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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 SeptemberJune 30, 2017

2022

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 shareUSBNew 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 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
Depositary Shares (each representing 1/1,000th interest in a share of Series O
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
USB PrSNew York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024USB/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 filerfile
r ☑		  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 checkmarkcheck mark 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 OctoberJuly 31, 20172022
Common Stock, $0.01 Par Value  1,659,491,1661,485,784,028 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

     67 

d)Non-GAAP Financial Measures

     31 

e) Critical Accounting Policies

     33 

f) Controls and Procedures (Item 4)

     33 

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

     9 

a) Overview

     9 

b) Credit Risk Management

     10 

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) Capital Management

25

3) Line of Business Financial Review

     26 

3) Line of Business Financial Review
27
4) Financial Statements (Item 1)

     34 

Part II — Other Information

    

1) Legal Proceedings (Item 1)

     7876 

2) Risk Factors (Item 1A)

     7876 

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

76
4) Exhibits (Item 6)
76
5) Signature
77
6) Exhibits
     78 

4) Exhibits (Item 6)

U.S. Bancorp 78

5) Signature

79

6) Exhibits

80
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 often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “projects,” “forecasts,” “intends,” “plans,” “goals,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements involve inherent risks and uncertainties, including the following risks and important factorsuncertainties and the risks and uncertainties more fully discussed in the section entitled “Risk Factors” of Exhibit 13 to U.S. Bancorp’s Annual Report on Form
10-K
for the year ended December 31, 2021, which could cause actual results to differ materially from those anticipated. A reversalContinued deterioration in general business and economic conditions or slowing of the current economic recoveryturbulence in domestic or another severe contractionglobal 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; the impacts of the
COVID-19
pandemic on its business, financial position, results of operations, liquidity and prospects; 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; the effects of climate change; 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; the impacts of international hostilities or geopolitical events; impacts of supply chain disruptions and rising inflation; 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,those described in forward-looking statements, refer to U.S. Bancorp’s Annual Report on Form
10-K
for the year ended December 31, 2016,2021, 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. Readers are cautioned not to place undue reliance on any forward-looking statements. 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 June 30   Six Months Ended June 30 
(Dollars and Shares in Millions, Except Per Share Data) 2022  2021  Percent
Change		   2022   2021   Percent
Change		 
Condensed Income Statement
 
         
Net interest income
 $3,435  $3,137   9.5%   $6,608   $6,200    6.6% 
Taxable-equivalent adjustment (a)
  29   27   7.4    56    53    5.7 
Net interest income (taxable-equivalent basis) (b)
  3,464   3,164   9.5    6,664    6,253    6.6 
Noninterest income
  2,548   2,619   (2.7)    4,944    5,000    (1.1) 
Total net revenue
  6,012   5,783   4.0    11,608    11,253    3.2 
Noninterest expense
  3,724   3,387   9.9    7,226    6,766    6.8 
Provision for credit losses
  311   (170)   *    423    (997)    * 
Income before taxes
  1,977   2,566   (23.0)    3,959    5,484    (27.8) 
Income taxes and taxable-equivalent adjustment
  443   578   (23.4)    867    1,211    (28.4) 
Net income
  1,534   1,988   (22.8)    3,092    4,273    (27.6) 
Net (income) loss attributable to noncontrolling interests
  (3)   (6)   50.0    (4)    (11)    63.6 
Net income attributable to U.S. Bancorp
 $1,531  $1,982   (22.8)   $3,088   $4,262    (27.5) 
Net income applicable to U.S. Bancorp common shareholders
 $1,464  $1,914   (23.5)   $2,930   $4,089    (28.3) 
Per Common Share
 
         
Earnings per share
 $.99  $1.29   (23.3)%   $1.97   $2.73    (27.8)% 
Diluted earnings per share
  .99   1.28   (22.7)    1.97    2.73    (27.8) 
Dividends declared per share
  .46   .42   9.5    .92    .84    9.5 
Book value per share (c)
  28.13   31.74   (11.4)       
Market value per share
  46.02   56.97   (19.2)       
Average common shares outstanding
  1,486   1,489   (.2)    1,485    1,495    (.7) 
Average diluted common shares outstanding
  1,487   1,490   (.2)    1,486    1,497    (.7) 
Financial Ratios
          
Return on average assets
  1.06%   1.44%      1.08%    1.56%   
Return on average common equity
  13.9   16.3      13.3    17.6   
Net interest margin (taxable-equivalent basis) (a)
  2.59   2.53      2.51    2.52   
Efficiency ratio (b)
  62.1   59.0      62.4    60.5   
Net charge-offs as a percent of average loans outstanding
  .20   .25      .20    .28   
Average Balances
 
         
Loans
 $324,187  $294,284   10.2%   $318,608   $294,138    8.3% 
Loans held for sale
  3,688   7,825   (52.9)    4,579    8,922    (48.7) 
Investment securities (d)
  171,296   160,615   6.7    173,019    153,109    13.0 
Earning assets
  536,761   500,751   7.2    533,318    499,239    6.8 
Assets
  579,911   551,365   5.2    578,663    550,057    5.2 
Noninterest-bearing deposits
  120,827   125,297   (3.6)    124,375    121,844    2.1 
Deposits
  456,516   429,210   6.4    455,352    427,795    6.4 
Short-term borrowings
  23,294   16,462   41.5    21,178    14,794    43.2 
Long-term debt
  31,390   36,190   (13.3)    32,177    37,817    (14.9) 
Total U.S. Bancorp shareholders’ equity
  49,166   52,962   (7.2)    51,304    52,846    (2.9) 
 
      June 30,
2022		  December 31,
2021		                
Period End Balances
 
         
Loans
 $332,369  $312,028   6.5%       
Investment securities
  160,309   174,821   (8.3)       
Assets
  591,381   573,284   3.2       
Deposits
  467,102   456,083   2.4       
Long-term debt
  29,408   32,125   (8.5)       
Total U.S. Bancorp shareholders’ equity
  48,605   54,918   (11.5)       
Asset Quality
          
Nonperforming assets
 $770  $878   (12.3)%       
Allowance for credit losses
  6,255   6,155   1.6       
Allowance for credit losses as a percentage of
period-end
loans
  1.88%   1.97%         
Capital Ratios
          
Common equity tier 1 capital
  9.7%   10.0%         
Tier 1 capital
  11.4   11.6         
Total risk-based capital
  13.2   13.4         
Leverage
  8.6   8.6         
Total leverage exposure
  7.1   6.9         
Tangible common equity to tangible assets (b)
  5.5   6.8         
Tangible common equity to risk-weighted assets (b)
  7.2   9.2         
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)
  9.4   9.6                    
*
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.
(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$1.5 billion for the thirdsecond quarter of 2017,2022, or $0.88$0.99 per diluted common share, compared with $1.5$2.0 billion, or $0.84$1.28 per diluted common share, for the thirdsecond quarter of 2016.2021. Return on average assets and return on average common equity were 1.381.06 percent and 13.613.9 percent, respectively, for the thirdsecond quarter of 2017,2022, compared with 1.361.44 percent and 13.516.3 percent, respectively, for the thirdsecond quarter of 2016.

2021. The results for the second quarter of 2022 included the impact of $197 million ($153 million net-of-tax) of merger and integration-related charges associated with the planned acquisition of MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. (“MUFG”), which decreased diluted earnings per common share by $0.10.

Total net revenue for the thirdsecond quarter of 20172022 was $220$229 million (4.1(4.0 percent) higher than the thirdsecond quarter of 2016,2021, reflecting an 8.4a 9.5 percent increase in net interest income (8.3 percent onand a taxable-equivalent basis), partially offset by a 0.92.7 percent decrease in noninterest income. The increase in net interest income from the thirdsecond quarter of 20162021 was mainly a result ofprimarily due to higher average loan growthand investment securities balances, as well as rising interest rates in the current year and the impact of rising interest rates.a favorable yield curve on earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the Small Business Administration (“SBA”) Paycheck Protection Program in the second quarter of 2021. The reduction in noninterest income decrease was principally due toreflected lower mortgage banking revenue primarily the result of a higher level ofas refinancing activities indeclined, lower other noninterest income and lower gains on the third quartersale of 2016, partiallysecurities, mostly offset by increases inhigher payment services revenue and trust and investment management fees, payment services revenue, and treasury management fees as well as higher equity investment income.

fees.

Noninterest expense in the thirdsecond quarter of 20172022 was $108$337 million (3.7(9.9 percent) higher than the thirdsecond quarter of 2016, primarily due to increased2021, reflecting increases in compensation expense, related to hiring to supportemployee benefits expense, marketing and business growthdevelopment expense, and compliance programs, merit increasesthe impact of merger and higher variable compensation.

integration-related charges of $197 million.

The provision for credit losses for the thirdsecond quarter of 20172022 was $311 million, compared with a benefit of $360$170 million was $35 million (10.8 percent) higher thanfor the thirdsecond quarter of 2016.2021. The provision for credit losses in the second quarter of 2022 reflected the impact of loan growth and increasing economic uncertainty. The provision for credit losses for the second quarter of 2021 reflected a decrease in the allowance for credit losses as a result of improving economic conditions and credit quality. Net charge-offs in the thirdsecond quarter of 20172022 were $330$161 million, compared with $315$180 million in the thirdsecond quarter of 2016.2021. 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 ninesix months of 20172022 was $4.5$3.1 billion, or $2.55$1.97 per diluted common share, compared with $4.4$4.3 billion, or $2.43$2.73 per diluted common share, for the first ninesix months of 2016.2021. Return on average assets and return on average common equity were 1.361.08 percent and 13.413.3 percent, respectively, for the first ninesix months of 2017,2022, compared with 1.371.56 percent and 13.417.6 percent, respectively, for the first ninesix months of 2016.

2021.

Total net revenue for the first ninesix months of 20172022 was $546$355 million (3.4(3.2 percent) higher than the first ninesix months of 2016,2021, reflecting a 6.16.6 percent increase in net interest income (6.0 percent on a taxable-equivalent basis) and a 0.31.1 percent increasedecrease in noninterest income. The increase in net interest income from athe first six months of 2021 was primarily due to higher average loan and investment securities balances, as well as rising interest rates in the current year ago was mainly a result of loan growth and the impact of rising interest rates.a favorable yield curve on earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first six months of 2021. The reduction in noninterest income increase was drivenreflected lower mortgage banking revenue, lower other noninterest income and lower gains on the sale of securities, mostly offset by higher payment services revenue and trust and investment management fees and treasury management fees, partially offset by lower mortgage banking revenue and lower equity investment income, reflecting the impact of the sale of the Company’s membership in Visa Europe Limited (“Visa Europe”) to Visa Inc. in the second quarter of 2016.

fees.

Noninterest expense in the first ninesix months of 20172022 was $334$460 million (3.9(6.8 percent) higher than the first ninesix months of 2016, the result of increased2021, reflecting increases in compensation expense, related to hiring to supportemployee benefits expense, marketing and business growthdevelopment expense, professional services expense 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 monthsmerger and integration-related charges 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.

$197 million.

The provision for credit losses for the first ninesix months of 20172022 was $423 million, compared with a benefit of $1.1 billion was $73
4
U.S. Bancorp
Table of Contents
$997 million (7.4 percent) higher thanfor the first ninesix months of 2016.2021. The provision for credit losses for the first six months of 2022 reflected the impact of loan growth and increasing economic uncertainty. The provision for credit losses for the first six months of 2021 reflected a decrease in the allowance for credit losses as a result of improving economic conditions and credit quality. Net charge-offs in the first ninesix months of 20172022 were $1.0 billion,$323 million, compared with $947$403 million in the first ninesix months of 2016.2021. 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 entered into a definitive agreement to acquire MUFG Union Bank’s core regional banking franchise, for an expected purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The transaction excludes the purchase of substantially all of MUFG Union Bank’s Global Corporate & Investment Bank (other than certain deposits), certain middle and back office functions, and other assets. MUFG Union Bank has approximately 300 branches in California, Washington and Oregon and is expected to add approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the Company’s consolidated balance sheet. Closing of the transaction is subject to customary closing conditions, including regulatory approvals which are not within the Company’s control. The parties continue to make significant progress in planning for closing and integration while awaiting regulatory approvals. At this time, the Company expects to receive U.S. regulatory approvals in time for closing to occur in the second half of 2022.
STATEMENT OF INCOME ANALYSIS

Net Interest Income
 Net interest income, on a taxable-equivalent basis, was $3.2$3.5 billion in the thirdsecond quarter and $9.2$6.7 billion in the first ninesix months of 2017,2022, representing increases of $243$300 million (8.3(9.5 percent) and $522$411 million (6.0(6.6 percent), respectively, over the same periods of 2016. The increases were principally driven by loan growth and the impact of rising interest rates. Average earning assets were $15.0 billion (3.8 percent) higher in the third quarter and $18.2 billion (4.7 percent) higher in the first nine months of 2017, compared with the same periods of 2016,2021. The increases were primarily due to higher loan and investment securities balances, in addition to rising interest rates in the current year and a favorable yield curve impacting earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first six months of 2021. Average earning assets for the second quarter and first six months of 2022 were $36.0 billion (7.2 percent) and $34.1 billion (6.8 percent) higher, respectively, than the same periods of the prior year, reflecting increases in investment securities and loans, other earning assets and investment securities.partially offset by decreases in interest-bearing deposits with banks. The net interest margin, on a taxable-equivalent basis, in the thirdsecond quarter and first ninesix months of 20172022 was 3.102.59 percent and 3.062.51 percent, respectively, compared with 2.982.53 percent and 3.022.52 percent in the thirdsecond quarter and first ninesix months of 2016,2021, respectively. The increasesincrease in the net interest margin fromin the same periodssecond quarter of 2022, compared with the prior year weresecond quarter of 2021, was primarily due to higherthe net impact of rising interest rates and changes in the loancurrent year and higher yields in the investment portfolio, mix, partially offset by higher funding costsdeposit pricing and higher cash balances.loan mix changes. The decrease in net interest margin in the first six months of 2022, compared with the first six months of 2021, was primarily driven by earning asset mix and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” tablestable for further information on net interest income.

Average investment securitiestotal loans in the thirdsecond quarter and first ninesix months of 20172022 were $3.7$29.9 billion (3.4(10.2 percent) and $4.2$24.5 billion (3.9(8.3 percent) higher, respectively, than the same periods of 2016,2021. The increases were primarily due to purchasesstrong growth in commercial loans, residential mortgages and other retail loans. The increase in commercial loans was primarily due to higher utilization driven by working capital needs of U.S. Treasury and U.S. government mortgage-backed securities, netcorporate customers, slower payoffs given higher volatility in the capital markets, as well as core growth, partially offset by expected reductions related to the forgiveness of prepayments and maturities, in support of liquidity management.

Average total loans in the thirdSBA Paycheck Protection Program. The increase in residential mortgages was driven by stronger

on-balance
sheet loan activities and slower refinance activity. The increase in other retail loans was driven by higher auto and recreational vehicle loans, partially offset by lower retail leasing balances and home equity and second mortgages.
Average investment securities in the second quarter and first ninesix months of 20172022 were $8.0$10.7 billion (3.0(6.7 percent) and $9.3$19.9 billion (3.5(13.0 percent) higher, respectively, than the same periods of 2016,2021, primarily due to growth in commercial loans, residential mortgages, other retail loanspurchases of mortgage-backed and credit card loans. The increases were driven by higher demand for loans from newU.S. Treasury securities, net of prepayments, sales 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.

maturities.

Average total deposits for the thirdsecond quarter and first ninesix months of 20172022 were $16.6$27.3 billion (5.2(6.4 percent) and $24.3$27.6 billion (7.9(6.4 percent) higher, respectively, than the same periods of 2016.2021. Average noninterest-bearing deposit balances were essentially unchanged intotal savings deposits
for the thirdsecond quarter and increased $1.9 billion (2.4 percent) in the first ninesix months of 2017, compared with2022 were $29.7 billion (10.6 percent) and $25.1 billion (9.0 percent) higher, respectively, than the same periods of 2016, reflectingthe prior year, driven by increases in Wealth ManagementCorporate and Securities Services,Commercial Banking, and Consumer and Small Business
U.S. Bancorp
5
Table of Contents
Banking balances, offset by decreases in Wholesale Banking and Commercial Real Estate balances. Average total savingstime deposits for the thirdsecond quarter and first ninesix months of 2017 increased $12.72022 were $2.1 billion (6.2 percent) and $23.2 billion (12.0 percent), respectively, over the same periods of 2016, a result of growth across all business lines. Average time deposits were $3.9 billion (12.2(8.5 percent) higher and $787$115 million (2.4(0.4 percent) lower, for the third quarter and first nine months of 2017, respectively, compared withthan the same periods of the prior year. The changes in time deposits were primarily driven by increases in Corporate and Commercial Banking balances, offset by decreases in Consumer and Business Banking balances. Changes in time deposits are largelyprimarily related to those deposits managed as an alternative to other funding sources, such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Average noninterest-bearing deposits for the second quarter of 2022 were $4.5 billion (3.6 percent) lower than the second quarter of 2021, driven by decreases in Corporate and Commercial Banking, Consumer and Business Banking, and Payment Services balances, partially offset by an increase in Wealth Management and Investment Services balances. Average noninterest-bearing deposits for the first six months of 2022 were $2.5 billion (2.1 percent) higher than the first six months of 2021, primarily due to increases in Wealth Management and Investment Services, and Corporate and Commercial Banking balances, partially offset by decreases in Payment Services and Consumer and Business Banking balances.

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 $30$311 million higher than net charge-offs in the thirdsecond quarter and $50$423 million higher thannet-charge-offsin the first ninesix months of 2017.2022, compared with a benefit of $170 million and $997 million, respectively, for the same periods of 2021. The provision for credit losses was $10 million higher than net charge-offs and $35 million higher than net charge-offs in the thirdsecond quarter and first ninesix months of 2016, respectively.2022 reflected the impact of loan growth and increasing economic uncertainty primarily associated with ongoing supply chain challenges and rising inflationary concerns. The increaseprovision for credit losses in the second quarter and first six months of 2021 reflected the enactment of additional government stimulus programs and widespread
COVID-19
vaccine availability, contributing to economic improvement during the period, which resulted in significant decreases in the allowance for credit losses during the third quarter and first nine months of 2017 reflected loan portfolio growth and exposures related to recent weather events, partially offset by improvements in the energy loan and residential mortgage portfolios.losses. Net charge-offs increased $15decreased $19 million (4.8 percent) and $58 million (6.1(10.6 percent) in the thirdsecond quarter and $80 million (19.9 percent) in the first ninesix months of 2017, respectively,2022, compared with the same periods of the prior year, primarily due to higherdriven by lower credit card net charge-offs, partially offset by lower net charge-offs related to residential mortgages and commercial and commercial real estate loans.charge-offs. 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$2.5 billion in the thirdsecond quarter and $7.2$4.9 billion in the first ninesix months of 2017,2022, representing a decreasedecreases of $23$71 million (0.9(2.7 percent) and an increase of $24$56 million (0.3(1.1 percent), respectively, compared with the same periods of 2016.2021. The decrease indecreases from the third quarterprior year reflected lower mortgage banking revenue, lower other noninterest income and lower gains on the sale of 2017, compared with the third quarter of 2016, was principallysecurities, mostly offset by higher payment services revenue and trust and investment management fees. Mortgage banking revenue decreased primarily due to lower application volume, given declining refinance activities experienced in the mortgage banking revenue,industry, lower related gain on sale margins and lower performing loan sales, partially offset by increases in trustmortgage servicing rights (“MSRs”) valuations, net of hedging activities. Other noninterest income decreased primarily due to lower retail leasing end-of-term residual gains 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 in payment services revenue, trust and investment management fees, and treasury management fees, as well as higherlower gains on sales of investment securities, partially offset by decreasescertain assets. Payment services revenue increased as a result of increases in mortgage bankingcorporate payment products revenue and other noninterest income. Mortgage banking revenue decreased due to lower originationhigher sales volume and increases in merchant processing services revenue driven by higher sales volumes from home refinancing, as refinancing activities were significantly higher in the secondvolume and third quarters of 2016 due to a decline in longer term interest rates during that period.merchant fees. Trust and investment management fees increased primarily due to favorable market conditions, and net asset and account growth. Payment services revenue was higher duebusiness growth, activity related 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 thirdfourth quarter of 2017 due to the Company exiting certain joint ventures2021 acquisition of PFM Asset Management LLC (“PFM”) and lower money market fee waivers.
 Table 2
   Noninterest Income
  
Three Months Ended
June 30
   
Six Months Ended
June 30
 
(Dollars in Millions) 2022   2021   Percent
Change		   2022   2021   Percent
Change		 
Credit and debit card revenue
 $399   $396    .8%   $737   $732    .7% 
Corporate payment products revenue
  172    138    24.6    330    264    25.0 
Merchant processing services
  425    374    13.6    788    692    13.9 
Trust and investment management fees
  566    446    26.9    1,066    890    19.8 
Deposit service charges
  165    176    (6.3)    342    337    1.5 
Treasury management fees
  169    160    5.6    325    307    5.9 
Commercial products revenue
  290    280    3.6    556    560    (.7) 
Mortgage banking revenue
  142    346    (59.0)    342    645    (47.0) 
Investment products fees
  59    60    (1.7)    121    115    5.2 
Securities gains (losses), net
  19    43    (55.8)    37    68    (45.6) 
Other
  142    200    (29.0)    300    390    (23.1) 
Total noninterest income
 $2,548   $2,619    (2.7)%   $4,944   $5,000    (1.1)% 
6
U.S. Bancorp
Table of Contents
Noninterest Expense
 Noninterest expense was $3.7 billion in the second quarter of 2017 and the impacts of recent weather events. Treasury management fees increased in the third quarter and first nine months of 2017, 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$7.2 billion in the first ninesix months of 2017,2022, representing increases of $108$337 million (3.7(9.9 percent) and $334$460 million (3.9(6.8 percent), respectively, over the same periods of 2016.2021. The increases from athe prior year ago were primarily due toreflected higher compensation expense, partially offset by lower professional services expense. Compensationemployee benefits 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.the impact of merger and integration-related charges associated with the planned acquisition of MUFG Union Bank. Compensation expense increased primarily due to merit increases and hiring to support business growth, partially offset by lower performance-based incentives. Employee benefits expense increased primarily driven by higher medical expenses. Marketing and business development expense was lower, primarilyincreased due to increased travel and entertainment. Marketing and business development expense further increased in the first six months of 2022, compared with the first six months of 2021, due to the impacttiming of the charitable contribution recordedmarketing campaigns. Noninterest expense further increased in the second quarterfirst six months of 2016. Other expense decreased, primarily2022, compared with the first six months of 2021, due to the impact of thehigher professional services expense reflecting an increase in reservesbusiness investment and related to legal and regulatory matters recorded ininitiatives during the second quarter of 2016, partially offset by the FDIC insurance surcharge which began in late 2016.

