0000036104 us-gaap:PreferredStockMember 2022-03-31

 
 
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 March 31,June 30, 2022
OR
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from (not applicable)
Commission file number
1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
 
Delaware
 
41-0255900
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrant’s telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading
symbols
 
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 Pr
PPrP
 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 every Interactive Data File required to be submitted 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 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
Rule 12b-2
of the Exchange Act.
Large accelerated filerfile
r
  Accelerated filer ☐
Non-accelerated
filer ☐
  
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by checkmarkcheck mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
YES ☐    NO ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class  Outstanding as of April 30,July 31, 2022
Common Stock, $0.01 Par Value  1,485,740,1421,485,784,028 shares


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 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. The
COVID-19
pandemic is adversely affecting U.S. Bancorp, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by 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 its investment 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, 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 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 required governmental approvals to be obtained or any other closing conditions in the definitive purchase agreement to be satisfied.
For discussion of these and other risks that may cause actual results to differ from those described in forward-looking statements, refer to U.S. Bancorp’s Annual Report on Form
10-K
for the year ended December 31, 2021, on file with the Securities and Exchange Commission, including the sections entitled “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. In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these 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.
 
2
 U.S. Bancorp

Table of Contents
 Table 1
 
   Selected Financial Data
 
 
Three Months Ended
March 31
  Three Months Ended June 30   Six Months Ended June 30 
(Dollars and Shares in Millions, Except Per Share Data) 2022 2021 Percent
Change
  2022 2021 Percent
Change
   2022   2021   Percent
Change
 
Condensed Income Statement
Condensed Income Statement
 
    
Condensed Income Statement
 
         
Net interest income
 $3,173  $3,063  3.6 $3,435  $3,137  9.5  $6,608   $6,200    6.6
Taxable-equivalent adjustment (a)
 27  26  3.8  29  27  7.4    56    53    5.7 
Net interest income (taxable-equivalent basis) (b)
 3,200  3,089  3.6  3,464  3,164  9.5    6,664    6,253    6.6 
Noninterest income
 2,396  2,381  .6  2,548  2,619  (2.7   4,944    5,000    (1.1
Total net revenue
 5,596  5,470  2.3  6,012  5,783  4.0    11,608    11,253    3.2 
Noninterest expense
 3,502  3,379  3.6  3,724  3,387  9.9    7,226    6,766    6.8 
Provision for credit losses
 112  (827 *  311  (170 *    423    (997   * 
Income before taxes
 1,982  2,918  (32.1 1,977  2,566  (23.0   3,959    5,484    (27.8
Income taxes and taxable-equivalent adjustment
 424  633  (33.0 443  578  (23.4   867    1,211    (28.4
Net income
 1,558  2,285  (31.8 1,534  1,988  (22.8   3,092    4,273    (27.6
Net (income) loss attributable to noncontrolling interests
 (1 (5 80.0  (3 (6 50.0    (4   (11   63.6 
Net income attributable to U.S. Bancorp
 $1,557  $2,280  (31.7 $1,531  $1,982  (22.8  $3,088   $4,262    (27.5
Net income applicable to U.S. Bancorp common shareholders
 $1,466  $2,175  (32.6 $1,464  $1,914  (23.5  $2,930   $4,089    (28.3
Per Common Share
Per Common Share
 
    
Per Common Share
 
         
Earnings per share
 $.99  $1.45  (31.7)%  $.99  $1.29  (23.3)%   $1.97   $2.73    (27.8)% 
Diluted earnings per share
 .99  1.45  (31.7 .99  1.28  (22.7   1.97    2.73    (27.8
Dividends declared per share
 .46  .42  9.5  .46  .42  9.5    .92    .84    9.5 
Book value per share (c)
 29.87  30.53  (2.2 28.13  31.74  (11.4      
Market value per share
 53.15  55.31  (3.9 46.02  56.97  (19.2      
Average common shares outstanding
 1,485  1,502  (1.1 1,486  1,489  (.2   1,485    1,495    (.7
Average diluted common shares outstanding
 1,486  1,503  (1.1 1,487  1,490  (.2   1,486    1,497    (.7
Financial Ratios
                
Return on average assets
 1.09 1.69   1.06 1.44     1.08   1.56  
Return on average common equity
 12.7  19.0    13.9  16.3      13.3    17.6   
Net interest margin (taxable-equivalent basis) (a)
 2.44  2.50    2.59  2.53      2.51    2.52   
Efficiency ratio (b)
 62.8  62.1    62.1  59.0      62.4    60.5   
Net charge-offs as a percent of average loans outstanding
 .21  .31    .20  .25      .20    .28   
Average Balances
Average Balances
 
    
Average Balances
 
         
Loans
 $312,966  $293,989  6.5 $324,187  $294,284  10.2  $318,608   $294,138    8.3
Loans held for sale
 5,479  10,032  (45.4 3,688  7,825  (52.9   4,579    8,922    (48.7
Investment securities (d)
 174,762  145,520  20.1  171,296  160,615  6.7    173,019    153,109    13.0 
Earning assets
 529,837  497,711  6.5  536,761  500,751  7.2    533,318    499,239    6.8 
Assets
 577,402  548,734  5.2  579,911  551,365  5.2    578,663    550,057    5.2 
Noninterest-bearing deposits
 127,963  118,352  8.1  120,827  125,297  (3.6   124,375    121,844    2.1 
Deposits
 454,176  426,364  6.5  456,516  429,210  6.4    455,352    427,795    6.4 
Short-term borrowings
 19,038  13,107  45.3  23,294  16,462  41.5    21,178    14,794    43.2 
Long-term debt
 32,972  39,463  (16.4 31,390  36,190  (13.3   32,177    37,817    (14.9
Total U.S. Bancorp shareholders’ equity
 53,466  52,729  1.4  49,166  52,962  (7.2   51,304    52,846    (2.9
  
     March 31,
2022
 December 31,
2021
         June 30,
2022
 December 31,
2021
                
Period End Balances
Period End Balances
 
    
Period End Balances
 
         
Loans
 $318,934  $312,028  2.2 $332,369  $312,028  6.5      
Investment securities
 167,247  174,821  (4.3 160,309  174,821  (8.3      
Assets
 586,517  573,284  2.3  591,381  573,284  3.2       
Deposits
 461,546  456,083  1.2  467,102  456,083  2.4       
Long-term debt
 32,931  32,125  2.5  29,408  32,125  (8.5      
Total U.S. Bancorp shareholders’ equity
 51,200  54,918  (6.8 48,605  54,918  (11.5      
Asset Quality
                
Nonperforming assets
 $811  $878  (7.6)%  $770  $878  (12.3)%       
Allowance for credit losses
 6,105  6,155  (.8 6,255  6,155  1.6       
Allowance for credit losses as a percentage of
period-end
loans
 1.91 1.97   1.88 1.97        
Capital Ratios
                
Common equity tier 1 capital
 9.8 10.0   9.7 10.0        
Tier 1 capital
 11.5  11.6    11.4  11.6         
Total risk-based capital
 13.4  13.4    13.2  13.4         
Leverage
 8.6  8.6    8.6  8.6         
Total leverage exposure
 7.0  6.9    7.1  6.9         
Tangible common equity to tangible assets (b)
 6.0  6.8    5.5  6.8         
Tangible common equity to risk-weighted assets (b)
 8.0  9.2    7.2  9.2         
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)
 9.5  9.6    9.4  9.6            
 
*
Not meaningful    
(a)
Based on a federal income tax rate of 21 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 30.31.    
(c)
Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period.    
(d)
Excludes unrealized gains and losses on
available-for-sale
investment securities and any premiums or discounts recorded related to the transfer of investment securities at fair value from
available-for-sale
to
held-to-maturity.
 
U.S. Bancorp 
3

Table of Contents
Management’s Discussion and Analysis
 
OVERVIEW
Earnings Summary
U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $1.6$1.5 billion for the firstsecond quarter of 2022, or $0.99 per diluted common share, compared with $2.3$2.0 billion, or $1.45$1.28 per diluted common share, for the firstsecond quarter of 2021. Return on average assets and return on average common equity were 1.091.06 percent and 12.713.9 percent, respectively, for the firstsecond quarter of 2022, compared with 1.691.44 percent and 19.016.3 percent, respectively, for the firstsecond quarter of 2021. The results for the second quarter of 2022 included the impact of $197 million ($153 million net-of-tax) of merger and integration-related charges associated with the planned acquisition of MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. (“MUFG”), which decreased diluted earnings per common share by $0.10.
Total net revenue for the firstsecond quarter of 2022 was $126$229 million (2.3(4.0 percent) higher than the firstsecond quarter of 2021, reflecting a 3.69.5 percent increase in net interest income and a 0.62.7 percent increasedecrease in noninterest income. The increase in net interest income from the firstsecond quarter of 2021 was primarily due to higher average loan and investment securities balances, as well as rising interest rates in the current year and the impact of a favorable deposit and funding mix due in part to higher noninterest-bearing deposits,yield curve on earning assets, partially offset by lower loan yieldsdeposit pricing changes and changes in loan mix, as well as lower loan fees driven by the impact of loan forgiveness related to the Small Business Administration (“SBA”) Paycheck Protection Program in the firstsecond quarter of 2021. The reduction in noninterest income increase primarily reflected stronger payment services revenue, trust and investment management fees, deposit service charges and treasury management fees, mostly offset by lower mortgage banking revenue as refinancing activities decline, lower commercial products revenue related to capital markets activities anddeclined, lower other noninterest income.income and lower gains on the sale of securities, mostly offset by higher payment services revenue and trust and investment management fees.
Noninterest expense in the firstsecond quarter of 2022 was $123$337 million (3.6(9.9 percent) higher than the firstsecond quarter of 2021, reflecting increases in compensation expense, professional servicesemployee benefits expense, and marketing and business development expense.expense, and the impact of merger and integration-related charges of $197 million.
The provision for credit losses for the firstsecond quarter of 2022 was $112$311 million, compared with a benefit of $827$170 million for the firstsecond quarter of 2021. The provision for credit losses in the firstsecond quarter of 2022 reflected the impact of improving credit quality, partially offset by loan growth and increasing economic uncertainty. The provision for credit losses for the firstsecond 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 firstsecond quarter of 2022 were $162$161 million, compared with $223$180 million in the second quarter of 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 six months of 2022 was $3.1 billion, or $1.97 per diluted common share, compared with $4.3 billion, or $2.73 per diluted common share, for the first six months of 2021. Return on average assets and return on average common equity were 1.08 percent and 13.3 percent, respectively, for the first six months of 2022, compared with 1.56 percent and 17.6 percent, respectively, for the first six months of 2021.
Total net revenue for the first six months of 2022 was $355 million (3.2 percent) higher than the first six months of 2021, reflecting a 6.6 percent increase in net interest income and a 1.1 percent decrease in noninterest income. The increase in net interest income from the first six months of 2021 was primarily due to higher average loan and investment securities balances, as well as rising interest rates in the current year and the impact of a favorable yield curve on earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first six months of 2021. The reduction in noninterest income reflected lower mortgage banking revenue, lower other noninterest income and lower gains on the sale of securities, mostly offset by higher payment services revenue and trust and investment management fees.
Noninterest expense in the first six months of 2022 was $460 million (6.8 percent) higher than the first six months of 2021, reflecting increases in compensation expense, employee benefits expense, marketing and business development expense, professional services expense and the impact of merger and integration-related charges of $197 million.
The provision for credit losses for the first six months of 2022 was $423 million, compared with a benefit of
4
U.S. Bancorp

Table of Contents
$997 million for the first six months of 2021. The provision for credit losses for the first six months of 2022 reflected the impact of loan growth and increasing economic uncertainty. The provision for credit losses for the first six months of 2021 reflected a decrease in the allowance for credit losses as a result of improving economic conditions and credit quality. Net charge-offs in the first six months of 2022 were $323 million, compared with $403 million in the first quartersix months of 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.
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, from Mitsubishi UFJ Financial Group (“MUFG”), for an expected purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of U.S. Bancorpthe 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 currently has approximately 300 branches in California, Washington and Oregon and is expected to add approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the Company’s consolidated balance sheet. Closing of the transaction is subject to customary closing conditions, including regulatory approvals which are not within the Company’s control. The Company expects to close the transaction approximately 45 days after being granted U.S. regulatory approvals. At this time, it is uncertain whether such approvals will be received in time to allow for closing to occur in the first half of 2022; however, the parties continue to make significant progress in planning for closing and integration while awaiting regulatory approvals. At this time, the Company expects to receive U.S. regulatory approvals in time for closing to occur in the second half of 2022.
STATEMENT OF INCOME ANALYSIS
Net Interest Income
 Net interest income, on a taxable-equivalent basis, was $3.2$3.5 billion in the second quarter and $6.7 billion in the first quartersix months of 2022, representing an increaseincreases of $111$300 million (3.6(9.5 percent) and $411 million (6.6 percent), respectively, compared with the first quartersame periods of 2021. The increase wasincreases were primarily due to higher loan and investment securities balances, in addition to rising interest rates in the current year and a favorable deposit and funding mix due in part to higher noninterest-bearing deposits,yield curve impacting earning assets, partially offset by lower loan yieldsdeposit pricing changes and changes in loan mix, as well as lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first quartersix months of 2021. Average earning assets for the second quarter and first six months of 2022 were $32.1$36.0 billion (6.5(7.2 percent) and $34.1 billion (6.8 percent) higher, respectively, than the first quartersame periods of 2021,the prior year, reflecting increases of $29.2 billion (20.1 percent) in investment securities and $19.0 billion (6.5 percent) in loans, partially offset by a decrease of $11.9 billion (28.6 percent)decreases in interest-bearing deposits with banks. The net interest margin, on a taxable-equivalent basis, in the second quarter and first quartersix months of 2022 was 2.442.59 percent and 2.51 percent, respectively, compared with 2.502.53 percent and 2.52 percent in the second quarter and first quartersix months of 2021.2021, respectively. The decreaseincrease in net interest margin fromin the firstsecond quarter of 2022, compared with the second quarter of 2021, was primarily due to the net impact of rising interest rates in the current year and higher yields in the investment portfolio, partially offset by deposit pricing and loan mix changes. The decrease in net interest margin in the first six months of loans2022, compared with the first six months of 2021, was primarily driven by earning asset mix and lower loan spreads within fixed-rate portfolios, partially offsetfees driven by favorable changes in funding mix and the yield curve.impact of loan forgiveness related to the SBA Paycheck Protection Program. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.
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Table of Contents
 Table 2
   Noninterest Income
  
Three Months Ended
March 31
 
(Dollars in Millions) 2022   2021   
Percent
Change
 
Credit and debit card revenue
 $338   $336    .6
Corporate payment products revenue
  158    126    25.4 
Merchant processing services
  363    318    14.2 
Trust and investment management fees
  500    444    12.6 
Deposit service charges
  177    161    9.9 
Treasury management fees
  156    147    6.1 
Commercial products revenue
  266    280    (5.0
Mortgage banking revenue
  200    299    (33.1
Investment products fees
  62    55    12.7 
Securities gains (losses), net
  18    25    (28.0
Other
  158    190    (16.8
Total noninterest income
 $2,396   $2,381    .6
Average total loans in the second quarter and first quartersix months of 2022 were $19.0$29.9 billion (6.5(10.2 percent) and $24.5 billion (8.3 percent) higher, respectively, than the first quartersame periods of 2021. The increase wasincreases were primarily due to strong growth in commercial loans, (11.4 percent), residential mortgages (3.0 percent) and other retail loans (8.8 percent).loans. The increase in commercial loans was primarily due to higher utilization driven by working capital needs of corporate customers, and 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. The increase in other retail loans was driven by higher auto and recreational vehicle lending during 2021,loans, partially offset by lower retail leasing balances and home equity and second mortgages.
Average investment securities in the second quarter and first quartersix months of 2022 were $29.2$10.7 billion (20.1(6.7 percent) and $19.9 billion (13.0 percent) higher, respectively, than the first quartersame periods of 2021, primarily due to purchases of mortgage-backed and U.S. Treasury securities, net of prepayments, sales and maturities.
Average total deposits for the second quarter and first quartersix months of 2022 were $27.8$27.3 billion (6.5(6.4 percent) and $27.6 billion (6.4 percent) higher, respectively, than the first quartersame periods of 2021. Average total savings deposits
for the second quarter and first quartersix months of 2022 were $20.6$29.7 billion (7.3(10.6 percent) and $25.1 billion (9.0 percent) higher, respectively, than the first quartersame periods of 2021,the prior year, driven by increases in Corporate and Commercial Banking, and Consumer and Business
U.S. Bancorp
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Banking balances. Average time deposits for the second quarter and first six months of 2022 were $2.1 billion (8.5 percent) higher and $115 million (0.4 percent) lower, respectively, than the same periods of the prior year. The changes in time deposits were primarily driven by increases in Corporate and Commercial Banking balances, partially offset by a decrease in Wealth Management and Investment Services balances. Average noninterest-bearing deposits were $9.6 billion (8.1 percent) higher than the prior year, primarily due to higher Corporate and Commercial Banking, and Wealth Management and Investment Services balances. Average time deposits were $2.4 billion (8.8 percent) lower than the prior year, primarily driven by decreases in Consumer and Business Banking, and Wealth Management and Investment Services balances, partially offset by an increase in Corporate and Commercial Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Average noninterest-bearing deposits for the second quarter of 2022 were $4.5 billion (3.6 percent) lower than the second quarter of 2021, driven by decreases in Corporate and Commercial Banking, Consumer and Business Banking, and Payment Services balances, partially offset by an increase in Wealth Management and Investment Services balances. Average noninterest-bearing deposits for the first six months of 2022 were $2.5 billion (2.1 percent) higher than the first six months of 2021, primarily due to increases in Wealth Management and Investment Services, and Corporate and Commercial Banking balances, partially offset by decreases in Payment Services and Consumer and Business Banking balances.
Provision for Credit Losses
 The provision for credit losses was $112$311 million forin the second quarter and $423 million in first quartersix months of 2022, compared with a benefit of $827$170 million and $997 million, respectively, for the first quartersame periods of 2021. The provision for credit losses in the second quarter and first quartersix months of 2022 reflected the impact of improving credit quality, partially offset by loan growth and increasing economic uncertainty primarily associated with ongoing supply chain challenges and rising inflation and geopolitical tensions.inflationary concerns. The provision for credit losses in the second quarter and first quartersix months of 2021 reflected the enactment of additional government stimulus programs and widespread
COVID-19
vaccine availability, contributing to economic improvement during the period, which resulted in a significant decreasedecreases in the allowance for credit losses. Net charge-offs decreased $61$19 million (27.4(10.6 percent) in the second quarter and $80 million (19.9 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, reflecting improvement across most loan categories, associated with strong asset values and borrower liquidity.the prior year, primarily driven by lower credit card net charge-offs. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Noninterest Income
 Noninterest income was $2.4$2.5 billion in the second quarter and $4.9 billion in the first quartersix months of 2022, representing an increasedecreases of $15$71 million (0.6(2.7 percent) and $56 million (1.1 percent), respectively, compared with the first quartersame periods of 2021. The increasedecreases from athe prior year ago reflected stronglower mortgage banking revenue, lower other noninterest income and lower gains on the sale of securities, mostly offset by higher payment services revenue growth inand trust and investment management fees, improving deposit service chargesfees. Mortgage banking revenue decreased primarily due to lower application volume, given declining refinance activities experienced in the mortgage industry, lower related gain on sale margins and higher treasury management fees, mostlylower performing loan sales, partially offset by increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities. Other noninterest income decreased primarily due to lower commercial products revenue, mortgage banking revenueretail leasing end-of-term residual gains and other noninterest income.lower gains on sales of certain assets. Payment services revenue increased $79 million (10.1 percent) as a result of increases in corporate payment products revenue increased $32 million (25.4 percent) primarily due to higher sales volume whileand increases in merchant processing services revenue increased $45 million
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 Table 3
   Noninterest Expense
  
Three Months Ended
March 31
 
(Dollars in Millions) 2022  2021  
Percent
Change
 
Compensation
 $1,853  $1,803   2.8
Employee benefits
  396   384   3.1 
Net occupancy and equipment
  269   263   2.3 
Professional services
  114   98   16.3 
Marketing and business development
  80   48   66.7 
Technology and communications
  349   359   (2.8
Postage, printing and supplies
  72   69   4.3 
Other intangibles
  47   38   23.7 
Other
  322   317   1.6 
Total noninterest expense
 $3,502  $3,379   3.6
Efficiency ratio (a)
  62.8  62.1    
(a)
See
Non-GAAP
Financial Measures beginning on page 30.
(14.2 percent) driven by higher sales volumesvolume and merchant fees. Trust and investment management fees increased $56 million (12.6 percent) driven byprimarily due to business growth, favorable market conditions and activity related to the fourth quarter of 2021 acquisition of PFM Asset Management LLC (“PFM”), partially offset by higher and lower money market fee waivers. Deposit service charges increased $16 million (9.9 percent) primarily due to higher customer spend activity, net
 Table 2
   Noninterest Income
  
Three Months Ended
June 30
   
Six Months Ended
June 30
 
(Dollars in Millions) 2022   2021   Percent
Change
   2022   2021   Percent
Change
 
Credit and debit card revenue
 $399   $396    .8  $737   $732    .7
Corporate payment products revenue
  172    138    24.6    330    264    25.0 
Merchant processing services
  425    374    13.6    788    692    13.9 
Trust and investment management fees
  566    446    26.9    1,066    890    19.8 
Deposit service charges
  165    176    (6.3   342    337    1.5 
Treasury management fees
  169    160    5.6    325    307    5.9 
Commercial products revenue
  290    280    3.6    556    560    (.7
Mortgage banking revenue
  142    346    (59.0   342    645    (47.0
Investment products fees
  59    60    (1.7   121    115    5.2 
Securities gains (losses), net
  19    43    (55.8   37    68    (45.6
Other
  142    200    (29.0   300    390    (23.1
Total noninterest income
 $2,548   $2,619    (2.7)%   $4,944   $5,000    (1.1)% 
6
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Table of the impact of the elimination of certain consumerContents
non-sufficient
funds fees in the first quarter of 2022. Treasury management fees increased $9 million (6.1 percent) primarily due to core growth given the continued recovery in the economy. Mortgage banking revenue decreased $99 million (33.1 percent) due to lower application volume, given declining refinance activities, and lower related gain on sale margins, partially offset by increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities, as well as higher performing loan sales. Commercial products revenue decreased $14 million (5.0 percent) primarily due to lower corporate bond fees and trading revenue within the capital markets business. Other noninterest income decreased $32 million (16.8 percent) driven by the impact of prior year asset sales and lower retail leasing
end-of-term
residual gains in the first quarter of 2022.
Noninterest Expense
 Noninterest expense was $3.5$3.7 billion in the second quarter and $7.2 billion in the first quartersix months of 2022, representing an increaseincreases of $123$337 million (3.6(9.9 percent) and $460 million (6.8 percent), respectively, over the first quartersame periods of 2021. The increaseincreases from the prior year reflected higher compensation expense, professional servicesemployee benefits expense, and marketing and business development expense.expense, and the impact of merger and integration-related charges associated with the planned acquisition of MUFG Union Bank. Compensation expense increased $50 million (2.8 percent) primarily due to merit increases and hiring to support business growth, partially offset by lower performance-based incentives. ProfessionalEmployee benefits expense increased primarily driven by higher medical expenses. Marketing and business development expense increased due to increased travel and entertainment. Marketing and business development expense further increased in the first six months of 2022, compared with the first six months of 2021, due to the timing of marketing campaigns. Noninterest expense further increased in the first six months of 2022, compared with the first six months of 2021, due to higher professional services expense increased $16 million (16.3 percent) primarily due toreflecting an increase in business investment and related initiatives. Marketing and business development expense increased $32 million (66.7 percent) due toinitiatives during the timing of marketing campaigns as well as increased travel and entertainment.current year.
Income Tax Expense
 The provision for income taxes was $397$414 million (an effective rate of 20.321.3 percent) for the firstsecond quarter of 2022, compared with $607and $811 million (an effective rate of 21.020.8 percent) for the first quartersix months of 2021.2022, compared with $551 million (an effective rate of 21.7 percent) and $1.2 billion (an effective rate of 21.3 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.
BALANCE SHEET ANALYSIS
Loans
 The Company’s loan portfolio was $318.9$332.4 billion at March 31,June 30, 2022, compared with $312.0 billion at December 31, 2021, an increase of $6.9$20.4 billion (2.2(6.5 percent). The increase was driven by higher commercial loans, and residential mortgages, credit card loans and commercial real estate loans, partially offset by lower credit card loans and other retail loans.
Commercial loans increased $5.4$14.0 billion (4.9(12.5 percent) at March 31,June 30, 2022, compared with December 31, 2021, due to higher utilization driven by working capital needs of corporate customers and slower payoffs given higher volatility in the capital markets, as well as core growth.
Residential mortgages held in the loan portfolio increased $2.0$5.6 billion (2.6(7.3 percent) at March 31,June 30, 2022, compared with December 31, 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 jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality.
Credit card loans decreased $337 million (1.5increased $1.2 billion (5.3 percent) at MarchJune 30, 2022, compared with December 31, 2021, reflecting increased consumer spending and new account growth.
Commercial real estate loans increased $700 million (1.8 percent) at June 30, 2022, compared with December 31, 2021, primarily the result of customers seasonally paying down balances.new originations.
Other retail loans decreased $1.1 billion (1.8 percent) at June 30, 2022, compared with December 31, 2021, due to decreases in auto loans and retail leasing balances, partially offset by an increase in home equity loans.
 
6
 Table 3
 
   Noninterest Expense
  Three Months Ended June 30       Six Months Ended June 30 
(Dollars in Millions) 2022  2021  Percent
Change
       2022  2021  Percent
Change
 
Compensation
 $1,872  $1,798   4.1    $3,725  $3,601   3.4
Employee benefits
  374   337   11.0      770   721   6.8 
Net occupancy and equipment
  265   258   2.7      534   521   2.5 
Professional services
  111   108   2.8      225   206   9.2 
Marketing and business development
  106   90   17.8      186   138   34.8 
Technology and communications
  350   362   (3.3     699   721   (3.1
Postage, printing and supplies
  69   65   6.2      141   134   5.2 
Other intangibles
  40   40         87   78   11.5 
Other
  340   329   3.3        662   646   2.5 
Total before merger and integration charges
  3,527   3,387   4.1      7,029   6,766   3.9 
Merger and integration charges
  197      *        197      * 
Total noninterest expense
 $3,724  $3,387   9.9      $7,226  $6,766   6.8
Efficiency ratio (a)
  62.1  59.0           62.4  60.5    
*
Not meaningful    
a)
See
Non-GAAP
Financial Measures beginning on page 31.
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 Table 4
 
   Investment Securities
 
 March 31, 2022   December 31, 2021  June 30, 2022   December 31, 2021 
(Dollars in Millions) 
Amortized
Cost
   Fair Value 
Weighted-
Average
Maturity in
Years
   
Weighted-
Average
Yield (d)
   
Amortized
Cost
   Fair Value 
Weighted-
Average
Maturity in
Years
   
Weighted-
Average
Yield (d)
  Amortized
Cost
   Fair Value Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (d)
   Amortized
Cost
   Fair Value Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (d)
 
Held-to-maturity
                            
U.S. Treasury and agencies
 $1,343   $1,337  3.8    2.85  $—     $—         
Mortgage-backed securities (a)
 $43,654   $40,572  9.7    1.64  $41,858   $41,812  7.4    1.45 60,160    54,320  10.0    1.92    41,858    41,812  7.4    1.45 
Total
held-to-maturity
 $43,654   $40,572  9.7    1.64  $41,858   $41,812  7.4    1.45 $61,503   $55,657  9.8    1.94  $41,858   $41,812  7.4    1.45
Available-for-sale
                            
U.S. Treasury and agencies
 $27,653   $26,350  7.2    1.83  $36,648   $36,609  6.7    1.54 $25,779   $23,767  6.9    1.95  $36,648   $36,609  6.7    1.54
Mortgage-backed securities (a)
 91,277    86,955  7.3    1.80    85,394    85,564  4.9    1.58  71,544    65,316  8.0    1.96    85,394    85,564  4.9    1.58 
Asset-backed securities (a)
 4    7  4.1    2.00    62    66  5.2    1.53                  62    66  5.2    1.53 
Obligations of state and political subdivisions (b) (c)
 10,701    10,274  9.5    3.64    10,130    10,717  6.6    3.67  10,925    9,716  13.0    3.64    10,130    10,717  6.6    3.67 
Other
 7    7  .1    2.07    7    7  3.4    2.07  7    7  2.9    2.07    7    7  3.4    2.07 
Total
available-for-sale
 $129,642   $123,593  7.5    1.96  $132,241   $132,963  5.5    1.73 $108,255   $98,806  8.2    2.13  $132,241   $132,963  5.5    1.73
 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
Yields on investment securities are computed based on amortized cost balances. Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent.
 
