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US BANCORP \DE\ - Quarter Report: 2022 June (Form 10-Q)


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form
10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from (not applicable)
Commission file number
1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
 
Delaware
 
41-0255900
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrant’s telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
symbols
 
Name of each exchange
on which registered
Common Stock, $.01 par value per share
  USB   New York Stock Exchange
Depositary Shares (each representing 1/100th interest in a share of Series A
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
  USB PrA   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series B
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
  USB PrH   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series K
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
  USB PrP   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series L
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
  USB PrQ   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series M
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
  USB PrR   New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series O
Non-Cumulative
Perpetual Preferred Stock, par value $1.00)
  USB PrS   New York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024
  USB/24B   New York Stock Exchange
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
YES ☑    NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ☑    NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated file
r ☑
   Accelerated filer ☐
Non-accelerated
filer ☐
  
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
YES ☐    NO ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
Class    Outstanding as of July 31, 2022
Common Stock, $0.01 Par Value    1,485,784,028 shares
 
 

Table of Contents and
Form 10-Q
Cross Reference Index
 
Part I — Financial Information
    
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U.S. Bancorp  
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Table of Contents
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.
This quarterly report on
Form 10-Q
contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “projects,” “forecasts,” “intends,” “plans,” “goals,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements involve inherent risks and uncertainties, including the following risks and uncertainties and the risks and uncertainties more fully discussed in the section entitled “Risk Factors” of Exhibit 13 to U.S. Bancorp’s Annual Report on Form
10-K
for the year ended December 31, 2021, which could cause actual results to differ materially from those anticipated. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by changes in interest rates; the impacts of the
COVID-19
pandemic on its business, financial position, results of operations, liquidity and prospects; increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and
non-banks;
civil unrest; the effects of climate change; changes in customer behavior and preferences; breaches in data security, including as a result of work-from-home arrangements; failures to safeguard personal information; the impacts of international hostilities or geopolitical events; impacts of supply chain disruptions and rising inflation; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk. In addition, U.S. Bancorp’s proposed acquisition of MUFG Union Bank presents risks and uncertainties, including, among others: the risk that the cost savings, any revenue synergies and other anticipated benefits of the proposed acquisition may not be realized or may take longer than anticipated to be realized; the risk that U.S. Bancorp’s business could be disrupted as a result of the announcement and pendency of the proposed acquisition and diversion of management’s attention from ongoing business operations and opportunities; the possibility that the proposed acquisition, including the integration of MUFG Union Bank, may be more costly or difficult to complete than anticipated; delays in closing the proposed acquisition; and the failure of required governmental approvals to be obtained or any other closing conditions in the definitive purchase agreement to be satisfied.
For discussion of these and other risks that may cause actual results to differ from those described in forward-looking statements, refer to U.S. Bancorp’s Annual Report on Form
10-K
for the year ended December 31, 2021, on file with the Securities and Exchange Commission, including the sections entitled “Corporate Risk Profile” and “Risk Factors” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.
 
2
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 Table 1
 
   Selected Financial Data
 
    Three Months Ended June 30      Six Months Ended June 30  
(Dollars and Shares in Millions, Except Per Share Data)   2022     2021     Percent
Change
     2022      2021      Percent
Change
 
Condensed Income Statement
 
              
Net interest income
  $ 3,435     $ 3,137       9.5    $ 6,608      $ 6,200        6.6
Taxable-equivalent adjustment (a)
    29       27       7.4        56        53        5.7  
Net interest income (taxable-equivalent basis) (b)
    3,464       3,164       9.5        6,664        6,253        6.6  
Noninterest income
    2,548       2,619       (2.7      4,944        5,000        (1.1
Total net revenue
    6,012       5,783       4.0        11,608        11,253        3.2  
Noninterest expense
    3,724       3,387       9.9        7,226        6,766        6.8  
Provision for credit losses
    311       (170     *        423        (997      *  
Income before taxes
    1,977       2,566       (23.0      3,959        5,484        (27.8
Income taxes and taxable-equivalent adjustment
    443       578       (23.4      867        1,211        (28.4
Net income
    1,534       1,988       (22.8      3,092        4,273        (27.6
Net (income) loss attributable to noncontrolling interests
    (3     (6     50.0        (4      (11      63.6  
Net income attributable to U.S. Bancorp
  $ 1,531     $ 1,982       (22.8    $ 3,088      $ 4,262        (27.5
Net income applicable to U.S. Bancorp common shareholders
  $ 1,464     $ 1,914       (23.5    $ 2,930      $ 4,089        (28.3
Per Common Share
 
              
Earnings per share
  $ .99     $ 1.29       (23.3 )%     $ 1.97      $ 2.73        (27.8 )% 
Diluted earnings per share
    .99       1.28       (22.7      1.97        2.73        (27.8
Dividends declared per share
    .46       .42       9.5        .92        .84        9.5  
Book value per share (c)
    28.13       31.74       (11.4         
Market value per share
    46.02       56.97       (19.2         
Average common shares outstanding
    1,486       1,489       (.2      1,485        1,495        (.7
Average diluted common shares outstanding
    1,487       1,490       (.2      1,486        1,497        (.7
Financial Ratios
                
Return on average assets
    1.06     1.44          1.08      1.56   
Return on average common equity
    13.9       16.3            13.3        17.6     
Net interest margin (taxable-equivalent basis) (a)
    2.59       2.53            2.51        2.52     
Efficiency ratio (b)
    62.1       59.0            62.4        60.5     
Net charge-offs as a percent of average loans outstanding
    .20       .25            .20        .28     
Average Balances
 
              
Loans
  $ 324,187     $ 294,284       10.2    $ 318,608      $ 294,138        8.3
Loans held for sale
    3,688       7,825       (52.9      4,579        8,922        (48.7
Investment securities (d)
    171,296       160,615       6.7        173,019        153,109        13.0  
Earning assets
    536,761       500,751       7.2        533,318        499,239        6.8  
Assets
    579,911       551,365       5.2        578,663        550,057        5.2  
Noninterest-bearing deposits
    120,827       125,297       (3.6      124,375        121,844        2.1  
Deposits
    456,516       429,210       6.4        455,352        427,795        6.4  
Short-term borrowings
    23,294       16,462       41.5        21,178        14,794        43.2  
Long-term debt
    31,390       36,190       (13.3      32,177        37,817        (14.9
Total U.S. Bancorp shareholders’ equity
    49,166       52,962       (7.2      51,304        52,846        (2.9
 
        June 30,
2022
    December 31,
2021
                            
Period End Balances
 
              
Loans
  $ 332,369     $ 312,028       6.5         
Investment securities
    160,309       174,821       (8.3         
Assets
    591,381       573,284       3.2           
Deposits
    467,102       456,083       2.4           
Long-term debt
    29,408       32,125       (8.5         
Total U.S. Bancorp shareholders’ equity
    48,605       54,918       (11.5         
Asset Quality
                
Nonperforming assets
  $ 770     $ 878       (12.3 )%          
Allowance for credit losses
    6,255       6,155       1.6           
Allowance for credit losses as a percentage of
period-end
loans
    1.88     1.97             
Capital Ratios
                
Common equity tier 1 capital
    9.7     10.0             
Tier 1 capital
    11.4       11.6               
Total risk-based capital
    13.2       13.4               
Leverage
    8.6       8.6               
Total leverage exposure
    7.1       6.9               
Tangible common equity to tangible assets (b)
    5.5       6.8               
Tangible common equity to risk-weighted assets (b)
    7.2       9.2               
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)
    9.4       9.6                                     
 
*
Not meaningful    
(a)
Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.    
(b)
See
Non-GAAP
Financial Measures beginning on page 31.    
(c)
Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period.    
(d)
Excludes unrealized gains and losses on
available-for-sale
investment securities and any premiums or discounts recorded related to the transfer of investment securities at fair value from
available-for-sale
to
held-to-maturity.
 
U.S. Bancorp  
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Management’s Discussion and Analysis
 
OVERVIEW
Earnings Summary
U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $1.5 billion for the second quarter of 2022, or $0.99 per diluted common share, compared with $2.0 billion, or $1.28 per diluted common share, for the second quarter of 2021. Return on average assets and return on average common equity were 1.06 percent and 13.9 percent, respectively, for the second quarter of 2022, compared with 1.44 percent and 16.3 percent, respectively, for the second quarter of 2021. The results for the second quarter of 2022 included the impact of $197 million ($153 million net-of-tax) of merger and integration-related charges associated with the planned acquisition of MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. (“MUFG”), which decreased diluted earnings per common share by $0.10.
Total net revenue for the second quarter of 2022 was $229 million (4.0 percent) higher than the second quarter of 2021, reflecting a 9.5 percent increase in net interest income and a 2.7 percent decrease in noninterest income. The increase in net interest income from the second quarter of 2021 was primarily due to higher average loan and investment securities balances, as well as rising interest rates in the current year and the impact of a favorable yield curve on earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the Small Business Administration (“SBA”) Paycheck Protection Program in the second quarter of 2021. The reduction in noninterest income reflected lower mortgage banking revenue as refinancing activities declined, lower other noninterest income and lower gains on the sale of securities, mostly offset by higher payment services revenue and trust and investment management fees.
Noninterest expense in the second quarter of 2022 was $337 million (9.9 percent) higher than the second quarter of 2021, reflecting increases in compensation expense, employee benefits expense, marketing and business development expense, and the impact of merger and integration-related charges of $197 million.
The provision for credit losses for the second quarter of 2022 was $311 million, compared with a benefit of $170 million for the second quarter of 2021. The provision for credit losses in the second quarter of 2022 reflected the impact of loan growth and increasing economic uncertainty. The provision for credit losses for the second quarter of 2021 reflected a decrease in the allowance for credit losses as a result of improving economic conditions and credit quality. Net charge-offs in the second quarter of 2022 were $161 million, compared with $180 million in the second quarter of 2021. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Net income attributable to U.S. Bancorp for the first six months of 2022 was $3.1 billion, or $1.97 per diluted common share, compared with $4.3 billion, or $2.73 per diluted common share, for the first six months of 2021. Return on average assets and return on average common equity were 1.08 percent and 13.3 percent, respectively, for the first six months of 2022, compared with 1.56 percent and 17.6 percent, respectively, for the first six months of 2021.
Total net revenue for the first six months of 2022 was $355 million (3.2 percent) higher than the first six months of 2021, reflecting a 6.6 percent increase in net interest income and a 1.1 percent decrease in noninterest income. The increase in net interest income from the first six months of 2021 was primarily due to higher average loan and investment securities balances, as well as rising interest rates in the current year and the impact of a favorable yield curve on earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first six months of 2021. The reduction in noninterest income reflected lower mortgage banking revenue, lower other noninterest income and lower gains on the sale of securities, mostly offset by higher payment services revenue and trust and investment management fees.
Noninterest expense in the first six months of 2022 was $460 million (6.8 percent) higher than the first six months of 2021, reflecting increases in compensation expense, employee benefits expense, marketing and business development expense, professional services expense and the impact of merger and integration-related charges of $197 million.
The provision for credit losses for the first six months of 2022 was $423 million, compared with a benefit of
 
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  U.S. Bancorp

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$997 million for the first six months of 2021. The provision for credit losses for the first six months of 2022 reflected the impact of loan growth and increasing economic uncertainty. The provision for credit losses for the first six months of 2021 reflected a decrease in the allowance for credit losses as a result of improving economic conditions and credit quality. Net charge-offs in the first six months of 2022 were $323 million, compared with $403 million in the first six months of 2021. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Pending Acquisition
 In September 2021, the Company announced that it entered into a definitive agreement to acquire MUFG Union Bank’s core regional banking franchise, for an expected purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The transaction excludes the purchase of substantially all of MUFG Union Bank’s Global Corporate & Investment Bank (other than certain deposits), certain middle and back office functions, and other assets. MUFG Union Bank has approximately 300 branches in California, Washington and Oregon and is expected to add approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the Company’s consolidated balance sheet. Closing of the transaction is subject to customary closing conditions, including regulatory approvals which are not within the Company’s control. The parties continue to make significant progress in planning for closing and integration while awaiting regulatory approvals. At this time, the Company expects to receive U.S. regulatory approvals in time for closing to occur in the second half of 2022.
STATEMENT OF INCOME ANALYSIS
Net Interest Income
 Net interest income, on a taxable-equivalent basis, was $3.5 billion in the second quarter and $6.7 billion in the first six months of 2022, representing increases of $300 million (9.5 percent) and $411 million (6.6 percent), respectively, compared with the same periods of 2021. The increases were primarily due to higher loan and investment securities balances, in addition to rising interest rates in the current year and a favorable yield curve impacting earning assets, partially offset by deposit pricing changes and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program in the first six months of 2021. Average earning assets for the second quarter and first six months of 2022 were $36.0 billion (7.2 percent) and $34.1 billion (6.8 percent) higher, respectively, than the same periods of the prior year, reflecting increases in investment securities and loans, partially offset by decreases in interest-bearing deposits with banks. The net interest margin, on a taxable-equivalent basis, in the second quarter and first six months of 2022 was 2.59 percent and 2.51 percent, respectively, compared with 2.53 percent and 2.52 percent in the second quarter and first six months of 2021, respectively. The increase in net interest margin in the second quarter of 2022, compared with the second quarter of 2021, was primarily due to the net impact of rising interest rates in the current year and higher yields in the investment portfolio, partially offset by deposit pricing and loan mix changes. The decrease in net interest margin in the first six months of 2022, compared with the first six months of 2021, was primarily driven by earning asset mix and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.
Average total loans in the second quarter and first six months of 2022 were $29.9 billion (10.2 percent) and $24.5 billion (8.3 percent) higher, respectively, than the same periods of 2021. The increases were primarily due to strong growth in commercial loans, residential mortgages and other retail loans. The increase in commercial loans was primarily due to higher utilization driven by working capital needs of corporate customers, slower payoffs given higher volatility in the capital markets, as well as core growth, partially offset by expected reductions related to the forgiveness of loans in the SBA Paycheck Protection Program. The increase in residential mortgages was driven by stronger
on-balance
sheet loan activities and slower refinance activity. The increase in other retail loans was driven by higher auto and recreational vehicle loans, partially offset by lower retail leasing balances and home equity and second mortgages.
Average investment securities in the second quarter and first six months of 2022 were $10.7 billion (6.7 percent) and $19.9 billion (13.0 percent) higher, respectively, than the same periods of 2021, primarily due to purchases of mortgage-backed and U.S. Treasury securities, net of prepayments, sales and maturities.
Average total deposits for the second quarter and first six months of 2022 were $27.3 billion (6.4 percent) and $27.6 billion (6.4 percent) higher, respectively, than the same periods of 2021. Average total savings deposits
for the second quarter and first six months of 2022 were $29.7 billion (10.6 percent) and $25.1 billion (9.0 percent) higher, respectively, than the same periods of the prior year, driven by increases in Corporate and Commercial Banking, and Consumer and Business
 
U.S. Bancorp  
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Banking balances. Average time deposits for the second quarter and first six months of 2022 were $2.1 billion (8.5 percent) higher and $115 million (0.4 percent) lower, respectively, than the same periods of the prior year. The changes in time deposits were primarily driven by increases in Corporate and Commercial Banking balances, offset by decreases in Consumer and Business Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Average noninterest-bearing deposits for the second quarter of 2022 were $4.5 billion (3.6 percent) lower than the second quarter of 2021, driven by decreases in Corporate and Commercial Banking, Consumer and Business Banking, and Payment Services balances, partially offset by an increase in Wealth Management and Investment Services balances. Average noninterest-bearing deposits for the first six months of 2022 were $2.5 billion (2.1 percent) higher than the first six months of 2021, primarily due to increases in Wealth Management and Investment Services, and Corporate and Commercial Banking balances, partially offset by decreases in Payment Services and Consumer and Business Banking balances.
Provision for Credit Losses
 The provision for credit losses was $311 million in the second quarter and $423 million in first six months of 2022, compared with a benefit of $170 million and $997 million, respectively, for the same periods of 2021. The provision for credit losses in the second quarter and first six months of 2022 reflected the impact of loan growth and increasing economic uncertainty primarily associated with ongoing supply chain challenges and rising inflationary concerns. The provision for credit losses in the second quarter and first six months of 2021 reflected the enactment of additional government stimulus programs and widespread
COVID-19
vaccine availability, contributing to economic improvement during the period, which resulted in significant decreases in the allowance for credit losses. Net charge-offs decreased $19 million (10.6 percent) in the second quarter and $80 million (19.9 percent) in the first six months of 2022, compared with the same periods of the prior year, primarily driven by lower credit card net charge-offs. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Noninterest Income
 Noninterest income was $2.5 billion in the second quarter and $4.9 billion in the first six months of 2022, representing decreases of $71 million (2.7 percent) and $56 million (1.1 percent), respectively, compared with the same periods of 2021. The decreases from the prior year reflected lower mortgage banking revenue, lower other noninterest income and lower gains on the sale of securities, mostly offset by higher payment services revenue and trust and investment management fees. Mortgage banking revenue decreased primarily due to lower application volume, given declining refinance activities experienced in the mortgage industry, lower related gain on sale margins and lower performing loan sales, partially offset by increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities. Other noninterest income decreased primarily due to lower retail leasing end-of-term residual gains and lower gains on sales of certain assets. Payment services revenue increased as a result of increases in corporate payment products revenue due to higher sales volume and increases in merchant processing services revenue driven by higher sales volume and merchant fees. Trust and investment management fees increased primarily due to business growth, activity related to the fourth quarter of 2021 acquisition of PFM Asset Management LLC (“PFM”) and lower money market fee waivers.
 
 Table 2
 
   Noninterest Income
 
   
Three Months Ended
June 30
    
Six Months Ended
June 30
 
(Dollars in Millions)   2022      2021      Percent
Change
     2022      2021      Percent
Change
 
Credit and debit card revenue
  $ 399      $ 396        .8    $ 737      $ 732        .7
Corporate payment products revenue
    172        138        24.6        330        264        25.0  
Merchant processing services
    425        374        13.6        788        692        13.9  
Trust and investment management fees
    566        446        26.9        1,066        890        19.8  
Deposit service charges
    165        176        (6.3      342        337        1.5  
Treasury management fees
    169        160        5.6        325        307        5.9  
Commercial products revenue
    290        280        3.6        556        560        (.7
Mortgage banking revenue
    142        346        (59.0      342        645        (47.0
Investment products fees
    59        60        (1.7      121        115        5.2  
Securities gains (losses), net
    19        43        (55.8      37        68        (45.6
Other
    142        200        (29.0      300        390        (23.1
Total noninterest income
  $ 2,548      $ 2,619        (2.7 )%     $ 4,944      $ 5,000        (1.1 )% 
 
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Noninterest Expense
 Noninterest expense was $3.7 billion in the second quarter and $7.2 billion in the first six months of 2022, representing increases of $337 million (9.9 percent) and $460 million (6.8 percent), respectively, over the same periods of 2021. The increases from the prior year reflected higher compensation expense, employee benefits expense, marketing and business development expense, and the impact of merger and integration-related charges associated with the planned acquisition of MUFG Union Bank. Compensation expense increased primarily due to merit increases and hiring to support business growth, partially offset by lower performance-based incentives. Employee benefits expense increased primarily driven by higher medical expenses. Marketing and business development expense increased due to increased travel and entertainment. Marketing and business development expense further increased in the first six months of 2022, compared with the first six months of 2021, due to the timing of marketing campaigns. Noninterest expense further increased in the first six months of 2022, compared with the first six months of 2021, due to higher professional services expense reflecting an increase in business investment and related initiatives during the current year.
Income Tax Expense
 The provision for income taxes was $414 million (an effective rate of 21.3 percent) for the second quarter and $811 million (an effective rate of 20.8 percent) for the first six months of 2022, compared with $551 million (an effective rate of 21.7 percent) and $1.2 billion (an effective rate of 21.3 percent) for the same periods of 2021, respectively. For further information on income taxes, refer to Note 12 of the Notes to Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
Loans
 The Company’s loan portfolio was $332.4 billion at June 30, 2022, compared with $312.0 billion at December 31, 2021, an increase of $20.4 billion (6.5 percent). The increase was driven by higher commercial loans, residential mortgages, credit card loans and commercial real estate loans, partially offset by lower other retail loans.
Commercial loans increased $14.0 billion (12.5 percent) at June 30, 2022, compared with December 31, 2021, due to higher utilization driven by working capital needs of corporate customers and slower payoffs given higher volatility in the capital markets, as well as core growth.
Residential mortgages held in the loan portfolio increased $5.6 billion (7.3 percent) at June 30, 2022, compared with December 31, 2021, due to stronger
on-balance
sheet loan activities and slower refinance activity. Residential mortgages originated and placed in the Company’s loan portfolio include jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality.
Credit card loans increased $1.2 billion (5.3 percent) at June 30, 2022, compared with December 31, 2021, reflecting increased consumer spending and new account growth.
Commercial real estate loans increased $700 million (1.8 percent) at June 30, 2022, compared with December 31, 2021, primarily the result of new originations.
Other retail loans decreased $1.1 billion (1.8 percent) at June 30, 2022, compared with December 31, 2021, due to decreases in auto loans and retail leasing balances, partially offset by an increase in home equity loans.
 
 Table 3
 
   Noninterest Expense
 
    Three Months Ended June 30             Six Months Ended June 30  
(Dollars in Millions)   2022     2021     Percent
Change
            2022     2021     Percent
Change
 
Compensation
  $ 1,872     $ 1,798       4.1  
 
   $ 3,725     $ 3,601       3.4
Employee benefits
    374       337       11.0    
 
     770       721       6.8  
Net occupancy and equipment
    265       258       2.7    
 
     534       521       2.5  
Professional services
    111       108       2.8    
 
     225       206       9.2  
Marketing and business development
    106       90       17.8    
 
     186       138       34.8  
Technology and communications
    350       362       (3.3  
 
     699       721       (3.1
Postage, printing and supplies
    69       65       6.2    
 
     141       134       5.2  
Other intangibles
    40       40          
 
     87       78       11.5  
Other
    340       329       3.3    
 
 
 
     662       646       2.5  
Total before merger and integration charges
    3,527       3,387       4.1    
 
     7,029       6,766       3.9  
Merger and integration charges
    197             *    
 
 
 
     197             *  
Total noninterest expense
  $ 3,724     $ 3,387       9.9  
 
 
 
   $ 7,226     $ 6,766       6.8
Efficiency ratio (a)
    62.1     59.0  
 
 
 
 
 
 
 
     62.4     60.5  
 
 
 
 
*
Not meaningful    
a)
See
Non-GAAP
Financial Measures beginning on page 31.
 
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 Table 4
 
   Investment Securities
 
    June 30, 2022      December 31, 2021  
(Dollars in Millions)   Amortized
Cost
     Fair Value     Weighted-
Average
Maturity in
Years
     Weighted-
Average
Yield (d)
     Amortized
Cost
     Fair Value     Weighted-
Average
Maturity in
Years
     Weighted-
Average
Yield (d)
 
Held-to-maturity
         
 
          
U.S. Treasury and agencies
  $ 1,343      $ 1,337       3.8        2.85    $ —        $ —               
Mortgage-backed securities (a)
    60,160        54,320       10.0        1.92        41,858        41,812       7.4        1.45  
Total
held-to-maturity
  $ 61,503      $ 55,657       9.8        1.94    $ 41,858      $ 41,812       7.4        1.45
Available-for-sale
         
 
          
U.S. Treasury and agencies
  $ 25,779      $ 23,767       6.9        1.95    $ 36,648      $ 36,609       6.7        1.54
Mortgage-backed securities (a)
    71,544        65,316       8.0        1.96        85,394        85,564       4.9        1.58  
Asset-backed securities (a)
                               62        66       5.2        1.53  
Obligations of state and political subdivisions (b) (c)
    10,925        9,716       13.0        3.64        10,130        10,717       6.6        3.67  
Other
    7        7       2.9        2.07        7        7       3.4        2.07  
Total
available-for-sale
  $ 108,255      $ 98,806       8.2        2.13    $ 132,241      $ 132,963       5.5        1.73
 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.     
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
Yields on investment securities are computed based on amortized cost balances. Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent.
 
