Exhibit 13

The following pages discuss in detail the financial results we achieved in 2022 — results that reflect how we are creating the future now.

The following information appears in accordance with the Private Securities Litigation Reform Act of 1995:

This report 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;

• 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;

• 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 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 this report.

In addition, U.S. Bancorp’s acquisition of MUFG Union Bank presents risks and uncertainties, including, among others: the risk that the cost savings, any revenue synergies and other anticipated benefits of the acquisition may not be realized or may take longer than anticipated to be realized; and the possibility that the combination of MUFG Union Bank with U.S. Bancorp, including the integration of MUFG Union Bank, 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.

22	Management’s Discussion and Analysis
	22	Overview
	24	Statement of Income Analysis
	28	Balance Sheet Analysis
	35	Corporate Risk Profile
		35	Overview
		36	Credit Risk Management
		48	Residual Value Risk Management
		48	Operational Risk Management
		49	Compliance Risk Management
		49	Interest Rate Risk Management
		51	Market Risk Management
		52	Liquidity Risk Management
		55	Capital Management
	56	Line of Business Financial Review
	59	Non-GAAP Financial Measures
	62	Accounting Changes
	62	Critical Accounting Policies
	64	Controls and Procedures
65	Reports of Management and Independent Accountants
70	Consolidated Financial Statements and Notes
138	Consolidated Daily Average Balance Sheet and Related Yields and Rates
139	Supplemental Financial Data
140	Company Information
156	Managing Committee
158	Directors

21

Management’s Discussion and Analysis

Overview

In 2022, U.S. Bancorp and its subsidiaries (the “Company”) continued to demonstrate financial strength and a diversified business model by maintaining sound credit quality and a strong capital and liquidity position, while continuing to invest in key business initiatives to drive growth in the future.

MUFG Union Bank Acquisition

 On December 1, 2022, the Company acquired MUFG Union Bank N.A.’s core regional banking franchise (“MUB”) from Mitsubishi UFJ Financial Group, Inc. Pursuant to the terms of a previously announced 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 capital of $3.5 billion upon completion of the acquisition. The additional capital received is held at the MUB subsidiary and required to be repaid to Mitsubishi UFJ Financial Group, Inc. 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. MUB operates approximately 300 branches in California, Washington and Oregon. The Company’s 2022 results reflect MUB’s operations for the month of December 2022, and the Company’s balance sheet as of December 31, 2022 includes MUB’s balances acquired or assumed in the transaction, including $81.4 billion in total assets, $53.1 billion of loans and $82.0 billion of deposits. 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.

Financial Performance

 The Company earned $5.8 billion in 2022, or $3.69 per diluted common share, compared with $8.0 billion, or $5.10 per diluted common share in 2021. Financial performance for 2022, compared with 2021, included the following:

• Net interest income increased $2.2 billion (17.8 percent) due to the impact of rising rates on earnings assets and growth in average loan and investment securities balances, partially offset by deposit pricing and changes in funding mix;

• Noninterest income decreased $771 million (7.5 percent) primarily due to lower mortgage banking revenue, and lower other noninterest income driven by the impact of interest rate economic hedges related to the MUB acquisition, partially offset by higher trust and investment management fees and payment services revenue;

• Noninterest expense increased $1.2 billion (8.6 percent), reflecting operating expenses and merger and integration charges related to the MUB acquisition, along with increases in compensation and employee benefits expense, marketing and business development expense and other noninterest expense;

• The provision for credit losses increased $3.2 billion, driven by the impact of loan growth and increasing economic uncertainty, as well as the initial provision for credit losses related to the MUB acquisition and the provision impact of balance sheet repositioning and capital management actions taken in 2022 in connection with the acquisition;

• Average loans increased $36.6 billion (12.3 percent) primarily due to higher average commercial loans and residential mortgages, including the impact of the MUB acquisition; and

• Average deposits increased $28.1 billion (6.5 percent), driven by increases in average total savings deposits and time deposits including the impact of the MUB acquisition, partially offset by a decrease in average noninterest bearing deposits.

Credit Quality

 The Company continues to maintain strong credit quality as it prudently manages credit underwriting.

