pools
  802    113    118         735    106    105 
Total loans
  8,531    $   272    $279         7,066    $   634    $   506 
Nine Months Ended September 30
                                  
Commercial
  1,736    $   133    $120         2,837    $   505    $   375 
Commercial real estate
  100    136    125         116    165    141 
Residential mortgages
  867    299    298         585    142    142 
Credit card
  17,492    102    103         19,282    110    112 
Other retail
  2,175    64    58         1,537    50    48 
Total loans, excluding loans purchased from GNMA mortgage pools
  22,370    734    704         24,357    972    818 
Loans purchased from GNMA mortgage pools
  1,839    267    276         3,648    514    503 
Total loans
  24,209    $1,001    $980         28,005    $1,486    $1,321 
Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. For those loans modified as TDRs during the third quarter of 2017, atAt September 30, 2017, 612021, 5 residential mortgages, 462 home equity and second mortgage loans and 93243 loans purchased from GNMA mortgage pools with outstanding balances of $8less than $1 million, $4less than $1 million and $122$5 million, respectively, were in a trial period and have estimated post-modification balances of $9less than $1 million, $4less than $1 million and $123$5 million, respectively, assuming permanent modification occurs at the end of the trial period.

The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a
case-by-case
basis in connection with ongoing loan collection processes.

For the commercial lending segment, modifications generally result in the Company working with borrowers on a
case-by-case
basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market interest rate. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies all of the above concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.

Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is
U.S. Bancorp
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contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.

Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.

U.S. Bancorp49

In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs.

Modifications

Loan modifications or concessions granted to loansborrowers resulting directly from the effects of the
COVID-19
pandemic, who were otherwise in the covered segmentcurrent payment status, are similar in nature to that described above fornon-covered loans, and the evaluation and determination of TDR status is similar, except that acquired loans restructured after acquisition aregenerally not considered TDRs for accountingto be TDRs.
As of September 30, 2021 and disclosure purposes ifDecember 31, 2020, approximately
 $3.0 
billion and $10.1 billion, respectively, of loan modifications included on the loans evidenced credit deterioration asCompany’s consolidated balance sheet related to borrowers impacted by the COVID-19 pandemic, consisting primarily of the acquisition date and are accounted for in pools. Losses associated with the modification on covered loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under loss sharing agreements with the FDIC.

payment deferrals. 

The following table provides a summary of TDR loans that defaulted (fully or partially
charged-off
or became 90 days or more past due) duringfor the periods presented, that were modified as TDRs within 12 months previous to default:

  2017        2016 
(Dollars in Millions) Number
of Loans		   Amount
Defaulted		        Number
of Loans		   Amount
Defaulted		 

Three Months Ended September 30

          

Commercial

  200   $25       121   $4 

Commercial real estate

  10    3       6    3 

Residential mortgages

  84    7       43    4 

Credit card

  2,076    9       1,617    7 

Other retail

  89    1         103    1 

Total loans, excluding GNMA and covered loans

  2,459    45       1,890    19 

Loans purchased from GNMA mortgage pools

  354    46       39    5 

Covered loans

  1    –         2    1 

Total loans

  2,814   $91         1,931   $25 
 

Nine Months Ended September 30

          

Commercial

  555   $49       374   $15 

Commercial real estate

  28    6       21    9 

Residential mortgages

  251    26       101    13 

Credit card

  6,107    26       4,822    21 

Other retail

  320    4         269    5 

Total loans, excluding GNMA and covered loans

  7,261    111       5,587    63 

Loans purchased from GNMA mortgage pools

  711    95       93    12 

Covered loans

  2    –         3    1 

Total loans

  7,974   $206         5,683   $76 

  2021        2020 
(Dollars in Millions) Number
of Loans		   Amount
Defaulted		        Number
of Loans		   Amount
Defaulted		 
Three Months Ended September 30
                        
Commercial
  244    $  5         305    $  21 
Commercial real estate
  4    1         5    8 
Residential mortgages
  20    2         5    2 
Credit card
  2,069    12         1,363    8 
Other retail
  124    2         55    1 
Total loans, excluding loans purchased from GNMA mortgage pools
  2,461    22         1,733    40 
Loans purchased from GNMA mortgage pools
  29    5         72    9 
Total loans
  2,490    $27         1,805    $  49 
Nine Months Ended September 30
                        
Commercial
  856    $29         922    $  49 
Commercial real estate
  16    7         33    24 
Residential mortgages
  47    5         23    4 
Credit card
  5,638    32         5,169    27 
Other retail
  595    10         245    3 
Total loans, excluding loans purchased from GNMA mortgage pools
  7,152    83         6,392    107 
Loans purchased from GNMA mortgage pools
  102    15         427    57 
Total loans
  7,254    $98         6,819    $164 
In addition to the defaults in the table above, the Company had a total of 40210 and 1,27845 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and nine months ended September 30, 2017,2021, respectively, where borrowers did not successfully complete the trial period arrangement and, therefore, are no longer eligible for a permanent modification under the applicable modification program. These loans had aggregate outstanding balances of $50$1 million and $156$7 million for the three months and nine months ended September 30, 2017,2021, respectively.

Covered Assets Covered assets represent loans and other assets acquired from

As of September 30, 2021, the FDIC, subjectCompany had $158 million of commitments to loss sharing agreements, and include expected reimbursements from the FDIC. The carrying amountlend additional funds to borrowers whose terms of the covered assets consisted of purchased impaired loans, purchased nonimpaired loans and other assets as showntheir outstanding owed balances have been modified in the following table:

  September 30, 2017        December 31, 2016 
(Dollars in Millions) Purchased
Impaired
Loans		   Purchased
Nonimpaired
Loans		   Other   Total        Purchased
Impaired
Loans		   Purchased
Nonimpaired
Loans		   Other   Total 

Residential mortgage loans

 $2,052   $422   $–   $2,474      $2,248   $506   $–   $2,754 

Other retail loans

  –    173    –    173       –    278    –    278 

Losses reimbursable by the FDIC (a)

  –    –    320    320       –    –    381    381 

Unamortized changes in FDIC asset (b)

  –    –    295    295         –    –    423    423 

Covered loans

  2,052    595    615    3,262       2,248    784    804    3,836 

Foreclosed real estate

  –    –    26    26         –    –    26    26 

Total covered assets

 $2,052   $595   $641   $3,288        $2,248   $784   $830   $3,862 

(a)Relates to loss sharing agreements with remaining terms up to two years.
(b)Represents decreases in expected reimbursements by the FDIC as a result of decreases in expected losses on the covered loans. These amounts are amortized as a reduction in interest income on covered loans over the shorter of the expected life of the respective covered loans or the remaining contractual term of the indemnification agreements.

Interest income is recognized on purchased impaired loans through accretion of the difference between the carrying amount of those loans and their expected cash flows. The initial determination of the fair value of the purchased loans

TDRs.
50U.S. Bancorp

includes the impact of expected credit losses and, therefore, no allowance for credit losses is recorded at the purchase date. To the extent credit deterioration occurs after the date of acquisition, the Company records an allowance for credit losses.

Note 56
    Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities

The Company transfers financial assets in the normal course of business. The majority of the Company’s financial asset transfers are residential mortgage loan sales primarily to government-sponsored enterprises (“GSEs”), transfers of
tax-advantaged
investments, commercial loan sales through participation agreements, and other individual or portfolio loan and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. Guarantees provided to certain third parties in connection with the transfer of assets are further discussed in Note 15.

16.

For loans sold under participation agreements, the Company also considers whether the terms of the loan participation agreement meet the accounting definition of a participating interest. With the exception of servicing and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses. Any gain or loss on sale depends on the
52
U.S. Bancorp
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previous carrying amount of the transferred financial assets, the consideration received, and any liabilities incurred in exchange for the transferred assets. Upon transfer, any servicing assets and other interests that continue to be held by the Company are initially recognized at fair value. For further information on mortgage servicing rights (“MSRs”), refer to Note 6.7. On a limited basis, the Company may acquire and package high-grade corporate bonds for select corporate customers, in which the Company generally has no continuing involvement with these transactions. Additionally, the Company is an authorized GNMA issuer and issues GNMA securities on a regular basis. The Company has no other asset securitizations or similar asset-backed financing arrangements that are
off-balance
sheet.

The Company also provides financial support primarily through the use of waivers of trust and investment management fees associated with various unconsolidated registered money market funds it manages. The Company provided $6$67 million and $9$28 million of support to the funds during the three months ended September 30, 20172021 and 2016,2020, respectively, and $17$184 million and $35$49 million during the nine months ended September 30, 20172021 and 2016,2020, respectively.

The Company is involved in various entities that are considered to be variable interest entities (“VIEs”). The Company’s investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these
tax-advantaged
investments support the Company’s regulatory compliance with the Community Reinvestment Act. The Company’s investments in these entities generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits are recognized as a reduction of tax expense or, for investments qualifying as investment tax credits, as a reduction to the related investment asset. The Company recognized federal and state income tax credits related to its affordable housing and other
tax-advantaged
investments in tax expense of $173$113 million and $172$142 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $495$356 million and $504$437 million for the nine months ended September 30, 20172021 and 2016,2020, respectively. The Company also recognized $361$75 million and $219$118 million of investment tax credits for the three months ended September 30, 20172021 and 2016,2020, respectively, and $843$235 million and $850$307 million for the nine months ended September 30, 20172021 and 2016,2020, respectively. The Company recognized $163$101 million and $169$142 million of expenses related to all of these investments for the three months ended September 30, 20172021 and 2016,2020, respectively, of which $61$83 million for both periods wasand $97 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense. The Company
C
ompany recognized $464$333 million and $476$429 million of expenses related to all of these investments for the nine months ended September 30, 20172021 and 2016,2020, respectively, of which $187$262 million and $194$297 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense.

The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.

The Company’s investments in these unconsolidated VIEs are carried in other assets on the Consolidated Balance Sheet. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in other liabilities on the Consolidated Balance Sheet. The Company’s maximum exposure to loss from these

U.S. Bancorp51

unconsolidated VIEs include the investment recorded on the Company’s Consolidated Balance Sheet, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business and housing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.

The following table provides a summary of investments in community development and
tax-advantaged
VIEs that the Company has not consolidated:

(Dollars in Millions) 

September 30,

2017

   

December 31,

2016

 

Investment carrying amount

 $5,580   $5,009 

Unfunded capital and other commitments

  3,029    2,477 

Maximum exposure to loss

  11,090    10,373 

(Dollars in Millions) 
September 30,
2021
   December 31,
2020		 
Investment carrying amount
 $4,865   $5,378 
Unfunded capital and other commitments
  2,180    2,334 
Maximum exposure to loss
  10,368    11,219 
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The Company also has noncontrolling financial investments in private investment funds and partnerships considered to be VIEs, which are not consolidated. The Company’s recorded investment in these entities, carried in other assets on the Consolidated Balance Sheet, was approximately $28$40 million at September 30, 20172021 and $35 million at December 31, 2016.2020. The maximum exposure to loss related to these VIEs was $49$81 million at September 30, 20172021 and $50$57 million at December 31, 2016,2020, representing the Company’s investment balance and its unfunded commitments to invest additional amounts.

The Company’s individual net investments in unconsolidated VIEs, which exclude any unfunded capital commitments, ranged from less than $1 million to $57$71 million at September 30, 2017,2021, compared with less than $1 million to $40$78 million at December 31, 2016.

2020.

The Company is required to consolidate VIEs in which it has concluded it has a controlling financial interest. The Company sponsors entities to which it transfers its interests in
tax-advantaged
investments to third parties. At September 30, 2017,2021, approximately $3.6$5.1 billion of the Company’s assets and $2.6$3.6 billion of its liabilities included on the Consolidated Balance Sheet were related to community development and
tax-advantaged
investment VIEs which the Company has consolidated, primarily related to these transfers. These amounts compared to $3.5$4.9 billion and $2.6$3.7 billion, respectively, at December 31, 2016.2020. The majority of the assets of these consolidated VIEs are reported in other assets, and the liabilities are reported in long-term debt and other liabilities. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIEs do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIEs is generally limited to the carrying value of its variable interests plus any related tax credits previously recognized or transferred to others with a guarantee.

The Company also sponsors a conduit to which it previously transferred high-grade investment securities. The Company consolidates the conduit because of its ability to manage the activities of the conduit. At September 30, 2017, $23 million of theheld-to-maturity investment securities on the Company’s Consolidated Balance Sheet were related to the conduit, compared with $24 million at December 31, 2016.

In addition, the Company sponsors a municipal bond securities tender option bond program. The Company controls the activities of the program’s entities, is entitled to the residual returns and provides liquidity and remarketing arrangements to the program. As a result, the Company has consolidated the program’s entities. At September 30, 2017, $2.12021, $1.7 billion of
available-for-sale
investment securities and $2.0$1.2 billion of short-term borrowings on the Consolidated Balance Sheet were related to the tender option bond program, compared with $1.1$2.4 billion of
available-for-sale
investment securities and $1.1$1.5 billion of short-term borrowings at December 31, 2016.

2020.
Note 67
    Mortgage Servicing Rights

The Company capitalizes MSRs as separate assets when loans are sold and servicing is retained. MSRs may also be purchased from others. The Company carries MSRs at fair value, with changes in the fair value recorded in earnings during the period in which they occur. The Company serviced $233.1$219.3 billion of residential mortgage loans for others at September 30, 2017,2021, and $232.6$211.8 billion at December 31, 2016, which include2020, including subserviced mortgages with no corresponding MSRsMSR asset. The net impact includedIncluded in mortgage banking revenue ofare the MSR fair value changes arising from market rate and model assumption changes, net of MSRs due to changesthe value change in valuation assumptions and derivatives used to economically hedge MSRs wereMSRs. These changes resulted in a net lossesloss of less than $1$21 million and a net gainsgain of $25$9 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and a net gainsloss of $17$168 million and a net lossesgain of $7$58 million for the nine months ended September 30, 20172021 and 2016,2020, respectively. Loan servicing and ancillary fees, not including valuation changes, included in mortgage banking revenue were $183 million and $191$177 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $561$536 million and $562$537 million for the nine months ended September 30, 20172021 and 2016,2020, respectively.

52U.S. Bancorp

Changes in fair value of capitalized MSRs are summarized as follows:

  Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
(Dollars in Millions)       2017        2016           2017      2016 

Balance at beginning of period

 $2,582  $2,056     $2,591  $2,512 

Rights purchased

  4   18      10   32 

Rights capitalized

  115   142      319   372 

Changes in fair value of MSRs

       

Due to fluctuations in market interest rates (a)

  (12)   42      (42)   (446) 

Due to revised assumptions or models (b)

  1   –      18   – 

Other changes in fair value (c)

  (92)   (127)        (298)   (339) 

Balance at end of period

 $2,598  $2,131       $2,598  $2,131 

  Three Months Ended
September 30		       Nine Months Ended
September 30		 
(Dollars in Millions) 2021  2020       2021  2020 
Balance at beginning of period
 $2,713  $1,840       $2,210  $2,546 
Rights purchased
  9   8        36   16 
Rights capitalized
  284   321        896   712 
Rights sold (a)
  0   1        1   3 
Changes in fair value of MSRs
                     
Due to fluctuations in market interest rates (b)
  53   (8)        307   (815) 
Due to revised assumptions or models (c)
  (30)   (7)        (169)   37 
Other changes in fair value (d)
  (119)   (177)        (371)   (521) 
Balance at end of period
 $2,910  $1,978       $2,910  $1,978 
(a)
MSRs sold include those having a negative fair value, resulting from the loans being severely delinquent.
(b)
Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
(b)
(c)
Includes changes in MSR value not caused by changes in market interest rates, such as changes in assumed cost to service, ancillary income and option adjusted spread, as well as the impact of any model changes.
(c)
(d)
Primarily representsthe change in MSR value from passage of time and cash flows realized (decay), but also includes the impact of changes due to realization of expected cash flows over time (decay).not associated with changes in market interest rates, such as the impact of delinquencies.

54
U.S. Bancorp
Table of Contents
The estimated sensitivity to changes in interest rates of the fair value of the MSRsMSR portfolio and the related derivative instruments was as follows:

  September 30, 2017       December 31, 2016 
(Dollars in Millions) Down
100 bps		  Down
50 bps		  Down
25 bps		  Up
25 bps		  Up
50 bps		  Up
100 bps		       Down
100 bps		  Down
50 bps		  Down
25 bps		  Up
25 bps		  Up
50 bps		  Up
100 bps		 

MSR portfolio

 $(524)  $(232)  $(109)  $96  $178  $307     $(476)  $(209)  $(98)  $85  $159  $270 

Derivative instrument hedges

  463   219   105   (97)   (187)   (352)        375   180   88   (84)   (165)   (314) 

Net sensitivity

 $(61)  $(13)  $(4)  $(1)  $(9)  $(45)       $(101)  $(29)  $(10)  $1  $(6)  $(44) 

  September 30, 2021       December 31, 2020 
(Dollars in Millions) Down
100 bps		  Down
50 bps		  Down
25 bps		  Up
25 bps		  Up
50 bps		  Up
100 bps		       Down
100 bps		  Down
50 bps		  Down
25 bps		  Up
25 bps		  Up
50 bps		  Up
100 bps		 
MSR portfolio
 $(619)  $(320)  $(161)  $154  $294  $520       $(442)  $(271)  $(150)  $169  $343  $671 
Derivative instrument hedges
  574   290   144   (137)   (270)   (524)        523   281   145   (149)   (304)   (625) 
Net sensitivity
 $(45)  $(30)  $(17)  $17  $24  $(4)       $81  $10  $(5)  $20  $39  $46 
The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Housing Finance Agency (“HFA”) mortgages. The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-rate or jumbo mortgage loans. The HFA division specializes in servicing portfolio is comprised of loans madeoriginated under state and local housing authority programs. These programs provide mortgagesprogram guidelines which assist purchases by first-time or low- tolow-income and moderate-income borrowers and are generally government-insured programs withhomebuyers through a favorable rate subsidy, down payment and/or closing cost assistance.

assistance on government- and conventional-insured mortgages.

A summary of the Company’s MSRs and related characteristics by portfolio was as follows:

  September 30, 2017      December 31, 2016 
(Dollars in Millions) HFA  Government  Conventional (c)  Total      HFA  Government  Conventional (c)  Total 

Servicing portfolio (a)

 $39,725  $37,001  $154,589  $231,315    $34,746  $37,530  $157,771  $230,047 

Fair value

 $440  $422  $1,736  $2,598    $398  $422  $1,771  $2,591 

Value (bps) (b)

  111   114   112   112     115   112   112   113 

Weighted-average servicing fees (bps)

  35   34   27   30     36   34   27   30 

Multiple (value/servicing fees)

  3.17   3.35   4.15   3.73     3.19   3.29   4.15   3.77 

Weighted-average note rate

  4.42%   3.93%   4.02%   4.07%     4.37%   3.95%   4.02%   4.06% 

Weighted-average age (in years)

  2.9   4.2   4.1   3.9     2.9   3.8   3.8   3.7 

Weighted-average expected prepayment (constant prepayment rate)

  9.8%   11.7%   10.0%   10.2%     9.4%   11.3%   9.8%   10.0% 

Weighted-average expected life (in years)

  7.7   6.5   6.8   6.9     8.0   6.8   6.9   7.0 

Weighted-average option adjusted spread (d)

  9.9%   9.2%   7.2%   8.0%       9.9%   9.2%   7.2%   8.0% 

  September 30, 2021      December 31, 2020 
(Dollars in Millions) HFA  Government  Conventional(d)  Total      HFA  Government  Conventional(d)  Total 
Servicing portfolio (a)
 $40,038  $22,392  $153,543  $215,973      $40,396  $25,474  $143,085  $208,955 
Fair value
 $508  $304  $2,098  $2,910      $406  $261  $1,543  $2,210 
Value (bps) (b)
  127   136   137   135       101   102   108   106 
Weighted-average servicing fees (bps)
  36   41   30   32       35   40   30   32 
Multiple (value/servicing fees)
  3.56   3.34   4.51   4.16       2.87   2.56   3.55   3.26 
Weighted-average note rate
  4.14%   3.75%   3.48%   3.63%       4.43%   3.91%   3.78%   3.92% 
Weighted-average age (in years)
  3.8   5.8   3.4   3.7       3.8   5.6   4.2   4.3 
Weighted-average expected prepayment (constant prepayment rate)
  11.3%   13.4%   9.4%   10.2%       14.1%   18.0%   13.8%   14.4% 
Weighted-average expected life (in years)
  6.6   5.5   7.0   6.8       5.6   4.3   5.5   5.4 
Weighted-average option adjusted spread (c)
  7.7%   7.3%   6.5%   6.8%       7.7%   7.3%   6.2%   6.6% 
(a)
Represents principal balance of mortgages having corresponding MSR asset.
(b)
Calculated as fair value divided by the servicing portfolio.
(c)
Represents loans sold primarily to GSEs.
(d)
Option adjusted spread is the incremental spread added to the risk-free rate to reflect optionality and other risk inherent in the MSRs.