Other retail loans decreased $336 million (0.5 percent) at March 31, 2022, compared with December 31, 2021, due to decreases in retail leasing balances and auto loans, partially offset by an increase in installment 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 $3.3$3.9 billion at March 31,June 30, 2022, compared with $7.8 billion at December 31, 2021. The decrease in loans held for sale was principally due to a lower level of mortgage loan closings in the firstsecond quarter of 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, in particular in government agency transactions and to government-sponsored enterprises (“GSEs”).
Investment Securities
 Investment securities totaled $167.2$160.3 billion at March 31,June 30, 2022, compared with $174.8 billion at December 31, 2021. The $7.6$14.5 billion (4.3(8.3 percent) decrease was primarily due to a $6.8an $11.4 billion unfavorable change in net unrealized gains (losses) on
available-for-sale
investment securities and $2.3 billion of net investment sales and maturities. During the second quarter of 2022, the Company transferred $17.1 billion amortized cost ($15.7 billion fair value) of
available-for-sale
investment securities to the
held-to-maturity
category to reflect its new intent for these securities. Subsequent to June 30, 2022, the Company transferred an additional $19.8 billion amortized cost ($17.6 billion fair value) of available-for-sale investment securities to the held-to-maturity category.
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 portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. At March 31,June 30, 2022, the Company’s net unrealized losses on
available-for-sale
investment securities were $6.0$9.4 billion, compared with $722 million of net unrealized gains at December 31, 2021. The unfavorable change in net unrealized gains (losses) was primarily due to decreases in the fair value of mortgage-backed, U.S. Treasury 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 $6.3$9.5 billion at March 31,June 30, 2022, compared with $812 million at December 31, 2021. At March 31,June 30, 2022, the Company had no plans to sell securities with unrealized losses, and believesbelieved it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.
Refer to Notes 4 and 15 in the Notes to Consolidated Financial Statements for further information on investment securities.
Deposits
 Total deposits were $467.1 billion at June 30, 2022, compared with $456.1 billion at December 31, 2021. The $11.0 billion (2.4 percent) increase in total
 
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Deposits
 Total deposits were $461.5 billion at March 31, 2022, compared with $456.1 billion at December 31, 2021. The $5.5 billion (1.2 percent) increase in total deposits reflected increases in total savings deposits and time deposits, partially offset by a decrease in noninterest-bearing deposits. Money market deposit balances increased $3.7$8.9 billion (3.2(7.6 percent) at March 31,June 30, 2022, compared with December 31, 2021, primarily due to higher Corporate and Commercial Banking, and Wealth Management and Investment Services, and Corporate and Commercial Banking balances. Savings account balances increased $2.6$2.3 billion (4.0(3.4 percent), driven by higher Consumer and Business Banking balances. Interest checking balances increased $2.6decreased $2.4 billion (2.2(2.0 percent), primarily due to lower Wealth Management and Investment Services balances, partially offset by higher Corporate and Commercial Banking, and Consumer and Business Banking balances, partially offset by a decrease in Wealth Management and Investment Services balances. Time deposits increased $1.6$8.0 billion (7.2(35.1 percent) at March 31,June 30, 2022, compared with December 31, 2021, driven by higher Corporate and Commercial Banking balances, partially offset by lower Consumer and Business Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Noninterest-bearing deposits decreased $5.1$5.8 billion (3.8(4.3 percent) at March 31,June 30, 2022, compared with December 31, 2021, primarily due to lower Corporate and Commercial Banking balances, partially offset by higher Wealth Management and Investment Services balances.
Borrowings
 The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $21.0$25.0 billion at March 31,June 30, 2022, compared with $11.8 billion at December 31, 2021. The $9.2$13.2 billion (78.4 percent) increase in short-term borrowings was primarily due to an increaseincreases in
short-term
Federal Home Loan Bank (“FHLB”) advances.advances and commercial paper balances. Long-term debt was $32.9$29.4 billion at March 31,June 30, 2022, compared with $32.1 billion at December 31, 2021. The $806 million (2.5$2.7 billion (8.5 percent) increasedecrease was primarily due to $2.6 billion of bank note repayments and maturities, $1.3 billion of subordinated note repayments and $1.0 billion of medium-term note repayments, partially offset by $2.1 billion of medium-term note issuances, partially offset by $1.0 billion of medium-term note repayments.issuances. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.
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CORPORATE RISK PROFILE
Overview
Managing risks is an essential part of successfully operating a financial services company. The Company’s Board of Directors has approved a risk management framework which establishes governance and risk management requirements for all risk-taking activities. This framework includes Company and business line risk appetite statements which set boundaries for the types and amount of risk that may be undertaken in pursuing business objectives and initiatives. The Board of Directors, primarily through its Risk Management Committee, oversees performance relative to the risk management framework, risk appetite statements, and other policy requirements.
The Executive Risk Committee (“ERC”), which is chaired by the Chief Risk Officer and includes the Chief Executive Officer and other members of the executive management team, oversees execution against the risk management framework and risk appetite statements. The ERC focuses on current and emerging risks, including strategic and 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 reputation. Credit risk is the risk of loss associated with a change in the credit profile or the failure of a borrower or counterparty to meet its contractual obligations. Interest rate risk is the current or prospective risk to earnings and capital, or market valuations, 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”), MSRs and derivatives that are accounted for on a fair value basis. Liquidity risk is the risk that financial condition or overall safety and soundness is adversely affected by the Company’s inability, or perceived inability, to meet its cash flow obligations in a timely and complete manner in either normal or stressed conditions. Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or 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 that the Company may suffer legal or regulatory sanctions, financial losses, and reputational damage if it fails to adhere to compliance requirements and the Company’s compliance policies. Strategic risk is the risk to current or projected financial condition and resilience arising from adverse business decisions, poor implementation of business decisions, or
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lack of responsiveness to changes in the banking industry and operating environment. Reputation risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from negative public opinion. This risk may impair the Company’s competitiveness by affecting its ability to establish new relationships 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 Form
10-K
for the year ended December 31, 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
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Committee considers quarterly reports by management assessing the Company’s performance relative to the risk appetite statements and the associated risk limits, including:
Macroeconomic environment and other qualitative considerations, such as regulatory and compliance changes, litigation developments, geopolitical events, and technology and cybersecurity;
Credit measures, including adversely rated and nonperforming loans, leveraged transactions, credit concentrations and lending limits;
Interest rate and market risk, including market value and net income simulation, and trading-related Value at Risk (“VaR”);
Liquidity risk, including funding projections under various stressed scenarios;
Operational and compliance risk, including losses stemming from events such as fraud, processing errors, control breaches, breaches in data security or adverse business decisions, as well as reporting on technology performance, and various legal and regulatory compliance measures;
Capital ratios and projections, including regulatory measures and stressed scenarios; and
Strategic and 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 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 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 5 in the Notes to
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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, 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 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 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 two loan portfolio segments are commercial lending and consumer 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, 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.
The consumer lending segment represents loans and leases made to consumer customers, including residential
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mortgages, credit card loans, and other retail loans such as revolving consumer lines, auto loans and leases, home equity loans and lines, and student loans, a
run-off
portfolio. Home equity or second mortgage loans are junior lien
closed-end
accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a
10-
or
15-year
fixed payment amortization schedule. Home equity lines are revolving accounts giving the borrower the ability to draw and repay balances repeatedly, up to a maximum commitment, and are secured by residential real estate. These include accounts in either a first or junior lien position. Typical terms on home equity lines in the portfolio are variable rates benchmarked to the prime rate, with a
10-
or
15-year
draw period during which a minimum payment is equivalent to the monthly interest, followed by a
20-
or
10-year
amortization period, respectively. At March 31,June 30, 2022, substantially all of the Company’s home equity lines were in the draw period. 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 macroeconomic factors, customer payment history and credit scores, and in some cases, updated
loan-to-value
(“LTV”) information reflecting current market conditions on real estate-based loans. These and other risk characteristics 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 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 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, alliance partnerships and correspondent banks. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles.
Residential mortgage originations are generally limited to prime borrowers and are performed through the Company’s branches, loan production offices, mobile and
on-line
services and a wholesale network of originators. The Company may retain residential mortgage loans it originates on its balance sheet or sell the loans into the secondary market while retaining the servicing rights and customer relationships. Utilizing the secondary markets enables the Company to effectively reduce its credit and other asset/liability risks. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is also diversified by geography and managed by adherence to LTV and borrower credit criteria during the underwriting process.
The Company estimates updated LTV information on its outstanding residential mortgages quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current estimate of property value. For home equity and second
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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 an 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.
The following tables provide summary information of residential mortgages and home equity and second mortgages by LTV at March 31,June 30, 2022:
 
Residential Mortgages
(Dollars in Millions)
 Interest
Only
 Amortizing Total Percent
of Total
  Interest
Only
 Amortizing Total Percent
of Total
 
Loan-to-Value
            
Less than or equal to 80%
 $4,097  $64,696  $68,793  87.6 $4,391  $68,699  $73,090  89.0
Over 80% through 90%
 1  2,277  2,278  2.9  2  1,605  1,607  2.0 
Over 90% through 100%
    210  210  .3     113  113  .2 
Over 100%
    63  63  .1     39  39    
No LTV available
    19  19        17  17    
Loans purchased from GNMA mortgage pools (a)
    7,124  7,124  9.1     7,248  7,248  8.8 
Total (b)
 $4,098  $74,389  $78,487  100.0 $4,393  $77,721  $82,114  100.0
 
(a)
Represents loans purchased and loans that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
(b)
At March 31, 2022, approximately $399 million of residential mortgage balances were considered
sub-prime.
 
Home Equity and Second Mortgages
(Dollars in Millions)
 Lines Loans Total Percent
of Total
  Lines Loans Total Percent
of Total
 
Loan-to-Value
/ Combined
Loan-to-Value
            
Less than or equal to 80%
 $9,065  $681  $9,746  93.2 $9,557  $868  $10,425  95.0
Over 80% through 90%
 340  215  555  5.3  203  214  417  3.8 
Over 90% through 100%
 38  21  59  .6  22  17  39  .4 
Over 100%
 39  4  43  .4  33  3  36  .3 
No LTV/CLTV available
 52  2  54  .5  54  2  56  .5 
Total (a)
 $9,534  $923  $10,457  100.0 $9,869  $1,104  $10,973  100.0
(a)
At March 31, 2022, approximately $29 million of home equity and second mortgage balances were considered
sub-prime.
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Home equity and second mortgages were $10.5$11.0 billion at March 31,June 30, 2022, compared with $10.4 billion at December 31, 2021, and included $3.0 billion of home equity lines in a first lien position and $7.5$8.0 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at March 31,June 30, 2022, included approximately $2.7 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $4.8$5.3 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines including delinquency, estimated average CLTV ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.
The following table provides a summary of delinquency statistics and other credit quality indicators for the Company’s junior lien positions at March 31,June 30, 2022:
 
 Junior Liens Behind    Junior Liens Behind   
(Dollars in Millions) Company Owned
or Serviced First
Lien
 Third Party
First Lien
 Total  Company Owned
or Serviced First
Lien
 Third Party
First Lien
 Total 
Total
 $2,644  $4,840  $7,484  $2,755  $5,267  $8,022 
Percent 30—89 days past due
 .43 .33 .36 .25 .24 .24
Percent 90 days or more past due
 .10 .09 .09 .03 .03 .03
Weighted-average CLTV
 59 57 58 56 54 55
Weighted-average credit score
 782  783  783  785  786  785 
See the “Analysis and Determination of the Allowance for Credit Losses” section for additional information on how the Company determines the allowance for credit losses for loans in a junior lien position.
Credit card and other retail loans are diversified across customer segments and geographies. Diversification in the credit card portfolio is achieved with broad customer relationship distribution through the Company’s and financial institution partners’ branches, retail and affinity partners, and digital channels.
The following table provides a summary of the Company’s credit card loan balances disaggregated based upon updated credit score at June 30, 2022:
Percent
of Total (a)
Credit score > 660
88
Credit score < 660
12
No credit score
(a)
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 $450$423 million at March 31,June 30, 2022, compared with $472 million at December 31, 2021. These balances exclude loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. 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 0.140.13 percent at March 31,June 30, 2022 compared with 0.15 percent at December 31, 2021.
 
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 Table 5
    Delinquent Loan Ratios as a Percent of Ending Loan Balances
 
90 days or more past due
excluding
nonperforming loans
  March 31,
2022
 December 31,
2021
   June 30,
2022
 December 31,
2021
 
Commercial
      
Commercial
   .07 .05   .08 .05
Lease financing
              
Total commercial
   .06  .04    .07  .04 
Commercial Real Estate
      
Commercial mortgages
              
Construction and development
   .01  .10    .04  .10 
Total commercial real estate
     .03    .01  .03 
Residential Mortgages (a)
   .18  .24    .12  .24 
Credit Card
   .74  .73    .69  .73 
Other Retail
      
Retail leasing
   .03  .04    .03  .04 
Home equity and second mortgages
   .42  .35    .35  .35 
Other
   .05  .06    .05  .06 
Total other retail
   .11  .11    .10  .11 
Total loans
   .14 .15   .13 .15
90 days or more past due
including
nonperforming loans
  March 31,
2022
 December 31,
2021
   June 30,
2022
 December 31,
2021
 
Commercial
   .21 .20   .19 .20
Commercial real estate
   .55  .76    .53  .76 
Residential mortgages (a)
   .45  .53    .40  .53 
Credit card
   .74  .73    .69  .73 
Other retail
   .37  .35    .35  .35 
Total loans
   .38 .42   .35 .42
 
(a)
Delinquent loan ratios exclude $1.3$1.7 billion at March 31,June 30, 2022, and $1.5 billion at December 31, 2021, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due including all nonperforming loans was 2.082.42 percent at March 31,June 30, 2022, and 2.43 percent at December 31, 2021.
The following table provides summary delinquency information for residential mortgages, credit card and other retail loans included in the consumer lending segment:
 
 Amount        As a Percent of Ending
Loan Balances
  Amount        As a Percent of Ending
Loan Balances
 
(Dollars in Millions) March 31,
2022
   December 31,
2021
        March 31,
2022
 December 31,
2021
  June 30,
2022
   December 31,
2021
        June 30,
2022
 December 31,
2021
 
Residential Mortgages (a)
                  
30-89
days
 $105   $124       .13 .15 $100   $124       .12 .15
90 days or more
 140    181       .18  .24  102    181       .12  .24 
Nonperforming
 214    226        .27  .30  223    226        .27  .30 
Total
 $459   $531       .58 .69 $425   $531       .52 .69
Credit Card
                  
30-89
days
 $194   $193       .88 .86 $200   $193       .84 .86
90 days or more
 165    165       .74  .73  164    165       .69  .73 
Nonperforming
                                    
Total
 $359   $358       1.62 1.59 $364   $358       1.54 1.59
Other Retail
                  
Retail Leasing
                  
30-89
days
 $  27   $  29       .39 .40 $25   $29       .39 .40
90 days or more
 2    3       .03  .04  2    3       .03  .04 
Nonperforming
 10    10        .14  .14  9    10        .14  .14 
Total
 $  39   $  42       .56 .58 $36   $42       .55 .58
Home Equity and Second Mortgages
                  
30-89
days
 $  41   $  55       .40 .53 $35   $55       .32 .53
90 days or more
 44    37       .42  .35  38    37       .35  .35 
Nonperforming
 129    116        1.23  1.11  118    116        1.08  1.11 
Total
 $214   $208       2.05 1.99 $191   $208       1.74 1.99
Other (b)
                  
30-89
days
 $169   $191       .38 .43 $176   $191       .41 .43
90 days or more
 22    26       .05  .06  22    26       .05  .06 
Nonperforming
 22    24        .05  .05  21    24        .05  .05 
Total
 $213   $241        .48 .54 $219   $241        .51 .54
 
(a)
Excludes $662$642 million of loans
30-89
days past due and $1.3$1.7 billion of loans 90 days or more past due at March 31,June 30, 2022, purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options that continue to accrue interest, compared with $791 million and $1.5 billion at December 31, 2021, respectively.
(b)
Includes revolving credit, installment, automobile and student loans.
 
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Restructured Loans
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered.
Troubled Debt Restructurings
Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in the payments to be received. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. At March 31,June 30, 2022, and December 31, 2021, performing TDRs were $3.2 billion, compared with $3.1 billion.billion at December 31, 2021.
The Company continues to work with customers to modify loans for borrowers who are experiencing financial 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, 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.
 
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          As a Percent of Performing TDRs     
At March 31, 2022
(Dollars in Millions)
 
Performing
TDRs
   
30-89 Days
Past Due
 
90 Days or More
Past Due
 
Nonperforming
TDRs
 Total
TDRs
 
At June 30, 2022
(Dollars in Millions)
 Performing
TDRs
   
30-89 Days

Past Due
 90 Days or More
Past Due
 Nonperforming
TDRs
 Total
TDRs
 
Commercial
 $137    5.3  2.2 $76(a)  $213  $141    4.7  2.4 $63(a)  $204 
Commercial real estate
  86    2.0      145(b)   231   110    .7      117(b)   227 
Residential mortgages
  1,521    3.3   3.5   116   1,637(d)   1,533    2.6   2.4   134   1,667(d) 
Credit card
  243    11.8   5.6      243   252    11.7   5.9      252 
Other retail
  179    9.4   4.8   39(c)   218(e)   183    8.8   4.6   36(c)   219(e) 
TDRs, excluding loans purchased from GNMA mortgage pools
  2,166    4.9   3.6   376   2,542   2,219    4.2   2.9   350   2,569 
Loans purchased from GNMA mortgage pools (g)
  978             978(f)   965             965(f) 
Total
 $3,144    3.4  2.5 $376  $3,520  $3,184    2.9  2.0 $350  $3,534 
 
(a)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and small business credit cards with a modified rate equal to 0 percent.
(b)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months).
(c)
Primarily represents loans with a modified rate equal to 0 percent.
(d)
Includes $222$214 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $21$20 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(e)
Includes $65$60 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $14$13 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(f)
Includes $165$159 million of Federal Housing Administration and United States Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $132$126 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(g)
Approximately 9.67.2 percent and 34.935.4 percent of the total TDR loans purchased from GNMA mortgage pools are
30-89
days past due and 90 days or more past due, respectively, but are not classified as delinquent as their repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
 
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Short-term and Other Loan Modifications
The Company makes short-term and other modifications that it does not consider to be TDRs, in limited circumstances, to assist borrowers experiencing temporary hardships, including previously offering payment relief to borrowers that have experienced financial 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.
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. 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 March 31,June 30, 2022, total nonperforming assets were $811$770 million, compared to $878 million at December 31, 2021. The $67$108 million (7.6(12.3 percent) decrease in nonperforming assets was driven by a decrease in nonperforming commercial real estate and commercial loans. The ratio of total nonperforming assets to total loans and other real estate was 0.250.23 percent at March 31,June 30, 2022, compared with 0.28 percent at December 31, 2021.
OREO was $23 million at March 31,June 30, 2022, compared with $22 million at December 31, 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.
 
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 Table 6
 
   Nonperforming Assets (a)
 
(Dollars in Millions) March 31,
2022
 December 31,
2021
  June 30,
2022
 December 31,
2021
 
Commercial
    
Commercial
         $139          $139          $116          $139 
Lease financing
 35  35  32  35 
Total commercial
 174  174  148  174 
Commercial Real Estate
    
Commercial mortgages
 178  213  147  213 
Construction and development
 38  71  59  71 
Total commercial real estate
 216  284  206  284 
Residential Mortgages (b)
 214  226  223  226 
Credit Card
            
Other Retail
    
Retail leasing
 10  10  9  10 
Home equity and second mortgages
 129  116  118  116 
Other
 22  24  21  24 
Total other retail
 161  150  148  150 
Total nonperforming loans (1)
 765  834  725  834 
Other Real Estate (c)
 23  22  23  22 
Other Assets
 23  22  22  22 
Total nonperforming assets
         $811          $878      $770          $878 
Accruing loans 90 days or more past due (b)
         $450          $472          $423          $472 
Period-end
loans (2)
         $318,934          $312,028          $332,369          $312,028 
Nonperforming loans to total loans (1)/(2)
 .24 .27 .22 .27
Nonperforming assets to total loans plus other real estate (c)
 .25 .28 .23 .28
Changes in Nonperforming Assets
 
(Dollars in Millions) 
Commercial and
Commercial
Real Estate
 Residential
Mortgages,
Credit Card and
Other Retail
 Total  Commercial and
Commercial
Real Estate
 Residential
Mortgages,
Credit Card and
Other Retail
             Total 
Balance December 31, 2021
           $461            $417  $878  $461  $417  $878 
Additions to nonperforming assets
      
New nonaccrual loans and foreclosed properties
 92  58  150  168  123  291 
Advances on loans
 4     4  5  1  6 
Total additions
 96  58  154  173  124  297 
Reductions in nonperforming assets
      
Paydowns, payoffs
 (134 (15 (149 (173 (36 (209
Net sales
    (4 (4 (6 (12 (18
Return to performing status
 (9 (35 (44 (47 (76 (123
Charge-offs (d)
 (21 (3 (24 (51 (4 (55
Total reductions
 (164 (57 (221 (277 (128 (405
Net additions to (reductions in) nonperforming assets
 (68 1  (67 (104 (4 (108
Balance March 31, 2022
           $393              $418      $811 
Balance June 30, 2022
 $357  $413  $770 
 
(a)
Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)
Excludes $1.3$1.7 billion at March 31,June 30, 2022, and $1.5 billion at December 31, 2021, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options 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 $27$40 million at March 31,June 30, 2022, and $22 million at December 31, 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)
Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the
charge-off
occurred.
 
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Table 7
 
   Net Charge-offs as a Percent of Average Loans Outstanding
 
 Three Months Ended March 31  Three Months Ended June 30 
 2022      2021  2022      2021 
 Average           Average        Average           Average       
 Loan   Net       Loan   Net    Loan   Net       Loan   Net   
(Dollars in Millions) Balance   Charge-offs Percent      Balance   Charge-offs Percent  Balance   Charge-offs Percent      Balance   Charge-offs Percent 
Commercial
                             
Commercial
 $107,819   $26  .10     $96,757   $52  .22 $115,758   $28  .10    $97,713   $26  .11
Lease financing
 5,003    6  .49      5,334    4  .30  4,899    2  .16      5,261    1  .08 
Total commercial
 112,822    32  .12       102,091    56  .22  120,657    30  .10      102,974    27  .11 
Commercial real estate
                             
Commercial mortgages
 28,826              27,968    (12 (.17 29,676    (2 (.03     27,721        
Construction
 10,258    (5 (.20     10,818    5  .19  9,841    8  .33      10,843        
Total commercial real estate
 39,084    (5 (.05      38,786    (7 (.07 39,517    6  .06      38,564        
Residential mortgages
 77,449    (6 (.03      75,201    (5 (.03 80,228    (9 (.04     73,351    (10 (.05
Credit card
 21,842    112  2.08       21,144    144  2.76  22,748    118  2.08      21,116    148  2.81 
Other retail
                             
Retail leasing
 7,110    1  .06       7,975    1  .05  6,708             7,873    (1 (.05
Home equity and second mortgages
 10,394    (2 (.08      12,062    (2 (.07 10,726    (3 (.11     11,368    (3 (.11
Other
 44,265    30  .27      36,730    36  .40  43,603    19  .17      39,038    19  .20 
Total other retail
 61,769    29  .19      56,767    35  .25  61,037    16  .11      58,279    15  .10 
Total loans
 $312,966   $162  .21    $293,989   $223  .31 $324,187   $161  .20    $294,284   $180  .25
  Six Months Ended June 30 
  2022       2021 
  Average             Average        
  Loan   Net         Loan   Net    
(Dollars in Millions) Balance   Charge-offs  Percent       Balance   Charge-offs  Percent 
Commercial
           
Commercial
 $111,810   $54   .10    $97,237   $78   .16
Lease financing
  4,951    8   .33        5,298    5   .19 
Total commercial
  116,761    62   .11      102,535    83   .16 
Commercial real estate
           
Commercial mortgages
  29,253    (2  (.01     27,844    (12  (.09
Construction
  10,049    3   .06        10,831    5   .09 
Total commercial real estate
  39,302    1   .01      38,675    (7  (.04
Residential mortgages
  78,847    (15  (.04     74,271    (15  (.04
Credit card
  22,297    230   2.08      21,130    292   2.79 
Other retail
           
Retail leasing
  6,908    1   .03      7,924        
Home equity and second mortgages
  10,561    (5  (.10     11,713    (5  (.09
Other
  43,932    49   .22        37,890    55   .29 
Total other retail
  61,401    45   .15        57,527    50   .18 
Total loans
 $318,608   $323   .20      $294,138   $403   .28
 
Analysis of Loan Net Charge-Offs
 Total loan net charge-offs were $162$161 million for the second quarter and $323 million for the first quartersix months of 2022, compared with $223$180 million and $403 million, respectively, for the first quartersame periods of 2021. The $61 million (27.4 percent) decreaseyear-over-year decreases in net charge-offs reflected improvement across most loan categories, associated with borrower liquidity and strong asset prices in the market that support repayment and recovery on problem loans.were primarily driven by lower credit card net charge-offs. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for both the second quarter and first quartersix months of 2022 was 0.210.20 percent, compared with 0.310.25 percent and 0.28 percent, respectively, for the first quartersame periods of 2021.
Analysis and Determination of the Allowance for Credit Losses
 The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the 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 appropriateness of the allowance for 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
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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 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 and corporate bond spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores, delinquency status, collateral type and available valuation information, consideration of
end-of-term
losses on lease residuals, and the remaining
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term of the loan, adjusted for expected prepayments. For each loan 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 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 is performed to consider expected credit losses.
The allowance recorded for individually evaluated loans greater than $5 million in the commercial lending segment is based on an 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 as appropriate. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans.
The allowance recorded for TDR 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. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the current fair value of the collateral less costs to sell.
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 March 31,June 30, 2022, the Company serviced the first lien on 3534 percent of the home equity loans and lines in a junior lien position. The Company also considers the status of first lien mortgage accounts reported on customer credit bureau files when the first lien is not serviced by the Company. Regardless of whether the Company services the first lien, an assessment is made of economic conditions, problem loans, recent loss experience and other factors in determining the allowance for credit losses. Based on the available information, the Company estimated $205$193 million or 2.01.8 percent of its total home equity portfolio at March 31,June 30, 2022, represented
non-delinquent
junior liens where the first lien was delinquent or modified.
The Company considers historical loss experience on the loans and lines in a junior lien position to establish loss estimates for junior lien loans and lines the Company services that are current, but the first lien is delinquent or modified. The historical long-term average loss experience related to junior liens has been relatively limited (less than 1 percent of the total portfolio annually), and estimates are adjusted to consider current collateral support and portfolio risk characteristics. These include updated credit scores and collateral estimates obtained on the Company’s home equity portfolio each 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.
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When a loan portfolio is purchased, the acquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered purchased with more than insignificant credit deterioration.PCD. An allowance is established for each population and 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 allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to purchased loans, regardless of PCD status, are recognized through provision expense, with charge-offs charged to the allowance. The Company did not have a material amount of PCD loans included in its loan portfolio at March 31,June 30, 2022.
The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above are adjusted by management 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 scenario assumptions, and emerging risks related to either changes in the 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.
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Although the Company determined the amount of each element of the allowance separately and considers this process to be an important credit management tool, the entire allowance for credit losses is available for the entire loan portfolio. The actual amount of losses can vary significantly from the estimated amounts.
At March 31,June 30, 2022, the allowance for credit losses was $6.1$6.3 billion (1.91(1.88 percent of
period-end
loans), compared with an allowance of $6.2 billion (1.97 percent of
period-end
loans) at December 31, 2021. The ratio of the allowance for credit losses to nonperforming loans was 798863 percent at March 31,June 30, 2022, compared with 738 percent at December 31, 2021. The ratio of the allowance for credit losses to annualized loan net charge-offs was 929969 percent at March 31,June 30, 2022, compared with 902 percent of full year 2021 net charge-offs at December 31, 2021.
The decreaseincrease in the allowance for credit losses of $50$100 million (0.8(1.6 percent) at March 31,June 30, 2022, compared with December 31, 2021, was driven by continued strong credit quality,loan growth and increased economic uncertainty, partially offset by loan growth and increasing economic uncertainty.stabilizing credit quality. Economic uncertainty remains high associated withand recession risk has been increasing due to ongoing supply chain andchallenges, rising inflationary concerns, market volatility, rising oil prices resulting from the Russia-Ukraine conflict and, to a lesser extent, additional
COVID-19
virus variants. In addition to these factors, expected loss estimates consider various factors including customer specific information impacting changes in risk ratings, projected delinquencies, and the detrimentalpotential effects of inflationary pressures and the impact of rising interest rates which impacton borrowers’ liquidity and ability to repay.
Economic conditions considered in estimating the allowance for credit losses at March 31,June 30, 2022 included changes in projected gross domestic product and unemployment levels. These factors are evaluated through a combination of quantitative calculations using economic scenarios and qualitative assessments that consider the high degree of economic uncertainty in the current environment.
The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for credit losses at March 31,June 30, 2022 and December 31, 2021:
 
 
March 31,
2022
 
December 31,
2021
  
June 30,
2022
 
December 31,
2021
 
United States unemployment rate for the three months ending (a)
    
March 31, 2022
 3.9 3.9
June 30, 2022
 3.7  3.6  3.6 3.6
September 30, 2022
 3.4  3.5 
December 31, 2022
 3.5  3.5  3.3  3.5 
United States real gross domestic product for the three months ending (b)
    
March 31, 2022
 4.1 5.2
June 30, 2022
 3.7  4.4  2.5 4.4
September 30, 2022
 2.8  4.5 
December 31, 2022
 2.7  3.4  1.8  3.4 
 
(a)
Reflects quarterly average of forecasted reported United States unemployment rate.
(b)
Reflects year-over-year growth rates.
Baseline economic forecasts are used in combination with alternative scenarios and historical loss experience as is considered reasonable and supportable to inform the Company’s allowance for credit losses.
The allowance for credit losses related to commercial lending segment loans decreased $62$103 million during the first quartersix months of 2022, primarily duereflecting select commercial portfolios continuing to portfolio credit quality that reflected further returnrecover from the effects of economic activity in certain industry sectors affected by the
COVID-19
pandemic, partially offset by the impactimpacts of loan growth and rising economic uncertainty.
The allowance for credit losses related to consumer lending segment loans increased $12$203 million during the first quartersix months of 2022, mainly due to loan growth and rising economic uncertainty.
 
