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 June 30, 2022March 31, 2023
OR
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from (not applicable)
Commission file number
1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
 
Delaware
 
41-0255900
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrant’s telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
symbols
 
Name of each exchange
on which registered
Common Stock, $.01 par value per share
 USB New York Stock Exchange
Depositary Shares (each representing 1/100th interest in a share of Series A
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
 USB PrA New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series B
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
 USB PrH New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series K
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
 USB PrP New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series L
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
 USB PrQ New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series M
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
 USB PrR New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series O
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
 USB PrS New York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024
 USB/24B New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
YES☑    NO ☐
Indicate by check mark whether the registrant has submitted electronically 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 file
rfiler
  Accelerated filer ☐
Non-accelerated
filer ☐
  
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
YES ☐    NO ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
Class  Outstanding as of July 31, 2022April 30, 2023
Common Stock, $0.01 Par Value  1,485,784,0281,532,920,691 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, future economic conditions and the anticipated future revenue, expenses, financial condition, asset quality, capital and expensesliquidity levels, plans, prospects and the future plans and prospectsoperations 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, whichthat could cause actual results to differ materially from those anticipated. Continued deteriorationset forth in forward-looking statements, including the following risks and uncertainties:
Deterioration in general business and economic conditions or turbulence in domestic or global financial markets, which 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, changesvolatility;
Turmoil and volatility in the financial services industry, including failures or rumors of failures of other depository institutions, which could affect the ability of depository institutions, including U.S. Bank National Association and MUFG Union Bank, N.A. (“MUB”), to attract and retain depositors, and could affect the ability of financial services providers, including U.S. Bancorp, to borrow or raise capital;
Increases in Federal Deposit Insurance Corporation (“FDIC”) assessments due to bank failures;
Actions taken by governmental agencies to stabilize the financial system and the effectiveness of such actions;
Changes to regulatory capital, liquidity and resolution-related requirements applicable to large banking organizations in response to recent developments affecting the banking sector;
Changes to statutes, regulations, or regulatory policies or practices, could affect U.S. Bancorp in substantialincluding capital and unpredictable ways.liquidity requirements, and the enforcement and interpretation of such laws and regulations, and U.S. Bancorp’s results could also be adversely affectedability to address or satisfy those requirements and other requirements or conditions imposed by changesregulatory entities;
Changes in interest rates; the impacts of the
COVID-19
pandemic on its business, financial position, results of operations, liquidity and prospects; increases
Increases in unemployment rates; deterioration
U.S. Bancorp
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Deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value
Risks related to originating and selling mortgages, including repurchase and indemnity demands, and related to U.S. Bancorp’s role as a loan servicer;
Impacts of its investment securities; legalcurrent, pending or future litigation and regulatory developments; litigation; increasedgovernmental proceedings;
Increased competition from both banks and
non-banks;
civil unrest; the effects
Effects of climate change; changeschange and related physical and transition risks;
Changes in customer behavior and preferences; breachespreferences and the ability to implement technological changes to respond to customer needs and meet competitive demands;
Breaches in data security;
Failures or disruptions in or breaches of U.S. Bancorp’s operational, technology or security including as a resultsystems or infrastructure, or those of work-from-home arrangements; failuresthird parties;
Failures to safeguard personal information;
Impacts of pandemics, including the impacts ofCOVID-19 pandemic, natural disasters, terrorist activities, civil unrest, international hostilities orand geopolitical events; impacts
Impacts of supply chain disruptions, and rising inflation; effectsinflation, slower growth or a recession;
Failure to execute on strategic or operational plans;
Effects of mergers and acquisitions and related integration; effects
Effects of critical accounting policies and judgments;
Effects of changes in or interpretations of tax laws and management’sregulations;
Management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk. risk; and
The risks and uncertainties more fully discussed in the section entitled “Risk Factors” of U.S. Bancorp’s Form 10-K for the year ended December 31, 2022, and subsequent filings with the Securities and Exchange Commission.
In addition, U.S. Bancorp’s proposed acquisition of MUFG Union BankMUB 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,combination of MUB with U.S. Bancorp, including the integration of MUFG Union Bank,MUB, 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 obtainedanticipated or any other closing conditions in the definitive purchase agreement to be satisfied.have unanticipated adverse results.
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.
 
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 U.S. Bancorp

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 Table 1
 
   Selected Financial Data
 
 Three Months Ended June 30   Six Months Ended June 30  Three Months Ended March 31 
(Dollars and Shares in Millions, Except Per Share Data) 2022 2021 Percent
Change
   2022   2021   Percent
Change
  2023 2022 Percent
Change
 
Condensed Income Statement
Condensed Income Statement
 
         
Condensed Income Statement
 
    
Net interest income
 $3,435  $3,137  9.5  $6,608   $6,200    6.6 $4,634  $3,173  46.0
Taxable-equivalent adjustment (a)
 29  27  7.4    56    53    5.7  34  27  25.9 
Net interest income (taxable-equivalent basis) (b)
 3,464  3,164  9.5    6,664    6,253    6.6  4,668  3,200  45.9 
Noninterest income
 2,548  2,619  (2.7   4,944    5,000    (1.1 2,507  2,396  4.6 
Total net revenue
 6,012  5,783  4.0    11,608    11,253    3.2  7,175  5,596  28.2 
Noninterest expense
 3,724  3,387  9.9    7,226    6,766    6.8  4,555  3,502  30.1 
Provision for credit losses
 311  (170 *    423    (997   *  427  112  * 
Income before taxes
 1,977  2,566  (23.0   3,959    5,484    (27.8 2,193  1,982  10.6 
Income taxes and taxable-equivalent adjustment
 443  578  (23.4   867    1,211    (28.4 489  424  15.3 
Net income
 1,534  1,988  (22.8   3,092    4,273    (27.6 1,704  1,558  9.4 
Net (income) loss attributable to noncontrolling interests
 (3 (6 50.0    (4   (11   63.6  (6 (1 * 
Net income attributable to U.S. Bancorp
 $1,531  $1,982  (22.8  $3,088   $4,262    (27.5 $1,698  $1,557  9.1 
Net income applicable to U.S. Bancorp common shareholders
 $1,464  $1,914  (23.5  $2,930   $4,089    (28.3 $1,592  $1,466  8.6 
Per Common Share
Per Common Share
 
         
Per Common Share
 
    
Earnings per share
 $.99  $1.29  (23.3)%   $1.97   $2.73    (27.8)%  $1.04  $.99  5.1
Diluted earnings per share
 .99  1.28  (22.7   1.97    2.73    (27.8 1.04  .99  5.1 
Dividends declared per share
 .46  .42  9.5    .92    .84    9.5  .48  .46  4.3 
Book value per share (c)
 28.13  31.74  (11.4       30.12  29.87  .8 
Market value per share
 46.02  56.97  (19.2       36.05  53.15  (32.2
Average common shares outstanding
 1,486  1,489  (.2   1,485    1,495    (.7 1,532  1,485  3.2 
Average diluted common shares outstanding
 1,487  1,490  (.2   1,486    1,497    (.7 1,532  1,486  3.1 
Financial Ratios
                
Return on average assets
 1.06 1.44     1.08   1.56   1.03 1.09  
Return on average common equity
 13.9  16.3      13.3    17.6    14.1  12.7   
Net interest margin (taxable-equivalent basis) (a)
 2.59  2.53      2.51    2.52    3.10  2.44   
Efficiency ratio (b)
 62.1  59.0      62.4    60.5    63.2  62.8   
Net charge-offs as a percent of average loans outstanding
 .20  .25      .20    .28    .39  .21   
Average Balances
Average Balances
 
         
Average Balances
 
    
Loans
 $324,187  $294,284  10.2  $318,608   $294,138    8.3 $386,750  $312,966  23.6
Loans held for sale
 3,688  7,825  (52.9   4,579    8,922    (48.7 2,461  5,479  (55.1
Investment securities (d)
 171,296  160,615  6.7    173,019    153,109    13.0  166,125  174,762  (4.9
Earning assets
 536,761  500,751  7.2    533,318    499,239    6.8  607,614  529,837  14.7 
Assets
 579,911  551,365  5.2    578,663    550,057    5.2  665,447  577,402  15.2 
Noninterest-bearing deposits
 120,827  125,297  (3.6   124,375    121,844    2.1  129,741  127,963  1.4 
Deposits
 456,516  429,210  6.4    455,352    427,795    6.4  510,324  454,176  12.4 
Short-term borrowings
 23,294  16,462  41.5    21,178    14,794    43.2  36,467  19,038  91.5 
Long-term debt
 31,390  36,190  (13.3   32,177    37,817    (14.9 41,024  32,972  24.4 
Total U.S. Bancorp shareholders’ equity
 49,166  52,962  (7.2   51,304    52,846    (2.9 52,667  53,466  (1.5
  
     June 30,
2022
 December 31,
2021
                             March 31,
2023
 December 31,
2022
    
Period End Balances
Period End Balances
 
         
Period End Balances
 
    
Loans
 $332,369  $312,028  6.5       $387,866  $388,213  (.1)% 
Investment securities
 160,309  174,821  (8.3       153,953  161,650  (4.8
Assets
 591,381  573,284  3.2        682,377  674,805  1.1 
Deposits
 467,102  456,083  2.4        505,339  524,976  (3.7
Long-term debt
 29,408  32,125  (8.5       42,045  39,829  5.6 
Total U.S. Bancorp shareholders’ equity
 48,605  54,918  (11.5       52,989  50,766  4.4 
Asset Quality
                
Nonperforming assets
 $770  $878  (12.3)%        $1,181  $1,016  10.2
Allowance for credit losses
 6,255  6,155  1.6        7,523  7,404  1.6 
Allowance for credit losses as a percentage of
period-end
loans
 1.88 1.97         1.94 1.91  
Capital Ratios
                
Common equity tier 1 capital
 9.7 10.0         8.5 8.4  
Tier 1 capital
 11.4  11.6          10.0  9.8   
Total risk-based capital
 13.2  13.4          12.1  11.9   
Leverage
 8.6  8.6          7.5  7.9   
Total leverage exposure
 7.1  6.9          6.1  6.4   
Tangible common equity to tangible assets (b)
 5.5  6.8          4.8  4.5   
Tangible common equity to risk-weighted assets (b)
 7.2  9.2          6.5  6.0   
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)
 9.4  9.6             8.3  8.1  
 
*
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 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 
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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 $1.5$1.7 billion for the secondfirst quarter of 2022,2023, or $1.04 per diluted common share, compared with $1.6 billion, or $0.99 per diluted common share, compared with $2.0 billion, or $1.28 per diluted common share, for the secondfirst quarter of 2021.2022. Return on average assets and return on average common equity were 1.061.03 percent and 13.914.1 percent, respectively, for the secondfirst quarter of 2022,2023, compared with 1.441.09 percent and 16.312.7 percent, respectively, for the secondfirst quarter of 2021.2022. The results for the secondfirst quarter of 20222023 included the impact of $197$244 million ($153183 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.Bank, N.A. (“MUFG”MUB”), which decreased diluted earnings per common share by $0.10.
Total net revenue for the second quarter of 2022 was $229 million (4.0 percent) higher than the second quarter of 2021, reflecting a 9.5 percent increase in net interest income and a 2.7 percent decrease in noninterest income. The increase in net interest income from the second 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 yield curve on earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the Small Business Administration (“SBA”) Paycheck Protection Program in the second quarter of 2021. The reduction in noninterest income reflected lower mortgage banking revenue as refinancing activities declined, 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 second quarter of 2022 was $337 million (9.9 percent) higher than the second quarter of 2021, reflecting increases in compensation expense, employee benefits expense, marketing and business development expense, and the impact of merger and integration-related charges of $197 million.
The provision for credit losses for the second quarter of 2022 was $311 million, compared with a benefit of $170 million for the second quarter of 2021. The provision for credit losses in the second quarter of 2022 reflected the impact of loan growth and increasing economic uncertainty. The provision for credit losses for the second quarter of 2021 reflected a decrease in the allowance for credit losses as a result of improving economic conditions and credit quality. Net charge-offs in the second quarter of 2022 were $161 million, compared with $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.$0.12.
Total net revenue for the first six monthsquarter of 20222023 was $355 million (3.2$1.6 billion (28.2 percent) higher than the first six monthsquarter of 2021,2022, reflecting a 6.646.0 percent increase in net interest income (45.9 percent on a taxable-equivalent basis) and a 1.14.6 percent decreaseincrease in noninterest income. The increase in net interest income from the first six monthsquarter of 20212022 was primarily due to higher average loan and investment securities balances, as well asthe impact of 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 impactimpacts of loan forgiveness related to the SBA Paycheck Protection Program in the first six months of 2021.MUB acquisition. The reductionincrease in noninterest income reflected higher payment services revenue, trust and investment management fees, and commercial products revenue, partially offset by lower mortgage banking revenue lower other noninterest income and lower gainslosses on the sale of securities, mostly offset by higher payment services revenue and trust and investment management fees.securities.
Noninterest expense in the first six monthsquarter of 20222023 was $460 million (6.8$1.1 billion (30.1 percent) higher than the first six monthsquarter of 2021,2022, reflecting merger and integration charges and operating expenses related to the MUB acquisition, including core deposit intangible amortization expense, as well as increases in legacy compensation expense,and employee benefits expense marketing andto support business development expense, professional services expense and the impact of merger and integration-related charges of $197 million.growth.
The provision for credit losses for the first six monthsquarter of 2023 of $427 million was $315 million higher than the first quarter of 2022, was $423 million, compared with a benefitdriven by the acquisition of
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$997 million for the first six months of 2021. The provision for MUB, normalizing credit losses for the first six months of 2022 reflected the impact of loan growth and increasingcontinued 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 monthsquarter of 20222023 were $323$373 million, compared with $403$162 million in the first six monthsquarter of 2021.2022. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
PendingRecent Industry Events
Disruption in the banking industry in early March of 2023 resulted in significant deposit run-off at certain banking institutions and reinforced the importance of maintaining a well-diversified business with an appropriate risk profile. The Company’s resilient and diversified deposit base, ample liquidity levels and strong credit quality, supported by disciplined underwriting standards, are all aspects of the Company’s approach to strong risk management. Key highlights included:
From the beginning of the industry disruption on March 8, 2023, through the end of the first quarter, total deposit balances were relatively stable, decreasing only 0.6 percent.
Subsequent to March 31, 2023 and through April 30, 2023, total deposit balances decreased approximately $17 billion, of which $10 billion was related to seasonal corporate trust fluctuations, and $3 billion was related to transitional MUB deposits.
At March 31, 2023, the Company’s percent of insured deposits to total deposits was approximately 51 percent, with approximately 80 percent of uninsured deposits comprised of operational wholesale trust and retail deposits, which tend to be more stable as customers are contractually bound or tied to treasury management services and trust activities provided to corporate and institutional clients.
At March 31, 2023, the Company’s total available liquidity was approximately $315 billion, representing approximately 126 percent of uninsured deposits.
Over the last five quarters, and well ahead of the recent banking industry disruption, the Company reduced its investment securities portfolio from approximately 30 percent to 25 percent of total assets, while increasing cash levels.
MUFG Union Bank Acquisition
 In September 2021,On December 1, 2022, the Company announced that it entered into a definitive agreement to acquire MUFG Union Bank’sacquired MUB’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. Pursuant to the terms of the Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of common stock of MUB for an expecteda purchase price consisting of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The Company also received additional MUB cash of $3.5 billion upon completion of the acquisition. The additional cash received is held at the MUB subsidiary and required to be repaid to Mitsubishi UFJ Financial
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Group, Inc. on or prior to the fifth anniversary date of the completion of the purchase. As such, it is recognized as debt at the parent company. The transaction excludesexcluded the purchase of substantially all of MUFG Union Bank’sMUB’s Global Corporate & Investment Bank (other than certain deposits), certain middle and back officeback-office functions, and other assets. MUFG Union Bank hasMUB operates approximately 300 branches in California, Washington and OregonOregon. The Company’s first quarter of 2023 results reflect the full benefit of the acquisition into the reported results. As of the date of acquisition, MUB is a wholly-owned subsidiary of the Company and is expected to add approximately $105 billion in total assets, $58 billionan affiliate of loans and $90 billion of deposits toU.S. Bank National Association (“USBNA”), 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.primary banking subsidiary. 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 approvalsmerge MUB into USBNA in time for closingconnection with the conversion of MUB customers and systems to occurthe USBNA platform over Memorial Day weekend in the second half of 2022.2023.
STATEMENT OF INCOME ANALYSIS
Net Interest Income
Net interest income, on a taxable-equivalent basis, was $3.5 billion in the second quarter and $6.7$4.7 billion in the first six monthsquarter of 2022,2023, representing increasesan increase of $300 million (9.5$1.5 billion (45.9 percent) and $411 million (6.6 percent), respectively, compared with the same periodsfirst quarter of 2021.2022. The increases wereincrease was primarily due to higher loan and investment securities balances, in addition tothe impact of rising interest rates in the current year and a favorable yield curve impactingon earning assets and the acquisition of MUB. Average earning assets were $77.8 billion (14.7 percent) higher than the first quarter of 2022, reflecting increases in loans and interest-bearing deposits with banks, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first six months of 2021. Average earning assets for the second quarter and first six months of 2022 were $36.0 billion (7.2 percent) and $34.1 billion (6.8 percent) higher, respectively, than the same periods of the prior year, reflecting increasesa decrease in investment securities and loans, partially offset by decreases in interest-bearing deposits with banks.securities. The net interest margin, on a taxable-equivalent basis, in the secondfirst quarter and first six months of 20222023 was 2.593.10 percent, and 2.51 percent, respectively, compared with 2.53 percent and 2.522.44 percent in the secondfirst quarter and first six months of 2021, respectively.2022. The increase in net interest margin infrom the secondfirst quarter of 2022 compared with the second quarter of 2021, was primarily due to the net impact of rising interesthigher rates inon earning assets and 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 monthsacquisition of 2022, compared with the first six months of 2021, was primarily driven by earning asset mix and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program.MUB. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.
Average total loans in the secondfirst quarter andof 2023 were $73.8 billion (23.6 percent) higher than the first six monthsquarter of 2022 were $29.92022. The increase was driven by growth in the Company’s legacy loan portfolio as well as $52.8 billion (10.2in average loan balances from the MUB acquisition. Increases in residential mortgages (50.1 percent), commercial loans (21.7 percent), commercial real estate loans (42.2 percent) and $24.5 billion (8.3credit card loans (17.1 percent) higher, respectively, than the same periods of 2021.were partially offset by lower other retail loans (13.2 percent). The increases were primarily due to strong growthincrease in commercial loans, residential mortgages was driven by the impact related to the MUB acquisition, along with on-balance sheet loan activities and other retail loans.slower refinancing activity. The increase in commercial loans was primarily due to higher utilization driven by working capital needs of corporate customers, slower payoffs given higher volatility in the capital markets, as well as core growth partially offset by expected reductionsand the impact related to the forgiveness of loans in the SBA Paycheck Protection Program.MUB acquisition. The increase in residential mortgagescommercial real estate loans was driven by stronger
on-balance
sheet loan activitiesthe impact of the MUB acquisition, while the increase in credit cards loans was primarily driven by higher spend volumes, account growth and slower refinance activity.lower payment rates. The increasedecrease in other retail loans was driven by higherlower auto and recreational vehicleinstallment loans partially offset byand lower retail leasing balances, andpartially offset by higher home equity and second mortgages.
Average investment securities in the secondfirst quarter andof 2023 were $8.6 billion (4.9 percent) lower than the first six monthsquarter of 2022, were $10.7 billion (6.7 percent)driven by balance sheet repositioning and $19.9 billion (13.0 percent) higher, respectively, thanliquidity management in connection with the same periodsacquisition of 2021, primarily due to purchasesMUB. The decrease from the first quarter of mortgage-backed and U.S. Treasury2022 reflected sales of investments securities, netpartially offset by the impact of prepayments, sales and maturities.acquired MUB investment securities.
Average total deposits for the secondfirst quarter and first six months of 20222023 were $27.3$56.1 billion (6.4 percent) and $27.6 billion (6.4(12.4 percent) higher respectively, than the same periodsfirst quarter of 2021.2022. Average total savings deposits
for the secondfirst quarter andof 2023 were $43.5 billion (14.4 percent) higher than the first six monthsquarter of 2022, were $29.7 billion (10.6 percent) and $25.1 billion (9.0 percent) higher, respectively, than the same periods of the prior year, driven by the acquisition of MUB and increases in Corporate and Commercial Banking, and Wealth Management and Investment Services balances, partially offset by a decrease in Consumer and Business
U.S. Bancorp
5

Table of Contents
Banking balances. Average time deposits for the second quarter and first six months of 2022 were $2.1$10.9 billion (8.5(44.1 percent) higher and $115 million (0.4 percent) lower, respectively, than the same periodsprior year, mainly due to the acquisition of the prior year. The changes in time deposits were primarily driven by increases in CorporateMUB and Commercial Banking balances, offset by decreasesan increase in 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. Average noninterest-bearing deposits for the second quarter of 2022 were $4.5$1.8 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(1.4 percent) higher than the first six monthsprior year, driven by the impact of 2021, primarily due to increases in Wealth Management and Investment Services, and Corporate and Commercial Banking balances,the MUB acquisition, partially offset by decreases in Payment Services and Consumer and Business Banking balances.a decrease across all legacy business lines.
Provision for Credit Losses
The provision for credit losses was $311$427 million in the secondfirst quarter and $423 million in first six months of 2022,2023, compared with a benefit of $170$112 million and $997 million, respectively, for the same periods of 2021. The provision for credit losses in the second quarter and first six months of 2022 reflected the impact of loan growth and increasing economic uncertainty primarily associated with ongoing supply chain challenges and rising inflationary concerns. The provision for credit losses in the second quarter and first six months of 2021 reflected the enactment of additional government stimulus programs and widespread
COVID-19
vaccine availability, contributing to economic improvement during the period, which resulted in significant decreases in the allowance for credit losses. Net charge-offs decreased $19 million (10.6 percent) in the second quarter and $80 million (19.9 percent) in the first six monthsquarter of 2022,2022. The increase of $315 million was driven by the acquisition of MUB, normalizing credit losses and continued economic uncertainty. Net charge-offs increased $211 million in the first quarter of 2023, compared with the same periodsfirst quarter of 2022, reflecting $91 million of charge-offs related to the uncollectible amount of acquired loans, which were considered purchased credit deteriorated as of the prior year, primarily driven by lowerdate of the MUB acquisition, as well as higher charge-offs in most loan categories consistent with normalizing credit card net charge-offs.conditions. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs,charge- offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
U.S. Bancorp
5
Noninterest Income

 Noninterest income was $2.5 billion in the second quarter and $4.9 billion in the first six monthsTable of 2022, representing decreases of $71 million (2.7 percent) and $56 million (1.1 percent), respectively, compared with the same periods of 2021. The decreases from the prior year 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. 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 lower 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 retail leasing end-of-term residual gains and lower gains on sales of certain assets. Payment services revenue increased as a result of increases in corporate payment products revenue due to higher sales volume and increases in merchant processing services revenue driven by higher sales volume and merchant fees. Trust and investment management fees increased primarily due to business growth, activity related to the fourth quarter of 2021 acquisition of PFM Asset Management LLC (“PFM”) and lower money market fee waivers.Contents
 Table 2
 
   Noninterest Income
 
 
Three Months Ended
June 30
   
Six Months Ended
June 30
  
Three Months Ended
March 31
 
(Dollars in Millions) 2022   2021   Percent
Change
   2022   2021   Percent
Change
  2023 2022   Percent
Change
 
Credit and debit card revenue
 $399   $396    .8  $737   $732    .7
Card revenue
 $360  $338    6.5
Corporate payment products revenue
 172    138    24.6    330    264    25.0  189  158    19.6 
Merchant processing services
 425    374    13.6    788    692    13.9  387  363    6.6 
Trust and investment management fees
 566    446    26.9    1,066    890    19.8  590  500    18.0 
Deposit service charges
 165    176    (6.3   342    337    1.5 
Treasury management fees
 169    160    5.6    325    307    5.9 
Service charges
 324  333    (2.7
Commercial products revenue
 290    280    3.6    556    560    (.7 334  266    25.6 
Mortgage banking revenue
 142    346    (59.0   342    645    (47.0 128  200    (36.0
Investment products fees
 59    60    (1.7   121    115    5.2  68  62    9.7 
Securities gains (losses), net
 19    43    (55.8   37    68    (45.6 (32 18    * 
Other
 142    200    (29.0   300    390    (23.1 159  158    .6 
Total noninterest income
 $2,548   $2,619    (2.7)%   $4,944   $5,000    (1.1)%  $2,507  $2,396    4.6
 