U.S. Bancorp5

current year.
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.

Income Tax Expense
 The provision for income taxes was $589$414 million (an effective rate of 27.321.3 percent) for the thirdsecond quarter and $1.6$811 million (an effective rate of 20.8 percent) for the first six months of 2022, compared with $551 million (an effective rate of 21.7 percent) and $1.2 billion (an effective rate of 26.4 percent) for the first nine months of 2017, compared with $566 million (an effective rate of 27.2 percent) and $1.6 billion (an effective rate of 26.621.3 percent) for the same periods of 2016.2021, respectively. 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$332.4 billion at SeptemberJune 30, 2017,2022, compared with $273.2$312.0 billion at December 31, 2016,2021, an increase of $5.5$20.4 billion (2.0(6.5 percent). The increase was driven primarily by higher commercial loans, residential mortgages, credit card loans and other retailcommercial real estate loans, partially offset by lower commercial real estate loans, credit card loans and coveredother retail loans.

Commercial loans increased $3.5$14.0 billion (3.8(12.5 percent) at SeptemberJune 30, 2017,2022, compared with December 31, 2016, reflecting2021, due to higher demand from newutilization driven by working capital needs of corporate customers and existing customers.

slower payoffs given higher volatility in the capital markets, as well as core growth.

Residential mortgages held in the loan portfolio increased $2.0$5.6 billion (3.6(7.3 percent) at SeptemberJune 30, 2017,2022, compared with December 31, 2016, as origination activity more than offset the effect of customers paying down balances in the first nine months of 2017.2021, due to stronger
on-balance
sheet loan activities and slower refinance activity. 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.

Other retail

Credit card loans increased $3.0$1.2 billion (5.6(5.3 percent) at SeptemberJune 30, 2017,2022, compared with December 31, 2016, primarily driven by higher installment2021, reflecting increased consumer spending and retail leasing loans, partially offset by decreases in student loans, home equity loans and revolving credit balances.

new account growth.

Commercial real estate loans decreased $1.7 billion (3.9increased $700 million (1.8 percent) at SeptemberJune 30, 2017,2022, compared with December 31, 2016,2021, primarily the result of disciplined underwriting of construction and development loans and customers paying down balances.

Credit cardnew originations.

Other retail loans decreased $826 million (3.8$1.1 billion (1.8 percent) at SeptemberJune 30, 2017,2022, compared with December 31, 2016, primarily the result2021, due to decreases in auto loans and retail leasing balances, partially offset by an increase in home equity loans.
 Table 3
   Noninterest Expense
  Three Months Ended June 30       Six Months Ended June 30 
(Dollars in Millions) 2022  2021  Percent
Change		       2022  2021  Percent
Change		 
Compensation
 $1,872  $1,798   4.1%     $3,725  $3,601   3.4% 
Employee benefits
  374   337   11.0      770   721   6.8 
Net occupancy and equipment
  265   258   2.7      534   521   2.5 
Professional services
  111   108   2.8      225   206   9.2 
Marketing and business development
  106   90   17.8      186   138   34.8 
Technology and communications
  350   362   (3.3)      699   721   (3.1) 
Postage, printing and supplies
  69   65   6.2      141   134   5.2 
Other intangibles
  40   40   —      87   78   11.5 
Other
  340   329   3.3        662   646   2.5 
Total before merger and integration charges
  3,527   3,387   4.1      7,029   6,766   3.9 
Merger and integration charges
  197   —   *        197   —   * 
Total noninterest expense
 $3,724  $3,387   9.9%       $7,226  $6,766   6.8% 
Efficiency ratio (a)
  62.1%   59.0%            62.4%   60.5%     
*
Not meaningful    
a)
See
Non-GAAP
Financial Measures beginning on page 31.
U.S. Bancorp
7
Table of customers paying down balances.

Contents

 Table 4
   Investment Securities
  June 30, 2022   December 31, 2021 
(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)		 
Held-to-maturity
              
U.S. Treasury and agencies
 $1,343   $1,337   3.8    2.85%   $—     $—     —    —% 
Mortgage-backed securities (a)
  60,160    54,320   10.0    1.92    41,858    41,812   7.4    1.45 
Total
held-to-maturity
 $61,503   $55,657   9.8    1.94%   $41,858   $41,812   7.4    1.45% 
Available-for-sale
              
U.S. Treasury and agencies
 $25,779   $23,767   6.9    1.95%   $36,648   $36,609   6.7    1.54% 
Mortgage-backed securities (a)
  71,544    65,316   8.0    1.96    85,394    85,564   4.9    1.58 
Asset-backed securities (a)
  —    —   —    —    62    66   5.2    1.53 
Obligations of state and political subdivisions (b) (c)
  10,925    9,716   13.0    3.64    10,130    10,717   6.6    3.67 
Other
  7    7   2.9    2.07    7    7   3.4    2.07 
Total
available-for-sale
 $108,255   $98,806   8.2    2.13%   $132,241   $132,963   5.5    1.73% 
(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.
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$3.9 billion at SeptemberJune 30, 2017,2022, compared with $4.8$7.8 billion at December 31, 2016.2021. The decrease in loans held for sale was principally due to a lower level of mortgage loan closings in the thirdsecond quarter of 2017.2022, compared with the fourth quarter of 2021. 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;markets, in particular in government agency transactions and to government-sponsored enterprises (“GSEs”).

Investment Securities
 Investment securities totaled $111.8$160.3 billion at SeptemberJune 30, 2017,2022, compared with $109.3$174.8 billion at December 31, 2016.2021. The $2.5$14.5 billion (2.3(8.3 percent) increasedecrease was primarily due to $2.2an $11.4 billion of net investment purchases and a $432 million favorableunfavorable change in net unrealized gains (losses) on
available-for-sale
investment securities and $2.3 billion of net investment sales and maturities. During the second quarter of 2022, the Company transferred $17.1 billion amortized cost ($15.7 billion fair value) of
available-for-sale
investment securities to the
held-to-maturity
category to reflect its new intent for these securities.

6U.S. Bancorp

Subsequent to June 30, 2022, the Company transferred an additional $19.8 billion amortized cost ($17.6 billion fair value) of available-for-sale investment securities to the held-to-maturity category.
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

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 SeptemberJune 30, 2017,2022, the Company’s net unrealized losses on
available-for-sale
investment securities were $269 million,$9.4 billion, compared with $701$722 million of net unrealized gains at December 31, 2016.2021. The favorableunfavorable change in net unrealized gains (losses) was primarily due to increasesdecreases in the fair value of mortgage-backed, U.S. Treasury U.S. government mortgage-backed and state and political securities as a result of changes in interest rates.rates, partially offset by the impact of the transfer of
available-for-sale
investment securities to the
held-to-maturity
category. Gross unrealized losses on
available-for-sale
investment securities totaled $596 million$9.5 billion at SeptemberJune 30, 2017,2022, compared with $1.0 billion$812 million at December 31, 2016.2021. At SeptemberJune 30, 2017,2022, the Company had no plans to sell securities with unrealized losses, and believesbelieved 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.

Deposits
 Total deposits were $342.6$467.1 billion at SeptemberJune 30, 2017,2022, compared with $334.6$456.1 billion at December 31, 2016, the result2021. The $11.0 billion (2.4 percent) increase in total
8
U.S. Bancorp
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deposits reflected increases in total savings deposits and time deposits, partially offset by a decrease in noninterest-bearing deposits. Interest checkingMoney market deposit balances increased $3.7$8.9 billion (5.6(7.6 percent) at June 30, 2022, compared with December 31, 2021, primarily due to higher Wholesale BankingWealth Management and Commercial Real Estate,Investment Services, and ConsumerCorporate and Small BusinessCommercial Banking balances. Savings account balances increased $1.9$2.3 billion (4.6(3.4 percent), driven by higher Consumer and Business Banking balances. Interest checking balances decreased $2.4 billion (2.0 percent), primarily due to higher Consumerlower Wealth Management and Small Business Banking balances. Money market deposit balances decreased $2.1 billion (1.9 percent) at September 30, 2017, compared with December 31, 2016, primarily due to lower Wholesale Banking and Commercial Real EstateInvestment Services balances, partially offset by higher Wealth ManagementCorporate and Securities ServicesCommercial Banking, and Consumer and Business Banking balances. Time deposits increased $8.4$8.0 billion (27.5(35.1 percent) at SeptemberJune 30, 2017,2022, compared with December 31, 2016,2021, driven by an increasehigher Corporate and Commercial Banking balances, partially offset by lower Consumer and Business Banking balances. Changes in time deposits are primarily related to 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 lower Consumer and Small Business Banking balances resulting from maturities.characteristics. Noninterest-bearing deposits decreased $3.9$5.8 billion (4.6(4.3 percent) at SeptemberJune 30, 2017,2022, compared with December 31, 2016,2021, primarily due to lower Wholesale BankingCorporate and Commercial Real Estate, and Wealth Management and Securities ServicesBanking balances, partially offset by higher ConsumerWealth Management and Small Business BankingInvestment Services 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$25.0 billion at SeptemberJune 30, 2017,2022, compared with $14.0$11.8 billion at December 31, 2016.2021. The $1.9$13.2 billion (13.6 percent) increase in short-term borrowings was primarily due to higher otherincreases in short-term borrowings balances, partially offset by lower federal funds purchased balances. Long-term debt was $34.5 billion at September 30, 2017, compared with $33.3 billion at December 31, 2016. The $1.2 billion (3.6 percent) increase 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 billion of bank note repayments, $1.3 billion of medium-term note maturities and a $2.1 billion decrease in Federal Home Loan Bank (“FHLB”) advances.advances and commercial paper balances. Long-term debt was $29.4 billion at June 30, 2022, compared with $32.1 billion at December 31, 2021. The $2.7 billion (8.5 percent) decrease was primarily due to $2.6 billion of bank note repayments and maturities, $1.3 billion of subordinated note repayments and $1.0 billion of medium-term note repayments, partially offset by $2.1 billion of medium-term 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.

The Company’s most prominent risk exposures are credit, interest rate, market, liquidity, operational, compliance, strategic, and reputational.reputation. 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
U.S. Bancorp
9
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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, 2016,2021, 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, geopolitical events, 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
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. 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
10
U.S. Bancorp
Table of Contents
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, 2016,2021, 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. 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 SeptemberJune 30, 2017,2022, substantially all of the Company’s home equity lines were in the draw period. Approximately $1.3 billion, or 9 percent, of the outstanding home equity line balances at September 30, 2017, will enter the amortization period within the next 36 months. Key risk characteristics relevant to consumer 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, 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 and correspondent banks and loan brokers.banks. 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
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11
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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 SeptemberJune 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% 

2022:
Residential Mortgages
(Dollars in Millions)		 Interest
Only		  Amortizing  Total  Percent
of Total		 
Loan-to-Value
    
Less than or equal to 80%
 $4,391  $68,699  $73,090   89.0% 
Over 80% through 90%
  2   1,605   1,607   2.0 
Over 90% through 100%
  —   113   113   .2 
Over 100%
  —   39   39   — 
No LTV available
  —   17   17   — 
Loans purchased from GNMA mortgage pools (a)
  —   7,248   7,248   8.8 
Total
 $4,393  $77,721  $82,114   100.0% 
(a)
Represents loans purchased and loans that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options 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.

Home Equity and Second Mortgages
(Dollars in Millions)		 Lines  Loans  Total  Percent
of Total		 
Loan-to-Value
/ Combined
Loan-to-Value
    
Less than or equal to 80%
 $9,557  $868  $10,425   95.0% 
Over 80% through 90%
  203   214   417   3.8 
Over 90% through 100%
  22   17   39   .4 
Over 100%
  33   3   36   .3 
No LTV/CLTV available
  54   2   56   .5 
Total
 $9,869  $1,104  $10,973   100.0% 
Home equity and second mortgages were $16.3$11.0 billion at SeptemberJune 30, 2017,2022, compared with $16.4$10.4 billion at December 31, 2016,2021, and included $4.8$3.0 billion of home equity lines in a first lien position and $11.5$8.0 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at SeptemberJune 30, 2017,2022, included approximately $4.9$2.7 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $6.6$5.3 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.

The following table provides a summary of delinquency statistics and other credit quality indicators for the Company’s junior lien positions at SeptemberJune 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 

2022:

  Junior Liens Behind    
(Dollars in Millions) Company Owned
or Serviced First
Lien		  Third Party
First Lien		  Total 
Total
 $2,755  $5,267  $8,022 
Percent 30—89 days past due
  .25%   .24%   .24% 
Percent 90 days or more past due
  .03%   .03%   .03% 
Weighted-average CLTV
  56%   54%   55% 
Weighted-average credit score
  785   786   785 
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.

Credit card and other retail loans are diversified across customer segments and geographies. Diversification in the credit card portfolio is achieved with broad customer relationship distribution through the Company’s and financial institution partners’ branches, retail and affinity partners, and digital channels.
The following table provides a summary of the Company’s credit card loan balances disaggregated based upon updated credit score at June 30, 2022:
12  U.S. Bancorp

Percent
of Total (a)
Table 5
Credit score > 660
   Delinquent Loan Ratios as a Percent of Ending Loan Balances88% 
Credit score < 660
12
No credit score
—

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
Credit score distribution excludes loans serviced by others.     
Loan Delinquencies
Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. Accruing loans 90 days or more past due totaled $423 million at June 30, 2022, compared with $472 million at December 31, 2021. These balances exclude loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options 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 million ($497 million excluding covered loans) at September 30, 2017, compared with $764 million ($552 million excluding covered loans) at December 31, 2016. These balances exclude loans purchased from Government National Mortgage Association (“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. 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 SeptemberJune 30, 2017,2022 compared with 0.280.15 percent (0.20 percent excluding covered loans) at December 31, 2016.

2021.
U.S. Bancorp
12
 13U.S. Bancorp

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 Table 5
   Delinquent Loan Ratios as a Percent of Ending Loan Balances
90 days or more past due
excluding
nonperforming loans		  June 30,
2022		  December 31,
2021		 
Commercial
   
Commercial
   .08%   .05% 
Lease financing
   —   — 
Total commercial
   .07   .04 
Commercial Real Estate
   
Commercial mortgages
   —   — 
Construction and development
   .04   .10 
Total commercial real estate
   .01   .03 
Residential Mortgages (a)
   .12   .24 
Credit Card
   .69   .73 
Other Retail
   
Retail leasing
   .03   .04 
Home equity and second mortgages
   .35   .35 
Other
   .05   .06 
Total other retail
   .10   .11 
Total loans
   .13%   .15% 
90 days or more past due
including
nonperforming loans		  June 30,
2022		  December 31,
2021		 
Commercial
   .19%   .20% 
Commercial real estate
   .53   .76 
Residential mortgages (a)
   .40   .53 
Credit card
   .69   .73 
Other retail
   .35   .35 
Total loans
   .35%   .42% 
(a)
Delinquent loan ratios exclude $1.7 billion at June 30, 2022, and $1.5 billion at December 31, 2021, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options 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 2.42 percent at June 30, 2022, and 2.43 percent at December 31, 2021.
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) June 30,
2022		   December 31,
2021		        June 30,
2022		  December 31,
2021		 
Residential Mortgages (a)
         
30-89
days
 $100   $124       .12%   .15% 
90 days or more
  102    181       .12   .24 
Nonperforming
  223    226         .27   .30 
Total
 $425   $531       .52%   .69% 
Credit Card
         
30-89
days
 $200   $193       .84%   .86% 
90 days or more
  164    165       .69   .73 
Nonperforming
  —    —         —   — 
Total
 $364   $358       1.54%   1.59% 
Other Retail
         
Retail Leasing
         
30-89
days
 $25   $29       .39%   .40% 
90 days or more
  2    3       .03   .04 
Nonperforming
  9    10         .14   .14 
Total
 $36   $42       .55%   .58% 
Home Equity and Second Mortgages
         
30-89
days
 $35   $55       .32%   .53% 
90 days or more
  38    37       .35   .35 
Nonperforming
  118    116         1.08   1.11 
Total
 $191   $208       1.74%   1.99% 
Other (b)
         
30-89
days
 $176   $191       .41%   .43% 
90 days or more
  22    26       .05   .06 
Nonperforming
  21    24         .05   .05 
Total
 $219   $241         .51%   .54% 
(a)
Excludes $297$642 million of loans
30-89
days past due and $1.8$1.7 billion of loans 90 days or more past due at SeptemberJune 30, 2017,2022, purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options that continue to accrue interest, compared with $273$791 million and $2.5$1.5 billion at December 31, 2016,2021, 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% 

U.S. Bancorp
13
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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 SeptemberJune 30, 2017,2022, performing TDRs were $4.0$3.2 billion, compared with $4.2$3.1 billion at December 31, 2016. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.

2021.

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.

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 to loans in the covered segment 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 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.

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 June 30, 2022
(Dollars in Millions)
 Performing
TDRs		   
30-89 Days

Past Due		  90 Days or More
Past Due		  Nonperforming
TDRs		  Total
TDRs		 
Commercial
 $141    4.7%   2.4%  $63(a)  $204 
Commercial real estate
  110    .7   —   117(b)   227 
Residential mortgages
  1,533    2.6   2.4   134   1,667(d) 
Credit card
  252    11.7   5.9   —   252 
Other retail
  183    8.8   4.6   36(c)   219(e) 
TDRs, excluding loans purchased from GNMA mortgage pools
  2,219    4.2   2.9   350   2,569 
Loans purchased from GNMA mortgage pools (g)
  965    —   —   —   965(f) 
Total
 $3,184    2.9%   2.0%  $350  $3,534 
(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$214 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $45$20 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(e)
Includes $78$60 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $13 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(f)
Includes $217$159 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$126 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(g)
Approximately 4.27.2 percent and 45.235.4 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
14
 15U.S. Bancorp

Table of Contents

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 hardships, including previously offering payment relief to borrowers that experienced financial hardships. Consumerhardship resulting directly from the effects of the
COVID-19
pandemic. Short-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 were not material at September 30, 2017.

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 SeptemberJune 30, 2017,2022, total nonperforming assets were $1.3 billion,$770 million, compared with $1.6 billionto $878 million at December 31, 2016.2021. The $352$108 million (22.0(12.3 percent) decrease in nonperforming assets was driven by improvementsa decrease in nonperforming commercial loans, residential mortgagesreal estate and OREO. Nonperforming covered assets were $32 million at September 30, 2017 and December 31, 2016.commercial loans. The ratio of total nonperforming assets to total loans and other real estate was 0.450.23 percent at SeptemberJune 30, 2017,2022, compared with 0.590.28 percent at December 31, 2016.

2021.