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Table 8
 
   Summary of Allowance for Credit Losses
 
 Three Months Ended  Three Months Ended     Six Months Ended 
 March 31  June 30      June 30 
(Dollars in Millions) 2022 2021  2022 2021      2022 2021 
Balance at beginning of period
 $6,155  $8,010  $6,105  $6,960     $6,155  $8,010 
Charge-Offs
           
Commercial
           
Commercial
 47  80  48  54      95  134 
Lease financing
 8  6  5  4      13  10 
Total commercial
 55  86  53  58      108  144 
Commercial real estate
           
Commercial mortgages
    5  1  3      1  8 
Construction and development
 1  5  8  1      9  6 
Total commercial real estate
 1  10  9  4      10  14 
Residential mortgages
 5  5  2  5      7  10 
Credit card
 158  190  162  192      320  382 
Other retail
           
Retail leasing
 5  11  4  4      9  15 
Home equity and second mortgages
 3  4  2  2      5  6 
Other
 53  68  44  49      97  117 
Total other retail
 61  83  50  55      111  138 
Total charge-offs
 280  374  276  314      556  688 
Recoveries
           
Commercial
           
Commercial
 21  28  20  28      41  56 
Lease financing
 2  2  3  3      5  5 
Total commercial
 23  30  23  31      46  61 
Commercial real estate
           
Commercial mortgages
    17  3  3      3  20 
Construction and development
 6        1      6  1 
Total commercial real estate
 6  17  3  4      9  21 
Residential mortgages
 11  10  11  15      22  25 
Credit card
 46  46  44  44      90  90 
Other retail
           
Retail leasing
 4  10  4  5      8  15 
Home equity and second mortgages
 5  6  5  5      10  11 
Other
 23  32  25  30      48  62 
Total other retail
 32  48  34  40      66  88 
Total recoveries
 118  151  115  134      233  285 
Net Charge-Offs
           
Commercial
           
Commercial
 26  52  28  26      54  78 
Lease financing
 6  4  2  1      8  5 
Total commercial
 32  56  30  27      62  83 
Commercial real estate
           
Commercial mortgages
    (12 (2        (2 (12
Construction and development
 (5 5  8         3  5 
Total commercial real estate
 (5 (7 6         1  (7
Residential mortgages
 (6 (5 (9 (10     (15 (15
Credit card
 112  144  118  148      230  292 
Other retail
           
Retail leasing
 1  1     (1     1    
Home equity and second mortgages
 (2 (2 (3 (3     (5 (5
Other
 30  36  19  19      49  55 
Total other retail
 29  35  16  15      45  50 
Total net charge-offs
 162  223  161  180      323  403 
Provision for credit losses
 112  (827 311  (170     423  (997
Balance at end of period
 $6,105  $6,960  $6,255  $6,610     $6,255  $6,610 
Components
           
Allowance for loan losses
 $5,664  $6,343  $5,832  $6,026      
Liability for unfunded credit commitments
 441  617  423  584      
Total allowance for credit losses (1)
 $6,105  $6,960  $6,255  $6,610      
Period-end
loans (2)
 $318,934  $294,427  $332,369  $296,912      
Nonperforming loans (3)
 765  1,128  725  1,018      
Allowance for Credit Losses as a Percentage of
           
Period-end
loans (1)/(2)
 1.91 2.36 1.88 2.23     
Nonperforming loans (1)/(3)
 798  617  863  649      
Nonperforming and accruing loans 90 days or more past due
 502  434  545  474      
Nonperforming assets
 753  579  812  624      
Annualized net charge-offs
 929  770  969  916      
 
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Residual Value Risk Management
 The Company manages its risk to changes in the residual value of leased vehicles, office and business equipment, and other assets through disciplined residual valuation 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. As of March 31,June 30, 2022, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 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, 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, 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, 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 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 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, 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 and the safety and soundness of an entity. The Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Management Committee (“ALCO”) and approved by the Board of Directors. The ALCO has the responsibility for approving and ensuringoverseeing compliance with the ALCO management policies, including interest rate risk exposure. One way the Company 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 liabilities and
off-balance
sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through this simulation, management estimates the impact on net interest income of various interest rate changes that differ in the direction, amount and speed of 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. Net interest income sensitivities reflect the impact of current market expectations for interest rates,
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Table 9
   Sensitivity of Net Interest Income
  March 31, 2022       December 31, 2021 
   Down 50 bps
Immediate
  Up 50 bps
Immediate
  Down 200 bps
Gradual
   Up 200 bps
Gradual
       Down 50 bps
Immediate
  Up 50 bps
Immediate
  Down 200 bps
Gradual
   Up 200 bps
Gradual
 
Net interest income
  (2.47)%   2.15  *    3.31       (3.77)%   3.09  *    5.39
*
Given the level of interest rates, downward rate scenario is not computed.
driving an increase in baseline projected net interest income. As market expectations are reflected in projected results, incremental interest rate sensitivity declines on a percentage basis.
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Table 9
   Sensitivity of Net Interest Income
  June 30, 2022       December 31, 2021 
   Down 50 bps
Immediate
  Up 50 bps
Immediate
  Down 200 bps
Gradual
   Up 200 bps
Gradual
       Down 50 bps
Immediate
  Up 50 bps
Immediate
  Down 200 bps
Gradual
   Up 200 bps
Gradual
 
Net interest income
  (1.45)%   1.17  *    1.54       (3.77)%   3.09  *    5.39
*
Given the level of interest rates, downward rate scenario is not computed.
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 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.
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 March 31,June 30, 2022, the Company had $3.9$5.1 billion of forward commitments to sell, hedging $1.4$2.1 billion of MLHFS and $3.3$4.0 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments on loans intended to be sold are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedging activities. The Company has elected the fair value option for the MLHFS.
Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into master netting arrangements, and, where possible, by requiring collateral arrangements. The Company may also transfer counterparty credit risk related to interest rate swaps to third parties through the use of risk participation agreements. In addition, certain interest rate swaps, interest rate forwards and credit contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk.
For additional information on derivatives and hedging activities, refer to Notes 13 and 14 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
22
U.S. Bancorp

provided or ceased to be representative after December 31, 2021. The Company holds financial instruments impacted by the discontinuance of LIBOR, including certain loans, investment securities, derivatives,
22
U.S. Bancorp

borrowings and other financial instruments that use LIBOR as the benchmark rate. The Company also provides various services to customers in its capacities as trustee and servicer, which involve financial instruments that will be similarly impacted by the discontinuance of LIBOR.
The Company has transitioned financial instruments associated to LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021 to alternative reference rates, with limited exceptions. The Company also anticipates that additional financial instruments associated to the remaining United States Dollar LIBOR tenors will require transition to a new reference rate by June 30, 2023. The Company is currently assessing the applicability and scope of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), which was enacted on March 15, 2022. The LIBOR Act establishes a process for replacing LIBOR on existing LIBOR contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate by providing that a benchmark replacement identified by the Federal Reserve Board that is based on the Secured Overnight Financing Rate (“SOFR”) will replace LIBOR as the benchmark for such contracts. The final implementation of the LIBOR Act currently remains uncertain, as the Federal Reserve has 180 days after its enactment to issue any regulations that are necessary for its administration.
In order to facilitate the transition process, the Company has instituted a LIBOR Transition Office and commenced an enterprise-wide project to identify, assess, monitor and mitigate risks associated with the expected discontinuance or unavailability of LIBOR, actively engage with industry working groups and regulators, achieve operational readiness for the use of alternative reference rates and engage impacted customers to remediate and transition impacted instruments. The Company has also invested in updating its systems, models, procedures and internal infrastructure as part of the transition program. Additionally, in alignment with guidance from United States banking agencies and the FCA, the Company has ceased the use of LIBOR as a reference rate in new contracts, with limited exceptions, and continues to increase the usage of alternative reference rates such as SOFR. The Company has also adopted industry best practice guidelines for fallback language for new transactions, converted its cleared interest rate swaps discounting to SOFR discounting, and distributed communications related to the transition to certain impacted parties, both inside and outside the Company. Refer to “Risk Factors” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for further discussion on potential risks that could adversely affect the Company’s financial results as a result of the LIBOR transition.
Market Risk Management
 In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support customers’ strategies to manage their own foreign currency, interest rate risk and funding activities. For purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities, as well as the remeasurement volatility of foreign currency denominated balances included on its Consolidated Balance Sheet (collectively, “Covered Positions”), employing methodologies consistent with the requirements of regulatory rules for market risk. The Company’s Market Risk Committee (“MRC”), within the framework of the ALCO, oversees market risk management. The MRC monitors and reviews the Company’s 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 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, 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 related to these positions. The Company monitors the accuracy of internal VaR models and modeling processes by back-testing model performance, regularly updating the historical data used by the VaR models and regular model validations to assess the accuracy of the models’ input, processing, and reporting components. All models are required to be independently reviewed and approved prior to being placed in use. If the Company were to experience market losses in excess of the estimated VaR more often than expected, the VaR models and associated assumptions would be analyzed and adjusted.
 
U.S. Bancorp 
23

The average, high, low and
period-end
one-day
VaR amounts for the Company’s Covered Positions were as follows:
 
Three Months Ended March 31
(Dollars in Millions)
 2022   2021 
Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Average
 $2   $3  $1   $2 
High
 2    4  2    4 
Low
 1    1  1    1 
Period-end
 2    2  2    2 
The Company did not experience any actual losses for its combined Covered Positions that exceeded VaR during the threesix months ended March 31,June 30, 2022 and 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 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-end
one-day
Stressed VaR amounts for the Company’s Covered Positions were as follows:
 
Three Months Ended March 31
(Dollars in Millions)
 2022   2021 
Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Average
 $7   $7  $5   $7 
High
 8    9  9    9 
Low
 6    5  3    5 
Period-end
 7    9  9    8 
Valuations of positions in client derivatives and foreign currency 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 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 prices, with significant variances approved by senior management in the Company’s 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. A
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:
 
Three Months Ended March 31
(Dollars in Millions)
 2022   2021 
Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Residential Mortgage Loans Held For Sale and Related Hedges
        
Average
 $2   $12  $2   $10 
High
 5    19  5    19 
Low
 1    7  1    5 
Mortgage Servicing Rights and Related Hedges
        
Average
 $6   $5  $7   $4 
High
 13    11  13    11 
Low
 3    2  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 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 from the FHLB and at the Federal Reserve Bank’s Discount Window. At March 31,June 30, 2022, the fair value of unencumbered investment securities totaled $143.2$137.5 billion, compared with $144.0 billion at December 31, 2021. Refer to Note 4 of the Notes to Consolidated Financial Statements and “Balance Sheet
24
U.S. Bancorp

Analysis” for further information on investment securities maturities and trends. Asset liquidity is further enhanced by the Company’s practice of pledging loans to access secured borrowing facilities through the FHLB and
24
U.S. Bancorp

Federal Reserve Bank. At March 31,June 30, 2022, the Company could have borrowed a total of an additional $96.3$95.5 billion from the FHLB and Federal Reserve Bank based on collateral available for additional borrowings.
The Company’s diversified deposit base provides a sizeable source of relatively stable and
low-cost
funding, while reducing the Company’s reliance on the wholesale markets. Total deposits were $461.5$467.1 billion at March 31,June 30, 2022, compared with $456.1 billion at December 31, 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 $32.9$29.4 billion at March 31,June 30, 2022, and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were $21.0$25.0 billion at March 31,June 30, 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 March 31,June 30, 2022, parent company long-term debt outstanding was $19.8$18.4 billion, compared with $18.9 billion at December 31, 2021. The increasedecrease was primarily due to $1.3 billion of subordinated note and $1.0 billion of medium-term note repayments, partially offset by $2.1 billion of medium-term note issuances, partially offset by $1.0 billion of medium-term note repayments.issuances. As of March 31,June 30, 2022, there was $1.3 billion ofno parent company debt scheduled to mature in the remainder of 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 March 31,June 30, 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 March 31,June 30, 2022, the Company was compliant with this requirement.
Refer to “Management’s Discussion and Analysis — Liquidity Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for further discussion on liquidity risk management.
European Exposures
The Company provides merchant processing and corporate trust services in Europe either directly or through banking affiliations in Europe. Revenue generated from sources in Europe represented approximately 2 percent of the Company’s total net revenue for both the three and six months ended March 31,June 30, 2022. Operating cash for these businesses is deposited on a short-term basis typically with certain European central banks. For deposits placed at other European banks, 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 March 31,June 30, 2022, the Company had an aggregate amount on deposit with European banks of approximately $8.3$7.3 billion, predominately with the Central Bank of Ireland and Bank of England.
In addition, the Company provides financing to domestic multinational corporations that generate revenue from customers in European countries, transacts with various European banks as counterparties to certain derivative-related activities, and through a subsidiary, manages money market funds that hold certain investments in European sovereign debt. Any deterioration in economic conditions in Europe, including the impacts resulting from the Russia-Ukraine conflict, is not expected to have a significant effect on the Company related to these activities.
Commitments, Contingent Liabilities and Other Contractual Obligations
 The Company participates in many different contractual arrangements which 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. These arrangements include commitments to extend credit, letters of credit and various forms of guarantees. Refer to Note 16 of the Notes to Consolidated Financial Statements for further information on 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 6 of the Notes to Consolidated Financial Statements for further information related to the Company’s interests in variable interest entities.
 
U.S. Bancorp 
25

 
Table 10
    Regulatory Capital Ratios
(Dollars in Millions)  March 31,
2022
  December 31,
2021
 
Basel III standardized approach:
   
Common equity tier 1 capital
  $41,950  $41,701 
Tier 1 capital
   49,198   48,516 
Total risk-based capital
   57,403   56,250 
Risk-weighted assets
   427,174   418,571 
Common equity tier 1 capital as a percent of risk-weighted assets
   9.8  10.0
Tier 1 capital as a percent of risk-weighted assets
   11.5   11.6 
Total risk-based capital as a percent of risk-weighted assets
   13.4   13.4 
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
   8.6   8.6 
Tier 1 capital as a percent of total
on-
and
off-balance
sheet leverage exposure (total leverage exposure ratio)
   7.0   6.9 

(Dollars in Millions)      June 30,
2022
  December 31,
2021
 
Basel III standardized approach:
             
Common equity tier 1 capital
      $42,944  $41,701 
Tier 1 capital
       50,195   48,516 
Total risk-based capital
       58,307   56,250 
Risk-weighted assets
       441,804   418,571 
    
Common equity tier 1 capital as a percent of risk-weighted assets
       9.7  10.0
Tier 1 capital as a percent of risk-weighted assets
       11.4   11.6 
Total risk-based capital as a percent of risk-weighted assets
       13.2   13.4 
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
       8.6   8.6 
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)
       7.1   6.9 
 
Capital Management
 The Company is committed to managing capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit. The Company also manages its capital to exceed regulatory capital requirements for banking organizations. The regulatory capital requirements effective for the Company follow Basel III, with the Company being subject to 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 past two years. This cumulative deferred impact will be phased into the Company’s regulatory capital over the 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 March 31,June 30, 2022 and December 31, 2021. All regulatory ratios exceeded regulatory “well-capitalized” requirements.
The Company believes certain 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 determined in accordance with transitional regulatory capital requirements related to the CECL methodology under the standardized approach, was 6.05.5 percent and 8.07.2 percent, respectively, at March 31,June 30, 2022, compared with 6.8 percent and 9.2 percent, respectively, at December 31, 2021. In addition, the Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the CECL methodology was 9.59.4 percent at March 31,June 30, 2022, compared with 9.6 percent at December 31, 2021. Refer to
“Non-GAAP
“Non-GAAP Financial Measures” beginning on page 3031 for further information on these other capital ratios.
Total U.S. Bancorp shareholders’ equity was $51.2$48.6 billion at March 31,June 30, 2022, compared with $54.9 billion at December 31, 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 $3.0 billion of its common stock beginning January 1, 2021, and repurchased $1.5 billion of its common stock during the first six months of 2021 under this program. The Company suspended all common stock repurchases at the beginning of the third quarter of 2021, except for those done exclusively in connection with its stock-based compensation programs, due to its pending acquisition of MUFG Union Bank’s core regional banking franchise. The Company expects to operate at a common equity tier 1 capital ratio betweennear its target ratio of 8.5 percent at the time of closing the acquisition and increasing toward 9.0 percent after closing of the acquisition. The Company does not expect to commence repurchasing its common stock until after the acquisition closes and its common equity tier 1 capital ratio approximates 9.0 percent.
The following table provides a detailed analysis of all shares of common stock of the Company purchased by the Company or any affiliated purchaser during the firstsecond quarter of 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)
 
January
  208,269(a)  $56.22   8,269  $1,444 
February
  620,109   58.98   620,109   1,407 
March
  412,339(b)   55.54   312,339   1,390 
Total
  1,240,717(c)  $57.37   940,717  $1,390 
Period Total Number
of Shares
Purchased
  Average
Price Paid
Per Share
  Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
  Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program
(In Millions)
 
April
  308,312(a)  $53.07   8,312  $1,390 
May
  392   44.52   392   1,390 
June
  994   48.05   994   1,390 
Total
  309,698(a)  $53.05   9,698  $1,390 
 
(a)
Includes 200,000300,000 shares of common stock purchased, at an average price per share of $56.24,$53.11, in open-market transactions by U.S. Bank National Association, the Company’s banking subsidiary, in its capacity as trustee of the U.S. Bank 401(k) Savings Plan, which is the Company’s employee retirement savings plan.
(b)
Includes 100,000 shares of common stock purchased, at an average price per share of $56.46, in open-market transactions by U.S. Bank National Association in its capacity as trustee of the U.S. Bank 401(k) Savings Plan.
(c)
Includes 300,000 shares of common stock purchased, at an average price per share of $56.31, in open-market transactions by U.S. Bank National Association in its capacity as trustee of the U.S. Bank 401(k) Savings Plan.
 
26
 U.S. Bancorp

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 approval of the Company’s Board of Directors and will aligncompliance 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, 2021, for further discussion on capital management.
LINE OF BUSINESS FINANCIAL REVIEW
The Company’s major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and 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. Refer to Note 17 of the Notes to Consolidated Financial Statements for further 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 2022, certain organization and methodology changes were made and, accordingly, 2021 results were restated and presented on a comparable basis.
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. Corporate and Commercial Banking contributed $418$377 million of the Company’s net income in the second quarter and $793 million in the first quartersix months of 2022, or a decreasedecreases of $51$41 million (10.9(9.8 percent) and $87 million (9.9 percent), respectively, compared with the first quartersame periods of 2021.
Net revenue decreased $7increased $65 million (0.7(6.6 percent) in the second quarter and $59 million (3.0 percent) in the first six months of 2022, compared with the same periods of 2021. Net interest income, on a taxable-equivalent basis, increased $58 million (8.0 percent) in the second quarter and $75 million (5.2 percent) in the first six months of 2022, compared with the same periods of 2021. The increases were primarily due to higher loan and interest-bearing deposit balances, partially offset by lower spreads on loans and unfavorable changes in deposit rates. Noninterest income increased $7 million (2.6 percent) in the second quarter of 2022, compared with the firstsecond quarter of 2021.2021, primarily due to stronger treasury management fees driven by core growth and increased federal government volume. Noninterest income decreased $23$16 million (8.6(3.0 percent) in the first quartersix months of 2022, compared with the first quartersix months of 2021, primarily due to lower corporate bond fees and trading revenue within the capital markets business, partially offset by strongerhigher treasury management fees due to core growth driven byfees.
Noninterest expense increased $20 million (4.6 percent) in the economic recovery. Net interest income, on a taxable-equivalent basis, increased $16second quarter and $25 million (2.2(2.9 percent) in the first quartersix months of 2022, compared with the first quarter of 2021. The increase was primarily due to higher loan and deposit balances, partially offset by the impact of loan mix and related yields as well as unfavorable changes in deposit rates.
Noninterest expense increased $10 million (2.4 percent) in the first quarter of 2022, compared with the first quartersame periods of 2021, primarily due to an increase in net shared serviceshigher Federal Deposit Insurance Corporation insurance expense driven by investment in infrastructure and technology development as well as higher compensation expense primarily due to merit increases, variable compensation and hiring to support business growth, partially offset by lower performance-based incentives related to capital markets activity. The provision for credit losses increased $51$100 million in the second quarter and $150 million in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to loan loss provisions supporting stronger growth in loan balances, partially offset by improving portfolio credit quality.
Consumer and Business Banking
 Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking. Consumer and Business Banking contributed $393$501 million of the Company’s net income in the second quarter and $880 million in the first quartersix months of 2022, or a decreasedecreases of $182$145 million (31.7(22.4 percent) and $331 million (27.3 percent), respectively, compared with the first quartersame periods of 2021.
Net revenue decreased $96 million (4.6 percent) in the first quarter of 2022, compared with the first quarter of 2021. Noninterest income decreased $108 million (19.0 percent) in the first quarter of 2022, compared with the first quarter of 2021, primarily due to lower mortgage banking revenue reflecting lower application volume, given declining refinance activities, and lower related gain on sale margins, partially offset by an increase in the fair value of MSRs, net of hedging activities, as well as higher performing loan sales. Noninterest income further decreased due to lower other noninterest income, driven by lower retail leasing
end-of-term
residual gains. Offsetting these decreases, deposit service charges increased driven by higher customer spend activity, net of the impact of the elimination of certain consumer
non-sufficient
funds fees in the first quarter of 2022. Net interest income, on a
 
U.S. Bancorp 
27

 Table 11
   Line of Business Financial Performance
taxable-equivalent basis, increased $12
  
Corporate and
Commercial Banking
      
Consumer and
Business Banking
      
Wealth Management and
Investment Services
     
Three Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change
      2022  2021  Percent
Change
      2022  2021  Percent
Change
     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $784  $726   8.0     $1,617  $1,534   5.4     $352  $246   43.1    
Noninterest income
  272   265   2.6       395   634   (37.7      652   549   18.8     
Total net revenue
  1,056   991   6.6       2,012   2,168   (7.2      1,004   795   26.3     
Noninterest expense
  453   433   4.6       1,419   1,375   3.2       581   521   11.5     
Income (loss) before provision and income taxes
  603   558   8.1       593   793   (25.2      423   274   54.4     
Provision for credit losses
  100      *       (75  (68  (10.3      (4  (4       
Income (loss) before income taxes
  503   558   (9.9      668   861   (22.4      427   278   53.6     
Income taxes and taxable-equivalent adjustment
  126   140   (10.0      167   215   (22.3      107   70   52.9     
Net income (loss)
  377   418   (9.8      501   646   (22.4      320   208   53.8     
Net (income) loss attributable to noncontrolling interests
                                       
Net income (loss) attributable to U.S. Bancorp
 $377  $418   (9.8     $501  $646   (22.4     $320  $208   53.8     
Average Balance Sheet
                                                
Loans
 $123,210  $102,275   20.5      $141,135  $140,826   .2      $22,320  $17,442   28.0     
Goodwill
  1,912   1,647   16.1       3,244   3,476   (6.7      1,718   1,618   6.2     
Other intangible assets
  4   5   (20.0      3,634   2,828   28.5       300   84   *     
Assets
  137,773   114,186   20.7       156,132   161,695   (3.4      25,786   20,470   26.0     
Noninterest-bearing deposits
  58,266   60,696   (4.0      31,642   33,702   (6.1      25,019   23,288   7.4     
Interest-bearing deposits
  93,678   70,019   33.8       168,486   158,164   6.5       71,759   73,347   (2.2    
Total deposits
  151,944   130,715   16.2       200,128   191,866   4.3       96,778   96,635   .1     
Total U.S. Bancorp shareholders’ equity
  13,989   13,816   1.3       12,366   12,337   .2       3,618   3,089   17.1     
  
Payment
Services
  
Treasury and
Corporate Support
      
Consolidated
Company
     
Three Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change
      2022  2021  Percent
Change
      2022  2021  Percent
Change
     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $619  $595   4.0     $92  $63   46.0     $3,464  $3,164   9.5    
Noninterest income
  994   913   8.9       235   258   (8.9      2,548   2,619   (2.7    
Total net revenue
  1,613   1,508   7.0       327   321   1.9       6,012   5,783   4.0     
Noninterest expense
  871   829   5.1       400   229   74.7       3,724   3,387   9.9     
Income (loss) before provision and income taxes
  742   679   9.3       (73  92   *       2,288   2,396   (4.5    
Provision for credit losses
  221   91   *       69   (189  *       311   (170  *     
Income (loss) before income taxes
  521   588   (11.4      (142  281   *       1,977   2,566   (23.0    
Income taxes and taxable-equivalent adjustment
  130   147   (11.6      (87  6   *       443   578   (23.4    
Net income (loss)
  391   441   (11.3      (55  275   *       1,534   1,988   (22.8    
Net (income) loss attributable to noncontrolling interests
               (3  (6  50.0       (3  (6  50.0     
Net income (loss) attributable to U.S. Bancorp
 $391  $441   (11.3     $(58 $269   *      $1,531  $1,982   (22.8    
Average Balance Sheet
                                                
Loans
 $33,854  $30,030   12.7      $3,668  $3,711   (1.2     $324,187  $294,284   10.2     
Goodwill
  3,318   3,176   4.5                    10,192   9,917   2.8     
Other intangible assets
  438   518   (15.4                   4,376   3,435   27.4     
Assets
  41,054   35,618   15.3       219,166   219,396   (.1      579,911   551,365   5.2     
Noninterest-bearing deposits
  3,396   5,030   (32.5      2,504   2,581   (3.0      120,827   125,297   (3.6    
Interest-bearing deposits
  167   141   18.4       1,599   2,242   (28.7      335,689   303,913   10.5     
Total deposits
  3,563   5,171   (31.1      4,103   4,823   (14.9      456,516   429,210   6.4     
Total U.S. Bancorp shareholders’ equity
  8,115   7,413   9.5       11,078   16,307   (32.1      49,166   52,962   (7.2    
*
Not meaningful
28
U.S. Bancorp

  
Corporate and
Commercial Banking
      
Consumer and
Business Banking
      
Wealth Management and
Investment Services
     
Six Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change
      2022  2021  Percent
Change
      2022  2021  Percent
Change
     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $1,523  $1,448   5.2      $3,129  $3,035   3.1      $627  $514   22.0     
Noninterest income
  517   533   (3.0      856   1,203   (28.8      1,248   1,080   15.6     
Total net revenue
  2,040   1,981   3.0       3,985   4,238   (6.0      1,875   1,594   17.6     
Noninterest expense
  878   853   2.9       2,839   2,731   4.0       1,174   1,020   15.1     
Income (loss) before provision and income taxes
  1,162   1,128   3.0       1,146   1,507   (24.0      701   574   22.1     
Provision for credit losses
  104   (46  *       (28  (108  74.1       4   1   *     
Income (loss) before income taxes
  1,058   1,174   (9.9      1,174   1,615   (27.3      697   573   21.6     
Income taxes and taxable-equivalent adjustment
  265   294   (9.9      294   404   (27.2      175   144   21.5     
Net income (loss)
  793   880   (9.9      880   1,211   (27.3      522   429   21.7     
Net (income) loss attributable to noncontrolling interests
                                       
Net income (loss) attributable to U.S. Bancorp
 $793  $880   (9.9     $880  $1,211   (27.3     $522  $429   21.7     
Average Balance Sheet
                                                
Loans
 $119,557  $102,201   17.0      $140,984  $141,170   (.1     $21,521  $17,147   25.5     
Goodwill
  1,912   1,647   16.1       3,252   3,476   (6.4      1,739   1,618   7.5     
Other intangible assets
  4   5   (20.0      3,406   2,661   28.0       283   63   *     
Assets
  132,856   114,229   16.3       156,770   162,803   (3.7      25,124   20,297   23.8     
Noninterest-bearing deposits
  60,298   58,524   3.0       31,807   33,244   (4.3      26,204   22,339   17.3     
Interest-bearing deposits
  90,336   70,943   27.3       167,279   154,450   8.3       71,024   78,489   (9.5    
Total deposits
  150,634   129,467   16.3       199,086   187,694   6.1       97,228   100,828   (3.6    
Total U.S. Bancorp shareholders’ equity
  13,859   14,092   (1.7      12,311   12,407   (.8      3,607   3,062   17.8     
  
Payment
Services
      
Treasury and
Corporate Support
      
Consolidated
Company
     
Six Months Ended June 30
(Dollars in Millions)
 2022  2021  Percent
Change
      2022  2021  Percent
Change
      2022  2021  Percent
Change
     
Condensed Income Statement
                                                
Net interest income (taxable-equivalent basis)
 $1,241  $1,224   1.4      $144  $32   *     $6,664  $6,253   6.6     
Noninterest income
  1,852   1,698   9.1       471   486   (3.1      4,944   5,000   (1.1    
Total net revenue
  3,093   2,922   5.9       615   518   18.7       11,608   11,253   3.2     
Noninterest expense
  1,726   1,627   6.1       609   535   13.8       7,226   6,766   6.8     
Income (loss) before provision and income taxes
  1,367   1,295   5.6       6   (17  *       4,382   4,487   (2.3    
Provision for credit losses
  351   50   *       (8  (894  99.1       423   (997  *     
Income (loss) before income taxes
  1,016   1,245   (18.4      14   877   (98.4      3,959   5,484   (27.8    
Income taxes and taxable-equivalent adjustment
  254   311   (18.3      (121  58   *       867   1,211   (28.4    
Net income (loss)
  762   934   (18.4      135   819   (83.5      3,092   4,273   (27.6    
Net (income) loss attributable to noncontrolling interests
               (4  (11  63.6       (4  (11  63.6     
Net income (loss) attributable to U.S. Bancorp
 $762  $934   (18.4     $131  $808   (83.8     $3,088  $4,262   (27.5    
Average Balance Sheet
                                                
Loans
 $32,802  $29,831   10.0      $3,744  $3,789   (1.2     $318,608  $294,138   8.3     
Goodwill
  3,322   3,175   4.6                    10,225   9,916   3.1     
Other intangible assets
  450   530   (15.1                   4,143   3,259   27.1     
Assets
  39,803   35,356   12.6       224,110   217,372   3.1       578,663   550,057   5.2     
Noninterest-bearing deposits
  3,534   5,146   (31.3      2,532   2,591   (2.3      124,375   121,844   2.1     
Interest-bearing deposits
  164   137   19.7       2,174   1,932   12.5       330,977   305,951   8.2     
Total deposits
  3,698   5,283   (30.0      4,706   4,523   4.0       455,352   427,795   6.4     
Total U.S. Bancorp shareholders’ equity
  8,067   7,535   7.1       13,460   15,750   (14.5      51,304   52,846   (2.9    
*
Not meaningful
U.S. Bancorp
29

Net revenue decreased $156 million (0.8(7.2 percent) in the second quarter and $253 million (6.0 percent) in the first quartersix months of 2022, compared with the same periods of 2021. Noninterest income decreased $239 million (37.7 percent) in the second quarter and $347 million (28.8 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to lower mortgage banking revenue reflecting lower application volume, given declining refinance activities, lower related gain on sale margins and lower performing loan sales, partially offset by an increase in the fair value of MSRs, net of hedging activities. Net interest income, on a taxable-equivalent basis, increased $83 million (5.4 percent) in the second quarter and $94 million (3.1 percent) in the first six months of 2022, compared with the same periods of 2021, reflecting strong growth in interest-bearing deposit balances and favorable funding mix, partially offset by lower spreads on loans and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program.
Noninterest expense increased $61$44 million (4.5(3.2 percent) in the second quarter and $108 million (4.0 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to increases in net shared services expense due to investments in digital capabilities and higher compensation expense relatedcapabilities. The provision for credit losses decreased $7 million (10.3 percent) in the second quarter of 2022, compared with the second quarter of 2021, due to merit increases and core business growth.strong improvements in credit quality in the second quarter of 2022. The provision for credit losses increased $86$80 million (74.1 percent) in the first quartersix months of 2022, compared with the first quartersix months of 2021, reflecting higher ending loan balances, partially offset bya decrease in the reserve allocation in the first six months of 2021 due to credit quality improvement.
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. Wealth Management and Investment Services contributed $206$320 million of the Company’s net income in the second quarter and $522 million in the first quartersix months of 2022, or a decreaseincreases of $19$112 million (8.4(53.8 percent) and $93 million (21.7 percent), respectively, compared with the first quartersame periods of 2021.
Net revenue increased $71$209 million (8.9(26.3 percent) in the second quarter and $281 million (17.6 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021. Net interest income, on a taxable-equivalent basis, increased $6$106 million (2.2(43.1 percent) in the second quarter and $113 million (22.0 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to favorable funding mix, higher average noninterest-bearing deposit balances as well asand higher average loan balances. Noninterest income increased $65$103 million (12.2(18.8 percent) in the second quarter and $168 million (15.6 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to the impact of the PFM acquisition and core business growth in trust and investment management fees, and investment products fees, both driven by favorable market conditions, as well as the impact of the PFM acquisition on trust and investment management fees, partially offset by higherlower fee waivers related to money market funds.
Noninterest expense increased $93$60 million (18.8(11.5 percent) in the second quarter and $154 million (15.1 percent) in the first quartersix months of 2022, compared with the same periods of 2021, reflecting higher compensation as a result of merit increases, the PFM acquisition, core business growth and performance-based incentives, as well as higher net shared services expense driven by investment in support of business growth. Noninterest expense further increased in the first six months of 2022, compared with the first quartersix months of 2021, reflecting the PFM acquisition, higher compensation expense as a result of merit increases and performance-based incentives,due to litigation settlements and fraud-related losses and core business growth.losses. The provision for credit losses was flat in the second quarter and increased $3 million (60.0 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to stronger growth in ending loans.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 $372$391 million of the Company’s net income in the second quarter and $762 million in the first quartersix months of 2022, or a decreasedecreases of $115$50 million (23.6(11.3 percent) and $172 million (18.4 percent), respectively, compared with the first quartersame periods of 2021.
Net revenue increased $66$105 million (4.7(7.0 percent) in the second quarter and $171 million (5.9 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021. Noninterest income increased $73$81 million (9.3(8.9 percent) in the second quarter and $154 million (9.1 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, mainly due to continued strengthening of consumer and business spending across most sectors as local jurisdictions reduce pandemic related restrictions and consumer behaviors normalize.sectors. As a result, there was strong growth in merchant processing services revenue driven by higher sales volume and higher merchant fees, partially offset by higher rebates. There was also growth in corporate payment products revenue driven by improving business spending across nearly all product groups. Strong salesconsumer spending also drove an increase in credit and debit card revenue, mostly offset by declining prepaid processing fees as the beneficial impact of
30
U.S. Bancorp

government stimulus programs continues to dissipate.dissipated year-over-year. Net interest income, on a taxable-equivalent basis, decreased $7increased $24 million (1.1(4.0 percent) in the second quarter and $17 million (1.4 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to higher loan balances and loan fees, partially offset by lower loan yields driven by declining customer revolve rates, mostly offset by higher loan balances due to investment in customer acquisition.rates.
Noninterest expense increased $49$42 million (5.1 percent) in the second quarter and $99 million (6.1 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, reflecting higher net shared services expense driven by investment in infrastructure and technology development, in addition to higher compensation expense as a result of merit increases, performance-based incentives and core business growth.growth and variable compensation. The provision for credit losses increased $171$130 million in the second quarter and $301 million in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to endingstronger growth in loan balance growthbalances and relatively stable credit quality in the first quarter of 2022,current year, compared with a stronger decline in loan balances and delinquencies in the prior year.
28
U.S. Bancorp