(d)
U.S. Bancorp53
Represents loans sold primarily to GSEs.

Note 78
    Preferred Stock

At September 30, 20172021 and December 31, 2016,2020, the Company had authority to issue 50 million shares of preferred stock. The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock were as follows:

  September 30, 2017        December 31, 2016 
(Dollars in Millions) Shares
Issued and
Outstanding		   Liquidation
Preference		   Discount   Carrying
Amount		        Shares
Issued and
Outstanding		   Liquidation
Preference		   Discount   Carrying
Amount		 

Series A

  12,510   $1,251   $145   $1,106       12,510   $1,251   $145   $1,106 

Series B

  40,000    1,000    –    1,000       40,000    1,000    –    1,000 

Series F

  44,000    1,100    12    1,088       44,000    1,100    12    1,088 

Series G

  –    –    –    –       43,400    1,085    10    1,075 

Series H

  20,000    500    13    487       20,000    500    13    487 

Series I

  30,000    750    5    745       30,000    750    5    745 

Series J

  40,000    1,000    7    993         –    –    –    – 

Total preferred stock (a)

  186,510   $5,601   $182   $5,419         189,910   $5,686   $185   $5,501 

  September 30, 2021        December 31, 2020 
(Dollars in Millions) Shares
Issued and
Outstanding		   Liquidation
Preference		   Discount   Carrying
Amount		        Shares
Issued and
Outstanding		   Liquidation
Preference		   Discount   Carrying
Amount		 
Series A
  12,510   $1,251   $145   $1,106         12,510   $1,251   $145   $1,106 
Series B
  40,000    1,000    —    1,000         40,000    1,000    —    1,000 
Series F
  44,000    1,100    12    1,088         44,000    1,100    12    1,088 
Series I
  —    —    —    —         30,000    750    5    745 
Series J
  40,000    1,000    7    993         40,000    1,000    7    993 
Series K
  23,000    575    10    565         23,000    575    10    565 
Series L
  20,000    500    14    486         20,000    500    14    486 
Series M
  30,000    750    20    730         —    —    —    — 
Total preferred stock (a)
  209,510   $6,176   $208   $5,968         209,510   $6,176   $193   $5,983 
(a)
The par value of all shares issued and outstanding at September 30, 20172021 and December 31, 2016,2020, was $1.00 per share.

During the first nine months of 2017,2021, the Company issued depositary shares representing an ownership interest in 40,00030,000 shares of Series JM
Non-Cumulative
Perpetual Preferred Stock with a liquidation preference of $25,000
per share (the “Series JM Preferred Stock”). The Series JM Preferred Stock has no stated maturity and will not be subject to
U.S. Bancorp
55
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any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable semiannually, quarterly,
in arrears, at a rate per annum equal to 5.300 percent from the date of issuance to, but excluding, April 15, 2027, and thereafter will accrue and be payable quarterly at a floating rate per annum equal to three-month LIBOR plus 2.914
4.00 percent. The Series JM Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after April 15, 2027.2026. The Series JM Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to April 15, 20272026 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series JM Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During the first nine months of 2017,2021, the Company redeemed all outstanding shares of the Series GI
Non-Cumulative
Perpetual Preferred Stock (the “Series GI Preferred Stock”) at a redemption price equal to the liquidation preference amount. The Company included a $10$5 million loss in the computation of
diluted
earnings per diluted common share for the first nine months of 2017,2021, which represents the stock issuance costs recorded in preferred stock upon the issuance of the Series GI Preferred Stock that were reclassified to retained earnings on the date the Company provided notice of its intent to redeem the outstanding shares.

54U.S. Bancorp

Note 89
 
   Accumulated Other Comprehensive Income (Loss)

Shareholders’

Shareholders' equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss). The reconciliation of the transactions affecting accumulated other comprehensive income (loss) included in shareholders’shareholders' equity is as follows:

Three Months Ended September 30,

(Dollars in Millions)

 

Unrealized Gains
(Losses) on
Securities
Available-For-

Sale

  

Unrealized Gains
(Losses) on
Securities
Transferred From
Available-For-Sale
to Held-To-

Maturity

  Unrealized Gains
(Losses) on
Derivative Hedges		  Unrealized Gains
(Losses) on
Retirement Plans		  Foreign
Currency
Translation		  Total 

2017

      

Balance at beginning of period

 $(174)  $21  $51  $(1,077)  $(67)  $(1,246) 

Changes in unrealized gains and losses

  24   –   (3)   –   –   21 

Foreign currency translation adjustment (a)

  –   –   –   –   2   2 

Reclassification to earnings of realized gains and losses

  (9)   (3)   4   29   –   21 

Applicable income taxes

  (7)   1   –   (11)   –   (17) 

Balance at end of period

 $(166)  $19  $52  $(1,059)  $(65)  $(1,219) 

2016

      

Balance at beginning of period

 $612  $31  $(133)  $(1,006)  $(66)  $(562) 

Changes in unrealized gains and losses

  (105)   –   31   –   –   (74) 

Foreign currency translation adjustment (a)

  –   –   –   –   6   6 

Reclassification to earnings of realized gains and losses

  (10)   (5)   28   41   –   54 

Applicable income taxes

  44   1   (22)   (16)   (10)   (3) 

Balance at end of period

 $541  $27  $(96)  $(981)  $(70)  $(579) 

Three Months Ended September 30
(Dollars in Millions)
 Unrealized Gains
(Losses) on
Investment
Securities
Available-For-
Sale		  Unrealized Gains
(Losses) on
Derivative Hedges		  Unrealized Gains
(Losses) on
Retirement Plans		  Foreign
Currency
Translation		  Total 
2021
                    
Balance at beginning of period
 $735  $(107)  $(1,783)  $(47)  $(1,202) 
Changes in unrealized gains and losses
  (825)   8   —   —   (817) 
Foreign currency translation adjustment (a)
  —   —   —   (1)   (1) 
Reclassification to earnings of realized gains and losses
  (20)   8   39   —   27 
Applicable income taxes
  215   (4)   (10)   —   201 
Balance at end of period
 $105  $(95)  $(1,754)  $(48)  $(1,792) 
2020
                    
Balance at beginning of period
 $2,701  $(240)  $(1,589)  $(74)  $798 
Changes in unrealized gains and losses
  (305)   27   —   —   (278) 
Foreign currency translation adjustment (a)
  —   —   —   6   6 
Reclassification to earnings of realized gains and losses
  (12)   3   32   —   23 
Applicable income taxes
  81   (7)   (9)   (2)   63 
Balance at end of period
 $2,465  $(217)  $(1,566)  $(70)  $612 
(a)
Represents the impact of changes in foreign currency exchange rates on the Company’sCompany's investment in foreign operations and related hedges.

Nine Months Ended September 30,

(Dollars in Millions)

 

Unrealized Gains
(Losses) on
Securities
Available-For-

Sale

  

Unrealized Gains
(Losses) on
Securities
Transferred From
Available-For-Sale
to Held-To-

Maturity

  Unrealized Gains
(Losses) on
Derivative Hedges		  Unrealized Gains
(Losses) on
Retirement Plans		  Foreign
Currency
Translation		  Total 

2017

      

Balance at beginning of period

 $(431)  $25  $55  $(1,113)  $(71)  $(1,535) 

Changes in unrealized gains and losses

  479   –   (33)  ��–   –   446 

Foreign currency translation adjustment (a)

  –   –   –   –   11   11 

Reclassification to earnings of realized gains and losses

  (47)   (10)   28   87   –   58 

Applicable income taxes

  (167)   4   2   (33)   (5)   (199) 

Balance at end of period

 $(166)  $19  $52  $(1,059)  $(65)  $(1,219) 

2016

      

Balance at beginning of period

 $111  $36  $(67)  $(1,056)  $(43)  $(1,019) 

Changes in unrealized gains and losses

  716   –   (152)   –   –   564 

Other-than-temporary impairment not recognized in earnings on securitiesavailable-for-sale

  (1)   –   –   –   –   (1) 

Foreign currency translation adjustment (a)

  –   –   –   –   (30)   (30) 

Reclassification to earnings of realized gains and losses

  (16)   (14)   104   122   –   196 

Applicable income taxes

  (269)   5   19   (47)   3   (289) 

Balance at end of period

 $541  $27  $(96)  $(981)  $(70)  $(579) 

Nine Months Ended September 30
(Dollars in Millions)
 Unrealized Gains
(Losses) on
Investment
Securities
Available-For-
Sale		  Unrealized Gains
(Losses) on
Derivative Hedges		  Unrealized Gains
(Losses) on
Retirement Plans		  Foreign
Currency
Translation		  Total 
2021
                    
Balance at beginning of period
 $2,417  $(189)  $(1,842)  $(64)  $322 
Changes in unrealized gains and losses
  (3,008)   121   —   —   (2,887) 
Foreign currency translation adjustment (a)
  —   —   —   23   23 
Reclassification to earnings of realized gains and losses
  (88)   4   118   —   34 
Applicable income taxes
  784   (31)   (30)   (7)   716 
Balance at end of period
 $105  $(95)  $(1,754)  $(48)  $(1,792) 
2020
                    
Balance at beginning of period
 $379  $(51)  $(1,636)  $(65)  $(1,373) 
Changes in unrealized gains and losses
  2,935   (230)   —   —   2,705 
Foreign currency translation adjustment (a)
  —   —   —   (6)   (6) 
Reclassification to earnings of realized gains and losses
  (143)   7   94   —   (42) 
Applicable income taxes
  (706)   57   (24)   1   (672) 
Balance at end of period
 $2,465  $(217)  $(1,566)  $(70)  $612 
(a)
Represents the impact of changes in foreign currency exchange rates on the Company’sCompany's investment in foreign operations and related hedges.

U.S. Bancorp
56
 55U.S. Bancorp

Table of Contents

Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and into earnings is as follows:

  Impact to Net Income  

Affected Line Item in the

Consolidated Statement of Income

  Three Months Ended
September 30,		      Nine Months Ended
September 30,		  
(Dollars in Millions)     2017          2016              2017          2016  

Unrealized gains (losses) on securitiesavailable-for-sale

       

Realized gains (losses) on sale of securities

 $9  $12    $47  $19  Total securities gains (losses), net

Other-than-temporary impairment recognized in earnings

  –   (2)       –   (3)  
  9   10     47   16  Total before tax
  (4)   (4)       (18)   (6)  Applicable income taxes
  5   6     29   10  Net-of-tax

Unrealized gains (losses) on securities transferred fromavailable-for-sale toheld-to-maturity

       

Amortization of unrealized gains

  3   5     10   14  Interest income
  (1)   (1)       (4)   (5)  Applicable income taxes
  2   4     6   9  Net-of-tax

Unrealized gains (losses) on derivative hedges

       

Realized gains (losses) on derivative hedges

  (4)   (28)     (28)   (104)  Interest expense
  2   11       11   40  Applicable income taxes
  (2)   (17)     (17)   (64)  Net-of-tax

Unrealized gains (losses) on retirement plans

       

Actuarial gains (losses) and prior service cost (credit) amortization

  (29)   (41)     (87)   (122)  Employee benefits expense
  11   16       33   47  Applicable income taxes
  (18)   (25)     (54)   (75)  Net-of-tax

Total impact to net income

 $(13)  $(32)      $(36)  $(120)   

  Impact to Net Income  Affected Line Item in the
Consolidated Statement of Income
  Three Months Ended
September 30		       Nine Months Ended
September 30		 
(Dollars in Millions) 2021  2020       2021  2020 
Unrealized gains (losses) on investment securities available-for-sale
 
                   
Realized gains (losses) on sale of investment securities
 $20  $12       $88  $143  Securities gains (losses), net
   (5)   (3)        (22)   (36)  Applicable income taxes
   15   9        66   107  Net-of-tax
Unrealized gains (losses) on derivative hedges
                       
Realized gains (losses) on derivative hedges
  (8)   (3)        (4)   (7)  Interest expense
   2   1        1   2  Applicable income taxes
   (6)   (2)        (3)   (5)  Net-of-tax
Unrealized gains (losses) on retirement plans
                       
Actuarial gains (losses) and prior service cost (credit) amortization
  (39)   (32)        (118)   (94)  Other noninterest expense
   10   9        30   24  Applicable income taxes
   (29)   (23)        (88)   (70)  Net-of-tax
       
Total impact to net income
 $(20)  $(16)       $(25)  $32   
Note 910
 
   Earnings Per Share

The components of earnings per share were:

  Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
(Dollars and Shares in Millions, Except Per Share Data) 2017  2016       2017  2016 

Net income attributable to U.S. Bancorp

 $1,563  $1,502     $4,536  $4,410 

Preferred dividends

  (71)   (61)      (204)   (201) 

Impact of preferred stock redemption (a)

  –   –      (10)   – 

Impact of the purchase of noncontrolling interests (b)

  –   –      –   9 

Earnings allocated to participating stock awards

  (7)   (7)        (20)   (20) 

Net income applicable to U.S. Bancorp common shareholders

 $1,485  $1,434       $4,302  $4,198 

Average common shares outstanding

  1,672   1,710      1,683   1,724 

Net effect of the exercise and assumed purchase of stock awards

  6   6        6   6 

Average diluted common shares outstanding

  1,678   1,716        1,689   1,730 

Earnings per common share

 $.89  $.84     $2.56  $2.44 

Diluted earnings per common share

 $.88  $.84       $2.55  $2.43 

  Three Months Ended
September 30		       Nine Months Ended
September 30		 
(Dollars and Shares in Millions, Except Per Share Data) 2021  2020       2021  2020 
Net income attributable to U.S. Bancorp
 $2,028  $1,580       $6,290  $3,440 
Preferred dividends
  (84)   (79)        (232)   (229) 
Impact of preferred stock redemption (a)
  —   —        (5)   — 
Earnings allocated to participating stock awards
  (10)   (7)        (30)   (15) 
Net income applicable to U.S. Bancorp common shareholders
 $1,934  $1,494       $6,023  $3,196 
Average common shares outstanding
  1,483   1,506        1,491   1,510 
Net effect of the exercise and assumed purchase of stock awards
  1   1        1   1 
Average diluted common shares outstanding
  1,484   1,507        1,492   1,511 
Earnings per common share
 $1.30  $.99       $4.04  $2.12 
Diluted earnings per common share
 $1.30  $.99       $4.04  $2.11 
(a)
Represents stock issuance costs originally recorded in preferred stock upon the issuance of the Company’s Series GI Preferred Stock that were reclassified to retained earnings on the date the Company announced its intent to redeem the outstanding shares.
(b)Represents the difference between the carrying amount and amount paid by the Company to purchase third party investor holdings of the preferred stock of USB Realty Corp, a consolidated subsidiary of the Company.

Options outstanding at September 30, 2017,2020, to purchase 14 million and 2 million common shares for the three months and nine months ended September 30, 2017, and outstanding at September 30, 2016, to purchase 1 million common shares for the three months and nine months ended September 30, 2016,2020, respectively, were not included in the computation of diluted earnings per share because they were antidilutive.

56U.S. Bancorp

Note 1011
 
   Employee Benefits

The components of net periodic benefit cost for the Company’sCompany's retirement plans were:

  Three Months Ended September 30,       Nine Months Ended September 30, 
  Pension Plans  Postretirement
Welfare Plan		       Pension Plans  Postretirement
Welfare Plan		 
(Dollars in Millions)     2017      2016      2017      2016           2017      2016      2017      2016 

Service cost

 $47  $45  $–  $–     $140  $133  $–  $– 

Interest cost

  55   53   –   –      165   158   2   2 

Expected return on plan assets

  (71)   (66)   (1)   (1)      (213)   (198)   (2)   (1) 

Prior service cost (credit) amortization

  –   (2)   (1)   –      (1)   (4)   (3)   (2) 

Actuarial loss (gain) amortization

  31   44   (1)   (1)        95   131   (4)   (3) 

Net periodic benefit cost

 $62  $74  $(3)  $(2)       $186  $220  $(7)  $(4) 

  Three Months Ended September 30       Nine Months Ended September 30 
  Pension Plans  Postretirement
Welfare Plan		       Pension Plans  Postretirement
Welfare Plan		 
(Dollars in Millions) 2021  2020  2021  2020       2021  2020  2021  2020 
Service cost
 $66  $58  $—  $—       $198  $176  $—  $— 
Interest cost
  54   59   1   —        164   176   1   1 
Expected return on plan assets
  (112)   (101)   —   —        (337)   (302)   —   (2) 
Prior service cost (credit) amortization
  —   —   (1)   —        (1)   —   (3)   (2) 
Actuarial loss (gain) amortization
  42   34   (2)   (2)        127   101   (5)   (5) 
Net periodic benefit cost (a)
 $50  $50  $(2)  $(2)       $151  $151  $(7)  $(8) 
(a)
Service cost is included in employee benefits expense on the Consolidated Statement of Income. All other components are included in other noninterest expense on the Consolidated Statement of Income.
Note 11U.S. Bancorp 
57
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Note 12
   Income Taxes

The components of income tax expense were:

  Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
(Dollars in Millions)       2017         2016             2017        2016 

Federal

        

Current

 $455   $717     $1,479  $1,631 

Deferred

  54    (232)        (103)   (279) 

Federal income tax

  509    485      1,376   1,352 

State

        

Current

  53    108      199   235 

Deferred

  27    (27)        64   25 

State income tax

  80    81        263   260 

Total income tax provision

 $589   $566       $1,639  $1,612 

  Three Months Ended
September 30		       Nine Months Ended
September 30		 
(Dollars in Millions)     2021       2020       2021   2020 
Federal
            
 
          
Current
 $354   $(53)    
 
  $1,057   $966 
Deferred
  99    306  
 
 
 
   305    (459) 
Federal income tax
  453    253    
 
   1,362    507 
State
            
 
          
Current
  94    92    
 
   297    298 
Deferred
  17    2  
 
 
 
   63    (134) 
      
State income tax
  111    94  
 
 
 
   360    164 
Total income tax provision
 $564   $347  
 
 
 
  $1,722   $671 
A reconciliation of expected income tax expense at the federal statutory rate of 3521 percent to the Company’s applicable income tax expense follows:

  Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
(Dollars in Millions)       2017        2016           2017      2016 

Tax at statutory rate

 $755  $729     $2,172  $2,123 

State income tax, at statutory rates, net of federal tax benefit

  71   53      201   170 

Tax effect of

       

Tax credits and benefits, net of related expenses

  (187)   (183)      (577)   (523) 

Tax-exempt income

  (50)   (49)      (150)   (148) 

Noncontrolling interests

  (2)   (5)      (11)   (15) 

Other items (a)

  2   21        4   5 

Applicable income taxes

 $589  $566       $1,639  $1,612 

(a)Includes excess tax benefits associated with stock-based compensation under accounting guidance effective January 1, 2017. Previously, these benefits were recorded in capital surplus.

  Three Months Ended
September 30		       Nine Months Ended
September 30		 
(Dollars in Millions)     2021      2020       2021  2020 
Tax at statutory rate
 $546  $406    
 
  $1,686  $867 
State income tax, at statutory rates, net of federal tax benefit
  108   75    
 
   327   170 
Tax effect of
           
 
         
Tax credits and benefits, net of related expenses
  (91)   (82)    
 
   (267)   (280) 
Exam resolutions
  —   (47)    
 
   —   (47) 
Tax-exempt income
  (28)   (29)    
 
   (85)   (87) 
Other items
  29   24  
 
 
 
   61   48 
Applicable income taxes
 $564  $347  
 
 
 
  $1,722  $671 
The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of September 30, 2017,2021, federal tax examinations for all years ending through December 31, 2014 are completed and resolved. The Company's tax returns for the federal taxing authority has completed its examination of the Company through the fiscal yearyears ended December 31, 2010. 2015, 2016, 2017 and 2018 are under examination by the Internal Revenue Service.
The years open to examination by foreign, state and local government authorities vary by jurisdiction.

