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U.S. Bancorp
USB
#256
Rank
$89.19 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$57.36
Share price
2.23%
Change (1 day)
25.21%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. U.S. Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q1

U.S. Bancorp - 10-Q quarterly report FY2023 Q1


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US BANCORP \DE\Yeshttp://fasb.org/us-gaap/2022#OtherComprehensiveIncomeUnrealizedHoldingGainLossOnSecuritiesArisingDuringPeriodBeforeTaxhttp://fasb.org/us-gaap/2022#OtherComprehensiveIncomeUnrealizedHoldingGainLossOnSecuritiesArisingDuringPeriodBeforeTaxYesfalseQ10000036104--12-31http://fasb.org/us-gaap/2022#FeesAndCommissionsMortgageBankingAndServicinghttp://fasb.org/us-gaap/2022#FeesAndCommissionsMortgageBankingAndServicinghttp://fasb.org/us-gaap/2022#ReclassificationFromAccumulatedOtherComprehensiveIncomeCurrentPeriodBeforeTaxhttp://fasb.org/us-gaap/2022#ReclassificationFromAccumulatedOtherComprehensiveIncomeCurrentPeriodBeforeTaxhttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#FairValueNetDerivativeAssetLiabilityMeasuredOnRecurringBasisUnobservableInputsReconciliationGainLossIncludedInEarningshttp://fasb.org/us-gaap/2022#ProfitLosshttp://fasb.org/us-gaap/2022#ProfitLosshttp://fasb.org/us-gaap/2022#FairValueAssetsMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueAssetsMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueAssetsMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueAssetsMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#FairValueAssetsMeasuredOnRecurringBasisChangeInUnrealizedGainLosshttp://fasb.org/us-gaap/2022#OtherComprehensiveIncomeLossCashFlowHedgeGainLossBeforeReclassificationAndTaxhttp://fasb.org/us-gaap/2022#OtherComprehensiveIncomeLossCashFlowHedgeGainLossBeforeReclassificationAndTaxThe weighted-average maturity of total held-to-maturity investment securities was 9.2 years at December 31, 2022, with a corresponding weighted-average yield of 2.18 percent. The weighted-average maturity of total available-for-sale investment securities was 7.4 years at December 31, 2022, with a corresponding weighted-average yield of 2.94 percent.Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.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.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.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.Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral. Effective January 1, 2023, the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt restructurings. Upon adoption, the Company reduced its allowance for credit losses and increased retained earnings net of deferred taxes through a cumulative-effect adjustment. Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $875.00, $218.75, $662.50, $343.75, $234.375, $250.00, $231.25 and $206.25 respectively. Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $1,462.428, $339.357, $662.50, $343.750, $234.375, $250.00, $231.25 and $281.25 respectively. Excludes a $1.0 billion interest-bearing due from bank balance with a term greater than 90 days.Substantially all nonperforming loans at March 31, 2023 and December 31, 2022, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $4 million and $3 million for the three months ended March 31, 2023 and 2022, respectively.At March 31, 2023, $542 million of loans 30–89 days past due and $2.2 billion of loans 90 days or more past due purchased and that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, were classified as current, compared with $647 million and $2.2 billion at December 31, 2022, respectively.The par value of all shares issued and outstanding at March 31, 2023 and December 31, 2022, was $1.00 per share. Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges. Represents $3.5 billion of noninterest-bearing additional capital held by MUB upon close of the acquisition to be delivered to MUFG on or prior to December 1, 2027, discounted at the Company’s 5-year unsecured borrowing rate as of the acquisition date, per authoritative accounting guidance.Primarily related to uncollectible amounts on acquired loans.At March 31, 2023, $32 million of loans 30-89 days past due and $1 million of loans 90 days or more past due purchased and that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose payments are insured by the Federal Housing administration or guaranteed by the United States Department of Veterans Affairs, were classified as current.Represents allowance for credit deteriorated and charged-off loans acquired from MUB.Percent of class total amounts expressed as a percent of total residential mortgage loan balances. 0000036104 2023-01-01 2023-03-31 0000036104 2023-03-31 0000036104 2022-12-31 0000036104 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Table of Contents

Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
☑
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
 
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from (not applicable)
Commission file number 1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
 
Delaware
 
41-0255900
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of principal executive offices, including zip code)
651-466-3000
(Registrant’s telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
symbols
 
Name of each exchange
on which registered
Common Stock, $.01 par value per share
 USB New York Stock Exchange
Depositary Shares (each representing 1/100th interest in a share of Series A Non-Cumulative Perpetual Preferred Stock, par value $1.00)
 USB PrA New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series B Non-Cumulative Perpetual Preferred Stock, par value $1.00)
 USB PrH New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series K Non-Cumulative Perpetual Preferred Stock, par value $1.00)
 USB PrP New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series L Non-Cumulative Perpetual Preferred Stock, par value $1.00)
 USB PrQ New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series M Non-Cumulative Perpetual Preferred Stock, par value $1.00)
 USB PrR New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series O Non-Cumulative Perpetual Preferred Stock, par value $1.00)
 USB PrS New York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024
 USB/24B New York Stock Exchange
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
YES ☑    NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ☑    NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☑  Accelerated filer ☐
Non-accelerated
filer ☐		  
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐    NO ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
Class  Outstanding as of April 30, 2023
Common Stock, $0.01 Par Value  1,532,920,691 shares
 
 
Table of Contents
Table of Contents and Form 10-Q Cross Reference Index
 
Part I — Financial Information
    
1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)
     4 
a) Overview
     4 
b) Statement of Income Analysis
     5 
c) Balance Sheet Analysis
     7 
d) Non-GAAP Financial Measures
     31 
e) Critical Accounting Policies
     33 
f) Controls and Procedures (Item 4)
     33 
2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)
     9 
a) Overview
     9 
b) Credit Risk Management
     10 
c) Residual Value Risk Management
     21 
d) Operational Risk Management
     21 
e) Compliance Risk Management
     21 
f) Interest Rate Risk Management
     21 
g) Market Risk Management
     23 
h) Liquidity Risk Management
     25 
i) Capital Management
     27 
3) Line of Business Financial Review
     28 
4) Financial Statements (Item 1)
     34 
Part II — Other Information
    
1) Legal Proceedings (Item 1)
     75 
2) Risk Factors (Item 1A)
     75 
3) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)
     75 
4) Exhibits (Item 6)
     75 
5) Signature
     76 
6) Exhibits
     77 
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.
This quarterly report on Form 10-Q contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, future economic conditions and the anticipated future revenue, expenses, financial condition, asset quality, capital and liquidity levels, plans, prospects and operations 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 that could cause actual results to differ materially from those set forth in forward-looking statements, including the following risks and uncertainties:
 
• 
Deterioration in general business and economic conditions or turbulence in domestic or global financial markets, which could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility;
 
• 
Turmoil and volatility in the financial services industry, including failures or rumors of failures of other depository institutions, which could affect the ability of depository institutions, including U.S. Bank National Association and MUFG Union Bank, N.A. (“MUB”), to attract and retain depositors, and could affect the ability of financial services providers, including U.S. Bancorp, to borrow or raise capital;
 
• 
Increases in Federal Deposit Insurance Corporation (“FDIC”) assessments due to bank failures;
 
• 
Actions taken by governmental agencies to stabilize the financial system and the effectiveness of such actions;
 
• 
Changes to regulatory capital, liquidity and resolution-related requirements applicable to large banking organizations in response to recent developments affecting the banking sector;
 
• 
Changes to statutes, regulations, or regulatory policies or practices, including capital and liquidity requirements, and the enforcement and interpretation of such laws and regulations, and U.S. Bancorp’s ability to address or satisfy those requirements and other requirements or conditions imposed by regulatory entities;
 
• 
Changes in interest rates;
 
• 
Increases in unemployment rates;
 
U.S. Bancorp 
1
Table of Contents
• 
Deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans;
 
• 
Risks related to originating and selling mortgages, including repurchase and indemnity demands, and related to U.S. Bancorp’s role as a loan servicer;
 
• 
Impacts of current, pending or future litigation and governmental proceedings;
 
• 
Increased competition from both banks and non-banks;
 
• 
Effects of climate change and related physical and transition risks;
 
• 
Changes in customer behavior and preferences and the ability to implement technological changes to respond to customer needs and meet competitive demands;
 
• 
Breaches in data security;
 
• 
Failures or disruptions in or breaches of U.S. Bancorp’s operational, technology or security systems or infrastructure, or those of third parties;
 
• 
Failures to safeguard personal information;
 
• 
Impacts of pandemics, including the COVID-19 pandemic, natural disasters, terrorist activities, civil unrest, international hostilities and geopolitical events;
 
• 
Impacts of supply chain disruptions, rising inflation, slower growth or a recession;
 
• 
Failure to execute on strategic or operational plans;
 
• 
Effects of mergers and acquisitions and related integration;
 
• 
Effects of critical accounting policies and judgments;
 
• 
Effects of changes in or interpretations of tax laws and regulations;
 
• 
Management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk; and
 
• 
The risks and uncertainties more fully discussed in the section entitled “Risk Factors” of U.S. Bancorp’s Form 10-K for the year ended December 31, 2022, and subsequent filings with the Securities and Exchange Commission.
In addition, U.S. Bancorp’s acquisition of MUB presents risks and uncertainties, including, among others: the risk that the cost savings, any revenue synergies and other anticipated benefits of the acquisition may not be realized or may take longer than anticipated to be realized; and the possibility that the combination of MUB with U.S. Bancorp, including the integration of MUB, may be more costly or difficult to complete than anticipated or have unanticipated adverse results.
In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.
 
2
 U.S. Bancorp
Table of Contents
 Table 1
 
   Selected Financial Data
 
  Three Months Ended March 31 
(Dollars and Shares in Millions, Except Per Share Data) 2023  2022  Percent
Change		 
Condensed Income Statement
 
        
Net interest income
 $4,634  $3,173   46.0% 
Taxable-equivalent adjustment (a)
  34   27   25.9 
Net interest income (taxable-equivalent basis) (b)
  4,668   3,200   45.9 
Noninterest income
  2,507   2,396   4.6 
Total net revenue
  7,175   5,596   28.2 
Noninterest expense
  4,555   3,502   30.1 
Provision for credit losses
  427   112   * 
Income before taxes
  2,193   1,982   10.6 
Income taxes and taxable-equivalent adjustment
  489   424   15.3 
Net income
  1,704   1,558   9.4 
Net (income) loss attributable to noncontrolling interests
  (6)   (1)   * 
Net income attributable to U.S. Bancorp
 $1,698  $1,557   9.1 
Net income applicable to U.S. Bancorp common shareholders
 $1,592  $1,466   8.6 
Per Common Share
 
        
Earnings per share
 $1.04  $.99   5.1% 
Diluted earnings per share
  1.04   .99   5.1 
Dividends declared per share
  .48   .46   4.3 
Book value per share (c)
  30.12   29.87   .8 
Market value per share
  36.05   53.15   (32.2) 
Average common shares outstanding
  1,532   1,485   3.2 
Average diluted common shares outstanding
  1,532   1,486   3.1 
Financial Ratios
            
Return on average assets
  1.03%   1.09%     
Return on average common equity
  14.1   12.7     
Net interest margin (taxable-equivalent basis) (a)
  3.10   2.44     
Efficiency ratio (b)
  63.2   62.8     
Net charge-offs as a percent of average loans outstanding
  .39   .21     
Average Balances
 
        
Loans
 $386,750  $312,966   23.6% 
Loans held for sale
  2,461   5,479   (55.1) 
Investment securities (d)
  166,125   174,762   (4.9) 
Earning assets
  607,614   529,837   14.7 
Assets
  665,447   577,402   15.2 
Noninterest-bearing deposits
  129,741   127,963   1.4 
Deposits
  510,324   454,176   12.4 
Short-term borrowings
  36,467   19,038   91.5 
Long-term debt
  41,024   32,972   24.4 
Total U.S. Bancorp shareholders’ equity
  52,667   53,466   (1.5) 
    
              March 31,
2023		  December 31,
2022		    
Period End Balances
 
        
Loans
 $387,866  $388,213   (.1)% 
Investment securities
  153,953   161,650   (4.8) 
Assets
  682,377   674,805   1.1 
Deposits
  505,339   524,976   (3.7) 
Long-term debt
  42,045   39,829   5.6 
Total U.S. Bancorp shareholders’ equity
  52,989   50,766   4.4 
Asset Quality
            
Nonperforming assets
 $1,181  $1,016   10.2% 
Allowance for credit losses
  7,523   7,404   1.6 
Allowance for credit losses as a percentage of period-end loans
  1.94%   1.91%     
Capital Ratios
            
Common equity tier 1 capital
  8.5%   8.4%     
Tier 1 capital
  10.0   9.8     
Total risk-based capital
  12.1   11.9     
Leverage
  7.5   7.9     
Total leverage exposure
  6.1   6.4     
Tangible common equity to tangible assets (b)
  4.8   4.5     
Tangible common equity to risk-weighted assets (b)
  6.5   6.0     
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)
  8.3   8.1     
 
*
Not meaningful
(a)
Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
(b)
See Non-GAAP Financial Measures beginning on page 31.
(c)
Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period.
(d)
Excludes unrealized gains and losses on available-for-sale investment securities and any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.
 
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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 $1.7 billion for the first quarter of 2023, or $1.04 per diluted common share, compared with $1.6 billion, or $0.99 per diluted common share, for the first quarter of 2022. Return on average assets and return on average common equity were 1.03 percent and 14.1 percent, respectively, for the first quarter of 2023, compared with 1.09 percent and 12.7 percent, respectively, for the first quarter of 2022. The results for the first quarter of 2023 included the impact of $244 million ($183 million net-of-tax) of merger and integration-related charges associated with the acquisition of MUFG Union Bank, N.A. (“MUB”), which decreased diluted earnings per common share by $0.12.
Total net revenue for the first quarter of 2023 was $1.6 billion (28.2 percent) higher than the first quarter of 2022, reflecting a 46.0 percent increase in net interest income (45.9 percent on a taxable-equivalent basis) and a 4.6 percent increase in noninterest income. The increase in net interest income from the first quarter of 2022 was due to the impact of rising interest rates on earning assets and the impacts of the MUB acquisition. The increase in noninterest income reflected higher payment services revenue, trust and investment management fees, and commercial products revenue, partially offset by lower mortgage banking revenue and losses on securities.
Noninterest expense in the first quarter of 2023 was $1.1 billion (30.1 percent) higher than the first quarter of 2022, reflecting merger and integration charges and operating expenses related to the MUB acquisition, including core deposit intangible amortization expense, as well as increases in legacy compensation and employee benefits expense to support business growth.
The provision for credit losses for the first quarter of 2023 of $427 million was $315 million higher than the first quarter of 2022, driven by the acquisition of MUB, normalizing credit losses and continued economic uncertainty. Net charge-offs in the first quarter of 2023 were $373 million, compared with $162 million in the first quarter of 2022. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.
Recent Industry Events
Disruption in the banking industry in early March of 2023 resulted in significant deposit run-off at certain banking institutions and reinforced the importance of maintaining a well-diversified business with an appropriate risk profile. The Company’s resilient and diversified deposit base, ample liquidity levels and strong credit quality, supported by disciplined underwriting standards, are all aspects of the Company’s approach to strong risk management. Key highlights included:
• 
From the beginning of the industry disruption on March 8, 2023, through the end of the first quarter, total deposit balances were relatively stable, decreasing only 0.6 percent.
• 
Subsequent to March 31, 2023 and through April 30, 2023, total deposit balances decreased approximately $17 billion, of which $10 billion was related to seasonal corporate trust fluctuations, and $3 billion was related to transitional MUB deposits.
• 
At March 31, 2023, the Company’s percent of insured deposits to total deposits was approximately 51 percent, with approximately 80 percent of uninsured deposits comprised of operational wholesale trust and retail deposits, which tend to be more stable as customers are contractually bound or tied to treasury management services and trust activities provided to corporate and institutional clients.
• 
At March 31, 2023, the Company’s total available liquidity was approximately $315 billion, representing approximately 126 percent of uninsured deposits.
• 
Over the last five quarters, and well ahead of the recent banking industry disruption, the Company reduced its investment securities portfolio from approximately 30 percent to 25 percent of total assets, while increasing cash levels.
MUFG Union Bank Acquisition
 On December 1, 2022, the Company acquired MUB’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. Pursuant to the terms of the Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of common stock of MUB for a purchase price consisting of $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The Company also received additional MUB cash of $3.5 billion upon completion of the acquisition. The additional cash received is held at the MUB subsidiary and required to be repaid to Mitsubishi UFJ Financial
 
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Group, Inc. on or prior to the fifth anniversary date of the completion of the purchase. As such, it is recognized as debt at the parent company. The transaction excluded the purchase of substantially all of MUB’s Global Corporate & Investment Bank (other than certain deposits), certain middle and back-office functions, and other assets. MUB operates approximately 300 branches in California, Washington and Oregon. The Company’s first quarter of 2023 results reflect the full benefit of the acquisition into the reported results. As of the date of acquisition, MUB is a wholly-owned subsidiary of the Company and an affiliate of U.S. Bank National Association (“USBNA”), the Company’s primary banking subsidiary. The Company expects to merge MUB into USBNA in connection with the conversion of MUB customers and systems to the USBNA platform over Memorial Day weekend in 2023.
STATEMENT OF INCOME ANALYSIS
Net Interest Income
Net interest income, on a taxable-equivalent basis, was $4.7 billion in the first quarter of 2023, representing an increase of $1.5 billion (45.9 percent) compared with the first quarter of 2022. The increase was primarily due to the impact of rising interest rates on earning assets and the acquisition of MUB. Average earning assets were $77.8 billion (14.7 percent) higher than the first quarter of 2022, reflecting increases in loans and interest-bearing deposits with banks, partially offset by a decrease in investment securities. The net interest margin, on a taxable-equivalent basis, in the first quarter of 2023 was 3.10 percent, compared with 2.44 percent in the first quarter of 2022. The increase in net interest margin from the first quarter of 2022 was primarily due to the impact of higher rates on earning assets and the acquisition of MUB. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.
Average total loans in the first quarter of 2023 were $73.8 billion (23.6 percent) higher than the first quarter of 2022. The increase was driven by growth in the Company’s legacy loan portfolio as well as $52.8 billion in average loan balances from the MUB acquisition. Increases in residential mortgages (50.1 percent), commercial loans (21.7 percent), commercial real estate loans (42.2 percent) and credit card loans (17.1 percent) were partially offset by lower other retail loans (13.2 percent). The increase in residential mortgages was driven by the impact related to the MUB acquisition, along with on-balance sheet loan activities and slower refinancing activity. The increase in commercial loans was 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 and the impact related to the MUB acquisition. The increase in commercial real estate loans was driven by the impact of the MUB acquisition, while the increase in credit cards loans was primarily driven by higher spend volumes, account growth and lower payment rates. The decrease in other retail loans was driven by lower auto and installment loans and lower retail leasing balances, partially offset by higher home equity and second mortgages.
Average investment securities in the first quarter of 2023 were $8.6 billion (4.9 percent) lower than the first quarter of 2022, driven by balance sheet repositioning and liquidity management in connection with the acquisition of MUB. The decrease from the first quarter of 2022 reflected sales of investments securities, partially offset by the impact of acquired MUB investment securities.
Average total deposits for the first quarter of 2023 were $56.1 billion (12.4 percent) higher than the first quarter of 2022. Average total savings deposits for the first quarter of 2023 were $43.5 billion (14.4 percent) higher than the first quarter of 2022, driven by the acquisition of MUB and increases in Corporate and Commercial Banking, and Wealth Management and Investment Services balances, partially offset by a decrease in Consumer and Business Banking balances. Average time deposits were $10.9 billion (44.1 percent) higher than the prior year, mainly due to the acquisition of MUB and an increase in Consumer and Business Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Average noninterest-bearing deposits were $1.8 billion (1.4 percent) higher than the prior year, driven by the impact of the MUB acquisition, partially offset by a decrease across all legacy business lines.
Provision for Credit Losses
The provision for credit losses was $427 million in the first quarter of 2023, compared with $112 million in the first quarter of 2022. The increase of $315 million was driven by the acquisition of MUB, normalizing credit losses and continued economic uncertainty. Net charge-offs increased $211 million in the first quarter of 2023, compared with the first quarter of 2022, reflecting $91 million of charge-offs related to the uncollectible amount of acquired loans, which were considered purchased credit deteriorated as of the date of the MUB acquisition, as well as higher charge-offs in most loan categories consistent with normalizing credit conditions. 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.
 
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 Table 2
 
   Noninterest Income
 
  
Three Months Ended
March 31
 
(Dollars in Millions) 2023  2022   Percent
Change		 
Card revenue
 $360  $338    6.5% 
Corporate payment products revenue
  189   158    19.6 
Merchant processing services
  387   363    6.6 
Trust and investment management fees
  590   500    18.0 
Service charges
  324   333    (2.7) 
Commercial products revenue
  334   266    25.6 
Mortgage banking revenue
  128   200    (36.0) 
Investment products fees
  68   62    9.7 
Securities gains (losses), net
  (32)   18    * 
Other
  159   158    .6 
Total noninterest income
 $2,507  $2,396    4.6% 
 
*
Not meaningful
 
Noninterest Income
Noninterest income was $2.5 billion in the first quarter of 2023, representing an increase of $111 million (4.6 percent) compared with the first quarter of 2022. The increase over the prior year reflected stronger trust and investment management fees, payment services revenue and commercial products revenue, partially offset by lower mortgage banking revenue and losses on the sale of securities. Trust and investment management fees increased $90 million (18.0 percent) driven by lower money market fee waivers and core business growth, partially offset by unfavorable market conditions. Payment services revenue increased $77 million (9.0 percent), as card revenue increased $22 million (6.5 percent) driven by higher sales volume and the acquisition of MUB, corporate payment products revenue increased $31 million (19.6 percent) due to higher business spending across all product groups and merchant processing services revenue increased $24 million (6.6 percent) driven by higher sales volume and merchant fees. Commercial products revenue increased $68 million (25.6 percent) driven by higher trading revenue and the acquisition of MUB. Mortgage banking revenue decreased $72 million (36.0 percent) reflecting lower application volume, given declining refinancing activities experienced in the mortgage industry, lower related gain on sale margins and fewer sales of performing loans, partially offset by increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities.
Noninterest Expense
Noninterest expense was $4.6 billion in the first quarter 2023, representing an increase of $1.1 billion (30.1 percent) over the first quarter of 2022. The increase from the prior year reflected the impact of $244 million of merger and integration charges, as well as operating expenses related to the MUB acquisition, higher compensation and employee benefits expense, higher other intangibles expense and higher other noninterest expense. Compensation and employee benefits expense increased $397 million (17.7 percent) primarily due to MUB expense as well as merit increases and hiring to support business growth and lower capitalized loan costs driven by lower mortgage production, partially offset by lower performance-based incentives. Other intangibles expense increased $113 million driven by the core deposit intangible created as a result of the MUB acquisition. Other noninterest expense increased $103 million (32.0 percent) due to lower prior year accruals related to future delivery exposures for merchant and airline processing and other liabilities, higher Federal Deposit Insurance Corporation (“FDIC”) insurance expense driven by an increase in the assessment base and rate, and MUB expense. Although the timing is unknown, the Company expects that FDIC insurance assessments in future periods may be elevated due to recent failures by other banking institutions.
Income Tax Expense
The provision for income taxes was $455 million (an effective rate of 21.1 percent) for the first quarter of 2023, compared with $397 million (an effective rate of 20.3 percent) for the first quarter of 2022. For further information on income taxes, refer to Note 12 of the Notes to Consolidated Financial Statements.
 
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 Table 3
 
   Noninterest Expense
 
  Three Months Ended
March 31		 
(Dollars in Millions) 2023  2022  Percent
Change		 
Compensation and employee benefits
 $2,646  $2,249   17.7% 
Net occupancy and equipment
  321   269   19.3 
Professional services
  134   114   17.5 
Marketing and business development
  122   80   52.5 
Technology and communications
  503   421   19.5 
Other intangibles
  160   47   * 
Other
  425   322   32.0 
Total before merger and integration charges
  4,311   3,502   23.1 
Merger and integration charges
  244   —   * 
Total noninterest expense
 $4,555  $3,502   30.1% 
Efficiency ratio (a)
  63.2%   62.8%     
 
*
Not meaningful    
(a)
See Non-GAAP Financial Measures beginning on page 31.    
 
BALANCE SHEET ANALYSIS
Loans
The Company’s loan portfolio was $387.9 billion at March 31, 2023, compared with $388.2 billion at December 31, 2022, a decrease of $347 million (0.1 percent). The decrease was driven by lower other retail loans, credit card loans and commercial real estate loans, partially offset by higher commercial loans and residential mortgages.
Other retail loans decreased $2.0 billion (3.6 percent) at March 31, 2023, compared with December 31, 2022, primarily due to decreases in auto loans, retail leasing balances, revolving credit balances and installment loans.
Credit card loans decreased $806 million (3.1 percent) at March 31, 2023, compared with December 31, 2022, primarily the result of customers seasonally paying down balances.
Commercial real estate loans decreased $329 million (0.6 percent) at March 31, 2023, compared with December 31, 2022, due to payoffs exceeding a reduced level of new originations.
Commercial loans increased $1.6 billion (1.2 percent) at March 31, 2023, compared with December 31, 2022, due to higher utilization driven by working capital needs of corporate customers and slower payoffs given higher volatility in the capital markets, as well as core growth.
Residential mortgages held in the loan portfolio increased $1.1 billion (1.0 percent) at March 31, 2023, compared with December 31, 2022, due to stronger on-balance sheet loan activities and slower refinance activity. Residential mortgages originated and placed in the Company’s loan portfolio include jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality.
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 $2.4 billion at March 31, 2023, compared with $2.2 billion at December 31, 2022. The increase in loans held for sale was principally due to a higher level of mortgage loan closings in the first quarter of 2023, compared with the fourth quarter of 2022. Almost all of the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets, in particular in government agency transactions and to government-sponsored enterprises (“GSEs”).
 
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 Table 4
 
   Investment Securities
 
  March 31, 2023   December 31, 2022 
(Dollars in Millions) Amortized
Cost		   Fair Value   Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (d)		   Amortized
Cost		   Fair Value   Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (d)		 
Held-to-maturity
                                       
U.S. Treasury and agencies
 $1,344   $1,307    3.0    2.85%   $1,344   $1,293    3.3    2.85% 
Mortgage-backed securities (a)
  87,118    77,569    9.0    2.23    87,396    76,581    9.3    2.17 
Total held-to-maturity
 $88,462   $78,876    8.9    2.24%   $88,740   $77,874    9.2    2.18% 
Available-for-sale
                                       
U.S. Treasury and agencies
 $20,421   $18,054    6.7    1.92%   $24,801   $22,033    7.1    2.43% 
Mortgage-backed securities (a)
  37,201    33,452    6.5    2.83    40,803    36,423    6.6    2.83 
Asset-backed securities (a)
  3,836    3,807    1.2    4.72    4,356    4,323    1.3    4.59 
Obligations of state and political subdivisions (b) (c)
  11,234    10,174    10.8    3.74    11,484    10,125    13.6    3.76 
Other
  4    4    2.2    1.89    6    6    .1    1.99 
Total available-for-sale
 $72,696   $65,491    7.0    2.82%   $81,450   $72,910    7.4    2.94% 
 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(c)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(d)
Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.
 