OREO excluding covered assets, was $164$23 million at SeptemberJune 30, 2017,2022, compared with $186$22 million at December 31, 2016,2021, 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

Table 6U.S. Bancorp 
15
Table of Contents
 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) June 30,
2022		  December 31,
2021		 
Commercial
  
Commercial
          $116           $139 
Lease financing
  32   35 
Total commercial
  148   174 
Commercial Real Estate
  
Commercial mortgages
  147   213 
Construction and development
  59   71 
Total commercial real estate
  206   284 
Residential Mortgages (b)
  223   226 
Credit Card
  —   — 
Other Retail
  
Retail leasing
  9   10 
Home equity and second mortgages
  118   116 
Other
  21   24 
Total other retail
  148   150 
Total nonperforming loans (1)
  725   834 
Other Real Estate (c)
  23   22 
Other Assets
  22   22 
Total nonperforming assets
      $770           $878 
Accruing loans 90 days or more past due (b)
          $423           $472 
Period-end
loans (2)
          $332,369           $312,028 
Nonperforming loans to total loans (1)/(2)
  .22%   .27% 
Nonperforming assets to total loans plus other real estate (c)
  .23%   .28% 
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, 2021
 $461  $417  $878 
Additions to nonperforming assets
   
New nonaccrual loans and foreclosed properties
  168   123   291 
Advances on loans
  5   1   6 
Total additions
  173   124   297 
Reductions in nonperforming assets
   
Paydowns, payoffs
  (173)   (36)   (209) 
Net sales
  (6)   (12)   (18) 
Return to performing status
  (47)   (76)   (123) 
Charge-offs (d)
  (51)   (4)   (55) 
Total reductions
  (277)   (128)   (405) 
Net additions to (reductions in) nonperforming assets
  (104)   (4)   (108) 
Balance June 30, 2022
 $357  $413  $770 
(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$1.7 billion at SeptemberJune 30, 2017,2022, and $1.5 billion at December 31, 2016, respectively,2021, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options 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$40 million at SeptemberJune 30, 2017,2022, and $22 million at December 31, 2016, respectively,2021, 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
16
 U.S. Bancorp
Table of Contents
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 June 30 
  2022       2021 
  Average             Average        
  Loan   Net         Loan   Net    
(Dollars in Millions) Balance   Charge-offs  Percent       Balance   Charge-offs  Percent 
Commercial
           
Commercial
 $115,758   $28   .10%     $97,713   $26   .11% 
Lease financing
  4,899    2   .16        5,261    1   .08 
Total commercial
  120,657    30   .10      102,974    27   .11 
Commercial real estate
           
Commercial mortgages
  29,676    (2)   (.03)      27,721    —   — 
Construction
  9,841    8   .33        10,843    —   — 
Total commercial real estate
  39,517    6   .06      38,564    —   — 
Residential mortgages
  80,228    (9)   (.04)      73,351    (10)   (.05) 
Credit card
  22,748    118   2.08      21,116    148   2.81 
Other retail
           
Retail leasing
  6,708    —   —      7,873    (1)   (.05) 
Home equity and second mortgages
  10,726    (3)   (.11)      11,368    (3)   (.11) 
Other
  43,603    19   .17        39,038    19   .20 
Total other retail
  61,037    16   .11        58,279    15   .10 
Total loans
 $324,187   $161   .20%       $294,284   $180   .25% 
  Six Months Ended June 30 
  2022       2021 
  Average             Average        
  Loan   Net         Loan   Net    
(Dollars in Millions) Balance   Charge-offs  Percent       Balance   Charge-offs  Percent 
Commercial
           
Commercial
 $111,810   $54   .10%     $97,237   $78   .16% 
Lease financing
  4,951    8   .33        5,298    5   .19 
Total commercial
  116,761    62   .11      102,535    83   .16 
Commercial real estate
           
Commercial mortgages
  29,253    (2)   (.01)      27,844    (12)   (.09) 
Construction
  10,049    3   .06        10,831    5   .09 
Total commercial real estate
  39,302    1   .01      38,675    (7)   (.04) 
Residential mortgages
  78,847    (15)   (.04)      74,271    (15)   (.04) 
Credit card
  22,297    230   2.08      21,130    292   2.79 
Other retail
           
Retail leasing
  6,908    1   .03      7,924    —   — 
Home equity and second mortgages
  10,561    (5)   (.10)      11,713    (5)   (.09) 
Other
  43,932    49   .22        37,890    55   .29 
Total other retail
  61,401    45   .15        57,527    50   .18 
Total loans
 $318,608   $323   .20%       $294,138   $403   .28% 
Analysis of Loan Net Charge-Offs
 Total loan net charge-offs were $161 million for the second quarter and $323 million for the first six months of 2022, compared with $180 million and $403 million, respectively, for the same periods of 2021. The year-over-year decreases in net charge-offs were primarily driven by lower credit card net charge-offs. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for both the second quarter and first six months of 2022 was 0.20 percent, compared with 0.25 percent and 0.28 percent, respectively, for the same periods of 2021.
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

U.S. Bancorp
17
Table of Contents
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 economic forecast uncertainty. 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 bond 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 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 than the migration analysis. The allowance recordedas appropriate. For commercial TDRs individually evaluated for all other commercial lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristicsimpairment, attributes of the portfolio, bankruptcyborrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience and historical losses, adjusted for current trends.

is also incorporated into the allowance methodology applied to this category of loans.

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 SeptemberJune 30, 2017,2022, the Company serviced the first lien on 4234 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$193 million or 1.8 percent of theits total home equity portfolio at SeptemberJune 30, 2017,2022, represented

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

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.
18
U.S. Bancorp
Table of Contents
When a loan portfolio is purchased, the acquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and with residential linesthose not considered PCD. 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 June 30, 2022.

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, 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 SeptemberJune 30, 2017,2022, the allowance for credit losses was $4.4$6.3 billion (1.58(1.88 percent of
period-end
loans), compared with an allowance of $4.4$6.2 billion (1.59(1.97 percent of
period-end
loans) at December 31, 2016.2021. The ratio of the allowance for credit losses to nonperforming loans was 426863 percent at SeptemberJune 30, 2017,2022, compared with 318738 percent at December 31, 2016.2021. The ratio of the allowance for credit losses to annualized loan net charge-offs was 337969 percent at SeptemberJune 30, 2017,2022, compared with 343902 percent of full year 20162021 net charge-offs at December 31, 2016.

2021.
The increase in the allowance for credit losses of $100 million (1.6 percent) at June 30, 2022, compared with December 31, 2021, was driven by strong loan growth and increased economic uncertainty, partially offset by stabilizing credit quality. Economic uncertainty and recession risk has been increasing due to ongoing supply chain challenges, rising inflationary concerns, market volatility, rising oil prices resulting from the Russia-Ukraine conflict and, to a lesser extent, additional
COVID-19
virus variants. In addition to these factors, expected loss estimates consider various factors including customer specific information impacting changes in risk ratings, projected delinquencies, potential effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay.
Economic conditions considered in estimating the allowance for credit losses at June 30, 2022 included changes in projected gross domestic product and unemployment levels. These factors are evaluated through a combination of quantitative calculations using economic scenarios and qualitative assessments that consider the high degree of economic uncertainty in the current environment.
The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for credit losses at June 30, 2022 and December 31, 2021:
   
June 30,
2022
  
December 31,
2021
 
United States unemployment rate for the three months ending (a)
  
June 30, 2022
  3.6%   3.6% 
September 30, 2022
  3.4   3.5 
December 31, 2022
  3.3   3.5 
United States real gross domestic product for the three months ending (b)
  
June 30, 2022
  2.5%   4.4% 
September 30, 2022
  2.8   4.5 
December 31, 2022
  1.8   3.4 
(a)
Reflects quarterly average of forecasted reported United States unemployment rate.
(b)
Reflects year-over-year growth rates.
The allowance for credit losses related to commercial lending segment loans decreased $103 million during the first six months of 2022, reflecting select commercial portfolios continuing to recover from the effects of the
COVID-19
pandemic, partially offset by the impacts of loan growth and rising economic uncertainty.
The allowance for credit losses related to consumer lending segment loans increased $203 million during the first six months of 2022, mainly due to loan growth and rising economic uncertainty.
U.S. Bancorp 
19

Table of Contents
Table 8
   Summary of Allowance for Credit Losses
  Three Months Ended      Six Months Ended 
  June 30       June 30 
(Dollars in Millions) 2022  2021       2022  2021 
Balance at beginning of period
 $6,105  $6,960     $6,155  $8,010 
Charge-Offs
       
Commercial
       
Commercial
  48   54      95   134 
Lease financing
  5   4        13   10 
Total commercial
  53   58      108   144 
Commercial real estate
       
Commercial mortgages
  1   3      1   8 
Construction and development
  8   1        9   6 
Total commercial real estate
  9   4      10   14 
Residential mortgages
  2   5      7   10 
Credit card
  162   192      320   382 
Other retail
       
Retail leasing
  4   4      9   15 
Home equity and second mortgages
  2   2      5   6 
Other
  44   49        97   117 
Total other retail
  50   55        111   138 
Total charge-offs
  276   314      556   688 
Recoveries
       
Commercial
       
Commercial
  20   28      41   56 
Lease financing
  3   3        5   5 
Total commercial
  23   31      46   61 
Commercial real estate
       
Commercial mortgages
  3   3      3   20 
Construction and development
  —   1        6   1 
Total commercial real estate
  3   4      9   21 
Residential mortgages
  11   15      22   25 
Credit card
  44   44      90   90 
Other retail
       
Retail leasing
  4   5      8   15 
Home equity and second mortgages
  5   5      10   11 
Other
  25   30        48   62 
Total other retail
  34   40        66   88 
Total recoveries
  115   134      233   285 
Net Charge-Offs
       
Commercial
       
Commercial
  28   26      54   78 
Lease financing
  2   1        8   5 
Total commercial
  30   27      62   83 
Commercial real estate
       
Commercial mortgages
  (2)   —      (2)   (12) 
Construction and development
  8   —        3   5 
Total commercial real estate
  6   —      1   (7) 
Residential mortgages
  (9)   (10)      (15)   (15) 
Credit card
  118   148      230   292 
Other retail
       
Retail leasing
  —   (1)      1   — 
Home equity and second mortgages
  (3)   (3)      (5)   (5) 
Other
  19   19        49   55 
Total other retail
  16   15        45   50 
Total net charge-offs
  161   180      323   403 
Provision for credit losses
  311   (170)        423   (997) 
Balance at end of period
 $6,255  $6,610       $6,255  $6,610 
Components
       
Allowance for loan losses
 $5,832  $6,026      
Liability for unfunded credit commitments
  423   584        
Total allowance for credit losses (1)
 $6,255  $6,610        
Period-end
loans (2)
 $332,369  $296,912      
Nonperforming loans (3)
  725   1,018      
Allowance for Credit Losses as a Percentage of
       
Period-end
loans (1)/(2)
  1.88%   2.23%      
Nonperforming loans (1)/(3)
  863   649      
Nonperforming and accruing loans 90 days or more past due
  545   474      
Nonperforming assets
  812   624      
Annualized net charge-offs
  969   916              
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             

(a)Relates to covered loan charge-offs and recoveries not reimbursable by the FDIC.
(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.

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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 SeptemberJune 30, 2017,2022, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 2016.2021. 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, 2016,2021, 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 economic and financial disruptions. 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, 2016,2021, 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 economic and financial disruptions. 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, 2016,2021, 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 ensuringoverseeing 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”) thanNet interest income sensitivities reflect the assumptions the Company usedimpact of current market expectations for interest rates, driving an increase in preparing Table 9, thebaseline projected impact to net interest income would increase to 2.02 percentincome. As market expectations are reflected in the “Up 50 basis point (“bps”)” and 3.91

projected results, incremental interest rate sensitivity declines on a percentage basis.
Table 9U.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% 

  June 30, 2022       December 31, 2021 
   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
  (1.45)%   1.17%   *    1.54%        (3.77)%   3.09%   *    5.39% 
*
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 loans and 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 SeptemberJune 30, 2017,2022, the Company had $5.8$5.1 billion of forward commitments to sell, hedging $2.5$2.1 billion of MLHFS and $3.5$4.0 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. 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, with respect to the most commonly used tenors of United States Dollar LIBOR, LIBOR will no longer be published on a representative basis after June 30, 2023. The publication of all other tenors of United States Dollar LIBOR ceased to be provided or ceased to be representative after December 31, 2021. The Company holds financial instruments impacted by the discontinuance of LIBOR, including certain loans, investment securities, derivatives,
22
 U.S. Bancorp

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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 has transitioned financial instruments associated to LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021 to alternative reference rates, with limited exceptions. The Company also anticipates that additional financial instruments associated to the remaining United States Dollar LIBOR tenors will require transition to a new reference rate by June 30, 2023. The Company is currently assessing the applicability and scope of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), which was enacted on March 15, 2022. The LIBOR Act establishes a process for replacing LIBOR on existing LIBOR contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate by providing that a benchmark replacement identified by the Federal Reserve Board that is based on the Secured Overnight Financing Rate (“SOFR”) will replace LIBOR as the benchmark for such contracts. The final implementation of the LIBOR Act currently remains uncertain, as the Federal Reserve has 180 days after its enactment to issue any regulations that are necessary for its administration.
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 also invested in updating its systems, models, procedures and internal infrastructure as part of the transition program. Additionally, in alignment with guidance from United States banking agencies and the FCA, the Company has ceased the use of LIBOR as a reference rate in new contracts, with limited exceptions, and continues to increase the usage of alternative reference rates such as SOFR. The Company has also adopted industry best practice guidelines for fallback language for new transactions, converted its cleared interest rate swaps discounting to SOFR 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, 2021, 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.

U.S. Bancorp
23
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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 

Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Average
 $1   $2 
High
  2    4 
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 ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. 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.

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 

Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Average
 $5   $7 
High
  9    9 
Low
  3    5 
Period-end
  9    8 
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

Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Residential Mortgage Loans Held For Sale and Related Hedges
   
Average
 $2   $10 
High
  5    19 
Low
  1    5 
Mortgage Servicing Rights and Related Hedges
   
Average
 $7   $4 
High
  13    11 
Low
  3    1 

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 at the Federal Reserve Bank’s Discount Window. At SeptemberJune 30, 2017,2022, the fair value of unencumberedavailable-for-sale andheld-to-maturity investment securities totaled $104.9$137.5 billion, compared with $100.6$144.0 billion at December 31, 2016.2021. 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
24
U.S. Bancorp
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Federal Reserve Bank. At SeptemberJune 30, 2017,2022, the Company could have borrowed a total of an additional $90.2$95.5 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$467.1 billion at SeptemberJune 30, 2017,2022, compared with $334.6$456.1 billion at December 31, 2016.2021. 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$29.4 billion at SeptemberJune 30, 2017,2022, and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were $15.9$25.0 billion at SeptemberJune 30, 2017,2022, 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 SeptemberJune 30, 2017,2022, parent company long-term debt outstanding was $15.8$18.4 billion, compared with $13.0$18.9 billion at December 31, 2016.2021. The increasedecrease was primarily due to the issuance of $3.9$1.3 billion of medium-term notes, partially offset by $1.3subordinated note and $1.0 billion of medium-term note maturities.repayments, partially offset by $2.1 billion of medium-term note issuances. As of SeptemberJune 30, 2017,2022, there was no parent company debt scheduled to mature in the remainder of 2017.

2022.

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 SeptemberJune 30, 2017,2022, the Company was compliant with this requirement.

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 June 30, 2022, 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, 2016,2021, 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 six months ended June 30, 2022. 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 SeptemberJune 30, 2017,2022, the Company had an aggregate amount on deposit with European banks of approximately $8.1$7.3 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 deterioration in economic conditions in Europe, including the impacts resulting from the Russia-Ukraine conflict, is unlikelynot expected to have a significant effect on the Company related to these activities.

Off-Balance Sheet Arrangements Off-balance sheet arrangements include any

Commitments, Contingent Liabilities and Other Contractual Obligations
 The Company participates in many different contractual arrangements to which an unconsolidated entity is a party,may or may not be recorded on its balance sheet, with unrelated or consolidated entities, under which the Company has an obligation to pay certain amounts, provide credit or liquidity enhancements or provide market risk support. In the ordinary course of business, the Company enters into an array ofThese arrangements include commitments to extend credit, letters of credit and various forms of guarantees that may be consideredoff-balance sheet arrangements.guarantees. 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 sheetguarantees and contingent liabilities. These 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.

U.S. Bancorp
25
Table of Contents
Table 10
   Regulatory Capital Ratios

(Dollars in Millions)      June 30,
2022		  December 31,
2021		 
Basel III standardized approach:
             
Common equity tier 1 capital
      $42,944  $41,701 
Tier 1 capital
       50,195   48,516 
Total risk-based capital
       58,307   56,250 
Risk-weighted assets
       441,804   418,571 
    
Common equity tier 1 capital as a percent of risk-weighted assets
       9.7%   10.0% 
Tier 1 capital as a percent of risk-weighted assets
       11.4   11.6 
Total risk-based capital as a percent of risk-weighted assets
       13.2   13.4 
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
       8.6   8.6 
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)
       7.1   6.9 
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 2022, the Company began to phase into its regulatory capital requirements the cumulative deferred impact of its 2020 adoption of the accounting guidance related to the impairment of financial instruments based on the current expected credit losses (“CECL”) methodology plus 25 percent of its quarterly credit reserve increases over the following four years to full implementation by January 1, 2018. Basel III includespast two comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches, withyears. This cumulative deferred impact will be phased into the Company’s regulatory capital adequacy being evaluated againstover the methodology that is most restrictive.next three years, culminating with a fully phased in regulatory capital calculation beginning in 2025. Table 10 provides a summary of statutory regulatory capital ratios in effect for the Company at SeptemberJune 30, 20172022 and December 31, 2016.2021. 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 7.75.5 percent and 9.57.2 percent, respectively, at SeptemberJune 30, 2017,2022, compared with 7.56.8 percent and 9.2 percent, respectively, at December 31, 2016. The2021. 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 9.4 percent at SeptemberJune 30, 2017,2022, compared with 9.19.6 percent at December 31, 2016. The Company’s common2021. Refer to “Non-GAAP Financial Measures” beginning on page 31 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$48.6 billion at SeptemberJune 30, 2017,2022, compared with 11.7 percent$54.9 billion at December 31, 2016.

On June 28, 2017,2021. The decrease was primarily the result of changes in unrealized gains and losses on available-for-sale investment securities included in other comprehensive income (loss) and dividends paid, partially offset by corporate earnings and the issuance of preferred stock.

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 pending acquisition of MUFG Union Bank’s core regional banking franchise. The Company expects to operate at a common equity tier 1 capital ratio near its target ratio of 8.5 percent at the time of closing the acquisition and increasing toward 9.0 percent after closing of the acquisition. The Company does not expect to commence repurchasing its common stock until after the acquisition closes and its common equity tier 1 capital ratio approximates 9.0 percent.

The following table provides a detailed analysis of all shares of common stock of the Company purchased by the Company or any affiliated purchaser during the thirdsecond 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 

2022:
Period Total Number
of Shares
Purchased		  Average
Price Paid
Per Share		  Total Number of
Shares Purchased
as Part of Publicly
Announced
Program		  Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program
(In Millions)		 
April
  308,312(a)  $53.07   8,312  $1,390 
May
  392   44.52   392   1,390 
June
  994   48.05   994   1,390 
Total
  309,698(a)  $53.05   9,698  $1,390 
(a)
All
Includes 300,000 shares wereof common stock purchased, underat an average price per share of $53.11, in open-market transactions by U.S. Bank National Association, the stock repurchase authorization program announced on June 28, 2017.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.

On September 19, 2017,

26
U.S. Bancorp
Table of Contents
The Company will continue to 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 Company announced itsapproval of the Company’s Board of Directors had approved a 7.1 percent increase in the Company’s dividend rate per common share from $0.28 per quarter to $0.30 per quarter.

and compliance with regulatory requirements.

Refer to “Management’s Discussion and Analysis — Capital Management” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2016,2021, 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 2017,2022, certain organization and methodology changes were made and, accordingly, 20162021 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$377 million of the Company’s net income in the thirdsecond quarter and $827$793 million in the first ninesix months of 2017,2022, or increasesdecreases of $57$41 million (25.3(9.8 percent) and $253$87 million (44.1(9.9 percent), respectively, compared with the same periods of 2016.

2021.

Net revenue increased $48$65 million (6.1(6.6 percent) in the thirdsecond quarter and $186$59 million (8.0(3.0 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016.2021. Net interest income, on a taxable-equivalent basis, increased $53$58 million (9.4(8.0 percent) in the thirdsecond quarter and $168$75 million (10.3(5.2 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016.2021. The increases were primarily due to the impact of rising rates on the margin benefit from depositshigher loan and growth in average loan andinterest-bearing deposit balances, partially offset by lower spreadspreads on loans reflecting a competitive marketplace.and unfavorable changes in deposit rates. Noninterest income increased $7 million (2.6 percent) in the second quarter of 2022, compared with the second quarter of 2021, primarily due to stronger treasury management fees driven by core growth and increased federal government volume. Noninterest income decreased $5$16 million (2.3(3.0 percent) in the third quarterfirst six months of 2017,2022, compared with the third quarterfirst six months of 2016,2021, primarily due to higher loan related charges,lower corporate bond fees and trading revenue within the capital markets business, partially offset by higher treasury management fees.
Noninterest incomeexpense increased $18$20 million (2.7(4.6 percent) in the second quarter and $25 million (2.9 percent) in the first ninesix months of 2017, compared with the same period of 2016, driven by

26U.S. Bancorp

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

Noninterest expense increased $41 million (11.5 percent) in the third quarter and $122 million (11.4 percent) in the first nine months of 2017,2022, compared with the same periods of 2016,2021, primarily due to increases in variable costs allocated to manage the businesshigher Federal Deposit Insurance Corporation insurance expense and higher compensation expense reflecting the impact of increased staffing,primarily due to merit increases, variable compensation 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.hiring to support business growth, partially offset by lower performance-based incentives related to capital markets activity. The provision for credit losses decreased $82increased $100 million in the thirdsecond quarter and $333$150 million (97.4 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016,2021, primarily due to favorable changesloan loss provisions supporting stronger growth in the reserve allocation and continued stabilization ofloan balances, partially offset by improving portfolio credit quality in the energy sector.

quality.

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$501 million of the Company’s net income in the thirdsecond quarter and $974$880 million in the first ninesix months of 2017,2022, or an increasedecreases of $4$145 million (1.1(22.4 percent) and a decrease of $62$331 million (6.0(27.3 percent), respectively, compared with the same periods of 2016.

2021.