The Company’s net deferred tax liabilityasset was $588$946 million at September 30, 20172021 and $479$597 million at December 31, 2016.

U.S. Bancorp57

2020.
Note 1213
 
   Derivative Instruments

In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value in other assets or in other liabilities. On the date the Company enters into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, net investment hedge, or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations (“free-standing derivative”). When a derivative is designated as a fair value, cash flow or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).

Fair Value Hedges
These derivatives are interest rate swaps the Company uses to hedge the change in fair value related to interest rate changes of its underlying
available-for-sale
investment securities and fixed-rate debt. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings. All fair value hedges were highly effective for the three and nine months ended September 30, 2017, and the change in fair value attributed to hedge ineffectiveness was not material.

Cash Flow Hedges
These derivatives are interest rate swaps the Company uses to hedge the forecasted cash flows from its underlying variable-rate debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until the cash flows of the hedged items are realized. If a derivative designated as a
58
U.S. Bancorp
Table of Contents
cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within other comprehensive income (loss). At September 30, 2017,2021, the Company had $52$95 million
(net-of-tax)
of realized and unrealized gainslosses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared with $55$189 million
(net-of-tax)
of realized and unrealized gainslosses at December 31, 2016.2020. The estimated amountsamount to be reclassified from other comprehensive income (loss) into earnings during both the remainder of 20172021 and the next 12 months were immaterial. are losses of $1 million
(net-of-tax).
All cash flow hedges were highly effective for the three and nine months ended September 30, 2017, and the change in fair value attributed to hedge ineffectiveness was not material.

2021.

Net Investment Hedges
 The Company uses forward commitments to sell specified amounts of certain foreign currencies, and
non-derivative
debt instruments, to hedge the volatility of its net investment in foreign operations driven by fluctuations in foreign currency exchange rates. The ineffectiveness on all net investment hedges was not material for the three and nine months ended September 30, 2017. At September 30, 2017, the carrying amount of
non-derivative
debt instruments designated as net investment hedges was $1.2 billion. There were nonon-derivative debt instruments designated as net investment hedges$1.4 billion at September 30, 2021 and December 31, 2016.

2020

.
Other Derivative Positions
 The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell
to-be-announced
securities (“TBAs”) and other commitments to sell residential mortgage loans, which are used to economically hedge the interest rate risk related to residential mortgage loans held for sale (“MLHFS”) and unfunded mortgage loan commitments. The Company also enters into interest rate swaps, swaptions, forward commitments to buy TBAs, U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to economically hedge the change in the fair value of the Company’s MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. The Company mitigates the market and liquidity risk associated with these customer derivatives by entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or
non-derivative
financial instruments that partially or fully offset the exposure to earnings from these customer-related positions. The Company’s customer derivatives and related hedges are monitored and reviewed by the Company’s Market Risk Committee, which establishes policies for market risk management, including exposure limits for each portfolio. The Company also has

58U.S. Bancorp

derivative contracts that are created through its operations, including certain unfunded mortgage loan commitments and swap agreements related to the sale of a portion of its Class B common and preferred shares of Visa Inc. Refer to Note 1415 for further information on these swap agreements.

For additional information on the Company’s purpose for entering into derivative transactions and its overall risk management strategies, refer to “Management Discussion and Analysis — Use

U.S. Bancorp
59
Table of Derivatives to Manage Interest Rate and Other Risks”, which is incorporated by reference into these Notes to Consolidated Financial Statements.

Contents

The following table summarizes the asset and liability management derivative positions of the Company:

  Asset Derivatives        Liability Derivatives 
(Dollars in Millions) Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity
In Years		        Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity
In Years		 

September 30, 2017

              

Fair value hedges

              

Interest rate contracts

              

Receive fixed/pay floating swaps

 $3,350   $42    3.42      $1,550   $8    1.33 

Cash flow hedges

              

Interest rate contracts

              

Pay fixed/receive floating swaps

  3,772    3    6.88       578    4    .98 

Net investment hedges

              

Foreign exchange forward contracts

  347    6    .05       –    –    – 

Other economic hedges

              

Interest rate contracts

              

Futures and forwards

              

Buy

  2,545    11    .07       2,075    10    .05 

Sell

  5,605    12    .03       4,396    12    .04 

Options

              

Purchased

  4,005    59    7.05       –    –    – 

Written

  1,536    28    .10       21    1    .09 

Receive fixed/pay floating swaps

  3,673    –    8.22       4,328    94    12.55 

Pay fixed/receive floating swaps

  2,414    15    3.23       4,233    45    8.22 

Foreign exchange forward contracts

  622    9    .05       44    –    .07 

Equity contracts

  98    2    .99       27    –    .07 

Credit contracts

  1,490    –    3.59       3,625    2    3.02 

Other (a)

  239    1    .01       1,325    124    2.25 

Total

 $29,696   $188        $22,202   $300   

December 31, 2016

              

Fair value hedges

              

Interest rate contracts

              

Receive fixed/pay floating swaps

 $2,550   $49    4.28      $1,250   $12    2.32 

Cash flow hedges

              

Interest rate contracts

              

Pay fixed/receive floating swaps

  3,272    108    8.63       2,787    35    .83 

Net investment hedges

              

Foreign exchange forward contracts

  1,347    15    .04       –    –    – 

Other economic hedges

              

Interest rate contracts

              

Futures and forwards

              

Buy

  1,748    13    .09       1,722    18    .05 

Sell

  2,278    129    .08       4,214    43    .09 

Options

              

Purchased

  1,565    43    8.60       –    –    – 

Written

  1,073    25    .07       12    1    .06 

Receive fixed/pay floating swaps

  6,452    26    11.48       1,561    16    6.54 

Pay fixed/receive floating swaps

  4,705    13    6.51       2,320    9    7.80 

Foreign exchange forward contracts

  849    6    .02       867    6    .02 

Equity contracts

  11    –    .40       102    1    .57 

Credit contracts

  1,397    –    3.38       3,674    2    3.57 

Other (a)

  19    –    .03       830    106    3.42 

Total

 $27,266   $427             $19,339   $249      

  Asset Derivatives        Liability Derivatives 
(Dollars in Millions) Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity In
Years		        Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity In
Years		 
September 30, 2021
                                  
Fair value hedges
                                  
Interest rate contracts
                                  
Receive fixed/pay floating swaps
 $700   $—    .04        $2,250   $—    3.70 
Pay fixed/receive floating swaps
  1,330    —    9.23         1,850    —    8.95 
Cash flow hedges
                                  
Interest rate contracts
                                  
Pay fixed/receive floating swaps
  —    —    —         250    —    .23 
Net investment hedges
                                  
Foreign exchange forward contracts
  826    7    .06         —    —    — 
Other economic hedges
                                  
Interest rate contracts
                                  
Futures and forwards
                                  
Buy
  5,325    29    .07         10,347    69    .05 
Sell
  28,069    139    .29         17,637    57    .14 
Options
                                  
Purchased
  16,930    235    3.34         —    —    — 
Written
  3,620    78    .09         7,541    241    2.11 
Receive fixed/pay floating swaps
  4,423    —    4.38         5,690    —    10.29 
Pay fixed/receive floating swaps
  2,006    —    4.26         4,562    —    4.24 
Foreign exchange forward contracts
  292    2    .04         275    2    .05 
Equity contracts
  21    2    .31         184    5    .70 
Other (a)
  601    9    .02         2,386    147    1.31 
Total
 $64,143   $501             $52,972   $521      
December 31, 2020
                                  
Fair value hedges
                                  
Interest rate contracts
                                  
Receive fixed/pay floating swaps
 $8,400   $—    1.76        $—   $—    — 
Pay fixed/receive floating swaps
  —    —    —         100    —    9.63 
Cash flow hedges
                                  
Interest rate contracts
                                  
Pay fixed/receive floating swaps
  —    —    —         3,250    —    4.59 
Net investment hedges
                                  
Foreign exchange forward contracts
  479    —    .06         336    3    .06 
Other economic hedges
                                  
Interest rate contracts
                                  
Futures and forwards
                                  
Buy
  16,431    73    .50         1,925    5    .07 
Sell
  10,440    48    .04         28,976    157    .07 
Options
                                  
Purchased
  11,610    121    4.11         —    —    — 
Written
  5,073    202    .13         7,770    198    2.53 
Receive fixed/pay floating swaps
  11,064    —    7.31         907    —    23.43 
Pay fixed/receive floating swaps
  78    —    13.68         8,538    —    5.67 
Foreign exchange forward contracts
  292    1    .04         341    2    .05 
Equity contracts
  127    3    .39         45    —    .46 
Other (a)
  47    1    .11         1,832    183    2.44 
Total
 $64,041   $449             $54,020   $548      
(a)
Includes short-term underwriting purchase and sale commitments with total asset notional values of $239 million and $19 million at September 30, 2017 and December 31, 2016, respectively, and liability notional values of $241 million and $19 million at September 30, 2017 and December 31, 2016, respectively. In addition, includes derivative liability swap agreements related to the sale of a portion of the Company’s Class B common and preferred shares of Visa Inc. The Visa swap agreements had a total notional value, fair value and weighted averageweighted-average remaining maturity of $1.1$1.8 billion, $123$139 million and 2.751.75 years at September 30, 2017,2021, respectively, compared to $811 million, $106$1.8 billion, $182 million and 3.502.50 years at December 31, 2016,2020, respectively. In addition, includes short-term underwriting purchase and sale commitments with total asset and liability notional values of $602 million at September 30, 2021, and $47 million at December 31, 2020.

U.S. Bancorp
60
 59U.S. Bancorp

Table of Contents

The following table summarizes the customer-related derivative positions of the Company:

  Asset Derivatives        Liability Derivatives 
(Dollars in Millions) Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity
In Years		        Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity
In Years		 

September 30, 2017

              

Interest rate contracts

              

Receive fixed/pay floating swaps

 $37,701   $794    5.27      $56,518   $561    3.81 

Pay fixed/receive floating swaps

  59,030    582    3.63       34,153    694    5.63 

Options

              

Purchased

  29,624    18    1.63       505    10    4.47 

Written

  505    11    4.47       27,283    16    1.53 

Futures

              

Sell

  4,273    1    1.45       –    –    – 

Foreign exchange rate contracts

              

Forwards, spots and swaps

  24,501    732    .79       22,874    687    .82 

Options

              

Purchased

  3,288    81    1.47       –    –    – 

Written

  –    –    –       3,288    81    1.47 

Total

 $158,922   $2,219        $144,621   $2,049   

December 31, 2016

              

Interest rate contracts

              

Receive fixed/pay floating swaps

 $38,501   $930    4.07      $39,403   $632    4.89 

Pay fixed/receive floating swaps

  36,671    612    4.99       40,324    996    4.07 

Options

              

Purchased

  14,545    51    1.85       125    2    1.37 

Written

  125    3    1.37       13,518    50    1.70 

Futures

              

Buy

  306    –    1.96       7,111    7    .90 

Foreign exchange rate contracts

              

Forwards, spots and swaps

  20,664    849    .58       19,640    825    .60 

Options

              

Purchased

  2,376    98    1.67       –    –    – 

Written

  –    –    –       2,376    98    1.67 

Total

 $113,188   $2,543             $122,497   $2,610      

  Asset Derivatives        Liability Derivatives 
(Dollars in Millions) Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity In
Years		        Notional
Value		   Fair
Value		   Weighted-
Average
Remaining
Maturity In
Years		 
September 30, 2021
                                  
Interest rate contracts
                                  
Receive fixed/pay floating swaps
 $124,770   $2,398    4.80        $46,250   $296    6.61 
Pay fixed/receive floating swaps
  47,573    80    6.65         119,027    784    4.51 
Other (a)
  8,463    1    3.98         7,260    3    4.66 
Options
                                  
Purchased
  85,251    217    1.29         2,701    41    1.86 
Written
  2,690    41    1.85         79,781    192    1.23 
Futures
                                  
Buy
  3,456    —    .14         318    —    1.97 
Sell
  2,583    —    1.43         565    —    .45 
Foreign exchange rate contracts
                                  
Forwards, spots and swaps
  38,518    1,112    1.20         39,988    1,121    1.45 
Options
                                  
Purchased
  629    18    .96         —    —    — 
Written
  —    —    —         629    18    .96 
Credit contracts
  2,737    —    2.49         6,934    6    4.41 
Total
 $316,670   $3,867             $303,453   $2,461      
December 31, 2020
                                  
Interest rate contracts
                                  
Receive fixed/pay floating swaps
 $144,859   $3,782    4.93        $12,027   $99    8.72 
Pay fixed/receive floating swaps
  15,048    2    8.43         134,963    1,239    4.71 
Other (a)
  9,921    6    3.75         6,387    3    4.22 
Options
                                  
Purchased
  72,655    111    1.40         1,454    46    2.96 
Written
  1,736    46    2.76         68,205    81    1.25 
Futures
                                  
Buy
  1,851    —    1.22         924    —    .05 
Sell
  —    —    —         4,090    —    .72 
Foreign exchange rate contracts
                                  
Forwards, spots and swaps
  44,845    1,590    .96         45,992    1,565    1.13 
Options
                                  
Purchased
  519    14    .90         —    —    — 
Written
  —    —    —         519    14    .90 
Credit contracts
  2,876    1    2.75         7,479    7    3.81 
Total
 $294,310   $5,552             $282,040   $3,054      
(a)
Primarily represents floating rate interest rate swaps that pay based on differentials between specified interest rate indexes.
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains (losses) reclassified from other comprehensive income (loss) into earnings
(net-of-tax):

  Three Months Ended September 30,       Nine Months Ended September 30, 
  Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)		   Gains (Losses)
Reclassified from
Other
Comprehensive
Income
(Loss) into Earnings		       Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)		  Gains (Losses)
Reclassified from
Other
Comprehensive
Income
(Loss) into Earnings		 
(Dollars in Millions) 2017  2016   2017  2016       2017  2016  2017  2016 

Asset and Liability Management Positions

            

Cash flow hedges

            

Interest rate contracts (a)

 $(1)  $20   $(2)  $(17)     $(20)  $(93)  $(17)  $(64) 

Net investment hedges

            

Foreign exchange forward contracts

  (7)   –    –   –      (55)   (15)   –   – 

Non-derivative debt instruments

  (24)   –    –   –        (35)   –   –   – 

  Three Months Ended
September 30		       Nine Months Ended
September 30		 
  
Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
  Gains (Losses)
Reclassified
from Other
Comprehensive
Income (Loss)
into Earnings		       
Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
  Gains (Losses)
Reclassified
from Other
Comprehensive
Income (Loss)
into Earnings		 
(Dollars in Millions) 2021   2020  2021  2020       2021   2020  2021  2020 
Asset and Liability Management Positions
                                       
Cash flow hedges
                                       
Interest rate contracts
 $6   $21  $(6)  $(2)       $91   $(171)  $(3)  $(5) 
Net investment hedges
                                       
Foreign exchange forward contracts
  17    (4)   —   —        16    6   —   — 
Non-derivative
debt instruments
  27    (45)   —   —        61    (41)   —   — 
Note:
Ineffectiveness on
The Company does not exclude components from effectiveness testing for cash flow and net investment hedges washedges.
U.S. Bancorp
61
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The table below shows the effect of fair value and cash flow hedge accounting on the Consolidated Statement of Income:
  Interest Income   Interest Expense       Interest Income   Interest Expense 
  Three Months Ended September 30   Nine Months Ended September 30 
(Dollars in Millions) 2021  2020   2021  2020       2021  2020   2021  2020 
Total amount of income and expense line items presented in the Consolidated Statement of Income in which the effects of fair value or cash flow hedges are recorded
 $3,409  $3,573   $238  $346    
 
  $10,132  $11,361   $761  $1,711 
          
Asset and Liability Management Positions
                    
 
                  
Fair value hedges
                    
 
                  
Interest rate contract derivatives
  45   —    112   28    
 
   14   —    185   (166) 
Hedged items
  (45)   —    (113)   (27)    
 
   (15)   —    (185)   167 
Cash flow hedges
                    
 
                  
Interest rate contract derivatives
  —   —    8   3  
 
 
 
   —   —    4   7 
Note:
The Company does not materialexclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $13 million and $40 million into earnings during the three and nine months ended September 30, 20172021, respectively,
as a result of realized cash flows on discontinued cash flow hedges. The Company reclassified losses of
$18 million and 2016.$24 
million into earnings during the three and nine months ended September 30, 2020, respectively, as a result of realized cash flows on discontinued cash flow hedges. No amounts were reclassified into earnings on discontinued cash flow hedges because it is probable the original hedged forecasted cash flows will not occur. 
The table below shows cumulative hedging adjustments and the carrying amount of assets and liabilities designated in fair value hedges:
  Carrying Amount of the Hedged Assets and
Liabilities		        Cumulative Hedging Adjustment (a) 
(Dollars in Millions) September 30, 2021   December 31, 2020        September 30, 2021  December 31, 2020 
Line Item in the Consolidated Balance Sheet
             
 
         
Available-for-sale
investment securities
 $3,127   $99     
 
  $(22)  $(1) 
Long-term debt
  2,940    8,567   
 
 
 
   692   903 
(a)
Gains (Losses) reclassified from other comprehensive income (loss) into interest expense.
The cumulative hedging adjustment related to discontinued hedging relationships on
available-for-sale
investment securities and long-term debt was $(6) million and $700 million, respectively, at September 30, 2021. The cumulative hedging adjustment related to discontinued hedging relationships on long-term debt was $726 million at December 31, 2020.

60U.S. Bancorp

The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and the customer-related positions:

  

Location of Gains (Losses)

Recognized in Earnings

     Three Months Ended
September 30,		       Nine Months Ended
September 30,		 
(Dollars in Millions)    2017  2016       2017  2016 

Asset and Liability Management Positions

          

Fair value hedges (a)

          

Interest rate contracts

 Other noninterest income   $(6)  $(31)     $(2)  $63 

Other economic hedges

          

Interest rate contracts

          

Futures and forwards

 Mortgage banking revenue    (16)   21      (11)   (34) 

Purchased and written options

 Mortgage banking revenue    82   102      199   315 

Receive fixed/pay floating swaps

 Mortgage banking revenue    28   (134)      176   268 

Pay fixed/receive floating swaps

 Mortgage banking revenue    (19)   113      (130)   111 

Foreign exchange forward contracts

 Commercial products revenue    (13)   9      (50)   (46) 

Equity contracts

 Compensation expense    –   1      –   – 

Credit contracts

 Other noninterest income    –   1      1   – 

Other

 Other noninterest income    –   –      (1)   (38) 

Customer-Related Positions

          

Interest rate contracts

          

Receive fixed/pay floating swaps

 Other noninterest income    221   (397)      (352)   1,326 

Pay fixed/receive floating swaps

 Other noninterest income    (190)   417      412   (1,289) 

Purchased and written options

 Other noninterest income    (18)   (4)      (26)   (3) 

Futures

 Other noninterest income    1   (4)      (1)   3 

Foreign exchange rate contracts

          

Forwards, spots and swaps

 Commercial products revenue    23   21      69   61 

Purchased and written options

 Commercial products revenue     1   1        2   3 

(a)Gains (Losses) on items hedged by interest rate contracts included in noninterest income (expense), were $6 million and $31 million for the three months ended September 30, 2017 and 2016, respectively, and $2 million and $(61) million for the nine months ended September 30, 2017 and 2016, respectively. The ineffective portion was immaterial for the three and nine months ended September 30, 2017 and 2016.