The Company generally retains portfolio loans through maturity; however, the Company’s intent may change over time based upon various factors such as ongoing asset/liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company’s intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale.
Loans Held for Sale
 Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were $3.9 billion at June 30, 2022, compared with $7.8 billion at December 31, 2021. The decrease in loans held for sale was principally due to a lower level of mortgage loan closings in the second quarter of 2022, compared with the fourth quarter of 2021. Almost all of the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets, in particular in government agency transactions and to government-sponsored enterprises (“GSEs”).
Investment Securities
 Investment securities totaled $160.3 billion at June 30, 2022, compared with $174.8 billion at December 31, 2021. The $14.5 billion (8.3 percent) decrease was primarily due to an $11.4 billion unfavorable change in net unrealized gains (losses) on
available-for-sale
investment securities and $2.3 billion of net investment sales and maturities. During the second quarter of 2022, the Company transferred $17.1 billion amortized cost ($15.7 billion fair value) of
available-for-sale
investment securities to the
held-to-maturity
category to reflect its new intent for these securities. Subsequent to June 30, 2022, the Company transferred an additional $19.8 billion amortized cost ($17.6 billion fair value) of available-for-sale investment securities to the held-to-maturity category.
The Company’s
available-for-sale
investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. At June 30, 2022, the Company’s net unrealized losses on
available-for-sale
investment securities were $9.4 billion, compared with $722 million of net unrealized gains at December 31, 2021. The unfavorable change in net unrealized gains (losses) was primarily due to decreases in the fair value of mortgage-backed, U.S. Treasury and state and political securities as a result of changes in interest rates, partially offset by the impact of the transfer of
available-for-sale
investment securities to the
held-to-maturity
category. Gross unrealized losses on
available-for-sale
investment securities totaled $9.5 billion at June 30, 2022, compared with $812 million at December 31, 2021. At June 30, 2022, the Company had no plans to sell securities with unrealized losses, and believed it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.
Refer to Notes 4 and 15 in the Notes to Consolidated Financial Statements for further information on investment securities.
Deposits
 Total deposits were $467.1 billion at June 30, 2022, compared with $456.1 billion at December 31, 2021. The $11.0 billion (2.4 percent) increase in total
 
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deposits reflected increases in total savings deposits and time deposits, partially offset by a decrease in noninterest-bearing deposits. Money market deposit balances increased $8.9 billion (7.6 percent) at June 30, 2022, compared with December 31, 2021, primarily due to higher Wealth Management and Investment Services, and Corporate and Commercial Banking balances. Savings account balances increased $2.3 billion (3.4 percent), driven by higher Consumer and Business Banking balances. Interest checking balances decreased $2.4 billion (2.0 percent), primarily due to lower Wealth Management and Investment Services balances, partially offset by higher Corporate and Commercial Banking, and Consumer and Business Banking balances. Time deposits increased $8.0 billion (35.1 percent) at June 30, 2022, compared with December 31, 2021, driven by higher Corporate and Commercial Banking balances, partially offset by lower Consumer and Business Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Noninterest-bearing deposits decreased $5.8 billion (4.3 percent) at June 30, 2022, compared with December 31, 2021, primarily due to lower Corporate and Commercial Banking balances, partially offset by higher Wealth Management and Investment Services balances.
Borrowings
 The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $25.0 billion at June 30, 2022, compared with $11.8 billion at December 31, 2021. The $13.2 billion increase in short-term borrowings was primarily due to increases in short-term Federal Home Loan Bank (“FHLB”) advances and commercial paper balances. Long-term debt was $29.4 billion at June 30, 2022, compared with $32.1 billion at December 31, 2021. The $2.7 billion (8.5 percent) decrease was primarily due to $2.6 billion of bank note repayments and maturities, $1.3 billion of subordinated note repayments and $1.0 billion of medium-term note repayments, partially offset by $2.1 billion of medium-term note issuances. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.
CORPORATE RISK PROFILE
Overview
Managing risks is an essential part of successfully operating a financial services company. The Company’s Board of Directors has approved a risk management framework which establishes governance and risk management requirements for all risk-taking activities. This framework includes Company and business line risk appetite statements which set boundaries for the types and amount of risk that may be undertaken in pursuing business objectives and initiatives. The Board of Directors, primarily through its Risk Management Committee, oversees performance relative to the risk management framework, risk appetite statements, and other policy requirements.
The Executive Risk Committee (“ERC”), which is chaired by the Chief Risk Officer and includes the Chief Executive Officer and other members of the executive management team, oversees execution against the risk management framework and risk appetite statements. The ERC focuses on current and emerging risks, including strategic and reputation risks, by directing timely and comprehensive actions. Senior operating committees have also been established, each responsible for overseeing a specified category of risk.
The Company’s most prominent risk exposures are credit, interest rate, market, liquidity, operational, compliance, strategic, and reputation. Credit risk is the risk of loss associated with a change in the credit profile or the failure of a borrower or counterparty to meet its contractual obligations. Interest rate risk is the current or prospective risk to earnings and capital, or market valuations, arising from the impact of changes in interest rates. Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and
available-for-sale
securities, mortgage loans held for sale (“MLHFS”), MSRs and derivatives that are accounted for on a fair value basis. Liquidity risk is the risk that financial condition or overall safety and soundness is adversely affected by the Company’s inability, or perceived inability, to meet its cash flow obligations in a timely and complete manner in either normal or stressed conditions. Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or misconduct), or adverse external events, including the risk of loss resulting from breaches in data security. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business. Compliance risk is the risk that the Company may suffer legal or regulatory sanctions, financial losses, and reputational damage if it fails to adhere to compliance requirements and the Company’s compliance policies. Strategic risk is the risk to current or projected financial condition and resilience arising from adverse business decisions, poor implementation of business decisions, or
 
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lack of responsiveness to changes in the banking industry and operating environment. Reputation risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from negative public opinion. This risk may impair the Company’s competitiveness by affecting its ability to establish new relationships or services, or continue serving existing relationships. In addition to the risks identified above, other risk factors exist that may impact the Company. Refer to “Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021, for a detailed discussion of these factors.
The Company’s Board and management-level governance committees are supported by a “three lines of defense” model for establishing effective checks and balances. The first line of defense, the business lines, manages risks in conformity with established limits and policy requirements. In turn, business line leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, which includes the Chief Risk Officer’s organization as well as policy and oversight activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors first line of defense conformity with limits and policies, and provides reporting and escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee of the Board of Directors and senior management with independent assessment and assurance regarding the effectiveness of the Company’s governance, risk management and control processes.
Management regularly provides reports to the Risk Management Committee of the Board of Directors. The Risk Management Committee discusses with management the Company’s risk management performance, and provides a summary of key risks to the entire Board of Directors, covering the status of existing matters, areas of potential future concern and specific information on certain types of loss events. The Risk Management Committee considers quarterly reports by management assessing the Company’s performance relative to the risk appetite statements and the associated risk limits, including:
 
Macroeconomic environment and other qualitative considerations, such as regulatory and compliance changes, litigation developments, geopolitical events, and technology and cybersecurity;
 
Credit measures, including adversely rated and nonperforming loans, leveraged transactions, credit concentrations and lending limits;
 
Interest rate and market risk, including market value and net income simulation, and trading-related Value at Risk (“VaR”);
 
Liquidity risk, including funding projections under various stressed scenarios;
 
Operational and compliance risk, including losses stemming from events such as fraud, processing errors, control breaches, breaches in data security or adverse business decisions, as well as reporting on technology performance, and various legal and regulatory compliance measures;
 
Capital ratios and projections, including regulatory measures and stressed scenarios; and
 
Strategic and reputation risk considerations, impacts and responses.
Credit Risk Management
 The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), collateral values, trends in loan performance and macroeconomic factors, such as changes in unemployment rates, gross domestic product levels and consumer bankruptcy filings. The Risk Management Committee oversees the Company’s credit risk management process.
In addition, credit quality ratings as defined by the Company are an important part of the Company’s overall credit risk management and evaluation of its allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Loans with a special mention or classified rating, including consumer lending and small business loans that are 90 days or more past due and still accruing, nonaccrual loans, those loans considered troubled debt restructurings (“TDRs”), and loans in a junior lien position that are current but are behind a first lien position on nonaccrual, encompass all loans held by the Company that it considers to have a potential or well-defined weakness that may put full collection of contractual cash flows at risk. The Company’s internal credit quality ratings for consumer loans are primarily based on delinquency and nonperforming status, except for a limited population of larger loans within those portfolios that are individually evaluated. For this limited population, the determination of the internal credit quality rating may also consider collateral value and customer cash flows. Refer to Note 5 in the Notes to
 
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Consolidated Financial Statements for further discussion of the Company’s loan portfolios including internal credit quality ratings. In addition, refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for a more detailed discussion on credit risk management processes.
The Company manages its credit risk, in part, through diversification of its loan portfolio which is achieved through limit setting by product type criteria, such as industry, and identification of credit concentrations. As part of its normal business activities, the Company offers a broad array of lending products. The Company categorizes its loan portfolio into two segments, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses. The Company’s two loan portfolio segments are commercial lending and consumer lending.
The commercial lending segment includes loans and leases made to small business, middle market, large corporate, commercial real estate, financial institution,
non-profit
and public sector customers. Key risk characteristics relevant to commercial lending segment loans include the industry and geography of the borrower’s business, purpose of the loan, repayment source, borrower’s debt capacity and financial flexibility, loan covenants, and nature of pledged collateral, if any, as well as macroeconomic factors such as unemployment rates, gross domestic product levels, corporate bond spreads and long-term interest rates. These risk characteristics, among others, are considered in determining estimates about the likelihood of default by the borrowers and the severity of loss in the event of default. The Company considers these risk characteristics in assigning internal risk ratings to, or forecasting losses on, these loans, which are the significant factors in determining the allowance for credit losses for loans in the commercial lending segment.
The consumer lending segment represents loans and leases made to consumer customers, including residential mortgages, credit card loans, and other retail loans such as revolving consumer lines, auto loans and leases, home equity loans and lines, and student loans, a
run-off
portfolio. Home equity or second mortgage loans are junior lien
closed-end
accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a
10-
or
15-year
fixed payment amortization schedule. Home equity lines are revolving accounts giving the borrower the ability to draw and repay balances repeatedly, up to a maximum commitment, and are secured by residential real estate. These include accounts in either a first or junior lien position. Typical terms on home equity lines in the portfolio are variable rates benchmarked to the prime rate, with a
10-
or
15-year
draw period during which a minimum payment is equivalent to the monthly interest, followed by a
20-
or
10-year
amortization period, respectively. At June 30, 2022, substantially all of the Company’s home equity lines were in the draw period. Key risk characteristics relevant to consumer lending segment loans primarily relate to the borrowers’ capacity and willingness to repay and include unemployment rates, consumer bankruptcy filings and other macroeconomic factors, customer payment history and credit scores, and in some cases, updated
loan-to-value
(“LTV”) information reflecting current market conditions on real estate-based loans. These and other risk characteristics are reflected in forecasts of delinquency levels, bankruptcies and losses which are the primary factors in determining the allowance for credit losses for the consumer lending segment.
The Company further disaggregates its loan portfolio segments into various classes based on their underlying risk characteristics. The two classes within the commercial lending segment are commercial loans and commercial real estate loans. The three classes within the consumer lending segment are residential mortgages, credit card loans and other retail loans.
The Company’s consumer lending segment utilizes several distinct business processes and channels to originate consumer credit, including traditional branch lending, mobile and
on-line
banking, indirect lending, alliance partnerships and correspondent banks. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles.
Residential mortgage originations are generally limited to prime borrowers and are performed through the Company’s branches, loan production offices, mobile and
on-line
services and a wholesale network of originators. The Company may retain residential mortgage loans it originates on its balance sheet or sell the loans into the secondary market while retaining the servicing rights and customer relationships. Utilizing the secondary markets enables the Company to effectively reduce its credit and other asset/liability risks. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is also diversified by geography and managed by adherence to LTV and borrower credit criteria during the underwriting process.
The Company estimates updated LTV information on its outstanding residential mortgages quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current estimate of property value. For home equity and second
 
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mortgages, combined
loan-to-value
(“CLTV”) is the combination of the first mortgage original principal balance and the second lien outstanding principal balance, relative to the current estimate of property value. Certain loans do not have an LTV or CLTV, primarily due to lack of availability of relevant automated valuation model and/or home price indices values, or lack of necessary valuation data on acquired loans.
The following tables provide summary information of residential mortgages and home equity and second mortgages by LTV at June 30, 2022:
 
Residential Mortgages
(Dollars in Millions)
  Interest
Only
    Amortizing     Total     Percent
of Total
 
Loan-to-Value
       
Less than or equal to 80%
  $ 4,391     $ 68,699     $ 73,090       89.0
Over 80% through 90%
    2       1,605       1,607       2.0  
Over 90% through 100%
          113       113       .2  
Over 100%
          39       39        
No LTV available
          17       17        
Loans purchased from GNMA mortgage pools (a)
          7,248       7,248       8.8  
Total
  $ 4,393     $ 77,721     $ 82,114       100.0
 
(a)
Represents loans purchased and loans that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
 
Home Equity and Second Mortgages
(Dollars in Millions)
  Lines     Loans     Total     Percent
of Total
 
Loan-to-Value
/ Combined
Loan-to-Value
       
Less than or equal to 80%
  $ 9,557     $ 868     $ 10,425       95.0
Over 80% through 90%
    203       214       417       3.8  
Over 90% through 100%
    22       17       39       .4  
Over 100%
    33       3       36       .3  
No LTV/CLTV available
    54       2       56       .5  
Total
  $ 9,869     $ 1,104     $ 10,973       100.0
Home equity and second mortgages were $11.0 billion at June 30, 2022, compared with $10.4 billion at December 31, 2021, and included $3.0 billion of home equity lines in a first lien position and $8.0 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at June 30, 2022, included approximately $2.7 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $5.3 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines including delinquency, estimated average CLTV ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.
The following table provides a summary of delinquency statistics and other credit quality indicators for the Company’s junior lien positions at June 30, 2022:
 
    Junior Liens Behind        
(Dollars in Millions)   Company Owned
or Serviced First
Lien
    Third Party
First Lien
    Total  
Total
  $ 2,755     $ 5,267     $ 8,022  
Percent 30—89 days past due
    .25     .24     .24
Percent 90 days or more past due
    .03     .03     .03
Weighted-average CLTV
    56     54     55
Weighted-average credit score
    785       786       785  
See the “Analysis and Determination of the Allowance for Credit Losses” section for additional information on how the Company determines the allowance for credit losses for loans in a junior lien position.
Credit card and other retail loans are diversified across customer segments and geographies. Diversification in the credit card portfolio is achieved with broad customer relationship distribution through the Company’s and financial institution partners’ branches, retail and affinity partners, and digital channels.
The following table provides a summary of the Company’s credit card loan balances disaggregated based upon updated credit score at June 30, 2022:
 
      Percent
of Total (a)
 
Credit score > 660
     88
Credit score < 660
     12  
No credit score
      
 
(a)
Credit score distribution excludes loans serviced by others.     
Loan Delinquencies
Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. Accruing loans 90 days or more past due totaled $423 million at June 30, 2022, compared with $472 million at December 31, 2021. These balances exclude loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Accruing loans 90 days or more past due are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, are in the process of collection and are reasonably expected to result in repayment or restoration to current status, or are managed in homogeneous portfolios with specified
charge-off
timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans was 0.13 percent at June 30, 2022 compared with 0.15 percent at December 31, 2021.
 
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 Table 5
     Delinquent Loan Ratios as a Percent of Ending Loan Balances
 
90 days or more past due
excluding
nonperforming loans
   June 30,
2022
    December 31,
2021
 
Commercial
    
Commercial
     .08     .05
Lease financing
            
Total commercial
     .07       .04  
Commercial Real Estate
    
Commercial mortgages
            
Construction and development
     .04       .10  
Total commercial real estate
     .01       .03  
Residential Mortgages (a)
     .12       .24  
Credit Card
     .69       .73  
Other Retail
    
Retail leasing
     .03       .04  
Home equity and second mortgages
     .35       .35  
Other
     .05       .06  
Total other retail
     .10       .11  
Total loans
     .13     .15
90 days or more past due
including
nonperforming loans
   June 30,
2022
    December 31,
2021
 
Commercial
     .19     .20
Commercial real estate
     .53       .76  
Residential mortgages (a)
     .40       .53  
Credit card
     .69       .73  
Other retail
     .35       .35  
Total loans
     .35     .42
 
(a)
Delinquent loan ratios exclude $1.7 billion at June 30, 2022, and $1.5 billion at December 31, 2021, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due including all nonperforming loans was 2.42 percent at June 30, 2022, and 2.43 percent at December 31, 2021.
The following table provides summary delinquency information for residential mortgages, credit card and other retail loans included in the consumer lending segment:
 
    Amount              As a Percent of Ending
Loan Balances
 
(Dollars in Millions)   June 30,
2022
     December 31,
2021
             June 30,
2022
    December 31,
2021
 
Residential Mortgages (a)
       
 
    
30-89
days
  $ 100      $ 124     
 
     .12     .15
90 days or more
    102        181     
 
     .12       .24  
Nonperforming
    223        226     
 
 
 
     .27       .30  
Total
  $ 425      $ 531     
 
     .52     .69
Credit Card
       
 
    
30-89
days
  $ 200      $ 193     
 
     .84     .86
90 days or more
    164        165     
 
     .69       .73  
Nonperforming
               
 
 
 
            
Total
  $ 364      $ 358     
 
     1.54     1.59
Other Retail
       
 
    
Retail Leasing
       
 
    
30-89
days
  $ 25      $ 29     
 
     .39     .40
90 days or more
    2        3     
 
     .03       .04  
Nonperforming
    9        10     
 
 
 
     .14       .14  
Total
  $ 36      $ 42     
 
     .55     .58
Home Equity and Second Mortgages
       
 
    
30-89
days
  $ 35      $ 55     
 
     .32     .53
90 days or more
    38        37     
 
     .35       .35  
Nonperforming
    118        116     
 
 
 
     1.08       1.11  
Total
  $ 191      $ 208     
 
     1.74     1.99
Other (b)
       
 
    
30-89
days
  $ 176      $ 191     
 
     .41     .43
90 days or more
    22        26     
 
     .05       .06  
Nonperforming
    21        24     
 
 
 
     .05       .05  
Total
  $ 219      $ 241     
 
 
 
     .51     .54
 
(a)
Excludes $642 million of loans
30-89
days past due and $1.7 billion of loans 90 days or more past due at June 30, 2022, purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options that continue to accrue interest, compared with $791 million and $1.5 billion at December 31, 2021, respectively.
(b)
Includes revolving credit, installment, automobile and student loans.
 
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Restructured Loans
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered.
Troubled Debt Restructurings
Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in the payments to be received. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. At June 30, 2022, performing TDRs were $3.2 billion, compared with $3.1 billion at December 31, 2021.
The Company continues to work with customers to modify loans for borrowers who are experiencing financial difficulties. Many of the Company’s TDRs are determined on a
case-by-case
basis in connection with ongoing loan collection processes. The modifications vary within each of the Company’s loan classes. Commercial lending segment TDRs generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate. The Company may also work with the borrower to make other changes to the loan to mitigate losses, such as obtaining additional collateral and/or guarantees to support the loan.
The Company has also implemented certain residential mortgage loan restructuring programs that may result in TDRs. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, and its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extensions of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.
Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers modification solutions over a specified time period, generally up to 60 months.
In accordance with regulatory guidance, the Company considers secured consumer loans that have had debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs. If the loan amount exceeds the collateral value, the loan is charged down to collateral value and the remaining amount is reported as nonperforming.
 
The following table provides a summary of TDRs by loan class, including the delinquency status for TDRs that continue to accrue interest and TDRs included in nonperforming assets:
 
           As a Percent of Performing TDRs              
At June 30, 2022
(Dollars in Millions)
  Performing
TDRs
    
30-89 Days

Past Due
    90 Days or More
Past Due
    Nonperforming
TDRs
    Total
TDRs
 
Commercial
  $ 141        4.7     2.4   $ 63 (a)    $ 204  
Commercial real estate
    110        .7             117 (b)      227  
Residential mortgages
    1,533        2.6       2.4       134       1,667 (d) 
Credit card
    252        11.7       5.9             252  
Other retail
    183        8.8       4.6       36 (c)      219 (e) 
TDRs, excluding loans purchased from GNMA mortgage pools
    2,219        4.2       2.9       350       2,569  
Loans purchased from GNMA mortgage pools (g)
    965                          965 (f) 
Total
  $ 3,184        2.9     2.0   $ 350     $ 3,534  
 
(a)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and small business credit cards with a modified rate equal to 0 percent.
(b)
Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months).
(c)
Primarily represents loans with a modified rate equal to 0 percent.
(d)
Includes $214 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $20 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(e)
Includes $60 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $13 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(f)
Includes $159 million of Federal Housing Administration and United States Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $126 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.
(g)
Approximately 7.2 percent and 35.4 percent of the total TDR loans purchased from GNMA mortgage pools are
30-89
days past due and 90 days or more past due, respectively, but are not classified as delinquent as their repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
 
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Short-term and Other Loan Modifications
The Company makes short-term and other modifications that it does not consider to be TDRs, in limited circumstances, to assist borrowers experiencing temporary hardships, including previously offering payment relief to borrowers that experienced financial hardship resulting directly from the effects of the
COVID-19
pandemic. Short-term consumer lending modification programs include payment reductions, deferrals of up to three past due payments, and the ability to return to current status if the borrower makes required payments. The Company may also make short-term modifications to commercial lending loans, with the most common modification being an extension of the maturity date of three months or less. Such extensions generally are used when the maturity date is imminent and the borrower is experiencing some level of financial stress, but the Company believes the borrower will pay all contractual amounts owed.
Nonperforming Assets
The level of nonperforming assets represents another indicator of the potential for future credit losses. Nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms and not accruing interest, restructured loans that have not met the performance period required to return to accrual status, other real estate owned (“OREO”) and other nonperforming assets owned by the Company. Interest payments collected from assets on nonaccrual status are generally applied against the principal balance and not recorded as income. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.
At June 30, 2022, total nonperforming assets were $770 million, compared to $878 million at December 31, 2021. The $108 million (12.3 percent) decrease in nonperforming assets was driven by a decrease in nonperforming commercial real estate and commercial loans. The ratio of total nonperforming assets to total loans and other real estate was 0.23 percent at June 30, 2022, compared with 0.28 percent at December 31, 2021.
OREO was $23 million at June 30, 2022, compared with $22 million at December 31, 2021, and was related to foreclosed properties that previously secured loan balances. These balances exclude foreclosed GNMA loans whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
 
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 Table 6
 
   Nonperforming Assets (a)
 
(Dollars in Millions)   June 30,
2022
    December 31,
2021
 
Commercial
   
Commercial
            $116               $139  
Lease financing
    32       35  
Total commercial
    148       174  
Commercial Real Estate
   
Commercial mortgages
    147       213  
Construction and development
    59       71  
Total commercial real estate
    206       284  
Residential Mortgages (b)
    223       226  
Credit Card
           
Other Retail
   
Retail leasing
    9       10  
Home equity and second mortgages
    118       116  
Other
    21       24  
Total other retail
    148       150  
Total nonperforming loans (1)
    725       834  
Other Real Estate (c)
    23       22  
Other Assets
    22       22  
Total nonperforming assets
        $770               $878  
Accruing loans 90 days or more past due (b)
            $423               $472  
Period-end
loans (2)
            $332,369               $312,028  
Nonperforming loans to total loans (1)/(2)
    .22     .27
Nonperforming assets to total loans plus other real estate (c)
    .23     .28
Changes in Nonperforming Assets
 
(Dollars in Millions)   Commercial and
Commercial
Real Estate
    Residential
Mortgages,
Credit Card and
Other Retail
                Total  
Balance December 31, 2021
  $ 461     $ 417     $ 878  
Additions to nonperforming assets
     
New nonaccrual loans and foreclosed properties
    168       123       291  
Advances on loans
    5       1       6  
Total additions
    173       124       297  
Reductions in nonperforming assets
     
Paydowns, payoffs
    (173     (36     (209
Net sales
    (6     (12     (18
Return to performing status
    (47     (76     (123
Charge-offs (d)
    (51     (4     (55
Total reductions
    (277     (128     (405
Net additions to (reductions in) nonperforming assets
    (104     (4     (108
Balance June 30, 2022
  $ 357     $ 413     $ 770  
 
(a)
Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)
Excludes $1.7 billion at June 30, 2022, and $1.5 billion at December 31, 2021, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options that are 90 days or more past due that continue to accrue interest, as their repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
(c)
Foreclosed GNMA loans of $40 million at June 30, 2022, and $22 million at December 31, 2021, continue to accrue interest and are recorded as other assets and excluded from nonperforming assets because they are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
(d)
Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the
charge-off
occurred.
 
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Table 7
 
   Net Charge-offs as a Percent of Average Loans Outstanding
 
    Three Months Ended June 30  
    2022             2021  
    Average                         Average               
    Loan      Net                  Loan      Net        
(Dollars in Millions)
  Balance     
Charge-offs
    Percent             Balance     
Charge-offs
    Percent  
Commercial
                  
Commercial
  $ 115,758      $ 28       .10        $ 97,713      $ 26       .11
Lease financing
    4,899        2       .16                5,261        1       .08  
Total commercial
    120,657        30       .10            102,974        27       .11  
Commercial real estate
                  
Commercial mortgages
    29,676        (2     (.03          27,721               
Construction
    9,841        8       .33                10,843               
Total commercial real estate
    39,517        6       .06            38,564               
Residential mortgages
    80,228        (9     (.04          73,351        (10     (.05
Credit card
    22,748        118       2.08            21,116        148       2.81  
Other retail
                  
Retail leasing
    6,708                         7,873        (1     (.05
Home equity and second mortgages
    10,726        (3     (.11          11,368        (3     (.11
Other
    43,603        19       .17                39,038        19       .20  
Total other retail
    61,037        16       .11                58,279        15       .10  
Total loans
  $ 324,187      $ 161       .20            $ 294,284      $ 180       .25
 
    Six Months Ended June 30  
    2022             2021  
    Average                         Average               
    Loan      Net                  Loan      Net        
(Dollars in Millions)
  Balance     
Charge-offs
    Percent             Balance     
Charge-offs
    Percent  
Commercial
                  
Commercial
  $ 111,810      $ 54       .10        $ 97,237      $ 78       .16
Lease financing
    4,951        8       .33                5,298        5       .19  
Total commercial
    116,761        62       .11            102,535        83       .16  
Commercial real estate
                  
Commercial mortgages
    29,253        (2     (.01          27,844        (12     (.09
Construction
    10,049        3       .06                10,831        5       .09  
Total commercial real estate
    39,302        1       .01            38,675        (7     (.04
Residential mortgages
    78,847        (15     (.04          74,271        (15     (.04
Credit card
    22,297        230       2.08            21,130        292       2.79  
Other retail
                  
Retail leasing
    6,908        1       .03            7,924               
Home equity and second mortgages
    10,561        (5     (.10          11,713        (5     (.09
Other
    43,932        49       .22                37,890        55       .29  
Total other retail
    61,401        45       .15                57,527        50       .18  
Total loans
  $ 318,608      $ 323       .20            $ 294,138      $ 403       .28
 
Analysis of Loan Net Charge-Offs
 Total loan net charge-offs were $161 million for the second quarter and $323 million for the first six months of 2022, compared with $180 million and $403 million, respectively, for the same periods of 2021. The year-over-year decreases in net charge-offs were primarily driven by lower credit card net charge-offs. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for both the second quarter and first six months of 2022 was 0.20 percent, compared with 0.25 percent and 0.28 percent, respectively, for the same periods of 2021.
Analysis and Determination of the Allowance for Credit Losses
 The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs.
Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis. Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical
 
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loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of economic forecast uncertainty. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions.
Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments, which is included in other liabilities in the Consolidated Balance Sheet. Both the allowance for loan losses and the liability for unfunded credit commitments are included in the Company’s analysis of credit losses and reported reserve ratios.
The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels and corporate bond spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores, delinquency status, collateral type and available valuation information, consideration of
end-of-term
losses on lease residuals, and the remaining term of the loan, adjusted for expected prepayments. For each loan portfolio, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or other factors that may affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously
charged-off
or expected recoveries on collateral-dependent loans where recovery is expected through sale of the collateral. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses.
The allowance recorded for individually evaluated loans greater than $5 million in the commercial lending segment is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans.
The allowance recorded for TDR loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the current fair value of the collateral less costs to sell.
When evaluating the appropriateness of the allowance for credit losses for any loans and lines in a junior lien position, the Company considers the delinquency and modification status of the first lien. At June 30, 2022, the Company serviced the first lien on 34 percent of the home equity loans and lines in a junior lien position. The Company also considers the status of first lien mortgage accounts reported on customer credit bureau files when the first lien is not serviced by the Company. Regardless of whether the Company services the first lien, an assessment is made of economic conditions, problem loans, recent loss experience and other factors in determining the allowance for credit losses. Based on the available information, the Company estimated $193 million or 1.8 percent of its total home equity portfolio at June 30, 2022, represented
non-delinquent
junior liens where the first lien was delinquent or modified.
The Company considers historical loss experience on the loans and lines in a junior lien position to establish loss estimates for junior lien loans and lines the Company services that are current, but the first lien is delinquent or modified. The historical long-term average loss experience related to junior liens has been relatively limited (less than 1 percent of the total portfolio annually), and estimates are adjusted to consider current collateral support and portfolio risk characteristics. These include updated credit scores and collateral estimates obtained on the Company’s home equity portfolio each quarter. In its evaluation of the allowance for credit losses, the Company also considers the increased risk of loss associated with home equity lines that are contractually scheduled to convert from a revolving status to a fully amortizing payment.
 