6*
U.S. Bancorp
Not meaningful
Noninterest Income

TableNoninterest income was $2.5 billion in the first quarter of Contents2023, representing an increase of $111 million (4.6 percent) compared with the first quarter of 2022. The increase over the prior year reflected stronger trust and investment management fees, payment services revenue and commercial products revenue, partially offset by lower mortgage banking revenue and losses on the sale of securities. Trust and investment management fees increased $90 million (18.0 percent) driven by lower money market fee waivers and core business growth, partially offset by unfavorable market conditions. Payment services revenue increased $77 million (9.0 percent), as card revenue increased $22 million (6.5 percent) driven by higher sales volume and the acquisition of MUB, corporate payment products revenue increased $31 million (19.6 percent) due to higher business spending across all product groups and merchant processing services revenue increased $24 million (6.6 percent) driven by higher sales volume and merchant fees. Commercial products revenue increased $68 million (25.6 percent) driven by higher trading revenue and the acquisition of MUB. Mortgage banking revenue decreased $72 million (36.0 percent) reflecting lower application volume, given declining refinancing activities experienced in the mortgage industry, lower related gain on sale margins and fewer sales of performing loans, partially offset by increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities.
Noninterest Expense
Noninterest expense was $3.7 billion in the second quarter and $7.2$4.6 billion in the first six monthsquarter 2023, representing an increase of 2022, representing increases of $337 million (9.9$1.1 billion (30.1 percent) and $460 million (6.8 percent), respectively, over the same periodsfirst quarter of 2021.2022. The increasesincrease from the prior year reflected the impact of $244 million of merger and integration charges, as well as operating expenses related to the MUB acquisition, higher compensation expense,and employee benefits expense, marketing and business developmenthigher other intangibles expense and the impact of mergerhigher other noninterest expense. Compensation and integration-related charges associated with the planned acquisition of MUFG Union Bank. Compensationemployee benefits expense increased $397 million (17.7 percent) primarily due to MUB expense as well as merit increases and hiring to support business growth and lower capitalized loan costs driven by lower mortgage production, partially offset by lower performance-based incentives. Employee benefitsOther intangibles expense increased primarily$113 million driven by higher medical expenses. Marketing and business developmentthe core deposit intangible created as a result of the MUB acquisition. Other noninterest expense increased $103 million (32.0 percent) due to increased travellower prior year accruals related to future delivery exposures for merchant and entertainment. Marketingairline processing and business developmentother liabilities, higher Federal Deposit Insurance Corporation (“FDIC”) insurance 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 reflectingdriven by an increase in business investmentthe assessment base and related initiatives duringrate, and MUB expense. Although the current year.timing is unknown, the Company expects that FDIC insurance assessments in future periods may be elevated due to recent failures by other banking institutions.
Income Tax Expense
The provision for income taxes was $414$455 million (an effective rate of 21.321.1 percent) for the secondfirst quarter and $811of 2023, compared with $397 million (an effective rate of 20.820.3 percent) for the first six monthsquarter of 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.2022. For further information on income taxes, refer to Note 12 of the Notes to Consolidated Financial Statements.
6
U.S. Bancorp

 Table 3
   Noninterest Expense
  Three Months Ended
March 31
 
(Dollars in Millions) 2023  2022  Percent
Change
 
Compensation and employee benefits
 $2,646  $2,249   17.7
Net occupancy and equipment
  321   269   19.3 
Professional services
  134   114   17.5 
Marketing and business development
  122   80   52.5 
Technology and communications
  503   421   19.5 
Other intangibles
  160   47   * 
Other
  425   322   32.0 
Total before merger and integration charges
  4,311   3,502   23.1 
Merger and integration charges
  244      * 
Total noninterest expense
 $4,555  $3,502   30.1
Efficiency ratio (a)
  63.2  62.8    
*
Not meaningful    
(a)
See Non-GAAP Financial Measures beginning on page 31.    
BALANCE SHEET ANALYSIS
Loans
The Company’s loan portfolio was $332.4$387.9 billion at June 30, 2022,March 31, 2023, compared with $312.0$388.2 billion at December 31, 2021, an increase2022, a decrease of $20.4 billion (6.5$347 million (0.1 percent). The increasedecrease was driven by higher commerciallower other retail loans, residential mortgages, credit card loans and commercial real estate loans, partially offset by lower otherhigher commercial loans and residential mortgages.
Other retail loans decreased $2.0 billion (3.6 percent) at March 31, 2023, compared with December 31, 2022, primarily due to decreases in auto loans, retail leasing balances, revolving credit balances and installment loans.
Credit card loans decreased $806 million (3.1 percent) at March 31, 2023, compared with December 31, 2022, primarily the result of customers seasonally paying down balances.
Commercial real estate loans decreased $329 million (0.6 percent) at March 31, 2023, compared with December 31, 2022, due to payoffs exceeding a reduced level of new originations.
Commercial loans increased $14.0$1.6 billion (12.5(1.2 percent) at June 30, 2022,March 31, 2023, compared with December 31, 2021,2022, 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 $5.6$1.1 billion (7.3(1.0 percent) at June 30, 2022,March 31, 2023, compared with December 31, 2021,2022, 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 increased $1.2 billion (5.3 percent) at June 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 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.
 Table 3
   Noninterest Expense
  Three Months Ended June 30       Six Months Ended June 30 
(Dollars in Millions) 2022  2021  Percent
Change
       2022  2021  Percent
Change
 
Compensation
 $1,872  $1,798   4.1    $3,725  $3,601   3.4
Employee benefits
  374   337   11.0      770   721   6.8 
Net occupancy and equipment
  265   258   2.7      534   521   2.5 
Professional services
  111   108   2.8      225   206   9.2 
Marketing and business development
  106   90   17.8      186   138   34.8 
Technology and communications
  350   362   (3.3     699   721   (3.1
Postage, printing and supplies
  69   65   6.2      141   134   5.2 
Other intangibles
  40   40         87   78   11.5 
Other
  340   329   3.3        662   646   2.5 
Total before merger and integration charges
  3,527   3,387   4.1      7,029   6,766   3.9 
Merger and integration charges
  197      *        197      * 
Total noninterest expense
 $3,724  $3,387   9.9      $7,226  $6,766   6.8
Efficiency ratio (a)
  62.1  59.0           62.4  60.5    
*
Not meaningful    
a)
See
Non-GAAP
Financial Measures beginning on page 31.
U.S. Bancorp
7

 Table 4
   Investment Securities
  June 30, 2022   December 31, 2021 
(Dollars in Millions) Amortized
Cost
   Fair Value  Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (d)
   Amortized
Cost
   Fair Value  Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (d)
 
Held-to-maturity
              
U.S. Treasury and agencies
 $1,343   $1,337   3.8    2.85  $—     $—         
Mortgage-backed securities (a)
  60,160    54,320   10.0    1.92    41,858    41,812   7.4    1.45 
Total
held-to-maturity
 $61,503   $55,657   9.8    1.94  $41,858   $41,812   7.4    1.45
Available-for-sale
              
U.S. Treasury and agencies
 $25,779   $23,767   6.9    1.95  $36,648   $36,609   6.7    1.54
Mortgage-backed securities (a)
  71,544    65,316   8.0    1.96    85,394    85,564   4.9    1.58 
Asset-backed securities (a)
                 62    66   5.2    1.53 
Obligations of state and political subdivisions (b) (c)
  10,925    9,716   13.0    3.64    10,130    10,717   6.6    3.67 
Other
  7    7   2.9    2.07    7    7   3.4    2.07 
Total
available-for-sale
 $108,255   $98,806   8.2    2.13  $132,241   $132,963   5.5    1.73
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.     
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
Yields on investment securities are computed based on amortized cost balances. Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent.
The Company generally retains portfolio loans through maturity; however, the Company’s intent may change over time based upon various factors such as ongoing asset/liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company’s intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale.
Loans Held for Sale
Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $3.9$2.4 billion at June 30, 2022,March 31, 2023, compared with $7.8$2.2 billion at December 31, 2021.2022. The decreaseincrease in loans held for sale was principally due to a lowerhigher level of mortgage loan closings in the secondfirst quarter of 2022,2023, compared with the fourth quarter of 2021.2022. 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”).
U.S. Bancorp
7

 Table 4
   Investment Securities
  March 31, 2023   December 31, 2022 
(Dollars in Millions) Amortized
Cost
   Fair Value   Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (d)
   Amortized
Cost
   Fair Value   Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (d)
 
Held-to-maturity
                                       
U.S. Treasury and agencies
 $1,344   $1,307    3.0    2.85  $1,344   $1,293    3.3    2.85
Mortgage-backed securities (a)
  87,118    77,569    9.0    2.23    87,396    76,581    9.3    2.17 
Total held-to-maturity
 $88,462   $78,876    8.9    2.24  $88,740   $77,874    9.2    2.18
Available-for-sale
                                       
U.S. Treasury and agencies
 $20,421   $18,054    6.7    1.92  $24,801   $22,033    7.1    2.43
Mortgage-backed securities (a)
  37,201    33,452    6.5    2.83    40,803    36,423    6.6    2.83 
Asset-backed securities (a)
  3,836    3,807    1.2    4.72    4,356    4,323    1.3    4.59 
Obligations of state and political subdivisions (b) (c)
  11,234    10,174    10.8    3.74    11,484    10,125    13.6    3.76 
Other
  4    4    2.2    1.89    6    6    .1    1.99 
Total available-for-sale
 $72,696   $65,491    7.0    2.82  $81,450   $72,910    7.4    2.94
(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)
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.
Investment Securities
Investment securities totaled $160.3$154.0 billion at June 30, 2022,March 31, 2023, compared with $174.8$161.7 billion at December 31, 2021.2022. The $14.5$7.7 billion (8.3(4.8 percent) decrease was primarily due to an $11.4$9.3 billion unfavorableof net investment sales and maturities, partially offset by a $1.3 billion favorable 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.securities.
The Company’s
available-for-sale
investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. At June 30, 2022,March 31, 2023, the Company’s net unrealized losses on
available-for-sale
investment securities were $9.4$7.2 billion ($5.4 billion net-of-tax), compared with $722 million of net unrealized gains$8.5 billion ($6.4 billion net-of-tax) at December 31, 2021.2022. The unfavorablefavorable change in net unrealized gains (losses) was primarily due to decreasesincreases in the fair value of mortgage-backed, U.S. Treasury and state and political securities as a result of changes in interest rates, partially offset by the impact of the transfer of
available-for-sale
investment securities to the
held-to-maturity
category.rates. Gross unrealized losses on
available-for-sale
investment securities totaled $9.5$7.2 billion at June 30, 2022,March 31, 2023, compared with $812 million$8.6 billion at December 31, 2021.2022. 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 the underlying collateral, the existence of any government or agency guarantees, and market conditions. At June 30, 2022,March 31, 2023, the Company had no plans to sell securities with unrealized losses, and believed it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.
Refer to Notes 4 and 15 in the Notes to Consolidated Financial Statements for further information on investment securities.
Deposits
Total deposits were $467.1$505.3 billion at June 30, 2022,March 31, 2023, compared with $456.1$525.0 billion at December 31, 2021.2022. The $11.0first quarter of 2023 banking industry disruption, beginning on March 8, did not meaningfully impact the Company’s overall deposit balances or composition. The Company’s total deposits were approximately $508 billion (2.4on March 8, 2023, compared with $505 billion on March 31, 2023. The Company maintains a diverse and stable funding base that includes a mix of both consumer and operational wholesale deposits. Consumer deposits account for more than 50 percent of total deposits. A significant portion of the wholesale and trust deposits are collateralized, contractual or relationship based. At March 31, 2023, approximately 51 percent of deposits were insured through the FDIC insurance fund and an additional 3 percent of deposits were fully collateralized. Of the uninsured deposits, approximately 80 percent of these deposits were retail customers or operational in nature, creating greater stability to these deposits. In addition, at March 31, 2023 the Company had total available liquidity representing 126 percent of uninsured balances.
The $19.6 billion (3.7 percent) decrease in total deposits reflected decreases in noninterest-bearing deposits and total savings deposits, partially offset by an increase in totaltime deposits. Noninterest-bearing deposits decreased $13.1 billion (9.5 percent) at March 31, 2023, compared with December 31, 2022, primarily due to lower Corporate and Commercial Banking, Wealth Management and
 
8
 U.S. Bancorp

deposits reflected increases in total savings deposits and time deposits, partially offset by a decrease in noninterest-bearing deposits. Money market deposit balances increased $8.9 billion (7.6 percent) at June 30, 2022, compared with December 31, 2021, primarily due to higher Wealth Management and Investment Services, and CorporateConsumer and CommercialBusiness Banking balances. Savings account balances increased $2.3decreased $6.8 billion (3.4(9.4 percent), driven by higherlower Consumer and Business Banking balances. Interest checking balances decreased $2.4$5.4 billion (2.0(4.0 percent), primarily due to lower Wealth Management and Investment Services, balances, partially offset by higherConsumer and Business Banking, and Corporate and Commercial Banking and Consumer and Business Banking balances. Time depositsMoney market deposit balances increased $8.0$1.1 billion (35.1(0.7 percent) at June 30, 2022, compared with December 31, 2021, driven by, primarily due to higher Corporate and Commercial Banking balances, partially offset by lower Wealth Management and Investment Services balances. Time deposits increased $4.6 billion (13.9 percent) at March 31, 2023, compared with December 31, 2022, driven by higher Consumer and Business Banking balances, partially offset by lower 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. Noninterest-bearing deposits decreased $5.8 billion (4.3 percent) at 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 $25.0$56.9 billion at June 30, 2022,March 31, 2023, compared with $11.8$31.2 billion at December 31, 2021.2022. The $13.2$25.7 billion (82.2 percent) increase in short-term borrowings was primarily due to increases in short-term Federal Home Loan Bank (“FHLB”) advances and commercial paper balances.advances. Long-term debt was $29.4$42.0 billion at June 30, 2022,March 31, 2023, compared with $32.1$39.8 billion at December 31, 2021.2022. The $2.7$2.2 billion (8.5(5.6 percent) decreaseincrease was primarily due to $2.6$3.7 billion of medium-term note issuances, partially offset by $1.6 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.maturities. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.
CORPORATE RISK PROFILE
Overview
Managing risks is an essential part of successfully operating a financial services company. The 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.
Upon closing of the MUB acquisition, the Company’s risk management framework applies to the legal entities acquired from Mitsubishi UFJ Financial Group, Inc., including MUB. Prior to closing, the Company evaluated the frameworks, policies and procedures of the acquired entities as necessary. Updates were made to align the acquired entities with the Company’s risk appetite and connect the elements of their respective risk governance and reporting into the Company’s existing risk management framework. Connecting the existing MUB risk governance and reporting framework into the Company’s existing risk management framework allows separate risk profiles, governance, and reporting for the Company and the acquired entities, during the period from acquisition through bank merger, while also providing the ability to consolidate reporting for the Company. Upon completing the merger of MUB into USBNA, which is expected to occur in connection with the conversion of MUB customers and systems to the USBNA platform over Memorial Day weekend in 2023, the MUB risk governance and reporting framework will no longer be applicable.
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
U.S. Bancorp
9

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
U.S. Bancorp
9

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, 2021,2022, for a detailed discussion of these factors.
The Company’s Board and management-level governance committees are supported by a “three lines of defense” model for establishing effective checks and balances. The first line of defense, the business lines, manages risks in conformity with established limits and policy requirements. In turn, business line leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, which includes the Chief Risk Officer’s organization as well as policy and oversight activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors first line of defense conformity with limits and policies, and provides reporting and escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee of the Board of Directors and senior management with independent assessment and assurance regarding the effectiveness of the Company’s governance, risk management and control processes.
Management regularly provides reports to the Risk Management Committee of the Board of Directors. The Risk Management Committee discusses with management the Company’s risk management performance, and provides a summary of key risks to the entire Board of Directors, covering the status of existing matters, areas of potential future concern and specific information on certain types of loss events. The Risk Management Committee considers quarterly reports by management assessing the Company’s performance relative to the risk appetite statements and the associated risk limits, including:
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. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and management reviews of loans exhibiting deterioration of credit quality. In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), collateral values, trends in loan performance and macroeconomic factors, such as changes in unemployment rates, gross domestic product levels, inflation, interest rates and consumer bankruptcy filings. The Risk Management Committee oversees the Company’s credit risk management process.
In addition, credit quality ratings, as defined by the Company, are an important part of the Company’s overall credit risk management and evaluation of its
10
U.S. Bancorp

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
10
U.S. Bancorp

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, 2021,2022, 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 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
10-year draw period during which a minimum payment is equivalent to the monthly interest, followed by a
20-
or
10-year
20-year amortization period, respectively. At June 30, 2022,March 31, 2023, 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.
U.S. Bancorp
11

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
U.S. Bancorp
11

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 June 30, 2022:March 31, 2023:
 
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%
 $4,391  $68,699  $73,090  89.0 $14,674  $79,946  $94,620  80.9
Over 80% through 90%
 2  1,605  1,607  2.0  772  10,873  11,645  10.0 
Over 90% through 100%
    113  113  .2  116  2,063  2,179  1.9 
Over 100%
    39  39     177  1,112  1,289  1.1 
No LTV available
    17  17        10  10    
Loans purchased from GNMA mortgage pools (a)
    7,248  7,248  8.8     7,205  7,205  6.1 
Total
 $4,393  $77,721  $82,114  100.0 $15,739  $101,209  $116,948  100.0
 
(a)
Represents loans purchased and loans that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
 
Home Equity and Second Mortgages
(Dollars in Millions)
 Lines Loans Total Percent
of Total
  Lines Loans Total Percent
of Total
 
Loan-to-Value
/ Combined
Loan-to-Value
        
Less than or equal to 80%
 $9,557  $868  $10,425  95.0 $10,156  $1,420  $11,576  91.0
Over 80% through 90%
 203  214  417  3.8  796  114  910  7.2 
Over 90% through 100%
 22  17  39  .4  108  18  126  1.0 
Over 100%
 33  3  36  .3  50  13  63  .5 
No LTV/CLTV available
 54  2  56  .5  43  2  45  .3 
Total
 $9,869  $1,104  $10,973  100.0 $11,153  $1,567  $12,720  100.0
Home equity and second mortgages were $11.0$12.7 billion at June 30, 2022,March 31, 2023, compared with $10.4$12.9 billion at December 31, 2021,2022, and included $3.0$2.6 billion of home equity lines in a first lien position and $8.0$10.1 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at June 30, 2022,March 31, 2023, included approximately $2.7$3.3 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $5.3$6.8 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines including delinquency, estimated average CLTV ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.
The following table provides a summary of delinquency statistics and other credit quality indicators for the Company’s junior lien positions at June 30, 2022:March 31, 2023:
 
 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
 $2,755  $5,267  $8,022  $3,305  $6,795  $10,100 
Percent 30—89 days past due
 .25 .24 .24
Percent 30 — 89 days past due
 .50 .44 .46
Percent 90 days or more past due
 .03 .03 .03 .02 .07 .05
Weighted-average CLTV
 56 54 55 70 68 69
Weighted-average credit score
 785  786  785  781  782  781 
See the “Analysis and Determination of the Allowance for Credit Losses” section for additional information on how the Company determines the allowance for credit losses for loans in a junior lien position.
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:March 31, 2023:
 
   Percent
of Total (a)
 
Credit score > 660
  8886
Credit score < 660
  1214 
No credit score
   
 
(a)
Credit score distribution excludes loans serviced by others.
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U.S. Bancorp

Table of Contents
Loan Delinquencies
Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. Accruing loans 90 days or more past due totaled $423 million at June 30, 2022, compared with $472 million at December 31, 2021. These balances excludeThe entire balance of a loan account is considered delinquent if the minimum payment contractually required to be made is not received by the date specified on the billing statement. Delinquent 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.Affairs, are excluded from delinquency statistics.
Accruing loans 90 days or more past due totaled $494 million at March 31, 2023, compared with $491 million at December 31, 2022. 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 0.13 percent at June 30, 2022 compared with 0.15 percent atMarch 31, 2023 and December 31, 2021.2022.
 
12
U.S. Bancorp

 Table 5
    Delinquent Loan Ratios as a Percent of Ending Loan Balances
 
90 days or more past due
excluding
nonperforming loans
  June 30,
2022
 December 31,
2021
 
90 days or more past due
  March 31,
2023
 December 31,
2022
 
Commercial
      
Commercial
   .08 .05   .05 .07
Lease financing
              
Total commercial
   .07  .04    .05  .07 
Commercial Real Estate
      
Commercial mortgages
          .01    
Construction and development
   .04  .10    .01  .03 
Total commercial real estate
   .01  .03    .01  .01 
Residential Mortgages (a)
   .12  .24    .08  .08 
Credit Card
   .69  .73    1.00  .88 
Other Retail
      
Retail leasing
   .03  .04    .04  .04 
Home equity and second mortgages
   .35  .35    .29  .28 
Other
   .05  .06    .07  .08 
Total other retail
   .10  .11    .12  .12 
Total loans
   .13 .15   .13 .13
90 days or more past due
including
nonperforming loans
  June 30,
2022
 December 31,
2021
 
90 days or more past due and nonperforming loans  March 31,
2023
 December 31,
2022
 
Commercial
   .19 .20   .18 .19
Commercial real estate
   .53  .76    .98  .62 
Residential mortgages (a)
   .40  .53    .33  .36 
Credit card
   .69  .73    1.01  .88 
Other retail
   .35  .35    .37  .37 
Total loans
   .35 .42   .42 .38
 
(a)
Delinquent loan ratios exclude $1.7$2.2 billion at June 30, 2022,March 31, 2023, and $1.5 billion at December 31, 2021,2022, 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 alland nonperforming loansto total residential mortgages was 2.422.24 percent at June 30, 2022,March 31, 2023, and 2.432.28 percent at December 31, 2021.
The following table provides summary delinquency information for residential mortgages, credit card and other retail loans included in the consumer lending segment:
  Amount        As a Percent of Ending
Loan Balances
 
(Dollars in Millions) June 30,
2022
   December 31,
2021
        June 30,
2022
  December 31,
2021
 
Residential Mortgages (a)
         
30-89
days
 $100   $124       .12  .15
90 days or more
  102    181       .12   .24 
Nonperforming
  223    226         .27   .30 
Total
 $425   $531       .52  .69
Credit Card
         
30-89
days
 $200   $193       .84  .86
90 days or more
  164    165       .69   .73 
Nonperforming
                   
Total
 $364   $358       1.54  1.59
Other Retail
         
Retail Leasing
         
30-89
days
 $25   $29       .39  .40
90 days or more
  2    3       .03   .04 
Nonperforming
  9    10         .14   .14 
Total
 $36   $42       .55  .58
Home Equity and Second Mortgages
         
30-89
days
 $35   $55       .32  .53
90 days or more
  38    37       .35   .35 
Nonperforming
  118    116         1.08   1.11 
Total
 $191   $208       1.74  1.99
Other (b)
         
30-89
days
 $176   $191       .41  .43
90 days or more
  22    26       .05   .06 
Nonperforming
  21    24         .05   .05 
Total
 $219   $241         .51  .54
(a)
Excludes $642 million of loans
30-89
days past due and $1.7 billion of loans 90 days or more past due at 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.2022.
 
U.S. Bancorp 
13

The following table provides summary delinquency information for residential mortgages, credit card and other retail loans included in the consumer lending segment:
  Amount        As a Percent of Ending
Loan Balances
 
(Dollars in Millions) March 31,
2023
   December 31,
2022
        March 31,
2023
  December 31,
2022
 
Residential Mortgages (a)
         
30-89 days
 $148   $201       .13  .17
90 days or more
  97    95       .08   .08 
Nonperforming
  292    325         .25   .28 
Total
 $537   $621       .46   .54 
Credit Card
         
30-89 days
 $280   $283       1.10   1.08 
90 days or more
  256    231       1.00   .88 
Nonperforming
  1    1             
Total
 $537   $515       2.11   1.96 
Other Retail
         
Retail Leasing
         
30-89 days
 $22   $27       .44   .49 
90 days or more
  2    2       .04   .04 
Nonperforming
  8    8         .16   .14 
Total
 $32   $37       .64   .67 
Home Equity and Second Mortgages
         
30-89 days
 $65   $65       .51   .51 
90 days or more
  37    36       .29   .28 
Nonperforming
  105    110         .83   .86 
Total
 $207   $211       1.63   1.64 
Other (b)
         
30-89 days
 $167   $217       .47   .59 
90 days or more
  25    28       .07   .08 
Nonperforming
  20    21         .06   .06 
Total
 $212   $266         .60   .73 
(a)
Excludes $542 million of loans 30-89 days past due and $2.2 billion of loans 90 days or more past due at March 31, 2023, purchased and that could be purchased from GNMA mortgage pools under delinquent loan repurchase options that continue to accrue interest, compared with $647 million and $2.2 billion at December 31, 2022, respectively.
(b)
Includes revolving credit, installment and automobile loans.
RestructuredModified 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. TDRsModified loans 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 June 30, 2022, performing TDRs were $3.2 billion, compared with $3.1 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 TDRsloan modifications 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 TDRsmodifications 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.modification programs. 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.payments. These concessionsmodifications 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 restructuringmodification 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 TDRsmodifications are generally part of distinct restructuringmodification 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       
At June 30, 2022
(Dollars in Millions)
 Performing
TDRs
   
30-89 Days

Past Due
  90 Days or More
Past Due
  Nonperforming
TDRs
  Total
TDRs
 
Commercial
 $141    4.7  2.4 $63(a)  $204 
Commercial real estate
  110    .7      117(b)   227 
Residential mortgages
  1,533    2.6   2.4   134   1,667(d) 
Credit card
  252    11.7   5.9      252 
Other retail
  183    8.8   4.6   36(c)   219(e) 
TDRs, excluding loans purchased from GNMA mortgage pools
  2,219    4.2   2.9   350   2,569 
Loans purchased from GNMA mortgage pools (g)
  965             965(f) 
Total
 $3,184    2.9  2.0 $350  $3,534 
(a)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and small business credit cards with a modified rate equal to 0 percent.
(b)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months).
(c)
Primarily represents loans with a modified rate equal to 0 percent.
(d)
Includes $214 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $20 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(e)
Includes $60 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $13 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(f)
Includes $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 $126 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(g)
Approximately 7.2 percent and 35.4 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.
 
14
 U.S. Bancorp

Short-term and Other Loan Modificationsspecified time period, generally up to 60 months.
The Company also makes short-term and other modifications, that it does not consider to be TDRs, in limited circumstances, to assist borrowers experiencing temporary hardships, including previously offering payment relief to borrowers that experienced financial 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, restructuredmodified loans not performing in accordance with modified terms and not accruing interest, restructuredmodified 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 June 30, 2022,March 31, 2023, total nonperforming assets were $770 million,$1.2 billion, compared to $878 million$1.0 billion at December 31, 2021.2022. The $108$165 million (12.3(16.2 percent) decreaseincrease in nonperforming assets was driven by a decrease inprimarily due to higher nonperforming commercial real estate loans resulting from an internal review of the acquired MUB loan portfolio, completed once closing was achieved and commercial loans.access to loan documents and customer files was available. The ratio of total nonperforming assets to total loans and other real estate was 0.230.30 percent at June 30, 2022,March 31, 2023, compared with 0.280.26 percent at December 31, 2021.2022.
OREO was $23 million at June 30, 2022, compared with $22 million atMarch 31, 2023 and December 31, 2021,2022, 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.
 
