UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-Q


☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~

2022


☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from (not applicable)

Commission file number

1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)


Delaware		41-0255900
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices, including zip code)

651-466-3000

(Registrant’s telephone number, including area code)

(not applicable)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbols	Name of each exchange on which registered
Common Stock, $.01 par value per share	USB	New 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 PrA	New 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 PrH	New 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 PrP	New 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 PrQ	New 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 PrR	New 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 PrS	New York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024	USB/24B	New York Stock Exchange

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

YES ☑ NO ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of

Regulation S-T

during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

YES ☑ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule12b-2

of the Exchange Act. ~~(Check one):~~

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated

filer ☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by ~~checkmark~~check 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 October 31, ~~2017~~2022
Common Stock, $0.01 Par Value		~~1,659,491,166~~1,485,823,486 shares

Table of Contents

Table of Contents and
Form 10-Q
Cross Reference Index


Part I — Financial Information

1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)			3
~~a) Overview~~			3
~~b) Statement of Income Analysis~~			4

a) Overview			4

b) Statement of Income Analysis			5

c) Balance Sheet Analysis			68

d)Non-GAAP Financial Measures			3132

e) Critical Accounting Policies			3334

f) Controls and Procedures (Item 4)			3334

2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)			9

a) Overview			9

b) Credit Risk Management			1011

c) Residual Value Risk Management			2122

d) Operational Risk Management			2122

e) Compliance Risk Management			2122

f) Interest Rate Risk Management			2122

g) Market Risk Management			23
~~h) Liquidity Risk Management~~			24

~~i) Capital~~h) Liquidity Risk Management			25

i) Capital Management			27

3) Line of Business Financial Review			2628

4) Financial Statements (Item 1)			3435

Part II — Other Information

1) Legal Proceedings (Item 1)			7877

2) Risk Factors (Item 1A)			7877

3) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)			77

4) Exhibits (Item 6)			77

5) Signature			78
~~4) Exhibits (Item 6)~~			78
~~5) Signature~~6) Exhibits			79

~~6) Exhibits~~
U.S. Bancorp			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 factors~~uncertainties 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 reversal~~Deterioration in general business and economic conditions or ~~slowing of the current economic recovery~~turbulence in domestic or ~~another severe contraction~~global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and ~~liabilities. Global financial markets could experience a recurrence of significant turbulence, which could~~liabilities, reduce the availability of funding to certain financial institutions, ~~and~~ lead to a tightening of credit, ~~a reduction of business activity,~~ and ~~increased market~~increase 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, and U.S. Bancorp’s ability to address or satisfy those requirements and other requirements or conditions imposed by regulatory entities, 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 ~~reputational~~reputation 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 any 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 ~~factors~~risks 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. Bancorp~~		1


~~Table 1~~ 2		U.S. Bancorp

Table of Contents


Table 1		Selected Financial Data

Three Months Ended
September 30,

Nine Months Ended
September 30,

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

Net interest income
$ 3,135 $ 2,893 8.4 %    $ 9,097 $ 8,573 6.1 %
Taxable-equivalent adjustment (a)
51 50 2.0    152 154 (1.3 )
Net interest income (taxable-equivalent basis) (b)
3,186 2,943 8.3    9,249 8,727 6.0
Noninterest income
2,413 2,435 (.9 )    7,123 7,130 (.1 )
Securities gains (losses), net
9 10 (10.0 )    47 16 *
Total net revenue
5,608 5,388 4.1    16,419 15,873 3.4
Noninterest expense
3,039 2,931 3.7    9,006 8,672 3.9
Provision for credit losses
360 325 10.8    1,055 982 7.4
Income before taxes
2,209 2,132 3.6    6,358 6,219 2.2
Income taxes and taxable-equivalent adjustment
640 616 3.9    1,791 1,766 1.4
Net income
1,569 1,516 3.5    4,567 4,453 2.6
Net (income) loss attributable to noncontrolling interests
(6 ) (14 ) 57.1    (31 ) (43 ) 27.9
Net income attributable to U.S. Bancorp
$ 1,563 $ 1,502 4.1    $ 4,536 $ 4,410 2.9
Net income applicable to U.S. Bancorp common shareholders
$ 1,485 $ 1,434 3.6    $ 4,302 $ 4,198 2.5
Per Common Share

Earnings per share
$ .89 $ .84 6.0 %    $ 2.56 $ 2.44 4.9 %
Diluted earnings per share
.88 .84 4.8    2.55 2.43 4.9
Dividends declared per share
.30 .28 7.1    .86 .79 8.9
Book value per share
25.98 24.78 4.8
Market value per share
53.59 42.89 24.9
Average common shares outstanding
1,672 1,710 (2.2 )    1,683 1,724 (2.4 )
Average diluted common shares outstanding
1,678 1,716 (2.2 )    1,689 1,730 (2.4 )
Financial Ratios

Return on average assets
1.38 % 1.36 %    1.36 % 1.37 %
Return on average common equity
13.6 13.5    13.4 13.4
Net interest margin (taxable-equivalent basis) (a)
3.10 2.98    3.06 3.02
Efficiency ratio (b)
54.3 54.5    55.0 54.7
Net charge-offs as a percent of average loans outstanding
.47 .46    .49 .48
Average Balances

Loans
$ 277,626 $ 269,637 3.0 %    $ 275,454 $ 266,179 3.5 %
Loans held for sale
3,935 4,691 (16.1 )    3,457 3,888 (11.1 )
Investment securities (c)
111,832 108,109 3.4    111,325 107,095 3.9
Earning assets
408,825 393,783 3.8    404,031 385,816 4.7
Assets
450,630 437,863 2.9    446,049 429,421 3.9
Noninterest-bearing deposits
81,964 82,021 (.1 )    81,808 79,928 2.4
Deposits
335,151 318,548 5.2    331,610 307,312 7.9
Short-term borrowings
15,505 15,929 (2.7 )    14,423 21,457 (32.8 )
Long-term debt
35,544 37,875 (6.2 )    35,697 36,392 (1.9 )
Total U.S. Bancorp shareholders’ equity
48,819 47,791 2.2    48,342 47,240 2.3

September 30,
2017 December 31,
2016
Period End Balances

Loans
$ 278,719 $ 273,207 2.0 %
Investment securities
111,790 109,275 2.3
Assets
459,227 445,964 3.0
Deposits
342,589 334,590 2.4
Long-term debt
34,515 33,323 3.6
Total U.S. Bancorp shareholders’ equity
48,723 47,298 3.0
Asset Quality

Nonperforming assets
$ 1,251 $ 1,603 (22.0 )%
Allowance for credit losses
4,407 4,357 1.1
Allowance for credit losses as a percentage ofperiod-end loans
1.58 % 1.59 %
Capital Ratios

Basel III transitional standardized approach:

Common equity tier 1 capital
9.6 % 9.4 %
Tier 1 capital
11.1 11.0
Total risk-based capital
13.2 13.2
Leverage
9.1 9.0
Common equity tier 1 capital to risk-weighted assets for the Basel III transitional advanced approaches
12.1 12.2
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized approach (b)
9.4 9.1
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)
11.8 11.7
Tangible common equity to tangible assets (b)
7.7 7.5
Tangible common equity to risk-weighted assets (b)
9.5 9.2


	Three Months Ended September 30									Nine Months Ended September 30
(Dollars and Shares in Millions, Except Per Share Data)	2022			2021			Percent Change			2022			2021			Percent Change
Condensed Income Statement
Net interest income	$	3,827		$	3,171			20.7	%	$	10,435		$	9,371			11.4	%
Taxable-equivalent adjustment (a)		30			26			15.4			86			79			8.9
Net interest income (taxable-equivalent basis) (b)		3,857			3,197			20.6			10,521			9,450			11.3
Noninterest income		2,469			2,693			(8.3	)		7,413			7,693			(3.6	)
Total net revenue		6,326			5,890			7.4			17,934			17,143			4.6
Noninterest expense		3,637			3,429			6.1			10,863			10,195			6.6
Provision for credit losses		362			(163	)		*			785			(1,160	)		*
Income before taxes		2,327			2,624			(11.3	)		6,286			8,108			(22.5	)
Income taxes and taxable-equivalent adjustment		511			590			(13.4	)		1,378			1,801			(23.5	)
Net income		1,816			2,034			(10.7	)		4,908			6,307			(22.2	)
Net (income) loss attributable to noncontrolling interests		(4	)		(6	)		33.3			(8	)		(17	)		52.9
Net income attributable to U.S. Bancorp	$	1,812		$	2,028			(10.7	)	$	4,900		$	6,290			(22.1	)
Net income applicable to U.S. Bancorp common shareholders	$	1,718		$	1,934			(11.2	)	$	4,648		$	6,023			(22.8	)
Per Common Share
Earnings per share	$	1.16		$	1.30			(10.8	)%	$	3.13		$	4.04			(22.5	)%
Diluted earnings per share		1.16			1.30			(10.8	)		3.13			4.04			(22.5	)
Dividends declared per share		.48			.46			4.3			1.40			1.30			7.7
Book value per share (c)		27.39			32.22			(15.0	)
Market value per share		40.32			59.44			(32.2	)
Average common shares outstanding		1,486			1,483			.2			1,485			1,491			(.4	)
Average diluted common shares outstanding		1,486			1,484			.1			1,486			1,492			(.4	)
Financial Ratios
Return on average assets		1.22	%		1.45	%					1.13	%		1.53	%
Return on average common equity		15.8			15.9						14.1			17.0
Net interest margin (taxable-equivalent basis) (a)		2.83			2.53						2.62			2.52
Efficiency ratio (b)		57.5			58.4						60.7			59.8
Net charge-offs as a percent of average loans outstanding		.19			.20						.20			.25
Average Balances
Loans	$	336,778		$	296,739			13.5	%	$	324,731		$	295,014			10.1	%
Loans held for sale		3,499			7,438			(53.0	)		4,214			8,422			(50.0	)
Investment securities (d)		164,851			151,755			8.6			170,267			152,653			11.5
Earning assets		541,666			503,325			7.6			536,131			500,616			7.1
Assets		588,764			553,446			6.4			582,067			551,199			5.6
Noninterest-bearing deposits		114,044			129,018			(11.6	)		120,893			124,262			(2.7	)
Deposits		456,769			431,487			5.9			455,829			429,039			6.2
Short-term borrowings		29,034			14,688			97.7			23,825			14,758			61.4
Long-term debt		31,814			35,972			(11.6	)		32,055			37,196			(13.8	)
Total U.S. Bancorp shareholders’ equity		49,820			54,273			(8.2	)		50,804			53,327			(4.7	)

	September 30, 2022			December 31, 2021
Period End Balances
Loans	$	342,708		$	312,028			9.8	%
Investment securities		154,097			174,821			(11.9	)
Assets		600,973			573,284			4.8
Deposits		471,148			456,083			3.3
Long-term debt		32,228			32,125			.3
Total U.S. Bancorp shareholders’ equity		47,513			54,918			(13.5	)
Asset Quality
Nonperforming assets	$	677		$	878			(22.9	)%
Allowance for credit losses		6,455			6,155			4.9
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		11.2			11.6
Total risk-based capital		13.3			13.4
Leverage		8.7			8.6
Total leverage exposure		7.1			6.9
Tangible common equity to tangible assets (b)		5.2			6.8
Tangible common equity to risk-weighted assets (b)		6.7			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.~~32.

(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~~$1.8 billion for the third quarter of ~~2017,~~2022, or ~~$0.88~~$1.16 per diluted common share, compared with ~~$1.5~~$2.0 billion, or ~~$0.84~~$1.30 per diluted common share, for the third quarter of ~~2016.~~2021. Return on average assets and return on average common equity were ~~1.38~~1.22 percent and ~~13.6~~15.8 percent, respectively, for the third quarter of ~~2017,~~2022, compared with ~~1.36~~1.45 percent and ~~13.5~~15.9 percent, respectively, for the third quarter of ~~2016.~~

2021. The results for the third quarter of 2022 included the impact of $42 million ($33 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 $0.02.

Total net revenue for the third quarter of ~~2017~~2022 was ~~$220~~$436 million ~~(4.1~~(7.4 percent) higher than the third quarter of ~~2016,~~2021, reflecting ~~an 8.4~~a 20.7 percent increase in net interest income ~~(8.3~~(20.6 percent on a taxable-equivalent basis)~~, partially offset by a 0.9~~ and an 8.3 percent decrease in noninterest income. The increase in net interest income from the third quarter of ~~2016~~2021 was ~~mainly a result of loan growth and~~due to the impact of rising interest ~~rates. The noninterest income decrease was principally due~~rates on earning assets and strong growth in average loan and investment securities balances, partially offset by deposit pricing, changes in funding mix and lower loan fees driven by the impact of loan forgiveness related to ~~lower mortgage banking revenue, primarily~~ the ~~result of a higher level of refinancing activities~~Small Business Administration (“SBA”) Paycheck Protection Program in the third quarter of ~~2016,~~2021. The reduction in noninterest income reflected lower mortgage banking revenue driven by a decline in refinancing activities, partially offset by ~~increases in~~higher trust and investment management fees and payment services ~~revenue, and treasury management fees as well as higher equity investment income.~~

revenue.

Noninterest expense in the third quarter of ~~2017~~2022 was ~~$108~~$208 million ~~(3.7~~(6.1 percent) higher than the third quarter of ~~2016, primarily due to increased~~2021, reflecting increases in compensation expense, ~~related to hiring to support~~employee benefits expense, marketing and business ~~growth~~development expense, net occupancy and ~~compliance programs, merit increases~~equipment expense and ~~higher variable compensation.~~

other noninterest expense, as well as the impact of merger and integration-related charges of $42 million.

The provision for credit losses for the third quarter of ~~2017~~2022 was $362 million, compared with a benefit of ~~$360~~$163 million ~~was $35 million (10.8 percent) higher than~~for the third quarter of ~~2016.~~2021. The provision for credit losses in the third quarter of 2022 reflected the impact of strong loan growth and increasing economic uncertainty. The provision for credit losses for the third 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 third quarter of ~~2017~~2022 were ~~$330~~$162 million, compared with ~~$315~~$147 million in the third 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 nine months of ~~2017~~2022 was ~~$4.5~~$4.9 billion, or ~~$2.55~~$3.13 per diluted common share, compared with ~~$4.4~~$6.3 billion, or ~~$2.43~~$4.04 per diluted common share, for the first nine months of ~~2016.~~2021. Return on average assets and return on average common equity were ~~1.36~~1.13 percent and ~~13.4~~14.1 percent, respectively, for the first nine months of ~~2017,~~2022, compared with ~~1.37~~1.53 percent and ~~13.4~~17.0 percent, respectively, for the first nine months of ~~2016.~~

2021. The results for the first nine months of 2022 included the impact of $239 million ($186 million

net-of-tax)

of merger and integration-related charges, which decreased diluted earnings per common share by $0.12.

Total net revenue for the first nine months of ~~2017~~2022 was ~~$546~~$791 million ~~(3.4~~(4.6 percent) higher than the first nine months of ~~2016,~~2021, reflecting ~~a 6.1~~an 11.4 percent increase in net interest income ~~(6.0~~(11.3 percent on a taxable-equivalent basis) and a ~~0.3~~3.6 percent ~~increase~~decrease in noninterest income. The increase in net interest income from ~~a year ago~~the first nine months of 2021 was ~~mainly a result of loan growth and~~due to the impact of rising interest ~~rates.~~rates on earning assets and strong growth in average loan and investment securities balances, partially offset by deposit pricing, changes in funding mix and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first nine months of 2021. The reduction in noninterest income ~~increase was driven~~reflected lower mortgage banking revenue and other noninterest income, partially offset by higher ~~payment services revenue,~~ 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.

payment services revenue.

Noninterest expense in the first nine months of ~~2017~~2022 was ~~$334~~$668 million ~~(3.9~~(6.6 percent) higher than the first nine months of ~~2016, the result~~2021, reflecting increases in


4		U.S. Bancorp

Table of ~~increased~~ Contents

compensation expense, ~~related to hiring to support~~employee benefits expense, marketing and business ~~growth~~development expense, net occupancy and ~~compliance programs, merit increases~~equipment expense and ~~higher variable compensation,~~other noninterest expense, as well as the impact of ~~a Federal Deposit Insurance Corporation (“FDIC”) insurance surcharge which began in late 2016. The increase from the first nine months~~merger 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.~~

$239 million.

The provision for credit losses for the first nine months of ~~2017~~2022 was $785 million, compared with a benefit of ~~$1.1~~$1.2 billion ~~was $73 million (7.4 percent) higher than~~for the first nine months of ~~2016.~~2021. The provision for credit losses for the first nine months of 2022 reflected the impact of strong loan growth and increasing economic uncertainty. The provision for credit losses for the first nine 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 nine months of ~~2017~~2022 were ~~$1.0 billion,~~$485 million, compared with ~~$947~~$550 million in the first nine 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. Bancorp~~		3

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. On October 19, 2022, the Company announced that all required regulatory approvals to complete the transaction have been received. The transaction is expected to close on December 1, 2022, pending satisfaction of customary closing conditions.

STATEMENT OF INCOME ANALYSIS

Net Interest Income

Net interest income, on a taxable-equivalent basis, was ~~$3.2~~$3.9 billion in the third quarter and ~~$9.2~~$10.5 billion in the first nine months of ~~2017,~~2022, representing increases of ~~$243~~$660 million ~~(8.3~~(20.6 percent) and ~~$522 million (6.0~~$1.1 billion (11.3 percent), respectively, ~~over~~compared with the same periods of ~~2016.~~2021. The increases were ~~principally driven by loan growth and~~primarily due to the impact of rising interest ~~rates. Average~~rates on earning assets ~~were $15.0 billion (3.8 percent) higher~~and strong growth in loan and investment securities balances, partially offset by deposit pricing, changes in funding mix, and lower loan fees driven by the ~~third quarter and $18.2 billion (4.7 percent) higher~~impact of loan forgiveness related to the SBA Paycheck Protection Program in the first nine months of ~~2017, compared with~~2021. Average earning assets for the third quarter and first nine months of 2022 were $38.3 billion (7.6 percent) and $35.5 billion (7.1 percent) higher, respectively, than the same periods of ~~2016,~~the prior year, reflecting increases in loans ~~other earning assets~~ and investment ~~securities.~~securities, partially offset by decreases in interest-bearing deposits with banks. The net interest margin, on a taxable-equivalent basis, in the third quarter and first nine months of ~~2017~~2022 was ~~3.10~~2.83 percent and ~~3.06~~2.62 percent, respectively, compared with ~~2.98~~2.53 percent and ~~3.02~~2.52 percent in the third quarter and first nine months of ~~2016,~~2021, respectively. The ~~increases~~increase in ~~the~~ net interest margin from the ~~same periods of the~~ prior year ~~were~~was primarily due to the impact of higher ~~interest~~ rates ~~and changes in the loan portfolio mix,~~on earning assets, partially offset by ~~higher funding~~deposit pricing and short-term borrowing costs ~~and higher cash balances.~~given the rise in short-term interest rates. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” ~~tables~~table for further information on net interest income.

Average total loans in the third quarter and first nine months of 2022 were $40.0 billion (13.5 percent) and $29.7 billion (10.1 percent) higher, respectively, than the same periods of 2021. The increases were primarily due to growth in commercial loans, residential mortgages and credit card loans. The increase in commercial loans was primarily due to higher utilization driven by working capital needs of corporate 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 loans in the SBA Paycheck Protection Program. The increase in residential mortgages was driven by stronger

on-balance

sheet loan activities and slower refinance activity, while the increase in credit cards loans was primarily due to increased consumer spending and account growth. In addition, other retail loans increased in the first nine months of 2022, compared with the first nine months of 2021, driven by higher auto and recreational vehicle loans, partially offset by lower retail leasing balances.

Average investment securities in the third quarter and first nine months of ~~2017~~2022 were ~~$3.7~~$13.1 billion ~~(3.4~~(8.6 percent) and ~~$4.2~~$17.6 billion ~~(3.9~~(11.5 percent) higher, respectively, than the same periods of ~~2016,~~2021, primarily due to purchases of ~~U.S. Treasury~~mortgage-backed and U.S. ~~government mortgage-backed~~Treasury securities, net of prepayments, sales and ~~maturities, in support of liquidity management.~~

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

maturities.

Average total deposits for the third quarter and first nine months of ~~2017~~2022 were ~~$16.6~~$25.3 billion ~~(5.2~~(5.9 percent) and ~~$24.3~~$26.8 billion ~~(7.9~~(6.2 percent) higher, respectively, than the same periods of ~~2016.~~2021. Average ~~noninterest-bearing deposit balances were essentially unchanged in~~ total savings deposits for


U.S. Bancorp		5

Table of Contents

the third quarter and ~~increased $1.9~~first nine months of 2022 were $27.6 billion ~~(2.4~~(9.9 percent) and $26.0 billion (9.3 percent) higher, respectively, than the same periods of the prior year, driven by increases in Corporate and Commercial Banking, and Consumer and Business Banking balances. The increase in total savings deposits for the first nine months of ~~2017,~~2022, compared with the ~~same periods~~first nine months of ~~2016, reflecting increases~~2021, was partially offset by a decrease in Wealth Management and ~~Securities~~Investment Services ~~and Consumer and Small Business Banking balances, offset by decreases in Wholesale Banking and Commercial Real Estate~~ balances. Average ~~total savings~~time deposits for the third quarter and first nine months of ~~2017 increased~~2022 were $12.7 billion ~~(6.2~~(54.0 percent) and ~~$23.2~~$4.2 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~~(16.8 percent) higher, ~~and $787 million (2.4 percent) lower for the third quarter and first nine months of 2017,~~ respectively, ~~compared with~~than the same periods of the prior ~~year.~~year, primarily driven by increases in Corporate and Commercial Banking balances, partially offset by decreases in Consumer and Business Banking balances. Changes in time deposits are ~~largely~~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.

~~Provision for Credit Losses~~ ~~The provision for credit losses~~ Average noninterest-bearing deposits for the third quarter and first nine months of ~~2017 increased $35 million (10.8~~2022 were $15.0 billion (11.6 percent) and ~~$73 million (7.4~~$3.4 billion (2.7 percent), lower, respectively, ~~over~~than the same periods of ~~2016.~~ the prior year, driven by decreases in Corporate and Commercial Banking, Consumer and Business Banking, and Payment Services balances. The decrease in average noninterest-bearing deposits in the first nine months of 2022, compared with the first nine months of 2021, was partially offset by an increase in Wealth Management and Investment Services balances.

Provision for Credit Losses

The provision for credit losses was ~~$30~~$362 million ~~higher than net charge-offs~~ in the third quarter and ~~$50~~$785 million ~~higher thannet-charge-offs~~ in the first nine months of ~~2017.~~2022, compared with a benefit of $163 million and $1.2 billion, 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 third quarter and first nine months of ~~2016, respectively.~~2022 reflected the impact of strong loan growth and increasing economic uncertainty. The ~~increase in the allowance~~provision 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. Net charge-offs increased $15 million (4.8 percent) and $58 million (6.1 percent) in the third quarter and first nine months of ~~2017, respectively,~~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. Net charge-offs increased $15 million (10.2 percent) in the third quarter of 2022, compared with the ~~same periods~~third quarter of ~~the prior year, primarily due to~~2021, reflecting higher commercial, credit card and other retail loan net charge-offs, partially offset by ~~lower net charge-offs related to residential mortgages and commercial and~~a decrease in commercial real estate ~~loans.~~loan charge-offs. Net charge-offs decreased $65 million (11.8 percent) in the first nine months of 2022, compared with the first nine months of 2021, primarily driven by lower credit card net charge-offs in the first nine months of 2022. 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.


4		~~U.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 third quarter and ~~$7.2~~$7.4 billion in the first nine months of ~~2017,~~2022, representing ~~a decrease~~decreases of ~~$23~~$224 million ~~(0.9~~(8.3 percent) and ~~an increase of $24~~$280 million ~~(0.3~~(3.6 percent), respectively, compared with the same periods of ~~2016.~~2021. The ~~decrease in~~decreases from the ~~third quarter of 2017, compared with the third quarter of 2016, was principally due to~~prior year reflected lower mortgage banking revenue, lower deposit service charges and lower gains on the sale of securities, partially offset by ~~increases in~~higher trust and investment management fees and payment services revenue. Mortgage banking revenue ~~treasury management fees,~~decreased primarily due to lower application volume, given declining refinance activities experienced in the mortgage industry, lower related gain on sale margins and ~~other noninterest income.~~lower performing loan sales. The ~~increase~~decrease in mortgage banking revenue 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 higher gains on sales of investment securities, partially offset by decreases in mortgage banking revenue and other noninterest income. Mortgage banking revenue decreased due to lower origination and sales volumes from home refinancing, as refinancing activities were significantly higher in the second and third quarters of 2016 due to a decline in longer term interest rates during that period. Trust and investment management fees increased due to favorable market conditions, and net asset and account growth. Payment services revenue was higher due to increases in credit and debit card revenue and corporate payment products revenue, both driven by higher sales volumes. The increases in payment services revenue were partially offset by lower merchant processing services revenue in the third quarter of 2017 due to the Company exiting certain joint ventures 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 2017,2022, 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~~2021, was $3.0 billion in the third quarter and $9.0 billion in the first nine months of 2017, representing increases of $108 million (3.7 percent) and $334 million (3.9 percent), respectively, over the same periods of 2016. The increases from a year ago were primarily due to higher compensation expense, partially offset by ~~lower professional services expense. Compensation expense increased principally due to the impact~~increases in mortgage servicing rights (“MSRs”) valuations, net of hiring to support business growth and compliance programs, merit increases and higher variable compensation. Professional services expense decreased primarily due to fewer consulting services as compliance programs near maturity. The increase in noninterest expense in the first nine months of 2017, compared with the same period of the prior year, was further offset by decreases in marketing and business development expense and other expense. Marketing and business development expense was lower, primarily due to the impact of the charitable contribution recorded in the second quarter of 2016. Other expensehedging activities. Deposit service charges decreased primarily due to the impact of the ~~increase~~elimination of certain consumer

non-sufficient

funds fees beginning in ~~reserves~~the first quarter of 2022. Trust and investment management fees increased primarily due to lower money market fee waivers, activity related to ~~legal and regulatory matters recorded in~~ the ~~second~~fourth quarter of ~~2016,~~2021 acquisition of PFM Asset Management LLC (“PFM”) and core business growth, partially offset by unfavorable market conditions. Payment services revenue increased as a result of higher corporate payment products revenue due to improving business spending across all product groups, as well as increases in merchant processing services revenue driven by higher sales volume and merchant fees. The increases in merchant processing services revenue were partially offset by the ~~FDIC~~impact of foreign currency rate changes, as the U.S. dollar has strengthened considerably compared to European currencies given recent uncertainties in Europe. Other noninterest income decreased in the first nine months of 2022, compared with the first nine months of 2021, primarily due to lower retail leasing

end-of-term

residual gains.


6		U.S. Bancorp

Table of Contents


Table 2		Noninterest Income


	Three Months Ended September 30							Nine Months Ended September 30
(Dollars in Millions)	2022		2021		Percent Change			2022		2021		Percent Change
Credit and debit card revenue	$	391	$	393		(.5	)%	$	1,128	$	1,125		.3	%
Corporate payment products revenue		190		156		21.8			520		420		23.8
Merchant processing services		406		392		3.6			1,194		1,084		10.1
Trust and investment management fees		572		459		24.6			1,638		1,349		21.4
Deposit service charges		166		194		(14.4	)		508		531		(4.3	)
Treasury management fees		151		155		(2.6	)		476		462		3.0
Commercial products revenue		285		277		2.9			841		837		.5
Mortgage banking revenue		81		418		(80.6	)		423		1,063		(60.2	)
Investment products fees		56		62		(9.7	)		177		177		—
Securities gains (losses), net		1		20		(95.0	)		38		88		(56.8	)
Other		170		167		1.8			470		557		(15.6	)
Total noninterest income	$	2,469	$	2,693		(8.3	)%	$	7,413	$	7,693		(3.6	)%

Noninterest Expense

Noninterest expense was $3.6 billion in the third quarter and $10.9 billion in the first nine months of 2022, representing increases of $208 million (6.1 percent) and $668 million (6.6 percent), respectively, over the same periods of 2021. The increases from the prior year reflected higher compensation expense, employee benefits expense, marketing and business development expense, net occupancy and equipment expense, other noninterest expense and 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 and variable compensation. Employee benefits expense increased primarily driven by higher post-pandemic medical expenses. Marketing and business development expense increased due to the timing of marketing campaigns as well as increased travel and entertainment, while net occupancy and equipment expense increased to support business growth. Other noninterest expense increased due to accruals related to future delivery exposures for merchant and airline processing as processing volumes recover, higher Federal Deposit Insurance Corporation (“FDIC”) insurance ~~surcharge which began~~expense driven by an increase in ~~late 2016.~~

the assessment base and rate, and higher other accruals, partially offset by lower other expenses related to the decline in mortgage production.

Income Tax Expense

The provision for income taxes was $481 million (an effective rate of 20.9 percent) for the third quarter and $1.3 billion (an effective rate of 20.8 percent) for the first nine months of 2022, compared with $564 million (an effective rate of 21.7 percent) and $1.7 billion (an effective rate of 21.4 percent) for the same periods of 2021, respectively. For further information on income taxes, refer to Note 12 of the Notes to Consolidated Financial Statements.


Table 3		Noninterest Expense


	Three Months Ended September 30									Nine Months Ended September 30
(Dollars in Millions)	2022			2021			Percent Change			2022			2021			Percent Change
Compensation	$	1,891		$	1,847			2.4	%	$	5,616		$	5,448			3.1	%
Employee benefits		369			336			9.8			1,139			1,057			7.8
Net occupancy and equipment		272			259			5.0			806			780			3.3
Professional services		131			126			4.0			356			332			7.2
Marketing and business development		126			99			27.3			312			237			31.6
Technology and communications		355			361			(1.7	)		1,054			1,082			(2.6	)
Postage, printing and supplies		72			69			4.3			213			203			4.9
Other intangibles		43			41			4.9			130			119			9.2
Other		336			291			15.5			998			937			6.5
Total before merger and integration charges		3,595			3,429			4.8			10,624			10,195			4.2
Merger and integration charges		42			—			*			239			—			*
Total noninterest expense	$	3,637		$	3,429			6.1	%	$	10,863		$	10,195			6.6	%
Efficiency ratio (a)		57.5	%		58.4	%					60.7	%		59.8	%

*	Not meaningful

a)	See Non-GAAP Financial Measures beginning on page 32.


U.S. Bancorp		5 7


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 million (an effective rate~~ of 27.3 percent) for the third quarter and $1.6 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 26.6 percent) for the same periods of 2016. For further information on income taxes, refer to Note 11 of the Notes to Consolidated Financial Statements.

Contents

BALANCE SHEET ANALYSIS

Loans

The Company’s loan portfolio was ~~$278.7~~$342.7 billion at September 30, ~~2017,~~2022, compared with ~~$273.2~~$312.0 billion at December 31, ~~2016,~~2021, an increase of ~~$5.5~~$30.7 billion ~~(2.0~~(9.8 percent). The increase was driven ~~primarily~~ by higher commercial loans, residential mortgages, credit card loans and ~~other retail~~commercial real estate loans, partially offset by lower ~~commercial real estate loans, credit card loans and covered~~other retail loans.

Commercial loans increased ~~$3.5~~$19.7 billion ~~(3.8~~(17.6 percent) at September 30, ~~2017,~~2022, compared with December 31, ~~2016, reflecting~~2021, due to higher ~~demand from new~~utilization 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~~$9.8 billion ~~(3.6~~(12.8 percent) at September 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~~$2.0 billion ~~(5.6~~(9.1 percent) at September 30, ~~2017,~~2022, compared with December 31, ~~2016, primarily driven by higher installment~~2021, reflecting increased consumer spending and ~~retail leasing loans, partially offset by decreases in student loans, home equity loans and revolving credit balances.~~

account growth.