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When a loan portfolio is purchased, the acquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered PCD. An allowance is established for each population and considers product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status and refreshed LTV ratios when possible. The allowance established for purchased loans not considered PCD is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to purchased loans, regardless of PCD status, are recognized through provision expense, with charge-offs charged to the allowance. The Company did not have a material amount of PCD loans included in its loan portfolio at June 30, 2022.
The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above are adjusted by management to consider the potential impact of other qualitative factors not captured in quantitative model adjustments which include, but are not limited to, the following: model imprecision, imprecision in economic scenario assumptions, and emerging risks related to either changes in the economic environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio.
Although the Company determined the amount of each element of the allowance separately and considers this process to be an important credit management tool, the entire allowance for credit losses is available for the entire loan portfolio. The actual amount of losses can vary significantly from the estimated amounts.
At June 30, 2022, the allowance for credit losses was $6.3 billion (1.88 percent of
period-end
loans), compared with an allowance of $6.2 billion (1.97 percent of
period-end
loans) at December 31, 2021. The ratio of the allowance for credit losses to nonperforming loans was 863 percent at June 30, 2022, compared with 738 percent at December 31, 2021. The ratio of the allowance for credit losses to annualized loan net charge-offs was 969 percent at June 30, 2022, compared with 902 percent of full year 2021 net charge-offs at December 31, 2021.
The increase in the allowance for credit losses of $100 million (1.6 percent) at June 30, 2022, compared with December 31, 2021, was driven by strong loan growth and increased economic uncertainty, partially offset by stabilizing credit quality. Economic uncertainty and recession risk has been increasing due to ongoing supply chain challenges, rising inflationary concerns, market volatility, rising oil prices resulting from the Russia-Ukraine conflict and, to a lesser extent, additional
COVID-19
virus variants. In addition to these factors, expected loss estimates consider various factors including customer specific information impacting changes in risk ratings, projected delinquencies, potential effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay.
Economic conditions considered in estimating the allowance for credit losses at June 30, 2022 included changes in projected gross domestic product and unemployment levels. These factors are evaluated through a combination of quantitative calculations using economic scenarios and qualitative assessments that consider the high degree of economic uncertainty in the current environment.
The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for credit losses at June 30, 2022 and December 31, 2021:
 
    
June 30,
2022
   
December 31,
2021
 
United States unemployment rate for the three months ending (a)
   
June 30, 2022
    3.6     3.6
September 30, 2022
    3.4       3.5  
December 31, 2022
    3.3       3.5  
United States real gross domestic product for the three months ending (b)
   
June 30, 2022
    2.5     4.4
September 30, 2022
    2.8       4.5  
December 31, 2022
    1.8       3.4  
 
(a)
Reflects quarterly average of forecasted reported United States unemployment rate.
(b)
Reflects year-over-year growth rates.
The allowance for credit losses related to commercial lending segment loans decreased $103 million during the first six months of 2022, reflecting select commercial portfolios continuing to recover from the effects of the
COVID-19
pandemic, partially offset by the impacts of loan growth and rising economic uncertainty.
The allowance for credit losses related to consumer lending segment loans increased $203 million during the first six months of 2022, mainly due to loan growth and rising economic uncertainty.
 
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Table 8
 
   Summary of Allowance for Credit Losses
 
    Three Months Ended            Six Months Ended  
    June 30             June 30  
(Dollars in Millions)   2022     2021             2022     2021  
Balance at beginning of period
  $ 6,105     $ 6,960          $ 6,155     $ 8,010  
Charge-Offs
            
Commercial
            
Commercial
    48       54            95       134  
Lease financing
    5       4                13       10  
Total commercial
    53       58            108       144  
Commercial real estate
            
Commercial mortgages
    1       3            1       8  
Construction and development
    8       1                9       6  
Total commercial real estate
    9       4            10       14  
Residential mortgages
    2       5            7       10  
Credit card
    162       192            320       382  
Other retail
            
Retail leasing
    4       4            9       15  
Home equity and second mortgages
    2       2            5       6  
Other
    44       49                97       117  
Total other retail
    50       55                111       138  
Total charge-offs
    276       314            556       688  
Recoveries
            
Commercial
            
Commercial
    20       28            41       56  
Lease financing
    3       3                5       5  
Total commercial
    23       31            46       61  
Commercial real estate
            
Commercial mortgages
    3       3            3       20  
Construction and development
          1                6       1  
Total commercial real estate
    3       4            9       21  
Residential mortgages
    11       15            22       25  
Credit card
    44       44            90       90  
Other retail
            
Retail leasing
    4       5            8       15  
Home equity and second mortgages
    5       5            10       11  
Other
    25       30                48       62  
Total other retail
    34       40                66       88  
Total recoveries
    115       134            233       285  
Net Charge-Offs
            
Commercial
            
Commercial
    28       26            54       78  
Lease financing
    2       1                8       5  
Total commercial
    30       27            62       83  
Commercial real estate
            
Commercial mortgages
    (2                (2     (12
Construction and development
    8                      3       5  
Total commercial real estate
    6                  1       (7
Residential mortgages
    (9     (10          (15     (15
Credit card
    118       148            230       292  
Other retail
            
Retail leasing
          (1          1        
Home equity and second mortgages
    (3     (3          (5     (5
Other
    19       19                49       55  
Total other retail
    16       15                45       50  
Total net charge-offs
    161       180            323       403  
Provision for credit losses
    311       (170              423       (997
Balance at end of period
  $ 6,255     $ 6,610              $ 6,255     $ 6,610  
Components
            
Allowance for loan losses
  $ 5,832     $ 6,026           
Liability for unfunded credit commitments
    423       584               
Total allowance for credit losses (1)
  $ 6,255     $ 6,610               
Period-end
loans (2)
  $ 332,369     $ 296,912           
Nonperforming loans (3)
    725       1,018           
Allowance for Credit Losses as a Percentage of
            
Period-end
loans (1)/(2)
    1.88     2.23         
Nonperforming loans (1)/(3)
    863       649           
Nonperforming and accruing loans 90 days or more past due
    545       474           
Nonperforming assets
    812       624           
Annualized net charge-offs
    969       916                           
 
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Residual Value Risk Management
 The Company manages its risk to changes in the residual value of leased vehicles, office and business equipment, and other assets through disciplined residual valuation at the inception of a lease, diversification of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. As of June 30, 2022, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 2021. Refer to “Management’s Discussion and Analysis — Residual Value Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for further discussion on residual value risk management.
Operational Risk Management
 The Company operates in many different businesses in diverse markets and relies on the ability of its employees and systems to process a high number of transactions. Operational risk is inherent in all business activities, and the management of this risk is important to the achievement of the Company’s objectives. Business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities, including those additional or increased risks created by economic and financial disruptions. The Company maintains a system of controls with the objective of providing proper transaction authorization and execution, proper system operations, proper oversight of third parties with whom it does business, safeguarding of assets from misuse or theft, and ensuring the reliability and security of financial and other data. Refer to “Management’s Discussion and Analysis — Operational Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for further discussion on operational risk management.
Compliance Risk Management
 The Company may suffer legal or regulatory sanctions, material financial loss, or damage to its reputation through failure to comply with laws, regulations, rules, standards of good practice, and codes of conduct, including those related to compliance with Bank Secrecy Act/anti-money laundering requirements, sanctions compliance requirements as administered by the Office of Foreign Assets Control, consumer protection and other requirements. The Company has controls and processes in place for the assessment, identification, monitoring, management and reporting of compliance risks and issues including those created or increased by economic and financial disruptions. Refer to “Management’s Discussion and Analysis — Compliance Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for further discussion on compliance risk management.
Interest Rate Risk Management
In the banking industry, changes in interest rates are a significant risk that can impact earnings and the safety and soundness of an entity. The Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Management Committee (“ALCO”) and approved by the Board of Directors. The ALCO has the responsibility for approving and overseeing compliance with the ALCO management policies, including interest rate risk exposure. One way the Company measures and analyzes its interest rate risk is through net interest income simulation analysis.
Simulation analysis incorporates substantially all of the Company’s assets and liabilities and
off-balance
sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through this simulation, management estimates the impact on net interest income of various interest rate changes that differ in the direction, amount and speed of change over time, as well as the shape of the yield curve. This simulation includes assumptions about how the balance sheet is likely to be affected by changes in loan and deposit growth. Assumptions are made to project interest rates for new loans and deposits based on historical analysis, management’s outlook and
re-pricing
strategies. These assumptions are reviewed and validated on a periodic basis with sensitivity analysis being provided for key variables of the simulation. The results are reviewed monthly by the ALCO and are used to guide asset/liability management strategies.
The Company manages its interest rate risk position by holding assets with desired interest rate risk characteristics on its balance sheet, implementing certain pricing strategies for loans and deposits and selecting derivatives and various funding and investment portfolio strategies.
Table 9 summarizes the projected impact to net interest income over the next 12 months of various potential interest rate changes. The sensitivity of the projected impact to net interest income over the next 12 months is dependent on balance sheet growth, product mix, deposit behavior, pricing and funding decisions. While the Company utilizes models and assumptions based on historical information and expected behaviors, actual outcomes could vary significantly. Net interest income sensitivities reflect the impact of current market expectations for interest rates, driving an increase in baseline projected net interest income. As market expectations are reflected in projected results, incremental interest rate sensitivity declines on a percentage basis.
 
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Table 9
 
   Sensitivity of Net Interest Income
 
    June 30, 2022             December 31, 2021  
     Down 50 bps
Immediate
    Up 50 bps
Immediate
    Down 200 bps
Gradual
     Up 200 bps
Gradual
            Down 50 bps
Immediate
    Up 50 bps
Immediate
    Down 200 bps
Gradual
     Up 200 bps
Gradual
 
Net interest income
    (1.45 )%      1.17     *        1.54              (3.77 )%      3.09     *        5.39
*
Given the level of interest rates, downward rate scenario is not computed.
 
Use of Derivatives to Manage Interest Rate and Other Risks
 To manage the sensitivity of earnings and capital to interest rate, prepayment, credit, price and foreign currency fluctuations (asset and liability management positions), the Company enters into derivative transactions. The Company uses derivatives for asset and liability management purposes primarily in the following ways:
 
To convert fixed-rate debt and
available-for-sale
investment securities from fixed-rate payments to floating-rate payments;
 
To convert floating-rate loans and debt from floating-rate payments to fixed-rate payments;
 
To mitigate changes in value of the Company’s unfunded mortgage loan commitments, funded MLHFS and MSRs;
 
To mitigate remeasurement volatility of foreign currency denominated balances; and
 
To mitigate the volatility of the Company’s net investment in foreign operations driven by fluctuations in foreign currency exchange rates.
In addition, the Company enters into interest rate and foreign exchange derivative contracts to support the business requirements of its customers (customer-related positions). The Company minimizes the market and liquidity risks of customer-related positions by either entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or
non-derivative
financial instruments that partially or fully offset the exposure from these customer-related positions. The Company may enter into derivative contracts that are either exchange-traded, centrally cleared through clearinghouses or
over-the-counter.
The Company does not utilize derivatives for speculative purposes.
The Company does not designate all of the derivatives that it enters into for risk management purposes as accounting hedges because of the inefficiency of applying the accounting requirements and may instead elect fair value accounting for the related hedged items. In particular, the Company enters into interest rate swaps, swaptions, forward commitments to buy
to-be-announced
securities (“TBAs”), U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to mitigate fluctuations in the value of its MSRs, but does not designate those derivatives as accounting hedges.
Additionally, the Company uses forward commitments to sell TBAs and other commitments to sell residential mortgage loans at specified prices to economically hedge the interest rate risk in its residential mortgage loan production activities. At June 30, 2022, the Company had $5.1 billion of forward commitments to sell, hedging $2.1 billion of MLHFS and $4.0 billion of unfunded mortgage loan commitments. The forward commitments to sell and the unfunded mortgage loan commitments on loans intended to be sold are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedging activities. The Company has elected the fair value option for the MLHFS.
Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into master netting arrangements, and, where possible, by requiring collateral arrangements. The Company may also transfer counterparty credit risk related to interest rate swaps to third parties through the use of risk participation agreements. In addition, certain interest rate swaps, interest rate forwards and credit contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk.
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, including certain loans, investment securities, derivatives,
 
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borrowings and other financial instruments that use LIBOR as the benchmark rate. The Company also provides various services to customers in its capacities as trustee and servicer, which involve financial instruments that will be similarly impacted by the discontinuance of LIBOR.
The Company has transitioned financial instruments associated to LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021 to alternative reference rates, with limited exceptions. The Company also anticipates that additional financial instruments associated to the remaining United States Dollar LIBOR tenors will require transition to a new reference rate by June 30, 2023. The Company is currently assessing the applicability and scope of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), which was enacted on March 15, 2022. The LIBOR Act establishes a process for replacing LIBOR on existing LIBOR contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate by providing that a benchmark replacement identified by the Federal Reserve Board that is based on the Secured Overnight Financing Rate (“SOFR”) will replace LIBOR as the benchmark for such contracts. The final implementation of the LIBOR Act currently remains uncertain, as the Federal Reserve has 180 days after its enactment to issue any regulations that are necessary for its administration.
In order to facilitate the transition process, the Company has instituted a LIBOR Transition Office and commenced an enterprise-wide project to identify, assess, monitor and mitigate risks associated with the expected discontinuance or unavailability of LIBOR, actively engage with industry working groups and regulators, achieve operational readiness for the use of alternative reference rates and engage impacted customers to remediate and transition impacted instruments. The Company has also invested in updating its systems, models, procedures and internal infrastructure as part of the transition program. Additionally, in alignment with guidance from United States banking agencies and the FCA, the Company has ceased the use of LIBOR as a reference rate in new contracts, with limited exceptions, and continues to increase the usage of alternative reference rates such as SOFR. The Company has also adopted industry best practice guidelines for fallback language for new transactions, converted its cleared interest rate swaps discounting to SOFR discounting, and distributed communications related to the transition to certain impacted parties, both inside and outside the Company. Refer to “Risk Factors” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for further discussion on potential risks that could adversely affect the Company’s financial results as a result of the LIBOR transition.
Market Risk Management
 In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support customers’ strategies to manage their own foreign currency, interest rate risk and funding activities. For purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities, as well as the remeasurement volatility of foreign currency denominated balances included on its Consolidated Balance Sheet (collectively, “Covered Positions”), employing methodologies consistent with the requirements of regulatory rules for market risk. The Company’s Market Risk Committee (“MRC”), within the framework of the ALCO, oversees market risk management. The MRC monitors and reviews the Company’s Covered Positions and establishes policies for market risk management, including exposure limits for each portfolio. The Company uses a VaR approach to measure general market risk. Theoretically, VaR represents the statistical risk of loss the Company has to adverse market movements over a
one-day
time horizon. The Company uses the Historical Simulation method to calculate VaR for its Covered Positions measured at the ninety-ninth percentile using a
one-year
look-back period for distributions derived from past market data. The market factors used in the calculations include those pertinent to market risks inherent in the underlying trading portfolios, principally those that affect the Company’s corporate bond trading business, foreign currency transaction business, client derivatives business, loan trading business and municipal securities business, as well as those inherent in the Company’s foreign denominated balances and the derivatives used to mitigate the related measurement volatility. On average, the Company expects the
one-day
VaR to be exceeded by actual losses two to three times per year related to these positions. The Company monitors the accuracy of internal VaR models and modeling processes by back-testing model performance, regularly updating the historical data used by the VaR models and regular model validations to assess the accuracy of the models’ input, processing, and reporting components. All models are required to be independently reviewed and approved prior to being placed in use. If the Company were to experience market losses in excess of the estimated VaR more often than expected, the VaR models and associated assumptions would be analyzed and adjusted.
 
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The average, high, low and
period-end
one-day
VaR amounts for the Company’s Covered Positions were as follows:
 
Six Months Ended June 30
(Dollars in Millions)
  2022      2021  
Average
  $ 1      $ 2  
High
    2        4  
Low
    1        1  
Period-end
    2        2  
The Company did not experience any actual losses for its combined Covered Positions that exceeded VaR during the six months ended June 30, 2022 and 2021. The Company stress tests its market risk measurements to provide management with perspectives on market events that may not be captured by its VaR models, including worst case historical market movement combinations that have not necessarily occurred on the same date.
The Company calculates Stressed VaR using the same underlying methodology and model as VaR, except that a historical continuous
one-year
look-back period is utilized that reflects a period of significant financial stress appropriate to the Company’s Covered Positions. The period selected by the Company includes the significant market volatility of the last four months of 2008.
The average, high, low and
period-end
one-day
Stressed VaR amounts for the Company’s Covered Positions were as follows:
 
Six Months Ended June 30
(Dollars in Millions)
  2022      2021  
Average
  $ 5      $ 7  
High
    9        9  
Low
    3        5  
Period-end
    9        8  
Valuations of positions in client derivatives and foreign currency activities are based on discounted cash flow or other valuation techniques using market-based assumptions. These valuations are compared to third party quotes or other market prices to determine if there are significant variances. Significant variances are approved by senior management in the Company’s corporate functions. Valuation of positions in the corporate bond trading, loan trading and municipal securities businesses are based on trader marks. These trader marks are evaluated against third-party prices, with significant variances approved by senior management in the Company’s corporate functions.
The Company also measures the market risk of its hedging activities related to residential MLHFS and MSRs using the Historical Simulation method. The VaRs are measured at the ninety-ninth percentile and employ factors pertinent to the market risks inherent in the valuation of the assets and hedges. A
one-year
look-back period is used to obtain past market data for the models.
The average, high and low VaR amounts for the residential MLHFS and related hedges and the MSRs and related hedges were as follows:
 
Six Months Ended June 30
(Dollars in Millions)
  2022      2021  
Residential Mortgage Loans Held For Sale and Related Hedges
    
Average
  $ 2      $ 10  
High
    5        19  
Low
    1        5  
Mortgage Servicing Rights and Related Hedges
    
Average
  $ 7      $ 4  
High
    13        11  
Low
    3        1  
Liquidity Risk Management
 The Company’s liquidity risk management process is designed to identify, measure, and manage the Company’s funding and liquidity risk to meet its daily funding needs and to address expected and unexpected changes in its funding requirements. The Company engages in various activities to manage its liquidity risk. These activities include diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity if needed. In addition, the Company’s profitable operations, sound credit quality and strong capital position have enabled it to develop a large and reliable base of core deposit funding within its market areas and in domestic and global capital markets.
The Company’s Board of Directors approves the Company’s liquidity policy. The Risk Management Committee of the Company’s Board of Directors oversees the Company’s liquidity risk management process and approves a contingency funding plan. The ALCO reviews the Company’s liquidity policy and limits, and regularly assesses the Company’s ability to meet funding requirements arising from adverse company-specific or market events.
The Company regularly projects its funding needs under various stress scenarios and maintains a contingency funding plan consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of
on-balance
sheet and
off-balance
sheet funding sources. These liquidity sources include cash at the Federal Reserve Bank and certain European central banks, unencumbered liquid assets, and capacity to borrow from the FHLB and at the Federal Reserve Bank’s Discount Window. At June 30, 2022, the fair value of unencumbered investment securities totaled $137.5 billion, compared with $144.0 billion at December 31, 2021. Refer to Note 4 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on investment securities maturities and trends. Asset liquidity is further enhanced by the Company’s practice of pledging loans to access secured borrowing facilities through the FHLB and
 
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Federal Reserve Bank. At June 30, 2022, the Company could have borrowed a total of an additional $95.5 billion from the FHLB and Federal Reserve Bank based on collateral available for additional borrowings.
The Company’s diversified deposit base provides a sizeable source of relatively stable and
low-cost
funding, while reducing the Company’s reliance on the wholesale markets. Total deposits were $467.1 billion at June 30, 2022, compared with $456.1 billion at December 31, 2021. Refer to “Balance Sheet Analysis” for further information on the Company’s deposits.
Additional funding is provided by long-term debt and short-term borrowings. Long-term debt was $29.4 billion at June 30, 2022, and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were $25.0 billion at June 30, 2022, and supplement the Company’s other funding sources. Refer to “Balance Sheet Analysis” for further information on the Company’s long-term debt and short-term borrowings.
In addition to assessing liquidity risk on a consolidated basis, the Company monitors the parent company’s liquidity. The Company establishes limits for the minimal number of months into the future where the parent company can meet existing and forecasted obligations with cash and securities held that can be readily monetized. The Company measures and manages this limit in both normal and adverse conditions. The Company maintains sufficient funding to meet expected capital and debt service obligations for 24 months without the support of dividends from subsidiaries and assuming access to the wholesale markets is maintained. The Company maintains sufficient liquidity to meet its capital and debt service obligations for 12 months under adverse conditions without the support of dividends from subsidiaries or access to the wholesale markets. The parent company is currently well in excess of required liquidity minimums.
At June 30, 2022, parent company long-term debt outstanding was $18.4 billion, compared with $18.9 billion at December 31, 2021. The decrease was primarily due to $1.3 billion of subordinated note and $1.0 billion of medium-term note repayments, partially offset by $2.1 billion of medium-term note issuances. As of June 30, 2022, there was no parent company debt scheduled to mature in the remainder of 2022.
The Company is subject to a regulatory Liquidity Coverage Ratio (“LCR”) requirement which requires banks to maintain an adequate level of unencumbered high quality liquid assets to meet estimated liquidity needs over a
30-day
stressed period. At June 30, 2022, the Company was compliant with this requirement.
The Company is also subject to a regulatory Net Stable Funding Ratio (“NSFR”) requirement which requires banks to maintain a minimum level of stable funding based on the liquidity characteristics of their assets, commitments, and derivative exposures over a
one-year
time horizon. At June 30, 2022, the Company was compliant with this requirement.
Refer to “Management’s Discussion and Analysis — Liquidity Risk Management” in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2021, for further discussion on liquidity risk management.
European Exposures
The Company provides merchant processing and corporate trust services in Europe either directly or through banking affiliations in Europe. Revenue generated from sources in Europe represented approximately 2 percent of the Company’s total net revenue for both the three and six months ended June 30, 2022. Operating cash for these businesses is deposited on a short-term basis typically with certain European central banks. For deposits placed at other European banks, exposure is mitigated by the Company placing deposits at multiple banks and managing the amounts on deposit at any bank based on institution-specific deposit limits. At June 30, 2022, the Company had an aggregate amount on deposit with European banks of approximately $7.3 billion, predominately with the Central Bank of Ireland and Bank of England.
In addition, the Company provides financing to domestic multinational corporations that generate revenue from customers in European countries, transacts with various European banks as counterparties to certain derivative-related activities, and through a subsidiary, manages money market funds that hold certain investments in European sovereign debt. Any deterioration in economic conditions in Europe, including the impacts resulting from the Russia-Ukraine conflict, is not expected to have a significant effect on the Company related to these activities.
Commitments, Contingent Liabilities and Other Contractual Obligations
 The Company participates in many different contractual arrangements which may or may not be recorded on its balance sheet, with unrelated or consolidated entities, under which the Company has an obligation to pay certain amounts, provide credit or liquidity enhancements or provide market risk support. These arrangements include commitments to extend credit, letters of credit and various forms of guarantees. Refer to Note 16 of the Notes to Consolidated Financial Statements for further information on guarantees and contingent liabilities. These arrangements also include any obligation related to a variable interest held in an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support. Refer to Note 6 of the Notes to Consolidated Financial Statements for further information related to the Company’s interests in variable interest entities.
 
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Table 10
     Regulatory Capital Ratios

(Dollars in Millions)           June 30,
2022
    December 31,
2021
 
Basel III standardized approach:
                        
Common equity tier 1 capital
           $ 42,944     $ 41,701  
Tier 1 capital
             50,195       48,516  
Total risk-based capital
             58,307       56,250  
Risk-weighted assets
             441,804       418,571  
       
Common equity tier 1 capital as a percent of risk-weighted assets
             9.7     10.0
Tier 1 capital as a percent of risk-weighted assets
             11.4       11.6  
Total risk-based capital as a percent of risk-weighted assets
             13.2       13.4  
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
             8.6       8.6  
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)
 
 
 
 
     7.1       6.9  
 
Capital Management
 The Company is committed to managing capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit. The Company also manages its capital to exceed regulatory capital requirements for banking organizations. The regulatory capital requirements effective for the Company follow Basel III, with the Company being subject to calculating its capital adequacy as a percentage of risk-weighted assets under the standardized approach. Beginning in 2022, the Company began to phase into its regulatory capital requirements the cumulative deferred impact of its 2020 adoption of the accounting guidance related to the impairment of financial instruments based on the current expected credit losses (“CECL”) methodology plus 25 percent of its quarterly credit reserve increases over the past two years. This cumulative deferred impact will be phased into the Company’s regulatory capital over the next three years, culminating with a fully phased in regulatory capital calculation beginning in 2025. Table 10 provides a summary of statutory regulatory capital ratios in effect for the Company at June 30, 2022 and December 31, 2021. All regulatory ratios exceeded regulatory “well-capitalized” requirements.
The Company believes certain other capital ratios are useful in evaluating its capital adequacy. The Company’s tangible common equity, as a percent of tangible assets and as a percent of risk-weighted assets determined in accordance with transitional regulatory capital requirements related to the CECL methodology under the standardized approach, was 5.5 percent and 7.2 percent, respectively, at June 30, 2022, compared with 6.8 percent and 9.2 percent, respectively, at December 31, 2021. In addition, the Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the CECL methodology was 9.4 percent at June 30, 2022, compared with 9.6 percent at December 31, 2021. Refer to “Non-GAAP Financial Measures” beginning on page 31 for further information on these other capital ratios.
Total U.S. Bancorp shareholders’ equity was $48.6 billion at June 30, 2022, compared with $54.9 billion at December 31, 2021. The decrease was primarily the result of changes in unrealized gains and losses on available-for-sale investment securities included in other comprehensive income (loss) and dividends paid, partially offset by corporate earnings and the issuance of preferred stock.
The Company announced on December 22, 2020 that its Board of Directors had approved an authorization to repurchase $3.0 billion of its common stock beginning January 1, 2021, and repurchased $1.5 billion of its common stock during the first six months of 2021 under this program. The Company suspended all common stock repurchases at the beginning of the third quarter of 2021, except for those done exclusively in connection with its stock-based compensation programs, due to its pending acquisition of MUFG Union Bank’s core regional banking franchise. The Company expects to operate at a common equity tier 1 capital ratio near its target ratio of 8.5 percent at the time of closing the acquisition and increasing toward 9.0 percent after closing of the acquisition. The Company does not expect to commence repurchasing its common stock until after the acquisition closes and its common equity tier 1 capital ratio approximates 9.0 percent.
The following table provides a detailed analysis of all shares of common stock of the Company purchased by the Company or any affiliated purchaser during the second quarter of 2022:
 
Period   Total Number
of Shares
Purchased
    Average
Price Paid
Per Share
    Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
    Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program
(In Millions)
 
April
    308,312 (a)    $ 53.07       8,312     $ 1,390  
May
    392       44.52       392       1,390  
June
    994       48.05       994       1,390  
Total
    309,698 (a)    $ 53.05       9,698     $ 1,390  
 
(a)
Includes 300,000 shares of common stock purchased, at an average price per share of $53.11, in open-market transactions by U.S. Bank National Association, the Company’s banking subsidiary, in its capacity as trustee of the U.S. Bank 401(k) Savings Plan, which is the Company’s employee retirement savings plan.
 