 Table 11
   Line of Business Financial Performance
  
Corporate and
Commercial Banking
      
Consumer and
Business Banking
      
Wealth Management and
Investment Services
     
Three Month Ended March 31
(Dollars in Millions)
 2022  2021  Percent
Change
      2022  2021  Percent
Change
      2022  2021  Percent
Change
     
Condensed Income Statement
               
Net interest income (taxable-equivalent basis)
 $735  $719   2.2   $1,517  $1,505   .8   $274  $268   2.2  
Noninterest income
  245   268   (8.6    461   569   (19.0    596   531   12.2   
Total net revenue
  980   987   (.7    1,978   2,074   (4.6    870   799   8.9   
Noninterest expense
  419   409   2.4     1,405   1,344   4.5     587   494   18.8   
Income (loss) before provision and income taxes
  561   578   (2.9    573   730   (21.5    283   305   (7.2  
Provision for credit losses
  3   (48  *     49   (37  *     8   5   60.0   
Income (loss) before income taxes
  558   626   (10.9    524   767   (31.7    275   300   (8.3  
Income taxes and taxable-equivalent adjustment
  140   157   (10.8    131   192   (31.8    69   75   (8.0  
Net income (loss)
  418   469   (10.9    393   575   (31.7    206   225   (8.4  
Net (income) loss attributable to noncontrolling interests
                                 
Net income (loss) attributable to U.S. Bancorp
 $418  $469   (10.9   $393  $575   (31.7   $206  $225   (8.4  
Average Balance Sheet
               
Loans
 $115,634  $101,927   13.4    $141,106  $141,719   (.4   $20,666  $16,846   22.7   
Goodwill
  1,912   1,647   16.1     3,261   3,475   (6.2    1,761   1,619   8.8   
Other intangible assets
  4   5   (20.0    3,176   2,493   27.4     265   42   *   
Assets
  127,651   114,069   11.9     157,696   164,131   (3.9    24,446   20,120   21.5   
Noninterest-bearing deposits
  62,285   56,281   10.7     32,094   32,861   (2.3    27,350   21,338   28.2   
Interest-bearing deposits
  86,618   71,377   21.4     166,765   151,406   10.1     69,909   83,474   (16.3  
Total deposits
  148,903   127,658   16.6     198,859   184,267   7.9     97,259   104,812   (7.2  
Total U.S. Bancorp shareholders’ equity
  13,710   14,354   (4.5      12,275   12,496   (1.8      3,595   3,034   18.5     
  
Payment
Services
  
Treasury and
Corporate Support
      
Consolidated
Company
     
Three Month Ended March 31
(Dollars in Millions)
 2022  2021  Percent
Change
      2022  2021  Percent
Change
      2022  2021  Percent
Change
     
Condensed Income Statement
               
Net interest income (taxable-equivalent basis)
 $622  $629   (1.1)%    $52  $(32  *   $3,200  $3,089   3.6  
Noninterest income
  858   785   9.3     236   228   3.5     2,396   2,381   .6   
Total net revenue
  1,480   1,414   4.7     288   196   46.9     5,596   5,470   2.3   
Noninterest expense
  854   805   6.1     237   327   (27.5    3,502   3,379   3.6   
Income (loss) before provision and income taxes
  626   609   2.8     51   (131  *     2,094   2,091   .1   
Provision for credit losses
  130   (41  *     (78  (706  89.0     112   (827  *   
Income (loss) before income taxes
  496   650   (23.7    129   575   (77.6    1,982   2,918   (32.1  
Income taxes and taxable-equivalent adjustment
  124   163   (23.9    (40  46   *     424   633   (33.0  
Net income (loss)
  372   487   (23.6    169   529   (68.1    1,558   2,285   (31.8  
Net (income) loss attributable to noncontrolling interests
             (1  (5  80.0     (1  (5  80.0   
Net income (loss) attributable to U.S. Bancorp
 $372  $487   (23.6   $168  $524   (67.9   $1,557  $2,280   (31.7  
Average Balance Sheet
               
Loans
 $31,740  $29,630   7.1    $3,820  $3,867   (1.2   $312,966  $293,989   6.5   
Goodwill
  3,325   3,173   4.8                10,259   9,914   3.5   
Other intangible assets
  464   542   (14.4               3,909   3,082   26.8   
Assets
  38,540   35,091   9.8     229,069   215,323   6.4     577,402   548,734   5.2   
Noninterest-bearing deposits
  3,673   5,264   (30.2    2,561   2,608   (1.8    127,963   118,352   8.1   
Interest-bearing deposits
  160   132   21.2     2,761   1,623   70.1     326,213   308,012   5.9   
Total deposits
  3,833   5,396   (29.0    5,322   4,231   25.8     454,176   426,364   6.5   
Total U.S. Bancorp shareholders’ equity
  8,019   7,658   4.7       15,867   15,187   4.5      
 
53,466
 
  52,729   1.4     
*
Not meaningful
U.S. Bancorp
29

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 a net loss of $58 million in the second quarter and net income of $168$131 million in the first quartersix months of 2022, compared with $524net income of $269 million and $808 million in the first quartersame periods of 2021.2021, respectively.
Net revenue increased $92$6 million (46.9(1.9 percent) in the second quarter and $97 million (18.7 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021. Net interest income, on a taxable-equivalent basis, increased $84$29 million (46.0 percent) in the second quarter and $112 million in the first quartersix months of 2022, compared with the first quartersame periods of 2021, primarily due to higher investment securities portfolio and cash balances. Noninterest income increased $8decreased $23 million (3.5(8.9 percent) in the second quarter and $15 million (3.1 percent) in the first quartersix months of 2022, compared with the first quarter of 2021, primarily due to the impact of COVID-related deposit service charges refunds in the first quarter of 2021.
Noninterest expense decreased $90 million (27.5 percent) in the first quarter of 2022, compared with the first quartersame periods of 2021, primarily due to lower performance-based incentivessecurities gains and lower costs related to
tax-advantaged
investments,gains on the disposition of assets, partially offset by higher costscommercial products revenue.
Noninterest expense increased $171 million (74.7 percent) in the second quarter and $74 million (13.8 percent) in the first six months of capital investments2022, compared with the same periods of 2021, primarily due to merger and integration-related charges associated with the planned acquisition of MUFG Union Bank and higher compensation expense reflecting merit increases, hiring to support business growth and core business growth net of lower variable compensation, expense as a result of merit increases.partially offset by lower net shared services expense. The provision for credit losses increased $628$258 million (89.0in the second quarter and $886 million (99.1 percent) in the first quartersix months of 2022, compared with the first quartersame periods of 2021, reflecting the residual impact of changes in the allowance for credit losses being impacted by risingincreasing economic uncertainty in the first quarter of 2022,current year, compared to improving economic conditions in the first quarter of 2021.prior year.
Income taxes are assessed to each line of business at a managerial tax rate of 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, reflecting the full implementation of the CECL methodology.
These capital measures are viewed by management as useful additional methods of 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 and banking regulators to assess the Company’s capital position relative to other financial services companies. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in 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.
U.S. Bancorp
31

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.
 
30
U.S. Bancorp

The following table shows the Company’s calculation of these
non-GAAP
financial measures:
 
(Dollars in Millions) 
March 31,
2022
 
December 31,
2021
  June 30,
2022
 December 31,
2021
 
Total equity
     $51,668  $55,387      $49,069  $55,387 
Preferred stock
 (6,808 (6,371 (6,808 (6,371
Noncontrolling interests
 (468 (469 (464 (469
Goodwill (net of deferred tax liability) (1)
 (9,304 (9,323 (9,204 (9,323
Intangible assets, other than mortgage servicing rights
 (762 (785 (780 (785
Tangible common equity (a)
 34,326  38,439  31,813  38,439 
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation
 41,950  41,701  42,944  41,701 
Adjustments (2)
 (1,298 (1,733 (1,300 (1,733
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology (b)
 40,652  39,968  41,644  39,968 
Total assets
 586,517  573,284  591,381  573,284 
Goodwill (net of deferred tax liability) (1)
 (9,304 (9,323 (9,204 (9,323
Intangible assets, other than mortgage servicing rights
 (762 (785 (780 (785
Tangible assets (c)
 576,451  563,176  581,397  563,176 
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)
 427,174  418,571  441,804  418,571 
Adjustments (3)
 (351 (357 (317 (357
Risk-weighted assets, reflecting the full implementation of the CECL methodology (e)
 426,823  418,214  441,487  418,214 
Ratios
    
Tangible common equity to tangible assets (a)/(c)
 6.0 6.8 5.5 6.8
Tangible common equity to risk-weighted assets (a)/(d)
 8.0  9.2  7.2  9.2 
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology (b)/(e)
 9.5  9.6  9.4  9.6 
 
 
Three Months Ended
March 31
  Three Months Ended
June 30
    
Six Months Ended
June 30
 
 2022 2021  2022 2021     2022 2021 
Net interest income
 $ 3,173  $ 3,063  $3,435  $3,137    $6,608  $6,200 
Taxable-equivalent adjustment (4)
 27  26  29  27     56  53 
Net interest income, on a taxable-equivalent basis
 3,200  3,089  3,464  3,164    6,664  6,253 
Net interest income, on a taxable-equivalent basis (as calculated above)
 3,200  3,089  3,464  3,164    6,664  6,253 
Noninterest income
 2,396  2,381  2,548  2,619    4,944  5,000 
Less: Securities gains (losses), net
 18  25  19  43     37  68 
Total net revenue, excluding net securities gains (losses) (f)
 5,578  5,445  5,993  5,740    11,571  11,185 
 
Noninterest expense (g)
 3,502  3,379  3,724  3,387    7,226  6,766 
 
Efficiency ratio (g)/(f)
 62.8 62.1 62.1 59.0    62.4 60.5
 
(1)
Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.
(2)
Includes the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology net of deferred taxes.
(3)
Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology.
(4)
Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
 
U.S. Bancorp
32
 
31
U.S. Bancorp

CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Company’s financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Company’s financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. Those policies considered to be critical accounting policies relate to the allowance for credit losses, fair value estimates, MSRs, and income taxes. 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, 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 Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
32
U.S. Bancorp
 U.S. Bancorp
33

U.S. Bancorp
Consolidated Balance Sheet
 
(Dollars in Millions) 
March 31,
2022
  
December 31,
2021
 
  (Unaudited)    
   
Assets
        
Cash and due from banks
 $44,303  $28,905 
Investment securities
        
Held-to-maturity
(fair value $40,572 and $41,812, respectively)
  43,654   41,858 
Available-for-sale
($855 and $557 pledged as collateral, respectively) (a)
  123,593   132,963 
Loans held for sale (including $2,203 and $6,623 of mortgage loans carried at fair value, respectively)
  3,321   7,775 
Loans
        
Commercial
  117,470   112,023 
Commercial real estate
  39,191   39,053 
Residential mortgages
  78,487   76,493 
Credit card
  22,163   22,500 
Other retail
  61,623   61,959 
Total loans
  318,934   312,028 
Less allowance for loan losses
  (5,664  (5,724
Net loans
  313,270   306,304 
Premises and equipment
  3,207   3,305 
Goodwill
  10,250   10,262 
Other intangible assets
  4,194   3,738 
Other assets (including $1,111 and $1,193 of trading securities at fair value pledged as collateral, respectively) (a)
  40,725   38,174 
Total assets
 $586,517  $573,284 
   
Liabilities and Shareholders’ Equity
        
Deposits
        
Noninterest-bearing
 $129,793  $134,901 
Interest-bearing
  331,753   321,182 
Total deposits
  461,546   456,083 
Short-term borrowings
  21,042   11,796 
Long-term debt
  32,931   32,125 
Other liabilities
  19,330   17,893 
Total liabilities
  534,849   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: 3/31/22 and 12/31/21—2,125,725,742 shares
  21   21 
Capital surplus
  8,515   8,539 
Retained earnings
  69,987   69,201 
Less cost of common stock in treasury: 3/31/22 - 640,053,754 shares; 12/31/21—642,223,571 shares
  (27,193  (27,271
Accumulated other comprehensive income (loss)
  (6,938  (1,943
Total U.S. Bancorp shareholders’ equity
  51,200   54,918 
Noncontrolling interests
  468   469 
Total equity
  51,668   55,387 
Total liabilities and equity
 $586,517  $573,284 
(Dollars in Millions) June 30,
2022
  December 31,
2021
 
  (Unaudited)    
   
Assets
        
Cash and due from banks $39,124  $28,905 
Investment securities        
Held-to-maturity (fair value $55,657 and $41,812, respectively)  61,503   41,858 
Available-for-sale ($987
 
and $557 pledged as collateral, respectively) (a)
  98,806   132,963 
Loans held for sale (including $2,773 and $6,623 of mortgage loans carried at fair value, respectively)  3,943   7,775 
Loans        
Commercial  125,983   112,023 
Commercial real estate  39,753   39,053 
Residential mortgages  82,114   76,493 
Credit card  23,697   22,500 
Other retail  60,822   61,959 
Total loans  332,369   312,028 
Less allowance for loan losses  (5,832  (5,724
Net loans  326,537   306,304 
Premises and equipment  3,177   3,305 
Goodwill  10,157   10,262 
Other intangible assets  4,487   3,738 
Other assets (including $1,258
 
and $1,193 of trading securities at fair value pledged as collateral, respectively) (a)
  43,647   38,174 
Total assets $591,381  $573,284 
   
Liabilities and Shareholders’ Equity
        
Deposits        
Noninterest-bearing $129,130  $134,901 
Interest-bearing  337,972   321,182 
Total deposits  467,102   456,083 
Short-term borrowings  24,963   11,796 
Long-term debt  29,408   32,125 
Other liabilities  20,839   17,893 
Total liabilities  542,312   517,897 
Shareholders’ equity        
Preferred stock  6,808   6,371 
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares; issued: 6/30/22 and 12/31/21—2,125,725,742 shares  21   21 
Capital surplus  8,555   8,539 
Retained earnings  70,772   69,201 
Less cost of common stock in treasury: 6/30/22—639,959,317 shares; 12/31/21—642,223,571 shares  (27,190  (27,271
Accumulated other comprehensive income (loss)  (10,361  (1,943
Total U.S. Bancorp shareholders’ equity  48,605   54,918 
Noncontrolling interests  464   469 
Total equity  49,069   55,387 
Total liabilities and equity $591,381  $573,284 
 
(a)
Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
See Notes to Consolidated Financial Statements.
3
4
U.S. Bancorp

U.S. Bancorp
Consolidated Statement of Income
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)
 Three Months Ended
June 30
      Six Months Ended
June 30
 
 2022  2021      2022  2021 
Interest Income
                    
Loans $2,869  $2,677      $5,468  $5,401 
Loans held for sale  54   55       114   122 
Investment securities  806   618       1,523   1,135 
Other interest income  96   32       138   65 
Total interest income  3,825   3,382       7,243   6,723 
Interest Expense
                    
Deposits  177   82       257   167 
Short-term borrowings  57   18       78   34 
Long-term debt  156   145       300   322 
Total interest expense  390   245       635   523 
Net interest income  3,435   3,137       6,608   6,200 
Provision for credit losses  311   (170      423   (997
Net interest income after provision for credit losses  3,124   3,307       6,185   7,197 
Noninterest Income
                    
Credit and debit card revenue  399   396       737   732 
Corporate payment products revenue  172   138       330   264 
Merchant processing services  425   374       788   692 
Trust and investment management fees  566   446       1,066   890 
Deposit service charges  165   176       342   337 
Treasury management fees  169   160       325   307 
Commercial products revenue  290   280       556   560 
Mortgage banking revenue  142   346       342   645 
Investment products fees  59   60       121   115 
Securities gains (losses), net  19   43       37   68 
Other  142   200       300   390 
Total noninterest income  2,548   2,619       4,944   5,000 
Noninterest Expense
                    
Compensation  1,872   1,798       3,725   3,601 
Employee benefits  374   337       770   721 
Net occupancy and equipment  265   258       534   521 
Professional services  111   108       225   206 
Marketing and business development  106   90       186   138 
Technology and communications  350   362       699   721 
Postage, printing and supplies  69   65       141   134 
Other intangibles  40   40       87   78 
Merger and integration charges  197          197    
Other  340   329       662   646 
Total noninterest expense  3,724   3,387       7,226   6,766 
Income before income taxes  1,948   2,539       3,903   5,431 
Applicable income taxes  414   551       811   1,158 
Net income  1,534   1,988       3,092   4,273 
Net (income) loss attributable to noncontrolling interests  (3  (6      (4  (11
Net income attributable to U.S. Bancorp $1,531  $1,982      $3,088  $4,262 
Net income applicable to U.S. Bancorp common shareholders $1,464  $1,914      $2,930  $4,089 
Earnings per common share $.99  $1.29      $1.97  $2.73 
Diluted earnings per common share $.99  $1.28      $1.97  $2.73 
Average common shares outstanding  1,486   1,489       1,485   1,495 
Average diluted common shares outstanding  1,487   1,490       1,486   1,497 
See Notes to Consolidated Financial Statements.
U.S. Bancorp 
333
5
U.S. Bancorp
Consolidated Statement of Comprehensive Income
 
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)
 
Three Months Ended
March 31
 
 2022  2021 
Interest Income
        
Loans
 $2,599  $2,724 
Loans held for sale
  60   67 
Investment securities
  717   517 
Other interest income
  42   33 
Total interest income
  3,418   3,341 
Interest Expense
        
Deposits
  80   85 
Short-term borrowings
  21   16 
Long-term debt
  144   177 
Total interest expense
  245   278 
Net interest income
  3,173   3,063 
Provision for credit losses
  112   (827
Net interest income after provision for credit losses
  3,061   3,890 
Noninterest Income
        
Credit and debit card revenue
  338   336 
Corporate payment products revenue
  158   126 
Merchant processing services
  363   318 
Trust and investment management fees
  500   444 
Deposit service charges
  177   161 
Treasury management fees
  156   147 
Commercial products revenue
  266   280 
Mortgage banking revenue
  200   299 
Investment products fees
  62   55 
Securities gains (losses), net
  18   25 
Other
  158   190 
Total noninterest income
  2,396   2,381 
Noninterest Expense
        
Compensation
  1,853   1,803 
Employee benefits
  396   384 
Net occupancy and equipment
  269   263 
Professional services
  114   98 
Marketing and business development
  80   48 
Technology and communications
  349   359 
Postage, printing and supplies
  72   69 
Other intangibles
  47   38 
Other
  322   317 
Total noninterest expense
  3,502   3,379 
Income before income taxes
  1,955   2,892 
Applicable income taxes
  397   607 
Net income
  1,558   2,285 
Net (income) loss attributable to noncontrolling interests
  (1  (5
Net income attributable to U.S. Bancorp
 $1,557  $2,280 
Net income applicable to U.S. Bancorp common shareholders
 $1,466  $2,175 
Earnings per common share
 $.99  $1.45 
Diluted earnings per common share
 $.99  $1.45 
Average common shares outstanding
  1,485   1,502 
Average diluted common shares outstanding
  1,486   1,503 
(Dollars in Millions)
(Unaudited)
 Three Months Ended
June 30
      Six Months Ended
June 30
 
 2022  2021      2022  2021 
Net income $1,534  $1,988      $3,092  $4,273 
Other Comprehensive Income (Loss)
                    
Changes in unrealized gains (losses) on investment securities available-for-sale  (4,761  1,195       (11,515  (2,183
Changes in unrealized gains (losses) on derivative hedges  98   14       98   113 
Foreign currency translation  (3  (1      (3  24 
Reclassification to earnings of realized (gains) losses  84   (11      151   7 
Income taxes related to other comprehensive income (loss)  1,159   (304      2,851   515 
Total other comprehensive income (loss)  (3,423  893       (8,418  (1,524
Comprehensive income (loss)  (1,889  2,881       (5,326  2,749 
Comprehensive (income) loss attributable to noncontrolling interests  (3  (6      (4  (11
      
Comprehensive income (loss) attributable to U.S. Bancorp $(1,892 $2,875      $(5,330 $2,738 
See Notes to Consolidated Financial Statements.
343
6
 U.S. Bancorp

U.S. Bancorp
Consolidated Statement of Comprehensive Income
(Dollars in Millions)
(Unaudited)
 Three Months Ended
March 31
 
 2022  2021 
Net income
 $1,558  $2,285 
Other Comprehensive Income (Loss)
        
Changes in unrealized gains (losses) on investment securities
available-for-sale
  (6,754  (3,378
Changes in unrealized gains (losses) on derivative hedges
     99 
Foreign currency translation
     25 
Reclassification to earnings of realized (gains) losses
  67   18 
Income taxes related to other comprehensive income (loss)
  1,692   819 
Total other comprehensive income (loss)
  (4,995  (2,417
Comprehensive income (loss)  (3,437  (132
Comprehensive (income) loss attributable to noncontrolling interests
  (1  (5
   
Comprehensive income (loss) attributable to U.S. Bancorp $(3,438 $(137
See Notes to Consolidated Financial Statements.
U.S. Bancorp
35

U.S. Bancorp
Consolidated Statement of 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 December 31, 2020
  1,507  $5,983  $21  $8,511  $64,188  $(25,930 $322  $53,095  $630  $53,725 
Net income (loss)
                  2,280           2,280   5   2,285 
Other comprehensive income (loss)
                          (2,417  (2,417      (2,417
Preferred stock dividends (a)
                  (90          (90      (90
Common stock dividends ($.42 per share)
                  (633          (633      (633
Issuance of preferred stock
      730                       730       730 
Call of preferred stock
      (745          (5          (750      (750
Issuance of common and treasury stock
  3           (119      137       18       18 
Purchase of treasury stock
  (13                  (650      (650      (650
Distributions to noncontrolling interests
                                 (5  (5
Stock option and restricted stock grants
              95               95       95 
           
Balance March 31, 2021
  1,497  $5,968  $21  $8,487  $65,740  $(26,443 $(2,095 $51,678  $630  $52,308 
           
Balance December 31, 2021
  1,484  $6,371  $21  $8,539  $69,201  $(27,271 $(1,943 $54,918  $469  $55,387 
Net income (loss)
                  1,557           1,557   1   1,558 
Other comprehensive income (loss)
                          (4,995  (4,995      (4,995
Preferred stock dividends (b)
                  (84          (84      (84
Common stock dividends ($.46 per share)
                  (687          (687      (687
Issuance of preferred stock
      437                       437       437 
Issuance of common and treasury stock
  3           (116      132       16       16 
Purchase of treasury stock
  (1                  (54      (54      (54
Distributions to noncontrolling interests
                                 (2  (2
Stock option and restricted stock grants
              92               92       92 
           
Balance March 31, 2022
  1,486  $6,808  $21  $8,515  $69,987  $(27,193 $(6,938 $51,200  $468  $51,668 
  U.S. Bancorp Shareholders       
(Dollars and Share
s
in Millions, Except Per
Share Data) (Unaudited)
 Common
Shares
Outstanding
  Preferred
Stock
  Common
Stock
  Capital
Surplus
  Retained
Earnings
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income (Loss)
  Total
U.S. Bancorp
Shareholders’
Equity
  Noncontrolling
Interests
  Total
Equity
 
Balance March 31, 2021
  1,497  $5,968  $21  $8,487  $65,740  $(26,443 $(2,095 $51,678  $630  $52,308 
Net income (loss)                  1,982           1,982   6   1,988 
Other comprehensive income (loss)                          893   893       893 
Preferred stock dividends (a)                  (58          (58      (58
Common stock dividends ($.42 per share)                  (625          (625      (625
Issuance of common and treasury stock  1           (7      25       18       18 
Purchase of treasury stock  (15                  (887      (887      (887
Distributions to noncontrolling interests                                 (6  (6
Net other changes in noncontrolling interests                                 5   5 
Stock option and restricted stock grants              38               38       38 
           
Balance June 30, 2021
  1,483  $5,968  $21  $8,518  $67,039  $(27,305 $(1,202 $53,039  $635  $53,674 
           
Balance March 31, 2022
  1,486  $6,808  $21  $8,515  $69,987  $(27,193 $(6,938 $51,200  $468  $51,668 
Net income (loss)                  1,531           1,531   3   1,534 
Other comprehensive income (loss)                          (3,423  (3,423      (3,423
Preferred stock dividends (b)                  (59          (59      (59
Common stock dividends ($.46 per share)                  (687          (687      (687
Issuance of common and treasury stock              (3      4       1       1 
Purchase of treasury stock                      (1      (1      (1
Distributions to noncontrolling interests                                 (2  (2
Net other changes in noncontrolling interests                                 (5  (5
Stock option and restricted stock grants              43               43       43 
           
Balance June 30, 2022
  1,486  $6,808  $21  $8,555  $70,772  $(27,190 $(10,361 $48,605  $464  $49,069 
           
Balance December 31, 2020
  1,507  $5,983  $21  $8,511  $64,188  $(25,930 $322  $53,095  $630  $53,725 
Net income (loss)                  4,262           4,262   11   4,273 
Other comprehensive income (loss)                          (1,524  (1,524      (1,524
Preferred stock dividends (c)                  (148          (148      (148
Common stock dividends ($.84 per share)                  (1,258          (1,258      (1,258
Issuance of preferred stock      730                       730       730 
Redemption of preferred stock      (745          (5          (750      (750
Issuance of common and treasury stock  4           (126      162       36       36 
Purchase of treasury stock  (28                  (1,537      (1,537      (1,537
Distributions to noncontrolling interests                                 (11  (11
Net other changes in noncontrolling interests                                 5   5 
Stock option and restricted stock grants              133               133       133 
           
Balance June 30, 2021
  1,483  $5,968  $21  $8,518  $67,039  $(27,305 $(1,202 $53,039  $635  $53,674 
           
Balance December 31, 2021
  1,484  $6,371  $21  $8,539  $69,201  $(27,271 $(1,943 $54,918  $469  $55,387 
Net income (loss)                  3,088           3,088   4   3,092 
Other comprehensive income (loss)                          (8,418  (8,418      (8,418
Preferred stock dividends (d)                  (143          (143      (143
Common stock dividends ($.92 per share)                  (1,374          (1,374      (1,374
Issuance of preferred stock      437                       437       437 
Issuance of common and treasury stock  3           (119      136       17       17 
Purchase of treasury stock  (1                  (55      (55      (55
Distributions to noncontrolling interests                                 (4  (4
Net other changes in noncontrolling interests                                 (5  (5
Stock option and restricted stock grants              135               135       135 
           
Balance June 30, 2022
  1,486  $6,808  $21  $8,555  $70,772  $(27,190 $(10,361 $48,605  $464  $49,069 
 
(a)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series K, Series L and Series M Non-Cumulative Perpetual Preferred Stock of $884.722, $221.181, $406.25, $343.75, $234.375 and $250.00 respectively.
(b)
Reflects dividends declared per share on the Company’s Series A, Series B, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $884.722, $221.181, $343.75, $234.375, $250.00, $231.25 and $281.25 respectively.
(c)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series I, Series J, Series K, Series L and Series M
Non-Cumulative
Perpetual Preferred Stock of $875.00, $218.75, $406.25,$1,759.722, $439.931, $812.50, $232.953, $662.50, $343.75, $234.375,$687.50, $468.75 and $202.778$452.778 respectively.
(b)(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 $875.00, $218.75,$1,759.722, $439.931, $662.50, $343.75, $234.375, $250.00, $231.25$687.50, $468.75, $500.00, $462.50 and $206.25$487.50 respectively.
See Notes to Consolidated Financial Statements.
 
36
U.S. Bancorp

U.S. Bancorp
Consolidated Statement of Cash Flows
(Dollars in Millions)
(Unaudited)
 
Three Months Ended
March 31
 
 2022  2021 
Operating Activities
        
Net income attributable to U.S. Bancorp
 $1,557  $2,280 
Adjustments to reconcile net income to net cash provided by operating activities
        
Provision for credit losses
  112   (827
Depreciation and amortization of premises and equipment
  85   84 
Amortization of intangibles
  47   38 
(Gain) loss on sale of loans held for sale
  62   (213
(Gain) loss on sale of securities and other assets
  (42  (66
Loans originated for sale, net of repayments
  (9,827  (20,928
Proceeds from sales of loans held for sale
  13,874   20,397 
Other, net
  2,609   172 
Net cash provided by operating activities
  8,477   937 
Investing Activities
        
Proceeds from sales of
available-for-sale
investment securities
  12,527   1,062 
Proceeds from maturities of
held-to-maturity
investment securities
  1,173   —   
Proceeds from maturities of
available-for-sale
investment securities
  5,498   12,550 
Purchases of
held-to-maturity
investment securities
  (2,932  —   
Purchases of
available-for-sale
investment securities
  (15,989  (36,182
Net (increase) decrease in loans outstanding
  (7,278  3,562 
Proceeds from sales of loans
  1,309   1,062 
Purchases of loans
  (1,073  (1,600
Net increase in securities purchased under agreements to resell  (147  (26
Other, net  (452  106 
Net cash used in investing activities  (7,364  (19,466
Financing Activities
        
Net increase in deposits
  5,463   3,991 
Net increase in short-term borrowings
  9,246   332 
Proceeds from issuance of long-term debt
  2,153   69 
Principal payments or redemption of long-term debt
  (1,118  (3,830
Proceeds from issuance of preferred stock
  437   730 
Proceeds from issuance of common stock
  15   17 
Repurchase of preferred stock
  (1,100  (500
Repurchase of common stock
  (54  (646
Cash dividends paid on preferred stock
  (70  (76
Cash dividends paid on common stock
  (687  (637
Net cash provided by (used in) financing activities
  14,285   (550
Change in cash and due from banks
  15,398   (19,079
Cash and due from banks at beginning of period
  28,905   62,580 
Cash and due from banks at end of period
 $ 44,303  $ 43,501 
See Notes to Consolidated Financial Statements. 
U.S. Bancorp 
373
7

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

  (154  131 
Other, net  (1,604  (367
Net cash used in investing activities  (19,516  (25,356
Financing Activities
        
Net increase in deposits  11,019   7,412 
Net increase in short-term borrowings  13,167   1,647 
Proceeds from issuance of long-term debt  2,206   1,152 
Principal payments or redemption of long-term debt  (5,154  (5,928
Proceeds from issuance of preferred stock  437   730 
Proceeds from issuance of common stock  16   36 
Repurchase of preferred stock  (1,100  (1,250
Repurchase of common stock  (55  (1,537
Cash dividends paid on preferred stock  (154  (165
Cash dividends paid on common stock  (1,373  (1,268
Net cash provided by financing activities  19,009   829 
Change in cash and due from banks  10,219   (18,007
Cash and due from banks at beginning of period  28,905   62,580 
Cash and due from banks at end of period $39,124  $44,573 
See Notes to Consolidated Financial Statements.
38
U.S. Bancorp

Notes to Consolidated Financial Statements
(Unaudited)
 
 Note 1
 
   Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the instructions to
Form 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, 2021. Certain amounts in prior periods have been reclassified to conform to the current period presentation.
  Note 2
 
   Accounting Changes
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 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 hedging relationships affected by reference rate transition, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is in the process of 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 has not had, and is expected to continue to not have, a material impact on the Company’s financial statements.
Fair Value Hedging – Portfolio Layer Method
In March 2022, the FASB issued accounting guidance, effective for the Company no later than January 1, 2023, related to fair value hedge accounting of portfolios of financial assets. This guidance expands the 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 such a portfolio being eligible to be hedged. The guidance also expands the scope of the method to include
non-prepayable
financial assets and clarifies other technical questions from the original accounting guidance. The Company expects the adoption of this guidance will not be material to its financial statements.
Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued accounting guidance, effective for the Company no later than January 1, 2023, related to the recognition and measurement of troubled debt restructurings (“TDRs”) by creditors. This guidance removes the separate recognition and measurement requirements for TDRs by replacing them with a requirement for a company to apply existing accounting guidance to determine whether a modification results in a new loan or a continuation of 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 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.