Commercial real estate loans ~~decreased $1.7~~increased $1.3 billion ~~(3.9~~(3.3 percent) at September 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 card~~new originations.

Other retail loans decreased ~~$826 million (3.8~~$2.1 billion (3.4 percent) at September 30, ~~2017,~~2022, compared with December 31, ~~2016, primarily the result of customers paying down balances.~~

2021, due to decreases in auto loans and retail leasing balances, partially offset by an increase in home equity loans.

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~~$3.6 billion at September 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 third 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 billion at September 30, 2017, compared with $109.3 billion at December 31, 2016. The $2.5 billion (2.3 percent) increase was primarily due to $2.2 billion of net investment purchases and a $432 million favorable change in net unrealized gains (losses) on~~available-for-sale~~ ~~investment securities.~~


6		~~U.S. Bancorp~~


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 %


	September 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	$	1,344	$	1,288		3.5		2.85	%	$	—	$	—		—		—	%
Mortgage-backed securities (a)		84,230		72,840		9.7		2.01			41,858		41,812		7.4		1.45
Total held-to-maturity	$	85,574	$	74,128		9.6		2.02	%	$	41,858	$	41,812		7.4		1.45	%
Available-for-sale
U.S. Treasury and agencies	$	24,470	$	21,586		6.8		2.18	%	$	36,648	$	36,609		6.7		1.54	%
Mortgage-backed securities (a)		42,144		37,748		6.7		2.44			85,394		85,564		4.9		1.58
Asset-backed securities (a)		25		25		6.1		5.52			62		66		5.2		1.53
Obligations of state and political subdivisions (b) (c)		11,105		9,158		15.8		3.66			10,130		10,717		6.6		3.67
Other		6		6		2.7		1.99			7		7		3.4		2.07
Total available-for-sale	$	77,750	$	68,523		8.0		2.53	%	$	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 ~~anticipating~~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 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~~based on a federal income tax rate of 3521 percent. Yields on~~available-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 from
available-for-sale
to

held-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. Bancorp~~ 8		7U.S. Bancorp

Table of Contents

Investment Securities

Investment securities totaled $154.1 billion at September 30, 2022, compared with $174.8 billion at December 31, 2021. The $20.7 billion (11.9 percent) decrease was primarily due to a $14.1 billion unfavorable change in net unrealized gains (losses) on

available-for-sale

investment securities and $5.6 billion of net investment paydowns, maturities and sales. During the first nine months of 2022, the Company transferred $45.1 billion amortized cost ($40.7 billion fair value) of

available-for-sale

investment securities to the

held-to-maturity

category to reflect its new intent for these securities.

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 ~~security~~portion of a security’s unrealized loss is ~~deemed~~related to ~~be other-than-temporarily impaired.~~credit and an allowance for credit losses is necessary. At September 30, ~~2017,~~2022, the Company’s net unrealized losses on

available-for-sale

investment securities were ~~$269 million,~~$9.2 billion, compared with ~~$701~~$722 million of net unrealized gains at December 31, ~~2016.~~2021. The ~~favorable~~unfavorable change in net unrealized gains (losses) was primarily due to ~~increases~~decreases 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~~$9.2 billion at September 30, ~~2017,~~2022, compared with ~~$1.0 billion~~$812 million at December 31, ~~2016.~~2021. At September 30, ~~2017,~~2022, the Company had no plans to sell securities with unrealized losses, and ~~believes~~believed 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~~$471.1 billion at September 30, ~~2017,~~2022, compared with ~~$334.6~~$456.1 billion at December 31, ~~2016, the result of~~2021. The $15.0 billion (3.3 percent) increase in total deposits reflected increases in ~~total savings~~time deposits and ~~time~~total savings deposits, partially offset by a decrease in noninterest-bearing deposits. ~~Interest checking balances~~Time deposits increased ~~$3.7~~$19.8 billion (5.6 percent) primarily due to higher Wholesale Banking and Commercial Real Estate, and Consumer and Small Business Banking balances. Savings account balances increased $1.9 billion (4.6 percent), primarily due to higher Consumer and Small Business Banking balances. Money market deposit balances decreased $2.1 billion (1.9(87.3 percent) at September 30, ~~2017,~~2022, compared with December 31, ~~2016, primarily due to lower Wholesale Banking~~2021, driven by higher Corporate and Commercial ~~Real Estate~~Banking balances, partially offset by ~~higher Wealth Management~~lower Consumer and ~~Securities Services~~Business Banking balances. ~~Time~~Changes in time deposits ~~increased $8.4 billion (27.5 percent) at September 30, 2017, compared with December 31, 2016, driven by an increase in~~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,~~characteristics. Money market deposit balances increased $11.6 billion (9.9 percent) at September 30, 2022, compared with December 31, 2021, primarily due to higher Wealth Management and Investment Services, and Corporate and Commercial Banking balances. Interest checking balances increased $2.1 billion (1.8 percent), primarily due to higher Corporate and Commercial Banking, and Consumer and Business Banking balances, partially offset by lower Wealth Management and Investment Services balances. Savings account balances increased $1.3 billion (1.9 percent), driven by higher Consumer and ~~Small~~ Business Banking ~~balances resulting from maturities.~~balances. Noninterest-bearing deposits decreased ~~$3.9~~$19.7 billion ~~(4.6~~(14.6 percent) at September 30, ~~2017,~~2022, compared with December 31, ~~2016,~~2021, primarily due to lower ~~Wholesale Banking~~Corporate and Commercial ~~Real Estate,~~Banking, and Wealth Management and ~~Securities~~Investment Services ~~balances, partially offset by higher Consumer and Small Business Banking~~ balances.

Borrowings

The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were ~~$15.9~~$25.1 billion at September 30, ~~2017,~~2022, compared with ~~$14.0~~$11.8 billion at December 31, ~~2016.~~2021. The ~~$1.9~~$13.3 billion ~~(13.6 percent)~~ increase in short-term borrowings was primarily due to ~~higher other~~increases in short-term ~~borrowings balances, partially offset by lower federal funds purchased~~Federal Home Loan Bank (“FHLB”) advances and commercial paper balances. Long-term debt was ~~$34.5~~$32.2 billion at September 30, ~~2017,~~2022, compared with ~~$33.3~~$32.1 billion at December 31, ~~2016.~~2021. The ~~$1.2 billion (3.6~~$103 million (0.3 percent) increase was primarily due to ~~issuances of~~ $3.9 billion of medium-term ~~notes and $3.4~~note, $1.3 billion of subordinated note and $324 million of bank ~~notes,~~note issuances, partially offset by ~~$2.8~~$2.6 billion of bank note repayments and maturities, $1.3 billion of subordinated note repayments and $1.0 billion of medium-term note ~~maturities and a $2.1 billion decrease in Federal Home Loan Bank (“FHLB”) advances.~~repayments. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.


8		~~U.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.


U.S. Bancorp		9

Table of Contents

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 ~~reputational~~reputation 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 collecting~~loss associated with a change in the ~~interest and/~~credit profile or the ~~principal balance~~failure of a ~~loan, investment~~borrower or ~~derivative contract when it is due.~~counterparty to meet its contractual obligations. Interest rate risk is the ~~potential reduction of net interest income~~current or prospective risk to earnings and capital, or market valuations, ~~as a result~~arising 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 ~~possible~~risk that financial condition or overall safety and soundness is adversely affected by the Company’s inability, or perceived inability, to ~~fund~~meet 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 resulting~~to current or projected financial condition and resilience arising from inadequate or failed internal processes ~~people~~ or systems, people (including human errors or ~~from~~misconduct), 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 exposing~~that the Company may suffer legal or regulatory sanctions, financial losses, and reputational damage if it fails to ~~fines, civil money penalties, payment of damages~~adhere 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 ~~earnings~~current or ~~capital~~projected financial condition and resilience arising from adverse business decisions, ~~or improper~~poor implementation of ~~those decisions. Reputational~~business decisions, or lack of responsiveness to changes in the banking industry and operating environment. Reputation risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from negative public opinion. This risk may impair the Company’s competitiveness by affecting its ability to establish new relationships ~~offer new~~or 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

Form10-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. Bancorp~~		9

~~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;


10		U.S. Bancorp

Table of Contents

Capital ratios and projections, including regulatory measures and stressed scenarios; and

~~Reputational~~

Strategic and ~~strategic~~reputation 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, inflation, interest rates 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 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 ~~and~~which 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 ~~three~~two segments, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses. The Company’s ~~three~~two 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 %


10		~~U.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-

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-

15-year

draw period during which a minimum payment is equivalent to the monthly interest, followed by a

20-

10-year

amortization period, respectively. At September 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 ~~economic~~macroeconomic factors, customer payment history


U.S. Bancorp		11

Table of Contents

and credit scores, and in some cases, updated

loan-to-value

(“LTV”) information reflecting current market conditions on real ~~estate based~~estate-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 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. Bancorp~~		11

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

Residential Mortgages
(Dollars in Millions)
Interest
Only Amortizing Total Percent
of Total
Loan-to-Value

Less than or equal to 80%
$ 1,885 $ 49,598 $ 51,483 86.8 %
Over 80% through 90%
7 3,254 3,261 5.5
Over 90% through 100%
11 560 571 1.0
Over 100%
5 537 542 .9
No LTV available
6 38 44 .1
Loans purchased from GNMA mortgage pools (a)
– 3,416 3,416 5.7
Total
$ 1,914 $ 57,403 $ 59,317 100.0 %
Borrower Type

Prime borrowers
$ 1,914 $ 52,753 $ 54,667 92.2 %
Sub-prime borrowers
– 845 845 1.4
Other borrowers
– 389 389 .7
Loans purchased from GNMA mortgage pools (a)
– 3,416 3,416 5.7
Total
$ 1,914 $ 57,403 $ 59,317 100.0 %

2022:


Residential Mortgages (Dollars in Millions)	Interest Only		Amortizing		Total		Percent of Total
Loan-to-Value
Less than or equal to 80%	$	4,580	$	72,204	$	76,784		89.0	%
Over 80% through 90%		2		2,193		2,195		2.5
Over 90% through 100%		—		130		130		.2
Over 100%		—		40		40		.1
No LTV available		—		16		16		—
Loans purchased from GNMA mortgage pools (a)		—		7,109		7,109		8.2
Total	$	4,582	$	81,692	$	86,274		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%	$	9,755	$	1,094	$	10,849		95.4	%
Over 80% through 90%		199		208		407		3.6
Over 90% through 100%		18		16		34		.3
Over 100%		31		3		34		.3
No LTV/CLTV available		42		1		43		.4
Total	$	10,045	$	1,322	$	11,367		100.0	%

Home equity and second mortgages were ~~$16.3~~$11.4 billion at September 30, ~~2017,~~2022, compared with ~~$16.4~~$10.4 billion at December 31, ~~2016,~~2021, and included ~~$4.8~~$2.9 billion of home equity lines in a first lien position and ~~$11.5~~$8.5 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at September 30, ~~2017,~~2022, included approximately ~~$4.9~~$2.8 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately ~~$6.6~~$5.7 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines including delinquency, estimated average CLTV ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.


12		U.S. Bancorp

Table of Contents

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

Junior Liens Behind
(Dollars in Millions) Company Owned
or Serviced
First Lien Third Party
First Lien Total
Total
$ 4,882 $ 6,653 $ 11,535
Percent 30-89 days past due
.27 % .44 % .37 %
Percent 90 days or more past due
.06 % .07 % .06 %
Weighted-average CLTV
72 % 68 % 69 %
Weighted-average credit score
777 772 774

2022:


	Junior Liens Behind
(Dollars in Millions)	Company Owned or Serviced First Lien			Third Party First Lien			Total
Total	$	2,846		$	5,652		$	8,498
Percent 30—89 days past due		.25	%		.29	%		.28	%
Percent 90 days or more past due		.03	%		.04	%		.04	%
Weighted-average CLTV		56	%		55	%		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 September 30, 2022:


12		~~U.S. Bancorp~~

Percent of Total (a)
~~Table 5~~ Credit score > 660	~~Delinquent Loan Ratios as a Percent of Ending Loan Balances~~	88	%
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 $393 million at September 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 ~~0.23~~0.11 percent ~~(0.18 percent excluding covered loans)~~ at September 30, ~~2017,~~2022 compared with ~~0.28~~0.15 percent ~~(0.20 percent excluding covered loans)~~ at December 31, ~~2016.~~

2021.


U.S. Bancorp		13

Table of Contents


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


90 days or more past due excluding nonperforming loans	September 30, 2022			December 31, 2021
Commercial
Commercial		.03	%		.05	%
Lease financing		—			—
Total commercial		.03			.04
Commercial Real Estate
Commercial mortgages		—			—
Construction and development		.19			.10
Total commercial real estate		.05			.03
Residential Mortgages (a)		.10			.24
Credit Card		.74			.73
Other Retail
Retail leasing		.03			.04
Home equity and second mortgages		.33			.35
Other		.06			.06
Total other retail		.11			.11
Total loans		.11	%		.15	%

90 days or more past due including nonperforming loans	September 30, 2022			December 31, 2021
Commercial		.12	%		.20	%
Commercial real estate		.46			.76
Residential mortgages (a)		.35			.53
Credit card		.74			.73
Other retail		.32			.35
Total loans		.30	%		.42	%

(a)

Delinquent loan ratios exclude $1.9 billion at September 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 2.50 percent at September 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)	September 30, 2022		December 31, 2021		September 30, 2022			December 31, 2021
Residential Mortgages (a)
30-89 days	$	87	$	124		.10	%		.15	%
90 days or more		89		181		.10			.24
Nonperforming		211		226		.24			.30
Total	$	387	$	531		.45			.69
Credit Card
30-89 days	$	237	$	193		.97			.86
90 days or more		181		165		.74			.73
Nonperforming		—		—		—			—
Total	$	418	$	358		1.70			1.59
Other Retail
Retail Leasing
30-89 days	$	24	$	29		.40			.40
90 days or more		2		3		.03			.04
Nonperforming		8		10		.13			.14
Total	$	34	$	42		.56			.58
Home Equity and Second Mortgages
30-89 days	$	38	$	55		.33			.53
90 days or more		37		37		.33			.35
Nonperforming		102		116		.90			1.11
Total	$	177	$	208		1.56			1.99
Other (b)
30-89 days	$	182	$	191		.43			.43
90 days or more		24		26		.06			.06
Nonperforming		20		24		.05			.05
Total	$	226	$	241		.53			.54

(a)

Excludes ~~$297~~$638 million of loans
30-89
days past due and ~~$1.8~~$1.9 billion of loans 90 days or more past due at September 30, ~~2017,~~2022, purchased and 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 %


14		U.S. Bancorp

Table of Contents

Restructured Loans

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

Troubled Debt Restructurings

Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in the payments to be received. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. At September 30, ~~2017,~~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,
14 ~~U.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 September 30, 2022
(Dollars in Millions) Performing
TDRs
30-89 Days

Past Due 90 Days or More
Past Due Nonperforming
TDRs Total
TDRs
Commercial
$ 149    9.0 % 2.3 % $ 57 (a) $ 206
Commercial real estate
100    .3 — 103 (b) 203
Residential mortgages
1,564    2.4 2.4 127 1,691 (d)
Credit card
260    14.4 7.1 — 260
Other retail
182    8.6 4.3 32 (c) 214 (e)
TDRs, excluding loans purchased from GNMA mortgage pools
2,255    4.6 3.0 319 2,574
Loans purchased from GNMA mortgage pools (g)
982    — — — 982 (f)
Total
$ 3,237    3.2 % 2.1 % $ 319 $ 3,556
(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~~$207 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and ~~$45~~$19 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(e)
Includes ~~$78~~$ 56 million of other retail loans to borrowers that have had debt discharged through bankruptcy and ~~$13~~$ 14 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(f)
Includes ~~$217~~$ 156 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 ~~$351~~$ 116 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(g)
Approximately ~~4.2~~7.6 percent and ~~45.2~~33.8 percent of the total TDR loans purchased from GNMA mortgage pools are
30-89
days past due and 90 days or more past due, respectively, but are not classified as delinquent as their repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
U.S. Bancorp
15

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. Consumer~~hardship 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 September 30, ~~2017,~~2022, total nonperforming assets were ~~$1.3 billion,~~$677 million, compared ~~with $1.6 billion~~to $878 million at December 31, ~~2016.~~2021. The ~~$352~~$201 million ~~(22.0~~(22.9 percent) decrease in nonperforming assets was driven by ~~improvements~~a decrease in nonperforming commercial ~~loans, residential mortgages~~real 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 ~~0.45~~0.20 percent at September 30, ~~2017,~~2022, compared with ~~0.59~~0.28 percent at December 31, ~~2016.~~
2021.

OREO ~~excluding covered assets,~~ was ~~$164~~$24 million at September 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.
16 ~~U.S. Bancorp~~


~~Table 6~~ 16		U.S. Bancorp

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) September 30,
2022 December 31,
2021
Commercial

Commercial
        $92         $139
Lease financing
30 35
Total commercial
122 174
Commercial Real Estate

Commercial mortgages
110 213
Construction and development
57 71
Total commercial real estate
167 284
Residential Mortgages (b)
211 226
Credit Card
— —
Other Retail

Retail leasing
8 10
Home equity and second mortgages
102 116
Other
20 24
Total other retail
130 150
Total nonperforming loans (1)
630 834
Other Real Estate (c)
24 22
Other Assets
23 22
Total nonperforming assets
    $677         $878
Accruing loans 90 days or more past due (b)
        $393         $472
Period-end
loans (2)
        $342,708         $312,028
Nonperforming loans to total loans (1)/(2)
.18 % .27 %
Nonperforming assets to total loans plus other real estate (c)
.20 % .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
222 159 381
Advances on loans
6 1 7
Total additions
228 160 388
Reductions in nonperforming assets

Paydowns, payoffs
(255 ) (57 ) (312 )
Net sales
(6 ) (16 ) (22 )
Return to performing status
(56 ) (113 ) (169 )
Charge-offs (d)
(80 ) (6 ) (86 )
Total reductions
(397 ) (192 ) (589 )
Net additions to (reductions in) nonperforming assets
(169 ) (32 ) (201 )
Balance September 30, 2022
$ 292 $ 385 $ 677
(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~~$1.9 billion at September 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~~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~~$46 million at September 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. Bancorp
17
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 September 30
2022       2021
Average       Average
Loan    Net    Loan    Net
(Dollars in Millions) Balance    Charge-offs Percent       Balance    Charge-offs Percent
Commercial

Commercial
$ 123,745    $ 24 .08 %    $ 96,673    $ 13 .05 %
Lease financing
4,774    3 .25    5,159    1 .08
Total commercial
128,519    27 .08    101,832    14 .05
Commercial real estate

Commercial mortgages
30,002    (6 ) (.08 )    28,080    1 .01
Construction
10,008    — —    10,841    12 .44
Total commercial real estate
40,010    (6 ) (.06 )    38,921    13 .13
Residential mortgages
84,018    (5 ) (.02 )    74,104    (10 ) (.05 )
Credit card
24,105    119 1.96    21,905    111 2.01
Other retail

Retail leasing
6,259    1 .06    7,643    1 .05
Home equity and second mortgages
11,142    (2 ) (.07 )    10,936    (3 ) (.11 )
Other
42,725    28 .26    41,398    21 .20
Total other retail
60,126    27 .18    59,977    19 .13
Total loans
$ 336,778    $ 162 .19 %    $ 296,739    $ 147 .20 %
Nine Months Ended September 30
2022       2021
Average       Average
Loan    Net    Loan    Net
(Dollars in Millions) Balance    Charge-offs Percent       Balance    Charge-offs Percent
Commercial

Commercial
$ 115,832    $ 78 .09 %    $ 97,047    $ 91 .13 %
Lease financing
4,891    11 .30    5,251    6 .15
Total commercial
120,723    89 .10    102,298    97 .13
Commercial real estate

Commercial mortgages
29,506    (8 ) (.04 )    27,923    (11 ) (.05 )
Construction
10,035    3 .04    10,834    17 .21
Total commercial real estate
39,541    (5 ) (.02 )    38,757    6 .02
Residential mortgages
80,589    (20 ) (.03 )    74,215    (25 ) (.05 )
Credit card
22,907    349 2.04    21,391    403 2.52
Other retail

Retail leasing
6,689    2 .04    7,829    1 .02
Home equity and second mortgages
10,757    (7 ) (.09 )    11,451    (8 ) (.09 )
Other
43,525    77 .24    39,073    76 .26
Total other retail
60,971    72 .16    58,353    69 .16
Total loans
$ 324,731    $ 485 .20 %    $ 295,014    $ 550 .25 %
Analysis of Loan Net Charge-Offs
Total loan net charge-offs were $162 million for the third quarter of 2022, compared with $147 million in the third quarter of 2021. The increase reflected higher commercial, credit card and other retail loan net charge-offs, partially offset by a decrease in commercial real estate loan charge-offs. Total loan net charge-offs were $485 million for the first nine months of 2022, compared with $550 million in the first nine months of 2021. The decrease was driven by lower credit card net charge-offs in the first nine months of 2022. 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 2022 was 0.19 percent and 0.20 percent, respectively, compared with 0.20 percent and 0.25 percent, respectively, for the same periods of 2021.
Analysis and Determination of the Allowance for Credit Losses
The allowance for credit losses ~~reserves~~is established for ~~probable and estimable~~current expected credit losses ~~incurred in~~on the Company’s loan and lease portfolio, including unfunded credit ~~commitments, and includes certain amounts that do not represent loss exposure to~~commitments. The allowance considers expected losses for the ~~Company because those losses are recoverable under loss sharing agreements with~~remaining 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 ~~adequacy~~appropriateness of the allowance for ~~incurred~~credit 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
18
U.S. Bancorp
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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.
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 the~~credit 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, inflation, interest rates, 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 is~~portfolio, 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 results~~other 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 quarterly~~is performed to ~~confirm an appropriate historical timeframe is selected for each commercial loan type.~~ consider expected credit losses.
The allowance recorded for ~~impaired~~individually 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~~as 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 characteristics~~impairment, attributes of the ~~portfolio, bankruptcy~~borrower 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, or~~pool. 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 to~~charge-off~~ ~~and, therefore, are excluded from nonperforming loans and measures that include nonperforming loans as part of the calculation.~~
When evaluating the appropriateness of the allowance for credit losses for any loans and lines in a junior lien position, the Company considers the delinquency and modification status of the first lien. At September 30, ~~2017,~~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
18 ~~U.S. Bancorp~~
other factors in determining the allowance for credit losses. Based on the available information, the Company estimated ~~$296~~$187 million or ~~1.8~~1.6 percent of ~~the~~its total home equity portfolio at September 30, ~~2017,~~2022, represented
non-delinquent
junior liens where the first lien was delinquent or modified.
The Company ~~uses~~considers 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 of~~The historical long-term average loss experience related to junior ~~lien defaults~~liens has been ~~a small percentage~~relatively 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 obtains~~and estimates are adjusted to consider current collateral support and portfolio risk characteristics. These include updated credit scores and collateral estimates obtained on ~~its~~the Company’s home equity
U.S. Bancorp
19
Table of Contents
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 ~~payment~~payment.
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 lines~~those 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 segment~~allowance established for loans considered PCD at acquisition is ~~evaluated each quarter~~offset 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 evaluation~~basis 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 of~~to purchased loans, ~~when there are no reversals~~regardless of ~~previous impairment allowances,~~PCD status, are recognized ~~over~~through provision expense, with charge-offs charged to the ~~remaining life~~allowance. The Company did not have a material amount of ~~the~~PCD loans ~~and resulting decreases~~included in ~~expected cash flows of the FDIC indemnification assets are amortized over the shorter of the remaining contractual term of the indemnification agreements or the remaining life of the loans.~~
its loan portfolio at September 30, 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 considers~~to 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; geographic~~scenario 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 determination~~each element of the allowance separately and considers this process to be an important credit management tool, the entire allowance for credit ~~losses.~~
losses is available for the entire loan portfolio. The actual amount of losses can vary significantly from the estimated amounts.
At September 30, ~~2017,~~2022, the allowance for credit losses was ~~$4.4~~$6.5 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 ~~426~~1,025 percent at September 30, ~~2017,~~2022, compared with ~~318~~738 percent at December 31, ~~2016.~~2021. The ratio of the allowance for credit losses to annualized loan net charge-offs was ~~337~~1,004 percent at September 30, ~~2017,~~2022, compared with ~~343~~902 percent of full year ~~2016~~2021 net charge-offs at December 31, ~~2016.~~
2021.
The increase in the allowance for credit losses of $300 million (4.9 percent) at September 30, 2022, compared with December 31, 2021, was driven by strong loan growth and increased economic uncertainty. Economic uncertainty and recession risk has been increasing due to ongoing supply chain challenges, rising interest rates and inflationary concerns, market volatility, rising energy prices resulting from the Russia-Ukraine conflict and related pressure on corporate earnings. In addition to these broad economic 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 selected borrowers’ liquidity and ability to repay.
Economic conditions considered in estimating the allowance for credit losses at September 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 September 30, 2022 and December 31, 2021:

September 30,
2022

December 31,
2021

United States unemployment rate for the three months ending (a)

September 30, 2022
3.7 % 3.5 %
December 31, 2022
3.7 3.5
United States real gross domestic product for the three months ending (b)

September 30, 2022
1.5 % 4.5 %
December 31, 2022
(.1 ) 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 $34 million during the first nine 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 increasing economic uncertainty.
The allowance for credit losses related to consumer lending segment loans increased $334 million during the first nine months of 2022, mainly due to loan growth and increasing economic uncertainty, along with the effects of higher interest rates on the life of the residential mortgage portfolios.
20
U.S. Bancorp
Table of Contents
Table 8
   Summary of Allowance for Credit Losses
Three Months Ended    Nine Months Ended
September 30       September 30
(Dollars in Millions) 2022 2021       2022 2021
Balance at beginning of period
$ 6,255 $ 6,610    $ 6,155 $ 8,010
Charge-Offs

Commercial

Commercial
51 37    146 171
Lease financing
5 3    18 13
Total commercial
56 40    164 184
Commercial real estate

Commercial mortgages
— 1    1 9
Construction and development
— 13    9 19
Total commercial real estate
— 14    10 28
Residential mortgages
2 3    9 13
Credit card
161 154    481 536
Other retail

Retail leasing
5 5    14 20
Home equity and second mortgages
2 3    7 9
Other
49 47    146 164
Total other retail
56 55    167 193
Total charge-offs
275 266    831 954
Recoveries

Commercial

Commercial
27 24    68 80
Lease financing
2 2    7 7
Total commercial
29 26    75 87
Commercial real estate

Commercial mortgages
6 —    9 20
Construction and development
— 1    6 2
Total commercial real estate
6 1    15 22
Residential mortgages
7 13    29 38
Credit card
42 43    132 133
Other retail

Retail leasing
4 4    12 19
Home equity and second mortgages
4 6    14 17
Other
21 26    69 88
Total other retail
29 36    95 124
Total recoveries
113 119    346 404
Net Charge-Offs

Commercial

Commercial
24 13    78 91
Lease financing
3 1    11 6
Total commercial
27 14    89 97
Commercial real estate

Commercial mortgages
(6 ) 1    (8 ) (11 )
Construction and development
— 12    3 17
Total commercial real estate
(6 ) 13    (5 ) 6
Residential mortgages
(5 ) (10 )    (20 ) (25 )
Credit card
119 111    349 403
Other retail

Retail leasing
1 1    2 1
Home equity and second mortgages
(2 ) (3 )    (7 ) (8 )
Other
28 21    77 76
Total other retail
27 19    72 69
Total net charge-offs
162 147    485 550
Provision for credit losses
362 (163 )    785 (1,160 )
Balance at end of period
$ 6,455 $ 6,300    $ 6,455 $ 6,300
Components

Allowance for loan losses
$ 6,017 $ 5,792
Liability for unfunded credit commitments
438 508
Total allowance for credit losses (1)
$ 6,455 $ 6,300
Period-end
loans (2)
$ 342,708 $ 297,608
Nonperforming loans (3)
630 906
Allowance for Credit Losses as a Percentage of

Period-end
loans (1)/(2)
1.88 % 2.12 %
Nonperforming loans (1)/(3)
1,025 695
Nonperforming and accruing loans 90 days or more past due
631 488
Nonperforming assets
953 667
Annualized net charge-offs
1,004 1,080
U.S. Bancorp 19
21
Table of Contents
~~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.~~
20 ~~U.S. Bancorp~~
Residual Value Risk Management
The Company manages its risk to changes in the residual value of leased vehicles, office and business equipment, and other assets through disciplined residual valuation ~~setting~~ at the inception of a lease, diversification of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. Retail leasing residual values were $5.8 billion at September 30, 2017, compared with $4.9 billion at December 31, 2016, reflecting overall growth in the retail leasing portfolio during the first nine months of 2017, while commercial leasing residual values were essentially unchanged. As of September 30, ~~2017,~~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 ~~protections~~protection 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, the~~The Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset ~~and~~ Liability Management Committee (“ALCO”) and approved by the Board of Directors. The ALCO has the responsibility for approving and ~~ensuring~~overseeing compliance with the ALCO management policies, including interest rate risk exposure. ~~The~~One way the Company ~~uses~~measures 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 measuring~~liabilities 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~~ ~~Management~~environment. Through this simulation, management estimates the impact on net interest income of various interest rate changes that differ in ~~market interest rates under a number~~the direction, amount and speed of ~~scenarios, including gradual shifts, immediate and sustained parallel shifts, and flattening or steepening~~change over time, as well as the shape of the yield curve. This simulation includes assumptions about how the balance sheet is likely to be affected by changes in loan and deposit growth. Assumptions are made to project interest rates for new loans and deposits based on historical analysis, management’s outlook and
re-pricing
strategies. These assumptions are reviewed and validated on a periodic basis with sensitivity analysis being provided for key variables of the simulation. The results are reviewed monthly by the ALCO and are used to guide asset/liability management strategies.
The Company manages its interest rate risk position by holding assets with desired interest rate risk characteristics on its balance sheet, implementing certain pricing strategies for loans and deposits and selecting derivatives and various funding and investment portfolio strategies.
Table 9 summarizes the projected impact to net interest income over the next 12 months of various potential interest rate changes. The sensitivity of the projected impact to net interest income over the next 12 months is dependent on balance sheet growth, product mix, deposit behavior, pricing and funding decisions. While the Company utilizes models and assumptions based on historical information and expected behaviors, actual outcomes could vary significantly. ~~For example, if deposit outflows are more limited (“stable”) than~~Net interest income sensitivities reflect the ~~assumptions the Company used~~impact of current market expectations for interest rates, driving an increase in ~~preparing Table 9, the~~baseline projected ~~impact to~~ net interest ~~income would increase to 2.02 percent~~income. 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 9~~
22
U.S. Bancorp
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Table 9
   Sensitivity of Net Interest Income

September 30, 2017       December 31, 2016
   Down 50 bps
Immediate Up 50 bps
Immediate Down 200 bps
Gradual    Up 200 bps
Gradual       Down 50 bps
Immediate Up 50 bps
Immediate Down 200 bps
Gradual    Up 200 bps
Gradual
Net interest income
(2.56 )% 1.48 % *    1.99 %    (2.82 )% 1.52 % *    1.82 %
September 30, 2022       December 31, 2021
   Down 50 bps Up 50 bps
Immediate Down 200 bps
Gradual Up 200 bps
Gradual       Down 50 bps Up 50 bps
Immediate Down 200 bps
Gradual    Up 200 bps
Gradual
Net interest income
(.51 )% .52 % (1.86 )% .61 %    (3.77 )% 3.09 % *    5.39 %
*
Given the level of interest rates, downward rate scenario is not computed.
~~U.S. Bancorp~~ 21
~~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 on~~Form 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 September 30, ~~2017,~~2022, the Company had ~~$5.8~~$5.3 billion of forward commitments to sell, hedging ~~$2.5~~$2.7 billion of MLHFS and ~~$3.5~~$3.0 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,
22U.S. Bancorp ~~U.S. Bancorp~~
23
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including certain loans, investment securities, derivatives, borrowings and other financial instruments that use LIBOR as the benchmark rate. The Company also provides various services to customers in its capacities as trustee and servicer, which involve financial instruments that will be similarly impacted by the discontinuance of LIBOR.
The Company 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 not yet issued final 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 been undergoing an enterprise-wide effort to proactively reprice LIBOR loans with customers to an alternative reference rate. 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 positions~~Covered 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 businesses~~Covered 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 ~~effectiveness~~accuracy of ~~its risk programs~~internal VaR models and modeling processes by back-testing ~~the~~model 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.
24
U.S. Bancorp
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The average, high, low and~~period-endone-day~~
period-end
one-day
VaR amounts for the Company’s ~~trading positions~~Covered Positions were as follows:

Nine Months Ended September 30,
(Dollars in Millions)
2017    2016
Average
$ 1    $ 1
High
1    1
Low
1    1
Period-end
1    1
Nine Months Ended September 30
(Dollars in Millions)
2022    2021
Average
$ 2    $ 2
High
4    4
Low
1    1
Period-end
3    2
The Company did not experience any actual ~~trading~~ losses for its combined ~~trading businesses~~Covered Positions that exceeded VaR during the nine months ended September 30, ~~2017~~2022 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 and~~period-endone-day~~
period-end
one-day
Stressed VaR amounts for the Company’s ~~trading positions~~Covered Positions were as follows:

Nine Months Ended September 30,
(Dollars in Millions)
2017    2016
Average
$ 4    $ 4
High
6    7
Low
2    2
Period-end
6    5
Nine Months Ended September 30
(Dollars in Millions)
2022    2021
Average
$ 9    $ 7
High
18    9
Low
6    5
Period-end
17    7
Valuations of positions in ~~the~~ client derivatives and foreign currency ~~transaction businesses~~activities 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 party~~third-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. Bancorp~~ 23
Nine Months Ended September 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
$ 8    $ 4
High
20    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 ~~the~~a 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 September 30, ~~2017,~~2022, the fair value of unencumbered~~available-for-sale~~ ~~andheld-to-maturity~~ investment securities totaled ~~$104.9~~$128.4 billion, compared with ~~$100.6~~$144.0 billion at December 31, ~~2016.~~2021. Refer to ~~Table~~Note 4 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on investment securities maturities and trends. Asset liquidity is further enhanced by the Company’s practice of pledging loans to access secured borrowing facilities through the FHLB and Federal Reserve Bank. At September 30, ~~2017,~~2022, the
U.S. Bancorp
25
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Company could have borrowed a total of an additional ~~$90.2~~$101.2 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~~$471.1 billion at September 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~~$32.2 billion at September 30, ~~2017,~~2022, and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were ~~$15.9~~$25.1 billion at September 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 September 30, ~~2017,~~2022, parent company long-term debt outstanding was ~~$15.8~~$20.9 billion, compared with ~~$13.0~~$18.9 billion at December 31, ~~2016.~~2021. The increase was primarily due to ~~the issuance of~~ $3.9 billion of medium-term ~~notes,~~note and $1.3 billion of subordinated note issuances, partially offset by $1.3 billion of subordinated note and $1.0 billion of medium-term note ~~maturities.~~repayments. As of September 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 September 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 September 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 nine months ended September 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,
24 ~~U.S. Bancorp~~
exposure is mitigated by the Company placing deposits at multiple banks and managing the amounts on deposit at any bank based on institution-specific deposit limits. At September 30, ~~2017,~~2022, the Company had an aggregate amount on deposit with European banks of approximately ~~$8.1~~$6.5 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 ~~unlikely~~not 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 of~~These 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~~ ~~sheet~~guarantees 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.
26
U.S. Bancorp

Table of Contents
Table 10
   Regulatory Capital Ratios
(Dollars in Millions)       September 30,
2022 December 31,
2021
Basel III standardized approach:

Common equity tier 1 capital
   $ 44,094 $ 41,701
Tier 1 capital
   51,346 48,516
Total risk-based capital
   60,738 56,250
Risk-weighted assets
   456,928 418,571
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
   11.2 11.6
Total risk-based capital as a percent of risk-weighted assets
   13.3 13.4
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
   8.7 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, the~~The regulatory capital requirements effective for the Company follow Basel III, with the Company being subject to ~~certain transition provisions from Basel I~~calculating 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 includes~~past two ~~comprehensive methodologies for calculating risk-weighted assets: a general standardized approach and more risk-sensitive advanced approaches, with~~years. This cumulative deferred impact will be phased into the Company’s regulatory capital ~~adequacy being evaluated against~~over 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 September 30, ~~2017~~2022 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 both~~on-~~ ~~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 on~~available-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. Bancorp~~ 25
The Company believes certain ~~capital ratios in addition to statutory regulatory~~other 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 ~~calculated~~determined in accordance with transitional regulatory capital requirements related to the CECL methodology under the ~~transitional~~ standardized approach, was ~~7.7~~5.2 percent and ~~9.5~~6.7 percent, respectively, at September 30, ~~2017,~~2022, compared with ~~7.5~~6.8 percent and 9.2 percent, respectively, at December 31, ~~2016. The~~2021. In addition, the Company’s common equity tier 1 capital to risk-weighted assets ratio, ~~using~~reflecting the ~~Basel III standardized approach as if fully implemented~~full implementation of the CECL methodology was 9.4 percent at September 30, ~~2017,~~2022, compared with ~~9.1~~9.6 percent at December 31, ~~2016. The Company’s common~~2021. Refer to
“Non-GAAP
Financial Measures” beginning on page 32 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~~$47.5 billion at September 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 July~~beginning 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’s target common equity tier 1 capital ratio is 8.5 percent and it expects to operate at a common equity tier 1 capital ratio of approximately 8.3 percent at the time of closing the acquisition, given interest rates at the time of the Company’s third quarter 2022 earnings release of October 13, 2022. The Company’s common equity tier 1 capital ratio is expected to increase toward 9.0 percent subsequent to the acquisition as a result of corporate earnings, which will include the impact of accretion of the purchase accounting valuation adjustments. 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 third quarter of ~~2017:~~

Period
Total Number
of Shares
Purchased    Average
Price Paid
Per Share Total Number of
Shares Purchased
as Part of Publicly
Announced
Program (a)
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program
(In Millions)

July
6,313,893    $ 52.67 6,313,893 $ 2,267
August
3,802,949    52.38 3,802,949 2,068
September
2,549,596    52.26 2,549,596 1,935
Total
12,666,438    $ 52.50 12,666,438 $ 1,935
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)
July
105,455 (a) $ 46.89 5,455 $ 1,389
August
2,311 47.88 2,311 1,389
September
3,107 45.78 3,107 1,389
Total
110,873 (a) $ 46.87 10,873 $ 1,389
(a)
~~All~~
Includes 100,000 shares ~~were~~of common stock purchased, ~~under~~at an average price per share of $46.86, 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,~~
U.S. Bancorp
27
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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 its~~approval 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 on
Form 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 Banking~~Corporate and Commercial ~~Real Estate,~~Banking, Consumer and ~~Small~~ Business Banking, Wealth Management and ~~Securities~~Investment 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 — Line~~Note 17 of ~~Business~~the Notes to Consolidated Financial ~~Review” in the Company’s Annual Report onForm 10-K~~ ~~for the year ended December 31, 2016,~~Statements for further ~~discussion~~information 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, ~~2016~~2021 results were restated and presented on a comparable basis.
~~Wholesale Banking~~
Corporate and Commercial ~~Real Estate~~ ~~Wholesale~~ Banking
Corporate and Commercial ~~Real Estate~~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. ~~Wholesale Banking~~Corporate and Commercial ~~Real Estate~~Banking contributed ~~$282~~$502 million of the Company’s net income in the third quarter and ~~$827 million~~$1.3 billion in the first nine months of ~~2017,~~2022, or increases of ~~$57~~$121 million ~~(25.3~~(31.8 percent) and ~~$253~~$39 million ~~(44.1~~(3.1 percent), respectively, compared with the same periods of ~~2016.~~
2021.
Net revenue increased ~~$48~~$235 million ~~(6.1~~(24.6 percent) in the third quarter and $186 million (8.0 percent) in the first nine months of 2017, compared with the same periods of 2016. Net interest income, on a taxable-equivalent basis, increased $53 million (9.4 percent) in the third quarter and $168$303 million (10.3 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016.~~2021. Net interest income, on a taxable-equivalent basis, increased $233 million (33.2 percent) in the third quarter and $317 million (14.7 percent) in the first nine months of 2022, compared with the same periods of 2021. The increases were primarily due to higher loan and interest-bearing deposit balances and the impact of ~~rising~~higher rates on the margin benefit from deposits, ~~and growth in average loan and deposit balances,~~ partially offset by lower ~~spread~~spreads on loans ~~reflecting a competitive marketplace.~~and lower noninterest-bearing deposits. Noninterest income ~~decreased $5~~increased $2 million ~~(2.3~~(0.8 percent) in the third quarter of ~~2017,~~2022, compared with the third quarter of ~~2016,~~2021, primarily due to stronger trust and investment management fees driven by lower money market fee waivers and core growth, and higher ~~loan related charges,~~commercial products revenue due to higher capital markets revenue, partially offset by ~~higher~~lower treasury management ~~fees.~~fees driven by the impact of rising interest rates on earnings credits. Noninterest income ~~increased $18~~decreased $14 million ~~(2.7~~(1.8 percent) in the first nine months of ~~2017,~~2022, compared with the ~~same period~~first nine months of ~~2016, driven by~~
26 ~~U.S. Bancorp~~
~~increases in treasury management~~2021, primarily due to lower corporate bond fees ~~and~~within the capital markets ~~volume,~~business, partially offset by higher ~~loan related charges.~~
treasury management fees.
Noninterest expense increased ~~$41~~$17 million ~~(11.5~~(3.9 percent) in the third quarter and ~~$122~~$47 million ~~(11.4~~(3.6 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 business~~higher FDIC insurance expense and higher compensation expense ~~reflecting the impact of increased staffing,~~primarily due to merit increases and ~~variable compensation. In addition,~~hiring to support business growth. The increase in noninterest expense for the ~~increase~~first nine months of 2022, compared with the first nine months of 2021, was partially offset by lower performance-based incentives related to capital markets activity. The provision for credit losses increased $56 million in the third quarter and $204 million in the first nine months of 2017 included the impact of the FDIC insurance surcharge on deposit balances. The provision for credit losses decreased $82 million in the third quarter and $333 million (97.4 percent) in the first nine months of 2017,2022, compared with the same periods of ~~2016,~~2021, primarily due to ~~favorable changes~~loan loss provisions supporting growth in ~~the reserve allocation and continued stabilization of credit quality in the energy sector.~~
loan balances.
Consumer and ~~Small~~ Business Banking
Consumer and ~~Small~~ Business Banking ~~delivers products~~comprises consumer banking, small business banking and consumer lending. Products and services are delivered through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing, mobile devices, distributed mortgage loan officers, and ~~mobile devices. It encompasses community banking, metropolitan banking~~intermediary relationships including auto dealerships, mortgage banks, and ~~indirect lending, as well as mortgage banking.~~strategic partners. Consumer and ~~Small~~ Business Banking contributed ~~$363~~$467 million of the Company’s net income in the third quarter and ~~$974 million~~$1.3 billion in the first nine months of ~~2017,~~2022, or ~~an increase~~decreases of $4$198 million ~~(1.1~~(29.8 percent) and ~~a decrease of $62~~$527 million ~~(6.0~~(28.1 percent), respectively, compared with the same periods of ~~2016.~~
2021.
28
U.S. Bancorp
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 September 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)
$ 934 $ 701 33.2 % $ 1,726 $ 1,558 10.8 % $ 477 $ 236 * %
Noninterest income
256 254 .8 336 714 (52.9 ) 652 558 16.8
Total net revenue
1,190 955 24.6 2,062 2,272 (9.2 ) 1,129 794 42.2
Noninterest expense
452 435 3.9 1,399 1,412 (.9 ) 592 520 13.8
Income (loss) before provision and income taxes
738 520 41.9 663 860 (22.9 ) 537 274 96.0
Provision for credit losses
68 12 * 40 (27 ) * 3 2 50.0
Income (loss) before income taxes
670 508 31.9 623 887 (29.8 ) 534 272 96.3
Income taxes and taxable-equivalent adjustment
168 127 32.3 156 222 (29.7 ) 134 68 97.1
Net income (loss)
502 381 31.8 467 665 (29.8 ) 400 204 96.1
Net (income) loss attributable to noncontrolling interests
— — — — — — — — —
Net income (loss) attributable to U.S. Bancorp
$ 502 $ 381 31.8 $ 467 $ 665 (29.8 ) $ 400 $ 204 96.1
Average Balance Sheet

Loans
$ 131,614 $ 102,800 28.0 $ 142,986 $ 140,468 1.8 $ 22,871 $ 18,452 23.9
Goodwill
1,912 1,650 15.9 3,241 3,506 (7.6 ) 1,700 1,618 5.1
Other intangible assets
3 5 (40.0 ) 3,726 2,755 35.2 311 80 *
Assets
147,671 115,033 28.4 158,439 160,515 (1.3 ) 26,439 21,633 22.2
Noninterest-bearing deposits
53,388 63,565 (16.0 ) 31,083 33,401 (6.9 ) 23,852 24,542 (2.8 )
Interest-bearing deposits
100,433 69,304 44.9 166,196 159,475 4.2 73,229 72,255 1.3
Total deposits
153,821 132,869 15.8 197,279 192,876 2.3 97,081 96,797 .3
Total U.S. Bancorp shareholders’ equity
14,609 13,766 6.1 12,466 12,247 1.8 3,726 3,171 17.5
Payment
Services Treasury and
Corporate Support    Consolidated
Company
Three Months Ended September 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)
$ 627 $ 616 1.8 % $ 93 $ 86 8.1 % $ 3,857 $ 3,197 20.6 %
Noninterest income
995 946 5.2 230 221 4.1 2,469 2,693 (8.3 )
Total net revenue
1,622 1,562 3.8 323 307 5.2 6,326 5,890 7.4
Noninterest expense
897 862 4.1 297 200 48.5 3,637 3,429 6.1
Income (loss) before provision and income taxes
725 700 3.6 26 107 (75.7 ) 2,689 2,461 9.3
Provision for credit losses
285 166 71.7 (34 ) (316 ) 89.2 362 (163 ) *
Income (loss) before income taxes
440 534 (17.6 ) 60 423 (85.8 ) 2,327 2,624 (11.3 )
Income taxes and taxable-equivalent adjustment
110 134 (17.9 ) (57 ) 39 * 511 590 (13.4 )
Net income (loss)
330 400 (17.5 ) 117 384 (69.5 ) 1,816 2,034 (10.7 )
Net (income) loss attributable to noncontrolling interests
— — — (4 ) (6 ) 33.3 (4 ) (6 ) 33.3
Net income (loss) attributable to U.S. Bancorp
$ 330 $ 400 (17.5 ) $ 113 $ 378 (70.1 ) $ 1,812 $ 2,028 (10.7 )
Average Balance Sheet

Loans
$ 35,819 $ 31,378 14.2 $ 3,488 $ 3,641 (4.2 ) $ 336,778 $ 296,739 13.5
Goodwill
3,292 3,168 3.9 — — — 10,145 9,942 2.0
Other intangible assets
405 495 (18.2 ) — — — 4,445 3,335 33.3
Assets
42,090 37,170 13.2 214,125 219,095 (2.3 ) 588,764 553,446 6.4
Noninterest-bearing deposits
3,312 4,913 (32.6 ) 2,409 2,597 (7.2 ) 114,044 129,018 (11.6 )
Interest-bearing deposits
171 150 14.0 2,696 1,285 * 342,725 302,469 13.3
Total deposits
3,483 5,063 (31.2 ) 5,105 3,882 31.5 456,769 431,487 5.9
Total U.S. Bancorp shareholders’ equity
8,257 7,561 9.2 10,762 17,528 (38.6 ) 49,820 54,273 (8.2 )
*
Not meaningful
U.S. Bancorp
29
Table of Contents
Corporate and
Commercial Banking    Consumer and
Business Banking    Wealth Management and
Investment Services
Nine Months Ended September 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)
$ 2,475 $ 2,158 14.7 % $ 4,835 $ 4,580 5.6 % $ 1,107 $ 752 47.2 %
Noninterest income
774 788 (1.8 ) 1,191 1,915 (37.8 ) 1,900 1,639 15.9
Total net revenue
3,249 2,946 10.3 6,026 6,495 (7.2 ) 3,007 2,391 25.8
Noninterest expense
1,352 1,305 3.6 4,215 4,129 2.1 1,768 1,539 14.9
Income (loss) before provision and income taxes
1,897 1,641 15.6 1,811 2,366 (23.5 ) 1,239 852 45.4
Provision for credit losses
172 (32 ) * 12 (136 ) * 7 2 *
Income (loss) before income taxes
1,725 1,673 3.1 1,799 2,502 (28.1 ) 1,232 850 44.9
Income taxes and taxable-equivalent adjustment
432 419 3.1 450 626 (28.1 ) 309 213 45.1
Net income (loss)
1,293 1,254 3.1 1,349 1,876 (28.1 ) 923 637 44.9
Net (income) loss attributable to noncontrolling interests
— — — — — — — — —
Net income (loss) attributable to U.S. Bancorp
$ 1,293 $ 1,254 3.1 $ 1,349 $ 1,876 (28.1 ) $ 923 $ 637 44.9
Average Balance Sheet

Loans
$ 123,644 $ 102,427 20.7 $ 141,637 $ 140,914 .5 $ 21,972 $ 17,582 25.0
Goodwill
1,912 1,648 16.0 3,248 3,487 (6.9 ) 1,726 1,618 6.7
Other intangible assets
4 5 (20.0 ) 3,514 2,693 30.5 292 69 *
Assets
137,874 114,525 20.4 157,311 162,013 (2.9 ) 25,563 20,743 23.2
Noninterest-bearing deposits
58,517 60,648 (3.5 ) 30,990 32,857 (5.7 ) 25,437 23,096 10.1
Interest-bearing deposits
93,762 70,406 33.2 166,806 156,052 6.9 71,852 76,464 (6.0 )
Total deposits
152,279 131,054 16.2 197,796 188,909 4.7 97,289 99,560 (2.3 )
Total U.S. Bancorp shareholders’ equity
14,114 13,984 .9 12,361 12,352 .1 3,647 3,099 17.7
Payment
Services    Treasury and
Corporate Support    Consolidated
Company
Nine Months Ended September 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)
$ 1,868 $ 1,840 1.5 % $ 236 $ 120 96.7 % $ 10,521 $ 9,450 11.3 %
Noninterest income
2,847 2,644 7.7 701 707 (.8 ) 7,413 7,693 (3.6 )
Total net revenue
4,715 4,484 5.2 937 827 13.3 17,934 17,143 4.6
Noninterest expense
2,626 2,488 5.5 902 734 22.9 10,863 10,195 6.6
Income (loss) before provision and income taxes
2,089 1,996 4.7 35 93 (62.4 ) 7,071 6,948 1.8
Provision for credit losses
636 216 * (42 ) (1,210 ) 96.5 785 (1,160 ) *
Income (loss) before income taxes
1,453 1,780 (18.4 ) 77 1,303 (94.1 ) 6,286 8,108 (22.5 )
Income taxes and taxable-equivalent adjustment
364 446 (18.4 ) (177 ) 97 * 1,378 1,801 (23.5 )
Net income (loss)
1,089 1,334 (18.4 ) 254 1,206 (78.9 ) 4,908 6,307 (22.2 )
Net (income) loss attributable to noncontrolling interests
— — — (8 ) (17 ) 52.9 (8 ) (17 ) 52.9
Net income (loss) attributable to U.S. Bancorp
$ 1,089 $ 1,334 (18.4 ) $ 246 $ 1,189 (79.3 ) $ 4,900 $ 6,290 (22.1 )
Average Balance Sheet

Loans
$ 33,820 $ 30,353 11.4 $ 3,658 $ 3,738 (2.1 ) $ 324,731 $ 295,014 10.1
Goodwill
3,312 3,172 4.4 — — — 10,198 9,925 2.8
Other intangible assets
435 518 (16.0 ) — — — 4,245 3,285 29.2
Assets
40,573 35,966 12.8 220,746 217,952 1.3 582,067 551,199 5.6
Noninterest-bearing deposits
3,459 5,068 (31.7 ) 2,490 2,593 (4.0 ) 120,893 124,262 (2.7 )
Interest-bearing deposits
166 141 17.7 2,350 1,714 37.1 334,936 304,777 9.9
Total deposits
3,625 5,209 (30.4 ) 4,840 4,307 12.4 455,829 429,039 6.2
Total U.S. Bancorp shareholders’ equity
8,131 7,543 7.8 12,551 16,349 (23.2 ) 50,804 53,327 (4.7 )
*
Not meaningful
30
U.S. Bancorp
Table of Contents
Net revenue ~~increased $30~~decreased $210 million ~~(1.6~~(9.2 percent) in the third quarter and ~~$204~~$469 million ~~(3.8~~(7.2 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016.~~2021. Noninterest income decreased $378 million (52.9 percent) in the third quarter and $724 million (37.8 percent) in the first nine 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 experienced in the mortgage industry, lower related gain on sale margins and lower performing loan sales. The decrease in mortgage banking revenue in the first nine months of 2022, compared with the first nine months of 2021, was 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~~$168 million ~~(9.2~~(10.8 percent) in the third quarter and ~~$266~~$255 million ~~(7.6~~(5.6 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016. The increases were primarily due to~~2021, reflecting the favorable impact of ~~rising~~higher rates on the margin benefit from deposits ~~along with growth in average loan~~ and higher deposit balances, partially offset by lower ~~spread~~spreads on ~~loans.~~ loans and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program.
Noninterest ~~income~~expense decreased ~~$80~~$13 million ~~(11.2~~(0.9 percent) in the third quarter of 2022, compared with the third quarter of 2021, due to lower compensation expense reflecting lower revenue-related compensation due to mortgage production and ~~$62~~lower mortgage related loan expense, partially offset by increases in net shared services expense due to investments in digital capabilities. Noninterest expense increased $86 million ~~(3.3~~(2.1 percent) in the first nine 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 stronger~~end-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, 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~~2021, primarily due to ~~higher compensation and employee benefits expenses, higher~~increases in net shared services expense, ~~and the impact of the FDIC insurance surcharge on deposit balances,~~ partially offset by lower compensation expense and mortgage related ~~costs and professional services~~loan expense. The provision for credit losses increased ~~$52~~$67 million in the third quarter and ~~$230~~$148 million in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016, primarily~~2021, due to loan balance growth ~~in other retail loans, exposures as a result of recent weather events,~~ and ~~higher releases of reserves related to residential mortgages~~more favorable credit trends in the prior ~~year as a result of improvements in the portfolio.~~
year.
Wealth Management and ~~Securities~~Investment Services
Wealth Management and ~~Securities~~Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through ~~five~~four businesses: Wealth Management, Global Corporate Trust ~~Services,~~& Custody, U.S. Bancorp Asset Management ~~Institutional Trust & Custody~~ and Fund Services. Wealth Management and ~~Securities~~Investment Services contributed ~~$125~~$400 million of the Company’s net income in the third quarter and ~~$363~~$923 million in the first nine months of ~~2017,~~2022, or increases of ~~$30~~$196 million ~~(31.6~~(96.1 percent) and ~~$90~~$286 million ~~(33.0~~(44.9 percent), respectively, compared with the same periods of ~~2016.~~
2021.
Net revenue increased ~~$65~~$335 million ~~(12.1~~(42.2 percent) in the third quarter and ~~$223~~$616 million ~~(14.3~~(25.8 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016.~~2021. Net interest income, on a taxable-equivalent basis, increased ~~$57~~$241 million ~~(42.2 percent)~~ in the third quarter and ~~$184~~$355 million ~~(49.2~~(47.2 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016. The increases were principally~~2021, primarily due to the favorable impact of ~~rising~~higher rates on the margin benefit from ~~deposits along with higher average loan and deposit balances.~~deposits. Noninterest income increased $8$94 million ~~(2.0~~(16.8 percent) in the third quarter and ~~$39~~$261 million ~~(3.3~~(15.9 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016, principally due to favorable~~2021, primarily driven by higher trust and investment management fees reflecting lower money market ~~conditions~~fund fee waivers, the impact of the PFM acquisition and ~~net asset and account growth.~~
~~U.S. Bancorp~~ 27
core business growth, partially offset by the impact of unfavorable market conditions.
~~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~~
28 ~~U.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. Bancorp~~ 29
Noninterest expense increased ~~$16~~$72 million ~~(4.1~~(13.8 percent) in the third quarter and ~~$78~~$229 million ~~(6.9~~(14.9 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016. The increases were primarily the result of~~2021, reflecting higher compensation expense ~~reflecting~~as a result of merit increases, the ~~impact of higher staffing~~PFM 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. The provision for credit losses increased $1 million (50.0 percent) in the third quarter and ~~higher FDIC insurance surcharges.~~
$5 million in the first nine 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~~$330 million of the Company’s net income in the third quarter and ~~$868 million~~$1.1 billion in the first nine months of ~~2017,~~2022, or decreases of ~~$39~~$70 million ~~(11.4~~(17.5 percent) and ~~$115~~$245 million ~~(11.7~~(18.4 percent), respectively, compared with the same periods of ~~2016.~~
2021.
Net revenue increased ~~$33~~$60 million ~~(2.3~~(3.8 percent) in the third quarter and ~~$109~~$231 million ~~(2.6~~(5.2 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016.~~2021. Noninterest income increased $49 million (5.2 percent) in the third quarter and $203 million (7.7 percent) in the first nine 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 corporate payment products revenue driven by improving business spending across all product
U.S. Bancorp
31
Table of Contents
groups. In addition, merchant processing services revenue increased due to higher sales volume and higher merchant fees, partially offset by the impact of foreign currency rate changes in Europe. Credit and debit card revenue was negatively impacted by declining prepaid processing fees as the beneficial impact of government stimulus programs dissipated year-over-year, offset by strong sales. Net interest income, on a taxable-equivalent basis, increased ~~$25~~$11 million ~~(4.6~~(1.8 percent) in the third quarter and ~~$74~~$28 million ~~(4.7~~(1.5 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016,~~2021, primarily due to higher ~~average~~ loan ~~volumes~~balances and ~~rising~~loan fees, partially offset by higher funding costs. Net interest income further increased in the third quarter of 2022, compared with the third quarter of 2021, due to higher loan yields driven by higher interest rates ~~in addition to growth in loan fees.~~ net of lower customer revolve rates.
Noninterest ~~income~~expense increased $8$35 million ~~(0.9~~(4.1 percent) in the third quarter and ~~$35~~$138 million ~~(1.3~~(5.5 percent) in the first nine 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 costs~~investment in infrastructure and technology development, in addition to higher compensation expense as a result of ~~capital investments to support~~merit 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~~$119 million ~~(29.8~~(71.7 percent) in the third quarter and ~~$179~~$420 million ~~(29.1 percent)~~ in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016,~~2021, primarily due to ~~unfavorable changes~~the impacts of increasing delinquency rates, along with stronger growth in ~~the reserve allocation related to portfolio growth and higher loss rates, as well as higher net charge-offs.~~
loan balances.
Treasury and Corporate Support
Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in
tax-advantaged
projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded net income of ~~$490~~$113 million in the third quarter and ~~$1.5 billion~~$246 million in the first nine months of ~~2017,~~2022, compared with ~~$481~~net income of $378 million and ~~$1.5~~$1.2 billion in the same periods of ~~2016,~~2021, respectively.
Net revenue increased ~~$44~~$16 million ~~(6.2~~(5.2 percent) in the third quarter and ~~decreased $176~~$110 million ~~(7.5~~(13.3 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016.~~2021. Net interest income, on a taxable-equivalent basis, ~~decreased $2~~increased $7 million ~~(0.4~~(8.1 percent) in the third quarter and ~~$170~~$116 million ~~(10.5~~(96.7 percent) in the first nine months of ~~2017,~~2022, compared with the same periods of ~~2016, principally~~2021, primarily due to ~~the impact of rising rates~~higher yields on the ~~margin benefit on~~investment securities portfolio and interest-bearing deposits ~~credited to the business lines, partially~~with banks, mostly offset by ~~growth in the investment portfolio. Total noninterest~~higher funding costs. Noninterest income increased ~~$46~~$9 million ~~(23.2~~(4.1 percent) in the third quarter of ~~2017,~~2022, compared with the third quarter of ~~2016, principally~~2021, primarily due to higher ~~equity~~
tax-advantaged
investment ~~income. Total noninterest~~syndication revenue and gains on the sale of certain assets, partially offset by lower securities gains. Noninterest income decreased $6 million (0.8 percent) in the first nine months of ~~2017,~~2022, compared with the ~~same period~~first nine months of ~~2016,~~2021, primarily due to ~~the impact of the 2016 Visa Europe sale,~~lower securities gains, partially offset by higher ~~income from other equity investments~~
tax-advantaged
investment syndication revenue, gains on the sale of certain assets, and higher ~~gains on sales of investment securities in the current year.~~
commercial products revenue.
Noninterest expense increased ~~$33~~$97 million ~~(17.2~~(48.5 percent) in the third quarter and $168 million (22.9 percent) in the first nine months of ~~2017,~~2022, compared with the ~~third quarter~~same periods of ~~2016, principally~~2021, 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, ~~including~~hiring 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~~The provision for credit losses increased $282 million ~~(10.3~~(89.2 percent) in the third quarter and $1.2 billion (96.5 percent) in the first nine months of ~~2017,~~2022, compared with the same ~~period~~periods of ~~2016, principally~~2021, reflecting the increase in the allowance for credit losses due to ~~lower net shared services expense~~increasing economic uncertainty in the current year, ~~and~~compared to the ~~impacts of an increase in reserves related to legal and regulatory matters and a charitable contribution, both recorded~~reduction in the ~~second quarter of 2016. These decreases were partially offset by increased compensation expense recorded in the current~~
30 ~~U.S. Bancorp~~
~~year. The provision~~allowance for credit losses ~~was $6 million lower~~associated with improving economic conditions in the ~~first nine months of 2017, compared with the same period of 2016, primarily due to lower net charge-offs.~~
prior year.
Income taxes are assessed to each line of business at a managerial tax rate of ~~36.4~~25.0 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 for~~reflecting the ~~Basel III fully implemented standardized approach, and~~full 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 ~~reflecting~~evaluating 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
32
U.S. Bancorp
Table of Contents
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 to~~available-for-sale~~ ~~securities and retirement plan obligations, and includes a portion of capital related to intangible assets, other than MSRs.~~ These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in ~~federal~~ banking regulations. In addition, certain of these measures differ from currently effective capital ratios defined by banking regulations principally in that the currently effective ratios, which are subject to certain transitional provisions, temporarily exclude the impact of the 2020 adoption of accounting guidance related to impairment of financial instruments based on the CECL methodology. As a result, these capital measures disclosed by the Company may be considered
non-GAAP
financial measures.
Management believes this information helps investors assess trends in the Company’s capital adequacy.
The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered
non-GAAP
financial measures. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and
tax-exempt
sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.
There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this report in their entirety, and not to rely on any single financial measure.
~~U.S. Bancorp~~ 31
The following table shows the Company’s calculation of these
non-GAAP
financial measures:

(Dollars in Millions) September 30,
2017 December 31,
2016
Total equity
$ 49,351 $ 47,933
Preferred stock
(5,419 ) (5,501 )
Noncontrolling interests
(628 ) (635 )
Goodwill (net of deferred tax liability) (1)
(8,141 ) (8,203 )
Intangible assets, other than mortgage servicing rights
(595 ) (712 )
Tangible common equity (a)
34,568 32,882
Tangible common equity (as calculated above)
34,568 32,882
Adjustments (2)
(52 ) (55 )
Common equity tier 1 capital estimated for the Basel III fully implemented standardized and advanced approaches (b)
34,516 32,827
Total assets
459,227 445,964
Goodwill (net of deferred tax liability) (1)
(8,141 ) (8,203 )
Intangible assets, other than mortgage servicing rights
(595 ) (712 )
Tangible assets (c)
450,491 437,049
Risk-weighted assets, determined in accordance with prescribed transitional standardized approach regulatory
requirements (d)
363,957 358,237
Adjustments (3)
3,907 4,027
Risk-weighted assets estimated for the Basel III fully implemented standardized approach (e)
367,864 362,264
Risk-weighted assets, determined in accordance with prescribed transitional advanced approaches regulatory requirements
287,800 277,141
Adjustments (4)
4,164 4,295
Risk-weighted assets estimated for the Basel III fully implemented advanced approaches (f)
291,964 281,436
Ratios

Tangible common equity to tangible assets (a)/(c)
7.7 % 7.5 %
Tangible common equity to risk-weighted assets (a)/(d)
9.5 9.2
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented standardized
approach (b)/(e)
9.4 9.1
Common equity tier 1 capital to risk-weighted assets estimated for the Basel III fully implemented advanced approaches (b)/(f)
11.8 11.7

Three Months Ended
September 30,       Nine Months Ended
September 30,
2017 2016       2017 2016
Net interest income
$ 3,135 $ 2,893    $ 9,097 $ 8,573
Taxable-equivalent adjustment (5)
51 50    152 154
Net interest income, on a taxable-equivalent basis
3,186 2,943    9,249 8,727

Net interest income, on a taxable-equivalent basis (as calculated above)
3,186 2,943    9,249 8,727
Noninterest income
2,422 2,445    7,170 7,146
Less: Securities gains (losses), net
9 10    47 16
Total net revenue, excluding net securities gains (losses) (g)
5,599 5,378    16,372 15,857

Noninterest expense (h)
3,039 2,931    9,006 8,672

Efficiency ratio (h)/(g)
54.3 % 54.5 %    55.0 % 54.7 %
(Dollars in Millions) September 30,
2022 December 31,
2021
Total equity
$ 47,978 $ 55,387
Preferred stock
(6,808 ) (6,371 )
Noncontrolling interests
(465 ) (469 )
Goodwill (net of deferred tax liability) (1)
(9,165 ) (9,323 )
Intangible assets, other than mortgage servicing rights
(735 ) (785 )
Tangible common equity (a)
30,805 38,439
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation
44,094 41,701
Adjustments (2)
(1,300 ) (1,733 )
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology (b)
42,794 39,968
Total assets
600,973 573,284
Goodwill (net of deferred tax liability) (1)
(9,165 ) (9,323 )
Intangible assets, other than mortgage servicing rights
(735 ) (785 )
Tangible assets (c)
591,073 563,176
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)
456,928 418,571
Adjustments (3)
(337 ) (357 )
Risk-weighted assets, reflecting the full implementation of the CECL methodology (e)
456,591 418,214
Ratios

Tangible common equity to tangible assets (a)/(c)
5.2 % 6.8 %
Tangible common equity to risk-weighted assets (a)/(d)
6.7 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
September 30    Nine Months Ended
September 30
2022 2021    2022 2021
Net interest income
$ 3,827 $ 3,171 $ 10,435 $ 9,371
Taxable-equivalent adjustment (4)
30 26 86 79
Net interest income, on a taxable-equivalent basis
3,857 3,197 10,521 9,450
Net interest income, on a taxable-equivalent basis (as calculated above)
3,857 3,197 10,521 9,450
Noninterest income
2,469 2,693 7,413 7,693
Less: Securities gains (losses), net
1 20 38 88
Total net revenue, excluding net securities gains (losses) (f)
6,325 5,870 17,896 17,055

Noninterest expense (g)
3,637 3,429 10,863 10,195

Efficiency ratio (g)/(f)
57.5 % 58.4 % 60.7 % 59.8 %
(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-weighting~~the impact of the estimated increase in the allowance for ~~unfunded loan commitments, investment securities, residential mortgages, MSRs and other adjustments.~~credit losses related to the adoption of the CECL methodology.
(4)
~~Primarily reflects higher risk-weighting for MSRs.~~
~~(5)~~ ~~Utilizes~~
Based on a federal income tax rate of 3521 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
32U.S. Bancorp ~~U.S. Bancorp~~
33
Table of Contents
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Company’s financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Company’s financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. Those policies considered to be critical accounting policies relate to the allowance for credit losses, fair value estimates, ~~purchased loans and related indemnification assets,~~ MSRs, ~~goodwill and other intangibles~~ and income taxes. ~~Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee.~~ These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” and the Notes to Consolidated Financial Statements in the Company’s Annual Report on
Form 10-K
for the year ended December 31, ~~2016.~~
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 in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon this evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
During the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial reporting (as defined in
Rules13a-15(f)
and
15d-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
~~U.S. Bancorp~~
34
33U.S. Bancorp
Table of Contents
U.S. Bancorp
Consolidated Balance Sheet

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

Cash and due from banks
$ 20,540 $ 15,705
Investment securities

Held-to-maturity (fair value $43,758 and $42,435, respectively)
44,018 42,991
Available-for-sale ($686 and $755 pledged as collateral, respectively) (a)
67,772 66,284
Loans held for sale (including $3,754 and $4,822 of mortgage loans carried at fair value, respectively)
3,757 4,826
Loans

Commercial
96,928 93,386
Commercial real estate
41,430 43,098
Residential mortgages
59,317 57,274
Credit card
20,923 21,749
Other retail
56,859 53,864
Total loans, excluding covered loans
275,457 269,371
Covered loans
3,262 3,836
Total loans
278,719 273,207
Less allowance for loan losses
(3,908 ) (3,813 )
Net loans
274,811 269,394
Premises and equipment
2,402 2,443
Goodwill
9,370 9,344
Other intangible assets
3,193 3,303
Other assets (including $445 and $314 of trading securities at fair value pledged as collateral, respectively) (a)
33,364 31,674
Total assets
$ 459,227 $ 445,964
Liabilities and Shareholders’ Equity

Deposits

Noninterest-bearing
$ 82,152 $ 86,097
Interest-bearing (b)
260,437 248,493
Total deposits
342,589 334,590
Short-term borrowings
15,856 13,963
Long-term debt
34,515 33,323
Other liabilities
16,916 16,155
Total liabilities
409,876 398,031
Shareholders’ equity

Preferred stock
5,419 5,501
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 9/30/17 and 12/31/16 — 2,125,725,742 shares
21 21
Capital surplus
8,457 8,440
Retained earnings
53,023 50,151
Less cost of common stock in treasury: 9/30/17 — 458,958,607 shares; 12/31/16 — 428,813,585 shares
(16,978 ) (15,280 )
Accumulated other comprehensive income (loss)
(1,219 ) (1,535 )
Total U.S. Bancorp shareholders’ equity
48,723 47,298
Noncontrolling interests
628 635
Total equity
49,351 47,933
Total liabilities and equity
$ 459,227 $ 445,964
(Dollars in Millions) September 30,
2022 December 31,
2021
(Unaudited)
Assets

Cash and due from banks $ 41,652 $ 28,905
Investment securities
Held-to-maturity
(fair value $74,128 and $41,812, respectively)
85,574 41,858
Available-for-sale
($858 and $557 pledged as collateral, respectively) (a)
68,523 132,963
Loans held for sale (including $3,483 and $6,623 of mortgage loans carried at fair value, respectively) 3,647 7,775
Loans
Commercial 131,687 112,023
Commercial real estate 40,329 39,053
Residential mortgages 86,274 76,493
Credit card 24,538 22,500
Other retail 59,880 61,959
Total loans 342,708 312,028
Less allowance for loan losses (6,017 ) (5,724 )
Net loans 336,691 306,304
Premises and equipment 3,155 3,305
Goodwill 10,125 10,262
Other intangible assets 4,604 3,738
Other assets (including $1,235 and $1,193 of trading securities at fair value pledged as collateral, respectively) (a) 47,002 38,174
Total assets $ 600,973 $ 573,284

Liabilities and Shareholders’ Equity

Deposits
Noninterest-bearing $ 115,206 $ 134,901
Interest-bearing 355,942 321,182
Total deposits 471,148 456,083
Short-term borrowings 25,066 11,796
Long-term debt 32,228 32,125
Other liabilities 24,553 17,893
Total liabilities 552,995 517,897
Shareholders’ equity
Preferred stock 6,808 6,371
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares; issued: 9/30/22 and 12/31/21—2,125,725,742 shares 21 21
Capital surplus 8,590 8,539
Retained earnings 71,782 69,201
Less cost of common stock in treasury: 9/30/22—639,921,995 shares; 12/31/21—642,223,571 shares (27,188 ) (27,271 )
Accumulated other comprehensive income (loss) (12,500 ) (1,943 )
Total U.S. Bancorp shareholders’ equity 47,513 54,918
Noncontrolling interests 465 469
Total equity 47,978 55,387
Total liabilities and equity $ 600,973 $ 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.
34 ~~U.S. Bancorp~~
~~U.S. Bancorp~~
~~Consolidated Statement of Income~~

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

Loans
$ 3,059 $ 2,731    $ 8,757 $ 8,039
Loans held for sale
40 43    104 110
Investment securities
568 515    1,653 1,555
Other interest income
47 31    131 89
Total interest income
3,714 3,320    10,645 9,793
Interest Expense

Deposits
293 161    730 452
Short-term borrowings
90 70    233 201
Long-term debt
196 196    585 567
Total interest expense
579 427    1,548 1,220
Net interest income
3,135 2,893    9,097 8,573
Provision for credit losses
360 325    1,055 982
Net interest income after provision for credit losses
2,775 2,568    8,042 7,591
Noninterest Income

Credit and debit card revenue
308 299    919 861
Corporate payment products revenue
201 190    564 541
Merchant processing services
405 412    1,190 1,188
ATM processing services
92 87    267 251
Trust and investment management fees
380 362    1,128 1,059
Deposit service charges
192 192    553 539
Treasury management fees
153 147    466 436
Commercial products revenue
221 219    638 654
Mortgage banking revenue
213 314    632 739
Investment products fees
39 41    120 120
Securities gains (losses), net

Realized gains (losses), net
9 12    47 19
Total other-than-temporary impairment
– (2 )    – (4 )
Portion of other-than-temporary impairment recognized in other comprehensive income (loss)
– –    – 1
Total securities gains (losses), net
9 10    47 16
Other
209 172    646 742
Total noninterest income
2,422 2,445    7,170 7,146
Noninterest Expense

Compensation
1,440 1,329    4,247 3,855
Employee benefits
281 280    882 858
Net occupancy and equipment
258 250    760 741
Professional services
104 127    305 346
Marketing and business development
92 102    291 328
Technology and communications
246 243    723 717
Postage, printing and supplies
82 80    244 236
Other intangibles
44 45    131 134
Other
492 475    1,423 1,457
Total noninterest expense
3,039 2,931    9,006 8,672
Income before income taxes
2,158 2,082    6,206 6,065
Applicable income taxes
589 566    1,639 1,612
Net income
1,569 1,516    4,567 4,453
Net (income) loss attributable to noncontrolling interests
(6 ) (14 )    (31 ) (43 )
Net income attributable to U.S. Bancorp
$ 1,563 $ 1,502    $ 4,536 $ 4,410
Net income applicable to U.S. Bancorp common shareholders
$ 1,485 $ 1,434    $ 4,302 $ 4,198
Earnings per common share
$ .89 $ .84    $ 2.56 $ 2.44
Diluted earnings per common share
$ .88 $ .84    $ 2.55 $ 2.43
Dividends declared per common share
$ .30 $ .28    $ .86 $ .79
Average common shares outstanding
1,672 1,710    1,683 1,724
Average diluted common shares outstanding
1,678 1,716    1,689 1,730
~~See Notes to Consolidated Financial Statements.~~
U.S. Bancorp
35
Table of Contents
U.S. Bancorp
Consolidated Statement of ~~Comprehensive~~ Income

Three Months Ended
September 30,    Nine Months Ended
September 30,
(Dollars in Millions)
(Unaudited)
        2017         2016            2017         2016
Net income
$ 1,569 $ 1,516    $ 4,567 $ 4,453
Other Comprehensive Income (Loss)

Changes in unrealized gains and losses on securitiesavailable-for-sale
24 (105 )    479 716
Other-than-temporary impairment not recognized in earnings on securitiesavailable-for-sale
– –    – (1 )
Changes in unrealized gains and losses on derivative hedges
(3 ) 31    (33 ) (152 )
Foreign currency translation
2 6    11 (30 )
Reclassification to earnings of realized gains and losses
21 54    58 196
Income taxes related to other comprehensive income (loss)
(17 ) (3 )    (199 ) (289 )
Total other comprehensive income (loss)
27 (17 )    316 440
Comprehensive income
1,596 1,499    4,883 4,893
Comprehensive (income) loss attributable to noncontrolling interests
(6 ) (14 )    (31 ) (43 )
Comprehensive income attributable to U.S. Bancorp
$ 1,590 $ 1,485    $ 4,852 $ 4,850

(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)
Three Months Ended
September 30    Nine Months Ended
September 30
2022 2021    2022 2021
Interest Income

Loans $ 3,603 $ 2,711 $ 9,071 $ 8,112
Loans held for sale 49 54 163 176
Investment securities 867 606 2,390 1,741
Other interest income 209 38 347 103
Total interest income 4,728 3,409 11,971 10,132
Interest Expense

Deposits 534 78 791 245
Short-term borrowings 169 18 247 52
Long-term debt 198 142 498 464
Total interest expense 901 238 1,536 761
Net interest income 3,827 3,171 10,435 9,371
Provision for credit losses 362 (163 ) 785 (1,160 )
Net interest income after provision for credit losses 3,465 3,334 9,650 10,531
Noninterest Income

Credit and debit card revenue 391 393 1,128 1,125
Corporate payment products revenue 190 156 520 420
Merchant processing services 406 392 1,194 1,084
Trust and investment management fees 572 459 1,638 1,349
Deposit service charges 166 194 508 531
Treasury management fees 151 155 476 462
Commercial products revenue 285 277 841 837
Mortgage banking revenue 81 418 423 1,063
Investment products fees 56 62 177 177
Securities gains (losses), net 1 20 38 88
Other 170 167 470 557
Total noninterest income 2,469 2,693 7,413 7,693
Noninterest Expense

Compensation 1,891 1,847 5,616 5,448
Employee benefits 369 336 1,139 1,057
Net occupancy and equipment 272 259 806 780
Professional services 131 126 356 332
Marketing and business development 126 99 312 237
Technology and communications 355 361 1,054 1,082
Postage, printing and supplies 72 69 213 203
Other intangibles 43 41 130 119
Merger and integration charges 42 — 239 —
Other 336 291 998 937
Total noninterest expense 3,637 3,429 10,863 10,195
Income before income taxes 2,297 2,598 6,200 8,029
Applicable income taxes 481 564 1,292 1,722
Net income 1,816 2,034 4,908 6,307
Net (income) loss attributable to noncontrolling interests (4 ) (6 ) (8 ) (17 )
Net income attributable to U.S. Bancorp $ 1,812 $ 2,028 $ 4,900 $ 6,290
Net income applicable to U.S. Bancorp common shareholders $ 1,718 $ 1,934 $ 4,648 $ 6,023
Earnings per common share $ 1.16 $ 1.30 $ 3.13 $ 4.04
Diluted earnings per common share $ 1.16 $ 1.30 $ 3.13 $ 4.04
Average common shares outstanding 1,486 1,483 1,485 1,491
Average diluted common shares outstanding 1,486 1,484 1,486 1,492
See Notes to Consolidated Financial Statements.
36
U.S. Bancorp
Table of Contents
U.S. Bancorp
Consolidated Statement of ~~Shareholders’ Equity~~

U.S. Bancorp Shareholders
(Dollars and Shares in Millions)
(Unaudited)
Common Shares
Outstanding Preferred
Stock Common
Stock Capital
Surplus Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Income (Loss) Total
U.S. Bancorp
Shareholders’
Equity Noncontrolling
Interests Total
Equity
Balance December 31, 2015
1,745 $ 5,501 $ 21 $ 8,376 $ 46,377 $ (13,125 ) $ (1,019 ) $ 46,131 $ 686 $ 46,817
Net income (loss)
4,410 4,410 43 4,453
Other comprehensive income (loss)
440 440 440
Preferred stock dividends
(201 ) (201 ) (201 )
Common stock dividends
(1,364 ) (1,364 ) (1,364 )
Issuance of common and treasury stock
7 (59 ) 228 169 169
Purchase of treasury stock
(47 ) (1,947 ) (1,947 ) (1,947 )
Distributions to noncontrolling interests
– (38 ) (38 )
Purchase of noncontrolling interests
1 9 10 (50 ) (40 )
Net other changes in noncontrolling interests
– (1 ) (1 )
Stock option and restricted stock grants
111 111 111
Balance September 30, 2016
1,705 $ 5,501 $ 21 $ 8,429 $ 49,231 $ (14,844 ) $ (579 ) $ 47,759 $ 640 $ 48,399
Balance December 31, 2016
1,697 $ 5,501 $ 21 $ 8,440 $ 50,151 $ (15,280 ) $ (1,535 ) $ 47,298 $ 635 $ 47,933
Net income (loss)
4,536 4,536 31 4,567
Other comprehensive income (loss)
316 316 316
Preferred stock dividends
(204 ) (204 ) (204 )
Common stock dividends
(1,450 ) (1,450 ) (1,450 )
Issuance of preferred stock
993 993 993
Redemption of preferred stock
(1,075 ) (10 ) (1,085 ) (1,085 )
Issuance of common and treasury stock
7 (115 ) 257 142 142
Purchase of treasury stock
(37 ) (1,955 ) (1,955 ) (1,955 )
Distributions to noncontrolling interests
– (41 ) (41 )
Net other changes in noncontrolling interests
– 3 3
Stock option and restricted stock grants
132 132 132
Balance September 30, 2017
1,667 $ 5,419 $ 21 $ 8,457 $ 53,023 $ (16,978 ) $ (1,219 ) $ 48,723 $ 628 $ 49,351
Comprehensive Income

(Dollars in Millions)
(Unaudited)
Three Months Ended
September 30    Nine Months Ended
September 30
2022 2021    2022 2021
Net income $ 1,816 $ 2,034 $ 4,908 $ 6,307
Other Comprehensive Income (Loss)

Changes in unrealized gains (losses) on investment securities
available-for-sale
(2,810 ) (825 ) (14,325 ) (3,008 )
Changes in unrealized gains (losses) on derivative hedges (232 ) 8 (134 ) 121
Foreign currency translation (8 ) (1 ) (11 ) 23
Reclassification to earnings of realized (gains) losses 186 27 337 34
Income taxes related to other comprehensive income (loss) 725 201 3,576 716
Total other comprehensive income (loss) (2,139 ) (590 ) (10,557 ) (2,114 )
Comprehensive income (loss) (323 ) 1,444 (5,649 ) 4,193
Comprehensive (income) loss attributable to noncontrolling interests (4 ) (6 ) (8 ) (17 )

Comprehensive income (loss) attributable to U.S. Bancorp $ (327 ) $ 1,438 $ (5,657 ) $ 4,176
See Notes to Consolidated Financial Statements.
U.S. Bancorp
37
Table of Contents
U.S. Bancorp
Consolidated Statement of ~~Cash Flows~~

(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30,
2017 2016
Operating Activities

Net income attributable to U.S. Bancorp
$ 4,536 $ 4,410
Adjustments to reconcile net income to net cash provided by operating activities

Provision for credit losses
1,055 982
Depreciation and amortization of premises and equipment
219 219
Amortization of intangibles
131 134
(Gain) loss on sale of loans held for sale
(544 ) (753 )
(Gain) loss on sale of securities and other assets
(387 ) (463 )
Loans originated for sale in the secondary market, net of repayments
(26,080 ) (31,975 )
Proceeds from sales of loans held for sale
27,481 30,033
Other, net
230 651
Net cash provided by operating activities
6,641 3,238
Investing Activities

Proceeds from sales ofavailable-for-sale investment securities
3,063 8,171
Proceeds from maturities ofheld-to-maturity investment securities
6,348 7,116
Proceeds from maturities ofavailable-for-sale investment securities
9,459 10,252
Purchases ofheld-to-maturity investment securities
(7,403 ) (6,428 )
Purchases ofavailable-for-sale investment securities
(13,575 ) (22,897 )
Net increase in loans outstanding
(5,698 ) (11,063 )
Proceeds from sales of loans
1,348 1,782
Purchases of loans
(2,245 ) (2,136 )
Other, net
(617 ) (38 )
Net cash used in investing activities
(9,320 ) (15,241 )
Financing Activities

Net increase in deposits
7,999 34,197
Net increase (decrease) in short-term borrowings
1,893 (12,182 )
Proceeds from issuance of long-term debt
7,726 10,631
Principal payments or redemption of long-term debt
(6,561 ) (4,806 )
Proceeds from issuance of preferred stock
993 –
Proceeds from issuance of common stock
138 159
Repurchase of preferred stock
(1,085 ) –
Repurchase of common stock
(1,950 ) (1,902 )
Cash dividends paid on preferred stock
(213 ) (206 )
Cash dividends paid on common stock
(1,426 ) (1,331 )
Purchase of noncontrolling interests
– (40 )
Net cash provided by financing activities
7,514 24,520
Change in cash and due from banks
4,835 12,517
Cash and due from banks at beginning of period
15,705 11,147
Cash and due from banks at end of period
$ 20,540 $ 23,664
Shareholders’ Equity

U.S. Bancorp Shareholders
(Dollars and Shares in Millions, Except Per
Share Data) (Unaudited) Common
Shares
Outstanding Preferred
Stock Common
Stock Capital
Surplus Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Income (Loss) Total
U.S. Bancorp
Shareholders’
Equity Noncontrolling
Interests Total
Equity
Balance June 30, 2021
1,483 $ 5,968 $ 21 $ 8,518 $ 67,039 $ (27,305 ) $ (1,202 ) $ 53,039 $ 635 $ 53,674
Net income (loss) 2,028 2,028 6 2,034
Other comprehensive income (loss) (590 ) (590 ) (590 )
Preferred stock dividends (a) (84 ) (84 ) (84 )
Common stock dividends ($.46 per share) (686 ) (686 ) (686 )
Issuance of common and treasury stock (1 ) 4 3 3
Distributions to noncontrolling interests — (5 ) (5 )
Net other changes in noncontrolling interests — (1 ) (1 )
Stock option and restricted stock grants 33 33 33

Balance September 30, 2021
1,483 $ 5,968 $ 21 $ 8,550 $ 68,297 $ (27,301 ) $ (1,792 ) $ 53,743 $ 635 $ 54,378

Balance June 30, 2022
1,486 $ 6,808 $ 21 $ 8,555 $ 70,772 $ (27,190 ) $ (10,361 ) $ 48,605 $ 464 $ 49,069
Net income (loss) 1,812 1,812 4 1,816
Other comprehensive income (loss) (2,139 ) (2,139 ) (2,139 )
Preferred stock dividends (b) (85 ) (85 ) (85 )
Common stock dividends ($.48 per share) (717 ) (717 ) (717 )
Issuance of common and treasury stock (1 ) 2 1 1
Distributions to noncontrolling interests — (4 ) (4 )
Net other changes in noncontrolling interests — 1 1
Stock option and restricted stock grants 36 36 36

Balance September 30, 2022
1,486 $ 6,808 $ 21 $ 8,590 $ 71,782 $ (27,188 ) $ (12,500 ) $ 47,513 $ 465 $ 47,978

Balance December 31, 2020
1,507 $ 5,983 $ 21 $ 8,511 $ 64,188 $ (25,930 ) $ 322 $ 53,095 $ 630 $ 53,725
Net income (loss) 6,290 6,290 17 6,307
Other comprehensive income (loss) (2,114 ) (2,114 ) (2,114 )
Preferred stock dividends (c) (232 ) (232 ) (232 )
Common stock dividends ($1.30 per share) (1,944 ) (1,944 ) (1,944 )
Issuance of preferred stock 730 730 730
Redemption of preferred stock (745 ) (5 ) (750 ) (750 )
Issuance of common and treasury stock 4 (127 ) 166 39 39
Purchase of treasury stock (28 ) (1,537 ) (1,537 ) (1,537 )
Distributions to noncontrolling interests — (16 ) (16 )
Net other changes in noncontrolling interests — 4 4
Stock option and restricted stock grants 166 166 166

Balance September 30, 2021
1,483 $ 5,968 $ 21 $ 8,550 $ 68,297 $ (27,301 ) $ (1,792 ) $ 53,743 $ 635 $ 54,378

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) 4,900 4,900 8 4,908
Other comprehensive income (loss) (10,557 ) (10,557 ) (10,557 )
Preferred stock dividends (d) (228 ) (228 ) (228 )
Common stock dividends ($1.40 per share) (2,091 ) (2,091 ) (2,091 )
Issuance of preferred stock 437 437 437
Issuance of common and treasury stock 3 (120 ) 138 18 18
Purchase of treasury stock (1 ) (55 ) (55 ) (55 )
Distributions to noncontrolling interests — (8 ) (8 )
Net other changes in noncontrolling interests — (4 ) (4 )
Stock option and restricted stock grants 171 171 171

Balance September 30, 2022
1,486 $ 6,808 $ 21 $ 8,590 $ 71,782 $ (27,188 ) $ (12,500 ) $ 47,513 $ 465 $ 47,978
(a)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series J, Series K, Series L and Series M
Non-Cumulative
Perpetual Preferred Stock of $894.444, $223.611, $406.25, $662.50, $343.75, $234.375 and $250.00, respectively.
(b)
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 $902.622, $223.611, $662.50, $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 $2,654.166, $663.542, $1,218.75, $232.953, $1,325.00, $1,031.25, $703.125 and $702.778, 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 $2,662.344, $663.542, $1,325.00, $1,031.25, $703.125, $750.00, $693.75 and $768.75 respectively.
See Notes to Consolidated Financial Statements.
38
U.S. Bancorp
Table of Contents
U.S. Bancorp
Consolidated Statement of Cash Flows
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30
2022 2021
Operating Activities

Net income attributable to U.S. Bancorp $ 4,900 $ 6,290
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 785 (1,160 )
Depreciation and amortization of premises and equipment 255 253
Amortization of intangibles 130 119
(Gain) loss on sale of loans held for sale 136 (950 )
(Gain) loss on sale of securities and other assets (173 ) (297 )
Loans originated for sale, net of repayments (26,357 ) (56,256 )
Proceeds from sales of loans held for sale 28,701 58,517
Other, net 5,854 2,651
Net cash provided by operating activities 14,231 9,167
Investing Activities

Proceeds from sales of
available-for-sale
investment securities
15,392 13,383
Proceeds from maturities of
held-to-maturity
investment securities
4,148 —
Proceeds from maturities of
available-for-sale
investment securities
12,407 33,740
Purchases of
held-to-maturity
investment securities
(6,941 ) —
Purchases of
available-for-sale
investment securities
(19,377 ) (62,764 )
Net increase in loans outstanding (30,380 ) (1,157 )
Proceeds from sales of loans 3,050 4,228
Purchases of loans (1,932 ) (3,278 )
Net increase in securities purchased under agreements to resell (37 ) (41 )
Other, net (3,407 ) 120
Net cash used in investing activities (27,077 ) (15,769 )
Financing Activities

Net increase in deposits 15,065 13,132
Net increase in short-term borrowings 13,270 4,322
Proceeds from issuance of long-term debt 5,631 1,211
Principal payments or redemption of long-term debt (5,398 ) (6,603 )
Proceeds from issuance of preferred stock 437 730
Proceeds from issuance of common stock 16 38
Repurchase of preferred stock (1,100 ) (1,250 )
Repurchase of common stock (55 ) (1,537 )
Cash dividends paid on preferred stock (213 ) (223 )
Cash dividends paid on common stock (2,060 ) (1,894 )
Net cash provided by financing activities 25,593 7,926
Change in cash and due from banks 12,747 1,324
Cash and due from banks at beginning of period 28,905 62,580
Cash and due from banks at end of period $ 41,652 $ 63,904
See Notes to Consolidated Financial ~~Statements~~
~~(Unaudited)~~
Statements.
~~Note 1~~U.S. Bancorp
39
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 1
   Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the instructions toForm
10-Q
and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on
Form 10-K
for the year ended December 31, ~~2016.~~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, simplifying~~United States generally accepted accounting principles on contract modifications and hedge accounting, to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. Under the guidance, a company can elect not to apply certain modification accounting requirements to contracts affected by reference rate transition, if certain criteria are met. A company that makes this election would not be required to remeasure the 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 benefits~~is effective upon issuance and ~~deficiencies that pertain to stock-based compensation awards to~~generally can be ~~recognized within income tax expense instead~~applied 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 ~~did~~has 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, clarifying~~2023, related to fair value hedge accounting of portfolios of financial assets. This guidance expands the ~~principles for recognizing revenue from certain contracts~~current
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 apply~~also expands the scope of the method to ~~revenue associated with~~ include
non-prepayable
financial ~~instruments, such as loans~~assets and ~~securities. The Company is currently evaluating~~clarifies 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 on~~removes the ~~Consolidated Balance Sheet as lease assets~~separate 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 adjustment~~requirement for a company to ~~retained earnings as~~apply 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.
sta
tements.
~~U.S. Bancorp~~
40
39U.S. Bancorp
Table of Contents
~~Financial Instruments—Hedge Accounting~~
  Note  3
   Business Combinations
In ~~August 2017, the FASB issued accounting guidance, effective for~~September 2021, the Company ~~no later~~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 ~~January 1, 2019, related~~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 ~~hedge accounting. This guidance makes targeted changes~~add approximately $105 billion in total assets, $58 billion of loans and $90
billion of deposits to the ~~hedge accounting model~~Company’s consolidated balance sheet. On October 19, 2022, the Company announced that all required regulatory approvals to ~~simplify~~complete the ~~application~~transaction have been received. The transaction is expected to close on December 1, 2022, pending satisfaction 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.
customary closing conditions.
Note  34

   Investment Securities
The ~~amortized~~Company’s
held-to-maturity
investment securities are carried at historical cost, ~~other-than-temporary impairment recorded in~~adjusted 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 of
held-to-maturity
and
available-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~~ to~~held-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 a~~loan-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~~
September 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 $ 1,344    $ –    $ (56 ) $ 1,288    $ –    $ –    $ – $ –
Residential agency mortgage-backed securities 84,230    –    (11,390 ) 72,840    41,858    2    (48 ) 41,812
Total
held-to-maturity
$ 85,574    $ –    $ (11,446 ) $ 74,128    $ 41,858    $ 2    $ (48 ) $ 41,812
Available-for-sale

U.S. Treasury and agencies $ 24,470    $ –    $ (2,884 ) $ 21,586    $ 36,648    $ 205    $ (244 ) $ 36,609
Mortgage-backed securities
Residential agency 33,398    12    (2,753 ) 30,657    76,761    665    (347 ) 77,079
Commercial agency 8,746    –    (1,655 ) 7,091    8,633    53    (201 ) 8,485
Asset-backed securities 25    –    – 25    62    4    – 66
Obligations of state and political subdivisions 11,105    2    (1,949 ) 9,158    10,130    607    (20 ) 10,717
Other 6    –    – 6    7    –    – 7
Total
available-for-sale
$ 77,750    $ 14    $ (9,241 ) $ 68,523    $ 132,241    $ 1,534    $ (812 ) $ 132,963
During the first nine months of 2022, the Company transferred $45.1 billion amortized cost ($40.7 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 of~~to the
held-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 into~~reflect its new intent for these ~~Notes to Consolidated Financial Statements.~~
40 ~~U.S. Bancorp~~
securities.
Investment securities with a fair value of ~~$11.9~~$14.3 billion at September 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~~$858 million at September 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 and
non-taxable
investment securities:

Three Months Ended
September 30,          Nine Months Ended
September 30,
(Dollars in Millions) 2017    2016          2017 2016
Taxable
$ 523    $ 467       $ 1,513 $ 1,403
Non-taxable
45    48       140 152
Total interest income from investment securities
$ 568    $ 515       $ 1,653 $ 1,555

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

Three Months Ended
September 30,          Nine Months Ended
September 30,
(Dollars in Millions) 2017    2016          2017 2016
Realized gains
$ 9    $ 12       $ 65 $ 31
Realized losses
–    –       (18 ) (12 )
Net realized gains (losses)
$ 9    $ 12       $ 47 $ 19
Income tax (benefit) on net realized gains (losses)
$ 3    $ 4       $ 18 $ 7
Three Months Ended
September 30 Nine Months Ended
September 30
(Dollars in Millions)         2022            2021         2022            2021
Taxable $ 793    $ 539 $ 2,171    $ 1,548
Non-taxable
74    67 219    193
Total interest income from investment securities $ 867    $ 606 $ 2,390    $ 1,741

U.S. Bancorp
41
Table of Contents
The following table provides information about the amount of gross gains and losses realized through the sales of
available-for-sale
investment
securities:
Three Months Ended
September 30 Nine Months Ended
September 30
(Dollars in Millions)         2022            2021         2022         2021
Realized gains $ 1 $ 39 $ 78 $ 107
Realized losses – (19 ) (40 ) (19 )
Net realized gains
$ 1 $ 20 $
38 $ 88
Income tax on net realized gains $ – $ 5 $ 9 $ 22
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 nature~~all or some portion of ~~the investment securities, the credit ratings or financial condition of the issuer, the extent and duration of the~~a security’s unrealized loss ~~expected cash flows of underlying collateral, the existence of any government or agency guarantees, market conditions~~is related to credit and ~~whether~~an 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 estimating~~security, the ~~future~~credit 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 as~~adjusted 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 each~~ Company’s
available-for-sale
investment ~~security. The total amount of other-than-temporary impairment recorded~~securities was immaterial ~~for the three and nine months ended~~at September 30, ~~2017~~2022 and ~~2016.~~
December 31, 2021.
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 September 30, ~~2017:~~

Less Than 12 Months    12 Months or Greater       Total
(Dollars in Millions)
Fair
Value
   Unrealized
Losses       Fair
Value    Unrealized
Losses
Fair
Value
   Unrealized
Losses
Held-to-maturity

U.S. Treasury and agencies
$ 2,886    $ (62 )    $ 241    $ (10 )    $ 3,127    $ (72 )
Residential agency mortgage-backed securities
19,913    (237 )    3,989    (75 )    23,902    (312 )
Other asset-backed securities
–    –    5    –    5    –
Other debt securities
15    –    –    –    15    –
Totalheld-to-maturity
$ 22,814    $ (299 )    $ 4,235    $ (85 )    $ 27,049    $ (384 )
Available-for-sale

U.S. Treasury and agencies
$ 15,241    $ (98 )    $ 1,389    $ (22 )    $ 16,630    $ (120 )
Residential agency mortgage-backed securities
19,025    (281 )    7,914    (107 )    26,939    (388 )
Commercial agency mortgage-backed securities
6    –    –    –    6    –
Obligations of state and political subdivisions
1,857    (35 )    627    (53 )    2,484    (88 )
Other investments
1    –    –    –    1    –
Totalavailable-for-sale
$ 36,130    $ (414 )    $ 9,930    $ (182 )    $ 46,060    $ (596 )
~~U.S. Bancorp~~ 41
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 $ 16,648    $ (1,870 )    $ 4,831            $ (1,014 )    $ 21,479    $ (2,884 )
Residential agency mortgage-backed securities 24,355    (1,787 )    5,377    (966 )    29,732    (2,753 )
Commercial agency mortgage-backed securities 2,992    (559 )    4,100    (1,096 )    7,092    (1,655 )
Obligations of state and political subdivisions 8,006    (1,481 )    960    (468 )    8,966    (1,949 )
Other 2    –    4    –    6    –
Total
investment securities
$ 52,003    $ (5,697 )    $ 15,272            $ (3,544 )    $ 67,275    $ (9,241 )
These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to ~~purchase. A substantial portion~~purchase of these
available-for-sale
investment ~~securities that have unrealized losses are either~~securities. 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 September 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 of their amortized cost.
During the nine months ended September 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
U.S. Treasury and agencies securities and
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 no allowance for credit losses recorded for these securities.
~~Note 4~~
42
U.S. Bancorp
Table of Contents
The following table provides information about the amortized cost, fair value and yield by maturity date of the investment securities outstanding at September 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 1,344    1,288    3.5    2.85
Maturing after five years through ten years –    –    –    –
Maturing after ten years –    –    –    –
Total $ 1,344    $ 1,288    3.5    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 50,750    44,735    9.3    2.06
Maturing after ten years 33,480    28,105    10.3    1.92
Total $ 84,230    $ 72,840    9.7    2.01 %
Total
held-to-maturity
(
b
)
$ 85,574    $ 74,128    9.6    2.02 %
Available-for-sale

U.S. Treasury and Agencies
Maturing in one year or less $ 1,172    $ 1,170    .2    2.05 %
Maturing after one year through five years 3,697    3,382    4.1    1.95
Maturing after five years through ten years 16,944    15,024    7.1    2.27
Maturing after ten years 2,657    2,010    11.6    1.99
Total $ 24,470    $ 21,586    6.8    2.18 %
Mortgage-Backed Securities (a)
Maturing in one year or less $ 34    $ 33    .8    2.84 %
Maturing after one year through five years 11,601    10,724    3.2    2.19
Maturing after five years through ten years 28,896    25,569    7.8    2.52
Maturing after ten years 1,613    1,422    11.3    2.77
Total $ 42,144    $ 37,748    6.7    2.44 %
Asset-Backed Securities
Maturing in one year or less $ –    $ –    –    – %
Maturing after one year through five years –    –    –    –
Maturing after five years through ten years 25    25    6.1    5.52
Maturing after ten years –    –    –    –
Total $ 25    $ 25    6.1    5.52 %
Obligations of State and Political
Subdivisions (c)

(d)

Maturing in one year or less $ 102    $ 102    .3    4.73 %
Maturing after one year through five years 402    398    3.5    4.54
Maturing after five years through ten years 442    411    8.4    4.01
Maturing after ten years 10,159    8,247    16.7    3.60
Total $ 11,105    $ 9,158    15.8    3.66 %
Other
Maturing in one year or less $ –    $ –    –    – %
Maturing after one year through five years 6    6    2.7    1.99
Maturing after five years through ten years –    –    –    –
Maturing after ten years –    –    –    –
Total $ 6    $ 6    2.7    1.99 %
Total
available-for-sale
(
b
)
$ 77,750    $ 68,523    8.0    2.53 %
(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)
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.
(c)
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.
(d)
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.
(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.
U.S. Bancorp
43
Table of Contents
  Note  5
   Loans and Allowance for Credit Losses
The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:

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

Commercial
$ 91,449    32.8 %    $ 87,928    32.2 %
Lease financing
5,479    2.0    5,458    2.0
Total commercial
96,928    34.8    93,386    34.2
Commercial Real Estate

Commercial mortgages
29,902    10.7    31,592    11.6
Construction and development
11,528    4.1    11,506    4.2
Total commercial real estate
41,430    14.8    43,098    15.8
Residential Mortgages

Residential mortgages
46,107    16.6    43,632    16.0
Home equity loans, first liens
13,210    4.7    13,642    5.0
Total residential mortgages
59,317    21.3    57,274    21.0
Credit Card
20,923    7.5    21,749    7.9
Other Retail

Retail leasing
7,923    2.8    6,316    2.3
Home equity and second mortgages
16,308    5.9    16,369    6.0
Revolving credit
3,225    1.2    3,282    1.2
Installment
8,900    3.2    8,087    3.0
Automobile
18,530    6.6    17,571    6.4
Student
1,973    .7    2,239    .8
Total other retail
56,859    20.4    53,864    19.7
Total loans, excluding covered loans
275,457    98.8    269,371    98.6
Covered Loans
3,262    1.2    3,836    1.4
Total loans
$ 278,719    100.0 %    $ 273,207    100.0 %
September 30, 2022       December 31, 2021
(Dollars in Millions) Amount    Percent
of Total       Amount    Percent
of Total
Commercial

Commercial $ 126,930    37.0 %    $ 106,912    34.3 %
Lease financing 4,757    1.4    5,111    1.6
Total commercial 131,687    38.4    112,023    35.9
Commercial Real Estate

Commercial mortgages 30,223    8.8    28,757    9.2
Construction and development 10,106    2.9    10,296    3.3
Total commercial real estate 40,329    11.7    39,053    12.5
Residential Mortgages

Residential mortgages 78,006    22.8    67,546    21.6
Home equity loans, first liens 8,268    2.4    8,947    2.9
Total residential mortgages 86,274    25.2    76,493    24.5
Credit Card
24,538    7.2    22,500    7.2
Other Retail

Retail leasing 6,037    1.8    7,256    2.3
Home equity and second mortgages 11,367    3.3    10,446    3.4
Revolving credit 2,721    .8    2,750    .9
Installment 16,417    4.8    16,514    5.3
Automobile 23,236    6.8    24,866    8.0
Student 102    –    127    –
Total other retail 59,880    17.5    61,959    19.9
Total loans $ 342,708    100.0 %    $ 312,028    100.0 %
The Company had loans of ~~$85.2~~$98.2 billion at September 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~~$84.0 billion at September 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~~$331 million at September 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 ~~impairment~~more-than-insignificant deterioration at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans ~~with evidence of credit~~that have experienced more-than-insignificant deterioration ~~since~~from origination ~~for which it is probable that all contractually required payments will not be collected~~ are considered ~~“purchased impaired~~purchased credit deteriorated loans.” All other purchased loans are considered ~~“purchased nonimpaired~~
non-purchased
credit deteriorated loans.”
~~Changes in the accretable balance for purchased impaired loans were as follows:~~

Three Months Ended
September 30,           Nine Months Ended
    September 30,
(Dollars in Millions) 2017 2016       2017 2016
Balance at beginning of period
$ 546 $ 891    $ 698 $ 957
Accretion
(107 ) (102 )    (286 ) (297 )
Disposals
(17 ) (23 )    (68 ) (77 )
Reclassifications from nonaccretable difference (a)
47 31    130 214
Other
(3 ) –    (8 ) –
Balance at end of period
$ 466 $ 797    $ 466 $ 797
~~(a)~~ ~~Primarily relates to changes in expected credit performance.~~
42 ~~U.S. Bancorp~~
Allowance for Credit Losses
The allowance for credit losses is established for ~~probable and estimable~~current expected credit losses ~~incurred in~~on the Company’s loan and lease portfolio, including unfunded credit ~~commitments, and includes certain amounts that do not represent loss exposure to~~commitments. The allowance considers expected losses for the ~~Company because those losses are recoverable under loss sharing agreements with~~remaining 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 ~~adequacy~~appropriateness of the allowance for ~~incurred~~credit 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 the~~credit 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
44
U.S. Bancorp
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unemployment rates, real estate prices, gross domestic product levels
, inflation, interest rates
and corporate bonds spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial ~~lending segment is based on reviews of individual credit relationships and considers the migration analysis of commercial lending segment~~ loans and ~~actual loss experience.~~consumer credit scores, delinquency status, collateral 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 is~~portfolio, 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 results~~other 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 quarterly~~is performed to ~~confirm an appropriate historical time frame is selected for each commercial loan type.~~consider expected credit losses. The allowance recorded for ~~impaired~~individually 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, or~~pool. 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, refreshed~~loan-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 considers~~to 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; geographic~~scenario assumptions, and ~~other concentration risks; delinquency and nonaccrual trends; current business conditions;~~emerging risks related to either changes in ~~lending policy, underwriting standards and other relevant business practices; results of internal review; and~~ the ~~regulatory environment.~~environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each ~~of the above~~ loan ~~segments.~~
portfolio.
The Company also assesses the credit risk associated with
off-balance
sheet loan commitments, letters of credit, investment securities and derivatives. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. The liability for
off-balance
sheet credit exposure related to loan commitments and other credit guarantees is included in
~~U.S. Bancorp~~ 43
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.
U.S. Bancorp
45
Table of Contents
Activity in the allowance for credit losses by portfolio class was as follows:

Three Months Ended September 30,
(Dollars in Millions)
Commercial Commercial
Real Estate Residential
Mortgages Credit
Card Other
Retail Total Loans,
Excluding
Covered Loans Covered
Loans Total
Loans
2017

Balance at beginning of period
$ 1,395 $ 856 $ 455 $ 990 $ 648 $ 4,344 $ 33 $ 4,377
Add

Provision for credit losses
71 (12 ) 2 216 84 361 (1 ) 360
Deduct

Loanscharged-off
115 2 16 214 86 433 – 433
Less recoveries of loanscharged-off
(32 ) (9 ) (9 ) (27 ) (26 ) (103 ) – (103 )
Net loanscharged-off
83 (7 ) 7 187 60 330 – 330
Other changes (a)
– – – – – – – –
Balance at end of period
$ 1,383 $ 851 $ 450 $ 1,019 $ 672 $ 4,375 $ 32 $ 4,407
2016

Balance at beginning of period
$ 1,473 $ 748 $ 544 $ 884 $ 643 $ 4,292 $ 37 $ 4,329
Add

Provision for credit losses
90 34 (12 ) 178 37 327 (2 ) 325
Deduct

Loanscharged-off
104 9 19 182 84 398 – 398
Less recoveries of loanscharged-off
(17 ) (8 ) (7 ) (21 ) (30 ) (83 ) – (83 )
Net loanscharged-off
87 1 12 161 54 315 – 315
Other changes (a)
– – – – – – (1 ) (1 )
Balance at end of period
$ 1,476 $ 781 $ 520 $ 901 $ 626 $ 4,304 $ 34 $ 4,338
~~(a)~~ ~~Includes net changes~~
Three Months Ended September 30
(Dollars in Millions) Commercial Commercial
Real Estate Residential
Mortgages Credit
Card Other
Retail Total
Loans
2022

Balance at beginning of period $1,896 $   973 $658 $1,746 $   982 $6,255
Add
Provision for credit losses 97 (7 ) 38 222 12 362
Deduct
Loans
charged-off
56 – 2 161 56 275
Less recoveries of loans
charged-off
(29 ) (6 ) (7 ) (42 ) (29 ) (113 )
Net loan charge-offs (recoveries) 27 (6 ) (5 ) 119 27 162
Balance at end of period $1,966 $   972 $701 $1,849 $967 $6,455
2021

Balance at beginning of period $1,838 $1,409 $478 $1,891 $994 $6,610
Add
Provision for credit losses (75 ) (104 ) 3 (23 ) 36 (163 )
Deduct
Loans
charged-off
40 14 3 154 55 266
Less recoveries of loans
charged-off
(26 ) (1 ) (13 ) (43 ) (36 ) (119 )
Net loan charge-offs (recoveries) 14 13 (10 ) 111 19 147
Balance at end of period $1,749 $1,292 $491 $1,757 $1,011 $6,300
Nine Months Ended September 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 206 (156 ) 116 525 94 785
Deduct
Loans
charged-off
164 10 9 481 167 831
Less recoveries of loans
charged-off
(75 ) (15 ) (29 ) (132 ) (95 ) (346 )
Net loan charge-offs (recoveries) 89 (5 ) (20 ) 349 72 485
Balance at end of period $1,966 $   972 $701 $1,849 $967 $6,455
2021

Balance at beginning of period $2,423 $1,544 $573 $2,355 $1,115 $8,010
Add
Provision for credit losses (577 ) (246 ) (107 ) (195 ) (35 ) (1,160 )
Deduct
Loans
charged-off
184 28 13 536 193 954
Less recoveries of loans
charged-off
(87 ) (22 ) (38 ) (133 ) (124 ) (404 )
Net loan charge-offs (recoveries) 97 6 (25 ) 403 69 550
Balance at end of period $1,749 $1,292 $491 $1,757 $1,011 $6,300
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.
44 ~~U.S. Bancorp~~
~~Additional detail of~~ the allowance for credit losses ~~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~~from December 31, 2021 to September 30, 2022 reflected strong 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.~~
growth and increased economic uncertainty.
Credit Quality
The credit quality of the Company’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.
For all loan portfolio classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of 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 generally
charged-off
at a specific number of days or payments past due. Residential mortgages and other retail loans secured by
1-4
family properties are generally charged down to the fair value of the collateral securing the loan, less costs to sell, at 180 days past due. Residential mortgage loans and lines in a first lien position are placed on nonaccrual status in instances where a partial
charge-off
occurs unless the loan is well
46
U.S. Bancorp
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secured and in the process of collection. Residential mortgage loans and lines in a junior lien position secured by
1-4 family
properties are placed on nonaccrual status at 120 days past due or when they are behind a first lien that has become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account is
charged-off.
Credit cards are
charged-off
at 180 days past due. Other retail loans not secured by
1-4
family properties are
charged-off
at 120 days past due; and revolving consumer lines are
charged-off
at 180 days past due. Similar to credit cards, other retail loans are generally not placed on nonaccrual status because of the relative short period of time to
charge-off.
Certain retail customers having financial difficulties may have the terms of their credit card and other loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.
~~U.S. Bancorp~~ 45
For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or when the loan becomes well secured and is in the process of collection. Loans where there has been a partial
charge-off
may be returned to accrual status if all principal and interest (including amounts previously
charged-off)
is expected to be collected and the loan is current.
~~Covered loans not considered to be purchased impaired are evaluated for delinquency, nonaccrual status andcharge-off~~ consistent with the class of loan they would be included in had the loss share coverage not been in place. Generally, purchased impaired loans are considered accruing loans. However, the timing and amount of future cash flows for some loans is not reasonably estimable, and those loans are classified as nonaccrual loans with interest income not recognized until the timing and amount of the future cash flows can be reasonably estimated.
The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that are nonperforming:

Accruing
(Dollars in Millions) Current    30-89 Days
Past Due    90 Days or
More Past Due    Nonperforming    Total
September 30, 2017

Commercial
$ 96,389    $ 218    $ 52    $ 269    $ 96,928
Commercial real estate
41,242    62    4    122    41,430
Residential mortgages (a)
58,581    155    107    474    59,317
Credit card
20,375    296    251    1    20,923
Other retail
56,282    331    83    163    56,859
Total loans, excluding covered loans
272,869    1,062    497    1,029    275,457
Covered loans
3,056    48    152    6    3,262
Total loans
$ 275,925    $ 1,110    $ 649    $ 1,035    $ 278,719
December 31, 2016

Commercial
$ 92,588    $ 263    $ 52    $ 483    $ 93,386
Commercial real estate
42,922    44    8    124    43,098
Residential mortgages (a)
56,372    151    156    595    57,274
Credit card
21,209    284    253    3    21,749
Other retail
53,340    284    83    157    53,864
Total loans, excluding covered loans
266,431    1,026    552    1,362    269,371
Covered loans
3,563    55    212    6    3,836
Total loans
$ 269,994    $ 1,081    $ 764    $ 1,368    $ 273,207
Accruing
(Dollars in Millions) Current
30-89 Days

Past Due
   90 Days or
More Past Due    Nonperforming (b)    Total
September 30, 2022

Commercial $ 131,189    $   335    $  41    $122    $131,687
Commercial real estate 40,135    8    19    167    40,329
Residential mortgages (a) 85,887    87    89    211    86,274
Credit card 24,120    237    181    –    24,538
Other retail 59,443    244    63    130    59,880
Total loans $ 340,774    $   911    $393    $630    $342,708
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 September 30, ~~2017, $297~~2022, $638 million of loans 30–89 days past due and ~~$1.8~~$1.9 billion of loans 90 days or more past due purchased and 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 September 30, 2022 and December 31, 2021, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans
of
$4
million for both the three months ended September 30, 2022 and 2021, and $12 million
and $11 million for the nine months ended September 30, 2022 and 2021, respectively.
At September 30, ~~2017,~~2022, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was ~~$182~~$24 million, ~~($156 million excluding covered assets),~~ compared with ~~$201~~$22 million ~~($175 million excluding covered assets)~~ at December 31, ~~2016.~~2021. These amounts ~~exclude $300~~excluded $46 million and ~~$373~~$22 million at September 30, ~~2017~~2022 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 September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, was ~~$1.7~~$1.1 billion and ~~$2.1 billion,~~$696 million, respectively, of which ~~$1.3 billion~~$841 million and ~~$1.6 billion,~~$555 million, respectively, related to loans purchased and 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 ~~portfolios~~portfolio 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
U.S. Bancorp
47
Table of Contents
management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those loans that have a potential weakness deserving management’s close attention. Classified loans are those loans where a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.
46 ~~U.S. Bancorp~~
The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:

   Criticized
(Dollars in Millions) Pass    Special
Mention    Classified (a)    Total
Criticized    Total
September 30, 2017

Commercial (b)
$ 94,127    $ 1,328    $ 1,473    $ 2,801    $ 96,928
Commercial real estate
39,998    640    792    1,432    41,430
Residential mortgages (c)
58,671    3    643    646    59,317
Credit card
20,671    –    252    252    20,923
Other retail
56,567    5    287    292    56,859
Total loans, excluding covered loans
270,034    1,976    3,447    5,423    275,457
Covered loans
3,209    –    53    53    3,262
Total loans
$ 273,243    $ 1,976    $ 3,500    $ 5,476    $ 278,719
Total outstanding commitments
$ 579,628    $ 3,232    $ 4,684    $ 7,916    $ 587,544
December 31, 2016

Commercial (b)
$ 89,739    $ 1,721    $ 1,926    $ 3,647    $ 93,386
Commercial real estate
41,634    663    801    1,464    43,098
Residential mortgages (c)
56,457    10    807    817    57,274
Credit card
21,493    –    256    256    21,749
Other retail
53,576    6    282    288    53,864
Total loans, excluding covered loans
262,899    2,400    4,072    6,472    269,371
Covered loans
3,766    –    70    70    3,836
Total loans
$ 266,665    $ 2,400    $ 4,142    $ 6,542    $ 273,207
Total outstanding commitments
$ 562,704    $ 4,920    $ 5,629    $ 10,549    $ 573,253
September 30, 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 $  51,614 $     166 $   209 $   375 $  51,989       $          – $       – $       – $       – $          –
Originated in 2021 32,393 179 27 206 32,599       51,155 387 287 674 51,829
Originated in 2020 7,634 35 81 116 7,750       14,091 304 133 437 14,528
Originated in 2019 5,057 67 67 134 5,191       10,159 151 54 205 10,364
Originated in 2018 2,569 5 20 25 2,594       5,122 3 36 39 5,161
Originated prior to 2018 3,571 4 42 46 3,617       4,923 30 81 111 5,034
Revolving (b) 27,263 397 287 684 27,947       24,722 268 117 385 25,107
Total commercial 130,101 853 733 1,586 131,687       110,172 1,143 708 1,851 112,023

Commercial real estate
Originated in 2022 9,925 70 511 581 10,506       – – – – –
Originated in 2021 11,746 44 256 300 12,046       13,364 6 990 996 14,360
Originated in 2020 5,818 63 119 182 6,000       7,459 198 263 461 7,920
Originated in 2019 4,469 110 182 292 4,761       6,368 251 610 861 7,229
Originated in 2018 2,069 28 135 163 2,232       2,996 29 229 258 3,254
Originated prior to 2018 3,122 23 82 105 3,227       4,473 55 224 279 4,752
Revolving 1,553 – 4 4 1,557       1,494 1 43 44 1,538
Total commercial real estate 38,702 338 1,289 1,627 40,329       36,154 540 2,359 2,899 39,053

Residential mortgages (c)
Originated in 2022 17,964 – – – 17,964       – – – – –
Originated in 2021 29,224 – 2 2 29,226       29,882 – 3 3 29,885
Originated in 2020 14,230 – 5 5 14,235       15,948 1 8 9 15,957
Originated in 2019 5,649 – 18 18 5,667       6,938 – 36 36 6,974
Originated in 2018 2,300 – 18 18 2,318       2,889 – 30 30 2,919
Originated prior to 2018 16,580 – 257 257 16,837       20,415 – 342 342 20,757
Revolving 24 – 3 3 27       1 – – – 1
Total residential mortgages 85,971 – 303 303 86,274       76,073 1 419 420 76,493

Credit card (d) 24,358 – 180 180 24,538       22,335 – 165 165 22,500

Other retail
Originated in 2022 10,211 – 3 3 10,214       – – – – –
Originated in 2021 17,403 – 9 9 17,412       22,455 – 6 6 22,461
Originated in 2020 9,133 – 10 10 9,143       12,071 – 9 9 12,080
Originated in 2019 4,663 – 13 13 4,676       7,223 – 17 17 7,240
Originated in 2018 1,887 – 9 9 1,896       3,285 – 14 14 3,299
Originated prior to 2018 2,315 – 17 17 2,332       3,699 – 24 24 3,723
Revolving 13,610 – 97 97 13,707       12,532 – 112 112 12,644
Revolving converted to term 457 – 43 43 500       472 – 40 40 512
Total other retail 59,679 – 201 201 59,880       61,737 – 222 222 61,959
Total loans $338,811 $1,191 $2,706 $3,897 $342,708       $306,471 $1,684 $3,873 $5,557 $312,028
Total outstanding commitments $713,989 $1,947 $4,034 $5,981 $719,970       $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)
Includes an immaterial amount of revolving converted to term loans.
(c)
At September 30, 2017, $611 million of energy loans ($1.3 billion of total outstanding commitments) had a special mention or classified rating, compared with $1.2 billion of energy loans ($2.8 billion of total outstanding commitments) at December 31, 2016.
~~(c)~~ ~~At September 30, 2017, $1.8~~2022, $1.9 billion of GNMA loans 90 days or more past due and ~~$1.6 billion~~$982 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. Bancorp~~ 47
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
48
U.S. Bancorp
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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.~~
48 ~~U.S. Bancorp~~
The following table provides a summary of loans modified as TDRs ~~during~~for 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 September 30



Commercial 552    $     34    $  35       506    $     46    $     47
Commercial real estate 24    23    23       14    12    13
Residential mortgages 283    84    85       171    54    54
Credit card 11,632    63    64       6,656    38    38
Other retail 479    14    13       382    9    9
Total loans, excluding loans purchased from GNMA mortgage pools 12,970    218    220       7,729    159    161
Loans purchased from GNMA mortgage pools 421    61    62       802    113    118
Total loans 13,391    $   279    $282       8,531    $   272    $   279

Nine Months Ended September 30

Commercial 1,567    $   122    $108       1,736    $   133    $   120
Commercial real estate 61    45    42       100    136    125
Residential mortgages 1,489    418    417       867    299    298
Credit card 29,667    161    163       17,492    102    103
Other retail 1,963    75    70       2,175    64    58
Total loans, excluding loans purchased from GNMA mortgage pools 34,747    821    800       22,370    734    704
Loans purchased from GNMA mortgage pools 1,164    163    167       1,839    267    276
Total loans 35,911    $   984    $967       24,209    $1,001    $   980
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~~At September 30, ~~2017, 61~~2022, 9 residential mortgages, 467 home equity and second mortgage loans and ~~932~~64 loans purchased from GNMA mortgage pools with outstanding balances of $8less than $1 million, $4less than $1 million and ~~$122~~$8 million, respectively, were in a trial period and have estimated post-modification balances of $9$1 million, $4less than $1 million and ~~$123~~$8 million, respectively, assuming permanent modification occurs at the end of the trial period.
The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a
case-by-case
basis in connection with ongoing loan collection processes.
For the commercial lending segment, modifications generally result in the Company working with borrowers on a
case-by-case
basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market interest rate. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies all of the above concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.
Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan
U.S. Bancorp
49
Table of Contents
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.
~~U.S. Bancorp~~ 49
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 partially
charged-off
or became 90 days or more past due) ~~during~~for 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 September 30



Commercial 186    $  15       244    $    5
Commercial real estate 5    6       4    1
Residential mortgages 67    8       20    2
Credit card 2,117    11       2,069    12
Other retail 73    1       124    2
Total loans, excluding loans purchased from GNMA mortgage pools 2,448    41       2,461    22
Loans purchased from GNMA mortgage pools 113    17       29    5
Total loans 2,561    $  58       2,490    $  27

Nine Months Ended September 30

Commercial 575    $  21       856    $  29
Commercial real estate 10    8       16    7
Residential mortgages 180    18       47    5
Credit card 5,478    29       5,638    32
Other retail 216    3       595    10
Total loans, excluding loans purchased from GNMA mortgage pools 6,459    79       7,152    83
Loans purchased from GNMA mortgage pools 282    42       102    15
Total loans 6,741    $121       7,254    $  98
In addition to the defaults in the table above, the Company had a total of ~~402~~17 and ~~1,278~~45 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and nine months ended September 30, ~~2017,~~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~~$3 million and ~~$156~~$7 million for the three months and nine months ended September 30, ~~2017,~~2022, respectively.
~~Covered Assets~~ ~~Covered assets represent loans and other assets acquired from the FDIC, subject to loss sharing agreements, and include expected reimbursements from the FDIC. The carrying amount~~
As of ~~the covered assets consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown 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
50 ~~U.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,~~September 30, 2022, the Company ~~records an allowance for credit losses.~~
had $40 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified in TDRs.
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
50
U.S. Bancorp
Table of Contents
the Company are initially recognized at fair value. For further information on mortgage servicing rights (“MSRs”), refer to Note 6.7. On a limited basis, the Company may acquire and package high-grade corporate bonds for select corporate customers, in which the Company generally has no continuing involvement with these transactions. Additionally, the Company is an authorized GNMA issuer and issues GNMA securities on a regular basis. The Company has no other asset securitizations or similar asset-backed financing arrangements that are
off-balance
sheet.
The Company ~~also provides~~previously provided 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 discontinued providing this support beginning in the third quarter of 2022 due to rising interest rates in the current year. The Company provided ~~$6 million and $9~~$67 million of support to the funds during the three months ended September 30, ~~2017~~2021, and ~~2016, respectively, and $17~~$65 million and ~~$35~~$184 million during the nine months ended September 30, ~~2017~~2022 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~~$111 million and ~~$172~~$113 million for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$495~~$336 million and ~~$504~~$356 million for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The Company also recognized ~~$361~~$117 million and ~~$219~~$75 million of investment tax credits for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$843~~$292 million and ~~$850~~$235 million for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The Company recognized ~~$163~~$102 million and ~~$169~~$101 million of expenses related to all of these investments for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, of which ~~$61~~$87 million ~~for both periods was~~and $83 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense. The Company recognized ~~$464~~$310 million and ~~$476~~$333 million of expenses related to all of these investments for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, of which ~~$187~~$270 million and ~~$194~~$262 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. Bancorp~~ 51
unconsolidated VIEs include the investment recorded on the Company’s Consolidated Balance Sheet, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business and housing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.
The following table provides a summary of investments in community development and
tax-advantaged
VIEs that the Company has not consolidated:

(Dollars in Millions)
September 30,
2017

December 31,
2016

Investment carrying amount
$ 5,580    $ 5,009
Unfunded capital and other commitments
3,029    2,477
Maximum exposure to loss
11,090    10,373
(Dollars in Millions)
September 30,
2022
   December 31,
2021
Investment carrying amount $ 5,617    $ 4,484
Unfunded capital and other commitments 2,842    1,890
Maximum exposure to loss 9,922    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
U.S. Bancorp
51
Table of Contents
other assets on the Consolidated Balance Sheet, was approximately ~~$28~~$48 million at September 30, ~~2017~~2022 and $40 million at December 31, ~~2016.~~2021. The maximum exposure to loss related to these VIEs was ~~$49~~$87 million at September 30, ~~2017~~2022 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~~$123 million at September 30, ~~2017,~~2022, compared with less than $1 million to ~~$40~~$75 million at December 31, ~~2016.~~
2021.
The Company is required to consolidate VIEs in which it has concluded it has a controlling financial interest. The Company sponsors entities to which it transfers its interests in
tax-advantaged
investments to third parties. At September 30, ~~2017,~~2022, approximately ~~$3.6~~$5.2 billion of the Company’s assets and ~~$2.6~~$3.7 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 the~~held-to-maturity~~ ~~investment securities on the Company’s Consolidated Balance Sheet were related to the conduit, compared with $24 million at December 31, 2016.~~
In addition, the Company sponsors a municipal bond securities tender option bond program. The Company controls the activities of the program’s entities, is entitled to the residual returns and provides liquidity and remarketing arrangements to the program. As a result, the Company has consolidated the program’s entities. At September 30, ~~2017, $2.1~~2022, $1.4 billion of
available-for-sale
investment securities and ~~$2.0~~$1.5 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~~$229.0 billion of residential mortgage loans for others at September 30, ~~2017,~~2022, and ~~$232.6~~$222.4 billion at December 31, ~~2016, which include~~2021, including subserviced mortgages with no corresponding ~~MSRs~~MSR asset. ~~The net impact included~~Included in mortgage banking revenue ofare the MSR fair value changes arising from market rate and model assumption changes, net of ~~MSRs due to changes~~the value change in ~~valuation assumptions and~~ derivatives used to economically hedge ~~MSRs were~~MSRs. These changes resulted in net losses of ~~less than $1~~$19 million and ~~net gains of $25~~$21 million for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~and net gains of $17 million~~ and net losses of $7$35 million and $168 million for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. Loan servicing and ancillary fees, not including valuation changes, included in mortgage banking revenue were ~~$183~~$190 million and ~~$191~~$183 million for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021 respectively, and $561 million and ~~$562~~$536 million for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.
52 ~~U.S. Bancorp~~
Changes in fair value of capitalized MSRs are summarized as follows:

Three Months Ended
September 30,       Nine Months Ended
September 30,
(Dollars in Millions)       2017       2016           2017     2016
Balance at beginning of period
$ 2,582 $ 2,056    $ 2,591 $ 2,512
Rights purchased
4 18    10 32
Rights capitalized
115 142    319 372
Changes in fair value of MSRs

Due to fluctuations in market interest rates (a)
(12 ) 42    (42 ) (446 )
Due to revised assumptions or models (b)
1 –    18 –
Other changes in fair value (c)
(92 ) (127 )    (298 ) (339 )
Balance at end of period
$ 2,598 $ 2,131    $ 2,598 $ 2,131
Three Months Ended
September 30       Nine Months Ended
September 30
(Dollars in Millions) 2022 2021       2022 2021
Balance at beginning of period $ 3,707 $ 2,713    $ 2,953 $ 2,210
Rights purchased 1 9    7 36
Rights capitalized 134 284    473 896
Rights sold (a) — —    1 1
Changes in fair value of MSRs
Due to fluctuations in market interest rates (b) 153 53    810 307
Due to revised assumptions or models (c) (5 ) (30 )    (26 ) (169 )
Other changes in fair value (d) (121 ) (119 )    (349 ) (371 )
Balance at end of period $ 3,869 $ 2,910    $ 3,869 $ 2,910
(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 ~~represents~~the 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.
52
U.S. Bancorp
Table of Contents
The estimated sensitivity to changes in interest rates of the fair value of the ~~MSRs~~MSR portfolio and the related derivative instruments was as follows:

September 30, 2017       December 31, 2016
(Dollars in Millions) Down
100 bps Down
50 bps Down
25 bps Up
25 bps Up
50 bps Up
100 bps       Down
100 bps Down
50 bps Down
25 bps Up
25 bps Up
50 bps Up
100 bps
MSR portfolio
$ (524 ) $ (232 ) $ (109 ) $ 96 $ 178 $ 307    $ (476 ) $ (209 ) $ (98 ) $ 85 $ 159 $ 270
Derivative instrument hedges
463 219 105 (97 ) (187 ) (352 )    375 180 88 (84 ) (165 ) (314 )
Net sensitivity
$ (61 ) $ (13 ) $ (4 ) $ (1 ) $ (9 ) $ (45 )    $ (101 ) $ (29 ) $ (10 ) $ 1 $ (6 ) $ (44 )

September 30, 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 $ (289 ) $ (131 ) $ (62 ) $ 55 $ 104 $ 184 $ (636 ) $ (324 ) $ (160 ) $ 150 $ 287 $ 511
Derivative instrument hedges 303 131 61 (53 ) (100 ) (179 ) 614 309 152 (142 ) (278 ) (536 )
Net sensitivity $ 14 $ — $ (1 ) $ 2 $ 4 $ 5 $ (22 ) $ (15 ) $ (8 ) $ 8 $ 9 $ (25 )
The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Housing Finance Agency (“HFA”) mortgages. The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-rate or jumbo mortgage loans. The HFA ~~division specializes in~~ servicing portfolio is comprised of loans ~~made~~originated under state and local housing authority ~~programs. These programs provide mortgages~~ program guidelines which assist purchases by first-time or
low-
to~~low-income~~ ~~and~~ moderate-income ~~borrowers and are generally government-insured programs with~~homebuyers through a favorable rate subsidy, down payment and/or closing cost ~~assistance.~~
assistance on government- and conventional-insured mortgages.
A summary of the Company’s MSRs and related characteristics by portfolio was as follows:

September 30, 2017    December 31, 2016
(Dollars in Millions) HFA Government Conventional (c) Total    HFA Government Conventional (c) Total
Servicing portfolio (a)
$ 39,725 $ 37,001 $ 154,589 $ 231,315 $ 34,746 $ 37,530 $ 157,771 $ 230,047
Fair value
$ 440 $ 422 $ 1,736 $ 2,598 $ 398 $ 422 $ 1,771 $ 2,591
Value (bps) (b)
111 114 112 112 115 112 112 113
Weighted-average servicing fees (bps)
35 34 27 30 36 34 27 30
Multiple (value/servicing fees)
3.17 3.35 4.15 3.73 3.19 3.29 4.15 3.77
Weighted-average note rate
4.42 % 3.93 % 4.02 % 4.07 % 4.37 % 3.95 % 4.02 % 4.06 %
Weighted-average age (in years)
2.9 4.2 4.1 3.9 2.9 3.8 3.8 3.7
Weighted-average expected prepayment (constant prepayment rate)
9.8 % 11.7 % 10.0 % 10.2 % 9.4 % 11.3 % 9.8 % 10.0 %
Weighted-average expected life (in years)
7.7 6.5 6.8 6.9 8.0 6.8 6.9 7.0
Weighted-average option adjusted spread (d)
9.9 % 9.2 % 7.2 % 8.0 % 9.9 % 9.2 % 7.2 % 8.0 %

September 30, 2022    December 31, 2021
(Dollars in Millions) HFA Government Conventional (d) Total    HFA Government Conventional (d) Total
Servicing portfolio (a) $ 42,952 $ 21,800 $ 160,433 $ 225,185 $ 40,652 $ 21,919 $ 156,382 $ 218,953
Fair value $ 731 $ 440 $ 2,698 $ 3,869 $ 527 $ 308 $ 2,118 $ 2,953
Value (bps) (b) 170 202 168 172 130 141 135 135
Weighted-average servicing fees (bps) 36 42 31 33 36 41 30 32
Multiple (value/servicing fees) 4.73 4.80 5.51 5.26 3.63 3.43 4.50 4.18
Weighted-average note rate 4.08 % 3.73 % 3.45 % 3.60 % 4.07 % 3.70 % 3.41 % 3.56 %
Weighted-average age (in years) 4.0 6.0 3.5 3.8 3.8 5.9 3.3 3.7
Weighted-average expected prepayment (constant prepayment rate) 7.1 % 8.0 % 6.5 % 6.8 % 11.5 % 13.2 % 9.6 % 10.3 %
Weighted-average expected life (in years) 8.9 7.7 8.2 8.3 6.5 5.6 6.9 6.7
Weighted-average option adjusted spread (c) 6.9 % 6.5 % 5.6 % 5.9 % 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)
Represents loans sold primarily to GSEs.
~~U.S. Bancorp~~ 53
Note 78
   Preferred Stock
At September 30, ~~2017~~2022 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

September 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 September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, was $1.00 per share.
During the first nine months of ~~2017,~~2022, the Company issued depositary shares representing an ownership interest in ~~40,000~~18,000 shares of Series JO
Non-Cumulative
Perpetual Preferred Stock with a liquidation preference of $25,000 per
U.S. Bancorp
53
Table of Contents
share (the “Series JO Preferred Stock”). The Series JO Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable ~~semiannually,~~quarterly, in arrears, at a rate per annum equal to ~~5.300 percent from the date of issuance to, but excluding, April 15, 2027, and thereafter will accrue and be payable quarterly at a floating rate per annum equal to three-month LIBOR plus 2.914~~4.50 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~~a
llo
w 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.
54 ~~U.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 September 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 $ (7,058 ) $ (1,890 ) $ 4 $ (1,378 ) $ (39 ) $ (10,361 )
Changes in unrealized gains (losses) (2,810 ) — (232 ) — — (3,042 )
Transfer of securities from
available-for-sale
to
held-to-maturity
3,032 (3,032 ) — — — —
Foreign currency translation adjustment (a) — — — — (8 ) (8 )
Reclassification to earnings of realized (gains) losses (1 ) 147 8 32 — 186
Applicable income taxes (56 ) 730 57 (8 ) 2 725
Balance at end of period $ (6,893 ) $ (4,045 ) $ (163 ) $ (1,354 ) $ (45 ) $ (12,500 )
2021

Balance at beginning of period $ 735 $ — $ (107 ) $ (1,783 ) $ (47 ) $ (1,202 )
Changes in unrealized gains (losses) (825 ) — 8 — — (817 )
Foreign currency translation adjustment (a) — — — — (1 ) (1 )
Reclassification to earnings of realized (gains) losses (20 ) — 8 39 — 27
Applicable income taxes 215 — (4 ) (10 ) — 201
Balance at end of period $ 105 $ — $ (95 ) $ (1,754 ) $ (48 ) $ (1,792 )
(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 )

Nine Months Ende
d
September 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) (14,325 ) — (134 ) — — (14,459 )
Transfer of securities from
available-for-sale
to
held-to-maturity
4,413 (4,413 ) — — — —
Foreign currency translation adjustment (a) — — — — (11 ) (11 )
Reclassification to earnings of realized (gains) losses (38 ) 250 29 96 — 337
Applicable income taxes 2,517 1,053 27 (24 ) 3 3,576
Balance at end of period $ (6,893 ) $ (4,045 ) $ (163 ) $ (1,354 ) $ (45 ) $ (12,500 )
2021

Balance at beginning of period $ 2,417 $ — $ (189 ) $ (1,842 ) $ (64 ) $ 322
Changes in unrealized gains (losses) (3,008 ) — 121 — — (2,887 )
Foreign currency translation adjustment (a) — — — — 23 23
Reclassification to earnings of realized (gains) losses (88 ) — 4 118 — 34
Applicable income taxes 784 — (31 ) (30 ) (7 ) 716
Balance at end of period $ 105 $ — $ (95 ) $ (1,754 ) $ (48 ) $ (1,792 )

(a)
Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.
54
U.S. Bancorp 55
Table of Contents
Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and into earnings is as follows:

Impact to Net Income
Affected Line Item in the
Consolidated Statement of Income
Three Months Ended
September 30,    Nine Months Ended
September 30,
(Dollars in Millions)     2017         2016            2017         2016
Unrealized gains (losses) on securitiesavailable-for-sale

Realized gains (losses) on sale of securities
$ 9 $ 12 $ 47 $ 19 Total securities gains (losses), net
Other-than-temporary impairment recognized in earnings
– (2 ) – (3 )
9 10 47 16 Total before tax
(4 ) (4 ) (18 ) (6 ) Applicable income taxes
5 6 29 10 Net-of-tax
Unrealized gains (losses) on securities transferred fromavailable-for-sale toheld-to-maturity

Amortization of unrealized gains
3 5 10 14 Interest income
(1 ) (1 ) (4 ) (5 ) Applicable income taxes
2 4 6 9 Net-of-tax
Unrealized gains (losses) on derivative hedges

Realized gains (losses) on derivative hedges
(4 ) (28 ) (28 ) (104 ) Interest expense
2 11 11 40 Applicable income taxes
(2 ) (17 ) (17 ) (64 ) Net-of-tax
Unrealized gains (losses) on retirement plans

Actuarial gains (losses) and prior service cost (credit) amortization
(29 ) (41 ) (87 ) (122 ) Employee benefits expense
11 16 33 47 Applicable income taxes
(18 ) (25 ) (54 ) (75 ) Net-of-tax
Total impact to net income
$ (13 ) $ (32 ) $ (36 ) $ (120 )

Impact to Net Income Affected Line Item in the
Consolidated Statement of Income
Three Months Ended
September 30    Nine Months Ended
September 30
(Dollars in Millions) 2022 2021    2022 2021
Unrealized gains (losses) on investment securities
available-for-sale

Realized gains (losses) on sale of investment securities $ 1 $ 20    $ 38 $ 88 Securities gains (losses), net
— (5 )    (9 ) (22 ) Applicable income taxes
1 15    29 66
Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale
to
held-to-maturity

Amortization of unrealized gains (147 ) —    (250 ) — Interest income
37 —    63 — Applicable income taxes
(110 ) —    (187 ) —
Net-of-tax
Unrealized gains (losses) on derivative hedges
Realized gains (losses) on derivative hedges (8 ) (8 )    (29 ) (4 ) Interest expense
2 2    7 1 Applicable income taxes
(6 ) (6 )    (22 ) (3 )
Net-of-tax
Unrealized gains (losses) on retirement plans
Actuarial gains (losses) and prior service cost (credit) amortization (32 ) (39 )    (96 ) (118 ) Other noninterest expense
8 10    24 30 Applicable income taxes
(24 ) (29 )    (72 ) (88 )
Net-of-tax
Total impact to net income $ (139 ) $ (20 )    $ (252 ) $ (25 )
~~Note 9~~
Note 10
Earnings Per Share
The components of earnings per share were:

Three Months Ended
September 30,    Nine Months Ended
September 30,
(Dollars and Shares in Millions, Except Per Share Data) 2017 2016       2017 2016
Net income attributable to U.S. Bancorp
$ 1,563 $ 1,502    $ 4,536 $ 4,410
Preferred dividends
(71 ) (61 )    (204 ) (201 )
Impact of preferred stock redemption (a)
– –    (10 ) –
Impact of the purchase of noncontrolling interests (b)
– –    – 9
Earnings allocated to participating stock awards
(7 ) (7 )    (20 ) (20 )
Net income applicable to U.S. Bancorp common shareholders
$ 1,485 $ 1,434    $ 4,302 $ 4,198
Average common shares outstanding
1,672 1,710    1,683 1,724
Net effect of the exercise and assumed purchase of stock awards
6 6    6 6
Average diluted common shares outstanding
1,678 1,716    1,689 1,730
Earnings per common share
$ .89 $ .84    $ 2.56 $ 2.44
Diluted earnings per common share
$ .88 $ .84    $ 2.55 $ 2.43

Three Months Ended
September 30    Nine Months Ended
September 30
(Dollars and Shares in Millions, Except Per Share Data)     2022     2021        2022     2021
Net income attributable to U.S. Bancorp $ 1,812 $ 2,028    $ 4,900 $ 6,290
Preferred dividends (85 ) (84 )    (228 ) (232 )
Impact of preferred stock call (a) — —    — (5 )
Earnings allocated to participating stock awards (9 ) (10 )    (24 ) (30 )
Net income applicable to U.S. Bancorp common shareholders $ 1,718 $ 1,934    $ 4,648 $ 6,023
Average common shares outstanding 1,486 1,483    1,485 1,491
Net effect of the exercise and assumed purchase of stock awards — 1    1 1
Average diluted common shares outstanding 1,486 1,484    1,486 1,492
Earnings per common share $ 1.16 $ 1.30    $ 3.13 $ 4.04
Diluted earnings per common share $ 1.16 $ 1.30    $ 3.13 $ 4.04
(a)
Represents stock issuance costs originally recorded in preferred stock upon ~~the~~ issuance of the Company’s Series GI Preferred Stock that were reclassified to retained earnings on the date the Company announced its intent to redeem the outstanding shares.
~~(b)~~ Represents the difference between the carrying amount and amount paid by the Company to purchase third party investor holdings of the preferred stock of USB Realty Corp, a consolidated subsidiary of the Company.
Options outstanding at September 30, ~~2017,~~2022, to purchase 1 million common shares for the three months and nine months ended September 30, ~~2017, and outstanding at September 30, 2016, to purchase 1 million common shares for the three months and nine months ended September 30, 2016,~~2022, were not included in the computation of diluted earnings per share because they were antidilutive.
56 ~~U.S. Bancorp~~
~~Note 10~~
Note 11
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 September 30    Nine Months Ended September 30
Pension Plans Postretirement
Welfare Plan    Pension Plans Postretirement
Welfare Plan
(Dollars in Millions) 2022 2021 2022 2021    2022 2021 2022 2021
Service cost $ 69 $ 66 $ — $ — $ 206 $ 198 $ — $ —
Interest cost 62 54 — 1 185 164 — 1
Expected return on plan assets (119 ) (112 ) — — (358 ) (337 ) — —
Prior service cost (credit) amortization (1 ) — — (1 ) (2 ) (1 ) (2 ) (3 )
Actuarial loss (gain) amortization 35 42 (2 ) (2 ) 105 127 (5 ) (5 )
Net periodic benefit cost (a) $ 46 $ 50 $ (2 ) $ (2 ) $ 136 $ 151 $ (7 ) $ (7 )
(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~~
U.S. Bancorp
55
Table of Contents
Note 12
Income Taxes
The components of income tax expense were:

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

Current
$ 455    $ 717    $ 1,479 $ 1,631
Deferred
54    (232 )    (103 ) (279 )
Federal income tax
509    485    1,376 1,352
State

Current
53    108    199 235
Deferred
27    (27 )    64 25
State income tax
80    81    263 260
Total income tax provision
$ 589    $ 566    $ 1,639 $ 1,612

Three Months Ended
September 30    Nine Months Ended
September 30
(Dollars in Millions)     2022     2021              2022     2021
Federal

Current $ 427 $ 354       $ 1,052 $ 1,057

Deferred (51 ) 99       (46 ) 305
Federal income tax 376 453       1,006 1,362
State

Current 150 94       328 297

Deferred (45 ) 17       (42 ) 63

State income tax 105 111       286 360
Total income tax provision $ 481 $ 564       $ 1,292 $ 1,722
A reconciliation of expected income tax expense at the federal statutory rate of 3521 percent to the Company’s applicable income tax expense follows:

Three Months Ended
September 30,       Nine Months Ended
September 30,
(Dollars in Millions)       2017       2016           2017     2016
Tax at statutory rate
$ 755 $ 729    $ 2,172 $ 2,123
State income tax, at statutory rates, net of federal tax benefit
71 53    201 170
Tax effect of

Tax credits and benefits, net of related expenses
(187 ) (183 )    (577 ) (523 )
Tax-exempt income
(50 ) (49 )    (150 ) (148 )
Noncontrolling interests
(2 ) (5 )    (11 ) (15 )
Other items (a)
2 21    4 5
Applicable income taxes
$ 589 $ 566    $ 1,639 $ 1,612
~~(a)~~ ~~Includes excess tax benefits associated with stock-based compensation under accounting guidance effective January 1, 2017. Previously, these benefits were recorded in capital surplus.~~

Three Months Ended
September 30    Nine Months Ended
September 30
(Dollars in Millions)     2022     2021           2022     2021
Tax at statutory rate $ 482 $ 546    $ 1,302 $ 1,686
State income tax, at statutory rates, net of federal tax benefit 91 108    259 327
Tax effect of
Tax credits and benefits, net of related expenses (79 ) (91 )    (231 ) (267 )
Tax-exempt
income
(30 ) (28 )    (87 ) (85 )
Other items 17 29    49 61
Applicable income taxes $ 481 $ 564    $ 1,292 $ 1,722
The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of September 30, ~~2017,~~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 year~~years 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 ~~liability~~asset was ~~$588 million~~$4.4 billion at September 30, ~~2017~~2022 and ~~$479~~$785 million at December 31, ~~2016.~~
~~U.S. Bancorp~~ 57
2021.
~~Note 12~~
Note  13
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
56
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amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within other comprehensive income (loss). At September 30, ~~2017,~~2022, the Company had ~~$52~~$163 million
(net-of-tax)
of realized and unrealized ~~gains~~
losses
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 ~~gains~~losses at December 31, ~~2016.~~2021. The estimated ~~amounts~~amount 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 $11 million
(net-of-tax).
All cash flow hedges were highly effective for the three ~~and nine~~ months ended September 30, ~~2017, and the change in fair value attributed to hedge ineffectiveness was not material.~~
2022. There were no 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 hedges~~$1.1 billion at September 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
58 ~~U.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
September 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 contracts
Receive fixed/pay floating swaps 10,800    —    24       —    —    —
Net investment hedges
Foreign exchange forward contracts 782    25    —       793    —    4
Other economic hedges
Interest rate contracts
Futures and forwards
Buy 7,211    42    160       9,322    10    16
Sell 16,777    341    102       29,348    25    27
Options
Purchased 11,350    357    2       18,570    256    —
Written 9,443    4    127       9,662    52    231
Receive fixed/pay floating swaps 10,570    —    1       9,653    —    —
Pay fixed/receive floating swaps 12,154    —    —       7,033    —    —
Foreign exchange forward contracts 665    9    4       735    2    6
Equity contracts 181    —    14       209    5    —
Other (a) 2,289    13    188       1,792    —    125
Total $   103,442    $    791    $    622       $ 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~~$186 million ~~and 2.75 years~~ at September 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 $465 million at September 30, 2022, and $8 million at December 31, 2021.
U.S. Bancorp 59
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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
September 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 $ 225,353    $ 303    $ 5,251       $ 178,701    $ 2,007    $ 438
Pay fixed/receive floating swaps 211,261    2,219    131       174,176    134    670
Other (a) 23,258    1    4       16,267    1    2
Options
Purchased 98,660    1,648    —       89,679    194    36
Written 95,636    —    1,640       85,211    36    176
Futures
Buy 736    —    —       3,607    —    —
Sell 2,085    —    —       3,941    —    —
Foreign exchange rate contracts
Forwards, spots and swaps 96,952    3,883    3,874       89,321    1,145    1,143
Options
Purchased 746    54    —       805    19    —
Written 746    —    54       805    —    19
Credit contracts 9,068    2    7       9,331    1    5
Total $ 764,501    $ 8,110    $ 10,961       $ 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 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) 2022 2021    2022 2021       2022 2021    2022 2021
Asset and Liability Management Positions



Cash flow hedges



Interest rate contracts $ (173 ) $ 6    $ (6 ) $ (6 )    $ (100 ) $ 91    $ (22 ) $ (3 )
Net investment hedges
Foreign exchange forward contracts 37 17    — —    63 16    — —
Non-derivative
debt instruments
56 27    — —    139 61    — —
Note:
~~Ineffectiveness on~~
The Company does not exclude components from effectiveness testing for cash flow and net investment ~~hedges was~~hedges.
The table below shows the effect of fair value and cash flow hedge accounting on the Consolidated Statement of Income:
Three Months Ended September 30       Nine Months Ended September 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 $ 4,728 $ 3,409 $ 901 $ 238    $ 11,971 $ 10,132 $ 1,536 $ 761

Asset and Liability Management Positions

Fair value hedges
Interest rate contract derivatives 180 45 457 112    511 14 491 185
Hedged items (179 ) (45 ) (460 ) (113 )    (510 ) (15 ) (495 ) (185 )
Cash flow hedges
Interest rate contract derivatives — — 8 8    — — 29 4
Note:
The Company does not ~~material~~exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $8 million and $29 million into earnings during the three and nine months ended September 30, ~~2017~~2022, respectively, as a result of realized cash flows on discontinued cash flow hedges, compared with $13 million and ~~2016.~~$40 million during the three and nine months ended September 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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58
U.S. Bancorp
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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)
(Dollars in Millions) September 30, 2022    December 31, 2021          September 30, 2022 December 31, 2021
Line Item in the Consolidated Balance Sheet



Available-for-sale
investment securities
$ 2,902    $ 16,445       $ (937 ) $ (26 )
Long-term debt 16,831    12,278       (116 ) 585
(a)
The cumulative hedging adjustment related to discontinued hedging relationships on
available-for-sale
investment securities and long-term debt was $(406) million and $434 million, respectively, at September 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
September 30       Nine Months Ended
September 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    $ 142 $ 101    $ 439 $ 432
Purchased and written options Mortgage banking revenue    (28 ) 171    (69 ) 436
Swaps Mortgage banking revenue    (118 ) (39 )    (569 ) (236 )
Foreign exchange forward contracts Other noninterest income    12 9    13 (1 )
Equity contracts Compensation expense    (1 ) 1    (4 ) 6
Other Other noninterest income    (154 ) 2    (154 ) 3
Customer-Related Positions

Interest rate contracts
Swaps Commercial products revenue    26 26    73 78
Purchased and written options Commercial products revenue    6 (1 )    10 (4 )
Futures Commercial products revenue    7 —    31 —
Foreign exchange rate contracts
Forwards, spots and swaps Commercial products revenue    40 23    75 69
Purchased and written options Commercial products revenue    — 1    1 1
Credit contracts Commercial products revenue    (1 ) (1 )    21 (3 )
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 September 30, ~~2017,~~2022, was ~~$685 million.~~$2.8 billion. At September 30, ~~2017,~~2022, the Company had ~~$663 million~~$2.1 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
U.S. Bancorp
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Company’s ~~$355.4~~$867.9 billion total notional amount of derivative positions at September 30, ~~2017, $187.3~~2022, $441.9 billion related to bilateral
over-the-counter
trades, ~~$163.0~~$420.0 billion related to those centrally cleared through clearinghouses and ~~$5.1~~$6.0 billion related to those that were exchange-traded. ~~Irrespective of how derivatives are traded, the~~The 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. Bancorp~~ 61
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
62 ~~U.S. Bancorp~~

(Dollars in Millions) Overnight and
Continuous    Less Than
30 Days
30-89

Days    Greater Than
90 Days    Total
September 30, 2022

Repurchase agreements
U.S. Treasury and agencies $ 321    $ –    $ –    $ –    $ 321
Residential agency mortgage-backed securities 849    –    –    –    849
Corporate debt securities 732    –    –    –    732
Total repurchase agreements 1,902    –    –    –    1,902
Securities loaned
Corporate debt securities 188    –    –    –    188
Total securities loaned 188    –    –    –    188
Gross amount of recognized liabilities $ 2,090    $ –    $ –    $ –    $ 2,090
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)

September 30, 2022

Derivative assets (d) $ 8,884    $ (6,174 ) $ 2,710    $ (101 ) $ (101 ) $ 2,508
Reverse repurchase agreements 396    – 396    (305 ) (89 ) 2
Securities borrowed 1,699    – 1,699    – (1,642 ) 57
Total $ 10,979    $ (6,174 ) $ 4,805    $ (406 ) $ (1,832 ) $ 2,567
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~~$3.5 billion and ~~$210~~$528 million of cash collateral related payables that were netted against derivative assets at September 30, ~~2017~~2022 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~~$17 million and ~~$848~~$57 million at September 30, ~~2017~~2022 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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Table of Contents

(Dollars in Millions)
Gross
Recognized
Liabilities

Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)

Net Amounts
Presented on the
Consolidated
Balance Sheet
   Gross Amounts Not Offset on the
Consolidated Balance Sheet Net Amount

Financial
Instruments (b)

Collateral
Pledged (c)

September 30, 2022

Derivative liabilities (d) $ 11,313    $ (4,768 ) $ 6,545    $ (101 ) $ – $ 6,444
Repurchase agreements 1,902    – 1,902    (305 ) (1,595 ) 2
Securities loaned 188    – 188    – (185 ) 3
Total $ 13,403    $ (4,768 ) $ 8,635    $ (406 ) $ (1,780 ) $ 6,449
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~~$2.1 billion and ~~$411~~$508 million of cash collateral related receivables that were netted against derivative liabilities at September 30, ~~2017~~2022 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~~ $270
million and ~~$908~~$137 million at September 30, ~~2017~~2022 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.
~~U.S. Bancorp~~ 63
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.
64
62
U.S. Bancorp
Table of Contents
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 includes~~descriptions include information about the valuation models and key inputs to those models. During the nine months ended September 30, ~~2017~~2022 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 party~~third-party pricing service. The Company reviews the valuation methodologies utilized by the pricing service and, on a quarterly basis, reviews the security level prices provided by the pricing service against management’s expectation of fair value, based on changes in various benchmarks and market knowledge from recent trading activity. Additionally, each quarter, the Company validates the fair value provided by the pricing services by comparing them to recent observable market trades (where available), broker provided quotes, or other independent secondary pricing sources. Prices obtained from the pricing service are adjusted if they are found to be inconsistent with relevant market data. Level 2 investment securities are predominantly agency mortgage-backed securities, certain other asset-backed securities, obligations of state and political subdivisions and agency debt securities.
The fair value of securities for which there are no market trades, or where trading is inactive as compared to normal market activity, are classified within Level 3 of the fair value hierarchy. The Company determines the fair value of these securities by using a discounted cash flow methodology and incorporating observable market information, where available. These valuations are modeled by a unit within the Company’s treasury department. The valuations use assumptions regarding housing prices, interest rates and borrower performance. Inputs are refined and updated at least quarterly to reflect market developments and actual performance. The primary valuation drivers of these securities are the prepayment rates, default rates and default severities associated with the underlying collateral, as well as the discount rate used to calculate the present value of the projected cash flows. Level 3 fair values, including the assumptions used, are subject to review by senior management in corporate functions, who are independent from the modeling. The fair value measurements are also compared to fair values provided by third party pricing services and broker provided quotes, where available. Securities classified within Level 3 include~~non-agency~~ ~~mortgage-backed securities,non-agency~~ ~~commercial mortgage-backed securities, certain asset-backed securities and certain corporate debt securities. At September 30, 2017, the Company did not have anyavailable-for-sale~~ ~~investment securities classified within Level 3.~~
Mortgage Loans Held For Sale
MLHFS measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by comparison to instruments with similar collateral and risk profiles. MLHFS are classified within Level 2. ~~The valuations of MLHFS are developed by the mortgage banking division and are subject to independent price verification procedures by corporate functions.~~ Included in mortgage banking revenue were net ~~gains~~losses of ~~$28~~$144 million and ~~$27~~$18 million for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and net ~~gains~~losses of ~~$69~~$442 million and ~~$154~~$135 million for the nine months ended September 30, ~~2017~~2022 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. Bancorp~~ 65
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 a~~non-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 flow~~Black-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 as~~including external assessments of credit ~~risk, where available.~~risk. The Company monitors and manages its nonperformance risk by considering its ability to net derivative positions under master netting arrangements, as well as collateral received or provided under collateral arrangements. Accordingly, the Company has elected to measure the fair value of derivatives, at a counterparty level, on a net basis. The majority of the derivatives are classified within Level 2 of the fair value hierarchy, as the significant inputs to the models, including nonperformance risk, are observable. However, certain derivative transactions are with counterparties where risk of nonperformance cannot be observed in the market and, therefore, the credit valuation adjustments result in these derivatives being classified within Level 3 of the fair value hierarchy. The credit valuation adjustments for nonperformance risk are determined by the Company’s treasury department using credit assumptions provided by the risk management department. The credit assumptions are compared to actual results quarterly and are recalibrated as appropriate.
The Company also has other derivative contracts that are created through its operations, including commitments to purchase and originate mortgage loans and swap agreements executed in conjunction with the sale of a portion of its Class B common and preferred shares of Visa Inc. (the “Visa swaps”). The mortgage loan commitments are valued by pricing models that include market observable and unobservable inputs, which result in the commitments being classified within Level 3 of the fair value hierarchy. The unobservable inputs include assumptions about the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan ~~value, both~~value.
U.S. Bancorp
63
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
66 ~~U.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 and~~tax-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 and~~tax-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 determine~~uncertainty 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 following~~This section includes a ~~discussion~~description of the ~~sensitivity of~~significant inputs used by the ~~fair value measurements to changes in the significant inputs~~Company 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 Securities~~~~The significant unobservable inputs used in the fair value measurement of the Company’s modeled Level 3available-for-sale~~ investment securities are prepayment rates, probability of default and loss severities associated with the underlying collateral, as well as the discount margin used to calculate the present value of the projected cash flows. Increases in prepayment rates for Level 3 securities will typically result in higher fair values, as increased prepayment rates accelerate the receipt of expected cash flows and reduce exposure to credit losses. Increases in the probability of default and loss severities will result in lower fair values, as these increases reduce expected cash flows. Discount margin is the Company’s estimate of the current market spread above the respective benchmark rate. Higher discount margin will result in lower fair values, as it reduces the present value of the expected cash flows.
~~U.S. Bancorp~~ 67
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 any~~available-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 ~~result~~have resulted in a significantly lower fair value measurement. Significant decreases in either of these inputs in isolation would ~~result~~have resulted in a significantly higher fair value measurement. There is no direct interrelationship between prepayments and option adjusted spread. Prepayment rates generally move in the opposite direction of market interest rates. Option adjusted spread is generally impacted by changes in market return requirements.
The following table shows the significant valuation assumption ranges for MSRs at September 30, ~~2017:~~

