UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
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” inRule 12b-2
of the Exchange Act.| Large accelerated filer ☑ | 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 October 31, | |
| Common Stock, $0.01 Par Value |
Table of Contents and
Form 10-Q
Cross Reference IndexPart I — Financial Information | ||||
| 4 | ||||
| 4 | ||||
| 5 | ||||
| 32 | ||||
| 9 | ||||
| 9 | ||||
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.
This quarterly report onexpensesliquidity 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.”
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 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 Form10-Kfor the year ended December 31, 2021, whichthat could cause actual results to differ materially from those anticipated. set 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, 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, including capital and liquidity requirements, and the enforcement and interpretation of such laws and regulations, and U.S. Bancorp’s ability to address or satisfy those requirements and other requirements or conditions imposed by regulatory entities, could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by changesentities;
| U.S. Bancorp | 1 |
Changes in interest rates; the impacts of the
Increases in unemployment rates; deterioration
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 andcivil unrest; the effects
non-banks;
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 oforand geopolitical events; impacts
COVID-19
pandemic, natural disasters, terrorist activities, civil unrest, international hostilities 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 Bank, N.A. (“MUB”) 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 any closing conditions in the definitive purchase agreement to be satisfied.
anticipated or have unanticipated adverse results.2 | U.S. Bancorp |
Table 1 | Selected Financial Data |
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2023 | 2022 | Percent Change | 2023 | 2022 | Percent Change | ||||||||||||||||||
Condensed Income Statement | ||||||||||||||||||||||||
| Net interest income | $ | 4,236 | $ | 3,827 | 10.7 | % | $ | 13,285 | $ | 10,435 | 27.3 | % | ||||||||||||
| Taxable-equivalent adjustment (a) | 32 | 30 | 6.7 | 100 | 86 | 16.3 | ||||||||||||||||||
| Net interest income (taxable-equivalent basis) (b) | 4,268 | 3,857 | 10.7 | 13,385 | 10,521 | 27.2 | ||||||||||||||||||
| Noninterest income | 2,764 | 2,469 | 11.9 | 7,997 | 7,413 | 7.9 | ||||||||||||||||||
| Total net revenue | 7,032 | 6,326 | 11.2 | 21,382 | 17,934 | 19.2 | ||||||||||||||||||
| Noninterest expense | 4,530 | 3,637 | 24.6 | 13,654 | 10,863 | 25.7 | ||||||||||||||||||
| Provision for credit losses | 515 | 362 | 42.3 | 1,763 | 785 | * | ||||||||||||||||||
| Income before taxes | 1,987 | 2,327 | (14.6 | ) | 5,965 | 6,286 | (5.1 | ) | ||||||||||||||||
| Income taxes and taxable-equivalent adjustment | 463 | 511 | (9.4 | ) | 1,368 | 1,378 | (.7 | ) | ||||||||||||||||
| Net income | 1,524 | 1,816 | (16.1 | ) | 4,597 | 4,908 | (6.3 | ) | ||||||||||||||||
| Net (income) loss attributable to noncontrolling interests | (1 | ) | (4 | ) | 75.0 | (15 | ) | (8 | ) | (87.5 | ) | |||||||||||||
| Net income attributable to U.S. Bancorp | $ | 1,523 | $ | 1,812 | (15.9 | ) | $ | 4,582 | $ | 4,900 | (6.5 | ) | ||||||||||||
| Net income applicable to U.S. Bancorp common shareholders | $ | 1,412 | $ | 1,718 | (17.8 | ) | $ | 4,285 | $ | 4,648 | (7.8 | ) | ||||||||||||
Per Common Share | ||||||||||||||||||||||||
| Earnings per share | $ | .91 | $ | 1.16 | (21.6 | )% | $ | 2.79 | $ | 3.13 | (10.9 | )% | ||||||||||||
| Diluted earnings per share | .91 | 1.16 | (21.6 | ) | 2.79 | 3.13 | (10.9 | ) | ||||||||||||||||
| Dividends declared per share | .48 | .48 | — | 1.44 | 1.40 | 2.9 | ||||||||||||||||||
| Book value per share (c) | 29.74 | 27.39 | 8.6 | |||||||||||||||||||||
| Market value per share | 33.06 | 40.32 | (18.0 | ) | ||||||||||||||||||||
| Average common shares outstanding | 1,548 | 1,486 | 4.2 | 1,538 | 1,485 | 3.6 | ||||||||||||||||||
| Average diluted common shares outstanding | 1,549 | 1,486 | 4.2 | 1,538 | 1,486 | 3.5 | ||||||||||||||||||
Financial Ratios | ||||||||||||||||||||||||
| Return on average assets | .91 | % | 1.22 | % | .92 | % | 1.13 | % | ||||||||||||||||
| Return on average common equity | 11.9 | 15.8 | 12.3 | 14.1 | ||||||||||||||||||||
| Net interest margin (taxable-equivalent basis) (a) | 2.81 | 2.83 | 2.94 | 2.62 | ||||||||||||||||||||
| Efficiency ratio (b) | 64.4 | 57.5 | 63.8 | 60.7 | ||||||||||||||||||||
| Net charge-offs as a percent of average loans outstanding | .44 | .19 | .50 | .20 | ||||||||||||||||||||
Average Balances | ||||||||||||||||||||||||
| Loans | $ | 376,877 | $ | 336,778 | 11.9 | % | $ | 384,112 | $ | 324,731 | 18.3 | % | ||||||||||||
| Loans held for sale | 2,661 | 3,499 | (23.9 | ) | 2,564 | 4,214 | (39.2 | ) | ||||||||||||||||
| Investment securities (d) | 163,236 | 164,851 | (1.0 | ) | 163,051 | 170,267 | (4.2 | ) | ||||||||||||||||
| Earning assets | 605,245 | 541,666 | 11.7 | 608,891 | 536,131 | 13.6 | ||||||||||||||||||
| Assets | 663,999 | 588,764 | 12.8 | 667,481 | 582,067 | 14.7 | ||||||||||||||||||
| Noninterest-bearing deposits | 97,524 | 114,044 | (14.5 | ) | 113,556 | 120,893 | (6.1 | ) | ||||||||||||||||
| Deposits | 512,291 | 456,769 | 12.2 | 506,633 | 455,829 | 11.1 | ||||||||||||||||||
| Short-term borrowings | 27,550 | 29,034 | (5.1 | ) | 39,364 | 23,825 | 65.2 | |||||||||||||||||
| Long-term debt | 43,826 | 31,814 | 37.8 | 42,551 | 32,055 | 32.7 | ||||||||||||||||||
| Total U.S. Bancorp shareholders’ equity | 53,817 | 49,820 | 8.0 | 53,440 | 50,804 | 5.2 | ||||||||||||||||||
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||
Period End Balances | ||||||||||||||||||||||||
| Loans | $ | 375,234 | $ | 388,213 | (3.3 | )% | ||||||||||||||||||
| Investment securities | 152,549 | 161,650 | (5.6 | ) | ||||||||||||||||||||
| Assets | 668,039 | 674,805 | (1.0 | ) | ||||||||||||||||||||
| Deposits | 518,358 | 524,976 | (1.3 | ) | ||||||||||||||||||||
| Long-term debt | 43,074 | 39,829 | 8.1 | |||||||||||||||||||||
| Total U.S. Bancorp shareholders’ equity | 53,113 | 50,766 | 4.6 | |||||||||||||||||||||
Asset Quality | ||||||||||||||||||||||||
| Nonperforming assets | $ | 1,310 | $ | 1,016 | 28.9 | % | ||||||||||||||||||
| Allowance for credit losses | 7,790 | 7,404 | 5.2 | |||||||||||||||||||||
Allowance for credit losses as a percentage of period-end loans | 2.08 | % | 1.91 | % | ||||||||||||||||||||
Capital Ratios | ||||||||||||||||||||||||
| Common equity tier 1 capital | 9.7 | % | 8.4 | % | ||||||||||||||||||||
| Tier 1 capital | 11.2 | 9.8 | ||||||||||||||||||||||
| Total risk-based capital | 13.4 | 11.9 | ||||||||||||||||||||||
| Leverage | 7.9 | 7.9 | ||||||||||||||||||||||
| Total leverage exposure | 6.4 | 6.4 | ||||||||||||||||||||||
| Tangible common equity to tangible assets (b) | 5.0 | 4.5 | ||||||||||||||||||||||
| Tangible common equity to risk-weighted assets (b) | 7.0 | 6.0 | ||||||||||||||||||||||
| Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b) | 9.5 | 8.1 | ||||||||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (Dollars and Shares in Millions, Except Per Share Data) | 2022 | 2021 | Percent Change | 2022 | 2021 | Percent Change | ||||||||||||||||||
Condensed Income Statement | ||||||||||||||||||||||||
Net interest income | $ | 3,827 | $ | 3,171 | 20.7 | % | $ | 10,435 | $ | 9,371 | 11.4 | % | ||||||||||||
Taxable-equivalent adjustment (a) | 30 | 26 | 15.4 | 86 | 79 | 8.9 | ||||||||||||||||||
Net interest income (taxable-equivalent basis) (b) | 3,857 | 3,197 | 20.6 | 10,521 | 9,450 | 11.3 | ||||||||||||||||||
Noninterest income | 2,469 | 2,693 | (8.3 | ) | 7,413 | 7,693 | (3.6 | ) | ||||||||||||||||
Total net revenue | 6,326 | 5,890 | 7.4 | 17,934 | 17,143 | 4.6 | ||||||||||||||||||
Noninterest expense | 3,637 | 3,429 | 6.1 | 10,863 | 10,195 | 6.6 | ||||||||||||||||||
Provision for credit losses | 362 | (163 | ) | * | 785 | (1,160 | ) | * | ||||||||||||||||
Income before taxes | 2,327 | 2,624 | (11.3 | ) | 6,286 | 8,108 | (22.5 | ) | ||||||||||||||||
Income taxes and taxable-equivalent adjustment | 511 | 590 | (13.4 | ) | 1,378 | 1,801 | (23.5 | ) | ||||||||||||||||
Net income | 1,816 | 2,034 | (10.7 | ) | 4,908 | 6,307 | (22.2 | ) | ||||||||||||||||
Net (income) loss attributable to noncontrolling interests | (4 | ) | (6 | ) | 33.3 | (8 | ) | (17 | ) | 52.9 | ||||||||||||||
Net income attributable to U.S. Bancorp | $ | 1,812 | $ | 2,028 | (10.7 | ) | $ | 4,900 | $ | 6,290 | (22.1 | ) | ||||||||||||
Net income applicable to U.S. Bancorp common shareholders | $ | 1,718 | $ | 1,934 | (11.2 | ) | $ | 4,648 | $ | 6,023 | (22.8 | ) | ||||||||||||
Per Common Share | ||||||||||||||||||||||||
Earnings per share | $ | 1.16 | $ | 1.30 | (10.8 | )% | $ | 3.13 | $ | 4.04 | (22.5 | )% | ||||||||||||
Diluted earnings per share | 1.16 | 1.30 | (10.8 | ) | 3.13 | 4.04 | (22.5 | ) | ||||||||||||||||
Dividends declared per share | .48 | .46 | 4.3 | 1.40 | 1.30 | 7.7 | ||||||||||||||||||
Book value per share (c) | 27.39 | 32.22 | (15.0 | ) | ||||||||||||||||||||
Market value per share | 40.32 | 59.44 | (32.2 | ) | ||||||||||||||||||||
Average common shares outstanding | 1,486 | 1,483 | .2 | 1,485 | 1,491 | (.4 | ) | |||||||||||||||||
Average diluted common shares outstanding | 1,486 | 1,484 | .1 | 1,486 | 1,492 | (.4 | ) | |||||||||||||||||
Financial Ratios | ||||||||||||||||||||||||
Return on average assets | 1.22 | % | 1.45 | % | 1.13 | % | 1.53 | % | ||||||||||||||||
Return on average common equity | 15.8 | 15.9 | 14.1 | 17.0 | ||||||||||||||||||||
Net interest margin (taxable-equivalent basis) (a) | 2.83 | 2.53 | 2.62 | 2.52 | ||||||||||||||||||||
Efficiency ratio (b) | 57.5 | 58.4 | 60.7 | 59.8 | ||||||||||||||||||||
Net charge-offs as a percent of average loans outstanding | .19 | .20 | .20 | .25 | ||||||||||||||||||||
Average Balances | ||||||||||||||||||||||||
Loans | $ | 336,778 | $ | 296,739 | 13.5 | % | $ | 324,731 | $ | 295,014 | 10.1 | % | ||||||||||||
Loans held for sale | 3,499 | 7,438 | (53.0 | ) | 4,214 | 8,422 | (50.0 | ) | ||||||||||||||||
Investment securities (d) | 164,851 | 151,755 | 8.6 | 170,267 | 152,653 | 11.5 | ||||||||||||||||||
Earning assets | 541,666 | 503,325 | 7.6 | 536,131 | 500,616 | 7.1 | ||||||||||||||||||
Assets | 588,764 | 553,446 | 6.4 | 582,067 | 551,199 | 5.6 | ||||||||||||||||||
Noninterest-bearing deposits | 114,044 | 129,018 | (11.6 | ) | 120,893 | 124,262 | (2.7 | ) | ||||||||||||||||
Deposits | 456,769 | 431,487 | 5.9 | 455,829 | 429,039 | 6.2 | ||||||||||||||||||
Short-term borrowings | 29,034 | 14,688 | 97.7 | 23,825 | 14,758 | 61.4 | ||||||||||||||||||
Long-term debt | 31,814 | 35,972 | (11.6 | ) | 32,055 | 37,196 | (13.8 | ) | ||||||||||||||||
Total U.S. Bancorp shareholders’ equity | 49,820 | 54,273 | (8.2 | ) | 50,804 | 53,327 | (4.7 | ) | ||||||||||||||||
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
Period End Balances | ||||||||||||||||||||||||
Loans | $ | 342,708 | $ | 312,028 | 9.8 | % | ||||||||||||||||||
Investment securities | 154,097 | 174,821 | (11.9 | ) | ||||||||||||||||||||
Assets | 600,973 | 573,284 | 4.8 | |||||||||||||||||||||
Deposits | 471,148 | 456,083 | 3.3 | |||||||||||||||||||||
Long-term debt | 32,228 | 32,125 | .3 | |||||||||||||||||||||
Total U.S. Bancorp shareholders’ equity | 47,513 | 54,918 | (13.5 | ) | ||||||||||||||||||||
Asset Quality | ||||||||||||||||||||||||
Nonperforming assets | $ | 677 | $ | 878 | (22.9 | )% | ||||||||||||||||||
Allowance for credit losses | 6,455 | 6,155 | 4.9 | |||||||||||||||||||||