   
Location of Gains (Losses)
Recognized in Earnings
   Three Months
Ended September 30		       Nine Months
Ended September 30		 
(Dollars in Millions)    2021    2020         2021    2020 
Asset and Liability Management Positions
                           
Other economic hedges
                           
Interest rate contracts
                           
Futures and forwards
   Mortgage banking revenue/
other noninterest income
 		  $101  $46       $432  $53 
Purchased and written options
   Mortgage banking revenue    171   428        436   1,173 
Swaps
   Mortgage banking revenue    (39)   (51)        (236)   724 
Foreign exchange forward contracts
   Other noninterest income    9   (2)        (1)   9 
Equity contracts
   Compensation expense    1   3        6   — 
Other
   Other noninterest income    2   (69)        3   (70) 
Customer-Related Positions
                           
Interest rate contracts
                           
Swaps
   Commercial products revenue    26   59        78   103 
Purchased and written options
   Commercial products revenue    (1)   (14)        (4)   3 
Futures
   Commercial products revenue    —   —        —   (18) 
Foreign exchange rate contracts
                           
Forwards, spots and swaps
   Commercial products revenue    23   20        69   54 
Purchased and written options
   Commercial products revenue    1   1        1   1 
Credit contracts
   Commercial products revenue    (1)   (10)        (3)   (15) 
Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk using a credit valuation adjustment and includes it within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into derivative positions that are centrally cleared through clearinghouses, by entering into master netting arrangements and, where possible, by requiring collateral arrangements. A master netting arrangement allows two counterparties, who have multiple derivative contracts with each other, the ability to net settle amounts under all contracts, including any related collateral, through a single payment and in a single currency. Collateral arrangements generally require the counterparty to deliver collateral (typically cash or U.S. Treasury and agency securities) equal to the Company’s net derivative receivable, subject to minimum transfer and credit rating requirements.

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U.S. Bancorp
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The Company’s collateral arrangements are predominately bilateral and, therefore, contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on net liability thresholds and may be contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral arrangements, the counterparties to the derivatives could request immediate additional collateral coverage up to and including full collateral coverage for derivatives in a net liability position. The aggregate fair value of all derivatives under collateral arrangements that were in a net liability position at September 30, 2017,2021, was $685$874 million. At September 30, 2017,2021, the Company had $663$589 million of cash posted as collateral against this net liability position.

Note 1314
 Netting Arrangements for Certain Financial Instruments and Securities Financing Activities

The Company’s derivative portfolio consists of bilateral
over-the-counter
trades, certain interest rate derivatives and credit contracts required to be centrally cleared through clearinghouses per current regulations, and exchange-traded positions which may include U.S. Treasury and Eurodollar futures or options on U.S. Treasury futures. Of the Company’s $355.4$737.2 billion total notional amount of derivative positions at September 30, 2017, $187.32021, $384.1 billion related to bilateral
over-the-counter
trades, $163.0$331.5 billion related to those centrally cleared through clearinghouses and $5.1$21.6 billion related to those that were exchange-traded. Irrespective of how derivatives are traded, theThe Company’s derivative contracts typically include offsetting rights (referred to as netting arrangements), and depending on expected volume, credit risk, and counterparty preference, collateral maintenance may be required. For all derivatives under collateral support arrangements, fair value is determined daily and, depending on the collateral maintenance

U.S. Bancorp61

requirements, the Company and a counterparty may receive or deliver collateral, based upon the net fair value of all derivative positions between the Company and the counterparty. Collateral is typically cash, but securities may be allowed under collateral arrangements with certain counterparties. Receivables and payables related to cash collateral are included in other assets and other liabilities on the Consolidated Balance Sheet, along with the related derivative asset and liability fair values. Any securities pledged to counterparties as collateral remain on the Consolidated Balance Sheet. Securities received from counterparties as collateral are not recognized on the Consolidated Balance Sheet, unless the counterparty defaults. In general, securities used as collateral can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Refer to Note 1213 for further discussion of the Company’s derivatives, including collateral arrangements.

As part of the Company’s treasury and broker-dealer operations, the Company executes transactions that are treated as securities sold under agreements to repurchase or securities purchased under agreements to resell, both of which are accounted for as collateralized financings. Securities sold under agreements to repurchase include repurchase agreements and securities loaned transactions. Securities purchased under agreements to resell include reverse repurchase agreements and securities borrowed transactions. For securities sold under agreements to repurchase, the Company records a liability for the cash received, which is included in short-term borrowings on the Consolidated Balance Sheet. For securities purchased under agreements to resell, the Company records a receivable for the cash paid, which is included in other assets on the Consolidated Balance Sheet.

Securities transferred to counterparties under repurchase agreements and securities loaned transactions continue to be recognized on the Consolidated Balance Sheet, are measured at fair value, and are included in investment securities or other assets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Consolidated Balance Sheet unless the counterparty defaults. The securities transferred under repurchase and reverse repurchase transactions typically are U.S. Treasury and agency securities, or residential agency mortgage-backed securities or corporate debt securities. The securities loaned or borrowed typically are corporate debt securities traded by the Company’s broker-dealer.broker-dealer subsidiary. In general, the securities transferred can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Repurchase/reverse repurchase and securities loaned/borrowed transactions expose the Company to counterparty risk. The Company manages this risk by performing assessments, independent of business line managers, and establishing concentration limits on each counterparty. Additionally, these transactions include collateral arrangements that require the fair values of the underlying securities to be determined daily, resulting in cash being obtained or refunded to counterparties to maintain specified collateral levels.

U.S. Bancorp
63
Table of Contents
The following table summarizes the maturities by category of collateral pledged for repurchase agreements and securities loaned transactions:

(Dollars in Millions) Overnight and
Continuous		   Less Than
30 Days		   Total 

September 30, 2017

     

Repurchase agreements

     

U.S. Treasury and agencies

 $91   $–   $91 

Residential agency mortgage-backed securities

  622    45    667 

Total repurchase agreements

  713    45    758 

Securities loaned

     

Corporate debt securities

  359    –    359 

Total securities loaned

  359    –    359 

Gross amount of recognized liabilities

 $1,072   $45   $1,117 

December 31, 2016

     

Repurchase agreements

     

U.S. Treasury and agencies

 $60   $–   $60 

Residential agency mortgage-backed securities

  681    30    711 

Corporate debt securities

  30    –    30 

Total repurchase agreements

  771    30    801 

Securities loaned

     

Corporate debt securities

  223    –    223 

Total securities loaned

  223    –    223 

Gross amount of recognized liabilities

 $994   $30   $1,024 

62U.S. Bancorp

(Dollars in Millions) 
Overnight and
Continuous
   
Less Than
30 Days
   
30-89
Days
   
Greater Than
90 Days
   Total 
      
September 30, 2021
                        
Repurchase agreements
                        
U.S. Treasury and agencies
 
$
568
 
  
$
–
 
  
$
–
 
  
$
–
 
  
$
568
 
Residential agency mortgage-backed securities
 
 
838
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
838
 
Corporate debt securities
 
 
692
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
692
 
Total repurchase agreements
 
 
2,098
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
2,098
 
Securities loaned
                        
Corporate debt securities
 
 
166
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
166
 
Total securities loaned
 
 
166
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
166
 
Gross amount of recognized liabilities
 
$
2,264
 
  
$
–
 
  
$
–
 
  
$
–
 
  
$
2,264
 
December 31, 2020
                        
Repurchase agreements
                        
U.S. Treasury and agencies
 
$
472
 
  
$
–
 
  
$
–
 
  
$
–
 
  
$
472
 
Residential agency mortgage-backed securities
 
 
398
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
398
 
Corporate debt securities
 
 
560
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
560
 
Total repurchase agreements
 
 
1,430
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1,430
 
Securities loaned
                        
Corporate debt securities
 
 
218
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
218
 
Total securities loaned
 
 
218
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
218
 
Gross amount of recognized liabilities
 
$
1,648
 
  
$
–
 
  
$
–
 
  
$
–
 
  
$
1,648
 
The Company executes its derivative, repurchase/reverse repurchase and securities loaned/borrowed transactions under the respective industry standard agreements. These agreements include master netting arrangements that allow for multiple contracts executed with the same counterparty to be viewed as a single arrangement. This allows for net settlement of a single amount on a daily basis. In the event of default, the master netting arrangement provides for
close-out
netting, which allows all of these positions with the defaulting counterparty to be terminated and net settled with a single payment amount.

The Company has elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of the majority of its derivative counterparties, excluding certain centrally cleared derivative contracts due to current uncertainty about the legal enforceability of netting arrangements.counterparties. The netting occurs at the counterparty level, and includes all assets and liabilities related to the derivative contracts, including those associated with cash collateral received or delivered. The Company has not elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of repurchase/reverse repurchase and securities loaned/borrowed transactions.

The following tables provide information on the Company’s netting adjustments, and items not offset on the Consolidated Balance Sheet but available for offset in the event of default:

  

Gross

Recognized
Assets

   

Gross Amounts
Offset on the

Consolidated
Balance Sheet (a)

  

Net Amounts
Presented on the

Consolidated
Balance Sheet

   Gross Amounts Not Offset on the
Consolidated Balance Sheet		    
(Dollars in Millions)      Financial
Instruments (b)		  Collateral
Received (c)		  Net Amount 

September 30, 2017

                          

Derivative assets (d)

 $1,844   $(727)  $1,117   $(69)  $(7)  $1,041 

Reverse repurchase agreements

  56    –   56    (42)   (14)   – 

Securities borrowed

  1,105    –   1,105    –   (1,072)   33 

Total

 $3,005   $(727)  $2,278   $(111)  $(1,093)  $1,074 

December 31, 2016

        

Derivative assets (d)

 $2,122   $(984)  $1,138   $(78)  $(10)  $1,050 

Reverse repurchase agreements

  77    –   77    (60)   (17)   – 

Securities borrowed

  944    –   944    (10)   (909)   25 

Total

 $3,143   $(984)  $2,159   $(148)  $(936)  $1,075 

(Dollars in Millions) 
Gross
Recognized
Assets
   
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
  
Net Amounts
Presented on the
Consolidated
Balance Sheet
   Gross Amounts Not Offset on the
Consolidated Balance Sheet		  Net Amount 
  Financial
Instruments (b)		  Collateral
Received (c)		 
September 30, 2021
                          
Derivative assets (d)
 
$
4,275
 
  
$
(1,858
) 
 
$
2,417
 
  
$
(104
) 
 
$
(141
) 
 
$
2,172
 
Reverse repurchase agreements
 
 
418
 
  
 
–
 
 
 
418
 
  
 
(317
) 
 
 
(101
) 
 
 
–
 
Securities borrowed
 
 
1,978
 
  
 
–
 
 
 
1,978
 
  
 
–
 
 
 
(1,925
) 
 
 
53
 
Total
 
$
6,671
 
  
$
(1,858
) 
 
$
4,813
 
  
$
(421
) 
 
$
(2,167
) 
 
$
2,225
 
December 31, 2020
                          
Derivative assets (d)
 
$
5,744
 
  
$
(1,874
) 
 
$
3,870
 
  
$
(109
) 
 
$
(287
) 
 
$
3,474
 
Reverse repurchase agreements
 
 
377
 
  
 
–
 
 
 
377
 
  
 
(262
) 
 
 
(115
) 
 
 
–
 
Securities borrowed
 
 
1,716
 
  
 
–
 
 
 
1,716
 
  
 
–
 
 
 
(1,670
) 
 
 
46
 
Total
 
$
7,837
 
  
$
(1,874
) 
 
$
5,963
 
  
$
(371
) 
 
$
(2,072
) 
 
$
3,520
 
(a)
Includes $78$750 million and $210$898 million of cash collateral related payables that were netted against derivative assets at September 30, 20172021 and December 31, 2016,2020, respectively.
(b)
For derivative assets this includes any derivative liability fair values that could be offset in the event of counterparty default; for reverse repurchase agreements this includes any repurchase agreement payables that could be offset in the event of counterparty default; for securities borrowed this includes any securities loaned payables that could be offset in the event of counterparty default.
(c)
Includes the fair value of securities received by the Company from the counterparty. These securities are not included on the Consolidated Balance Sheet unless the counterparty defaults.
(d)
Excludes $563$93 million and $848$257 million at September 30, 20172021 and December 31, 2016,2020, respectively, of derivative assets not subject to netting arrangements or where uncertainty exists regarding legal enforceability of the netting arrangements.

  

Gross

Recognized
Liabilities

   

Gross Amounts
Offset on the

Consolidated
Balance Sheet (a)

  

Net Amounts
Presented on the

Consolidated
Balance Sheet

   Gross Amounts Not Offset on the
Consolidated Balance Sheet		    
(Dollars in Millions)      Financial
Instruments (b)		  Collateral
Pledged (c)		  Net Amount 

September 30, 2017

                          

Derivative liabilities (d)

 $1,581   $(1,182)  $399   $(69)  $–  $330 

Repurchase agreements

  758    –   758    (42)   (716)   – 

Securities loaned

  359    –   359    –   (354)   5 

Total

 $2,698   $(1,182)  $1,516   $(111)  $(1,070)  $335 

December 31, 2016

        

Derivative liabilities (d)

 $1,951   $(1,185)  $766   $(78)  $–  $688 

Repurchase agreements

  801    –   801    (60)   (741)   – 

Securities loaned

  223    –   223    (10)   (211)   2 

Total

 $2,975   $(1,185)  $1,790   $(148)  $(952)  $690 

(a)
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U.S. Bancorp
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(Dollars in Millions) 
Gross
Recognized
Liabilities
   
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
  
Net Amounts
Presented on the
Consolidated
Balance Sheet
   Gross Amounts Not Offset on the
Consolidated Balance Sheet		  Net Amount 
  
Financial
Instruments (b)
  
Collateral
Pledged (c)
 
September 30, 2021
                          
Derivative liabilities (d)
 
$
2,809
 
  
$
(1,697
) 
 
$
1,112
 
  
$
(104
) 
 
$
–
 
 
$
1,008
 
Repurchase agreements
 
 
2,098
 
  
 
–
 
 
 
2,098
 
  
 
(317
) 
 
 
(1,779
) 
 
 
2
 
Securities loaned
 
 
166
 
  
 
–
 
 
 
166
 
  
 
–
 
 
 
(164
) 
 
 
2
 
Total
 
$
5,073
 
  
$
(1,697
) 
 
$
3,376
 
  
$
(421
) 
 
$
(1,943
) 
 
$
1,012
 
December 31, 2020
                          
Derivative liabilities (d)
 
$
3,419
 
  
$
(2,312
) 
 
$
1,107
 
  
$
(109
) 
 
$
–
 
 
$
998
 
Repurchase agreements
 
 
1,430
 
  
 
–
 
 
 
1,430
 
  
 
(262
) 
 
 
(1,168
) 
 
 
–
 
Securities loaned
 
 
218
 
  
 
–
 
 
 
218
 
  
 
–
 
 
 
(215
) 
 
 
3
 
Total
 
$
5,067
 
  
$
(2,312
) 
 
$
2,755
 
  
$
(371
) 
 
$
(1,383
) 
 
$
1,001
 
(a)
Includes $533$589 million and $411 million$1.3 billion of cash collateral related receivables that were netted against derivative liabilities at September 30, 20172021 and December 31, 2016,2020, respectively.
(b)
For derivative liabilities this includes any derivative asset fair values that could be offset in the event of counterparty default; for repurchase agreements this includes any reverse repurchase agreement receivables that could be offset in the event of counterparty default; for securities loaned this includes any securities borrowed receivables that could be offset in the event of counterparty default.
(c)
Includes the fair value of securities pledged by the Company to the counterparty. These securities are included on the Consolidated Balance Sheet unless the Company defaults.
(d)
Excludes $768$173 million and $908$183 million at September 30, 20172021 and December 31, 2016,2020, respectively, of derivative liabilities not subject to netting arrangements or where uncertainty exists regarding legal enforceability of the netting arrangements.

U.S. Bancorp63

Note 1415
    Fair Values of Assets and Liabilities

The Company uses fair value measurements for the initial recording of certain assets and liabilities, periodic remeasurement of certain assets and liabilities, and disclosures. Derivatives, trading and
available-for-sale
investment securities, MSRs and substantially all MLHFS are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of
lower-of-cost-or-fair
value accounting or impairment write-downs of individual assets.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance.

The Company groups its assets and liabilities measured at fair value into a three-level hierarchy for valuation techniques used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:

Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury securities, as well as exchange-traded instruments.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are typically valued using third party pricing services; derivative contracts and other assets and liabilities, including securities, whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes MSRs certain debt securities and certain derivative contracts.

When the Company changes its valuation inputs for measuring financial assets and financial liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used.

Valuation Methodologies
The Company recognizes these transfers at the end of the reporting period in which the transfers occur. During the nine months ended September 30, 2017 and 2016, there were no transfers of financial assets or financial liabilities between the hierarchy levels.

The Company has processes and controls in place to increase the reliability of estimates it makes in determining fair value measurements. Items quoted on an exchange are verified to the quoted price. Items provided by a third party pricing service are subject to price verification procedures as described in more detail in the specific valuation discussions below. For fair value measurements modeled internally, the Company’s valuation models are subject to the Company’s Model Risk Governance Policy and Program, as maintained by the Company’s risk management department. The purpose of model validation is to assess the accuracy of the models’ input, processing, and reporting components. All models are required to be independently reviewed and approved prior to being placed in use, and are subject to formal change control procedures. Under the Company’s Model Risk Governance Policy, models are required to be reviewed at least annually to ensure they are operating as intended. Inputs into the models are market observable inputs whenever available. When market observable inputs are not available, the inputs are developed based upon analysis of historical experience and evaluation of other relevant market data. Significant unobservable model inputs are subject to review by senior management in corporate functions, who are independent from the modeling. Significant unobservable model inputs are also compared to actual results, typically on a quarterly basis. Significant Level 3 fair value measurements are also subject to corporate-level review and are benchmarked to market transactions or other market data, when available. Additional discussion of processes and controls are provided in the valuation methodologies section that follows.

64U.S. Bancorp

The following section describes the valuation methodologies used by the Company to measure financial assets and liabilities at fair value and for estimating fair value for financial instruments not recorded at fair value as required under disclosure guidance related to the fair value of financial instruments.are described below. In addition, the following section includes an indication of the level of the fair value hierarchy in which the

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Table of Contents
assets or liabilities are classified. Where appropriate, the description includesdescriptions include information about the valuation models and key inputs to those models. During the nine months ended September 30, 20172021 and 2016,2020, there were no significant changes to the valuation techniques used by the Company to measure fair value.

Cash and Due From Banks The carrying value of cash and due from banks approximate fair value and are classified within Level 1. Fair value is provided for disclosure purposes only.

Federal Funds Sold and Securities Purchased Under Resale Agreements The carrying value of federal funds sold and securities purchased under resale agreements approximate fair value because of the relatively short time between the origination of the instrument and its expected realization and are classified within Level 2. Fair value is provided for disclosure purposes only.

Available-For-Sale
Investment Securities
 When quoted market prices for identical securities are available in an active market, these prices are used to determine fair value and these securities are classified within Level 1 of the fair value hierarchy. Level 1 investment securities include U.S. Treasury and exchange-traded securities.

For other securities, quoted market prices may not be readily available for the specific securities. When possible, the Company determines fair value based on market observable information, including quoted market prices for similar securities, inactive transaction prices, and broker quotes. These securities are classified within Level 2 of the fair value hierarchy. Level 2 valuations are generally provided by a third party pricing service. The Company reviews the valuation methodologies utilized by the pricing service and, on a quarterly basis, reviews the security level prices provided by the pricing service against management’s expectation of fair value, based on changes in various benchmarks and market knowledge from recent trading activity. Additionally, each quarter, the Company validates the fair value provided by the pricing services by comparing them to recent observable market trades (where available), broker provided quotes, or other independent secondary pricing sources. Prices obtained from the pricing service are adjusted if they are found to be inconsistent with relevant market data. Level 2 investment securities are predominantly agency mortgage-backed securities, certain other asset-backed securities, obligations of state and political subdivisions and agency debt securities.

The fair value of securities for which there are no market trades, or where trading is inactive as compared to normal market activity, are classified within Level 3 of the fair value hierarchy. The Company determines the fair value of these securities by using a discounted cash flow methodology and incorporating observable market information, where available. These valuations are modeled by a unit within the Company’s treasury department. The valuations use assumptions regarding housing prices, interest rates and borrower performance. Inputs are refined and updated at least quarterly to reflect market developments and actual performance. The primary valuation drivers of these securities are the prepayment rates, default rates and default severities associated with the underlying collateral, as well as the discount rate used to calculate the present value of the projected cash flows. Level 3 fair values, including the assumptions used, are subject to review by senior management in corporate functions, who are independent from the modeling. The fair value measurements are also compared to fair values provided by third party pricing services and broker provided quotes, where available. Securities classified within Level 3 includenon-agency mortgage-backed securities,non-agency commercial mortgage-backed securities, certain asset-backed securities and certain corporate debt securities. At September 30, 2017, the Company did not have anyavailable-for-sale investment securities classified within Level 3.