U.S. Bancorp
27
Table of Contents
 Table 11
   Line of Business Financial Performance
  
Corporate and
Commercial Banking
      
Consumer and
Business Banking
      
Wealth Management and
Investment Services
     
Three Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change		      2022  2021  Percent
Change		      2022  2021  Percent
Change		     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $784  $726   8.0%      $1,617  $1,534   5.4%      $352  $246   43.1%     
Noninterest income
  272   265   2.6       395   634   (37.7)       652   549   18.8     
Total net revenue
  1,056   991   6.6       2,012   2,168   (7.2)       1,004   795   26.3     
Noninterest expense
  453   433   4.6       1,419   1,375   3.2       581   521   11.5     
Income (loss) before provision and income taxes
  603   558   8.1       593   793   (25.2)       423   274   54.4     
Provision for credit losses
  100   —   *       (75)   (68)   (10.3)       (4)   (4)   —     
Income (loss) before income taxes
  503   558   (9.9)       668   861   (22.4)       427   278   53.6     
Income taxes and taxable-equivalent adjustment
  126   140   (10.0)       167   215   (22.3)       107   70   52.9     
Net income (loss)
  377   418   (9.8)       501   646   (22.4)       320   208   53.8     
Net (income) loss attributable to noncontrolling interests
  —   —   —       —   —   —       —   —   —     
Net income (loss) attributable to U.S. Bancorp
 $377  $418   (9.8)      $501  $646   (22.4)      $320  $208   53.8     
Average Balance Sheet
                                                
Loans
 $123,210  $102,275   20.5      $141,135  $140,826   .2      $22,320  $17,442   28.0     
Goodwill
  1,912   1,647   16.1       3,244   3,476   (6.7)       1,718   1,618   6.2     
Other intangible assets
  4   5   (20.0)       3,634   2,828   28.5       300   84   *     
Assets
  137,773   114,186   20.7       156,132   161,695   (3.4)       25,786   20,470   26.0     
Noninterest-bearing deposits
  58,266   60,696   (4.0)       31,642   33,702   (6.1)       25,019   23,288   7.4     
Interest-bearing deposits
  93,678   70,019   33.8       168,486   158,164   6.5       71,759   73,347   (2.2)     
Total deposits
  151,944   130,715   16.2       200,128   191,866   4.3       96,778   96,635   .1     
Total U.S. Bancorp shareholders’ equity
  13,989   13,816   1.3       12,366   12,337   .2       3,618   3,089   17.1     
  
Payment
Services
  
Treasury and
Corporate Support
      
Consolidated
Company
     
Three Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change		      2022  2021  Percent
Change		      2022  2021  Percent
Change		     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $619  $595   4.0%      $92  $63   46.0%      $3,464  $3,164   9.5%     
Noninterest income
  994   913   8.9       235   258   (8.9)       2,548   2,619   (2.7)     
Total net revenue
  1,613   1,508   7.0       327   321   1.9       6,012   5,783   4.0     
Noninterest expense
  871   829   5.1       400   229   74.7       3,724   3,387   9.9     
Income (loss) before provision and income taxes
  742   679   9.3       (73)   92   *       2,288   2,396   (4.5)     
Provision for credit losses
  221   91   *       69   (189)   *       311   (170)   *     
Income (loss) before income taxes
  521   588   (11.4)       (142)   281   *       1,977   2,566   (23.0)     
Income taxes and taxable-equivalent adjustment
  130   147   (11.6)       (87)   6   *       443   578   (23.4)     
Net income (loss)
  391   441   (11.3)       (55)   275   *       1,534   1,988   (22.8)     
Net (income) loss attributable to noncontrolling interests
  —   —   —       (3)   (6)   50.0       (3)   (6)   50.0     
Net income (loss) attributable to U.S. Bancorp
 $391  $441   (11.3)      $(58)  $269   *      $1,531  $1,982   (22.8)     
Average Balance Sheet
                                                
Loans
 $33,854  $30,030   12.7      $3,668  $3,711   (1.2)      $324,187  $294,284   10.2     
Goodwill
  3,318   3,176   4.5       —   —   —       10,192   9,917   2.8     
Other intangible assets
  438   518   (15.4)       —   —   —       4,376   3,435   27.4     
Assets
  41,054   35,618   15.3       219,166   219,396   (.1)       579,911   551,365   5.2     
Noninterest-bearing deposits
  3,396   5,030   (32.5)       2,504   2,581   (3.0)       120,827   125,297   (3.6)     
Interest-bearing deposits
  167   141   18.4       1,599   2,242   (28.7)       335,689   303,913   10.5     
Total deposits
  3,563   5,171   (31.1)       4,103   4,823   (14.9)       456,516   429,210   6.4     
Total U.S. Bancorp shareholders’ equity
  8,115   7,413   9.5       11,078   16,307   (32.1)       49,166   52,962   (7.2)     
*
Not meaningful
28
U.S. Bancorp
Table of Contents
  
Corporate and
Commercial Banking
      
Consumer and
Business Banking
      
Wealth Management and
Investment Services
     
Six Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change		      2022  2021  Percent
Change		      2022  2021  Percent
Change		     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $1,523  $1,448   5.2 %      $3,129  $3,035   3.1 %      $627  $514   22.0 %     
Noninterest income
  517   533   (3.0)       856   1,203   (28.8)       1,248   1,080   15.6     
Total net revenue
  2,040   1,981   3.0       3,985   4,238   (6.0)       1,875   1,594   17.6     
Noninterest expense
  878   853   2.9       2,839   2,731   4.0       1,174   1,020   15.1     
Income (loss) before provision and income taxes
  1,162   1,128   3.0       1,146   1,507   (24.0)       701   574   22.1     
Provision for credit losses
  104   (46)   *       (28)   (108)   74.1       4   1   *     
Income (loss) before income taxes
  1,058   1,174   (9.9)       1,174   1,615   (27.3)       697   573   21.6     
Income taxes and taxable-equivalent adjustment
  265   294   (9.9)       294   404   (27.2)       175   144   21.5     
Net income (loss)
  793   880   (9.9)       880   1,211   (27.3)       522   429   21.7     
Net (income) loss attributable to noncontrolling interests
  —   —   —       —   —   —       —   —   —     
Net income (loss) attributable to U.S. Bancorp
 $793  $880   (9.9)      $880  $1,211   (27.3)      $522  $429   21.7     
Average Balance Sheet
                                                
Loans
 $119,557  $102,201   17.0      $140,984  $141,170   (.1)      $21,521  $17,147   25.5     
Goodwill
  1,912   1,647   16.1       3,252   3,476   (6.4)       1,739   1,618   7.5     
Other intangible assets
  4   5   (20.0)       3,406   2,661   28.0       283   63   *     
Assets
  132,856   114,229   16.3       156,770   162,803   (3.7)       25,124   20,297   23.8     
Noninterest-bearing deposits
  60,298   58,524   3.0       31,807   33,244   (4.3)       26,204   22,339   17.3     
Interest-bearing deposits
  90,336   70,943   27.3       167,279   154,450   8.3       71,024   78,489   (9.5)     
Total deposits
  150,634   129,467   16.3       199,086   187,694   6.1       97,228   100,828   (3.6)     
Total U.S. Bancorp shareholders’ equity
  13,859   14,092   (1.7)       12,311   12,407   (.8)       3,607   3,062   17.8     
  
Payment
Services
      
Treasury and
Corporate Support
      
Consolidated
Company
     
Six Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change		      2022  2021  Percent
Change		      2022  2021  Percent
Change		     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $1,241  $1,224   1.4 %      $144  $32   *%      $6,664  $6,253   6.6 %     
Noninterest income
  1,852   1,698   9.1       471   486   (3.1)       4,944   5,000   (1.1)     
Total net revenue
  3,093   2,922   5.9       615   518   18.7       11,608   11,253   3.2     
Noninterest expense
  1,726   1,627   6.1       609   535   13.8       7,226   6,766   6.8     
Income (loss) before provision and income taxes
  1,367   1,295   5.6       6   (17)   *       4,382   4,487   (2.3)     
Provision for credit losses
  351   50   *       (8)   (894)   99.1       423   (997)   *     
Income (loss) before income taxes
  1,016   1,245   (18.4)       14   877   (98.4)       3,959   5,484   (27.8)     
Income taxes and taxable-equivalent adjustment
  254   311   (18.3)       (121)   58   *       867   1,211   (28.4)     
Net income (loss)
  762   934   (18.4)       135   819   (83.5)       3,092   4,273   (27.6)     
Net (income) loss attributable to noncontrolling interests
  —   —   —       (4)   (11)   63.6       (4)   (11)   63.6     
Net income (loss) attributable to U.S. Bancorp
 $762  $934   (18.4)      $131  $808   (83.8)      $3,088  $4,262   (27.5)     
Average Balance Sheet
                                                
Loans
 $32,802  $29,831   10.0      $3,744  $3,789   (1.2)      $318,608  $294,138   8.3     
Goodwill
  3,322   3,175   4.6       —   —   —       10,225   9,916   3.1     
Other intangible assets
  450   530   (15.1)       —   —   —       4,143   3,259   27.1     
Assets
  39,803   35,356   12.6       224,110   217,372   3.1       578,663   550,057   5.2     
Noninterest-bearing deposits
  3,534   5,146   (31.3)       2,532   2,591   (2.3)       124,375   121,844   2.1     
Interest-bearing deposits
  164   137   19.7       2,174   1,932   12.5       330,977   305,951   8.2     
Total deposits
  3,698   5,283   (30.0)       4,706   4,523   4.0       455,352   427,795   6.4     
Total U.S. Bancorp shareholders’ equity
  8,067   7,535   7.1       13,460   15,750   (14.5)       51,304   52,846   (2.9)     
*
Not meaningful
U.S. Bancorp
29
Table of Contents
Net revenue increased $30decreased $156 million (1.6(7.2 percent) in the thirdsecond quarter and $204$253 million (3.8(6.0 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016.2021. Noninterest income decreased $239 million (37.7 percent) in the second quarter and $347 million (28.8 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to lower mortgage banking revenue reflecting lower application volume, given declining refinance activities, lower related gain on sale margins and lower performing loan sales, partially offset by an increase in the fair value of MSRs, net of hedging activities. Net interest income, on a taxable-equivalent basis, increased $110$83 million (9.2(5.4 percent) in the thirdsecond quarter and $266$94 million (7.6(3.1 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016. The increases were primarily due to the impact of rising rates on the margin benefit from deposits along with2021, reflecting strong growth in average loaninterest-bearing deposit balances and deposit balances,favorable funding mix, partially offset by lower spreadspreads on loans. loans and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program.
Noninterest income decreased $80expense increased $44 million (11.2(3.2 percent) in the thirdsecond quarter and $62$108 million (3.3(4.0 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016, principally driven by lower mortgage banking revenue due to lower origination and sales volume related to refinancing activities, as refinancing activities were significantly higher in the second and third quarters of 2016. Partially offsetting the impact of lower mortgage banking revenue was growth in retail leasing revenue due to strongerend-of-term gains on auto leases and higher ATM processing services and treasury management fees.

Noninterest expense decreased $27 million (2.1 percent) in the third quarter of 2017, compared with the third quarter of 2016,2021, 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 million (1.9 percent) in the first nine months of 2017, compared with the same period of 2016, principally due to higher compensation and employee benefits expenses, higher net shared services expense anddue to investments in digital capabilities. The provision for credit losses decreased $7 million (10.3 percent) in the impactsecond quarter of 2022, compared with the FDIC insurance surcharge on deposit balances, partially offset by lower mortgage related costs and professional services expense.second quarter of 2021, due to strong improvements in credit quality in the second quarter of 2022. The provision for credit losses increased $52$80 million in the third quarter and $230 million(74.1 percent) in the first ninesix months of 2017,2022, compared with the same periodsfirst six months of 2016, primarily2021, reflecting a decrease in the reserve allocation in the first six months of 2021 due to growth in other retail loans, exposures as a result 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.

credit quality improvement.

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$320 million of the Company’s net income in the thirdsecond quarter and $363$522 million in the first ninesix months of 2017,2022, or increases of $30$112 million (31.6(53.8 percent) and $90$93 million (33.0(21.7 percent), respectively, compared with the same periods of 2016.

2021.

Net revenue increased $65$209 million (12.1(26.3 percent) in the thirdsecond quarter and $223$281 million (14.3(17.6 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016.2021. Net interest income, on a taxable-equivalent basis, increased $57$106 million (42.2(43.1 percent) in the thirdsecond quarter and $184$113 million (49.2(22.0 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016. The increases were principally2021, primarily due to the impact of rising rates on the margin benefit from deposits along withfavorable funding mix, higher average loannoninterest-bearing deposit balances and deposithigher average loan balances. Noninterest income increased $8$103 million (2.0(18.8 percent) in the thirdsecond quarter and $39$168 million (3.3(15.6 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016, principally2021, primarily due to favorablethe impact of the PFM acquisition and core business growth in trust and investment management fees, as well as lower fee waivers related to money market conditions and net asset and account growth.

U.S. Bancorp27

funds.
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     

*Not meaningful

28U.S. Bancorp

    

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 

U.S. Bancorp29

Noninterest expense increased $16$60 million (4.1(11.5 percent) in the thirdsecond quarter and $78$154 million (6.9(15.1 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016. The increases were primarily the2021, reflecting higher compensation as a result of higher compensation expense, reflectingmerit increases, the impact of higher staffingPFM acquisition, core business growth and merit increases,performance-based incentives, as well as higher net shared services expense driven by investment in support of business growth. Noninterest expense further increased in the first six months of 2022, compared with the first six months of 2021, due to litigation settlements and higher FDIC insurance surcharges.

fraud-related losses. The provision for credit losses was flat in the second quarter and increased $3 million in the first six months of 2022, compared with the same periods of 2021.

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$391 million of the Company’s net income in the thirdsecond quarter and $868$762 million in the first ninesix months of 2017,2022, or decreases of $39$50 million (11.4(11.3 percent) and $115$172 million (11.7(18.4 percent), respectively, compared with the same periods of 2016.

2021.

Net revenue increased $33$105 million (2.3(7.0 percent) in the thirdsecond quarter and $109$171 million (2.6(5.9 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016.2021. Noninterest income increased $81 million (8.9 percent) in the second quarter and $154 million (9.1 percent) in the first six months of 2022, compared with the same periods of 2021, mainly due to continued strengthening of consumer and business spending across most sectors. As a result, there was strong growth in merchant processing services revenue driven by higher sales volume and higher merchant fees, partially offset by higher rebates. There was also growth in corporate payment products revenue driven by improving business spending across all product groups. Strong consumer spending also drove an increase in credit and debit card revenue, mostly offset by declining prepaid processing fees as the beneficial impact of
30
U.S. Bancorp
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government stimulus programs dissipated year-over-year. Net interest income, on a taxable-equivalent basis, increased $25$24 million (4.6(4.0 percent) in the thirdsecond quarter and $74$17 million (4.7(1.4 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016,2021, primarily due to higher average loan volumesbalances and rising interest rates, in addition to growth in loan fees. fees, partially offset by lower loan yields driven by declining customer revolve rates.
Noninterest incomeexpense increased $8$42 million (0.9(5.1 percent) in the thirdsecond quarter and $35$99 million (1.3(6.1 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016, primarily due to higher 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 to the Company exiting certain joint ventures in the second quarter of 2017 and the impacts of recent weather events. The increase in noninterest income for the first nine months of 2017 was further offset by the impact of a gain on the sale of an equity investment in the prior year.

Noninterest expense increased $45 million (6.5 percent) in the third quarter and $130 million (6.4 percent) in the first nine months of 2017, compared with the same periods of 2016, principally due to2021, reflecting higher net shared services expense driven by implementation costsinvestment in infrastructure and technology development, in addition to higher compensation expense as a result of capital investments to supportmerit increases, core business growth and higher compensation and employee benefits expenses, reflecting higher staffing to support business investment and compliance programs and merit increases.variable compensation. The provision for credit losses increased $62$130 million (29.8 percent) in the thirdsecond quarter and $179$301 million (29.1 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016,2021, primarily due to unfavorable changesstronger growth in loan balances and relatively stable credit quality in the reserve allocation related to portfolio growth and higher loss rates, as well as higher net charge-offs.

current year, compared with a stronger decline in delinquencies in the 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 intax-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 a net loss of $58 million in the second quarter and net income of $490$131 million in the third quarter and $1.5 billion in the first ninesix months of 2017,2022, compared with $481net income of $269 million and $1.5 billion$808 million in the same periods of 2016,2021, respectively.

Net revenue increased $44$6 million (6.2(1.9 percent) in the thirdsecond quarter and decreased $176$97 million (7.5(18.7 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016.2021. Net interest income, on a taxable-equivalent basis, decreased $2increased $29 million (0.4(46.0 percent) in the thirdsecond quarter and $170$112 million (10.5 percent) in the first ninesix months of 2017,2022, compared with the same periods of 2016, principally2021, primarily due to the impact of rising rates on the margin benefit on deposits credited to the business lines, partially offset by growth in thehigher investment portfolio. Total noninterestsecurities portfolio and cash balances. Noninterest income increased $46decreased $23 million (23.2(8.9 percent) in the thirdsecond quarter of 2017, compared with the third quarter of 2016, principally due to higher equity investment income. Total noninterest income decreased $6and $15 million (0.8(3.1 percent) in the first ninesix months of 2017,2022, compared with the same periodperiods of 2016,2021, primarily due to lower securities gains and lower gains on the impactdisposition of the 2016 Visa Europe sale,assets, partially offset by higher income from other equity investments and higher gains on sales of investment securities in the current year.

commercial products revenue.

Noninterest expense increased $33$171 million (17.2(74.7 percent) in the thirdsecond quarter and $74 million (13.8 percent) in the first six months of 2017,2022, compared with the third quartersame periods of 2016, principally2021, primarily due to merger and integration-related charges associated with the planned acquisition of MUFG Union Bank and higher compensation expense reflecting the impact of increased staffing and merit increases, includinghiring to support business growth and core business growth net of lower 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) in the first nine months of 2017, compared with the same period of 2016, principally due to lower net shared services expense in the current year, and the impacts of an increase in reserves related to legal and regulatory matters and a charitable contribution, both recorded in the second quarter of 2016. These decreases were partially offset by increased compensation expense recorded in the current

30U.S. Bancorp

year. The provision for credit losses was $6increased $258 million lowerin the second quarter and $886 million (99.1 percent) in the first ninesix months of 2017,2022, compared with the same periodperiods of 2016, primarily due2021, reflecting the residual impact of changes in the allowance for credit losses being impacted by increasing economic uncertainty in the current year, compared to lower net charge-offs.

improving economic conditions in the prior year.

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 considerednon-GAAP financial measures.

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

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The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considerednon-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 andtax-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. Bancorp31

The following table shows the Company’s calculation of thesenon-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) June 30,
2022		  December 31,
2021		 
Total equity
     $49,069  $55,387 
Preferred stock
  (6,808)   (6,371) 
Noncontrolling interests
  (464)   (469) 
Goodwill (net of deferred tax liability) (1)
  (9,204)   (9,323) 
Intangible assets, other than mortgage servicing rights
  (780)   (785) 
Tangible common equity (a)
  31,813   38,439 
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation
  42,944   41,701 
Adjustments (2)
  (1,300)   (1,733) 
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology (b)
  41,644   39,968 
Total assets
  591,381   573,284 
Goodwill (net of deferred tax liability) (1)
  (9,204)   (9,323) 
Intangible assets, other than mortgage servicing rights
  (780)   (785) 
Tangible assets (c)
  581,397   563,176 
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)
  441,804   418,571 
Adjustments (3)
  (317)   (357) 
Risk-weighted assets, reflecting the full implementation of the CECL methodology (e)
  441,487   418,214 
Ratios
  
Tangible common equity to tangible assets (a)/(c)
  5.5%   6.8% 
Tangible common equity to risk-weighted assets (a)/(d)
  7.2   9.2 
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology (b)/(e)
  9.4   9.6 
  Three Months Ended
June 30		      
Six Months Ended
June 30
 
  2022  2021      2022  2021 
Net interest income
 $3,435  $3,137    $6,608  $6,200 
Taxable-equivalent adjustment (4)
  29   27       56   53 
Net interest income, on a taxable-equivalent basis
  3,464   3,164     6,664   6,253 
Net interest income, on a taxable-equivalent basis (as calculated above)
  3,464   3,164     6,664   6,253 
Noninterest income
  2,548   2,619     4,944   5,000 
Less: Securities gains (losses), net
  19   43       37   68 
Total net revenue, excluding net securities gains (losses) (f)
  5,993   5,740     11,571   11,185 
 
Noninterest expense (g)
  3,724   3,387     7,226   6,766 
 
Efficiency ratio (g)/(f)
  62.1%   59.0%       62.4%   60.5% 
(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.

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 U.S. Bancorp

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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 onForm 10-K for the year ended December 31, 2016.

2021.

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 inRules 13a-15(e) and15d-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 Rules13a-15(f) and15d-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 
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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) June 30,
2022		  December 31,
2021		 
  (Unaudited)    
   
Assets
        
Cash and due from banks $39,124  $28,905 
Investment securities        
Held-to-maturity (fair value $55,657 and $41,812, respectively)  61,503   41,858 
Available-for-sale ($987
 
and $557 pledged as collateral, respectively) (a)
  98,806   132,963 
Loans held for sale (including $2,773 and $6,623 of mortgage loans carried at fair value, respectively)  3,943   7,775 
Loans        
Commercial  125,983   112,023 
Commercial real estate  39,753   39,053 
Residential mortgages  82,114   76,493 
Credit card  23,697   22,500 
Other retail  60,822   61,959 
Total loans  332,369   312,028 
Less allowance for loan losses  (5,832)   (5,724) 
Net loans  326,537   306,304 
Premises and equipment  3,177   3,305 
Goodwill  10,157   10,262 
Other intangible assets  4,487   3,738 
Other assets (including $1,258
 
and $1,193 of trading securities at fair value pledged as collateral, respectively) (a)
  43,647   38,174 
Total assets $591,381  $573,284 
   
Liabilities and Shareholders’ Equity
        
Deposits        
Noninterest-bearing $129,130  $134,901 
Interest-bearing  337,972   321,182 
Total deposits  467,102   456,083 
Short-term borrowings  24,963   11,796 
Long-term debt  29,408   32,125 
Other liabilities  20,839   17,893 
Total liabilities  542,312   517,897 
Shareholders’ equity        
Preferred stock  6,808   6,371 
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares; issued: 6/30/22 and 12/31/21—2,125,725,742 shares  21   21 
Capital surplus  8,555   8,539 
Retained earnings  70,772   69,201 
Less cost of common stock in treasury: 6/30/22—639,959,317 shares; 12/31/21—642,223,571 shares  (27,190)   (27,271) 
Accumulated other comprehensive income (loss)  (10,361)   (1,943) 
Total U.S. Bancorp shareholders’ equity  48,605   54,918 
Noncontrolling interests  464   469 
Total equity  49,069   55,387 
Total liabilities and equity $591,381  $573,284 
(a)
Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
(b)Includes time deposits greater than $250,000 balances of $7.4 billion and $3.0 billion at September 30, 2017 and December 31, 2016, respectively.