Allowance for credit losses as a percentage of period-end loans | 1.88 | % | 1.97 | % | ||||||||||||||||||||
Capital Ratios | ||||||||||||||||||||||||
Common equity tier 1 capital | 9.7 | % | 10.0 | % | ||||||||||||||||||||
Tier 1 capital | 11.2 | 11.6 | ||||||||||||||||||||||
Total risk-based capital | 13.3 | 13.4 | ||||||||||||||||||||||
Leverage | 8.7 | 8.6 | ||||||||||||||||||||||
Total leverage exposure | 7.1 | 6.9 | ||||||||||||||||||||||
Tangible common equity to tangible assets (b) | 5.2 | 6.8 | ||||||||||||||||||||||
Tangible common equity to risk-weighted assets (b) | 6.7 | 9.2 | ||||||||||||||||||||||
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b) | 9.4 | 9.6 | ||||||||||||||||||||||
* | Not meaningful |
(a) | 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 32. |
(c) | Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period. |
(d) | Excludes unrealized gains and losses on available-for-sale available-for-sale held-to-maturity. |
| U.S. Bancorp | 3 |
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 $1.8$1.5 billion for the third quarter of 2022,2023, or $1.16$0.91 per diluted common share, compared with $2.0$1.8 billion, or $1.30$1.16 per diluted common share, for the third quarter of 2021.2022. Return on average assets and return on average common equity were 0.91 percent and 11.9 percent, respectively, for the third quarter of 2023, compared with 1.22 percent and 15.8 percent, respectively, for the third quarter of 2022, compared with 1.45 percent and 15.9 percent, respectively, for the third quarter of 2021.2022. The results for the third quarter of 20222023 included the impact of $42$284 million ($33 millionnet-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 $0.02.$0.14.
Total net revenue for the third quarter of 20222023 was $436$706 million (7.4(11.2 percent) higher than the third quarter of 2021,2022, reflecting a 20.710.7 percent increase in net interest income (20.6 percent on a taxable-equivalent basis) and an 8.311.9 percent decreaseincrease in noninterest income. The increase in net interest income from the third quarter of 20212022 was primarily due to the impactimpacts of rising interest rates on earning assets and strong growth in average loan and investment securities balances, partially offset by deposit pricing, changes in funding mix and lower loan fees driven by the impact of loan forgiveness related to the Small Business Administration (“SBA”) Paycheck Protection Program in the third quarter of 2021.MUB acquisition. The reductionincrease in noninterest income reflected lowerhigher commercial products revenue, mortgage banking revenue, driven by a decline in refinancing activities, partially offset by higherpayment services revenue and trust and investment management fees and payment services revenue.fees.
Noninterest expense in the third quarter of 20222023 was $208$893 million (6.1(24.6 percent) higher than the third quarter of 2021,2022, reflecting increases in compensation expense, employee benefits expense, marketingmerger and business development expense, net occupancyintegration charges and equipment expense and other noninterestoperating expenses related to the MUB acquisition, including core deposit intangible amortization expense, as well as the impact of mergerincreases in compensation and integration-related charges of $42 million.employee benefits expense to support business growth.
The provision for credit losses for the third quarter of 20222023 of $515 million was $362$153 million compared with a benefit of $163 million for the third quarter of 2021. The provision for credit losses in(42.3 percent) higher than the third quarter of 2022, reflected the impact of strong loan growth and increasing economic uncertainty. The provision fordriven by normalizing credit losses for the third quarter of 2021 reflected a decrease in the allowance for credit losses as a result of improving economic conditions and commercial real estate credit quality. Net charge-offs in the third quarter of 20222023 were $162$420 million, compared with $147$162 million in the third quarter 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.
Net income attributable to U.S. Bancorp for the first nine months of 20222023 was $4.9$4.6 billion, or $3.13$2.79 per diluted common share, compared with $6.3$4.9 billion, or $4.04$3.13 per diluted common share, for the first nine months of 2021.2022. Return on average assets and return on average common equity were 0.92 percent and 12.3 percent, respectively, for the first nine months of 2023, compared with 1.13 percent and 14.1 percent, respectively, for the first nine months of 2022, compared with 1.53 percent and 17.0 percent, respectively, for the first nine months of 2021.2022. The results for the first nine months of 20222023 included the impact of $239$838 million ($186 millionnet-of-tax)of merger and integration-related charges, which$243 million of provision for credit losses and an additional $22 million of losses related to balance sheet repositioning and capital management actions. Combined, these items decreased diluted earnings per common share by $0.12.$0.53.
Total net revenue for the first nine months of 20222023 was $791 million (4.6$3.4 billion (19.2 percent) higher than the first nine months of 2021,2022, reflecting an 11.4a 27.3 percent increase in net interest income (11.3(27.2 percent on a taxable-equivalent basis) and a 3.67.9 percent decreaseincrease in noninterest income. The increase in net interest income from the first nine months of 20212022 was primarily due to the impactimpacts of rising interest rates on earning assets and strong growth in average loan and investment securities balances, partially offset by deposit pricing, changes in funding mix and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first nine months of 2021.MUB acquisition. The reductionincrease in noninterest income reflected lower mortgage bankinghigher commercial products revenue, and other noninterest income, partially offset by higher trust and investment management fees and payment services revenue.revenue, partially offset by losses on securities.
Noninterest expense in the first nine months of 20222023 was $668 million (6.6$2.8 billion (25.7 percent) higher than the first nine months of 2021,2022, reflecting increases in
The provision for credit losses for the first nine months of 20222023 of $1.8 billion was $785$978 million compared with a benefit of $1.2 billion for the first nine months of 2021. The provision for credit losses forhigher than the first nine months of 2022, reflecteddriven by the impactimpacts of strong loan growthbalance sheet repositioning and increasing economic uncertainty. The provision forcapital management actions, normalizing credit losses for the first nine months of 2021 reflected a decrease in the allowance for credit losses as a result of improvingand increased economic conditions and credit quality.uncertainty. Net charge-offs in the first nine months of 20222023 were $485 million,$1.4 billion, compared with $550$485 million in the first nine months of 2021.2022. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and
4 | U.S. Bancorp |
other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
STATEMENT OF INCOME ANALYSIS
Net Interest Income
Net interest income, on a taxable-equivalent basis, was $3.9$4.3 billion in the third quarter and $10.5$13.4 billion in the first nine months of 2022,2023, representing increases of $660$411 million (20.6(10.7 percent) and $1.1$2.9 billion (11.3(27.2 percent), respectively, compared with the same periods of 2021.2022. The increases were primarily due to the impact of rising interest rates on earning assets and strong growth in loan and investment securities balances, partially offset by deposit pricing, changes in funding mix, and lower loan fees driven by the impactacquisition of loan forgiveness related to the SBA Paycheck Protection Program in the first nine months of 2021.MUB. Average earning assets for the third quarter and first nine months of 20222023 were $38.3$63.6 billion (7.6(11.7 percent) and $35.5$72.8 billion (7.1(13.6 percent) higher, respectively, than the same periods of the prior year,2022, reflecting increases in loans and investment securities,interest-bearing deposits with banks, partially offset by decreasesa decrease in interest-bearing deposits with banks.investment securities. The net interest margin, on a taxable-equivalent basis, in the third quarter and first nine months of 20222023 was 2.81 percent and 2.94 percent, respectively, compared with 2.83 percent and 2.62 percent, respectively, compared with 2.53 percent and 2.52 percent in the third quarter and first nine months of 2021,2022, respectively. The decrease in net interest margin in the third quarter of 2023, compared with the third quarter of 2022, was primarily due to the impact of deposit mix and pricing, partially offset by the impact of higher rates on earning assets and the acquisition of MUB. The increase in net interest margin fromin the prior yearfirst nine months of 2023, compared with the same period of the 2022, was primarily due to the impact of higher rates on earning assets and the acquisition of MUB, partially offset by the impact of deposit pricingmix and short-term borrowing costs given the rise in short-term interest rates.pricing. 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 third quarter and first nine months of 20222023 were $40.0$40.1 billion (13.5(11.9 percent) and $29.7$59.4 billion (10.1(18.3 percent) higher, respectively, than the same periods of 2021.2022. The increases were primarily due todriven by growth in the Company’s legacy loan portfolio as well as balances from the MUB acquisition. Increases in residential mortgages, commercial real estate loans, commercial loans residential mortgages and credit card loans were partially offset by lower other retail loans. The increase in residential mortgages was driven by the impact related to the MUB acquisition, along withpartially 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 strongeron-balancesheet loan activities and slower refinance activity,the impact of the MUB acquisition, while the increase in credit cards loans was primarily due to increased consumer spendingdriven by higher spend volume and account growth. In addition,lower payment rates. The decrease in other retail loans increased in the first nine months of 2022, compared with the first nine months of 2021,was driven by higherlower auto loans primarily due to balance sheet repositioning and recreational vehiclecapital management actions, along with lower installment loans and lower retail leasing balances, partially offset by lower retail leasing balances.higher home equity and second mortgages.
on-balance
sheet loan activities and slower refinancing activity, partially offset by the impact of a sale of residential mortgages in the second quarter of 2023 as part of balance sheet repositioning and capital management actions. 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 Average investment securities in the third quarter and first nine months of 20222023 were $13.1$1.6 billion (8.6(1.0 percent) and $17.6$7.2 billion (11.5(4.2 percent) higher,lower, respectively, than the same periods of 2021, primarily due to purchases2022, driven by balance sheet repositioning and liquidity management in connection with the acquisition of mortgage-backed and U.S. TreasuryMUB. The decrease from the prior year reflected sales of investment securities, netpartially offset by the impact of prepayments, sales and maturities.acquired MUB investment securities.