Mortgage Loans Held For Sale
 MLHFS measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by comparison to instruments with similar collateral and risk profiles. MLHFS are classified within Level 2. The valuations of MLHFS are developed by the mortgage banking division and are subject to independent price verification procedures by corporate functions. Included in mortgage banking revenue were
was
a net gainsloss of $28$18 million and $27a net gain of $97 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and a net gainsloss of $69$135 million and $154a net gain of $271 million for the nine months ended September 30, 20172021 and 2016,2020, respectively, from the changes to fair value of these MLHFS under fair value option accounting guidance. Changes in fair value due to instrument specific credit risk were immaterial. Interest income for MLHFS is measured based on contractual interest rates and reported as interest income on the Consolidated

U.S. Bancorp65

Statement of Income. Electing to measure MLHFS at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.

Loans The loan portfolio includes adjustable and fixed-rate loans, the fair value of which is estimated using discounted cash flow analyses and other valuation techniques. The expected cash flows of loans consider historical prepayment experiences and estimated credit losses and are discounted using current rates offered to borrowers with similar credit characteristics. Generally, loan fair values reflect Level 3 information. Fair value is provided for disclosure purposes only, with the exception of impaired collateral-based loans that are measured at fair value on anon-recurring basis utilizing the underlying collateral fair value.

Mortgage Servicing Rights
 MSRs are valued using a discounted cash flow methodology, and are classified within Level 3. The Company determines fair value of the MSRs by projecting future cash flows for different interest rate scenarios using prepayment rates and other assumptions, and discounts these cash flows using a risk adjusted rate based on option adjusted spread levels. The MSR valuations, as well as the assumptions used, are developed by the mortgage banking division and are subject to review by senior management in corporate functions, who are independent from the modeling. The MSR valuations and assumptions are validated through comparison to trade information when available, publicly available data and industry surveys and are also compared to independent third party valuations each quarter. Risks inherent in MSR valuation include higher than expected prepayment rates and/or delayed receipt of cash flows. There is minimal observable market activity for MSRs on comparable portfolios and, therefore, the determination of fair value requires significant management judgment. Refer to Note 67 for further information on MSR valuation assumptions.

Derivatives
The majority of derivatives held by the Company are executed
over-the-counter
or centrally cleared through clearinghouses and are valued using market standard cash flowBlack-Derman-Toy and Monte Carlo valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. The inputs into these models are subject to independent review by corporate functions. Additionally, the Company’s valuations are compared to counterparty valuations, where available. All derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Company’s evaluation of credit risk as well asincluding external assessments of credit risk, where available.risk. The Company monitors and manages its nonperformance risk by considering its ability to net derivative positions under master netting arrangements, as well as collateral received or provided under collateral arrangements. Accordingly, the Company has elected to measure the fair value of derivatives, at a counterparty level, on a net basis. The majority of the derivatives are classified within Level 2 of the fair value hierarchy, as the significant inputs to the models, including nonperformance risk, are observable. However, certain derivative transactions are with counterparties where risk of nonperformance cannot be observed in the market and, therefore, the credit valuation adjustments result in these derivatives being classified within Level 3 of the fair value hierarchy. The credit valuation adjustments for nonperformance risk are determined by the Company’s treasury department using credit assumptions provided by the risk management department. The credit assumptions are compared to actual results quarterly and are recalibrated as appropriate.

The Company also has other derivative contracts that are created through its operations, including commitments to purchase and originate mortgage loans and swap agreements executed in conjunction with the sale of a portion of its Class B common and preferred shares of Visa Inc. (the “Visa swaps”). The mortgage loan commitments are valued by pricing models that include market observable and unobservable inputs, which result in the commitments being classified within Level 3 of the fair value hierarchy. The unobservable inputs include assumptions about the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value, both of which are developed by the Company’s mortgage banking division. The closed loan percentages for the mortgage loan commitments are monitored on anon-going basis, as these percentages are also used for the Company’s economic hedging activities. The inherent MSR value for the commitments are generated by the same models used for the Company’s MSRs and thus are subject to the same processes and controls as described for the MSRs above.value. The Visa swaps require payments by either the Company or the purchaser of the Visa Inc. Class B common and preferred shares when there are changes in the conversion rate of the Visa Inc. Class B common and preferred shares to Visa Inc. Class A common and preferred shares, respectively, as well as quarterly payments to the purchaser based on specified terms of the agreements. Management reviews and updates the Visa swaps fair value in conjunction with its
66
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review of Visa Inc. related litigation contingencies, and the associated escrow funding. The fair value of the Visa swaps are calculated by the Company’s corporate development department using a discounted cash flow methodology which includes unobservable inputs about the timing and settlement

66U.S. Bancorp

amounts related to the resolution of certain Visa Inc. related litigation. The expected litigation resolution impacts the Visa Inc. Class B common share to Visa Inc. Class A common share conversion rate, as well as the ultimate termination date for the Visa swaps. Accordingly, the Visa swaps are classified within Level 3. Refer to Note 1516 for further information on the Visa Inc. restructuring and related card association litigation.

Other Financial InstrumentsOther financial instruments include cost method equity investments and certain community development andtax-advantaged related assets and liabilities. The majority of the Company’s cost method equity investments are in Federal Home Loan Bank and Federal Reserve Bank stock, for which the carrying amounts approximate fair value and are classified within Level 2. Investments in other equity and limited partnership funds are estimated using fund provided net asset values. These equity investments are classified within Level 3. The community development andtax-advantaged related asset balances primarily represent the underlying assets of consolidated community development andtax-advantaged entities. The community development andtax-advantaged related liabilities represent the underlying liabilities of the consolidated entities (included in long-term debt) and liabilities related to other third party interests (included in other liabilities). The carrying value of the community development andtax-advantaged related asset and other liability balances are a reasonable estimate of fair value and are classified within Level 3. Refer to Note 5 for further information on community development andtax-advantaged related assets and liabilities. Fair value is provided for disclosure purposes only.

Deposit Liabilities The fair value of demand deposits, savings accounts and certain money market deposits is equal to the amount payable on demand. The fair value of fixed-rate certificates of deposit is estimated by discounting the contractual cash flow using current market rates. Deposit liabilities are classified within Level 2. Fair value is provided for disclosure purposes only.

Short-term Borrowings Federal funds purchased, securities sold under agreements to repurchase, commercial paper and other short-term funds borrowed have floating rates or short-term maturities. The fair value of short-term borrowings is determined by discounting contractual cash flows using current market rates. Short-term borrowings are classified within Level 2. Included in short-term borrowings is the Company’s obligation on securities sold short, which is required to be accounted for at fair value per applicable accounting guidance. Fair value for other short-term borrowings is provided for disclosure purposes only.

Long-term Debt The fair value for most long-term debt is determined by discounting contractual cash flows using current market rates. Long-term debt is classified within Level 2. Fair value is provided for disclosure purposes only.

Loan Commitments, Letters of Credit and Guarantees The fair value of commitments, letters of credit and guarantees represents the estimated costs to terminate or otherwise settle the obligations with a third party. Other loan commitments, letters of credit and guarantees are not actively traded, and the Company estimates their fair value based on the related amount of unamortized deferred commitment fees adjusted for the probable losses for these arrangements. These arrangements are classified within Level 3. Fair value is provided for disclosure purposes only.

Significant Unobservable Inputs of Level 3 Assets and Liabilities

The following section provides information onto facilitate an understanding of the significant inputs used by the Company to determineuncertainty in the fair value measurements offor the Company’s Level 3 assets and liabilities recorded at fair value on the Consolidated Balance Sheet. In addition, the followingThis section includes a discussiondescription of the sensitivity ofsignificant inputs used by the fair value measurements to changes in the significant inputsCompany and a description of any interrelationships between these inputs for Level 3 assets and liabilities recorded at fair value on a recurring basis.inputs. The discussion below excludes nonrecurring fair value measurements of collateral value used for impairment measures for loans and OREO. These valuations utilize third party appraisal or broker price opinions, and are classified as Level 3 due to the significant judgment involved.

Available-For-Sale Investment SecuritiesThe significant unobservable inputs used in the fair value measurement of the Company’s modeled Level 3available-for-sale investment securities are prepayment rates, probability of default and loss severities associated with the underlying collateral, as well as the discount margin used to calculate the present value of the projected cash flows. Increases in prepayment rates for Level 3 securities will typically result in higher fair values, as increased prepayment rates accelerate the receipt of expected cash flows and reduce exposure to credit losses. Increases in the probability of default and loss severities will result in lower fair values, as these increases reduce expected cash flows. Discount margin is the Company’s estimate of the current market spread above the respective benchmark rate. Higher discount margin will result in lower fair values, as it reduces the present value of the expected cash flows.

U.S. Bancorp67

Prepayment rates generally move in the opposite direction of market interest rates. In the current environment, an increase in the probability of default will generally be accompanied with an increase in loss severity, as both are impacted by underlying collateral values. Discount margins are influenced by market expectations about the security’s collateral performance and, therefore, may directionally move with probability and severity of default; however, discount margins are also impacted by broader market forces, such as competing investment yields, sector liquidity, economic news, and other macroeconomic factors. At September 30, 2017, the Company did not have anyavailable-for-sale investment securities classified within Level 3.

Mortgage Servicing Rights
The significant unobservable inputs used in the fair value measurement of the Company’s MSRs are expected prepayments and the option adjusted spread that is added to the risk-free rate to discount projected cash flows. Significant increases in either of these inputs in isolation would resulthave resulted in a significantly lower fair value measurement. Significant decreases in either of these inputs in isolation would resulthave resulted in a significantly higher fair value measurement. There is no direct interrelationship between prepayments and option adjusted spread. Prepayment rates generally move in the opposite direction of market interest rates. Option adjusted spread is generally impacted by changes in market return requirements.

The following table shows the significant valuation assumption ranges for MSRs at September 30, 2017:

   Minimum  Maximum  Average 

Expected prepayment

  6%   18%   10% 

Option adjusted spread

  7   10   8 

2021:

   Minimum  Maximum  Weighted-
Average (a)		 
Expected prepayment
  3%   13%   10% 
Option adjusted spread
  6   11   7 
(a)
Determined based on the relative fair value of the related mortgage loans serviced.
Derivatives
The Company has two distinct Level 3 derivative portfolios: (i) the Company’s commitments to purchase and originate mortgage loans that meet the requirements of a derivative and (ii) the Company’s asset/liability and customer-related derivatives that are Level 3 due to unobservable inputs related to measurement of risk of nonperformance by the counterparty. In addition, the Company’s Visa swaps are classified within Level 3.

The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to purchase and originate mortgage loans are the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value. A significant increase in the rate of loans that close would resulthave resulted in a larger derivative asset or liability. A significant increase in the inherent MSR value would resulthave resulted in an increase in the derivative asset or a reduction in the derivative liability. Expected loan close rates and the inherent MSR values are directly impacted by changes in market rates and will generally move in the same direction as interest rates.

The following table shows the significant valuation assumption ranges for the Company’s derivative commitments to purchase and originate mortgage loans at September 30, 2017:

   Minimum  Maximum  Average 

Expected loan close rate

  5%   100%   79% 

Inherent MSR value (basis points per loan)

  (38)   179   117 

2021:

   Minimum  Maximum  Weighted-
Average (a)		 
Expected loan close rate
  1%   100%   76% 
Inherent MSR value (basis points per loan)
  47   187   121 
(a)
Determined based on the relative fair value of the related mortgage loans.
The significant unobservable input used in the fair value measurement of certain of the Company’s asset/liability and customer-related derivatives is the credit valuation adjustment related to the risk of counterparty nonperformance. A significant increase in the credit valuation adjustment would resulthave resulted in a lower fair value measurement. A significant decrease in the credit valuation adjustment would resulthave resulted in a higher fair value measurement. The credit valuation adjustment is impacted by changes in market rates, volatility, market implied credit spreads, and loss recovery rates, as well as the Company’s assessment of the counterparty’s credit position. At September 30, 2017,2021, the minimum, maximum and averageweighted-average credit valuation adjustment as a percentage of the derivative contractnet fair value of the counterparty’s derivative contracts prior to adjustment was 0 percent, 9597 percent and 32 percent, respectively.

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The significant unobservable inputs used in the fair value measurement of the Visa swaps are management’s estimate of the probability of certain litigation scenarios occurring, and the timing of the resolution of the related litigation loss estimates in excess, or shortfall, of the Company’s proportional share of escrow funds. An increase in the loss estimate or a delay in the resolution of the related litigation would resulthave resulted in an increase in the derivative liability. A decrease in the loss estimate or an acceleration of the resolution of the related litigation would resulthave resulted in a decrease in the derivative liability.

68U.S. Bancorp

The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:

(Dollars in Millions) Level 1   Level 2   Level 3   Netting  Total 

September 30, 2017

        

Available-for-sale securities

        

U.S. Treasury and agencies

 $21,321   $747   $–   $–  $22,068 

Mortgage-backed securities

        

Residential

        

Agency

  –    39,553    –    –   39,553 

Commercial

        

Agency

  –    8    –    –   8 

Asset-backed securities

        

Other

  –    425    –    –   425 

Obligations of state and political subdivisions

  –    5,681    –    –   5,681 

Other investments

  37    –    –    –   37 

Totalavailable-for-sale

  21,358    46,414    –    –   67,772 

Mortgage loans held for sale

  –    3,754    –    –   3,754 

Mortgage servicing rights

  –    –    2,598    –   2,598 

Derivative assets

  1    1,836    570    (727)   1,680 

Other assets

  258    1,302    –    –   1,560 

Total

 $21,617   $53,306   $3,168   $(727)  $77,364 

Derivative liabilities

 $–   $2,032   $317   $(1,182)  $1,167 

Short-term borrowings and other liabilities (c)

  138    1,077    –    –   1,215 

Total

 $138   $3,109   $317   $(1,182)  $2,382 

December 31, 2016

        

Available-for-sale securities

        

U.S. Treasury and agencies

 $16,355   $772   $–   $–  $17,127 

Mortgage-backed securities

        

Residential

        

Agency

  –    43,138    –    –   43,138 

Non-agency

        

Prime (a)

  –    –    242    –   242 

Non-prime (b)

  –    –    195    –   195 

Commercial

        

Agency

  –    15    –    –   15 

Asset-backed securities

        

Other

  –    481    2    –   483 

Obligations of state and political subdivisions

  –    5,039    –    –   5,039 

Corporate debt securities

  –    –    9    –   9 

Other investments

  36    –    –    –   36 

Totalavailable-for-sale

  16,391    49,445    448    –   66,284 

Mortgage loans held for sale

  –    4,822    –    –   4,822 

Mortgage servicing rights

  –    –    2,591    –   2,591 

Derivative assets

  –    2,416    554    (984)   1,986 

Other assets

  183    1,137    –    –   1,320 

Total

 $16,574   $57,820   $3,593   $(984)  $77,003 

Derivative liabilities

 $7   $2,469   $383   $(1,185)  $1,674 

Short-term borrowings and other liabilities (c)

  142    938    –    –   1,080 

Total

 $149   $3,407   $383   $(1,185)  $2,754 

(Dollars in Millions) Level 1   Level 2   Level 3   Netting  Total 
September 30, 2021
                       
Available-for-sale
securities
                       
U.S. Treasury and agencies
 $14,344   $4,147   $–   $–  $18,491 
Mortgage-backed securities
                       
Residential agency
  –    112,796    –    –   112,796 
Commercial agency
  –    7,686    –    –   7,686 
Asset-backed securities
  –    61    8    –   69 
Obligations of state and political subdivisions
  –    10,326    1    –   10,327 
Other
  –    7    –    –   7 
Total
available-for-sale
  14,344    135,023    9    –   149,376 
Mortgage loans held for sale
  –    6,176    –    –   6,176 
Mortgage servicing rights
  –    –    2,910    –   2,910 
Derivative assets
  6    2,691    1,671    (1,858)   2,510 
Other assets
  322    2,118    –    –   2,440 
Total
 $14,672   $146,008   $4,590   $(1,858)  $163,412 
Derivative liabilities
 $–   $2,429   $553   $(1,697)  $1,285 
Short-term borrowings and other liabilities (a)
  205    1,893    –    –   2,098 
Total
 $205   $4,322   $553   $(1,697)  $3,383 
December 31, 2020
                       
Available-for-sale
securities
                       
U.S. Treasury and agencies
 $19,251   $3,140   $–   $–  $22,391 
Mortgage-backed securities
                       
Residential agency
  –    99,968    –    –   99,968 
Commercial agency
  –    5,406    –    –   5,406 
Asset-backed securities
  –    198    7    –   205 
Obligations of state and political subdivisions
  –    8,860    1    –   8,861 
Other
  –    9    –    –   9 
Total
available-for-sale
  19,251    117,581    8    –   136,840 
Mortgage loans held for sale
  –    8,524    –    –   8,524 
Mortgage servicing rights
  –    –    2,210    –   2,210 
Derivative assets
  4    3,235    2,762    (1,874)   4,127 
Other assets
  302    1,601    –    –   1,903 
Total
 $19,557   $130,941   $4,980   $(1,874)  $153,604 
Derivative liabilities
 $–   $3,166   $436   $(2,312)  $1,290 
Short-term borrowings and other liabilities (a)
  85    1,672    –    –   1,757 
Total
 $85   $4,838   $436   $(2,312)  $3,047 
(a)
Note:
Prime securities
Excluded from the table above are those designated as such byequity investments without readily determinable fair values. The Company has elected to carry these investments at historical cost, adjusted for impairment and any changes resulting from observable price changes for identical or similar investments of the issuerissuer. The aggregate carrying amount of these equity investments was $73 million and $85 million at origination. When an issuer designation is unavailable,September 30, 2021 and December 31, 2020, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the Company determines at acquisition date the categorization basedfirst nine months of 2021 and 2020, or on asset pool characteristics (such as weighted-average credit score,loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).a cumulative basis.
(b)
(a)
Includes all securities not meeting the conditions to be designated as prime.
(c)
Primarily represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.