See Notes to Consolidated Financial Statements.

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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 

(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)
 Three Months Ended
June 30		      Six Months Ended
June 30		 
 2022  2021      2022  2021 
Interest Income
                    
Loans $2,869  $2,677      $5,468  $5,401 
Loans held for sale  54   55       114   122 
Investment securities  806   618       1,523   1,135 
Other interest income  96   32       138   65 
Total interest income  3,825   3,382       7,243   6,723 
Interest Expense
                    
Deposits  177   82       257   167 
Short-term borrowings  57   18       78   34 
Long-term debt  156   145       300   322 
Total interest expense  390   245       635   523 
Net interest income  3,435   3,137       6,608   6,200 
Provision for credit losses  311   (170)       423   (997) 
Net interest income after provision for credit losses  3,124   3,307       6,185   7,197 
Noninterest Income
                    
Credit and debit card revenue  399   396       737   732 
Corporate payment products revenue  172   138       330   264 
Merchant processing services  425   374       788   692 
Trust and investment management fees  566   446       1,066   890 
Deposit service charges  165   176       342   337 
Treasury management fees  169   160       325   307 
Commercial products revenue  290   280       556   560 
Mortgage banking revenue  142   346       342   645 
Investment products fees  59   60       121   115 
Securities gains (losses), net  19   43       37   68 
Other  142   200       300   390 
Total noninterest income  2,548   2,619       4,944   5,000 
Noninterest Expense
                    
Compensation  1,872   1,798       3,725   3,601 
Employee benefits  374   337       770   721 
Net occupancy and equipment  265   258       534   521 
Professional services  111   108       225   206 
Marketing and business development  106   90       186   138 
Technology and communications  350   362       699   721 
Postage, printing and supplies  69   65       141   134 
Other intangibles  40   40       87   78 
Merger and integration charges  197   —       197   — 
Other  340   329       662   646 
Total noninterest expense  3,724   3,387       7,226   6,766 
Income before income taxes  1,948   2,539       3,903   5,431 
Applicable income taxes  414   551       811   1,158 
Net income  1,534   1,988       3,092   4,273 
Net (income) loss attributable to noncontrolling interests  (3)   (6)       (4)   (11) 
Net income attributable to U.S. Bancorp $1,531  $1,982      $3,088  $4,262 
Net income applicable to U.S. Bancorp common shareholders $1,464  $1,914      $2,930  $4,089 
Earnings per common share $.99  $1.29      $1.97  $2.73 
Diluted earnings per common share $.99  $1.28      $1.97  $2.73 
Average common shares outstanding  1,486   1,489       1,485   1,495 
Average diluted common shares outstanding  1,487   1,490       1,486   1,497 
See Notes to Consolidated Financial Statements.

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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 in Millions)
(Unaudited)
 Three Months Ended
June 30		      Six Months Ended
June 30		 
 2022  2021      2022  2021 
Net income $1,534  $1,988      $3,092  $4,273 
Other Comprehensive Income (Loss)
                    
Changes in unrealized gains (losses) on investment securities available-for-sale  (4,761)   1,195       (11,515)   (2,183) 
Changes in unrealized gains (losses) on derivative hedges  98   14       98   113 
Foreign currency translation  (3)   (1)       (3)   24 
Reclassification to earnings of realized (gains) losses  84   (11)       151   7 
Income taxes related to other comprehensive income (loss)  1,159   (304)       2,851   515 
Total other comprehensive income (loss)  (3,423)   893       (8,418)   (1,524) 
Comprehensive income (loss)  (1,889)   2,881       (5,326)   2,749 
Comprehensive (income) loss attributable to noncontrolling interests  (3)   (6)       (4)   (11) 
      
Comprehensive income (loss) attributable to U.S. Bancorp $(1,892)  $2,875      $(5,330)  $2,738 
See Notes to Consolidated Financial Statements.

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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 

  U.S. Bancorp Shareholders       
(Dollars and Share
s
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 March 31, 2021
  1,497  $5,968  $21  $8,487  $65,740  $(26,443)  $(2,095)  $51,678  $630  $52,308 
Net income (loss)                  1,982           1,982   6   1,988 
Other comprehensive income (loss)                          893   893       893 
Preferred stock dividends (a)                  (58)           (58)       (58) 
Common stock dividends ($.42 per share)                  (625)           (625)       (625) 
Issuance of common and treasury stock  1           (7)       25       18       18 
Purchase of treasury stock  (15)                   (887)       (887)       (887) 
Distributions to noncontrolling interests                              —   (6)   (6) 
Net other changes in noncontrolling interests                              —   5   5 
Stock option and restricted stock grants              38               38       38 
           
Balance June 30, 2021
  1,483  $5,968  $21  $8,518  $67,039  $(27,305)  $(1,202)  $53,039  $635  $53,674 
           
Balance March 31, 2022
  1,486  $6,808  $21  $8,515  $69,987  $(27,193)  $(6,938)  $51,200  $468  $51,668 
Net income (loss)                  1,531           1,531   3   1,534 
Other comprehensive income (loss)                          (3,423)   (3,423)       (3,423) 
Preferred stock dividends (b)                  (59)           (59)       (59) 
Common stock dividends ($.46 per share)                  (687)           (687)       (687) 
Issuance of common and treasury stock              (3)       4       1       1 
Purchase of treasury stock                      (1)       (1)       (1) 
Distributions to noncontrolling interests                              —   (2)   (2) 
Net other changes in noncontrolling interests                              —   (5)   (5) 
Stock option and restricted stock grants              43               43       43 
           
Balance June 30, 2022
  1,486  $6,808  $21  $8,555  $70,772  $(27,190)  $(10,361)  $48,605  $464  $49,069 
           
Balance December 31, 2020
  1,507  $5,983  $21  $8,511  $64,188  $(25,930)  $322  $53,095  $630  $53,725 
Net income (loss)                  4,262           4,262   11   4,273 
Other comprehensive income (loss)                          (1,524)   (1,524)       (1,524) 
Preferred stock dividends (c)                  (148)           (148)       (148) 
Common stock dividends ($.84 per share)                  (1,258)           (1,258)       (1,258) 
Issuance of preferred stock      730                       730       730 
Redemption of preferred stock      (745)           (5)           (750)       (750) 
Issuance of common and treasury stock  4           (126)       162       36       36 
Purchase of treasury stock  (28)                   (1,537)       (1,537)       (1,537) 
Distributions to noncontrolling interests                              —   (11)   (11) 
Net other changes in noncontrolling interests                              —   5   5 
Stock option and restricted stock grants              133               133       133 
           
Balance June 30, 2021
  1,483  $5,968  $21  $8,518  $67,039  $(27,305)  $(1,202)  $53,039  $635  $53,674 
           
Balance December 31, 2021
  1,484  $6,371  $21  $8,539  $69,201  $(27,271)  $(1,943)  $54,918  $469  $55,387 
Net income (loss)                  3,088           3,088   4   3,092 
Other comprehensive income (loss)                          (8,418)   (8,418)       (8,418) 
Preferred stock dividends (d)                  (143)           (143)       (143) 
Common stock dividends ($.92 per share)                  (1,374)           (1,374)       (1,374) 
Issuance of preferred stock      437                       437       437 
Issuance of common and treasury stock  3           (119)       136       17       17 
Purchase of treasury stock  (1)                   (55)       (55)       (55) 
Distributions to noncontrolling interests                              —   (4)   (4) 
Net other changes in noncontrolling interests                              —   (5)   (5) 
Stock option and restricted stock grants              135               135       135 
           
Balance June 30, 2022
  1,486  $6,808  $21  $8,555  $70,772  $(27,190)  $(10,361)  $48,605  $464  $49,069 
(a)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series K, Series L and Series M Non-Cumulative Perpetual Preferred Stock of $884.722, $221.181, $406.25, $343.75, $234.375 and $250.00 respectively.
(b)
Reflects dividends declared per share on the Company’s Series A, Series B, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $884.722, $221.181, $343.75, $234.375, $250.00, $231.25 and $281.25 respectively.
(c)
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 $1,759.722, $439.931, $812.50, $232.953, $662.50, $687.50, $468.75 and $452.778 respectively.
(d)
Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $1,759.722, $439.931, $662.50, $687.50, $468.75, $500.00, $462.50 and $487.50 respectively.
See Notes to Consolidated Financial Statements.

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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 

(Dollars in Millions)
(Unaudited)
 Six Months Ended
June 30		 
 2022  2021 
Operating Activities
        
Net income attributable to U.S. Bancorp $3,088  $4,262 
Adjustments to reconcile net income to net cash provided by operating activities        
Provision for credit losses  423   (997) 
Depreciation and amortization of premises and equipment  170   168 
Amortization of intangibles  87   78 
(Gain) loss on sale of loans held for sale  192   (584) 
(Gain) loss on sale of securities and other assets  (67)   (192) 
Loans originated for sale, net of repayments  (17,325)   (37,211) 
Proceeds from sales of loans held for sale  20,564   39,789 
Other, net  3,594   1,207 
Net cash provided by operating activities  10,726   6,520 
Investing Activities
        
Proceeds from sales of available-for-sale investment securities  14,797   5,567 
Proceeds from maturities of held-to-maturity investment securities  2,407   —   
Proceeds from maturities of available-for-sale investment securities  9,665   23,685 
Purchases of held-to-maturity investment securities  (6,288)   —   
Purchases of available-for-sale investment securities  (18,240)   (54,911) 
Net (increase) decrease in loans outstanding  (20,072)   727 
Proceeds from sales of loans  1,671   2,386 
Purchases of loans  (1,698)   (2,574) 
Net (increase) decrease in securities purchased under agreements to resell

  (154)   131 
Other, net  (1,604)   (367) 
Net cash used in investing activities  (19,516)   (25,356) 
Financing Activities
        
Net increase in deposits  11,019   7,412 
Net increase in short-term borrowings  13,167   1,647 
Proceeds from issuance of long-term debt  2,206   1,152 
Principal payments or redemption of long-term debt  (5,154)   (5,928) 
Proceeds from issuance of preferred stock  437   730 
Proceeds from issuance of common stock  16   36 
Repurchase of preferred stock  (1,100)   (1,250) 
Repurchase of common stock  (55)   (1,537) 
Cash dividends paid on preferred stock  (154)   (165) 
Cash dividends paid on common stock  (1,373)   (1,268) 
Net cash provided by financing activities  19,009   829 
Change in cash and due from banks  10,219   (18,007) 
Cash and due from banks at beginning of period  28,905   62,580 
Cash and due from banks at end of period $39,124  $44,573 
See Notes to Consolidated Financial Statements.

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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 onForm 10-K for the year ended December 31, 2016.2021. Certain amounts in prior periods have been reclassified to conform to the current period 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, the Company adopted accounting guidance, issued by

Reference Interest Rate Transition
In March 2020, the Financial Accounting Standards Board (“FASB”) issued accounting guidance, providing temporary optional expedients and exceptions to the guidance in March 2016, simplifyingUnited 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 contracts 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

Fair Value Hedging – Portfolio Layer Method
In May 2014,March 2022, the FASB issued accounting guidance, effective for the Company onno later than January 1, 2018, clarifying2023, related to fair value hedge accounting of portfolios of financial assets. This guidance expands the principles for recognizing revenue from certain contractscurrent last-of-layer hedging method that permits a company to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets, by allowing it to designate multiple hedging relationships on a single closed portfolio, resulting in a larger portion of the interest rate risk associated with customers.such a portfolio being eligible to be hedged. The guidance does not applyalso expands the scope of the method to revenue associated withinclude non-prepayable financial instruments, such as loansassets and securities. The Company is currently evaluatingclarifies other technical questions from 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.original accounting guidance. The Company expects the adoption of this guidance will not be material to its financial statements.

Accounting for Leases

Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures
In February 2016,March 2022, the FASB issued accounting guidance, effective for the Company onno later than January 1, 2019,2023, related to the accounting for leases.recognition and measurement of troubled debt restructurings (“TDRs”) by creditors. This guidance requires lessees to recognize all leases onremoves the Consolidated Balance Sheet as lease assetsseparate recognition 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,measurement requirements for TDRs by replacing them with a cumulative effect adjustmentrequirement for a company to retained earnings asapply existing accounting guidance to determine whether a modification results in a new loan or a continuation of the beginning of the earliest period presented.an existing loan. This guidance also replaces existing TDR disclosures with similar but more expansive disclosures for certain modifications of receivables made to borrowers experiencing financial difficulty. Further, this guidance also requires additional disclosures regarding leasing arrangements.companies to disclose current-period gross write-offs by year of origination for financing receivables. The guidance can be adopted on a prospective or modified retrospective basis. 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 
39

Financial Instruments—Hedge AccountingIn August 2017, the FASB issued accounting guidance, effective for the Company no later than January 1, 2019, related to hedge accounting. This guidance makes targeted changes to the hedge accounting model to simplify the applicationTable of hedge accounting and more closely align financial reporting 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.

Contents
Note  3
 
   Business Combinations
In September 2021, the Company announced that it entered into a definitive agreement to acquire MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial
Group, Inc.
(“MUFG”), for an expected purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The transaction excludes the purchase of
substantially all of 
MUFG Union Bank’s Global Corporate & Investment Bank
 (other than certain deposits), 
certain middle and back office functions, and other assets. MUFG Union Bank has approximately 300 branches in California, Washington and Oregon and is expected to add approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the Company’s consolidated balance sheet. Closing of the transaction is subject to customary closing conditions, including regulatory approvals which are not within the Company’s control.
The parties continue to make significant progress in planning for closing and integration while awaiting regulatory approvals. At this time, the Company expects to receive U.S. regulatory approvals in time for closing to occur in the second half of 2022. 
  Note  4
   Investment Securities

The amortizedCompany’s held-to-maturity investment securities are carried at historical cost, other-than-temporary impairment recorded inadjusted for amortization of premiums and accretion of discounts. The Company’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 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

  June 30, 2022   December 31, 2021 
(Dollars in Millions) Amortized
Cost		   Unrealized
Gains		   Unrealized
Losses		  Fair
Value		   Amortized
Cost		   Unrealized
Gains		   Unrealized
Losses		  Fair
Value		 
Held-to-maturity
                                     
U.S. Treasury and agencies $1,343   $–   $(6)  $1,337   $–   $–   $–  $– 
Residential agency mortgage-backed securities  60,160    2    (5,842)   54,320    41,858    2    (48)   41,812 
Total held-to-maturity $61,503   $2   $(5,848)  $55,657   $41,858   $2   $(48)  $41,812 
Available-for-sale
                                     
U.S. Treasury and agencies $25,779   $–   $(2,012)  $23,767   $36,648   $205   $(244)  $36,609 
Mortgage-backed securities                                     
Residential agency  62,788    23    (5,059)   57,752    76,761    665    (347)   77,079 
Commercial agency  8,756    –    (1,192)   7,564    8,633    53    (201)   8,485 
Asset-backed securities  –    –    –   –    62    4    –   66 
Obligations of state and political subdivisions  10,925    11    (1,220)   9,716    10,130    607    (20)   10,717 
Other  7    –    –   7    7    –    –   7 
Total available-for-sale $108,255   $34   $(9,483)  $98,806   $132,241   $1,534   $(812)  $132,963 
During the second quarter of 2022, the Company transferred $17.1 billion amortized cost ($15.7 billion fair value) of available-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 ofto 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 category to Table 4 included in Management’s Discussion and Analysis, which is incorporated by reference intoreflect its new intent for these Notes to Consolidated Financial Statements.

40U.S. Bancorp

securities.

Investment securities with a fair value of $11.9$16.9 billion at SeptemberJune 30, 2017,2022, and $11.3$30.7 billion at December 31, 2016,2021, 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$987 million at SeptemberJune 30, 2017,2022, and $755$557 million at December 31, 2016.

2021.

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
June 30		  Six Months Ended
June 30		 
(Dollars in Millions)         2022           2021          2022           2021 
Taxable $732   $554  $1,378   $1,009 
Non-taxable  74    64   145    126 
Total interest income from investment securities $806   $618  $1,523   $1,135 
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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
June 30		  Six Months Ended
June 30		 
(Dollars in Millions)         2022          2021          2022          2021 
Realized gains $144  $43  $386  $68 
Realized losses  (125)   –   (349)   – 
Net realized gains $19  $43  $37  $68 
Income tax on net realized gains $5  $11  $9  $17 
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 threeat June 30, 2022 and nine months ended SeptemberDecember 31, 2021.
At June 30, 2017 and 2016.

At September 30, 2017,2022, 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 SeptemberJune 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

2022:

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 $19,590   $(1,581)   $3,511           $(431)   $23,101   $(2,012) 
Residential agency mortgage-backed securities  50,819    (4,281)    5,360    (778)    56,179    (5,059) 
Commercial agency mortgage-backed securities  4,852    (657)    2,711    (535)    7,563    (1,192) 
Obligations of state and political subdivisions  8,430    (1,057)    396    (163)    8,826    (1,220) 
Other  6    –    –    –    6    – 
Total investment securities $83,697   $(7,576)   $11,978           $(1,907)   $95,675   $(9,483) 

These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. A substantial portionpurchase of these available-for-sale 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 unrealized 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 SeptemberJune 30, 2017,2022, 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 ofo
f
 their amortized cost.

During the six months ended June 30, 2022 and 2021, the Company did not purchase any investment securities that had more-than-insignificant credit deterioration.
All of the Company’s held-to-maturity investment securities are highly rated agency mortgage-backed securities that are guaranteed or otherwise supported by the United States government and have no history of credit losses. Accordingly the Company does not expect to incur any credit losses on held-to-maturity investment securities and has 0 allowance for credit losses recorded for these securities.
Note 4U.S. Bancorp 
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The following table provides information about the amortized cost, fair value and yield by maturity date of the investment securities outstanding at June 30, 2022:
(Dollars in Millions) Amortized
Cost		   Fair
Value		   Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (e)		 
Held-to-maturity
                   
U.S. Treasury and Agencies                   
Maturing in one year or less $–   $–    –    –% 
Maturing after one year through five years  1,343    1,337    3.8    2.85 
Maturing after five years through ten years  –    –    –    – 
Maturing after ten years  –    –    –    – 
Total $1,343   $1,337    3.8    2.85% 
Mortgage-Backed Securities (a)                   
Maturing in one year or less $–   $–    –    –% 
Maturing after one year through five years  –    –    –    – 
Maturing after five years through ten years  23,977    22,825    9.1    2.22 
Maturing after ten years  36,183    31,495    10.6    1.72 
Total $60,160   $54,320    10.0    1.92% 
Total held-to-maturity (d) $61,503   $55,657    9.8    1.94% 
Available-for-sale
                   
U.S. Treasury and Agencies                   
Maturing in one year or less $1,826   $1,824    .3    1.96% 
Maturing after one year through five years  3,525    3,296    4.4    1.50 
Maturing after five years through ten years  17,771    16,479    7.4    2.04 
Maturing after ten years  2,657    2,168    11.8    1.99 
Total $25,779   $23,767    6.9    1.95% 
Mortgage-Backed Securities (a)                   
Maturing in one year or less $44   $44    .7    2.67% 
Maturing after one year through five years  12,785    12,381    3.2    2.03 
Maturing after five years through ten years  33,303    30,454    7.9    1.81 
Maturing after ten years  25,412    22,437    10.6    2.11 
Total $71,544   $65,316    8.0    1.96% 
Obligations of State and Political Subdivisions (b) (c)                   
Maturing in one year or less $182   $182    .3    4.63% 
Maturing after one year through five years  1,974    1,955    4.0    4.43 
Maturing after five years through ten years  1,480    1,401    7.2    3.82 
Maturing after ten years  7,289    6,178    16.9    3.36 
Total $10,925   $9,716    13.0    3.64% 
Other                   
Maturing in one year or less $–   $–    –    –% 
Maturing after one year through five years  7    7    2.9    2.07 
Maturing after five years through ten years  –    –    –    – 
Maturing after ten years  –    –    –    – 
Total $7   $7    2.9    2.07% 
Total available-for-sale (d) $108,255   $98,806    8.2    2.13% 
(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 held-to-maturity investment securities was 7.4 years at December 31, 2021, with a corresponding weighted-average yield of 1.45 percent. The weighted-average maturity of total available-for-sale investment securities was 5.5 years at December 31, 2021, with a corresponding weighted-average yield of 1.73 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, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.
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  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% 

  June 30, 2022       December 31, 2021 
(Dollars in Millions) Amount   Percent
of Total		       Amount   Percent
of Total		 
Commercial
                       
Commercial $121,130    36.4%       $106,912    34.3% 
Lease financing  4,853    1.5        5,111    1.6 
Total commercial  125,983    37.9        112,023    35.9 
Commercial Real Estate
                       
Commercial mortgages  29,864    9.0        28,757    9.2 
Construction and development  9,889    3.0        10,296    3.3 
Total commercial real estate  39,753    12.0        39,053    12.5 
Residential Mortgages
                       
Residential mortgages  73,522    22.1        67,546    21.6 
Home equity loans, first liens  8,592    2.6        8,947    2.9 
Total residential mortgages  82,114    24.7        76,493    24.5 
Credit Card
  23,697    7.1        22,500    7.2 
Other Retail
                       
Retail leasing  6,490    2.0        7,256    2.3 
Home equity and second mortgages  10,973    3.3        10,446    3.4 
Revolving credit  2,764    .8        2,750    .9 
Installment  16,656    5.0        16,514    5.3 
Automobile  23,830    7.2        24,866    8.0 
Student  109    –        127    – 
Total other retail  60,822    18.3        61,959    19.9 
Total loans $332,369    100.0%       $312,028    100.0% 
The Company had loans of $85.2$92.4 billion at SeptemberJune 30, 2017,2022, and $84.5$92.1 billion at December 31, 2016,2021, pledged at the Federal Home Loan Bank, and loans of $66.8$83.7 billion at SeptemberJune 30, 2017,2022, and $66.5$76.9 billion at December 31, 2016,2021, 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$364 million at SeptemberJune 30, 2017,2022 and $672$475 million at December 31, 2016.2021. All purchased loans and related indemnification assets are recorded at fair value at the date of purchase. 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 nonimpairednon-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.