26
  U.S. Bancorp

Table of Contents
The Company will continue to monitor its capital position and may adjust its capital distributions based on economic conditions and its financial performance. Capital distributions, including dividends and stock repurchases, are subject to the approval of the Company’s Board of Directors and compliance with regulatory requirements.
Refer to “Management’s Discussion and Analysis — Capital Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for further discussion on capital management.
LINE OF BUSINESS FINANCIAL REVIEW
The Company’s major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance.
Basis for Financial Presentation
 Business line results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. Refer to Note 17 of the Notes to Consolidated Financial Statements for further information on the business lines’ basis for financial presentation.
Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2022, certain organization and methodology changes were made and, accordingly, 2021 results were restated and presented on a comparable basis.
Corporate and Commercial Banking
Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients. Corporate and Commercial Banking contributed $377 million of the Company’s net income in the second quarter and $793 million in the first six months of 2022, or decreases of $41 million (9.8 percent) and $87 million (9.9 percent), respectively, compared with the same periods of 2021.
Net revenue increased $65 million (6.6 percent) in the second quarter and $59 million (3.0 percent) in the first six months of 2022, compared with the same periods of 2021. Net interest income, on a taxable-equivalent basis, increased $58 million (8.0 percent) in the second quarter and $75 million (5.2 percent) in the first six months of 2022, compared with the same periods of 2021. The increases were primarily due to higher loan and interest-bearing deposit balances, partially offset by lower spreads on loans and unfavorable changes in deposit rates. Noninterest income increased $7 million (2.6 percent) in the second quarter of 2022, compared with the second quarter of 2021, primarily due to stronger treasury management fees driven by core growth and increased federal government volume. Noninterest income decreased $16 million (3.0 percent) in the first six months of 2022, compared with the first six months of 2021, primarily due to lower corporate bond fees and trading revenue within the capital markets business, partially offset by higher treasury management fees.
Noninterest expense increased $20 million (4.6 percent) in the second quarter and $25 million (2.9 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to higher Federal Deposit Insurance Corporation insurance expense and higher compensation expense primarily due to merit increases, variable compensation and hiring to support business growth, partially offset by lower performance-based incentives related to capital markets activity. The provision for credit losses increased $100 million in the second quarter and $150 million in the first six months of 2022, compared with the same periods of 2021, primarily due to loan loss provisions supporting stronger growth in loan balances, partially offset by improving portfolio credit quality.
Consumer and Business Banking
 Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking. Consumer and Business Banking contributed $501 million of the Company’s net income in the second quarter and $880 million in the first six months of 2022, or decreases of $145 million (22.4 percent) and $331 million (27.3 percent), respectively, compared with the same periods of 2021.
 
U.S. Bancorp  
27

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

Table of Contents
   
Corporate and
Commercial Banking
          
Consumer and
Business Banking
          
Wealth Management and
Investment Services
        
Six Months Ended June 30
(Dollars in Millions)
  2022     2021     Percent
Change
           2022     2021     Percent
Change
           2022     2021     Percent
Change
        
Condensed Income Statement
                                                                                               
Net interest income (taxable-equivalent basis)
  $ 1,523     $ 1,448       5.2            $ 3,129     $ 3,035       3.1            $ 627     $ 514       22.0         
Noninterest income
    517       533       (3.0             856       1,203       (28.8             1,248       1,080       15.6          
Total net revenue
    2,040       1,981       3.0               3,985       4,238       (6.0             1,875       1,594       17.6          
Noninterest expense
    878       853       2.9               2,839       2,731       4.0               1,174       1,020       15.1          
Income (loss) before provision and income taxes
    1,162       1,128       3.0               1,146       1,507       (24.0             701       574       22.1          
Provision for credit losses
    104       (46     *               (28     (108     74.1               4       1       *          
Income (loss) before income taxes
    1,058       1,174       (9.9             1,174       1,615       (27.3             697       573       21.6          
Income taxes and taxable-equivalent adjustment
    265       294       (9.9             294       404       (27.2             175       144       21.5          
Net income (loss)
    793       880       (9.9             880       1,211       (27.3             522       429       21.7          
Net (income) loss attributable to noncontrolling interests
                                                                             
Net income (loss) attributable to U.S. Bancorp
  $ 793     $ 880       (9.9           $ 880     $ 1,211       (27.3           $ 522     $ 429       21.7          
Average Balance Sheet
                                                                                               
Loans
  $ 119,557     $ 102,201       17.0             $ 140,984     $ 141,170       (.1           $ 21,521     $ 17,147       25.5          
Goodwill
    1,912       1,647       16.1               3,252       3,476       (6.4             1,739       1,618       7.5          
Other intangible assets
    4       5       (20.0             3,406       2,661       28.0               283       63       *          
Assets
    132,856       114,229       16.3               156,770       162,803       (3.7             25,124       20,297       23.8          
Noninterest-bearing deposits
    60,298       58,524       3.0               31,807       33,244       (4.3             26,204       22,339       17.3          
Interest-bearing deposits
    90,336       70,943       27.3               167,279       154,450       8.3               71,024       78,489       (9.5        
Total deposits
    150,634       129,467       16.3               199,086       187,694       6.1               97,228       100,828       (3.6        
Total U.S. Bancorp shareholders’ equity
    13,859       14,092       (1.7             12,311       12,407       (.8             3,607       3,062       17.8          
 
   
Payment
Services
          
Treasury and
Corporate Support
          
Consolidated
Company
        
Six Months Ended June 30
(Dollars in Millions)
  2022     2021     Percent
Change
           2022     2021     Percent
Change
           2022     2021     Percent
Change
        
Condensed Income Statement
                                                                                               
Net interest income (taxable-equivalent basis)
  $ 1,241     $ 1,224       1.4            $ 144     $ 32       *           $ 6,664     $ 6,253       6.6         
Noninterest income
    1,852       1,698       9.1               471       486       (3.1             4,944       5,000       (1.1        
Total net revenue
    3,093       2,922       5.9               615       518       18.7               11,608       11,253       3.2          
Noninterest expense
    1,726       1,627       6.1               609       535       13.8               7,226       6,766       6.8          
Income (loss) before provision and income taxes
    1,367       1,295       5.6               6       (17     *               4,382       4,487       (2.3        
Provision for credit losses
    351       50       *               (8     (894     99.1               423       (997     *          
Income (loss) before income taxes
    1,016       1,245       (18.4             14       877       (98.4             3,959       5,484       (27.8        
Income taxes and taxable-equivalent adjustment
    254       311       (18.3             (121     58       *               867       1,211       (28.4        
Net income (loss)
    762       934       (18.4             135       819       (83.5             3,092       4,273       (27.6        
Net (income) loss attributable to noncontrolling interests
                              (4     (11     63.6               (4     (11     63.6          
Net income (loss) attributable to U.S. Bancorp
  $ 762     $ 934       (18.4           $ 131     $ 808       (83.8           $ 3,088     $ 4,262       (27.5        
Average Balance Sheet
                                                                                               
Loans
  $ 32,802     $ 29,831       10.0             $ 3,744     $ 3,789       (1.2           $ 318,608     $ 294,138       8.3          
Goodwill
    3,322       3,175       4.6                                         10,225       9,916       3.1          
Other intangible assets
    450       530       (15.1                                       4,143       3,259       27.1          
Assets
    39,803       35,356       12.6               224,110       217,372       3.1               578,663       550,057       5.2          
Noninterest-bearing deposits
    3,534       5,146       (31.3             2,532       2,591       (2.3             124,375       121,844       2.1          
Interest-bearing deposits
    164       137       19.7               2,174       1,932       12.5               330,977       305,951       8.2          
Total deposits
    3,698       5,283       (30.0             4,706       4,523       4.0               455,352       427,795       6.4          
Total U.S. Bancorp shareholders’ equity
    8,067       7,535       7.1               13,460       15,750       (14.5             51,304       52,846       (2.9        
 
*
Not meaningful
 
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Net revenue decreased $156 million (7.2 percent) in the second quarter and $253 million (6.0 percent) in the first six months of 2022, compared with the same periods of 2021. Noninterest income decreased $239 million (37.7 percent) in the second quarter and $347 million (28.8 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to lower mortgage banking revenue reflecting lower application volume, given declining refinance activities, lower related gain on sale margins and lower performing loan sales, partially offset by an increase in the fair value of MSRs, net of hedging activities. Net interest income, on a taxable-equivalent basis, increased $83 million (5.4 percent) in the second quarter and $94 million (3.1 percent) in the first six months of 2022, compared with the same periods of 2021, reflecting strong growth in interest-bearing deposit balances and favorable funding mix, partially offset by lower spreads on loans and lower loan fees driven by the impact of loan forgiveness related to the SBA Paycheck Protection Program.
Noninterest expense increased $44 million (3.2 percent) in the second quarter and $108 million (4.0 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to increases in net shared services expense due to investments in digital capabilities. The provision for credit losses decreased $7 million (10.3 percent) in the second quarter of 2022, compared with the second quarter of 2021, due to strong improvements in credit quality in the second quarter of 2022. The provision for credit losses increased $80 million (74.1 percent) in the first six months of 2022, compared with the first six months of 2021, reflecting a decrease in the reserve allocation in the first six months of 2021 due to credit quality improvement.
Wealth Management and Investment Services
 Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services. Wealth Management and Investment Services contributed $320 million of the Company’s net income in the second quarter and $522 million in the first six months of 2022, or increases of $112 million (53.8 percent) and $93 million (21.7 percent), respectively, compared with the same periods of 2021.
Net revenue increased $209 million (26.3 percent) in the second quarter and $281 million (17.6 percent) in the first six months of 2022, compared with the same periods of 2021. Net interest income, on a taxable-equivalent basis, increased $106 million (43.1 percent) in the second quarter and $113 million (22.0 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to favorable funding mix, higher average noninterest-bearing deposit balances and higher average loan balances. Noninterest income increased $103 million (18.8 percent) in the second quarter and $168 million (15.6 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to the impact of the PFM acquisition and core business growth in trust and investment management fees, as well as lower fee waivers related to money market funds.
Noninterest expense increased $60 million (11.5 percent) in the second quarter and $154 million (15.1 percent) in the first six months of 2022, compared with the same periods of 2021, reflecting higher compensation as a result of merit increases, the PFM acquisition, core business growth and performance-based incentives, as well as higher net shared services expense driven by investment in support of business growth. Noninterest expense further increased in the first six months of 2022, compared with the first six months of 2021, due to litigation settlements and fraud-related losses. The provision for credit losses was flat in the second quarter and increased $3 million in the first six months of 2022, compared with the same periods of 2021.
Payment Services
 Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing. Payment Services contributed $391 million of the Company’s net income in the second quarter and $762 million in the first six months of 2022, or decreases of $50 million (11.3 percent) and $172 million (18.4 percent), respectively, compared with the same periods of 2021.
Net revenue increased $105 million (7.0 percent) in the second quarter and $171 million (5.9 percent) in the first six months of 2022, compared with the same periods of 2021. Noninterest income increased $81 million (8.9 percent) in the second quarter and $154 million (9.1 percent) in the first six months of 2022, compared with the same periods of 2021, mainly due to continued strengthening of consumer and business spending across most sectors. As a result, there was strong growth in merchant processing services revenue driven by higher sales volume and higher merchant fees, partially offset by higher rebates. There was also growth in corporate payment products revenue driven by improving business spending across all product groups. Strong consumer spending also drove an increase in credit and debit card revenue, mostly offset by declining prepaid processing fees as the beneficial impact of
 
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government stimulus programs dissipated year-over-year. Net interest income, on a taxable-equivalent basis, increased $24 million (4.0 percent) in the second quarter and $17 million (1.4 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to higher loan balances and loan fees, partially offset by lower loan yields driven by declining customer revolve rates.
Noninterest expense increased $42 million (5.1 percent) in the second quarter and $99 million (6.1 percent) in the first six months of 2022, compared with the same periods of 2021, reflecting higher net shared services expense driven by investment in infrastructure and technology development, in addition to higher compensation expense as a result of merit increases, core business growth and variable compensation. The provision for credit losses increased $130 million in the second quarter and $301 million in the first six months of 2022, compared with the same periods of 2021, primarily due to stronger growth in loan balances and relatively stable credit quality in the current year, compared with a stronger decline in delinquencies in the prior year.
Treasury and Corporate Support
 Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in tax-advantaged projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of $58 million in the second quarter and net income of $131 million in the first six months of 2022, compared with net income of $269 million and $808 million in the same periods of 2021, respectively.
Net revenue increased $6 million (1.9 percent) in the second quarter and $97 million (18.7 percent) in the first six months of 2022, compared with the same periods of 2021. Net interest income, on a taxable-equivalent basis, increased $29 million (46.0 percent) in the second quarter and $112 million in the first six months of 2022, compared with the same periods of 2021, primarily due to higher investment securities portfolio and cash balances. Noninterest income decreased $23 million (8.9 percent) in the second quarter and $15 million (3.1 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to lower securities gains and lower gains on the disposition of assets, partially offset by higher commercial products revenue.
Noninterest expense increased $171 million (74.7 percent) in the second quarter and $74 million (13.8 percent) in the first six months of 2022, compared with the same periods of 2021, primarily due to merger and integration-related charges associated with the planned acquisition of MUFG Union Bank and higher compensation expense reflecting merit increases, hiring to support business growth and core business growth net of lower variable compensation, partially offset by lower net shared services expense. The provision for credit losses increased $258 million in the second quarter and $886 million (99.1 percent) in the first six months of 2022, compared with the same periods of 2021, reflecting the residual impact of changes in the allowance for credit losses being impacted by increasing economic uncertainty in the current year, compared to improving economic conditions in the prior year.
Income taxes are assessed to each line of business at a managerial tax rate of 25.0 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.
NON-GAAP FINANCIAL MEASURES
In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:
 
Tangible common equity to tangible assets,
 
Tangible common equity to risk-weighted assets, and
 
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology.
These capital measures are viewed by management as useful additional methods of evaluating the Company’s utilization of its capital held and the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in banking regulations. In addition, certain of these measures differ from currently effective capital ratios defined by banking regulations principally in that the currently effective ratios, which are subject to certain transitional provisions, temporarily exclude the impact of the 2020 adoption of accounting guidance related to impairment of financial instruments based on the CECL methodology. As a result, these capital measures disclosed by the Company may be considered non-GAAP financial measures. Management believes this information helps investors assess trends in the Company’s capital adequacy.
 
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The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.
There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this report in their entirety, and not to rely on any single financial measure.
 
The following table shows the Company’s calculation of these non-GAAP financial measures:
 
(Dollars in Millions)   June 30,
2022
    December 31,
2021
 
Total equity
      $ 49,069     $ 55,387  
Preferred stock
    (6,808     (6,371
Noncontrolling interests
    (464     (469
Goodwill (net of deferred tax liability) (1)
    (9,204     (9,323
Intangible assets, other than mortgage servicing rights
    (780     (785
Tangible common equity (a)
    31,813       38,439  
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation
    42,944       41,701  
Adjustments (2)
    (1,300     (1,733
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology (b)
    41,644       39,968  
Total assets
    591,381       573,284  
Goodwill (net of deferred tax liability) (1)
    (9,204     (9,323
Intangible assets, other than mortgage servicing rights
    (780     (785
Tangible assets (c)
    581,397       563,176  
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)
    441,804       418,571  
Adjustments (3)
    (317     (357
Risk-weighted assets, reflecting the full implementation of the CECL methodology (e)
    441,487       418,214  
Ratios
   
Tangible common equity to tangible assets (a)/(c)
    5.5     6.8
Tangible common equity to risk-weighted assets (a)/(d)
    7.2       9.2  
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology (b)/(e)
    9.4       9.6  
 
    Three Months Ended
June 30
          
Six Months Ended
June 30
 
    2022     2021            2022     2021  
Net interest income
  $ 3,435     $ 3,137    
 
  $ 6,608     $ 6,200  
Taxable-equivalent adjustment (4)
    29       27    
 
 
 
    56       53  
Net interest income, on a taxable-equivalent basis
    3,464       3,164    
 
    6,664       6,253  
Net interest income, on a taxable-equivalent basis (as calculated above)
    3,464       3,164    
 
    6,664       6,253  
Noninterest income
    2,548       2,619    
 
    4,944       5,000  
Less: Securities gains (losses), net
    19       43    
 
 
 
    37       68  
Total net revenue, excluding net securities gains (losses) (f)
    5,993       5,740    
 
    11,571       11,185  
 
Noninterest expense (g)
    3,724       3,387    
 
    7,226       6,766  
 
Efficiency ratio (g)/(f)
    62.1     59.0  
 
 
 
    62.4     60.5
 
(1)
Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.
(2)
Includes the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology net of deferred taxes.
(3)
Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology.
(4)
Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
 
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CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Company’s financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Company’s financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee. Those policies considered to be critical accounting policies relate to the allowance for credit losses, fair value estimates, MSRs, and income taxes. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” and the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon this evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
During the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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U.S. Bancorp
Consolidated Balance Sheet
 
(Dollars in Millions)   June 30,
2022
    December 31,
2021
 
    (Unaudited)        
     
Assets
               
Cash and due from banks
  $ 39,124     $ 28,905  
Investment securities
               
Held-to-maturity (fair value $55,657 and $41,812, respectively)
    61,503       41,858  
Available-for-sale ($987
 
and $557 pledged as collateral, respectively) (a)
    98,806       132,963  
Loans held for sale (including $2,773 and $6,623 of mortgage loans carried at fair value, respectively)
    3,943       7,775  
Loans
               
Commercial
    125,983       112,023  
Commercial real estate
    39,753       39,053  
Residential mortgages
    82,114       76,493  
Credit card
    23,697       22,500  
Other retail
    60,822       61,959  
Total loans
    332,369       312,028  
Less allowance for loan losses
    (5,832     (5,724
Net loans
    326,537       306,304  
Premises and equipment
    3,177       3,305  
Goodwill
    10,157       10,262  
Other intangible assets
    4,487       3,738  
Other assets (including $1,258
 
and $1,193 of trading securities at fair value pledged as collateral, respectively) (a)
    43,647       38,174  
Total assets
  $ 591,381     $ 573,284  
     
Liabilities and Shareholders’ Equity
               
Deposits
               
Noninterest-bearing
  $ 129,130     $ 134,901  
Interest-bearing
    337,972       321,182  
Total deposits
    467,102       456,083  
Short-term borrowings
    24,963       11,796  
Long-term debt
    29,408       32,125  
Other liabilities
    20,839       17,893  
Total liabilities
    542,312       517,897  
Shareholders’ equity
               
Preferred stock
    6,808       6,371  
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares; issued: 6/30/22 and 12/31/21—2,125,725,742 shares
    21       21  
Capital surplus
    8,555       8,539  
Retained earnings
    70,772       69,201  
Less cost of common stock in treasury: 6/30/22—639,959,317 shares; 12/31/21—642,223,571 shares
    (27,190     (27,271
Accumulated other comprehensive income (loss)
    (10,361     (1,943
Total U.S. Bancorp shareholders’ equity
    48,605       54,918  
Noncontrolling interests
    464       469  
Total equity
    49,069       55,387  
Total liabilities and equity
  $ 591,381     $ 573,284  
 
(a)
Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
See Notes to Consolidated Financial Statements.
 
3
4
  U.S. Bancorp

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

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

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

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

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

Notes to Consolidated Financial Statements
(Unaudited)
 
 Note 1
 
   Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Certain amounts in prior periods have been reclassified to conform to the current period presentation.
 
  Note 2
 
   Accounting Changes
Reference Interest Rate Transition
In March 2020, the Financial Accounting Standards Board (“FASB”) issued accounting guidance, providing temporary optional expedients and exceptions to the guidance in United States generally accepted accounting principles on contract modifications and hedge accounting, to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. Under the guidance, a company can elect not to apply certain modification accounting requirements to contracts affected by reference rate transition, if certain criteria are met. A company that makes this election would not be required to remeasure the contracts at the modification date or reassess a previous accounting determination. This guidance also permits a company to elect various optional expedients that would allow it to continue applying hedge accounting for hedging relationships affected by reference rate transition, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is in the process of evaluating and applying, as applicable, the optional expedients and exceptions in accounting for eligible contract modifications, eligible existing hedging relationships and new hedging relationships available through December 31, 2022. The adoption of this guidance has not had, and is expected to continue to not have, a material impact on the Company’s financial statements.
Fair Value Hedging – Portfolio Layer Method
In March 2022, the FASB issued accounting guidance, effective for the Company no later than January 1, 2023, related to fair value hedge accounting of portfolios of financial assets. This guidance expands the current last-of-layer hedging method that permits a company to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets, by allowing it to designate multiple hedging relationships on a single closed portfolio, resulting in a larger portion of the interest rate risk associated with such a portfolio being eligible to be hedged. The guidance also expands the scope of the method to include non-prepayable financial assets and clarifies other technical questions from the original accounting guidance. The Company expects the adoption of this guidance will not be material to its financial statements.
Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued accounting guidance, effective for the Company no later than January 1, 2023, related to the recognition and measurement of troubled debt restructurings (“TDRs”) by creditors. This guidance removes the separate recognition and measurement requirements for TDRs by replacing them with a requirement for a company to apply existing accounting guidance to determine whether a modification results in a new loan or a continuation of an existing loan. This guidance also replaces existing TDR disclosures with similar but more expansive disclosures for certain modifications of receivables made to borrowers experiencing financial difficulty. Further, this guidance also requires companies to disclose current-period gross write-offs by year of origination for financing receivables. The guidance can be adopted on a prospective or modified retrospective basis. The Company expects the adoption of this guidance will not be material to its financial statements.
 
U.S. Bancorp  
39

  Note  3
 
   Business Combinations
In September 2021, the Company announced that it entered into a definitive agreement to acquire MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial
Group, Inc.
(“MUFG”), for an expected purchase price of approximately $8.0 billion, including $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The transaction excludes the purchase of
substantially all of 
MUFG Union Bank’s Global Corporate & Investment Bank
 (other than certain deposits), 
certain middle and back office functions, and other assets. MUFG Union Bank has approximately 300 branches in California, Washington and Oregon and is expected to add approximately $105 billion in total assets, $58 billion of loans and $90 billion of deposits to the Company’s consolidated balance sheet. Closing of the transaction is subject to customary closing conditions, including regulatory approvals which are not within the Company’s control.
The parties continue to make significant progress in planning for closing and integration while awaiting regulatory approvals. At this time, the Company expects to receive U.S. regulatory approvals in time for closing to occur in the second half of 2022. 
 