Average total deposits for the third quarter and first nine months of 20222023 were $25.3$55.5 billion (5.9(12.2 percent) and $26.8$50.8 billion (6.2(11.1 percent) higher, respectively, than the same periods of 2021.2022. Average total savings deposits for
the third quarter and first nine months of 2023 were| U.S. Bancorp | 5 |
Table 2 | Noninterest Income |
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (Dollars in Millions) | 2023 | 2022 | Percent Change | 2023 | 2022 | Percent Change | ||||||||||||||||||
| Card revenue | $ | 412 | $ | 391 | 5.4 | % | $ | 1,194 | $ | 1,128 | 5.9 | % | ||||||||||||
| Corporate payment products revenue | 198 | 190 | 4.2 | 577 | 520 | 11.0 | ||||||||||||||||||
| Merchant processing services | 427 | 406 | 5.2 | 1,250 | 1,194 | 4.7 | ||||||||||||||||||
| Trust and investment management fees | 627 | 572 | 9.6 | 1,838 | 1,638 | 12.2 | ||||||||||||||||||
| Service charges | 334 | 317 | 5.4 | 982 | 984 | (.2 | ) | |||||||||||||||||
| Commercial products revenue | 354 | 285 | 24.2 | 1,046 | 841 | 24.4 | ||||||||||||||||||
| Mortgage banking revenue | 144 | 81 | 77.8 | 403 | 423 | (4.7 | ) | |||||||||||||||||
| Investment products fees | 70 | 56 | 25.0 | 206 | 177 | 16.4 | ||||||||||||||||||
| Securities gains (losses), net | — | 1 | * | (29 | ) | 38 | * | |||||||||||||||||
| Other | 198 | 170 | 16.5 | 530 | 470 | 12.8 | ||||||||||||||||||
| Total noninterest income | $ | 2,764 | $ | 2,469 | 11.9 | % | $ | 7,997 | $ | 7,413 | 7.9 | % | ||||||||||||
* | Not meaningful |
$53.5 billion (9.9(17.5 percent) and $26.0$42.7 billion (9.3(14.0 percent) higher, respectively, than the same periods of the prior year,2022, driven by increases in Wealth, Corporate, Commercial and CommercialInstitutional Banking, and Consumer and Business Banking balances. The increase in total savings deposits forbalances, including the first nine monthsimpact of 2022, compared with the first nine months of 2021, was partially offset by a decrease in Wealth Management and Investment Services balances.MUB acquisition. Average time deposits for the third quarter and first nine months of 20222023 were $12.7$18.5 billion (54.0(51.2 percent) and $4.2$15.4 billion (16.8(52.6 percent) higher, respectively, than the same periods of the prior year, primarily driven bymainly due to the acquisition of MUB and increases in CorporateConsumer and CommercialBusiness Banking balances, partially offset by decreases in ConsumerWealth, Corporate, Commercial and BusinessInstitutional 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 third quarter and first nine months of 20222023 were $15.0$16.5 billion (11.6(14.5 percent) and $3.4$7.3 billion (2.7(6.1 percent) lower, respectively, than the same periods of the prior year,2022, driven by decreases in Wealth, Corporate, Commercial and CommercialInstitutional Banking balances, partially offset by the impact of the MUB acquisition. Average noninterest-bearing deposits further decreased in the third quarter of 2023, compared with the third quarter of 2022, due to decreases in Consumer and Business Banking and Payment Services balances. The decrease in average noninterest-bearing deposits in the first nine months of 2022, compared with the first nine months of 2021, was partially offset by an increase in Wealth Management and Investment Services balances.
Provision for Credit Losses
The provision for credit losses was $362$515 million in the third quarter and $785$1.8 billion in the first nine months of 2023, representing increases of $153 million (42.3 percent) and $978 million, respectively, from the same periods of 2022. The increases were driven by normalizing credit losses, commercial real estate credit quality and increased economic uncertainty. The provision for credit losses further increased in the first nine months of 2023, compared with the same period of the prior year, due to the impact of balance sheet repositioning and capital management actions taken in the second quarter of 2023. Net charge-offs increased $258 million in the third quarter and $957 million in the first nine months of 2022,2023, compared with a benefit of $163 million and $1.2 billion, respectively, for the same periods of 2021. The provision for credit losses in the third quarter and first nine months of 2022, reflected the impact of strong loan growth and increasing economic uncertainty. The provision for credit losses in the third quarter and first nine months of 2021 reflected the enactment of additional government stimulus programs and widespreadCOVID-19vaccine availability, contributing to economic improvement during the period, which resulted in significant decreases in the allowance for credit losses. Net charge-offs increased $15 million (10.2 percent) in the third quarter of 2022, compared with the third quarter of 2021, reflecting higher commercial,charge-offs in most loan categories consistent with normalizing credit cardconditions and other retail loan net charge-offs, partially offset by a decreaseadverse conditions in commercial real estate loan charge-offs. Netestate. In addition, net charge-offs decreased $65 million (11.8 percent)were higher in the first nine months of 2022,2023, compared with the first nine months of 2021, primarily driven by lower credit card netthe prior year, due to charge-offs related to balance sheet repositioning and capital management actions, along with charge-offs in the first nine monthsquarter of 2022.2023 related to the uncollectible amount of acquired loans, which were considered purchased credit deteriorated as of the date of the MUB acquisition. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Noninterest Income
Noninterest income was $2.5$2.8 billion in the third quarter and $7.4$8.0 billion in the first nine months of 2022,2023, representing decreasesincreases of $224$295 million (8.3(11.9 percent) and $280$584 million (3.6(7.9 percent), respectively, compared with the same periods of 2021.2022. The decreases fromincreases over the prior year reflected lower mortgage bankingstronger commercial products revenue, lower deposit service charges and lower gains on the sale of securities, partially offset by higher trust and investment management fees, and payment services revenue. Mortgage banking revenue decreased primarily due to lower application volume, given declining refinance activities experiencedand other noninterest income. The increase in the mortgage industry, lower related gain on sale margins and lower performing loan sales. The decrease in mortgage banking revenuenoninterest income in the first nine months of 2022,2023, compared with the first nine monthssame period of 2021,the prior year, was partially offset by increases in mortgage servicing rights (“MSRs”) valuations, netlosses on the sale of hedging activities. Deposit service charges decreasedsecurities. Commercial products revenue increased primarily due to higher trading revenue, commercial loan fees, corporate bond fees and the impactacquisition of the elimination of certain consumernon-sufficientfunds fees beginning in the first quarter of 2022.MUB. Trust and investment management fees increased primarily due to lower money market fee waivers, activity related to the fourth quarter of 2021 acquisition of PFM Asset Management LLC (“PFM”)MUB and core business growth, partially offset by unfavorable market conditions.growth. Payment services revenue increased as a result of higher corporate payment products revenue due to improving business spending across all product groups, as well as increases in merchant processing serviceshigher card revenue driven by higher salesspend volume and merchant fees. The increases infavorable rates, and increased merchant processing services revenue were partially offset by the impact of foreign currency rate changes, as the U.S. dollar has strengthened considerably compared to European currencies given recent uncertainties in Europe. Other noninterest income decreased in the first nine months of 2022, compared with the first nine months of 2021, primarily due to lower retail leasingend-of-termresidual gains.
6 | U.S. Bancorp |
Table | Noninterest |
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||||||
| (Dollars in Millions) | 2023 | 2022 | Percent Change | 2023 | 2022 | Percent Change | ||||||||||||||||||||||
| Compensation and employee benefits | $ | 2,615 | $ | 2,260 | 15.7 | % | $ | 7,907 | $ | 6,755 | 17.1 | % | ||||||||||||||||
| Net occupancy and equipment | 313 | 272 | 15.1 | 950 | 806 | 17.9 | ||||||||||||||||||||||
| Professional services | 127 | 131 | (3.1 | ) | 402 | 356 | 12.9 | |||||||||||||||||||||
| Marketing and business development | 176 | 126 | 39.7 | 420 | 312 | 34.6 | ||||||||||||||||||||||
| Technology and communications | 511 | 427 | 19.7 | 1,536 | 1,267 | 21.2 | ||||||||||||||||||||||
| Other intangibles | 161 | 43 | * | 480 | 130 | * | ||||||||||||||||||||||
| Other | 343 | 336 | 2.1 | 1,121 | 998 | 12.3 | ||||||||||||||||||||||
| Total before merger and integration charges | 4,246 | 3,595 | 18.1 | 12,816 | 10,624 | 20.6 | ||||||||||||||||||||||
| Merger and integration charges | 284 | 42 | * | 838 | 239 | * | ||||||||||||||||||||||
| Total noninterest expense | $ | 4,530 | $ | 3,637 | 24.6 | % | $ | 13,654 | $ | 10,863 | 25.7 | % | ||||||||||||||||
| Efficiency ratio (a) | 64.4 | % | 57.5 | % | 63.8 | % | 60.7 | % | ||||||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (Dollars in Millions) | 2022 | 2021 | Percent Change | 2022 | 2021 | Percent Change | ||||||||||||||||||
Credit and debit card revenue | $ | 391 | $ | 393 | (.5 | )% | $ | 1,128 | $ | 1,125 | .3 | % | ||||||||||||
Corporate payment products revenue | 190 | 156 | 21.8 | 520 | 420 | 23.8 | ||||||||||||||||||
Merchant processing services | 406 | 392 | 3.6 | 1,194 | 1,084 | 10.1 | ||||||||||||||||||
Trust and investment management fees | 572 | 459 | 24.6 | 1,638 | 1,349 | 21.4 | ||||||||||||||||||
Deposit service charges | 166 | 194 | (14.4 | ) | 508 | 531 | (4.3 | ) | ||||||||||||||||
Treasury management fees | 151 | 155 | (2.6 | ) | 476 | 462 | 3.0 | |||||||||||||||||
Commercial products revenue | 285 | 277 | 2.9 | 841 | 837 | .5 | ||||||||||||||||||
Mortgage banking revenue | 81 | 418 | (80.6 | ) | 423 | 1,063 | (60.2 | ) | ||||||||||||||||
Investment products fees | 56 | 62 | (9.7 | ) | 177 | 177 | — | |||||||||||||||||
Securities gains (losses), net | 1 | 20 | (95.0 | ) | 38 | 88 | (56.8 | ) | ||||||||||||||||
Other | 170 | 167 | 1.8 | 470 | 557 | (15.6 | ) | |||||||||||||||||
Total noninterest income | $ | 2,469 | $ | 2,693 | (8.3 | )% | $ | 7,413 | $ | 7,693 | (3.6 | )% | ||||||||||||
* | Not meaningful |
(a) | See Non-GAAP Financial Measures beginning on page 32. |
services revenue and corporate payment products revenue due to higher spend volume. Noninterest income further increased in the third quarter of 2023, compared with the third quarter of 2022, mainly due to higher mortgage banking revenue driven by higher gain on sale margins and increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities.
Noninterest Expense
Noninterest expense was $3.6$4.5 billion in the third quarter and $10.9$13.7 billion in the first nine months of 2022,2023, representing increases of $208$893 million (6.1(24.6 percent) and $668 million (6.6$2.8 billion (25.7 percent), respectively, over the same periods of 2021.2022. The increases from the prior year reflected higher compensation expense, employee benefits expense, marketing and business development expense, net occupancy and equipment expense, other noninterest expense and the impact of merger and integration-relatedintegration charges, associated withas well as operating expenses related to the plannedMUB acquisition, of MUFG Union Bank.higher compensation and employee benefits expense and higher other intangibles expense. Compensation and employee benefits expense increased primarily due to MUB expense as well as merit increases and hiring to support business growth, partially offset by lower performance-based incentives and variable compensation. Employee benefitsgrowth. Other intangibles expense increased primarily driven by higher post-pandemic medical expenses. Marketing and business development expense increased due to the core deposit intangible created as a result of the MUB acquisition.