Investment Securities
Investment securities totaled $154.0 billion at March 31, 2023, compared with $161.7 billion at December 31, 2022. The $7.7 billion (4.8 percent) decrease was primarily due to $9.3 billion of net investment sales and maturities, partially offset by a $1.3 billion favorable change in net unrealized gains (losses) on available-for-sale investment securities.
The Company’s available-for-sale investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. At March 31, 2023, the Company’s net unrealized losses on available-for-sale investment securities were $7.2 billion ($5.4 billion net-of-tax), compared with $8.5 billion ($6.4 billion net-of-tax) at December 31, 2022. The favorable change in net unrealized gains (losses) was primarily due to increases in the fair value of mortgage-backed, U.S. Treasury and state and political securities as a result of changes in interest rates. Gross unrealized losses on available-for-sale investment securities totaled $7.2 billion at March 31, 2023, compared with $8.6 billion at December 31, 2022. When evaluating credit losses, the Company considers various factors such as the nature of the investment security, the credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows of the underlying collateral, the existence of any government or agency guarantees, and market conditions. At March 31, 2023, the Company had no plans to sell securities with unrealized losses, and believed it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.
Refer to Notes 4 and 15 in the Notes to Consolidated Financial Statements for further information on investment securities.
Deposits
Total deposits were $505.3 billion at March 31, 2023, compared with $525.0 billion at December 31, 2022. The first quarter of 2023 banking industry disruption, beginning on March 8, did not meaningfully impact the Company’s overall deposit balances or composition. The Company’s total deposits were approximately $508 billion on March 8, 2023, compared with $505 billion on March 31, 2023. The Company maintains a diverse and stable funding base that includes a mix of both consumer and operational wholesale deposits. Consumer deposits account for more than 50 percent of total deposits. A significant portion of the wholesale and trust deposits are collateralized, contractual or relationship based. At March 31, 2023, approximately 51 percent of deposits were insured through the FDIC insurance fund and an additional 3 percent of deposits were fully collateralized. Of the uninsured deposits, approximately 80 percent of these deposits were retail customers or operational in nature, creating greater stability to these deposits. In addition, at March 31, 2023 the Company had total available liquidity representing 126 percent of uninsured balances.
The $19.6 billion (3.7 percent) decrease in total deposits reflected decreases in noninterest-bearing deposits and total savings deposits, partially offset by an increase in time deposits. Noninterest-bearing deposits decreased $13.1 billion (9.5 percent) at March 31, 2023, compared with December 31, 2022, primarily due to lower Corporate and Commercial Banking, Wealth Management and
 
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Investment Services, and Consumer and Business Banking balances. Savings account balances decreased $6.8 billion (9.4 percent), driven by lower Consumer and Business Banking balances. Interest checking balances decreased $5.4 billion (4.0 percent), primarily due to lower Wealth Management and Investment Services, Consumer and Business Banking, and Corporate and Commercial Banking balances. Money market deposit balances increased $1.1 billion (0.7 percent), primarily due to higher Corporate and Commercial Banking balances, partially offset by lower Wealth Management and Investment Services balances. Time deposits increased $4.6 billion (13.9 percent) at March 31, 2023, compared with December 31, 2022, driven by higher Consumer and Business Banking balances, partially offset by lower Corporate and Commercial Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics.
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 $56.9 billion at March 31, 2023, compared with $31.2 billion at December 31, 2022. The $25.7 billion (82.2 percent) increase in short-term borrowings was primarily due to increases in short-term Federal Home Loan Bank (“FHLB”) advances. Long-term debt was $42.0 billion at March 31, 2023, compared with $39.8 billion at December 31, 2022. The $2.2 billion (5.6 percent) increase was primarily due to $3.7 billion of medium-term note issuances, partially offset by $1.6 billion of bank note repayments and maturities. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.
CORPORATE RISK PROFILE
Overview
Managing risks is an essential part of successfully operating a financial services company. The Company’s Board of Directors has approved a risk management framework which establishes governance and risk management requirements for all risk-taking activities. This framework includes Company and business line risk appetite statements which set boundaries for the types and amount of risk that may be undertaken in pursuing business objectives and initiatives. The Board of Directors, primarily through its Risk Management Committee, oversees performance relative to the risk management framework, risk appetite statements, and other policy requirements.
The Executive Risk Committee (“ERC”), which is chaired by the Chief Risk Officer and includes the Chief Executive Officer and other members of the executive management team, oversees execution against the risk management framework and risk appetite statements. The ERC focuses on current and emerging risks, including strategic and reputation risks, by directing timely and comprehensive actions. Senior operating committees have also been established, each responsible for overseeing a specified category of risk.
Upon closing of the MUB acquisition, the Company’s risk management framework applies to the legal entities acquired from Mitsubishi UFJ Financial Group, Inc., including MUB. Prior to closing, the Company evaluated the frameworks, policies and procedures of the acquired entities as necessary. Updates were made to align the acquired entities with the Company’s risk appetite and connect the elements of their respective risk governance and reporting into the Company’s existing risk management framework. Connecting the existing MUB risk governance and reporting framework into the Company’s existing risk management framework allows separate risk profiles, governance, and reporting for the Company and the acquired entities, during the period from acquisition through bank merger, while also providing the ability to consolidate reporting for the Company. Upon completing the merger of MUB into USBNA, which is expected to occur in connection with the conversion of MUB customers and systems to the USBNA platform over Memorial Day weekend in 2023, the MUB risk governance and reporting framework will no longer be applicable.
The Company’s most prominent risk exposures are credit, interest rate, market, liquidity, operational, compliance, strategic, and reputation. Credit risk is the risk of loss associated with a change in the credit profile or the failure of a borrower or counterparty to meet its contractual obligations. Interest rate risk is the current or prospective risk to earnings and capital, or market valuations, arising from the impact of changes in interest rates. Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and available-for-sale securities, mortgage loans held for sale (“MLHFS”), MSRs and derivatives that are accounted for on a fair value basis. Liquidity risk is the risk that financial condition or overall safety and soundness is adversely affected by the Company’s inability, or perceived inability, to meet its cash flow obligations in a timely and
 
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complete manner in either normal or stressed conditions. Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or misconduct), or adverse external events, including the risk of loss resulting from breaches in data security. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business. Compliance risk is the risk that the Company may suffer legal or regulatory sanctions, financial losses, and reputational damage if it fails to adhere to compliance requirements and the Company’s compliance policies. Strategic risk is the risk to current or projected financial condition and resilience arising from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the banking industry and operating environment. Reputation risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from negative public opinion. This risk may impair the Company’s competitiveness by affecting its ability to establish new relationships or services, or continue serving existing relationships. In addition to the risks identified above, other risk factors exist that may impact the Company. Refer to “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for a detailed discussion of these factors.
The Company’s Board and management-level governance committees are supported by a “three lines of defense” model for establishing effective checks and balances. The first line of defense, the business lines, manages risks in conformity with established limits and policy requirements. In turn, business line leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, which includes the Chief Risk Officer’s organization as well as policy and oversight activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors first line of defense conformity with limits and policies, and provides reporting and escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee of the Board of Directors and senior management with independent assessment and assurance regarding the effectiveness of the Company’s governance, risk management and control processes.
Management regularly provides reports to the Risk Management Committee of the Board of Directors. The Risk Management Committee discusses with management the Company’s risk management performance, and provides a summary of key risks to the entire Board of Directors, covering the status of existing matters, areas of potential future concern and specific information on certain types of loss events. The Risk Management Committee considers quarterly reports by management assessing the Company’s performance relative to the risk appetite statements and the associated risk limits, including:
• 
Macroeconomic environment and other qualitative considerations, such as regulatory and compliance changes, litigation developments, geopolitical events, and technology and cybersecurity;
• 
Credit measures, including adversely rated and nonperforming loans, leveraged transactions, credit concentrations and lending limits;
• 
Interest rate and market risk, including market value and net income simulation, and trading-related Value at Risk (“VaR”);
• 
Liquidity risk, including funding projections under various stressed scenarios;
• 
Operational and compliance risk, including losses stemming from events such as fraud, processing errors, control breaches, breaches in data security or adverse business decisions, as well as reporting on technology performance, and various legal and regulatory compliance measures;
• 
Capital ratios and projections, including regulatory measures and stressed scenarios; and
• 
Strategic and reputation risk considerations, impacts and responses.
Credit Risk Management
The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit examinations and management reviews of loans exhibiting deterioration of credit quality. In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), collateral values, trends in loan performance and macroeconomic factors, such as changes in unemployment rates, gross domestic product levels, inflation, interest rates and consumer bankruptcy filings. The Risk Management Committee oversees the Company’s credit risk management process.
In addition, credit quality ratings, as defined by the Company, are an important part of the Company’s overall credit risk management and evaluation of its
 
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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 and loans in a junior lien position that are current but are behind a first lien position on nonaccrual, encompass all loans held by the Company that it considers to have a potential or well-defined weakness that may put full collection of contractual cash flows at risk. The Company’s internal credit quality ratings for consumer loans are primarily based on delinquency and nonperforming status, except for a limited population of larger loans within those portfolios that are individually evaluated. For this limited population, the determination of the internal credit quality rating may also consider collateral value and customer cash flows. Refer to Note 5 in the Notes to Consolidated Financial Statements for further discussion of the Company’s loan portfolios including internal credit quality ratings. In addition, refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for a more detailed discussion on credit risk management processes.
The Company manages its credit risk, in part, through diversification of its loan portfolio which is achieved through limit setting by product type criteria, such as industry, and identification of credit concentrations. 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-year draw period during which a minimum payment is equivalent to the monthly interest, followed by a 20-year amortization period, respectively. At March 31, 2023, substantially all of the Company’s home equity lines were in the draw period. Key risk characteristics relevant to consumer lending segment loans primarily relate to the borrowers’ capacity and willingness to repay and include unemployment rates, consumer bankruptcy filings and other macroeconomic factors, customer payment history and credit scores, and in some cases, updated loan-to-value (“LTV”) information reflecting current market conditions on real estate-based loans. These and other risk characteristics are reflected in forecasts of delinquency levels, bankruptcies and losses which are the primary factors in determining the allowance for credit losses for the consumer lending segment.
The Company further disaggregates its loan portfolio segments into various classes based on their underlying risk characteristics. The two classes within the commercial lending segment are commercial loans and commercial real estate loans. The three classes within the consumer lending segment are residential mortgages, credit card loans and other retail loans.
The Company’s consumer lending segment utilizes several distinct business processes and channels to originate consumer credit, including traditional branch lending, mobile and on-line banking, indirect lending, alliance partnerships and correspondent banks. Each distinct underwriting and origination activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles.
 
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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 managed by adherence to LTV and borrower credit criteria during the underwriting process.
The Company estimates updated LTV information on its outstanding residential mortgages quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current estimate of property value. For home equity and second mortgages, combined loan-to-value (“CLTV”) is the combination of the first mortgage original principal balance and the second lien outstanding principal balance, relative to the current estimate of property value. Certain loans do not have an LTV or CLTV, primarily due to lack of availability of relevant automated valuation model and/or home price indices values, or lack of necessary valuation data on acquired loans.
The following tables provide summary information of residential mortgages and home equity and second mortgages by LTV at March 31, 2023:
 
Residential Mortgages
(Dollars in Millions)
 Interest
Only		  Amortizing  Total  Percent
of Total		 
Loan-to-Value
    
Less than or equal to 80%
 $14,674  $79,946  $94,620   80.9% 
Over 80% through 90%
  772   10,873   11,645   10.0 
Over 90% through 100%
  116   2,063   2,179   1.9 
Over 100%
  177   1,112   1,289   1.1 
No LTV available
  —   10   10   — 
Loans purchased from GNMA mortgage pools (a)
  —   7,205   7,205   6.1 
Total
 $15,739  $101,209  $116,948   100.0% 
 
(a)
Represents loans purchased and loans that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
 
Home Equity and Second Mortgages
(Dollars in Millions)		 Lines  Loans  Total  Percent
of Total		 
Loan-to-Value / Combined Loan-to-Value
    
Less than or equal to 80%
 $10,156  $1,420  $11,576   91.0% 
Over 80% through 90%
  796   114   910   7.2 
Over 90% through 100%
  108   18   126   1.0 
Over 100%
  50   13   63   .5 
No LTV/CLTV available
  43   2   45   .3 
Total
 $11,153  $1,567  $12,720   100.0% 
Home equity and second mortgages were $12.7 billion at March 31, 2023, compared with $12.9 billion at December 31, 2022, and included $2.6 billion of home equity lines in a first lien position and $10.1 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at March 31, 2023, included approximately $3.3 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $6.8 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines including delinquency, estimated average CLTV ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.
The following table provides a summary of delinquency statistics and other credit quality indicators for the Company’s junior lien positions at March 31, 2023:
 
  Junior Liens Behind    
(Dollars in Millions) Company Owned
or Serviced` First
Lien		  Third Party
First Lien		  Total 
Total
 $3,305  $6,795  $10,100 
Percent 30 — 89 days past due
  .50%   .44%   .46% 
Percent 90 days or more past due
  .02%   .07%   .05% 
Weighted-average CLTV
  70%   68%   69% 
Weighted-average credit score
  781   782   781 
See the “Analysis and Determination of the Allowance for Credit Losses” section for additional information on how the Company determines the allowance for credit losses for loans in a junior lien position.
Credit card and other retail loans are diversified across customer segments and geographies. Diversification in the credit card portfolio is achieved with broad customer relationship distribution through the Company’s and financial institution partners’ branches, retail and affinity partners, and digital channels.
The following table provides a summary of the Company’s credit card loan balances disaggregated based upon updated credit score at March 31, 2023:
 
   Percent
of Total (a)		 
Credit score > 660
  86% 
Credit score < 660
  14 
No credit score
  — 
 
(a)
Credit score distribution excludes loans serviced by others.
 
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Loan Delinquencies
Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. The entire balance of a loan account is considered delinquent if the minimum payment contractually required to be made is not received by the date specified on the billing statement. Delinquent loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options, whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, are excluded from delinquency statistics.
Accruing loans 90 days or more past due totaled $494 million at March 31, 2023, compared with $491 million at December 31, 2022. Accruing loans 90 days or more past due are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, are in the process of collection and are reasonably expected to result in repayment or restoration to current status, or are managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans was 0.13 percent at March 31, 2023 and December 31, 2022.
 
 Table 5
    Delinquent Loan Ratios as a Percent of Ending Loan Balances
 
90 days or more past due
  March 31,
2023		  December 31,
2022		 
Commercial
   
Commercial
   .05%   .07% 
Lease financing
   —   — 
Total commercial
   .05   .07 
Commercial Real Estate
   
Commercial mortgages
   .01   — 
Construction and development
   .01   .03 
Total commercial real estate
   .01   .01 
Residential Mortgages (a)
   .08   .08 
Credit Card
   1.00   .88 
Other Retail
   
Retail leasing
   .04   .04 
Home equity and second mortgages
   .29   .28 
Other
   .07   .08 
Total other retail
   .12   .12 
Total loans
   .13%   .13% 
90 days or more past due and nonperforming loans  March 31,
2023		  December 31,
2022		 
Commercial
   .18%   .19% 
Commercial real estate
   .98   .62 
Residential mortgages (a)
   .33   .36 
Credit card
   1.01   .88 
Other retail
   .37   .37 
Total loans
   .42%   .38% 
 
(a)
Delinquent loan ratios exclude $2.2 billion at March 31, 2023, and at December 31, 2022, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due and nonperforming to total residential mortgages was 2.24 percent at March 31, 2023, and 2.28 percent at December 31, 2022.
 
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The following table provides summary delinquency information for residential mortgages, credit card and other retail loans included in the consumer lending segment:
 
  Amount        As a Percent of Ending
Loan Balances		 
(Dollars in Millions) March 31,
2023		   December 31,
2022		        March 31,
2023		  December 31,
2022		 
Residential Mortgages (a)
         
30-89 days
 $148   $201       .13%   .17% 
90 days or more
  97    95       .08   .08 
Nonperforming
  292    325         .25   .28 
Total
 $537   $621       .46   .54 
Credit Card
         
30-89 days
 $280   $283       1.10   1.08 
90 days or more
  256    231       1.00   .88 
Nonperforming
  1    1         —   — 
Total
 $537   $515       2.11   1.96 
Other Retail
         
Retail Leasing
         
30-89 days
 $22   $27       .44   .49 
90 days or more
  2    2       .04   .04 
Nonperforming
  8    8         .16   .14 
Total
 $32   $37       .64   .67 
Home Equity and Second Mortgages
         
30-89 days
 $65   $65       .51   .51 
90 days or more
  37    36       .29   .28 
Nonperforming
  105    110         .83   .86 
Total
 $207   $211       1.63   1.64 
Other (b)
         
30-89 days
 $167   $217       .47   .59 
90 days or more
  25    28       .07   .08 
Nonperforming
  20    21         .06   .06 
Total
 $212   $266         .60   .73 
 
(a)
Excludes $542 million of loans 30-89 days past due and $2.2 billion of loans 90 days or more past due at March 31, 2023, purchased and that could be purchased from GNMA mortgage pools under delinquent loan repurchase options that continue to accrue interest, compared with $647 million and $2.2 billion at December 31, 2022, respectively.
(b)
Includes revolving credit, installment and automobile loans.
 
Modified 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.
Modified loans accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater.
The Company continues to work with customers to modify loans for borrowers who are experiencing financial difficulties. Many of the Company’s loan modifications are determined on a case-by-case basis in connection with ongoing loan collection processes. The modifications vary within each of the Company’s loan classes. Commercial lending segment modifications 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 modification programs. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, and its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments. These modifications 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 modification 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.
Credit card and other retail loan modifications are generally part of distinct modification programs providing customers modification solutions over a
 
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specified time period, generally up to 60 months.
The Company also makes short-term modifications, 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, modified loans not performing in accordance with modified terms and not accruing interest, modified loans that have not met the performance period required to return to accrual status, other real estate owned (“OREO”) and other nonperforming assets owned by the Company. Interest payments collected from assets on nonaccrual status are generally applied against the principal balance and not recorded as income. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.
At March 31, 2023, total nonperforming assets were $1.2 billion, compared to $1.0 billion at December 31, 2022. The $165 million (16.2 percent) increase in nonperforming assets was primarily due to higher nonperforming commercial real estate loans resulting from an internal review of the acquired MUB loan portfolio, completed once closing was achieved and access to loan documents and customer files was available. The ratio of total nonperforming assets to total loans and other real estate was 0.30 percent at March 31, 2023, compared with 0.26 percent at December 31, 2022.
OREO was $23 million at March 31, 2023 and December 31, 2022, and was related to foreclosed properties that previously secured loan balances. These balances exclude foreclosed GNMA loans whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
 
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 Table 6
 
   Nonperforming Assets (a)
 
(Dollars in Millions) 
March 31,
2023
  December 31,
2022		 
Commercial
  
Commercial
          $150           $139 
Lease financing
  28   30 
Total commercial
  178   169 
Commercial Real Estate
  
Commercial mortgages
  432   251 
Construction and development
  103   87 
Total commercial real estate
  535   338 
Residential Mortgages (b)
  292   325 
Credit Card
  1   1 
Other Retail
  
Retail leasing
  8   8 
Home equity and second mortgages
  105   110 
Other
  20   21 
Total other retail
  133   139 
Total nonperforming loans (1)
  1,139   972 
Other Real Estate (c)
  23   23 
Other Assets
  19   21 
Total nonperforming assets
      $1,181           $1,016 
Accruing loans 90 days or more past due (b)
          $494           $491 
Period-end loans (2)
              $387,866           $388,213 
Nonperforming loans to total loans (1)/(2)
  .29%   .25% 
Nonperforming assets to total loans plus other real estate (c)
  .30%   .26% 
Changes in Nonperforming Assets
 
(Dollars in Millions) Commercial and
Commercial
Real Estate		  Residential
Mortgages,
Credit Card and
Other Retail		              Total 
Balance December 31, 2022
 $509  $507  $1,016 
Additions to nonperforming assets
   
New nonaccrual loans and foreclosed properties
  270   39   309 
Advances on loans
  6   —   6 
Total additions
  276   39   315 
Reductions in nonperforming assets
   
Paydowns, payoffs
  (30)   (25)   (55) 
Net sales
  —   (7)   (7) 
Return to performing status
  (9)   (45)   (54) 
Charge-offs (d)
  (32)   (2)   (34) 
Total reductions
  (71)   (79)   (150) 
Net additions to (reductions in) nonperforming assets
  205   (40)   165 
Balance March 31, 2023
 $714  $467  $1,181 
 
(a)
Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.
(b)
Excludes $2.2 billion at March 31, 2023, and at December 31, 2022, 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 $57 million at March 31, 2023, and $53 million at December 31, 2022, continue to accrue interest and are recorded as other assets and excluded from nonperforming assets because they are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
(d)
Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.
 
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Table 7
 
   Net Charge-offs as a Percent of Average Loans Outstanding
 
  Three Months Ended March 31 
  2023       2022 
(Dollars in Millions) Average
Loan
Balance		   Net
Charge-offs
  Percent       Average
Loan
Balance		   Net
Charge-offs
  Percent 
Commercial
           
Commercial
 $131,227   $42   .13%     $107,819   $26   .10% 
Lease financing
  4,456    5   .46        5,003    6   .49 
Total commercial
  135,683    47   .14      112,822    32   .12 
Commercial real estate
           
Commercial mortgages
  43,627    115   1.07      28,826    —   — 
Construction
  11,968    2   .07        10,258    (5)   (.20) 
Total commercial real estate
  55,595    117   .85      39,084    (5)   (.05) 
Residential mortgages
  116,287    (1)   —      77,449    (6)   (.03) 
Credit card
  25,569    175   2.78      21,842    112   2.08 
Other retail
           
Retail leasing
  5,241    1   .08      7,110    1   .06 
Home equity and second mortgages
  12,774    (1)   (.03)      10,394    (2)   (.08) 
Other
  35,601    35   .40        44,265    30   .27 
Total other retail
  53,616    35   .26        61,769    29   .19 
Total loans
 $386,750   $373   .39%       $312,966   $162   .21% 
 
Analysis of Loan Net Charge-offs
 Total loan net charge-offs were $373 million for the first quarter of 2023, compared with $162 million for the first quarter of 2022. The $211 million increase reflected $91 million of charge-offs related to the uncollectible amount of acquired loans, which were considered purchased credit deteriorated as of the date of the MUB acquisition, as well as higher charge-offs in most loan categories consistent with normalizing credit conditions. The ratio of total loan net charge-offs to average loans outstanding on an annualized basis for the first quarter of 2023 was 0.39 percent (0.30 percent excluding the impact of the MUB acquisition-related charge-offs), compared with 0.21 percent for the first quarter of 2022.
Analysis and Determination of the Allowance for Credit Losses
 The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs.
Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis. Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of economic forecast uncertainty. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions.
Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments, which is included in other liabilities in the Consolidated Balance Sheet. Both the allowance for loan losses and the liability for unfunded credit commitments are included in the Company’s analysis of credit losses and reported reserve ratios.
The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels, inflation, interest rates, and corporate bond spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores,
 
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delinquency status, collateral type and available valuation information, consideration of end-of-term losses on lease residuals, and the remaining term of the loan, adjusted for expected prepayments. For each loan portfolio, including those loans modified under various loan modification programs, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or other factors that may affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off or expected recoveries on collateral-dependent loans where recovery is expected through sale of the collateral at fair value less selling costs. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses.
The allowance recorded for individually evaluated loans greater than $5 million in the commercial lending segment is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate.
When evaluating the appropriateness of the allowance for credit losses for any loans and lines in a junior lien position, the Company considers the delinquency and modification status of the first lien. At March 31, 2023, the Company serviced the first lien on 33 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 $178 million or 1.4 percent of its total home equity portfolio at March 31, 2023, represented non-delinquent junior liens where the first lien was delinquent or modified.
When a loan portfolio is purchased, the acquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered PCD. An allowance is established for each population and considers product mix, risk characteristics of the portfolio and delinquency status and refreshed LTV ratios when possible. PCD loans also consider whether the loan has experienced a charge-off, bankruptcy or significant deterioration since origination. The allowance established for purchased loans not considered PCD is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to purchased loans, regardless of PCD status, are recognized through provision expense, with charge-offs charged to the allowance. The Company had a total unpaid principal balance of $4.8 billion of PCD loans, primarily related to the MUB acquisition, included in its loan portfolio at March 31, 2023.
The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above are adjusted by management to consider the potential impact of other qualitative factors not captured in quantitative model adjustments which include, but are not limited to, the following: model imprecision, imprecision in economic scenario assumptions, and emerging risks related to either changes in the economic environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio.
Although the Company determined the amount of each element of the allowance separately and considers this process to be an important credit management tool, the entire allowance for credit losses is available for the entire loan portfolio. The actual amount of losses can vary significantly from the estimated amounts.
At March 31, 2023, the allowance for credit losses was $7.5 billion (1.94 percent of period-end loans), compared with an allowance of $7.4 billion (1.91 percent of period-end loans) at December 31, 2022. The allowance for credit losses at March 31, 2023 included a $62 million decrease due to a change in accounting principle related to discontinuing the separate recognition and measurement of troubled debt restructurings. The increase in the allowance for credit losses at March 31, 2023, compared with December 31, 2022, was primarily driven by increasing economic uncertainty and normalizing credit losses as well as adjustments made to the purchase accounting estimate for PCD loans. Economic uncertainty and recession risk have been increasing due to rising interest rates, inflationary concerns, market volatility and pressure on corporate earnings related to these factors. In addition to these broad economic factors, expected loss estimates consider various factors including customer specific information
 
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impacting changes in risk ratings, projected delinquencies and the impact of economic deterioration on selected borrowers’ liquidity and ability to repay.
The ratio of the allowance for credit losses to nonperforming loans was 660 percent at March 31, 2023, compared with 762 percent at December 31, 2022. The ratio of the allowance for credit losses to annualized loan net charge-offs was 497 percent at March 31, 2023, compared with 697 percent of full year 2022 net charge- offs at December 31, 2022.
Economic conditions considered in estimating the allowance for credit losses at March 31, 2023 included changes in projected gross domestic product and unemployment levels. These factors are evaluated through a combination of quantitative calculations using multiple economic scenarios and additional qualitative assessments that consider the high degree of economic uncertainty in the current environment. The projected unemployment rates for 2023 considered in the estimate range from 3.0 percent to 7.5 percent.
The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for credit losses at March 31, 2023 and December 31, 2022:
 
   
March 31,
2023
  
December 31,
2022
 
United States unemployment rate for the three months ending (a)
  
March 31, 2023
  3.4%   3.8% 
December 31, 2023
  3.7   4.2 
United States real gross domestic product for the three months ending (b)
  
March 31, 2023
  1.3%   1.8% 
December 31, 2023
  1.1   1.0 
 
(a)
Reflects quarterly average of forecasted reported United States unemployment rate.
(b)
Reflects year-over-year growth rates.
The allowance for credit losses related to commercial lending segment loans increased $51 million during the first quarter of 2023, reflecting the impact of increasing economic uncertainty, normalizing credit conditions and select commercial real estate loan deterioration.
The allowance for credit losses related to consumer lending segment loans increased $68 million during the first quarter of 2023, due to the impact of economic uncertainty, normalizing credit performance and the effects of higher interest rates on the life of the residential mortgage portfolios, partially offset by a decrease related to a change in accounting principle.
 