U.S. Bancorp
68
 69U.S. Bancorp

Table of Contents

The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30:

(Dollars in Millions) Beginning
of Period
Balance		  Net Gains
(Losses)
Included in
Net Income		  Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)		  Purchases  Sales  Principal
Payments		  Issuances  Settlements  End
of Period
Balance		  Net Change in
Unrealized
Gains (Losses)
Relating to Assets
and Liabilities
Held at End of Period		 

2017

          

Mortgage servicing rights

 $2,582  $(103) (c)  $–  $4  $–  $–  $115 (f)  $–  $2,598  $(103) (c) 

Net derivative assets and liabilities

  240   111  (d)   –   –   (3)   –   –   (95)   253   41  (g) 

2016

          

Available-for-sale securities

          

Mortgage-backed securities

          

Residentialnon-agency

          

Prime (a)

 $280  $–  $–  $–  $–  $(21)  $–  $–  $259  $– 

Non-prime (b)

  216   –   (1)   –   –   (9)   –   –   206   (1) 

Asset-backed securities

          

Other

  2   –   –   –   –   –   –   –   2   – 

Corporate debt securities

  9   –   –   –   –   –   –   –   9   – 

Totalavailable-for-sale

  507   –   (1) (e)   –   –   (30)   –   –   476   (1) 

Mortgage servicing rights

  2,056   (85) (c)   –   18   –   –   142 (f)   –   2,131   (85) (c) 

Net derivative assets and liabilities

  1,080   84  (h)   –   –   (2)   –   –   (231)   931   16  (i) 

(Dollars in Millions) 
Beginning
of Period
Balance
  
Net Gains
(Losses)
Included in
Net Income
  
Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
  Purchases  Sales  
Principal
Payments
  Issuances  Settlements  
End
of Period
Balance
  
Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Held at End
of Period
 
2021
                                        
Available-for-sale
securities
                                        
Asset-backed securities
 $8  $–  $–  $–  $–  $–  $–  $–  $8  $– 
Obligations of state and political subdivisions
  1   –   –   –   –   –   –   –   1   – 
Total
available-for-sale
  9   –   –   –   –   –   –   –   9   – 
Mortgage servicing rights
  2,713   (96) (a)   –   9   –   –   284  (c)   –   2,910   (96) (a) 
Net derivative assets and liabilities
  1,500   (225) (b)   –   106   (1)   –   –   (262)   1,118   (203) (d) 
           
2020
                                        
Available-for-sale
securities
                                        
Asset-backed securities
 $7  $–  $–  $–  $–  $–  $–  $–  $7  $– 
Obligations of state and political subdivisions
  1   –   –   –   –   –   –   –   1   – 
Total
available-for-sale
  8   –   –   –   –   –   –   –   8   – 
Mortgage servicing rights
  1,840   (192) (a)   –   8   1   –   321  (c)   –   1,978   (192) (a) 
Net derivative assets and liabilities
  2,841   211  (e)   –   152   (1)   –   –   (579)   2,624   228  (f) 
(a)
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics (such as weighted-average credit score,loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
(b)Includes all securities not meeting the conditions to be designated as prime.
(c)
Included in mortgage banking revenue.
(d)
(b)
Approximately $18$208 million, included in other noninterest income$(434) million and $93$1 million included in mortgage banking revenue.revenue, commercial products revenue and other noninterest income, respectively.
(e)
(c)
Included in changes in unrealized gains and losses on securitiesavailable-for-sale.
(f)
Represents MSRs capitalized during the period.
(g)
(d)
Approximately $9$57 million, included in other noninterest income$(261) million and $32$1 million included in mortgage banking revenue.
(h)Approximately $(73) million included inrevenue, commercial products revenue and other noninterest income, respectively.
(e)
Approximately $508 million, $(228) million and $157$(69) million included in mortgage banking revenue.
(i)Approximately $(81) million included inrevenue, commercial products revenue and other noninterest income, respectively.
(f)
Approximately $291 million, $6 million and $97$(69) million included in mortgage banking revenue.revenue, commercial products revenue and other noninterest income, respectively.

70U.S. Bancorp

The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30:

(Dollars in Millions) Beginning
of Period
Balance		  Net Gains
(Losses)
Included in
Net Income		  Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)		  Purchases  Sales  Principal
Payments		  Issuances  Settlements  End
of Period
Balance		  Net Change in
Unrealized
Gains (Losses)
Relating to Assets
and Liabilities
Held at End of Period		 

2017

          

Available-for-sale securities

          

Mortgage-backed securities

          

Residentialnon-agency

          

Prime (a)

 $242  $–  $(2)  $–  $(234)  $(6)  $–  $–  $–  $– 

Non-prime (b)

  195   –   (17)   –   (175)   (3)   –   –   –   – 

Asset-backed securities

          

Other

  2   –   –   –   (2)   –   –   –   –   – 

Corporate debt securities

  9   –   2   –   (11)   –   –   –   –   – 

Totalavailable-for-sale

  448   –  (c)   (17) (f)   –   (422)   (9)   –   –   –   – 

Mortgage servicing rights

  2,591   (322) (d)   –   10   –   –   319  (g)   –   2,598   (322) (d) 

Net derivative assets and liabilities

  171   372  (e)   –   1   (8)   –   –   (283)   253   87  (h) 

2016

          

Available-for-sale securities

          

Mortgage-backed securities

          

Residentialnon-agency

          

Prime (a)

 $318  $(1)  $–  $–  $–  $(58)  $–  $–  $259  $– 

Non-prime (b)

  240   (1)   (4)   –   –   (29)   –   –   206   (4) 

Asset-backed securities

          

Other

  2   –   –   –   –   –   –   –   2   – 

Corporate debt securities

  9   –   –   –   –   –   –   –   9   – 

Totalavailable-for-sale

  569   (2) (c)   (4) (f)   –   –   (87)   –   –   476   (4) 

Mortgage servicing rights

  2,512   (785) (d)   –   32   –   –   372  (g)   –   2,131   (785) (d) 

Net derivative assets and liabilities

  498   1,047  (i)   –   1   (5)   –   –   (610)   931   494  (j) 

(Dollars in Millions) 
Beginning
of Period
Balance
  
Net Gains
(Losses)
Included in
Net Income
  
Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
  Purchases  Sales  
Principal
Payments
  Issuances  Settlements  
End
of Period
Balance
  
Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Held at End
of Period
 
2021
                                        
Available-for-sale
securities
                                        
Asset-backed securities
 $7  $–  $ 1  $–  $–  $–  $–  $–  $8  $1 
Obligations of state and political subdivisions
  1   –   –   –   –   –   –   –   1   – 
Total
available-for-sale
  8   –   1   –   –   –   –   –   9   1 
Mortgage servicing rights
  2,210   (233) (a)   –   36   1   –   896  (c)   –   2,910   (233) (a) 
Net derivative assets and liabilities
  2,326   (604) (b)   –   166   (2)   –   –   (768)   1,118   (761) (d) 
           
2020
                                        
Available-for-sale
securities
                                        
Asset-backed securities
 $8  $–  $–  $–  $–  $(1)  $–  $–  $7  $– 
Obligations of state and political subdivisions
  1   –   –   –   –   –   –   –   1   – 
Total
available-for-sale
  9   –   –   –   –   (1)   –   –   8   – 
Mortgage servicing rights
  2,546   (1,299) (a)   –   16   3   –   712  (c)   –   1,978   (1,299) (a) 
Net derivative assets and liabilities
  810   2,685  (e)   –   247   (2)   –   –   (1,116)   2,624   1,888  (f) 
(a)
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics (such as weighted-average credit score,loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).
(b)Includes all securities not meeting the conditions to be designated as prime.
(c)Included in securities gains (losses).
(d)
Included in mortgage banking revenue.
(e)
(b)
Approximately $128$544 million, included in other noninterest income$(1.2) billion and $244$2 million included in mortgage banking revenue.revenue, commercial products revenue and other noninterest income, respectively.
(f)
(c)
Included in changes in unrealized gains and losses on securitiesavailable-for-sale.
(g)
Represents MSRs capitalized during the period.
(h)
(d)
Approximately $55$57 million, included in other noninterest income
$
(820) million and $32$2 million included in mortgage banking revenue.
(i)Approximately $560 million included inrevenue, commercial products revenue and other noninterest income, respectively.
(e)
Approximately $1.5 billion, $1.3 billion and $487$(70) million included in mortgage banking revenue.
(j)Approximately $397 million included inrevenue, commercial products revenue and other noninterest income, respectively.
(f)
Approximately $291 million, $1.7 billion and $97$(70) million included in mortgage banking revenue.revenue, commercial products revenue and other noninterest income, respectively.

The Company is also required periodically to measure certain other financial assets at fair value on a nonrecurring basis. These measurements of fair value usually result from the application of
lower-of-cost-or-fair
value accounting or write-downs of individual assets.

U.S. Bancorp
69
Table of Contents
The following table summarizes the balances as of the measurement date of assets measured at fair value on a nonrecurring basis, and still held as of the reporting date:

  September 30, 2017        December 31, 2016 
(Dollars in Millions) Level 1   Level 2   Level 3   Total        Level 1   Level 2   Level 3   Total 

Loans (a)

 $–   $–   $76   $76      $–   $–   $59   $59 

Other assets (b)

  –    –    30    30         –    –    60    60 

                                     
  September 30, 2021        December 31, 2020 
(Dollars in Millions) Level 1   Level 2   Level 3   Total        Level 1   Level 2   Level 3   Total 
Loans (a)
 $–   $–   $65   $65        $–   $–   $385   $385 
          
Other assets (b)
  –    –    67    67         –    –    30    30 
(a)
Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully
charged-off.
(b)
Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.

The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios:

  Three Months Ended
September 30,		        Nine Months Ended
September 30,		 
(Dollars in Millions)       2017         2016              2017         2016 

Loans (a)

 $45   $45      $120   $156 

Other assets (b)

  3    6         15    25 

                     
  Three Months Ended
September 30		        Nine Months Ended
September 30		 
(Dollars in Millions)     2021       2020            2021       2020 
Loans (a)
 $15   $184        $58   $244 
      
Other assets (b)
  1    13         7    19 
(a)
Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully
charged-off.
(b)
Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.

U.S. Bancorp71

Fair Value Option

The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:

  September 30, 2017       December 31, 2016 
(Dollars in Millions) Fair
Value
Carrying
Amount		   Aggregate
Unpaid
Principal		   Carrying
Amount Over
(Under) Unpaid
Principal		       Fair
Value
Carrying
Amount		   Aggregate
Unpaid
Principal		   Carrying
Amount Over
(Under) Unpaid
Principal		 

Total loans

 $3,754   $3,638   $116     $4,822   $4,763   $59 

Nonaccrual loans

  1    2    (1)      2    3    (1) 

Loans 90 days or more past due

  –    –    –        1    1    – 

Disclosures About

                             
  September 30, 2021        December 31, 2020 
(Dollars in Millions) 
Fair
Value
Carrying
Amount
   
Aggregate
Unpaid
Principal
   
Carrying
Amount Over
(Under) Unpaid
Principal
        
Fair
Value
Carrying
Amount
   
Aggregate
Unpaid
Principal
   
Carrying
Amount Over
(Under) Unpaid
Principal
 
Total loans
 $6,176   $6,017   $159        $8,524   $8,136   $388 
Nonaccrual loans
  1    1    –         1    1    – 
Loans 90 days or more past due
  1    1    –         2    2    – 
Fair Value of Financial Instruments

The following tablesection summarizes the estimated fair value for financial instruments accounted for at amortized cost as of September 30, 20172021 and December 31, 2016, and includes financial instruments that are not accounted for at fair value.2020. In accordance with disclosure guidance related to fair values of financial instruments, the Company did not include assets and liabilities that are not financial instruments, such as the value of goodwill, long-term relationships with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities. Additionally, in accordance with the disclosure guidance, receivables and payables due in one year or less, insurance contracts, andequity investments not accounted for under the equity methodat fair value, and deposits with no defined or contractual maturities are excluded.

The estimated fair values of the Company’s financial instruments are shown in the table below:

  September 30, 2017  December 31, 2016 
  Carrying
Amount		     Fair Value      Carrying
Amount		     Fair Value 
(Dollars in Millions)   Level 1  Level 2  Level 3  Total       Level 1  Level 2  Level 3  Total 

Financial Assets

                                                    

Cash and due from banks

 $20,540   $20,540  $–  $–  $20,540    $15,705   $15,705  $–  $–  $15,705 

Federal funds sold and securities purchased under resale agreements

  78    –   78   –   78     138    –   138   –   138 

Investment securitiesheld-to-maturity

  44,018    4,668   39,074   16   43,758     42,991    4,605   37,810   20   42,435 

Loans held for sale (a)

  3    –   –   3   3     4    –   –   4   4 

Loans

  274,811    –   –   278,946   278,946     269,394    –   –   273,422   273,422 

Other financial instruments

  2,449    –   1,037   1,419   2,456     2,362    –   920   1,449   2,369 

Financial Liabilities

              

Deposits

  342,589    –   342,411   –   342,411     334,590    –   334,361   –   334,361 

Short-term borrowings (b)

  14,641    –   14,430   –   14,430     12,891    –   12,706   –   12,706 

Long-term debt

  34,515    –   34,842   –   34,842     33,323    –   33,678   –   33,678 

Other liabilities

  1,659       –   –   1,659   1,659       1,702       –   –   1,702   1,702 

                                                     
  September 30, 2021   December 31, 2020 
  
Carrying
Amount
      Fair Value       
Carrying
Amount
       Fair Value 
(Dollars in Millions) Level 1  Level 2  Level 3  Total       Level 1   Level 2   Level 3   Total 
Financial Assets
                                                         
Cash and due from banks
 $63,904      $63,904  $–  $–  $63,904       $62,580       $62,580   $–   $–   $62,580 
Federal funds sold and securities purchased under resale agreements
  440       –   440   –   440        377        –    377    –    377 
Loans held for sale (a)
  15       –   –   15   15        237        –    –    237    237 
Loans
  291,816       –   –   298,764   298,764        290,393        –    –    300,419    300,419 
Other (b)
  1,472       –   630   842   1,472        1,772        –    731    1,041    1,772 
              
Financial Liabilities
                                                         
Time deposits
  22,879       –   22,946   –   22,946        30,694        –    30,864    –    30,864 
Short-term borrowings (c)
  13,990       –   13,894   –   13,894        10,009        –    9,956    –    9,956 
Long-term debt
  35,671       –   36,262   –   36,262        41,297        –    42,485    –    42,485 
Other (d)
  3,972       –   1,114   2,858   3,972        4,052        –    1,234    2,818    4,052 
(a)
Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
(b)
Includes investments in Federal Reserve Bank and Federal Home Loan Bank stock and
tax-advantaged
investments.
(c)
Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.

(d)
Includes operating lease liabilities and liabilities related to
tax-advantaged
investments.
70
U.S. Bancorp
Table of Contents
The fair value of unfunded commitments, deferred
non-yield
related loan fees, standby letters of credit and other guarantees is approximately equal to their carrying value. The carrying value of unfunded commitments, deferred
non-yield
related loan fees and standby letters of credit was $564$
577
 million and $618$
774
 million at September 30, 20172021 and December 31, 2016,2020, respectively. The carrying value of other guarantees was $194$
278
 million and $186$
362
 million at September 30, 20172021 and December 31, 2016,2020, respectively.

Note 15 
 Note 16
   Guarantees and Contingent Liabilities

Visa Restructuring and Card Association Litigation
The Company’s payment services business issues credit and debit cards and acquires credit and debit card transactions through the Visa U.S.A. Inc. card association or its affiliates (collectively “Visa”). In 2007, Visa completed a restructuring and issued shares of Visa Inc. common stock to its financial institution members in contemplation of its initial public offering (“IPO”) completed in the first quarter of 2008 (the “Visa Reorganization”). As a part of the Visa Reorganization, the Company received its proportionate number of shares of Visa Inc. common stock, which were subsequently converted to Class B shares of Visa Inc. (“Class B shares”).
Visa U.S.A. Inc. (“Visa U.S.A.”) and MasterCard International (collectively, the “Card Associations”Brands”) are defendants in antitrust lawsuits challenging the practices of the Card AssociationsBrands (the “Visa Litigation”). Visa U.S.A. member banks have a contingent obligation to indemnify Visa Inc. under the Visa U.S.A. bylaws (which were modified at the time of the restructuring in October 2007) for potential losses arising from the Visa Litigation. The indemnification by the Visa U.S.A. member banks has no specific maximum amount.

72U.S. Bancorp

Using proceeds from its IPO and through reductions to the conversion ratio applicable to the Class B shares held by Visa U.S.A. member banks, Visa Inc. has funded an escrow account for the benefit of member financial institutions to fund their indemnification obligations associated with the Visa Litigation. The receivable related to the escrow account is classified in other liabilities as a direct offset to the related Visa Litigation contingent liability. On

In October 19, 2012, Visa signed a settlement agreement to resolve class action claims associated with the multi-districtmultidistrict interchange litigation pending in the United States District Court for the Eastern District of New York. This case is the largest of the remaining Visa Litigation matters.York (the “Multi-District Litigation”). The district court approved the settlement, but that approval was appealed by certain class members. On June 30, 2016, the United StatesU.S. Court of Appeals for the Second Circuit reversed the approval of thethat settlement and remanded the casematter to the district court for further proceedings consistent withcourt. Thereafter, the appellate ruling. On November 23, 2016, certaincase was split into two putative class members filedactions, one seeking damages (the “Damages Action”) and a petition withseparate class action seeking injunctive relief only (the “Injunctive Action”). In September 2018, Visa signed a new settlement agreement, superseding the original settlement agreement, to resolve the Damages Action. The Damages Action settlement was approved by the United States SupremeDistrict Court asking it to review the Second Circuit’s decision to reject the settlement. On March 27, 2017, the Supreme Court denied the class members’ petition. The case is proceeding in the district court.

At September 30, 2017, the carrying amount of the Company’s liability related to the Visa Litigation matters, net of its share of the escrow fundings, was $19 million. During the three and nine months ended September 30, 2017, the Company sold 0.4 million and 1.8 million, respectively, of its Class B shares. These sales, and any previous sales of its Class B shares, do not impact the Company’s liability for the Eastern District of New York, but is now on appeal. The Injunctive Action, which generally seeks changes to Visa Litigation matters or the receivable related to the escrow account. Upon final settlement of the Visa Litigation, the remaining 3.1 million Class B shares held by the Company will be eligible for conversion to Class A shares of Visa Inc., which are publicly traded. The Class B shares are excluded from the Company’s financial instruments disclosures included in Note 14.

rules, is still pending.

Other Guarantees and Contingent Liabilities

The following table is a summary of other guarantees and contingent liabilities of the Company at September 30, 2017:

(Dollars in Millions) Collateral
Held		   Carrying
Amount		   Maximum
Potential
Future
Payments		 

Standby letters of credit

 $–   $55   $11,154 

Third party borrowing arrangements

  –    –    11 

Securities lending indemnifications

  4,560    –    4,467 

Asset sales

  –    128    6,498 (a) 

Merchant processing

  538    54    99,229 

Tender option bond program guarantee

  2,109    –    1,998 

Minimum revenue guarantees

  –    –    8 

Other

  –    12    1,467 

2021:
             
(Dollars in Millions) Collateral
Held		   Carrying
Amount		   Maximum
Potential
Future
Payments		 
Standby letters of credit
 $–   $60   $9,556 
Third party borrowing arrangements
  –    –    4 
Securities lending indemnifications
  10,479    –    10,157 
Asset sales
  –    84    6,793 (a) 
Merchant processing
  827    172    121,902 
Tender option bond program guarantee
  1,719    –    1,490 
Other
  –    22    1,532 
(a)
The maximum potential future payments do not include loan sales where the Company provides standard representation and warranties to the buyer against losses related to loan underwriting documentation defects that may have existed at the time of sale that generally are identified after the occurrence of a triggering event such as delinquency. For these types of loan sales, the maximum potential future payments is generally the unpaid principal balance of loans sold measured at the end of the current reporting period. Actual losses will be significantly less than the maximum exposure, as only a fraction of loans sold will have a representation and warranty breach, and any losses on repurchase would generally be mitigated by any collateral held against the loans.

Merchant Processing
The Company, through its subsidiaries, provides merchant processing services. Under the rules of credit card associations, a merchant processor retains a contingent liability for credit card transactions processed.
This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. In this situation, the transaction is “charged-back” to the merchant and the disputed
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amount is credited or otherwise refunded to the cardholder. If the Company is unable to collect this amount from the merchant, it bears the loss for the amount of the refund paid to the cardholder.

The Company currently processes card transactions in the United States, Canada Europe and MexicoEurope through wholly-owned subsidiaries and joint ventures with other financial institutions.subsidiaries. In the event a merchant was unable to fulfill product or services subject to future delivery, such as airline tickets, the Company could become financially liable for refunding the purchase price of such products or services purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in a manner similar to credit risk assessments and, as such, merchant processing contracts contain various provisions to protect the Company in the event of default. At September 30, 2017,2021, the value of airline tickets purchased to be delivered at a future date through card transactions processed by the Company was $7.5$7.2 billion. The Company held collateral of $371$653 million in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets. In addition to specific collateral or other credit enhancements, the Company maintains a liability for its implied guarantees associated with future delivery. At September 30, 2017,2021, the liability was $41$155 million primarily related to these airline processing arrangements.

U.S. Bancorp73

Asset Sales
The Company regularly sells loans to GSEs as part of its mortgage banking activities. The Company provides customary representations and warranties to GSEs in conjunction with these sales. These representations and warranties generally require the Company to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Company is unable to cure or refute a repurchase request, the Company is generally obligated to repurchase the loan or otherwise reimburse the counterpartyGSE for losses. At September 30, 2017,2021, the Company had reserved $13$18 million for potential losses from representation and warranty obligations, compared with $19 million at December 31, 2016.2020. The Company’s reserve reflects management’s best estimate of losses for representation and warranty obligations. The Company’s repurchase reserve is modeled at the loan level, taking into consideration the individual credit quality and borrower activity that has transpired since origination. The model applies credit quality and economic risk factors to derive a probability of default and potential repurchase that are based on the Company’s historical loss experience, and estimates loss severity based on expected collateral value. The Company also considers qualitative factors that may result in anticipated losses differing from historical loss trends.