On May 11, 2023, the FDIC released a proposed rule that would impose special assessments to recover the losses to the deposit insurance fund resulting from the recent failures of other banking institutions. The Company expects the special assessments would be tax deductible. Although the proposal could change and the timing of marketing campaignsaccounting recognition is still under consideration, if the final rule is issued as well as increased travel and entertainment, while net occupancy and equipment expense increased to support business growth. Otherproposed, the Company estimates it would recognize additional noninterest expense increased due to accruals related to future delivery exposures for merchant and airline processing as processing volumes recover, higher Federal Deposit Insurance Corporation (“FDIC”) insurance expense driven by an increaseof approximately $650 million ($500 millionrepresenting a potential 10 basis point reduction in the assessment base and rate, and higher other accruals, partially offset by lower other expenses related toCompany’s common equity tier 1 capital ratio, upon finalization of the decline in mortgage production.
rule.net-of-tax),
Income Tax Expense
The provision for income taxes was $481$431 million (an effective rate of 20.922.0 percent) for the third quarter and $1.3 billion (an effective rate of 20.821.6 percent) for the first nine months of 2022,2023, compared with $564$481 million (an effective rate of 21.720.9 percent) and $1.7$1.3 billion (an effective rate of 21.420.8 percent) for the same periods of 2021,2022, respectively. For further information on income taxes, refer to Note 12 of the Notes to Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
Loans
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||||||
| (Dollars in Millions) | 2022 | 2021 | Percent Change | 2022 | 2021 | Percent Change | ||||||||||||||||||||||
Compensation | $ | 1,891 | $ | 1,847 | 2.4 | % | $ | 5,616 | $ | 5,448 | 3.1 | % | ||||||||||||||||
Employee benefits | 369 | 336 | 9.8 | 1,139 | 1,057 | 7.8 | ||||||||||||||||||||||
Net occupancy and equipment | 272 | 259 | 5.0 | 806 | 780 | 3.3 | ||||||||||||||||||||||
Professional services | 131 | 126 | 4.0 | 356 | 332 | 7.2 | ||||||||||||||||||||||
Marketing and business development | 126 | 99 | 27.3 | 312 | 237 | 31.6 | ||||||||||||||||||||||
Technology and communications | 355 | 361 | (1.7 | ) | 1,054 | 1,082 | (2.6 | ) | ||||||||||||||||||||
Postage, printing and supplies | 72 | 69 | 4.3 | 213 | 203 | 4.9 | ||||||||||||||||||||||
Other intangibles | 43 | 41 | 4.9 | 130 | 119 | 9.2 | ||||||||||||||||||||||
Other | 336 | 291 | 15.5 | 998 | 937 | 6.5 | ||||||||||||||||||||||
Total before merger and integration charges | 3,595 | 3,429 | 4.8 | 10,624 | 10,195 | 4.2 | ||||||||||||||||||||||
Merger and integration charges | 42 | — | * | 239 | — | * | ||||||||||||||||||||||
Total noninterest expense | $ | 3,637 | $ | 3,429 | 6.1 | % | $ | 10,863 | $ | 10,195 | 6.6 | % | ||||||||||||||||
Efficiency ratio (a) | 57.5 | % | 58.4 | % | 60.7 | % | 59.8 | % | ||||||||||||||||||||
The Company’s loan portfolio was $375.2 billion at September 30, 2023, compared with $388.2 billion at December 31, 2022, a decrease of $13.0 billion (3.3 percent). The decrease was driven by lower other retail loans, commercial loans, commercial real estate loans and residential mortgages, partially offset by higher credit card loans.
Other retail loans decreased $9.2 billion (16.8 percent) at September 30, 2023, compared with December 31, 2022, primarily due to decreases in auto loans and retail leasing balances. The decrease in auto loans was primarily driven by a sale of indirect auto loans as part of balance sheet repositioning and capital management actions taken in the second quarter of 2023.
Commercial loans decreased $2.4 billion (1.7 percent) at September 30, 2023, compared with December 31, 2022, primarily due to decreased demand as corporate customers accessed the capital markets.
Commercial real estate loans decreased $1.4 billion (2.4 percent) at September 30, 2023, compared with December 31, 2022, primarily due to payoffs exceeding a reduced level of new originations.
Residential mortgages held in the loan portfolio decreased $790 million (0.7 percent) at September 30, 2023, compared with December 31, 2022, driven by a sale of residential mortgages in the second quarter of 2023 as part of balance sheet repositioning and capital management actions, partially offset by originations.
| U.S. Bancorp | 7 |
Credit card loans increased $2.0 billion (9.1$785 million (3.0 percent) at September 30, 2022,2023, compared with December 31, 2021, reflecting increased consumer spending2022, primarily driven by higher spend volume and account growth.lower payment rates.
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 $3.6$2.3 billion at September 30, 2022,2023, 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 third 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”).
Investment Securities
Investment securities totaled $152.5 billion at September 30, 2023, compared with $161.7 billion at December 31, 2022. The $9.1 billion (5.6 percent) decrease was primarily due to $7.9 billion of net investment sales and maturities along with a $1.0 billion unfavorable change in net unrealized gains (losses) oninvestment securities.
available-for-sale
The Company’sinvestment 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 September 30, 2023, the Company’s net unrealized losses oninvestment securities were $9.5 billion ($7.1 billioncompared with $8.5 billion ($6.4 billionat December 31, 2022. The unfavorable change in net unrealized gains (losses) was primarily due to decreases in the fair value of mortgage-backed and state and political securities as a result of changes in interest rates. Gross unrealized losses oninvestment securities totaled $9.6 billion at September 30, 2023, compared with $8.6 billion at December 31, 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 September 30, 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.
available-for-sale
available-for-sale
net-of-tax),
net-of-tax)
available-for-sale
Table 4 | Investment Securities |
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
| (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 | $ | 1,345 | $ | 1,283 | 2.5 | 2.85 | % | $ | 1,344 | $ | 1,293 | 3.3 | 2.85 | % | ||||||||||||||||||
| Mortgage-backed securities (a) | 83,997 | 69,076 | 9.5 | 2.19 | 87,396 | 76,581 | 9.3 | 2.17 | ||||||||||||||||||||||||
Total held-to-maturity | $ | 85,342 | $ | 70,359 | 9.4 | 2.20 | % | $ | 88,740 | $ | 77,874 | 9.2 | 2.18 | % | ||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||
| U.S. Treasury and agencies | $ | 21,286 | $ | 18,707 | 6.1 | 2.69 | % | $ | 24,801 | $ | 22,033 | 7.1 | 2.43 | % | ||||||||||||||||||
| Mortgage-backed securities (a) | 37,609 | 32,562 | 6.7 | 3.07 | 40,803 | 36,423 | 6.6 | 2.83 | ||||||||||||||||||||||||
| Asset-backed securities (a) | 6,923 | 6,868 | 1.6 | 5.20 | 4,356 | 4,323 | 1.3 | 4.59 | ||||||||||||||||||||||||
| Obligations of state and political subdivisions (b) (c) | 11,028 | 9,066 | 14.9 | 3.77 | 11,484 | 10,125 | 13.6 | 3.76 | ||||||||||||||||||||||||
| Other | 4 | 4 | 1.7 | 1.89 | 6 | 6 | .1 | 1.99 | ||||||||||||||||||||||||
Total available-for-sale | $ | 76,850 | $ | 67,207 | 7.3 | 3.26 | % | $ | 81,450 | $ | 72,910 | 7.4 | 2.94 | % | ||||||||||||||||||
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
| (Dollars in Millions) | Amortized Cost | Fair Value | Weighted- Average Maturity in Years | Weighted- Average Yield (d) | Amortized Cost | Fair Value | Weighted- Average Maturity in Years | Weighted- Average Yield (d) | ||||||||||||||||||||||||
Held-to-maturity | ||||||||||||||||||||||||||||||||
U.S. Treasury and agencies | $ | 1,344 | $ | 1,288 | 3.5 | 2.85 | % | $ | — | $ | — | — | — | % | ||||||||||||||||||
Mortgage-backed securities (a) | 84,230 | 72,840 | 9.7 | 2.01 | 41,858 | 41,812 | 7.4 | 1.45 | ||||||||||||||||||||||||
Total held-to-maturity | $ | 85,574 | $ | 74,128 | 9.6 | 2.02 | % | $ | 41,858 | $ | 41,812 | 7.4 | 1.45 | % | ||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||
U.S. Treasury and agencies | $ | 24,470 | $ | 21,586 | 6.8 | 2.18 | % | $ | 36,648 | $ | 36,609 | 6.7 | 1.54 | % | ||||||||||||||||||
Mortgage-backed securities (a) | 42,144 | 37,748 | 6.7 | 2.44 | 85,394 | 85,564 | 4.9 | 1.58 | ||||||||||||||||||||||||
Asset-backed securities (a) | 25 | 25 | 6.1 | 5.52 | 62 | 66 | 5.2 | 1.53 | ||||||||||||||||||||||||
Obligations of state and political subdivisions (b) (c) | 11,105 | 9,158 | 15.8 | 3.66 | 10,130 | 10,717 | 6.6 | 3.67 | ||||||||||||||||||||||||
Other | 6 | 6 | 2.7 | 1.99 | 7 | 7 | 3.4 | 2.07 | ||||||||||||||||||||||||
Total available-for-sale | $ | 77,750 | $ | 68,523 | 8.0 | 2.53 | % | $ | 132,241 | $ | 132,963 | 5.5 | 1.73 | % | ||||||||||||||||||
(a) | Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities 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) | Amortized cost excludes portfolio level basis adjustments of $(95) million at September 30, 2023. |
(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 held-to-maturity. |
8 | U.S. Bancorp |
Refer to Notes 4 and 15 in the Notes to Consolidated Financial Statements for further information on investment securities.
Deposits
Total deposits were $471.1$518.4 billion at September 30, 2022,2023, compared with $456.1$525.0 billion at December 31, 2021.2022. The $15.0$6.6 billion (3.3(1.3 percent) increasedecrease in total deposits reflected a decrease in noninterest-bearing deposits, partially offset by increases in time deposits and total savings deposits. Noninterest-bearing deposits partially offset by a decrease in noninterest-bearing deposits. Time deposits increased $19.8decreased $39.7 billion (87.3(28.8 percent) at September 30, 2022,2023, compared with December 31, 2021,2022, primarily due to lower Wealth, Corporate, Commercial and Institutional Banking, and Consumer and Business Banking balances. The decrease in noninterest-bearing deposits was driven by a product change for certain MUB retail checking accounts into interest checking accounts at conversion to create a better customer experience, as well as pricing pressures from rising interest rates. Time deposits increased $20.6 billion (62.5 percent) at September 30, 2023, compared with December 31, 2022, driven by higher CorporateConsumer and CommercialBusiness Banking balances, partially offset by lower ConsumerWealth, Corporate, Commercial and BusinessInstitutional 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. Money market deposit balances increased $11.6$41.7 billion (9.9(28.2 percent) at September 30, 2022, compared with December 31, 2021,, primarily due to higher Consumer and Business Banking, and Wealth, ManagementCorporate, Commercial and Investment Services,Institutional Banking balances. Savings account balances decreased $24.7 billion (34.4 percent), driven by lower Consumer and Business Banking, and Wealth, Corporate, Commercial and CommercialInstitutional Banking balances. Interest checking balances increased $2.1decreased $4.5 billion (1.8(3.4 percent), primarily due to higher Corporate and Commercial Banking, and Consumer and Business Banking balances, partially offset by lower Wealth, ManagementCorporate, Commercial and Investment Services balances. Savings account balances increased $1.3 billion (1.9 percent), driven by higher Consumer and BusinessInstitutional Banking balances. Noninterest-bearing deposits decreased $19.7 billion (14.6 percent) at September 30, 2022, compared with December 31, 2021, primarily due to lower Corporate and Commercial Banking, and 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 $25.1$21.9 billion at September 30, 2022,2023, compared with $11.8$31.2 billion at December 31, 2021.2022. The $13.3$9.3 billion increase(29.8 percent) decrease in short-term borrowings was primarily due to increasesdecreases in short-term Federal Home Loan Bank (“FHLB”) advances and commercial paper balances.advances. Long-term debt was $32.2$43.1 billion at September 30, 2022,2023, compared with $32.1$39.8 billion at December 31, 2021.2022. The $103 million (0.3$3.2 billion (8.1 percent) increase was primarily due to $3.9$7.2 billion of medium-term note, $1.3 billion of subordinated note and $324 million of bank note issuances, partially offset by $2.6$2.8 billion of bank note repayments and maturities $1.3 billionand a $936 million repayment of subordinated note repayments and $1.0 billion of medium-term note repayments.the Company’s debt obligation to MUFG. 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 applied to the legal entities acquired from MUFG, including MUB, up until its merger into USBNA. 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. Upon completing the merger of MUB into USBNA, which occurred on May 26, 2023, the MUB risk governance and reporting framework is no longer 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
| U.S. Bancorp | 9 |
instruments, such as trading andsecurities, mortgage loans held for sale (“MLHFS”), MSRs and derivatives that are accounted for on a fair value basis. Liquidity risk is the risk that financial condition or overall safety and soundness is adversely affected by the Company’s inability, or perceived inability, to meet its cash flow obligations in a timely and complete manner in either normal or stressed conditions. Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or misconduct), or adverse external events, including the risk of loss resulting from breaches in data security. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business. Compliance risk is the risk that the Company may suffer legal or regulatory sanctions, financial losses, and reputational damage if it fails to adhere to compliance requirements and the Company’s compliance policies. Strategic risk is the risk to current or projected financial condition and resilience arising from adverse business decisions, poor implementation of business decisions, or 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 on2021,2022, for a detailed discussion of these factors.
available-for-sale
Form 10-K
for the year ended December 31, 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
10 | U.S. Bancorp |
levels, inflation, interest rates and consumer bankruptcy filings. The Risk Management Committee oversees the Company’s credit risk management process.