U.S. Bancorp 
15

 Table 6
 
   Nonperforming Assets (a)
 
(Dollars in Millions) June 30,
2022
 December 31,
2021
  
March 31,
2023
 December 31,
2022
 
Commercial
    
Commercial
         $116          $139          $150          $139 
Lease financing
 32  35  28  30 
Total commercial
 148  174  178  169 
Commercial Real Estate
    
Commercial mortgages
 147  213  432  251 
Construction and development
 59  71  103  87 
Total commercial real estate
 206  284  535  338 
Residential Mortgages (b)
 223  226  292  325 
Credit Card
       1  1 
Other Retail
    
Retail leasing
 9  10  8  8 
Home equity and second mortgages
 118  116  105  110 
Other
 21  24  20  21 
Total other retail
 148  150  133  139 
Total nonperforming loans (1)
 725  834  1,139  972 
Other Real Estate (c)
 23  22  23  23 
Other Assets
 22  22  19  21 
Total nonperforming assets
     $770          $878      $1,181          $1,016 
Accruing loans 90 days or more past due (b)
         $423          $472          $494          $491 
Period-end
loans (2)
         $332,369          $312,028              $387,866          $388,213 
Nonperforming loans to total loans (1)/(2)
 .22 .27 .29 .25
Nonperforming assets to total loans plus other real estate (c)
 .23 .28 .30 .26
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 
Balance December 31, 2022
 $509  $507  $1,016 
Additions to nonperforming assets
      
New nonaccrual loans and foreclosed properties
 168  123  291  270  39  309 
Advances on loans
 5  1  6  6     6 
Total additions
 173  124  297  276  39  315 
Reductions in nonperforming assets
      
Paydowns, payoffs
 (173 (36 (209 (30 (25 (55
Net sales
 (6 (12 (18    (7 (7
Return to performing status
 (47 (76 (123 (9 (45 (54
Charge-offs (d)
 (51 (4 (55 (32 (2 (34
Total reductions
 (277 (128 (405 (71 (79 (150
Net additions to (reductions in) nonperforming assets
 (104 (4 (108 205  (40 165 
Balance June 30, 2022
 $357  $413  $770 
Balance March 31, 2023
 $714  $467  $1,181 
 
(a)
Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)
Excludes $1.7$2.2 billion at June 30, 2022,March 31, 2023, and $1.5 billion at December 31, 2021,2022, of loans purchased and loans that could be purchased from GNMA mortgageMortgage 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 $40$57 million at June 30, 2022,March 31, 2023, and $22$53 million at December 31, 2021,2022, 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.
 
16
 U.S. Bancorp

 
Table 7
 
   Net Charge-offs as a Percent of Average Loans Outstanding
 
  Three Months Ended June 30 
  2022       2021 
  Average             Average        
  Loan   Net         Loan   Net    
(Dollars in Millions) Balance   Charge-offs  Percent       Balance   Charge-offs  Percent 
Commercial
           
Commercial
 $115,758   $28   .10    $97,713   $26   .11
Lease financing
  4,899    2   .16        5,261    1   .08 
Total commercial
  120,657    30   .10      102,974    27   .11 
Commercial real estate
           
Commercial mortgages
  29,676    (2  (.03     27,721        
Construction
  9,841    8   .33        10,843        
Total commercial real estate
  39,517    6   .06      38,564        
Residential mortgages
  80,228    (9  (.04     73,351    (10  (.05
Credit card
  22,748    118   2.08      21,116    148   2.81 
Other retail
           
Retail leasing
  6,708             7,873    (1  (.05
Home equity and second mortgages
  10,726    (3  (.11     11,368    (3  (.11
Other
  43,603    19   .17        39,038    19   .20 
Total other retail
  61,037    16   .11        58,279    15   .10 
Total loans
 $324,187   $161   .20      $294,284   $180   .25
 Six Months Ended June 30 
 2022      2021 
 Average           Average        Three Months Ended March 31 
 Loan   Net       Loan   Net    2023      2022 
(Dollars in Millions) Balance   Charge-offs Percent      Balance   Charge-offs Percent  Average
Loan
Balance
   Net
Charge-offs
 Percent      Average
Loan
Balance
   Net
Charge-offs
 Percent 
Commercial
                      
Commercial
 $111,810   $54  .10    $97,237   $78  .16 $131,227   $42  .13    $107,819   $26  .10
Lease financing
 4,951    8  .33      5,298    5  .19  4,456    5  .46      5,003    6  .49 
Total commercial
 116,761    62  .11      102,535    83  .16  135,683    47  .14      112,822    32  .12 
Commercial real estate
                      
Commercial mortgages
 29,253    (2 (.01     27,844    (12 (.09 43,627    115  1.07      28,826        
Construction
 10,049    3  .06      10,831    5  .09  11,968    2  .07      10,258    (5 (.20
Total commercial real estate
 39,302    1  .01      38,675    (7 (.04 55,595    117  .85      39,084    (5 (.05
Residential mortgages
 78,847    (15 (.04     74,271    (15 (.04 116,287    (1        77,449    (6 (.03
Credit card
 22,297    230  2.08      21,130    292  2.79  25,569    175  2.78      21,842    112  2.08 
Other retail
                      
Retail leasing
 6,908    1  .03      7,924         5,241    1  .08      7,110    1  .06 
Home equity and second mortgages
 10,561    (5 (.10     11,713    (5 (.09 12,774    (1 (.03     10,394    (2 (.08
Other
 43,932    49  .22      37,890    55  .29  35,601    35  .40      44,265    30  .27 
Total other retail
 61,401    45  .15      57,527    50  .18  53,616    35  .26      61,769    29  .19 
Total loans
 $318,608   $323  .20    $294,138   $403  .28 $386,750   $373  .39    $312,966   $162  .21
 
Analysis of Loan Net Charge-OffsCharge-offs
 Total loan net charge-offs were $161 million for the second quarter and $323$373 million for the first six monthsquarter of 2022,2023, compared with $180$162 million and $403 million, respectively, for the same periodsfirst quarter of 2021.2022. The year-over-year decreases$211 million increase reflected $91 million of charge-offs related to the uncollectible amount of acquired loans, which were considered purchased credit deteriorated as of the date of the MUB acquisition, as well as higher charge-offs in net charge-offs were primarily driven by lowermost loan categories consistent with normalizing credit card net charge-offs.conditions. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for both the secondfirst quarter and first six months of 20222023 was 0.200.39 percent (0.30 percent excluding the impact of the MUB acquisition-related charge-offs), compared with 0.250.21 percent and 0.28 percent, respectively, for the same periodsfirst quarter of 2021.2022.
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
U.S. Bancorp
17

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, inflation, interest rates, and corporate bond spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores,
U.S. Bancorp
17

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, including those loans modified under various loan modification programs, 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.collateral at fair value less selling costs. 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 June 30, 2022,March 31, 2023, the Company serviced the first lien on 3433 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 $193$178 million or 1.81.4 percent of its total home equity portfolio at June 30, 2022,March 31, 2023, 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.
18
U.S. Bancorp

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 PCD. An allowance is established for each population and considers product mix, risk characteristics of the portfolio bankruptcy experience,and delinquency status and refreshed LTV ratios when possible. PCD loans also consider whether the loan has experienced a charge-off, bankruptcy or significant deterioration since origination. 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 havehad a material amounttotal unpaid principal balance of $4.8 billion of PCD loans, primarily related to the MUB acquisition, included in its loan portfolio at June 30, 2022.March 31, 2023.
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.
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 June 30, 2022,March 31, 2023, the allowance for credit losses was $6.3$7.5 billion (1.88(1.94 percent of
period-end
loans), compared with an allowance of $6.2$7.4 billion (1.97(1.91 percent of
period-end
loans) at December 31, 2021. 2022. The allowance for credit losses at March 31, 2023 included a $62 million decrease due to a change in accounting principle related to discontinuing the separate recognition and measurement of troubled debt restructurings. The increase in the allowance for credit losses at March 31, 2023, compared with December 31, 2022, was primarily driven by increasing economic uncertainty and normalizing credit losses as well as adjustments made to the purchase accounting estimate for PCD loans. Economic uncertainty and recession risk have been increasing due to rising interest rates, inflationary concerns, market volatility and pressure on corporate earnings related to these factors. In addition to these broad economic factors, expected loss estimates consider various factors including customer specific information
18
U.S. Bancorp

impacting changes in risk ratings, projected delinquencies and the impact of economic deterioration on selected borrowers’ liquidity and ability to repay.
The ratio of the allowance for credit losses to nonperforming loans was 863660 percent at June 30, 2022,March 31, 2023, compared with 738762 percent at December 31, 2021.2022. The ratio of the allowance for credit losses to annualized loan net charge-offs was 969497 percent at June 30, 2022,March 31, 2023, compared with 902697 percent of full year 20212022 net charge-offscharge- offs at December 31, 2021.2022.
The increase in the allowance for credit losses of $100 million (1.6 percent) at June 30, 2022, compared with December 31, 2021, was driven by strong loan growth and increased economic uncertainty, partially offset by stabilizing credit quality. Economic uncertainty and recession risk has been increasing due to ongoing supply chain challenges, rising inflationary concerns, market volatility, rising oil prices resulting from the Russia-Ukraine conflict and, to a lesser extent, additional
COVID-19
virus variants. In addition to these factors, expected loss estimates consider various factors including customer specific information impacting changes in risk ratings, projected delinquencies, potential effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay.
Economic conditions considered in estimating the allowance for credit losses at June 30, 2022March 31, 2023 included changes in projected gross domestic product and unemployment levels. These factors are evaluated through a combination of quantitative calculations using multiple economic scenarios and additional qualitative assessments that consider the high degree of economic uncertainty in the current environment. The projected unemployment rates for 2023 considered in the estimate range from 3.0 percent to 7.5 percent.
The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for credit losses at June 30, 2022March 31, 2023 and December 31, 2021:2022:
 
   
June 30,
2022
  
December 31,
2021
 
United States unemployment rate for the three months ending (a)
  
June 30, 2022
  3.6  3.6
September 30, 2022
  3.4   3.5 
December 31, 2022
  3.3   3.5 
United States real gross domestic product for the three months ending (b)
  
June 30, 2022
  2.5  4.4
September 30, 2022
  2.8   4.5 
December 31, 2022
  1.8   3.4 
   
March 31,
2023
  
December 31,
2022
 
United States unemployment rate for the three months ending (a)
  
March 31, 2023
  3.4  3.8
December 31, 2023
  3.7   4.2 
United States real gross domestic product for the three months ending (b)
  
March 31, 2023
  1.3  1.8
December 31, 2023
  1.1   1.0 
 
(a)
Reflects quarterly average of forecasted reported United States unemployment rate.
(b)
Reflects year-over-year growth rates.
The allowance for credit losses related to commercial lending segment loans decreased $103increased $51 million during the first six monthsquarter of 2022,2023, reflecting the impact of increasing economic uncertainty, normalizing credit conditions and select commercial portfolios continuing to recover from the effects of the
COVID-19
pandemic, partially offset by the impacts ofreal estate loan growth and rising economic uncertainty.deterioration.
The allowance for credit losses related to consumer lending segment loans increased $203$68 million during the first six monthsquarter of 2022, mainly2023, due to loan growththe impact of economic uncertainty, normalizing credit performance and rising economic uncertainty.the effects of higher interest rates on the life of the residential mortgage portfolios, partially offset by a decrease related to a change in accounting principle.
 
U.S. Bancorp 
19

 
Table 8
 
   Summary of Allowance for Credit Losses
 
 Three Months Ended     Six Months Ended  Three Months Ended 
 June 30      June 30  March 31 
(Dollars in Millions) 2022 2021      2022 2021  2023 2022 
Balance at beginning of period
 $6,105  $6,960     $6,155  $8,010  $7,404  $6,155 
Change in accounting principle (a)
 (62   
Allowance for acquired credit losses (b)
 127    
Charge-Offs
         
Commercial
         
Commercial
 48  54      95  134  56  47 
Lease financing
 5  4      13  10  7  8 
Total commercial
 53  58      108  144  63  55 
Commercial real estate
         
Commercial mortgages
 1  3      1  8  121    
Construction and development
 8  1      9  6  2  1 
Total commercial real estate
 9  4      10  14  123  1 
Residential mortgages
 2  5      7  10  4  5 
Credit card
 162  192      320  382  215  158 
Other retail
         
Retail leasing
 4  4      9  15  5  5 
Home equity and second mortgages
 2  2      5  6  2  3 
Other
 44  49      97  117  57  53 
Total other retail
 50  55      111  138  64  61 
Total charge-offs
 276  314      556  688  469  280 
Recoveries
         
Commercial
         
Commercial
 20  28      41  56  14  21 
Lease financing
 3  3      5  5  2  2 
Total commercial
 23  31      46  61  16  23 
Commercial real estate
         
Commercial mortgages
 3  3      3  20  6    
Construction and development
    1      6  1     6 
Total commercial real estate
 3  4      9  21  6  6 
Residential mortgages
 11  15      22  25  5  11 
Credit card
 44  44      90  90  40  46 
Other retail
         
Retail leasing
 4  5      8  15  4  4 
Home equity and second mortgages
 5  5      10  11  3  5 
Other
 25  30      48  62  22  23 
Total other retail
 34  40      66  88  29  32 
Total recoveries
 115  134      233  285  96  118 
Net Charge-Offs
         
Commercial
         
Commercial
 28  26      54  78  42  26 
Lease financing
 2  1      8  5  5  6 
Total commercial
 30  27      62  83  47  32 
Commercial real estate
         
Commercial mortgages
 (2        (2 (12 115    
Construction and development
 8         3  5  2  (5
Total commercial real estate
 6         1  (7 117  (5
Residential mortgages
 (9 (10     (15 (15 (1 (6
Credit card
 118  148      230  292  175  112 
Other retail
         
Retail leasing
    (1     1     1  1 
Home equity and second mortgages
 (3 (3     (5 (5 (1 (2
Other
 19  19      49  55  35  30 
Total other retail
 16  15      45  50  35  29 
Total net charge-offs
 161  180      323  403  373  162 
Provision for credit losses
 311  (170     423  (997 427  112 
Balance at end of period
 $6,255  $6,610     $6,255  $6,610  $7,523  $6,105 
Components
         
Allowance for loan losses
 $5,832  $6,026       $7,020  $5,664 
Liability for unfunded credit commitments
 423  584       503  441 
Total allowance for credit losses (1)
 $6,255  $6,610       $7,523  $6,105 
Period-end
loans (2)
 $332,369  $296,912       $387,866  $318,934 
Nonperforming loans (3)
 725  1,018       1,139  765 
Allowance for Credit Losses as a Percentage of
         
Period-end
loans (1)/(2)
 1.88 2.23      1.94 1.91
Nonperforming loans (1)/(3)
 863  649       660  798 
Nonperforming and accruing loans 90 days or more past due
 545  474       461  502 
Nonperforming assets
 812  624       637  753 
Annualized net charge-offs
 969  916      
Net charge-offs
 497  929 
(a)
Effective January 1, 2023, the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt restructurings.
(b)
Allowance for purchased credit deteriorated and charged-off loans acquired from MUB.
 
20
 U.S. Bancorp

Residual Value Risk Management
 The Company manages its risk to changes in the residual value of leased vehicles, office and business equipment, and other assets through disciplined residual valuation 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 June 30, 2022,March 31, 2023, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 2021.2022. 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, 2021,2022, 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, 2021,2022, 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, 2021,2022, 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 overseeing 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. The Company also manages interest rate sensitivity by utilizing market value of equity modeling, which measures the degree to which the market values of the Company’s assets and liabilities and off-balance sheet instruments will change given a change in interest rates. Management measures the impact of changes in market values due to interest rates under a number of scenarios, including immediate and sustained parallel shifts, and flattening or steepening of the yield curve.
The Company continues to actively monitor markets and proactively manage its balance sheet and heightened its focus on its interest rate risk management governance process during the first quarter of 2023 banking industry disruption. Over the last five quarters, in advance of the recent industry disruption and in connection with the preparation and completion of the MUB acquisition, the Company reduced its investment securities portfolio from
U.S. Bancorp
21

Table 9
   Sensitivity of Net Interest Income
  March 31, 2023   December 31, 2022 
   
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
  (.83)%   1.10  (2.01)%   2.54   (.58)%   .95  (2.02)%   1.44
30 percent to 25 percent of total assets, sold fixed rate loans, reduced outstanding borrowings, increased cash balances and entered into additional fair value hedges on available-for-sale investment securities in response to economic uncertainty, industry dynamics, rising interest rates and increased market volatility.
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, 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.
 
U.S. Bancorp
21

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 June 30, 2022, the Company had $5.1 billion of forward commitments to sell, hedging $2.1 billion of MLHFS and $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. The Company may mitigate credit risk on loans or lending portfolios through the use of credit contracts.
22
U.S. Bancorp

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, as well as all non-United States Dollar LIBOR tenors, ceased to be provided or ceased to be representative after December 31, 2021. The Company holds financial instruments impacted by the discontinuance of LIBOR, including certain loans, investment securities, derivatives,
22
U.S. Bancorp

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, servicer, and servicer,asset manager, 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 (1) identify, assess, monitor and mitigate risks associated with the expected discontinuance or unavailability of LIBOR, (2) actively engage with industry working groups and regulators, (3) develop and implement training and education materials with respect to LIBOR and its discontinuance for the Company and for customers, (4) achieve operational readiness for the use of alternative reference rates (“ARRs”) in new financial instruments and transition existing LIBOR financial instruments to ARRs, (5) develop and implement customer notification programs across the Company and engage impacted customers to remediate and transition impacted instruments.instruments, and (6) develop reporting on remediation of LIBOR instruments across the Company for both internal and external stakeholders. The Company has also invested in updating its systems, models, procedures and internal infrastructure as part of the transition program.
The Company transitioned its financial instruments associated to LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021, to ARRs, with limited exceptions. 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 ratesARRs such as SOFR.the Secured Overnight Financing Rate (“SOFR”). The Company also anticipates that additional financial instruments associated with the remaining United States Dollar LIBOR tenors will require transition to a new reference rate by June 30, 2023. The Company has been undergoing an enterprise-wide effort to proactively reprice LIBOR loans and derivatives that mature after June 30, 2023, with customers to an ARR. 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.
The Company’s MUB acquisition impacts the execution of the Company’s LIBOR transition strategies and execution plans. The Company is currently assessing MUB’s LIBOR transition program, remediation strategies, and preparedness to execute on remediation strategies. In certain instances, the Company and MUB have different remediation strategies. As a result, the Company is updating its LIBOR transition plans to ensure that the Company can execute remediation plans across all products and business units, including with respect to MUB.
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, and the Regulations Implementing the Adjustable Interest Rate (LIBOR) Act (Regulation ZZ) (the “Final Rules”), which were implemented on December 16, 2022. The LIBOR Act and Final Rules establish a process for replacing LIBOR in 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 SOFR will replace LIBOR as the benchmark for those contracts as a matter of law, without the need to be amended by the parties. The Company is currently assessing its outstanding LIBOR portfolio to determine the eligibility of certain financial instruments for the LIBOR Act and will incorporate the LIBOR Act as a remediation strategy where prudent. Refer to “Risk Factors” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021,2022, 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
U.S. Bancorp
23

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. VaR amounts reflect MUB beginning December 1, 2022, the day the acquisition transaction closed.
U.S. Bancorp
23

The average, high, low and
period-end
one-day
VaR amounts for the Company’s Covered Positions were as follows:
 
Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Three Months Ended March 31
(Dollars in Millions)
 2023   2022 
Average
 $1   $2  $5   $2 
High
 2    4  6    2 
Low
 1    1  4    1 
Period-end
 2    2  5    2 
The Company did not experience any actual losses for its combined Covered Positions that exceeded VaR during the sixthree months ended June 30, 2022March 31, 2023 and 2021.2022. 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:
 
Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Three Months Ended March 31
(Dollars in Millions)
 2023   2022 
Average
 $5   $7  $12   $7 
High
 9    9  16    8 
Low
 3    5  10    6 
Period-end
 9    8  14    7 
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 partythird-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
24
U.S. Bancorp

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:
 
Six Months Ended June 30
(Dollars in Millions)
 2022   2021 
Three Months Ended March 31
(Dollars in Millions)
 2023   2022 
Residential Mortgage Loans Held For Sale and Related Hedges
      
Average
 $2   $10  $1   $2 
High
 5    19  1    5 
Low
 1    5       1 
Mortgage Servicing Rights and Related Hedges
      
Average
 $7   $4  $8   $6 
High
 13    11  12    13 
Low
 3    1  4    3 
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 credit ratings and 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.Window and new Bank Term Funding Program, created in 2023. Unencumbered liquid assets in the Company’s investment securities portfolio provides asset liquidity through the Company’s ability to sell the securities or pledge and borrow against them. At June 30, 2022,March 31, 2023, the fair value of unencumbered investment securities totaled $137.5$130.5 billion, compared with $144.0$135.5 billion at December 31, 2021.2022. Refer to Note 4 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on investment securities maturities and trends. Asset liquidity is further enhanced by the Company’s practice of pledging loans to access secured borrowing facilities through the FHLB and Federal Reserve Bank.
 
24
U.S. Bancorp
The following table summarizes the Company’s total available liquidity from on-balance sheet and off-balance sheet funding sources:

(Dollars in millions) March 31,
2023
   December 31,
2022
 
Cash held at the Federal Reserve Bank and other central banks
 $58,137   $45,171 
Available investment securities
  45,464    132,052 
Borrowing capacity from the Federal Reserve Bank and FHLB
  211,399    125,682 
Total available liquidity
 $315,000   $302,905 
Federal Reserve Bank. At June 30, 2022, the Company could have borrowed a total of an additional $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 $467.1$505.3 billion at June 30, 2022,March 31, 2023, compared with $456.1$525.0 billion at December 31, 2021.2022. 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 $29.4$42.0 billion at June 30, 2022,March 31, 2023, and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were $25.0$56.9 billion at June 30, 2022,March 31, 2023, and supplement the Company’s other funding sources. Depositors and investors often consider the credit rating of a Company. The Company receives various credit ratings from four separate credit rating agencies and has strong investment grade ratings from all agencies. After the first quarter of 2023, one credit rating agency, Moody’s Investors Service, downgraded its credit rating of the Company which is now in line with other large regional banks. 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 parent company’s routine funding requirements consist primarily of operating expenses, dividends paid to shareholders, debt service, repurchases of common stock and funds used for acquisitions. The parent company obtains funding to meet its obligations from dividends collected from its subsidiaries and the issuance of debt and capital securities. The Company establishes limits for the
U.S. Bancorp
25

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 June 30, 2022,March 31, 2023, parent company long-term debt outstanding was $18.4$30.8 billion, compared with $18.9$27.0 billion at December 31, 2021.2022. The decreaseincrease was primarily due to $1.3 billion of subordinated note and $1.0 billion of medium-term note repayments, partially offset by $2.1$3.7 billion of medium-term note issuances. As of June 30, 2022,March 31, 2023, there was no parent company debt scheduled to mature in the remainder of 2022.2023. Future debt maturities may be met through medium-term note and capital security issuances and dividends from subsidiaries, as well as from parent company cash and cash equivalents.
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 June 30, 2022,March 31, 2023, the Company was compliant with this requirement.
The Company is also subject to a regulatory Net Stable Funding Ratio (“NSFR”) requirement which requires banks to maintain a minimum level of stable funding based on the liquidity characteristics of their assets, commitments, and derivative exposures over a
one-year
time horizon. At June 30, 2022,March 31, 2023, 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, 2021,2022, for further discussion on liquidity risk management.
European Exposures
The Company provides merchant processing and corporate trust services in Europe either directly or through banking affiliations in Europe. Revenue generated from sources in Europe represented approximately 2 percent of the Company’s total net revenue for both the three and six months ended June 30, 2022.March 31, 2023. 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 June 30, 2022,March 31, 2023, the Company had an aggregate amount on deposit with European banks of approximately $7.3$7.5 billion, predominately with the Central Bank of Ireland and Bank of England.
In addition, the Company provides financing to domestic multinational corporations that generate revenue from customers in European countries, transacts with various European banks as counterparties to certain derivative-related activities, and through a subsidiary, manages money market funds that hold certain investments in European sovereign debt. Any deterioration in economic conditions in Europe, including the impacts resulting from the Russia-Ukraine conflict, is 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
26
 
25
U.S. Bancorp

 
Table 10
 
   Regulatory Capital Ratios

(Dollars in Millions)      June 30,
2022
  December 31,
2021
 
Basel III standardized approach:
             
Common equity tier 1 capital
      $42,944  $41,701 
Tier 1 capital
       50,195   48,516 
Total risk-based capital
       58,307   56,250 
Risk-weighted assets
       441,804   418,571 
    
Common equity tier 1 capital as a percent of risk-weighted assets
       9.7  10.0
Tier 1 capital as a percent of risk-weighted assets
       11.4   11.6 
Total risk-based capital as a percent of risk-weighted assets
       13.2   13.4 
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
       8.6   8.6 
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)
       7.1   6.9 
(Dollars in Millions) March 31,
2023
  December 31,
2022
 
Basel III standardized approach:
  
Common equity tier 1 capital
 $42,027  $41,560 
Tier 1 capital
  49,278   48,813 
Total risk-based capital
  59,920   59,015 
Risk-weighted assets
  494,048   496,500 
Common equity tier 1 capital as a percent of risk-weighted assets (a)
  8.5  8.4
Tier 1 capital as a percent of risk-weighted assets
  10.0   9.8 
Total risk-based capital as a percent of risk-weighted assets
  12.1   11.9 
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
  7.5   7.9 
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)
  6.1   6.4 
(a)
The Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the CECL methodology, was 8.3 percent at March 31, 2023, compared with 8.1 percent at December 31, 2022.
 