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Table 8
 
   Summary of Allowance for Credit Losses
 
  Three Months Ended 
  March 31 
(Dollars in Millions) 2023  2022 
Balance at beginning of period
 $7,404  $6,155 
Change in accounting principle (a)
  (62)   — 
Allowance for acquired credit losses (b)
  127   — 
Charge-Offs
  
Commercial
  
Commercial
  56   47 
Lease financing
  7   8 
Total commercial
  63   55 
Commercial real estate
  
Commercial mortgages
  121   — 
Construction and development
  2   1 
Total commercial real estate
  123   1 
Residential mortgages
  4   5 
Credit card
  215   158 
Other retail
  
Retail leasing
  5   5 
Home equity and second mortgages
  2   3 
Other
  57   53 
Total other retail
  64   61 
Total charge-offs
  469   280 
Recoveries
  
Commercial
  
Commercial
  14   21 
Lease financing
  2   2 
Total commercial
  16   23 
Commercial real estate
  
Commercial mortgages
  6   — 
Construction and development
  —   6 
Total commercial real estate
  6   6 
Residential mortgages
  5   11 
Credit card
  40   46 
Other retail
  
Retail leasing
  4   4 
Home equity and second mortgages
  3   5 
Other
  22   23 
Total other retail
  29   32 
Total recoveries
  96   118 
Net Charge-Offs
  
Commercial
  
Commercial
  42   26 
Lease financing
  5   6 
Total commercial
  47   32 
Commercial real estate
  
Commercial mortgages
  115   — 
Construction and development
  2   (5) 
Total commercial real estate
  117   (5) 
Residential mortgages
  (1)   (6) 
Credit card
  175   112 
Other retail
  
Retail leasing
  1   1 
Home equity and second mortgages
  (1)   (2) 
Other
  35   30 
Total other retail
  35   29 
Total net charge-offs
  373   162 
Provision for credit losses
  427   112 
Balance at end of period
 $7,523  $6,105 
Components
  
Allowance for loan losses
 $7,020  $5,664 
Liability for unfunded credit commitments
  503   441 
Total allowance for credit losses (1)
 $7,523  $6,105 
Period-end loans (2)
 $387,866  $318,934 
Nonperforming loans (3)
  1,139   765 
Allowance for Credit Losses as a Percentage of
  
Period-end loans (1)/(2)
  1.94%   1.91% 
Nonperforming loans (1)/(3)
  660   798 
Nonperforming and accruing loans 90 days or more past due
  461   502 
Nonperforming assets
  637   753 
Net charge-offs
  497   929 
 
(a)
Effective January 1, 2023, the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt restructurings.
(b)
Allowance for purchased credit deteriorated and charged-off loans acquired from MUB.
 
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Residual Value Risk Management
 The Company manages its risk to changes in the residual value of leased vehicles, office and business equipment, and other assets through disciplined residual valuation at the inception of a lease, diversification of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. As of March 31, 2023, no significant change in the amount of residual values or concentration of the portfolios had occurred since December 31, 2022. Refer to “Management’s Discussion and Analysis — Residual Value Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion on residual value risk management.
Operational Risk Management
 The Company operates in many different businesses in diverse markets and relies on the ability of its employees and systems to process a high number of transactions. Operational risk is inherent in all business activities, and the management of this risk is important to the achievement of the Company’s objectives. Business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities, including those additional or increased risks created by economic and financial disruptions. The Company maintains a system of controls with the objective of providing proper transaction authorization and execution, proper system operations, proper oversight of third parties with whom it does business, safeguarding of assets from misuse or theft, and ensuring the reliability and security of financial and other data. Refer to “Management’s Discussion and Analysis — Operational Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion on operational risk management.
Compliance Risk Management
 The Company may suffer legal or regulatory sanctions, material financial loss, or damage to its reputation through failure to comply with laws, regulations, rules, standards of good practice, and codes of conduct, including those related to compliance with Bank Secrecy Act/anti-money laundering requirements, sanctions compliance requirements as administered by the Office of Foreign Assets Control, consumer protection and other requirements. The Company has controls and processes in place for the assessment, identification, monitoring, management and reporting of compliance risks and issues, including those created or increased by economic and financial disruptions. Refer to “Management’s Discussion and Analysis — Compliance Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion on compliance risk management.
Interest Rate Risk Management
In the banking industry, changes in interest rates are a significant risk that can impact earnings and the safety and soundness of an entity. The Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Management Committee (“ALCO”) and approved by the Board of Directors. The ALCO has the responsibility for approving and overseeing compliance with the ALCO management policies, including interest rate risk exposure. One way the Company measures and analyzes its interest rate risk is through net interest income simulation analysis.
Simulation analysis incorporates substantially all of the Company’s assets and liabilities and off-balance sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through this simulation, management estimates the impact on net interest income of various interest rate changes that differ in the direction, amount and speed of change over time, as well as the shape of the yield curve. This simulation includes assumptions about how the balance sheet is likely to be affected by changes in loan and deposit growth. Assumptions are made to project interest rates for new loans and deposits based on historical analysis, management’s outlook and re-pricing strategies. These assumptions are reviewed and validated on a periodic basis with sensitivity analysis being provided for key variables of the simulation. The results are reviewed monthly by the ALCO and are used to guide asset/liability management strategies.
The Company manages its interest rate risk position by holding assets with desired interest rate risk characteristics on its balance sheet, implementing certain pricing strategies for loans and deposits and selecting derivatives and various funding and investment portfolio strategies. The Company also manages interest rate sensitivity by utilizing market value of equity modeling, which measures the degree to which the market values of the Company’s assets and liabilities and off-balance sheet instruments will change given a change in interest rates. Management measures the impact of changes in market values due to interest rates under a number of scenarios, including immediate and sustained parallel shifts, and flattening or steepening of the yield curve.
The Company continues to actively monitor markets and proactively manage its balance sheet and heightened its focus on its interest rate risk management governance process during the first quarter of 2023 banking industry disruption. Over the last five quarters, in advance of the recent industry disruption and in connection with the preparation and completion of the MUB acquisition, the Company reduced its investment securities portfolio from
 
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Table 9
 
   Sensitivity of Net Interest Income
 
  March 31, 2023   December 31, 2022 
   
Down 50 bps
Immediate
  Up 50 bps
Immediate		  Down 200 bps
Gradual		  Up 200 bps
Gradual		   
Down 50 bps
Immediate
  Up 50 bps
Immediate		  Down 200 bps
Gradual		  Up 200 bps
Gradual		 
Net interest income
  (.83)%   1.10%   (2.01)%   2.54%    (.58)%   .95%   (2.02)%   1.44% 
 
30 percent to 25 percent of total assets, sold fixed rate loans, reduced outstanding borrowings, increased cash balances and entered into additional fair value hedges on available-for-sale investment securities in response to economic uncertainty, industry dynamics, rising interest rates and increased market volatility.
Table 9 summarizes the projected impact to net interest income over the next 12 months of various potential interest rate changes. The sensitivity of the projected impact to net interest income over the next 12 months is dependent on balance sheet growth, product mix, deposit behavior, pricing and funding decisions. While the Company utilizes models and assumptions based on historical information and expected behaviors, actual outcomes could vary significantly. Net interest income sensitivities reflect the impact of current market expectations for interest rates, driving an increase in baseline projected net interest income. As market expectations are reflected in projected results, incremental interest rate sensitivity declines on a percentage basis.
 
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. The forward commitments to sell and the unfunded mortgage loan commitments on loans intended to be sold are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedging activities. The Company has elected the fair value option for the MLHFS.
Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into master netting arrangements, and, where possible, by requiring collateral arrangements. The Company may also transfer counterparty credit risk related to interest rate swaps to third parties through the use of risk participation agreements. In addition, certain interest rate swaps, interest rate forwards and credit contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk. The Company may mitigate credit risk on loans or lending portfolios through the use of credit contracts.
 
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For additional information on derivatives and hedging activities, refer to Notes 13 and 14 in the Notes to Consolidated Financial Statements.
LIBOR Transition
 In July 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) announced that it would no longer require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021. In March 2021, the FCA and the administrator of LIBOR announced that, with respect to the most commonly used tenors of United States Dollar LIBOR, LIBOR will no longer be published on a representative basis after June 30, 2023. The publication of all other tenors of United States Dollar LIBOR, as well as all non-United States Dollar LIBOR tenors, ceased to be provided or ceased to be representative after December 31, 2021. The Company holds financial instruments impacted by the discontinuance of LIBOR, including certain loans, investment securities, derivatives, borrowings and other financial instruments that use LIBOR as the benchmark rate. The Company also provides various services to customers in its capacities as trustee, servicer, and asset manager, which involve financial instruments that will be similarly impacted by the discontinuance of LIBOR.
In order to facilitate the transition process, the Company has instituted a LIBOR Transition Office and commenced an enterprise-wide project to (1) identify, assess, monitor and mitigate risks associated with the expected discontinuance or unavailability of LIBOR, (2) actively engage with industry working groups and regulators, (3) develop and implement training and education materials with respect to LIBOR and its discontinuance for the Company and for customers, (4) achieve operational readiness for the use of alternative reference rates (“ARRs”) in new financial instruments and transition existing LIBOR financial instruments to ARRs, (5) develop and implement customer notification programs across the Company and engage impacted customers to remediate and transition impacted instruments, and (6) develop reporting on remediation of LIBOR instruments across the Company for both internal and external stakeholders. The Company has also invested in updating its systems, models, procedures and internal infrastructure as part of the transition program.
The Company transitioned its financial instruments associated to LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021, to ARRs, with limited exceptions. Additionally, in alignment with guidance from United States banking agencies and the FCA, the Company has ceased the use of LIBOR as a reference rate in new contracts, with limited exceptions, and continues to increase the usage of ARRs such as the Secured Overnight Financing Rate (“SOFR”). The Company also anticipates that additional financial instruments associated with the remaining United States Dollar LIBOR tenors will require transition to a new reference rate by June 30, 2023. The Company has been undergoing an enterprise-wide effort to proactively reprice LIBOR loans and derivatives that mature after June 30, 2023, with customers to an ARR. The Company has also adopted industry best practice guidelines for fallback language for new transactions, converted its cleared interest rate swaps discounting to SOFR discounting, and distributed communications related to the transition to certain impacted parties, both inside and outside the Company.
The Company’s MUB acquisition impacts the execution of the Company’s LIBOR transition strategies and execution plans. The Company is currently assessing MUB’s LIBOR transition program, remediation strategies, and preparedness to execute on remediation strategies. In certain instances, the Company and MUB have different remediation strategies. As a result, the Company is updating its LIBOR transition plans to ensure that the Company can execute remediation plans across all products and business units, including with respect to MUB.
The Company is currently assessing the applicability and scope of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), which was enacted on March 15, 2022, and the Regulations Implementing the Adjustable Interest Rate (LIBOR) Act (Regulation ZZ) (the “Final Rules”), which were implemented on December 16, 2022. The LIBOR Act and Final Rules establish a process for replacing LIBOR in existing LIBOR contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate by providing that a benchmark replacement identified by the Federal Reserve Board that is based on SOFR will replace LIBOR as the benchmark for those contracts as a matter of law, without the need to be amended by the parties. The Company is currently assessing its outstanding LIBOR portfolio to determine the eligibility of certain financial instruments for the LIBOR Act and will incorporate the LIBOR Act as a remediation strategy where prudent. Refer to “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion on potential risks that could adversely affect the Company’s financial results as a result of the LIBOR transition.
Market Risk Management
 In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support customers’ strategies to manage their own foreign currency, interest rate risk and funding activities. For
 
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purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities, as well as the remeasurement volatility of foreign currency denominated balances included on its Consolidated Balance Sheet (collectively, “Covered Positions”), employing methodologies consistent with the requirements of regulatory rules for market risk. The Company’s Market Risk Committee (“MRC”), within the framework of the ALCO, oversees market risk management. The MRC monitors and reviews the Company’s Covered Positions and establishes policies for market risk management, including exposure limits for each portfolio. The Company uses a VaR approach to measure general market risk. Theoretically, VaR represents the statistical risk of loss the Company has to adverse market movements over a one-day time horizon. The Company uses the Historical Simulation method to calculate VaR for its Covered Positions measured at the ninety-ninth percentile using a one-year look-back period for distributions derived from past market data. The market factors used in the calculations include those pertinent to market risks inherent in the underlying trading portfolios, principally those that affect the Company’s corporate bond trading business, foreign currency transaction business, client derivatives business, loan trading business and municipal securities business, as well as those inherent in the Company’s foreign denominated balances and the derivatives used to mitigate the related measurement volatility. On average, the Company expects the one-day VaR to be exceeded by actual losses two to three times per year related to these positions. The Company monitors the accuracy of internal VaR models and modeling processes by back-testing model performance, regularly updating the historical data used by the VaR models and regular model validations to assess the accuracy of the models’ input, processing, and reporting components. All models are required to be independently reviewed and approved prior to being placed in use. If the Company were to experience market losses in excess of the estimated VaR more often than expected, the VaR models and associated assumptions would be analyzed and adjusted. VaR amounts reflect MUB beginning December 1, 2022, the day the acquisition transaction closed.
The average, high, low and period-end one-day VaR amounts for the Company’s Covered Positions were as follows:
 
Three Months Ended March 31
(Dollars in Millions)
 2023   2022 
Average
 $5   $2 
High
  6    2 
Low
  4    1 
Period-end
  5    2 
The Company did not experience any actual losses for its combined Covered Positions that exceeded VaR during the three months ended March 31, 2023 and 2022. The Company stress tests its market risk measurements to provide management with perspectives on market events that may not be captured by its VaR models, including worst case historical market movement combinations that have not necessarily occurred on the same date.
The Company calculates Stressed VaR using the same underlying methodology and model as VaR, except that a historical continuous one-year look-back period is utilized that reflects a period of significant financial stress appropriate to the Company’s Covered Positions. The period selected by the Company includes the significant market volatility of the last four months of 2008.
The average, high, low and period-end one-day Stressed VaR amounts for the Company’s Covered Positions were as follows:
 
Three Months Ended March 31
(Dollars in Millions)
 2023   2022 
Average
 $12   $7 
High
  16    8 
Low
  10    6 
Period-end
  14    7 
Valuations of positions in client derivatives and foreign currency activities are based on discounted cash flow or other valuation techniques using market-based assumptions. These valuations are compared to third-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
 
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valuation of the assets and hedges. A one-year look-back period is used to obtain past market data for the models.
The average, high and low VaR amounts for the residential MLHFS and related hedges and the MSRs and related hedges were as follows:
 
Three Months Ended March 31
(Dollars in Millions)
 2023   2022 
Residential Mortgage Loans Held For Sale and Related Hedges
   
Average
 $1   $2 
High
  1    5 
Low
  —    1 
Mortgage Servicing Rights and Related Hedges
   
Average
 $8   $6 
High
  12    13 
Low
  4    3 
Liquidity Risk Management
 The Company’s liquidity risk management process is designed to identify, measure, and manage the Company’s funding and liquidity risk to meet its daily funding needs and to address expected and unexpected changes in its funding requirements. The Company engages in various activities to manage its liquidity risk. These activities include diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity if needed. In addition, the Company’s profitable operations, sound credit quality and strong credit ratings and capital position have enabled it to develop a large and reliable base of core deposit funding within its market areas and in domestic and global capital markets.
The Company’s Board of Directors approves the Company’s liquidity policy. The Risk Management Committee of the Company’s Board of Directors oversees the Company’s liquidity risk management process and approves a contingency funding plan. The ALCO reviews the Company’s liquidity policy and limits, and regularly assesses the Company’s ability to meet funding requirements arising from adverse company-specific or market events.
The Company regularly projects its funding needs under various stress scenarios and maintains a contingency funding plan consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of on-balance sheet and off-balance sheet funding sources. These liquidity sources include cash at the Federal Reserve Bank and certain European central banks, unencumbered liquid assets, and capacity to borrow from the FHLB and at the Federal Reserve Bank’s Discount Window and new Bank Term Funding Program, created in 2023. Unencumbered liquid assets in the Company’s investment securities portfolio provides asset liquidity through the Company’s ability to sell the securities or pledge and borrow against them. At March 31, 2023, the fair value of unencumbered investment securities totaled $130.5 billion, compared with $135.5 billion at December 31, 2022. Refer to Note 4 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on investment securities maturities and trends. Asset liquidity is further enhanced by the Company’s practice of pledging loans to access secured borrowing facilities through the FHLB and Federal Reserve Bank.
 
The following table summarizes the Company’s total available liquidity from on-balance sheet and off-balance sheet funding sources:
 
(Dollars in millions) March 31,
2023		   December 31,
2022		 
Cash held at the Federal Reserve Bank and other central banks
 $58,137   $45,171 
Available investment securities
  45,464    132,052 
Borrowing capacity from the Federal Reserve Bank and FHLB
  211,399    125,682 
Total available liquidity
 $315,000   $302,905 
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 $505.3 billion at March 31, 2023, compared with $525.0 billion at December 31, 2022. Refer to “Balance Sheet Analysis” for further information on the Company’s deposits.
Additional funding is provided by long-term debt and short-term borrowings. Long-term debt was $42.0 billion at March 31, 2023, and is an important funding source because of its multi-year borrowing structure. Short-term borrowings were $56.9 billion at March 31, 2023, and supplement the Company’s other funding sources. Depositors and investors often consider the credit rating of a Company. The Company receives various credit ratings from four separate credit rating agencies and has strong investment grade ratings from all agencies. After the first quarter of 2023, one credit rating agency, Moody’s Investors Service, downgraded its credit rating of the Company which is now in line with other large regional banks. Refer to “Balance Sheet Analysis” for further information on the Company’s long-term debt and short-term borrowings.
In addition to assessing liquidity risk on a consolidated basis, the Company monitors the parent company’s liquidity. The parent company’s routine funding requirements consist primarily of operating expenses, dividends paid to shareholders, debt service, repurchases of common stock and funds used for acquisitions. The parent company obtains funding to meet its obligations from dividends collected from its subsidiaries and the issuance of debt and capital securities. The Company establishes limits for the
 
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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 in excess of required liquidity minimums.
At March 31, 2023, parent company long-term debt outstanding was $30.8 billion, compared with $27.0 billion at December 31, 2022. The increase was primarily due to $3.7 billion of medium-term note issuances. As of March 31, 2023, there was no parent company debt scheduled to mature in the remainder of 2023. Future debt maturities may be met through medium-term note and capital security issuances and dividends from subsidiaries, as well as from parent company cash and cash equivalents.
The Company is subject to a regulatory Liquidity Coverage Ratio (“LCR”) requirement which requires banks to maintain an adequate level of unencumbered high quality liquid assets to meet estimated liquidity needs over a 30-day stressed period. At March 31, 2023, the Company was compliant with this requirement.
The Company is also subject to a regulatory Net Stable Funding Ratio (“NSFR”) requirement which requires banks to maintain a minimum level of stable funding based on the liquidity characteristics of their assets, commitments, and derivative exposures over a one-year time horizon. At March 31, 2023, the Company was compliant with this requirement.
Refer to “Management’s Discussion and Analysis — Liquidity Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion on liquidity risk management.
European Exposures
The Company provides merchant processing and corporate trust services in Europe either directly or through banking affiliations in Europe. Revenue generated from sources in Europe represented approximately 2 percent of the Company’s total net revenue for the three months ended March 31, 2023. Operating cash for these businesses is deposited on a short-term basis typically with certain European central banks. For deposits placed at other European banks, exposure is mitigated by the Company placing deposits at multiple banks and managing the amounts on deposit at any bank based on institution-specific deposit limits. At March 31, 2023, the Company had an aggregate amount on deposit with European banks of approximately $7.5 billion, predominately with the Central Bank of Ireland and Bank of England.
In addition, the Company provides financing to domestic multinational corporations that generate revenue from customers in European countries, transacts with various European banks as counterparties to certain derivative-related activities, and through a subsidiary, manages money market funds that hold certain investments in European sovereign debt. Any deterioration in economic conditions in Europe, including the impacts resulting from the Russia-Ukraine conflict, is not expected to have a significant effect on the Company related to these activities.
Commitments, Contingent Liabilities and Other Contractual Obligations
 The Company participates in many different contractual arrangements which may or may not be recorded on its balance sheet, with unrelated or consolidated entities, under which the Company has an obligation to pay certain amounts, provide credit or liquidity enhancements or provide market risk support. These arrangements include commitments to extend credit, letters of credit and various forms of guarantees. Refer to Note 16 of the Notes to Consolidated Financial Statements for further information on guarantees and contingent liabilities. These arrangements also include any obligation related to a variable interest held in an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support. Refer to Note 6 of the Notes to Consolidated Financial Statements for further information related to the Company’s interests in variable interest entities.
 
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 Table 10
 
   Regulatory Capital Ratios
 
(Dollars in Millions) March 31,
2023		  December 31,
2022		 
Basel III standardized approach:
  
Common equity tier 1 capital
 $42,027  $41,560 
Tier 1 capital
  49,278   48,813 
Total risk-based capital
  59,920   59,015 
Risk-weighted assets
  494,048   496,500 
Common equity tier 1 capital as a percent of risk-weighted assets (a)
  8.5%   8.4% 
Tier 1 capital as a percent of risk-weighted assets
  10.0   9.8 
Total risk-based capital as a percent of risk-weighted assets
  12.1   11.9 
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)
  7.5   7.9 
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)
  6.1   6.4 
(a)
The Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the CECL methodology, was 8.3 percent at March 31, 2023, compared with 8.1 percent at December 31, 2022.
 
Capital Management
 The Company is committed to managing capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit. The Company also manages its capital to exceed regulatory capital requirements for banking organizations. To achieve its capital goals, the Company employs a variety of capital management tools, including dividends, common share repurchases, and the issuance of subordinated debt, non-cumulative perpetual preferred stock, common stock and other capital instruments. The regulatory capital requirements effective for the Company follow Basel III, with the Company being subject to calculating its capital adequacy as a percentage of risk-weighted assets under the standardized approach. Beginning in 2022, the Company began to phase into its regulatory capital requirements the cumulative deferred impact of its 2020 adoption of the accounting guidance related to the impairment of financial instruments based on the current expected credit losses (“CECL”) methodology plus 25 percent of its quarterly credit reserve increases during 2020 and 2021. This cumulative deferred impact will continue to be phased into the Company’s regulatory capital over the next two years, culminating with a fully phased in regulatory capital calculation beginning in 2025. Table 10 provides a summary of statutory regulatory capital ratios in effect for the Company at March 31, 2023 and December 31, 2022. All regulatory ratios exceeded regulatory “well-capitalized” requirements.
The Company believes certain other capital ratios are useful in evaluating its capital adequacy. The Company’s tangible common equity, as a percent of tangible assets and as a percent of risk-weighted assets determined in accordance with transitional regulatory capital requirements related to the CECL methodology under the standardized approach, was 4.8 percent and 6.5 percent, respectively, at March 31, 2023, compared with 4.5 percent and 6.0 percent, respectively, at December 31, 2022. In addition, the Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the CECL methodology was 8.3 percent at March 31, 2023, compared with 8.1 percent at December 31, 2022. Refer to “Non-GAAP Financial Measures” beginning on page 31 for further information on these other capital ratios.
Total U.S. Bancorp shareholders’ equity was $53.0 billion at March 31, 2023, compared with $50.8 billion at December 31, 2022. The increase was primarily the result of corporate earnings and changes in unrealized gains and losses on available-for-sale investment securities included in other comprehensive income (loss), partially offset by dividends paid.
The Company announced on December 22, 2020 that its Board of Directors had approved an authorization to repurchase $3.0 billion of its common stock beginning January 1, 2021. 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 acquisition of MUB. The Company does not expect to evaluate potential repurchases until its common equity tier 1 capital ratio is 9.0 percent, at which time the Company will evaluate the potential capital requirements given the regulatory landscape. Capital distributions, including dividends and stock repurchases, are subject to the approval of the Company’s Board of Directors and compliance with regulatory requirements.
 
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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 first quarter of 2023:
 
Period Total Number
of Shares
Purchased		  Average
Price Paid
Per Share		  
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
  
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program
(In Millions)
 
January
  159,106(a)  $48.30   9,106  $1,375 
February
  372,464   48.76   372,464   1,357 
March
  1,462,568(b)   40.31   552,568   1,331 
Total
  1,994,138(c)  $42.53   934,138  $1,331 
 
(a)
Includes 150,000 shares of common stock purchased, at an average price per share of $48.35, in open-market transactions by U.S. Bank National Association, the Company’s primary banking subsidiary, in its capacity as trustee of the U.S. Bank 401(k) Savings Plan, which is the Company’s employee retirement savings plan.
(b)
Includes
910,000
shares of common stock purchased, at an average price per share of $36.43, in open-market transactions by U.S. Bank National Association in its capacity as trustee of the U.S. Bank 401(k) Savings Plan.
(c)
Includes 1,060,000 shares of common stock purchased, at an average price per share of $38.12, in open-market transactions by U.S. Bank National Association in its capacity as trustee of the U.S. Bank 401(k) Savings Plan.
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, 2022, for further discussion on capital management.
LINE OF BUSINESS FINANCIAL REVIEW
The Company’s major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance.
Basis for Financial Presentation
 Business line results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. Refer to Note 17 of the Notes to Consolidated Financial Statements for further information on the business lines’ basis for financial presentation.
Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2023, certain organization and methodology changes were made and, accordingly, 2022 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 $580 million of the Company’s net income in the first quarter of 2023, or an increase of $172 million (42.2 percent) compared with the first quarter of 2022.
Net revenue increased $397 million (40.0 percent) in the first quarter of 2023, compared with the first quarter of 2022. Net interest income, on a taxable-equivalent basis, increased $335 million (44.9 percent) in the first quarter of 2023, compared with the first quarter of 2022. The increase was primarily due to the impacts of the MUB acquisition, higher loan balances and the impact of higher rates on the margin benefit from deposits, partially offset by lower spreads on loans and lower noninterest-bearing deposits. Noninterest income increased $62 million (25.1 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to the MUB acquisition and higher commercial products revenue mainly due to higher trading revenue.
Noninterest expense increased $169 million (38.1 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to higher FDIC insurance expense, higher net shared services expense driven by investment in support of business growth and the impacts of the MUB acquisition, including intangible amortization driven by the core deposit intangible. The provision for credit losses decreased $2 million (40.0 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to slower ending loan balance growth in the current year.
 