In addition, credit quality ratings, as defined by the Company, are an important part of the Company’s overall credit risk management and evaluation of its allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Loans with a special mention or classified rating, including consumer lending and small business loans that are 90 days or more past due and still accruing, nonaccrual loans those loans considered troubled debt restructurings (“TDRs”), and loans in a junior lien position that are current but are behind a 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 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 on2021,2022, for a more detailed discussion on credit risk management processes.
Form 10-K
for the year ended December 31, 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, a10-or15-year10-yeardraw period during which a minimum payment is equivalent to the monthly interest, followed by a20-or10-year20-yearamortization period, respectively. At September 30, 2022,2023, 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
run-off
portfolio. Home equity or second mortgage loans are junior lienclosed-end
accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a10-
or15-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 aand credit scores, and in some cases, updated(“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.
loan-to-value
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
| U.S. Bancorp | 11 |
lending, mobile and
on-line
banking, indirect lending, alliance partnerships and correspondent banks. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles.Residential mortgage originations are generally limited to prime borrowers and are performed through the Company’s branches, loan production offices, mobile and also diversified by geography and managed by adherence to LTV and borrower credit criteria during the underwriting process.
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 isThe Company estimates updated LTV information on its outstanding residential mortgages quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current estimate of property value. For home equity and second mortgages, combined(“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.
loan-to-value
The following tables provide summary information of residential mortgages and home equity and second mortgages by LTV at September 30, 2022:2023:
| 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% | $ | 4,580 | $ | 72,204 | $ | 76,784 | 89.0 | % | $ | 13,974 | $ | 86,231 | $ | 100,205 | 87.1 | % | ||||||||||||||||
Over 80% through 90% | 2 | 2,193 | 2,195 | 2.5 | 210 | 6,264 | 6,474 | 5.6 | ||||||||||||||||||||||||
Over 90% through 100% | — | 130 | 130 | .2 | 12 | 931 | 943 | .8 | ||||||||||||||||||||||||
Over 100% | — | 40 | 40 | .1 | 13 | 528 | 541 | .5 | ||||||||||||||||||||||||
No LTV available | — | 16 | 16 | — | 1 | 12 | 13 | — | ||||||||||||||||||||||||
Loans purchased from GNMA mortgage pools (a) | — | 7,109 | 7,109 | 8.2 | — | 6,879 | 6,879 | 6.0 | ||||||||||||||||||||||||
Total | $ | 4,582 | $ | 81,692 | $ | 86,274 | 100.0 | % | $ | 14,210 | $ | 100,845 | $ | 115,055 | 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 Loan-to-Value | ||||||||||||||||||||||||||||||||
Less than or equal to 80% | $ | 9,755 | $ | 1,094 | $ | 10,849 | 95.4 | % | $ | 10,461 | $ | 1,787 | $ | 12,248 | 95.1 | % | ||||||||||||||||
Over 80% through 90% | 199 | 208 | 407 | 3.6 | 411 | 73 | 484 | 3.8 | ||||||||||||||||||||||||
Over 90% through 100% | 18 | 16 | 34 | .3 | 54 | 14 | 68 | .5 | ||||||||||||||||||||||||
Over 100% | 31 | 3 | 34 | .3 | 40 | 6 | 46 | .4 | ||||||||||||||||||||||||
No LTV/CLTV available | 42 | 1 | 43 | .4 | 32 | 1 | 33 | .2 | ||||||||||||||||||||||||
Total | $ | 10,045 | $ | 1,322 | $ | 11,367 | 100.0 | % | $ | 10,998 | $ | 1,881 | $ | 12,879 | 100.0 | % | ||||||||||||||||
Home equity and second mortgages were $11.4$12.9 billion at September 30, 2022, compared with $10.4 billion at2023 and December 31, 2021,2022, and included $2.9$2.7 billion of home equity lines in a first lien position and $8.5$10.2 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at September 30, 2022,2023, included approximately $2.8$3.1 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $5.7$7.1 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 September 30, 2022:2023:
| 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 | $ | 2,846 | $ | 5,652 | $ | 8,498 | $ | 3,054 | $ | 7,121 | $ | 10,175 | ||||||||||||
Percent 30—89 days past due | .25 | % | .29 | % | .28 | % | ||||||||||||||||||
Percent 30 – 89 days past due | .52 | % | .42 | % | .45 | % | ||||||||||||||||||
Percent 90 days or more past due | .03 | % | .04 | % | .04 | % | .05 | % | .08 | % | .07 | % | ||||||||||||
Weighted-average CLTV | 56 | % | 55 | % | 55 | % | 71 | % | 68 | % | 69 | % | ||||||||||||
Weighted-average credit score | 785 | 786 | 785 | 784 | 785 | 785 | ||||||||||||||||||
See the “Analysis and Determination of the Allowance for Credit Losses” section for additional information on how the Company determines the allowance for credit losses for loans in a junior lien position.
Credit card and other retail loans are diversified across customer segments and geographies. Diversification in the credit card portfolio is achieved with broad customer relationship distribution through the Company’s and financial institution partners’ branches, retail and affinity partners, and digital channels.
12 | U.S. Bancorp |
The following table provides a summary of the Company’s credit card loan balances disaggregated based upon updated credit score at September 30, 2022:2023:
| Percent of Total (a) | ||||
Credit score > 660 | % | |||
Credit score < 660 | ||||
No credit score | — | |||
(a) | Credit score distribution excludes loans serviced by others. |
Loan Delinquencies
Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. Accruing loans 90 days or more past due totaled $393 million at September 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 $569 million at September 30, 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 specified0.110.15 percent at September 30, 20222023, compared with 0.150.13 percent at December 31, 2021.
2022.charge-off
timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans was Table 5 | Delinquent Loan Ratios as a Percent of Ending Loan Balances |
| 90 days or more past due excluding | September 30, 2022 | December 31, 2021 | ||||||||||||||
| 90 days or more past due | September 30, 2023 | December 31, 2022 | ||||||||||||||
Commercial | ||||||||||||||||
Commercial | .03 | % | .05 | % | .05 | % | .07 | % | ||||||||
Lease financing | — | — | — | — | ||||||||||||
Total commercial | .03 | .04 | .05 | .07 | ||||||||||||
Commercial Real Estate | ||||||||||||||||
Commercial mortgages | — | — | — | — | ||||||||||||
Construction and development | .19 | .10 | .01 | .03 | ||||||||||||
Total commercial real estate | .05 | .03 | — | .01 | ||||||||||||
Residential Mortgages (a) | .10 | .24 | .11 | .08 | ||||||||||||
Credit Card | .74 | .73 | 1.17 | .88 | ||||||||||||
Other Retail | ||||||||||||||||
Retail leasing | .03 | .04 | .05 | .04 | ||||||||||||
Home equity and second mortgages | .33 | .35 | .25 | .28 | ||||||||||||
Other | .06 | .06 | .09 | .08 | ||||||||||||
Total other retail | .11 | .11 | .13 | .12 | ||||||||||||
Total loans | .11 | % | .15 | % | .15 | % | .13 | % | ||||||||
| 90 days or more past due including | September 30, 2022 | December 31, 2021 | ||||||||||||||
| 90 days or more past due and nonperforming loans | September 30, 2023 | December 31, 2022 | ||||||||||||||
Commercial | .12 | % | .20 | % | .24 | % | .19 | % | ||||||||
Commercial real estate | .46 | .76 | 1.33 | .62 | ||||||||||||
Residential mortgages (a) | .35 | .53 | .25 | .36 | ||||||||||||
Credit card | .74 | .73 | 1.17 | .88 | ||||||||||||
Other retail | .32 | .35 | .41 | .37 | ||||||||||||
Total loans | .30 | % | .42 | % | .49 | % | .38 | % | ||||||||
(a) | Delinquent loan ratios exclude |
| 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 | Amount | As a Percent of Ending Loan Balances | |||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | September 30, 2023 | December 31, 2022 | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||
Residential Mortgages (a) | ||||||||||||||||||||||||||||||||||||||||
30-89 days | $ | 87 | $ | 124 | .10 | % | .15 | % | $ | 131 | $ | 201 | .11 | % | .17 | % | ||||||||||||||||||||||||
90 days or more | 89 | 181 | .10 | .24 | 122 | 95 | .11 | .08 | ||||||||||||||||||||||||||||||||
Nonperforming | 211 | 226 | .24 | .30 | 161 | 325 | .14 | .28 | ||||||||||||||||||||||||||||||||
Total | $ | 387 | $ | 531 | .45 | .69 | $ | 414 | $ | 621 | .36 | .54 | ||||||||||||||||||||||||||||
Credit Card | ||||||||||||||||||||||||||||||||||||||||
30-89 days | $ | 237 | $ | 193 | .97 | .86 | $ | 365 | $ | 283 | 1.35 | 1.08 | ||||||||||||||||||||||||||||
90 days or more | 181 | 165 | .74 | .73 | 316 | 231 | 1.17 | .88 | ||||||||||||||||||||||||||||||||
Nonperforming | — | — | — | — | — | 1 | — | — | ||||||||||||||||||||||||||||||||
Total | $ | 418 | $ | 358 | 1.70 | 1.59 | $ | 681 | $ | 515 | 2.51 | 1.96 | ||||||||||||||||||||||||||||
Other Retail | ||||||||||||||||||||||||||||||||||||||||
Retail Leasing | ||||||||||||||||||||||||||||||||||||||||
30-89 days | $ | 24 | $ | 29 | .40 | .40 | $ | 22 | $ | 27 | .52 | .49 | ||||||||||||||||||||||||||||
90 days or more | 2 | 3 | .03 | .04 | 2 | 2 | .05 | .04 | ||||||||||||||||||||||||||||||||
Nonperforming | 8 | 10 | .13 | .14 | 8 | 8 | .19 | .14 | ||||||||||||||||||||||||||||||||
Total | $ | 34 | $ | 42 | .56 | .58 | $ | 32 | $ | 37 | .75 | .67 | ||||||||||||||||||||||||||||
Home Equity and Second Mortgages | ||||||||||||||||||||||||||||||||||||||||
30-89 days | $ | 38 | $ | 55 | .33 | .53 | $ | 65 | $ | 65 | .50 | .51 | ||||||||||||||||||||||||||||
90 days or more | 37 | 37 | .33 | .35 | 32 | 36 | .25 | .28 | ||||||||||||||||||||||||||||||||
Nonperforming | 102 | 116 | .90 | 1.11 | 104 | 110 | .81 | .86 | ||||||||||||||||||||||||||||||||
Total | $ | 177 | $ | 208 | 1.56 | 1.99 | $ | 201 | $ | 211 | 1.56 | 1.64 | ||||||||||||||||||||||||||||
Other (b) | ||||||||||||||||||||||||||||||||||||||||
30-89 days | $ | 182 | $ | 191 | .43 | .43 | $ | 167 | $ | 217 | .59 | .59 | ||||||||||||||||||||||||||||
90 days or more | 24 | 26 | .06 | .06 | 26 | 28 | .09 | .08 | ||||||||||||||||||||||||||||||||
Nonperforming | 20 | 24 | .05 | .05 | 17 | 21 | .06 | .06 | ||||||||||||||||||||||||||||||||
Total | $ | 226 | $ | 241 | .53 | .54 | $ | 210 | $ | 266 | .74 | .73 | ||||||||||||||||||||||||||||
(a) | Excludes 30-89 days past due and |
(b) | Includes revolving credit, installment |
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.