   Minimum Maximum Average
Expected prepayment
6 % 18 % 10 %
Option adjusted spread
7 10 8
2022:

   Minimum Maximum Weighted-
Average (a)
Expected prepayment 5 % 11 % 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 ~~result~~have resulted in a larger derivative asset or liability. A significant increase in the inherent MSR value would ~~result~~have resulted in an increase in the derivative asset or a reduction in the derivative liability. Expected loan close rates and the inherent MSR values are directly impacted by changes in market rates and will generally move in the same direction as interest rates.
The following table shows the significant valuation assumption ranges for the Company’s derivative commitments to purchase and originate mortgage loans at September 30, ~~2017:~~

   Minimum Maximum Average
Expected loan close rate
5 % 100 % 79 %
Inherent MSR value (basis points per loan)
(38 ) 179 117
2022:

   Minimum Maximum Weighted-
Average (a)
Expected loan close rate 19 % 100 % 84 %
Inherent MSR value (basis points per loan) 41 194 112
(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 ~~result~~have resulted in a lower fair value measurement. A significant decrease in the credit valuation adjustment would ~~result~~have resulted in a higher fair value measurement. The credit valuation adjustment is impacted by changes in market rates, volatility, market implied credit spreads, and loss recovery rates, as well as the Company’s assessment of the counterparty’s credit position. At September 30, ~~2017,~~2022, the minimum, maximum and ~~average~~weighted-average credit valuation adjustment as a percentage of the ~~derivative contract~~net fair value of the counterparty’s derivative contracts prior to adjustment was 0 percent, 95234 percent and 31 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 ~~result~~have resulted in an increase in the derivative liability. A decrease in the loss estimate or an acceleration of the resolution of the related litigation would ~~result~~have resulted in a decrease in the derivative liability.
68 ~~U.S. Bancorp~~
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:

(Dollars in Millions) Level 1    Level 2    Level 3    Netting Total
September 30, 2017

Available-for-sale securities

U.S. Treasury and agencies
$ 21,321    $ 747    $ –    $ – $ 22,068
Mortgage-backed securities

Residential

Agency
–    39,553    –    – 39,553
Commercial

Agency
–    8    –    – 8
Asset-backed securities

Other
–    425    –    – 425
Obligations of state and political subdivisions
–    5,681    –    – 5,681
Other investments
37    –    –    – 37
Totalavailable-for-sale
21,358    46,414    –    – 67,772
Mortgage loans held for sale
–    3,754    –    – 3,754
Mortgage servicing rights
–    –    2,598    – 2,598
Derivative assets
1    1,836    570    (727 ) 1,680
Other assets
258    1,302    –    – 1,560
Total
$ 21,617    $ 53,306    $ 3,168    $ (727 ) $ 77,364
Derivative liabilities
$ –    $ 2,032    $ 317    $ (1,182 ) $ 1,167
Short-term borrowings and other liabilities (c)
138    1,077    –    – 1,215
Total
$ 138    $ 3,109    $ 317    $ (1,182 ) $ 2,382
December 31, 2016

Available-for-sale securities

U.S. Treasury and agencies
$ 16,355    $ 772    $ –    $ – $ 17,127
Mortgage-backed securities

Residential

Agency
–    43,138    –    – 43,138
Non-agency

Prime (a)
–    –    242    – 242
Non-prime (b)
–    –    195    – 195
Commercial

Agency
–    15    –    – 15
Asset-backed securities

Other
–    481    2    – 483
Obligations of state and political subdivisions
–    5,039    –    – 5,039
Corporate debt securities
–    –    9    – 9
Other investments
36    –    –    – 36
Totalavailable-for-sale
16,391    49,445    448    – 66,284
Mortgage loans held for sale
–    4,822    –    – 4,822
Mortgage servicing rights
–    –    2,591    – 2,591
Derivative assets
–    2,416    554    (984 ) 1,986
Other assets
183    1,137    –    – 1,320
Total
$ 16,574    $ 57,820    $ 3,593    $ (984 ) $ 77,003
Derivative liabilities
$ 7    $ 2,469    $ 383    $ (1,185 ) $ 1,674
Short-term borrowings and other liabilities (c)
142    938    –    – 1,080
Total
$ 149    $ 3,407    $ 383    $ (1,185 ) $ 2,754

(Dollars in Millions) Level 1    Level 2    Level 3    Netting Total
September 30, 2022

Available-for-sale
securities

U.S. Treasury and agencies $ 16,737    $ 4,849    $ –    $ – $ 21,586
Mortgage-backed securities
Residential agency –    30,657    –    – 30,657
Commercial agency –    7,091    –    – 7,091
Asset-backed securities –    25    –    – 25
Obligations of state and political subdivisions –    9,157    1    – 9,158
Other –    6    –    – 6
Total
available-for-sale
16,737    51,785    1    – 68,523
Mortgage loans held for sale –    3,483    –    – 3,483
Mortgage servicing rights –    –    3,869    – 3,869
Derivative assets –    7,793    1,108    (6,174 ) 2,727
Other assets 322    1,990    –    – 2,312
Total $ 17,059    $ 65,051    $ 4,978    $ (6,174 ) $ 80,914
Derivative liabilities $ –    $ 6,599    $ 4,984    $ (4,768 ) $ 6,815
Short-term borrowings and other liabilities (a) 245    1,661    –    – 1,906
Total $ 245    $ 8,260    $ 4,984    $ (4,768 ) $ 8,721
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 by~~equity 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 ~~issuer~~issuer. The aggregate carrying amount of these equity investments was $78 million and $79 million at ~~origination. When an issuer designation is unavailable,~~September 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 based~~first nine 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.
U.S. Bancorp 69
65
Table of Contents
The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30:

(Dollars in Millions) Beginning
of Period
Balance Net Gains
(Losses)
Included in
Net Income Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss) Purchases Sales Principal
Payments Issuances Settlements End
of Period
Balance Net Change in
Unrealized
Gains (Losses)
Relating to Assets
and Liabilities
Held at End of Period
2017

Mortgage servicing rights
$ 2,582 $ (103 ) (c) $ – $ 4 $ – $ – $ 115 (f) $ – $ 2,598 $ (103 ) (c)
Net derivative assets and liabilities
240 111   (d) – – (3 ) – – (95 ) 253 41   (g)
2016

Available-for-sale securities

Mortgage-backed securities

Residentialnon-agency

Prime (a)
$ 280 $ – $ – $ – $ – $ (21 ) $ – $ – $ 259 $ –
Non-prime (b)
216 – (1 ) – – (9 ) – – 206 (1 )
Asset-backed securities

Other
2 – – – – – – – 2 –
Corporate debt securities
9 – – – – – – – 9 –
Totalavailable-for-sale
507 – (1 ) (e) – – (30 ) – – 476 (1 )
Mortgage servicing rights
2,056 (85 ) (c) – 18 – – 142 (f) – 2,131 (85 ) (c)
Net derivative assets and liabilities
1,080 84   (h) – – (2 ) – – (231 ) 931 16   (i)

(Dollars in Millions) Beginning
of Period
Balance Net Gains
(Losses)
Included in
Net Income Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)    Purchases    Sales 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

Obligations of state and political subdivisions
$

1
$

–
$

–
$

–
$

–
$

–
$

–
$

1
$

–
Total
available-for-sale
1 – –    –    – – – 1 –
Mortgage servicing rights 3,707 27   (a) –    1    – 134 (c) – 3,869 27   (a)
Net derivative assets and liabilities (2,175 ) (2,398 ) (b) –    259    (29 )
11

456 (3,876 ) (1,978 ) (d)

2021

Available-for-sale
securities

Asset-backed securities $ 8 $ – $ –    $ –    $ – $ – $ – $ 8 $ –
Obligations of state and political subdivisions 1 – –    –    – – – 1 –
Total
available-for-sale
9 – –    –    – – – 9 –
Mortgage servicing rights 2,713 (96 ) (a) –    9    – 284 (c) – 2,910 (96 ) (a)
Net derivative assets and liabilities 1,500 (225 ) (e) –    106    (1 ) – (262 ) 1,118 (203 ) (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 ~~$18~~$(95) million, ~~included in other noninterest income~~$(2.1) billion and ~~$93~~$(154) 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 $9$(78) million, ~~included in other noninterest income~~$(1.7) billion and ~~$32~~$(154) million included in mortgage banking ~~revenue.~~revenue, commercial products revenue and other noninterest income, respectively.
~~(h)~~
(e)
Approximately ~~$(73)~~$208 million, ~~included in other noninterest income~~$(434) million and ~~$157~~$1 million included in mortgage banking ~~revenue.~~revenue, commercial products revenue and other noninterest income, respectively.
~~(i)~~
(f)
Approximately ~~$(81)~~$57 million, ~~included in other noninterest income~~$(261) million and ~~$97~~$1 million included in mortgage banking ~~revenue.~~revenue, commercial products revenue and other noninterest income, respectively.
70 ~~U.S. Bancorp~~
The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30:

(Dollars in Millions) Beginning
of Period
Balance Net Gains
(Losses)
Included in
Net Income Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss) Purchases Sales Principal
Payments Issuances Settlements End
of Period
Balance Net Change in
Unrealized
Gains (Losses)
Relating to Assets
and Liabilities
Held at End of Period
2017

Available-for-sale securities

Mortgage-backed securities

Residentialnon-agency

Prime (a)
$ 242 $ – $ (2 ) $ – $ (234 ) $ (6 ) $ – $ – $ – $ –
Non-prime (b)
195 – (17 ) – (175 ) (3 ) – – – –
Asset-backed securities

Other
2 – – – (2 ) – – – – –
Corporate debt securities
9 – 2 – (11 ) – – – – –
Totalavailable-for-sale
448 –   (c) (17 ) (f) – (422 ) (9 ) – – – –
Mortgage servicing rights
2,591 (322 ) (d) – 10 – – 319   (g) – 2,598 (322 ) (d)
Net derivative assets and liabilities
171 372   (e) – 1 (8 ) – – (283 ) 253 87   (h)
2016

Available-for-sale securities

Mortgage-backed securities

Residentialnon-agency

Prime (a)
$ 318 $ (1 ) $ – $ – $ – $ (58 ) $ – $ – $ 259 $ –
Non-prime (b)
240 (1 ) (4 ) – – (29 ) – – 206 (4 )
Asset-backed securities

Other
2 – – – – – – – 2 –
Corporate debt securities
9 – – – – – – – 9 –
Totalavailable-for-sale
569 (2 ) (c) (4 ) (f) – – (87 ) – – 476 (4 )
Mortgage servicing rights
2,512 (785 ) (d) – 32 – – 372   (g) – 2,131 (785 ) (d)
Net derivative assets and liabilities
498 1,047   (i) – 1 (5 ) – – (610 ) 931 494   (j)

(Dollars in Millions) Beginning
of Period
Balance    Net Gains
(Losses)
Included in
Net Income Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss) Purchases    Sales 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    435   (a) – 7    1 473 (c) – 3,869 435   (a)
Net derivative assets and liabilities 799    (5,759 ) (b) – 351    (30 ) 11
752 (3,876 ) (4,240 ) (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    (233 ) (a) – 36    1 896 (c) – 2,910 (233 ) (a)
Net derivative assets and liabilities 2,326    (604 ) (e) – 166    (2 ) – (768 ) 1,118 (761 ) (f)
(a)
Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics (such as weighted-average credit score,~~loan-to-value,~~ ~~loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).~~
~~(b)~~ ~~Includes all securities not meeting the conditions to be designated as prime.~~
~~(c)~~ ~~Included in securities gains (losses).~~
~~(d)~~
Included in mortgage banking revenue.
~~(e)~~
(b)
Approximately ~~$128~~$(198) million, $(5.4) billion and $(154)
million
included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(c)
Represents MSRs capitalized during the period.
(d)
Approximately $(78) million, $(4.0) billion and ~~$244~~$(154)
m
illion included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(e)
Approximately $544 million, $(1.2) billion and $2 million included in mortgage banking ~~revenue.~~revenue, commercial products revenue and other noninterest income, respectively.
(f)
~~Included in changes in unrealized gains~~
Approximately $57 million, $(820) 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~~$2 million included in mortgage banking ~~revenue.~~
~~(i)~~ ~~Approximately $560 million included in~~revenue, 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.
66
U.S. Bancorp
Table of Contents
The following table summarizes the balances as of the measurement date of assets measured at fair value on a nonrecurring basis, and still held as of the reporting date:

September 30, 2017          December 31, 2016
(Dollars in Millions) Level 1    Level 2    Level 3    Total          Level 1    Level 2    Level 3    Total
Loans (a)
$ –    $ –    $ 76    $ 76       $ –    $ –    $ 59    $ 59
Other assets (b)
–    –    30    30       –    –    60    60

September 30, 2022    December 31, 2021
(Dollars in Millions) Level 1    Level 2    Level 3    Total    Level 1    Level 2    Level 3    Total

Loans (a) $ –    $ –    $ 80    $ 80    $ –    $ –    $ 59    $ 59

Other assets (b) –    –    30    30    –    –    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
September 30    Nine Months Ended
September 30
(Dollars in Millions) 2022    2021    2022    2021

Loans (a) $ 2    $ 15    $ 35    $ 58

Other assets (b) 1    1    12    7
(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. Bancorp~~ 71
Fair Value Option
The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:

September 30, 2017       December 31, 2016
(Dollars in Millions) Fair
Value
Carrying
Amount    Aggregate
Unpaid
Principal    Carrying
Amount Over
(Under) Unpaid
Principal       Fair
Value
Carrying
Amount    Aggregate
Unpaid
Principal    Carrying
Amount Over
(Under) Unpaid
Principal
Total loans
$ 3,754    $ 3,638    $ 116    $ 4,822    $ 4,763    $ 59
Nonaccrual loans
1    2    (1 )    2    3    (1 )
Loans 90 days or more past due
–    –    –    1    1    –
~~Disclosures About~~
September 30, 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 $ 3,483    $ 3,584    $ (101 )    $ 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 ~~table~~section summarizes the estimated fair value for financial instruments accounted for at amortized cost as of September 30, ~~2017~~2022 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, ~~and~~equity investments not accounted for ~~under the equity method~~at fair value, and deposits with no defined or contractual maturities are excluded.
U.S. Bancorp
67
Table of Contents
The estimated fair values of the Company’s financial instruments are shown in the table below:

September 30, 2017 December 31, 2016
Carrying
Amount Fair Value    Carrying
Amount Fair Value
(Dollars in Millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial Assets

Cash and due from banks
$ 20,540 $ 20,540 $ – $ – $ 20,540 $ 15,705 $ 15,705 $ – $ – $ 15,705
Federal funds sold and securities purchased under resale agreements
78 – 78 – 78 138 – 138 – 138
Investment securitiesheld-to-maturity
44,018 4,668 39,074 16 43,758 42,991 4,605 37,810 20 42,435
Loans held for sale (a)
3 – – 3 3 4 – – 4 4
Loans
274,811 – – 278,946 278,946 269,394 – – 273,422 273,422
Other financial instruments
2,449 – 1,037 1,419 2,456 2,362 – 920 1,449 2,369
Financial Liabilities

Deposits
342,589 – 342,411 – 342,411 334,590 – 334,361 – 334,361
Short-term borrowings (b)
14,641 – 14,430 – 14,430 12,891 – 12,706 – 12,706
Long-term debt
34,515 – 34,842 – 34,842 33,323 – 33,678 – 33,678
Other liabilities
1,659 – – 1,659 1,659 1,702 – – 1,702 1,702
September 30, 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 $ 41,652 $ 41,652 $ – $ – $ 41,652 $ 28,905 $ 28,905 $ – $ – $ 28,905
Federal funds sold and securities purchased under resale agreements 440 – 440 – 440 359 – 359 – 359
Investment securities
held-to-maturity
85,574 1,288 72,840 – 74,128 41,858 – 41,812 – $ 41,812
Loans held for sale (a) 164 – – 164 164 1,152 – – 1,152 1,152
Loans 336,691 – – 326,896 326,896 306,304 – – 312,724 312,724
Other (b) 2,199 – 1,491 708 2,199 1,521 – 630 891 1,521
Financial Liabilities

Time deposits 42,459 – 41,643 – 41,643 22,665 – 22,644 – 22,644
Short-term borrowings (c) 23,160 – 22,662 – 22,662 9,750 – 9,646 – 9,646
Long-term debt 32,228 – 30,624 – 30,624 32,125 – 32,547 – 32,547
Other (d) 4,219 – 1,132 3,087 4,219 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~~$499 million and ~~$618~~$495 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. The carrying value of other guarantees was ~~$194~~$233 million and ~~$186~~$245 million at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.
~~Note 15~~
Note  16
   Guarantees and Contingent Liabilities
Visa Restructuring and Card Association Litigation
The Company’s payment services business issues credit and debit cards and acquires credit and debit card transactions through the Visa U.S.A. Inc. card association or its affiliates (collectively “Visa”). In 2007, Visa completed a restructuring and issued shares of Visa Inc. common stock to its financial institution members in contemplation of its initial public offering (“IPO”) completed in the first quarter of 2008 (the “Visa Reorganization”). As a part of the Visa Reorganization, the Company received its proportionate number of shares of Visa Inc. common stock, which were subsequently converted to Class B shares of Visa Inc. (“Class B shares”).
Visa U.S.A. Inc. (“Visa U.S.A.”) and MasterCard International (collectively, the “Card ~~Associations”~~Brands”) are defendants in antitrust lawsuits challenging the practices of the Card ~~Associations~~Brands (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.
72 ~~U.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-district~~multidistrict 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 States~~U.S. Court of Appeals for the Second Circuit reversed the approval of ~~the~~that settlement and remanded the ~~case~~matter to the district ~~court for further proceedings consistent with~~court. Thereafter, the ~~appellate ruling. On November 23, 2016, certain~~case was split into two putative class ~~members filed~~actions, one seeking damages (the “Damages Action”) and a ~~petition with~~separate 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 ~~Supreme~~District Court ~~asking it to review the Second Circuit’s decision to reject the settlement. On March 27, 2017, the Supreme Court denied the class members’ petition. The case is proceeding in the district court.~~
At September 30, 2017, the carrying amount of the Company’s liability related to the Visa Litigation matters, net of its share of the escrow fundings, was $19 million. During the three and nine months ended September 30, 2017, the Company sold 0.4 million and 1.8 million, respectively, of its Class B shares. These sales, and any previous sales of its Class B shares, do not impact the Company’s liability for the Eastern District of New York, but is now on appeal. The Injunctive Action, which generally seeks changes to Visa ~~Litigation matters or the receivable related to the escrow account. Upon final settlement~~rules, is still pending.
68
U.S. Bancorp
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 September 30, ~~2017:~~

(Dollars in Millions) Collateral
Held    Carrying
Amount    Maximum
Potential
Future
Payments
Standby letters of credit
$ –    $ 55    $ 11,154
Third party borrowing arrangements
–    –    11
Securities lending indemnifications
4,560    –    4,467
Asset sales
–    128    6,498 (a)
Merchant processing
538    54    99,229
Tender option bond program guarantee
2,109    –    1,998
Minimum revenue guarantees
–    –    8
Other
–    12    1,467
2022:

(Dollars in Millions) Collateral
Held    Carrying
Amount    Maximum
Potential
Future
Payments
Standby letters of credit $ —    $ 53    $ 9,974
Third party borrowing arrangements —    —    10
Securities lending indemnifications 6,869    —    6,625
Asset sales —    89    7,616 (a)
Merchant processing 727    123    139,808
Tender option bond program guarantee 1,418    —    1,497
Other —    21    2,081
(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 ~~Mexico~~Europe through wholly-owned ~~subsidiaries and joint ventures with other financial institutions.~~subsidiaries. In the event a merchant was unable to fulfill product or services subject to future delivery, such as airline tickets, the Company could become financially liable for refunding the purchase price of such products or services purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in a manner similar to credit risk assessments and, as such, merchant processing contracts contain various provisions to protect the Company in the event of default. At September 30, ~~2017,~~2022, the value of airline tickets purchased to be delivered at a future date through card transactions processed by the Company was ~~$7.5~~$9.3 billion. The Company held collateral of ~~$371~~$536 million in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets. In addition to specific collateral or other credit enhancements, the Company maintains a liability for its implied guarantees associated with future delivery. At September 30, ~~2017,~~2022, the liability was ~~$41~~$105 million primarily related to these airline processing arrangements.
~~U.S. Bancorp~~ 73
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 ~~counterparty~~GSE for losses. At September 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 September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the Company had ~~$12~~$39 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 these~~In 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~~the investors 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~~a monoline insurer 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 ~~amount~~amounts 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 ~~increasing~~heightened regulatory scrutiny, such as compliance, risk management, ~~third party~~third-party risk management and consumer protection.
74 ~~U.S. Bancorp~~
For example, the Consumer Financial Protection Bureau is investigating the Company’s administration of unemployment insurance benefit prepaid debit cards during the pandemic timeframe. 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, the Company entered into a Consent Order with the Office of the Comptroller of the Currency (the “OCC”) concerning deficiencies in the Company’s Bank Secrecy Act/anti-money laundering compliance program, and requiring an ongoing review of that program. The Company could be required to enter into further orders or pay fines or penalties arising from the Consent Order or regulatory actions taken by other government agencies with Bank Secrecy Act/anti-money laundering jurisdiction. Some of the compliance program enhancements and other actions required by the Consent Order have already been, or are currently in the process of being, implemented, and are not expected to be material to the Company.
In April 2011, the Company and certain other large financial institutions entered into Consent Orders with the OCC and the Board of Governors of the Federal Reserve System relating to residential mortgage servicing and foreclosure practices. In June 2015, the Company entered into an agreement to amend the 2011 Consent Order it had with the OCC. The OCC terminated the amended Consent Order in February 2016. Depending on the Company’s progress toward addressing the requirements of the 2011 Consent Order it has with the Board of Governors of the Federal Reserve System, the Company may be required to enter into further orders and settlements, pay additional fines or penalties, make restitution or further modify the Company’s business practices (which may increase the Company’s operating expenses and decrease its revenue).
Outlook
Due to their complex nature, it can be years before litigation and regulatory matters are resolved. The Company may be unable to develop an estimate or range of loss where matters are in early stages, there are significant factual or legal issues to be resolved, damages are unspecified or uncertain, or there is uncertainty as to a litigation class being certified or the outcome of pending motions, appeals or proceedings. For those litigation and regulatory matters where the Company has information to develop an estimate or range of loss, the Company believes the upper end of the range of reasonably possible losses in aggregate, in excess of any reserves established for matters where a loss is considered probable, ~~is up~~will 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~~
Note  17
   Business Segments
Within the Company, financial performance is measured by major lines of business based on the ~~nature~~products and services provided to customers through its distribution channels. These operating segments are components of the ~~Company’s guarantees~~Company about which financial information is prepared and ~~contingent liabilities, refer~~is evaluated regularly by management in deciding how to ~~Note 22 in~~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 comprises consumer banking, small business banking and consumer lending. Products and services are delivered through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing, mobile devices, distributed mortgage loan officers, and intermediary relationships including auto dealerships, mortgage banks, and strategic business partners.
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Wealth Management and Investment Services
Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services.
Payment Services
Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing.
Treasury and Corporate Support
Treasury and Corporate Support includes the Company’s ~~Annual Report~~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 ~~Form10-K~~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 ~~year~~three months ended ~~December 31, 2016.~~
September 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) $ 934 $ 701    $ 1,726 $ 1,558    $ 477    $ 236
Noninterest income 256 254    336 714    652    558
Total net revenue 1,190 955    2,062 2,272    1,129    794
Nointerest expense 452 435    1,399 1,412    592    520
Income (loss) before provision and income taxes 738 520    663 860    537    274
Provision for credit losses 68 12    40 (27 )    3    2
Income (loss) before income taxes 670 508    623 887    534    272
Income taxes and taxable-equivalent adjustment 168 127    156 222    134    68
Net income (loss) 502 381    467 665    400    204
Net (income) loss attributable to noncontrolling interests — —    — —    —    —
Net income (loss) attributable to U.S. Bancorp $ 502 $ 381    $ 467 $ 665    $ 400    $ 204

Average Balance Sheet

Loans $ 131,614 $ 102,800    $ 142,986 $ 140,468    $ 22,871    $ 18,452
Other earning assets 4,506 4,722    3,043 7,645    249    225
Goodwill 1,912 1,650    3,241 3,506    1,700    1,618
Other intangible assets 3 5    3,726 2,755    311    80
Assets 147,671 115,033    158,439 160,515    26,439    21,633

Noninterest-bearing deposits 53,388 63,565    31,083 33,401    23,852    24,542
Interest-bearing deposits 100,433 69,304    166,196 159,475    73,229    72,255
Total deposits 153,821 132,869    197,279 192,876    97,081    96,797

Total U.S. Bancorp shareholders’ equity 14,609 13,766    12,466 12,247    3,726    3,171

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) $ 627 $ 616    $ 93 $ 86    $ 3,857    $ 3,197
Noninterest income 995 (a) 946 (a)    230 221    2,469 (b)    2,693 (b)
Total net revenue 1,622 1,562    323 307    6,326 (c)    5,890 (c)
Noninterest expense 897 862    297 200    3,637    3,429
Income (loss) before provision and income taxes 725 700    26 107    2,689    2,461
Provision for credit losses 285 166    (34 ) (316 )    362    (163 )
Income (loss) before income taxes 440 534    60 423    2,327    2,624
Income taxes and taxable-equivalent adjustment 110 134    (57 ) 39    511    590
Net income (loss) 330 400    117 384    1,816    2,034
Net (income) loss attributable to noncontrolling interests — —    (4 ) (6 )    (4 )    (6 )
Net income (loss) attributable to U.S. Bancorp $ 330 $ 400    $ 113 $ 378    $ 1,812    $ 2,028

Average Balance Sheet

Loans $ 35,819 $ 31,378    $ 3,488 $ 3,641    $ 336,778    $ 296,739
Other earning assets 392 5    196,698 193,989    204,888    206,586
Goodwill 3,292 3,168    — —    10,145    9,942
Other intangible assets 405 495    — —    4,445    3,335
Assets 42,090 37,170    214,125 219,095    588,764    553,446

Noninterest-bearing deposits 3,312 4,913    2,409 2,597    114,044    129,018
Interest-bearing deposits 171 150    2,696 1,285    342,725    302,469
Total deposits 3,483 5,063    5,105 3,882    456,769    431,487

Total U.S. Bancorp shareholders’ equity 8,257 7,561    10,762 17,528    49,820    54,273
(a)
Presented net of related rewards and rebate costs and certain partner payments of $754 million and $652 million for the three months ended September 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $2.1 billion and $2.0 billion for the three months ended September 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 $190 million and $220 million of revenue for the three months ended September 30, 2022 and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
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U.S. Bancorp
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Business segment results for the nine months ended September 30 were as follows:

Corporate and Commercial
Banking       Consumer and
Business Banking       Wealth Management and
Investment Services
(Dollars in Millions) 2022 2021       2022 2021       2022    2021
Condensed Income Statement

Net interest income (taxable-equivalent basis) $ 2,475 $ 2,158    $ 4,835 $ 4,580    $ 1,107    $ 752
Noninterest income 774 788    1,191 1,915    1,900    1,639
Total net revenue 3,249 2,946    6,026 6,495    3,007    2,391
Nointerest expense 1,352 1,305    4,215 4,129    1,768    1,539
Income (loss) before provision and income taxes 1,897 1,641    1,811 2,366    1,239    852
Provision for credit losses 172 (32 )    12 (136 )    7    2
Income (loss) before income taxes 1,725 1,673    1,799 2,502    1,232    850
Income taxes and taxable-equivalent adjustment 432 419    450 626    309    213
Net income (loss) 1,293 1,254    1,349 1,876    923    637
Net (income) loss attributable to noncontrolling interests — —    — —    —    —
Net income (loss) attributable to U.S. Bancorp $ 1,293 $ 1,254    $ 1,349 $ 1,876    $ 923    $ 637

Average Balance Sheet

Loans $ 123,644 $ 102,427    $ 141,637 $ 140,914    $ 21,972    $ 17,582
Other earning assets 4,447 4,485    3,330 8,606    253    247
Goodwill 1,912 1,648    3,248 3,487    1,726    1,618
Other intangible assets 4 5    3,514 2,693    292    69
Assets 137,874 114,525    157,311 162,013    25,563    20,743

Noninterest-bearing deposits 58,517 60,648    30,990 32,857    25,437    23,096
Interest-bearing deposits 93,762 70,406    166,806 156,052    71,852    76,464
Total deposits 152,279 131,054    197,796 188,909    97,289    99,560

Total U.S. Bancorp shareholders’ equity 14,114 13,984    12,361 12,352    3,647    3,099

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) $ 1,868 $ 1,840    $ 236 $ 120    $ 10,521    $ 9,450
Noninterest income 2,847 (a) 2,644 (a)    701 707    7,413 (b)    7,693 (b)
Total net revenue 4,715 4,484    937 827    17,934 (c)    17,143 (c)
Noninterest expense 2,626 2,488    902 734    10,863    10,195
Income (loss) before provision and income taxes 2,089 1,996    35 93    7,071    6,948
Provision for credit losses 636 216    (42 ) (1,210 )    785    (1,160 )
Income (loss) before income taxes 1,453 1,780    77 1,303    6,286    8,108
Income taxes and taxable-equivalent adjustment 364 446    (177 ) 97    1,378    1,801
Net income (loss) 1,089 1,334    254 1,206    4,908    6,307
Net (income) loss attributable to noncontrolling interests — —    (8 ) (17 )    (8 )    (17 )
Net income (loss) attributable to U.S. Bancorp $ 1,089 $ 1,334    $ 246 $ 1,189    $ 4,900    $ 6,290

Average Balance Sheet

Loans $ 33,820 $ 30,353    $ 3,658 $ 3,738    $ 324,731    $ 295,014
Other earning assets 810 5    202,560 192,259    211,400    205,602
Goodwill 3,312 3,172    — —    10,198    9,925
Other intangible assets 435 518    — —    4,245    3,285
Assets 40,573 35,966    220,746 217,952    582,067    551,199

Noninterest-bearing deposits 3,459 5,068    2,490 2,593    120,893    124,262
Interest-bearing deposits 166 141    2,350 1,714    334,936    304,777
Total deposits 3,625 5,209    4,840 4,307    455,829    429,039

Total U.S. Bancorp shareholders’ equity 8,131 7,543    12,551 16,349    50,804    53,327
(a)
Presented net of related rewards and rebate costs and certain partner payments of $2.2 billion and $1.8 billion for the nine months ended September 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $6.0 billion and $5.6 billion for the nine months ended September 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 $582 million and $686 million of revenue for the nine months ended September 30, 2022 and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
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Note 1618