  Note  4
 
   Investment Securities
The Company’s held-to-maturity investment securities are carried at historical cost, adjusted for amortization of premiums and accretion of discounts. The Company’s available-for-sale investment securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
The amortized cost, gross unrealized holding gains and losses, and fair value of held-to-maturity and available-for-sale investment securities were as follows:
 
    June 30, 2022      December 31, 2021  
(Dollars in Millions)   Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
    Fair
Value
     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
    Fair
Value
 
Held-to-maturity
                                                                    
U.S. Treasury and agencies
  $ 1,343      $      $ (6   $ 1,337      $      $      $     $  
Residential agency mortgage-backed securities
    60,160        2        (5,842     54,320        41,858        2        (48     41,812  
Total held-to-maturity
  $ 61,503      $ 2      $ (5,848   $ 55,657      $ 41,858      $ 2      $ (48   $ 41,812  
Available-for-sale
                                                                    
U.S. Treasury and agencies
  $ 25,779      $      $ (2,012   $ 23,767      $ 36,648      $ 205      $ (244   $ 36,609  
Mortgage-backed securities
                                                                    
Residential agency
    62,788        23        (5,059     57,752        76,761        665        (347     77,079  
Commercial agency
    8,756               (1,192     7,564        8,633        53        (201     8,485  
Asset-backed securities
                               62        4              66  
Obligations of state and political subdivisions
    10,925        11        (1,220     9,716        10,130        607        (20     10,717  
Other
    7                     7        7                     7  
Total available-for-sale
  $ 108,255      $ 34      $ (9,483   $ 98,806      $ 132,241      $ 1,534      $ (812   $ 132,963  
During the second quarter of 2022, the Company transferred $17.1 billion amortized cost ($15.7 billion fair value) of available-for-sale investment securities to the held-to-maturity category to reflect its new intent for these securities.
Investment securities with a fair value of $16.9 billion at June 30, 2022, and $30.7 billion at December 31, 2021, were pledged to secure public, private and trust deposits, repurchase agreements and for other purposes required by contractual obligation or law. Included in these amounts were securities where the Company and certain counterparties have agreements granting the counterparties the right to sell or pledge the securities. Investment securities securing these types of arrangements had a fair value of $987 million at June 30, 2022, and $557 million at December 31, 2021.
The following table provides information about the amount of interest income from taxable and non-taxable investment securities:
 
    Three Months Ended
June 30
    Six Months Ended
June 30
 
(Dollars in Millions)           2022              2021             2022              2021  
Taxable
  $ 732      $ 554     $ 1,378      $ 1,009  
Non-taxable
    74        64       145        126  
Total interest income from investment securities
  $ 806      $ 618     $ 1,523      $ 1,135  
 
4
0
  U.S. Bancorp

The following table provides information about the amount of gross gains and losses realized through the sales of available-for-sale investment securities:
 
    Three Months Ended
June 30
    Six Months Ended
June 30
 
(Dollars in Millions)           2022             2021             2022             2021  
Realized gains
  $ 144     $ 43     $ 386     $ 68  
Realized losses
    (125           (349      
Net realized gains
  $ 19     $ 43     $ 37     $ 68  
Income tax on net realized gains
  $ 5     $ 11     $ 9     $ 17  
The Company conducts a regular assessment of its available-for-sale investment securities with unrealized losses to determine whether all or some portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. If the Company intends to sell or it is more likely than not the Company will be required to sell an investment security, the amortized cost of the security is written down to fair value. When evaluating credit losses, the Company considers various factors such as the nature of the investment security, the credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows of underlying collateral, the existence of any government or agency guarantees, and market conditions. The Company measures the allowance for credit losses using market information where available and discounting the cash flows at the original effective rate of the investment security. The allowance for credit losses is adjusted each period through earnings and can be subsequently recovered. The allowance for credit losses on the Company’s available-for-sale investment securities was immaterial at June 30, 2022 and December 31, 2021.
At June 30, 2022, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at June 30, 2022:
 
    Less Than 12 Months      12 Months or Greater      Total  
(Dollars in Millions)  
Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
    
Fair
Value
     Unrealized
Losses
 
U.S. Treasury and agencies
  $ 19,590      $ (1,581    $ 3,511              $ (431    $ 23,101      $ (2,012
Residential agency mortgage-backed securities
    50,819        (4,281      5,360        (778      56,179        (5,059
Commercial agency mortgage-backed securities
    4,852        (657      2,711        (535      7,563        (1,192
Obligations of state and political subdivisions
    8,430        (1,057      396        (163      8,826        (1,220
Other
    6                             6         
Total investment securities
  $ 83,697      $ (7,576    $ 11,978              $ (1,907    $ 95,675      $ (9,483
These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase of these available-for-sale investment securities. U.S. Treasury and agencies securities and agency mortgage-backed securities are issued, guaranteed or otherwise supported by the United States government. The Company’s obligations of state and political subdivisions are generally high grade. Accordingly, the Company does not consider these unrealized losses to be credit-related and an allowance for credit losses is not necessary. In general, the issuers of the investment securities are contractually prohibited from prepayment at less than par, and the Company did not pay significant purchase premiums for these investment securities. At June 30, 2022, the Company had no plans to sell investment securities with unrealized losses, and believes it is more likely than not it would not be required to sell such investment securities before recovery o
f
 their amortized cost.
During the six months ended June 30, 2022 and 2021, the Company did not purchase any investment securities that had more-than-insignificant credit deterioration.
All of the Company’s held-to-maturity investment securities are highly rated agency mortgage-backed securities that are guaranteed or otherwise supported by the United States government and have no history of credit losses. Accordingly the Company does not expect to incur any credit losses on held-to-maturity investment securities and has no allowance for credit losses recorded for these securities.
 
U.S. Bancorp  
4
1

The following table provides information about the amortized cost, fair value and yield by maturity date of the investment securities outstanding at June 30, 2022:
 
(Dollars in Millions)   Amortized
Cost
     Fair
Value
     Weighted-
Average
Maturity in
Years
     Weighted-
Average
Yield (e)
 
Held-to-maturity
                                  
U.S. Treasury and Agencies
                                  
Maturing in one year or less
  $      $              
Maturing after one year through five years
    1,343        1,337        3.8        2.85  
Maturing after five years through ten years
                          
Maturing after ten years
                          
Total
  $ 1,343      $ 1,337        3.8        2.85
Mortgage-Backed Securities (a)
                                  
Maturing in one year or less
  $      $              
Maturing after one year through five years
                          
Maturing after five years through ten years
    23,977        22,825        9.1        2.22  
Maturing after ten years
    36,183        31,495        10.6        1.72  
Total
  $ 60,160      $ 54,320        10.0        1.92
Total held-to-maturity (d)
  $ 61,503      $ 55,657        9.8        1.94
Available-for-sale
                                  
U.S. Treasury and Agencies
                                  
Maturing in one year or less
  $ 1,826      $ 1,824        .3        1.96
Maturing after one year through five years
    3,525        3,296        4.4        1.50  
Maturing after five years through ten years
    17,771        16,479        7.4        2.04  
Maturing after ten years
    2,657        2,168        11.8        1.99  
Total
  $ 25,779      $ 23,767        6.9        1.95
Mortgage-Backed Securities (a)
                                  
Maturing in one year or less
  $ 44      $ 44        .7        2.67
Maturing after one year through five years
    12,785        12,381        3.2        2.03  
Maturing after five years through ten years
    33,303        30,454        7.9        1.81  
Maturing after ten years
    25,412        22,437        10.6        2.11  
Total
  $ 71,544      $ 65,316        8.0        1.96
Obligations of State and Political Subdivisions (b) (c)
                                  
Maturing in one year or less
  $ 182      $ 182        .3        4.63
Maturing after one year through five years
    1,974        1,955        4.0        4.43  
Maturing after five years through ten years
    1,480        1,401        7.2        3.82  
Maturing after ten years
    7,289        6,178        16.9        3.36  
Total
  $ 10,925      $ 9,716        13.0        3.64
Other
                                  
Maturing in one year or less
  $      $              
Maturing after one year through five years
    7        7        2.9        2.07  
Maturing after five years through ten years
                          
Maturing after ten years
                          
Total
  $ 7      $ 7        2.9        2.07
Total available-for-sale (d)
  $ 108,255      $ 98,806        8.2        2.13
 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
The weighted-average maturity of total held-to-maturity investment securities was 7.4 years at December 31, 2021, with a corresponding weighted-average yield of 1.45 percent. The weighted-average maturity of total available-for-sale investment securities was 5.5 years at December 31, 2021, with a corresponding weighted-average yield of 1.73 percent.
(e)
Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.
 
4
2
  U.S. Bancorp

  Note  5
 
   Loans and Allowance for Credit Losses
The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:
 
    June 30, 2022             December 31, 2021  
(Dollars in Millions)   Amount      Percent
of Total
            Amount      Percent
of Total
 
Commercial
                                          
Commercial
  $ 121,130        36.4            $ 106,912        34.3
Lease financing
    4,853        1.5                5,111        1.6  
Total commercial
    125,983        37.9                112,023        35.9  
Commercial Real Estate
                                          
Commercial mortgages
    29,864        9.0                28,757        9.2  
Construction and development
    9,889        3.0                10,296        3.3  
Total commercial real estate
    39,753        12.0                39,053        12.5  
Residential Mortgages
                                          
Residential mortgages
    73,522        22.1                67,546        21.6  
Home equity loans, first liens
    8,592        2.6                8,947        2.9  
Total residential mortgages
    82,114        24.7                76,493        24.5  
Credit Card
    23,697        7.1                22,500        7.2  
Other Retail
                                          
Retail leasing
    6,490        2.0                7,256        2.3  
Home equity and second mortgages
    10,973        3.3                10,446        3.4  
Revolving credit
    2,764        .8                2,750        .9  
Installment
    16,656        5.0                16,514        5.3  
Automobile
    23,830        7.2                24,866        8.0  
Student
    109                       127         
Total other retail
    60,822        18.3                61,959        19.9  
Total loans
  $ 332,369        100.0            $ 312,028        100.0
The Company had loans of $92.4 billion at June 30, 2022, and $92.1 billion at December 31, 2021, pledged at the Federal Home Loan Bank, and loans of $83.7 billion at June 30, 2022, and $76.9 billion at December 31, 2021, pledged at the Federal Reserve Bank.
Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs, and any partial charge-offs recorded. Net unearned interest and deferred fees and costs amounted to $364 million at June 30, 2022 and $475 million at December 31, 2021. All purchased loans are recorded at fair value at the date of purchase. The Company evaluates purchased loans for more-than-insignificant deterioration at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans that have experienced more-than-insignificant deterioration from origination are considered purchased credit deteriorated loans. All other purchased loans are considered non-purchased credit deteriorated loans.
Allowance for Credit Losses
The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis.
Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates, from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of economic forecast uncertainty. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions.
The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels and corporate bonds spreads, as well as loan and
 
U.S. Bancorp  
4
3

borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores, delinquency status, collateral type and available valuation information, consideration of end-of-term losses on lease residuals, and the remaining term of the loan, adjusted for expected prepayments. For each loan portfolio, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or other factors that would affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off or expected recoveries on collateral dependent loans where recovery is expected through sale of the collateral. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses. The allowance recorded for individually evaluated loans greater than $5 million in the commercial lending segment is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate.
The allowance recorded for Troubled Debt Restructuring (“TDR”) loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral less costs to sell. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans.
The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above, are adjusted by management to consider the potential impact of other qualitative factors not captured in the quantitative model adjustments which include, but are not limited to the following: model imprecision, imprecision in economic scenario assumptions, and emerging risks related to either changes in the environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio.
The Company also assesses the credit risk associated with off-balance sheet loan commitments, letters of credit, investment securities and derivatives. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments.
The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each specific loan portfolio, as well as the entire loan portfolio, as the entire allowance for credit losses is available for the entire loan portfolio.
 
44
 
U.S. Bancorp

Table of Contents
Activity in the allowance for credit losses by portfolio class was as follows:
 
Three Months Ended June 30
(Dollars in Millions)
 
Commercial
 
 
Commercial
Real Estate
 
 
Residential
Mortgages
 
 
Credit
Card
 
 
Other
Retail
 
 
Total
Loans
 
2022
 
     
 
     
 
     
 
     
 
     
 
     
Balance at beginning of period
    $1,836       $1,074       $600       $1,639       $   956       $6,105  
Add
                                               
Provision for credit losses
    90       (95     49       225       42       311  
Deduct
                                               
Loans charged-off
    53       9       2       162       50       276  
Less recoveries of loans charged-off
    (23     (3     (11     (44     (34     (115
Net loan charge-offs (recoveries)
    30       6       (9     118       16       161  
Balance at end of period
    $1,896       $
 
 
973
      $658       $1,746       $
 
 
982
      $6,255  
2021
                                         
 
 
 
Balance at beginning of period
    $1,932       $1,532       $539       $1,952       $1,005       $6,960  
Add
                                               
Provision for credit losses
    (67     (123     (71     87       4       (170
Deduct
                                               
Loans charged-off
    58       4       5       192       55       314  
Less recoveries of loans charged-off
    (31     (4     (15     (44     (40     (134
Net loan charge-offs (recoveries)
    27             (10     148       15       180  
Balance at end of period
    $1,838       $1,409       $478       $1,891       $   994       $6,610  
 
Six Months Ended June 30
(Dollars in Millions)
 
Commercial
 
 
Commercial
Real Estate
 
 
Residential
Mortgages
 
 
Credit
Card
 
 
Other
Retail
 
 
Total
Loans
 
2022
 
     
 
     
 
     
 
     
 
     
 
     
Balance at beginning of period
    $1,849       $1,123       $565       $1,673       $   945       $6,155  
Add
                                               
Provision for credit losses
    109       (149     78       303       82       423  
Deduct
                                               
Loans charged-off
    108       10       7       320       111       556  
Less recoveries of loans charged-off
    (46     (9     (22     (90     (66     (233
Net loan charge-offs (recoveries)
    62       1       (15     230       45       323  
Balance at end of period
    $1,896       $
 
 
973
      $658       $1,746       $
 
 
982
      $6,255  
2021
                                         
 
 
 
Balance at beginning of period
    $2,423       $1,544       $573       $2,355       $1,115       $8,010  
Add
                                               
Provision for credit losses
    (502     (142     (110     (172     (71     (997
Deduct
                                               
Loans charged-off
    144       14       10       382       138       688  
Less recoveries of loans charged-off
    (61     (21     (25     (90     (88     (285
Net loan charge-offs (recoveries)
    83       (7     (15     292       50       403  
Balance at end of period
    $1,838       $1,409       $478       $1,891       $   994       $6,610  
The increase in the allowance for credit losses from December 31, 2021 to June 30, 2022 reflected strong loan growth and increased economic uncertainty, partially offset by stabilizing credit quality.
Credit Quality
The credit quality of the Company’s loan portfolios is ass
e
ssed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.
For all loan portfolio classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractually required payments not made (for example, two missed payments is considered 30 days delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed, reducing interest income in the current period.
Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully charged down if unsecured by collateral or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is placed on nonaccrual.
Consumer lending segment loans are generally charged-off at a specific number of days or payments past due. Residential mortgages and other retail loans secured by 1-4 family properties are generally charged down to the fair value of the collateral securing the loan, less costs to sell, at 180 days past due. Residential mortgage loans and lines in a first lien position are placed on nonaccrual status in instances where a partial charge-off occurs unless the loan is well secured and in the process of collection. Residential mortgage loans and lines in a junior lien position secured by 1-4 family properties are placed on nonaccrual status at 120 days past due or when they are behind a first lien that has
 
U.S. Bancorp  
4
5

become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account is charged-off. Credit cards are charged-off at 180 days past due. Other retail loans not secured by 1-4 family properties are charged-off at 120 days past due; and revolving consumer lines are charged-off at 180 days past due. Similar to credit cards, other retail loans are generally not placed on nonaccrual status because of the relative short period of time to charge-off. Certain retail customers having financial difficulties may have the terms of their credit card and other loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.
For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or when the loan becomes well secured and is in the process of collection. Loans where there has been a partial charge-off may be returned to accrual status if all principal and interest (including amounts previously charged-off) is expected to be collected and the loan is current.
The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that are nonperforming:
 
 
 
Accruing
 
  
 
 
  
 
 
(Dollars in Millions)
 
Current
 
  
30-89 Days
Past Due
 

90 Days or
More Past Due
 
  
Nonperforming (b)
 
  
Total
 
June 30, 2022
                                           
Commercial
  $ 125,490        $   254        $  91        $148        $125,983  
Commercial real estate
    39,519        24        4        206        39,753  
Residential mortgages (a)
    81,689        100        102        223        82,114  
Credit card
    23,333        200        164               23,697  
Other retail
    60,376        236        62        148        60,822  
Total loans
  $ 330,407        $
 
 
 
814
       $423        $725        $332,369  
December 31, 2021
                                           
Commercial
  $ 111,270        $   530        $49        $174        $112,023  
Commercial real estate
    38,678        80        11        284        39,053  
Residential mortgages (a)
    75,962        124        181        226        76,493  
Credit card
    22,142        193        165               22,500  
Other retail
    61,468        275        66        150        61,959  
Total loans
  $ 309,520        $1,202        $472        $834        $312,028  
 
(a)
At June 30, 2022, $
642
million of loans 30–89 days past due and $
1.7
billion of loans 90 days or more past due purchased
 and loans that could be purchased 
from Government National Mortgage Association (“GNMA”) mortgage pools
under delinquent loan repurchase options 
whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, were classified as current, compared with $
791
million and $
1.5
billion at December 31, 2021, respectively.
(b)
Substantially all nonperforming loans at June 30, 2022 and December 31, 2021, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $
5
million and $
4
million for the three months ended June 30, 2022 and 2021, respectively, and $
8
million and $
7
million for the six months ended June 30, 2022 and 2021, respectively.
At June 30, 2022, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $23 million, compared with $22 million at December 31, 2021. These amounts excluded $40 million and $22 million at June 30, 2022 and December 31, 2021, respectively, of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at June 30, 2022 and December 31, 2021, was $1.1 billion and $696 million, respectively, of which $898 million and $555 million, respectively, related to loans
purchased and loans that could be purchased
 from Government National Mortgage Association (“GNMA”)
 
mortgage pools under delinquent loan repurchase options whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. 
The Company classifies its loan portfolio classes using internal credit quality ratings on a quarterly basis. These ratings include pass, special mention and classified, and are an important part of the Company’s overall credit risk management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those loans that have a potential weakness deserving management’s close attention. Classified loans
 
4
6
  U.S. Bancorp

are those loans where a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.
The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:
 
    June 30, 2022              December 31, 2021  
          Criticized                         Criticized        
(Dollars in Millions)   Pass     Special
Mention
    Classified (a)     Total
Criticized
    Total              Pass     Special
Mention
    Classified (a)     Total
Criticized
    Total  
Commercial
                                                                                         
Originated in 2022
    $  32,672       $     52       $   142       $   194       $  32,866                 $          –       $       –       $       –       $         –       $          –  
Originated in 2021
    40,532       298       110       408       40,940                   51,155       387       287       674       51,829  
Originated in 2020
    9,809       11       292       303       10,112                 14,091       304       133       437       14,528  
Originated in 2019
    6,624       6       61       67       6,691                 10,159       151       54       205       10,364  
Originated in 2018
    3,313       3       20       23       3,336                 5,122       3       36       39       5,161  
Originated prior to 2018
    3,902       18       38       56       3,958                 4,923       30       81       111       5,034  
Revolving (b)
    27,628       277       175       452       28,080                 24,722       268       117       385       25,107  
Total commercial
    124,480       665       838       1,503       125,983                 110,172       1,143       708       1,851       112,023  
                       
Commercial real estate
                                                                                         
Originated in 2022
    6,689       148       449       597       7,286                                          
Originated in 2021
    11,992       63       452       515       12,507                 13,364       6       990       996       14,360  
Originated in 2020
    6,570       16       181       197       6,767                 7,459       198       263       461       7,920  
Originated in 2019
    5,009       140       340       480       5,489                 6,368       251       610       861       7,229  
Originated in 2018
    2,348       29       211       240       2,588                 2,996       29       229       258       3,254  
Originated prior to 2018
    3,438       19       143       162       3,600                 4,473       55       224       279       4,752  
Revolving
    1,511             5       5       1,516                 1,494       1       43       44       1,538  
Total commercial real estate
    37,557       415       1,781       2,196       39,753                 36,154       540       2,359       2,899       39,053  
                       
Residential mortgages (c)
                                                                                         
Originated in 2022
    12,396                         12,396                                          
Originated in 2021
    29,446             3       3       29,449                 29,882             3       3       29,885  
Originated in 2020
    14,384             10       10       14,394                 15,948       1       8       9       15,957  
Originated in 2019
    5,834             24       24       5,858                 6,938             36       36       6,974  
Originated in 2018
    2,383             18       18       2,401                 2,889             30       30       2,919  
Originated prior to 2018
    17,328             288       288       17,616                 20,415             342       342       20,757  
Revolving
                                            1                         1  
Total residential mortgages
    81,771             343       343       82,114                 76,073       1       419       420       76,493  
                       
Credit card (d)
    23,532             165       165       23,697                 22,335             165       165       22,500  
                       
Other retail
                                                                                         
Originated in 2022
    7,650             1       1       7,651                                          
Originated in 2021
    18,825             8       8       18,833                 22,455             6       6       22,461  
Originated in 2020
    9,981             10       10       9,991                 12,071             9       9       12,080  
Originated in 2019
    5,476             13       13       5,489                 7,223             17       17       7,240  
Originated in 2018
    2,204             10       10       2,214                 3,285             14       14       3,299  
Originated prior to 2018
    2,626             18       18       2,644                 3,699             24       24       3,723  
Revolving
    13,381             113       113       13,494                 12,532             112       112       12,644  
Revolving converted to term
    464             42       42       506                 472             40       40       512  
Total other retail
    60,607             215       215       60,822                 61,737             222       222       61,959  
Total loans
    $327,947       $1,080       $3,342       $4,422       $332,369                 $306,471       $1,684       $3,873       $5,557       $312,028  
Total outstanding commitments
    $702,561       $2,021       $4,851       $6,872       $709,433                 $662,363       $3,372       $5,684       $9,056       $671,419  
 
Note:
Year of origination is based on the origination date of a loan, or for existing loans the date when the maturity date, pricing or commitment amount is amended.
(a)
Classified rating on consumer loans primarily based on delinquency status.
(b)
Includes an immaterial amount of revolving converted to term loans.
(c)
At June 30, 2022, $1.7 billion of GNMA loans 90 days or more past due and $965 million of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $1.5 billion and $1.1 billion at December 31, 2021, respectively.
(d)
Predominately all credit card loans are considered revolving loans. Includes an immaterial amount of revolving converted to term loans.
Troubled Debt Restructurings
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR.
 
U.S. Bancorp  
4
7

The following table provides a summary of loans modified as TDRs for the periods presented by portfolio class:

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

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

Outstanding
Loan Balance
 
Three Months Ended June 30
                                                             
Commercial
    506        $     50        $  41                 526        $     12        $     13  
Commercial real estate
    28        11        9                 30        38        41  
Residential mortgages
    366        106        106                 360        141        140  
Credit card
    8,696        48        49                 5,050        31        31  
Other retail
    756        24        20                 468        18        17  
Total loans, excluding loans purchased from GNMA mortgage pools
    10,352        239        225                 6,434        240        242  
Loans purchased from GNMA mortgage pools
    353        47        50                 478        67        69  
Total loans
    10,705        $   286        $275                 6,912        $   307        $   311  
               
Six Months Ended June 30
                                                             
Commercial
    1,015        $     88        $  73                 1,230        $     87        $     73  
Commercial real estate
    37        22        19                 86        124        112  
Residential mortgages
    1,206        334        332                 696        245        244  
Credit card
    18,035        98        99                 10,836        64        65  
Other retail
    1,484        61        57                 1,793        55        49  
Total loans, excluding loans purchased from GNMA mortgage pools
    21,777        603        580                 14,641        575        543  
Loans purchased from GNMA mortgage pools
    743        102        105                 1,037        154        158  
Total loans
    22,520        $   705        $685                 15,678        $   729        $   701  
Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. At June 30, 2022, 8 residential mortgages, 8 home equity and second mortgage loans and 97 loans purchased from GNMA mortgage pools with outstanding balances of
less than
$1 million,
less than
$1 million and $13 million, respectively, were in a trial period and have estimated post-modification balances of
 
less than
$1 million,
less than
$1 million and $14 million, respectively, assuming permanent modification occurs at the end of the trial period.
The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a case-by-case basis in connection with ongoing loan collection processes.
For the commercial lending segment, modifications generally result in the Company working with borrowers on a case-by-case basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market interest rate. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies all of the above concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.
Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.
Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.
 
48
  U.S. Bancorp

In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs.
The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more past due) for the periods presented, that were modified as TDRs within 12 months previous to default:
 
    2022              2021  
(Dollars in Millions)
  Number
of Loans
     Amount
Defaulted
             Number
of Loans
     Amount
Defaulted
 
Three Months Ended June 30
                                           
Commercial
    175        $  3                 327        $    8  
Commercial real estate
    2        1                 5        1  
Residential mortgages
    79        7                 12        1  
Credit card
    1,727        9                 1,805        11  
Other retail
    60        1                 191        3  
Total loans, excluding loans purchased from GNMA mortgage pools
    2,043        21                 2,340        24  
Loans purchased from GNMA mortgage pools
    120        17                 43        6  
Total loans
    2,163        $38                 2,383        $  30  
           
Six Months Ended June 30
                                           
Commercial
    389        $  6                 612        $  24  
Commercial real estate
    5        2                 12        6  
Residential mortgages
    113        10                 27        3  
Credit card
    3,361        18                 3,569        20  
Other retail
    143        2                 471        8  
Total loans, excluding loans purchased from GNMA mortgage pools
    4,011        38                 4,691        61  
Loans purchased from GNMA mortgage pools
    169        25                 73        10  
Total loans
    4,180        $63                 4,764        $  71  
In addition to the defaults in the table above, the Company had a total of 12 and 28 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and six months ended June 30, 2022, respectively, where borrowers did not successfully complete the trial period arrangement and, therefore, are no longer eligible for a permanent modification under the applicable modification program. These loans had aggregate outstanding balances of $2 million and $4 million for the three months and six months ended June 30, 2022, respectively.
As of June 30, 2022, the Company had $112 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified in TDRs.
 
 Note 6
     Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities
The Company transfers financial assets in the normal course of business. The majority of the Company’s financial asset transfers are residential mortgage loan sales primarily to government-sponsored enterprises (“GSEs”), transfers of
tax-advantaged
investments, commercial loan sales through participation agreements, and other individual or portfolio loan and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. Guarantees provided to certain third parties in connection with the transfer of assets are further discussed in Note 16.
For loans sold under participation agreements, the Company also considers whether the terms of the loan participation agreement meet the accounting definition of a participating interest. With the exception of servicing and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses. Any gain or loss on sale depends on the previous carrying amount of the transferred financial assets, the consideration received, and any liabilities incurred in exchange for the transferred assets. Upon transfer, any servicing assets and other interests that continue to be held by the Company are initially recognized at fair value. For further information on mortgage servicing rights (“MSRs”), refer to Note 7. On a limited basis, the Company may acquire and package high-grade corporate bonds for select corporate customers, in which the Company generally has no continuing involvement with these transactions. Additionally, the Company is an authorized GNMA issuer and issues GNMA securities on a regular basis. The Company has no other asset securitizations or similar asset-backed financing arrangements that are
off-balance
sheet.
 
U.S. Bancorp  
49

The Company also provides financial support primarily through the use of waivers of trust and investment management fees associated with various unconsolidated registered money market funds it manages. The Company provided $7 million and $70 million of support to the funds during the three months ended June 30, 2022 and 2021, respectively, and $65 million and $117 million during the six months ended June 30, 2022 and 2021, respectively.
The Company is involved in various entities that are considered to be variable interest entities (“VIEs”). The Company’s investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these
tax-advantaged
investments support the Company’s regulatory compliance with the Community Reinvestment Act. The Company’s investments in these entities generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits are recognized as a reduction of tax expense or, for investments qualifying as investment tax credits, as a reduction to the related investment asset. The Company recognized federal and state income tax credits related to its affordable housing and other
tax-advantaged
investments in tax expense of $112 million and $110 million for the three months ended June 30, 2022 and 2021, respectively, and $225 million and $243 million for the six months ended June 30, 2022 and 2021, respectively. The Company also recognized $162 million and $123 million of investment tax credits for the three months ended June 30, 2022 and 2021, respectively, and $175 million and $160 million for the six months ended June 30, 2022 and 2021, respectively. The Company recognized $106 million of expenses related to all of these investments for both the three months ended June 30, 2022 and 2021, of which $92 million and $87 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense. The Company recognized $208 million and $232 million of expenses related to all of these investments for the six months ended June 30, 2022 and 2021, respectively, of which $183 million and $179 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense.
The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.
The Company’s investments in these unconsolidated VIEs are carried in other assets on the Consolidated Balance Sheet. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in other liabilities on the Consolidated Balance Sheet. The Company’s maximum exposure to loss from these unconsolidated VIEs include the investment recorded on the Company’s Consolidated Balance Sheet, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business and housing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.
The following table provides a summary of investments in community development and
tax-advantaged
VIEs that the Company has not consolidated:
 
(Dollars in Millions)  
June 30,
2022
     December 31,
2021
 
Investment carrying amount
  $ 4,999      $ 4,484  
Unfunded capital and other commitments
    2,210        1,890  
Maximum exposure to loss
    9,872        9,899  
The Company also has noncontrolling financial investments in private investment funds and partnerships considered to be VIEs, which are not consolidated. The Company’s recorded investment in these entities, carried in other assets on the Consolidated Balance Sheet, was approximately $46 million at June 30, 2022 and $40 million at December 31, 2021. The maximum exposure to loss related to these VIEs was $87 million at June 30, 2022 and $84 million at December 31, 2021, representing the Company’s investment balance and its unfunded commitments to invest additional amounts.
The Company’s individual net investments in unconsolidated VIEs, which exclude any unfunded capital commitments, ranged from less than $1 million to $105 million at June 30, 2022, compared with less than $1 million to $75 million at December 31, 2021.
 