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. To achieve its capital goals, the Company employs a variety of capital management tools, including dividends, common share repurchases, and the issuance of subordinated debt, non-cumulative perpetual preferred stock, common stock and other capital instruments. 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.during 2020 and 2021. This cumulative deferred impact will continue to be phased into the Company’s regulatory capital over the next threetwo 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 June 30, 2022March 31, 2023 and December 31, 2021.2022. 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 5.54.8 percent and 7.26.5 percent, respectively, at June 30, 2022,March 31, 2023, compared with 6.84.5 percent and 9.26.0 percent, respectively, at December 31, 2021.2022. In addition, the Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the CECL methodology was 9.48.3 percent at June 30, 2022,March 31, 2023, compared with 9.68.1 percent at December 31, 2021.2022. Refer to “Non-GAAP Financial Measures” beginning on page 31 for further information on these other capital ratios.
Total U.S. Bancorp shareholders’ equity was $48.6$53.0 billion at June 30, 2022,March 31, 2023, compared with $54.9$50.8 billion at December 31, 2021.2022. The decreaseincrease was primarily the result of corporate earnings and 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.dividends paid.
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.2021. The Company suspended all common stock repurchases at the beginning of the third quarter of 2021, except for those done exclusively in connection with its stock-based compensation programs, due to its pending acquisition of MUFG Union Bank’s core regional banking franchise. The Company expects to operate at a common equity tier 1 capital ratio near its target ratio of 8.5 percent at the time of closing the acquisition and increasing toward 9.0 percent after closing of the acquisition.MUB. The Company does not expect to commence repurchasing its common stockevaluate potential repurchases until after the acquisition closes and its common equity tier 1 capital ratio approximatesis 9.0 percent.percent, at which time the Company will evaluate the potential capital requirements given the regulatory landscape. Capital distributions, including dividends and stock repurchases, are subject to the approval of the Company’s Board of Directors and compliance with regulatory requirements.
U.S. Bancorp
27

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 secondfirst quarter of 2022:2023:
 
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 
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
  159,106(a)  $48.30   9,106  $1,375 
February
  372,464   48.76   372,464   1,357 
March
  1,462,568(b)   40.31   552,568   1,331 
Total
  1,994,138(c)  $42.53   934,138  $1,331 
 
(a)
Includes 300,000150,000 shares of common stock purchased, at an average price per share of $53.11,$48.35, in open-market transactions by U.S. Bank National Association, the Company’s primary 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.
26(b)
Includes
910,000
shares of common stock purchased, at an average price per share of $36.43, in open-market transactions by U.S. BancorpBank National Association in its capacity as trustee of the U.S. Bank 401(k) Savings Plan.
(c)
Includes 1,060,000 shares of common stock purchased, at an average price per share of $38.12, in open-market transactions by U.S. Bank National Association in its capacity as trustee of the U.S. Bank 401(k) Savings Plan.

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 compliance with regulatory requirements.
Refer to “Management’s Discussion and Analysis — Capital Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, 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 2022,2023, certain organization and methodology changes were made and, accordingly, 20212022 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 $377$580 million of the Company’s net income in the secondfirst quarter and $793of 2023, or an increase of $172 million in the first six months of 2022, or decreases of $41 million (9.8(42.2 percent) and $87 million (9.9 percent), respectively, compared with the same periodsfirst quarter of 2021.2022.
Net revenue increased $65$397 million (6.6 percent) in the second quarter and $59 million (3.0(40.0 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021.2022. Net interest income, on a taxable-equivalent basis, increased $58$335 million (8.0 percent) in the second quarter and $75 million (5.2(44.9 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021.2022. The increases wereincrease was primarily due to the impacts of the MUB acquisition, higher loan balances and interest-bearing deposit balances,the impact of higher rates on the margin benefit from deposits, partially offset by lower spreads on loans and unfavorable changes in deposit rates.lower noninterest-bearing deposits. Noninterest income increased $7$62 million (2.6 percent) in the second quarter of 2022, compared with the second quarter of 2021, primarily due to stronger treasury management fees driven by core growth and increased federal government volume. Noninterest income decreased $16 million (3.0(25.1 percent) in the first six monthsquarter of 2022,2023, compared with the first six monthsquarter of 2021,2022, primarily due to lower corporate bond feesthe MUB acquisition and higher commercial products revenue mainly due to higher trading revenue within the capital markets business, partially offset by higher treasury management fees.revenue.
Noninterest expense increased $20$169 million (4.6 percent) in the second quarter and $25 million (2.9(38.1 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to higher Federal Deposit Insurance CorporationFDIC insurance expense, and higher compensationnet shared services expense primarily due to merit increases, variable compensation and hiring todriven by investment in support of business growth partially offsetand the impacts of the MUB acquisition, including intangible amortization driven by lower performance-based incentives related to capital markets activity.the core deposit intangible. The provision for credit losses increased $100decreased $2 million in the second quarter and $150 million(40.0 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to slower ending loan loss provisions supporting strongerbalance 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 $501 million of the Company’s net income in the second quarter and $880 million in the first six months of 2022, or decreases of $145 million (22.4 percent) and $331 million (27.3 percent), respectively, compared with the same periods of 2021.current year.
 
U.S. Bancorp
28
 
27
U.S. Bancorp

 Table 11
    Line of Business Financial Performance
 
 
Corporate and
Commercial Banking
    
Consumer and
Business Banking
    
Wealth Management and
Investment Services
     
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
    
Three Months Ended March 31
(Dollars in Millions)
 2023 2022 Percent
Change
     2023 2022 Percent
Change
     2023 2022 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    $1,081  $746  44.9    $2,315  $1,500  54.3    $488  $276  76.8   
Noninterest income
 272  265  2.6     395  634  (37.7    652  549  18.8     309  247  25.1    397  454  (12.6   700  595  17.6   
Total net revenue
 1,056  991  6.6     2,012  2,168  (7.2    1,004  795  26.3     1,390  993  40.0    2,712  1,954  38.8    1,188  871  36.4   
Noninterest expense
 453  433  4.6     1,419  1,375  3.2     581  521  11.5     613  444  38.1    1,776  1,398  27.0    668  558  19.7   
Income (loss) before provision and income taxes
 603  558  8.1     593  793  (25.2    423  274  54.4     777  549  41.5    936  556  68.3    520  313  66.1   
Provision for credit losses
 100     *     (75 (68 (10.3    (4 (4       3  5  (40.0   13  48  (72.9   (12 8  *   
Income (loss) before income taxes
 503  558  (9.9    668  861  (22.4    427  278  53.6     774  544  42.3    923  508  81.7    532  305  74.4   
Income taxes and taxable-equivalent adjustment
 126  140  (10.0    167  215  (22.3    107  70  52.9     194  136  42.6    231  126  83.3    133  76  75.0   
Net income (loss)
 377  418  (9.8    501  646  (22.4    320  208  53.8     580  408  42.2    692  382  81.2    399  229  74.2   
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     $580  $408  42.2    $692  $382  81.2    $399  $229  74.2   
Average Balance Sheet
                                          
Loans
 $123,210  $102,275  20.5     $141,135  $140,826  .2     $22,320  $17,442  28.0     $150,436  $115,867  29.8    $170,132  $140,429  21.2    $24,335  $20,707  17.5   
Goodwill
 1,912  1,647  16.1     3,244  3,476  (6.7    1,718  1,618  6.2     2,824  1,912  47.7    4,491  3,261  37.7    1,787  1,761  1.5   
Other intangible assets
 4  5  (20.0    3,634  2,828  28.5     300  84  *     592  4  *    5,594  3,176  76.1    442  265  66.8   
Assets
 137,773  114,186  20.7     156,132  161,695  (3.4    25,786  20,470  26.0     170,976  127,891  33.7    187,860  156,953  19.7    28,625  24,421  17.2   
Noninterest-bearing deposits
 58,266  60,696  (4.0    31,642  33,702  (6.1    25,019  23,288  7.4     58,447  63,010  (7.2   43,496  31,265  39.1    21,896  27,429  (20.2  
Interest-bearing deposits
 93,678  70,019  33.8     168,486  158,164  6.5     71,759  73,347  (2.2    105,011  87,010  20.7    185,400  165,885  11.8    83,619  70,402  18.8   
Total deposits
 151,944  130,715  16.2     200,128  191,866  4.3     96,778  96,635  .1     163,458  150,020  9.0    228,896  197,150  16.1    105,515  97,831  7.9   
Total U.S. Bancorp shareholders’ equity
 13,989  13,816  1.3    12,366  12,337  .2    3,618  3,089  17.1    17,350  13,729  26.4    16,704  12,214  36.8    4,106  3,593  14.3   
 
  
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
     
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
    
Three Months Ended March 31
(Dollars in Millions)
 2023 2022 Percent
Change
     2023 2022 Percent
Change
     2023 2022 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     $651  $622  4.7    $133  $56  *   $4,668  $3,200  45.9   
Noninterest income
 1,852  1,698  9.1     471  486  (3.1    4,944  5,000  (1.1    937  857  9.3    164  243  (32.5   2,507  2,396  4.6   
Total net revenue
 3,093  2,922  5.9     615  518  18.7     11,608  11,253  3.2     1,588  1,479  7.4    297  299  (.7   7,175  5,596  28.2   
Noninterest expense
 1,726  1,627  6.1     609  535  13.8     7,226  6,766  6.8     915  849  7.8    583  253  *    4,555  3,502  30.1   
Income (loss) before provision and income taxes
 1,367  1,295  5.6     6  (17 *     4,382  4,487  (2.3    673  630  6.8    (286 46  *    2,620  2,094  25.1   
Provision for credit losses
 351  50  *     (8 (894 99.1     423  (997 *     226  130  73.8    197  (79 *    427  112  *   
Income (loss) before income taxes
 1,016  1,245  (18.4    14  877  (98.4    3,959  5,484  (27.8    447  500  (10.6   (483 125  *    2,193  1,982  10.6   
Income taxes and taxable-equivalent adjustment
 254  311  (18.3    (121 58  *     867  1,211  (28.4    112  125  (10.4   (181 (39 *    489  424  15.3   
Net income (loss)
 762  934  (18.4    135  819  (83.5    3,092  4,273  (27.6    335  375  (10.7   (302 164  *    1,704  1,558  9.4   
Net (income) loss attributable to noncontrolling interests
             (4 (11 63.6     (4 (11 63.6                (6 (1 *    (6 (1 *   
Net income (loss) attributable to U.S. Bancorp
 $762  $934  (18.4    $131  $808  (83.8    $3,088  $4,262  (27.5    $335  $375  (10.7   $(308 $163  *    $1,698  $1,557  9.1   
Average Balance Sheet
                                          
Loans
 $32,802  $29,831  10.0     $3,744  $3,789  (1.2    $318,608  $294,138  8.3     $36,935  $31,740  16.4    $4,912  $4,223  16.3    $386,750  $312,966  23.6   
Goodwill
 3,322  3,175  4.6                 10,225  9,916  3.1     3,320  3,325  (.2              12,422  10,259  21.1   
Other intangible assets
 450  530  (15.1                4,143  3,259  27.1     385  464  (17.0   36     *    7,049  3,909  80.3   
Assets
 39,803  35,356  12.6     224,110  217,372  3.1     578,663  550,057  5.2     42,860  38,499  11.3    235,126  229,638  2.4    665,447  577,402  15.2   
Noninterest-bearing deposits
 3,534  5,146  (31.3    2,532  2,591  (2.3    124,375  121,844  2.1     3,184  3,673  (13.3   2,718  2,586  5.1    129,741  127,963  1.4   
Interest-bearing deposits
 164  137  19.7     2,174  1,932  12.5     330,977  305,951  8.2     108  160  (32.5   6,445  2,756  *    380,583  326,213  16.7   
Total deposits
 3,698  5,283  (30.0    4,706  4,523  4.0     455,352  427,795  6.4     3,292  3,833  (14.1   9,163  5,342  71.5    510,324  454,176  12.4   
Total U.S. Bancorp shareholders’ equity
 8,067  7,535  7.1    13,460  15,750  (14.5   51,304  52,846  (2.9   8,968  8,017  11.9    5,539  15,913  (65.2   52,667  53,466  (1.5  
 
*
Not meaningful
 
U.S. Bancorp 
29

Consumer and Business Banking
 Consumer and Business Banking comprises consumer banking, small business banking and consumer lending. Products and services are delivered through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing, mobile devices, distributed mortgage loan officers, and intermediary relationships including auto dealerships, mortgage banks, and strategic business partners. Consumer and Business Banking contributed $692 million of the Company’s net income in the first quarter of 2023, or an increase of $310 million (81.2 percent) compared with the first quarter of 2022.
Net revenue decreased $156increased $758 million (7.2 percent) in the second quarter and $253 million (6.0(38.8 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021. Noninterest2022. Net interest income, decreased $239on a taxable-equivalent basis, increased $815 million (37.7 percent) in the second quarter and $347 million (28.8(54.3 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, due to the impacts of the MUB acquisition and the favorable impact of higher rates on the margin benefit from deposits, partially offset by lower spreads on loans and lower loan fees. Noninterest income decreased $57 million (12.6 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to lower mortgage banking revenue reflecting lower application volume, given declining refinance activities, lower related gain on sale margins and lowerfewer performing loan sales, partially offset by an increase in the fair value of MSRs, net of hedging activities. Net interestNoninterest income further decreased due to lower residual gains on a taxable-equivalent basis, increased $83 million (5.4 percent) invehicle sales and the second quarter and $94 million (3.1 percent) in the first six monthsimpact of 2022, compared with the same periods of 2021, reflecting strong growth in interest-bearingpricing changes on deposit balances and favorable funding mix,service charges, 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.MUB acquisition.
Noninterest expense increased $44$378 million (3.2 percent) in the second quarter and $108 million (4.0(27.0 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to increases in net shared services expense due to investments in digital capabilities.capabilities and the impact of the MUB acquisition, including intangible amortization driven by the core deposit intangible, as well as lower capitalized loan costs driven by lower mortgage production. The provision for credit losses decreased $7$35 million (10.3 percent) in the second quarter of 2022, compared with the second quarter of 2021, due to strong improvements in credit quality in the second quarter of 2022. The provision for credit losses increased $80 million (74.1(72.9 percent) in the first six monthsquarter of 2022,2023, compared with the first six monthsquarter of 2021, reflecting2022, due to a decreasemore favorable product mix in the reserve allocation in the first six months of 2021 due to credit quality improvement.current year.
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 $320$399 million of the Company’s net income in the secondfirst quarter and $522of 2023, or an increase of $170 million in the first six months of 2022, or increases of $112 million (53.8(74.2 percent) and $93 million (21.7 percent), respectively, compared with the same periodsfirst quarter of 2021.2022.
Net revenue increased $209$317 million (26.3 percent) in the second quarter and $281 million (17.6(36.4 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021.2022. Net interest income, on a taxable-equivalent basis, increased $106$212 million (43.1 percent) in the second quarter and $113 million (22.0(76.8 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to the favorable funding mix,impact of higher average noninterest-bearing deposit balances and higher average loan balances.rates on the margin benefit from deposits. Noninterest income increased $103$105 million (18.8 percent) in the second quarter and $168 million (15.6(17.6 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to the impact of the PFM acquisition and core business growth indriven by higher trust and investment management fees as well asreflecting lower money market fund fee waivers related to moneyand the impacts of the MUB acquisition, partially offset by the impact of unfavorable market funds.conditions.
Noninterest expense increased $60$110 million (11.5 percent) in the second quarter and $154 million (15.1(19.7 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, reflecting higher compensation and employee benefits expense as a result of merit increases the PFM acquisition,and 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 ingrowth and the first six monthsimpact of 2022, compared with the first six months of 2021, due to litigation settlements and fraud-related losses.MUB acquisition. The provision for credit losses was flat in the second quarter and increased $3decreased $20 million in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021.2022, primarily due to slower ending loan balance growth in the current year.
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 $391$335 million of the Company’s net income in the secondfirst quarter and $762of 2023, or a decrease of $40 million in the first six months of 2022, or decreases of $50 million (11.3(10.7 percent) and $172 million (18.4 percent), respectively, compared with the same periodsfirst quarter of 2021.2022.
Net revenue increased $105$109 million (7.0 percent) in the second quarter and $171 million (5.9(7.4 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021. Noninterest2022. Net interest income, on a taxable-equivalent basis, increased $81$29 million (8.9 percent) in the second quarter and $154 million (9.1(4.7 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to higher loan yields driven by higher interest rates and customer revolve rates, higher loan balances and higher loan fees, mostly offset by higher funding costs. Noninterest income increased $80 million (9.3 percent) in the first quarter of 2023, compared with the first quarter of 2022, mainly due to continued strengthening of consumer and business spending across most sectors. As a result, there was strong growth in merchant processing services revenue driven by higher sales volume and higher merchant fees, partially offset by higher rebates. There was also growth in corporate payment products revenue driven by improving business spending across all product groups. Strong consumer spending also drove an increase in creditIn addition, merchant processing services revenue increased due to higher sales volume and debit card revenue, mostlyhigher merchant fees, partially offset by declining prepaid processing fees as the beneficial impact of foreign currency rate changes in Europe.
 
30
 U.S. Bancorp

government stimulus programs dissipated year-over-year. Net interest income, on a taxable-equivalent basis,Noninterest expense increased $24$66 million (4.0 percent) in the second quarter and $17 million (1.4(7.8 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021, primarily due to higher loan balances and loan fees, partially offset by lower loan yields driven by declining customer revolve rates.
Noninterest expense increased $42 million (5.1 percent) in the second quarter and $99 million (6.1 percent) in the first six months of 2022, compared with the same periods of 2021, reflecting higher net shared services expense driven by investment in infrastructure and technology development, in addition to higher compensation and employee benefits expense as a result ofdue to merit increases and core business growth and variable compensation.growth. The provision for credit losses increased $130$96 million in the second quarter and $301 million(73.8 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to stronger growth in loan balancesthe impacts of increasing delinquency rates and relatively stable credit quality in the current year, compared with a stronger decline in delinquencies in the prior year.lower consumer liquidity.
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 $131$308 million in the first six monthsquarter of 2022,2023, compared with net income of $269 million and $808$163 million in the same periodsfirst quarter of 2021, respectively.2022.
Net revenue increased $6decreased $2 million (1.9 percent) in the second quarter and $97 million (18.7(0.7 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021.2022. Noninterest income decreased $79 million (32.5 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to lower tax-advantaged investment syndication revenue and securities losses. Net interest income, on a taxable-equivalent basis, increased $29 million (46.0 percent) in the second quarter and $112$77 million in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to higher investment securities portfolio and cash balances. Noninterest income decreased $23 million (8.9 percent) in the second quarter and $15 million (3.1 percent) in the first six monthsacquisition of 2022, compared with the same periods of 2021, primarily due to lower securities gains and lower gains on the disposition of assets,MUB, partially offset by higher commercial products revenue.funding costs.
Noninterest expense increased $171$330 million (74.7 percent) in the second quarter and $74 million (13.8 percent) in the first six monthsquarter of 2022,2023, compared with the same periodsfirst quarter of 2021,2022, primarily due to merger and integration-relatedintegration charges associated withand operating expenses related to the planned acquisition of MUFG Union BankMUB, higher compensation and higher compensationemployee benefits expense reflecting merit increases, hiring to support business growth, and core business growth net of lower variable compensation,and higher production incentives, partially offset by lower net shared services expense. The provision for credit losses increased $258$276 million in the secondfirst quarter and $886 million (99.1 percent) in the first six months of 2022,2023, compared with the same periodsfirst quarter of 2021, reflecting the residual impact of changes in the allowance for credit losses being impacted by increasing2022, primarily due to increased economic uncertainty in the current year compared to the reduction in the allowance for credit losses associated with improving economic conditions in the prior year.first quarter of 2022.
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.
 
U.S. Bancorp
31

The following table shows the Company’s calculation of these non-GAAP financial measures:
 
(Dollars in Millions) June 30,
2022
 December 31,
2021
  March 31,
2023
 December 31,
2022
 
Total equity
     $49,069  $55,387  $53,454  $51,232 
Preferred stock
 (6,808 (6,371 (6,808 (6,808
Noncontrolling interests
 (464 (469 (465 (466
Goodwill (net of deferred tax liability) (1)
 (9,204 (9,323 (11,575 (11,395
Intangible assets, other than mortgage servicing rights
 (780 (785
Intangible assets (net of deferred tax liability), other than mortgage servicing rights
 (2,611 (2,792
Tangible common equity (a)
 31,813  38,439  31,995  29,771 
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation
 42,944  41,701  42,027  41,560 
Adjustments (2)
 (1,300 (1,733 (866 (1,299
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology (b)
 41,644  39,968  41,161  40,261 
Total assets
 591,381  573,284  682,377  674,805 
Goodwill (net of deferred tax liability) (1)
 (9,204 (9,323 (11,575 (11,395
Intangible assets, other than mortgage servicing rights
 (780 (785
Intangible assets (net of deferred tax liability), other than mortgage servicing rights
 (2,611 (2,792
Tangible assets (c)
 581,397  563,176  668,191  660,618 
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)
 441,804  418,571  494,048  496,500 
Adjustments (3)
 (317 (357 (735 (620
Risk-weighted assets, reflecting the full implementation of the CECL methodology (e)
 441,487  418,214  493,313  495,880 
Ratios
    
Tangible common equity to tangible assets (a)/(c)
 5.5 6.8 4.8 4.5
Tangible common equity to risk-weighted assets (a)/(d)
 7.2  9.2  6.5  6.0 
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology (b)/(e)
 9.4  9.6  8.3  8.1 
 
 Three Months Ended
June 30
    
Six Months Ended
June 30
  Three Months Ended
March 31
 
 2022 2021     2022 2021  2023 2022 
Net interest income
 $3,435  $3,137    $6,608  $6,200  $4,634  $3,173 
Taxable-equivalent adjustment (4)
 29  27     56  53  34  27 
Net interest income, on a taxable-equivalent basis
 3,464  3,164    6,664  6,253  4,668  3,200 
Net interest income, on a taxable-equivalent basis (as calculated above)
 3,464  3,164    6,664  6,253  4,668  3,200 
Noninterest income
 2,548  2,619    4,944  5,000  2,507  2,396 
Less: Securities gains (losses), net
 19  43     37  68  (32 18 
Total net revenue, excluding net securities gains (losses) (f)
 5,993  5,740    11,571  11,185  7,207  5,578 
 
Noninterest expense (g)
 3,724  3,387    7,226  6,766  4,555  3,502 
 
Efficiency ratio (g)/(f)
 62.1 59.0    62.4 60.5 63.2 62.8
Net charge-offs
 $373  
Less: Notable items (5)
 91  
Net charge-offs, excluding notable items
 282  
Annualized net charge-offs, excluding notable items (h)
 1,144  
Average loan balances (i)
 386,750  
Net charge-off ratio, excluding notable items (h)/(i)
 .30 
 
(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.
(5)
Notable items for the three months ended March 31, 2023 included $91 million of net charge-offs related to the uncollectible amount of acquired MUB loans, which were considered purchased credit deteriorated as of the date of acquisition.
 