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Allowance for Credit Losses
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 economic forecast uncertainty. 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 rates, real estate prices, gross domestic product levels and corporate bonds spreads, as well as loan and
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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 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. 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 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,For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans. With respect to the consumer lending segment, performance of the portfolio, including defaults on TDRs, is considered when estimating future cash flows.

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 withoff-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 foroff-balance sheet credit exposure related to loan commitments and other credit guarantees is included in

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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.


The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each specific loan portfolio, as well as the entire loan portfolio, as the entire allowance for credit losses is available for the entire loan portfolio.
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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 

(a)Includes net changes
Three Months Ended June 30
(Dollars in Millions)		 Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total
Loans		 
2022
                        
Balance at beginning of period
  $1,836   $1,074   $600   $1,639   $   956   $6,105 
Add                        
Provision for credit losses  90   (95)   49   225   42   311 
Deduct                        
Loans charged-off  53   9   2   162   50   276 
Less recoveries of loans charged-off  (23)   (3)   (11)   (44)   (34)   (115) 
Net loan charge-offs (recoveries)  30   6   (9)   118   16   161 
Balance at end of period
  $1,896   $
 
 
973		   $658   $1,746   $
 
 
982		   $6,255 
2021
                        
Balance at beginning of period
  $1,932   $1,532   $539   $1,952   $1,005   $6,960 
Add                        
Provision for credit losses  (67)   (123)   (71)   87   4   (170) 
Deduct                        
Loans charged-off  58   4   5   192   55   314 
Less recoveries of loans charged-off  (31)   (4)   (15)   (44)   (40)   (134) 
Net loan charge-offs (recoveries)  27   –   (10)   148   15   180 
Balance at end of period
  $1,838   $1,409   $478   $1,891   $   994   $6,610 
Six Months Ended June 30
(Dollars in Millions)		 Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total
Loans		 
2022
                        
Balance at beginning of period
  $1,849   $1,123   $565   $1,673   $   945   $6,155 
Add                        
Provision for credit losses  109   (149)   78   303   82   423 
Deduct                        
Loans charged-off  108   10   7   320   111   556 
Less recoveries of loans charged-off  (46)   (9)   (22)   (90)   (66)   (233) 
Net loan charge-offs (recoveries)  62   1   (15)   230   45   323 
Balance at end of period
  $1,896   $
 
 
973		   $658   $1,746   $
 
 
982		   $6,255 
2021
                        
Balance at beginning of period
  $2,423   $1,544   $573   $2,355   $1,115   $8,010 
Add                        
Provision for credit losses  (502)   (142)   (110)   (172)   (71)   (997) 
Deduct                        
Loans charged-off  144   14   10   382   138   688 
Less recoveries of loans charged-off  (61)   (21)   (25)   (90)   (88)   (285) 
Net loan charge-offs (recoveries)  83   (7)   (15)   292   50   403 
Balance at end of period
  $1,838   $1,409   $478   $1,891   $   994   $6,610 
The increase 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.

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 from December 31, 2021 to June 30, 2022 reflected strong loan growth and increased economic uncertainty, partially offset 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		  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 detail 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.

stabilizing credit quality.

Credit Quality
The credit quality of the Company’s loan portfolios is assessedass
e
ssed 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 contractually 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 charged down if unsecured by collateral 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 generallycharged-off at a specific number of days or payments past due. Residential mortgages and other retail loans secured by1-4 family properties are generally charged down to the fair 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 partialcharge-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 by1-4 family properties are placed on nonaccrual status at 120 days past due or when they are behind a first lien that has
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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 ischarged-off. Credit cards arecharged-off at 180 days past due. Other retail loans not secured by1-4 family properties arecharged-off at 120 days past due; and revolving consumer lines arecharged-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 tocharge-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 partialcharge-off may be returned to accrual status if all principal and interest (including amounts previouslycharged-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 
June 30, 2022
                        
Commercial $125,490    $   254    $  91    $148    $125,983 
Commercial real estate  39,519    24    4    206    39,753 
Residential mortgages (a)  81,689    100    102    223    82,114 
Credit card  23,333    200    164    –    23,697 
Other retail  60,376    236    62    148    60,822 
Total loans $330,407    $
 
 
 
814		    $423    $725    $332,369 
December 31, 2021
                        
Commercial $111,270    $   530    $49    $174    $112,023 
Commercial real estate  38,678    80    11    284    39,053 
Residential mortgages (a)  75,962    124    181    226    76,493 
Credit card  22,142    193    165    –    22,500 
Other retail  61,468    275    66    150    61,959 
Total loans $309,520    $1,202    $472    $834    $312,028 
(a)
At SeptemberJune 30, 2017, $297 2022, $
642
million of loans 30–89 days past due and $1.8 $
1.7
billion of loans 90 days or more past due purchased
 and loans that could be purchased 
from Government National Mortgage Association (“GNMA”) mortgage pools
under delinquent loan repurchase options 
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 $
791
million and $2.5 $
1.5
billion at December 31, 2016,2021, respectively.

(b)
Substantially all nonperforming loans at June 30, 2022 and December 31, 2021, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $
5
million and $
4
million for the three months ended June 30, 2022 and 2021, respectively, and $
8
million and $
7
million for the six months ended June 30, 2022 and 2021, respectively.

At SeptemberJune 30, 2017,2022, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $182$23 million, ($156 million excluding covered assets), compared with $201$22 million ($175 million excluding covered assets) at December 31, 2016.2021. These amounts exclude $300excluded $40 million and $373$22 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, 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 SeptemberJune 30, 20172022 and December 31, 2016,2021, was $1.7$1.1 billion and $2.1 billion,$696 million, respectively, of which $1.3 billion$898 million and $1.6 billion,$555 million, respectively, related to loans
purchased and loans that could be purchased
 from Government National Mortgage Association (“GNMA”)
mortgage pools under delinquent loan repurchase options whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

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
4
6
U.S. Bancorp
Table of Contents
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 

  June 30, 2022        December 31, 2021 
     Criticized             Criticized    
(Dollars in Millions) Pass  Special
Mention		  Classified (a)  Total
Criticized		  Total  ��     Pass  Special
Mention		  Classified (a)  Total
Criticized		  Total 
Commercial                                              
Originated in 2022  $  32,672   $     52   $   142   $   194   $  32,866         $          –   $       –   $       –   $         –   $          – 
Originated in 2021  40,532   298   110   408   40,940           51,155   387   287   674   51,829 
Originated in 2020  9,809   11   292   303   10,112         14,091   304   133   437   14,528 
Originated in 2019  6,624   6   61   67   6,691         10,159   151   54   205   10,364 
Originated in 2018  3,313   3   20   23   3,336         5,122   3   36   39   5,161 
Originated prior to 2018  3,902   18   38   56   3,958         4,923   30   81   111   5,034 
Revolving (b)  27,628   277   175   452   28,080         24,722   268   117   385   25,107 
Total commercial  124,480   665   838   1,503   125,983         110,172   1,143   708   1,851   112,023 
            
Commercial real estate                                              
Originated in 2022  6,689   148   449   597   7,286         –   –   –   –   – 
Originated in 2021  11,992   63   452   515   12,507         13,364   6   990   996   14,360 
Originated in 2020  6,570   16   181   197   6,767         7,459   198   263   461   7,920 
Originated in 2019  5,009   140   340   480   5,489         6,368   251   610   861   7,229 
Originated in 2018  2,348   29   211   240   2,588         2,996   29   229   258   3,254 
Originated prior to 2018  3,438   19   143   162   3,600         4,473   55   224   279   4,752 
Revolving  1,511   –   5   5   1,516         1,494   1   43   44   1,538 
Total commercial real estate  37,557   415   1,781   2,196   39,753         36,154   540   2,359   2,899   39,053 
            
Residential mortgages (c)                                              
Originated in 2022  12,396   –   –   –   12,396         –   –   –   –   – 
Originated in 2021  29,446   –   3   3   29,449         29,882   –   3   3   29,885 
Originated in 2020  14,384   –   10   10   14,394         15,948   1   8   9   15,957 
Originated in 2019  5,834   –   24   24   5,858         6,938   –   36   36   6,974 
Originated in 2018  2,383   –   18   18   2,401         2,889   –   30   30   2,919 
Originated prior to 2018  17,328   –   288   288   17,616         20,415   –   342   342   20,757 
Revolving  –   –   –   –   –         1   –   –   –   1 
Total residential mortgages  81,771   –   343   343   82,114         76,073   1   419   420   76,493 
            
Credit card (d)  23,532   –   165   165   23,697         22,335   –   165   165   22,500 
            
Other retail                                              
Originated in 2022  7,650   –   1   1   7,651         –   –   –   –   – 
Originated in 2021  18,825   –   8   8   18,833         22,455   –   6   6   22,461 
Originated in 2020  9,981   –   10   10   9,991         12,071   –   9   9   12,080 
Originated in 2019  5,476   –   13   13   5,489         7,223   –   17   17   7,240 
Originated in 2018  2,204   –   10   10   2,214         3,285   –   14   14   3,299 
Originated prior to 2018  2,626   –   18   18   2,644         3,699   –   24   24   3,723 
Revolving  13,381   –   113   113   13,494         12,532   –   112   112   12,644 
Revolving converted to term  464   –   42   42   506         472   –   40   40   512 
Total other retail  60,607   –   215   215   60,822         61,737   –   222   222   61,959 
Total loans  $327,947   $1,080   $3,342   $4,422   $332,369         $306,471   $1,684   $3,873   $5,557   $312,028 
Total outstanding commitments  $702,561   $2,021   $4,851   $6,872   $709,433         $662,363   $3,372   $5,684   $9,056   $671,419 
(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
Includes an immaterial amount 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.revolving converted to term loans.
(c)
At SeptemberJune 30, 2017, $1.82022, $1.7 billion of GNMA loans 90 days or more past due and $1.6 billion$965 million 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$1.5 billion and $1.6$1.1 billion at December 31, 2016,2021, 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.

(d)
U.S. Bancorp47
Predominately all credit card loans are considered revolving loans. Includes an immaterial amount of revolving converted to term 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 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 U.S. Bancorp
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7

Table of Contents

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 


  2022        2021 
(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 June 30
                                  
Commercial  506    $     50    $  41         526    $     12    $     13 
Commercial real estate  28    11    9         30    38    41 
Residential mortgages  366    106    106         360    141    140 
Credit card  8,696    48    49         5,050    31    31 
Other retail  756    24    20         468    18    17 
Total loans, excluding loans purchased from GNMA mortgage pools  10,352    239    225         6,434    240    242 
Loans purchased from GNMA mortgage pools  353    47    50         478    67    69 
Total loans  10,705    $   286    $275         6,912    $   307    $   311 
        
Six Months Ended June 30
                                  
Commercial  1,015    $     88    $  73         1,230    $     87    $     73 
Commercial real estate  37    22    19         86    124    112 
Residential mortgages  1,206    334    332         696    245    244 
Credit card  18,035    98    99         10,836    64    65 
Other retail  1,484    61    57         1,793    55    49 
Total loans, excluding loans purchased from GNMA mortgage pools  21,777    603    580         14,641    575    543 
Loans purchased from GNMA mortgage pools  743    102    105         1,037    154    158 
Total loans  22,520    $   705    $685         15,678    $   729    $   701 
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, at SeptemberAt June 30, 2017, 612022, 8 residential mortgages, 468 home equity and second mortgage loans and 93297 loans purchased from GNMA mortgage pools with outstanding balances of $8
less than
$1 million, $4
less than
$1 million and $122$13 million, respectively, were in a trial period and have estimated post-modification balances of $9
less than
$1 million, $4
less than
$1 million and $123$14 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 acase-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 acase-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 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.

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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 to loans in the covered segment 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 are not considered TDRs for accounting and disclosure purposes if the loans evidenced credit deterioration as 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.

The following table provides a summary of TDR loans that defaulted (fully or partiallycharged-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 

  2022        2021 
(Dollars in Millions) Number
of Loans		   Amount
Defaulted		        Number
of Loans		   Amount
Defaulted		 
Three Months Ended June 30
                        
Commercial  175    $  3         327    $    8 
Commercial real estate  2    1         5    1 
Residential mortgages  79    7         12    1 
Credit card  1,727    9         1,805    11 
Other retail  60    1         191    3 
Total loans, excluding loans purchased from GNMA mortgage pools  2,043    21         2,340    24 
Loans purchased from GNMA mortgage pools  120    17         43    6 
Total loans  2,163    $38         2,383    $  30 
      
Six Months Ended June 30
                        
Commercial  389    $  6         612    $  24 
Commercial real estate  5    2         12    6 
Residential mortgages  113    10         27    3 
Credit card  3,361    18         3,569    20 
Other retail  143    2         471    8 
Total loans, excluding loans purchased from GNMA mortgage pools  4,011    38         4,691    61 
Loans purchased from GNMA mortgage pools  169    25         73    10 
Total loans  4,180    $63         4,764    $  71 
In addition to the defaults in the table above, the Company had a total of 40212 and 1,27828 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and ninesix months ended SeptemberJune 30, 2017,2022, 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$2 million and $156$4 million for the three months and ninesix months ended SeptemberJune 30, 2017,2022, respectively.

Covered Assets Covered assets represent loans and other assets acquired from

As of June 30, 2022, the FDIC, subjectCompany had $112 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 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.

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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$7 million and $9$70 million of support to the funds during the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $17$65 million and $35$117 million during the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, 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$112 million and $172$110 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $495$225 million and $504$243 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The Company also recognized $361$162 million and $219$123 million of investment tax credits for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $843$175 million and $850$160 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The Company recognized $163 million and $169$106 million of expenses related to all of these investments for both the three months ended SeptemberJune 30, 20172022 and 2016, respectively,2021, of which $61$92 million for both periods wasand $87 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense. The Company recognized $464$208 million and $476$232 million of expenses related to all of these investments for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, of which $187$183 million and $194$179 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) 
June 30,
2022
   December 31,
2021		 
Investment carrying amount $4,999   $4,484 
Unfunded capital and other commitments  2,210    1,890 
Maximum exposure to loss  9,872    9,899 
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$46 million at SeptemberJune 30, 20172022 and $40 million at December 31, 2016.2021. The maximum exposure to loss related to these VIEs was $49$87 million at SeptemberJune 30, 20172022 and $50$84 million at December 31, 2016,2021, 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$105 million at SeptemberJune 30, 2017,2022, compared with less than $1 million to $40$75 million at December 31, 2016.

2021.

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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 SeptemberJune 30, 2017,2022, approximately $3.6$4.9 billion of the Company’s assets and $2.6$3.3 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$5.0 billion and $2.6$3.4 billion, respectively, at December 31, 2016.2021. 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 SeptemberJune 30, 2017, $2.12022, $1.5 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$1.7 billion of
available-for-sale
investment securities and $1.1$1.2 billion of short-term borrowings at December 31, 2016.

2021.
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$226.4 billion of residential mortgage loans for others at SeptemberJune 30, 2017,2022, and $232.6$222.4 billion at December 31, 2016, which include2021, 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 net gains of $13 million and net losses of less than $1 million and net gains of $25$27 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and net gains of $17 million and net losses of $7$16 million and $147 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Loan servicing and ancillary fees, not including valuation changes, included in mortgage banking revenue were $183$186 million and $191$178 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021 respectively, and $561$371 million and $562$353 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, 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
June 30		       Six Months Ended
June 30		 
(Dollars in Millions) 2022  2021       2022  2021 
Balance at beginning of period $3,432  $2,787       $2,953  $2,210 
Rights purchased  3   11        6   27 
Rights capitalized  102   293        339   612 
Rights sold (a)  —   1        1   1 
Changes in fair value of MSRs                     
Due to fluctuations in market interest rates (b)  289   (232)        657   254 
Due to revised assumptions or models (c)  6   (37)        (21)   (139) 
Other changes in fair value (d)  (125)   (110)        (228)   (252) 
Balance at end of period $3,707  $2,713       $3,707  $2,713 
(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.

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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) 

The

  June 30, 2022        December 31, 2021 
(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 $(380)   $(172)   $(81)   $71   $133   $231        $(636)   $(324)   $(160)   $150   $287   $511 
Derivative instrument hedges  371    170    81    (73)    (141)    (261)         614    309    152    (142)    (278)    (536) 
Net sensitivity $(9)   $(2)   $—   $(2)   $(8)   $(30)        $(22)   $(15)   $(8)   $8   $9   $(25) 
Th
e
 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 mortgages program 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% 

  June 30, 2022      December 31, 2021 
(Dollars in Millions) HFA  Government  Conventional (d)  Total      HFA  Government  Conventional (d)  Total 
Servicing portfolio (a) $41,701  $21,358  $159,657  $222,716      $40,652  $21,919  $156,382  $218,953 
Fair value $697  $403  $2,607  $3,707      $527  $308  $2,118  $2,953 
Value (bps) (b)  167   189   163   166       130   141   135   135 
Weighted-average servicing fees (bps)  36   41   30   32       36   41   30   32 
Multiple (value/servicing fees)  4.65   4.59   5.41   5.15       3.63   3.43   4.50   4.18 
Weighted-average note rate  4.02%   3.67%   3.40%   3.54%       4.07%   3.70%   3.41%   3.56% 
Weighted-average age (in years)  3.9   6.0   3.5   3.8       3.8   5.9   3.3   3.7 
Weighted-average expected prepayment (constant prepayment rate)  7.5%   8.5%   6.5%   6.9%       11.5%   13.2%   9.6%   10.3% 
Weighted-average expected life (in years)  8.6   7.4   8.2   8.2       6.5   5.6   6.9   6.7 
Weighted-average option adjusted spread (c)  7.2%   6.9%   5.9%   6.2%       7.3%   7.3%   6.3%   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 SeptemberJune 30, 20172022 and December 31, 2016,2021, 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 

  June 30, 2022        December 31, 2021 
(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 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    21    729         30,000    750    21    729 
Series N  60,000    1,500    8    1,492         60,000    1,500    8    1,492 
Series O  18,000    450    13    437         —    —    —    — 
Total preferred stock (a)  243,510   $7,026   $218   $6,808         225,510   $6,576   $205   $6,371 
(a)
The par value of all shares issued and outstanding at SeptemberJune 30, 20172022 and December 31, 2016,2021, was $1.00 per share.

During the first ninesix months of 2017,2022, the Company issued depositary shares representing an ownership interest in 40,00018,000 shares of Series JO
Non-Cumulative
Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series JO Preferred Stock”). The Series JO Preferred Stock has no stated maturity and will not be subject to
5
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U.S. Bancorp
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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 2.9144.50 percent. The Series JO Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after April 15, 2027. The Series JO Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to April 15, 2027 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 JO 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, the Company redeemed all outstanding shares of the Series GNon-Cumulative Perpetual Preferred Stock (the “Series G Preferred Stock”) at a redemption price equal to the liquidation preference amount. The Company included a $10 million loss in the computation of earnings per diluted common share for the first nine months of 2017, which represents the stock issuance costs recorded in preferred stock upon the issuance of the Series G 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’ 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’ 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 June 30
(Dollars in Millions)		 
Unrealized Gains
(Losses) on
Investment
Securities
Available-For-
Sale
  
Unrealized
Gains (Losses)
on Investment
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 
2022
                        
Balance at beginning of period $(4,518)  $(904)  $(77)  $(1,402)  $(37)  $(6,938) 
Changes in unrealized gains (losses)  (4,761)   —   98   —   —   (4,663) 
Transfer of securities from available-for-sale to
held-to-maturity
  1,381   (1,381)   —   —   —   
—

 
Foreign currency translation adjustment (a)  —   —   —   —   (3)   (3) 
Reclassification to earnings of realized (gains) losses  (19)   61   10   32   —   84 
Applicable income taxes  859   334   (27)   (8)   1   1,159 
Balance at end of period $(7,058)  $(1,890)  $4  $(1,378)  $(39)  $(10,361) 
2021
                        
Balance at beginning of period $(125)  $—  $(112)  $(1,813)  $(45)  $(2,095) 
Changes in unrealized gains (losses)  1,195   —   14   —   —   1,209 
Foreign currency translation adjustment (a)  —   —   —   —   (1)   (1) 
Reclassification to earnings of realized (gains) losses  (43)   —   (8)   40   —   (11) 
Applicable income taxes  (292)   —   (1)   (10)   (1)   (304) 
Balance at end of period $735  $—  $(107)  $(1,783)  $(47)  $(1,202) 
(a)
Represents the impact of changes in foreign currency exchange rates on the Company’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) 

Six Months Ended June 30
(Dollars in Millions)		 
Unrealized
Gains
(Losses) on
Investment
Securities
Available-For-
Sale
  
Unrealized
Gains (Losses)
on Investment
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 
2022
                        
Balance at beginning of period $540  $(935)  $(85)  $(1,426)  $(37)  $(1,943) 
Changes in unrealized gains (losses)  (11,515)   —   98   —   —   (11,417) 
Transfer of securities from available-for-sale to
held-to-maturity
  1,381   (1,381)   —   
—

   —   
—
 
Foreign currency translation adjustment (a)  —   —   —   —   (3)   (3) 
Reclassification to earnings of realized (gains) losses  (37)   103   21   64   —   151 
Applicable income taxes  2,573   323   (30)   (16)   1   2,851 
Balance at end of period $(7,058)  $(1,890)  $4  $(1,378)  $(39)  $(10,361) 
2021
                        
Balance at beginning of period $2,417  $—  $(189)  $(1,842)  $(64)  $322 
Changes in unrealized gains (losses)  (2,183)   —   113   —   —   (2,070) 
Foreign currency translation adjustment (a)  —   —   —   —   24   24 
Reclassification to earnings of realized (gains) losses  (68)   —   (4)   79   —   7 
Applicable income taxes  569   —   (27)   (20)   (7)   515 
Balance at end of period $735  $—  $(107)  $(1,783)  $(47)  $(1,202) 
(a)
Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.