38
U.S. Bancorp
 U.S. Bancorp
39

Table of Contents
  Note  3
 
   Business Combinations
In September 2021, the Company announced that it entered into a definitive agreement to acquire MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial
Group, Inc.
(“MUFG”), for an expected purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The transaction excludes the purchase of
substantially all of 
MUFG Union Bank’s Global Corporate & Investment Bank
 (other than certain deposits), 
certain middle and back office functions, and other assets. MUFG Union Bank currently has approximately 300 branches in California, Washington and Oregon and is expected to add approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the Company’s consolidated balance sheet.
Closing of the transaction is subject to customary closing conditions, including regulatory approvals which are not within the Company’s control.
The Company expects to close the transaction approximately 45 days after being granted U.S. regulatory approvals. At this time, it is uncertain whether such approvals will be received in time to allow for closing to occur in the first half of 2022; however, the parties continue to make significant progress in planning for closing and integration while awaiting regulatory approvals.
At this time, the Company expects to receive U.S. regulatory approvals in time for closing to occur in the second half of 2022. 
  Note  4
 
   Investment Securities
The Company’s
held-to-maturity
investment securities are carried at historical cost, 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:
  June 30, 2022   December 31, 2021 
(Dollars in Millions) Amortized
Cost
   Unrealized
Gains
   Unrealized
Losses
  Fair
Value
   Amortized
Cost
   Unrealized
Gains
   Unrealized
Losses
  Fair
Value
 
Held-to-maturity
                                     
U.S. Treasury and agencies $1,343   $   $(6 $1,337   $   $   $  $ 
Residential agency mortgage-backed securities  60,160    2    (5,842  54,320    41,858    2    (48  41,812 
Total held-to-maturity $61,503   $2   $(5,848 $55,657   $41,858   $2   $(48 $41,812 
Available-for-sale
                                     
U.S. Treasury and agencies $25,779   $   $(2,012 $23,767   $36,648   $205   $(244 $36,609 
Mortgage-backed securities                                     
Residential agency  62,788    23    (5,059  57,752    76,761    665    (347  77,079 
Commercial agency  8,756        (1,192  7,564    8,633    53    (201  8,485 
Asset-backed securities                 62    4       66 
Obligations of state and political subdivisions  10,925    11    (1,220  9,716    10,130    607    (20  10,717 
Other  7           7    7           7 
Total available-for-sale $108,255   $34   $(9,483 $98,806   $132,241   $1,534   $(812 $132,963 
During the second quarter of 2022, the Company transferred $17.1 billion amortized cost ($15.7 billion fair value) of available-for-sale investment securities to the held-to-maturity category to reflect its new intent for these securities.
  March 31, 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
                                     
Residential agency mortgage-backed securities
 $43,654   $   $(3,082 $40,572   $41,858   $2   $(48 $41,812 
Total
held-to-maturity
 $43,654   $   $(3,082 $40,572   $41,858   $2   $(48 $41,812 
Available-for-sale
                                     
U.S. Treasury and agencies
 $27,653   $28   $(1,331 $26,350   $36,648   $205   $(244 $36,609 
Mortgage-backed securities
                                     
Residential agency
  82,508    70    (3,586  78,992    76,761    665    (347  77,079 
Commercial agency
  8,769        (806  7,963    8,633    53    (201  8,485 
Asset-backed securities
  4    3       7    62    4       66 
Obligations of state and political subdivisions
  10,701    148    (575  10,274    10,130    607    (20  10,717 
Other
  7           7    7           7 
Total
available-for-sale
 $129,642   $249   $(6,298 $123,593   $132,241   $1,534   $(812 $132,963 
Investment securities with a fair value of $
21.0
$16.9 billion at March 31,June 30, 2022, and $
30.7
$30.7 billion at December 31, 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 $
855
$987 million at March 31,June 30, 2022, and $
557
$557 million at December 31, 2021.
The following table provides information about the amount of interest income from taxable and
non-taxable
investment securities:
  Three Months Ended
June 30
  Six Months Ended
June 30
 
(Dollars in Millions)         2022           2021          2022           2021 
Taxable $732   $554  $1,378   $1,009 
Non-taxable  74    64   145    126 
Total interest income from investment securities $806   $618  $1,523   $1,135 
 
  Three Months Ended
March 31
 
(Dollars in Millions)         2022           2021 
Taxable
 $646   $455 
Non-taxable
  71    62 
Total interest income from investment securities
 $717   $517 
U.S. Bancorp
4
0
 
39
U.S. Bancorp

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
March 31
  Three Months Ended
June 30
 Six Months Ended
June 30
 
(Dollars in Millions)         2022         2021          2022         2021          2022         2021 
Realized gains
 $242  $25  $144  $43  $386  $68 
Realized losses
 (224    (125    (349   
Net realized gains
 $18  $25  $19  $43  $37  $68 
Income tax on net realized gains
 $4  $6  $5  $11  $9  $17 
The Company conducts a regular assessment of its available-for-sale investment securities with unrealized losses to determine whether all or some portion of a security’s unrealized loss is related to credit and 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 security, the credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows of 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. The allowance for credit losses is adjusted each period through earnings and can be subsequently recovered. The allowance for credit losses on the Company’s available-for-sale investment securities was immaterial at March 31,June 30, 2022 and December 31, 2021.
At March 31,June 30, 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 March 31,June 30, 2022:
 
 Less Than 12 Months   12 Months or Greater   Total  Less Than 12 Months   12 Months or Greater   Total 
(Dollars in Millions) 
Fair
Value
   Unrealized
Losses
   
Fair
Value
   Unrealized
Losses
   
Fair
Value
   Unrealized
Losses
  
Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   
Fair
Value
   Unrealized
Losses
 
U.S. Treasury and agencies
 $18,851   $(982  $3,784           $(349  $22,635   $(1,331 $19,590   $(1,581  $3,511           $(431  $23,101   $(2,012
Residential agency mortgage-backed securities
 66,323    (3,181   5,090    (405   71,413    (3,586 50,819    (4,281   5,360    (778   56,179    (5,059
Commercial agency mortgage-backed securities
 5,105    (414   2,856    (392   7,961    (806 4,852    (657   2,711    (535   7,563    (1,192
Asset-backed securities
          2        2     
Obligations of state and political subdivisions
 4,378    (514   222    (61   4,600    (575 8,430    (1,057   396    (163   8,826    (1,220
Other
 4                4      6                6     
Total investment securities
 $94,661   $(5,091  $11,954           $(1,207  $106,615   $(6,298 $83,697   $(7,576  $11,978           $(1,907  $95,675   $(9,483
These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase of these
available-for-sale
investment 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 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 March 31,June 30, 2022, the Company had no plans to sell investment securities with unrealized losses, and believes it is more likely than not it would not be required to sell such investment securities before recovery ofo
f
 their amortized cost.
During the threesix months ended March 31,June 30, 2022 and 2021, the Company did not purchase any investment securities that had more-than-insignificant credit deterioration.
All of the Company’s
held-to-maturity
investment securities are highly rated agency mortgage-backed securities that are guaranteed or otherwise supported by the United States government and have no history of
credit losses. Accordingly the Company does not expect to incur any credit losses on
held-to-maturity
investment securities and has 0 allowance for credit losses recorded for these securities.
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The following table provides information about the amortized cost, fair value and yield by maturity date of the investment securities outstanding at March 31,June 30, 2022:
 
(Dollars in Millions) Amortized
Cost
   
Fair
Value
   Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (e)
 
Held-to-maturity
                   
Mortgage-Backed Securities (a)
                   
Maturing in one year or less
 $   $        
Maturing after one year through five years
               
Maturing after five years through ten years
  30,703    28,569    9.5    1.58 
Maturing after ten years
  12,951    12,003    10.3    1.78 
Total
 $43,654   $40,572    9.7    1.64
Total
held-to-maturity
(d)
 $43,654   $40,572    9.7    1.64
Available-for-sale
                   
U.S. Treasury and Agencies
                   
Maturing in one year or less
 $2,226   $2,236    .5    1.97
Maturing after one year through five years
  3,246    3,086    4.7    1.36 
Maturing after five years through ten years
  19,476    18,644    7.7    1.88 
Maturing after ten years
  2,705    2,384    12.0    1.99 
Total
 $27,653   $26,350    7.2    1.83
Mortgage-Backed Securities (a)
                   
Maturing in one year or less
 $64   $65    .7    2.19
Maturing after one year through five years
  15,629    15,395    3.3    1.89 
Maturing after five years through ten years
  69,960    66,155    8.0    1.76 
Maturing after ten years
  5,624    5,340    10.4    2.09 
Total
 $91,277   $86,955    7.3    1.80
Asset-Backed Securities (a)
                   
Maturing in one year or less
 $   $    .5    2.69
Maturing after one year through five years
  2    3    3.0    1.91 
Maturing after five years through ten years
  2    2    6.0    2.13 
Maturing after ten years
      2    13.0    2.41 
Total
 $4   $7    4.1    2.00
Obligations of State and Political Subdivisions (b) (c)
                   
Maturing in one year or less
 $409   $412    .4    4.74
Maturing after one year through five years
  3,046    3,120    4.0    4.34 
Maturing after five years through ten years
  3,326    3,335    6.5    3.83 
Maturing after ten years
  3,920    3,407    17.1    2.82 
Total
 $10,701   $10,274    9.5    3.64
Other
                   
Maturing in one year or less
 $7   $7    .1    2.07
Maturing after one year through five years
               
Maturing after five years through ten years
               
Maturing after ten years
               
Total
 $7   $7    .1    2.07
Total
available-for-sale
(d)
 $129,642   $123,593    7.5    1.96
(Dollars in Millions) Amortized
Cost
   Fair
Value
   Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (e)
 
Held-to-maturity
                   
U.S. Treasury and Agencies                   
Maturing in one year or less $   $        
Maturing after one year through five years  1,343    1,337    3.8    2.85 
Maturing after five years through ten years               
Maturing after ten years               
Total $1,343   $1,337    3.8    2.85
Mortgage-Backed Securities (a)                   
Maturing in one year or less $   $        
Maturing after one year through five years               
Maturing after five years through ten years  23,977    22,825    9.1    2.22 
Maturing after ten years  36,183    31,495    10.6    1.72 
Total $60,160   $54,320    10.0    1.92
Total held-to-maturity (d) $61,503   $55,657    9.8    1.94
Available-for-sale
                   
U.S. Treasury and Agencies                   
Maturing in one year or less $1,826   $1,824    .3    1.96
Maturing after one year through five years  3,525    3,296    4.4    1.50 
Maturing after five years through ten years  17,771    16,479    7.4    2.04 
Maturing after ten years  2,657    2,168    11.8    1.99 
Total $25,779   $23,767    6.9    1.95
Mortgage-Backed Securities (a)                   
Maturing in one year or less $44   $44    .7    2.67
Maturing after one year through five years  12,785    12,381    3.2    2.03 
Maturing after five years through ten years  33,303    30,454    7.9    1.81 
Maturing after ten years  25,412    22,437    10.6    2.11 
Total $71,544   $65,316    8.0    1.96
Obligations of State and Political Subdivisions (b) (c)                   
Maturing in one year or less $182   $182    .3    4.63
Maturing after one year through five years  1,974    1,955    4.0    4.43 
Maturing after five years through ten years  1,480    1,401    7.2    3.82 
Maturing after ten years  7,289    6,178    16.9    3.36 
Total $10,925   $9,716    13.0    3.64
Other                   
Maturing in one year or less $   $        
Maturing after one year through five years  7    7    2.9    2.07 
Maturing after five years through ten years               
Maturing after ten years               
Total $7   $7    2.9    2.07
Total available-for-sale (d) $108,255   $98,806    8.2    2.13
 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
The weighted-average maturity of total
held-to-maturity
investment securities was 7.4 years at December 31, 2021, with a corresponding weighted-average yield of 1.45 percent. The weighted-average maturity of total
available-for-sale
investment securities was 5.5 years at December 31, 2021, with a corresponding weighted-average yield of 1.73 percent.
(e)
Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from
available-for-sale
to
held-to-maturity.
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  Note  5
 
   Loans and Allowance for Credit Losses​​​​​​​Losses
The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:
 
  March 31, 2022       December 31, 2021 
(Dollars in Millions) Amount   Percent
of Total
       Amount   Percent
of Total
 
Commercial
                       
Commercial
 $112,479    35.3      $106,912    34.3
Lease financing
  4,991    1.6        5,111    1.6 
Total commercial
  117,470    36.9        112,023    35.9 
Commercial Real Estate
                       
Commercial mortgages
  29,501    9.3        28,757    9.2 
Construction and development
  9,690    3.0        10,296    3.3 
Total commercial real estate
  39,191    12.3        39,053    12.5 
Residential Mortgages
                       
Residential mortgages
  69,680    21.8        67,546    21.6 
Home equity loans, first liens
  8,807    2.8        8,947    2.9 
Total residential mortgages
  78,487    24.6        76,493    24.5 
Credit Card
  22,163    6.9        22,500    7.2 
Other Retail
                       
Retail leasing
  6,941    2.2        7,256    2.3 
Home equity and second mortgages
  10,457    3.3        10,446    3.4 
Revolving credit
  2,652    .8        2,750    .9 
Installment
  16,732    5.2        16,514    5.3 
Automobile
  24,724    7.8        24,866    8.0 
Student
  117    --        127    -- 
Total other retail
  61,623    19.3        61,959    19.9 
Total loans
 $318,934    100.0      $312,028    100.0
  June 30, 2022       December 31, 2021 
(Dollars in Millions) Amount   Percent
of Total
       Amount   Percent
of Total
 
Commercial
                       
Commercial $121,130    36.4      $106,912    34.3
Lease financing  4,853    1.5        5,111    1.6 
Total commercial  125,983    37.9        112,023    35.9 
Commercial Real Estate
                       
Commercial mortgages  29,864    9.0        28,757    9.2 
Construction and development  9,889    3.0        10,296    3.3 
Total commercial real estate  39,753    12.0        39,053    12.5 
Residential Mortgages
                       
Residential mortgages  73,522    22.1        67,546    21.6 
Home equity loans, first liens  8,592    2.6        8,947    2.9 
Total residential mortgages  82,114    24.7        76,493    24.5 
Credit Card
  23,697    7.1        22,500    7.2 
Other Retail
                       
Retail leasing  6,490    2.0        7,256    2.3 
Home equity and second mortgages  10,973    3.3        10,446    3.4 
Revolving credit  2,764    .8        2,750    .9 
Installment  16,656    5.0        16,514    5.3 
Automobile  23,830    7.2        24,866    8.0 
Student  109            127     
Total other retail  60,822    18.3        61,959    19.9 
Total loans $332,369    100.0      $312,028    100.0
The Company had loans of $91.8$92.4 billion at March 31,June 30, 2022, and $92.1 billion at December 31, 2021, pledged at the Federal Home Loan Bank, and loans of $79.7$83.7 billion at March 31,June 30, 2022, and $76.9 billion at December 31, 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, and any partial charge-offs recorded. Net unearned interest and deferred fees and costs amounted to $394$364 million at March 31,June 30, 2022 and $475 million at December 31, 2021. All purchased loans are recorded at fair value at the date of purchase. The Company evaluates purchased loans for more-than-insignificant deterioration at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans that have experienced more-than-insignificant deterioration from origination are considered purchased credit deteriorated loans. All other purchased loans are considered
non-purchased
credit deteriorated loans.
Allowance for Credit Losses
The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the 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 appropriateness of the allowance for 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.
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U.S. Bancorp

The allowance recorded for 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 and corporate bonds spreads, as well as loan and
U.S. Bancorp
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borrower characteristics, such as internal risk ratings on commercial loans and 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 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 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 is performed to consider expected credit losses. The allowance recorded for individually evaluated loans greater than $5 million in the commercial lending segment is based on an 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 as appropriate.
The allowance recorded for Troubled Debt Restructuring (“TDR”) 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. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral less costs to sell. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans.
The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above, are adjusted by management 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 scenario assumptions, and emerging risks related to either changes in the 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.
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 other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments.
The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each specific loan portfolio, as well as the entire loan portfolio, as the entire allowance for credit losses is available for the entire loan portfolio.
 
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Activity in the allowance for credit losses by portfolio class was as follows:
 
(Dollars in Millions) Commercial  Commercial
Real Estate
  Residential
Mortgages
  Credit
Card
  Other
Retail
  Total
Loans
 
Balance at December 31, 2021
  $1,849   $1,123   $565   $1,673   $   945   $6,155 
Add
                        
Provision for credit losses
  19   (54  29   78   40   112 
Deduct
                        
Loans charged-off
  55   1   5   158   61   280 
Less recoveries of loans charged-off
  (23  (6  (11  (46  (32  (118
Net loan charge-offs (recoveries)
  32   (5  (6  112   29   162 
Balance at March 31, 2022
  $1,836   $1,074   $600   $1,639   $956   $6,105 
Balance at December 31, 2020
  $2,423   $1,544   $573   $2,355   $1,115   $8,010 
Add
                        
Provision for credit losses
  (435  (19  (39  (259  (75  (827
Deduct
                        
Loans charged-off
  86   10   5   190   83   374 
Less recoveries of loans charged-off
  (30  (17  (10  (46  (48  (151
Net loan charge-offs (recoveries)
  56   (7  (5  144   35   223 
Balance at March 31, 2021
  $1,932   $1,532   $539   $1,952   $1,005   $6,960 
Three Months Ended June 30
(Dollars in Millions)
 Commercial  Commercial
Real Estate
  Residential
Mortgages
  Credit
Card
  Other
Retail
  Total
Loans
 
2022
                        
Balance at beginning of period
  $1,836   $1,074   $600   $1,639   $   956   $6,105 
Add                        
Provision for credit losses  90   (95  49   225   42   311 
Deduct                        
Loans charged-off  53   9   2   162   50   276 
Less recoveries of loans charged-off  (23  (3  (11  (44  (34  (115
Net loan charge-offs (recoveries)  30   6   (9  118   16   161 
Balance at end of period
  $1,896   $
 
 
973
   $658   $1,746   $
 
 
982
   $6,255 
2021
                        
Balance at beginning of period
  $1,932   $1,532   $539   $1,952   $1,005   $6,960 
Add                        
Provision for credit losses  (67  (123  (71  87   4   (170
Deduct                        
Loans charged-off  58   4   5   192   55   314 
Less recoveries of loans charged-off  (31  (4  (15  (44  (40  (134
Net loan charge-offs (recoveries)  27      (10  148   15   180 
Balance at end of period
  $1,838   $1,409   $478   $1,891   $   994   $6,610 
Six Months Ended June 30
(Dollars in Millions)
 Commercial  Commercial
Real Estate
  Residential
Mortgages
  Credit
Card
  Other
Retail
  Total
Loans
 
2022
                        
Balance at beginning of period
  $1,849   $1,123   $565   $1,673   $   945   $6,155 
Add                        
Provision for credit losses  109   (149  78   303   82   423 
Deduct                        
Loans charged-off  108   10   7   320   111   556 
Less recoveries of loans charged-off  (46  (9  (22  (90  (66  (233
Net loan charge-offs (recoveries)  62   1   (15  230   45   323 
Balance at end of period
  $1,896   $
 
 
973
   $658   $1,746   $
 
 
982
   $6,255 
2021
                        
Balance at beginning of period
  $2,423   $1,544   $573   $2,355   $1,115   $8,010 
Add                        
Provision for credit losses  (502  (142  (110  (172  (71  (997
Deduct                        
Loans charged-off  144   14   10   382   138   688 
Less recoveries of loans charged-off  (61  (21  (25  (90  (88  (285
Net loan charge-offs (recoveries)  83   (7  (15  292   50   403 
Balance at end of period
  $1,838   $1,409   $478   $1,891   $   994   $6,610 
The decreaseincrease in the allowance for credit losses from December 31, 2021 to March 31,June 30, 2022 reflected continued strong credit quality,loan growth and increased economic uncertainty, partially offset by loan growth and increasing economic uncertainty.
stabilizing credit quality.
Credit Quality
The credit quality of the Company’s loan portfolios is assessedass
e
ssed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.
For all loan portfolio classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractually required payments not made (for example, two missed payments is considered 30 days delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed, reducing interest income in the current period.
Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully charged down if unsecured by collateral or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is placed on nonaccrual.
Consumer lending segment loans are 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 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
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become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account 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.
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.
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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 (b)   Total 
March 31, 2022
                        
Commercial
 $116,986    $   234    $  76    $  174    $117,470 
Commercial real estate
  38,888    86    1    216    39,191 
Residential mortgages (a)
  78,028    105    140    214    78,487 
Credit card
  21,804    194    165        22,163 
Other retail
  61,157    237    68    161    61,623 
Total loans
 $316,863    $   856    $450    $  765    $318,934 
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 
  Accruing         
(Dollars in Millions) Current   30-89 Days
Past Due
 
90 Days or
More Past Due
   Nonperforming (b)   Total 
June 30, 2022
                        
Commercial $125,490    $   254    $  91    $148    $125,983 
Commercial real estate  39,519    24    4    206    39,753 
Residential mortgages (a)  81,689    100    102    223    82,114 
Credit card  23,333    200    164        23,697 
Other retail  60,376    236    62    148    60,822 
Total loans $330,407    $
 
 
 
814
    $423    $725    $332,369 
December 31, 2021
                        
Commercial $111,270    $   530    $49    $174    $112,023 
Commercial real estate  38,678    80    11    284    39,053 
Residential mortgages (a)  75,962    124    181    226    76,493 
Credit card  22,142    193    165        22,500 
Other retail  61,468    275    66    150    61,959 
Total loans $309,520    $1,202    $472    $834    $312,028 
(a)
At March 31,June 30, 2022, $662 $
642
million of loans 30–89 days past due and $1.3 $
1.7
billion of loans 90 days or more past due purchased
 and loans that could be purchased 
from Government National Mortgage Association (“GNMA”) mortgage pools
under delinquent loan repurchase options 
whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, were classified as current, compared with $791 $
791
million and $1.5 $
1.5
billion at December 31, 2021, respectively.
(b)
Substantially all nonperforming loans at March 31,June 30, 2022 and December 31, 2021, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $3$
5
million and $
4
million for the three months ended March 31,June 30, 2022 and 2021. 2021, respectively, and $
8
million and $
7
million for the six months ended June 30, 2022 and 2021, respectively.
At March 31,June 30, 2022, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $23 million, compared with $22 million at December 31, 2021. These amounts excluded $27$40 million and $22 million at March 31,June 30, 2022 and December 31, 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 March 31,June 30, 2022 and December 31, 2021, was $1.1 billion and $696 million, respectively, of which $876$898 million and $555 million, respectively, related to loans
purchased and loans that could be purchased
 from Government National Mortgage Association (“GNMA”)
mortgage pools under delinquent loan repurchase options whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
The Company classifies its loan 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 management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those loans that have a potential weakness deserving management’s close attention. Classified loans
4
6
U.S. Bancorp

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.
U.S. Bancorp
45

The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:
  March 31, 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
  $   13,554   $     8   $     45   $         53   $   13,607         $          –   $       –   $       –   $         –   $          – 
Originated in 2021
  47,131   378   283   661   47,792           51,155   387   287   674   51,829 
Originated in 2020
  11,779   38   312   350   12,129         14,091   304   133   437   14,528 
Originated in 2019
  8,761   24   99   123   8,884         10,159   151   54   205   10,364 
Originated in 2018
  4,475   11   44   55   4,530         5,122   3   36   39   5,161 
Originated prior to 2018
  4,251   17   49   66   4,317         4,923   30   81   111   5,034 
Revolving
  25,756   261   194   455   26,211         24,722   268   117   385   25,107 
Total commercial
  115,707   737   1,026   1,763   117,470         110,172   1,143   708   1,851   112,023 
            
Commercial real estate
                                              
Originated in 2022
  3,170   110   185   295   3,465                      
Originated in 2021
  12,419   17   705   722   13,141         13,364   6   990   996   14,360 
Originated in 2020
  6,907   78   241   319   7,226         7,459   198   263   461   7,920 
Originated in 2019
  5,750   310   556   866   6,616         6,368   251   610   861   7,229 
Originated in 2018
  2,847   42   213   255   3,102         2,996   29   229   258   3,254 
Originated prior to 2018
  3,898   19   152   171   4,069         4,473   55   224   279   4,752 
Revolving
  1,530      42   42   1,572         1,494   1   43   44   1,538 
Total commercial real estate
  36,521   576   2,094   2,670   39,191         36,154   540   2,359   2,899   39,053 
            
Residential mortgages (b)
                                              
Originated in 2022
  6,431            6,431                      
Originated in 2021
  29,721      4   4   29,725         29,882      3   3   29,885 
Originated in 2020
  14,850      10   10   14,860         15,948   1   8   9   15,957 
Originated in 2019
  6,154      23   23   6,177         6,938      36   36   6,974 
Originated in 2018
  2,553      20   20   2,573         2,889      30   30   2,919 
Originated prior to 2018
  18,407      313   313   18,720         20,415      342   342   20,757 
Revolving
  1            1         1            1 
Total residential mortgages
  78,117      370   370   78,487         76,073   1   419   420   76,493 
            
Credit card (c)
  21,998      165   165   22,163         22,335      165   165   22,500 
            
Other retail
                                              
Originated in 2022
  4,644            4,644                      
Originated in 2021
  20,495      7   7   20,502         22,455      6   6   22,461 
Originated in 2020
  10,972      9   9   10,981         12,071      9   9   12,080 
Originated in 2019
  6,327      14   14   6,341         7,223      17   17   7,240 
Originated in 2018
  2,675      12   12   2,687         3,285      14   14   3,299 
Originated prior to 2018
  3,174      20   20   3,194         3,699      24   24   3,723 
Revolving
  12,644      127   127   12,771         12,532      112   112   12,644 
Revolving converted to term
  460      43   43   503         472      40   40   512 
Total other retail
  61,391      232   232   61,623         61,737      222   222   61,959 
Total loans
  $313,734   $1,313   $3,887   $  5,200   $318,934         $306,471   $1,684   $3,873   $ 5,557   $312,028 
Total outstanding commitments
  $678,366   $2,372   $5,684   $8,056   $686,422         $662,363   $3,372   $5,684   $ 9,056   $671,419 
 
  June 30, 2022        December 31, 2021 
     Criticized             Criticized    
(Dollars in Millions) Pass  Special
Mention
  Classified (a)  Total
Criticized
  Total  ��     Pass  Special
Mention
  Classified (a)  Total
Criticized
  Total 
Commercial                                              
Originated in 2022  $  32,672   $     52   $   142   $   194   $  32,866         $          –   $       –   $       –   $         –   $          – 
Originated in 2021  40,532   298   110   408   40,940           51,155   387   287   674   51,829 
Originated in 2020  9,809   11   292   303   10,112         14,091   304   133   437   14,528 
Originated in 2019  6,624   6   61   67   6,691         10,159   151   54   205   10,364 
Originated in 2018  3,313   3   20   23   3,336         5,122   3   36   39   5,161 
Originated prior to 2018  3,902   18   38   56   3,958         4,923   30   81   111   5,034 
Revolving (b)  27,628   277   175   452   28,080         24,722   268   117   385   25,107 
Total commercial  124,480   665   838   1,503   125,983         110,172   1,143   708   1,851   112,023 
            
Commercial real estate                                              
Originated in 2022  6,689   148   449   597   7,286                      
Originated in 2021  11,992   63   452   515   12,507         13,364   6   990   996   14,360 
Originated in 2020  6,570   16   181   197   6,767         7,459   198   263   461   7,920 
Originated in 2019  5,009   140   340   480   5,489         6,368   251   610   861   7,229 
Originated in 2018  2,348   29   211   240   2,588         2,996   29   229   258   3,254 
Originated prior to 2018  3,438   19   143   162   3,600         4,473   55   224   279   4,752 
Revolving  1,511      5   5   1,516         1,494   1   43   44   1,538 
Total commercial real estate  37,557   415   1,781   2,196   39,753         36,154   540   2,359   2,899   39,053 
            
Residential mortgages (c)                                              
Originated in 2022  12,396            12,396                      
Originated in 2021  29,446      3   3   29,449         29,882      3   3   29,885 
Originated in 2020  14,384      10   10   14,394         15,948   1   8   9   15,957 
Originated in 2019  5,834      24   24   5,858         6,938      36   36   6,974 
Originated in 2018  2,383      18   18   2,401         2,889      30   30   2,919 
Originated prior to 2018  17,328      288   288   17,616         20,415      342   342   20,757 
Revolving                       1            1 
Total residential mortgages  81,771      343   343   82,114         76,073   1   419   420   76,493 
            
Credit card (d)  23,532      165   165   23,697         22,335      165   165   22,500 
            