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 abasis 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.
case-by-case
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.
14 | U.S. Bancorp |
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.
| As a Percent of Performing TDRs | ||||||||||||||||||||
| At September 30, 2022 (Dollars in Millions) | Performing TDRs | 30-89 Days Past Due | 90 Days or More Past Due | Nonperforming TDRs | Total TDRs | |||||||||||||||
Commercial | $ | 149 | 9.0 | % | 2.3 | % | $ | 57 | (a) | $ | 206 | |||||||||
Commercial real estate | 100 | .3 | — | 103 | (b) | 203 | ||||||||||||||
Residential mortgages | 1,564 | 2.4 | 2.4 | 127 | 1,691 | (d) | ||||||||||||||
Credit card | 260 | 14.4 | 7.1 | — | 260 | |||||||||||||||
Other retail | 182 | 8.6 | 4.3 | 32 | (c) | 214 | (e) | |||||||||||||
TDRs, excluding loans purchased from GNMA mortgage pools | 2,255 | 4.6 | 3.0 | 319 | 2,574 | |||||||||||||||
Loans purchased from GNMA mortgage pools (g) | 982 | — | — | — | 982 | (f) | ||||||||||||||
Total | $ | 3,237 | 3.2 | % | 2.1 | % | $ | 319 | $ | 3,556 | ||||||||||
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 September 30, 2022,2023, total nonperforming assets were $677 million,$1.3 billion, compared to $878 million$1.0 billion at December 31, 2021.2022. The $201$294 million (22.9(28.9 percent) decreaseincrease in nonperforming assets was driven by a decrease inprimarily due to higher nonperforming commercial real estate and commercial loans.loans, partially offset by a decrease in nonperforming residential mortgages. The ratio of total nonperforming assets to total loans and other real estate was 0.200.35 percent at September 30, 2022,2023, compared with 0.280.26 percent at December 31, 2021.2022.
OREO was $24$25 million at September 30, 2022,2023, compared with $22$23 million at 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.
15 |
Table 6 | Nonperforming Assets (a) |
| (Dollars in Millions) | September 30, 2022 | December 31, 2021 | ||||||
Commercial | ||||||||
Commercial | $92 | $139 | ||||||
Lease financing | 30 | 35 | ||||||
Total commercial | 122 | 174 | ||||||
Commercial Real Estate | ||||||||
Commercial mortgages | 110 | 213 | ||||||
Construction and development | 57 | 71 | ||||||
Total commercial real estate | 167 | 284 | ||||||
Residential Mortgages (b) | 211 | 226 | ||||||
Credit Card | — | — | ||||||
Other Retail | ||||||||
Retail leasing | 8 | 10 | ||||||
Home equity and second mortgages | 102 | 116 | ||||||
Other | 20 | 24 | ||||||
Total other retail | 130 | 150 | ||||||
Total nonperforming loans (1) | 630 | 834 | ||||||
Other Real Estate (c) | 24 | 22 | ||||||
Other Assets | 23 | 22 | ||||||
Total nonperforming assets | $677 | $878 | ||||||
Accruing loans 90 days or more past due (b) | $393 | $472 | ||||||
Period-end loans (2) | $342,708 | $312,028 | ||||||
Nonperforming loans to total loans (1)/(2) | .18 | % | .27 | % | ||||
Nonperforming assets to total loans plus other real estate (c) | .20 | % | .28 | % | ||||
| (Dollars in Millions) | September 30, 2023 | December 31, 2022 | ||||||
Commercial | ||||||||
| Commercial | $231 | $139 | ||||||
| Lease financing | 25 | 30 | ||||||
| Total commercial | 256 | 169 | ||||||
Commercial Real Estate | ||||||||
| Commercial mortgages | 566 | 251 | ||||||
| Construction and development | 155 | 87 | ||||||
| Total commercial real estate | 721 | 338 | ||||||
Residential Mortgages (b) | 161 | 325 | ||||||
Credit Card | — | 1 | ||||||
Other Retail | ||||||||
| Retail leasing | 8 | 8 | ||||||
| Home equity and second mortgages | 104 | 110 | ||||||
| Other | 17 | 21 | ||||||
| Total other retail | 129 | 139 | ||||||
| Total nonperforming loans (1) | 1,267 | 972 | ||||||
Other Real Estate (c) | 25 | 23 | ||||||
Other Assets | 18 | 21 | ||||||
| Total nonperforming assets | $1,310 | $1,016 | ||||||
| Accruing loans 90 days or more past due (b) | $569 | $491 | ||||||
Period-end loans (2) | $375,234 | $388,213 | ||||||
| Nonperforming loans to total loans (1)/(2) | .34 | % | .25 | % | ||||
| Nonperforming assets to total loans plus other real estate (c) | .35 | % | .26 | % | ||||
Changes in Nonperforming Assets
| (Dollars in Millions) | Commercial and Commercial Real Estate | Residential Mortgages, Credit Card and Other Retail | Total | |||||||||
Balance December 31, 2021 | $ | 461 | $ | 417 | $ | 878 | ||||||
Additions to nonperforming assets | ||||||||||||
New nonaccrual loans and foreclosed properties | 222 | 159 | 381 | |||||||||
Advances on loans | 6 | 1 | 7 | |||||||||
Total additions | 228 | 160 | 388 | |||||||||
Reductions in nonperforming assets | ||||||||||||
Paydowns, payoffs | (255 | ) | (57 | ) | (312 | ) | ||||||
Net sales | (6 | ) | (16 | ) | (22 | ) | ||||||
Return to performing status | (56 | ) | (113 | ) | (169 | ) | ||||||
Charge-offs (d) | (80 | ) | (6 | ) | (86 | ) | ||||||
Total reductions | (397 | ) | (192 | ) | (589 | ) | ||||||
Net additions to (reductions in) nonperforming assets | (169 | ) | (32 | ) | (201 | ) | ||||||
Balance September 30, 2022 | $ | 292 | $ | 385 | $ | 677 | ||||||
| (Dollars in Millions) | Commercial and Commercial Real Estate | Residential Mortgages, Credit Card and Other Retail | Total | |||||||||
Balance December 31, 2022 | $ | 509 | $ | 507 | $ | 1,016 | ||||||
| Additions to nonperforming assets | ||||||||||||
| New nonaccrual loans and foreclosed properties | 982 | 124 | 1,106 | |||||||||
| Advances on loans | 45 | 1 | 46 | |||||||||
| Total additions | 1,027 | 125 | 1,152 | |||||||||
| Reductions in nonperforming assets | ||||||||||||
| Paydowns, payoffs | (311 | ) | (98 | ) | (409 | ) | ||||||
| Net sales | (26 | ) | (18 | ) | (44 | ) | ||||||
| Return to performing status | (24 | ) | (176 | ) | (200 | ) | ||||||
| Charge-offs (d) | (197 | ) | (8 | ) | (205 | ) | ||||||
| Total reductions | (558 | ) | (300 | ) | (858 | ) | ||||||
| Net additions to (reductions in) nonperforming assets | 469 | (175 | ) | 294 | ||||||||
Balance September 30, 2023 | $ | 978 | $ | 332 | $ | 1,310 | ||||||
(a) | Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. |
(b) | Excludes |
(c) | Foreclosed GNMA loans of |
(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 |
Table 7 | Net Charge-offs as a Percent of Average Loans Outstanding |
| Three Months Ended September 30 | ||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||
| (Dollars in Millions) | Average Loan Balance | Net Charge-offs | Percent | Average Loan Balance | Net Charge-offs | Percent | ||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||
| Commercial | $ | 130,415 | $ | 86 | .26 | % | $ | 123,745 | $ | 24 | .08 | % | ||||||||||||||||
| Lease financing | 4,305 | 6 | .55 | 4,774 | 3 | .25 | ||||||||||||||||||||||
| Total commercial | 134,720 | 92 | .27 | 128,519 | 27 | .08 | ||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||
| Commercial mortgages | 42,665 | 49 | .46 | 30,002 | (6 | ) | (.08 | ) | ||||||||||||||||||||
| Construction and development | 11,588 | — | — | 10,008 | — | — | ||||||||||||||||||||||
| Total commercial real estate | 54,253 | 49 | .36 | 40,010 | (6 | ) | (.06 | ) | ||||||||||||||||||||
Residential mortgages | 114,627 | (3 | ) | (.01 | ) | 84,018 | (5 | ) | (.02 | ) | ||||||||||||||||||
Credit card | 26,883 | 220 | 3.25 | 24,105 | 119 | 1.96 | ||||||||||||||||||||||
Other retail | ||||||||||||||||||||||||||||
| Retail leasing | 4,436 | 2 | .18 | 6,259 | 1 | .06 | ||||||||||||||||||||||
| Home equity and second mortgages | 12,809 | 1 | .03 | 11,142 | (2 | ) | (.07 | ) | ||||||||||||||||||||
| Other | 29,149 | 59 | .80 | 42,725 | 28 | .26 | ||||||||||||||||||||||
| Total other retail | 46,394 | 62 | .53 | 60,126 | 27 | .18 | ||||||||||||||||||||||
| Total loans | $ | 376,877 | $ | 420 | .44 | % | $ | 336,778 | $ | 162 | .19 | % | ||||||||||||||||
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||
| (Dollars in Millions) | Average Loan Balance | Net Charge-offs | Percent | Average Loan Balance | Net Charge-offs | Percent | ||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||
| Commercial | $ | 131,777 | $ | 215 | .22 | % | $ | 115,832 | $ | 78 | .09 | % | ||||||||||||||||
| Lease financing | 4,382 | 14 | .43 | 4,891 | 11 | .30 | ||||||||||||||||||||||
| Total commercial | 136,159 | 229 | .22 | 120,723 | 89 | .10 | ||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||
| Commercial mortgages | 43,165 | 190 | .59 | 29,506 | (8 | ) | (.04 | ) | ||||||||||||||||||||
| Construction and development | 11,758 | 2 | .02 | 10,035 | 3 | .04 | ||||||||||||||||||||||
| Total commercial real estate | 54,923 | 192 | .47 | 39,541 | (5 | ) | (.02 | ) | ||||||||||||||||||||
Residential mortgages | 116,167 | 110 | .13 | 80,589 | (20 | ) | (.03 | ) | ||||||||||||||||||||
Credit card | 26,171 | 594 | 3.03 | 22,907 | 349 | 2.04 | ||||||||||||||||||||||
Other retail | ||||||||||||||||||||||||||||
| Retail leasing | 4,832 | 4 | .11 | 6,689 | 2 | .04 | ||||||||||||||||||||||
| Home equity and second mortgages | 12,779 | (1 | ) | (.01 | ) | 10,757 | (7 | ) | (.09 | ) | ||||||||||||||||||
| Other | 33,081 | 314 | 1.27 | 43,525 | 77 | .24 | ||||||||||||||||||||||
| Total other retail | 50,692 | 317 | .84 | 60,971 | 72 | .16 | ||||||||||||||||||||||
| Total loans | $ | 384,112 | $ | 1,442 | .50 | % | $ | 324,731 | $ | 485 | .20 | % | ||||||||||||||||
| Three Months Ended September 30 | ||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||
| Average | Average | |||||||||||||||||||||||||||
| Loan | Net | Loan | Net | |||||||||||||||||||||||||
| (Dollars in Millions) | Balance | Charge-offs | Percent | Balance | Charge-offs | Percent | ||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||
Commercial | $ | 123,745 | $ | 24 | .08 | % | $ | 96,673 | $ | 13 | .05 | % | ||||||||||||||||
Lease financing | 4,774 | 3 | .25 | 5,159 | 1 | .08 | ||||||||||||||||||||||