32
 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, 2021.2022.
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.
The Company continues to integrate MUB into its overall internal control over financial reporting processes. During the most recently completed fiscal quarter, there waswere no changeother changes 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 hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
U.S. Bancorp 
33

U.S. Bancorp
Consolidated Balance Sheet
 
(Dollars in Millions) June 30,
2022
 December 31,
2021
  March 31,
2023
 December 31,
2022
 
 (Unaudited)    (Unaudited)   
  
Assets
  
Cash and due from banks $39,124  $28,905  $67,228  $53,542 
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 
Held-to-maturity (fair value $78,876 and $77,874, respectively) 88,462  88,740 
Available-for-sale ($600 and $858 pledged as collateral, respectively) (a) 65,491  72,910 
Loans held for sale (including $1,990 and $1,849 of mortgage loans carried at fair value, respectively) 2,381  2,200 
Loans  
Commercial 125,983  112,023  137,326  135,690 
Commercial real estate 39,753  39,053  55,158  55,487 
Residential mortgages 82,114  76,493  116,948  115,845 
Credit card 23,697  22,500  25,489  26,295 
Other retail 60,822  61,959  52,945  54,896 
Total loans 332,369  312,028  387,866  388,213 
Less allowance for loan losses (5,832 (5,724 (7,020 (6,936
Net loans 326,537  306,304  380,846  381,277 
Premises and equipment 3,177  3,305  3,735  3,858 
Goodwill 10,157  10,262  12,560  12,373 
Other intangible assets 4,487  3,738  6,883  7,155 
Other assets (including $1,258
and $1,193 of trading securities at fair value pledged as collateral, respectively) (a)
 43,647  38,174 
Other assets (including $2,773 and $702 of trading securities at fair value pledged as collateral, respectively) (a) 54,791  52,750 
Total assets $591,381  $573,284  $682,377  $674,805 
  
Liabilities and Shareholders’ Equity
  
Deposits  
Noninterest-bearing $129,130  $134,901  $124,595  $137,743 
Interest-bearing 337,972  321,182  380,744  387,233 
Total deposits 467,102  456,083  505,339  524,976 
Short-term borrowings 24,963  11,796  56,875  31,216 
Long-term debt 29,408  32,125  42,045  39,829 
Other liabilities 20,839  17,893  24,664  27,552 
Total liabilities 542,312  517,897  628,923  623,573 
Shareholders’ equity  
Preferred stock 6,808  6,371  6,808  6,808 
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 
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares; issued: 3/31/23
and 12/31/22—
2,125,725,742 shares
 21  21 
Capital surplus 8,555  8,539  8,699  8,712 
Retained earnings 70,772  69,201  72,807  71,901 
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
Less cost of common stock in treasury: 3/31/23—592,852,310 shares; 12/31/22
594,747,484 shares
 (25,193 (25,269
Accumulated other comprehensive income (loss) (10,361 (1,943 (10,153 (11,407
Total U.S. Bancorp shareholders’ equity 48,605  54,918  52,989  50,766 
Noncontrolling interests 464  469  465  466 
Total equity 49,069  55,387  53,454  51,232 
Total liabilities and equity $591,381  $573,284  $682,377  $674,805 
 
(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
34
 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
  
Three Months
Ended March 31
 
2022 2021     2022 2021  2023 2022 
Interest Income
    
Loans $2,869  $2,677    $5,468  $5,401  $5,277  $2,599 
Loans held for sale 54  55    114  122  31  60 
Investment securities 806  618    1,523  1,135  1,074  717 
Other interest income 96  32    138  65  582  42 
Total interest income 3,825  3,382    7,243  6,723  6,964  3,418 
Interest Expense
    
Deposits 177  82    257  167  1,505  80 
Short-term borrowings 57  18    78  34  449  21 
Long-term debt 156  145    300  322  376  144 
Total interest expense 390  245    635  523  2,330  245 
Net interest income 3,435  3,137    6,608  6,200  4,634  3,173 
Provision for credit losses 311  (170   423  (997 427  112 
Net interest income after provision for credit losses 3,124  3,307    6,185  7,197  4,207  3,061 
Noninterest Income
    
Credit and debit card revenue 399  396    737  732 
Card revenue 360  338 
Corporate payment products revenue 172  138    330  264  189  158 
Merchant processing services 425  374    788  692  387  363 
Trust and investment management fees 566  446    1,066  890  590  500 
Deposit service charges 165  176    342  337 
Treasury management fees 169  160    325  307 
Service charges 324  333 
Commercial products revenue 290  280    556  560  334  266 
Mortgage banking revenue 142  346    342  645  128  200 
Investment products fees 59  60    121  115  68  62 
Securities gains (losses), net 19  43    37  68  (32 18 
Other 142  200    300  390  159  158 
Total noninterest income 2,548  2,619    4,944  5,000  2,507  2,396 
Noninterest Expense
    
Compensation 1,872  1,798    3,725  3,601 
Employee benefits 374  337    770  721 
Compensation and employee benefits 2,646  2,249 
Net occupancy and equipment 265  258    534  521  321  269 
Professional services 111  108    225  206  134  114 
Marketing and business development 106  90    186  138  122  80 
Technology and communications 350  362    699  721  503  421 
Postage, printing and supplies 69  65    141  134 
Other intangibles 40  40    87  78  160  47 
Merger and integration charges 197       197     244    
Other 340  329    662  646  425  322 
Total noninterest expense 3,724  3,387    7,226  6,766  4,555  3,502 
Income before income taxes 1,948  2,539    3,903  5,431  2,159  1,955 
Applicable income taxes 414  551    811  1,158  455  397 
Net income 1,534  1,988    3,092  4,273  1,704  1,558 
Net (income) loss attributable to noncontrolling interests (3 (6   (4 (11 (6 (1
Net income attributable to U.S. Bancorp $1,531  $1,982    $3,088  $4,262  $1,698  $1,557 
Net income applicable to U.S. Bancorp common shareholders $1,464  $1,914    $2,930  $4,089  $1,592  $1,466 
Earnings per common share $.99  $1.29    $1.97  $2.73  $1.04  $.99 
Diluted earnings per common share $.99  $1.28    $1.97  $2.73  $1.04  $.99 
Average common shares outstanding 1,486  1,489    1,485  1,495  1,532  1,485 
Average diluted common shares outstanding 1,487  1,490    1,486  1,497  1,532  1,486 
See Notes to Consolidated Financial Statements.
 
U.S. Bancorp 
3
5
35
U.S. Bancorp
Consolidated Statement of Comprehensive Income
 
(Dollars in Millions)
(Unaudited)
 Three Months Ended
June 30
    Six Months Ended
June 30
  Three Months Ended
March 31
 
2022 2021     2022 2021  2023 2022 
Net income $1,534  $1,988    $3,092  $4,273  $1,704  $1,558 
Other Comprehensive Income (Loss)
    
Changes in unrealized gains (losses) on investment securities available-for-sale  (4,761  1,195     (11,515  (2,183  1,305   (6,754
Changes in unrealized gains (losses) on derivative hedges  98   14     98   113   204    
Foreign currency translation  (3  (1    (3  24   (1   
Changes in unrealized gains (losses) on retirement plans  1    
Reclassification to earnings of realized (gains) losses  84   (11    151   7   158   67 
Income taxes related to other comprehensive income (loss)  1,159   (304    2,851   515   (413  1,692 
Total other comprehensive income (loss)  (3,423  893     (8,418  (1,524  1,254   (4,995
Comprehensive income (loss)  (1,889  2,881     (5,326  2,749   2,958   (3,437
Comprehensive (income) loss attributable to noncontrolling interests  (3  (6    (4  (11  (6  (1
    
Comprehensive income (loss) attributable to U.S. Bancorp $(1,892 $2,875    $(5,330 $2,738  $2,952  $(3,438
See Notes to Consolidated Financial Statements.
 
3
6
36
 U.S. Bancorp

U.S. Bancorp
Consolidated Statement of Shareholders’ Equity
 
 U.S. Bancorp Shareholders       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 
(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, 2021
 1,484  $6,371  $21  $8,539  $69,201  $(27,271 $(1,943 $54,918  $469  $55,387 
Net income (loss) 1,982  1,982  6  1,988  1,557    1,557  1  1,558 
Other comprehensive income (loss) 893  893  893    (4,995 (4,995 (4,995
Preferred stock dividends (a) (58 (58 (58 (84   (84 (84
Common stock dividends ($.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 (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  437    437  437 
Issuance of common and treasury stock 3  (119 136  17  17  3  (116  132  16  16 
Purchase of treasury stock (1 (55 (55 (55 (1  (54 (54 (54
Distributions to noncontrolling interests    (4 (4      (2 (2
Net other changes in noncontrolling interests    (5 (5
Stock option and restricted stock grants 135  135  135  92    92  92 
    
Balance June 30, 2022
 1,486  $6,808  $21  $8,555  $70,772  $(27,190 $(10,361 $48,605  $464  $49,069 
Balance March 31, 2022
 1,486  $6,808  $21  $8,515  $69,987  $(27,193 $(6,938 $51,200  $468  $51,668 
   
Balance December 31, 2022
 1,531  $6,808  $21  $8,712  $71,901  $(25,269 $(11,407 $50,766  $466  $51,232 
Change in accounting principle (b) 46    46  46 
Net income (loss) 1,698    1,698  6  1,704 
Other comprehensive income (loss)   1,254  1,254  1,254 
Preferred stock dividends (c) (98   (98 (98
Common stock dividends ($.48 per share) (740   (740 (740
Issuance of common and treasury stock 3  (114  120  6  6 
Purchase of treasury stock (1  (44 (44 (44
Distributions to noncontrolling interests      (7 (7
Stock option and restricted stock grants 101    101  101 
   
Balance March 31, 2023
 1,533  $6,808  $21  $8,699  $72,807  $(25,193 $(10,153 $52,989  $465  $53,454 
 
(a)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series K, Series L and Series M Non-Cumulative Perpetual Preferred Stock of $884.722, $221.181, $406.25, $343.75, $234.375 and $250.00 respectively.
(b)
Reflects dividends declared per share on the Company’s Series A, Series B, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $884.722, $221.181, $343.75, $234.375, $250.00, $231.25 and $281.25 respectively.
(c)
Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series I, Series J, Series K, Series L and Series M Non-Cumulative Perpetual Preferred Stock of $1,759.722, $439.931, $812.50, $232.953, $662.50, $687.50, $468.75 and $452.778 respectively.
(d)
Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $1,759.722, $439.931,$875.00, $218.75, $662.50, $687.50, $468.75, $500.00, $462.50$343.75, $234.375, $250.00, $231.25 and $487.50$206.25 respectively.
(b)
Effective January 1, 2023, the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt restructurings. Upon adoption, the Company reduced its allowance for credit losses and increased retained earnings net of deferred taxes through a cumulative-effect adjustment.
(c)
Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $1,462.428, $339.357, $662.50, $343.750, $234.375, $250.00, $231.25 and $281.25 respectively.
See Notes to Consolidated Financial Statements.
 
U.S. Bancorp 
3
7
37
U.S. Bancorp
Consolidated Statement of Cash Flows
 
(Dollars in Millions)
(Unaudited)
 Six Months Ended
June 30
  Three Months Ended
March 31
 
2022 2021  2023 2022 
Operating Activities
  
Net income attributable to U.S. Bancorp $3,088  $4,262  $1,698  $1,557 
Adjustments to reconcile net income to net cash provided by operating activities  
Provision for credit losses  423   (997  427   112 
Depreciation and amortization of premises and equipment  170   168   97   85 
Amortization of intangibles  87   78   160   47 
(Gain) loss on sale of loans held for sale  192   (584  7   62 
(Gain) loss on sale of securities and other assets  (67  (192  32   (42
Loans originated for sale, net of repayments  (17,325  (37,211  (7,024  (9,827
Proceeds from sales of loans held for sale  20,564   39,789   6,728   13,874 
Other, net  3,594   1,207   (1,283  2,609 
Net cash provided by operating activities  10,726   6,520   842   8,477 
Investing Activities
  
Proceeds from sales of available-for-sale investment securities  14,797   5,567   7,720   12,527 
Proceeds from maturities of held-to-maturity investment securities  2,407   —     1,317   1,173 
Proceeds from maturities of available-for-sale investment securities  9,665   23,685   1,407   5,498 
Purchases of held-to-maturity investment securities  (6,288  —     (924  (2,932
Purchases of available-for-sale investment securities  (18,240  (54,911  (217  (15,989
Net (increase) decrease in loans outstanding  (20,072  727 
Net decrease (increase) in loans outstanding  165   (7,278
Proceeds from sales of loans  1,671   2,386   257   1,309 
Purchases of loans  (1,698  (2,574  (339  (1,073
Net (increase) decrease in securities purchased under agreements to resell

  (154  131 
Net increase in securities purchased under agreements to resell  (1,531  (147
Other, net  (1,604  (367  (2,912  (452
Net cash used in investing activities  (19,516  (25,356
Net cash provided by (used in) investing activities  4,943   (7,364
Financing Activities
  
Net increase in deposits  11,019   7,412 
Net (decrease) increase in deposits  (19,237  5,463 
Net increase in short-term borrowings  13,167   1,647   24,876   9,246 
Proceeds from issuance of long-term debt  2,206   1,152   3,701   2,153 
Principal payments or redemption of long-term debt  (5,154  (5,928  (1,594  (1,118
Proceeds from issuance of preferred stock  437   730      437 
Proceeds from issuance of common stock  16   36   6   15 
Repurchase of preferred stock  (1,100  (1,250     (1,100
Repurchase of common stock  (55  (1,537  (44  (54
Cash dividends paid on preferred stock  (154  (165  (67  (70
Cash dividends paid on common stock  (1,373  (1,268  (740  (687
Net cash provided by financing activities  19,009   829   6,901   14,285 
Change in cash and due from banks  10,219   (18,007  12,686   15,398 
Cash and due from banks at beginning of period  28,905   62,580   53,542   28,905 
Cash and due from banks at end of period(a) $39,124  $44,573  $66,228  $44,303 
(a)
Excludes a $1.0 billion interest-bearing due from bank balance with a term greater than 90 days.
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, 2021.2022. 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, 2022.2024. The Company is in the process of evaluating and applying as applicable, thecertain optional expedients and exceptions in accountingfor cash flow hedges and will continue to evaluate these for eligible contract modifications eligible existingand 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.
relationships.
Fair Value Hedging – Portfolio Layer Method
In March 2022, the FASB issued accounting guidance, effective for the Company no later thanEffective January 1, 2023, the Company adopted accounting guidance, issued by the FASB in March 2022, 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 willwas not be material to itsthe Company’s financial statements.
Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued accounting guidance, effective for the Company no later thanEffective January 1, 2023, the Company adopted accounting guidance on a modified retrospective basis, issued by the FASB in March 2022, 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 willwas not be material to itsthe Company’s financial statements.
Accounting for Tax Credit Investments Using the Proportional Amortization Method
Effective January 1, 2023, the Company adopted accounting guidance on a modified retrospective basis, issued by the FASB in March 2023, related to the accounting for tax credit investments. This guidance allows the Company to elect to account for tax credit investments using the proportional amortization method on a program-by-program basis if certain conditions are met, regardless of the program from which the income tax credits are received. The adoption of this guidance was not material to the Company’s financial statements.
 
U.S. Bancorp 
39

  Note  3
 
   Business Combinations
In September 2021,
MUFG Union Bank Acquisition
On December 1, 2022, the Company announced that it entered into a definitive agreement to acquire MUFG Union Bank’sacquired MUB’s core regional banking franchise from Mitsubishi UFJ Financial
Group, Inc.
(“MUFG”),. Pursuant to the terms of
the
Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of common stock of MUB for an expecteda purchase price consisting of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of common stock of the Company’s common stock.Company. Under the terms of the Share Purchase Agreement, the purchase price was based on MUB having a tangible book value of $6.25 billion at the closing of the acquisition. At the closing of the acquisition, MUB had $3.5
billion of tangible book value over the $
6.25
billion target, consisting of additional cash. The additional cash received is held at the MUB subsidiary and is required to be repaid to MUFG on or prior to the fifth anniversary date of the completion of the purchase, in accordance with the terms of the Share Purchase Agreement. As such, it is recognized as debt at the parent company. The transaction excludes the purchase of
substantially all of
MUFG Union Bank’sMUB’s Global Corporate & Investment Bank
(other than certain deposits),
certain middle and back office functions, and other assets.assets that were transferred by MUB to MUFG Union Bankprior to the acquisition. This transaction has approximately 300 branchesbeen accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed from MUB were recorded at fair value as of the acquisition date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in California, Washingtonnature and Oregonsubject to change. Fair value estimates related to the assets and isliabilities from MUB are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, loans, certain deposits, certain other assets, customer relationships and the core deposit benefits intangible.
In connection with the transaction, the Company incurred $244 million of nonrecurring merger and integration charges during the three months ended March 31, 2023 recorded within noninterest expense. These expenses are primarily comprised of personnel, legal, advisory and technology related costs.
The following table includes the fair value of consideration transferred and the preliminary fair value of the identifiable tangible and intangible assets and liabilities from MUB:
December 1, 2022 (Dollars in Millions) 
Acquisition consideration
    
Cash $5,500 
Market value of shares of common stock  2,014 
     
Total consideration transferred at acquisition close date  7,514 
Discounted liability to MUFG (a)  2,944 
     
Total $10,458 
     
Fair Value of MUB assets and liabilities
    
Assets
    
Cash and due from banks $17,754 
Investment securities  22,725 
Loans held for sale  2,220 
Loans  53,395 
Less allowance for loan losses  (463
     
Net loans  52,932 
Premises and equipment  646 
Other intangible assets (excluding goodwill)  2,808 
Other assets  4,700 
     
Total assets $103,785 
     
Liabilities
    
Deposits $86,110 
Short-term borrowings  4,773 
Long-term debt  2,584 
Other liabilities  2,267 
     
Total liabilities  95,734 
     
Less: Net assets $8,051 
     
Goodwill $2,407 
(a)
Represents $3.5 billion of noninterest-bearing additional
cash
held by MUB upon close of the acquisition to be delivered to MUFG on or prior to December 1, 2027, discounted at the Company’s 5-year unsecured borrowing rate as of the acquisition date, per authoritative accounting guidance.
40
U.S. Bancorp

Preliminary goodwill of $2.4 billion recorded in connection with the transaction resulted from the reputation, operating model and expertise of MUB. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to add approximately $105 billion in totalresult from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets $58 billion of loans and $90 billion of depositsfrom MUB. The goodwill was allocated to the Company’s consolidatedbusiness segments on a preliminary basis and is not deductible for income tax purposes. Refer to Note 11 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for the amount of goodwill allocated to each business segment in connection with the transaction.
For further information on the fair value and unpaid principal balance sheet. Closingof loans from the MUB acquisition, as well as the methods used to determine the fair values of the transaction is subjectsignificant assets acquired and liabilities assumed, refer to customary closing conditions, including regulatory approvals which are not withinNote 3 in the Company’s control.
The parties continue to make significant progress in planningAnnual Report on Form 10-K for closing and integration while awaiting regulatory approvals. At this time,the year ended December 31, 2022.
During the first quarter of 2023, the Company expectscompleted the divestiture of three MUB branches to receive U.S.HomeStreet Bank, a wholly owned subsidiary of HomeStreet, Inc., to satisfy regulatory approvalsrequirements related to the acquisition. There were approximately $400 million in time for closing to occurdeposits and $22 million in the second halfloans divested as part of 2022. 
this transaction.
 
 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, 2023   December 31, 2022 
(Dollars in Millions) Amortized
Cost
   Unrealized
Gains
   Unrealized
Losses
  Fair Value   Amortized
Cost
   Unrealized
Gains
   Unrealized
Losses
  Fair Value 
Held-to-maturity
                                     
U.S. Treasury and agencies $1,344   $   $(37 $1,307   $1,344   $   $(51 $1,293 
Mortgage-backed securities                                     
Residential agency  85,419    23    (9,589  75,853    85,693    2    (10,810  74,885 
Commercial agency  1,699    18    (1  1,716    1,703    1    (8  1,696 
Total held-to-maturity $88,462   $41   $(9,627 $78,876   $88,740   $3   $(10,869 $77,874 
Available-for-sale
                                     
U.S. Treasury and agencies $20,421   $3   $(2,370 $18,054   $24,801   $1   $(2,769 $22,033 
Mortgage-backed securities                                     
Residential agency  28,467    7    (2,329  26,145    32,060    8    (2,797  29,271 
Commercial                                     
Agency  8,727        (1,427  7,300    8,736        (1,591  7,145 
Non-agency  7           7    7           7 
Asset-backed securities  3,836    4    (33  3,807    4,356    5    (38  4,323 
Obligations of state and political subdivisions  11,234    16    (1,076  10,174    11,484    12    (1,371  10,125 
Other  4           4    6           6 
Total available-for-sale $72,696   $30   $(7,235 $65,491   $81,450   $26   $(8,566 $72,910 
Investment securities with a fair value of $16.9$13.9 billion at June 30, 2022,March 31, 2023, and $30.7$15.3 billion at December 31, 2021,2022, 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 $987$600 million at June 30, 2022,March 31, 2023, and $557$858 million at December 31, 2021.2022.
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
  Three Months Ended
March 31
 
(Dollars in Millions)         2022           2021          2022           2021          2023           2022 
Taxable $732   $554  $1,378   $1,009  $994   $646 
Non-taxable 74    64  145    126  80    71 
Total interest income from investment securities $806   $618  $1,523   $1,135  $1,074   $717 
 
4
0
U.S. Bancorp
 U.S. Bancorp
41

The following table provides information about the amount of gross gains and losses realized through the sales of available-for-sale investment securities:
 
 Three Months Ended
June 30
 Six Months Ended
June 30
  Three Months Ended
March 31
 
(Dollars in Millions)         2022         2021          2022         2021          2023         2022 
Realized gains $144  $43  $386  $68  $60  $242 
Realized losses (125    (349    (92 (224
Net realized gains $19  $43  $37  $68 
Income tax on net realized gains $5  $11  $9  $17 
Net realized gains (losses) $(32 $18 
Income tax on net realized gains (losses) $(8 $4 
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 June 30, 2022March 31, 2023 and December 31, 2021.2022.
At June 30, 2022,March 31, 2023, 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 June 30, 2022:March 31, 2023:
 
 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 $19,590   $(1,581  $3,511           $(431  $23,101   $(2,012 $359   $(11  $17,134   $(2,359  $17,493   $(2,370
Residential agency mortgage-backed securities 50,819    (4,281   5,360    (778   56,179    (5,059
Commercial agency mortgage-backed securities 4,852    (657   2,711    (535   7,563    (1,192
Mortgage-backed securities                  
Residential agency 6,121    (252   19,435    (2,077   25,556    (2,329
Commercial                  
Agency          7,300    (1,427   7,300    (1,427
Non-agency 7                7     
Asset-backed securities 3,140    (33           3,140    (33
Obligations of state and political subdivisions 8,430    (1,057   396    (163   8,826    (1,220 4,550    (126   4,198    (950   8,748    (1,076
Other 6                6               4        4     
Total investment securities $83,697   $(7,576  $11,978           $(1,907  $95,675   $(9,483 $14,177   $(422  $48,071   $(6,813  $62,248   $(7,235
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 June 30, 2022,March 31, 2023, 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 o
f
of their amortized cost.
During the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, the Company did not purchase any investment securities that had more-than-insignificant credit deterioration.
All of the Company’s held-to-maturity investment securities are U.S. Treasury and agencies securities and highly rated agency mortgage-backed securities that are guaranteed or otherwise supported by the United States government and have no history of credit losses. Accordingly the Company does not expect to incur any credit losses on held-to-maturity investment securities and has 0no allowance for credit losses recorded for these securities.
 
U.S. Bancorp
42
 
4
1
U.S. Bancorp
The following table provides information about the amortized cost, fair value and yield by maturity date of the investment securities outstanding at June 30, 2022:March 31, 2023:
 
(Dollars in Millions) Amortized
Cost
   Fair
Value
   Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (e)
  Amortized
Cost
   
Fair
Value
   Weighted-
Average
Maturity in
Years
   Weighted-
Average
Yield (e)
 
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  1,344    1,307    3.0    2.85 
Maturing after five years through ten years                              
Maturing after ten years                              
Total $1,343   $1,337    3.8    2.85 $1,344   $1,307    3.0    2.85
Mortgage-Backed Securities (a)                    
Maturing in one year or less $   $         $22   $21    .8    5.09
Maturing after one year through five years                1,531    1,536    2.7    4.58 
Maturing after five years through ten years 23,977    22,825    9.1    2.22  79,376    70,881    9.0    2.20 
Maturing after ten years 36,183    31,495    10.6    1.72  6,189    5,131    10.2    1.93 
Total $60,160   $54,320    10.0    1.92 $87,118   $77,569    9.0    2.23
Total held-to-maturity (d)(b) $61,503   $55,657    9.8    1.94 $88,462   $78,876    8.9    2.24
Available-for-sale
                    
U.S. Treasury and Agencies                    
Maturing in one year or less $1,826   $1,824    .3    1.96 $261   $261    .2    4.75
Maturing after one year through five years 3,525    3,296    4.4    1.50  4,452    4,114    3.9    1.70 
Maturing after five years through ten years 17,771    16,479    7.4    2.04  13,339    11,829    7.0    1.93 
Maturing after ten years 2,657    2,168    11.8    1.99  2,369    1,850    11.2    2.00 
Total $25,779   $23,767    6.9    1.95 $20,421   $18,054    6.7    1.92
Mortgage-Backed Securities (a)                    
Maturing in one year or less $44   $44    .7    2.67 $71   $70    .8    2.44
Maturing after one year through five years 12,785    12,381    3.2    2.03  9,603    9,020    3.1    2.44 
Maturing after five years through ten years 33,303    30,454    7.9    1.81  26,252    23,248    7.5    2.94 
Maturing after ten years 25,412    22,437    10.6    2.11  1,275    1,114    11.1    3.55 
Total $71,544   $65,316    8.0    1.96 $37,201   $33,452    6.5    2.83
Obligations of State and Political Subdivisions (b) (c)          
Asset-Backed Securities          
Maturing in one year or less $3,054   $3,021    .4    4.25
Maturing after one year through five years 506    509    3.2    6.94 
Maturing after five years through ten years 276    277    5.7    5.77 
Maturing after ten years               
Total $3,836   $3,807    1.2    4.72
Obligations of State and Political          
Subdivisions (c) (d)          
Maturing in one year or less $182   $182    .3    4.63 $152   $153    .3    5.12
Maturing after one year through five years 1,974    1,955    4.0    4.43  3,579    3,550    3.7    4.51 
Maturing after five years through ten years 1,480    1,401    7.2    3.82  1,556    1,488    7.8    3.89 
Maturing after ten years 7,289    6,178    16.9    3.36  5,947    4,983    16.2    3.21 
Total $10,925   $9,716    13.0    3.64 $11,234   $10,174    10.8    3.74
Other                    
Maturing in one year or less $   $         $   $        
Maturing after one year through five years 7    7    2.9    2.07  4    4    2.2    1.89 
Maturing after five years through ten years                              
Maturing after ten years                              
Total $7   $7    2.9    2.07 $4   $4    2.2    1.89
Total available-for-sale (d) $108,255   $98,806    8.2    2.13
Total available-for-sale (b) $72,696   $65,491    7.0    2.82
 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
The weighted-average maturity of total held-to-maturity investment securities was 9.2 years at December 31, 2022, with a corresponding weighted-average yield of 2.18 percent. The weighted-average maturity of total available-for-sale investment securities was 7.4 years at December 31, 2022, with a corresponding weighted-average yield of 2.94 percent.
(c)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)(d)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(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.
 