Other retail                                              
Originated in 2022  7,650      1   1   7,651                      
Originated in 2021  18,825      8   8   18,833         22,455      6   6   22,461 
Originated in 2020  9,981      10   10   9,991         12,071      9   9   12,080 
Originated in 2019  5,476      13   13   5,489         7,223      17   17   7,240 
Originated in 2018  2,204      10   10   2,214         3,285      14   14   3,299 
Originated prior to 2018  2,626      18   18   2,644         3,699      24   24   3,723 
Revolving  13,381      113   113   13,494         12,532      112   112   12,644 
Revolving converted to term  464      42   42   506         472      40   40   512 
Total other retail  60,607      215   215   60,822         61,737      222   222   61,959 
Total loans  $327,947   $1,080   $3,342   $4,422   $332,369         $306,471   $1,684   $3,873   $5,557   $312,028 
Total outstanding commitments  $702,561   $2,021   $4,851   $6,872   $709,433         $662,363   $3,372   $5,684   $9,056   $671,419 
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 March 31,June 30, 2022, $1.3$1.7 billion of GNMA loans 90 days or more past due and $978$965 million of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $1.5 billion and $1.1 billion at December 31, 2021, respectively.
(c)(d)
AllPredominately all credit card loans are considered revolving loans. Includes an immaterial amount of revolving converted to term loans.
Troubled Debt Restructurings
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR.
46
U.S. Bancorp
 U.S. Bancorp
4
7

The following table provides a summary of loans modified as TDRs for the periods presented by portfolio class:
  2022        2021 
Three Months Ended March 31
(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
 
Commercial
  509    $     38    $  32         704    $   75    $   60 
Commercial real estate
  9    11    10         56    86    71 
Residential mortgages
  840    228    226         336    104    104 
Credit card
  9,339    50    50         5,786    33    34 
Other retail
  728    37    37         1,325    37    32 
Total loans, excluding loans purchased from GNMA mortgage pools
  11,425    364    355         8,207    335    301 
Loans purchased from GNMA mortgage pools
  390    55    55         559    87    89 
Total loans
  11,815    $   419    $410         8,766    $   422    $   390 

  2022        2021 
(Dollars in Millions) Number
of Loans
   Pre-Modification
Outstanding
Loan Balance
   
Post-Modification

Outstanding
Loan Balance
        Number
of Loans
   Pre-Modification
Outstanding
Loan Balance
   
Post-Modification

Outstanding
Loan Balance
 
Three Months Ended June 30
                                  
Commercial  506    $     50    $  41         526    $     12    $     13 
Commercial real estate  28    11    9         30    38    41 
Residential mortgages  366    106    106         360    141    140 
Credit card  8,696    48    49         5,050    31    31 
Other retail  756    24    20         468    18    17 
Total loans, excluding loans purchased from GNMA mortgage pools  10,352    239    225         6,434    240    242 
Loans purchased from GNMA mortgage pools  353    47    50         478    67    69 
Total loans  10,705    $   286    $275         6,912    $   307    $   311 
        
Six Months Ended June 30
                                  
Commercial  1,015    $     88    $  73         1,230    $     87    $     73 
Commercial real estate  37    22    19         86    124    112 
Residential mortgages  1,206    334    332         696    245    244 
Credit card  18,035    98    99         10,836    64    65 
Other retail  1,484    61    57         1,793    55    49 
Total loans, excluding loans purchased from GNMA mortgage pools  21,777    603    580         14,641    575    543 
Loans purchased from GNMA mortgage pools  743    102    105         1,037    154    158 
Total loans  22,520    $   705    $685         15,678    $   729    $   701 
Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. At March 31,June 30, 2022, 68 residential mortgages, 18 home equity and second mortgage loanloans and 9997 loans purchased from GNMA mortgage pools with outstanding balances of
less than $1
$1 million,
less than $1
$1 million and $14$13 million, respectively, were in a trial period and have estimated post-modification balances of
less than $1
$1 million,
less than $1
$1 million and $15$14 million, respectively, assuming permanent modification occurs at the end of the trial period.
The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a
case-by-case
basis in connection with ongoing loan collection processes.
For the commercial lending segment, modifications generally result in the Company working with borrowers on a
case-by-case
basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market interest rate. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies all of the above concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.
Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is 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.
48
U.S. Bancorp

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.
U.S. Bancorp
47

The following table provides a summary of TDR loans that defaulted (fully or partially
charged-off
or became 90 days or more past due) for the periods presented, that were modified as TDRs within 12 months previous to default:
 
Three Months Ended March 31
(Dollars in Millions)
 2022        2021 
Number
of Loans
   Amount
Defaulted
        Number
of Loans
   Amount
Defaulted
 
 2022        2021 
(Dollars in Millions) Number
of Loans
   Amount
Defaulted
        Number
of Loans
   Amount
Defaulted
 
Three Months Ended June 30
              
Commercial
 214    $  3        285    $  16  175    $  3        327    $    8 
Commercial real estate
 3    1        7    5  2    1        5    1 
Residential mortgages
 34    3        15    2  79    7        12    1 
Credit card
 1,634    9        1,764    9  1,727    9        1,805    11 
Other retail
 83    1        280    5  60    1        191    3 
Total loans, excluding loans purchased from GNMA mortgage pools
 1,968    17        2,351    37  2,043    21        2,340    24 
Loans purchased from GNMA mortgage pools
 49    8        30    4  120    17        43    6 
Total loans
 2,017    $25        2,381    $  41  2,163    $38        2,383    $  30 
   
Six Months Ended June 30
              
Commercial 389    $  6        612    $  24 
Commercial real estate 5    2        12    6 
Residential mortgages 113    10        27    3 
Credit card 3,361    18        3,569    20 
Other retail 143    2        471    8 
Total loans, excluding loans purchased from GNMA mortgage pools 4,011    38        4,691    61 
Loans purchased from GNMA mortgage pools 169    25        73    10 
Total loans 4,180    $63        4,764    $  71 
In addition to the defaults in the table above, the Company had a total of 1612 and 28 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and six months ended March 31,June 30, 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 $2 million and $4 million for the three months and six months ended March 31, 2022.June 30, 2022, respectively.
As of March 31,June 30, 2022, the Company had $105$112 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified in TDRs.
 
 Note 6    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 16.
For loans sold under participation agreements, the Company also considers whether the terms of the loan participation agreement meet the accounting definition of a participating interest. With the exception of servicing and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses. Any gain or loss on sale depends on the previous carrying amount of the transferred financial assets, the consideration received, and any liabilities incurred in exchange for the transferred assets. Upon transfer, any servicing assets and other interests that continue to be held by the Company are initially recognized at fair value. For further information on mortgage servicing rights (“MSRs”), refer to Note 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.
U.S. Bancorp
49

The Company also provides financial support primarily through the use of waivers of trust and investment management fees associated with various unconsolidated registered money market funds it manages. The Company provided $58$7 million and $47$70 million of support to the funds during the three months ended March 31,June 30, 2022 and 2021, respectively, and $65 million and $117 million during the six months ended June 30, 2022 and 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 $113$112 million and $133$110 million for the three months ended
48
U.S. Bancorp

March 31, June 30, 2022 and 2021, respectively, and $225 million and $243 million for the six months ended June 30, 2022 and 2021, respectively. The Company also recognized $13$162 million and $37$123 million of investment tax credits for the three months ended March 31,June 30, 2022 and 2021, respectively, and $175 million and $160 million for the six months ended June 30, 2022 and 2021, respectively. The Company recognized $102 million and $126$106 million of expenses related to all of these investments for both the three months ended March 31,June 30, 2022 and 2021, respectively, of which $91$92 million and $92$87 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense. The Company recognized $208 million and $232 million of expenses related to all of these investments for the six months ended June 30, 2022 and 2021, respectively, of which $183 million and $179 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense.
The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.​​​​​​​
The Company’s investments in these unconsolidated VIEs are carried in other assets on the Consolidated Balance Sheet. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in other liabilities on the Consolidated Balance Sheet. The Company’s maximum exposure to loss from these 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) March 31,
2022
   December 31,
2021
 
Investment carrying amount
 $5,106   $4,484 
Unfunded capital and other commitments
  2,331    1,890 
Maximum exposure to loss
  9,764    9,899 
(Dollars in Millions) 
June 30,
2022
   December 31,
2021
 
Investment carrying amount $4,999   $4,484 
Unfunded capital and other commitments  2,210    1,890 
Maximum exposure to loss  9,872    9,899 
The Company also has noncontrolling financial investments in private investment funds and partnerships considered to be VIEs, which are not consolidated. The Company’s recorded investment in these entities, carried in other assets on the Consolidated Balance Sheet, was approximately $41$46 million at March 31,June 30, 2022 and $40 million at December 31, 2021. The maximum exposure to loss related to these VIEs was $87 million at June 30, 2022 and $84 million at March 31, 2022 and December 31, 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 $74$105 million at March 31,June 30, 2022, compared with less than $1 million to $75 million at December 31, 2021.
5
0
U.S. Bancorp

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 March 31,June 30, 2022, approximately $4.9 billion of the Company’s assets and $3.3 billion of its liabilities included on the Consolidated Balance Sheet were related to community development and
tax-advantaged
investment VIEs which the Company has consolidated, primarily related to these transfers. These amounts compared to $5.0 billion and $3.4 billion, respectively, at December 31, 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.
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 March 31,June 30, 2022, $1.6$1.5 billion of
available-for-sale
investment securities and $1.2 billion of short-term borrowings on the Consolidated Balance Sheet were related to the tender option bond program, compared with $1.7 billion of
available-for-sale
investment securities and $1.2 billion of short-term borrowings at December 31, 2021.
 
U.S. Bancorp
49

 Note 7
 
   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 $227.2$226.4 billion of residential mortgage loans for others at March 31,June 30, 2022, and $222.4 billion at December 31, 2021, including subserviced mortgages with no corresponding MSR asset. Included in mortgage banking revenue are the MSR fair value changes arising from market rate and model assumption changes, net of the value change in derivatives used to economically hedge MSRs. These changes resulted in a net lossgains of $29$13 million and $120net losses of $27 million for the three months ended March 31,June 30, 2022 and 2021, respectively, and net losses of $16 million and $147 million for the six months ended June 30, 2022 and 2021, respectively. Loan servicing and ancillary fees, not including valuation changes, included in mortgage banking revenue were $185$186 million and $175$178 million for the three months ended March 31,June 30, 2022 and 2021 respectively, and $371 million and $353 million for the six months ended June 30, 2022 and 2021, respectively.
Changes in fair value of capitalized MSRs are summarized as follows:
 
  
Three Months Ended
March 31
 
(Dollars in Millions) 2022  2021 
Balance at beginning of period
 $ 2,953  $ 2,210 
Rights purchased
  3   16 
Rights capitalized
  237   319 
Rights sold (a)
  1    
Changes in fair value of MSRs
        
Due to fluctuations in market interest rates (b)
  368   486 
Due to revised assumptions or models (c)
  (27  (102
Other changes in fair value (d)
  (103  (142
Balance at end of period
 $3,432  $2,787 
  Three Months Ended
June 30
       Six Months Ended
June 30
 
(Dollars in Millions) 2022  2021       2022  2021 
Balance at beginning of period $3,432  $2,787       $2,953  $2,210 
Rights purchased  3   11        6   27 
Rights capitalized  102   293        339   612 
Rights sold (a)     1        1   1 
Changes in fair value of MSRs                     
Due to fluctuations in market interest rates (b)  289   (232       657   254 
Due to revised assumptions or models (c)  6   (37       (21  (139
Other changes in fair value (d)  (125  (110       (228  (252
Balance at end of period $3,707  $2,713       $3,707  $2,713 
 
(a)
MSRs sold include those having a negative fair value, resulting from the loans being severely delinquent.
(b)
Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
(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.
(d)
Primarily the change in MSR value from passage of time and cash flows realized (decay), but also includes the impact of changes to expected cash flows not associated with changes in market interest rates, such as the impact of delinquencies.
U.S. Bancorp
5
1

The estimated sensitivity to changes in interest rates of the fair value of the MSR portfolio and the related derivative instruments was as follows:
 
  June 30, 2022        December 31, 2021 
(Dollars in Millions) Down
100 bps
   Down
50 bps
   Down
25 bps
   Up
25 bps
   Up
50 bps
   Up
100 bps
        Down
100 bps
   Down
50 bps
   Down
25 bps
   Up
25 bps
   Up
50 bps
   Up
100 bps
 
MSR portfolio $(380)   $(172)   $(81)   $71   $133   $231        $(636)   $(324)   $(160)   $150   $287   $511 
Derivative instrument hedges  371    170    81    (73)    (141)    (261)         614    309    152    (142)    (278)    (536) 
Net sensitivity $(9)   $(2)   $   $(2)   $(8)   $(30)        $(22)   $(15)   $(8)   $8   $9   $(25) 
Th
e
  March 31, 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
 $(485 $(227 $(109 $99  $189  $338       $(636 $(324 $(160 $150  $287  $511 
Derivative instrument hedges
  485   224   106   (94  (180  (333       614   309   152   (142  (278  (536
Net sensitivity
 $0  $(3 $(3 $5  $9  $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 servicing portfolio is comprised of loans originated under state and local housing authority program guidelines which assist purchases by first-time or
low-
to moderate-income homebuyers through a favorable rate subsidy, down payment and/or closing cost assistance on government- and conventional-insured mortgages.
50
U.S. Bancorp

A summary of the Company’s MSRs and related characteristics by portfolio was as follows:
 
  March 31, 2022      December 31, 2021 
(Dollars in Millions) HFA  Government  Conventional (d)  Total      HFA  Government  Conventional (d)  Total 
Servicing portfolio (a)
 $41,430  $21,619  $160,611  $223,660      $40,652  $21,919  $156,382  $218,953 
Fair value
 $628  $365  $2,439  $3,432      $527  $308  $2,118  $2,953 
Value (bps) (b)
  152   169   152   153       130   141   135   135 
Weighted-average servicing fees (bps)
  36   41   30   32       36   41   30   32 
Multiple (value/servicing fees)
  4.23   4.12   5.02   4.75       3.63   3.43   4.50   4.18 
Weighted-average note rate
  4.02  3.66  3.38  3.53      4.07  3.70  3.41  3.56
Weighted-average age (in years)
  3.8   6.0   3.3   3.7       3.8   5.9   3.3   3.7 
Weighted-average expected prepayment (constant prepayment rate)
  9.6  10.6  8.1  8.6      11.5  13.2  9.6  10.3
Weighted-average expected life (in years)
  7.5   6.5   7.5   7.4       6.5   5.6   6.9   6.7 
Weighted-average option adjusted spread (c)
  6.8  6.7  6.0 ��6.2      7.3  7.3  6.3  6.6
  June 30, 2022      December 31, 2021 
(Dollars in Millions) HFA  Government  Conventional (d)  Total      HFA  Government  Conventional (d)  Total 
Servicing portfolio (a) $41,701  $21,358  $159,657  $222,716      $40,652  $21,919  $156,382  $218,953 
Fair value $697  $403  $2,607  $3,707      $527  $308  $2,118  $2,953 
Value (bps) (b)  167   189   163   166       130   141   135   135 
Weighted-average servicing fees (bps)  36   41   30   32       36   41   30   32 
Multiple (value/servicing fees)  4.65   4.59   5.41   5.15       3.63   3.43   4.50   4.18 
Weighted-average note rate  4.02  3.67  3.40  3.54      4.07  3.70  3.41  3.56
Weighted-average age (in years)  3.9   6.0   3.5   3.8       3.8   5.9   3.3   3.7 
Weighted-average expected prepayment (constant prepayment rate)  7.5  8.5  6.5  6.9      11.5  13.2  9.6  10.3
Weighted-average expected life (in years)  8.6   7.4   8.2   8.2       6.5   5.6   6.9   6.7 
Weighted-average option adjusted spread (c)  7.2  6.9  5.9  6.2      7.3  7.3  6.3  6.6
 
(a)
Represents principal balance of mortgages having corresponding MSR asset.
(b)
Calculated as fair value divided by the servicing portfolio.
(c)
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.
 Note 8 
    Preferred Stock
At March 31,June 30, 2022 and December 31, 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:​​​​​​​
 
  March 31, 2022        December 31, 2021 
At December 31 (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 
  June 30, 2022        December 31, 2021 
(Dollars in Millions) Shares
Issued and
Outstanding
   Liquidation
Preference
   Discount   Carrying
Amount
        Shares
Issued and
Outstanding
   Liquidation
Preference
   Discount   Carrying
Amount
 
Series A  12,510   $1,251   $145   $1,106         12,510   $1,251   $145   $1,106 
Series B  40,000    1,000        1,000         40,000    1,000        1,000 
Series J  40,000    1,000    7    993         40,000    1,000    7    993 
Series K  23,000    575    10    565         23,000    575    10    565 
Series L  20,000    500    14    486         20,000    500    14    486 
Series M  30,000    750    21    729         30,000    750    21    729 
Series N  60,000    1,500    8    1,492         60,000    1,500    8    1,492 
Series O  18,000    450    13    437                      
Total preferred stock (a)  243,510   $7,026   $218   $6,808         225,510   $6,576   $205   $6,371 
 
(a)
The par value of all shares issued and outstanding at March 31,June 30, 2022 and December 31, 2021, was $1.00 per share.
During the first threesix months of 2022, the Company issued depositary shares representing an ownership interest in 18,000 shares of Series O
Non-Cumulative
Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series O Preferred Stock”). The Series O Preferred Stock has no stated maturity and will not be subject to
5
2
U.S. Bancorp

any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 4.50 percent. The Series O Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after April 15, 2027. The Series O Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to April 15, 2027 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series O Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.
 
U.S. Bancorp
51

 Note 9 
 
   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 for the three months ended March 31, is as follows:
 
(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)
  (6,754              (6,754
Foreign currency translation adjustment (a)
                  
Reclassification to earnings of realized (gains) losses
  (18  42   11   32      67 
Applicable income taxes
  1,714   (11  (3  (8     1,692 
Balance at end of period
 $(4,518 $(904 $(77 $(1,402 $(37 $(6,938
2021
                        
Balance at beginning of period
 $ 2,417  $  $(189 $(1,842 $(64 $322 
Changes in unrealized gains (losses)
  (3,378     99         (3,279
Foreign currency translation adjustment (a)
              25   25 
Reclassification to earnings of realized (gains) losses
  (25     4   39      18 
Applicable income taxes
  861      (26  (10  (6  819 
Balance at end of period
 $(125 $  $(112 $(1,813 $(45 $(2,095
Three Months Ended June 30
(Dollars in Millions)
 
Unrealized Gains
(Losses) on
Investment
Securities
Available-For-
Sale
  
Unrealized
Gains (Losses)
on Investment
Securities
Transferred
From Available-
For-Sale
to
Held-To-Maturity
  
Unrealized Gains
(Losses) on
Derivative Hedges
  
Unrealized Gains
(Losses) on
Retirement Plans
  
Foreign
Currency
Translation
  Total 
2022
                        
Balance at beginning of period $(4,518 $(904 $(77 $(1,402 $(37 $(6,938
Changes in unrealized gains (losses)  (4,761     98         (4,663
Transfer of securities from available-for-sale to
held-to-maturity
  1,381   (1,381           

 
Foreign currency translation adjustment (a)              (3  (3
Reclassification to earnings of realized (gains) losses  (19  61   10   32      84 
Applicable income taxes  859   334   (27  (8  1   1,159 
Balance at end of period $(7,058 $(1,890 $4  $(1,378 $(39 $(10,361
2021
                        
Balance at beginning of period $(125 $  $(112 $(1,813 $(45 $(2,095
Changes in unrealized gains (losses)  1,195      14         1,209 
Foreign currency translation adjustment (a)              (1  (1
Reclassification to earnings of realized (gains) losses  (43     (8  40      (11
Applicable income taxes  (292     (1  (10  (1  (304
Balance at end of period $735  $  $(107 $(1,783 $(47 $(1,202
 
(a)
Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.
Six Months Ended June 30
(Dollars in Millions)
 
Unrealized
Gains
(Losses) on
Investment
Securities
Available-For-
Sale
  
Unrealized
Gains (Losses)
on Investment
Securities
Transferred
From Available-
For-Sale
to
Held-To-Maturity
  
Unrealized Gains
(Losses) on
Derivative Hedges
  
Unrealized Gains
(Losses) on
Retirement Plans
  
Foreign
Currency
Translation
  Total 
2022
                        
Balance at beginning of period $540  $(935 $(85 $(1,426 $(37 $(1,943
Changes in unrealized gains (losses)  (11,515     98         (11,417
Transfer of securities from available-for-sale to
held-to-maturity
  1,381   (1,381     

      
 
Foreign currency translation adjustment (a)              (3  (3
Reclassification to earnings of realized (gains) losses  (37  103   21   64      151 
Applicable income taxes  2,573   323   (30  (16  1   2,851 
Balance at end of period $(7,058 $(1,890 $4  $(1,378 $(39 $(10,361
2021
                        
Balance at beginning of period $2,417  $  $(189 $(1,842 $(64 $322 
Changes in unrealized gains (losses)  (2,183     113         (2,070
Foreign currency translation adjustment (a)              24   24 
Reclassification to earnings of realized (gains) losses  (68     (4  79      7 
Applicable income taxes  569      (27  (20  (7  515 
Balance at end of period $735  $  $(107 $(1,783 $(47 $(1,202
(a)
Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.
 
U.S. Bancorp
53

Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and into earnings for the three months ended March 31, is as follows:
 
  Impact to Net Income  Affected Line Item in the
Consolidated Statement of Income
(Dollars in Millions) 2022  2021 
Unrealized gains (losses) on investment securities
available-for-sale
          
Realized gains (losses) on sale of investment securities
 $ 18  $ 25  Securities gains (losses), net
   (5  (6 Applicable income taxes
   13   19  
Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale
to
held-to-maturity
          
Amortization of unrealized gains  (42    Interest income
   11     Applicable income taxes
   (31    
Net-of-tax
Unrealized gains (losses) on derivative hedges
          
Realized gains (losses) on derivative hedges
  (11  (4 Interest expense
   3   1  Applicable income taxes
   (8  (3 
Net-of-tax
Unrealized gains (losses) on retirement plans
          
Actuarial gains (losses) and prior service cost (credit) amortization
  (32  (39 Other noninterest expense
   8   10  Applicable income taxes
   (24  (29 
Net-of-tax
Total impact to net income
 $(50 $(13  
  Impact to Net Income  Affected Line Item in the
Consolidated Statement of Income
  Three Months Ended
June 30
   Six Months Ended
June 30
 
(Dollars in Millions) 2022  2021   2022  2021 
Unrealized gains (losses) on investment securities
available-for-sale
  
 
    
Realized gains (losses) on sale of investment securities $19  $43   $37  $68  Securities gains (losses), net
   (5)  (11)    (9)   (17)  Applicable income taxes
   14   32    28   51  
Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale
to
held-to-maturity
                   
Amortization of unrealized gains  (61)      (103)    Interest income
   16       26     Applicable income taxes
   (45)      (77)     
Net-of-tax
Unrealized gains (losses) on derivative hedges                   
Realized gains (losses) on derivative hedges  (10)  8    (21)  4  Interest expense
   2   (2)    5   (1)  Applicable income taxes
   (8)   6    (16)   3  
Net-of-tax
Unrealized gains (losses) on retirement plans                   
Actuarial gains (losses) and prior service cost (credit) amortization  (32)  (40   (64)  (79 Other noninterest expense
   8   10    16   20  Applicable income taxes
   (24)   (30)    (48)   (59)  
Net-of-tax
Total impact to net income $(63) $8   $(113) $(5)   
52
U.S. Bancorp

 Note 10
 
   Earnings Per Share
The componentscomponent
s
 of earnings per share were:
 
  Three Months Ended
March 31
 
(Dollars and Shares in Millions, Except Per Share Data) 2022  2021 
Net income attributable to U.S. Bancorp
 $1,557  $2,280 
Preferred dividends
  (84  (90
Impact of preferred stock call (a)
     (5
Earnings allocated to participating stock awards
  (7  (10
Net income applicable to U.S. Bancorp common shareholders
 $1,466  $2,175 
Average common shares outstanding
  1,485   1,502 
Net effect of the exercise and assumed purchase of stock awards
  1   1 
Average diluted common shares outstanding
  1,486   1,503 
Earnings per common share
 $.99  $1.45 
Diluted earnings per common share
 $.99  $1.45 
  Three Months Ended
June 30
   Six Months Ended
June 30
 
(Dollars and Shares in Millions, Except Per Share Data)     2022      2021       2022      2021 
Net income attributable to U.S. Bancorp $1,531  $1,982   $3,088  $4,262 
Preferred dividends  (59  (58   (143  (148
Impact of preferred stock call (a)            (5
Earnings allocated to participating stock awards  (8  (10   (15  (20
Net income applicable to U.S. Bancorp common shareholders $1,464  $1,914   $2,930  $4,089 
Average common shares outstanding  1,486   1,489    1,485   1,495 
Net effect of the exercise and assumed purchase of stock awards  1   1    1   2 
Average diluted common shares outstanding  1,487   1,490    1,486   1,497 
Earnings per common share $.99  $1.29   $1.97  $2.73 
Diluted earnings per common share $.99  $1.28   $1.97  $2.73 
 
(a)
Represents stock issuance costs originally recorded in preferred stock upon issuance of the Company’s Series I Preferred Stock that were reclassified to retained earnings on the date the Company announced its intent to redeem the outstanding shares.
Options outstanding at March 31,June 30, 2022, to purchase 1 million common shares for the three months and six months ended June 30, 2022, and outstanding at June 30, 2021, to purchase 1 million common shares for the six months ended June 30, 2021 were not included in the computation of diluted earnings per share for the three months ended March 31, 2021 because they were antidilutive.
 
 Note 11
 
   Employee Benefits
The components of net periodic benefit cost for the Company’s retirement plans were:
 
  Three Months Ended March 31 
  Pension Plans       Postretirement
Welfare Plan
 
(Dollars in Millions) 2022  2021       2022  2021 
Service cost
 $69  $66       $  $ 
Interest cost
  61   55            
Expected return on plan assets
  (119  (112           
Prior service cost (credit) amortization
  (1             (1
Actuarial loss (gain) amortization
  35   42        (2  (2
Net periodic benefit cost (a)
 $45  $51       $(2 $(3
  Three Months Ended June 30      Six Months Ended June 30
  Pension Plans  Postretirement
Welfare Plan
      Pension Plans  Postretirement
Welfare Plan
 
(Dollars in Millions) 2022  2021  2022  2021      2022  2021  2022  2021 
Service cost $68  $66  $  $      $137  $132  $  $ 
Interest cost  62   55             123   110       
Expected return on plan assets  (120  (113            (239  (225      
Prior service cost (credit) amortization     (1  (2  (1      (1  (1  (2  (2
Actuarial loss (gain) amortization  35   43   (1  (1      70   85   (3  (3
Net periodic benefit cost (a) $45  $50  $(3 $(2     $90  $101  $(5 $(5
 
(a)
Service cost is included in employee benefits expense on the Consolidated Statement of Income. All other components are included in other noninterest expense on the Consolidated Statement of Income.
5
4
U.S. Bancorp

Note 12
 
   Income Taxes
The components of income tax expense were:
 
  Three Months Ended
March 31
 
(Dollars in Millions)     2022      2021 
Federal
        
Current
 $404  $353 
Deferred
  (102  130 
Federal income tax
  302   483 
State
        
Current
  89   94 
Deferred
  6   30 
   
State income tax
  95   124 
Total income tax provision
 $397  $607 
U.S. Bancorp
53

  Three Months Ended
June 30
   Six Months Ended
June 30
 
(Dollars in Millions)     2022      2021            2022       2021 
Federal
                       
Current $221  $350        $625   $703 
      
Deferred  107   76         5    206 
Federal income tax  328   426         630    909 
State
                       
Current  89   109         178    203 
      
Deferred  (3  16         3    46 
      
State income tax  86   125         181    249 
Total income tax provision $414  $551        $811   $1,158 
A reconciliation of expected income tax expense at the federal statutory rate of 21 percent to the Company’s applicable income tax expense follows:
 
 Three Months Ended
March 31
  Three Months Ended
June 30
   Six Months Ended
June 30
 
(Dollars in Millions)     2022     2021      2022     2021          2022     2021 
Tax at statutory rate
 $411  $607  $409  $533     $820  $1,140 
State income tax, at statutory rates, net of federal tax benefit
 84  114  84  105      168  219 
Tax effect of
         
Tax credits and benefits, net of related expenses
 (106 (93 (46 (83     (152 (176
Tax-exempt
income
 (28 (28 (29 (29     (57 (57
Other items
 36  7  (4 25      32  32 
Applicable income taxes
 $397  $607  $414  $551     $811  $1,158 
The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of March 31,June 30, 2022, federal tax examinations for all years ending through December 31, 2014 are completed and resolved. The Company’s tax returns for the years ended December 31, 2015 2016, 2017 and 2018through 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 asset was $2.6$3.6 billion at March 31,June 30, 2022 and $785 million at December 31, 2021.
 