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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 March 31
(Dollars in Millions)
 2023  2022  Percent
Change		      2023  2022  Percent
Change		      2023  2022  Percent
Change		     
Condensed Income Statement
               
Net interest income (taxable-equivalent basis)
 $1,081  $746   44.9 %    $2,315  $1,500   54.3 %    $488  $276   76.8 %   
Noninterest income
  309   247   25.1     397   454   (12.6)     700   595   17.6   
Total net revenue
  1,390   993   40.0     2,712   1,954   38.8     1,188   871   36.4   
Noninterest expense
  613   444   38.1     1,776   1,398   27.0     668   558   19.7   
Income (loss) before provision and income taxes
  777   549   41.5     936   556   68.3     520   313   66.1   
Provision for credit losses
  3   5   (40.0)     13   48   (72.9)     (12)   8   *   
Income (loss) before income taxes
  774   544   42.3     923   508   81.7     532   305   74.4   
Income taxes and taxable-equivalent adjustment
  194   136   42.6     231   126   83.3     133   76   75.0   
Net income (loss)
  580   408   42.2     692   382   81.2     399   229   74.2   
Net (income) loss attributable to noncontrolling interests
  —   —   —     —   —   —     —   —   —   
Net income (loss) attributable to U.S. Bancorp
 $580  $408   42.2    $692  $382   81.2    $399  $229   74.2   
Average Balance Sheet
               
Loans
 $150,436  $115,867   29.8    $170,132  $140,429   21.2    $24,335  $20,707   17.5   
Goodwill
  2,824   1,912   47.7     4,491   3,261   37.7     1,787   1,761   1.5   
Other intangible assets
  592   4   *     5,594   3,176   76.1     442   265   66.8   
Assets
  170,976   127,891   33.7     187,860   156,953   19.7     28,625   24,421   17.2   
Noninterest-bearing deposits
  58,447   63,010   (7.2)     43,496   31,265   39.1     21,896   27,429   (20.2)   
Interest-bearing deposits
  105,011   87,010   20.7     185,400   165,885   11.8     83,619   70,402   18.8   
Total deposits
  163,458   150,020   9.0     228,896   197,150   16.1     105,515   97,831   7.9   
Total U.S. Bancorp shareholders’ equity
  17,350   13,729   26.4       16,704   12,214   36.8       4,106   3,593   14.3     
 
  
Payment
Services
  
Treasury and
Corporate Support
      
Consolidated
Company
     
Three Months Ended March 31
(Dollars in Millions)
 2023  2022  Percent
Change		      2023  2022  Percent
Change		      2023  2022  Percent
Change		     
Condensed Income Statement
               
Net interest income (taxable-equivalent basis)
 $651  $622   4.7 %    $133  $56   * %    $4,668  $3,200   45.9 %   
Noninterest income
  937   857   9.3     164   243   (32.5)     2,507   2,396   4.6   
Total net revenue
  1,588   1,479   7.4     297   299   (.7)     7,175   5,596   28.2   
Noninterest expense
  915   849   7.8     583   253   *     4,555   3,502   30.1   
Income (loss) before provision and income taxes
  673   630   6.8     (286)   46   *     2,620   2,094   25.1   
Provision for credit losses
  226   130   73.8     197   (79)   *     427   112   *   
Income (loss) before income taxes
  447   500   (10.6)     (483)   125   *     2,193   1,982   10.6   
Income taxes and taxable-equivalent adjustment
  112   125   (10.4)     (181)   (39)   *     489   424   15.3   
Net income (loss)
  335   375   (10.7)     (302)   164   *     1,704   1,558   9.4   
Net (income) loss attributable to noncontrolling interests
  —   —   —     (6)   (1)   *     (6)   (1)   *   
Net income (loss) attributable to U.S. Bancorp
 $335  $375   (10.7)    $(308)  $163   *    $1,698  $1,557   9.1   
Average Balance Sheet
               
Loans
 $36,935  $31,740   16.4    $4,912  $4,223   16.3    $386,750  $312,966   23.6   
Goodwill
  3,320   3,325   (.2)     —   —   —     12,422   10,259   21.1   
Other intangible assets
  385   464   (17.0)     36   —   *     7,049   3,909   80.3   
Assets
  42,860   38,499   11.3     235,126   229,638   2.4     665,447   577,402   15.2   
Noninterest-bearing deposits
  3,184   3,673   (13.3)     2,718   2,586   5.1     129,741   127,963   1.4   
Interest-bearing deposits
  108   160   (32.5)     6,445   2,756   *     380,583   326,213   16.7   
Total deposits
  3,292   3,833   (14.1)     9,163   5,342   71.5     510,324   454,176   12.4   
Total U.S. Bancorp shareholders’ equity
  8,968   8,017   11.9       5,539   15,913   (65.2)       52,667   53,466   (1.5)     
 
*
Not meaningful
 
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Consumer and Business Banking
 Consumer and Business Banking comprises consumer banking, small business banking and consumer lending. Products and services are delivered through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing, mobile devices, distributed mortgage loan officers, and intermediary relationships including auto dealerships, mortgage banks, and strategic business partners. Consumer and Business Banking contributed $692 million of the Company’s net income in the first quarter of 2023, or an increase of $310 million (81.2 percent) compared with the first quarter of 2022.
Net revenue increased $758 million (38.8 percent) in the first quarter of 2023, compared with the first quarter of 2022. Net interest income, on a taxable-equivalent basis, increased $815 million (54.3 percent) in the first quarter of 2023, compared with the first quarter of 2022, due to the impacts of the MUB acquisition and the favorable impact of higher rates on the margin benefit from deposits, partially offset by lower spreads on loans and lower loan fees. Noninterest income decreased $57 million (12.6 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to lower mortgage banking revenue reflecting lower application volume, lower related gain on sale margins and fewer performing loan sales, partially offset by an increase in the fair value of MSRs, net of hedging activities. Noninterest income further decreased due to lower residual gains on vehicle sales and the impact of pricing changes on deposit service charges, partially offset by the impact of the MUB acquisition.
Noninterest expense increased $378 million (27.0 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to increases in net shared services expense due to investments in digital capabilities and the impact of the MUB acquisition, including intangible amortization driven by the core deposit intangible, as well as lower capitalized loan costs driven by lower mortgage production. The provision for credit losses decreased $35 million (72.9 percent) in the first quarter of 2023, compared with the first quarter of 2022, due to a more favorable product mix in the current year.
Wealth Management and Investment Services
 Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services. Wealth Management and Investment Services contributed $399 million of the Company’s net income in the first quarter of 2023, or an increase of $170 million (74.2 percent) compared with the first quarter of 2022.
Net revenue increased $317 million (36.4 percent) in the first quarter of 2023, compared with the first quarter of 2022. Net interest income, on a taxable-equivalent basis, increased $212 million (76.8 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to the favorable impact of higher rates on the margin benefit from deposits. Noninterest income increased $105 million (17.6 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily driven by higher trust and investment management fees reflecting lower money market fund fee waivers and the impacts of the MUB acquisition, partially offset by the impact of unfavorable market conditions.
Noninterest expense increased $110 million (19.7 percent) in the first quarter of 2023, compared with the first quarter of 2022, reflecting higher compensation and employee benefits expense as a result of merit increases and core business growth, higher net shared services expense driven by investment in support of business growth and the impact of the MUB acquisition. The provision for credit losses decreased $20 million in the first quarter of 2023, compared with the first quarter of 2022, primarily due to slower ending loan balance growth in the current year.
Payment Services
 Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services and merchant processing. Payment Services contributed $335 million of the Company’s net income in the first quarter of 2023, or a decrease of $40 million (10.7 percent) compared with the first quarter of 2022.
Net revenue increased $109 million (7.4 percent) in the first quarter of 2023, compared with the first quarter of 2022. Net interest income, on a taxable-equivalent basis, increased $29 million (4.7 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to higher loan yields driven by higher interest rates and customer revolve rates, higher loan balances and higher loan fees, mostly offset by higher funding costs. Noninterest income increased $80 million (9.3 percent) in the first quarter of 2023, compared with the first quarter of 2022, mainly due to continued strengthening of consumer and business spending across most sectors. As a result, there was strong growth in corporate payment products revenue driven by improving business spending across all product groups. In addition, merchant processing services revenue increased due to higher sales volume and higher merchant fees, partially offset by the impact of foreign currency rate changes in Europe.
 
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Noninterest expense increased $66 million (7.8 percent) in the first quarter of 2023, compared with the first quarter of 2022, reflecting higher net shared services expense driven by investment in infrastructure and technology development, in addition to higher compensation and employee benefits expense due to merit increases and core business growth. The provision for credit losses increased $96 million (73.8 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to the impacts of increasing delinquency rates and lower consumer liquidity.
Treasury and Corporate Support
 Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in tax-advantaged projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of $308 million in the first quarter of 2023, compared with net income of $163 million in the first quarter of 2022.
Net revenue decreased $2 million (0.7 percent) in the first quarter of 2023, compared with the first quarter of 2022. Noninterest income decreased $79 million (32.5 percent) in the first quarter of 2023, compared with the first quarter of 2022, primarily due to lower tax-advantaged investment syndication revenue and securities losses. Net interest income, on a taxable-equivalent basis, increased $77 million in the first quarter of 2023, compared with the first quarter of 2022, primarily due to the acquisition of MUB, partially offset by higher funding costs.
Noninterest expense increased $330 million in the first quarter of 2023, compared with the first quarter of 2022, primarily due to merger and integration charges and operating expenses related to the acquisition of MUB, higher compensation and employee benefits expense reflecting merit increases, hiring to support business growth, core business growth and higher production incentives, partially offset by lower net shared services expense. The provision for credit losses increased $276 million in the first quarter of 2023, compared with the first quarter of 2022, primarily due to increased economic uncertainty in the current year compared to the reduction in the allowance for credit losses associated with improving economic conditions in the first quarter of 2022.
Income taxes are assessed to each line of business at a managerial tax rate of 25.0 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.
NON-GAAP FINANCIAL MEASURES
In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:
• 
Tangible common equity to tangible assets,
• 
Tangible common equity to risk-weighted assets, and
• 
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology.
These capital measures are viewed by management as useful additional methods of evaluating the Company’s utilization of its capital held and the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in banking regulations. In addition, certain of these measures differ from currently effective capital ratios defined by banking regulations principally in that the currently effective ratios, which are subject to certain transitional provisions, temporarily exclude the impact of the 2020 adoption of accounting guidance related to impairment of financial instruments based on the CECL methodology. As a result, these capital measures disclosed by the Company may be considered non-GAAP financial measures. Management believes this information helps investors assess trends in the Company’s capital adequacy.
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.
 
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The following table shows the Company’s calculation of these non-GAAP financial measures:
 
(Dollars in Millions) March 31,
2023		  December 31,
2022		 
Total equity
 $53,454  $51,232 
Preferred stock
  (6,808)   (6,808) 
Noncontrolling interests
  (465)   (466) 
Goodwill (net of deferred tax liability) (1)
  (11,575)   (11,395) 
Intangible assets (net of deferred tax liability), other than mortgage servicing rights
  (2,611)   (2,792) 
Tangible common equity (a)
  31,995   29,771 
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation
  42,027   41,560 
Adjustments (2)
  (866)   (1,299) 
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology (b)
  41,161   40,261 
Total assets
  682,377   674,805 
Goodwill (net of deferred tax liability) (1)
  (11,575)   (11,395) 
Intangible assets (net of deferred tax liability), other than mortgage servicing rights
  (2,611)   (2,792) 
Tangible assets (c)
  668,191   660,618 
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company (d)
  494,048   496,500 
Adjustments (3)
  (735)   (620) 
Risk-weighted assets, reflecting the full implementation of the CECL methodology (e)
  493,313   495,880 
Ratios
  
Tangible common equity to tangible assets (a)/(c)
  4.8%   4.5% 
Tangible common equity to risk-weighted assets (a)/(d)
  6.5   6.0 
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology (b)/(e)
  8.3   8.1 
 
  Three Months Ended
March 31		 
  2023  2022 
Net interest income
 $4,634  $3,173 
Taxable-equivalent adjustment (4)
  34   27 
Net interest income, on a taxable-equivalent basis
  4,668   3,200 
Net interest income, on a taxable-equivalent basis (as calculated above)
  4,668   3,200 
Noninterest income
  2,507   2,396 
Less: Securities gains (losses), net
  (32)   18 
Total net revenue, excluding net securities gains (losses) (f)
  7,207   5,578 
Noninterest expense (g)
  4,555   3,502 
Efficiency ratio (g)/(f)
  63.2%   62.8% 
Net charge-offs
 $373  
Less: Notable items (5)
  91  
Net charge-offs, excluding notable items
  282  
Annualized net charge-offs, excluding notable items (h)
  1,144  
Average loan balances (i)
  386,750  
Net charge-off ratio, excluding notable items (h)/(i)
  .30%     
 
(1)
Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.
(2)
Includes the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology net of deferred taxes.
(3)
Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology.
(4)
Based on a federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.
(5)
Notable items for the three months ended March 31, 2023 included $91 million of net charge-offs related to the uncollectible amount of acquired MUB loans, which were considered purchased credit deteriorated as of the date of acquisition.
 
32
 U.S. Bancorp
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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, 2022.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon this evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
The Company continues to integrate MUB into its overall internal control over financial reporting processes. During the most recently completed fiscal quarter, there were no other changes made in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
U.S. Bancorp 
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U.S. Bancorp
Consolidated Balance Sheet
 
(Dollars in Millions) March 31,
2023		  December 31,
2022		 
  (Unaudited)    
   
Assets
        
Cash and due from banks
 $67,228  $53,542 
Investment securities
        
Held-to-maturity (fair value $78,876 and $77,874, respectively)
  88,462   88,740 
Available-for-sale ($600 and $858 pledged as collateral, respectively) (a)
  65,491   72,910 
Loans held for sale (including $1,990 and $1,849 of mortgage loans carried at fair value, respectively)
  2,381   2,200 
Loans
        
Commercial
  137,326   135,690 
Commercial real estate
  55,158   55,487 
Residential mortgages
  116,948   115,845 
Credit card
  25,489   26,295 
Other retail
  52,945   54,896 
Total loans
  387,866   388,213 
Less allowance for loan losses
  (7,020)   (6,936) 
Net loans
  380,846   381,277 
Premises and equipment
  3,735   3,858 
Goodwill
  12,560   12,373 
Other intangible assets
  6,883   7,155 
Other assets (including $2,773 and $702 of trading securities at fair value pledged as collateral, respectively) (a)
  54,791   52,750 
Total assets
 $682,377  $674,805 
   
Liabilities and Shareholders’ Equity
        
Deposits
        
Noninterest-bearing
 $124,595  $137,743 
Interest-bearing
  380,744   387,233 
Total deposits
  505,339   524,976 
Short-term borrowings
  56,875   31,216 
Long-term debt
  42,045   39,829 
Other liabilities
  24,664   27,552 
Total liabilities
  628,923   623,573 
Shareholders’ equity
        
Preferred stock
  6,808   6,808 
Common stock, par value $0.01 a share—authorized: 4,000,000,000 shares; issued: 3/31/23
 
and 12/31/22—
2,125,725,742 shares
  21   21 
Capital surplus
  8,699   8,712 
Retained earnings
  72,807   71,901 
Less cost of common stock in treasury: 3/31/23—592,852,310 shares; 12/31/22
—
594,747,484 shares
  (25,193)   (25,269) 
Accumulated other comprehensive income (loss)
  (10,153)   (11,407) 
Total U.S. Bancorp shareholders’ equity
  52,989   50,766 
Noncontrolling interests
  465   466 
Total equity
  53,454   51,232 
Total liabilities and equity
 $682,377  $674,805 
 
(a)
Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
See Notes to Consolidated Financial Statements.
 
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 U.S. Bancorp
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U.S. Bancorp
Consolidated Statement of Income
 
(Dollars and Shares in Millions, Except Per Share Data)
(Unaudited)
 
Three Months
Ended March 31
 
 2023  2022 
Interest Income
        
Loans
 $5,277  $2,599 
Loans held for sale
  31   60 
Investment securities
  1,074   717 
Other interest income
  582   42 
Total interest income
  6,964   3,418 
Interest Expense
        
Deposits
  1,505   80 
Short-term borrowings
  449   21 
Long-term debt
  376   144 
Total interest expense
  2,330   245 
Net interest income
  4,634   3,173 
Provision for credit losses
  427   112 
Net interest income after provision for credit losses
  4,207   3,061 
Noninterest Income
        
Card revenue
  360   338 
Corporate payment products revenue
  189   158 
Merchant processing services
  387   363 
Trust and investment management fees
  590   500 
Service charges
  324   333 
Commercial products revenue
  334   266 
Mortgage banking revenue
  128   200 
Investment products fees
  68   62 
Securities gains (losses), net
  (32)   18 
Other
  159   158 
Total noninterest income
  2,507   2,396 
Noninterest Expense
        
Compensation and employee benefits
  2,646   2,249 
Net occupancy and equipment
  321   269 
Professional services
  134   114 
Marketing and business development
  122   80 
Technology and communications
  503   421 
Other intangibles
  160   47 
Merger and integration charges
  244   — 
Other
  425   322 
Total noninterest expense
  4,555   3,502 
Income before income taxes
  2,159   1,955 
Applicable income taxes
  455   397 
Net income
  1,704   1,558 
Net (income) loss attributable to noncontrolling interests
  (6)   (1) 
Net income attributable to U.S. Bancorp
 $1,698  $1,557 
Net income applicable to U.S. Bancorp common shareholders
 $1,592  $1,466 
Earnings per common share
 $1.04  $.99 
Diluted earnings per common share
 $1.04  $.99 
Average common shares outstanding
  1,532   1,485 
Average diluted common shares outstanding
  1,532   1,486 
See Notes to Consolidated Financial Statements.
 
U.S. Bancorp 
35
U.S. Bancorp
Consolidated Statement of Comprehensive Income
 
(Dollars in Millions)
(Unaudited)
 Three Months Ended
March 31		 
 2023  2022 
Net income
 $1,704  $1,558 
Other Comprehensive Income (Loss)
        
Changes in unrealized gains (losses) on investment securities available-for-sale
  1,305   (6,754) 
Changes in unrealized gains (losses) on derivative hedges
  204   — 
Foreign currency translation
  (1)   — 
Changes in unrealized gains (losses) on retirement plans
  1   — 
Reclassification to earnings of realized (gains) losses
  158   67 
Income taxes related to other comprehensive income (loss)
  (413)   1,692 
Total other comprehensive income (loss)
  1,254   (4,995) 
Comprehensive income (loss)
  2,958   (3,437) 
Comprehensive (income) loss attributable to noncontrolling interests
  (6)   (1) 
   
Comprehensive income (loss) attributable to U.S. Bancorp
 $2,952  $(3,438) 
See Notes to Consolidated Financial Statements.
 
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U.S. Bancorp
Consolidated Statement of Shareholders’ Equity
 
  U.S. Bancorp Shareholders       
(Dollars and Shares in Millions, Except Per
Share Data) (Unaudited)
 Common
Shares
Outstanding		  Preferred
Stock		  Common
Stock		  Capital
Surplus		  Retained
Earnings		  Treasury
Stock		  Accumulated
Other
Comprehensive
Income (Loss)		  Total U.S.
Bancorp
Shareholders’
Equity		  Noncontrolling
Interests		  Total
Equity		 
Balance December 31, 2021
  1,484  $6,371  $21  $8,539  $69,201  $(27,271)  $(1,943)  $54,918  $469  $55,387 
Net income (loss)
                  1,557           1,557   1   1,558 
Other comprehensive income (loss)
                          (4,995)   (4,995)       (4,995) 
Preferred stock dividends (a)
                  (84)           (84)       (84) 
Common stock dividends ($.46 per share)
                  (687)           (687)       (687) 
Issuance of preferred stock
      437                       437       437 
Issuance of common and treasury stock
  3           (116)       132       16       16 
Purchase of treasury stock
  (1)                   (54)       (54)       (54) 
Distributions to noncontrolling interests
                              —   (2)   (2) 
Stock option and restricted stock grants
              92               92       92 
           
Balance March 31, 2022
  1,486  $6,808  $21  $8,515  $69,987  $(27,193)  $(6,938)  $51,200  $468  $51,668 
           
Balance December 31, 2022
  1,531  $6,808  $21  $8,712  $71,901  $(25,269)  $(11,407)  $50,766  $466  $51,232 
Change in accounting principle (b)
                  46           46       46 
Net income (loss)
                  1,698           1,698   6   1,704 
Other comprehensive income (loss)
                          1,254   1,254       1,254 
Preferred stock dividends (c)
                  (98)           (98)       (98) 
Common stock dividends ($.48 per share)
                  (740)           (740)       (740) 
Issuance of common and treasury stock
  3           (114)       120       6       6 
Purchase of treasury stock
  (1)                   (44)       (44)       (44) 
Distributions to noncontrolling interests
                              —   (7)   (7) 
Stock option and restricted stock grants
              101               101       101 
           
Balance March 31, 2023
  1,533  $6,808  $21  $8,699  $72,807  $(25,193)  $(10,153)  $52,989  $465  $53,454 
 
(a)
Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $875.00, $218.75, $662.50, $343.75, $234.375, $250.00, $231.25 and $206.25 respectively.
(b)
Effective January 1, 2023, the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt restructurings. Upon adoption, the Company reduced its allowance for credit losses and increased retained earnings net of deferred taxes through a cumulative-effect adjustment.
(c)
Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $1,462.428, $339.357, $662.50, $343.750, $234.375, $250.00, $231.25 and $281.25 respectively.
See Notes to Consolidated Financial Statements.
 
U.S. Bancorp 
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U.S. Bancorp
Consolidated Statement of Cash Flows
 
(Dollars in Millions)
(Unaudited)
 Three Months Ended
March 31		 
 2023  2022 
Operating Activities
        
Net income attributable to U.S. Bancorp
 $1,698  $1,557 
Adjustments to reconcile net income to net cash provided by operating activities
        
Provision for credit losses
  427   112 
Depreciation and amortization of premises and equipment
  97   85 
Amortization of intangibles
  160   47 
(Gain) loss on sale of loans held for sale
  7   62 
(Gain) loss on sale of securities and other assets
  32   (42) 
Loans originated for sale, net of repayments
  (7,024)   (9,827) 
Proceeds from sales of loans held for sale
  6,728   13,874 
Other, net
  (1,283)   2,609 
Net cash provided by operating activities
  842   8,477 
Investing Activities
        
Proceeds from sales of available-for-sale investment securities
  7,720   12,527 
Proceeds from maturities of held-to-maturity investment securities
  1,317   1,173 
Proceeds from maturities of available-for-sale investment securities
  1,407   5,498 
Purchases of held-to-maturity investment securities
  (924)   (2,932) 
Purchases of available-for-sale investment securities
  (217)   (15,989) 
Net decrease (increase) in loans outstanding
  165   (7,278) 
Proceeds from sales of loans
  257   1,309 
Purchases of loans
  (339)   (1,073) 
Net increase in securities purchased under agreements to resell
  (1,531)   (147) 
Other, net
  (2,912)   (452) 
Net cash provided by (used in) investing activities
  4,943   (7,364) 
Financing Activities
        
Net (decrease) increase in deposits
  (19,237)   5,463 
Net increase in short-term borrowings
  24,876   9,246 
Proceeds from issuance of long-term debt
  3,701   2,153 
Principal payments or redemption of long-term debt
  (1,594)   (1,118) 
Proceeds from issuance of preferred stock
  —   437 
Proceeds from issuance of common stock
  6   15 
Repurchase of preferred stock
  —   (1,100) 
Repurchase of common stock
  (44)   (54) 
Cash dividends paid on preferred stock
  (67)   (70) 
Cash dividends paid on common stock
  (740)   (687) 
Net cash provided by financing activities
  6,901   14,285 
Change in cash and due from banks
  12,686   15,398 
Cash and due from banks at beginning of period
  53,542   28,905 
Cash and due from banks at end of period (a)
 $66,228  $44,303 
 
(a)
Excludes a $1.0 billion interest-bearing due from bank balance with a term greater than 90 days.
See Notes to Consolidated Financial Statements.
 
38
 U.S. Bancorp
Notes to Consolidated Financial Statements
(Unaudited)
 
 Note 1
 
   Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required
in
accordance with accounting principles generally accepted in the United States. In the opinion of management of U.S. Bancorp (the “Company”), all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Certain amounts in prior periods have been reclassified to conform to the current period presentation.
 
  Note 2
 
   Accounting Changes
Reference Interest Rate Transition
In March 2020, the Financial Accounting Standards Board (“FASB”) issued accounting guidance, providing temporary optional expedients and exceptions to the guidance in United States generally accepted accounting principles on contract modifications and hedge accounting, to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. Under the guidance, a company can elect not to apply certain modification accounting requirements to contracts affected by reference rate transition, if certain criteria are met. A company that makes this election would not be required to remeasure the contracts at the modification date or reassess a previous accounting determination. This guidance also permits a company to elect various optional expedients that would allow it to continue applying hedge accounting for hedging relationships affected by reference rate transition, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2024. The Company is applying certain optional expedients and exceptions for cash flow hedges and will continue to evaluate these for eligible contract modifications and hedging relationships.
Fair Value Hedging – Portfolio Layer Method
Effective January 1, 2023, the Company adopted accounting guidance, issued by the FASB in March 2022, related to fair value hedge accounting of portfolios of financial assets. This guidance permits a company 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 adoption of this guidance was not material to the Company’s financial statements.
Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures
Effective January 1, 2023, the Company adopted accounting guidance on a modified retrospective basis, issued by the FASB in March 2022, related to the recognition and measurement of troubled debt restructurings (“TDRs”) by creditors. This guidance removes the separate recognition and measurement requirements for TDRs by replacing them with a requirement for a company to apply existing accounting guidance to determine whether a modification results in a new loan or a continuation of an existing loan. This guidance also replaces existing TDR disclosures with similar but more expansive disclosures for certain modifications of receivables made to borrowers experiencing financial difficulty. Further, this guidance also requires companies to disclose current-period gross write-offs by year of origination for financing receivables. The adoption of this guidance was not material to the Company’s financial statements.
Accounting for Tax Credit Investments Using the Proportional Amortization Method
Effective January 1, 2023, the Company adopted accounting guidance on a modified retrospective basis, issued by the FASB in March 2023, related to the accounting for tax credit investments. This guidance allows the Company to elect to account for tax credit investments using the proportional amortization method on a program-by-program basis if certain conditions are met, regardless of the program from which the income tax credits are received. The adoption of this guidance was not material to the Company’s financial statements.
 