• The allowance for credit losses was $7.4 billion at December 31, 2022, an increase of $1.2 billion compared with December 31, 2021. The increase included the impacts of the MUB acquisition, along with loan growth and increased economic uncertainty.

• Nonperforming assets were $1.0 billion at December 31, 2022, an increase of $138 million compared with December 31, 2021. The increase was driven by acquired balances related to the MUB acquisition, partially offset by decreases in nonperforming loans in the legacy portfolio.

• Net charge-offs were $1.1 billion in 2022, an increase of $381 million compared with 2021. The increase reflected approximately $179 million related to the purchase accounting treatment for acquired MUB loans, as well as the impact related to balance sheet repositioning and capital management actions taken during 2022 in connection with the acquisition.

Capital Management

 At December 31, 2022, all of the Company’s regulatory capital ratios exceeded regulatory “well-capitalized” requirements.

• The Company’s common equity tier 1 capital ratio was 8.4 percent at December 31, 2022.

• During 2022, the Company announced a 4.3 percent increase in the quarterly dividend rate per common share.

The Company’s financial strength, diversified business model and strong credit quality position it well for 2023. Economic uncertainty in both the domestic and global economies currently exists. The Company’s business model is resilient due to disciplined credit underwriting standards and robust risk management infrastructure. The Company remains focused on prudent balance sheet growth and the prudent allocation of capital to lines of business and products best served to deliver on its strategic vision. The Company’s growth strategy is focused on creating value for its customers, communities and shareholders, which will allow it to continue to generate industry-leading performance.

22

    

   TABLE 1   Selected Financial Data

Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)	2022			2021			2020
Condensed Income Statement
Net interest income	$	14,728		$	12,494		$	12,825
Taxable-equivalent adjustment (a)		118			106			99
Net interest income (taxable-equivalent basis) (b)		14,846			12,600			12,924
Noninterest income		9,456			10,227			10,401
Total net revenue		24,302			22,827			23,325
Noninterest expense		14,906			13,728			13,369
Provision for credit losses		1,977			(1,173	)		3,806
Income before taxes		7,419			10,272			6,150
Income taxes and taxable-equivalent adjustment		1,581			2,287			1,165
Net income		5,838			7,985			4,985
Net (income) loss attributable to noncontrolling interests		(13	)		(22	)		(26	)
Net income attributable to U.S. Bancorp	$	5,825		$	7,963		$	4,959
Net income applicable to U.S. Bancorp common shareholders	$	5,501		$	7,605		$	4,621
Per Common Share
Earnings per share	$	3.69		$	5.11		$	3.06
Diluted earnings per share		3.69			5.10			3.06
Dividends declared per share		1.88			1.76			1.68
Book value per share (c)		28.71			32.71			31.26
Market value per share		43.61			56.17			46.59
Average common shares outstanding		1,489			1,489			1,509
Average diluted common shares outstanding		1,490			1,490			1,510
Financial Ratios
Return on average assets		.98	%		1.43	%		.93	%
Return on average common equity		12.6			16.0			10.0
Net interest margin (taxable-equivalent basis) (a)		2.72			2.49			2.68
Efficiency ratio (b)		61.4			60.4			57.8
Net charge-offs as a percent of average loans outstanding		.32			.23			.58
Average Balances
Loans	$	333,573		$	296,965		$	307,269
Loans held for sale		3,829			8,024			6,985
Investment securities (d)		169,442			154,702			125,954
Earning assets		545,343			506,141			481,402
Assets		592,149			556,532			531,207
Noninterest-bearing deposits		120,394			127,204			98,539
Deposits		462,384			434,281			398,615
Short-term borrowings		25,740			14,774			19,182
Long-term debt		33,114			36,682			44,040
Total U.S. Bancorp shareholders’ equity		50,416			53,810			52,246
Period End Balances
Loans	$	388,213		$	312,028		$	297,707
Investment securities		161,650			174,821			136,840
Assets		674,805			573,284			553,905
Deposits		524,976			456,083			429,770
Long-term debt		39,829			32,125			41,297
Total U.S. Bancorp shareholders’ equity		50,766			54,918			53,095
Asset Quality
Nonperforming assets	$	1,016		$	878		$	1,298
Allowance for credit losses		7,404			6,155			8,010
Allowance for credit losses as a percentage of period-end  loans		1.91	%		1.97	%		2.69	%
Capital Ratios
Common equity tier 1 capital		8.4	%		10.0	%		9.7	%
Tier 1 capital		9.8			11.6			11.3
Total risk-based capital		11.9			13.4			13.4
Leverage		7.9			8.6			8.3
Total leverage exposure		6.4			6.9			7.3
Tangible common equity to tangible assets (b)		4.5			6.8			6.9
Tangible common equity to risk-weighted assets (b)		6.0			9.2			9.5
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)		8.1			9.6			9.3

(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 59.