 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.
Cash Flow Hedges
These derivatives are interest rate swaps the Company uses to hedge the forecasted cash flows from its underlying variable-rate loans and debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged
U.S. Bancorp
5
5

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 March 31,June 30, 2022, the Company had $77 $4 million
million
(net-of-tax)
of realized and unrealized lossesgains on discontinued
derivatives classified as
 cash flow hedges recorded in other comprehensive income (loss), compared with
$85 $85 million
(net-of-tax)
of realized and unrealized losses at December 31, 2021. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the next 12 months is a loss of $27$15 million
(net-of-tax).
All cash flow hedges were highly effective for the three months ended June 30, 2022. There were 0
derivatives held as
cash flow hedges at March 31, 2022 and 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 carrying amount of
non-derivative
debt instruments designated as net investment hedges was $1.2 billion at June 30, 2022, compared with $1.3 billion at March 31, 2022, and December 31, 2021.
54
U.S. Bancorp

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 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 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 15 for further information on these swap agreements.
The following table summarizes the asset and liability management derivative positions of the Company:
 
  March 31, 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
 $2,250   $   $        $12,350   $   $ 
Pay fixed/receive floating swaps
  8,600                 16,650         
Net investment hedges                            
Foreign exchange forward contracts
  807        7         793        4 
Other economic hedges
                                  
Interest rate contracts
                                  
Futures and forwards
                                  
Buy
  16,432    54    179         9,322    10    16 
Sell
  12,509    193    60         29,348    25    27 
Options
                                  
Purchased
  9,310    281             18,570    256     
Written
  10,783    15    165         9,662    52    231 
Receive fixed/pay floating swaps
  10,829                 9,653         
Pay fixed/receive floating swaps
  13,666                 7,033         
Foreign exchange forward contracts
  647    1    5         735    2    6 
Equity contracts
  212    4    1         209    5     
Other (a)
  2,753    5    100         1,792        125 
Total
 $  88,798   $   553   $   517        $116,117   $   350   $409 
  June 30, 2022        December 31, 2021 
  Notional
Value
   Fair Value        Notional
Value
   Fair Value 
(Dollars in Millions)  Assets   Liabilities        Assets   Liabilities 
Fair value hedges                                  
Interest rate contracts                                  
Receive fixed/pay floating swaps $17,400   $   $        $12,350   $   $ 
Pay fixed/receive floating swaps  3,820                 16,650         
Cash flow hedges                                  
Interest rate contract
s

                            
Receive fixed/pay floating swaps  8,300                          
Net investment hedges                                  
Foreign exchange forward contracts  805    6    1         793        4 
Other economic hedges                                  
Interest rate contracts                                  
Futures and forwards                                  
Buy  11,040    30    63         9,322    10    16 
Sell  9,811    34    31         29,348    25    27 
Options                                  
Purchased  7,480    260             18,570    256     
Written  7,208    20    93         9,662    52    231 
Receive fixed/pay floating swaps  11,420                 9,653         
Pay fixed/receive floating swaps  12,481                 7,033         
Foreign exchange forward contracts  852    5    2         735    2    6 
Equity contracts  186    4             209    5     
Other (a)  2,344    2    81         1,792        125 
Total $  93,147   $   361   $   271        $116,117   $   350   $409 
 
(a)
Includes 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 $95$79 million at March 31,June 30, 2022, respectively, compared to $1.8 billion and $125 million at December 31, 2021, respectively. In addition, includes short-term underwriting purchase and sale commitments with total notional values of $973$565 million at March 31,June 30, 2022, and $8 million at December 31, 2021.
U.S. Bancorp
5
6
 
55
U.S. Bancorp

The following table summarizes the customer-related derivative positions of the Company:
 
  March 31, 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
 $189,323   $752   $2,028        $178,701   $2,007   $438 
Pay fixed/receive floating swaps
  181,909    831    341         174,176    134    670 
Other (a)
  17,471    1    3         16,267    1    2 
Options
                                  
Purchased
  87,564    667    2         89,679    194    36 
Written
  84,177    2    649         85,211    36    176 
Futures
                                  
Buy
  291                 3,607         
Sell
  5,185                 3,941         
Foreign exchange rate contracts
                                  
Forwards, spots and swaps
  102,688    1,468    1,473         89,321    1,145    1,143 
Options
                                  
Purchased
  910    25             805    19     
Written
  910        25         805        19 
Credit contracts
  9,537    1    10         9,331    1    5 
Total
 $679,965   $3,747   $4,531        $651,844   $3,537   $2,489 
  June 30, 2022        December 31, 2021 
  
Notional
Value
   Fair Value        
Notional
Value
   Fair Value 
(Dollars in Millions)  Assets   Liabilities        Assets   Liabilities 
Interest rate contracts                                  
Receive fixed/pay floating swaps $204,454   $458   $3,125        $178,701   $2,007   $438 
Pay fixed/receive floating swaps  193,869    1,308    214         174,176    134    670 
Other (a)  19,451    1    3         16,267    1    2 
Options                                  
Purchased  90,183    993    5         89,679    194    36 
Written  87,585    6    979         85,211    36    176 
Futures                                  
Buy  475                 3,607         
Sell  4,928                 3,941         
Foreign exchange rate contracts                                  
Forwards, spots and swaps  95,611    2,222    2,239         89,321    1,145    1,143 
Options                                  
Purchased  861    39             805    19     
Written  861        39         805        19 
Credit contracts  9,152    1    6         9,331    1    5 
Total $707,430   $5,028   $6,610        $651,844   $3,537   $2,489 
 
(a)
Primarily represents floating rate interest rate swaps that pay based on differentials between specified interest rate indexes.
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains (losses) reclassified from other comprehensive income (loss) into earnings
(net-of-tax):
for the three months ended March 31:
 
  
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 
Asset and Liability Management Positions
                      
Cash flow hedges
                      
Interest rate contracts
 $  $74        $(8 $(3
Net investment hedges
                      
Foreign exchange forward contracts
  (1  7             
Non-derivative
debt instruments
  20   48             
  Three Months Ended June 30        Six Months Ended June 30 
  
Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
  
Gains (Losses)
Reclassified
from Other
Comprehensive
Income (Loss)
into Earnings
        
Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
  
Gains (Losses)
Reclassified
from Other
Comprehensive
Income (Loss)
into Earnings
 
(Dollars in Millions) 2022   2021  2022  2021        2022   2021  2022  2021 
Asset and Liability Management Positions
                                        
Cash flow hedges                                        
Interest rate contracts $73   $11  $(8 $6        $73   $85  $(16 $3 
Net investment hedges                                        
Foreign exchange forward contracts  27    (8              26    (1      
Non-derivative
debt instruments
  63    (14              83    34       
 
Note:
The Company does not exclude components from effectiveness testing for cash flow and net investment hedges.
The table below shows the effect of fair value and cash flow hedge accounting on the Consolidated Statement of Income for the three months ended March 31:Income:
 
  Interest Income       Interest Expense 
(Dollars in Millions) 2022  2021       2022  2021 
Total amount of income and expense line items presented in the Consolidated Statement of Income in which the effects of fair value or cash flow hedges are recorded
 $3,418  $3,341       $245  $278 
      
Asset and Liability Management Positions
                     
Fair value hedges
                     
Interest rate contract derivatives
  517   (1       72   55 
Hedged items
  (518  1        (71  (55
Cash flow hedges
                     
Interest rate contract derivatives
             11   4 
  Three Months Ended June 30       Six Months Ended June 30 
  Interest Income  Interest Expense       Interest Income  Interest Expense 
(Dollars in Millions) 2022  2021  2022  2021       2022  2021  2022  2021 
Total amount of income and expense line items presented in the Consolidated Statement of Income in which the effects of fair value or cash flow hedges are recorded $3,825  $3,382  $390  $245       $7,243  $6,723  $635  $523 
          
Asset and Liability Management Positions
                                     
Fair value hedges                                     
Interest rate contract derivatives  (186  (30  (38  18        331   (31  34   73 
Hedged items  187   29   36   (17       (331  30   (35  (72
Cash flow hedges                                     
Interest rate contract derivatives        10   (8             21   (4
 
Note:
The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $11$10 million and $15$21 million into earnings during the three and six months ended March 31,June 30, 2022, and 2021, respectively, as a result of realized cash flows on discontinued cash flow hedges.hedges, compared with $12 million and $27 million during the three and six months ended June 30, 2021, respectively. No amounts were reclassified into earnings on discontinued cash flow hedges because it is probable the original hedged forecasted cash flows will not occur.
56
U.S. Bancorp
 U.S. Bancorp
5
7

The table below shows cumulative hedging adjustments and the carrying amount of assets and liabilities designated in fair value hedges:
 
  Carrying Amount of the Hedged Assets and
Liabilities
        Cumulative Hedging Adjustment (a) 
At December 31 (Dollars in Millions) March 31, 2022   December 31, 2021        March 31, 2022  December 31, 2021 
Line Item in the Consolidated Balance Sheet
                       
Available-for-sale
investment securities
 $7,962   $16,445        $(579 $(26
Long-term debt
  2,148    12,278         382   585 
  Carrying Amount of the Hedged Assets
and Liabilities
        Cumulative Hedging Adjustment (a) 
At December 31 (Dollars in Millions) June 30, 2022   December 31, 2021        June 30, 2022  December 31, 2021 
Line Item in the Consolidated Balance Sheet
                       
Available-for-sale
investment securities
 $3,124   $16,445        $(716 $(26
Long-term debt  17,724    12,278         378   585 
 
(a)
The cumulative hedging adjustment related to discontinued hedging relationships on
available-for-sale
investment securities and long-term debt was $
(40
)$(365) million and $509$468 million, respectively, at March 31,June 30, 2022, compared with $(6) million and $640 million at December 31, 2021, respectively.
The table below shows the gains (losses) recognized in earnings for other economic hedges and the customer-related positions for the three months ended March 31:positions:
 
 Location of Gains (Losses)
Recognized in Earnings
   Three Months Ended
June 30
      Six Months Ended
June 30
 
(Dollars in Millions) 
Location of Gains (Losses)
Recognized in Earnings
     2022   2021       2022     2021          2022     2021 
Asset and Liability Management Positions
               
Other economic hedges
               
Interest rate contracts
               
Futures and forwards
 Mortgage banking revenue   $223 $430   Mortgage banking revenue   $74  $(99    $297  $331 
Purchased and written options
 Mortgage banking revenue    (47 12  Mortgage banking revenue    6  253      (41 265 
Swaps
 Mortgage banking revenue    (204 (390 Mortgage banking revenue    (247 193      (451 (197
Foreign exchange forward contracts
 Other noninterest income    (3 (3 Other noninterest income    4  (7     1  (10
Equity contracts
 Compensation expense    (2 4   Compensation expense    (1  1      (3  5 
Other
 Other noninterest income    (1   Other noninterest income    1  1        1 
Customer-Related Position
s
         
Customer-Related Positions
        
Interest rate contracts
                 
Swaps
 Commercial products revenue    17 27   Commercial products revenue    30   25      47   52 
Purchased and written options
 Commercial products revenue    4 (7 Commercial products revenue      4      4  (3
Futures
 Commercial products revenue    16   Commercial products revenue    8         24    
Foreign exchange rate contracts
                 
Forwards, spots and swaps
 Commercial products revenue    15 19  Commercial products revenue    20  27      35  46 
Purchased and written option
s

 
Commercial products revenue
  
 
1
  
— 
    
 
1
  
 
 
Credit contracts
 Commercial products revenue    5  2  Commercial products revenue    17  (4     22  (2
Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk using a credit valuation adjustment and includes it within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into derivative positions that are centrally cleared through clearinghouses, by entering into master netting arrangements and, where possible, by requiring collateral arrangements. A master netting arrangement allows two counterparties, who have multiple derivative contracts with each other, the ability to net settle amounts under all contracts, including any related collateral, through a single payment and in a single currency. Collateral arrangements generally require the counterparty to deliver collateral (typically cash or U.S. Treasury and agency securities) equal to the Company’s net derivative receivable, subject to minimum transfer and credit rating requirements.
The Company’s collateral arrangements are predominately bilateral and, therefore, contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on net liability thresholds and may be contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral arrangements, the counterparties to the derivatives could request immediate additional collateral coverage up to and including full collateral coverage for derivatives in a net liability position. The aggregate fair value of all derivatives under collateral arrangements that were in a net liability position at March 31,June 30, 2022, was $1.2$1.5 billion. At March 31,June 30, 2022, the Company had $841 million$1.2 billion of cash posted as collateral against this net liability position.
 
 
Note 14
 Netting Arrangements for Certain Financial Instruments and Securities Financing Activities
    
The Company’s derivative portfolio consists of bilateral
over-the-counter
trades, certain interest rate derivatives and credit contracts required to be centrally cleared through clearinghouses per current regulations, and exchange-traded positions which may include U.S. Treasury and Eurodollar futures or options on U.S. Treasury futures. Of the Company’s $768.8$800.6 billion total notional amount of derivative positions at March 31,June 30, 2022, $413.4$409.7 billion related to
 
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58
 
57
U.S. Bancorp

bilateral
over-the-counter
trades, $349.3$383.9 billion related to those centrally cleared through clearinghouses and $6.1$7.0 billion related to those that were exchange-traded. 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 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 13 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, 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 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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 U.S. Bancorp
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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
   
30-89
Days
   
Greater Than
90 Days
   Total  Overnight and
Continuous
   Less Than
30 Days
   
30-89

Days
   Greater Than
90 Days
   Total 
March 31, 2022
              
June 30, 2022
             
Repurchase agreements
                           
U.S. Treasury and agencies
 $499   $   $   $   $499  $429   $   $   $   $429 
Residential agency mortgage-backed securities
 843                843  969                969 
Corporate debt securities
 537                537  597                597 
Total repurchase agreements
 1,879                1,879  1,995                1,995 
Securities loaned
                           
Corporate debt securities
 70                70  225                225 
Total securities loaned
 70                70  225                225 
Gross amount of recognized liabilities
 $1,949   $   $   $   $1,949  $2,220   $   $   $   $2,220 
December 31, 2021
                           
Repurchase agreements
                           
U.S. Treasury and agencies
 $378   $   $   $   $378  $378   $   $   $   $378 
Residential agency mortgage-backed securities
 551                551  551                551 
Corporate debt securities
 646                646  646                646 
Total repurchase agreements
 1,575                1,575  1,575                1,575 
Securities loaned
                           
Corporate debt securities
 169                169  169                169 
Total securities loaned
 169                169  169                169 
Gross amount of recognized liabilities
 $1,744   $   $   $   $1,744  $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. 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:
 
(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)
 
March 31, 2022
                          
Derivative assets (d)
 $4,279   $(2,313 $1,966   $(168 $(24 $1,774 
Reverse repurchase agreements
  506       506    (405  (101   
Securities borrowed
  1,452       1,452       (1,412  40 
Total
 $6,237   $(2,313 $3,924   $(573 $(1,537 $1,814 
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 
(Dollars in Millions) Gross
Recognized
Assets
   Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
  Net Amounts
Presented on the
Consolidated
Balance Sheet
   Gross Amounts Not Offset on the
Consolidated Balance Sheet
  Net Amount 
  Financial
Instruments (b)
  Collateral
Received (c)
 
June 30, 2022
                          
Derivative assets (d) $5,359   $(3,503 $1,856   $(175) $(66) $1,615 
Reverse repurchase agreements  513       513    (386  (127   
Securities borrowed  1,657       1,657       (1,609  48 
Total $7,529   $(3,503 $4,026   $(561 $(1,802 $1,663 
December 31, 2021
                          
Derivative assets (d) $3,830   $(1,609 $2,221   $(142 $(106 $1,973 
Reverse repurchase agreements  359       359    (249  (110   
Securities borrowed  1,868       1,868       (1,818  50 
Total $6,057   $(1,609 $4,448   $(391 $(2,034 $2,023 
 
(a)
Includes $1.1$2.0 billion and $528 million of cash collateral related payables that were netted against derivative assets at March 31,June 30, 2022 and December 31, 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 $21$30 million and $57 million at March 31,June 30, 2022 and December 31, 2021, respectively, of derivative assets not subject to netting arrangements.
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0
 
59
U.S. Bancorp
(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)
 
March 31, 2022
                          
Derivative liabilities (d)
 $4,908   $(2,084 $2,824   $(168 $  $2,656 
Repurchase agreements
  1,879       1,879    (405  (1,474   
Securities loaned
  70       70       (69  1 
Total
 $6,857   $(2,084 $4,773   $(573 $(1,543 $2,657 
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 
(Dollars in Millions)
 
Gross
Recognized
Liabilities
   
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
  
Net Amounts
Presented on the
Consolidated
Balance Sheet
   
Gross Amounts Not Offset on the

Consolidated Balance Sheet
 
  
Financial
Instruments (b)
  
Collateral
Pledged (c)
  
Net Amount
 
June 30, 2022
        
Derivative liabilities (d) $6,771   $(2,639 $4,132   $(175) $  $3,957 
Repurchase agreements  1,995       1,995    (386  (1,609   
Securities loaned  225       225       (223  2 
Total $8,991   $(2,639 $6,352   $(561 $(1,832 $3,959 
December 31, 2021
                          
Derivative liabilities (d) $2,761   $(1,589 $1,172   $(142 $  $1,030 
Repurchase agreements  1,575       1,575    (249  (1,326   
Securities loaned  169       169       (167  2 
Total $4,505   $(1,589 $2,916   $(391 $(1,493 $1,032 
(a)
Includes $841 million$1.2 billion and $508 million of cash collateral related receivables that were netted against derivative liabilities at March 31,June 30, 2022 and December 31, 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 $140$110 million and $137 million at March 31,June 30, 2022 and December 31, 2021, respectively, of derivative liabilities not subject to netting arrangements.
 Note 15
    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 and certain derivative contracts.
U.S. Bancorp
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1

Valuation Methodologies
The valuation methodologies used by the Company to measure financial assets and liabilities at fair value are described below. In addition, the following section includes an indication of the level of the fair value hierarchy in which the
60
U.S. Bancorp

assets or liabilities are classified. Where appropriate, the descriptions include information about the valuation models and key inputs to those models. During the threesix months ended March 31,June 30, 2022 and 2021, there were no significant changes to the valuation techniques used by the Company to measure fair value.
Available-For-Sale
Investment Securities
 When quoted market prices for identical securities are available in an active market, these prices are used to determine fair value and these securities are classified within Level 1 of the fair value hierarchy. Level 1 investment securities include U.S. Treasury and exchange-traded securities.
For other securities, quoted market prices may not be readily available for the specific securities. When possible, the Company determines fair value based on market observable information, including quoted market prices for similar securities, inactive transaction prices, and broker quotes. These securities are classified within Level 2 of the fair value hierarchy. Level 2 valuations are generally provided by a third-party pricing service. 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.
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. Included in mortgage banking revenue werewas a net lossesloss of
$234 
$64 million and
$215a net gain of $98 million for the three months ended March 31,June 30, 2022 and 2021, respectively, and net losses of $298 million and $117 million for the six months ended June 30, 2022 and 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 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.
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. 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 7 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 valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. All derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Company’s evaluation of credit risk including external assessments of credit 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 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.
6
2
U.S. Bancorp

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 expected litigation
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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 16 for further information on the Visa Inc. restructuring and related card association litigation.
Significant Unobservable Inputs of Level 3 Assets and Liabilities
The following section provides information to facilitate an understanding of the uncertainty in the fair value measurements for the Company’s Level 3 assets and liabilities recorded at fair value on the Consolidated Balance Sheet. This section includes a description of the significant inputs used by the Company and a description of any interrelationships between these 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.
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 have resulted in a significantly lower fair value measurement. Significant decreases in either of these inputs in isolation would 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 March 31,June 30, 2022:
 
   Minimum  Maximum  Weighted-
Average (a)
 
Expected prepayment
  7  12  9
Option adjusted spread
  5   11   6 
   Minimum  Maximum  Weighted-
Average (a)
 
Expected prepayment  5  10  7
Option adjusted spread  5   11   6 
 
(a)
Determined based on the relative fair value of the related mortgage loans serviced.
Derivatives
The Company has two distinct Level 3 derivative portfolios: (i) the Company’s commitments to purchase and originate mortgage loans that meet the requirements of a derivative and (ii) the Company’s asset/liability and customer-related derivatives that are Level 3 due to unobservable inputs related to measurement of risk of nonperformance by the counterparty. In addition, the Company’s Visa swaps are classified within Level 3.
The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to purchase and originate mortgage loans are the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value. A significant increase in the rate of loans that close would have resulted in a larger derivative asset or liability. A significant increase in the inherent MSR value would 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 March 31,June 30, 2022:

 Minimum Maximum Weighted-
Average (a)
 
 Minimum Maximum Weighted-
Average (a)
 
Expected loan close rate
 6 100 82 29 100 80
Inherent MSR value (basis points per loan)
 38  207  110   37
  219  108 
(a)
Determined based on the relative fair value of the related mortgage loans.
The significant unobservable input used in the fair value measurement of certain of the Company’s asset/liability and customer-related derivatives is the credit valuation adjustment related to the risk of counterparty nonperformance.
U.S. Bancorp
6
3

A significant increase in the credit valuation adjustment would have resulted in a lower fair value measurement. A significant decrease in the credit valuation adjustment would 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 March 31,June 30, 2022, the minimum, maximum and weighted-average credit valuation adjustment as a percentage of the net fair value of the counterparty’s derivative contracts prior to adjustment was 0 percent, 798158 percent and 2 percent, respectively.
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U.S. Bancorp

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 have resulted in an increase in the derivative liability. A decrease in theth
e
 loss estimate or an acceleration of the resolution of the related litigation would have resulted in a decrease in the derivative liability.
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 
March 31, 2022
                       
Available-for-sale
securities
                       
U.S. Treasury and agencies
 $20,924   $5,426   $   $  $26,350 
Mortgage-backed securities
                       
Residential agency
      78,992           78,992 
Commercial agency
      7,963           7,963 
Asset-backed securities
          7       7 
Obligations of state and political subdivisions
      10,273    1       10,274 
Other
      7           7 
Total
available-for-sale
  20,924    102,661    8       123,593 
Mortgage loans held for sale
      2,203           2,203 
Mortgage servicing rights
          3,432       3,432 
Derivative assets
  5    3,385    910    (2,313  1,987 
Other assets
  256    1,589           1,845 
Total
 $21,185   $109,838   $4,350   $(2,313 $133,060 
Derivative liabilities
 $   $3,127   $1,921   $(2,084 $2,964 
Short-term borrowings and other liabilities (a)
  215    1,429           1,644 
Total
 $215   $4,556   $1,921   $(2,084 $4,608 
December 31, 2021
                       
Available-for-sale
securities
                       
U.S. Treasury and agencies
 $30,917   $5,692   $   $  $36,609 
Mortgage-backed securities
                       
Residential agenc
y
      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 
(Dollars in Millions) Level 1   Level 2   Level 3   Netting  Total 
June 30, 2022
        
Available-for-sale
securities
        
U.S. Treasury and agencies $ 18,539   $5,228   $   $  $23,767 
Mortgage-backed securities                       
Residential agency      57,752           57,752 
Commercial agency      7,564           7,564 
Obligations of state and political subdivisions      9,715    1       9,716 
Other      7           7 
Total
available-for-sale
  18,539    80,266    1       98,806 
Mortgage loans held for sale      2,773           2,773 
Mortgage servicing rights          3,707       3,707 
Derivative assets      4,555    834    (3,503  1,886 
Other assets  187    1,830           2,017 
Total $18,726   $89,424   $4,542    $(3,503) $109,189 
Derivative liabilities $   $3,872   $3,009   
$

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

(2,639 $6,077 
December 31, 2021
                       
Available-for-sale
securities
                       
U.S. Treasury and agencies $30,917   $5,692   $   $  $36,609 
Mortgage-backed securities                       
Residential agency      77,079           77,079 
Commercial agency      8,485           8,485 
Asset-backed securities      59    7       66 
Obligations of state and political subdivisions      10,716    1       10,717 
Other      7           7 
Total
available-for-sale
  30,917    102,038    8       132,963 
Mortgage loans held for sale      6,623           6,623 
Mortgage servicing rights          2,953       2,953 
Derivative assets  8    2,490    1,389    (1,609  2,278 
Other assets  278    1,921           2,199 
Total $31,203   $113,072   $4,350   $(1,609 $147,016 
Derivative liabilities $   $2,308   $590   $(1,589 $1,309 
Short-term borrowings and other liabilities (a)  209    1,837           2,046 
Total $209   $4,145   $590   $(1,589 $3,355 
Note:
Excluded from the table above are 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. The aggregate carrying amount of these equity investments was $80 million and $79 million at March 31,June 30, 2022 and December 31, 2021, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first threesix months of 2022 and 2021, or on a cumulative basis.
(a)
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
6
4
 
63
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 three months ended March 31:June 30:
 
(Dollars in Millions) Beginning
of Period
Balance
  Net Gains
(Losses)
Included in
Net Income
  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 
 
$  $  $  $  $  $7  $ 
Obligations of state and political subdivisions
  1 
 
                1    
Total
available-for-sale
  8 
 
                8    
Mortgage servicing rights
  2,953 
 
 238  (a)   3   1   237 (c)      3,432   238  (a) 
Net derivative assets and liabilities
 ��799 
 
 (1,867) (b)   11   (1    $47   (1,011  (1,697) (d) 
  
 
         
2021
    
 
                           
Available-for-sale
securities
    
 
                           
Asset-backed securities
 $7 
 
$  $  $  $  $  $7  $ 
Obligations of state and political subdivisions
  1 
 
                1    
Total
available-for-sale
  8 
 
                8    
Mortgage servicing rights
  2,210 
 
 242  (a)   16      319 (c)      2,787   242 (a) 
Net derivative assets and liabilities
  2,326 
 
 (935) (e)   2         (237  1,156   (900) (f) 
(Dollars in Millions) Beginning
of Period
Balance
  Net Gains
(Losses)
Included in
Net Income
  Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
   Purchases   Sales  Issuances  Settlements  End
of Period
Balance
  Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Held at
End of Period
 
2022
                                      
Available-for-sale
securities
                                      
Asset-backed securities $7  $(3 $   $   $(4 $  $  $  $ 
Obligations of state and political subdivisions  1                       1    
Total
available-for-sale
  8   (3          (4        1    
Mortgage servicing rights  3,432   170  (a)       3       102 (c)      3,707   170  (a) 
Net derivative assets and liabilities  (1,011  (1,494) (b)       81          249   (2,175  (1,259) (d) 
          
2021
                                      
Available-for-sale
securities
                                      
Asset-backed securities $7  $  $1   $   $  $  $  $8  $1 
Obligations of state and political subdivisions  1                       1    
Total
available-for-sale
  8      1                 9   1 
Mortgage servicing rights  2,787   (379) (a)       11    1   293 (c)      2,713   (379) (a) 
Net derivative assets and liabilities  1,156   556 (e)       58    (1     (269  1,500   412 (f) 
 
(a)
Included in mortgage banking revenue.
(b)
Approximately $(83)$(20) million, $(1.8)$(1.5) billion and $(1)$1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(c)
Represents MSRs capitalized during the period.
(d)
Approximately $(24)$(3) million, $(1.7)$(1.3) billion and $(1)$1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(e)
Approximately $60$276 million, $279 million and $1 million included in mortgage banking revenue, and $(995) million included in commercial products revenue.revenue and other noninterest income, respectively.
(f)
Approximately $78$100 million, $311 million and $1 million included in mortgage banking revenue, commercial products revenue and $(978)other noninterest income, respectively.
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 six months ended June 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  Issuances  Settlements  End
of Period
Balance
  Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities Held
at End
of Period
 
2022
                                       
Available-for-sale
securities
                                       
Asset-backed securities $7   $(3 $ –   $   $(4 $  $  $  $ 
Obligations of state and political subdivisions  1                        1    
Total
available-for-sale
  8    (3          (4        1    
Mortgage servicing rights  2,953    408  (a)       6    1   339 (c)      3,707   408 (a) 
Net derivative assets and liabilities  799    (3,361) (b)       92    (1     296   (2,175  (2,739) (d) 
          
2021
                                       
Available-for-sale
securities
                                       
Asset-backed securities $7   $  $ 1   $   $  $  $  $8  $1 
Obligations of state and political subdivisions  1                        1    
Total
available-for-sale
  8       1                 9   1 
Mortgage servicing rights  2,210    (137) (a)       27    1   612 (c)      2,713   (137) (a) 
Net derivative assets and liabilities  2,326    (379) (e)       60    (1     (506  1,500   (496) (f) 
(a)
Included in mortgage banking revenue.     
(b)
Approximately $(103) million and $(3.3) billion included in mortgage banking revenue and commercial products revenue, respectively.
(c)
Represents MSRs capitalized during the period.     
(d)
Approximately $(3) million and $(2.7) billion included in mortgage banking revenue and commercial products revenue, respectively.
(e)
Approximately $336 million, $(716) million and $1 million included in mortgage banking revenue, commercial products revenue.revenue and other noninterest income, respectively.
(f)
Approximately $100 million, $(597) million and $1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
The Company is also required periodically to measure certain other financial assets at fair value on a nonrecurring basis. These measurements of fair value usually result from the application of
lower-of-cost-or-fair
value accounting or write-downs of individual assets.
U.S. Bancorp
6
5

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



 
(a)
Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully
charged-off.
(b)
Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.
The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios for the three months ended March 31:portfolios:
 
(Dollars in Millions)     2022       2021 
   
Loans (a)
 $11   $31 
   
Other assets (b)
  1    1 
  Three Months Ended
June 30
   Six Months Ended
June 30
 
(Dollars in Millions) 2022   2021   2022   2021 
     
Loans (a) $22   $12   $33   $43 
     
Other assets (b)  10    5    11    6 
 
(a)
Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully
charged-off.
(b)
Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.
64
U.S. Bancorp

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:
 
  March 31, 2022        December 31, 2021 
(Dollars in Millions) Fair
Value
Carrying
Amount
   Aggregate
Unpaid
Principal
   Carrying
Amount Over
(Under) Unpaid
Principal
        Fair
Value
Carrying
Amount
   Aggregate
Unpaid
Principal
   Carrying
Amount Over
(Under) Unpaid
Principal
 
Total loans $2,203   $2,200   $3        $6,623   $6,453   $170 
Nonaccrual loans
  1    1             1    1     
Loans 90 days or more past due
  2    2             2    2     
  June 30, 2022        December 31, 2021 
(Dollars in Millions) Fair
Value
Carrying
Amount
   Aggregate
Unpaid
Principal
   Carrying
Amount Over
(Under) Unpaid
Principal
        Fair
Value
Carrying
Amount
   Aggregate
Unpaid
Principal
   Carrying
Amount Over
(Under) Unpaid
Principal
 
Total loans $2,773   $2,753   $20        $6,623   $6,453   $170 
Nonaccrual loans  1    1             1    1     
Loans 90 days or more past due  1    1             2    2     
Fair Value of Financial Instruments
The following section summarizes the estimated fair value for financial instruments accounted for at amortized cost as of March 31,June 30, 2022 and December 31, 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, equity investments not accounted for at fair value, and deposits with no defined or contractual maturities are excluded.
6
6
U.S. Bancorp
The estimated fair values of the Company’s financial instruments are shown in the table below:
 
 March 31, 2022   December 31, 2021  June 30, 2022 December 31, 2021 
 
Carrying
Amount
       
Fair Value
      
Carrying
Amount
       
Fair Value
  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     Level 1 Level 2 Level 3 Total        Level 1 Level 2 Level 3 Total 
Financial Assets
                                       
Cash and due from banks
 $44,303     $44,303   $   $   $44,303      $28,905     $28,905   $   $   $28,905  $39,124  $39,124  $  $  $ 39,124    $28,905  $28,905  $  $  $28,905 
Federal funds sold and securities purchased under resale agreements
 513          513        513       359          359        359  520     520     520    359     359     359 
Investment securities
held-to-maturity
 43,654          40,572        40,572       41,858          41,812        41,812  61,503  1,337  54,320     55,657    41,858     41,812     41,812 
Loans held for sale (a)
 1,118              1,118    1,118       1,152              1,152    1,152  1,170        1,170  1,170    1,152        1,152  1,152 
Loans
 313,270              311,120    311,120       306,304              312,724    312,724  326,537        321,095  321,095    306,304        312,724  312,724 
Other (b)
 1,941          1,129    812    1,941       1,521          630    891    1,521  2,391     1,679  712  2,391    1,521     630  891  1,521 
Financial Liabilities
                                       
Time deposits
 24,304          23,952        23,952       22,665          22,644        22,644  30,622     30,039     30,039    22,665     22,644     22,644 
Short-term borrowings (c)
 19,398          19,140        19,140       9,750          9,646        9,646  23,128     22,789     22,789    9,750     9,646     9,646 
Long-term debt
 32,931          32,228        32,228       32,125          32,547        32,547  29,408     27,901     27,901    32,125     32,547     32,547 
Other (d)
 3,797         1,151    2,646    3,797      3,862         1,170    2,692    3,862  3,896     1,135  2,761  3,896    3,862     1,170  2,692  3,862 

(a)
Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
(b)
Includes investments in Federal Reserve Bank and Federal Home Loan Bank stock and
tax-advantaged
investments.
(c)
Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
(d)
Includes operating lease liabilities and liabilities related to
tax-advantaged
investments.
The fair value of unfunded commitments, deferred
non-yield
related loan fees, standby letters of credit and other guarantees is approximately equal to their carrying value. The carrying value of unfunded commitments, deferred
non-yield
related loan fees and standby letters of credit was $504$486 million and $495 million at March 31,June 30, 2022 and December 31, 2021, respectively. The carrying value of other guarantees was $212$224 million and $245 million at March 31,June 30, 2022 and December 31, 2021, respectively.
 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
U.S. Bancorp
65