   Subsequent Events
The Company has evaluated the impact of events that have occurred subsequent to September 30, ~~2017~~2022 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.
~~U.S. Bancorp~~
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75U.S. Bancorp
Table of Contents
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related
Yields and Rates (a)

For the Three Months Ended September 30,
2017    2016
(Dollars in Millions)
(Unaudited)
Average
Balances    Interest       Yields
and
Rates       Average
Balances    Interest       Yields
and
Rates          % Change
Average
Balances
Assets

Investment securities
$ 111,832 $ 591    2.11 %    $ 108,109 $ 539    2.00 %    3.4 %
Loans held for sale
3,935 40    4.06    4,691 43    3.68    (16.1 )
Loans (b)

Commercial
96,633 822    3.38    92,369 654    2.82    4.6
Commercial real estate
41,621 469    4.47    43,374 429    3.94    (4.0 )
Residential mortgages
59,030 551    3.73    56,284 522    3.70    4.9
Credit card
20,926 618    11.72    20,628 569    10.98    1.4
Other retail
56,069 585    4.13    52,851 535    4.02    6.1
Total loans, excluding covered loans
274,279 3,045    4.41    265,506 2,709    4.06    3.3
Covered loans
3,347 44    5.32    4,131 49    4.76    (19.0 )
Total loans
277,626 3,089    4.42    269,637 2,758    4.07    3.0
Other earning assets
15,432 48    1.23    11,346 31    1.09    36.0
Total earning assets
408,825 3,768    3.67    393,783 3,371    3.41    3.8
Allowance for loan losses
(3,874 )       (3,818 )       (1.5 )
Unrealized gain (loss) on investment securities
(113 )       933       *
Other assets
45,792       46,965       (2.5 )
Total assets
$ 450,630       $ 437,863       2.9
Liabilities and Shareholders’ Equity

Noninterest-bearing deposits
$ 81,964       $ 82,021       (.1 )%
Interest-bearing deposits

Interest checking
68,066 26    .15    63,456 12    .08    7.3
Money market savings
105,072 176    .67    99,921 92    .36    5.2
Savings accounts
43,649 8    .07    40,695 9    .09    7.3
Time deposits
36,400 83    .91    32,455 48    .59    12.2
Total interest-bearing deposits
253,187 293    .46    236,527 161    .27    7.0
Short-term borrowings
15,505 93    2.37    15,929 71    1.78    (2.7 )
Long-term debt
35,544 196    2.20    37,875 196    2.06    (6.2 )
Total interest-bearing liabilities
304,236 582    .76    290,331 428    .59    4.8
Other liabilities
14,983       17,081       (12.3 )
Shareholders’ equity

Preferred equity
5,419       5,501       (1.5 )
Common equity
43,400       42,290       2.6
Total U.S. Bancorp shareholders’ equity
48,819       47,791       2.2
Noncontrolling interests
628       639       (1.7 )
Total equity
49,447       48,430       2.1
Total liabilities and equity
$ 450,630       $ 437,863       2.9
Net interest income
$ 3,186       $ 2,943
Gross interest margin
   2.91 %       2.82 %
Gross interest margin without taxable-equivalent increments
   2.86 %       2.77 %
Percent of Earning Assets

Interest income
   3.67 %       3.41 %
Interest expense
   .57       .43
Net interest margin
   3.10 %       2.98 %
Net interest margin without taxable-equivalent increments
   3.05 %       2.93 %
For the Three Months Ended September 30
   2022                            2021
(Dollars in Millions) (Unaudited) Average
Balances Interest          Yields and
Rates       Average
Balances       Interest          Yields and
Rates          % Change
Average
Balances
Assets

Investment securities
$ 164,851 $ 888       2.15 %    $ 151,755    $ 624       1.64 %    8.6 %
Loans held for sale
3,499 49       5.61    7,438    54       2.92    (53.0 )
Loans (b)

Commercial
128,519 1,230       3.80    101,832    711       2.77    26.2
Commercial real estate
40,010 428       4.25    38,921    303       3.09    2.8
Residential mortgages
84,018 687       3.27    74,104    604       3.25    13.4
Credit card
24,105 676       11.13    21,905    569       10.30    10.0
Other retail
60,126 592       3.91    59,977    532       3.52    .2
Total loans
336,778 3,613       4.26    296,739    2,719       3.64    13.5
Interest-bearing deposits with banks
29,130 151       2.05    40,710    12       .12    (28.4 )
Other earning assets
7,408 58       3.16    6,683    26       1.50    10.8
Total earning assets
541,666 4,759       3.50    503,325    3,435       2.72    7.6
Allowance for loan losses
(5,885 )          (5,972 )             1.5
Unrealized gain (loss) on investment securities
(6,862 )          1,231             *
Other assets
59,845          54,862             9.1
Total assets
$ 588,764          $ 553,446             6.4
Liabilities and Shareholders’ Equity

Noninterest-bearing deposits
$ 114,044          $ 129,018             (11.6 )%
Interest-bearing deposits

Interest checking
113,364 54       .19    103,036    5       .02    10.0
Money market savings
125,389 350       1.11    112,543    50       .17    11.4
Savings accounts
67,782 2       .01    63,387    2       .01    6.9
Time deposits
36,190 128       1.41    23,503    21       .35    54.0
Total interest-bearing deposits
342,725 534       .62    302,469    78       .10    13.3
Short-term borrowings

Federal funds purchased
442 2       2.01    1,198    —       .13    (63.1 )
Securities sold under agreements to repurchase
2,130 7       1.25    1,877    1       .10    13.5
Commercial paper
7,301 18       .99    8,008    —       .01    (8.8 )
Other short-term borrowings
19,161 143       2.96    3,605    17       1.86    *
Total short- term borrowings
29,034 170       2.33    14,688    18       .49    97.7
Long-term debt
31,814 198       2.47    35,972    142       1.57    (11.6 )
Total interest-bearing liabilities
403,573 902       .89    353,129    238       .27    14.3
Other liabilities
20,863          16,391             27.3
Shareholders’ equity

Preferred equity
6,808          5,968             14.1
Common equity
43,012          48,305             (11.0 )
Total U.S. Bancorp shareholders’ equity
49,820          54,273             (8.2 )
Noncontrolling interests
464          635             (26.9 )
Total equity
50,284          54,908             (8.4 )
Total liabilities and equity
$ 588,764          $ 553,446             6.4
Net interest income
$ 3,857             $ 3,197
Gross interest margin
      2.61 %             2.45 %
Gross interest margin without taxable-equivalent increments
      2.59 %             2.43 %
Percent of Earning Assets

Interest income
      3.50 %             2.72 %
Interest expense
      .67             .19
Net interest margin
      2.83 %             2.53 %
Net interest margin without taxable-equivalent increments
      2.81 %             2.51 %
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis ~~utilizing~~based 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.
76U.S. Bancorp ~~U.S. Bancorp~~
75
Table of Contents
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related
Yields and Rates (a)

For the Nine Months Ended September 30,
2017    2016
(Dollars in Millions)
(Unaudited)
Average
Balances    Interest       Yields
and
Rates       Average
Balances    Interest       Yields
and
Rates          % Change
Average
Balances
Assets

Investment securities
$ 111,325 $ 1,723    2.06 %    $ 107,095 $ 1,634    2.03 %    3.9 %
Loans held for sale
3,457 104    4.02    3,888 110    3.78    (11.1 )
Loans (b)

Commercial
95,347 2,297    3.22    91,451 1,920    2.80    4.3
Commercial real estate
42,437 1,335    4.20    42,922 1,269    3.95    (1.1 )
Residential mortgages
58,496 1,627    3.71    55,334 1,548    3.73    5.7
Credit card
20,801 1,777    11.42    20,339 1,656    10.88    2.3
Other retail
54,835 1,677    4.09    51,809 1,573    4.06    5.8
Total loans, excluding covered loans
271,916 8,713    4.28    261,855 7,966    4.06    3.8
Covered loans
3,538 131    4.94    4,324 152    4.67    (18.2 )
Total loans
275,454 8,844    4.29    266,179 8,118    4.07    3.5
Other earning assets
13,795 132    1.27    8,654 89    1.37    59.4
Total earning assets
404,031 10,803    3.57    385,816 9,951    3.44    4.7
Allowance for loan losses
(3,842 )       (3,848 )       .2
Unrealized gain (loss) on investment securities
(324 )       784       *
Other assets
46,184       46,669       (1.0 )
Total assets
$ 446,049       $ 429,421       3.9
Liabilities and Shareholders’ Equity

Noninterest-bearing deposits
$ 81,808       $ 79,928       2.4 %
Interest-bearing deposits

Interest checking
67,021 56    .11    60,746 29    .07    10.3
Money market savings
106,856 460    .58    93,121 247    .35    14.7
Savings accounts
43,265 24    .07    40,070 26    .09    8.0
Time deposits
32,660 190    .78    33,447 150    .60    (2.4 )
Total interest-bearing deposits
249,802 730    .39    227,384 452    .27    9.9
Short-term borrowings
14,423 239    2.21    21,457 205    1.28    (32.8 )
Long-term debt
35,697 585    2.19    36,392 567    2.08    (1.9 )
Total interest-bearing liabilities
299,922 1,554    .69    285,233 1,224    .57    5.1
Other liabilities
15,344       16,369       (6.3 )
Shareholders’ equity

Preferred equity
5,514       5,501       .2
Common equity
42,828       41,739       2.6
Total U.S. Bancorp shareholders’ equity
48,342       47,240       2.3
Noncontrolling interests
633       651       (2.8 )
Total equity
48,975       47,891       2.3
Total liabilities and equity
$ 446,049       $ 429,421       3.9
Net interest income
$ 9,249       $ 8,727
Gross interest margin
   2.88 %       2.87 %
Gross interest margin without taxable-equivalent increments
   2.83 %       2.82 %
Percent of Earning Assets

Interest income
   3.57 %       3.44 %
Interest expense
   .51       .42
Net interest margin
   3.06 %       3.02 %
Net interest margin without taxable-equivalent increments
   3.01 %       2.97 %
For the Nine Months Ended September 30
   2022                            2021
(Dollars in Millions) (Unaudited) Average
Balances Interest          Yields and
Rates       Average
Balances       Interest          Yields and
Rates          % Change
Average
Balances
Assets

Investment securities $ 170,267 $ 2,449       1.92 %    $ 152,653    $ 1,793       1.57 %    11.5 %
Loans held for sale 4,214 163       5.17    8,422    176       2.79    (50.0 )
Loans (b)
Commercial 120,723 2,653       2.94    102,298    2,060       2.69    18.0
Commercial real estate 39,541 1,053       3.56    38,757    914       3.15    2.0
Residential mortgages 80,589 1,937       3.21    74,215    1,870       3.36    8.6
Credit card 22,907 1,827       10.66    21,391    1,701       10.63    7.1
Other retail 60,971 1,629       3.57    58,353    1,594       3.65    4.5
Total loans 324,731 9,099       3.74    295,014    8,139       3.69    10.1
Interest-bearing deposits with banks 30,030 222       .99    37,947    27       .09    (20.9 )
Other earning assets 6,889 125       2.43    6,580    76       1.55    4.7
Total earning assets 536,131 12,058       3.00    500,616    10,211       2.72    7.1
Allowance for loan losses (5,766 )          (6,513 )             11.5
Unrealized gain (loss) on investment securities (6,229 )          1,304             *
Other assets 57,931          55,792             3.8
Total assets $ 582,067          $ 551,199             5.6
Liabilities and Shareholders’ Equity

Noninterest-bearing deposits $ 120,893          $ 124,262             (2.7 )%
Interest-bearing deposits
Interest checking 115,095 83       .10    101,280    18       .02    13.6
Money market savings 122,943 523       .57    116,968    150       .17    5.1
Savings accounts 67,632 6       .01    61,462    5       .01    10.0
Time deposits 29,266 179       .82    25,067    72       .38    16.8
Total interest-bearing deposits 334,936 791       .32    304,777    245       .11    9.9
Short-term borrowings
Federal funds purchased 770 4       .65    1,623    1       .10    (52.6 )
Securities sold under agreements to repurchase 2,035 10       .62    1,737    2       .13    17.2
Commercial paper 6,691 22       .44    6,894    —       .01    (2.9 )
Other short-term borrowings 14,329 213       1.99    4,504    49       1.45    *
Total short- term borrowings 23,825 249       1.40    14,758    52       .47    61.4
Long-term debt 32,055 498       2.07    37,196    464       1.67    (13.8 )
Total interest-bearing liabilities 390,816 1,538       .53    356,731    761       .28    9.6
Other liabilities 19,088          16,247             17.5
Shareholders’ equity
Preferred equity 6,746          6,049             11.5
Common equity 44,058          47,278             (6.8 )
Total U.S. Bancorp shareholders’ equity 50,804          53,327             (4.7 )
Noncontrolling interests 466          632             (26.3 )
Total equity 51,270          53,959             (5.0 )
Total liabilities and equity $ 582,067          $ 551,199             5.6
Net interest income $ 10,520             $ 9,450
Gross interest margin       2.47 %             2.44 %
Gross interest margin without taxable-equivalent increments       2.45 %             2.42 %
Percent of Earning Assets

Interest income       3.00 %             2.72 %
Interest expense       .38             .20
Net interest margin       2.62 %             2.52 %
Net interest margin without taxable-equivalent increments       2.60 %             2.50 %
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis ~~utilizing~~based 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~~
76
77U.S. Bancorp
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 1~~on page 70 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 to~~See the information set forth in the “Capital Management” section ~~within Management’s Discussion and Analysis in Part I, Item 2~~on page 27 of this Report for information regarding shares repurchased by the Company during the third quarter of ~~2017.~~
2022, which is incorporated herein by reference.
Item 6. Exhibits
    123.1 ~~Computation~~Restated Certificate of ~~Ratio of Earnings~~Incorporation (incorporated by reference to ~~Fixed Charges~~Exhibit 3.4 to the Company’s Form 8-K filed on April 20, 2022).
    3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on April 20, 2021).
  31.1 Certification of Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of ~~1934~~1934.
  31.2 Certification of Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of ~~1934~~1934.
  32 Certification 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 ~~2002~~2002.
101 ~~Financial~~ The following financial statements from the Company’s Quarterly Report on Form
10-Q ~~of the Company~~
for the quarter ended September 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.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).
78U.S. Bancorp ~~U.S. Bancorp~~
77
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/    C~~RAIG~~ ~~E. GIFFORD~~L
ISA
R. S
TARK

Dated: November ~~3, 2017~~1, 2022
~~Craig E. Gifford~~
Lisa R. Stark
Controller
(Principal Accounting Officer and Duly Authorized Officer)
~~U.S. Bancorp~~ 79
78
~~EXHIBIT 12~~
~~Computation 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.~~
80 U.S. Bancorp
Table of Contents
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Andrew Cecere, certify that:
(1)
I have reviewed this Quarterly Report on Form
10-Q
of U.S. Bancorp;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying ~~officers~~officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying ~~officers~~officer 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/    A
NDREW
C
ECERE
Andrew Cecere
Chief Executive Officer
Dated: November ~~3, 2017~~
1, 2022
U.S. Bancorp 81
79
Table of Contents
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Terrance R. Dolan, certify that:
(1)
I have reviewed this Quarterly Report on Form
10-Q
of U.S. Bancorp;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying ~~officers~~officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying ~~officers~~officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/    T
ERRANCE
R. D
OLAN
Terrance R. Dolan
Chief Financial Officer
Dated: November ~~3, 2017~~
1, 2022
82
80
U.S. Bancorp
Table of Contents
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Chief Executive Officer and Chief Financial Officer of U.S. Bancorp, a Delaware corporation (the “Company”), do hereby certify that:
(1)
The Quarterly Report on Form
10-Q
for the quarter ended September 30, ~~2017~~2022 (the “Form
10-Q”)
of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Form
10-Q
fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/    A
NDREW
C
ECERE
/s/    T
ERRANCE
R. D
OLAN
Andrew Cecere
Chief Executive Officer
Dated: November 1, 2022

~~/s/    TERRANCE~~ ~~R. DOLAN~~
~~Andrew Cecere~~
~~Chief Executive Officer~~
~~Dated: November 3, 2017~~
Terrance R. Dolan
Chief Financial Officer
U.S. Bancorp 83
81
Table of Contents
Corporate Information
Executive Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common Stock Transfer Agent and Registrar
Computershare acts as our transfer agent and registrar, dividend paying agent and dividend reinvestment plan administrator, and maintains all shareholder records for the ~~corporation.~~Company. Inquiries related to shareholder records, stock transfers, changes of ownership, lost stock certificates, changes of address and dividend payment should be directed to the transfer agent at:
Computershare
P.O. Box 505000
Louisville, KY 40233
Phone:
888-778-1311
or
201-680-6578 ~~(international~~
(international calls)
Internet: www.computershare.com/investor
Registered or Certified Mail:
Computershare
462 South 4^th4th Street, Suite 1600
Louisville, KY 40202
Telephone representatives are available weekdays from ~~8:00~~8 a.m. to ~~6:00~~6 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~~
George Andersen
Senior Vice President, Investor Relations
~~jen.thompson@usbank.com~~
george.andersen@usbank.com
Phone:~~612-303-0778~~ 612-303-4288 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 at~~visit usbank.com and click on
About ~~U.S.~~ ~~Bank~~Us
.
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~~.
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 were~~culture 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.~~ ~~Bank~~Us
and then
Investor Relations
then
Corporate Governance
, and then~~Corporate~~
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 ~~corporation~~Company complies with municipal, state and federal fair employment laws, including regulations applying to federal contractors.
U.S. Bancorp, including each of our subsidiaries, is an equal opportunity employer committed to creating a diverse workforce.
Accessibility
U.S. Bancorp is committed to providing ready access to our products and services so all of our customers, including people with disabilities, can succeed financially. To learn more, visit usbank.com and click on~~Accessibility.~~
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	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


	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	%


	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	%


	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


			As a Percent of Performing TDRs
At September 30, 2017 (Dollars in Millions)	Performing TDRs		30-89 Days Past Due			90 Days or More Past Due			Nonperforming TDRs			Total TDRs
Commercial	$	323		2.8	%		1.1	%	$	136	(a)	$	459
Commercial real estate		141		1.6			–			24	(b)		165
Residential mortgages		1,590		2.8			3.7			348			1,938	(d)
Credit card		230		10.5			5.9			1	(c)		231
Other retail		135		3.9			4.6			50	(c)		185	(e)
TDRs, excluding GNMA and covered loans		2,419		3.5			3.4			559			2,978
Loans purchased from GNMA mortgage pools (g)		1,571		–			–			–			1,571	(f)
Covered loans		29		4.8			10.3			4			33
Total	$	4,019		2.1	%		2.1	%	$	563		$	4,582


			As a Percent of Performing TDRs
At September 30, 2022 (Dollars in Millions)	Performing TDRs		30-89 Days Past Due			90 Days or More Past Due			Nonperforming TDRs			Total TDRs
Commercial	$	149		9.0	%		2.3	%	$	57	(a)	$	206
Commercial real estate		100		.3			—			103	(b)		203
Residential mortgages		1,564		2.4			2.4			127			1,691	(d)
Credit card		260		14.4			7.1			—			260
Other retail		182		8.6			4.3			32	(c)		214	(e)
TDRs, excluding loans purchased from GNMA mortgage pools		2,255		4.6			3.0			319			2,574
Loans purchased from GNMA mortgage pools (g)		982		—			—			—			982	(f)
Total	$	3,237		3.2	%		2.1	%	$	319		$	3,556


(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


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


	September 30, 2022			December 31, 2021
United States unemployment rate for the three months ending (a)
September 30, 2022		3.7	%		3.5	%
December 31, 2022		3.7			3.5
United States real gross domestic product for the three months ending (b)
September 30, 2022		1.5	%		4.5	%
December 31, 2022		(.1	)		3.4


	Three Months Ended						Nine Months Ended
	September 30						September 30
(Dollars in Millions)	2022			2021			2022			2021
Balance at beginning of period	$	6,255		$	6,610		$	6,155		$	8,010
Charge-Offs
Commercial
Commercial		51			37			146			171
Lease financing		5			3			18			13
Total commercial		56			40			164			184
Commercial real estate
Commercial mortgages		—			1			1			9
Construction and development		—			13			9			19
Total commercial real estate		—			14			10			28
Residential mortgages		2			3			9			13
Credit card		161			154			481			536
Other retail
Retail leasing		5			5			14			20
Home equity and second mortgages		2			3			7			9
Other		49			47			146			164
Total other retail		56			55			167			193
Total charge-offs		275			266			831			954
Recoveries
Commercial
Commercial		27			24			68			80
Lease financing		2			2			7			7
Total commercial		29			26			75			87
Commercial real estate
Commercial mortgages		6			—			9			20
Construction and development		—			1			6			2
Total commercial real estate		6			1			15			22
Residential mortgages		7			13			29			38
Credit card		42			43			132			133
Other retail
Retail leasing		4			4			12			19
Home equity and second mortgages		4			6			14			17
Other		21			26			69			88
Total other retail		29			36			95			124
Total recoveries		113			119			346			404
Net Charge-Offs
Commercial
Commercial		24			13			78			91
Lease financing		3			1			11			6
Total commercial		27			14			89			97
Commercial real estate
Commercial mortgages		(6	)		1			(8	)		(11	)
Construction and development		—			12			3			17
Total commercial real estate		(6	)		13			(5	)		6
Residential mortgages		(5	)		(10	)		(20	)		(25	)
Credit card		119			111			349			403
Other retail
Retail leasing		1			1			2			1
Home equity and second mortgages		(2	)		(3	)		(7	)		(8	)
Other		28			21			77			76
Total other retail		27			19			72			69
Total net charge-offs		162			147			485			550
Provision for credit losses		362			(163	)		785			(1,160	)
Balance at end of period	$	6,455		$	6,300		$	6,455		$	6,300
Components
Allowance for loan losses	$	6,017		$	5,792
Liability for unfunded credit commitments		438			508
Total allowance for credit losses (1)	$	6,455		$	6,300
Period-end loans (2)	$	342,708		$	297,608
Nonperforming loans (3)		630			906
Allowance for Credit Losses as a Percentage of
Period-end loans (1)/(2)		1.88	%		2.12	%
Nonperforming loans (1)/(3)		1,025			695
Nonperforming and accruing loans 90 days or more past due		631			488
Nonperforming assets		953			667
Annualized net charge-offs		1,004			1,080


	September 30, 2017											December 31, 2016
	Down 50 bps Immediate			Up 50 bps Immediate			Down 200 bps Gradual		Up 200 bps Gradual			Down 50 bps Immediate			Up 50 bps Immediate			Down 200 bps Gradual		Up 200 bps Gradual
Net interest income		(2.56	)%		1.48	%		*		1.99	%		(2.82	)%		1.52	%		*		1.82	%


	September 30, 2022												December 31, 2021
	Down 50 bps			Up 50 bps Immediate			Down 200 bps Gradual			Up 200 bps Gradual			Down 50 bps			Up 50 bps Immediate			Down 200 bps Gradual		Up 200 bps Gradual
Net interest income		(.51	)%		.52	%		(1.86	)%		.61	%		(3.77	)%		3.09	%		*		5.39	%


Nine Months Ended September 30, (Dollars in Millions)	2017		2016
Average	$	1	$	1
High		1		1
Low		1		1
Period-end		1		1


Nine Months Ended September 30 (Dollars in Millions)	2022		2021
Average	$	2	$	2
High		4		4
Low		1		1
Period-end		3		2


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


	Corporate and Commercial Banking							Consumer and Business Banking								Wealth Management and Investment Services
Three Months Ended September 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)	$	934	$	701		33.2	%	$	1,726	$	1,558			10.8	%	$	477	$	236		*	%
Noninterest income		256		254		.8			336		714			(52.9	)		652		558		16.8
Total net revenue		1,190		955		24.6			2,062		2,272			(9.2	)		1,129		794		42.2
Noninterest expense		452		435		3.9			1,399		1,412			(.9	)		592		520		13.8
Income (loss) before provision and income taxes		738		520		41.9			663		860			(22.9	)		537		274		96.0
Provision for credit losses		68		12		*			40		(27	)		*			3		2		50.0
Income (loss) before income taxes		670		508		31.9			623		887			(29.8	)		534		272		96.3
Income taxes and taxable-equivalent adjustment		168		127		32.3			156		222			(29.7	)		134		68		97.1
Net income (loss)		502		381		31.8			467		665			(29.8	)		400		204		96.1
Net (income) loss attributable to noncontrolling interests		—		—		—			—		—			—			—		—		—
Net income (loss) attributable to U.S. Bancorp	$	502	$	381		31.8		$	467	$	665			(29.8	)	$	400	$	204		96.1
Average Balance Sheet
Loans	$	131,614	$	102,800		28.0		$	142,986	$	140,468			1.8		$	22,871	$	18,452		23.9
Goodwill		1,912		1,650		15.9			3,241		3,506			(7.6	)		1,700		1,618		5.1
Other intangible assets		3		5		(40.0	)		3,726		2,755			35.2			311		80		*
Assets		147,671		115,033		28.4			158,439		160,515			(1.3	)		26,439		21,633		22.2
Noninterest-bearing deposits		53,388		63,565		(16.0	)		31,083		33,401			(6.9	)		23,852		24,542		(2.8	)
Interest-bearing deposits		100,433		69,304		44.9			166,196		159,475			4.2			73,229		72,255		1.3
Total deposits		153,821		132,869		15.8			197,279		192,876			2.3			97,081		96,797		.3
Total U.S. Bancorp shareholders’ equity		14,609		13,766		6.1			12,466		12,247			1.8			3,726		3,171		17.5


	Payment Services							Treasury and Corporate Support									Consolidated Company
Three Months Ended September 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)	$	627	$	616		1.8	%	$	93		$	86			8.1	%	$	3,857		$	3,197			20.6	%
Noninterest income		995		946		5.2			230			221			4.1			2,469			2,693			(8.3	)
Total net revenue		1,622		1,562		3.8			323			307			5.2			6,326			5,890			7.4
Noninterest expense		897		862		4.1			297			200			48.5			3,637			3,429			6.1
Income (loss) before provision and income taxes		725		700		3.6			26			107			(75.7	)		2,689			2,461			9.3
Provision for credit losses		285		166		71.7			(34	)		(316	)		89.2			362			(163	)		*
Income (loss) before income taxes		440		534		(17.6	)		60			423			(85.8	)		2,327			2,624			(11.3	)
Income taxes and taxable-equivalent adjustment		110		134		(17.9	)		(57	)		39			*			511			590			(13.4	)
Net income (loss)		330		400		(17.5	)		117			384			(69.5	)		1,816			2,034			(10.7	)
Net (income) loss attributable to noncontrolling interests		—		—		—			(4	)		(6	)		33.3			(4	)		(6	)		33.3
Net income (loss) attributable to U.S. Bancorp	$	330	$	400		(17.5	)	$	113		$	378			(70.1	)	$	1,812		$	2,028			(10.7	)
Average Balance Sheet
Loans	$	35,819	$	31,378		14.2		$	3,488		$	3,641			(4.2	)	$	336,778		$	296,739			13.5
Goodwill		3,292		3,168		3.9			—			—			—			10,145			9,942			2.0
Other intangible assets		405		495		(18.2	)		—			—			—			4,445			3,335			33.3
Assets		42,090		37,170		13.2			214,125			219,095			(2.3	)		588,764			553,446			6.4
Noninterest-bearing deposits		3,312		4,913		(32.6	)		2,409			2,597			(7.2	)		114,044			129,018			(11.6	)
Interest-bearing deposits		171		150		14.0			2,696			1,285			*			342,725			302,469			13.3
Total deposits		3,483		5,063		(31.2	)		5,105			3,882			31.5			456,769			431,487			5.9
Total U.S. Bancorp shareholders’ equity		8,257		7,561		9.2			10,762			17,528			(38.6	)		49,820			54,273			(8.2	)


	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


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


	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


	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 Shares in Millions, Except Per Share Data) (Unaudited)	Common Shares Outstanding			Preferred Stock			Common Stock		Capital Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total U.S. Bancorp Shareholders’ Equity			Noncontrolling Interests			Total Equity

Balance June 30, 2021		1,483		$	5,968		$	21	$	8,518		$	67,039		$	(27,305	)	$	(1,202	)	$	53,039		$	635		$	53,674
Net income (loss)													2,028									2,028			6			2,034
Other comprehensive income (loss)																			(590	)		(590	)					(590	)
Preferred stock dividends (a)													(84	)								(84	)					(84	)
Common stock dividends ($.46 per share)													(686	)								(686	)					(686	)
Issuance of common and treasury stock										(1	)					4						3						3
Distributions to noncontrolling interests																						—			(5	)		(5	)
Net other changes in noncontrolling interests																						—			(1	)		(1	)
Stock option and restricted stock grants										33												33						33

Balance September 30, 2021		1,483		$	5,968		$	21	$	8,550		$	68,297		$	(27,301	)	$	(1,792	)	$	53,743		$	635		$	54,378

Balance June 30, 2022		1,486		$	6,808		$	21	$	8,555		$	70,772		$	(27,190	)	$	(10,361	)	$	48,605		$	464		$	49,069
Net income (loss)													1,812									1,812			4			1,816
Other comprehensive income (loss)																			(2,139	)		(2,139	)					(2,139	)
Preferred stock dividends (b)													(85	)								(85	)					(85	)
Common stock dividends ($.48 per share)													(717	)								(717	)					(717	)
Issuance of common and treasury stock										(1	)					2						1						1
Distributions to noncontrolling interests																						—			(4	)		(4	)
Net other changes in noncontrolling interests																						—			1			1
Stock option and restricted stock grants										36												36						36

Balance September 30, 2022		1,486		$	6,808		$	21	$	8,590		$	71,782		$	(27,188	)	$	(12,500	)	$	47,513		$	465		$	47,978

Balance December 31, 2020		1,507		$	5,983		$	21	$	8,511		$	64,188		$	(25,930	)	$	322		$	53,095		$	630		$	53,725
Net income (loss)													6,290									6,290			17			6,307
Other comprehensive income (loss)																			(2,114	)		(2,114	)					(2,114	)
Preferred stock dividends (c)													(232	)								(232	)					(232	)
Common stock dividends ($1.30 per share)													(1,944	)								(1,944	)					(1,944	)
Issuance of preferred stock					730																	730						730
Redemption of preferred stock					(745	)							(5	)								(750	)					(750	)
Issuance of common and treasury stock		4								(127	)					166						39						39
Purchase of treasury stock		(28	)													(1,537	)					(1,537	)					(1,537	)
Distributions to noncontrolling interests																						—			(16	)		(16	)
Net other changes in noncontrolling interests																						—			4			4
Stock option and restricted stock grants										166												166						166

Balance September 30, 2021		1,483		$	5,968		$	21	$	8,550		$	68,297		$	(27,301	)	$	(1,792	)	$	53,743		$	635		$	54,378

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)													4,900									4,900			8			4,908
Other comprehensive income (loss)																			(10,557	)		(10,557	)					(10,557	)
Preferred stock dividends (d)													(228	)								(228	)					(228	)
Common stock dividends ($1.40 per share)													(2,091	)								(2,091	)					(2,091	)
Issuance of preferred stock					437																	437						437
Issuance of common and treasury stock		3								(120	)					138						18						18
Purchase of treasury stock		(1	)													(55	)					(55	)					(55	)
Distributions to noncontrolling interests																						—			(8	)		(8	)
Net other changes in noncontrolling interests																						—			(4	)		(4	)
Stock option and restricted stock grants										171												171						171

Balance September 30, 2022		1,486		$	6,808		$	21	$	8,590		$	71,782		$	(27,188	)	$	(12,500	)	$	47,513		$	465		$	47,978


	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


	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	)


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


	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


			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

(d)
~~U.S. Bancorp~~		47 Predominately all credit card loans are considered revolving loans. Includes an immaterial amount of revolving converted to term loans.


(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


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