U.S. Bancorp 
39
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  Note  3
 
   Business Combinations
MUFG Union Bank Acquisition
On December 1, 2022, the Company acquired MUB’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. (“MUFG”). Pursuant to the terms of
the
Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of common stock of MUB for a purchase price consisting of $5.5 billion in cash and approximately 44 million shares of common stock of the Company. Under the terms of the Share Purchase Agreement, the purchase price was based on MUB having a tangible book value of $6.25 billion at the closing of the acquisition. At the closing of the acquisition, MUB had $3.5
billion of tangible book value over the $
6.25
billion target, consisting of additional cash. The additional cash received is held at the MUB subsidiary and is required to be repaid to MUFG on or prior to the fifth anniversary date of the completion of the purchase, in accordance with the terms of the Share Purchase Agreement. As such, it is recognized as debt at the parent company. The transaction excludes the purchase of substantially all of MUB’s Global Corporate & Investment Bank (other than certain deposits), certain middle and back office functions, and other assets that were transferred by MUB to MUFG prior to the acquisition. This transaction has been accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed from MUB were recorded at fair value as of the acquisition date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Fair value estimates related to the assets and liabilities from MUB are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, loans, certain deposits, certain other assets, customer relationships and the core deposit benefits intangible.
In connection with the transaction, the Company incurred $244 million of nonrecurring merger and integration charges during the three months ended March 31, 2023 recorded within noninterest expense. These expenses are primarily comprised of personnel, legal, advisory and technology related costs.
The following table includes the fair value of consideration transferred and the preliminary fair value of the identifiable tangible and intangible assets and liabilities from MUB:
 
December 1, 2022 (Dollars in Millions)
 
Acquisition consideration
    
Cash
 $5,500 
Market value of shares of common stock
  2,014 
  
 
 
 
Total consideration transferred at acquisition close date
  7,514 
Discounted liability to MUFG (a)
  2,944 
  
 
 
 
Total
 $10,458 
  
 
 
 
Fair Value of MUB assets and liabilities
    
Assets
    
Cash and due from banks
 $17,754 
Investment securities
  22,725 
Loans held for sale
  2,220 
Loans
  53,395 
Less allowance for loan losses
  (463) 
  
 
 
 
Net loans
  52,932 
Premises and equipment
  646 
Other intangible assets (excluding goodwill)
  2,808 
Other assets
  4,700 
  
 
 
 
Total assets
 $103,785 
  
 
 
 
Liabilities
    
Deposits
 $86,110 
Short-term borrowings
  4,773 
Long-term debt
  2,584 
Other liabilities
  2,267 
  
 
 
 
Total liabilities
  95,734 
  
 
 
 
Less: Net assets
 $8,051 
  
 
 
 
Goodwill
 $2,407 
 
(a)
Represents $3.5 billion of noninterest-bearing additional
cash
held by MUB upon close of the acquisition to be delivered to MUFG on or prior to December 1, 2027, discounted at the Company’s 5-year unsecured borrowing rate as of the acquisition date, per authoritative accounting guidance.
 
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 U.S. Bancorp
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Preliminary goodwill of $2.4 billion recorded in connection with the transaction resulted from the reputation, operating model and expertise of MUB. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets from MUB. The goodwill was allocated to the Company’s business segments on a preliminary basis and is not deductible for income tax purposes. Refer to Note 11 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for the amount of goodwill allocated to each business segment in connection with the transaction.
For further information on the fair value and unpaid principal balance of loans from the MUB acquisition, as well as the methods used to determine the fair values of the significant assets acquired and liabilities assumed, refer to Note 3 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
During the first quarter of 2023, the Company completed the divestiture of three MUB branches to HomeStreet Bank, a wholly owned subsidiary of HomeStreet, Inc., to satisfy regulatory requirements related to the acquisition. There were approximately $400 million in deposits and $22 million in loans divested as part of this transaction.
 
 Note 4
 
   Investment Securities
The Company’s held-to-maturity investment securities are carried at historical cost, adjusted for amortization of premiums and accretion of discounts. The Company’s available-for-sale investment securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
The amortized cost, gross unrealized holding gains and losses, and fair value of held-to-maturity and available-for-sale investment securities were as follows:
 
  March 31, 2023   December 31, 2022 
(Dollars in Millions) Amortized
Cost		   Unrealized
Gains		   Unrealized
Losses		  Fair Value   Amortized
Cost		   Unrealized
Gains		   Unrealized
Losses		  Fair Value 
Held-to-maturity
                                     
U.S. Treasury and agencies
 $1,344   $—   $(37)  $1,307   $1,344   $—   $(51)  $1,293 
Mortgage-backed securities
                                     
Residential agency
  85,419    23    (9,589)   75,853    85,693    2    (10,810)   74,885 
Commercial agency
  1,699    18    (1)   1,716    1,703    1    (8)   1,696 
Total held-to-maturity
 $88,462   $41   $(9,627)  $78,876   $88,740   $3   $(10,869)  $77,874 
Available-for-sale
                                     
U.S. Treasury and agencies
 $20,421   $3   $(2,370)  $18,054   $24,801   $1   $(2,769)  $22,033 
Mortgage-backed securities
                                     
Residential agency
  28,467    7    (2,329)   26,145    32,060    8    (2,797)   29,271 
Commercial
                                     
Agency
  8,727    —    (1,427)   7,300    8,736    —    (1,591)   7,145 
Non-agency
  7    —    —   7    7    —    —   7 
Asset-backed securities
  3,836    4    (33)   3,807    4,356    5    (38)   4,323 
Obligations of state and political subdivisions
  11,234    16    (1,076)   10,174    11,484    12    (1,371)   10,125 
Other
  4    —    —   4    6    —    —   6 
Total available-for-sale
 $72,696   $30   $(7,235)  $65,491   $81,450   $26   $(8,566)  $72,910 
Investment securities with a fair value of $13.9 billion at March 31, 2023, and $15.3 billion at December 31, 2022, were pledged to secure public, private and trust deposits, repurchase agreements and for other purposes required by contractual obligation or law. Included in these amounts were securities where the Company and certain counterparties have agreements granting the counterparties the right to sell or pledge the securities. Investment securities securing these types of arrangements had a fair value of $600 million at March 31, 2023, and $858 million at December 31, 2022.
The following table provides information about the amount of interest income from taxable and non-taxable investment securities:
 
  Three Months Ended
March 31		 
(Dollars in Millions)         2023           2022 
Taxable
 $994   $646 
Non-taxable
  80    71 
Total interest income from investment securities
 $1,074   $717 
 
U.S. Bancorp 
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The following table provides information about the amount of gross gains and losses realized through the sales of available-for-sale investment securities:
 
  Three Months Ended
March 31		 
(Dollars in Millions)         2023          2022 
Realized gains
 $60  $242 
Realized losses
  (92)   (224) 
Net realized gains (losses)
 $(32)  $18 
Income tax on net realized gains (losses)
 $(8)  $4 
The Company conducts a regular assessment of its available-for-sale investment securities with unrealized losses to determine whether all or some portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. If the Company intends to sell or it is more likely than not the Company will be required to sell an investment security, the amortized cost of the security is written down to fair value. When evaluating credit losses, the Company considers various factors such as the nature of the investment security, the credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows of underlying collateral, the existence of any government or agency guarantees, and market conditions. The Company measures the allowance for credit losses using market information where available and discounting the cash flows at the original effective rate of the investment security. The allowance for credit losses is adjusted each period through earnings and can be subsequently recovered. The allowance for credit losses on the Company’s available-for-sale investment securities was immaterial at March 31, 2023 and December 31, 2022.
At March 31, 2023, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at March 31, 2023:
 
  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
 $359   $(11)   $17,134   $(2,359)   $17,493   $(2,370) 
Mortgage-backed securities
                             
Residential agency
  6,121    (252)    19,435    (2,077)    25,556    (2,329) 
Commercial
                             
Agency
  —    —    7,300    (1,427)    7,300    (1,427) 
Non-agency
  7    —    —    —    7    — 
Asset-backed securities
  3,140    (33)    —    —    3,140    (33) 
Obligations of state and political subdivisions
  4,550    (126)    4,198    (950)    8,748    (1,076) 
Other
  —    —    4    —    4    — 
Total investment securities
 $14,177   $(422)   $48,071   $(6,813)   $62,248   $(7,235) 
These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase of these available-for-sale investment securities. U.S. Treasury and agencies securities and agency mortgage-backed securities are issued, guaranteed or otherwise supported by the United States government. The Company’s obligations of state and political subdivisions are generally high grade. Accordingly, the Company does not consider these unrealized losses to be credit-related and an allowance for credit losses is not necessary. In general, the issuers of the investment securities are contractually prohibited from prepayment at less than par, and the Company did not pay significant purchase premiums for these investment securities. At March 31, 2023, the Company had no plans to sell investment securities with unrealized losses, and believes it is more likely than not it would not be required to sell such investment securities before recovery of their amortized cost.
During the three months ended March 31, 2023 and 2022, the Company did not purchase any investment securities that had more-than-insignificant credit deterioration.
All of the Company’s held-to-maturity investment securities are U.S. Treasury and agencies securities and highly rated agency mortgage-backed securities that are guaranteed or otherwise supported by the United States government and have no history of credit losses. Accordingly the Company does not expect to incur any credit losses on held-to-maturity investment securities and has no allowance for credit losses recorded for these securities.
 
42
 U.S. Bancorp
The following table provides information about the amortized cost, fair value and yield by maturity date of the investment securities outstanding at March 31, 2023:
 
(Dollars in Millions) Amortized
Cost		   
Fair
Value
   Weighted-
Average
Maturity in
Years		   Weighted-
Average
Yield (e)		 
Held-to-maturity
                   
U.S. Treasury and Agencies
                   
Maturing in one year or less
 $—   $—    —    —% 
Maturing after one year through five years
  1,344    1,307    3.0    2.85 
Maturing after five years through ten years
  —    —    —    — 
Maturing after ten years
  —    —    —    — 
Total
 $1,344   $1,307    3.0    2.85% 
Mortgage-Backed Securities (a)
                   
Maturing in one year or less
 $22   $21    .8    5.09% 
Maturing after one year through five years
  1,531    1,536    2.7    4.58 
Maturing after five years through ten years
  79,376    70,881    9.0    2.20 
Maturing after ten years
  6,189    5,131    10.2    1.93 
Total
 $87,118   $77,569    9.0    2.23% 
Total held-to-maturity (b)
 $88,462   $78,876    8.9    2.24% 
Available-for-sale
                   
U.S. Treasury and Agencies
                   
Maturing in one year or less
 $261   $261    .2    4.75% 
Maturing after one year through five years
  4,452    4,114    3.9    1.70 
Maturing after five years through ten years
  13,339    11,829    7.0    1.93 
Maturing after ten years
  2,369    1,850    11.2    2.00 
Total
 $20,421   $18,054    6.7    1.92% 
Mortgage-Backed Securities (a)
                   
Maturing in one year or less
 $71   $70    .8    2.44% 
Maturing after one year through five years
  9,603    9,020    3.1    2.44 
Maturing after five years through ten years
  26,252    23,248    7.5    2.94 
Maturing after ten years
  1,275    1,114    11.1    3.55 
Total
 $37,201   $33,452    6.5    2.83% 
Asset-Backed Securities
                   
Maturing in one year or less
 $3,054   $3,021    .4    4.25% 
Maturing after one year through five years
  506    509    3.2    6.94 
Maturing after five years through ten years
  276    277    5.7    5.77 
Maturing after ten years
  —    —    —    — 
Total
 $3,836   $3,807    1.2    4.72% 
Obligations of State and Political
                   
Subdivisions (c) (d)
                   
Maturing in one year or less
 $152   $153    .3    5.12% 
Maturing after one year through five years
  3,579    3,550    3.7    4.51 
Maturing after five years through ten years
  1,556    1,488    7.8    3.89 
Maturing after ten years
  5,947    4,983    16.2    3.21 
Total
 $11,234   $10,174    10.8    3.74% 
Other
                   
Maturing in one year or less
 $—   $—    —    —% 
Maturing after one year through five years
  4    4    2.2    1.89 
Maturing after five years through ten years
  —    —    —    — 
Maturing after ten years
  —    —    —    — 
Total
 $4   $4    2.2    1.89% 
Total available-for-sale (b)
 $72,696   $65,491    7.0    2.82% 
 
(a)
Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.
(b)
The weighted-average maturity of total held-to-maturity investment securities was 9.2 years at December 31, 2022, with a corresponding weighted-average yield of 2.18 percent. The weighted-average maturity of total available-for-sale investment securities was 7.4 years at December 31, 2022, with a corresponding weighted-average yield of 2.94 percent.
(c)
Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.
(d)
Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.
(e)
Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.
 
U.S. Bancorp 
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 Note 5
 
   Loans and Allowance for Credit Losses
The composition of the loan portfolio, by class and underlying specific portfolio type, was as follows:
 
  March 31, 2023       December 31, 2022 
(Dollars in Millions) Amount   Percent
of Total		       Amount   Percent
of Total		 
Commercial
                       
Commercial
 $132,894    34.3%       $131,128    33.8% 
Lease financing
  4,432    1.1        4,562    1.2 
Total commercial
  137,326    35.4        135,690    35.0 
Commercial Real Estate
                       
Commercial mortgages
  43,549    11.2        43,765    11.3 
Construction and development
  11,609    3.0        11,722    3.0 
Total commercial real estate
  55,158    14.2        55,487    14.3 
Residential Mortgages
                       
Residential mortgages
  109,246    28.2        107,858    27.8 
Home equity loans, first liens
  7,702    2.0        7,987    2.0 
Total residential mortgages
  116,948    30.2        115,845    29.8 
Credit Card
  25,489    6.6        26,295    6.8 
Other Retail
                       
Retail leasing
  5,017    1.3        5,519    1.4 
Home equity and second mortgages
  12,720    3.3        12,863    3.3 
Revolving credit
  3,720    .9        3,983    1.0 
Installment
  14,357    3.7        14,592    3.8 
Automobile
  17,131    4.4        17,939    4.6 
Total other retail
  52,945    13.6        54,896    14.1 
Total loans
 $387,866    100.0%       $388,213    100.0% 
The Company had loans of $134.8 billion at March 31, 2023, and $134.6 billion at December 31, 2022, pledged at the Federal Home Loan Bank, and loans of $81.2 billion at March 31, 2023, and $85.8 billion at December 31, 2022, pledged at the Federal Reserve Bank.
Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs, and any partial charge-offs recorded. Purchased loans are recorded at fair value at the date of purchase. Net unearned interest and deferred fees and costs on originated loans and unamortized premiums and discounts on purchased loans amounted to $2.5 billion at March 31, 2023 and $3.1 billion at December 31, 2022. The Company evaluates purchased loans for more-than-insignificant deterioration at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans that have experienced more-than-insignificant deterioration from origination are considered purchased credit deteriorated loans. All other purchased loans are considered non-purchased credit deteriorated loans.
Allowance for Credit Losses
The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis.
Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates, from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of economic forecast uncertainty. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions.
 
44
 U.S. Bancorp
The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels, inflation, interest rates and corporate bonds 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, including those loans modified under various loan modification programs, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or other factors that would affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off or expected recoveries on collateral dependent loans where recovery is expected through sale of the collateral at fair value less selling costs. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses. The allowance recorded for individually evaluated loans greater than $
5
million in the commercial lending segment is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate. For 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.
Activity in the allowance for credit losses by portfolio class was as follows:
 
(Dollars in Millions) Commercial  Commercial
Real Estate		  Residential
Mortgages		  Credit
Card		  Other
Retail		  Total
Loans		 
Balance at December 31, 2022
  $2,163   $1,325   $926   $2,020   $   970   $7,404 
Add
                        
Change in accounting principle (a)
  —   —   (31)   (27)   (4)   (62) 
Allowance for acquired credit losses (b)
  —   127   —   —   —   127 
Provision for credit losses
  64   24   51   294   (6)   427 
Deduct
                        
Loans charged-off
  63   123   4   215   64   469 
Less recoveries of loans charged-off
  (16)   (6)   (5)   (40)   (29)   (96) 
Net loan charge-offs (recoveries)
  47   117   (1)   175   35   373 
Balance at March 31, 2023
  $2,180   $1,359   $947   $2,112   $925   $7,523 
Balance at December 31, 2021
  $1,849   $1,123   $565   $1,673   $945   $6,155 
Add
                        
Provision for credit losses
  19   (54)   29   78   40   112 
Deduct
                        
Loans charged-off
  55   1   5   158   61   280 
Less recoveries of loans charged-off
  (23)   (6)   (11)   (46)   (32)   (118) 
Net loan charge-offs (recoveries)
  32   (5)   (6)   112   29   162 
Balance at March 31, 2022
  $1,836   $1,074   $600   $1,639   $956   $6,105 
(a)
Effective January 1, 2023, the Company adopted accounting guidance which removed the separate recognition and measurement of troubled debt restructurings.
(b)
Represents allowance for credit deteriorated and charged-off loans acquired from MUB.
 
U.S. Bancorp 
45
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The increase in the allowance for credit losses at March 31, 2023, compared with December 31, 2022, was primarily driven by increasing economic uncertainty and normalizing credit losses.
The following table provides a summary of loans charged-off by portfolio class and year of origination: 
 

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

    
—
    
—

    10    104 
Originated in 2021
  4    —    —    —    11    15 
Originated in 2020
  4    —    —    —    6    10 
Originated in 2019
  5    3    1    —    7    16 
Originated prior to 2019
  11    32    3    —    8    54 
Revolving
  33    —    —    215    22    270 
Total charge-offs
 $63   $123   $4   $215   $64   $469 
Note: Year of origination is based on the origination date of a loan, or for existing loans the date when the maturity date, pricing or commitment amount is
amended.
(a)
Primarily related to uncollectible amounts on acquired loans.
Credit Quality
The credit quality of the Company’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company
.
For all loan portfolio classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractually required payments not made (for example, two missed payments is considered 30 days delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed, reducing interest income in the current period.
Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully charged down if unsecured by collateral or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is placed on nonaccrual.
Consumer lending segment loans are generally charged-off at a specific number of days or payments past due. Residential mortgages and other retail loans secured by 1-4 family properties are generally charged down to the fair value of the collateral securing the loan, less costs to sell, at 180 days past due. Residential mortgage loans and lines in a first lien position are placed on nonaccrual status in instances where a partial charge-off occurs unless the loan is well secured and in the process of collection. Residential mortgage loans and lines in a junior lien position secured by 1-4 family properties are placed on nonaccrual status at 120 days past due or when they are behind a first lien that has become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account is charged-off. Credit cards are charged-off at 180 days past due. Other retail loans not secured by 1-4 family properties are charged-off at 120 days past due; and revolving consumer lines are charged-off at 180 days past due. Similar to credit cards, other retail loans are generally not placed on nonaccrual status because of the relative short period of time to charge-off. Certain retail customers having financial difficulties may have the terms of their credit card and other loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.
For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or when the loan becomes well secured and is in the process of collection. Loans where there has been a partial charge-off may be returned to accrual status if all principal and interest (including amounts previously charged-off) is expected to be collected and the loan is current.
 
46
 U.S. Bancorp
Table of Contents
The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that are nonperforming:
 
  Accruing         
(Dollars in Millions) Current   30-89 Days
Past Due		   90 Days or
More Past Due		   Nonperforming (b)   Total 
March 31, 2023
                        
Commercial
 $136,619    $   457    $  72    $   178    $137,326 
Commercial real estate
  54,544    74    5    535    55,158 
Residential mortgages (a)
  116,411    148    97    292    116,948 
Credit card
  24,952    280    256    1    25,489 
Other retail
  52,494    254    64    133    52,945 
Total loans
 $385,020    $1,213    $494    $1,139    $387,866 
December 31, 2022
                        
Commercial
 $135,077    $350    $94    $   169    $135,690 
Commercial real estate
  55,057    87    5    338    55,487 
Residential mortgages (a)
  115,224    201    95    325    115,845 
Credit card
  25,780    283    231    1    26,295 
Other retail
  54,382    309    66    139    54,896 
Total loans
 $385,520    $1,230    $491    $   972    $388,213 
 
(a)
At March 31, 2023, $542 million of loans 30–89 days past due and $2.2 billion of loans 90 days or more past due purchased and that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, were classified as current, compared with $647 million and $2.2 billion at December 31, 2022, respectively.
(b)
Substantially all nonperforming loans at March 31, 2023 and December 31, 2022, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $4 million and $3 million for the three months ended March 31, 2023 and 2022, respectively.
At March 31, 2023 and December 31, 2022, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $23 million. These amounts excluded $57 million and $54 million at March 31, 2023 and December 31, 2022, respectively, of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at March 31, 2023 and December 31, 2022, was $1.1 billion, of which $861 million and $830 million, respectively, related to loans purchased and that could be purchased from Government National Mortgage Association (“GNMA”) mortgage pools under delinquent loan repurchase options whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.
The Company classifies its loan 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 are those loans where a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.
 
U.S. Bancorp 
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The following table provides a summary of the Company’s internal credit quality rating of loans by portfolio class and year of origination:
 
  March 31, 2023        December 31, 2022 
     Criticized             Criticized    
(Dollars in Millions) Pass  Special
Mention		  Classified (a)  Total
Criticized		  Total        Pass  Special
Mention		  Classified (a)  Total
Criticized		  Total 
Commercial
                                              
Originated in 2023
  $  14,029   $     74   $   135   $   209   $  14,238         $          —   $       —   $       —   $         —   $          — 
Originated in 2022
  58,723   334   433   767   59,490           61,229   245   315   560   61,789 
Originated in 2021
  21,541   480   254   734   22,275         26,411   159   78   237   26,648 
Originated in 2020
  5,226   66   123   189   5,415         7,049   68   138   206   7,255 
Originated in 2019
  2,859   26   203   229   3,088         3,962   51   210   261   4,223 
Originated prior to 2019
  5,201   44   48   92   5,293         8,986   64   129   193   9,179 
Revolving (b)
  26,919   147   461   608   27,527         25,888   344   364   708   26,596 
Total commercial
  134,498   1,171   1,657   2,828   137,326         133,525   931   1,234   2,165   135,690 
            
Commercial real estate
                                              
Originated in 2023
  2,868   131   160   291   3,159         —   —   —   —   — 
Originated in 2022
  15,229   261   640   901   16,130         14,527   206   519   725   15,252 
Originated in 2021
  12,809   358   186   544   13,353         13,565   171   99   270   13,835 
Originated in 2020
  5,441   49   131   180   5,621         6,489   97   117   214   6,703 
Originated in 2019
  6,317   220   282   502   6,819         6,991   251   304   555   7,546 
Originated prior to 2019
  7.959   130   566   696   8,655         9,639   138   875   1,013   10,652 
Revolving
  1,405   —   16   16   1,421         1,489   —   10   10   1,499 
Total commercial real estate
  52,028   1,149   1,981   3,130   55,158         52,700   863   1,924   2,787   55,487 
            
Residential mortgages (c)
                                              
Originated in 2023
  2,581   —   —   —   2,581         —   —   —   —   — 
Originated in 2022
  29,297   —   6   6   29,303         28,452   —   —   —   28,452 
Originated in 2021
  37,494   —   10   10   37,504         39,527   —   7   7   39,534 
Originated in 2020
  15,832   —   10   10   15,842         16,556   —   8   8   16,564 
Originated in 2019
  6,832   —   16   16   6,848         7,222   —   18   18   7,240 
Originated prior to 2019
  24,522   —   348   348   24,870         23,658   —   397   397   24,055 
Total residential mortgages
  116,558   —   390   390   116,948         115,415   —   430   430   115,845 
            
Credit card (d)
  25,232   —   257   257   25,489         26,063   —   232   232   26,295 
            
Other retail
                                              
Originated in 2023
  1,958   —   —   —   1,958         —   —   —   —   — 
Originated in 2022
  8,903   —   6   6   8,909         9,563   —   6   6   9,569 
Originated in 2021
  14,208   —   12   12   14,220         15,352   —   12   12   15,364 
Originated in 2020
  7,083   —   10   10   7,093         7,828   —   11   11   7,839 
Originated in 2019
  2,886   —   10   10   2,896         3,418   —   13   13   3,431 
Originated prior to 2019
  3,063   —   18   18   3,081         3,689   —   31   31   3,720 
Revolving
  13,846   —   99   99   13,945         14,029   —   98   98   14,127 
Revolving converted to term
  788   —   55   55   843         800   —   46   46   846 
Total other retail
  52,735   —   210   210   52,945         54,679   —   217   217   54,896 
Total loans
  $381,051   $2,320   $4,495   $6,815   $387,866         $382,382   $ 1,794   $4,037   $5,831   $388,213 
Total outstanding commitments
  $778,269   $3,209   $6,240   $9,449   $787,718         $772,804   $ 2,825   $5,041   $7,866   $780,670 
Note: Year of origination is based on the origination date of a loan, or for existing loans the date when the maturity date, pricing or commitment amount is amended.

(a)
Classified rating on consumer loans primarily based on delinquency status.
(b)
Includes an immaterial amount of revolving converted to term loans.
(c)
At March 31, 2023, $2.2 billion of GNMA loans 90 days or more past due and $268
million of modified GNMA loans whose repayments are
 insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $2.2 billion and $1.0 billion at December 31, 2022, respectively.
(d)
Predominately all credit card loans are considered revolving loans. Includes an immaterial amount of revolving converted to term loans.
Loan Modifications
In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. The Company recognizes interest on modified loans if full collection of contractual principal and interest is expected. The effects of modifications on credit loss expectations, such as improved payment capacity, longer expected lives and other factors, are considered when measuring the allowance for credit losses. Modification performance, including redefault rates and how these compare to historical losses, are also considered. Modifications generally do not result in significant changes to the Company’s allowance for credit losses.
 