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 Brands”) are defendants in antitrust lawsuits challenging the practices of the Card 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. 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.
In October 2012, Visa signed a settlement agreement to resolve class action claims associated with the multidistrict interchange litigation pending in the United States District Court for the Eastern District of New York (the “Multi-District Litigation”). The U.S. Court of Appeals for the Second Circuit reversed the approval of that settlement and remanded the matter to the district court. Thereafter, the case was split into two putative class actions, one seeking damages (the “Damages Action”) and a 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 District Court for the Eastern District of New York, but is now on appeal. The Injunctive Action, which generally seeks changes to Visa rules, is still pending.
U.S. Bancorp
6
7

Other Guarantees and Contingent Liabilities
The following table is a summary of other guarantees and contingent liabilities of the Company at March 31,June 30, 2022:
 
(Dollars in Millions) Collateral
Held
   Carrying
Amount
   Maximum
Potential
Future
Payments
 
Standby letters of credit
 $   $55   $9,705 
Third party borrowing arrangements
          6 
Securities lending indemnifications
  10,342        9,933 
Asset sales
      85    7,382 (a) 
Merchant processing
  968    106    121,205 
Tender option bond program guarantee
  1,615        1,488 
Other
      21    1,331 
(Dollars in Millions) Collateral
Held
   Carrying
Amount
   Maximum
Potential
Future
Payments
 
Standby letters of credit $   $55   $9,844 
Third party borrowing arrangements          7 
Securities lending indemnifications  7,822        7,461 
Asset sales      85    7,629 (a) 
Merchant processing  1,415    118    141,453 
Tender option bond program guarantee  1,521        1,489 
Other      21    1,343 
 
(a)
The maximum potential future payments do not include loan sales where the Company provides standard representation and warranties to the buyer against losses related to loan underwriting documentation defects that may have existed at the time of sale that generally are identified after the occurrence of a triggering event such as delinquency. For these types of loan sales, the maximum potential future payments is generally the unpaid principal balance of loans sold measured at the end of the current reporting period. Actual losses will be significantly less than the maximum exposure, as only a fraction of loans sold will have a representation and warranty breach, and any losses on repurchase would generally be mitigated by any collateral held against the loans.
Merchant Processing
The Company, through its subsidiaries, provides merchant processing services. Under the rules of credit card associations, a merchant processor retains a contingent liability for credit card transactions processed. This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. In this situation, the transaction is “charged-back” to the merchant and the disputed amount is credited or otherwise refunded to the cardholder. If the Company is unable to collect this amount from the merchant, it bears the loss for the amount of the refund paid to the cardholder.
The Company currently processes card transactions in the United States, Canada and Europe through wholly-owned 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 March 31,June 30, 2022, the value of airline tickets purchased to be delivered at a future date through card transactions processed by the Company was $7.7$9.1 billion. The Company held collateral of $714 million$1.2 billion in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets. In addition to specific collateral or other credit enhancements, the Company maintains a liability for its implied guarantees associated with future delivery. At March 31,June 30, 2022, the liability was $90$100 million primarily related to these airline processing arrangements.
66
U.S. Bancorp

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 GSE for losses. At March 31,June 30, 2022, the Company had reserved $15$13 million for potential losses from representation and warranty obligations, compared with $18 million at December 31, 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 March 31,June 30, 2022 and December 31, 2021, the Company had $27$35 million and $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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U.S. Bancorp

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
Starting in 2011, the Company and other large financial institutions have been sued in their capacity as trustee for residential mortgage–backed securities trusts. In the lawsuits brought against the Company, the investors allege that the Company’s banking subsidiary, U.S. Bank National Association (“U.S. Bank”), as trustee caused them to incur substantial losses by failing to enforce loan repurchase obligations and failing to abide by appropriate standards of care after events of default allegedly occurred. The plaintiffs in these matters seek monetary damages in unspecified amounts and most also seek equitable relief.
Regulatory Matters
The Company is continually subject to examinations, inquiries and investigations in areas of heightened regulatory scrutiny, such as compliance, risk management, third-party risk management and consumer protection. For example, the Consumer Financial Protection Bureau (“CFPB”) has been investigating certain of the Company’s consumer sales practices and is now considering a potential enforcement action. The Company is engaged
in discussions
with the CFPB on this matter and does not believe an enforcement action is warranted, but there can be no assurance that these discussions will result in a resolution. 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).
On July 27, 2022, U.S. Bank agreed to the issuance of a consent order with the Consumer Financial Protection Bureau resolving the previously disclosed investigation of certain of the Company’s consumer sales practices. The financial impact of the resolution was not material to the Company’s financial condition, results of operations or cash flows.
Outlook
Due to their complex nature, it can be years before litigation and regulatory matters are resolved. The Company may be unable to develop an estimate or range of loss where matters are in early stages, there are significant factual or legal issues to be resolved, damages are unspecified or uncertain, or there is uncertainty as to a litigation class being certified or the outcome of pending motions, appeals or proceedings. For those litigation and regulatory matters where the Company has information to develop an estimate or range of loss, the Company believes the upper end of the range of reasonably possible losses in aggregate, in excess of any reserves established for matters where a loss is considered probable, will not be material to 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.

 
U.S. Bancorp
67

Note  17
 
   Business Segments
Within the Company, financial performance is measured by major lines of business based on the products and services provided to customers through its distribution channels. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. The Company has five reportable operating segments:
Corporate and Commercial Banking
Corporate and Commercial Banking offers lending, equipment finance and
small-ticket
leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution,
non-profit
and public sector clients.
Consumer and Business Banking
Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking.
Wealth Management and Investment Services
Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund
U.S. Bancorp
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servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services.
Payment Services
Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing.
Treasury and Corporate Support
Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to business segments, including most investments in
tax-advantaged
projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis.
Basis of Presentation
Business segment results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. The allowance for credit losses and related provision expense are allocated to the business segments according to the volume and credit quality of the loan balances managed, but with the impact of changes in economic forecasts recorded in Treasury and Corporate Support. Goodwill and other intangible assets are assigned to the business segments based on the mix of business of an entity acquired by the Company. Within the Company, capital levels are evaluated and managed centrally; however, capital is allocated to the business segments to support evaluation of business performance. Business segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. Generally, the determination of the amount of capital allocated to each business segment includes credit allocations following a Basel III regulatory framework. Interest income and expense is determined based on the assets and liabilities managed by the business segment. Because funding and asset/liability management is a central function, funds transfer-pricing methodologies are utilized to allocate a cost of funds used or credit for funds provided to all business segment assets and liabilities, respectively, using a matched funding concept. Also, each business unit is allocated the taxable-equivalent benefit of
tax-exempt
products. The residual effect on net interest income of asset/liability management activities is included in Treasury and Corporate Support. Noninterest income and expenses directly managed by each business segment, including fees, service charges, salaries and benefits, and other direct revenues and costs are accounted for within each segment’s financial results in a manner similar to the consolidated financial statements. Occupancy costs are allocated based on utilization of facilities by the business segments. Generally, operating losses are charged to the business segment when the loss event is realized in a manner similar to a loan
charge-off.
Noninterest expenses incurred by centrally managed operations or business segments that directly support another business segment’s operations are charged to the applicable business segment based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Certain activities that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance are not charged to the business segments. The income or expenses associated with these corporate activities, isincluding 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.
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U.S. Bancorp

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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U.S. Bancorp

Business segment results for the three months ended March 31June 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)
 $735  $719       $1,517  $1,505       $274   $268 
Noninterest income
  245   268        461   569        596    531 
Total net revenue
  980   987        1,978   2,074        870    799 
Nointerest expense
  419   409        1,405   1,344        587    494 
Income (loss) before provision and income taxes
  561   578        573   730        283    305 
Provision for credit losses
  3   (48       49   (37       8    5 
Income (loss) before income taxes
  558   626        524   767        275    300 
Income taxes and taxable-equivalent adjustment
  140   157        131   192        69    75 
Net income (loss)
  418   469        393   575        206    225 
Net (income) loss attributable to noncontrolling interests
                             
Net income (loss) attributable to U.S. Bancorp
 $418  $469       $393  $575       $206   $225 
         
Average Balance Sheet
                                   
Loans
 $115,634  $101,927       $141,106  $141,719       $20,666   $16,846 
Other earning assets
  4,676   4,321        4,381   10,177        259    279 
Goodwill
  1,912   1,647        3,261   3,475        1,761    1,619 
Other intangible assets
  4   5        3,176   2,493        265    42 
Assets
  127,651   114,069        157,696   164,131        24,446    20,120 
         
Noninterest-bearing deposits
  62,285   56,281        32,094   32,861        27,350    21,338 
Interest-bearing deposits
  86,618   71,377        166,765   151,406        69,909    83,474 
Total deposits
  148,903   127,658        198,859   184,267        97,259    104,812 
         
Total U.S. Bancorp shareholders’ equity
  13,710   14,354        12,275   12,496        3,595    3,034 
      
  
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)
 $622  $629       $52  $(32      $3,200   $3,089 
Noninterest income
  858 (a)   785 (a)        236   228        2,396 (b)    2,381 (b) 
Total net revenue
  1,480   1,414        288   196        5,596 (c)    5,470 (c) 
Noninterest expense
  854   805        237   327        3,502    3,379 
Income (loss) before provision and income taxes
  626   609        51   (131       2,094    2,091 
Provision for credit losses
  130   (41       (78  (706       112    (827
Income (loss) before income taxes
  496   650        129   575        1,982    2,918 
Income taxes and taxable-equivalent adjustment
  124   163        (40  46        424    633 
Net income (loss)
  372   487        169   529        1,558    2,285 
Net (income) loss attributable to noncontrolling interests
             (1  (5       (1   (5
Net income (loss) attributable to U.S. Bancorp
 $372  $487       $168  $524       $1,557   $2,280 
         
Average Balance Sheet
                                   
Loans
 $31,740  $29,630       $3,820  $3,867       $312,966   $293,989 
Other earning assets
  1,023   5        206,532   188,940        216,871    203,722 
Goodwill
  3,325   3,173                   10,259    9,914 
Other intangible assets
  464   542                   3,909    3,082 
Assets
  38,540   35,091        229,069   215,323        577,402    548,734 
         
Noninterest-bearing deposits
  3,673   5,264        2,561   2,608        127,963    118,352 
Interest-bearing deposits
  160   132        2,761   1,623        326,213    308,012 
Total deposits
  3,833   5,396        5,322   4,231        454,176    426,364 
         
Total U.S. Bancorp shareholders’ equity
  8,019   7,658        15,867   15,187        53,466    52,729 
  Corporate and Commercial
Banking
       
Consumer and
Business Banking
       Wealth Management and
Investment Services
 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $784  $726       $1,617  $1,534       $352   $246 
Noninterest income  272   265        395   634        652    549 
Total net revenue  1,056   991        2,012   2,168        1,004    795 
Nointerest expense  453   433        1,419   1,375        581    521 
Income (loss) before provision and income taxes  603   558        593   793        423    274 
Provision for credit losses  100           (75  (68       (4   (4
Income (loss) before income taxes  503   558        668   861        427    278 
Income taxes and taxable-equivalent adjustment  126   140        167   215        107    70 
Net income (loss)  377   418        501   646        320    208 
Net (income) loss attributable to noncontrolling interests                             
Net income (loss) attributable to U.S. Bancorp $377  $418       $501  $646       $320   $208 
         
Average Balance Sheet
                                   
Loans $123,210  $102,275       $141,135  $140,826       $22,320   $17,442 
Other earning assets  4,161   4,409        2,579   8,018        251    237 
Goodwill  1,912   1,647        3,244   3,476        1,718    1,618 
Other intangible assets  4   5        3,634   2,828        300    84 
Assets  137,773   114,186        156,132   161,695        25,786    20,470 
         
Noninterest-bearing deposits  58,266   60,696        31,642   33,702        25,019    23,288 
Interest-bearing deposits  93,678   70,019        168,486   158,164        71,759    73,347 
Total deposits  151,944   130,715        200,128   191,866        96,778    96,635 
         
Total U.S. Bancorp shareholders’ equity  13,989   13,816        12,366   12,337        3,618    3,089 
      
  
Payment
Services
       
Treasury and
Corporate Support
       
Consolidated
Company
 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $619  $595       $92  $63       $3,464   $3,164 
Noninterest income  994 (a)   913    (a   235   258        2,548 (b)    2,619 (b) 
Total net revenue  1,613   1,508        327   321        6,012 (c)    5,783 (c) 
Noninterest expense  871   829        400   229        3,724    3,387 
Income (loss) before provision and income taxes  742   679        (73  92        2,288    2,396 
Provision for credit losses  221   91        69   (189       311    (170
Income (loss) before income taxes  521   588        (142  281        1,977    2,566 
Income taxes and taxable-equivalent adjustment  130   147        (87  6        443    578 
Net income (loss)  391   441        (55  275        1,534    1,988 
Net (income) loss attributable to noncontrolling interests             (3  (6       (3   (6
Net income (loss) attributable to U.S. Bancorp $391  $441       $(58 $269       $1,531   $1,982 
         
Average Balance Sheet
                                   
Loans $33,854  $30,030       $3,668  $3,711       $324,187   $294,284 
Other earning assets  1,023   5        204,560   193,798        212,574    206,467 
Goodwill  3,318   3,176                   10,192    9,917 
Other intangible assets  438   518                   4,376    3,435 
Assets  41,054   35,618        219,166   219,396        579,911    551,365 
         
Noninterest-bearing deposits  3,396   5,030        2,504   2,581        120,827    125,297 
Interest-bearing deposits  167   141        1,599   2,242        335,689    303,913 
Total deposits  3,563   5,171        4,103   4,823        456,516    429,210 
         
Total U.S. Bancorp shareholders’ equity  8,115   7,413        11,078   16,307        49,166    52,962 
 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $671$772 million and $535$633 million for the three months ended March 31,June 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $1.9$2.0 billion and $1.7$1.9 billion for the three months ended March 31,June 30, 2022 and 2021, respectively.
(c)
The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Under these arrangments, the Company recorded $204$188 million and $228$238 million of revenue for the three months ended March 31,June 30, 2022 and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
U.S. Bancorp 
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Table of Contents
Business segment results for the six months ended June 30 were as follows:
  Corporate and Commercial
Banking
       
Consumer and
Business Banking
       Wealth Management and
Investment Services
 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $1,523  $1,448       $3,129  $3,035       $627   $514 
Noninterest income  517   533        856   1,203        1,248    1,080 
Total net revenue  2,040   1,981        3,985   4,238        1,875    1,594 
Nointerest expense  878   853        2,839   2,731        1,174    1,020 
Income (loss) before provision and income taxes  1,162   1,128        1,146   1,507        701    574 
Provision for credit losses  104   (46       (28  (108       4    1 
Income (loss) before income taxes  1,058   1,174        1,174   1,615        697    573 
Income taxes and taxable-equivalent adjustment  265   294        294   404        175    144 
Net income (loss)  793   880        880   1,211        522    429 
Net (income) loss attributable to noncontrolling interests                             
Net income (loss) attributable to U.S. Bancorp $793  $880       $880  $1,211       $522   $429 
         
Average Balance Sheet
                                   
Loans $119,557  $102,201       $140,984  $141,170       $21,521   $17,147 
Other earning assets  4,416   4,364        3,475   9,092        255    258 
Goodwill  1,912   1,647        3,252   3,476        1,739    1,618 
Other intangible assets  4   5        3,406   2,661        283    63 
Assets  132,856   114,229        156,770   162,803        25,124    20,297 
         
Noninterest-bearing deposits  60,298   58,524        31,807   33,244        26,204    22,339 
Interest-bearing deposits  90,336   70,943        167,279   154,450        71,024    78,489 
Total deposits  150,634   129,467        199,086   187,694        97,228    100,828 
         
Total U.S. Bancorp shareholders’ equity  13,859   14,092        12,311   12,407        3,607    3,062 
      
  
Payment
Services
       
Treasury and
Corporate Support
       
Consolidated
Company
 
(Dollars in Millions) 2022  2021       2022  2021       2022   2021 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis) $1,241  $1,224       $144  $32       $6,664   $6,253 
Noninterest income  1,852 (a)   1,698    (a   471   486        4,944 (b)    5,000 (b) 
Total net revenue  3,093   2,922        615   518        11,608 (c)    11,253 (c) 
Noninterest expense  1,726   1,627        609   535        7,226    6,766 
Income (loss) before provision and income taxes  1,367   1,295        6   (17       4,382    4,487 
Provision for credit losses  351   50        (8  (894       423    (997
Income (loss) before income taxes  1,016   1,245        14   877        3,959    5,484 
Income taxes and taxable-equivalent adjustment  254   311        (121  58        867    1,211 
Net income (loss)  762   934        135   819        3,092    4,273 
Net (income) loss attributable to noncontrolling interests             (4  (11       (4   (11
Net income (loss) attributable to U.S. Bancorp $762  $934       $131  $808       $3,088   $4,262 
         
Average Balance Sheet
                                   
Loans $32,802  $29,831       $3,744  $3,789       $318,608   $294,138 
Other earning assets  1,023   5        205,541   191,382        214,710    205,101 
Goodwill  3,322   3,175                   10,225    9,916 
Other intangible assets  450   530                   4,143    3,259 
Assets  39,803   35,356        224,110��  217,372        578,663    550,057 
         
Noninterest-bearing deposits  3,534   5,146        2,532   2,591        124,375    121,844 
Interest-bearing deposits  164   137        2,174   1,932        330,977    305,951 
Total deposits  3,698   5,283        4,706   4,523        455,352    427,795 
         
Total U.S. Bancorp shareholders’ equity  8,067   7,535        13,460   15,750        51,304    52,846 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $1.4 billion and $1.2 billion for the six months ended June 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $3.9 billion and $3.6 billion for the six months ended June 30, 2022 and 2021, respectively.
(c)
The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Under these arrangments, the Company recorded $392 million and $466 million of revenue for the six months ended June 30, 2022 and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
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Table of Contents
 Note 18
 
   Subsequent Events
The Company has evaluated the impact of events that have occurred subsequent to March 31,June 30, 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.
 
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 U.S. Bancorp
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U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
  For the Three Months Ended June 30    
      2022                          2021                        
(Dollars in Millions) (Unaudited) Average
Balances
  Interest        Yields and
Rates
       Average
Balances
       Interest        Yields and
Rates
           % Change
Average
Balances
 
Assets
                       
Investment securities $171,296  $825      1.93    $160,615    $635      1.58      6.7
Loans held for sale  3,688   54      5.89      7,825     55      2.78       (52.9
Loans (b)                       
Commercial  120,657   794      2.64      102,974     676      2.63       17.2 
Commercial real estate  39,517   330      3.35      38,564     306      3.18       2.5 
Residential mortgages  80,228   638      3.18      73,351     621      3.38       9.4 
Credit card  22,748   589      10.38      21,116     554      10.54       7.7 
Other retail  61,037   528      3.47      58,279        530      3.64       4.7 
Total loans  324,187   2,879      3.56      294,284     2,687      3.66       10.2 
Interest-bearing deposits with banks  31,116   57      .74      31,358     6      .08       (.8
Other earning assets  6,474   39      2.36      6,669        26      1.61       (2.9
Total earning assets  536,761   3,854      2.88      500,751     3,409      2.73       7.2 
Allowance for loan losses  (5,710          (6,310             9.5 
Unrealized gain (loss) on investment securities  (9,226          851              * 
Other assets  58,086           56,073              3.6 
Total assets $579,911          $551,365              5.2 
Liabilities and Shareholders’ Equity
                       
Noninterest-bearing deposits $120,827          $125,297              (3.6)% 
Interest-bearing deposits                       
Interest checking  116,878   20      .07      103,356     7      .03       13.1 
Money market savings  123,788   121      .39      113,673     50      .18       8.9 
Savings accounts  68,127   2      .01      62,102     1      .01       9.7 
Time deposits  26,896   34      .51      24,782        24      .39       8.5 
Total interest-bearing deposits  335,689   177      .21      303,913     82      .11       10.5 
Short-term borrowings                       
Federal funds purchased  641   1      .17      2,204           .02       (70.9
Securities sold under agreements to repurchase  2,078   2      .10      1,658     1      .03       25.3 
Commercial paper  6,289   4      .06      6,509                  (3.4
Other short-term borrowings  14,286   50      .35      6,091        17      .27       * 
Total short- term borrowings  23,294   57      .98      16,462     18      .43       41.5 
Long-term debt  31,390   156      1.99      36,190        145      1.61       (13.3
Total interest-bearing liabilities  390,373   390      .40      356,565     245      .28       9.5 
Other liabilities  19,078           15,910              19.9 
Shareholders’ equity                       
Preferred equity  6,808           5,968              14.1 
Common equity  42,358           46,994              (9.9
Total U.S. Bancorp shareholders’ equity  49,166           52,962              (7.2
Noncontrolling interests  467           631              (26.0
Total equity  49,633           53,593              (7.4
Total liabilities and equity $579,911          $551,365              5.2 
Net interest income  $3,464            $3,164          
Gross interest margin       2.48              2.45       
Gross interest margin without taxable-equivalent increments       2.46              2.43       
Percent of Earning Assets
                      
Interest income       2.88            2.73     
Interest expense       .29               .20        
Net interest margin       2.59              2.53       
Net interest margin without taxable-equivalent increments                2.57                          2.51       
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.
(b)
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
7
4
U.S. Bancorp

U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
 
 For the Three Months Ended March 31    For the Six Months Ended June 30   
    2022                        2021                          2022                        2021                      
(Dollars in Millions)
(Unaudited)
 Average
Balances
 Interest        Yields and
Rates
      Average
Balances
      Interest        Yields and
Rates
         
% Change
Average
Balances
  Average
Balances
 Interest        Yields and
Rates
      Average
Balances
      Interest        Yields and
Rates
         % Change
Average
Balances
 
Assets
                                                           
Investment securities
 $174,762  $736      1.68    $145,520    $534      1.47     20.1 $173,019  $1,561       1.80     $153,109     $1,169       1.53       13.0
Loans held for sale
 5,479  60      4.40      10,032     67      2.69      (45.4 4,579  114       5.00       8,922      122       2.73        (48.7
Loans (b)
                                                           
Commercial
 112,822  629      2.26      102,091     673      2.67      10.5  116,761  1,423       2.46       102,535      1,349       2.65        13.9 
Commercial real estate
 39,084  295      3.06      38,786     305      3.19      .8  39,302  625       3.21       38,675      611       3.18        1.6 
Residential mortgages
 77,449  612      3.17      75,201     645      3.44      3.0  78,847  1,250       3.17       74,271      1,266       3.41        6.2 
Credit card
 21,842  562      10.44      21,144     578      11.08      3.3  22,297  1,151       10.41       21,130      1,132       10.81        5.5 
Other retail
 61,769  509      3.34      56,767     532      3.80      8.8  61,401  1,037       3.41       57,527     1,062       3.72        6.7 
Total loans
 312,966  2,607      3.37      293,989     2,733      3.76      6.5  318,608  5,486       3.47       294,138      5,420       3.71        8.3 
Interest-bearing deposits with banks
 29,851  14      .19      41,784     9      .08      (28.6 30,487  71       .47       36,542      15       .08        (16.6
Other earning assets
 6,779  28      1.68      6,386     24      1.53      6.2  6,625  67       2.02       6,528     50       1.57        1.5 
Total earning assets
 529,837  3,445      2.62      497,711     3,367      2.73      6.5  533,318  7,299       2.75       499,239      6,776       2.73        6.8 
Allowance for loan losses
 (5,701          (7,272            21.6  (5,706              (6,788                  15.9 
Unrealized gain (loss) on investment securities
 (2,551          1,838             *  (5,907              1,342                   * 
Other assets
 55,817           56,457             (1.1 56,958               56,264                   1.2 
Total assets
 $577,402          $548,734             5.2  $578,663              $550,057                   5.2 
Liabilities and Shareholders’ Equity
                                                           
Noninterest-bearing deposits
 $127,963          $118,352             8.1 $124,375              $121,844                   2.1
Interest-bearing deposits
                                                           
Interest checking
 115,062  9      .03      97,385     6      .02      18.2  115,975  29       .05       100,387      13       .03        15.5 
Money market savings
 119,588  52      .18      124,825     50      .16      (4.2 121,700  173       .29       119,218      100       .17        2.1 
Savings accounts
 66,978  2      .01      58,848     2      .01      13.8  67,555  4       .01       60,484      3       .01        11.7 
Time deposits
 24,585  17      .28      26,954     27      .41      (8.8 25,747  51       .40       25,862     51       .40        (.4
Total interest-bearing deposits
 326,213  80      .10      308,012     85      .11      5.9  330,977  257       .16       305,951      167       .11        8.2 
Short-term borrowings
                                                           
Federal funds purchased
 1,236         .04      1,471           .02      (16.0 937  1       .16       1,840      1       .04        (49.1
Securities sold under agreements to repurchase
 1,895  1      .03      1,673     1      .04      13.3  1,987  3       .14       1,665      1       .07        19.3 
Commercial paper
 6,473         .01      6,145                 5.3  6,381  4       .06       6,328                     .8 
Other short-term borrowings
 9,434  20      .21      3,818     15      .40      *  11,873  70       .59       4,961     32       .65        * 
Total short- term borrowings
 19,038  21      .46      13,107     16      .51      45.3  21,178  78       .75       14,794      34       .47        43.2 
Long-term debt
 32,972  144      1.77      39,463     177      1.81      (16.4 32,177  300       1.88       37,817     322       1.71        (14.9
Total interest-bearing liabilities
 378,223  245      .26      360,582     278      .31      4.9  384,332  635       .33       358,562      523       .29        7.2 
Other liabilities
 17,282           16,441             5.1  18,184               16,174                   12.4 
Shareholders’ equity
                                                           
Preferred equity
 6,619           6,213             6.5  6,714               6,090                   10.2 
Common equity
 46,847           46,516             .7  44,590               46,756                   (4.6
Total U.S. Bancorp shareholders’ equity
 53,466           52,729             1.4  51,304               52,846                   (2.9
Noncontrolling interests
 468           630             (25.7 468               631                   (25.8
Total equity
 53,934           53,359             1.1  51,772               53,477                   (3.2
Total liabilities and equity
 $577,402          $548,734             5.2  $578,663              $550,057                   5.2 
Net interest income
  $3,200            $3,089             $6,664                 $6,253               
Gross interest margin
       2.36            2.42               2.42                2.44       
Gross interest margin without taxable-equivalent increments
       2.34            2.40               2.40                2.42       
Percent of Earning Assets
                                                         
Interest income
       2.62            2.73               2.75                 2.73        
Interest expense
       .18             .23                .24                 .21        
Net interest margin
       2.44            2.50               2.51                2.52       
Net interest margin without taxable-equivalent increments
       2.42              2.48            2.49              2.50       
 
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.
(b)
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
 
U.S. Bancorp 
7175

Table of Contents
Part II — Other Information
Item 1. Legal Proceedings
— See the information set forth in “Litigation and Regulatory Matters” in Note 16 in the Notes to Consolidated Financial Statements on page 6769 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 on Form
10-K
for the year ended December 31, 2021, for discussion of these risks.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
— See the information set forth in the “Capital Management” section on page 26 of this Report for information regarding shares repurchased by the Company during the firstsecond quarter of 2022, which is incorporated herein by reference.
Item 6. Exhibits
 
    2.1Amendment No. 1 to the Share Purchase Agreement, dated as of May 10, 2022. *
     3.1  Restated Certificate of Incorporation (incorporated by reference to 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 Rule 13a-14(a) under the Securities Exchange Act of 1934.
   31.2  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 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.
 101  The following financial statements from the Company’s Quarterly Report on Form
10-Q
for the quarter ended March 31,June 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheet, (ii) Consolidated Statement of Income, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated Statement of Shareholders’ Equity, (v) Consolidated Statement of Cash Flows and (vi) Notes to Consolidated Financial 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).
 
*
The schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation
S-K.
The Company agrees to provide a copy of the omitted schedules and similar attachments on a supplemental basis to the U.S. Securities and Exchange Commission or its staff, if requested.
7276
 U.S. Bancorp

Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  U.S. BANCORP
  By: /s/    L
ISA
R. S
TARK
  
 
Dated: May 3,August 4, 2022   
Lisa R. Stark
Controller
(Principal Accounting Officer and Duly Authorized Officer)
 
U.S. Bancorp 
7377

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 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 officersofficer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/
S
/    A
NDREW
C
ECERE
Andrew Cecere
Chief Executive Officer
Dated: May 3,August 4, 2022
 
7478
 U.S. Bancorp

Table of Contents
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Terrance R. Dolan, certify that:
 
(1)
I have reviewed this Quarterly Report on Form
10-Q
of U.S. Bancorp;
 
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
(4)
The registrant’s other certifying 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 officersofficer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/
S
/    T
ERRANCE
R. D
OLAN
Terrance R. Dolan
Chief Financial Officer
Dated: May 3,August 4, 2022
 
U.S. Bancorp 
7579

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 March 31,June 30, 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/
S
/    A
NDREW
C
ECERE
 
 
  /s/
S
/    T
ERRANCE
R. D
OLAN
Andrew Cecere
Chief Executive Officer
 
Dated: May 3,August 4, 2022
   
Terrance R. Dolan
Chief Financial Officer
 
7680
 U.S. Bancorp

Table of Contents
Corporate Information
Executive Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common Stock Transfer Agent and Registrar
Computershare acts as our transfer agent and registrar, dividend paying agent and dividend reinvestment plan administrator, and maintains all shareholder records for the 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 calls)
Internet: www.computershare.com/investor
Registered or Certified Mail:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone representatives are available weekdays from 8 a.m. to 6 p.m., Central Time, and automated support is available 24 hours a day, seven 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
Executive Vice President, Investor Relations
jen.thompson@usbank.com
Phone: 612-303-0778 or 866-775-9668
Financial Information
U.S. Bancorp news and financial results are available through our website and by mail.
Website
For information about U.S. Bancorp, including news, financial results, annual reports and other documents filed with the Securities and Exchange Commission, visit usbank.com and click on
About Us
.
Mail
At your request, we will mail to you our quarterly earnings, news releases, quarterly financial data reported on Form 10-Q, Form 10-K and additional copies of our annual reports. Please contact:
U.S. Bancorp Investor Relations
800 Nicollet Mall
Minneapolis, MN 55402
investorrelations@usbank.com
Phone: 866-775-9668
Media Requests
David R. Palombi
Global Chief Communications Officer
Public Affairs and Communications
david.palombi@usbank.com
Phone: 612-303-3167
Privacy
U.S. Bancorp is committed to respecting the privacy of our customers and safeguarding the financial and personal information provided to us. To learn more about the U.S. Bancorp commitment to protecting privacy, visit usbank.com and click on
Privacy
.
Code of Ethics
At U.S. Bancorp, our commitment to high ethical standards guides everything we do. Demonstrating this commitment through our words and actions is how each of us does the right thing every day for our customers, shareholders, communities and each other. Our ethical culture has been recognized by the Ethisphere Institute, which again named us to its World’s Most Ethical Companies
®
list.
For details about our Code of Ethics and Business Conduct, visit usbank.com and click on
About Us
and then
Investor Relations
then
Corporate Governance
, and then
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 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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 This report has been produced on recycled paper.