Total commercial | 128,519 | 27 | .08 | 101,832 | 14 | .05 | ||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||
Commercial mortgages | 30,002 | (6 | ) | (.08 | ) | 28,080 | 1 | .01 | ||||||||||||||||||||
Construction | 10,008 | — | — | 10,841 | 12 | .44 | ||||||||||||||||||||||
Total commercial real estate | 40,010 | (6 | ) | (.06 | ) | 38,921 | 13 | .13 | ||||||||||||||||||||
Residential mortgages | 84,018 | (5 | ) | (.02 | ) | 74,104 | (10 | ) | (.05 | ) | ||||||||||||||||||
Credit card | 24,105 | 119 | 1.96 | 21,905 | 111 | 2.01 | ||||||||||||||||||||||
Other retail | ||||||||||||||||||||||||||||
Retail leasing | 6,259 | 1 | .06 | 7,643 | 1 | .05 | ||||||||||||||||||||||
Home equity and second mortgages | 11,142 | (2 | ) | (.07 | ) | 10,936 | (3 | ) | (.11 | ) | ||||||||||||||||||
Other | 42,725 | 28 | .26 | 41,398 | 21 | .20 | ||||||||||||||||||||||
Total other retail | 60,126 | 27 | .18 | 59,977 | 19 | .13 | ||||||||||||||||||||||
Total loans | $ | 336,778 | $ | 162 | .19 | % | $ | 296,739 | $ | 147 | .20 | % | ||||||||||||||||
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||
| Average | Average | |||||||||||||||||||||||||||
| Loan | Net | Loan | Net | |||||||||||||||||||||||||
| (Dollars in Millions) | Balance | Charge-offs | Percent | Balance | Charge-offs | Percent | ||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||
Commercial | $ | 115,832 | $ | 78 | .09 | % | $ | 97,047 | $ | 91 | .13 | % | ||||||||||||||||
Lease financing | 4,891 | 11 | .30 | 5,251 | 6 | .15 | ||||||||||||||||||||||
Total commercial | 120,723 | 89 | .10 | 102,298 | 97 | .13 | ||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||
Commercial mortgages | 29,506 | (8 | ) | (.04 | ) | 27,923 | (11 | ) | (.05 | ) | ||||||||||||||||||
Construction | 10,035 | 3 | .04 | 10,834 | 17 | .21 | ||||||||||||||||||||||
Total commercial real estate | 39,541 | (5 | ) | (.02 | ) | 38,757 | 6 | .02 | ||||||||||||||||||||
Residential mortgages | 80,589 | (20 | ) | (.03 | ) | 74,215 | (25 | ) | (.05 | ) | ||||||||||||||||||
Credit card | 22,907 | 349 | 2.04 | 21,391 | 403 | 2.52 | ||||||||||||||||||||||
Other retail | ||||||||||||||||||||||||||||
Retail leasing | 6,689 | 2 | .04 | 7,829 | 1 | .02 | ||||||||||||||||||||||
Home equity and second mortgages | 10,757 | (7 | ) | (.09 | ) | 11,451 | (8 | ) | (.09 | ) | ||||||||||||||||||
Other | 43,525 | 77 | .24 | 39,073 | 76 | .26 | ||||||||||||||||||||||
Total other retail | 60,971 | 72 | .16 | 58,353 | 69 | .16 | ||||||||||||||||||||||
Total loans | $ | 324,731 | $ | 485 | .20 | % | $ | 295,014 | $ | 550 | .25 | % | ||||||||||||||||
Analysis of Loan Net Charge-Offs
Total loan net charge-offs were $162$420 million for the third quarter of 2022, compared with $147 million in the third quarter of 2021. The increase reflected higher commercial, credit card and other retail loan net charge-offs, partially offset by a decrease in commercial real estate loan charge-offs. Total loan net charge-offs were $485 million$1.4 billion for the first nine months of 2022,2023, compared with $550$162 million and $485 million, respectively, for the same periods of 2022. The year-over-year increases in net charge-offs reflected higher charge-offs in most loan categories consistent with normalizing credit conditions and adverse conditions in commercial real estate. In addition, net charge-offs were higher in the first nine months of 2021. The decrease was driven by lower credit card net charge-offs in2023, compared with the first nine months of 2022.the prior year, due to charge-offs related to balance sheet repositioning and capital management actions taken in the second quarter of 2023, along with charge-offs in the first quarter of 2023 related to the uncollectible amount of acquired loans, which were considered purchased credit deteriorated as of the date of the MUB acquisition. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the third quarter and first nine months of 20222023 was 0.44 percent and 0.50 percent, respectively, compared with 0.19 percent and 0.20 percent, respectively, compared with 0.20 percent and 0.25 percent, respectively, for the same periods of 2021.2022. Excluding the impact of charge-offs related to the MUB acquisition and balance sheet repositioning and capital management actions, the ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the first nine months of 2023 was
0.36
percent (seeNon-GAAP
Financial Measures beginning on page 32).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
| U.S. Bancorp | 17 |
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.
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, delinquency status, collateral type and available valuation information, consideration oflosses 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 previouslycollateral.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.
end-of-term
charged-off
or expected recoveries on collateral-dependent loans where recovery is expected through sale of the 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.
When evaluating the appropriateness of the allowance for credit losses for any loans and lines in a junior lien position, the Company considers the delinquency and modification status of the first lien. At September 30, 2022,2023, the Company serviced the first lien on 3430 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 $187$196 million or 1.61.5 percent of its total home equity portfolio at September 30, 2022,2023, represented
non-delinquent
junior liens where the first lien was delinquent or modified.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 an18 | U.S. Bancorp |
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 $3.3 billion of PCD loans, primarily related to the MUB acquisition, included in its loan portfolio at September 30, 2022.2023.
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 September 30, 2022,2023, the allowance for credit losses was $6.5$7.8 billion (1.88(2.08 percent of$6.2$7.4 billion (1.97(1.91 percent of2021.2022. The ratio of the allowance for credit losses to nonperforming loans was 1,025 percent at September 30, 2022, compared with 738 percent at December 31, 2021. The ratio2023 included a $62 million decrease due to a change in accounting principle adopted on January 1, 2023 related to discontinuing the separate recognition and measurement of the allowance for credit losses to annualized loan net charge-offs was 1,004 percent at September 30, 2022, compared with 902 percent of full year 2021 net charge-offs at December 31, 2021.
period-end
loans), compared with an allowance of period-end
loans) at December 31, troubled debt restructurings. The increase in the allowance for credit losses of $300 million (4.9 percent) at September 30, 2022,2023, compared with December 31, 2021,2022, was primarily driven by strong loan growth and increased economic uncertainty.uncertainty, normalizing credit losses and commercial real estate credit quality. Economic uncertainty and recession risk has been increasinghave increased due to ongoing supply chain challenges, rising interest rates, and inflationary concerns, market volatility rising energy prices resulting from the Russia-Ukraine conflict and related pressure on corporate earnings.earnings related to these factors. In addition to these broad economic factors, expected loss estimates consider various factors including customer specific information impacting changes in risk ratings, projected delinquencies potential effects of inflationary pressures and the impact of rising interest rateseconomic deterioration on selected borrowers’ liquidity and ability to repay.
The ratio of the allowance for credit losses to nonperforming loans was 615 percent at September 30, 2023, compared with 762 percent at December 31, 2022. The ratio of the allowance for credit losses to annualized loan net charge-offs was 468 percent at September 30, 2023, compared with 697 percent of full year 2022 net charge-offs at December 31, 2022.
Economic conditions considered in estimating the allowance for credit losses at September 30, 20222023 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 3.2 percent to 5.9 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 September 30, 20222023 and December 31, 2021:2022:
September 30, 2022 | December 31, 2021 | |||||||
United States unemployment rate for the three months ending (a) | ||||||||
September 30, 2022 | 3.7 | % | 3.5 | % | ||||
December 31, 2022 | 3.7 | 3.5 | ||||||
United States real gross domestic product for the three months ending (b) | ||||||||
September 30, 2022 | 1.5 | % | 4.5 | % | ||||
December 31, 2022 | (.1 | ) | 3.4 | |||||
September 30, 2023 | December 31, 2022 | |||||||
| United States unemployment rate for the three months ending (a) | ||||||||
| September 30, 2023 | 3.6 | % | 4.1 | % | ||||
| December 31, 2023 | 3.7 | 4.2 | ||||||
| December 31, 2024 | 4.2 | 3.9 | ||||||
| United States real gross domestic product for the three months ending (b) | ||||||||
| September 30, 2023 | 2.1 | % | .8 | % | ||||
| December 31, 2023 | 1.6 | 1.0 | ||||||
| December 31, 2024 | 1.5 | 2.5 | ||||||
(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 $34increased $305 million during the first nine months of 2022,2023, reflecting the impact of increased economic uncertainty, normalizing credit conditions and select commercial portfolios continuing to recover from the effects of theCOVID-19pandemic, partially offset by the impacts ofreal estate loan growth and increasing economic uncertainty.deterioration.
The allowance for credit losses related to consumer lending segment loans increased $334$81 million during the first nine months of 2022, mainly2023, due to loan growth and increasingthe impacts of economic uncertainty along with the effectsand normalizing credit performance, partially offset by reduced portfolio exposures and a decrease related to a change in accounting principle.