 
U.S. Bancorp 55
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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
June 30		   Six Months Ended
June 30		 
(Dollars in Millions) 2022  2021   2022  2021 
Unrealized gains (losses) on investment securities
available-for-sale
  
 
    
Realized gains (losses) on sale of investment securities $19  $43   $37  $68  Securities gains (losses), net
   (5)  (11)    (9)   (17)  Applicable income taxes
   14   32    28   51  
Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale
to
held-to-maturity
                   
Amortization of unrealized gains  (61)  —    (103)  —  Interest income
   16   —    26   —  Applicable income taxes
   (45)  —    (77)   —  
Net-of-tax
Unrealized gains (losses) on derivative hedges                   
Realized gains (losses) on derivative hedges  (10)  8    (21)  4  Interest expense
   2   (2)    5   (1)  Applicable income taxes
   (8)   6    (16)   3  
Net-of-tax
Unrealized gains (losses) on retirement plans                   
Actuarial gains (losses) and prior service cost (credit) amortization  (32)  (40)    (64)  (79)  Other noninterest expense
   8   10    16   20  Applicable income taxes
   (24)   (30)    (48)   (59)  
Net-of-tax
Total impact to net income $(63) $8   $(113) $(5)   
Note 910
 
   Earnings Per Share

The componentscomponent
s
 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
June 30		   Six Months Ended
June 30		 
(Dollars and Shares in Millions, Except Per Share Data)     2022      2021       2022      2021 
Net income attributable to U.S. Bancorp $1,531  $1,982   $3,088  $4,262 
Preferred dividends  (59)   (58)    (143)   (148) 
Impact of preferred stock call (a)  —   —    —   (5) 
Earnings allocated to participating stock awards  (8)   (10)    (15)   (20) 
Net income applicable to U.S. Bancorp common shareholders $1,464  $1,914   $2,930  $4,089 
Average common shares outstanding  1,486   1,489    1,485   1,495 
Net effect of the exercise and assumed purchase of stock awards  1   1    1   2 
Average diluted common shares outstanding  1,487   1,490    1,486   1,497 
Earnings per common share $.99  $1.29   $1.97  $2.73 
Diluted earnings per common share $.99  $1.28   $1.97  $2.73 
(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 SeptemberJune 30, 2017,2022, to purchase 1 million common shares for the three months and ninesix months ended SeptemberJune 30, 2017,2022, and outstanding at SeptemberJune 30, 2016,2021, to purchase 1 million common shares for the three months and ninesix months ended SeptemberJune 30, 2016,2021 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’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 June 30      Six Months Ended June 30
  Pension Plans  Postretirement
Welfare Plan		      Pension Plans  Postretirement
Welfare Plan		 
(Dollars in Millions) 2022  2021  2022  2021      2022  2021  2022  2021 
Service cost $68  $66  $—  $—      $137  $132  $—  $— 
Interest cost  62   55   —   —       123   110   —   — 
Expected return on plan assets  (120)   (113)   —   —       (239)   (225)   —   — 
Prior service cost (credit) amortization  —   (1)   (2)   (1)       (1)   (1)   (2)   (2) 
Actuarial loss (gain) amortization  35   43   (1)   (1)       70   85   (3)   (3) 
Net periodic benefit cost (a) $45  $50  $(3)  $(2)      $90  $101  $(5)  $(5) 
(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 11
5
4
 U.S. Bancorp
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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
June 30		   Six Months Ended
June 30		 
(Dollars in Millions)     2022      2021            2022       2021 
Federal
                       
Current $221  $350        $625   $703 
      
Deferred  107   76         5    206 
Federal income tax  328   426         630    909 
State
                       
Current  89   109         178    203 
      
Deferred  (3)   16         3    46 
      
State income tax  86   125         181    249 
Total income tax provision $414  $551        $811   $1,158 
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
June 30		   Six Months Ended
June 30		 
(Dollars in Millions)     2022      2021           2022      2021 
Tax at statutory rate $409  $533       $820  $1,140 
State income tax, at statutory rates, net of federal tax benefit  84   105        168   219 
Tax effect of                     
Tax credits and benefits, net of related expenses  (46)   (83)        (152)   (176) 
Tax-exempt
income
  (29)   (29)        (57)   (57) 
Other items  (4)   25        32   32 
Applicable income taxes $414  $551       $811  $1,158 
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 SeptemberJune 30, 2017,2022, 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 through December 31, 2020 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 million$3.6 billion at SeptemberJune 30, 20172022 and $479$785 million at December 31, 2016.

U.S. Bancorp57

2021.
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 loans and 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 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
U.S. Bancorp
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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 SeptemberJune 30, 2017,2022, the Company had $52$4 million
(net-of-tax)
of realized and unrealized gains on
derivatives classified as
 cash flow hedges recorded in other comprehensive income (loss), compared with $55$85 million
(net-of-tax)
of realized and unrealized gainslosses at December 31, 2016.2021. The estimated amountsamount to be reclassified from other comprehensive income (loss) into earnings during the remainder of 2017 and the next 12 months were immaterial. is a loss of $15 million
(net-of-tax).
All cash flow hedges were highly effective for the three and nine months ended SeptemberJune 30, 2017, and the change in fair value attributed to hedge ineffectiveness was not material.

2022. There were 0 derivatives held as cash flow hedges at December 31, 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 hedgesbillion at June 30, 2022, compared with $1.3 billion at December 31, 2016.

2021.

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

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      

  June 30, 2022        December 31, 2021 
  Notional
Value		   Fair Value        Notional
Value		   Fair Value 
(Dollars in Millions)  Assets   Liabilities        Assets   Liabilities 
Fair value hedges                                  
Interest rate contracts                                  
Receive fixed/pay floating swaps $17,400   $—   $—        $12,350   $—   $— 
Pay fixed/receive floating swaps  3,820    —    —         16,650    —    — 
Cash flow hedges                                  
Interest rate contract
s

                            
Receive fixed/pay floating swaps  8,300    —    —         —    —    — 
Net investment hedges                                  
Foreign exchange forward contracts  805    6    1         793    —    4 
Other economic hedges                                  
Interest rate contracts                                  
Futures and forwards                                  
Buy  11,040    30    63         9,322    10    16 
Sell  9,811    34    31         29,348    25    27 
Options                                  
Purchased  7,480    260    —         18,570    256    — 
Written  7,208    20    93         9,662    52    231 
Receive fixed/pay floating swaps  11,420    —    —         9,653    —    — 
Pay fixed/receive floating swaps  12,481    —    —         7,033    —    — 
Foreign exchange forward contracts  852    5    2         735    2    6 
Equity contracts  186    4    —         209    5    — 
Other (a)  2,344    2    81         1,792    —    125 
Total $  93,147   $   361   $   271        $116,117   $   350   $409 
(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 and fair value of $1.8 billion and weighted average remaining maturity of $1.1 billion, $123$79 million and 2.75 years at SeptemberJune 30, 2017,2022, respectively, compared to $811$1.8 billion and $125 million $106 million and 3.50 years at December 31, 2016,2021, respectively. In addition, includes short-term underwriting purchase and sale commitments with total notional values of $565 million at June 30, 2022, and $8 million at December 31, 2021.

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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      

  June 30, 2022        December 31, 2021 
  
Notional
Value
   Fair Value        
Notional
Value
   Fair Value 
(Dollars in Millions)  Assets   Liabilities        Assets   Liabilities 
Interest rate contracts                                  
Receive fixed/pay floating swaps $204,454   $458   $3,125        $178,701   $2,007   $438 
Pay fixed/receive floating swaps  193,869    1,308    214         174,176    134    670 
Other (a)  19,451    1    3         16,267    1    2 
Options                                  
Purchased  90,183    993    5         89,679    194    36 
Written  87,585    6    979         85,211    36    176 
Futures                                  
Buy  475    —    —         3,607    —    — 
Sell  4,928    —    —         3,941    —    — 
Foreign exchange rate contracts                                  
Forwards, spots and swaps  95,611    2,222    2,239         89,321    1,145    1,143 
Options                                  
Purchased  861    39    —         805    19    — 
Written  861    —    39         805    —    19 
Credit contracts  9,152    1    6         9,331    1    5 
Total $707,430   $5,028   $6,610        $651,844   $3,537   $2,489 
(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 June 30        Six Months Ended June 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) 2022   2021  2022  2021        2022   2021  2022  2021 
Asset and Liability Management Positions
                                        
Cash flow hedges                                        
Interest rate contracts $73   $11  $(8)  $6        $73   $85  $(16)  $3 
Net investment hedges                                        
Foreign exchange forward contracts  27    (8)   —   —         26    (1)   —   — 
Non-derivative
debt instruments
  63    (14)   —   —         83    34   —   — 
Note:
Ineffectiveness on
The Company does not exclude components from effectiveness testing for cash flow and net investment hedges washedges.
The table below shows the effect of fair value and cash flow hedge accounting on the Consolidated Statement of Income:
  Three Months Ended June 30       Six Months Ended June 30 
  Interest Income  Interest Expense       Interest Income  Interest Expense 
(Dollars in Millions) 2022  2021  2022  2021       2022  2021  2022  2021 
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 $3,825  $3,382  $390  $245       $7,243  $6,723  $635  $523 
          
Asset and Liability Management Positions
                                     
Fair value hedges                                     
Interest rate contract derivatives  (186)   (30)   (38)   18        331   (31)   34   73 
Hedged items  187   29   36   (17)        (331)   30   (35)   (72) 
Cash flow hedges                                     
Interest rate contract derivatives  —   —   10   (8)        —   —   21   (4) 
Note:
The Company does not materialexclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $10 million and $21 million into earnings during the three and ninesix months ended SeptemberJune 30, 20172022, respectively, as a result of realized cash flows on discontinued cash flow hedges, compared with $12 million and 2016.$27 million during the three and six months ended June 30, 2021, respectively. No amounts were reclassified into earnings on discontinued cash flow hedges because it is probable the original hedged forecasted cash flows will not occur.
(a)Gains (Losses) reclassified from other comprehensive income (loss) into interest expense.

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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) 
At December 31 (Dollars in Millions) June 30, 2022   December 31, 2021        June 30, 2022  December 31, 2021 
Line Item in the Consolidated Balance Sheet
                       
Available-for-sale
investment securities
 $3,124   $16,445        $(716)  $(26) 
Long-term debt  17,724    12,278         378   585 
(a)
The cumulative hedging adjustment related to discontinued hedging relationships on
available-for-sale
investment securities and long-term debt was $(365) million and $468 million, respectively, at June 30, 2022, compared with $(6) million and $640 million at December 31, 2021, respectively.
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
June 30		       Six Months Ended
June 30		 
(Dollars in Millions)      2022      2021           2022      2021 
Asset and Liability Management Positions
                          
Other economic hedges                          
Interest rate contracts                          
Futures and forwards  Mortgage banking revenue   $74  $(99)       $297  $331 
Purchased and written options  Mortgage banking revenue    6   253        (41)   265 
Swaps  Mortgage banking revenue    (247)   193        (451)   (197) 
Foreign exchange forward contracts  Other noninterest income    4   (7)        1   (10) 
Equity contracts  Compensation expense    (1)   1        (3)   5 
Other  Other noninterest income    1   1        —   1 
Customer-Related Positions
                          
Interest rate contracts                          
Swaps  Commercial products revenue    30   25        47   52 
Purchased and written options  Commercial products revenue    —   4        4   (3) 
Futures  Commercial products revenue    8   —        24   — 
Foreign exchange rate contracts                          
Forwards, spots and swaps  Commercial products revenue    20   27        35   46 
Purchased and written option
s

  
Commercial products revenue
   
 
1
   
— 
       
 
1
   
—
 
 
Credit contracts  Commercial products revenue    17   (4)        22   (2) 
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.

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 SeptemberJune 30, 2017,2022, was $685 million.$1.5 billion. At SeptemberJune 30, 2017,2022, the Company had $663 million$1.2 billion 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$800.6 billion total notional amount of derivative positions at SeptemberJune 30, 2017, $187.32022, $409.7 billion related to
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bilateral
over-the-counter
trades, $163.0$383.9 billion related to those centrally cleared through clearinghouses and $5.1$7.0 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.

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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 
June 30, 2022
                        
Repurchase agreements                        
U.S. Treasury and agencies $429   $–   $–   $–   $429 
Residential agency mortgage-backed securities  969    –    –    –    969 
Corporate debt securities  597    –    –    –    597 
Total repurchase agreements  1,995    –    –    –    1,995 
Securities loaned                        
Corporate debt securities  225    –    –    –    225 
Total securities loaned  225    –    –    –    225 
Gross amount of recognized liabilities $2,220   $–   $–   $–   $2,220 
December 31, 2021
                        
Repurchase agreements                        
U.S. Treasury and agencies $378   $–   $–   $–   $378 
Residential agency mortgage-backed securities  551    –    –    –    551 
Corporate debt securities  646    –    –    –    646 
Total repurchase agreements  1,575    –    –    –    1,575 
Securities loaned                        
Corporate debt securities  169    –    –    –    169 
Total securities loaned  169    –    –    –    169 
Gross amount of recognized liabilities $1,744   $–   $–   $–   $1,744 

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)		 
June 30, 2022
                          
Derivative assets (d) $5,359   $(3,503)  $1,856   $(175) $(66) $1,615 
Reverse repurchase agreements  513    –   513    (386)   (127)   – 
Securities borrowed  1,657    –   1,657    –   (1,609)   48 
Total $7,529   $(3,503)  $4,026   $(561)  $(1,802)  $1,663 
December 31, 2021
                          
Derivative assets (d) $3,830   $(1,609)  $2,221   $(142)  $(106)  $1,973 
Reverse repurchase agreements  359    –   359    (249)   (110)   – 
Securities borrowed  1,868    –   1,868    –   (1,818)   50 
Total $6,057   $(1,609)  $4,448   $(391)  $(2,034)  $2,023 
(a)
Includes $78 million$2.0 billion and $210$528 million of cash collateral related payables that were netted against derivative assets at SeptemberJune 30, 20172022 and December 31, 2016,2021, 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$30 million and $848$57 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, 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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(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
 
  
Financial
Instruments (b)
  
Collateral
Pledged (c)
  
Net Amount
 
June 30, 2022
        
Derivative liabilities (d) $6,771   $(2,639)  $4,132   $(175) $–  $3,957 
Repurchase agreements  1,995    –   1,995    (386)   (1,609)   – 
Securities loaned  225    –   225    –   (223)   2 
Total $8,991   $(2,639)  $6,352   $(561)  $(1,832)  $3,959 
December 31, 2021
                          
Derivative liabilities (d) $2,761   $(1,589)  $1,172   $(142)  $–  $1,030 
Repurchase agreements  1,575    –   1,575    (249)   (1,326)   – 
Securities loaned  169    –   169    –   (167)   2 
Total $4,505   $(1,589)  $2,916   $(391)  $(1,493)  $1,032 
(a)
Includes $533 million$1.2 billion and $411$508 million of cash collateral related receivables that were netted against derivative liabilities at SeptemberJune 30, 20172022 and December 31, 2016,2021, 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$110 million and $908$137 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively, of derivative liabilities not subject to netting arrangements or where uncertainty exists regarding legal enforceability of the netting arrangements.

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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. 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.

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Valuation Methodologies
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 assets or liabilities are classified. Where appropriate, the description includesdescriptions include information about the valuation models and key inputs to those models. During the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, 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 partythird-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 werewas a net gainsloss of $28$64 million and $27a net gain of $98 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and net gainslosses of $69$298 million and $154$117 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, 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, bothvalue.
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Table 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. Contents
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 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.

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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 SeptemberJune 30, 2017:

   Minimum  Maximum  Average 

Expected prepayment

  6%   18%   10% 

Option adjusted spread

  7   10   8 

2022:

   Minimum  Maximum  Weighted-
Average (a)		 
Expected prepayment  5%   10%   7% 
Option adjusted spread  5   11   6 
(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 SeptemberJune 30, 2017:

   Minimum  Maximum  Average 

Expected loan close rate

  5%   100%   79% 

Inherent MSR value (basis points per loan)

  (38)   179   117 

2022:

   Minimum  Maximum  Weighted-
Average (a)		 
Expected loan close rate  29%   100%   80% 
Inherent MSR value (basis points per loan)  37
   219   108 
(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.
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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 SeptemberJune 30, 2017,2022, 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, 95158 percent and 32 percent, respectively.

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 theth
e
 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 
June 30, 2022
        
Available-for-sale
securities
        
U.S. Treasury and agencies $ 18,539   $5,228   $–   $–  $23,767 
Mortgage-backed securities                       
Residential agency  –    57,752    –    –   57,752 
Commercial agency  –    7,564    –    –   7,564 
Obligations of state and political subdivisions  –    9,715    1    –   9,716 
Other  –    7    –    –   7 
Total
available-for-sale
  18,539    80,266    1    –   98,806 
Mortgage loans held for sale  –    2,773    –    –   2,773 
Mortgage servicing rights  –    –    3,707    –   3,707 
Derivative assets  –    4,555    834    (3,503)   1,886 
Other assets  187    1,830    –    –   2,017 
Total $18,726   $89,424   $4,542    $(3,503) $109,189 
Derivative liabilities $–   $3,872   $3,009   
$

(2,639
) $4,242 
Short-term borrowings and other liabilities (a)  190    1,645    –    –   1,835 
Total $190   $5,517   $3,009   
$

(2,639)  $6,077 
December 31, 2021
                       
Available-for-sale
securities
                       
U.S. Treasury and agencies $30,917   $5,692   $–   $–  $36,609 
Mortgage-backed securities                       
Residential agency  –    77,079    –    –   77,079 
Commercial agency  –    8,485    –    –   8,485 
Asset-backed securities  –    59    7    –   66 
Obligations of state and political subdivisions  –    10,716    1    –   10,717 
Other  –    7    –    –   7 
Total
available-for-sale
  30,917    102,038    8    –   132,963 
Mortgage loans held for sale  –    6,623    –    –   6,623 
Mortgage servicing rights  –    –    2,953    –   2,953 
Derivative assets  8    2,490    1,389    (1,609)   2,278 
Other assets  278    1,921    —    —   2,199 
Total $31,203   $113,072   $4,350   $(1,609)  $147,016 
Derivative liabilities $—   $2,308   $590   $(1,589)  $1,309 
Short-term borrowings and other liabilities (a)  209    1,837    —    —   2,046 
Total $209   $4,145   $590   $(1,589)  $3,355 
(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 $80 million and $79 million at origination. When an issuer designation is unavailable,June 30, 2022 and December 31, 2021, 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 six months of 2022 and 2021, 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.

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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 SeptemberJune 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  Issuances  Settlements  End
of Period
Balance		  Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Held at
End of Period		 
2022
                                      
Available-for-sale
securities
                                      
Asset-backed securities $7  $(3)  $–   $–   $(4)  $–  $–  $–  $– 
Obligations of state and political subdivisions  1   –   –    –    –   –   –   1   – 
Total
available-for-sale
  8   (3)   –    –    (4)   –   –   1   – 
Mortgage servicing rights  3,432   170  (a)   –    3    –   102 (c)   –   3,707   170  (a) 
Net derivative assets and liabilities  (1,011)   (1,494) (b)   –    81    –   –   249   (2,175)   (1,259) (d) 
          
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  2,787   (379) (a)   –    11    1   293 (c)   –   2,713   (379) (a) 
Net derivative assets and liabilities  1,156   556 (e)   –    58    (1)   –   (269)   1,500   412 (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 $18$(20) million, included in other noninterest income$(1.5) billion 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 $9$(3) million, included in other noninterest income$(1.3) billion and $32$1 million included in mortgage banking revenue.revenue, commercial products revenue and other noninterest income, respectively.
(h)
(e)
Approximately $(73)$276 million, included in other noninterest income$279 million and $157$1 million included in mortgage banking revenue.revenue, commercial products revenue and other noninterest income, respectively.
(i)
(f)
Approximately $(81)$100 million, included in other noninterest income$311 million and $97$1 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 ninesix months ended SeptemberJune 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  Issuances  Settlements  End
of Period
Balance		  Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities Held
at End
of Period		 
2022
                                       
Available-for-sale
securities
                                       
Asset-backed securities $7   $(3)  $ –   $–   $(4)  $–  $–  $–  $– 
Obligations of state and political subdivisions  1    –   –    –    –   –   –   1   – 
Total
available-for-sale
  8    (3)   –    –    (4)   –   –   1   – 
Mortgage servicing rights  2,953    408  (a)   –    6    1   339 (c)   –   3,707   408 (a) 
Net derivative assets and liabilities  799    (3,361) (b)   –    92    (1)   –   296   (2,175)   (2,739) (d) 
          
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    (137) (a)   –    27    1   612 (c)   –   2,713   (137) (a) 
Net derivative assets and liabilities  2,326    (379) (e)   –    60    (1)   –   (506)   1,500   (496) (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.
(b)
Approximately $(103) million and $(3.3) billion included in mortgage banking revenue and commercial products revenue, respectively.
(c)
Represents MSRs capitalized during the period.     
(d)
Approximately $(3) million and $(2.7) billion included in mortgage banking revenue and commercial products revenue, respectively.
(e)
Approximately $128$336 million, included in other noninterest income$(716) million and $244$1 million included in mortgage banking revenue.revenue, commercial products revenue and other noninterest income, respectively.
(f)
Included in changes in unrealized gains
Approximately $100 million, $(597) million and losses on securitiesavailable-for-sale.
(g)Represents MSRs capitalized during the period.
(h)Approximately $55 million included in other noninterest income and $32$1 million included in mortgage banking revenue.
(i)Approximately $560 million included inrevenue, commercial products revenue and other noninterest income, and $487 million included in mortgage banking revenue.respectively.
(j)Approximately $397 million included in other noninterest income and $97 million included in mortgage banking revenue.