(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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Earnings Summary 

The Company reported net income attributable to U.S. Bancorp of $5.8 billion in 2022, or $3.69 per diluted common share, compared with $8.0 billion, or $5.10 per diluted common share, in 2021. Return on average assets and return on average common equity were 0.98 percent and 12.6 percent, respectively, in 2022, compared with 1.43 percent and 16.0 percent, respectively, in 2021. The results for 2022 included the impact of the 2022 acquisition of MUB. The transaction closed on December 1, 2022 and results reflect one month of operating results of MUB including $255 million of net interest income, $47 million of fee income and $221 million of noninterest expense. In addition, the results for 2022 included the impact of certain actions directly related to the acquisition, including $399 million of losses primarily related to interest rate economic hedges, entered into after regulatory approval for the acquisition was obtained, to manage the impact of interest rate volatility on capital prior to closing the transaction, $329 million of merger and integration charges, and $791 million of provision for credit losses related to acquired loans and balance sheet repositioning and capital management actions taken in the fourth quarter of 2022 in connection with the acquisition. Combined, these items decreased 2022 diluted earnings per common share by $0.76.

Total net revenue for 2022 was $1.5 billion (6.5 percent) higher than 2021, reflecting a 17.9 percent increase in net interest income (17.8 percent on a taxable-equivalent basis) and a 7.5 percent decrease in noninterest income. The increase in net interest income from the prior year was due to the impact of rising rates on earning assets and strong growth in average loan and investment securities balances, partially offset by deposit pricing and changes in funding mix. The reduction in noninterest income reflected lower mortgage banking revenue due to a decline in refinancing activities, and lower other noninterest income driven by the impact of interest rate economic hedges related to the MUB acquisition, partially offset by higher trust and investment management fees and payment services revenue.

Noninterest expense in 2022 was $1.2 billion (8.6 percent) higher than 2021, reflecting operating expenses and merger and integration charges related to the MUB acquisition, as well as increases in legacy compensation and employee benefits expense, marketing and business development expense and other noninterest expense.

Results for 2021 Compared With 2020 

For discussion related to changes in financial condition and results of operations for 2021 compared with 2020, refer to “Management’s Discussion

and Analysis” in the Company’s Annual Report for the year ended December 31, 2021, included as Exhibit 13 to the Company’s Form 10-K filed with the Securities and Exchange Commission on February 22, 2022.

Statement of Income Analysis

Net Interest Income 

Net interest income, on a taxable-equivalent basis, was $14.8 billion in 2022, compared with $12.6 billion in 2021. The $2.2 billion (17.8 percent) increase in net interest income, on a taxable-equivalent basis, in 2022 compared with 2021, was primarily due to the impact of rising interest rates on earning assets, strong growth in loan and investment securities balances and the impact of loans and investment securities acquired related to MUB partially offset by deposit pricing and changes in funding mix. Average earning assets were $39.2 billion (7.7 percent) higher in 2022, compared with 2021, reflecting increases in loans and investment securities, partially offset by a decrease in interest-bearing deposits with banks. The net interest margin, on a taxable-equivalent basis, in 2022 was 2.72 percent, compared with 2.49 percent in 2021. The increase in the net interest margin in 2022, compared with 2021, was due to the impact of higher rates on earning assets, partially offset by deposit pricing and short-term borrowing costs given the rise in short-term interest rates. Refer to the “Interest Rate Risk Management” section for further information on the sensitivity of the Company’s net interest income to changes in interest rates.