| U.S. Bancorp | 19 |
Table 8 | Summary of Allowance for Credit Losses |
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| (Dollars in Millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Balance at beginning of period | $ | 7,695 | $ | 6,255 | $ | 7,404 | $ | 6,155 | ||||||||||||
Change in accounting principle (a) | — | — | (62 | ) | — | |||||||||||||||
Allowance for acquired credit losses (b) | — | — | 127 | — | ||||||||||||||||
Charge-Offs | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial | 102 | 51 | 261 | 146 | ||||||||||||||||
Lease financing | 8 | 5 | 22 | 18 | ||||||||||||||||
Total commercial | 110 | 56 | 283 | 164 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 51 | — | 203 | 1 | ||||||||||||||||
Construction and development | — | — | 2 | 9 | ||||||||||||||||
Total commercial real estate | 51 | — | 205 | 10 | ||||||||||||||||
Residential mortgages | 1 | 2 | 126 | 9 | ||||||||||||||||
Credit card | 259 | 161 | 716 | 481 | ||||||||||||||||
Other retail | ||||||||||||||||||||
Retail leasing | 5 | 5 | 13 | 14 | ||||||||||||||||
Home equity and second mortgages | 5 | 2 | 10 | 7 | ||||||||||||||||
Other | 77 | 49 | 379 | 146 | ||||||||||||||||
Total other retail | 87 | 56 | 402 | 167 | ||||||||||||||||
Total charge-offs (c) | 508 | 275 | 1,732 | 831 | ||||||||||||||||
Recoveries | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial | 16 | 27 | 46 | 68 | ||||||||||||||||
Lease financing | 2 | 2 | 8 | 7 | ||||||||||||||||
Total commercial | 18 | 29 | 54 | 75 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 2 | 6 | 13 | 9 | ||||||||||||||||
Construction and development | — | — | — | 6 | ||||||||||||||||
Total commercial real estate | 2 | 6 | 13 | 15 | ||||||||||||||||
Residential mortgages | 4 | 7 | 16 | 29 | ||||||||||||||||
Credit card | 39 | 42 | 122 | 132 | ||||||||||||||||
Other retail | ||||||||||||||||||||
Retail leasing | 3 | 4 | 9 | 12 | ||||||||||||||||
Home equity and second mortgages | 4 | 4 | 11 | 14 | ||||||||||||||||
Other | 18 | 21 | 65 | 69 | ||||||||||||||||
Total other retail | 25 | 29 | 85 | 95 | ||||||||||||||||
Total recoveries | 88 | 113 | 290 | 346 | ||||||||||||||||
Net Charge-Offs | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial | 86 | 24 | 215 | 78 | ||||||||||||||||
Lease financing | 6 | 3 | 14 | 11 | ||||||||||||||||
Total commercial | 92 | 27 | 229 | 89 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 49 | (6 | ) | 190 | (8 | ) | ||||||||||||||
Construction and development | — | — | 2 | 3 | ||||||||||||||||
Total commercial real estate | 49 | (6 | ) | 192 | (5 | ) | ||||||||||||||
Residential mortgages | (3 | ) | (5 | ) | 110 | (20 | ) | |||||||||||||
Credit card | 220 | 119 | 594 | 349 | ||||||||||||||||
Other retail | ||||||||||||||||||||
Retail leasing | 2 | 1 | 4 | 2 | ||||||||||||||||
Home equity and second mortgages | 1 | (2 | ) | (1 | ) | (7 | ) | |||||||||||||
Other | 59 | 28 | 314 | 77 | ||||||||||||||||
Total other retail | 62 | 27 | 317 | 72 | ||||||||||||||||
Total net charge-offs | 420 | 162 | 1,442 | 485 | ||||||||||||||||
Provision for credit losses | 515 | 362 | 1,763 | 785 | ||||||||||||||||
Balance at end of period | $ | 7,790 | $ | 6,455 | $ | 7,790 | $ | 6,455 | ||||||||||||
Components | ||||||||||||||||||||
Allowance for loan losses | $ | 7,218 | $ | 6,017 | ||||||||||||||||
Liability for unfunded credit commitments | 572 | 438 | ||||||||||||||||||
Total allowance for credit losses (1) | $ | 7,790 | $ | 6,455 | ||||||||||||||||
Period-end loans (2) | $ | 375,234 | $ | 342,708 | ||||||||||||||||
Nonperforming loans (3) | 1,267 | 630 | ||||||||||||||||||
Allowance for Credit Losses as a Percentage of | ||||||||||||||||||||
Period-end loans (1)/(2) | 2.08 | % | 1.88 | % | ||||||||||||||||
Nonperforming loans (1)/(3) | 615 | 1,025 | ||||||||||||||||||
Nonperforming and accruing loans 90 days or more past due | 424 | 631 | ||||||||||||||||||
Nonperforming assets | 595 | 953 | ||||||||||||||||||
Annualized net charge-offs | 468 | 1,004 | ||||||||||||||||||
(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. |
(c) | Includes $91 million of commercial real estate charge-offs in the first quarter of 2023 related to uncollectible amounts on acquired loans. Includes $117 million of residential mortgage charge-offs and $192 million of other retail charge-offs in the second quarter of 2023 related to balance sheet repositioning and capital management actions. |
20 | U.S. Bancorp |
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||
| (Dollars in Millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Balance at beginning of period | $ | 6,255 | $ | 6,610 | $ | 6,155 | $ | 8,010 | ||||||||||||
Charge-Offs | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial | 51 | 37 | 146 | 171 | ||||||||||||||||
Lease financing | 5 | 3 | 18 | 13 | ||||||||||||||||
Total commercial | 56 | 40 | 164 | 184 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | — | 1 | 1 | 9 | ||||||||||||||||
Construction and development | — | 13 | 9 | 19 | ||||||||||||||||
Total commercial real estate | — | 14 | 10 | 28 | ||||||||||||||||
Residential mortgages | 2 | 3 | 9 | 13 | ||||||||||||||||
Credit card | 161 | 154 | 481 | 536 | ||||||||||||||||
Other retail | ||||||||||||||||||||
Retail leasing | 5 | 5 | 14 | 20 | ||||||||||||||||
Home equity and second mortgages | 2 | 3 | 7 | 9 | ||||||||||||||||
Other | 49 | 47 | 146 | 164 | ||||||||||||||||
Total other retail | 56 | 55 | 167 | 193 | ||||||||||||||||
Total charge-offs | 275 | 266 | 831 | 954 | ||||||||||||||||
Recoveries | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial | 27 | 24 | 68 | 80 | ||||||||||||||||
Lease financing | 2 | 2 | 7 | 7 | ||||||||||||||||
Total commercial | 29 | 26 | 75 | 87 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 6 | — | 9 | 20 | ||||||||||||||||
Construction and development | — | 1 | 6 | 2 | ||||||||||||||||
Total commercial real estate | 6 | 1 | 15 | 22 | ||||||||||||||||
Residential mortgages | 7 | 13 | 29 | 38 | ||||||||||||||||
Credit card | 42 | 43 | 132 | 133 | ||||||||||||||||
Other retail | ||||||||||||||||||||
Retail leasing | 4 | 4 | 12 | 19 | ||||||||||||||||
Home equity and second mortgages | 4 | 6 | 14 | 17 | ||||||||||||||||
Other | 21 | 26 | 69 | 88 | ||||||||||||||||
Total other retail | 29 | 36 | 95 | 124 | ||||||||||||||||
Total recoveries | 113 | 119 | 346 | 404 | ||||||||||||||||
Net Charge-Offs | ||||||||||||||||||||
Commercial | ||||||||||||||||||||
Commercial | 24 | 13 | 78 | 91 | ||||||||||||||||
Lease financing | 3 | 1 | 11 | 6 | ||||||||||||||||
Total commercial | 27 | 14 | 89 | 97 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | (6 | ) | 1 | (8 | ) | (11 | ) | |||||||||||||
Construction and development | — | 12 | 3 | 17 | ||||||||||||||||
Total commercial real estate | (6 | ) | 13 | (5 | ) | 6 | ||||||||||||||
Residential mortgages | (5 | ) | (10 | ) | (20 | ) | (25 | ) | ||||||||||||
Credit card | 119 | 111 | 349 | 403 | ||||||||||||||||
Other retail | ||||||||||||||||||||
Retail leasing | 1 | 1 | 2 | 1 | ||||||||||||||||
Home equity and second mortgages | (2 | ) | (3 | ) | (7 | ) | (8 | ) | ||||||||||||
Other | 28 | 21 | 77 | 76 | ||||||||||||||||
Total other retail | 27 | 19 | 72 | 69 | ||||||||||||||||
Total net charge-offs | 162 | 147 | 485 | 550 | ||||||||||||||||
Provision for credit losses | 362 | (163 | ) | 785 | (1,160 | ) | ||||||||||||||
Balance at end of period | $ | 6,455 | $ | 6,300 | $ | 6,455 | $ | 6,300 | ||||||||||||
Components | ||||||||||||||||||||
Allowance for loan losses | $ | 6,017 | $ | 5,792 | ||||||||||||||||
Liability for unfunded credit commitments | 438 | 508 | ||||||||||||||||||
Total allowance for credit losses (1) | $ | 6,455 | $ | 6,300 | ||||||||||||||||
Period-end loans (2) | $ | 342,708 | $ | 297,608 | ||||||||||||||||
Nonperforming loans (3) | 630 | 906 | ||||||||||||||||||
Allowance for Credit Losses as a Percentage of | ||||||||||||||||||||
Period-end loans (1)/(2) | 1.88 | % | 2.12 | % | ||||||||||||||||
Nonperforming loans (1)/(3) | 1,025 | 695 | ||||||||||||||||||
Nonperforming and accruing loans 90 days or more past due | 631 | 488 | ||||||||||||||||||
Nonperforming assets | 953 | 667 | ||||||||||||||||||
Annualized net charge-offs | 1,004 | 1,080 | ||||||||||||||||||
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 September 30, 2022,2023, 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 on2021,2022, for further discussion on residual value risk management.
Form 10-K
for the year ended December 31, 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 on2021,2022, for further discussion on operational risk management.
Form 10-K
for the year ended December 31, 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 on2021,2022, for further discussion on compliance risk management.
Form 10-K
for the year ended December 31, 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 andre-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.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
| U.S. Bancorp | 21 |
Table 9 | Sensitivity of Net Interest Income |
| September 30, 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 | (.40 | )% | .70 | % | (.63 | )% | 1.34 | % | (.58 | )% | .95 | % | (2.02 | )% | 1.44 | % | ||||||||||||||||
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.
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Down 50 bps | Up 50 bps Immediate | Down 200 bps Gradual | Up 200 bps Gradual | Down 50 bps | Up 50 bps Immediate | Down 200 bps Gradual | Up 200 bps Gradual | |||||||||||||||||||||||||||||
Net interest income | (.51 | )% | .52 | % | (1.86 | )% | .61 | % | (3.77 | )% | 3.09 | % | * | 5.39 | % | |||||||||||||||||||||
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 andinvestment securities from fixed-rate payments to floating-rate payments;
available-for-sale
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 and commodity 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 orThe Company does not utilize derivatives for speculative purposes.
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 orover-the-counter.
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 buysecurities (“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.
to-be-announced
Additionally, the Company uses forward commitments to sell TBAs and other commitments to sell residential mortgage loans at specified prices to economically hedge the interest rate risk in its residential mortgage loan production activities. At September 30, 2022, the Company had $5.3 billion of forward commitments to sell, hedging $2.7 billion of MLHFS and $3.0 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments on loans intended to be sold are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedging activities. The Company has elected the fair value option for the MLHFS.
Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into master netting arrangements, and, where possible, by requiring collateral arrangements. The Company may also transfer counterparty credit risk related to interest rate swaps to third parties through the use of risk participation agreements. In addition, certain interest rate swaps, interest rate forwards and credit contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk. The Company also mitigates the credit risk of its derivative positions, as well as the credit risk on loans or lending portfolios, through the use of credit contracts.
For additional information on derivatives and hedging activities, refer to Notes 13 and 14 in the Notes to Consolidated Financial Statements.
LIBOR Transition
In July 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) announced that it would no longer require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021. In March 2021, the FCA and the administrator of LIBOR announced that, with respect to the most commonly used tenors of United States Dollar LIBOR, LIBOR will no longer be published on a representative basis after June 30, 2023. The publication of all other tenors of United States Dollar LIBOR ceased to be provided or ceased to be representative after December 31, 2021. The Company holds financial instruments impacted by the discontinuance of LIBOR,
22 |
the London InterBank Offered Rate (“LIBOR”) after 2021. As of July 3, 2023, all tenors of LIBOR have ceased to be published or representative. The Company holds financial instruments impacted by the discontinuance of LIBOR, including certain loans, investment securities, derivatives, borrowings and other financial instruments that use LIBOR as the benchmark rate. The Company also provides various services to customers in its capacities as trustee, servicer, and servicer,asset manager, which involve financial instruments that will beare similarly impacted by the discontinuance of LIBOR.
The Company has transitionedimplemented its remediation strategy for its financial instruments associated towith all LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021and has established processes and procedures to alternative reference rates, with limited exceptions.address inquiries from customers and other third-parties regarding the LIBOR transition. 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 ofhas applied the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), which was enacted on March 15, 2022. and the Regulations Implementing the LIBOR Act (Regulation ZZ) (the “Final Rules”) to substantially all financial instruments that are eligible. The LIBOR Act establishesand Final Rules established a process for replacing LIBOR onin existing LIBOR contracts that dodid 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 replacereplaces LIBOR as the benchmark for such contracts. The final implementation of the LIBOR Act currently remains uncertain, as the Federal Reserve has not yet issued final regulations that are necessary for its administration.
Because financial instruments will transition to an alternative reference rate. The Company has also adopted industry best practice guidelinesrate (“ARR”) at the first reset date LIBOR is unavailable, many products will continue to accrue interest on LIBOR for fallback language for new transactions, converted its cleared interest rate swaps discounting to SOFR discounting, and distributed communications related toa period of time after cessation, but these financial instruments all have a transition plan in place as of the transition to certain impacted parties, both inside and outside the Company. cessation of LIBOR.
Refer to “Risk Factors” in the Company’s Annual Report on FormForm 10-Kfor 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, commodities risk and funding activities. For purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities, as well as the remeasurement volatility of foreign currency denominated balances included on its Consolidated Balance Sheet (collectively, “Covered Positions”), employing methodologies consistent with the requirements of regulatory rules for market risk. The Company’s Market Risk Committee (“MRC”), within the framework of the ALCO, oversees market risk management. The MRC monitors and reviews the Company’s Covered Positions and establishes policies for market risk management, including exposure limits for each portfolio. The Company uses a VaR approach to measure general market risk. Theoretically, VaR represents the statistical risk of loss the Company has to adverse market movements over a
one-day
time horizon. The Company uses the Historical Simulation method to calculate VaR for its Covered Positions measured at the ninety-ninth percentile using aone-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 theone-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.