As of September 30, 20172021 and December 31, 2016,2020, the Company had $12$14 million and $7$13 million, respectively, of unresolved representation and warranty claims from GSEs. The Company does not have a significant amount of unresolved claims from investors other than GSEs.

Litigation and Regulatory Matters

The Company is subject to various litigation and regulatory matters that arise in the ordinary course of its business. The Company establishes reserves for such matters when potential losses become probable and can be reasonably estimated. The Company believes the ultimate resolution of existing legal and regulatory matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution of one or more of these matters may have a material adverse effect on the Company’s results from operations for a particular period, and future changes in circumstances or additional information could result in additional accruals or resolution in excess of established accruals, which could adversely affect the Company’s results from operations, potentially materially.

Residential Mortgage-Backed Securities Litigation Matters In the last several years,
Starting in 2011, the Company and other large financial institutions have been sued in their capacity as trustee for residential mortgage–mortgage—backed securities trusts. Among theseIn the lawsuits are actions originally brought in June 2014 by a group of institutional investors, including BlackRock and PIMCO funds, against six bank trustees, including the Company. The actions brought by these institutional investors against the Company, are in their early stages and currently are pending in the Supreme Court of the State of New York, New York County, and in the United States District Court for the Southern District of New York. In these lawsuits, the investors allege that the Company’s banking subsidiary, U.S. Bank National Association (“U.S. Bank”), as trustee caused them to incur substantial losses by failing to enforce loan repurchase obligations and failing to abide by appropriate standards of care after events of default allegedly occurred. The plaintiffs in these matters seek monetary damages in an unspecified amountamounts and most also seek equitable relief.

Regulatory Matters The Company is currently subject to examinations, inquiries and investigations by government agencies and bank regulators concerning mortgage-related practices, including those related to compliance with selling guidelines relating to residential home loans sold to GSEs, foreclosure-related expenses submitted to the Federal Housing Administration or GSEs for reimbursement, lender-placed insurance, and notices and filings in bankruptcy cases.

The Company is also subject to ongoing examinations, inquiries and investigations by government agencies, bank regulators and law enforcement with respect to Bank Secrecy Act/anti-money laundering compliance program adequacy and effectiveness and sanctions compliance requirements as administered by the Office of Foreign Assets Control. The Company is cooperating with an investigation currently being conducted by the United States Attorney’s Office in Manhattan regarding its banking relationship with Scott Tucker, who was recently convicted for operating a payday lending business in a fraudulent manner. Tucker and his businesses maintained certain deposit accounts with U.S. Bank National Association. The investigation by the United States Attorney’s Office also covers the Company’s Bank Secrecy Act/anti-money laundering compliance program. The Company is in discussions to attempt to resolve these matters. Any resolution, if reached, could include monetary fines or other penalties.

The Company is continually subject to examinations, inquiries and investigations in areas of increasingheightened regulatory scrutiny, such as compliance, risk management, third partythird-party risk management and consumer protection.

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For example, the Consumer Financial Protection Bureau (“CFPB”) is investigating certain of the Company’s consumer sales practices, and the Company has responded and continues to respond to the CFPB. The Company is cooperating fully with all pending examinations, inquiries and investigations, any of which could lead to administrative or legal proceedings or settlements. Remedies in these proceedings or settlements may include fines, penalties,

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restitution or alterations in the Company’s business practices (which may increase the Company’s operating expenses and decrease its revenue).

In October 2015, the Company entered into a Consent Order with the Office of the Comptroller of the Currency (the “OCC”) concerning deficiencies in the Company’s Bank Secrecy Act/anti-money laundering compliance program, and requiring an ongoing review of that program. The Company could be required to enter into further orders or pay fines or penalties arising from the Consent Order or regulatory actions taken by other government agencies with Bank Secrecy Act/anti-money laundering jurisdiction. Some of the compliance program enhancements and other actions required by the Consent Order have already been, or are currently in the process of being, implemented, and are not expected to be material to the Company.

In April 2011, the Company and certain other large financial institutions entered into Consent Orders with the OCC and the Board of Governors of the Federal Reserve System relating to residential mortgage servicing and foreclosure practices. In June 2015, the Company entered into an agreement to amend the 2011 Consent Order it had with the OCC. The OCC terminated the amended Consent Order in February 2016. Depending on the Company’s progress toward addressing the requirements of the 2011 Consent Order it has with the Board of Governors of the Federal Reserve System, the Company may be required to enter into further orders and settlements, pay additional fines or penalties, make restitution or further modify the Company’s business practices (which may increase the Company’s operating expenses and decrease its revenue).

Outlook
Due to their complex nature, it can be years before litigation and regulatory matters are resolved. The Company may be unable to develop an estimate or range of loss where matters are in early stages, there are significant factual or legal issues to be resolved, damages are unspecified or uncertain, or there is uncertainty as to a litigation class being certified or the outcome of pending motions, appeals or proceedings. For those litigation and regulatory matters where the Company has information to develop an estimate or range of loss, the Company believes the upper end of the range of reasonably possible losses in aggregate, in excess of any reserves established for matters where a loss is considered probable, is upwill not be material to $300 million.its financial condition, results of operations or cash flows. The Company’s estimates are subject to significant judgment and uncertainties, and the matters underlying the estimates will change from time to time. Actual results may vary significantly from the current estimates.

For additional information on the nature of the Company’s guarantees and contingent liabilities, refer to Note 22 in the Company’s Annual Report on Form10-K for the year ended December 31, 2016.

Note 1617
 
   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. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. The Company has five reportable operating segments:
Corporate and Commercial Banking
Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution,
non-profit
and public sector clients.
Consumer and Business Banking
Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking.
Wealth Management and Investment Services
Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services.
Payment Services
Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing.
Treasury and Corporate Support
Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to business segments, including most investments in
tax-advantaged
projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis.
Basis of Presentation
Business segment results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. The allowance for credit losses and related provision expense are allocated to the business segments according to the volume and credit quality of the loan balances managed, but with the impact of changes in economic forecasts recorded in Treasury and Corporate Support. Goodwill and other intangible assets are assigned to the business segments based on the mix of business of an entity acquired by the Company. Within the Company, capital levels are evaluated and managed centrally; however, capital is allocated to the business segments to support evaluation of business performance. Business segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. Generally, the determination of the amount of capital allocated to each business segment includes credit allocations following a Basel III regulatory framework. Interest income and expense is determined based on the assets and liabilities managed by the business segment. Because funding and asset liability management is a central function, funds transfer-pricing methodologies are utilized to allocate a cost of funds used or credit for funds provided to all business segment assets and liabilities, respectively, using a matched funding concept. Also, each business unit is allocated the taxable-equivalent benefit of
tax-exempt
products. The residual effect on net interest income of asset/ liability management activities is included in Treasury and Corporate Support. Noninterest
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income and expenses directly managed by each business segment, including fees, service charges, salaries and benefits, and other direct revenues and costs are accounted for within each segment’s financial results in a manner similar to the consolidated financial statements. Occupancy costs are allocated based on utilization of facilities by the business segments. Generally, operating losses are charged to the business segment when the loss event is realized in a manner similar to a loan
charge-off.
Noninterest expenses incurred by centrally managed operations or business segments that directly support another business segment’s operations are charged to the applicable business segment based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Certain activities that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance are not charged to the business segments. The income or expenses associated with these corporate activities is reported within the Treasury and Corporate Support business segment. Income taxes are assessed to each business segment 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.
Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2021, certain organization and methodology changes were made and, accordingly, 2020 results were restated and presented on a comparable basis.
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Business segment results for the three months ended September 30 were as follows:
  Corporate and Commercial
Banking		       
Consumer and
Business Banking
       
Wealth Management and
Investment Services
 
(Dollars in Millions) 2021  2020       2021  2020       2021   2020 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis)
 $717  $852       $1,551  $1,474       $225   $301 
Noninterest income
  253   267        715   848        558    505 
Total net revenue
  970   1,119        2,266   2,322        783    806 
Noninterest expense
  418   428        1,450   1,383        507    489 
Other intangibles
  –   –        3   4        4    3 
Total noninterest expense
  418   428        1,453   1,387        511    492 
Income (loss) before provision and income taxes
  552   691        813   935        272    314 
Provision for credit losses
  15   95        (25)   69        11    11 
Income (loss) before income taxes
  537   596        838   866        261    303 
Income taxes and taxable-equivalent adjustment
  134   149        210   217        65    76 
Net income (loss)
  403   447        628   649        196    227 
Net (income) loss attributable to noncontrolling interests
  –   –        –   –        –    – 
Net income (loss) attributable to U.S. Bancorp
 $403  $447       $628  $649       $196   $227 
Average Balance Sheet
                                   
Loans
 $102,431  $115,547       $140,833  $145,229       $18,454   $15,616 
Other earning assets
  4,722   4,110        7,645   8,195        225    288 
Goodwill
  1,650   1,647        3,506   3,475        1,618    1,618 
Other intangible assets
  5   6        2,754   1,942        80    37 
Assets
  114,629   128,369        160,882   164,246        21,566    18,708 
         
Noninterest-bearing deposits
  62,642   48,058        34,416   34,288        24,453    17,719 
Interest-bearing deposits
  68,917   87,558        160,271   133,095        71,841    73,857 
Total deposits
  131,559   135,616        194,687   167,383        96,294    91,576 
         
Total U.S. Bancorp shareholders’ equity
  13,772   15,051        12,277   13,562        3,172    2,968 
      
  
Payment
Services
       
Treasury and
Corporate Support
       
Consolidated
Company
 
(Dollars in Millions) 2021  2020       2021  2020       2021   2020 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis)
 $616  $643       $88  $(18)       $3,197   $3,252 
Noninterest income
  946 (a)   867 (a)        221   225        2,693 (b)    2,712 (b) 
Total net revenue
  1,562   1,510        309   207        5,890 (c)    5,964 (c) 
Noninterest expense
  817   797        196   230        3,388    3,327 
Other intangibles
  34   37        –   –        41    44 
Total noninterest expense
  851   834        196   230        3,429    3,371 
Income (loss) before provision and income taxes
  711   676        113   (23)        2,461    2,593 
Provision for credit losses
  166   246        (330)   214        (163)    635 
Income (loss) before income taxes
  545   430        443   (237)        2,624    1,958 
Income taxes and taxable-equivalent adjustment
  136   108        45   (178)        590    372 
Net income (loss)
  409   322        398   (59)        2,034    1,586 
Net (income) loss attributable to noncontrolling interests
  –   –        (6)   (6)        (6)    (6) 
Net income (loss) attributable to U.S. Bancorp
 $409  $322       $392  $(65)       $2,028   $1,580 
Average Balance Sheet
                                   
Loans
 $31,378  $31,168       $3,643  $3,458       $296,739   $311,018 
Other earning assets
  5   5        193,989   162,488        206,586    175,086 
Goodwill
  3,168   3,123        –   –        9,942    9,863 
Other intangible assets
  496   602        –   –        3,335    2,587 
Assets
  37,173   36,191        219,196   189,388        553,446    536,902 
         
Noninterest-bearing deposits
  4,913   6,886        2,594   2,424        129,018    109,375 
Interest-bearing deposits
  150   124        1,290   1,514        302,469    296,148 
Total deposits
  5,063   7,010        3,884   3,938        431,487    405,523 
         
Total U.S. Bancorp shareholders’ equity
  7,561   7,716        17,491   13,119        54,273    52,416 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $652 million and $525 million for the three months ended September 30, 2021 and 2020, respectively.
(b)
Includes revenue generated from certain contracts with customers of $2.0 billion and $1.8 billion for the three months ended September 30, 2021 and 2020, respectively.
(c)
The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Under these arrangments, the Company recorded $220 million and $246 million of revenue for the three months ended September 30, 2021 and 2020, respectively, primarily consisting of interest income on sales-type and direct financing leases.
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Business segment results for the nine months ended September 30 were as follows:
  Corporate and Commercial
Banking		       
Consumer and
Business Banking
       
Wealth Management and
Investment Services
 
(Dollars in Millions) 2021  2020       2021  2020       2021   2020 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis)
 $2,172  $2,623       $4,603  $4,239       $721   $964 
Noninterest income
  786   899        1,918   2,433        1,638    1,507 
Total net revenue
  2,958   3,522        6,521   6,672        2,359    2,471 
Noninterest expense
  1,257   1,310        4,210   4,061        1,499    1,445 
Other intangibles
  –   –        9   12        10    9 
Total noninterest expense
  1,257   1,310        4,219   4,073        1,509    1,454 
Income (loss) before provision and income taxes
  1,701   2,212        2,302   2,599        850    1,017 
Provision for credit losses
  (20)   572        (143)   269        26    34 
Income (loss) before income taxes
  1,721   1,640        2,445   2,330        824    983 
Income taxes and taxable-equivalent adjustment
  430   410        612   583        206    246 
Net income (loss)
  1,291   1,230        1,833   1,747        618    737 
Net (income) loss attributable to noncontrolling interests
  –   –        –   –        –    – 
Net income (loss) attributable to U.S. Bancorp
 $1,291  $1,230       $1,833  $1,747       $618   $737 
Average Balance Sheet
                                   
Loans
 $102,117  $118,686       $141,220  $139,981       $17,584   $15,151 
Other earning assets
  4,485   4,170        8,606   6,578        247    285 
Goodwill
  1,648   1,647        3,485   3,508        1,618    1,617 
Other intangible assets
  5   6        2,692   2,095        69    40 
Assets
  114,182   131,106        162,316   157,177        20,676    18,324 
         
Noninterest-bearing deposits
  59,841   41,091        33,734   29,397        23,024    16,285 
Interest-bearing deposits
  69,999   90,581        156,821   126,934        76,098    76,736 
Total deposits
  129,840   131,672        190,555   156,331        99,122    93,021 
         
Total U.S. Bancorp shareholders’ equity
  13,995   15,201        12,378   12,797        3,099    2,924 
      
  
Payment
Services
       
Treasury and
Corporate Support
       
Consolidated
Company
 
(Dollars in Millions) 2021  2020       2021  2020       2021   2020 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis)
 $1,841  $1,910       $113  $(13)       $9,450   $9,723 
Noninterest income
  2,644 (a)   2,319 (a)        707   693        7,693 (b)    7,851 (b) 
Total net revenue
  4,485   4,229        820   680        17,143 (c)    17,574 (c) 
Noninterest expense
  2,381   2,296        729   764        10,076    9,876 
Other intangibles
  100   108        –   –        119    129 
Total noninterest expense
  2,481   2,404        729   764        10,195    10,005 
Income (loss) before provision and income taxes
  2,004   1,825        91   (84)        6,948    7,569 
Provision for credit losses
  216   477        (1,239)   2,013        (1,160)    3,365 
Income (loss) before income taxes
  1,788   1,348        1,330   (2,097)        8,108    4,204 
Income taxes and taxable-equivalent adjustment
  447   338        106   (833)        1,801    744 
Net income (loss)
  1,341   1,010        1,224   (1,264)        6,307    3,460 
Net (income) loss attributable to noncontrolling interests
  –   –        (17)   (20)        (17)    (20) 
Net income (loss) attributable to U.S. Bancorp
 $1,341  $1,010       $1,207  $(1,284)       $6,290   $3,440 
Average Balance Sheet
                                   
Loans
 $30,353  $31,725       $3,740  $3,392       $295,014   $308,935 
Other earning assets
  5   5        192,259   156,045        205,602    167,083 
Goodwill
  3,174   3,027        –   –        9,925    9,799 
Other intangible assets
  519   584        –   –        3,285    2,725 
Assets
  35,972   36,497        218,053   182,276        551,199    525,380 
         
Noninterest-bearing deposits
  5,068   3,852        2,595   2,310        124,262    92,935 
Interest-bearing deposits
  141   119        1,718   3,293        304,777    297,663 
Total deposits
  5,209   3,971        4,313   5,603        429,039    390,598 
         
Total U.S. Bancorp shareholders’ equity
  7,544   7,269        16,311   13,745        53,327    51,936 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $1.8 billion and $1.5 billion for the nine months ended September 30, 2021 and 2020, respectively.
(b)
Includes revenue generated from certain contracts with customers of $5.6 billion and $5.1 billion for the nine months ended September 30, 2021 and 2020, respectively.
(c)
The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Under these arrangments, the Company recorded $686 million and $714 million of revenue for the nine months ended September 30, 2021 and 2020, respectively, primarily consisting of interest income on sales-type and direct financing leases.
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 Note 18
   Subsequent Events

The Company has evaluated the impact of events that have occurred subsequent to September 30, 20172021 through the date the consolidated financial statements were filed with the United States Securities and Exchange Commission. Based on this evaluation, the Company has determined none of these events were required to be recognized or disclosed in the consolidated financial statements and related notes.

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U.S. Bancorp

Consolidated Daily Average Balance Sheet and Related
Yields and Rates (a)

  For the Three Months Ended September 30,        
  2017   2016          

(Dollars in Millions)

(Unaudited)

 Average
Balances		      Interest       Yields
and
Rates		       Average
Balances		      Interest       Yields
and
Rates		           % Change
Average
Balances		 

Assets

                     

Investment securities

 $111,832   $591     2.11%     $108,109   $539     2.00%       3.4% 

Loans held for sale

  3,935    40     4.06      4,691    43     3.68       (16.1) 

Loans (b)

                     

Commercial

  96,633    822     3.38      92,369    654     2.82       4.6 

Commercial real estate

  41,621    469     4.47      43,374    429     3.94       (4.0) 

Residential mortgages

  59,030    551     3.73      56,284    522     3.70       4.9 

Credit card

  20,926    618     11.72      20,628    569     10.98       1.4 

Other retail

  56,069       585     4.13      52,851       535     4.02       6.1 

Total loans, excluding covered loans

  274,279    3,045     4.41      265,506    2,709     4.06       3.3 

Covered loans

  3,347       44     5.32      4,131       49     4.76       (19.0) 

Total loans

  277,626    3,089     4.42      269,637    2,758     4.07       3.0 

Other earning assets

  15,432       48     1.23      11,346       31     1.09       36.0 

Total earning assets

  408,825    3,768     3.67      393,783    3,371     3.41       3.8 

Allowance for loan losses

  (3,874)           (3,818)            (1.5) 

Unrealized gain (loss) on investment securities

  (113)           933            * 

Other assets

  45,792           46,965            (2.5) 

Total assets

 $450,630          $437,863            2.9 

Liabilities and Shareholders’ Equity

                     

Noninterest-bearing deposits

 $81,964          $82,021            (.1)% 

Interest-bearing deposits

                     

Interest checking

  68,066    26     .15      63,456    12     .08       7.3 

Money market savings

  105,072    176     .67      99,921    92     .36       5.2 

Savings accounts

  43,649    8     .07      40,695    9     .09       7.3 

Time deposits

  36,400       83     .91      32,455       48     .59       12.2 

Total interest-bearing deposits

  253,187    293     .46      236,527    161     .27       7.0 

Short-term borrowings

  15,505    93     2.37      15,929    71     1.78       (2.7) 

Long-term debt

  35,544       196     2.20      37,875       196     2.06       (6.2) 

Total interest-bearing liabilities

  304,236    582     .76      290,331    428     .59       4.8 

Other liabilities

  14,983           17,081            (12.3) 

Shareholders’ equity

                     

Preferred equity

  5,419           5,501            (1.5) 

Common equity

  43,400           42,290            2.6 

Total U.S. Bancorp shareholders’ equity

  48,819           47,791            2.2 

Noncontrolling interests

  628           639            (1.7) 

Total equity

  49,447           48,430            2.1 

Total liabilities and equity

 $450,630          $437,863            2.9 

Net interest income

   $3,186          $2,943         

Gross interest margin

       2.91%             2.82%        

Gross interest margin without taxable-equivalent increments

       2.86%             2.77%        

Percent of Earning Assets

                    