48
 U.S. Bancorp
The following table provides a summary of loan balances at March 31, 2023, which were modified during the three months ended March 31, 2023, by portfolio class and modification granted:
 
(Dollars in Millions)
 
Interest Rate
Reduction
 
 
  
 
 
Payment
Delay
 
 
  
 
 
Term
Extension
 
 
  
 
 
Multiple
Modifications (a)
 
 
  
 
 
Total
Modifications
 
 
Percent of
Class Total
 
Commercial
 
$
114
 
 
 
$
—
 
 
 
$
68
 
 
 
$
—
 
 
 
$
182
 
 
 
.1
% 
Commercial real estate
 
 
—
 
 
 
 
—
 
 
 
 
12
 
 
 
 
28
 
 
 
 
40
 
 
 
.1
 
Residential mortgages (b)
 
 
—
 
 
 
 
130
 
 
 
 
10
 
 
 
 
12
 
 
 
 
152
 
 
 
.1
 
Credit card
 
 
94
 
 
 
 
—
 
 
 
 
—
 
 
 
 
—
 
 
 
 
94
 
 
 
.4
 
Other retail
 
 
2
 
 
 
 
 
 
 
11
 
 
 
 
 
 
 
63
 
 
 
 
 
 
 
2
 
 
 
 
 
 
 
78
 
 
 
.1
 
Total loans, excluding loans purchased from GNMA mortgage pools
 
 
210
 
 
 
 
141
 
 
 
 
153
 
 
 
 
42
 
 
 
 
546
 
 
 
.1
 
Loans purchased from GNMA mortgage pools (b)
 
 
—
 
 
 
 
 
 
 
243
 
 
 
 
 
 
 
63
 
 
 
 
 
 
 
47
 
 
 
 
 
 
 
353
 
 
 
.3
 
Total loans
 
$
210
 
 
 
 
 
 
$
384
 
 
 
 
 
 
$
216
 
 
 
 
 
 
$
89
 
 
 
 
 
 
$
899
 
 
 
.2
% 

(a)
Includes $52 million of total loans receiving a payment delay and term extension, $32 million of total loans receiving an interest rate reduction and term extension and $5 million of total loans receiving an interest rate reduction, payment delay and term extension.
(b)
Percent of class total amounts expressed as a percent of total residential mortgage loan balances.
Loan modifications included in the table above exclude trial period arrangements offered to customers and secured loans to consumer borrowers that have had debt discharged through bankruptcy where the borrower has not reaffirmed the debt during the periods presented. At March 31, 2023, the balance of loans modified in trial period arrangements during the three months ended March 31, 2023, was $183 million, while the balance of secured loans to consumer borrowers that have had debt discharged through bankruptcy during this same period was not material.
The following table summarizes the effects of loan modifications made to borrowers on loans modified during the three months ended March 31, 2023:
 
(Dollars in Millions)
 
Weighted-Average

Interest Rate
Reduction
 
 
Weighted-Average

Months of Term
Extension
 
Commercial
  2.4
%
   5 
Commercial real estate
  5.0    6 
Residential mortgages
  1.2    120 
Credit card
  16.0    — 
Other retail
  6.6    151 
Loans purchased from GNMA mortgage pools
  .7    66 
Note: The weighted-average payment deferral for all portfolio classes was less than $1 million.
Forbearance payments are required to be paid at the end of the original term loan.
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. 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 provide an interest rate reduction.
Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments. These modifications 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 modification 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.
Credit card and other retail loan modifications are generally part of distinct modification programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.
 
U.S. Bancorp 
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Loans that receive a forbearance plan generally remain in default until they are no longer delinquent as the result of the payment of all past due amounts
or the borrower receiving a term extension or modification. Therefore, loans only receiving forbearance plans are not included in the table below.
The following table provides a summary of loan balances at March 31, 2023, which were modified during the three months ended March 31, 2023, by portfolio class and delinquency status:
 
(Dollars in Millions)         Current   30-89 Days
Past Due		   90 Days or
More Past Due		   Total 
Commercial
 $146   $6   $30   $182 
Commercial real estate
  6    —    34    40 
Residential mortgages (a)
  319    3    10    332 
Credit card
  56    28    10    94 
Other retail
  64    3    2    69 
     
Total loans
 $591   $40   $86   $717 
 
(a)
At March 31, 2023, $32 million of loans 30-89 days past due and $1
mi
llion of loans 90 days or more past due purchased and that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose payments are insured by the Federal Housing administration or guaranteed by the United States Department of Veterans Affairs, were classified as current.
As of March 31, 2023 there were no loans that defaulted (fully or partially charged-off or became 90 days or more past due) that were modified within the first three months of 2023.
As of March 31, 2023, the Company had $133 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified.
Prior Period Troubled Debt Restructuring Information
The following table provides a summary of loans modified as troubled debt restructurings for the period presented by portfolio class:
 
Three Months Ended March 31, 2022
(Dollars in Millions)
         Number
of Loans		   
Pre-Modification
Outstanding
Loan
Balance
   
Post-Modification

Outstanding
Loan
Balance
 
Commercial
  509   $38   $32 
Commercial real estate
  9    11    10 
Residential mortgages
  840    228    226 
Credit card
  9,339    50    50 
Other retail
  728    37    37 
Total loans, excluding loans purchased from GNMA mortgage pools
  11,425    364    355 
Loans purchased from GNMA mortgage pools
  390    55    55 
    
Total loans
  11,815   $419   $410 
The following table provides a summary of troubled debt restructured loans that defaulted (fully or partially charged-off or became 90 days or more past due) for the period presented, that were modified as troubled debt restructurings within 12 months previous to default:
 
Three Months Ended March 31, 2022
(Dollars in Millions)
 Number
      of Loans		   
Amount
Defaulted
 
Commercial
  214   $3 
Commercial real estate
  3    1 
Residential mortgages
  34    3 
Credit card
  1,634    9 
Other retail
  83    1 
Total loans, excluding loans purchased from GNMA mortgage pools
  1,968    17 
Loans purchased from GNMA mortgage pools
  49    8 
   
Total loans
  2,017   $25 
 
 Note 6
    Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities
The Company transfers financial assets in the normal course of business. The majority of the Company’s financial asset transfers are residential mortgage loan sales primarily to government-sponsored enterprises (“GSEs”), transfers of tax-advantaged investments, commercial loan sales through participation agreements, and other individual or portfolio loan and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any
 
50
 U.S. Bancorp
Table of Contents
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.
The Company previously provided financial support primarily through the use of waivers of trust and investment management fees associated with various unconsolidated registered money market funds it manages. The Company discontinued providing this support beginning in the third quarter of 2022 due to rising interest rates. The Company provided
$
58
 million of support to the funds during the three months ended March 31, 2022.
The Company is involved in various entities that are considered to be variable interest entities (“VIEs”). The Company’s investments in VIEs are primarily related to investments promoting affordable housing, community development and renewable energy sources. Some of these tax-advantaged investments support the Company’s regulatory compliance with the Community Reinvestment Act. The Company’s investments in these entities generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits are recognized as a reduction of tax expense or, for investments qualifying as investment tax credits, as a reduction to the related investment asset. The Company recognized federal and state income tax credits related to its affordable housing and other tax-advantaged investments in tax expense of $138 million and $113 million for the three months ended March 31, 2023 and 2022, respectively. The Company also recognized $164 million and $13 million of investment tax credits for the three months ended March 31, 2023 and 2022, respectively. The Company recognized $130 million and $102 million of expenses related to all of these investments for the three months ended March 31, 2023 and 2022, respectively, which were primarily included in tax expense.
The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.
The Company’s investments in these unconsolidated VIEs are carried in other assets on the Consolidated Balance Sheet. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in other liabilities on the Consolidated Balance Sheet. The Company’s maximum exposure to loss from these unconsolidated VIEs include the investment recorded on the Company’s Consolidated Balance Sheet, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business and housing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.
The following table provides a summary of investments in community development and tax-advantaged VIEs that the Company has not consolidated:
 
(Dollars in Millions) March 31,
2023		   December 31,
2022		 
Investment carrying amount
 $5,667   $5,452 
Unfunded capital and other commitments
  2,680    2,416 
Maximum exposure to loss
  9,662    9,761 
The Company also has noncontrolling financial investments in private investment funds and partnerships considered to be VIEs, which are not consolidated. The Company’s recorded investment in these entities, carried
in
 
U.S. Bancorp 
51
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other
assets on the Consolidated Balance Sheet, was approximately $186 million at March 31, 2023 and $177 million at December 31, 2022. The maximum exposure to loss related to these VIEs was $309 million at March 31, 2023 and $310 million at December 31, 2022, representing the Company’s investment balance and its unfunded commitments to invest additional
amounts.
The
Company also held senior notes of $3.0 billion as available-for-sale investment securities at March 31, 2023, compared with $3.4 billion at December 31, 2022. These senior notes were issued by third-party securitization vehicles that held $3.5 billion at March 31, 2023 and $4.0 billion at December 31, 2022 of indirect auto loans that collateralize the senior notes. These VIEs are not consolidated by the Company.
The Company’s individual net investments in unconsolidated VIEs, which exclude any unfunded capital commitments, ranged from less than $1 million to $96 million at March 31, 2023, compared with less than $1 million to $116 million at December 31, 2022.
The Company is required to consolidate VIEs in which it has concluded it has a controlling financial interest. The Company sponsors entities to which it transfers its interests in tax-advantaged investments to third parties. At March 31, 2023, approximately $6.0 billion of the Company’s assets and $4.4 billion of its liabilities included on the Consolidated Balance Sheet were related to community development and tax-advantaged investment VIEs which the Company has consolidated, primarily related to these transfers. These amounts compared to $5.9 billion and $4.2 billion, respectively, at December 31, 2022. The majority of the assets of these consolidated VIEs are reported in other assets, and the liabilities are reported in long-term debt and other liabilities. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIEs do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIEs is generally limited to the carrying value of its variable interests plus any related tax credits previously recognized or transferred to others with a guarantee.
In addition, the Company sponsors a municipal bond securities tender option bond program. The Company controls the activities of the program’s entities, is entitled to the residual returns and provides liquidity and remarketing arrangements to the program. As a result, the Company has consolidated the program’s entities. At March 31, 2023, $1.3 billion of available-for-sale investment securities and $1.0 billion of short-term borrowings on the Consolidated Balance Sheet were related to the tender option bond program, compared with $1.5 billion of available-for-sale investment securities and $1.0 billion of short-term borrowings at December 31, 2022.
 
 Note 7
    Mortgage Servicing Rights
The Company
capitalizes
MSRs as separate assets when loans are sold and servicing is retained. MSRs may also be purchased from others. The Company carries MSRs at fair value, with changes in the fair value recorded in earnings during the period in which they occur. The Company serviced $245.6 billion of residential mortgage loans for others at March 31, 2023, and $243.6 billion at December 31, 2022, including subserviced mortgages with no corresponding MSR asset. Included in mortgage banking revenue are the MSR fair value changes arising from market rate and model assumption changes, net of the value change in derivatives used to economically hedge MSRs. These changes resulted in net losses of $11 million and $29 million for the three months ended March 31, 2023 and 2022, respectively. Loan servicing and ancillary fees, not including
valuation
changes,
 
included in mortgage banking revenue were $190 million and $185 million for the three months ended March 31, 2023 and 2022, respectively.
Changes in fair value of capitalized MSRs are summarized as follows:
 
  Three Months
Ended March 31		 
(Dollars in Millions) 2023  2022 
Balance at beginning of period
 $3,755  $2,953 
Rights purchased
  1   3 
Rights capitalized
  96   237 
Rights sold (a)
  1   1 
Changes in fair value of MSRs
        
Due to fluctuations in market interest rates (b)
  (38)   368 
Due to revised assumptions or models (c)
  5   (27) 
Other changes in fair value (d)
  (96)   (103) 
Balance at end of period
 $3,724  $3,432 
 
(a)
MSRs sold include those having a negative fair value, resulting from the loans being severely delinquent.
(b)
Includes changes in MSR value associated with changes in market interest rates, including estimated prepayment rates and anticipated earnings on escrow deposits.
(c)
Includes changes in MSR value not caused by changes in market interest rates, such as changes in assumed cost to service, ancillary income and option adjusted spread, as well as the impact of any model changes.
(d)
Primarily the change in MSR value from passage of time and cash flows realized (decay), but also includes the impact of changes to expected cash flows not associated with changes in market interest rates, such as the impact of delinquencies.
 
52
 U.S. Bancorp
The estimated sensitivity to changes in interest rates of the fair value of the MSR portfolio and the related derivative instruments was as follows:
 
  March 31, 2023      December 31, 2022 
(Dollars in Millions) Down
100 bps		  Down
50 bps		  Down
25 bps		  Up
25 bps		  Up
50 bps		  Up
100 bps		      Down
100 bps		  Down
50 bps		  Down
25 bps		  Up
25 bps		  Up
50 bps		  Up
100 bps		 
MSR portfolio
 $(865)  $(386)  $(178)  $78  $149  $266      $(334)  $(153)  $(73)  $66  $125  $224 
Derivative instrument hedges
  913   395   178   (79)   (152)   (277)       337   153   73   (67)   (127)   (236) 
Net sensitivity
 $48  $9  $—  $(1)  $(3)  $(11)      $3  $—  $—  $(1)  $(2)  $(12) 
The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Housing Finance Agency (“HFA”) mortgages. The servicing portfolios are predominantly comprised of fixed-rate agency loans with limited adjustable-rate or jumbo mortgage loans. The HFA servicing portfolio is comprised of loans originated under state and local housing authority program guidelines which assist purchases by first-time or low- to moderate-income homebuyers through a favorable rate subsidy, down payment and/or closing cost assistance on government- and conventional-insured mortgages.
The following table provides a summary of the Company’s MSRs and related characteristics by portfolio:
 
  March 31, 2023      December 31, 2022 
(Dollars in Millions) HFA  Government  Conventional (d)  Total      HFA  Government  Conventional (d)  Total 
Servicing portfolio (a)
 $44,746  $23,695  $173,277  $241,718      $44,071  $23,141  $172,541  $239,753 
Fair value
 $716  $454  $2,554  $3,724      $725  $454  $2,576  $3,755 
Value (bps) (b)
  160   192   147   154       165   196   149   157 
Weighted-average servicing fees (bps)
  36   43   27   30       36   42   27   30 
Multiple (value/servicing fees)
  4.44   4.50   5.42   5.08       4.56   4.69   5.52   5.20 
Weighted-average note rate
  4.24%   3.92%   3.59%   3.74%       4.16%   3.81%   3.52%   3.67% 
Weighted-average age (in years)
  4.1   5.5   3.9   4.1       4.0   5.7   3.7   3.9 
Weighted-average expected prepayment (constant prepayment rate)
  8.0%   9.5%   8.4%   8.4%       7.4%   8.5%   7.8%   7.8% 
Weighted-average expected life (in years)
  8.5   7.3   7.3   7.5       8.8   7.6   7.5   7.7 
Weighted-average option adjusted spread (c)
  7.6%   6.9%   4.9%   5.7%       7.6%   6.9%   5.1%   5.8% 
 
(a)
Represents principal balance of mortgages having corresponding MSR asset.
(b)
Calculated as fair value divided by the servicing portfolio.
(c)
Option adjusted spread is the incremental spread added to the risk-free rate to reflect optionality and other risk inherent in the MSRs.
(d)
Represents loans sold primarily to GSEs.
 
 Note 8 
    Preferred Stock
At March 31, 2023 and December 31, 2022, the Company had authority to issue 50 million shares of preferred stock. The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock were as follows:
 
  March 31, 2023        December 31, 2022 
(Dollars in Millions) Shares
Issued and
Outstanding		   Liquidation
Preference		   Discount   Carrying
Amount		        Shares
Issued and
Outstanding		   Liquidation
Preference		   Discount   Carrying
Amount		 
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         18,000    450    13    437 
Total preferred stock (a)
  243,510   $7,026   $218   $6,808         243,510   $7,026   $218   $6,808 
 
(a)
The par value of all shares issued and outstanding at March 31, 2023 and December 31, 2022, was $1.00 per share.
 
U.S. Bancorp 
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 Note 9 
 
   Accumulated Other Comprehensive Income (Loss)
Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss). The reconciliation of the transactions affecting accumulated other comprehensive income (loss) included in shareholders’ equity for the three months ended March 31, is as follows:
 
(Dollars in Millions) Unrealized Gains
(Losses) on
Investment
Securities
Available-For-
Sale		  Unrealized
Gains (Losses)
on Investment
Securities
Transferred
From Available-
For-Sale to
Held-To-Maturity
  Unrealized Gains
(Losses) on
Derivative Hedges		  Unrealized Gains
(Losses) on
Retirement Plans		  Foreign
Currency
Translation		  Total 
2023
                        
Balance at beginning of period
 $(6,378)  $(3,933)  $(114)  $(939)  $(43)  $(11,407) 
Changes in unrealized gains (losses)
  1,305   —   204   1   —   1,510 
Foreign currency translation adjustment (a)
  —   —   —   —   (1)   (1) 
Reclassification to earnings of realized (gains) losses
  32   121   7   (2)   —   158 
Applicable income taxes
  (328)   (31)   (54)   —   —   (413) 
Balance at end of period
 $(5,369)  $(3,843)  $43  $(940)  $(44)  $(10,153) 
2022
                        
Balance at beginning of period
 $540  $(935)  $(85)  $(1,426)  $(37)  $(1,943) 
Changes in unrealized gains (losses)
  (6,754)   —   —   —   —   (6,754) 
Foreign currency translation adjustment (a)
  —   —   —   —   —   — 
Reclassification to earnings of realized (gains) losses
  (18)   42   11   32   —   67 
Applicable income taxes
  1,714   (11)   (3)   (8)   —   1,692 
Balance at end of period
 $(4,518)  $(904)  $(77)  $(1,402)  $(37)  $(6,938) 
 
(a)
Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.
Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and into earnings for the three months ended March 31, is as follows:
 
   Impact to Net Income   Affected Line Item in the
(Dollars in Millions)  2023  2022   Consolidated Statement of Income
Unrealized gains (losses) on investment securities available-for-sale
            
Realized gains (losses) on sale of investment securities
  $(32)  $18   Securities gains (losses), net
    8   (5)   Applicable income taxes
    (24)   13   Net-of-tax
Unrealized gains (losses) on investment securities transferred from
available-for-sale to held-to-maturity
            
Amortization of unrealized gains (losses)
   (121)   (42)   Interest income
    31   11   Applicable income taxes
    (90)   (31)   Net-of-tax
Unrealized gains (losses) on derivative hedges
            
Realized gains (losses) on derivative hedges
   (7)   (11)   Interest expense
    
1

   3   Applicable income taxes
    (6)   (8)   Net-of-tax
Unrealized gains (losses) on retirement plans
            
Actuarial gains (losses) and prior service cost (credit) amortization
   2   (32)   Other noninterest expense
    —   8   Applicable income taxes
    2   (24)   Net-of-tax
Total impact to net income
  $(118)  $(50)    
 
54
 U.S. Bancorp
 Note 10
 
   Earnings Per Share
The components of earnings per share were:
 
   Three Months Ended
March 31		 
(Dollars and Shares in Millions, Except Per Share Data)  2023  2022 
Net income attributable to U.S. Bancorp
  $1,698  $1,557 
Preferred dividends
   (98)   (84) 
Earnings allocated to participating stock awards
   (8)   (7) 
Net income applicable to U.S. Bancorp common shareholders
  $1,592  $1,466 
Average common shares outstanding
   1,532   1,485 
Net effect of the exercise and assumed purchase of stock awards
   —   1 
Average diluted common shares outstanding
   1,532   1,486 
Earnings per common share
  $1.04  $.99 
Diluted earnings per common share
  $1.04  $.99 
 
Options outstanding at March 31, 2023 to purchase 1 
million common shares were not included in the computation of diluted earnings per share for the three months ended March 31, 2023 because they were antidilutive.
 
 Note 11
 
   Employee Benefits
The components of net periodic benefit cost for the Company’s retirement plans were:
 
  Three Months Ended March 31 
  Pension Plans      Postretirement
Welfare Plans		 
(Dollars in Millions) 2023  2022      2023  2022 
Service cost
 $56  $69      $—  $— 
Interest cost
  93   61       1   — 
Expected return on plan assets
  (137)   (119)       (1)   — 
Prior service cost (credit) amortization
  —   (1)       (1)   — 
Actuarial loss (gain) amortization
  1   35       (2)   (2) 
Net periodic benefit cost (a)
 $13  $45      $(3)  $(2) 
 
(a)
Service cost is included in compensation and employee benefits expense on the Consolidated Statement of Income. All other components are included in other noninterest expense on the Consolidated Statement of Income.
 
Note 12
 
   Income Taxes
The components of income tax expense were:
 
   Three Months Ended
March 31		 
(Dollars in Millions)      2023      2022 
Federal
         
Current
  $397  $404 
   
Deferred
   (32)   (102) 
Federal income tax
   365   302 
State
         
Current
   96   89 
   
Deferred
   (6)   6 
   
State income tax
   90   95 
Total income tax provision
  $455  $397 
 
U.S. Bancorp 
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A reconciliation of expected income tax expense at the federal statutory rate of 21 percent to the Company’s applicable income tax expense follows:
 
   Three Months Ended
March 31		 
(Dollars in Millions)      2023      2022 
Tax at statutory rate
  $453  $411 
State income tax, at statutory rates, net of federal tax benefit
   102   84 
Tax effect of
         
Tax credits and benefits, net of related expenses
   (77)   (106) 
Tax-exempt income
   (34)   (28) 
Other items
   11   36 
Applicable income taxes
  $455  $397 
The Company’s income tax returns are subject to review and examination by federal, state, local and foreign government authorities. On an ongoing basis, numerous federal, state, local and foreign examinations are in progress and cover multiple tax years. As of March 31, 2023, federal tax examinations for all years ending through December 31, 2014 are completed and resolved. The Company’s tax returns for the years ended December 31, 2015 through December 31, 2020 are under examination by the Internal Revenue Service. The years open to examination by foreign, state and local government authorities vary by jurisdiction.
The Company’s net deferred tax asset was $6.0 billion at March 31, 2023 and $6.3 billion at December 31, 2022.
 
 Note  13
 
   Derivative Instruments
In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value in other assets or in other liabilities. On the date the Company enters into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, net investment hedge, or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations (“free-standing derivative”). When a derivative is designated as a fair value, cash flow or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).
Fair Value Hedges
These derivatives are interest rate swaps the Company uses to hedge the change in fair value related to interest rate changes of its underlying available-for-sale investment securities and fixed-rate debt. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings.
Cash Flow Hedges
These derivatives are interest rate swaps the Company uses to hedge the forecasted cash flows from its underlying variable-rate loans and debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within other comprehensive income (loss). At March 31, 2023, the Company had $43 million (net-of-tax) of realized and unrealized gains on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared with $114 million (net-of-tax) of realized and unrealized losses at December 31, 2022. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the next 12 months is a
gain
 of $31 million (net-of-tax). All cash flow hedges were highly effective for the three months ended March 31, 2023.
Net Investment Hedges
 The Company uses forward commitments to sell specified amounts of certain foreign currencies, and non-derivative debt instruments, to hedge the volatility of its net investment in foreign operations driven by fluctuations in foreign currency exchange rates. The carrying amount of non-derivative debt instruments designated as net investment hedges was $1.3 billion at March 31, 2023 and December 31, 2022.
 
 
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 U.S. Bancorp
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Other Derivative Positions
 The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell to-be-announced securities (“TBAs”) and other commitments to sell residential mortgage loans, which are used to economically hedge the interest rate risk related to mortgage loans held for sale (“MLHFS”) and unfunded mortgage loan commitments. The Company also enters into interest rate swaps, swaptions, forward commitments to buy TBAs, U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to economically hedge the change in the fair value of the Company’s MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. The Company mitigates the market and liquidity risk associated with these customer derivatives by entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or non-derivative financial instruments that partially or fully offset the exposure to earnings from these customer-related positions. The Company’s customer derivatives and related hedges are monitored and reviewed by the Company’s Market Risk Committee, which establishes policies for market risk management, including exposure limits for each portfolio. The Company also has derivative contracts that are created through its operations, including certain unfunded mortgage loan commitments and swap agreements related to the sale of a portion of its Class B common and preferred shares of Visa Inc. Refer to Note 15 for further information on these swap agreements. The Company may use credit derivatives economically to hedge credit risk.
The following table summarizes the asset and liability management derivative positions of the Company:
 
  March 31, 2023        December 31, 2022 
  
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   $—   $—        $17,400   $—   $9 
Pay fixed/receive floating swaps
  13,564    —    —         5,542    —    — 
Cash flow hedges
                                  
Interest rate contracts
                                  
Receive fixed/pay floating swaps
  18,800    —    —         14,300    —    — 
Net investment hedges
                                  
Foreign exchange forward contracts
  784    —    9         778    —    — 
Other economic hedges
                                  
Interest rate contracts
                                  
Futures and forwards
                                  
Buy
  8,120    29    15         3,546    10    18 
Sell
  6,891    12    32         7,522    20    38 
Options
                                  
Purchased
  14,109    344    —         11,434    346    — 
Written
  10,295    20    159         7,849    7    148 
Receive fixed/pay floating swaps
  8,504    1    —         9,215    —    3 
Pay fixed/receive floating swaps
  9,190    —    —         9,616    —    — 
Foreign exchange forward contracts
  1,124    2    7         962    2    6 
Equity contracts
  361    6    7         361    —    10 
Credit contracts
  375    
1

    —         330    —    — 
Other (a)
  2,140    12    158         1,908    11    190 
Total
 $  111,657   $   427   $   387        $90,763   $   396   $422 
 
(a)
Includes derivative liability swap agreements related to the sale of a portion of the Company’s Class B common and preferred shares of Visa Inc. The Visa swap agreements had a total notional value and fair value of $1.8 billion and $157 million at March 31, 2023, respectively, compared to $1.8 billion and $190 million at December 31, 2022, respectively. In addition, includes short-term underwriting purchase and sale commitments with total notional values of $250 million at March 31, 2023, and $13 million at December 31, 2022.
 