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
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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 

  June 30, 2022   December 31, 2021 
(Dollars in Millions) Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 
         
Loans (a) $–   $–   $69   $69   $–   $–   $59   $59 
         
Other assets (b)  –    –    28    28    –    –    77    77 



(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
June 30		   Six Months Ended
June 30		 
(Dollars in Millions) 2022   2021   2022   2021 
     
Loans (a) $22   $12   $33   $43 
     
Other assets (b)  10    5    11    6 
(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

  June 30, 2022        December 31, 2021 
(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 $2,773   $2,753   $20        $6,623   $6,453   $170 
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 SeptemberJune 30, 20172022 and December 31, 2016, and includes financial instruments that are not accounted for at fair value.2021. 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.

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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 

  June 30, 2022  December 31, 2021 
  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 $39,124      $39,124  $–  $–  $ 39,124      $28,905      $28,905  $–  $–  $28,905 
Federal funds sold and securities purchased under resale agreements  520       –   520   –   520       359       –   359   –   359 
Investment securities
held-to-maturity
  61,503       1,337   54,320   –   55,657       41,858       –   41,812   –   41,812 
Loans held for sale (a)  1,170       –   –   1,170   1,170       1,152       –   –   1,152   1,152 
Loans  326,537       –   –   321,095   321,095       306,304       –   –   312,724   312,724 
Other (b)  2,391       –   1,679   712   2,391       1,521       –   630   891   1,521 
Financial Liabilities
                                                    
Time deposits  30,622       –   30,039   –   30,039       22,665       –   22,644   –   22,644 
Short-term borrowings (c)  23,128       –   22,789   –   22,789       9,750       –   9,646   –   9,646 
Long-term debt  29,408       –   27,901   –   27,901       32,125       –   32,547   –   32,547 
Other (d)  3,896       –   1,135   2,761   3,896       3,862       –   1,170   2,692   3,862 
(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.    

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$486 million and $618$495 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. The carrying value of other guarantees was $194$224 million and $186$245 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively.

Note  1516
 
   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 settlementrules, is still pending.

U.S. Bancorp
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7
Table 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.

Contents

Other Guarantees and Contingent Liabilities

The following table is a summary of other guarantees and contingent liabilities of the Company at SeptemberJune 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 

2022:
(Dollars in Millions) Collateral
Held		   Carrying
Amount		   Maximum
Potential
Future
Payments		 
Standby letters of credit $—   $55   $9,844 
Third party borrowing arrangements  —    —    7 
Securities lending indemnifications  7,822    —    7,461 
Asset sales  —    85    7,629 (a) 
Merchant processing  1,415    118    141,453 
Tender option bond program guarantee  1,521    —    1,489 
Other  —    21    1,343 
(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 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 SeptemberJune 30, 2017,2022, the value of airline tickets purchased to be delivered at a future date through card transactions processed by the Company was $7.5$9.1 billion. The Company held collateral of $371 million$1.2 billion 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 SeptemberJune 30, 2017,2022, the liability was $41$100 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 SeptemberJune 30, 2017,2022, the Company had reserved $13 million for potential losses from representation and warranty obligations, compared with $19$18 million at December 31, 2016.2021. 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 SeptemberJune 30, 20172022 and December 31, 2016,2021, the Company had $12$35 million and $7$19 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.

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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–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.

74U.S. Bancorp

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, restitution or alterations in the Company’s business practices (which may increase the Company’s operating expenses and decrease its revenue).

In October 2015,

On July 27, 2022, U.S. Bank agreed to the Company entered intoissuance of a Consent Orderconsent order with the OfficeConsumer Financial Protection Bureau resolving the previously disclosed investigation of certain of the ComptrollerCompany’s consumer sales practices. The financial impact 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 areresolution was not expected to be material to the Company.

In April 2011, the Company and certain other largeCompany’s financial institutions entered into Consent Orders with the OCC and the Boardcondition, results 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 finesoperations or penalties, make restitution or further modify the Company’s business practices (which may increase the Company’s operating expenses and decrease its revenue).

cash flows.

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
U.S. Bancorp
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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 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, including merger and integration charges, are 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 2022, certain organization and methodology changes were made and, accordingly, 2021 results were restated and presented on a comparable basis.
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Business segment results for the three months ended June 30 were as follows:
  Corporate and Commercial
Banking		       
Consumer and
Business Banking
       Wealth Management and
Investment Services		 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $784  $726       $1,617  $1,534       $352   $246 
Noninterest income  272   265        395   634        652    549 
Total net revenue  1,056   991        2,012   2,168        1,004    795 
Nointerest expense  453   433        1,419   1,375        581    521 
Income (loss) before provision and income taxes  603   558        593   793        423    274 
Provision for credit losses  100   —        (75)   (68)        (4)    (4) 
Income (loss) before income taxes  503   558        668   861        427    278 
Income taxes and taxable-equivalent adjustment  126   140        167   215        107    70 
Net income (loss)  377   418        501   646        320    208 
Net (income) loss attributable to noncontrolling interests  —   —        —   —        —    — 
Net income (loss) attributable to U.S. Bancorp $377  $418       $501  $646       $320   $208 
         
Average Balance Sheet
                                   
Loans $123,210  $102,275       $141,135  $140,826       $22,320   $17,442 
Other earning assets  4,161   4,409        2,579   8,018        251    237 
Goodwill  1,912   1,647        3,244   3,476        1,718    1,618 
Other intangible assets  4   5        3,634   2,828        300    84 
Assets  137,773   114,186        156,132   161,695        25,786    20,470 
         
Noninterest-bearing deposits  58,266   60,696        31,642   33,702        25,019    23,288 
Interest-bearing deposits  93,678   70,019        168,486   158,164        71,759    73,347 
Total deposits  151,944   130,715        200,128   191,866        96,778    96,635 
         
Total U.S. Bancorp shareholders’ equity  13,989   13,816        12,366   12,337        3,618    3,089 
      
  
Payment
Services
       
Treasury and
Corporate Support
       
Consolidated
Company
 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $619  $595       $92  $63       $3,464   $3,164 
Noninterest income  994 (a)   913    (a)    235   258        2,548 (b)    2,619 (b) 
Total net revenue  1,613   1,508        327   321        6,012 (c)    5,783 (c) 
Noninterest expense  871   829        400   229        3,724    3,387 
Income (loss) before provision and income taxes  742   679        (73)   92        2,288    2,396 
Provision for credit losses  221   91        69   (189)        311    (170) 
Income (loss) before income taxes  521   588        (142)   281        1,977    2,566 
Income taxes and taxable-equivalent adjustment  130   147        (87)   6        443    578 
Net income (loss)  391   441        (55)   275        1,534    1,988 
Net (income) loss attributable to noncontrolling interests  —   —        (3)   (6)        (3)    (6) 
Net income (loss) attributable to U.S. Bancorp $391  $441       $(58)  $269       $1,531   $1,982 
         
Average Balance Sheet
                                   
Loans $33,854  $30,030       $3,668  $3,711       $324,187   $294,284 
Other earning assets  1,023   5        204,560   193,798        212,574    206,467 
Goodwill  3,318   3,176        —   —        10,192    9,917 
Other intangible assets  438   518        —   —        4,376    3,435 
Assets  41,054   35,618        219,166   219,396        579,911    551,365 
         
Noninterest-bearing deposits  3,396   5,030        2,504   2,581        120,827    125,297 
Interest-bearing deposits  167   141        1,599   2,242        335,689    303,913 
Total deposits  3,563   5,171        4,103   4,823        456,516    429,210 
         
Total U.S. Bancorp shareholders’ equity  8,115   7,413        11,078   16,307        49,166    52,962 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $772 million and $633 million for the three months ended June 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $2.0 billion and $1.9 billion for the three months ended June 30, 2022 and 2021, 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 $188 million and $238 million of revenue for the three months ended June 30, 2022 and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
U.S. Bancorp
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Business segment results for the six months ended June 30 were as follows:
  Corporate and Commercial
Banking		       
Consumer and
Business Banking
       Wealth Management and
Investment Services		 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $1,523  $1,448       $3,129  $3,035       $627   $514 
Noninterest income  517   533        856   1,203        1,248    1,080 
Total net revenue  2,040   1,981        3,985   4,238        1,875    1,594 
Nointerest expense  878   853        2,839   2,731        1,174    1,020 
Income (loss) before provision and income taxes  1,162   1,128        1,146   1,507        701    574 
Provision for credit losses  104   (46)        (28)   (108)        4    1 
Income (loss) before income taxes  1,058   1,174        1,174   1,615        697    573 
Income taxes and taxable-equivalent adjustment  265   294        294   404        175    144 
Net income (loss)  793   880        880   1,211        522    429 
Net (income) loss attributable to noncontrolling interests  —   —        —   —        —    — 
Net income (loss) attributable to U.S. Bancorp $793  $880       $880  $1,211       $522   $429 
         
Average Balance Sheet
                                   
Loans $119,557  $102,201       $140,984  $141,170       $21,521   $17,147 
Other earning assets  4,416   4,364        3,475   9,092        255    258 
Goodwill  1,912   1,647        3,252   3,476        1,739    1,618 
Other intangible assets  4   5        3,406   2,661        283    63 
Assets  132,856   114,229        156,770   162,803        25,124    20,297 
         
Noninterest-bearing deposits  60,298   58,524        31,807   33,244        26,204    22,339 
Interest-bearing deposits  90,336   70,943        167,279   154,450        71,024    78,489 
Total deposits  150,634   129,467        199,086   187,694        97,228    100,828 
         
Total U.S. Bancorp shareholders’ equity  13,859   14,092        12,311   12,407        3,607    3,062 
      
  
Payment
Services
       
Treasury and
Corporate Support
       
Consolidated
Company
 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $1,241  $1,224       $144  $32       $6,664   $6,253 
Noninterest income  1,852 (a)   1,698    (a)    471   486        4,944 (b)    5,000 (b) 
Total net revenue  3,093   2,922        615   518        11,608 (c)    11,253 (c) 
Noninterest expense  1,726   1,627        609   535        7,226    6,766 
Income (loss) before provision and income taxes  1,367   1,295        6   (17)        4,382    4,487 
Provision for credit losses  351   50        (8)   (894)        423    (997) 
Income (loss) before income taxes  1,016   1,245        14   877        3,959    5,484 
Income taxes and taxable-equivalent adjustment  254   311        (121)   58        867    1,211 
Net income (loss)  762   934        135   819        3,092    4,273 
Net (income) loss attributable to noncontrolling interests  —   —        (4)   (11)        (4)    (11) 
Net income (loss) attributable to U.S. Bancorp $762  $934       $131  $808       $3,088   $4,262 
         
Average Balance Sheet
                                   
Loans $32,802  $29,831       $3,744  $3,789       $318,608   $294,138 
Other earning assets  1,023   5        205,541   191,382        214,710    205,101 
Goodwill  3,322   3,175        —   —        10,225    9,916 
Other intangible assets  450   530        —   —        4,143    3,259 
Assets  39,803   35,356        224,110��  217,372        578,663    550,057 
         
Noninterest-bearing deposits  3,534   5,146        2,532   2,591        124,375    121,844 
Interest-bearing deposits  164   137        2,174   1,932        330,977    305,951 
Total deposits  3,698   5,283        4,706   4,523        455,352    427,795 
         
Total U.S. Bancorp shareholders’ equity  8,067   7,535        13,460   15,750        51,304    52,846 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $1.4 billion and $1.2 billion for the six months ended June 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $3.9 billion and $3.6 billion for the six months ended June 30, 2022 and 2021, 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 $392 million and $466 million of revenue for the six months ended June 30, 2022 and 2021, 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 SeptemberJune 30, 20172022 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 June 30    
      2022                          2021                        
(Dollars in Millions) (Unaudited) Average
Balances		  Interest        Yields and
Rates		       Average
Balances		       Interest        Yields and
Rates		           % Change
Average
Balances		 
Assets
                       
Investment securities $171,296  $825      1.93%     $160,615    $635      1.58%       6.7% 
Loans held for sale  3,688   54      5.89      7,825     55      2.78       (52.9) 
Loans (b)                       
Commercial  120,657   794      2.64      102,974     676      2.63       17.2 
Commercial real estate  39,517   330      3.35      38,564     306      3.18       2.5 
Residential mortgages  80,228   638      3.18      73,351     621      3.38       9.4 
Credit card  22,748   589      10.38      21,116     554      10.54       7.7 
Other retail  61,037   528      3.47      58,279        530      3.64       4.7 
Total loans  324,187   2,879      3.56      294,284     2,687      3.66       10.2 
Interest-bearing deposits with banks  31,116   57      .74      31,358     6      .08       (.8) 
Other earning assets  6,474   39      2.36      6,669        26      1.61       (2.9) 
Total earning assets  536,761   3,854      2.88      500,751     3,409      2.73       7.2 
Allowance for loan losses  (5,710)           (6,310)              9.5 
Unrealized gain (loss) on investment securities  (9,226)           851              * 
Other assets  58,086           56,073              3.6 
Total assets $579,911          $551,365              5.2 
Liabilities and Shareholders’ Equity
                       
Noninterest-bearing deposits $120,827          $125,297              (3.6)% 
Interest-bearing deposits                       
Interest checking  116,878   20      .07      103,356     7      .03       13.1 
Money market savings  123,788   121      .39      113,673     50      .18       8.9 
Savings accounts  68,127   2      .01      62,102     1      .01       9.7 
Time deposits  26,896   34      .51      24,782        24      .39       8.5 
Total interest-bearing deposits  335,689   177      .21      303,913     82      .11       10.5 
Short-term borrowings                       
Federal funds purchased  641   1      .17      2,204     —      .02       (70.9) 
Securities sold under agreements to repurchase  2,078   2      .10      1,658     1      .03       25.3 
Commercial paper  6,289   4      .06      6,509     —      —       (3.4) 
Other short-term borrowings  14,286   50      .35      6,091        17      .27       * 
Total short- term borrowings  23,294   57      .98      16,462     18      .43       41.5 
Long-term debt  31,390   156      1.99      36,190        145      1.61       (13.3) 
Total interest-bearing liabilities  390,373   390      .40      356,565     245      .28       9.5 
Other liabilities  19,078           15,910              19.9 
Shareholders’ equity                       
Preferred equity  6,808           5,968              14.1 
Common equity  42,358           46,994              (9.9) 
Total U.S. Bancorp shareholders’ equity  49,166           52,962              (7.2) 
Noncontrolling interests  467           631              (26.0) 
Total equity  49,633           53,593              (7.4) 
Total liabilities and equity $579,911          $551,365              5.2 
Net interest income  $3,464            $3,164          
Gross interest margin       2.48%               2.45%        
Gross interest margin without taxable-equivalent increments       2.46%               2.43%        
Percent of Earning Assets
                      
Interest income       2.88%             2.73%      
Interest expense       .29               .20        
Net interest margin       2.59%               2.53%        
Net interest margin without taxable-equivalent increments                2.57%                           2.51%        
*
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.

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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 Six Months Ended June 30    
      2022                          2021                        
(Dollars in Millions) (Unaudited) Average
Balances		  Interest        Yields and
Rates		       Average
Balances		       Interest        Yields and
Rates		           % Change
Average
Balances		 
Assets
                                                           
Investment securities
 $173,019  $1,561         1.80%       $153,109       $1,169         1.53%            13.0% 
Loans held for sale
  4,579   114         5.00        8,922        122         2.73            (48.7) 
Loans (b)
                                                           
Commercial
  116,761   1,423         2.46        102,535        1,349         2.65            13.9 
Commercial real estate
  39,302   625         3.21        38,675        611         3.18            1.6 
Residential mortgages
  78,847   1,250         3.17        74,271        1,266         3.41            6.2 
Credit card
  22,297   1,151         10.41        21,130        1,132         10.81            5.5 
Other retail
  61,401   1,037         3.41        57,527        1,062         3.72            6.7 
Total loans
  318,608   5,486         3.47        294,138        5,420         3.71            8.3 
Interest-bearing deposits with banks
  30,487   71         .47        36,542        15         .08            (16.6) 
Other earning assets
  6,625   67         2.02        6,528        50         1.57            1.5 
Total earning assets
  533,318   7,299         2.75        499,239        6,776         2.73            6.8 
Allowance for loan losses
  (5,706)                      (6,788)                               15.9 
Unrealized gain (loss) on investment securities
  (5,907)                      1,342                               * 
Other assets
  56,958                      56,264                               1.2 
Total assets
 $578,663                     $550,057                               5.2 
Liabilities and Shareholders’ Equity
                                                           
Noninterest-bearing deposits
 $124,375                     $121,844                               2.1% 
Interest-bearing deposits
                                                           
Interest checking
  115,975   29         .05        100,387        13         .03            15.5 
Money market savings
  121,700   173         .29        119,218        100         .17            2.1 
Savings accounts
  67,555   4         .01        60,484        3         .01            11.7 
Time deposits
  25,747   51         .40        25,862        51         .40            (.4) 
Total interest-bearing deposits
  330,977   257         .16        305,951        167         .11            8.2 
Short-term borrowings
                                                           
Federal funds purchased
  937   1         .16        1,840        1         .04            (49.1) 
Securities sold under agreements to repurchase
  1,987   3         .14        1,665        1         .07            19.3 
Commercial paper
  6,381   4         .06        6,328        —         —            .8 
Other short-term borrowings
  11,873   70         .59        4,961        32         .65            * 
Total short- term borrowings
  21,178   78         .75        14,794        34         .47            43.2 
Long-term debt
  32,177   300         1.88        37,817        322         1.71            (14.9) 
Total interest-bearing liabilities
  384,332   635         .33        358,562        523         .29            7.2 
Other liabilities
  18,184                      16,174                               12.4 
Shareholders’ equity
                                                           
Preferred equity
  6,714                      6,090                               10.2 
Common equity
  44,590                      46,756                               (4.6) 
Total U.S. Bancorp shareholders’ equity
  51,304                      52,846                               (2.9) 
Noncontrolling interests
  468                      631                               (25.8) 
Total equity
  51,772                      53,477                               (3.2) 
Total liabilities and equity
 $578,663                     $550,057                               5.2 
Net interest income
     $6,664                          $6,253                        
Gross interest margin
                2.42%                           2.44%              
Gross interest margin without taxable-equivalent increments
                2.40%                           2.42%              
Percent of Earning Assets
                                                           
Interest income
                2.75%                           2.73%              
Interest expense
                .24                           .21              
Net interest margin
                2.51%                           2.52%              
Net interest margin without taxable-equivalent increments
                2.49%                           2.50%              
*
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
75

Table of Contents

Part II — Other Information

Item 1. Legal Proceedings
— See the information set forth in “Litigation and Regulatory Matters” in Note 1516 in the Notes to Consolidated Financial Statements under Part I, Item 1on page 69 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, 2016,2021, for discussion of these risks.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
— Refer toSee the information set forth in the “Capital Management” section within Management’s Discussion and Analysis in Part I, Item 2on page 26 of this Report for information regarding shares repurchased by the Company during the thirdsecond quarter of 2017.

2022, which is incorporated herein by reference.

Item 6. Exhibits

     122.1ComputationAmendment No. 1 to the Share Purchase Agreement, dated as of RatioMay 10, 2022. *
    3.1Restated Certificate of EarningsIncorporation (incorporated by reference to Fixed ChargesExhibit 3.4 to the Company’s Form 8-K filed on April 20, 2022).
    3.2Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on April 20, 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.
 101FinancialThe following financial statements from the Company’s Quarterly Report on Form
10-Q of the Company
for the quarter ended SeptemberJune 30, 2017,2022, formatted in Extensible Business Reporting Language:Inline XBRL: (i) 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.Statements, tagged as blocks of text and including detailed tags.
104Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

*
The schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation
S-K.
The Company agrees to provide a copy of the omitted schedules and similar attachments on a supplemental basis to the U.S. Securities and Exchange Commission or its staff, if requested.
78
76
 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, 2017August 4, 2022   

Craig E. Gifford

Lisa R. Stark
Controller

(Principal Accounting Officer and Duly Authorized Officer)

U.S. Bancorp 79
77

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 officersofficer 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 officersofficer 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

August 4, 2022
U.S. Bancorp
78
 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 officersofficer 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 officersofficer 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
/    T
ERRANCE
R. D
OLAN

Terrance R. Dolan

Chief Financial Officer

Dated: November 3, 2017

August 4, 2022
82U.S. Bancorp U.S. Bancorp
79

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 SeptemberJune 30, 20172022 (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/

S
/    A
NDREW
C
ECERE

/
S
/    T
ERRANCE
R. D
OLAN
Andrew Cecere
Chief Executive Officer
Dated: August 4, 2022
   

/s/    TERRANCE R. DOLAN

Andrew Cecere

Chief Executive Officer

Dated: November 3, 2017

Terrance R. Dolan

Chief Financial Officer

U.S. Bancorp
80
 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 or201-680-6578 (international calls)

Internet: www.computershare.com/investor

Registered or Certified Mail:

Computershare

462 South 4th4th 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 or866-775-9668

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 onForm 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
then
Corporate Governance
, and thenCorporate
Governance Documents
.

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 onAccessibility.

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Accessibility
.

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