4
2
U.S. Bancorp
 U.S. Bancorp43

 Note 5
 
   Loans and Allowance for Credit Losses
The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:
 
 June 30, 2022      December 31, 2021  March 31, 2023      December 31, 2022 
(Dollars in Millions) Amount   Percent
of Total
      Amount   Percent
of Total
  Amount   Percent
of Total
      Amount   Percent
of Total
 
Commercial
                      
Commercial $121,130    36.4    $106,912    34.3 $132,894    34.3    $131,128    33.8
Lease financing 4,853    1.5      5,111    1.6  4,432    1.1      4,562    1.2 
Total commercial 125,983    37.9      112,023    35.9  137,326    35.4      135,690    35.0 
Commercial Real Estate
                      
Commercial mortgages 29,864    9.0      28,757    9.2  43,549    11.2      43,765    11.3 
Construction and development 9,889    3.0      10,296    3.3  11,609    3.0      11,722    3.0 
Total commercial real estate 39,753    12.0      39,053    12.5  55,158    14.2      55,487    14.3 
Residential Mortgages
                      
Residential mortgages 73,522    22.1      67,546    21.6  109,246    28.2      107,858    27.8 
Home equity loans, first liens 8,592    2.6      8,947    2.9  7,702    2.0      7,987    2.0 
Total residential mortgages 82,114    24.7      76,493    24.5  116,948    30.2      115,845    29.8 
Credit Card
 23,697    7.1      22,500    7.2  25,489    6.6      26,295    6.8 
Other Retail
                      
Retail leasing 6,490    2.0      7,256    2.3  5,017    1.3      5,519    1.4 
Home equity and second mortgages 10,973    3.3      10,446    3.4  12,720    3.3      12,863    3.3 
Revolving credit 2,764    .8      2,750    .9  3,720    .9      3,983    1.0 
Installment 16,656    5.0      16,514    5.3  14,357    3.7      14,592    3.8 
Automobile 23,830    7.2      24,866    8.0  17,131    4.4      17,939    4.6 
Student 109          127     
Total other retail 60,822    18.3      61,959    19.9  52,945    13.6      54,896    14.1 
Total loans $332,369    100.0    $312,028    100.0 $387,866    100.0    $388,213    100.0
The Company had loans of $92.4$134.8 billion at June 30, 2022,March 31, 2023, and $92.1$134.6 billion at December 31, 2021,2022, pledged at the Federal Home Loan Bank, and loans of $83.7$81.2 billion at June 30, 2022,March 31, 2023, and $76.9$85.8 billion at December 31, 2021,2022, 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 $364 million at June 30, 2022 and $475 million at December 31, 2021. All purchasedPurchased loans are recorded at fair value at the date of purchase. Net unearned interest and deferred fees and costs on originated loans and unamortized premiums and discounts on purchased loans amounted to $2.5 billion at March 31, 2023 and $3.1 billion at December 31, 2022. 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.
44U.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, inflation, interest rates and corporate bonds spreads, as well as loan and
U.S. Bancorp
4
3

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, including those loans modified under various loan modification programs, 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.collateral at fair value less selling costs. 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 $
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.
44
U.S. Bancorp

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, 2022
  $2,163   $1,325   $926   $2,020   $   970   $7,404 
Add                        
Change in accounting principle (a)        (31  (27  (4  (62
Allowance for acquired credit losses (b)     127            127 
Provision for credit losses  64   24   51   294   (6  427 
Deduct                        
Loans charged-off  63   123   4   215   64   469 
Less recoveries of loans charged-off  (16  (6  (5  (40  (29  (96
Net loan charge-offs (recoveries)  47   117   (1  175   35   373 
Balance at March 31, 2023
  $2,180   $1,359   $947   $2,112   $925   $7,523 
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 
(a)
Effective January 1, 2023, the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt restructurings.
(b)
Represents allowance for credit deteriorated and charged-off loans acquired from MUB.
U.S. Bancorp
45

Three Months Ended June 30
(Dollars in Millions)
 Commercial  Commercial
Real Estate
  Residential
Mortgages
  Credit
Card
  Other
Retail
  Total
Loans
 
2022
                        
Balance at beginning of period
  $1,836   $1,074   $600   $1,639   $   956   $6,105 
Add                        
Provision for credit losses  90   (95  49   225   42   311 
Deduct                        
Loans charged-off  53   9   2   162   50   276 
Less recoveries of loans charged-off  (23  (3  (11  (44  (34  (115
Net loan charge-offs (recoveries)  30   6   (9  118   16   161 
Balance at end of period
  $1,896   $
 
 
973
   $658   $1,746   $
 
 
982
   $6,255 
2021
                        
Balance at beginning of period
  $1,932   $1,532   $539   $1,952   $1,005   $6,960 
Add                        
Provision for credit losses  (67  (123  (71  87   4   (170
Deduct                        
Loans charged-off  58   4   5   192   55   314 
Less recoveries of loans charged-off  (31  (4  (15  (44  (40  (134
Net loan charge-offs (recoveries)  27      (10  148   15   180 
Balance at end of period
  $1,838   $1,409   $478   $1,891   $   994   $6,610 
Six Months Ended June 30
(Dollars in Millions)
 Commercial  Commercial
Real Estate
  Residential
Mortgages
  Credit
Card
  Other
Retail
  Total
Loans
 
2022
                        
Balance at beginning of period
  $1,849   $1,123   $565   $1,673   $   945   $6,155 
Add                        
Provision for credit losses  109   (149  78   303   82   423 
Deduct                        
Loans charged-off  108   10   7   320   111   556 
Less recoveries of loans charged-off  (46  (9  (22  (90  (66  (233
Net loan charge-offs (recoveries)  62   1   (15  230   45   323 
Balance at end of period
  $1,896   $
 
 
973
   $658   $1,746   $
 
 
982
   $6,255 
2021
                        
Balance at beginning of period
  $2,423   $1,544   $573   $2,355   $1,115   $8,010 
Add                        
Provision for credit losses  (502  (142  (110  (172  (71  (997
Deduct                        
Loans charged-off  144   14   10   382   138   688 
Less recoveries of loans charged-off  (61  (21  (25  (90  (88  (285
Net loan charge-offs (recoveries)  83   (7  (15  292   50   403 
Balance at end of period
  $1,838   $1,409   $478   $1,891   $   994   $6,610 
The increase in the allowance for credit losses fromat March 31, 2023, compared with December 31, 2021 to June 30, 2022, reflected strong loan growth and increasedwas primarily driven by increasing economic uncertainty partially offsetand normalizing credit losses.
The following table provides a summary of loans charged-off by stabilizing credit quality.portfolio class and year of origination: 

Three Months Ended March 31, 2023
(Dollars in Millions)
 Commercial   Commercial
Real Estate (a)
   Residential
Mortgages
   Credit
Card
   Other
Retail
   Total
Loans
 
Originated in 2023
  $—    $—    $—    $—    $—    $— 
Originated in 2022  6    
88

    
    

    10    104 
Originated in 2021  4                11    15 
Originated in 2020  4                6    10 
Originated in 2019  5    3    1        7    16 
Originated prior to 2019  11    32    3        8    54 
Revolving  33            215    22    270 
Total charge-offs $63   $123   $4   $215   $64   $469 
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)
Primarily related to uncollectible amounts on acquired loans.
Credit Quality
The credit quality of the Company’s loan portfolios is ass
e
ssedassessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.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
U.S. Bancorp
4
5

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.
46
U.S. Bancorp

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 
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 
  Accruing         
(Dollars in Millions) Current   30-89 Days
Past Due
   90 Days or
More Past Due
   Nonperforming (b)   Total 
March 31, 2023
                        
Commercial $136,619    $   457    $  72    $   178    $137,326 
Commercial real estate  54,544    74    5    535    55,158 
Residential mortgages (a)  116,411    148    97    292    116,948 
Credit card  24,952    280    256    1    25,489 
Other retail  52,494    254    64    133    52,945 
Total loans $385,020    $1,213    $494    $1,139    $387,866 
December 31, 2022
                        
Commercial $135,077    $350    $94    $   169    $135,690 
Commercial real estate  55,057    87    5    338    55,487 
Residential mortgages (a)  115,224    201    95    325    115,845 
Credit card  25,780    283    231    1    26,295 
Other retail  54,382    309    66    139    54,896 
Total loans $385,520    $1,230    $491    $   972    $388,213 
 
(a)
At June 30, 2022, $
642
March 31, 2023, $542 million of loans 30–89 days past due and $
1.7
$2.2 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
$647 million and $
1.5
$2.2 billion at December 31, 2021,2022, respectively.
(b)
Substantially all nonperforming loans at June 30, 2022March 31, 2023 and December 31, 2021,2022, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $
5
$4 million and $
4
$3 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, and $
8
million and $
7
million for the six months ended June 30, 2022 and 2021, respectively.
At June 30,March 31, 2023 and December 31, 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.million. These amounts excluded $40$57 million and $22$54 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, 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 June 30, 2022March 31, 2023 and December 31, 2021,2022, was $1.1 billion, and $696 million, respectively, of which $898$861 million and $555$830 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. Bancorp47

The following table provides a summary of the Company’s internal credit quality rating of loans by portfolio class and the Company’s internal credit quality rating:year of origination:
 
 June 30, 2022        December 31, 2021  March 31, 2023        December 31, 2022 
    Criticized             Criticized        Criticized             Criticized    
(Dollars in Millions) Pass Special
Mention
 Classified (a) Total
Criticized
 Total  ��     Pass Special
Mention
 Classified (a) Total
Criticized
 Total  Pass Special
Mention
 Classified (a) Total
Criticized
 Total        Pass Special
Mention
 Classified (a) Total
Criticized
 Total 
Commercial                
Originated in 2023  $  14,029   $     74   $   135   $   209   $  14,238        $          —   $       —   $       —   $         —   $          — 
Originated in 2022  $  32,672   $     52   $   142   $   194   $  32,866        $          –   $       –   $       –   $         –   $          –   58,723   334   433   767   59,490          61,229   245   315   560   61,789 
Originated in 2021  40,532   298   110   408   40,940          51,155   387   287   674   51,829   21,541   480   254   734   22,275        26,411   159   78   237   26,648 
Originated in 2020  9,809   11   292   303   10,112        14,091   304   133   437   14,528   5,226   66   123   189   5,415        7,049   68   138   206   7,255 
Originated in 2019  6,624   6   61   67   6,691        10,159   151   54   205   10,364   2,859   26   203   229   3,088        3,962   51   210   261   4,223 
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 
Originated prior to 2019  5,201   44   48   92   5,293        8,986   64   129   193   9,179 
Revolving (b)  27,628   277   175   452   28,080        24,722   268   117   385   25,107   26,919   147   461   608   27,527        25,888   344   364   708   26,596 
Total commercial  124,480   665   838   1,503   125,983        110,172   1,143   708   1,851   112,023   134,498   1,171   1,657   2,828   137,326        133,525   931   1,234   2,165   135,690 
      
Commercial real estate                
Originated in 2023  2,868   131   160   291   3,159                     
Originated in 2022  6,689   148   449   597   7,286                       15,229   261   640   901   16,130        14,527   206   519   725   15,252 
Originated in 2021  11,992   63   452   515   12,507        13,364   6   990   996   14,360   12,809   358   186   544   13,353        13,565   171   99   270   13,835 
Originated in 2020  6,570   16   181   197   6,767        7,459   198   263   461   7,920   5,441   49   131   180   5,621        6,489   97   117   214   6,703 
Originated in 2019  5,009   140   340   480   5,489        6,368   251   610   861   7,229   6,317   220   282   502   6,819        6,991   251   304   555   7,546 
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 
Originated prior to 2019  7.959   130   566   696   8,655        9,639   138   875   1,013   10,652 
Revolving  1,511      5   5   1,516        1,494   1   43   44   1,538   1,405      16   16   1,421        1,489      10   10   1,499 
Total commercial real estate  37,557   415   1,781   2,196   39,753        36,154   540   2,359   2,899   39,053   52,028   1,149   1,981   3,130   55,158        52,700   863   1,924   2,787   55,487 
      
Residential mortgages (c)                
Originated in 2023  2,581            2,581                     
Originated in 2022  12,396            12,396                       29,297      6   6   29,303        28,452            28,452 
Originated in 2021  29,446      3   3   29,449        29,882      3   3   29,885   37,494      10   10   37,504        39,527      7   7   39,534 
Originated in 2020  14,384      10   10   14,394        15,948   1   8   9   15,957   15,832      10   10   15,842        16,556      8   8   16,564 
Originated in 2019  5,834      24   24   5,858        6,938      36   36   6,974   6,832      16   16   6,848        7,222      18   18   7,240 
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 
Originated prior to 2019  24,522      348   348   24,870        23,658      397   397   24,055 
Total residential mortgages  81,771      343   343   82,114        76,073   1   419   420   76,493   116,558      390   390   116,948        115,415      430   430   115,845 
      
Credit card (d)  23,532      165   165   23,697        22,335      165   165   22,500   25,232      257   257   25,489        26,063      232   232   26,295 
      
Other retail                
Originated in 2023  1,958            1,958                     
Originated in 2022  7,650      1   1   7,651                       8,903      6   6   8,909        9,563      6   6   9,569 
Originated in 2021  18,825      8   8   18,833        22,455      6   6   22,461   14,208      12   12   14,220        15,352      12   12   15,364 
Originated in 2020  9,981      10   10   9,991        12,071      9   9   12,080   7,083      10   10   7,093        7,828      11   11   7,839 
Originated in 2019  5,476      13   13   5,489        7,223      17   17   7,240   2,886      10   10   2,896        3,418      13   13   3,431 
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 
Originated prior to 2019  3,063      18   18   3,081        3,689      31   31   3,720 
Revolving  13,381      113   113   13,494        12,532      112   112   12,644   13,846      99   99   13,945        14,029      98   98   14,127 
Revolving converted to term  464      42   42   506        472      40   40   512   788      55   55   843        800      46   46   846 
Total other retail  60,607      215   215   60,822        61,737      222   222   61,959   52,735      210   210   52,945        54,679      217   217   54,896 
Total loans  $327,947   $1,080   $3,342   $4,422   $332,369        $306,471   $1,684   $3,873   $5,557   $312,028   $381,051   $2,320   $4,495   $6,815   $387,866        $382,382   $ 1,794   $4,037   $5,831   $388,213 
Total outstanding commitments  $702,561   $2,021   $4,851   $6,872   $709,433        $662,363   $3,372   $5,684   $9,056   $671,419   $778,269   $3,209   $6,240   $9,449   $787,718        $772,804   $ 2,825   $5,041   $7,866   $780,670 
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.
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 June 30, 2022, $1.7March 31, 2023, $2.2 billion of GNMA loans 90 days or more past due and $965 $268
million of restructuredmodified 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$2.2 billion and $1.1$1.0 billion at December 31, 2021,2022, respectively.
(d)
Predominately all credit card loans are considered revolving loans. Includes an immaterial amount of revolving converted to term loans.
Troubled Debt Restructurings
Loan Modifications
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 TDRsmodified loans if full collection of contractual principal and interest is expected. The effects of modifications on credit loss expectations, such as improved payment capacity, longer expected lives and other factors, are considered when measuring the borrower complies with the revised termsallowance for credit losses. Modification performance, including redefault rates 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 ishow these compare to historical losses, are also considered. Modifications generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings relateddo not result in significant changes to the receivable when determining whether a current restructuring is a TDR.Company’s allowance for credit losses.
 
U.S. Bancorp48 
4
7
U.S. Bancorp
The following table provides a summary of loansloan balances at March 31, 2023, which were modified as TDRs forduring the periods presentedthree months ended March 31, 2023, by portfolio class:class and modification granted:
(Dollars in Millions) Interest Rate
Reduction
      Payment
Delay
      Term
Extension
      Multiple
Modifications (a)
      Total
Modifications
  Percent of
Class Total
 
Commercial
 $114   $   $68   $   $182   .1
Commercial real estate
          12    28    40   .1 
Residential mortgages (b)
      130    10    12    152   .1 
Credit card
  94                94   .4 
Other retail
  2       11       63       2       78   .1 
Total loans, excluding loans purchased from GNMA mortgage pools
  210    141    153    42    546   .1 
Loans purchased from GNMA mortgage pools (b)
         243       63       47       353   .3 
Total loans
 $210      $384      $216      $89      $899   .2

  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 
(a)
Includes $52 million of total loans receiving a payment delay and term extension, $32 million of total loans receiving an interest rate reduction and term extension and $5 million of total loans receiving an interest rate reduction, payment delay and term extension.
(b)
Percent of class total amounts expressed as a percent of total residential mortgage loan balances.
Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage poolsLoan modifications included in the table above includeexclude trial period arrangements offered to customers and secured loans to consumer borrowers that have had debt discharged through bankruptcy where the borrower has not reaffirmed the debt during the periods presented. The post-modification balances for theseAt March 31, 2023, the balance of 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 June 30, 2022, 8 residential mortgages, 8 home equity and second mortgage loans and 97 loans purchased from GNMA mortgage pools with outstanding balances of
less than
$1 million,
less than
$1 million and $13 million, respectively, weremodified in a trial period andarrangements during the three months ended March 31, 2023, was $183 million, while the balance of secured loans to consumer borrowers that have estimated post-modification balanceshad debt discharged through bankruptcy during this same period was not material.
The following table summarizes the effects of loan modifications made to borrowers on loans modified during the three months ended March 31, 2023:
 
(Dollars in Millions) 
Weighted-Average

Interest Rate
Reduction
  
Weighted-Average

Months of Term
Extension
 
Commercial  2.4%   5 
Commercial real estate  5.0    6 
Residential mortgages  1.2    120 
Credit card  16.0     
Other retail  6.6    151 
Loans purchased from GNMA mortgage pools  .7    66 
Note: The weighted-average payment deferral for all portfolio classes was less than $1 million.
$1 million,
less than
$1 million and $14 million, respectively, assuming permanent modification occurs
Forbearance payments are required to be paid at the end of the trial period.original term loan.
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.provide an interest rate reduction.
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.payments. These concessionsmodifications 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 restructuringmodification 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 TDRsmodifications are generally part of distinct restructuringmodification 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
 U.S. Bancorp
49

In addition,
Loans that receive a forbearance plan generally remain in default until they are no longer delinquent as the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy whereresult of the payment of all past due amounts
or the borrower hasreceiving a term extension or modification. Therefore, loans only receiving forbearance plans are not reaffirmedincluded in the debt to be TDRs.table below.
The following table provides a summary of TDRloan balances at March 31, 2023, which were modified during the three months ended March 31, 2023, by portfolio class and delinquency status:
(Dollars in Millions)         Current   30-89 Days
Past Due
   90 Days or
More Past Due
   Total 
Commercial $146   $6   $30   $182 
Commercial real estate  6        34    40 
Residential mortgages (a)  319    3    10    332 
Credit card  56    28    10    94 
Other retail  64    3    2    69 
     
Total loans $591   $40   $86   $717 
(a)
At March 31, 2023, $32 million of loans 30-89 days past due and $1
mi
llion of loans 90 days or more past due purchased and that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose payments are insured by the Federal Housing administration or guaranteed by the United States Department of Veterans Affairs, were classified as current.
As of March 31, 2023 there were no 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 12the first three months previous to default:of 2023.
  2022        2021 
(Dollars in Millions) Number
of Loans
   Amount
Defaulted
        Number
of Loans
   Amount
Defaulted
 
Three Months Ended June 30
                        
Commercial  175    $  3         327    $    8 
Commercial real estate  2    1         5    1 
Residential mortgages  79    7         12    1 
Credit card  1,727    9         1,805    11 
Other retail  60    1         191    3 
Total loans, excluding loans purchased from GNMA mortgage pools  2,043    21         2,340    24 
Loans purchased from GNMA mortgage pools  120    17         43    6 
Total loans  2,163    $38         2,383    $  30 
      
Six Months Ended June 30
                        
Commercial  389    $  6         612    $  24 
Commercial real estate  5    2         12    6 
Residential mortgages  113    10         27    3 
Credit card  3,361    18         3,569    20 
Other retail  143    2         471    8 
Total loans, excluding loans purchased from GNMA mortgage pools  4,011    38         4,691    61 
Loans purchased from GNMA mortgage pools  169    25         73    10 
Total loans  4,180    $63         4,764    $  71 
In addition to the defaults in the table above,
As of March 31, 2023, the Company had a total of 12 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 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 June 30, 2022, respectively.
As of June 30, 2022, the Company had $112$133 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified.
Prior Period Troubled Debt Restructuring Information
The following table provides a summary of loans modified in TDRs.as troubled debt restructurings for the period presented by portfolio class:
Three Months Ended March 31, 2022
(Dollars in Millions)
         Number
of Loans
   
Pre-Modification
Outstanding
Loan
Balance
   
Post-Modification

Outstanding
Loan
Balance
 
Commercial  509   $38   $32 
Commercial real estate  9    11    10 
Residential mortgages  840    228    226 
Credit card  9,339    50    50 
Other retail  728    37    37 
Total loans, excluding loans purchased from GNMA mortgage pools  11,425    364    355 
Loans purchased from GNMA mortgage pools  390    55    55 
    
Total loans  11,815   $419   $410 
The following table provides a summary of troubled debt restructured loans that defaulted (fully or partially charged-off or became 90 days or more past due) for the period presented, that were modified as troubled debt restructurings within 12 months previous to default:
Three Months Ended March 31, 2022
(Dollars in Millions)
 Number
      of Loans
   
Amount
Defaulted
 
Commercial  214   $3 
Commercial real estate  3    1 
Residential mortgages  34    3 
Credit card  1,634    9 
Other retail  83    1 
Total loans, excluding loans purchased from GNMA mortgage pools  1,968    17 
Loans purchased from GNMA mortgage pools  49    8 
   
Total loans  2,017   $25 
 
 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
50
U.S. Bancorp

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 providespreviously provided financial support primarily through the use of waivers of trust and investment management fees associated with various unconsolidated registered money market funds it manages. The Company discontinued providing this support beginning in the third quarter of 2022 due to rising interest rates. The Company provided $7 million and $70
$
58
 million of support to the funds during the three months ended June 30, 2022 and 2021, respectively, and $65 million and $117 million during the six months ended June 30, 2022 and 2021, respectively.March 31, 2022.
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 $112$138 million and $110$113 million for the three months ended June 30,March 31, 2023 and 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 $162$164 million and $123$13 million of investment tax credits for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, and $175 million and $160 million for the six months ended June 30, 2022 and 2021, respectively. The Company recognized $106 million of expenses related to all of these investments for both the three months ended June 30, 2022 and 2021, of which $92$130 million and $87 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense. The Company recognized $208 million and $232$102 million of expenses related to all of these investments for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively, of which $183 million and $179 million, respectively, were primarily 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) 
June 30,
2022
   December 31,
2021
  March 31,
2023
   December 31,
2022
 
Investment carrying amount $4,999   $4,484  $5,667   $5,452 
Unfunded capital and other commitments 2,210    1,890  2,680    2,416 
Maximum exposure to loss 9,872    9,899  9,662    9,761 
The Company also has noncontrolling financial investments in private investment funds and partnerships considered to be VIEs, which are not consolidated. The Company’s recorded investment in these entities, carried
in
U.S. Bancorp51

other
assets on the Consolidated Balance Sheet, was approximately $46$186 million at June 30, 2022March 31, 2023 and $40$177 million at December 31, 2021.2022. The maximum exposure to loss related to these VIEs was $87$309 million at June 30, 2022March 31, 2023 and $84$310 million at December 31, 2021,2022, representing the Company’s investment balance and its unfunded commitments to invest additional
amounts.
The
Company also held senior notes of $3.0 billion as available-for-sale investment securities at March 31, 2023, compared with $3.4 billion at December 31, 2022. These senior notes were issued by third-party securitization vehicles that held $3.5 billion at March 31, 2023 and $4.0 billion at December 31, 2022 of indirect auto loans that collateralize the senior notes. These VIEs are not consolidated by the Company.
The Company’s individual net investments in unconsolidated VIEs, which exclude any unfunded capital commitments, ranged from less than $1 million to $105$96 million at June 30, 2022,March 31, 2023, compared with less than $1 million to $75$116 million at December 31, 2021.2022.
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 June 30, 2022,March 31, 2023, approximately $4.9$6.0 billion of the Company’s assets and $3.3$4.4 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$5.9 billion and $3.4$4.2 billion, respectively, at December 31, 2021.2022. 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 June 30, 2022, $1.5March 31, 2023, $1.3 billion of
available-for-sale
investment securities and $1.2$1.0 billion of short-term borrowings on the Consolidated Balance Sheet were related to the tender option bond program, compared with $1.7$1.5 billion of
available-for-sale
investment securities and $1.2$1.0 billion of short-term borrowings at December 31, 2021.2022.
 