U.S. Bancorp 
57
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The following table summarizes the customer-related derivative positions of the Company:
 
  March 31, 2023        December 31, 2022 
  
Notional
Value
   Fair Value        
Notional
Value
   Fair Value 
(Dollars in Millions)  Assets   Liabilities        Assets   Liabilities 
Interest rate contracts
                                  
Receive fixed/pay floating swaps
 $314,593   $576   $4,527        $301,690   $309   $5,689 
Pay fixed/receive floating swaps
  325,360    2,005    329         316,133    2,323    206 
Other (a)
  53,267    3    32         40,261    3    16 
Options
                                  
Purchased
  113,374    1,551    9         103,489    1,794    5 
Written
  111,689    12    1,545         99,923    6    1,779 
Futures
                                  
Buy
  417    —    —         3,623    —    4 
Sell
  —    —    —         2,376    8    — 
Foreign exchange rate contracts
                                  
Forwards, spots and swaps
  129,301    2,638    2,196         134,666    3,010    2,548 
Options
                                  
Purchased
  1,211    28    —         954    22    — 
Written
  1,211    —    28         954    —    22 
Credit contracts
  11,066    1    8         10,765    1    8 
Total
 $1,061,489   $6,814   $8,674        $1,014,834   $7,476   $10,277 
 
(a)
Primarily represents floating rate interest rate swaps that pay based on differentials between specified interest rate indexes.
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains (losses) reclassified from other comprehensive income (loss) into earnings (net-of-tax) for the three months ended March 31:
 
   
Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
       Gains (Losses)
Reclassified
from Other
Comprehensive
Income (Loss)
into Earnings		 
(Dollars in Millions)  2023  2022       2023  2022 
Asset and Liability Management Positions
                      
Cash flow hedges
                      
Interest rate contracts
  $151  $—       $(6)  $(8) 
Net investment hedges
                      
Foreign exchange forward contracts
   (3)   (1)        —   — 
Non-derivative debt instruments
   (18)   20        —   — 
 
Note:
The Company does not exclude components from effectiveness testing for cash flow and net investment hedges.
The table below shows the effect of fair value and cash flow hedge accounting on the Consolidated Statement of Income for the three months ended March 31:
 
   Interest Income       Interest Expense 
(Dollars in Millions)  2023  2022       2023  2022 
Total amount of income and expense line items presented in the Consolidated Statement of Income in which the effects of fair value or cash flow hedges are recorded
  $6,964  $3,418       $2,330  $245 
      
Asset and Liability Management Positions
                      
Fair value hedges
                      
Interest rate contract derivatives
   (178)   517        (114)   72 
Hedged items
   174   (518)        114   (71) 
Cash flow hedges
                      
Interest rate contract derivatives
   —   —        7   11 
 
Note:
The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $7 million and $11 million into earnings during the three months ended March 31, 2023 and 2022, respectively, as a result of realized cash flows on discontinued cash flow hedges. No amounts were reclassified into earnings on discontinued cash flow hedges because it is probable the original hedged forecasted cash flows will not occur.
 
58
 U.S. Bancorp
The table below shows cumulative hedging adjustments and the carrying amount of assets and liabilities designated in fair value hedges:
 
  Carrying Amount of the Hedged Assets
and Liabilities		        Cumulative Hedging Adjustment (a) 
(Dollars in Millions) March 31, 2023  December 31, 2022        March 31, 2023  December 31, 2022 
Line Item in the Consolidated Balance Sheet
                      
Available-for-sale investment securities
 $13,065  $4,937        $(365)  $(552) 
Long-term debt
  16,644   17,190         (61)   (142) 
 
(a)
The cumulative hedging adjustment related to discontinued hedging relationships on available-for-sale investment securities and long-term debt was $(379
)
million and $366 million, respectively, at March 31, 2023, compared with $(392) million and $399 million at December 31, 2022, respectively.
The table below shows the gains (losses) recognized in earnings for other economic hedges and the customer-related positions for the three months ended March 31:
 
  
Location of Gains (Losses)
Recognized in Earnings
     
(Dollars in Millions)      2023      2022 
Asset and Liability Management Positions
             
Other economic hedges
             
Interest rate contracts
             
Futures and forwards
  Mortgage banking revenue   $7  $223 
Purchased and written options
  Mortgage banking revenue    (2)   (47) 
Swaps
  Mortgage banking revenue    58   (204) 
Foreign exchange forward contracts
  Other noninterest income    (5)   (3) 
Equity contracts
  Compensation expense    (3)   (2) 
Other
  Other noninterest income    (2)   (1) 
Customer-Related Positions
             
Interest rate contracts
             
Swaps
  Commercial products revenue    52   17 
Purchased and written options
  Commercial products revenue    —   4 
Futures
  Commercial products revenue    (1)   16 
Foreign exchange rate contracts
             
Forwards, spots and swaps
  Commercial products revenue    28   15 
Credit contracts
  Commercial products revenue    —   5 
Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk using a credit valuation adjustment and includes it within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into derivative positions that are centrally cleared through clearinghouses, by entering into master netting arrangements and, where possible, by requiring collateral arrangements. A master netting arrangement allows two counterparties, who have multiple derivative contracts with each other, the ability to net settle amounts under all contracts, including any related collateral, through a single payment and in a single currency. Collateral arrangements generally require the counterparty to deliver collateral (typically cash or U.S. Treasury and agency securities) equal to the Company’s net derivative receivable, subject to minimum transfer and credit rating requirements.
The Company’s collateral arrangements are predominately bilateral and, therefore, contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on net liability thresholds and may be contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral arrangements, the counterparties to the derivatives could request immediate additional collateral coverage up to and including full collateral coverage for derivatives in a net liability position. The aggregate fair value of all derivatives under collateral arrangements that were in a net liability position at March 31, 2023, was $2.2 billion. At March 31, 2023, the Company had $1.8 billion of cash posted as collateral against this net liability position.
 
 
Note 14
 Netting Arrangements for Certain Financial Instruments and Securities Financing Activities
    
The Company’s derivative portfolio consists of bilateral over-the-counter trades, certain interest rate derivatives and credit contracts required to be centrally cleared through clearinghouses per current regulations, and exchange-traded positions which may include U.S. Treasury and Eurodollar futures or options on U.S. Treasury futures. Of the
 
U.S. Bancorp 
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Company’s $
1.2
trillion total notional amount of derivative positions at March 31, 2023, $
575.6
 billion related to bilateral over-the-counter trades, $
595.8
 billion related to those centrally cleared through clearinghouses and $
1.8
 billion related to those that were exchange-traded. The Company’s derivative contracts typically include offsetting rights (referred to as netting arrangements), and depending on expected volume, credit risk, and counterparty preference, collateral maintenance may be required. For all derivatives under collateral support arrangements, fair value is determined daily and, depending on the collateral maintenance requirements, the Company and a counterparty may receive or deliver collateral, based upon the net fair value of all derivative positions between the Company and the counterparty. Collateral is typically cash, but securities may be allowed under collateral arrangements with certain counterparties. Receivables and payables related to cash collateral are included in other assets and other liabilities on the Consolidated Balance Sheet, along with the related derivative asset and liability fair values. Any securities pledged to counterparties as collateral remain on the Consolidated Balance Sheet. Securities received from counterparties as collateral are not recognized on the Consolidated Balance Sheet, unless the counterparty defaults. In general, securities used as collateral can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Refer to Note 13 for further discussion of the Company’s derivatives, including collateral arrangements.
As part of the Company’s treasury and broker-dealer operations, the Company executes transactions that are treated as securities sold under agreements to repurchase or securities purchased under agreements to resell, both of which are accounted for as collateralized financings. Securities sold under agreements to repurchase include repurchase agreements and securities loaned transactions. Securities purchased under agreements to resell include reverse repurchase agreements and securities borrowed transactions. For securities sold under agreements to repurchase, the Company records a liability for the cash received, which is included in short-term borrowings on the Consolidated Balance Sheet. For securities purchased under agreements to resell, the Company records a receivable for the cash paid, which is included in other assets on the Consolidated Balance Sheet.
Securities transferred to counterparties under repurchase agreements and securities loaned transactions continue to be recognized on the Consolidated Balance Sheet, are measured at fair value, and are included in investment securities or other assets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Consolidated Balance Sheet unless the counterparty defaults. The securities transferred under repurchase and reverse repurchase transactions typically are U.S. Treasury and agency securities, residential agency mortgage-backed securities or corporate debt securities. The securities loaned or borrowed typically are corporate debt securities traded by the Company’s broker-dealer subsidiary. In general, the securities transferred can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Repurchase/reverse repurchase and securities loaned/borrowed transactions expose the Company to counterparty risk. The Company manages this risk by performing assessments, independent of business line managers, and establishing concentration limits on each counterparty. Additionally, these transactions include collateral arrangements that require the fair values of the underlying securities to be determined daily, resulting in cash being obtained or refunded to counterparties to maintain specified collateral
levels.
 
 
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The following table summarizes the maturities by category of collateral pledged for repurchase agreements and securities loaned transactions:
 
(Dollars in Millions) Overnight and
Continuous		   Less Than
30 Days		   30-89
Days		   Greater Than
90 Days		   Total 
March 31, 2023
                        
Repurchase agreements
                        
U.S. Treasury and agencies
 
$

1,538    $—    $—    $—   $1,538 
Residential agency mortgage-backed securities
  593    —    —    —    593 
Corporate debt securities
  1,011    —    —    —    1,011 
Total repurchase agreements
  3,142    —    —    —    3,142 
Securities loaned
                        
Corporate debt securities
  203    —    —    —    203 
Total securities loaned
  203    —    —    —    203 
Gross amount of recognized liabilities
 $3,345    $—   $—    $—   $3,345 
December 31, 2022
                        
Repurchase agreements
                        
U.S. Treasury and agencies
 $147    $—    $ —    $—   $147 
Residential agency mortgage-backed securities
  846    —    —    —    846 
Corporate debt securities
  439    —    —    —    439 
Total repurchase agreements
  1,432    —    —    —    1,432 
Securities loaned
                        
Corporate debt securities
  120    —    —    —    120 
Total securities loaned
  120    —    —    —    120 
Gross amount of recognized liabilities
 $1,552    $—    $—    $—   $1,552 
The Company executes its derivative, repurchase/reverse repurchase and securities loaned/borrowed transactions under the respective industry standard agreements. These agreements include master netting arrangements that allow for multiple contracts executed with the same counterparty to be viewed as a single arrangement. This allows for net settlement of a single amount on a daily basis. In the event of default, the master netting arrangement provides for close-out netting, which allows all of these positions with the defaulting counterparty to be terminated and net settled with a single payment amount.
The Company has elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of the majority of its derivative counterparties. The netting occurs at the counterparty level, and includes all assets and liabilities related to the derivative contracts, including those associated with cash collateral received or delivered. The Company has not elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of repurchase/reverse repurchase and securities loaned/borrowed transactions.
The following tables provide information on the Company’s netting adjustments, and items not offset on the Consolidated Balance Sheet but available for offset in the event of default:
 
(Dollars in Millions) Gross
Recognized
Assets		   Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)		  Net Amounts
Presented on the
Consolidated
Balance Sheet		   Gross Amounts Not Offset on the
Consolidated Balance Sheet		  Net Amount 
  Financial
Instruments (b)		  Collateral
Received (c)		 
March 31, 2023
                          
Derivative assets (d)
 $7,204   $(4,261)  $2,943   $(182)  $(1)  $2,760 
Reverse repurchase agreements
  1,639    —   1,639    (473)   (1,166)   — 
Securities borrowed
  1,760    —   1,760    —   (1,712)   48 
Total
 $10,603   $(4,261)  $6,342   $(655)  $(2,879)  $2,808 
December 31, 2022
                          
Derivative assets (d)
 $7,852   $(5,427)  $2,425   $(231)  $(80)  $2,114 
Reverse repurchase agreements
  107    —   107    (102)   (5)   — 
Securities borrowed
  1,606    —   1,606    —   (1,548)   58 
Total
 $9,565   $(5,427)  $4,138   $(333)  $(1,633)  $2,172 
 
(a)
Includes $2.2 billion and $3.0 billion of cash collateral related payables that were netted against derivative assets at March 31, 2023 and December 31, 2022, respectively.
(b)
For derivative assets this includes any derivative liability fair values that could be offset in the event of counterparty default; for reverse repurchase agreements this includes any repurchase agreement payables that could be offset in the event of counterparty default; for securities borrowed this includes any securities loaned payables that could be offset in the event of counterparty default.
(c)
Includes the fair value of securities received by the Company from the counterparty. These securities are not included on the Consolidated Balance Sheet unless the counterparty defaults.
(d)
Excludes $37 million and $20 million at March 31, 2023 and December 31, 2022, respectively, of derivative assets not subject to netting arrangements.
 
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(Dollars in Millions) Gross
Recognized
Liabilities		   Gross Amounts
Offset on the
Consolidated
Balance Sheet (a)		  Net Amounts
Presented on the
Consolidated
Balance Sheet		   Gross Amounts Not Offset on the
Consolidated Balance Sheet		  Net Amount 
  Financial
Instruments (b)		  Collateral
Pledged (c)		 
March 31, 2023
                          
Derivative liabilities (d)
 $8,902   $(3,810)  $5,092   $(182)  $—  $4,910 
Repurchase agreements
  3,142    —   3,142    (473)   (2,669)   — 
Securities loaned
  203    —   203    —   (200)   3 
Total
 $12,247   $(3,810)  $8,437   $(655)  $(2,869)  $4,913 
December 31, 2022
                          
Derivative liabilities (d)
 $10,506   $(4,551)  $5,955   $(231)  $—  $5,724 
Repurchase agreements
  1,432    —   1,432    (102)   (1,325)   5 
Securities loaned
  120    —   120    —   (118)   2 
Total
 $12,058   $(4,551)  $7,507   $(333)  $(1,443)  $5,731 
 
(a)
Includes $1.8 billion and $2.1 billion of cash collateral related receivables that were netted against derivative liabilities at March 31, 2023 and December 31, 2022, respectively.
(b)
For derivative liabilities this includes any derivative asset fair values that could be offset in the event of counterparty default; for repurchase agreements this includes any reverse repurchase agreement receivables that could be offset in the event of counterparty default; for securities loaned this includes any securities borrowed receivables that could be offset in the event of counterparty default.
(c)
Includes the fair value of securities pledged by the Company to the counterparty. These securities are included on the Consolidated Balance Sheet unless the Company defaults.
(d)
Excludes $159 million and $193 million at March 31, 2023 and December 31, 2022, respectively, of derivative liabilities not subject to netting arrangements.
 
 Note 15
    Fair Values of Assets and Liabilities
The Company uses fair value measurements for the initial recording of certain assets and liabilities, periodic remeasurement of certain assets and liabilities, and disclosures. Derivatives, trading and available-for-sale investment securities, MSRs and substantially all MLHFS are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-fair value accounting or impairment write-downs of individual assets. Other financial instruments, such as held-to-maturity investment securities, loans, time deposits, short-term borrowings and long-term debt, are accounted for at amortized cost. See “Fair Value of Financial Instruments” in this Note for further information on the estimated fair value of these other financial instruments. In accordance with disclosure guidance, certain financial instruments, such as deposits with no defined or contractual maturity, receivables and payables due in one year or less, insurance contracts and equity investments not accounted for at fair value, are excluded from this Note.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance.
The Company groups its assets and liabilities measured at fair value into a three-level hierarchy for valuation techniques used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
 • 
Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 1 includes U.S. Treasury securities, as well as exchange-traded instruments.
 • 
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 includes debt securities that are traded less frequently than exchange-traded instruments and which are typically valued using third party pricing services; derivative contracts and other assets and liabilities, including securities, whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data; and MLHFS whose values are determined using quoted prices for similar assets or pricing models with inputs that are observable in the market or can be corroborated by observable market data.
 • 
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes MSRs and certain derivative contracts.
 
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Valuation Methodologies
The valuation methodologies used by the Company to measure financial assets and liabilities at fair value are described below. In addition, the following section includes an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Where appropriate, the descriptions include information about the valuation models and key inputs to those models. During the three months ended March 31, 2023 and 2022, 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 were net losses of $3 million and $234 million for the three months ended March 31, 2023 and 2022, respectively, from the changes to fair value of these MLHFS under fair value option accounting guidance. Changes in fair value due to instrument specific credit risk were immaterial. Interest income for MLHFS is measured based on contractual interest rates and reported as interest income on the Consolidated Statement of Income. Electing to measure MLHFS at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.
Mortgage Servicing Rights
 MSRs are valued using a discounted cash flow methodology, and are classified within Level 3. The Company determines fair value of the MSRs by projecting future cash flows for different interest rate scenarios using prepayment rates and other assumptions, and discounts these cash flows using a risk adjusted rate based on option adjusted spread levels. There is minimal observable market activity for MSRs on comparable portfolios and, therefore, the determination of fair value requires significant management judgment. Refer to Note 7 for further information on MSR valuation assumptions.
Derivatives
The majority of derivatives held by the Company are executed over-the-counter or centrally cleared through clearinghouses and are valued using market standard cash flow valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. All derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Company’s evaluation of credit risk including external assessments of credit risk. The Company monitors and manages its nonperformance risk by considering its ability to net derivative positions under master netting arrangements, as well as collateral received or provided under collateral arrangements. Accordingly, the Company has elected to measure the fair value of derivatives, at a counterparty level, on a net basis. The majority of the derivatives are classified within Level 2 of the fair value hierarchy, as the significant inputs to the models, including nonperformance risk, are observable. However, certain derivative transactions are with counterparties where risk of nonperformance cannot be observed in the market and, therefore, the credit valuation adjustments result in these derivatives being classified within Level 3 of the fair value hierarchy.
The Company also has other derivative contracts that are created through its operations, including commitments to purchase and originate mortgage loans and swap agreements executed in conjunction with the sale of a portion of its Class B common and preferred shares of Visa Inc. (the “Visa swaps”). The mortgage loan commitments are valued by pricing models that include market observable and unobservable inputs, which result in the commitments being classified within Level 3 of the fair value hierarchy. The unobservable inputs include assumptions about the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value.
 
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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 March 31, 2023:
 
   Minimum  Maximum  Weighted-
Average (a)		 
Expected prepayment
  6%   20%   9% 
Option adjusted spread
  5   11   6 
 
(a)
Determined based on the relative fair value of the related mortgage loans serviced.
Derivatives
The Company has two distinct Level 3 derivative portfolios: (i) the Company’s commitments to purchase and originate mortgage loans that meet the requirements of a derivative and (ii) the Company’s asset/liability and customer-related derivatives that are Level 3 due to unobservable inputs related to measurement of risk of nonperformance by the counterparty. In addition, the Company’s Visa swaps are classified within Level 3.
The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to purchase and originate mortgage loans are the percentage of commitments that actually become a closed loan and the MSR value that is inherent in the underlying loan value. A significant increase in the rate of loans that close would have resulted in a larger derivative asset or liability. A significant increase in the inherent MSR value would have resulted in an increase in the derivative asset or a reduction in the derivative liability. Expected loan close rates and the inherent MSR values are directly impacted by changes in market rates and will generally move in the same direction as interest rates.
The following table shows the significant valuation assumption ranges for the Company’s derivative commitments to purchase and originate mortgage loans at March 31, 2023:
 
   Minimum  Maximum  Weighted-
Average (a)		 
Expected loan close rate
  1%   100%   76% 
Inherent MSR value (basis points per loan)
  21   178   100 
 
(a)
Determined based on the relative fair value of the related mortgage loans.
The significant unobservable input used in the fair value measurement of certain of the Company’s asset/liability and customer-related derivatives is the credit valuation adjustment related to the risk of counterparty nonperformance.
 
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A significant increase in the credit valuation adjustment would have resulted in a lower fair value measurement. A significant decrease in the credit valuation adjustment would have resulted in a higher fair value measurement. The credit valuation adjustment is impacted by changes in market rates, volatility, market implied credit spreads, and loss recovery rates, as well as the Company’s assessment of the counterparty’s credit position. At March 31, 2023, the minimum, maximum and weighted-average credit valuation adjustment as a percentage of the net fair value of the counterparty’s derivative contracts prior to adjustment was 0 percent, 1,210 percent and 2 percent, respectively.
The significant unobservable inputs used in the fair value measurement of the Visa swaps are management’s estimate of the probability of certain litigation scenarios occurring, and the timing of the resolution of the related litigation loss estimates in excess, or shortfall, of the Company’s proportional share of escrow funds. An increase in the loss estimate or a delay in the resolution of the related litigation would have resulted in an increase in the derivative liability. A decrease in the loss estimate or an acceleration of the resolution of the related litigation would have resulted in a decrease in the derivative liability.
The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:
 
(Dollars in Millions) Level 1   Level 2   Level 3   Netting  Total 
March 31, 2023
                       
Available-for-sale securities
                       
U.S. Treasury and agencies
 $12,539   $5,515   $
 
—   $—  $18,054 
Mortgage-backed securities
                       
Residential agency
  —    26,145    —    —   26,145 
Commercial
                       
Agency
  —    7,300    —    —   7,300 
Non-agency
  —    7    —    —   7 
Asset-backed securities
  —    3,807    —    —   3,807 
Obligations of state and political subdivisions
  —    10,173    1    —   10,174 
Other
  —    4    —    —   4 
Total available-for-sale
  12,539    52,951    1    —   65,491 
Mortgage loans held for sale
  —    1,990    —    —   1,990 
Mortgage servicing rights
  —    —    3,724    —   3,724 
Derivative assets
  3    5,954    1,284    (4,261)  2,980 
Other assets
  296    2,087    —    —   2,383 
Total
 $12,838   $62,982   $5,009   $(4,261) $76,568 
Derivative liabilities
 $—   $5,512   $3,549   $(3,810)  $5,251 
Short-term borrowings and other liabilities (a)
  334    1,723    —    —   2,057 
Total
 $334   $7,235   $3,549   $(3,810)  $7,308 
December 31, 2022
                       
Available-for-sale securities
                       
U.S. Treasury and agencies
 $13,723   $8,310   $—   $—  $22,033 
Mortgage-backed securities
                       
Residential agency
  —    29,271    —    —   29,271 
Commercial
                       
Agency
  —    7,145    —    —   7,145 
Non-agency
  —    7    —    —   7 
Asset-backed securities
  —    4,323    —    —   4,323 
Obligations of state and political subdivisions
  —    10,124    1    —   10,125 
Other
  —    6    —    —   6 
Total available-for-sale
  13,723    59,186    1    —   72,910 
Mortgage loans held for sale
  —    1,849    —    —   1,849 
Mortgage servicing rights
  —    —    3,755    —   3,755 
Derivative assets
  9    6,608    1,255    (5,427)   2,445 
Other assets
  248    1,756    —    —   2,004 
Total
 $13,980   $69,399   $5,011   $(5,427)  $82,963 
Derivative liabilities
 $4   $6,241   $4,454   $(4,551)  $6,148 
Short-term borrowings and other liabilities (a)
  125    1,564    —    —   1,689 
Total
 $129   $7,805   $4,454   $(4,551)  $7,837 
 
Note:
Excluded from the table above are equity investments without readily determinable fair values. The Company has elected to carry these investments at historical cost, adjusted for impairment and any changes resulting from observable price changes for identical or similar investments of the issuer. The aggregate carrying amount of these equity investments was $106 million and $104 million at March 31, 2023 and December 31, 2022, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first three months of 2023 and 2022, or on a cumulative basis.
(a)
Primarily represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
 
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The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31:
 
(Dollars in Millions)
 
Beginning
of Period
Balance
 
 
Net Gains
(Losses)
Included in
Net Income
 
 
Purchases
 
 
Sales
 
 
Issuances
 
 
Settlements
 
 
End
of Period
Balance
 
 
Net Change
in Unrealized
Gains (Losses)
Relating to
Assets and
Liabilities
Held at End
of Period
 
2023
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Available-for-sale securities
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Obligations of state and political subdivisions
 
$
1
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
1
 
 
$
—
 
Total available-for-sale
 
 
1
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
1
 
 
 
—
 
Mortgage servicing rights
 
 
3,755
 
 
 
(129
) (a) 
 
 
1
 
 
 
1
 
 
 
96
 (c) 
 
 
—
 
 
 
3,724
 
 
 
(129
) (a) 
Net derivative assets and liabilities
 
 
(3,199
) 
 
 
(316
) (b) 
 
 
423
 
 
 
(12
) 
 
 
—
 
 
 
839
 
 
 
(2,265
) 
 
 
529
  (d) 
         
2022
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Available-for-sale securities
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Asset-backed securities
 
$
7
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
 
$
7
 
 
$
—
 
Obligations of state and political subdivisions
 
 
1
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
1
 
 
 
—
 
Total available-for-sale
 
 
8
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
8
 
 
 
—
 
Mortgage servicing rights
 
 
2,953
 
 
 
238
  (a) 
 
 
3
 
 
 
1
 
 
 
237
 (c) 
 
 
—
 
 
 
3,432
 
 
 
238
  (a) 
         
Net derivative assets and liabilities
 
 
799
 
 
 
(1,867
) (e) 
 
 
11
 
 
 
(1
) 
 
 
—
 
 
 
47
 
 
 
(1,011
) 
 
 
(1,697
) (f) 
 
(a)
Included in mortgage banking revenue.
(b)
Approximately $
51
million, $
(365)
million and $
(2)
 
million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(c)
Represents MSRs capitalized during the period.
(d)
Approximately $
22
million, $
509
m
illion and $
(2)
million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(e)
Approximately $(83) million, $(1.8) billion and $(1) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.
(f)
Approximately $(24) million, $(1.7) billion 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.
The following table summarizes the balances as of the measurement date of assets measured at fair value on a nonrecurring basis, and still held as of the reporting date:
 
  March 31, 2023   December 31, 2022 
(Dollars in Millions) Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 
         
Loans (a)
 $—   $—   $107   $107   $—   $—   $97   $97 
         
Other assets (b)
  —    —    2    2    —    —    21    21 
 
(a)
Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully charged-off.
(b)
Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.
The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios for the three months ended March 31:
 
(Dollars in Millions)     2023       2022 
   
Loans (a)
 $142   $11 
   
Other assets (b)
  1    1 
 
(a)
Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully charged-off.
(b)
Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.
 
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Fair Value Option
The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:
 
  March 31, 2023        December 31, 2022 
(Dollars in Millions) Fair
Value
Carrying
Amount		   Aggregate
Unpaid
Principal		   Carrying
Amount Over
(Under) Unpaid
Principal		        Fair
Value
Carrying
Amount		   Aggregate
Unpaid
Principal		   Carrying
Amount Over
(Under) Unpaid
Principal		 
Total loans
 $1,990   $1,988   $2        $1,849   $1,848   $1 
Nonaccrual loans
  1    1    —         1    1    — 
Loans 90 days or more past due
  2    2    —         1    1    — 
Fair Value of Financial Instruments
The following section summarizes the estimated fair value for financial instruments accounted for at amortized cost as of March 31, 2023 and December 31, 2022. In accordance with disclosure guidance related to fair values of financial instruments, the Company did not include assets and liabilities that are not financial instruments, such as the value of goodwill, long-term relationships with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities. Additionally, in accordance with the disclosure guidance, receivables and payables due in one year or less, insurance contracts, equity investments not accounted for at fair value, and deposits with no defined or contractual maturities are excluded.
The estimated fair values of the Company’s financial instruments are shown in the table below:
 
  March 31, 2023  December 31, 2022 
  
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
 $67,228      $67,228  $—  $—  $67,228      $53,542      $53,542  $—  $—  $53,542 
Federal funds sold and securities purchased under resale agreements
  1,698       —   1,698   —   1,698       356       —   356   —   356 
Investment securities held-to-maturity
  88,462       1,307   77,569   —   78,876       88,740       1,293   76,581   —   77,874 
Loans held for sale (a)
  391       —   —   391   391       351       —   —   351   351 
Loans
  380,846       —   —   372,857   372,857       381,277       —   —   368,874   368,874 
Other (b)
  3,894       —   3,143   751   3,894       2,962       —   2,224   738   2,962 
Financial Liabilities
                                                    
Time deposits
  37,515       —   37,264    —   37,264       32,946       —   32,338   —   32,338 
Short-term borrowings (c)
  54,818       —   54,418   —   54,418       29,527       —   29,145   —   29,145 
Long-term debt
  42,045       —   39,960   —   39,960       39,829       —   37,622   —   37,622 
Other (d)
  5,351       —   1,461   3,890   5,351       5,137       —   1,500   3,637   5,137 
 
(a)
Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.
(b)
Includes investments in Federal Reserve Bank and Federal Home Loan Bank stock and tax-advantaged investments.
(c)
Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.
(d)
Includes operating lease liabilities and liabilities related to tax-advantaged investments.
The fair value of unfunded commitments, deferred non-yield related loan fees, standby letters of credit and other guarantees is approximately equal to their carrying value. The carrying value of unfunded commitments, deferred non-yield related loan fees and standby letters of credit was $536 million and $498 million at March 31, 2023 and December 31, 2022, respectively. The carrying value of other guarantees was $255 million and $241 million at March 31, 2023 and December 31, 2022, respectively.
 