5
0
  U.S. Bancorp

The Company is required to consolidate VIEs in which it has concluded it has a controlling financial interest.
The Company sponsors entities to which it transfers its interests in
tax-advantaged
investments to third parties. At June 30, 2022, approximately $4.9 billion of the Company’s assets and $3.3 billion of its liabilities included on the Consolidated Balance Sheet were related to community development and
tax-advantaged
investment VIEs which the Company has consolidated, primarily related to these transfers. These amounts compared to $5.0 billion and $3.4 billion, respectively, at December 31, 2021. The majority of the assets of these consolidated VIEs are reported in other assets, and the liabilities are reported in long-term debt and other liabilities. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIEs do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIEs is generally limited to the carrying value of its variable interests plus any related tax credits previously recognized or transferred to others with a guarantee.
In addition, the Company sponsors a municipal bond securities tender option bond program. The Company controls the activities of the program’s entities, is entitled to the residual returns and provides liquidity and remarketing arrangements to the program. As a result, the Company has consolidated the program’s entities. At June 30, 2022, $1.5 billion of
available-for-sale
investment securities and $1.2 billion of short-term borrowings on the Consolidated Balance Sheet were related to the tender option bond program, compared with $1.7 billion of
available-for-sale
investment securities and $1.2 billion of short-term borrowings at December 31, 2021.
 
 Note 7
     Mortgage Servicing Rights
The Company capitalizes MSRs as separate assets when loans are sold and servicing is retained. MSRs may also be purchased from others. The Company carries MSRs at fair value, with changes in the fair value recorded in earnings during the period in which they occur. The Company serviced $226.4 billion of residential mortgage loans for others at June 30, 2022, and $222.4 billion at December 31, 2021, including subserviced mortgages with no corresponding MSR asset. Included in mortgage banking revenue are the MSR fair value changes arising from market rate and model assumption changes, net of the value change in derivatives used to economically hedge MSRs. These changes resulted in net gains of $13 million and net losses of $27 million for the three months ended June 30, 2022 and 2021, respectively, and net losses of $16 million and $147 million for the six months ended June 30, 2022 and 2021, respectively. Loan servicing and ancillary fees, not including valuation changes, included in mortgage banking revenue were $186 million and $178 million for the three months ended June 30, 2022 and 2021 respectively, and $371 million and $353 million for the six months ended June 30, 2022 and 2021, respectively.
Changes in fair value of capitalized MSRs are summarized as follows:
 
    Three Months Ended
June 30
            Six Months Ended
June 30
 
(Dollars in Millions)   2022     2021             2022     2021  
Balance at beginning of period
  $ 3,432     $ 2,787              $ 2,953     $ 2,210  
Rights purchased
    3       11                6       27  
Rights capitalized
    102       293                339       612  
Rights sold (a)
          1                1       1  
Changes in fair value of MSRs
                                        
Due to fluctuations in market interest rates (b)
    289       (232              657       254  
Due to revised assumptions or models (c)
    6       (37              (21     (139
Other changes in fair value (d)
    (125     (110              (228     (252
Balance at end of period
  $ 3,707     $ 2,713              $ 3,707     $ 2,713  
 
(a)
MSRs sold include those having a negative fair value, resulting from the loans being severely delinquent.
(b)
Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
(c)
Includes changes in MSR value not caused by changes in market interest rates, such as changes in assumed cost to service, ancillary income and option adjusted spread, as well as the impact of any model changes.
(d)
Primarily the change in MSR value from passage of time and cash flows realized (decay), but also includes the impact of changes to expected cash flows not associated with changes in market interest rates, such as the impact of delinquencies.
 
U.S. Bancorp  
5
1

The estimated sensitivity to changes in interest rates of the fair value of the MSR portfolio and the related derivative instruments was as follows:
 
    June 30, 2022              December 31, 2021  
(Dollars in Millions)   Down
100 bps
     Down
50 bps
     Down
25 bps
     Up
25 bps
     Up
50 bps
     Up
100 bps
             Down
100 bps
     Down
50 bps
     Down
25 bps
     Up
25 bps
     Up
50 bps
     Up
100 bps
 
MSR portfolio
  $ (380)      $ (172)      $ (81)      $ 71      $ 133      $ 231               $ (636)      $ (324)      $ (160)      $ 150      $ 287      $ 511  
Derivative instrument hedges
    371        170        81        (73)        (141)        (261)                 614        309        152        (142)        (278)        (536)  
Net sensitivity
  $ (9)      $ (2)      $      $ (2)      $ (8)      $ (30)               $ (22)      $ (15)      $ (8)      $ 8      $ 9      $ (25)  
Th
e
 fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Housing Finance Agency (“HFA”) mortgages. The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-rate or jumbo mortgage loans. The HFA servicing portfolio is comprised of loans originated under state and local housing authority program guidelines which assist purchases by first-time or
low-
to moderate-income homebuyers through a favorable rate subsidy, down payment and/or closing cost assistance on government- and conventional-insured mortgages.
A summary of the Company’s MSRs and related characteristics by portfolio was as follows:
 
    June 30, 2022            December 31, 2021  
(Dollars in Millions)   HFA     Government     Conventional (d)     Total            HFA     Government     Conventional (d)     Total  
Servicing portfolio (a)
  $ 41,701     $ 21,358     $ 159,657     $ 222,716             $ 40,652     $ 21,919     $ 156,382     $ 218,953  
Fair value
  $ 697     $ 403     $ 2,607     $ 3,707             $ 527     $ 308     $ 2,118     $ 2,953  
Value (bps) (b)
    167       189       163       166               130       141       135       135  
Weighted-average servicing fees (bps)
    36       41       30       32               36       41       30       32  
Multiple (value/servicing fees)
    4.65       4.59       5.41       5.15               3.63       3.43       4.50       4.18  
Weighted-average note rate
    4.02     3.67     3.40     3.54             4.07     3.70     3.41     3.56
Weighted-average age (in years)
    3.9       6.0       3.5       3.8               3.8       5.9       3.3       3.7  
Weighted-average expected prepayment (constant prepayment rate)
    7.5     8.5     6.5     6.9             11.5     13.2     9.6     10.3
Weighted-average expected life (in years)
    8.6       7.4       8.2       8.2               6.5       5.6       6.9       6.7  
Weighted-average option adjusted spread (c)
    7.2     6.9     5.9     6.2             7.3     7.3     6.3     6.6
 
(a)
Represents principal balance of mortgages having corresponding MSR asset.
(b)
Calculated as fair value divided by the servicing portfolio.
(c)
Option adjusted spread is the incremental spread added to the risk-free rate to reflect optionality and other risk inherent in the MSRs.
(d)
Represents loans sold primarily to GSEs.
 
 Note 8 
     Preferred Stock
At June 30, 2022 and December 31, 2021, the Company had authority to issue 50 million shares of preferred stock. The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock were as follows:
 
    June 30, 2022              December 31, 2021  
(Dollars in Millions)   Shares
Issued and
Outstanding
     Liquidation
Preference
     Discount      Carrying
Amount
             Shares
Issued and
Outstanding
     Liquidation
Preference
     Discount      Carrying
Amount
 
Series A
    12,510      $ 1,251      $ 145      $ 1,106                 12,510      $ 1,251      $ 145      $ 1,106  
Series B
    40,000        1,000               1,000                 40,000        1,000               1,000  
Series J
    40,000        1,000        7        993                 40,000        1,000        7        993  
Series K
    23,000        575        10        565                 23,000        575        10        565  
Series L
    20,000        500        14        486                 20,000        500        14        486  
Series M
    30,000        750        21        729                 30,000        750        21        729  
Series N
    60,000        1,500        8        1,492                 60,000        1,500        8        1,492  
Series O
    18,000        450        13        437                                       
Total preferred stock (a)
    243,510      $ 7,026      $ 218      $ 6,808                 225,510      $ 6,576      $ 205      $ 6,371  
 
(a)
The par value of all shares issued and outstanding at June 30, 2022 and December 31, 2021, was $1.00 per share.
During the first six months of 2022, the Company issued depositary shares representing an ownership interest in 18,000 shares of Series O
Non-Cumulative
Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series O Preferred Stock”). The Series O Preferred Stock has no stated maturity and will not be subject to
 
5
2
  U.S. Bancorp

any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 4.50 percent. The Series O Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after April 15, 2027. The Series O Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to April 15, 2027 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series O Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.
 
 Note 9 
 
   Accumulated Other Comprehensive Income (Loss)
Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss). The reconciliation of the transactions affecting accumulated other comprehensive income (loss) included in shareholders’ equity is as follows:
 
Three Months Ended June 30
(Dollars in Millions)
 
Unrealized Gains
(Losses) on
Investment
Securities
Available-For-
Sale
 
 
Unrealized
Gains (Losses)
on Investment
Securities
Transferred
From Available-
For-Sale
to
Held-To-Maturity
 
 
Unrealized Gains
(Losses) on
Derivative Hedges
 
 
Unrealized Gains
(Losses) on
Retirement Plans
 
 
Foreign
Currency
Translation
 
 
Total
 
2022
 
     
 
     
 
     
 
     
 
     
 
     
Balance at beginning of period
  $ (4,518   $ (904   $ (77   $ (1,402   $ (37   $ (6,938
Changes in unrealized gains (losses)
    (4,761           98                   (4,663
Transfer of securities from available-for-sale to
held-to-maturity
   
1,381
      (1,381    
     
     
   
 

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

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

Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and into earnings is as follows:
 
 
 
Impact to Net Income
 
 
Affected Line Item in the
Consolidated Statement of Income
 
 
Three Months Ended
June 30
 
  
Six Months Ended
June 30
 
(Dollars in Millions)
 
2022
 
 
2021
 
  
2022
 
 
2021
 
Unrealized gains (losses) on investment securities
available-for-sale
 
 
 
  
 
 
Realized gains (losses) on sale of investment securities
  $ 19     $ 43      $ 37     $ 68     Securities gains (losses), net
      (5 )     (11)        (9)       (17)     Applicable income taxes
      14       32        28       51    
Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale
to
held-to-maturity
                                    
Amortization of unrealized gains
    (61 )            (103 )         Interest income
      16              26           Applicable income taxes
      (45 )            (77)          
Net-of-tax
Unrealized gains (losses) on derivative hedges
                                    
Realized gains (losses) on derivative hedges
    (10 )     8        (21 )     4     Interest expense
      2       (2)        5       (1)     Applicable income taxes
      (8)       6        (16)       3    
Net-of-tax
Unrealized gains (losses) on retirement plans
                                    
Actuarial gains (losses) and prior service cost (credit) amortization
    (32 )     (40      (64 )     (79   Other noninterest expense
      8       10        16       20     Applicable income taxes
      (24)       (30)        (48)       (59)    
Net-of-tax
Total impact to net income
  $ (63 )   $ 8      $ (113 )   $ (5)      
 
 Note 10
 
   Earnings Per Share
The component
s
 of earnings per share were:
 
    Three Months Ended
June 30
     Six Months Ended
June 30
 
(Dollars and Shares in Millions, Except Per Share Data)       2022         2021          2022         2021  
Net income attributable to U.S. Bancorp
  $ 1,531     $ 1,982      $ 3,088     $ 4,262  
Preferred dividends
    (59     (58      (143     (148
Impact of preferred stock call (a)
                       (5
Earnings allocated to participating stock awards
    (8     (10      (15     (20
Net income applicable to U.S. Bancorp common shareholders
  $ 1,464     $ 1,914      $ 2,930     $ 4,089  
Average common shares outstanding
    1,486       1,489        1,485       1,495  
Net effect of the exercise and assumed purchase of stock awards
    1       1        1       2  
Average diluted common shares outstanding
    1,487       1,490        1,486       1,497  
Earnings per common share
  $ .99     $ 1.29      $ 1.97     $ 2.73  
Diluted earnings per common share
  $ .99     $ 1.28      $ 1.97     $ 2.73  
 
(a)
Represents stock issuance costs originally recorded in preferred stock upon issuance of the Company’s Series I Preferred Stock that were reclassified to retained earnings on the date the Company announced its intent to redeem the outstanding shares.
Options outstanding at June 30, 2022, to purchase 1 million common shares for the three months and six months ended June 30, 2022, and outstanding at June 30, 2021, to purchase 1 million common shares for the six months ended June 30, 2021 were not included in the computation of diluted earnings per share because they were antidilutive.
 
 Note 11
 
   Employee Benefits
The components of net periodic benefit cost for the Company’s retirement plans were:
 
    Three Months Ended June 30            Six Months Ended June 30
    Pension Plans     Postretirement
Welfare Plan
           Pension Plans     Postretirement
Welfare Plan
 
(Dollars in Millions)   2022     2021     2022     2021            2022     2021     2022     2021  
Service cost
  $ 68     $ 66     $     $             $ 137     $ 132     $     $  
Interest cost
    62       55                           123       110              
Expected return on plan assets
    (120     (113                         (239     (225            
Prior service cost (credit) amortization
          (1     (2     (1             (1     (1     (2     (2
Actuarial loss (gain) amortization
    35       43       (1     (1             70       85       (3     (3
Net periodic benefit cost (a)
  $ 45     $ 50     $ (3   $ (2           $ 90     $ 101     $ (5   $ (5
 
(a)
Service cost is included in employee benefits expense on the Consolidated Statement of Income. All other components are included in other noninterest expense on the Consolidated Statement of Income.
 
5
4
  U.S. Bancorp

Note 12
 
   Income Taxes
The components of income tax expense were:
 
    Three Months Ended
June 30
     Six Months Ended
June 30
 
(Dollars in Millions)       2022         2021                  2022          2021  
Federal
                                          
Current
  $ 221     $ 350               $ 625      $ 703  
           
Deferred
    107       76                 5        206  
Federal income tax
    328       426                 630        909  
State
                                          
Current
    89       109                 178        203  
           
Deferred
    (3     16                 3        46  
           
State income tax
    86       125                 181        249  
Total income tax provision
  $ 414     $ 551               $ 811      $ 1,158  
A reconciliation of expected income tax expense at the federal statutory rate of 21 percent to the Company’s applicable income tax expense follows:
 
    Three Months Ended
June 30
     Six Months Ended
June 30
 
(Dollars in Millions)       2022         2021                 2022         2021  
Tax at statutory rate
 
$
409
 
 
$
533
 
          
$
820
 
 
$
1,140
 
State income tax, at statutory rates, net of federal tax benefit
    84       105                168       219  
Tax effect of
                                        
Tax credits and benefits, net of related expenses
    (46     (83              (152     (176
Tax-exempt
income
    (29     (29              (57     (57
Other items
    (4     25                32       32  
Applicable income taxes
  $ 414     $ 551              $ 811     $ 1,158  
The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of June 30, 2022, federal tax examinations for all years ending through December 31, 2014 are completed and resolved. The Company’s tax returns for the years ended December 31, 2015 through December 31, 2020 are under examination by the Internal Revenue Service. The years open to examination by foreign, state and local government authorities vary by jurisdiction.
The Company’s net deferred tax asset was $3.6 billion at June 30, 2022 and $785 million at December 31, 2021.
 
 Note 13
 
   Derivative Instruments
In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value in other assets or in other liabilities. On the date the Company enters into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, net investment hedge, or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations (“free-standing derivative”). When a derivative is designated as a fair value, cash flow or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).
Fair Value Hedges
These derivatives are interest rate swaps the Company uses to hedge the change in fair value related to interest rate changes of its underlying
available-for-sale
investment securities and fixed-rate debt. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings.
Cash Flow Hedges
These derivatives are interest rate swaps the Company uses to hedge the forecasted cash flows from its underlying variable-rate loans and debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged
 
U.S. Bancorp  
5
5

forecasted transaction
 is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within other comprehensive income (loss). At June 30, 2022, the Company had $4 million
(net-of-tax)
of realized and unrealized gains on
derivatives classified as
 cash flow hedges recorded in other comprehensive income (loss), compared with $85 million
(net-of-tax)
of realized and unrealized losses at December 31, 2021. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the next 12 months is a loss of $15 million
(net-of-tax).
All cash flow hedges were highly effective for the three months ended June 30, 2022. There were no derivatives held as cash flow hedges at December 31, 2021.
Net Investment Hedges
 The Company uses forward commitments to sell specified amounts of certain foreign currencies, and
non-derivative
debt instruments, to hedge the volatility of its net investment in foreign operations driven by fluctuations in foreign currency exchange rates. The carrying amount of
non-derivative
debt instruments designated as net investment hedges was $1.2 billion at June 30, 2022, compared with $1.3 billion at December 31, 2021.
Other Derivative Positions
 The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell
to-be-announced
securities (“TBAs”) and other commitments to sell residential mortgage loans, which are used to economically hedge the interest rate risk related to mortgage loans held for sale (“MLHFS”) and unfunded mortgage loan commitments. The Company also enters into interest rate swaps, swaptions, forward commitments to buy TBAs, U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to economically hedge the change in the fair value of the Company’s MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. The Company mitigates the market and liquidity risk associated with these customer derivatives by entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or
non-derivative
financial instruments that partially or fully offset the exposure to earnings from these customer-related positions. The Company’s customer derivatives and related hedges are monitored and reviewed by the Company’s Market Risk Committee, which establishes policies for market risk management, including exposure limits for each portfolio. The Company also has derivative contracts that are created through its operations, including certain unfunded mortgage loan commitments and swap agreements related to the sale of a portion of its Class B common and preferred shares of Visa Inc. Refer to Note 15 for further information on these swap agreements.
The following table summarizes the asset and liability management derivative positions of the Company:
 
    June 30, 2022              December 31, 2021  
    Notional
Value
     Fair Value              Notional
Value
     Fair Value  
(Dollars in Millions)    Assets      Liabilities              Assets      Liabilities  
Fair value hedges
                                                             
Interest rate contracts
                                                             
Receive fixed/pay floating swaps
  $ 17,400      $      $               $ 12,350      $      $  
Pay fixed/receive floating swaps
    3,820                               16,650                
Cash flow hedges
                                                             
Interest rate contract
s

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

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

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

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

bilateral
over-the-counter
trades, $383.9 billion related to those centrally cleared through clearinghouses and $7.0 billion related to those that were exchange-traded. The Company’s derivative contracts typically include offsetting rights (referred to as netting arrangements), and depending on expected volume, credit risk, and counterparty preference, collateral maintenance may be required. For all derivatives under collateral support arrangements, fair value is determined daily and, depending on the collateral maintenance requirements, the Company and a counterparty may receive or deliver collateral, based upon the net fair value of all derivative positions between the Company and the counterparty. Collateral is typically cash, but securities may be allowed under collateral arrangements with certain counterparties. Receivables and payables related to cash collateral are included in other assets and other liabilities on the Consolidated Balance Sheet, along with the related derivative asset and liability fair values. Any securities pledged to counterparties as collateral remain on the Consolidated Balance Sheet. Securities received from counterparties as collateral are not recognized on the Consolidated Balance Sheet, unless the counterparty defaults. In general, securities used as collateral can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Refer to Note 13 for further discussion of the Company’s derivatives, including collateral arrangements.
As part of the Company’s treasury and broker-dealer operations, the Company executes transactions that are treated as securities sold under agreements to repurchase or securities purchased under agreements to resell, both of which are accounted for as collateralized financings. Securities sold under agreements to repurchase include repurchase agreements and securities loaned transactions. Securities purchased under agreements to resell include reverse repurchase agreements and securities borrowed transactions. For securities sold under agreements to repurchase, the Company records a liability for the cash received, which is included in short-term borrowings on the Consolidated Balance Sheet. For securities purchased under agreements to resell, the Company records a receivable for the cash paid, which is included in other assets on the Consolidated Balance Sheet.
Securities transferred to counterparties under repurchase agreements and securities loaned transactions continue to be recognized on the Consolidated Balance Sheet, are measured at fair value, and are included in investment securities or other assets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Consolidated Balance Sheet unless the counterparty defaults. The securities transferred under repurchase and reverse repurchase transactions typically are U.S. Treasury and agency securities, residential agency mortgage-backed securities or corporate debt securities. The securities loaned or borrowed typically are corporate debt securities traded by the Company’s broker-dealer subsidiary. In general, the securities transferred can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Repurchase/reverse repurchase and securities loaned/borrowed transactions expose the Company to counterparty risk. The Company manages this risk by performing assessments, independent of business line managers, and establishing concentration limits on each counterparty. Additionally, these transactions include collateral arrangements that require the fair values of the underlying securities to be determined daily, resulting in cash being obtained or refunded to counterparties to maintain specified collateral levels.
 
U.S. Bancorp  
59

The following table summarizes the maturities by category of collateral pledged for repurchase agreements and securities loaned transactions:
 
(Dollars in Millions)   Overnight and
Continuous
     Less Than
30 Days
    
30-89

Days
     Greater Than
90 Days
     Total  
June 30, 2022
                                           
Repurchase agreements
                                           
U.S. Treasury and agencies
  $ 429      $      $      $      $ 429  
Residential agency mortgage-backed securities
    969                             969  
Corporate debt securities
    597                             597  
Total repurchase agreements
    1,995                             1,995  
Securities loaned
                                           
Corporate debt securities
    225                             225  
Total securities loaned
    225                             225  
Gross amount of recognized liabilities
  $ 2,220      $      $      $      $ 2,220  
December 31, 2021
                                           
Repurchase agreements
                                           
U.S. Treasury and agencies
  $ 378      $      $      $      $ 378  
Residential agency mortgage-backed securities
    551                             551  
Corporate debt securities
    646                             646  
Total repurchase agreements
    1,575                             1,575  
Securities loaned
                                           
Corporate debt securities
    169                             169  
Total securities loaned
    169                             169  
Gross amount of recognized liabilities
  $ 1,744      $      $      $      $ 1,744  
The Company executes its derivative, repurchase/reverse repurchase and securities loaned/borrowed transactions under the respective industry standard agreements. These agreements include master netting arrangements that allow for multiple contracts executed with the same counterparty to be viewed as a single arrangement. This allows for net settlement of a single amount on a daily basis. In the event of default, the master netting arrangement provides for
close-out
netting, which allows all of these positions with the defaulting counterparty to be terminated and net settled with a single payment amount.
The Company has elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of the majority of its derivative counterparties. The netting occurs at the counterparty level, and includes all assets and liabilities related to the derivative contracts, including those associated with cash collateral received or delivered. The Company has not elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of repurchase/reverse repurchase and securities loaned/borrowed transactions.
The following tables provide information on the Company’s netting adjustments, and items not offset on the Consolidated Balance Sheet but available for offset in the event of default:
 
(Dollars in Millions)   Gross
Recognized
Assets
     Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
    Net Amounts
Presented on the
Consolidated
Balance Sheet
     Gross Amounts Not Offset on the
Consolidated Balance Sheet
    Net Amount  
   Financial
Instruments (b)
    Collateral
Received (c)
 
June 30, 2022
                                                 
Derivative assets (d)
  $ 5,359      $ (3,503   $ 1,856      $ (175 )   $ (66 )   $ 1,615  
Reverse repurchase agreements
    513              513        (386     (127      
Securities borrowed
    1,657              1,657              (1,609     48  
Total
  $ 7,529      $ (3,503   $ 4,026      $ (561   $ (1,802   $ 1,663  
December 31, 2021
                                                 
Derivative assets (d)
  $ 3,830      $ (1,609   $ 2,221      $ (142   $ (106   $ 1,973  
Reverse repurchase agreements
    359              359        (249     (110      
Securities borrowed
    1,868              1,868              (1,818     50  
Total
  $ 6,057      $ (1,609   $ 4,448      $ (391   $ (2,034   $ 2,023  
 
(a)
Includes $2.0 billion and $528 million of cash collateral related payables that were netted against derivative assets at June 30, 2022 and December 31, 2021, respectively.
(b)
For derivative assets this includes any derivative liability fair values that could be offset in the event of counterparty default; for reverse repurchase agreements this includes any repurchase agreement payables that could be offset in the event of counterparty default; for securities borrowed this includes any securities loaned payables that could be offset in the event of counterparty default.
(c)
Includes the fair value of securities received by the Company from the counterparty. These securities are not included on the Consolidated Balance Sheet unless the counterparty defaults.
(d)
Excludes $30 million and $57 million at June 30, 2022 and December 31, 2021, respectively, of derivative assets not subject to netting arrangements.
 
6
0
  U.S. Bancorp

(Dollars in Millions)
 
Gross
Recognized
Liabilities
 
  
Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)
 
 
Net Amounts
Presented on the
Consolidated
Balance Sheet
 
  
Gross Amounts Not Offset on the

Consolidated Balance Sheet
 
  
Financial
Instruments (b)
 
 
Collateral
Pledged (c)
 
 
Net Amount
 
June 30, 2022
 
  
 
  
 
 
Derivative liabilities (d)
  $ 6,771      $ (2,639   $ 4,132      $ (175 )   $     $ 3,957  
Repurchase agreements
    1,995              1,995        (386     (1,609      
Securities loaned
    225              225              (223     2  
Total
  $ 8,991      $ (2,639   $ 6,352      $ (561   $ (1,832   $ 3,959  
December 31, 2021
                                                 
Derivative liabilities (d)
  $ 2,761      $ (1,589   $ 1,172      $ (142   $     $ 1,030  
Repurchase agreements
    1,575              1,575        (249     (1,326      
Securities loaned
    169              169              (167     2  
Total
  $ 4,505      $ (1,589   $ 2,916      $ (391   $ (1,493   $ 1,032  
 
(a)
Includes $1.2 billion and $508 million of cash collateral related receivables that were netted against derivative liabilities at June 30, 2022 and December 31, 2021, respectively.
(b)
For derivative liabilities this includes any derivative asset fair values that could be offset in the event of counterparty default; for repurchase agreements this includes any reverse repurchase agreement receivables that could be offset in the event of counterparty default; for securities loaned this includes any securities borrowed receivables that could be offset in the event of counterparty default.
(c)
Includes the fair value of securities pledged by the Company to the counterparty. These securities are included on the Consolidated Balance Sheet unless the Company defaults.    
(d)
Excludes $110 million and $137 million at June 30, 2022 and December 31, 2021, respectively, of derivative liabilities not subject to netting arrangements.
 