 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 $226.4$245.6 billion of residential mortgage loans for others at June 30, 2022,March 31, 2023, and $222.4$243.6 billion at December 31, 2021,2022, 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 net gainslosses of $13$11 million and net losses of $27$29 million for the three months ended June 30,March 31, 2023 and 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 $186$190 million and $178$185 million for the three months ended June 30,March 31, 2023 and 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
June 30
      Six Months Ended
June 30
  Three Months
Ended March 31
 
(Dollars in Millions) 2022 2021      2022 2021  2023 2022 
Balance at beginning of period $3,432  $2,787    $2,953  $2,210  $3,755  $2,953 
Rights purchased 3  11     6  27  1  3 
Rights capitalized 102  293     339  612  96  237 
Rights sold (a)    1     1  1  1  1 
Changes in fair value of MSRs     
Due to fluctuations in market interest rates (b) 289  (232    657  254  (38 368 
Due to revised assumptions or models (c) 6  (37    (21 (139 5  (27
Other changes in fair value (d) (125 (110    (228 (252 (96 (103
Balance at end of period $3,707  $2,713    $3,707  $2,713  $3,724  $3,432 
 
(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. Bancorp52 
5
1
U.S. Bancorp
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  March 31, 2023    December 31, 2022 
(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
  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  $(865 $(386 $(178 $78  $149  $266    $(334 $(153 $(73 $66  $125  $224 
Derivative instrument hedges 371    170    81    (73)    (141)    (261)        614    309    152    (142)    (278)    (536)  913  395  178  (79 (152 (277   337  153  73  (67 (127 (236
Net sensitivity $(9)   $(2)   $   $(2)   $(8)   $(30)       $(22)   $(15)   $(8)   $8   $9   $(25)  $48  $9  $  $(1 $(3 $(11   $3  $  $  $(1 $(2 $(12
Th
e
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.
AThe following table provides a summary of the Company’s MSRs and related characteristics by portfolio was as follows:portfolio:
 
 June 30, 2022    December 31, 2021  March 31, 2023    December 31, 2022 
(Dollars in Millions) HFA Government Conventional (d) Total     HFA Government Conventional (d) Total  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  $44,746  $23,695  $173,277  $241,718    $44,071  $23,141  $172,541  $239,753 
Fair value $697  $403  $2,607  $3,707    $527  $308  $2,118  $2,953  $716  $454  $2,554  $3,724    $725  $454  $2,576  $3,755 
Value (bps) (b) 167  189  163  166    130  141  135  135  160  192  147  154    165  196  149  157 
Weighted-average servicing fees (bps) 36  41  30  32    36  41  30  32  36  43  27  30    36  42  27  30 
Multiple (value/servicing fees) 4.65  4.59  5.41  5.15    3.63  3.43  4.50  4.18  4.44  4.50  5.42  5.08    4.56  4.69  5.52  5.20 
Weighted-average note rate 4.02 3.67 3.40 3.54   4.07 3.70 3.41 3.56 4.24 3.92 3.59 3.74   4.16 3.81 3.52 3.67
Weighted-average age (in years) 3.9  6.0  3.5  3.8    3.8  5.9  3.3  3.7  4.1  5.5  3.9  4.1    4.0  5.7  3.7  3.9 
Weighted-average expected prepayment (constant prepayment rate) 7.5 8.5 6.5 6.9   11.5 13.2 9.6 10.3 8.0 9.5 8.4 8.4   7.4 8.5 7.8 7.8
Weighted-average expected life (in years) 8.6  7.4  8.2  8.2    6.5  5.6  6.9  6.7  8.5  7.3  7.3  7.5    8.8  7.6  7.5  7.7 
Weighted-average option adjusted spread (c) 7.2 6.9 5.9 6.2   7.3 7.3 6.3 6.6 7.6 6.9 4.9 5.7   7.6 6.9 5.1 5.8
 
(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 June 30, 2022March 31, 2023 and December 31, 2021,2022, 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:
 
 June 30, 2022        December 31, 2021  March 31, 2023        December 31, 2022 
(Dollars in Millions) Shares
Issued and
Outstanding
   Liquidation
Preference
   Discount   Carrying
Amount
        Shares
Issued and
Outstanding
   Liquidation
Preference
   Discount   Carrying
Amount
  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  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  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  40,000    1,000    7    993        40,000    1,000    7    993 
Series K 23,000    575    10    565        23,000    575    10    565  23,000    575    10    565        23,000    575    10    565 
Series L 20,000    500    14    486        20,000    500    14    486  20,000    500    14    486        20,000    500    14    486 
Series M 30,000    750    21    729        30,000    750    21    729  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  60,000    1,500    8    1,492        60,000    1,500    8    1,492 
Series O 18,000    450    13    437                      18,000    450    13    437        18,000    450    13    437 
Total preferred stock (a) 243,510   $7,026   $218   $6,808        225,510   $6,576   $205   $6,371  243,510   $7,026   $218   $6,808        243,510   $7,026   $218   $6,808 
 
(a)
The par value of all shares issued and outstanding at June 30, 2022March 31, 2023 and December 31, 2021,2022, was $1.00 per share.
During the first six 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
 U.S. Bancorp53

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.
 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:
 
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
 
(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 
2023
 
Balance at beginning of period $(125 $  $(112 $(1,813 $(45 $(2,095 $(6,378 $(3,933 $(114 $(939 $(43 $(11,407
Changes in unrealized gains (losses) 1,195     14        1,209  1,305     204  1     1,510 
Foreign currency translation adjustment (a)             (1 (1             (1 (1
Reclassification to earnings of realized (gains) losses (43    (8 40     (11 32  121  7  (2    158 
Applicable income taxes (292    (1 (10 (1 (304 (328 (31 (54       (413
Balance at end of period $735  $  $(107 $(1,783 $(47 $(1,202 $(5,369 $(3,843 $43  $(940 $(44 $(10,153
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
 
(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
(Dollars in Millions)  2023  2022   Consolidated Statement of Income
Unrealized gains (losses) on investment securities available-for-sale            
Realized gains (losses) on sale of investment securities  $(32 $18   Securities gains (losses), net
    8   (5)   Applicable income taxes
    (24)   13   Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale to held-to-maturity
            
Amortization of unrealized gains (losses)   (121  (42  Interest income
    31   11   Applicable income taxes
    (90)   (31)   Net-of-tax
Unrealized gains (losses) on derivative hedges            
Realized gains (losses) on derivative hedges   (7  (11  Interest expense
    
1

   3   Applicable income taxes
    (6)   (8)   Net-of-tax
Unrealized gains (losses) on retirement plans            
Actuarial gains (losses) and prior service cost (credit) amortization   2   (32  Other noninterest expense
       8   Applicable income taxes
    2   (24)   Net-of-tax
Total impact to net income  $(118 $(50   
54U.S. Bancorp
  Impact to Net Income  Affected Line Item in the
Consolidated Statement of Income
  Three Months Ended
June 30
   Six Months Ended
June 30
 
(Dollars in Millions) 2022  2021   2022  2021 
Unrealized gains (losses) on investment securities
available-for-sale
  
 
    
Realized gains (losses) on sale of investment securities $19  $43   $37  $68  Securities gains (losses), net
   (5)  (11)    (9)   (17)  Applicable income taxes
   14   32    28   51  
Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale
to
held-to-maturity
                   
Amortization of unrealized gains  (61)      (103)    Interest income
   16       26     Applicable income taxes
   (45)      (77)     
Net-of-tax
Unrealized gains (losses) on derivative hedges                   
Realized gains (losses) on derivative hedges  (10)  8    (21)  4  Interest expense
   2   (2)    5   (1)  Applicable income taxes
   (8)   6    (16)   3  
Net-of-tax
Unrealized gains (losses) on retirement plans                   
Actuarial gains (losses) and prior service cost (credit) amortization  (32)  (40   (64)  (79 Other noninterest expense
   8   10    16   20  Applicable income taxes
   (24)   (30)    (48)   (59)  
Net-of-tax
Total impact to net income $(63) $8   $(113) $(5)   
 Note 10
 
   Earnings Per Share
The component
s
components of earnings per share were:
 
 Three Months Ended
June 30
   Six Months Ended
June 30
   Three Months Ended
March 31
 
(Dollars and Shares in Millions, Except Per Share Data)     2022     2021       2022     2021   2023 2022 
Net income attributable to U.S. Bancorp $1,531  $1,982   $3,088  $4,262   $1,698  $1,557 
Preferred dividends  (59  (58   (143  (148   (98  (84
Impact of preferred stock call (a)            (5
Earnings allocated to participating stock awards  (8  (10   (15  (20   (8  (7
Net income applicable to U.S. Bancorp common shareholders $1,464  $1,914   $2,930  $4,089   $1,592  $1,466 
Average common shares outstanding  1,486   1,489    1,485   1,495    1,532   1,485 
Net effect of the exercise and assumed purchase of stock awards  1   1    1   2       1 
Average diluted common shares outstanding  1,487   1,490    1,486   1,497    1,532   1,486 
Earnings per common share $.99  $1.29   $1.97  $2.73   $1.04  $.99 
Diluted earnings per common share $.99  $1.28   $1.97  $2.73   $1.04  $.99 
 
(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 theOptions outstanding shares.
Options outstanding at June 30, 2022,at March 31, 2023 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, 2023 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 June 30    Six Months Ended June 30 Three Months Ended March 31 
 Pension Plans Postretirement
Welfare Plan
     Pension Plans Postretirement
Welfare Plan
  Pension Plans     Postretirement
Welfare Plans
 
(Dollars in Millions) 2022 2021 2022 2021     2022 2021 2022 2021  2023 2022     2023 2022 
Service cost $68  $66  $  $    $137  $132  $  $  $56  $69    $  $ 
Interest cost  62   55           123   110         93   61     1    
Expected return on plan assets  (120  (113          (239  (225        (137  (119    (1   
Prior service cost (credit) amortization     (1  (2  (1    (1  (1  (2  (2     (1    (1   
Actuarial loss (gain) amortization  35   43   (1  (1    70   85   (3  (3  1   35     (2  (2
Net periodic benefit cost (a) $45  $50  $(3 $(2   $90  $101  $(5 $(5 $13  $45    $(3 $(2
 
(a)
Service cost is included in compensation and 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
June 30
   Six Months Ended
June 30
   Three Months Ended
March 31
 
(Dollars in Millions)     2022     2021            2022       2021       2023     2022 
Federal
              
Current $221  $350       $625   $703   $397  $404 
    
Deferred 107  76        5    206    (32 (102
Federal income tax 328  426        630    909    365  302 
State
              
Current 89  109        178    203    96  89 
    
Deferred (3 16        3    46    (6 6 
    
State income tax 86  125        181    249    90  95 
Total income tax provision $414  $551       $811   $1,158   $455  $397 
U.S. Bancorp55

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
June 30
   Six Months Ended
June 30
   Three Months Ended
March 31
 
(Dollars in Millions)     2022     2021          2022     2021       2023     2022 
Tax at statutory rate $409  $533     $820  $1,140   $453  $411 
State income tax, at statutory rates, net of federal tax benefit 84  105      168  219    102  84 
Tax effect of        
Tax credits and benefits, net of related expenses (46 (83     (152 (176   (77 (106
Tax-exempt
income
 (29 (29     (57 (57   (34 (28
Other items (4 25      32  32    11  36 
Applicable income taxes $414  $551     $811  $1,158   $455  $397 
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 June 30, 2022,March 31, 2023, 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 through December 31, 2020 are under examination by the Internal Revenue Service. The years open to examination by foreign, state and local government authorities vary by jurisdiction.
The Company’s net deferred tax asset was $3.6$6.0 billion at June 30, 2022March 31, 2023 and $785 million$6.3 billion at December 31, 2021.2022.
 
 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 June 30, 2022,March 31, 2023, the Company had $4$43 million
(net-of-tax)
of realized and unrealized gains on
derivatives classified as
cash flow hedges recorded in other comprehensive income (loss), compared with $85$114 million
(net-of-tax)
of realized and unrealized losses at December 31, 2021.2022. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the next 12 months is a loss
gain
 of $15$31 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 DecemberMarch 31, 2021.2023.
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, 2023 and December 31, 2021.2022.
56U.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 Company may use credit derivatives economically to hedge credit risk.
The following table summarizes the asset and liability management derivative positions of the Company:
 
 June 30, 2022        December 31, 2021  March 31, 2023        December 31, 2022 
 Notional
Value
   Fair Value        Notional
Value
   Fair Value  
Notional
Value
   Fair Value        
Notional
Value
   Fair Value 
(Dollars in Millions)  Assets   Liabilities        Assets   Liabilities   Assets   Liabilities        Assets   Liabilities 
Fair value hedges                                        
Interest rate contracts                                        
Receive fixed/pay floating swaps $17,400   $   $       $12,350   $   $  $17,400   $   $       $17,400   $   $9 
Pay fixed/receive floating swaps 3,820                16,650          13,564                5,542         
Cash flow hedges                                        
Interest rate contract
s

                        
Interest rate contracts                    
Receive fixed/pay floating swaps 8,300                          18,800                14,300         
Net investment hedges                                        
Foreign exchange forward contracts 805    6    1        793        4  784        9        778         
Other economic hedges                                        
Interest rate contracts                                        
Futures and forwards                                        
Buy 11,040    30    63        9,322    10    16  8,120    29    15        3,546    10    18 
Sell 9,811    34    31        29,348    25    27  6,891    12    32        7,522    20    38 
Options                                        
Purchased 7,480    260            18,570    256      14,109    344            11,434    346     
Written 7,208    20    93        9,662    52    231  10,295    20    159        7,849    7    148 
Receive fixed/pay floating swaps 11,420                9,653          8,504    1            9,215        3 
Pay fixed/receive floating swaps 12,481                7,033          9,190                9,616         
Foreign exchange forward contracts 852    5    2        735    2    6  1,124    2    7        962    2    6 
Equity contracts 186    4            209    5      361    6    7        361        10 
Credit contracts 375    
1

            330         
Other (a) 2,344    2    81        1,792        125  2,140    12    158        1,908    11    190 
Total $  93,147   $   361   $   271       $116,117   $   350   $409  $  111,657   $   427   $   387       $90,763   $   396   $422 
 
(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 $79$157 million at June 30, 2022,March 31, 2023, respectively, compared to $1.8 billion and $125$190 million at December 31, 2021,2022, respectively. In addition, includes short-term underwriting purchase and sale commitments with total notional values of $565$250 million at June 30, 2022,March 31, 2023, and $8$13 million at December 31, 2021.2022.
 
5
6
U.S. Bancorp
 U.S. Bancorp57

The following table summarizes the customer-related derivative positions of the Company:
 
 June 30, 2022        December 31, 2021  March 31, 2023        December 31, 2022 
 
Notional
Value
   Fair Value        
Notional
Value
   Fair Value  
Notional
Value
   Fair Value        
Notional
Value
   Fair Value 
(Dollars in Millions)  Assets   Liabilities        Assets   Liabilities   Assets   Liabilities        Assets   Liabilities 
Interest rate contracts                                        
Receive fixed/pay floating swaps $204,454   $458   $3,125       $178,701   $2,007   $438  $314,593   $576   $4,527       $301,690   $309   $5,689 
Pay fixed/receive floating swaps 193,869    1,308    214        174,176    134    670  325,360    2,005    329        316,133    2,323    206 
Other (a) 19,451    1    3        16,267    1    2  53,267    3    32        40,261    3    16 
Options                                        
Purchased 90,183    993    5        89,679    194    36  113,374    1,551    9        103,489    1,794    5 
Written 87,585    6    979        85,211    36    176  111,689    12    1,545        99,923    6    1,779 
Futures                                        
Buy 475                3,607          417                3,623        4 
Sell 4,928                3,941                           2,376    8     
Foreign exchange rate contracts                                        
Forwards, spots and swaps 95,611    2,222    2,239        89,321    1,145    1,143  129,301    2,638    2,196        134,666    3,010    2,548 
Options                                        
Purchased 861    39            805    19      1,211    28            954    22     
Written  861        39        805        19  1,211        28        954        22 
Credit contracts 9,152    1    6        9,331    1    5  11,066    1    8        10,765    1    8 
Total $707,430   $5,028   $6,610       $651,844   $3,537   $2,489  $1,061,489   $6,814   $8,674       $1,014,834   $7,476   $10,277 
 
(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:
 
 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
   
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   2023 2022      2023 2022 
Asset and Liability Management Positions
                     
Cash flow hedges                     
Interest rate contracts $73   $11  $(8 $6       $73   $85  $(16 $3   $151  $     $(6 $(8
Net investment hedges                     
Foreign exchange forward contracts 27    (8             26    (1         (3 (1         
Non-derivative
debt instruments
 63    (14             83    34          (18 20          
 
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:Income for the three months ended March 31:
 
 Three Months Ended June 30      Six Months Ended June 30 
 Interest Income Interest Expense      Interest Income Interest Expense   Interest Income      Interest Expense 
(Dollars in Millions) 2022 2021 2022 2021      2022 2021 2022 2021   2023 2022      2023 2022 
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   $6,964  $3,418     $2,330  $245 
      
Asset and Liability Management Positions
            
Fair value hedges            
Interest rate contract derivatives (186 (30 (38 18      331  (31 34  73    (178 517      (114 72 
Hedged items 187  29  36  (17     (331 30  (35 (72   174  (518     114  (71
Cash flow hedges            
Interest rate contract derivatives       10  (8          21  (4            7  11 
 
Note:
The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $10$7 million and $21$11 million into earnings during the three and six months ended June 30,March 31, 2023 and 2022, respectively, as a result of realized cash flows on discontinued cash flow hedges, compared with $12 million and $27 million during the three and six months ended June 30, 2021, respectively.hedges. No amounts were reclassified into earnings on discontinued cash flow hedges because it is probable the original hedged forecasted cash flows will not occur.
 
U.S. Bancorp58 
5
7
U.S. Bancorp
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)  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 
(Dollars in Millions) March 31, 2023 December 31, 2022        March 31, 2023 December 31, 2022 
Line Item in the Consolidated Balance Sheet
                   
Available-for-sale
investment securities
 $3,124   $16,445       $(716 $(26 $13,065  $4,937       $(365 $(552
Long-term debt 17,724    12,278        378  585  16,644  17,190        (61 (142
 
(a)
The cumulative hedging adjustment related to discontinued hedging relationships on
available-for-sale
investment securities and long-term debt was $(365) $(379
)
million and $468$366 million, respectively, at June 30, 2022,March 31, 2023, compared with $(6)$(392) million and $640$399 million at December 31, 2021,2022, respectively.
The table below shows the gains (losses) recognized in earnings for other economic hedges and the customer-related positions:positions for the three months ended March 31:
 
 Location of Gains (Losses)
Recognized in Earnings
   Three Months Ended
June 30
      Six Months Ended
June 30
  
Location of Gains (Losses)
Recognized in Earnings
     
(Dollars in Millions)      2022     2021          2022     2021       2023     2022 
Asset and Liability Management Positions
            
Other economic hedges            
Interest rate contracts            
Futures and forwards  Mortgage banking revenue   $74  $(99    $297  $331 
Futures and forwards
 Mortgage banking revenue   $7  $223 
Purchased and written options Mortgage banking revenue    6  253      (41 265  Mortgage banking revenue    (2 (47
Swaps Mortgage banking revenue    (247 193      (451 (197 Mortgage banking revenue    58  (204
Foreign exchange forward contracts Other noninterest income    4  (7     1  (10 Other noninterest income    (5 (3
Equity contracts  Compensation expense    (1  1      (3  5  Compensation expense    (3 (2
Other Other noninterest income    1  1        1  Other noninterest income    (2 (1
Customer-Related Positions
            
Interest rate contracts            
Swaps  Commercial products revenue    30   25      47   52  Commercial products revenue    52  17 
Purchased and written options Commercial products revenue      4      4  (3 Commercial products revenue      4 
Futures Commercial products revenue    8         24     Commercial products revenue    (1 16 
Foreign exchange rate contracts            
Forwards, spots and swaps Commercial products revenue    20  27      35  46  Commercial products revenue    28  15 
Purchased and written option
s

 
Commercial products revenue
  
 
1
  
— 
    
 
1
  
 
 
Credit contracts Commercial products revenue    17  (4     22  (2 Commercial products revenue      5 
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 June 30, 2022,March 31, 2023, was $1.5$2.2 billion. At June 30, 2022,March 31, 2023, the Company had $1.2$1.8 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
U.S. Bancorp59

Company’s $800.6 billion$
1.2
trillion total notional amount of derivative positions at June 30, 2022, $409.7March 31, 2023, $
575.6
 billion related to
58
U.S. Bancorp

bilateral
over-the-counter
trades, $383.9$
595.8
 billion related to those centrally cleared through clearinghouses and $7.0$
1.8
 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.
 
U.S. Bancorp60 
59
U.S. Bancorp

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 
June 30, 2022
             
March 31, 2023
             
Repurchase agreements                          
U.S. Treasury and agencies $429   $   $   $   $429  
$

1,538    $—    $—    $—   $1,538 
Residential agency mortgage-backed securities 969                969  593                593 
Corporate debt securities 597                597  1,011                1,011 
Total repurchase agreements 1,995                1,995  3,142                3,142 
Securities loaned                          
Corporate debt securities 225                225  203                203 
Total securities loaned 225                225  203                203 
Gross amount of recognized liabilities $2,220   $   $   $   $2,220  $3,345    $—   $    $—   $3,345 
December 31, 2021
             
December 31, 2022
             
Repurchase agreements                          
U.S. Treasury and agencies $378   $   $   $   $378  $147    $—    $ —    $—   $147 
Residential agency mortgage-backed securities 551                551  846                846 
Corporate debt securities 646                646  439                439 
Total repurchase agreements 1,575                1,575  1,432                1,432 
Securities loaned                          
Corporate debt securities 169                169  120                120 
Total securities loaned 169                169  120                120 
Gross amount of recognized liabilities $1,744   $   $   $   $1,744  $1,552    $—    $—    $—   $1,552 
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  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)
  Financial
Instruments (b)
 Collateral
Received (c)
 
June 30, 2022
       
March 31, 2023
       
Derivative assets (d) $5,359   $(3,503 $1,856   $(175) $(66) $1,615  $7,204   $(4,261 $2,943   $(182 $(1 $2,760 
Reverse repurchase agreements 513      513    (386 (127    1,639      1,639    (473 (1,166   
Securities borrowed 1,657      1,657      (1,609 48  1,760      1,760      (1,712 48 
Total $7,529   $(3,503 $4,026   $(561 $(1,802 $1,663  $10,603   $(4,261 $6,342   $(655 $(2,879 $2,808 
December 31, 2021
       
December 31, 2022
       
Derivative assets (d) $3,830   $(1,609 $2,221   $(142 $(106 $1,973  $7,852   $(5,427 $2,425   $(231 $(80 $2,114 
Reverse repurchase agreements 359      359    (249 (110    107      107    (102 (5   
Securities borrowed 1,868      1,868      (1,818 50  1,606      1,606      (1,548 58 
Total $6,057   $(1,609 $4,448   $(391 $(2,034 $2,023  $9,565   $(5,427 $4,138   $(333 $(1,633 $2,172 
 
(a)
Includes $2.0$2.2 billion and $528 million$3.0 billion of cash collateral related payables that were netted against derivative assets at June 30, 2022March 31, 2023 and December 31, 2021,2022, 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 $30$37 million and $57$20 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, of derivative assets not subject to netting arrangements.
6
0
U.S. Bancorp
 U.S. Bancorp
61
(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 
(Dollars in Millions) Gross
Recognized
Liabilities
   Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
  Net Amounts
Presented on the
Consolidated
Balance Sheet
   Gross Amounts Not Offset on the
Consolidated Balance Sheet
  Net Amount 
  Financial
Instruments (b)
  Collateral
Pledged (c)
 
March 31, 2023
                          
Derivative liabilities (d) $8,902   $(3,810 $5,092   $(182 $  $4,910 
Repurchase agreements  3,142       3,142    (473  (2,669   
Securities loaned  203       203       (200  3 
Total $12,247   $(3,810 $8,437   $(655 $(2,869 $4,913 
December 31, 2022
                          
Derivative liabilities (d) $10,506   $(4,551 $5,955   $(231 $  $5,724 
Repurchase agreements  1,432       1,432    (102  (1,325  5 
Securities loaned  120       120       (118  2 
Total $12,058   $(4,551 $7,507   $(333 $(1,443 $5,731 
 
(a)
Includes $1.2$1.8 billion and $508 million$2.1 billion of cash collateral related receivables that were netted against derivative liabilities at June 30, 2022March 31, 2023 and December 31, 2021,2022, 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 $110$159 million and $137$193 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, 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. Other financial instruments, such as held-to-maturity investment securities, loans, time deposits, short-term borrowings and long-term debt, are accounted for at amortized cost. See “Fair Value of Financial Instruments” in this Note for further information on the estimated fair value of these other financial instruments. In accordance with disclosure guidance, certain financial instruments, such as deposits with no defined or contractual maturity, receivables and payables due in one year or less, insurance contracts and equity investments not accounted for at fair value, are excluded from this Note.
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
62
 
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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 assets or liabilities are classified. Where appropriate, the descriptions include information about the valuation models and key inputs to those models. During the sixthree months ended June 30,March 31, 2023 and 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 was awere net losslosses of $64$3 million and a net gain of $98$234 million for the three months ended June 30,March 31, 2023 and 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.
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 U.S. Bancorp63

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 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.
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 June 30, 2022:March 31, 2023:
 
 Minimum Maximum Weighted-
Average (a)
  Minimum Maximum Weighted-
Average (a)
 
Expected prepayment 5 10 7 6 20 9
Option adjusted spread 5  11  6  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 June 30, 2022:
March 31, 2023:
   Minimum  Maximum  Weighted-
Average (a)
 
Expected loan close rate  29  100  80
Inherent MSR value (basis points per loan)  37
   219   108 
   Minimum  Maximum  Weighted-
Average (a)
 
Expected loan close rate  1  100  76
Inherent MSR value (basis points per loan)  21   178   100 
 
(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. Bancorp64 
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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 June 30, 2022,March 31, 2023, 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, 1581,210 percent and 2 percent, respectively.
The significant unobservable inputs used in the fair value measurement of the Visa swaps are management’s estimate of the probability of certain litigation scenarios occurring, and the timing of the resolution of the related litigation loss estimates in excess, or shortfall, of the Company’s proportional share of escrow funds. An increase in the loss estimate or a delay in the resolution of the related litigation would have resulted in an increase in the derivative liability. A decrease in th
e
the 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 
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 
(Dollars in Millions) Level 1   Level 2   Level 3   Netting  Total 
March 31, 2023
                       
Available-for-sale securities                       
U.S. Treasury and agencies $12,539   $5,515   $
 
   $  $18,054 
Mortgage-backed securities                       
Residential agency      26,145           26,145 
Commercial                       
Agency      7,300           7,300 
Non-agency      7           7 
Asset-backed securities      3,807           3,807 
Obligations of state and political subdivisions      10,173    1       10,174 
Other      4           4 
Total available-for-sale  12,539    52,951    1       65,491 
Mortgage loans held for sale      1,990           1,990 
Mortgage servicing rights          3,724       3,724 
Derivative assets  3    5,954    1,284    (4,261)  2,980 
Other assets  296    2,087           2,383 
Total $12,838   $62,982   $5,009   $(4,261) $76,568 
Derivative liabilities $   $5,512   $3,549   $(3,810 $5,251 
Short-term borrowings and other liabilities (a)  334    1,723           2,057 
Total $334   $7,235   $3,549   $(3,810 $7,308 
December 31, 2022
                       