Average total loans were $333.6 billion in 2022, compared with $297.0 billion in 2021. The $36.6 billion (12.3 percent) increase was due to growth in all loan classes, including a $4.6 billion impact related to the MUB acquisition. Average commercial loans increased $20.9 billion (20.4 percent), primarily due to higher utilization driven by working capital needs of corporate customers, slower payoffs given higher volatility in the capital markets, as well as core growth. Average residential mortgages increased $10.1 billion (13.6 percent) driven by slower refinance activity, along with the impact related to the MUB acquisition. Average commercial real estate loans increased $2.3 billion (6.0 percent), primarily the result of reduced payoff activity and MUB balances. Average credit card loans increased $1.8 billion (8.5 percent) primarily due to increased consumer spending, account growth and lower payment rates. Average other retail loans increased $1.4 billion (2.4 percent), driven by higher auto and recreational vehicle loans, partially offset by lower retail leasing balances.

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  TABLE 2 Analysis of Net Interest Income (a)

Year Ended December 31 (Dollars in Millions)	2022			2021			2020			2022 v 2021			2021 v 2020
Components of Net Interest Income
Income on earning assets (taxable-equivalent basis)	$	18,066		$	13,593		$	14,942		$	4,473		$	(1,349	)
Expense on interest-bearing liabilities (taxable-equivalent basis)		3,220			993			2,018			2,227			(1,025	)
Net interest income (taxable-equivalent basis) (b)	$	14,846		$	12,600		$	12,924		$	2,246		$	(324	)
Net interest income, as reported	$	14,728		$	12,494		$	12,825		$	2,234		$	(331	)
Average Yields and Rates Paid
Earning assets yield (taxable-equivalent basis)		3.31	%		2.69	%		3.10	%		.62	%		(.41	)%
Rate paid on interest-bearing liabilities (taxable-equivalent basis)		.80			.28			.56			.52			(.28	)
Gross interest margin (taxable-equivalent basis)		2.51	%		2.41	%		2.54	%		.10	%		(.13	)%
Net interest margin (taxable-equivalent basis)		2.72	%		2.49	%		2.68	%		.23	%		(.19	)%
Average Balances
Investment securities (c)	$	169,442		$	154,702		$	125,954		$	14,740		$	28,748
Loans		333,573			296,965			307,269			36,608			(10,304	)
Earning assets		545,343			506,141			481,402			39,202			24,739
Noninterest-bearing deposits		120,394			127,204			98,539			(6,810	)		28,665
Interest-bearing deposits		341,990			307,077			300,076			34,913			7,001
Total deposits		462,384			434,281			398,615			28,103			35,666
Interest-bearing liabilities		400,844			358,533			363,298			42,311			(4,765	)

(a) Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.

(b) See Non-GAAP  Financial Measures beginning on page 59.

(c) 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.

Average investment securities in 2022 were $14.7 billion (9.5 percent) higher than in 2021, primarily due to purchases of mortgage-backed and U.S. Treasury securities, net of prepayments, sales and maturities in the legacy portfolio, along with the $1.2 billion impact of the MUB acquisition.

Average total deposits for 2022 were $28.1 billion (6.5 percent) higher than 2021, including the $7.2 billion impact of the MUB acquisition. Average total savings deposits were $28.8 billion (10.2 percent) higher in 2022, compared with 2021, driven by increases in Corporate and Commercial Banking, and Consumer and Business Banking balances, partially offset by

decreases in Wealth Management and Investment Services balances. Average time deposits for 2022 were $6.1 billion (24.8 percent) higher than 2021, primarily driven by increases in Corporate and Commercial Banking balances, partially offset by decreases in Consumer and Business Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Average noninterest-bearing deposits were $6.8 billion (5.4 percent) lower in 2022, compared with 2021, driven by decreases in Corporate and Commercial Banking, and Payment Services balances.