 Note 15
     Fair Values of Assets and Liabilities
The Company uses fair value measurements for the initial recording of certain assets and liabilities, periodic remeasurement of certain assets and liabilities, and disclosures. Derivatives, trading and
available-for-sale
investment securities, MSRs and substantially all MLHFS are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of
lower-of-cost-or-fair
value accounting or impairment write-downs of individual assets.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance.
The Company groups its assets and liabilities measured at fair value into a three-level hierarchy for valuation techniques used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
   
Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury securities, as well as exchange-traded instruments.
   
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are typically valued using third party pricing services; derivative contracts and other assets and liabilities, including securities, whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data.
   
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes MSRs and certain derivative contracts.
 
U.S. Bancorp  
6
1

Valuation Methodologies
The valuation methodologies used by the Company to measure financial assets and liabilities at fair value are described below. In addition, the following section includes an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the descriptions include information about the valuation models and key inputs to those models. During the six months ended June 30, 2022 and 2021, there were no significant changes to the valuation techniques used by the Company to measure fair value.
Available-For-Sale
Investment Securities
 When quoted market prices for identical securities are available in an active market, these prices are used to determine fair value and these securities are classified within Level 1 of the fair value hierarchy. Level 1 investment securities include U.S. Treasury and exchange-traded securities.
For other securities, quoted market prices may not be readily available for the specific securities. When possible, the Company determines fair value based on market observable information, including quoted market prices for similar securities, inactive transaction prices, and broker quotes. These securities are classified within Level 2 of the fair value hierarchy. Level 2 valuations are generally provided by a third-party pricing service. Level 2 investment securities are predominantly agency mortgage-backed securities, certain other asset-backed securities, obligations of state and political subdivisions and agency debt securities.
Mortgage Loans Held For Sale
 MLHFS measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by comparison to instruments with similar collateral and risk profiles. MLHFS are classified within Level 2. Included in mortgage banking revenue was a net loss of $64 million and a net gain of $98 million for the three months ended June 30, 2022 and 2021, respectively, and net losses of $298 million and $117 million for the six months ended June 30, 2022 and 2021, respectively, from the changes to fair value of these MLHFS under fair value option accounting guidance. Changes in fair value due to instrument specific credit risk were immaterial. Interest income for MLHFS is measured based on contractual interest rates and reported as interest income on the Consolidated Statement of Income. Electing to measure MLHFS at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.
Mortgage Servicing Rights
 MSRs are valued using a discounted cash flow methodology, and are classified within Level 3. The Company determines fair value of the MSRs by projecting future cash flows for different interest rate scenarios using prepayment rates and other assumptions, and discounts these cash flows using a risk adjusted rate based on option adjusted spread levels. There is minimal observable market activity for MSRs on comparable portfolios and, therefore, the determination of fair value requires significant management judgment. Refer to Note 7 for further information on MSR valuation assumptions.
Derivatives
The majority of derivatives held by the Company are executed
over-the-counter
or centrally cleared through clearinghouses and are valued using market standard cash flow valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. All derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Company’s evaluation of credit risk including external assessments of credit risk. The Company monitors and manages its nonperformance risk by considering its ability to net derivative positions under master netting arrangements, as well as collateral received or provided under collateral arrangements. Accordingly, the Company has elected to measure the fair value of derivatives, at a counterparty level, on a net basis. The majority of the derivatives are classified within Level 2 of the fair value hierarchy, as the significant inputs to the models, including nonperformance risk, are observable. However, certain derivative transactions are with counterparties where risk of nonperformance cannot be observed in the market and, therefore, the credit valuation adjustments result in these derivatives being classified within Level 3 of the fair value hierarchy.
The Company also has other derivative contracts that are created through its operations, including commitments to purchase and originate mortgage loans and swap agreements executed in conjunction with the sale of a portion of its Class B common and preferred shares of Visa Inc. (the “Visa swaps”). The mortgage loan commitments are valued by pricing models that include market observable and unobservable inputs, which result in the commitments being classified within Level 3 of the fair value hierarchy. The unobservable inputs include assumptions about the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value.
 
6
2
  U.S. Bancorp

The Visa swaps require payments by either the Company or the purchaser of the Visa Inc. Class B common and preferred shares when there are changes in the conversion rate of the Visa Inc. Class B common and preferred shares to Visa Inc. Class A common and preferred shares, respectively, as well as quarterly payments to the purchaser based on specified terms of the agreements. Management reviews and updates the Visa swaps fair value in conjunction with its review of Visa Inc. related litigation contingencies, and the associated escrow funding. The expected litigation resolution impacts the Visa Inc. Class B common share to Visa Inc. Class A common share conversion rate, as well as the ultimate termination date for the Visa swaps. Accordingly, the Visa swaps are classified within Level 3. Refer to Note 16 for further information on the Visa Inc. restructuring and related card association litigation.
Significant Unobservable Inputs of Level 3 Assets and Liabilities
The following section provides information to facilitate an understanding of the uncertainty in the fair value measurements for the Company’s Level 3 assets and liabilities recorded at fair value on the Consolidated Balance Sheet. This section includes a description of the significant inputs used by the Company and a description of any interrelationships between these inputs. The discussion below excludes nonrecurring fair value measurements of collateral value used for impairment measures for loans and OREO. These valuations utilize third party appraisal or broker price opinions, and are classified as Level 3 due to the significant judgment involved.
Mortgage Servicing Rights
The significant unobservable inputs used in the fair value measurement of the Company’s MSRs are expected prepayments and the option adjusted spread that is added to the risk-free rate to discount projected cash flows. Significant increases in either of these inputs in isolation would have resulted in a significantly lower fair value measurement. Significant decreases in either of these inputs in isolation would have resulted in a significantly higher fair value measurement. There is no direct interrelationship between prepayments and option adjusted spread. Prepayment rates generally move in the opposite direction of market interest rates. Option adjusted spread is generally impacted by changes in market return requirements.
The following table shows the significant valuation assumption ranges for MSRs at June 30, 2022:
 
     Minimum     Maximum     Weighted-
Average (a)
 
Expected prepayment
    5     10     7
Option adjusted spread
    5       11       6  
 
(a)
Determined based on the relative fair value of the related mortgage loans serviced.
Derivatives
The Company has two distinct Level 3 derivative portfolios: (i) the Company’s commitments to purchase and originate mortgage loans that meet the requirements of a derivative and (ii) the Company’s asset/liability and customer-related derivatives that are Level 3 due to unobservable inputs related to measurement of risk of nonperformance by the counterparty. In addition, the Company’s Visa swaps are classified within Level 3.
The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to purchase and originate mortgage loans are the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value. A significant increase in the rate of loans that close would have resulted in a larger derivative asset or liability. A significant increase in the inherent MSR value would have resulted in an increase in the derivative asset or a reduction in the derivative liability. Expected loan close rates and the inherent MSR values are directly impacted by changes in market rates and will generally move in the same direction as interest rates.
The following table shows the significant valuation assumption ranges for the Company’s derivative commitments to purchase and originate mortgage loans at June 30, 2022:
  
 
Minimum
 
 
Maximum
 
 
Weighted-
Average (a)
 
Expected loan close rate
    29     100     80
Inherent MSR value (basis points per loan)
    37
      219       108  
 
(a)
Determined based on the relative fair value of the related mortgage loans.
The significant unobservable input used in the fair value measurement of certain of the Company’s asset/liability and customer-related derivatives is the credit valuation adjustment related to the risk of counterparty nonperformance.
 
U.S. Bancorp  
6
3

A significant increase in the credit valuation adjustment would have resulted in a lower fair value measurement. A significant decrease in the credit valuation adjustment would have resulted in a higher fair value measurement. The credit valuation adjustment is impacted by changes in market rates, volatility, market implied credit spreads, and loss recovery rates, as well as the Company’s assessment of the counterparty’s credit position. At June 30, 2022, the minimum, maximum and weighted-average credit valuation adjustment as a percentage of the net fair value of the counterparty’s derivative contracts prior to adjustment was 0 percent, 158 percent and 2 percent, respectively.
The significant unobservable inputs used in the fair value measurement of the Visa swaps are management’s estimate of the probability of certain litigation scenarios occurring, and the timing of the resolution of the related litigation loss estimates in excess, or shortfall, of the Company’s proportional share of escrow funds. An increase in the loss estimate or a delay in the resolution of the related litigation would have resulted in an increase in the derivative liability. A decrease in th
e
 loss estimate or an acceleration of the resolution of the related litigation would have resulted in a decrease in the derivative liability.
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:
 
(Dollars in Millions)
 
Level 1
 
  
Level 2
 
  
Level 3
 
  
Netting
 
 
Total
 
June 30, 2022
 
  
  
  
 
Available-for-sale
securities
 
  
  
  
 
U.S. Treasury and agencies
  $  18,539      $ 5,228      $      $     $ 23,767  
Mortgage-backed securities
                                          
Residential agency
           57,752                     57,752  
Commercial agency
           7,564                     7,564  
Obligations of state and political subdivisions
           9,715        1              9,716  
Other
           7                     7  
Total
available-for-sale
    18,539        80,266        1              98,806  
Mortgage loans held for sale
           2,773                     2,773  
Mortgage servicing rights
                  3,707              3,707  
Derivative assets
           4,555        834        (3,503     1,886  
Other assets
    187        1,830                     2,017  
Total
  $ 18,726      $ 89,424      $ 4,542       
$
(3,503
)
  $ 109,189  
Derivative liabilities
  $      $ 3,872      $ 3,009     
$

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

(2,639   $ 6,077  
December 31, 2021
                                          
Available-for-sale
securities
                                          
U.S. Treasury and agencies
  $ 30,917      $ 5,692      $      $     $ 36,609  
Mortgage-backed securities
                                          
Residential agency
           77,079                     77,079  
Commercial agency
           8,485                     8,485  
Asset-backed securities
           59        7              66  
Obligations of state and political subdivisions
           10,716        1              10,717  
Other
           7                     7  
Total
available-for-sale
    30,917        102,038        8              132,963  
Mortgage loans held for sale
           6,623                     6,623  
Mortgage servicing rights
                  2,953              2,953  
Derivative assets
    8        2,490        1,389        (1,609     2,278  
Other assets
    278        1,921                     2,199  
Total
  $ 31,203      $ 113,072      $ 4,350      $ (1,609   $ 147,016  
Derivative liabilities
  $      $ 2,308      $ 590      $ (1,589   $ 1,309  
Short-term borrowings and other liabilities (a)
    209        1,837                     2,046  
Total
  $ 209      $ 4,145      $ 590      $ (1,589   $ 3,355  
 
Note:
Excluded from the table above are equity investments without readily determinable fair values. The Company has elected to carry these investments at historical cost, adjusted for impairment and any changes resulting from observable price changes for identical or similar investments of the issuer. The aggregate carrying amount of these equity investments was $80 million and $79 million at June 30, 2022 and December 31, 2021, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first six months of 2022 and 2021, or on a cumulative basis.
(a)
Primarily represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
 
6
4
  U.S. Bancorp

The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30:
 
(Dollars in Millions)   Beginning
of Period
Balance
    Net Gains
(Losses)
Included in
Net Income
    Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
     Purchases      Sales     Issuances     Settlements     End
of Period
Balance
    Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Held at
End of Period
 
2022
                                                                         
Available-for-sale
securities
                                                                         
Asset-backed securities
  $ 7     $ (3   $      $      $ (4   $     $     $     $  
Obligations of state and political subdivisions
    1                                             1        
Total
available-for-sale
    8       (3                   (4                 1        
Mortgage servicing rights
    3,432       170   (a)             3              102  (c)            3,707       170   (a) 
Net derivative assets and liabilities
    (1,011     (1,494 ) (b)             81                    249       (2,175     (1,259 ) (d) 
                   
2021
                                                                         
Available-for-sale
securities
                                                                         
Asset-backed securities
  $ 7     $     $ 1      $      $     $     $     $ 8     $ 1  
Obligations of state and political subdivisions
    1                                             1        
Total
available-for-sale
    8             1                                 9       1  
Mortgage servicing rights
    2,787       (379 ) (a)             11        1       293  (c)            2,713       (379 ) (a) 
Net derivative assets and liabilities
    1,156       556  (e)             58        (1           (269     1,500       412  (f) 
 
(a)
Included in mortgage banking revenue.     
(b)
Approximately $(20) million, $(1.5) billion and $1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(c)
Represents MSRs capitalized during the period.     
(d)
Approximately $(3) million, $(1.3) billion and $1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(e)
Approximately $276 million, $279 million and $1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(f)
Approximately $100 million, $311 million and $1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30:
 
(Dollars in Millions)   Beginning
of Period
Balance
     Net Gains
(Losses)
Included in
Net Income
    Net Gains
(Losses)
Included in
Other
Comprehensive
Income (Loss)
     Purchases      Sales     Issuances     Settlements     End
of Period
Balance
    Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities Held
at End
of Period
 
2022
                                                                          
Available-for-sale
securities
                                                                          
Asset-backed securities
  $ 7      $ (3   $  –      $      $ (4   $     $     $     $  
Obligations of state and political subdivisions
    1                                              1        
Total
available-for-sale
    8        (3                   (4                 1        
Mortgage servicing rights
    2,953        408   (a)             6        1       339  (c)            3,707       408  (a) 
Net derivative assets and liabilities
    799        (3,361 ) (b)             92        (1           296       (2,175     (2,739 ) (d) 
                   
2021
                                                                          
Available-for-sale
securities
                                                                          
Asset-backed securities
  $ 7      $     $  1      $      $     $     $     $ 8     $ 1  
Obligations of state and political subdivisions
    1                                              1        
Total
available-for-sale
    8              1                                 9       1  
Mortgage servicing rights
    2,210        (137 ) (a)             27        1       612  (c)            2,713       (137 ) (a) 
Net derivative assets and liabilities
    2,326        (379 ) (e)             60        (1           (506     1,500       (496 ) (f) 
 
(a)
Included in mortgage banking revenue.     
(b)
Approximately $(103) million and $(3.3) billion included in mortgage banking revenue and commercial products revenue, respectively.
(c)
Represents MSRs capitalized during the period.     
(d)
Approximately $(3) million and $(2.7) billion included in mortgage banking revenue and commercial products revenue, respectively.
(e)
Approximately $336 million, $(716) million and $1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(f)
Approximately $100 million, $(597) million and $1 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
The Company is also required periodically to measure certain other financial assets at fair value on a nonrecurring basis. These measurements of fair value usually result from the application of
lower-of-cost-or-fair
value accounting or write-downs of individual assets.
 
U.S. Bancorp  
6
5

The following table summarizes the balances as of the measurement date of assets measured at fair value on a nonrecurring basis, and still held as of the reporting date:
 
    June 30, 2022      December 31, 2021  
(Dollars in Millions)   Level 1      Level 2      Level 3      Total      Level 1      Level 2      Level 3      Total  
                 
Loans (a)
  $      $      $ 69      $ 69      $      $      $ 59      $ 59  
                 
Other assets (b)
                  28        28                      77        77  



 
(a)
Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully
charged-off.
(b)
Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.
The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios:
 
    Three Months Ended
June 30
     Six Months Ended
June 30
 
(Dollars in Millions)
  2022      2021      2022      2021  
         
Loans (a)
  $ 22      $ 12      $ 33      $ 43  
         
Other assets (b)
    10        5        11        6  
 
(a)
Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully
charged-off.
    
(b)
Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.
Fair Value Option
The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:    
 
    June 30, 2022              December 31, 2021  
(Dollars in Millions)   Fair
Value
Carrying
Amount
     Aggregate
Unpaid
Principal
     Carrying
Amount Over
(Under) Unpaid
Principal
             Fair
Value
Carrying
Amount
     Aggregate
Unpaid
Principal
     Carrying
Amount Over
(Under) Unpaid
Principal
 
Total loans
  $ 2,773      $ 2,753      $ 20               $ 6,623      $ 6,453      $ 170  
Nonaccrual loans
    1        1                        1        1         
Loans 90 days or more past due
    1        1                        2        2         
Fair Value of Financial Instruments
The following section summarizes the estimated fair value for financial instruments accounted for at amortized cost as of June 30, 2022 and December 31, 2021. In accordance with disclosure guidance related to fair values of financial instruments, the Company did not include assets and liabilities that are not financial instruments, such as the value of goodwill, long-term relationships with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities. Additionally, in accordance with the disclosure guidance, receivables and payables due in one year or less, insurance contracts, equity investments not accounted for at fair value, and deposits with no defined or contractual maturities are excluded.
 
6
6
  U.S. Bancorp

The estimated fair values of the Company’s financial instruments are shown in the table below:
 
    June 30, 2022     December 31, 2021  
    Carrying
Amount
           Fair Value            Carrying
Amount
           Fair Value  
(Dollars in Millions)          Level 1     Level 2     Level 3     Total                   Level 1     Level 2     Level 3     Total  
Financial Assets
                                                                                                       
Cash and due from banks
  $ 39,124             $ 39,124     $     $     $  39,124             $ 28,905             $ 28,905     $     $     $ 28,905  
Federal funds sold and securities purchased under resale agreements
    520                     520             520               359                     359             359  
Investment securities
held-to-maturity
    61,503               1,337       54,320             55,657               41,858                     41,812             41,812  
Loans held for sale (a)
    1,170                           1,170       1,170               1,152                           1,152       1,152  
Loans
    326,537                           321,095       321,095               306,304                           312,724       312,724  
Other (b)
    2,391                     1,679       712       2,391               1,521                     630       891       1,521  
Financial Liabilities
                                                                                                       
Time deposits
    30,622                     30,039             30,039               22,665                     22,644             22,644  
Short-term borrowings (c)
    23,128                     22,789             22,789               9,750                     9,646             9,646  
Long-term debt
    29,408                     27,901             27,901               32,125                     32,547             32,547  
Other (d)
    3,896                     1,135       2,761       3,896               3,862                     1,170       2,692       3,862  
 
(a)
Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.     
(b)
Includes investments in Federal Reserve Bank and Federal Home Loan Bank stock and
tax-advantaged
investments.    
(c)
Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
(d)
Includes operating lease liabilities and liabilities related to
tax-advantaged
investments.    
The fair value of unfunded commitments, deferred
non-yield
related loan fees, standby letters of credit and other guarantees is approximately equal to their carrying value. The carrying value of unfunded commitments, deferred
non-yield
related loan fees and standby letters of credit was $486 million and $495 million at June 30, 2022 and December 31, 2021, respectively. The carrying value of other guarantees was $224 million and $245 million at June 30, 2022 and December 31, 2021, respectively.
 
 Note  16
 
   Guarantees and Contingent Liabilities
Visa Restructuring and Card Association Litigation
 The Company’s payment services business issues credit and debit cards and acquires credit and debit card transactions through the Visa U.S.A. Inc. card association or its affiliates (collectively “Visa”). In 2007, Visa completed a restructuring and issued shares of Visa Inc. common stock to its financial institution members in contemplation of its initial public offering (“IPO”) completed in the first quarter of 2008 (the “Visa Reorganization”). As a part of the Visa Reorganization, the Company received its proportionate number of shares of Visa Inc. common stock, which were subsequently converted to Class B shares of Visa Inc. (“Class B shares”).
Visa U.S.A. Inc. (“Visa U.S.A.”) and MasterCard International (collectively, the “Card Brands”) are defendants in antitrust lawsuits challenging the practices of the Card Brands (the “Visa Litigation”). Visa U.S.A. member banks have a contingent obligation to indemnify Visa Inc. under the Visa U.S.A. bylaws (which were modified at the time of the restructuring in October 2007) for potential losses arising from the Visa Litigation. The indemnification by the Visa U.S.A. member banks has no specific maximum amount. Using proceeds from its IPO and through reductions to the conversion ratio applicable to the Class B shares held by Visa U.S.A. member banks, Visa Inc. has funded an escrow account for the benefit of member financial institutions to fund their indemnification obligations associated with the Visa Litigation. The receivable related to the escrow account is classified in other liabilities as a direct offset to the related Visa Litigation contingent liability.
In October 2012, Visa signed a settlement agreement to resolve class action claims associated with the multidistrict interchange litigation pending in the United States District Court for the Eastern District of New York (the “Multi-District Litigation”). The U.S. Court of Appeals for the Second Circuit reversed the approval of that settlement and remanded the matter to the district court. Thereafter, the case was split into two putative class actions, one seeking damages (the “Damages Action”) and a separate class action seeking injunctive relief only (the “Injunctive Action”). In September 2018, Visa signed a new settlement agreement, superseding the original settlement agreement, to resolve the Damages Action. The Damages Action settlement was approved by the United States District Court for the Eastern District of New York, but is now on appeal. The Injunctive Action, which generally seeks changes to Visa rules, is still pending.
 
U.S. Bancorp  
6
7

Other Guarantees and Contingent Liabilities
The following table is a summary of other guarantees and contingent liabilities of the Company at June 30, 2022:
 
(Dollars in Millions)   Collateral
Held
     Carrying
Amount
     Maximum
Potential
Future
Payments
 
Standby letters of credit
  $      $ 55      $ 9,844  
Third party borrowing arrangements
                  7  
Securities lending indemnifications
    7,822               7,461  
Asset sales
           85        7,629  (a) 
Merchant processing
    1,415        118        141,453  
Tender option bond program guarantee
    1,521               1,489  
Other
           21        1,343  
 
(a)
The maximum potential future payments do not include loan sales where the Company provides standard representation and warranties to the buyer against losses related to loan underwriting documentation defects that may have existed at the time of sale that generally are identified after the occurrence of a triggering event such as delinquency. For these types of loan sales, the maximum potential future payments is generally the unpaid principal balance of loans sold measured at the end of the current reporting period. Actual losses will be significantly less than the maximum exposure, as only a fraction of loans sold will have a representation and warranty breach, and any losses on repurchase would generally be mitigated by any collateral held against the loans.
Merchant Processing
The Company, through its subsidiaries, provides merchant processing services. Under the rules of credit card associations, a merchant processor retains a contingent liability for credit card transactions processed. This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. In this situation, the transaction is “charged-back” to the merchant and the disputed amount is credited or otherwise refunded to the cardholder. If the Company is unable to collect this amount from the merchant, it bears the loss for the amount of the refund paid to the cardholder.
The Company currently processes card transactions in the United States, Canada and Europe through wholly-owned subsidiaries. In the event a merchant was unable to fulfill product or services subject to future delivery, such as airline tickets, the Company could become financially liable for refunding the purchase price of such products or services purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in a manner similar to credit risk assessments and, as such, merchant processing contracts contain various provisions to protect the Company in the event of default.
 
At June 30, 2022, the value of airline tickets purchased to be delivered at a future date through card transactions processed by the Company was $9.1 billion. The Company held collateral of $1.2 billion in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets. In addition to specific collateral or other credit enhancements, the Company maintains a liability for its implied guarantees associated with future delivery. At June 30, 2022, the liability was $100 million primarily related to these airline processing arrangements.
Asset Sales
The Company regularly sells loans to GSEs as part of its mortgage banking activities. The Company provides customary representations and warranties to GSEs in conjunction with these sales. These representations and warranties generally require the Company to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Company is unable to cure or refute a repurchase request, the Company is generally obligated to repurchase the loan or otherwise reimburse the GSE for losses. At June 30, 2022, the Company had reserved $13 million for potential losses from representation and warranty obligations, compared with $18 million at December 31, 2021. The Company’s reserve reflects management’s best estimate of losses for representation and warranty obligations. The Company’s repurchase reserve is modeled at the loan level, taking into consideration the individual credit quality and borrower activity that has transpired since origination. The model applies credit quality and economic risk factors to derive a probability of default and potential repurchase that are based on the Company’s historical loss experience, and estimates loss severity based on expected collateral value. The Company also considers qualitative factors that may result in anticipated losses differing from historical loss trends.
As of June 30, 2022 and December 31, 2021, the Company had $35 million and $19 million, respectively, of unresolved representation and warranty claims from GSEs. The Company does not have a significant amount of unresolved claims from investors other than GSEs.
 
68
  U.S. Bancorp

Litigation and Regulatory Matters
The Company is subject to various litigation and regulatory matters that arise in the ordinary course of its business. The Company establishes reserves for such matters when potential losses become probable and can be reasonably estimated. The Company believes the ultimate resolution of existing legal and regulatory matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution of one or more of these matters may have a material adverse effect on the Company’s results from operations for a particular period, and future changes in circumstances or additional information could result in additional accruals or resolution in excess of established accruals, which could adversely affect the Company’s results from operations, potentially materially.
Residential Mortgage-Backed Securities Litigation
Starting in 2011, the Company and other large financial institutions have been sued in their capacity as trustee for residential mortgage–backed securities trusts. In the lawsuits brought against the Company, the investors allege that the Company’s banking subsidiary, U.S. Bank National Association (“U.S. Bank”), as trustee caused them to incur substantial losses by failing to enforce loan repurchase obligations and failing to abide by appropriate standards of care after events of default allegedly occurred. The plaintiffs in these matters seek monetary damages in unspecified amounts and most also seek equitable relief.
Regulatory Matters
The Company is continually subject to examinations, inquiries and investigations in areas of heightened regulatory scrutiny, such as compliance, risk management, third-party risk management and consumer protection. The Company is cooperating fully with all pending examinations, inquiries and investigations, any of which could lead to administrative or legal proceedings or settlements. Remedies in these proceedings or settlements may include fines, penalties, restitution or alterations in the Company’s business practices (which may increase the Company’s operating expenses and decrease its revenue).
On July 27, 2022, U.S. Bank agreed to the issuance of a consent order with the Consumer Financial Protection Bureau resolving the previously disclosed investigation of certain of the Company’s consumer sales practices. The financial impact of the resolution was not material to the Company’s financial condition, results of operations or cash flows.
Outlook
Due to their complex nature, it can be years before litigation and regulatory matters are resolved. The Company may be unable to develop an estimate or range of loss where matters are in early stages, there are significant factual or legal issues to be resolved, damages are unspecified or uncertain, or there is uncertainty as to a litigation class being certified or the outcome of pending motions, appeals or proceedings. For those litigation and regulatory matters where the Company has information to develop an estimate or range of loss, the Company believes the upper end of the range of reasonably possible losses in aggregate, in excess of any reserves established for matters where a loss is considered probable, will not be material to its financial condition, results of operations or cash flows. The Company’s estimates are subject to significant judgment and uncertainties, and the matters underlying the estimates will change from time to time. Actual results may vary significantly from the current estimates.
 