Available-for-sale securities                       
U.S. Treasury and agencies $13,723   $8,310   $   $  $22,033 
Mortgage-backed securities                       
Residential agency      29,271           29,271 
Commercial                       
Agency      7,145           7,145 
Non-agency      7           7 
Asset-backed securities      4,323           4,323 
Obligations of state and political subdivisions      10,124    1       10,125 
Other      6           6 
Total available-for-sale  13,723    59,186    1       72,910 
Mortgage loans held for sale      1,849           1,849 
Mortgage servicing rights          3,755       3,755 
Derivative assets  9    6,608    1,255    (5,427  2,445 
Other assets  248    1,756           2,004 
Total $13,980   $69,399   $5,011   $(5,427 $82,963 
Derivative liabilities $4   $6,241   $4,454   $(4,551 $6,148 
Short-term borrowings and other liabilities (a)  125    1,564           1,689 
Total $129   $7,805   $4,454   $(4,551 $7,837 
 
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$106 million and $79$104 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first sixthree months of 20222023 and 2021,2022, 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.
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4
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 U.S. Bancorp
65
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 June 30:March 31:
 
(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) 
(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
 
2023
                                
Available-for-sale securities
                                
Obligations of state and political subdivisions
 $1  $  $  $  $  $  $1  $ 
Total available-for-sale
  1                  1    
Mortgage servicing rights
  3,755   (129) (a)   1   1   96 (c)      3,724   (129) (a) 
Net derivative assets and liabilities
  (3,199  (316) (b)   423   (12     839   (2,265  529  (d) 
         
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) (e)   11   (1     47   (1,011  (1,697) (f) 
 
(a)
Included in mortgage banking revenue.
(b)
Approximately $(20) $
51
million, $(1.5) billion$
(365)
million and $1 $
(2)
million included in mortgage bankingbanking revenue, commercial products revenuerevenue and other noninterest income, respectively.other noninterest income, respectively.
(c)
Represents MSRs capitalized during the period.
(d)
Approximately $(3) $
22
million, $(1.3) billion$
509
m
illion and $1 $
(2)
million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(e)
Approximately $276$(83) million, $279 million$(1.8) billion and $1$(1) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(f)
Approximately $100$(24) million, $311 million$(1.7) billion and $1$(1) million included in mortgage banking revenue, commercial products revenue and 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 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:
 
  June 30, 2022   December 31, 2021 
(Dollars in Millions) Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 
         
Loans (a) $   $   $69   $69   $   $   $59   $59 
         
Other assets (b)          28    28            77    77 



  March 31, 2023   December 31, 2022 
(Dollars in Millions) Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 
         
Loans (a) $   $   $107   $107   $   $   $97   $97 
         
Other assets (b)          2    2            21    21 
 
(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:portfolios for the three months ended March 31:
 
 Three Months Ended
June 30
   Six Months Ended
June 30
 
(Dollars in Millions) 2022   2021   2022   2021      2023       2022 
    
Loans (a) $22   $12   $33   $43  $142   $11 
    
Other assets (b) 10    5    11    6  1    1 
 
(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.
66
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:
 
 June 30, 2022        December 31, 2021  March 31, 2023        December 31, 2022 
(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
  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  $1,990   $1,988   $2       $1,849   $1,848   $1 
Nonaccrual loans 1    1            1    1      1    1            1    1     
Loans 90 days or more past due 1    1            2    2      2    2            1    1     
Fair Value of Financial Instruments
The following section summarizes the estimated fair value for financial instruments accounted for at amortized cost as of June 30, 2022March 31, 2023 and December 31, 2021.2022. 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:
 
 June 30, 2022 December 31, 2021  March 31, 2023 December 31, 2022 
 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 $39,124  $39,124  $  $  $ 39,124    $28,905  $28,905  $  $  $28,905  $67,228  $67,228  $  $  $67,228    $53,542  $53,542  $  $  $53,542 
Federal funds sold and securities purchased under resale agreements 520     520     520    359     359     359  1,698     1,698     1,698    356     356     356 
Investment securities
held-to-maturity
 61,503  1,337  54,320     55,657    41,858     41,812     41,812  88,462  1,307  77,569     78,876    88,740  1,293  76,581     77,874 
Loans held for sale (a) 1,170        1,170  1,170    1,152        1,152  1,152  391        391  391    351        351  351 
Loans 326,537        321,095  321,095    306,304        312,724  312,724  380,846        372,857  372,857    381,277        368,874  368,874 
Other (b) 2,391     1,679  712  2,391    1,521     630  891  1,521  3,894     3,143  751  3,894    2,962     2,224  738  2,962 
Financial Liabilities
      
Time deposits 30,622     30,039     30,039    22,665     22,644     22,644  37,515     37,264     37,264    32,946     32,338     32,338 
Short-term borrowings (c) 23,128     22,789     22,789    9,750     9,646     9,646  54,818     54,418     54,418    29,527     29,145     29,145 
Long-term debt 29,408     27,901     27,901    32,125     32,547     32,547  42,045     39,960     39,960    39,829     37,622     37,622 
Other (d) 3,896     1,135  2,761  3,896    3,862     1,170  2,692  3,862  5,351     1,461  3,890  5,351    5,137     1,500  3,637  5,137 
 
(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 $486$536 million and $495$498 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The carrying value of other guarantees was $224$255 million and $245$241 million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
 
U.S. Bancorp67

 Note  16
 
   Guarantees and Contingent Liabilities
Visa Restructuring and Card Association Litigation
 The Company’s payment servicesPayment Services business issues credit and debit cards and acquires credit and debit card transactions through the Visa U.S.A. Inc. card association or its affiliates (collectively “Visa”). In 2007, Visa completed a restructuring and issued shares of Visa Inc. common stock to its financial institution members in contemplation of its initial public offering (“IPO”) completed in the first quarter of 2008 (the “Visa Reorganization”). As a part of the Visa Reorganization, the Company received its proportionate number of shares of Visa Inc. common stock, which were subsequently converted to Class B shares of Visa Inc. (“Class B shares”).
Visa U.S.A. Inc. (“Visa U.S.A.”) and MasterCard International (collectively, the “Card 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 June 30, 2022:March 31, 2023:
 
(Dollars in Millions) Collateral
Held
   Carrying
Amount
   Maximum
Potential
Future
Payments
  Collateral
Held
   Carrying
Amount
   Maximum
Potential
Future
Payments
 
Standby letters of credit $   $55   $9,844  $   $21   $10,699 
Third party borrowing arrangements          7           11 
Securities lending indemnifications 7,822        7,461  9,778        9,679 
Asset sales      85    7,629 (a)       100    8,221 (a) 
Merchant processing 1,415    118    141,453  930    134    136,979 
Tender option bond program guarantee 1,521        1,489  1,308        1,280 
Other      21    1,343       21    2,005 
 
(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 June 30, 2022,March 31, 2023, the value of airline
68U.S. Bancorp

tickets purchased to be delivered at a future date through card transactions processed by the Company was $9.1$11.2 billion. The Company held collateral of $1.2 billion$777 million in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets. In addition to specific collateral or other credit enhancements, the Company maintains a liability for its implied guarantees associated with future delivery. At June 30, 2022,March 31, 2023, the liability was $100$116 million primarily related to these airline processing arrangements.
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 June 30, 2022,March 31, 2023, the Company had reserved $13$16 million for potential losses from representation and warranty obligations, compared with $18$17 million at December 31, 2021.2022. 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 June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had $35$36 million and $19$39 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 LitigationLitigatio
n
Starting in 2011, the Company and other large financial institutions have been sued in their capacity as trustee for residential mortgage–backed securities trusts.trusts for losses arising out of the 2008 financial crisis. In the lawsuits brought against the Company, the investors and a monoline insurer allege that the Company’s primary banking subsidiary, U.S. Bank National Association (“U.S. Bank”USBNA”), 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, as part of an industry-wide inquiry, the Company’s broker-dealer and registered investment advisor subsidiaries received from the Securities and Exchange Commission a request for information concerning compliance with record retention requirements relating to electronic business communications. Also, the Consumer Financial Protection Bureau (“CFPB”) has been investigating the Company’s administration of unemployment insurance benefit prepaid debit cards during the pandemic timeframe and is considering a potential enforcement action. 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).
U.S. Bancorp69

On July 27, 2022, U.S.
MUFG Union Bank agreedConsent Order
The Company acquired MUB on December 1, 2022. Prior to the issuance ofacquisition, on September 20, 2021, MUB entered into a consent order with the Consumer Financial Protection Bureau resolving the previously disclosed investigation of certainOffice of the Company’s consumer sales practices. The financial impactComptroller of the resolution was not materialCurrency (the “OCC”) relating to deficiencies in MUB’s technology and operational risk management (the “MUB Consent Order”). Under the MUB Consent Order, the OCC found MUB to be in noncompliance with the Interagency Guidelines Establishing Information Security Standards and to have engaged in unsafe and unsound practices regarding technology and operational risk management.
The OCC’s conditional approval to merge MUB with and into USBNA (the “Bank Merger”) requires USBNA to succeed to the terms and obligations of the MUB Consent Order and comply with the other conditions described therein. The Bank Merger is expected to occur in connection with the conversion of MUB customers and systems to the USBNA platform over Memorial Day weekend in 2023. The Company’s financial condition, resultslosses, costs, expenses and damages relating to or resulting from the MUB Consent Order are indemnifiable by the seller, subject to the terms of operations or cash flows.the Share Purchase Agreement for the MUB acquisition.
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.
 
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 productscomprises consumer banking, small business banking and consumer lending. Products and services are delivered through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing, mobile devices, distributed mortgage loan officers, and mobile devices. It encompasses community banking, metropolitan bankingintermediary relationships including auto dealerships, mortgage banks, and indirect lending, as well as mortgage banking.strategic business partners.
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
69

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
70U.S. Bancorp

business of an entity acquired by the Company. Within the Company, capital levels are evaluated and managed centrally; however, capital is allocated to the business segments to support evaluation of business performance. Business segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. Generally, the determination of the amount of capital allocated to each business segment includes credit allocations following a Basel III regulatory framework. Interest income and expense is determined based on the assets and liabilities managed by the business segment. Because funding and asset/liability management is a central function, funds transfer-pricing methodologies are utilized to allocate a cost of funds used or credit for funds provided to all business segment assets and liabilities, respectively, using a matched funding concept. Also, each business unit is allocated the taxable-equivalent benefit of
tax-exempt
products. The residual effect on net interest income of asset/liability management activities is included in Treasury and Corporate Support. Noninterest income and expenses directly managed by each business segment, including fees, service charges, salaries and benefits, and other direct revenues and costs are accounted for within each segment’s financial results in a manner similar to the consolidated financial statements. Occupancy costs are allocated based on utilization of facilities by the business segments. Generally, operating losses are charged to the business segment when the loss event is realized in a manner similar to a loan
charge-off.
Noninterest expenses incurred by centrally managed operations or business segments that directly support another business segment’s operations are charged to the applicable business segment based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Certain activities that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance are not charged to the business segments. The income or expenses associated with these corporate activities, including merger and integration charges, are reported within the Treasury and Corporate Support business segment. Income taxes are assessed to each business segment at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.
Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2022,2023, certain organization and methodology changes were made and, accordingly, 20212022 results were restated and presented on a comparable basis.
 
7
0
U.S. Bancorp
 U.S. Bancorp71

Business segment results for the three months ended June 30March 31 were as follows:
 
 Corporate and Commercial
Banking
      
Consumer and
Business Banking
      Wealth Management and
Investment Services
  Corporate and Commercial
Banking
      
Consumer and
Business Banking
      Wealth Management and
Investment Services
 
(Dollars in Millions) 2022 2021      2022 2021      2022   2021  2023 2022      2023 2022      2023   2022 
Condensed Income Statement
                          
Net interest income (taxable-equivalent basis) $784  $726     $1,617  $1,534     $352   $246  $1,081  $746     $2,315  $1,500     $488   $276 
Noninterest income 272  265      395  634      652    549  309  247      397  454      700    595 
Total net revenue 1,056  991      2,012  2,168      1,004    795  1,390  993      2,712  1,954      1,188    871 
Nointerest expense 453  433      1,419  1,375      581    521 
Noninterest expense 613  444      1,776  1,398      668    558 
Income (loss) before provision and income taxes 603  558      593  793      423    274  777  549      936  556      520    313 
Provision for credit losses 100         (75 (68     (4   (4 3  5      13  48      (12   8 
Income (loss) before income taxes 503  558      668  861      427    278  774  544      923  508      532    305 
Income taxes and taxable-equivalent adjustment 126  140      167  215      107    70  194  136      231  126      133    76 
Net income (loss) 377  418      501  646      320    208  580  408      692  382      399    229 
Net (income) loss attributable to noncontrolling interests                                                  
Net income (loss) attributable to U.S. Bancorp $377  $418     $501  $646     $320   $208  $580  $408     $692  $382     $399   $229 
            
Average Balance Sheet
                          
Loans $123,210  $102,275     $141,135  $140,826     $22,320   $17,442  $150,436  $115,867     $170,132  $140,429     $24,335   $20,707 
Other earning assets 4,161  4,409      2,579  8,018      251    237  5,768  4,676      2,179  4,383      380    241 
Goodwill 1,912  1,647      3,244  3,476      1,718    1,618  2,824  1,912      4,491  3,261      1,787    1,761 
Other intangible assets 4  5      3,634  2,828      300    84  592  4      5,594  3,176      442    265 
Assets 137,773  114,186      156,132  161,695      25,786    20,470  170,976  127,891      187,860  156,953      28,625    24,421 
            
Noninterest-bearing deposits 58,266  60,696      31,642  33,702      25,019    23,288  58,447  63,010      43,496  31,265      21,896    27,429 
Interest-bearing deposits 93,678  70,019      168,486  158,164      71,759    73,347  105,011  87,010      185,400  165,885      83,619    70,402 
Total deposits 151,944  130,715      200,128  191,866      96,778    96,635  163,458  150,020      228,896  197,150      105,515    97,831 
            
Total U.S. Bancorp shareholders’ equity 13,989  13,816      12,366  12,337      3,618    3,089  17,350  13,729      16,704  12,214      4,106    3,593 
          
 
Payment
Services
      
Treasury and
Corporate Support
      
Consolidated
Company
  
Payment
Services
      
Treasury and
Corporate Support
      
Consolidated
Company
 
(Dollars in Millions) 2022 2021      2022 2021      2022   2021  2023 2022      2023 2022      2023   2022 
Condensed Income Statement
                          
Net interest income (taxable-equivalent basis) $619  $595     $92  $63     $3,464   $3,164  $651  $622     $133  $56     $4,668   $3,200 
Noninterest income 994 (a)  913   (a   235  258      2,548 (b)    2,619 (b)  937 (a)  857 (a)      164  243      2,507 (b)    2,396 (b) 
Total net revenue 1,613  1,508      327  321      6,012 (c)    5,783 (c)  1,588  1,479      297  299      7,175 (c)    5,596 (c) 
Noninterest expense 871  829      400  229      3,724    3,387  915  849      583  253      4,555    3,502 
Income (loss) before provision and income taxes 742  679      (73 92      2,288    2,396  673  630      (286 46      2,620    2,094 
Provision for credit losses 221  91      69  (189     311    (170 226  130      197  (79     427    112 
Income (loss) before income taxes 521  588      (142 281      1,977    2,566  447  500      (483 125      2,193    1,982 
Income taxes and taxable-equivalent adjustment 130  147      (87 6      443    578  112  125      (181 (39     489    424 
Net income (loss) 391  441      (55 275      1,534    1,988  335  375      (302 164      1,704    1,558 
Net (income) loss attributable to noncontrolling interests           (3 (6     (3   (6           (6 (1     (6   (1
Net income (loss) attributable to U.S. Bancorp $391  $441     $(58 $269     $1,531   $1,982  $335  $375     $(308 $163     $1,698   $1,557 
            
Average Balance Sheet
                          
Loans $33,854  $30,030     $3,668  $3,711     $324,187   $294,284  $36,935  $31,740     $4,912  $4,223     $386,750   $312,966 
Other earning assets 1,023  5      204,560  193,798      212,574    206,467  302  1,023      212,235  206,548      220,864    216,871 
Goodwill 3,318  3,176               10,192    9,917  3,320  3,325               12,422    10,259 
Other intangible assets 438  518               4,376    3,435  385  464      36         7,049    3,909 
Assets 41,054  35,618      219,166  219,396      579,911    551,365  42,860  38,499      235,126  229,638      665,447    577,402 
            
Noninterest-bearing deposits 3,396  5,030      2,504  2,581      120,827    125,297  3,184  3,673      2,718  2,586      129,741    127,963 
Interest-bearing deposits 167  141      1,599  2,242      335,689    303,913  108  160      6,445  2,756      380,583    326,213 
Total deposits 3,563  5,171      4,103  4,823      456,516    429,210  3,292  3,833      9,163  5,342      510,324    454,176 
            
Total U.S. Bancorp shareholders’ equity 8,115  7,413      11,078  16,307      49,166    52,962  8,968  8,017      5,539  15,913      52,667    53,466 
 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $772$717 million and $633$671 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $2.0$2.1 billion and $1.9 billion for the three months ended June 30,March 31, 2023 and 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,arrangements, the Company recorded $188$183 million and $238
$204 million of revenue for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
 
U.S. Bancorp
7
1

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.
7
2
72
 U.S. Bancorp
 Note 18
 
   Subsequent Events
The Company has evaluated the impact of events that have occurred subsequent to June 30, 2022March 31, 2023 through the date the consolidated financial statements were filed with the United States Securities and Exchange Commission. Based on this evaluation, the Company has determined none of these events were required to be recognized or disclosed in the consolidated financial statements and related notes.
 
U.S. Bancorp 
7
3
73

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       
  For the Three Months Ended March 31    
  2023  2022           2023 v 2022 
(Dollars in Millions) (Unaudited) Average
Balances
  Interest       Yields and
Rates
      Average
Balances
      Interest       Yields and
Rates
           % Change
Average
Balances
 
Assets
                   
Investment securities
 $166,125  $1,094     2.64   $174,762   $736     1.68      (4.9)% 
Loans held for sale
  2,461   31     5.10     5,479    60     4.40       (55.1
Loans (b)
                   
Commercial
  135,683   1,997     5.96     112,822    629     2.26       20.3 
Commercial real estate
  55,595   803     5.86     39,084    295     3.06       42.2 
Residential mortgages
  116,287   1,050     3.62     77,449    612     3.17       50.1 
Credit card
  25,569   800     12.69     21,842    562     10.44       17.1 
Other retail
  53,616   642     4.86     61,769       509     3.34       (13.2
Total loans
  386,750   5,292     5.53     312,966    2,607     3.37       23.6 
Interest-bearing deposits with banks
  43,305   488     4.57     29,851    14     .19       45.1 
Other earning assets
  8,973   94     4.23     6,779       28     1.68       32.4 
Total earning assets
  607,614   6,999     4.65     529,837    3,445     2.62       14.7 
Allowance for loan losses
  (6,944        (5,701           (21.8
Unrealized gain (loss) on investment securities
  (7,519        (2,551           * 
Other assets
  72,296         55,817            29.5 
Total assets
 $665,447        $577,402            15.2 
Liabilities and Shareholders’ Equity
                   
Noninterest-bearing deposits
 $129,741        $127,963            1.4
Interest-bearing deposits
                   
Interest checking
  129,350   283     .89     115,062    9     .03       12.4 
Money market savings
  146,970   979     2.70     119,588    52     .18       22.9 
Savings accounts
  68,827   13     .07     66,978    2     .01       2.8 
Time deposits
  35,436   230     2.64     24,585       17     .28       44.1 
Total interest-bearing deposits
  380,583   1,505     1.60     326,213    80     .10       16.7 
Short-term borrowings
                   
Federal funds purchased
  904   10     4.44     1,236         .04       (26.9
Securities sold under agreements to repurchase
  2,481   19     3.11     1,895    1     .03       30.9 
Commercial paper
  8,251   54     2.67     6,473         .01       27.5 
Other short-term borrowings
  24,831   367     6.00     9,434       20     .21       * 
Total short-term borrowings
  36,467   450     5.01     19,038    21     .46       91.5 
Long-term debt
  41,024   376     3.71     32,972       144     1.77       24.4 
Total interest-bearing liabilities
  458,074   2,331     2.06     378,223    245     .26       21.1 
Other liabilities
  24,500         17,282            41.8 
Shareholders’ equity
                   
Preferred equity
  6,808         6,619            2.9 
Common equity
  45,859         46,847            (2.1
Total U.S. Bancorp shareholders’ equity
  52,667         53,466            (1.5
Noncontrolling interests
  465         468            (.6
Total equity
  53,132         53,934            (1.5
Total liabilities and equity
 $665,447        $577,402            15.2 
Net interest income
  $4,668         $3,200         
Gross interest margin
      2.59           2.36       
Gross interest margin without taxable-equivalent increments
      2.57           2.34       
Percent of Earning Assets
                  
Interest income
      4.65         2.62     
Interest expense
      1.55            .18        
Net interest margin
      3.10           2.44       
Net interest margin without taxable-equivalent increments
              
 
3.08
                      
 
2.42
       
 
*
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
74
 U.S. Bancorp
U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
  For the Six Months Ended June 30    
      2022                          2021                        
(Dollars in Millions) (Unaudited) Average
Balances
  Interest        Yields and
Rates
       Average
Balances
       Interest        Yields and
Rates
           % Change
Average
Balances
 
Assets
                                                           
Investment securities
 $173,019  $1,561         1.80      $153,109       $1,169         1.53           13.0
Loans held for sale
  4,579   114         5.00        8,922        122         2.73            (48.7
Loans (b)
                                                           
Commercial
  116,761   1,423         2.46        102,535        1,349         2.65            13.9 
Commercial real estate
  39,302   625         3.21        38,675        611         3.18            1.6 
Residential mortgages
  78,847   1,250         3.17        74,271        1,266         3.41            6.2 
Credit card
  22,297   1,151         10.41        21,130        1,132         10.81            5.5 
Other retail
  61,401   1,037         3.41        57,527        1,062         3.72            6.7 
Total loans
  318,608   5,486         3.47        294,138        5,420         3.71            8.3 
Interest-bearing deposits with banks
  30,487   71         .47        36,542        15         .08            (16.6
Other earning assets
  6,625   67         2.02        6,528        50         1.57            1.5 
Total earning assets
  533,318   7,299         2.75        499,239        6,776         2.73            6.8 
Allowance for loan losses
  (5,706                     (6,788                              15.9 
Unrealized gain (loss) on investment securities
  (5,907                     1,342                               * 
Other assets
  56,958                      56,264                               1.2 
Total assets
 $578,663                     $550,057                               5.2 
Liabilities and Shareholders’ Equity
                                                           
Noninterest-bearing deposits
 $124,375                     $121,844                               2.1
Interest-bearing deposits
                                                           
Interest checking
  115,975   29         .05        100,387        13         .03            15.5 
Money market savings
  121,700   173         .29        119,218        100         .17            2.1 
Savings accounts
  67,555   4         .01        60,484        3         .01            11.7 
Time deposits
  25,747   51         .40        25,862        51         .40            (.4
Total interest-bearing deposits
  330,977   257         .16        305,951        167         .11            8.2 
Short-term borrowings
                                                           
Federal funds purchased
  937   1         .16        1,840        1         .04            (49.1
Securities sold under agreements to repurchase
  1,987   3         .14        1,665        1         .07            19.3 
Commercial paper
  6,381   4         .06        6,328                             .8 
Other short-term borrowings
  11,873   70         .59        4,961        32         .65            * 
Total short- term borrowings
  21,178   78         .75        14,794        34         .47            43.2 
Long-term debt
  32,177   300         1.88        37,817        322         1.71            (14.9
Total interest-bearing liabilities
  384,332   635         .33        358,562        523         .29            7.2 
Other liabilities
  18,184                      16,174                               12.4 
Shareholders’ equity
                                                           
Preferred equity
  6,714                      6,090                               10.2 
Common equity
  44,590                      46,756                               (4.6
Total U.S. Bancorp shareholders’ equity
  51,304                      52,846                               (2.9
Noncontrolling interests
  468                      631                               (25.8
Total equity
  51,772                      53,477                               (3.2
Total liabilities and equity
 $578,663                     $550,057                               5.2 
Net interest income
     $6,664                          $6,253                        
Gross interest margin
                2.42                          2.44             
Gross interest margin without taxable-equivalent increments
                2.40                          2.42             
Percent of Earning Assets
                                                           
Interest income
                2.75                          2.73             
Interest expense
                .24                           .21              
Net interest margin
                2.51                          2.52             
Net interest margin without taxable-equivalent increments
                2.49                          2.50             
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis 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
75

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 69 of this Report, which is incorporated herein by reference.
Item 1A. Risk Factors
— There are a number of factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021,2022, for discussion of these risks.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
— See the information setse
t forth in the “Capital Management” section on
page 2628 of this Report for information regarding shares repurchased by the Company duringduri
ng the secondfirst quarter of 2022,2023, 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 June 30, 2022,March 31, 2023, 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.
76
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 U.S. Bancorp
75

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: August 4, 2022May 8, 2023   
Lisa R. Stark
Controller
(Principal Accounting Officer and Duly Authorized Officer)
 
U.S. Bancorp
76
 
77
U.S. Bancorp

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 officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/
S
/    A
NDREW
C
ECERE
Andrew Cecere
Chief Executive Officer
Dated: August 4, 2022May 8, 2023
 
78
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 U.S. Bancorp
77

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 officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/
S
/s/    T
ERRANCE
R. D
OLAN
Terrance R. Dolan
Chief Financial Officer
Dated: August 4, 2022May 8, 2023
 
U.S. Bancorp
78
 
79
U.S. Bancorp

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 June 30, 2022March 31, 2023 (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: August 4, 2022May 8, 2023
   
Terrance R. Dolan
Chief Financial Officer
 
80
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 U.S. Bancorp
79

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/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, CFAGeorge Andersen
ExecutiveSenior Vice President, Director of Investor Relations
jen.thompson@usbank.comgeorge.andersen@usbank.com
Phone: 612-303-0778 or 866-775-9668612-303-3620
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, Equity 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
.
 
 

 

 This report has been produced on recycled paper.