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 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.
Other Guarantees and Contingent Liabilities
The following table is a summary of other guarantees and contingent liabilities of the Company at March 31, 2023:
 
(Dollars in Millions) Collateral
Held		   Carrying
Amount		   Maximum
Potential
Future
Payments		 
Standby letters of credit
 $—   $21   $10,699 
Third party borrowing arrangements
  —    —    11 
Securities lending indemnifications
  9,778    —    9,679 
Asset sales
  —    100    8,221 (a) 
Merchant processing
  930    134    136,979 
Tender option bond program guarantee
  1,308    —    1,280 
Other
  —    21    2,005 
 
(a)
The maximum potential future payments do not include loan sales where the Company provides standard representation and warranties to the buyer against losses related to loan underwriting documentation defects that may have existed at the time of sale that generally are identified after the occurrence of a triggering event such as delinquency. For these types of loan sales, the maximum potential future payments is generally the unpaid principal balance of loans sold measured at the end of the current reporting period. Actual losses will be significantly less than the maximum exposure, as only a fraction of loans sold will have a representation and warranty breach, and any losses on repurchase would generally be mitigated by any collateral held against the loans.
Merchant Processing
The Company, through its subsidiaries, provides merchant processing services. Under the rules of credit card associations, a merchant processor retains a contingent liability for credit card transactions processed. This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. In this situation, the transaction is “charged-back” to the merchant and the disputed amount is credited or otherwise refunded to the cardholder. If the Company is unable to collect this amount from the merchant, it bears the loss for the amount of the refund paid to the cardholder.
The Company currently processes card transactions in the United States, Canada and Europe through wholly-owned subsidiaries. In the event a merchant was unable to fulfill product or services subject to future delivery, such as airline tickets, the Company could become financially liable for refunding the purchase price of such products or services purchased through the credit card associations under the charge-back provisions. Charge-back risk related to these merchants is evaluated in a manner similar to credit risk assessments and, as such, merchant processing contracts contain various provisions to protect the Company in the event of default. At March 31, 2023, the value of airline
 
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tickets purchased to be delivered at a future date through card transactions processed by the Company was $11.2 billion. The Company held collateral of $777 million in escrow deposits, letters of credit and indemnities from financial institutions, and liens on various assets. In addition to specific collateral or other credit enhancements, the Company maintains a liability for its implied guarantees associated with future delivery. At March 31, 2023, the liability was $116 million primarily related to these airline processing arrangements.
Asset Sales
The Company regularly sells loans to GSEs as part of its mortgage banking activities. The Company provides customary representations and warranties to GSEs in conjunction with these sales. These representations and warranties generally require the Company to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Company is unable to cure or refute a repurchase request, the Company is generally obligated to repurchase the loan or otherwise reimburse the GSE for losses. At March 31, 2023, the Company had reserved $16 million for potential losses from representation and warranty obligations, compared with $17 million at December 31, 2022. The Company’s reserve reflects management’s best estimate of losses for representation and warranty obligations. The Company’s repurchase reserve is modeled at the loan level, taking into consideration the individual credit quality and borrower activity that has transpired since origination. The model applies credit quality and economic risk factors to derive a probability of default and potential repurchase that are based on the Company’s historical loss experience, and estimates loss severity based on expected collateral value. The Company also considers qualitative factors that may result in anticipated losses differing from historical loss trends.
As of March 31, 2023 and December 31, 2022, the Company had $36 million and $39 million, respectively, of unresolved representation and warranty claims from GSEs. The Company does not have a significant amount of unresolved claims from investors other than GSEs.
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 Litigatio
n
Starting in 2011, the Company and other large financial institutions have been sued in their capacity as trustee for residential mortgage–backed securities trusts for losses arising out of the 2008 financial crisis. In the lawsuits brought against the Company, the investors and a monoline insurer allege that the Company’s primary banking subsidiary, U.S. Bank National Association (“USBNA”), as trustee caused them to incur substantial losses by failing to enforce loan repurchase obligations and failing to abide by appropriate standards of care after events of default allegedly occurred. The plaintiffs in these matters seek monetary damages in unspecified amounts and most also seek equitable relief. 
Regulatory Matters
The Company is continually subject to examinations, inquiries and investigations in areas of heightened regulatory scrutiny, such as compliance, risk management, third-party risk management and consumer protection. For example, as part of an industry-wide inquiry, the Company’s broker-dealer and registered investment advisor subsidiaries received from the Securities and Exchange Commission a request for information concerning compliance with record retention requirements relating to electronic business communications. Also, the Consumer Financial Protection Bureau (“CFPB”) has been investigating the Company’s administration of unemployment insurance benefit prepaid debit cards during the pandemic timeframe and is considering a potential enforcement action. The Company is cooperating fully with all pending examinations, inquiries and investigations, any of which could lead to administrative or legal proceedings or settlements. Remedies in these proceedings or settlements may include fines, penalties, restitution or alterations in the Company’s business practices (which may increase the Company’s operating expenses and decrease its revenue).
 
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MUFG Union Bank Consent Order
The Company acquired MUB on December 1, 2022. Prior to the acquisition, on September 20, 2021, MUB entered into a consent order with the Office of the Comptroller of the Currency (the “OCC”) relating to deficiencies in MUB’s technology and operational risk management (the “MUB Consent Order”). Under the MUB Consent Order, the OCC found MUB to be in noncompliance with the Interagency Guidelines Establishing Information Security Standards and to have engaged in unsafe and unsound practices regarding technology and operational risk management.
The OCC’s conditional approval to merge MUB with and into USBNA (the “Bank Merger”) requires USBNA to succeed to the terms and obligations of the MUB Consent Order and comply with the other conditions described therein. The Bank Merger is expected to occur in connection with the conversion of MUB customers and systems to the USBNA platform over Memorial Day weekend in 2023. The Company’s losses, costs, expenses and damages relating to or resulting from the MUB Consent Order are indemnifiable by the seller, subject to the terms of the Share Purchase Agreement for the MUB acquisition.
Outlook
Due to their complex nature, it can be years before litigation and regulatory matters are resolved. The Company may be unable to develop an estimate or range of loss where matters are in early stages, there are significant factual or legal issues to be resolved, damages are unspecified or uncertain, or there is uncertainty as to a litigation class being certified or the outcome of pending motions, appeals or proceedings. For those litigation and regulatory matters where the Company has information to develop an estimate or range of loss, the Company believes the upper end of the range of reasonably possible losses in aggregate, in excess of any reserves established for matters where a loss is considered probable, will not be material to its financial condition, results of operations or cash flows. The Company’s estimates are subject to significant judgment and uncertainties, and the matters underlying the estimates will change from time to time. Actual results may vary significantly from the current estimates.
 
Note  17
 
   Business Segments
Within the Company, financial performance is measured by major lines of business based on the products and services provided to customers through its distribution channels. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance. The Company has five reportable operating segments:
Corporate and Commercial Banking
Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution, non-profit and public sector clients.
Consumer and Business Banking
Consumer and Business Banking comprises consumer banking, small business banking and consumer lending. Products and services are delivered through banking offices, telephone servicing and sales, on-line services, direct mail, ATM processing, mobile devices, distributed mortgage loan officers, and intermediary relationships including auto dealerships, mortgage banks, and strategic business partners.
Wealth Management and Investment Services
Wealth Management and Investment Services provides private banking, financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services.
Payment Services
Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services 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
 
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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 2023, certain organization and methodology changes were made and, accordingly, 2022 results were restated and presented on a comparable basis.
 
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Business segment results for the three months ended March 31 were as follows:
 
  Corporate and Commercial
Banking		       
Consumer and
Business Banking
       Wealth Management and
Investment Services		 
(Dollars in Millions) 2023  2022       2023  2022       2023   2022 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis)
 $1,081  $746       $2,315  $1,500       $488   $276 
Noninterest income
  309   247        397   454        700    595 
Total net revenue
  1,390   993        2,712   1,954        1,188    871 
Noninterest expense
  613   444        1,776   1,398        668    558 
Income (loss) before provision and income taxes
  777   549        936   556        520    313 
Provision for credit losses
  3   5        13   48        (12)    8 
Income (loss) before income taxes
  774   544        923   508        532    305 
Income taxes and taxable-equivalent adjustment
  194   136        231   126        133    76 
Net income (loss)
  580   408        692   382        399    229 
Net (income) loss attributable to noncontrolling interests
  –   –        –   –        –    – 
Net income (loss) attributable to U.S. Bancorp
 $580  $408       $692  $382       $399   $229 
         
Average Balance Sheet
                                   
Loans
 $150,436  $115,867       $170,132  $140,429       $24,335   $20,707 
Other earning assets
  5,768   4,676        2,179   4,383        380    241 
Goodwill
  2,824   1,912        4,491   3,261        1,787    1,761 
Other intangible assets
  592   4        5,594   3,176        442    265 
Assets
  170,976   127,891        187,860   156,953        28,625    24,421 
         
Noninterest-bearing deposits
  58,447   63,010        43,496   31,265        21,896    27,429 
Interest-bearing deposits
  105,011   87,010        185,400   165,885        83,619    70,402 
Total deposits
  163,458   150,020        228,896   197,150        105,515    97,831 
         
Total U.S. Bancorp shareholders’ equity
  17,350   13,729        16,704   12,214        4,106    3,593 
      
  
Payment
Services
       
Treasury and
Corporate Support
       
Consolidated
Company
 
(Dollars in Millions) 2023  2022       2023  2022       2023   2022 
Condensed Income Statement
                                   
Net interest income (taxable-equivalent basis)
 $651  $622       $133  $56       $4,668   $3,200 
Noninterest income
  937 (a)   857 (a)        164   243        2,507 (b)    2,396 (b) 
Total net revenue
  1,588   1,479        297   299        7,175 (c)    5,596 (c) 
Noninterest expense
  915   849        583   253        4,555    3,502 
Income (loss) before provision and income taxes
  673   630        (286)   46        2,620    2,094 
Provision for credit losses
  226   130        197   (79)        427    112 
Income (loss) before income taxes
  447   500        (483)   125        2,193    1,982 
Income taxes and taxable-equivalent adjustment
  112   125        (181)   (39)        489    424 
Net income (loss)
  335   375        (302)   164        1,704    1,558 
Net (income) loss attributable to noncontrolling interests
  –   –        (6)   (1)        (6)    (1) 
Net income (loss) attributable to U.S. Bancorp
 $335  $375       $(308)  $163       $1,698   $1,557 
         
Average Balance Sheet
                                   
Loans
 $36,935  $31,740       $4,912  $4,223       $386,750   $312,966 
Other earning assets
  302   1,023        212,235   206,548        220,864    216,871 
Goodwill
  3,320   3,325        –   –        12,422    10,259 
Other intangible assets
  385   464        36   –        7,049    3,909 
Assets
  42,860   38,499        235,126   229,638        665,447    577,402 
         
Noninterest-bearing deposits
  3,184   3,673        2,718   2,586        129,741    127,963 
Interest-bearing deposits
  108   160        6,445   2,756        380,583    326,213 
Total deposits
  3,292   3,833        9,163   5,342        510,324    454,176 
         
Total U.S. Bancorp shareholders’ equity
  8,968   8,017        5,539   15,913        52,667    53,466 
 
(a)
Presented net of related rewards and rebate costs and certain partner payments of $717 million and $671 million for the three months ended March 31, 2023 and 2022, respectively.
(b)
Includes revenue generated from certain contracts with customers of $2.1 billion and $1.9 billion for the three months ended March 31, 2023 and 2022, respectively.
(c)
The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Under these arrangements, the Company recorded $183 million and 
$204 million of revenue for the three months ended March 31, 2023 and 2022, respectively, primarily consisting of interest income on sales-type and direct financing leases.
 
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 U.S. Bancorp
 Note 18
 
   Subsequent Events
The Company has evaluated the impact of events that have occurred subsequent to March 31, 2023 through the date the consolidated financial statements were filed with the United States Securities and Exchange Commission. Based on this evaluation, the Company has determined none of these events were required to be recognized or disclosed in the consolidated financial statements and related notes.
 
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U.S. Bancorp
Consolidated Daily Average Balance Sheet and Related Yields and Rates (a)
 
 
 
For the Three Months Ended March 31
 
 
 
 
 
 
2023
 
 
2022
 
 
  
 
  
  
 
 
2023 v 2022
 
(Dollars in Millions) (Unaudited)
 
Average
Balances
 
 
Interest
 
  
  
 
 
Yields and
Rates
 
 
  
 
 
Average
Balances
 
 
  
 
 
Interest
 
  
  
 
 
Yields and
Rates
 
 
  
 
  
  
 
 
% Change
Average
Balances
 
Assets
 
 
  
 
 
 
 
 
 
  
 
 
 
  
 
 
Investment securities
 
$
166,125
 
 
$
1,094
 
  
 
 
2.64
% 
 
 
 
$
174,762
 
 
 
$
736
 
  
 
 
1.68
% 
 
 
  
 
 
(4.9
)% 
Loans held for sale
 
 
2,461
 
 
 
31
 
  
 
 
5.10
 
 
 
 
 
5,479
 
 
 
 
60
 
  
 
 
4.40
 
 
 
  
 
 
(55.1
) 
Loans (b)
 
 
  
 
 
 
 
 
 
  
 
 
 
  
 
 
Commercial
 
 
135,683
 
 
 
1,997
 
  
 
 
5.96
 
 
 
 
 
112,822
 
 
 
 
629
 
  
 
 
2.26
 
 
 
  
 
 
20.3
 
Commercial real estate
 
 
55,595
 
 
 
803
 
  
 
 
5.86
 
 
 
 
 
39,084
 
 
 
 
295
 
  
 
 
3.06
 
 
 
  
 
 
42.2
 
Residential mortgages
 
 
116,287
 
 
 
1,050
 
  
 
 
3.62
 
 
 
 
 
77,449
 
 
 
 
612
 
  
 
 
3.17
 
 
 
  
 
 
50.1
 
Credit card
 
 
25,569
 
 
 
800
 
  
 
 
12.69
 
 
 
 
 
21,842
 
 
 
 
562
 
  
 
 
10.44
 
 
 
  
 
 
17.1
 
Other retail
 
 
53,616
 
 
 
642
 
  
 
 
4.86
 
 
 
 
 
61,769
 
 
 
 
 
 
 
509
 
  
 
 
3.34
 
 
 
  
 
 
(13.2
) 
Total loans
 
 
386,750
 
 
 
5,292
 
  
 
 
5.53
 
 
 
 
 
312,966
 
 
 
 
2,607
 
  
 
 
3.37
 
 
 
  
 
 
23.6
 
Interest-bearing deposits with banks
 
 
43,305
 
 
 
488
 
  
 
 
4.57
 
 
 
 
 
29,851
 
 
 
 
14
 
  
 
 
.19
 
 
 
  
 
 
45.1
 
Other earning assets
 
 
8,973
 
 
 
94
 
  
 
 
4.23
 
 
 
 
 
6,779
 
 
 
 
 
 
 
28
 
  
 
 
1.68
 
 
 
  
 
 
32.4
 
Total earning assets
 
 
607,614
 
 
 
6,999
 
  
 
 
4.65
 
 
 
 
 
529,837
 
 
 
 
3,445
 
  
 
 
2.62
 
 
 
  
 
 
14.7
 
Allowance for loan losses
 
 
(6,944
) 
 
  
 
 
 
 
 
(5,701
) 
 
 
  
 
 
 
  
 
 
(21.8
) 
Unrealized gain (loss) on investment securities
 
 
(7,519
) 
 
  
 
 
 
 
 
(2,551
) 
 
 
  
 
 
 
  
 
 
*
 
Other assets
 
 
72,296
 
 
  
 
 
 
 
 
55,817
 
 
 
  
 
 
 
  
 
 
29.5
 
Total assets
 
$
665,447
 
 
  
 
 
 
 
$
577,402
 
 
 
  
 
 
 
  
 
 
15.2
 
Liabilities and Shareholders’ Equity
 
 
  
 
 
 
 
 
 
  
 
 
 
  
 
 
Noninterest-bearing deposits
 
$
129,741
 
 
  
 
 
 
 
$
127,963
 
 
 
  
 
 
 
  
 
 
1.4
% 
Interest-bearing deposits
 
 
  
 
 
 
 
 
 
  
 
 
 
  
 
 
Interest checking
 
 
129,350
 
 
 
283
 
  
 
 
.89
 
 
 
 
 
115,062
 
 
 
 
9
 
  
 
 
.03
 
 
 
  
 
 
12.4
 
Money market savings
 
 
146,970
 
 
 
979
 
  
 
 
2.70
 
 
 
 
 
119,588
 
 
 
 
52
 
  
 
 
.18
 
 
 
  
 
 
22.9
 
Savings accounts
 
 
68,827
 
 
 
13
 
  
 
 
.07
 
 
 
 
 
66,978
 
 
 
 
2
 
  
 
 
.01
 
 
 
  
 
 
2.8
 
Time deposits
 
 
35,436
 
 
 
230
 
  
 
 
2.64
 
 
 
 
 
24,585
 
 
 
 
 
 
 
17
 
  
 
 
.28
 
 
 
  
 
 
44.1
 
Total interest-bearing deposits
 
 
380,583
 
 
 
1,505
 
  
 
 
1.60
 
 
 
 
 
326,213
 
 
 
 
80
 
  
 
 
.10
 
 
 
  
 
 
16.7
 
Short-term borrowings
 
 
  
 
 
 
 
 
 
  
 
 
 
  
 
 
Federal funds purchased
 
 
904
 
 
 
10
 
  
 
 
4.44
 
 
 
 
 
1,236
 
 
 
 
—
 
  
 
 
.04
 
 
 
  
 
 
(26.9
) 
Securities sold under agreements to repurchase
 
 
2,481
 
 
 
19
 
  
 
 
3.11
 
 
 
 
 
1,895
 
 
 
 
1
 
  
 
 
.03
 
 
 
  
 
 
30.9
 
Commercial paper
 
 
8,251
 
 
 
54
 
  
 
 
2.67
 
 
 
 
 
6,473
 
 
 
 
—
 
  
 
 
.01
 
 
 
  
 
 
27.5
 
Other short-term borrowings
 
 
24,831
 
 
 
367
 
  
 
 
6.00
 
 
 
 
 
9,434
 
 
 
 
 
 
 
20
 
  
 
 
.21
 
 
 
  
 
 
*
 
Total short-term borrowings
 
 
36,467
 
 
 
450
 
  
 
 
5.01
 
 
 
 
 
19,038
 
 
 
 
21
 
  
 
 
.46
 
 
 
  
 
 
91.5
 
Long-term debt
 
 
41,024
 
 
 
376
 
  
 
 
3.71
 
 
 
 
 
32,972
 
 
 
 
 
 
 
144
 
  
 
 
1.77
 
 
 
  
 
 
24.4
 
Total interest-bearing liabilities
 
 
458,074
 
 
 
2,331
 
  
 
 
2.06
 
 
 
 
 
378,223
 
 
 
 
245
 
  
 
 
.26
 
 
 
  
 
 
21.1
 
Other liabilities
 
 
24,500
 
 
  
 
 
 
 
 
17,282
 
 
 
  
 
 
 
  
 
 
41.8
 
Shareholders’ equity
 
 
  
 
 
 
 
 
 
  
 
 
 
  
 
 
Preferred equity
 
 
6,808
 
 
  
 
 
 
 
 
6,619
 
 
 
  
 
 
 
  
 
 
2.9
 
Common equity
 
 
45,859
 
 
  
 
 
 
 
 
46,847
 
 
 
  
 
 
 
  
 
 
(2.1
) 
Total U.S. Bancorp shareholders’ equity
 
 
52,667
 
 
  
 
 
 
 
 
53,466
 
 
 
  
 
 
 
  
 
 
(1.5
) 
Noncontrolling interests
 
 
465
 
 
  
 
 
 
 
 
468
 
 
 
  
 
 
 
  
 
 
(.6
) 
Total equity
 
 
53,132
 
 
  
 
 
 
 
 
53,934
 
 
 
  
 
 
 
  
 
 
(1.5
) 
Total liabilities and equity
 
$
665,447
 
 
  
 
 
 
 
$
577,402
 
 
 
  
 
 
 
  
 
 
15.2
 
Net interest income
 
 
$
4,668
 
  
 
 
 
 
 
 
$
3,200
 
  
 
 
 
  
 
Gross interest margin
 
 
  
 
 
2.59
% 
 
 
 
 
 
 
 
  
 
 
2.36
% 
 
 
 
 
  
 
Gross interest margin without taxable-equivalent increments
 
 
  
 
 
2.57
% 
 
 
 
 
 
 
 
  
 
 
2.34
% 
 
 
 
 
  
 
Percent of Earning Assets
 
 
  
 
 
 
 
 
 
  
 
 
 
  
 
Interest income
 
 
  
 
 
4.65
% 
 
 
 
 
 
  
 
 
2.62
% 
 
 
  
 
Interest expense
 
 
  
 
 
1.55
 
 
 
 
 
 
 
 
  
 
 
.18
 
 
 
 
 
  
 
Net interest margin
 
 
  
 
 
3.10
% 
 
 
 
 
 
 
 
  
 
 
2.44
% 
 
 
 
 
  
 
Net interest margin without taxable-equivalent increments
 
 
 
 
 
 
 
 
  
 
 
 
 
 
3.08
% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
2.42
% 
 
 
 
 
  
 
 
*
Not meaningful
(a)
Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.
(b)
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
 
74
 U.S. Bancorp
Table of Contents
Part II — Other Information
Item 1. Legal Proceedings
— See the information set forth in “Litigation and Regulatory Matters” in Note 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, 2022, for discussion of these risks.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
— See the information se
t forth in the “Capital Management” section on
page 28 of this Report for information regarding shares repurchased by the Company duri
ng the first quarter of 2023, which is incorporated herein by reference.
Item 6. Exhibits
 
     3.1  Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.4 to the Company’s Form 8-K filed on April 20, 2022).
     3.2  Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on April 20, 2021).
   31.1  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
   31.2  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
   32  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
 101  The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) Consolidated Balance Sheet, (ii) Consolidated Statement of Income, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated Statement of Shareholders’ Equity, (v) Consolidated Statement of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
 104  Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).
 
U.S. Bancorp 
75
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
    U.S. BANCORP
    
    By: /s/    L
ISA
R. S
TARK
    
 
Dated: May 8, 2023     
Lisa R. Stark
Controller
(Principal Accounting Officer and Duly Authorized Officer)
 
76
 U.S. Bancorp
Table of Contents
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Andrew Cecere, certify that:
 
(1)
I have reviewed this Quarterly Report on Form 10-Q of U.S. Bancorp;
 
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
(4)
The registrant’s other certifying 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: May 8, 2023
 
U.S. Bancorp 
77
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: May 8, 2023
 
78
 U.S. Bancorp
Table of Contents
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Chief Executive Officer and Chief Financial Officer of U.S. Bancorp, a Delaware corporation (the “Company”), do hereby certify that:
 
(1)
The Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/    A
NDREW
C
ECERE
 
 
  /s/    T
ERRANCE
R. D
OLAN
Andrew Cecere
Chief Executive Officer
 
Dated: May 8, 2023
   
Terrance R. Dolan
Chief Financial Officer
 
U.S. Bancorp 
79
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)
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
George Andersen
Senior Vice President, Director of Investor Relations
george.andersen@usbank.com
Phone: 612-303-3620
Financial Information
U.S. Bancorp news and financial results are available through our website and by mail.
Website
For information about U.S. Bancorp, including news, financial results, annual reports and other documents filed with the Securities and Exchange Commission, visit usbank.com and click on
About Us
.
Mail
At your request, we will mail to you our quarterly earnings, news releases, quarterly financial data reported on Form 10-Q, Form 10-K and additional copies of our annual reports. Please contact:
U.S. Bancorp Investor Relations
800 Nicollet Mall
Minneapolis, MN 55402
investorrelations@usbank.com
Phone: 866-775-9668
Media Requests
David R. Palombi
Global Chief Communications Officer
Public Affairs and Communications
david.palombi@usbank.com
Phone: 612-303-3167
Privacy
U.S. Bancorp is committed to respecting the privacy of our customers and safeguarding the financial and personal information provided to us. To learn more about the U.S. Bancorp commitment to protecting privacy, visit usbank.com and click on
Privacy
.
Ethics
At U.S. Bancorp, our commitment to high ethical standards guides everything we do. Demonstrating this commitment through our words and actions is how each of us does the right thing every day for our customers, shareholders, communities and each other. Our ethical culture has been recognized by the Ethisphere Institute, which again named us to its World’s Most Ethical Companies
®
list.
For details about our Code of Ethics and Business Conduct, visit usbank.com and click on
About Us
and then
Investor Relations
then
Corporate Governance
, and then
Governance Documents
.
Diversity, Equity and Inclusion
At U.S. Bancorp, embracing diversity, championing equity and fostering inclusion are business imperatives. We view everything we do through a diversity, equity and inclusion lens to deepen our relationships with our stakeholders: our employees, customers, shareholders and communities.
Our employees bring their whole selves to work. We respect and value each other’s differences, strengths and perspectives, and we strive to reflect the communities we serve. This makes us stronger, more innovative and more responsive to our diverse customers’ needs.
Equal Opportunity and Affirmative Action
U.S. Bancorp and our subsidiaries are committed to providing Equal Employment Opportunity to all employees and applicants for employment. In keeping with this commitment, employment decisions are made based on abilities, not race, color, religion, creed, citizenship, national origin or ancestry, gender, age, disability, veteran status, sexual orientation, marital status, gender identity or expression, genetic information or any other factors protected by law. The Company complies with municipal, state and federal fair employment laws, including regulations applying to federal contractors.
U.S. Bancorp, including each of our subsidiaries, is an equal opportunity employer committed to creating a diverse workforce.
Accessibility
U.S. Bancorp is committed to providing ready access to our products and services so all of our customers, including people with disabilities, can succeed financially. To learn more, visit usbank.com and click on
Accessibility
.
 
 
 
 This report has been produced on recycled paper.
 

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