Interest income

       3.67%           3.41%      

Interest expense

       .57             .43        

Net interest margin

       3.10%             2.98%        

Net interest margin without taxable-equivalent increments

                   3.05%                         2.93%        

                                                     
  For the Three Months Ended September 30        
      2021                      2020                        
(Dollars in Millions)
(Unaudited)
 Average
Balances		  Interest        Yields and
Rates		       Average
Balances		       Interest        Yields and
Rates		           % Change
Average
Balances		 
Assets
                                                           
Investment securities
 $151,755  $624         1.64%       $128,565       $602         1.87%            18.0% 
Loans held for sale
  7,438   54         2.92        7,983        61         3.06            (6.8) 
Loans (b)
                                                           
Commercial
  101,832   711         2.77        115,489        718         2.48            (11.8) 
Commercial real estate
  38,921   303         3.09        40,929        341         3.31            (4.9) 
Residential mortgages
  74,104   604         3.25        75,786        687         3.62            (2.2) 
Credit card
  21,905   569         10.30        22,052        583         10.51            (.7) 
Other retail
  59,977   532         3.52        56,762        572         4.01            5.7 
Total loans
  296,739   2,719         3.64        311,018        2,901         3.72            (4.6) 
Other earning assets
  47,393   38         .31        38,538        34         .35            23.0 
Total earning assets
  503,325   3,435         2.72        486,104        3,598         2.95            3.5 
Allowance for loan losses
  (5,972)                      (7,824)                               23.7 
Unrealized gain (loss) on investment securities
  1,231                      3,655                               (66.3) 
Other assets
  54,862                      54,967                               (.2) 
Total assets
 $553,446                     $536,902                               3.1 
Liabilities and Shareholders’ Equity
                                                           
Noninterest-bearing deposits
 $129,018                     $109,375                               18.0% 
Interest-bearing deposits
                                                           
Interest checking
  103,036   5         .02        84,494        7         .04            21.9 
Money market savings
  112,543   50         .17        124,115        68         .22            (9.3) 
Savings accounts
  63,387   2         .01        53,499        5         .04            18.5 
Time deposits
  23,503   21         .35        34,040        50         .58            (31.0) 
Total interest-bearing deposits
  302,469   78         .10        296,148        130         .17            2.1 
Short-term borrowings
  14,688   18         .49        18,049        19         .43            (18.6) 
Long-term debt
  35,972   142         1.57        43,542        197         1.80            (17.4) 
Total interest-bearing liabilities
  353,129   238         .27        357,739        346         .39            (1.3) 
Other liabilities
  16,391                      16,742                               (2.1) 
Shareholders’ equity
                                                           
Preferred equity
  5,968                      5,984                               (.3) 
Common equity
  48,305                      46,432                               4.0 
Total U.S. Bancorp shareholders’ equity
  54,273                      52,416                               3.5 
Noncontrolling interests
  635                      630                               .8 
Total equity
  54,908                      53,046                               3.5 
Total liabilities and equity
 $553,446                     $536,902                               3.1 
Net interest income
     $3,197                          $3,252                        
Gross interest margin
                2.45%                           2.56%              
Gross interest margin without taxable-equivalent increments
                2.43%                           2.54%              
Percent of Earning Assets
                                                           
Interest income
                2.72%                           2.95%              
Interest expense
                .19                           .28              
Net interest margin
                2.53%                           2.67%              
Net interest margin without taxable-equivalent increments
                2.51%                           2.65%              
*
(a)
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis utilizingbased on a federal income tax rate of 3521 percent.
(b)
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.

76
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 U.S. Bancorp

Table of Contents

U.S. Bancorp

Consolidated Daily Average Balance Sheet and Related

Yields and Rates (a)

  For the Nine Months Ended September 30,        
  2017   2016          

(Dollars in Millions)

(Unaudited)

 Average
Balances		      Interest       Yields
and
Rates		       Average
Balances		      Interest       Yields
and
Rates		           % Change
Average
Balances		 

Assets

                     

Investment securities

 $111,325   $1,723     2.06%     $107,095   $1,634     2.03%       3.9% 

Loans held for sale

  3,457    104     4.02      3,888    110     3.78       (11.1) 

Loans (b)

                     

Commercial

  95,347    2,297     3.22      91,451    1,920     2.80       4.3 

Commercial real estate

  42,437    1,335     4.20      42,922    1,269     3.95       (1.1) 

Residential mortgages

  58,496    1,627     3.71      55,334    1,548     3.73       5.7 

Credit card

  20,801    1,777     11.42      20,339    1,656     10.88       2.3 

Other retail

  54,835       1,677     4.09      51,809       1,573     4.06       5.8 

Total loans, excluding covered loans

  271,916    8,713     4.28      261,855    7,966     4.06       3.8 

Covered loans

  3,538       131     4.94      4,324       152     4.67       (18.2) 

Total loans

  275,454    8,844     4.29      266,179    8,118     4.07       3.5 

Other earning assets

  13,795       132     1.27      8,654       89     1.37       59.4 

Total earning assets

  404,031    10,803     3.57      385,816    9,951     3.44       4.7 

Allowance for loan losses

  (3,842)           (3,848)            .2 

Unrealized gain (loss) on investment securities

  (324)           784            * 

Other assets

  46,184           46,669            (1.0) 

Total assets

 $446,049          $429,421            3.9 

Liabilities and Shareholders’ Equity

                     

Noninterest-bearing deposits

 $81,808          $79,928            2.4% 

Interest-bearing deposits

                     

Interest checking

  67,021    56     .11      60,746    29     .07       10.3 

Money market savings

  106,856    460     .58      93,121    247     .35       14.7 

Savings accounts

  43,265    24     .07      40,070    26     .09       8.0 

Time deposits

  32,660       190     .78      33,447       150     .60       (2.4) 

Total interest-bearing deposits

  249,802    730     .39      227,384    452     .27       9.9 

Short-term borrowings

  14,423    239     2.21      21,457    205     1.28       (32.8) 

Long-term debt

  35,697       585     2.19      36,392       567     2.08       (1.9) 

Total interest-bearing liabilities

  299,922    1,554     .69      285,233    1,224     .57       5.1 

Other liabilities

  15,344           16,369            (6.3) 

Shareholders’ equity

                     

Preferred equity

  5,514           5,501            .2 

Common equity

  42,828           41,739            2.6 

Total U.S. Bancorp shareholders’ equity

  48,342           47,240            2.3 

Noncontrolling interests

  633           651            (2.8) 

Total equity

  48,975           47,891            2.3 

Total liabilities and equity

 $446,049          $429,421            3.9 

Net interest income

   $9,249          $8,727         

Gross interest margin

       2.88%             2.87%        

Gross interest margin without taxable-equivalent increments

       2.83%             2.82%        

Percent of Earning Assets

                    

Interest income

       3.57%           3.44%      

Interest expense

       .51             .42        

Net interest margin

       3.06%             3.02%        

Net interest margin without taxable-equivalent increments

                   3.01%                         2.97%        

                                                     
  For the Nine Months Ended September 30        
      2021                      2020                        
(Dollars in Millions)
(Unaudited)
 Average
Balances		  Interest        Yields and
Rates		       Average
Balances		       Interest        Yields and
Rates		           % Change
Average
Balances		 
Assets
                                                           
Investment securities
 $152,653  $1,793         1.57%       $123,444       $1,953         2.11%            23.7% 
Loans held for sale
  8,422   176         2.79        6,352        157         3.31            32.6 
Loans (b)
                                                           
Commercial
  102,298   2,060         2.69        116,501        2,492         2.86            (12.2) 
Commercial real estate
  38,757   914         3.15        40,699        1,129         3.71            (4.8) 
Residential mortgages
  74,215   1,870         3.36        72,612        1,985         3.65            2.2 
Credit card
  21,391   1,701         10.63        22,465        1,794         10.66            (4.8) 
Other retail
  58,353   1,594         3.65        56,658        1,783         4.20            3.0 
Total loans
  295,014   8,139         3.69        308,935        9,183         3.97            (4.5) 
Other earning assets
  44,527   103         .31        37,287        144         .52            19.4 
Total earning assets
  500,616   10,211         2.72        476,018        11,437         3.21            5.2 
Allowance for loan losses
  (6,513)                      (6,656)                               2.1 
Unrealized gain (loss) on investment securities
  1,304                      2,863                               (54.5) 
Other assets
  55,792                      53,155                               5.0 
Total assets
 $551,199                     $525,380                               4.9 
Liabilities and Shareholders’ Equity
                                                           
Noninterest-bearing deposits
 $124,262                     $92,935                               33.7% 
Interest-bearing deposits
                                                           
Interest checking
  101,280   18         .02        81,890        58         .10            23.7 
Money market savings
  116,968   150         .17        125,247        474         .51            (6.6) 
Savings accounts
  61,462   5         .01        50,937        42         .11            20.7 
Time deposits
  25,067   72         .38        39,589        275         .93            (36.7) 
Total interest-bearing deposits
  304,777   245         .11        297,663        849         .38            2.4 
Short-term borrowings
  14,758   52         .47        21,335        127         .80            (30.8) 
Long-term debt
  37,196   464         1.67        44,587        738         2.21            (16.6) 
Total interest-bearing liabilities
  356,731   761         .28        363,585        1,714         .63            (1.9) 
Other liabilities
  16,247                      16,294                               (.3) 
Shareholders’ equity
                                                           
Preferred equity
  6,049                      5,984                               1.1 
Common equity
  47,278                      45,952                               2.9 
Total U.S. Bancorp shareholders’ equity
  53,327                      51,936                               2.7 
Noncontrolling interests
  632                      630                               .3 
Total equity
  53,959                      52,566                               2.7 
Total liabilities and equity
 $551,199                     $525,380                               4.9 
Net interest income
     $9,450                          $9,723                        
Gross interest margin
                2.44%                           2.58%              
Gross interest margin without taxable-equivalent increments
                2.42%                           2.56%              
Percent of Earning Assets
                                                           
Interest income
                2.72%                           3.21%              
Interest expense
                .20                           .48              
Net interest margin
                2.52%                           2.73%              
Net interest margin without taxable-equivalent increments
                2.50%                           2.71%              
*
(a)
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis utilizingbased on a federal income tax rate of 3521 percent.
(b)
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.

U.S. Bancorp 77
79

Table of Contents

Part II — Other Information

Item
 1. Legal Proceedings
— See the information set forth in Note 1516 in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Report, which is incorporated herein by reference.

Item 1A. Risk Factors
— There are a number of factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report onForm
10-K
for the year ended December 31, 2016,2020, for discussion of these risks.

Item
 2. Unregistered Sales of Equity Securities and Use of Proceeds
— Refer to the “Capital Management” section within Management’s Discussion and Analysis in Part I, Item 2 of this Report for information regarding shares repurchased by the Company during the third quarter of 2017.

2021.

Item 6. Exhibits

     122.1ComputationShare Purchase Agreement, dated as of Ratio of EarningsSeptember 21, 2021, among Mitsubishi UFJ Financial Group, Inc., MUFG Americas Holdings Corporation, and U.S. Bancorp (incorporated by reference to Fixed ChargesExhibit 2.1 to the Company’s Form 8-K filed on September 24, 2021).
   31.1Certification of Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 19341934.
   31.2Certification of Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 19341934.
   32Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 20022002.
 101101.INSFinancial statements fromXBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104The cover page of U.S. Bancorp’s Quarterly Report on Form
10-Q of the Company
for the quarter ended September 30, 2017,2021, formatted in Extensible Business Reporting Language: (i)Inline XBRL (included within the Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Shareholders’ Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to Consolidated Financial Statements.Exhibit 101 attachments).

78
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 U.S. Bancorp

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  U.S. BANCORP
 
 By: /s/    CRAIG E. GIFFORDL
ISA
R. S
TARK
  

Dated: November 3, 20172, 2021   

Craig E. Gifford

Lisa R. Stark
Controller

(Principal Accounting Officer and Duly Authorized Officer)

U.S. Bancorp 79
81

EXHIBIT 12

ComputationTable of Ratio of Earnings to Fixed Charges

(Dollars in Millions)  Three Months Ended
September 30, 2017		   Nine Months Ended
September 30, 2017		 

Earnings

 

  1.

 Net income attributable to U.S. Bancorp  $1,563   $4,536 

  2.

 Applicable income taxes, including expense related to unrecognized tax positions   589    1,639 

  3.

 Net income attributable to U.S. Bancorp before income taxes (1 + 2)  $2,152   $6,175 

  4.

 Fixed charges:    
 a. Interest expense excluding interest on deposits*  $286   $818 
 b. Portion of rents representative of interest and amortization of debt expense   28    83 
 c. Fixed charges excluding interest on deposits (4a + 4b)   314    901 
 d. Interest on deposits   293    730 
 e. Fixed charges including interest on deposits (4c + 4d)  $607   $1,631 

  5.

 Amortization of interest capitalized  $–   $– 

  6.

 Earnings excluding interest on deposits (3 + 4c + 5)   2,466    7,076 

  7.

 Earnings including interest on deposits (3 + 4e + 5)   2,759    7,806 

  8.

 Fixed charges excluding interest on deposits (4c)   314    901 

  9.

 Fixed charges including interest on deposits (4e)   607    1,631 

Ratio of Earnings to Fixed Charges

 

10.

 Excluding interest on deposits (line 6/line 8)   7.85    7.85 

11.

 Including interest on deposits (line 7/line 9)   4.55    4.79 

*Excludes interest expense related to unrecognized tax positions.

Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

(Dollars in Millions)  Three Months Ended
September 30, 2017		   Nine Months Ended
September 30, 2017		 

Earnings

    

  1.

 Net income attributable to U.S. Bancorp  $1,563   $4,536 

  2.

 Applicable income taxes, including expense related to unrecognized tax positions   589    1,639 

  3.

 Net income attributable to U.S. Bancorp before income taxes (1 + 2)  $2,152   $6,175 

  4.

 Fixed charges:    
 a. Interest expense excluding interest on deposits*  $286   $818 
 b. Portion of rents representative of interest and amortization of debt expense   28    83 
 c. Fixed charges excluding interest on deposits (4a + 4b)   314    901 
 d. Interest on deposits   293    730 
 e. Fixed charges including interest on deposits (4c + 4d)  $607   $1,631 

  5.

 Amortization of interest capitalized  $–   $– 

  6.

 Preferred stock dividends   71    204 

  7.

 Earnings excluding interest on deposits (3 + 4c + 5)   2,466    7,076 

  8.

 Earnings including interest on deposits (3 + 4e + 5)   2,759    7,806 

  9.

 Fixed charges excluding interest on deposits, and preferred stock dividends (4c+6)   385    1,105 

10.

 Fixed charges including interest on deposits, and preferred stock dividends (4e+6)   678    1,835 

Ratio of Earnings to Fixed Charges and Preferred Dividends

 

  

11.

 Excluding interest on deposits (line 7/line 9)   6.41    6.40 

12.

 Including interest on deposits (line 8/line 10)   4.07    4.25 

*Excludes interest expense related to unrecognized tax positions.

80U.S. Bancorp

Contents

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Andrew Cecere, certify that:

(1)
I have reviewed this Quarterly Report on Form
10-Q
of U.S. Bancorp;

(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:

 (a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 (c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 (d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/
S
/    A
NDREW
C
ECERE

Andrew Cecere

Chief Executive Officer

Dated: November 3, 2017

2, 2021
U.S. Bancorp
82
 81U.S. Bancorp

Table of Contents

EXHIBIT 31.2

CERTIFICATION PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Terrance R. Dolan, certify that:

(1)
I have reviewed this Quarterly Report on Form
10-Q
of U.S. Bancorp;

(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:

 (a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 (c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 (d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    T
ERRANCE
R. D
OLAN

Terrance R. Dolan

Chief Financial Officer

Dated: November 3, 2017

2, 2021
82U.S. Bancorp U.S. Bancorp
83

Table of Contents

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Chief Executive Officer and Chief Financial Officer of U.S. Bancorp, a Delaware corporation (the “Company”), do hereby certify that:

(1)
The Quarterly Report on Form
10-Q
for the quarter ended September 30, 20172021 (the “Form
10-Q”)
of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Form
10-Q
fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    A

NDREW
C
ECERE

 
  

/s/    T

ERRANCE
R. D
OLAN

Andrew Cecere

Chief Executive Officer

Dated: November 3, 2017

2, 2021
   

Terrance R. Dolan

Chief Financial Officer

U.S. Bancorp
84
 83U.S. Bancorp

Table of Contents

Corporate Information

Executive Offices

U.S. Bancorp

800 Nicollet Mall

Minneapolis, MN 55402

Common Stock Transfer Agent and Registrar

Computershare acts as our transfer agent and registrar, dividend paying agent and dividend reinvestment plan administrator, and maintains all shareholder records for the corporation.Company. Inquiries related to shareholder records, stock transfers, changes of ownership, lost stock certificates, changes of address and dividend payment should be directed to the transfer agent at:

Computershare

P.O. Box 505000

Louisville, KY 40233

Phone:
888-778-1311
or
201-680-6578 (international
(international calls)

Internet: www.computershare.com/investor

Registered or Certified Mail:

Computershare

462 South 4
th
Street, Suite 1600

Louisville, KY 40202

Telephone representatives are available weekdays from 8:008 a.m. to 6:006 p.m., Central Time, and automated support is available 24 hours a day, 7seven days a week. Specific information about your account is available on Computershare’s Investor Center website.

Independent Auditor

Ernst & Young LLP serves as the independent auditor for U.S. Bancorp’s financial statements.

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 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 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 our transfer agent, Computershare.

Investor Relations Contact

Jennifer A. Thompson, CFA

Senior

Executive Vice President, Investor Relations

jen.thompson@usbank.com

Phone:
612-303-0778
or
866-775-9668

Financial Information

U.S. Bancorp news and financial results are available through our website and by mail.

Website
 For information about U.S. Bancorp, including news, financial results, annual reports and other documents filed with the Securities and Exchange Commission, access our home page on the internet atvisit usbank.com and click on
About U.S. BankUs
.

Mail
At your request, we will mail to you our quarterly earnings, news releases, quarterly financial data reported on
Form 10-Q,
Form 10-K
and additional copies of our annual reports. Please contact:

U.S. Bancorp Investor Relations

800 Nicollet Mall

Minneapolis, MN 55402

investorrelations@usbank.com

Phone:
866-775-9668

Media Requests

Dana E. Ripley

Senior Vice President, Corporate

David R. Palombi
Global Chief Communications

dana.ripley@usbank.com

Officer

Public Affairs and Communications
david.palombi@usbank.com
Phone:
612-303-3167

Privacy

U.S. Bancorp is committed to respecting the privacy of our customers and safeguarding the financial and personal information provided to us. To learn more about the U.S. Bancorp commitment to protecting privacy, visit usbank.com and click on
Privacy
.

Code of Ethics

At U.S. Bancorp, our commitment to high ethical standards guides everything we do. Demonstrating this commitment through our words and actions is how each of us does the right thing every day for our customers, shareholders, communities and each other. Our style of ethical leadership is why we wereculture has been recognized by the Ethisphere Institute, which again named aus to its World’s Most Ethical Company in 2015, 2016 and 2017 by the Ethisphere Institute.

Each year, every employee certifies compliance with the letter and spirit of our Code of Ethics and Business Conduct. Companies

®
list.
For details about our Code of Ethics and Business Conduct, visit usbank.com and click on
About U.S. BankUs
and then
Investor Relations
and then
Corporate Governance
.

Diversity and Inclusion

At U.S. Bancorp, embracing diversity, championing equity and fostering inclusion are business imperatives. We view everything we do through a diversity, equity and inclusion lens to deepen our relationships with our stakeholders: our employees, customers, shareholders and communities.

Our employees bring their whole selves to work. We respect and value each other’s differences, strengths and perspectives, and we strive to reflect the communities we serve. This makes us stronger, more innovative and more responsive to our diverse customers’ needs.

Equal Opportunity and 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 on abilities, not race, color, religion, creed, citizenship, national origin or ancestry, gender, age, disability, veteran status, sexual orientation, marital status, gender identity or expression, genetic information or any other factors protected by law. The corporationCompany 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 committed to creating a diverse workforce.

Accessibility

U.S. Bancorp is committed to providing ready access to our products and services so all of our customers, including people with disabilities, can succeed financially. To learn more, visit usbank.com and click on
Accessibility.

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