Note  17
 
   Business Segments
Within the Company, financial performance is measured by major lines of business based on the products and services provided to customers through its distribution channels. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. The Company has five reportable operating segments:
Corporate and Commercial Banking
Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution,
non-profit
and public sector clients.
Consumer and Business Banking
Consumer and Business Banking delivers products and services through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing and mobile devices. It encompasses community banking, metropolitan banking and indirect lending, as well as mortgage banking.
Wealth Management and Investment Services
Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund
 
U.S. Bancorp  
69

servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services.
Payment Services
Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services, consumer lines of credit and merchant processing.
Treasury and Corporate Support
Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to business segments, including most investments in
tax-advantaged
projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis.
Basis of Presentation
Business segment results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. The allowance for credit losses and related provision expense are allocated to the business segments according to the volume and credit quality of the loan balances managed, but with the impact of changes in economic forecasts recorded in Treasury and Corporate Support. Goodwill and other intangible assets are assigned to the business segments based on the mix of business of an entity acquired by the Company. Within the Company, capital levels are evaluated and managed centrally; however, capital is allocated to the business segments to support evaluation of business performance. Business segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. Generally, the determination of the amount of capital allocated to each business segment includes credit allocations following a Basel III regulatory framework. Interest income and expense is determined based on the assets and liabilities managed by the business segment. Because funding and asset/liability management is a central function, funds transfer-pricing methodologies are utilized to allocate a cost of funds used or credit for funds provided to all business segment assets and liabilities, respectively, using a matched funding concept. Also, each business unit is allocated the taxable-equivalent benefit of
tax-exempt
products. The residual effect on net interest income of asset/ liability management activities is included in Treasury and Corporate Support. Noninterest income and expenses directly managed by each business segment, including fees, service charges, salaries and benefits, and other direct revenues and costs are accounted for within each segment’s financial results in a manner similar to the consolidated financial statements. Occupancy costs are allocated based on utilization of facilities by the business segments. Generally, operating losses are charged to the business segment when the loss event is realized in a manner similar to a loan
charge-off.
Noninterest expenses incurred by centrally managed operations or business segments that directly support another business segment’s operations are charged to the applicable business segment based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Certain activities that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance are not charged to the business segments. The income or expenses associated with these corporate activities, including merger and integration charges, are reported within the Treasury and Corporate Support business segment. Income taxes are assessed to each business segment at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.
Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2022, certain organization and methodology changes were made and, accordingly, 2021 results were restated and presented on a comparable basis.
 
7
0
  U.S. Bancorp

Business segment results for the three months ended June 30 were as follows:
 
    Corporate and Commercial
Banking
           
Consumer and
Business Banking
            Wealth Management and
Investment Services
 
(Dollars in Millions)   2022     2021             2022     2021             2022      2021  
Condensed Income Statement
                                                                  
Net interest income (taxable-equivalent basis)
  $ 784     $ 726              $ 1,617     $ 1,534              $ 352      $ 246  
Noninterest income
    272       265                395       634                652        549  
Total net revenue
    1,056       991                2,012       2,168                1,004        795  
Nointerest expense
    453       433                1,419       1,375                581        521  
Income (loss) before provision and income taxes
    603       558                593       793                423        274  
Provision for credit losses
    100                      (75     (68              (4      (4
Income (loss) before income taxes
    503       558                668       861                427        278  
Income taxes and taxable-equivalent adjustment
    126       140                167       215                107        70  
Net income (loss)
    377       418                501       646                320        208  
Net (income) loss attributable to noncontrolling interests
                                                      
Net income (loss) attributable to U.S. Bancorp
  $ 377     $ 418              $ 501     $ 646              $ 320      $ 208  
                 
Average Balance Sheet
                                                                  
Loans
  $ 123,210     $ 102,275              $ 141,135     $ 140,826              $ 22,320      $ 17,442  
Other earning assets
    4,161       4,409                2,579       8,018                251        237  
Goodwill
    1,912       1,647                3,244       3,476                1,718        1,618  
Other intangible assets
    4       5                3,634       2,828                300        84  
Assets
    137,773       114,186                156,132       161,695                25,786        20,470  
                 
Noninterest-bearing deposits
    58,266       60,696                31,642       33,702                25,019        23,288  
Interest-bearing deposits
    93,678       70,019                168,486       158,164                71,759        73,347  
Total deposits
    151,944       130,715                200,128       191,866                96,778        96,635  
                 
Total U.S. Bancorp shareholders’ equity
    13,989       13,816                12,366       12,337                3,618        3,089  
           
   
Payment
Services
           
Treasury and
Corporate Support
           
Consolidated
Company
 
(Dollars in Millions)   2022     2021             2022     2021             2022      2021  
Condensed Income Statement
                                                                  
Net interest income (taxable-equivalent basis)
  $ 619     $ 595              $ 92     $ 63              $ 3,464      $ 3,164  
Noninterest income
    994  (a)      913        (a      235       258                2,548  (b)       2,619 (b)  
Total net revenue
    1,613       1,508                327       321                6,012 (c)        5,783 (c)  
Noninterest expense
    871       829                400       229                3,724        3,387  
Income (loss) before provision and income taxes
    742       679                (73     92                2,288        2,396  
Provision for credit losses
    221       91                69       (189              311        (170
Income (loss) before income taxes
    521       588                (142     281                1,977        2,566  
Income taxes and taxable-equivalent adjustment
    130       147                (87     6                443        578  
Net income (loss)
    391       441                (55     275                1,534        1,988  
Net (income) loss attributable to noncontrolling interests
                         (3     (6              (3      (6
Net income (loss) attributable to U.S. Bancorp
  $ 391     $ 441              $ (58   $ 269              $ 1,531      $ 1,982  
                 
Average Balance Sheet
                                                                  
Loans
  $ 33,854     $ 30,030              $ 3,668     $ 3,711              $ 324,187      $ 294,284  
Other earning assets
    1,023       5                204,560       193,798                212,574        206,467  
Goodwill
    3,318       3,176                                     10,192        9,917  
Other intangible assets
    438       518                                     4,376        3,435  
Assets
    41,054       35,618                219,166       219,396                579,911        551,365  
                 
Noninterest-bearing deposits
    3,396       5,030                2,504       2,581                120,827        125,297  
Interest-bearing deposits
    167       141                1,599       2,242                335,689        303,913  
Total deposits
    3,563       5,171                4,103       4,823                456,516        429,210  
                 
Total U.S. Bancorp shareholders’ equity
    8,115       7,413                11,078       16,307                49,166        52,962  
 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $772 million and $633 million for the three months ended June 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $2.0 billion and $1.9 billion for the three months ended June 30, 2022 and 2021, respectively.
(c)
The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Under these arrangments, the Company recorded $188 million and $238 million of revenue for the three months ended June 30, 2022 and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
 
U.S. Bancorp  
7
1

Business segment results for the six months ended June 30 were as follows:
 
    Corporate and Commercial
Banking
           
Consumer and
Business Banking
            Wealth Management and
Investment Services
 
(Dollars in Millions)   2022     2021             2022     2021             2022      2021  
Condensed Income Statement
                                                                  
Net interest income (taxable-equivalent basis)
  $ 1,523     $ 1,448              $ 3,129     $ 3,035              $ 627      $ 514  
Noninterest income
    517       533                856       1,203                1,248        1,080  
Total net revenue
    2,040       1,981                3,985       4,238                1,875        1,594  
Nointerest expense
    878       853                2,839       2,731                1,174        1,020  
Income (loss) before provision and income taxes
    1,162       1,128                1,146       1,507                701        574  
Provision for credit losses
    104       (46              (28     (108              4        1  
Income (loss) before income taxes
    1,058       1,174                1,174       1,615                697        573  
Income taxes and taxable-equivalent adjustment
    265       294                294       404                175        144  
Net income (loss)
    793       880                880       1,211                522        429  
Net (income) loss attributable to noncontrolling interests
                                                      
Net income (loss) attributable to U.S. Bancorp
  $ 793     $ 880              $ 880     $ 1,211              $ 522      $ 429  
                 
Average Balance Sheet
                                                                  
Loans
  $ 119,557     $ 102,201              $ 140,984     $ 141,170              $ 21,521      $ 17,147  
Other earning assets
    4,416       4,364                3,475       9,092                255        258  
Goodwill
    1,912       1,647                3,252       3,476                1,739        1,618  
Other intangible assets
    4       5                3,406       2,661                283        63  
Assets
    132,856       114,229                156,770       162,803                25,124        20,297  
                 
Noninterest-bearing deposits
    60,298       58,524                31,807       33,244                26,204        22,339  
Interest-bearing deposits
    90,336       70,943                167,279       154,450                71,024        78,489  
Total deposits
    150,634       129,467                199,086       187,694                97,228        100,828  
                 
Total U.S. Bancorp shareholders’ equity
    13,859       14,092                12,311       12,407                3,607        3,062  
           
   
Payment
Services
           
Treasury and
Corporate Support
           
Consolidated
Company
 
(Dollars in Millions)   2022     2021             2022     2021             2022      2021  
Condensed Income Statement
                                                                  
Net interest income (taxable-equivalent basis)
  $ 1,241     $ 1,224              $ 144     $ 32              $ 6,664      $ 6,253  
Noninterest income
    1,852 (a)       1,698        (a      471       486                4,944 (b)        5,000 (b)  
Total net revenue
    3,093       2,922                615       518                11,608 (c)        11,253 (c)  
Noninterest expense
    1,726       1,627                609       535                7,226        6,766  
Income (loss) before provision and income taxes
    1,367       1,295                6       (17              4,382        4,487  
Provision for credit losses
    351       50                (8     (894              423        (997
Income (loss) before income taxes
    1,016       1,245                14       877                3,959        5,484  
Income taxes and taxable-equivalent adjustment
    254       311                (121     58                867        1,211  
Net income (loss)
    762       934                135       819                3,092        4,273  
Net (income) loss attributable to noncontrolling interests
                         (4     (11              (4      (11
Net income (loss) attributable to U.S. Bancorp
  $ 762     $ 934              $ 131     $ 808              $ 3,088      $ 4,262  
                 
Average Balance Sheet
                                                                  
Loans
  $ 32,802     $ 29,831              $ 3,744     $ 3,789              $ 318,608      $ 294,138  
Other earning assets
    1,023       5                205,541       191,382                214,710        205,101  
Goodwill
    3,322       3,175                                     10,225        9,916  
Other intangible assets
    450       530                                     4,143        3,259  
Assets
    39,803       35,356                224,110       217,372                578,663        550,057  
                 
Noninterest-bearing deposits
    3,534       5,146                2,532       2,591                124,375        121,844  
Interest-bearing deposits
    164       137                2,174       1,932                330,977        305,951  
Total deposits
    3,698       5,283                4,706       4,523                455,352        427,795  
                 
Total U.S. Bancorp shareholders’ equity
    8,067       7,535                13,460       15,750                51,304        52,846  
 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $1.4 billion and $1.2 billion for the six months ended June 30, 2022 and 2021, respectively.
(b)
Includes revenue generated from certain contracts with customers of $3.9 billion and $3.6 billion for the six months ended June 30, 2022 and 2021, respectively.
(c)
The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Under these arrangments, the Company recorded $392 million and $466 million of revenue for the six months ended June 30, 2022 and 2021, respectively, primarily consisting of interest income on sales-type and direct financing leases.
 
7
2
  U.S. Bancorp

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

U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
 
    For the Three Months Ended June 30        
           2022                                            2021                                        
(Dollars in Millions) (Unaudited)   Average
Balances
    Interest              Yields and
Rates
            Average
Balances
            Interest              Yields and
Rates
                   % Change
Average
Balances
 
Assets
                                      
Investment securities
  $ 171,296     $ 825           1.93        $ 160,615        $ 635           1.58            6.7
Loans held for sale
    3,688       54           5.89            7,825          55           2.78              (52.9
Loans (b)
                                      
Commercial
    120,657       794           2.64            102,974          676           2.63              17.2  
Commercial real estate
    39,517       330           3.35            38,564          306           3.18              2.5  
Residential mortgages
    80,228       638           3.18            73,351          621           3.38              9.4  
Credit card
    22,748       589           10.38            21,116          554           10.54              7.7  
Other retail
    61,037       528           3.47            58,279                530           3.64              4.7  
Total loans
    324,187       2,879           3.56            294,284          2,687           3.66              10.2  
Interest-bearing deposits with banks
    31,116       57           .74            31,358          6           .08              (.8
Other earning assets
    6,474       39           2.36            6,669                26           1.61              (2.9
Total earning assets
    536,761       3,854           2.88            500,751          3,409           2.73              7.2  
Allowance for loan losses
    (5,710                  (6,310                       9.5  
Unrealized gain (loss) on investment securities
    (9,226                  851                         *  
Other assets
    58,086                    56,073                         3.6  
Total assets
  $ 579,911                  $ 551,365                         5.2  
Liabilities and Shareholders’ Equity
                                      
Noninterest-bearing deposits
  $ 120,827                  $ 125,297                         (3.6 )% 
Interest-bearing deposits
                                      
Interest checking
    116,878       20           .07            103,356          7           .03              13.1  
Money market savings
    123,788       121           .39            113,673          50           .18              8.9  
Savings accounts
    68,127       2           .01            62,102          1           .01              9.7  
Time deposits
    26,896       34           .51            24,782                24           .39              8.5  
Total interest-bearing deposits
    335,689       177           .21            303,913          82           .11              10.5  
Short-term borrowings
                                      
Federal funds purchased
    641       1           .17            2,204                    .02              (70.9
Securities sold under agreements to repurchase
    2,078       2           .10            1,658          1           .03              25.3  
Commercial paper
    6,289       4           .06            6,509                                 (3.4
Other short-term borrowings
    14,286       50           .35            6,091                17           .27              *  
Total short- term borrowings
    23,294       57           .98            16,462          18           .43              41.5  
Long-term debt
    31,390       156           1.99            36,190                145           1.61              (13.3
Total interest-bearing liabilities
    390,373       390           .40            356,565          245           .28              9.5  
Other liabilities
    19,078                    15,910                         19.9  
Shareholders’ equity
                                      
Preferred equity
    6,808                    5,968                         14.1  
Common equity
    42,358                    46,994                         (9.9
Total U.S. Bancorp shareholders’ equity
    49,166                    52,962                         (7.2
Noncontrolling interests
    467                    631                         (26.0
Total equity
    49,633                    53,593                         (7.4
Total liabilities and equity
  $ 579,911                  $ 551,365                         5.2  
Net interest income
    $ 3,464                     $ 3,164                 
Gross interest margin
            2.48                         2.45             
Gross interest margin without taxable-equivalent increments
            2.46                         2.43             
Percent of Earning Assets
                                    
Interest income
            2.88                     2.73         
Interest expense
            .29                           .20               
Net interest margin
            2.59                         2.53             
Net interest margin without taxable-equivalent increments
                           
 
2.57
                                             
 
2.51
            
 
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.
(b)
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
 
7
4
  U.S. Bancorp

U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
 
    For the Six Months Ended June 30        
           2022                                            2021                                        
(Dollars in Millions) (Unaudited)   Average
Balances
    Interest              Yields and
Rates
            Average
Balances
            Interest              Yields and
Rates
                   % Change
Average
Balances
 
Assets
                                                                                                              
Investment securities
  $ 173,019     $ 1,561                 1.80            $ 153,109              $ 1,169                 1.53                      13.0
Loans held for sale
    4,579       114                 5.00                8,922                122                 2.73                        (48.7
Loans (b)
                                                                                                              
Commercial
    116,761       1,423                 2.46                102,535                1,349                 2.65                        13.9  
Commercial real estate
    39,302       625                 3.21                38,675                611                 3.18                        1.6  
Residential mortgages
    78,847       1,250                 3.17                74,271                1,266                 3.41                        6.2  
Credit card
    22,297       1,151                 10.41                21,130                1,132                 10.81                        5.5  
Other retail
    61,401       1,037                 3.41                57,527                1,062                 3.72                        6.7  
Total loans
    318,608       5,486                 3.47                294,138                5,420                 3.71                        8.3  
Interest-bearing deposits with banks
    30,487       71                 .47                36,542                15                 .08                        (16.6
Other earning assets
    6,625       67                 2.02                6,528                50                 1.57                        1.5  
Total earning assets
    533,318       7,299                 2.75                499,239                6,776                 2.73                        6.8  
Allowance for loan losses
    (5,706                                        (6,788                                                         15.9  
Unrealized gain (loss) on investment securities
    (5,907                                        1,342                                                           *  
Other assets
    56,958                                          56,264                                                           1.2  
Total assets
  $ 578,663                                        $ 550,057                                                           5.2  
Liabilities and Shareholders’ Equity
                                                                                                              
Noninterest-bearing deposits
  $ 124,375                                        $ 121,844                                                           2.1
Interest-bearing deposits
                                                                                                              
Interest checking
    115,975       29                 .05                100,387                13                 .03                        15.5  
Money market savings
    121,700       173                 .29                119,218                100                 .17                        2.1  
Savings accounts
    67,555       4                 .01                60,484                3                 .01                        11.7  
Time deposits
    25,747       51                 .40                25,862                51                 .40                        (.4
Total interest-bearing deposits
    330,977       257                 .16                305,951                167                 .11                        8.2  
Short-term borrowings
                                                                                                              
Federal funds purchased
    937       1                 .16                1,840                1                 .04                        (49.1
Securities sold under agreements to repurchase
    1,987       3                 .14                1,665                1                 .07                        19.3  
Commercial paper
    6,381       4                 .06                6,328                                                       .8  
Other short-term borrowings
    11,873       70                 .59                4,961                32                 .65                        *  
Total short- term borrowings
    21,178       78                 .75                14,794                34                 .47                        43.2  
Long-term debt
    32,177       300                 1.88                37,817                322                 1.71                        (14.9
Total interest-bearing liabilities
    384,332       635                 .33                358,562                523                 .29                        7.2  
Other liabilities
    18,184                                          16,174                                                           12.4  
Shareholders’ equity
                                                                                                              
Preferred equity
    6,714                                          6,090                                                           10.2  
Common equity
    44,590                                          46,756                                                           (4.6
Total U.S. Bancorp shareholders’ equity
    51,304                                          52,846                                                           (2.9
Noncontrolling interests
    468                                          631                                                           (25.8
Total equity
    51,772                                          53,477                                                           (3.2
Total liabilities and equity
  $ 578,663                                        $ 550,057                                                           5.2  
Net interest income
          $ 6,664                                                 $ 6,253                                             
Gross interest margin
                              2.42                                                 2.44                         
Gross interest margin without taxable-equivalent increments
                              2.40                                                 2.42                         
Percent of Earning Assets
                                                                                                              
Interest income
                              2.75                                                 2.73                         
Interest expense
                              .24                                                   .21                           
Net interest margin
                              2.51                                                 2.52                         
Net interest margin without taxable-equivalent increments
                           
 
2.49
                                             
 
2.50
                        
 
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.
(b)
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
 
U.S. Bancorp  
75

Table of Contents
Part II — Other Information
Item 1. Legal Proceedings
— See the information set forth in “Litigation and Regulatory Matters” in Note 16 in the Notes to Consolidated Financial Statements on page 69 of this Report, which is incorporated herein by reference.
Item 1A. Risk Factors
— There are a number of factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021, for discussion of these risks.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
— See the information set forth in the “Capital Management” section on page 26 of this Report for information regarding shares repurchased by the Company during the second quarter of 2022, which is incorporated herein by reference.
Item 6. Exhibits
 
      2.1    Amendment No. 1 to the Share Purchase Agreement, dated as of May 10, 2022. *
      3.1    Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.4 to the Company’s Form 8-K filed on April 20, 2022).
      3.2    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on April 20, 2021).
    31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
    31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
    32    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
  101    The following financial statements from the Company’s Quarterly Report on Form
10-Q
for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheet, (ii) Consolidated Statement of Income, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated Statement of Shareholders’ Equity, (v) Consolidated Statement of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
  104    Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).
 
*
The schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation
S-K.
The Company agrees to provide a copy of the omitted schedules and similar attachments on a supplemental basis to the U.S. Securities and Exchange Commission or its staff, if requested.
 
76
  U.S. Bancorp

Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
    U.S. BANCORP
    By:   /s/    L
ISA
R. S
TARK
   
 
Dated: August 4, 2022      
Lisa R. Stark
Controller
(Principal Accounting Officer and Duly Authorized Officer)
 
U.S. Bancorp  
77

Table of Contents
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Andrew Cecere, certify that:
 
(1)
I have reviewed this Quarterly Report on Form
10-Q
of U.S. Bancorp;
 
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
(4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
 
  (a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  (b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  (c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  (d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/
S
/    A
NDREW
C
ECERE
Andrew Cecere
Chief Executive Officer
Dated: August 4, 2022
 
78
  U.S. Bancorp

Table of Contents
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Terrance R. Dolan, certify that:
 
(1)
I have reviewed this Quarterly Report on Form
10-Q
of U.S. Bancorp;
 
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
(4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
 
  (a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  (b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  (c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  (d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/
S
/    T
ERRANCE
R. D
OLAN
Terrance R. Dolan
Chief Financial Officer
Dated: August 4, 2022
 
U.S. Bancorp  
79

Table of Contents
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Chief Executive Officer and Chief Financial Officer of U.S. Bancorp, a Delaware corporation (the “Company”), do hereby certify that:
 
(1)
The Quarterly Report on Form
10-Q
for the quarter ended June 30, 2022 (the “Form
10-Q”)
of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Form
10-Q
fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/
S
/    A
NDREW
C
ECERE
 
 
   /
S
/    T
ERRANCE
R. D
OLAN
Andrew Cecere
Chief Executive Officer
 
Dated: August 4, 2022
    
Terrance R. Dolan
Chief Financial Officer
 
80
  U.S. Bancorp

Table of Contents
Corporate Information
Executive Offices
U.S. Bancorp
800 Nicollet Mall
Minneapolis, MN 55402
Common Stock Transfer Agent and Registrar
Computershare acts as our transfer agent and registrar, dividend paying agent and dividend reinvestment plan administrator, and maintains all shareholder records for the Company. Inquiries related to shareholder records, stock transfers, changes of ownership, lost stock certificates, changes of address and dividend payment should be directed to the transfer agent at:
Computershare
P.O. Box 505000
Louisville, KY 40233
Phone: 888-778-1311 or 201-680-6578 (international calls)
Internet: www.computershare.com/investor
Registered or Certified Mail:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone representatives are available weekdays from 8 a.m. to 6 p.m., Central Time, and automated support is available 24 hours a day, seven days a week. Specific information about your account is available on Computershare’s Investor Center website.
Independent Auditor
Ernst & Young LLP serves as the independent auditor for U.S. Bancorp’s financial statements.
Common Stock Listing and Trading
U.S. Bancorp common stock is listed and traded on the New York Stock Exchange under the ticker symbol USB.
Dividends and Reinvestment Plan
U.S. Bancorp currently pays quarterly dividends on our common stock on or about the 15th day of January, April, July and October, subject to approval by our Board of Directors. U.S. Bancorp shareholders can choose to participate in a plan that provides automatic reinvestment of dividends and/or optional cash purchase of additional shares of U.S. Bancorp common stock. For more information, please contact our transfer agent, Computershare.
Investor Relations Contact
Jennifer A. Thompson, CFA
Executive Vice President, Investor Relations
jen.thompson@usbank.com
Phone: 612-303-0778 or 866-775-9668
Financial Information
U.S. Bancorp news and financial results are available through our website and by mail.
Website
For information about U.S. Bancorp, including news, financial results, annual reports and other documents filed with the Securities and Exchange Commission, visit usbank.com and click on
About Us
.
Mail
At your request, we will mail to you our quarterly earnings, news releases, quarterly financial data reported on Form 10-Q, Form 10-K and additional copies of our annual reports. Please contact:
U.S. Bancorp Investor Relations
800 Nicollet Mall
Minneapolis, MN 55402
investorrelations@usbank.com
Phone: 866-775-9668
Media Requests
David R. Palombi
Global Chief Communications Officer
Public Affairs and Communications
david.palombi@usbank.com
Phone: 612-303-3167
Privacy
U.S. Bancorp is committed to respecting the privacy of our customers and safeguarding the financial and personal information provided to us. To learn more about the U.S. Bancorp commitment to protecting privacy, visit usbank.com and click on
Privacy
.
Code of Ethics
At U.S. Bancorp, our commitment to high ethical standards guides everything we do. Demonstrating this commitment through our words and actions is how each of us does the right thing every day for our customers, shareholders, communities and each other. Our ethical culture has been recognized by the Ethisphere Institute, which again named us to its World’s Most Ethical Companies
®
list.
For details about our Code of Ethics and Business Conduct, visit usbank.com and click on
About Us
and then
Investor Relations
then
Corporate Governance
, and then
Governance Documents
.
Diversity and Inclusion
At U.S. Bancorp, embracing diversity, championing equity and fostering inclusion are business imperatives. We view everything we do through a diversity, equity and inclusion lens to deepen our relationships with our stakeholders: our employees, customers, shareholders and communities.
Our employees bring their whole selves to work. We respect and value each other’s differences, strengths and perspectives, and we strive to reflect the communities we serve. This makes us stronger, more innovative and more responsive to our diverse customers’ needs.
Equal Opportunity and Affirmative Action
U.S. Bancorp and our subsidiaries are committed to providing Equal Employment Opportunity to all employees and applicants for employment. In keeping with this commitment, employment decisions are made based on abilities, not race, color, religion, creed, citizenship, national origin or ancestry, gender, age, disability, veteran status, sexual orientation, marital status, gender identity or expression, genetic information or any other factors protected by law. The Company complies with municipal, state and federal fair employment laws, including regulations applying to federal contractors.
U.S. Bancorp, including each of our subsidiaries, is an equal opportunity employer committed to creating a diverse workforce.
Accessibility
U.S. Bancorp is committed to providing ready access to our products and services so all of our customers, including people with disabilities, can succeed financially. To learn more, visit usbank.com and click on
Accessibility
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  This report has been produced on recycled paper.