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  TABLE 3   Net Interest Income — Changes Due to Rate and Volume(a)

	2022 v 2021									2021 v 2020
Year Ended December 31 (Dollars in Millions)	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
Increase (decrease) in
Interest Income
Investment securities	$	231		$	792		$	1,023		$	569		$	(623	)	$	(54	)
Loans held for sale		(121	)		90			(31	)		32			(16	)		16
Loans
Commercial		547			1,109			1,656			(311	)		(197	)		(508	)
Commercial real estate		73			363			436			(63	)		(175	)		(238	)
Residential mortgages		336			(38	)		298			35			(224	)		(189	)
Credit card		193			112			305			(74	)		(40	)		(114	)
Other retail		50			116			166			95			(321	)		(226	)
Total loans		1,199			1,662			2,861			(318	)		(957	)		(1,275	)
Interest-bearing deposits with banks		(8	)		525			517			9			(27	)		(18	)
Other earning assets		8			95			103			(3	)		(15	)		(18	)
Total earning assets		1,309			3,164			4,473			289			(1,638	)		(1,349	)
Interest Expense
Interest-bearing deposits
Interest checking		3			250			253			15			(56	)		(41	)
Money market savings		16			1,005			1,021			(37	)		(292	)		(329	)
Savings accounts		1			2			3			9			(48	)		(39	)
Time deposits		23			252			275			(110	)		(111	)		(221	)
Total interest-bearing deposits		43			1,509			1,552			(123	)		(507	)		(630	)
Short-term borrowings		52			446			498			(33	)		(41	)		(74	)
Long-term debt		(59	)		236			177			(155	)		(166	)		(321	)
Total interest-bearing liabilities		36			2,191			2,227			(311	)		(714	)		(1,025	)
Increase (decrease) in net interest income	$	1,273		$	973		$	2,246		$	600		$	(924	)	$	(324	)

(a) This table shows the components of the change in net interest income by volume and rate on a taxable-equivalent basis based on a federal income tax rate of 21 percent. This table does not take into account the level of noninterest-bearing funding, nor does it fully reflect changes in the mix of assets and liabilities. The change in interest not solely due to changes in volume or rates has been allocated on a pro-rata basis to volume and yield/rate.

Provision for Credit Losses The provision for credit losses reflects changes in economic conditions and the size and credit quality of the entire portfolio of loans. The Company maintains an allowance for credit losses considered appropriate by management for expected losses, based on factors discussed in the “Analysis and Determination of Allowance for Credit Losses” section.

The provision for credit losses was $2.0 billion in 2022, compared with a benefit of $1.2 billion in 2021. The change was driven by the Company recognizing a provision for credit losses of $662 million during 2022 related to the acquisition of MUB and a $129 million provision impact of balance sheet repositioning and capital management actions taken in the fourth quarter of 2022, along with the impact of strong loan growth in the legacy portfolio and increasing economic uncertainty. The benefit recognized in 2021 reflected the enactment of government

stimulus programs and economic recovery from the pandemic in the United States, which resulted in decreases in the allowance for credit losses. Net charge-offs increased $381 billion (55.9 percent) in 2022, compared with 2021, reflecting $179 million of uncollectible MUB acquired loans, of which the majority of this balance related to loans that were previously charged-off by MUB, along with $189 million of net charge-offs related to balance sheet repositioning and capital management actions taken in the fourth quarter of 2022 in connection with the acquisition.

Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

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  TABLE 4   Noninterest Income

Year Ended December 31 (Dollars in Millions)	2022			2021		2020		2022 v 2021			2021 v 2020
Card revenue	$	1,512		$	1,507	$	1,338		.3	%		12.6	%
Corporate payment products revenue		698			575		497		21.4			15.7
Merchant processing services		1,579			1,449		1,261		9.0			14.9
Trust and investment management fees		2,209			1,832		1,736		20.6			5.5
Service charges		1,298			1,338		1,245		(3.0	)		7.5
Commercial products revenue		1,105			1,102		1,143		.3			(3.6	)
Mortgage banking revenue		527			1,361		2,064		(61.3	)		(34.1	)
Investment products fees		235			239		192		(1.7	)		24.5
Securities gains (losses), net		20			103		177		(80.6	)		(41.8	)
Other		273			721		748		(62.1	)		(3.6	)
Total noninterest income	$	9,456	(a)	$	10,227	$	10,401		(7.5	)%		(1.7	)%

(a)  Includes $399 million of losses primarily related to interest rate economic hedges, entered into after regulatory approval for the MUB acquisition was obtained, to manage the impact of interest rate volatility on capital prior to closing the transaction.

Noninterest Income Noninterest income in 2022 was $9.5 billion, compared with $10.2 billion in 2021. The $771 million (7.5 percent) decrease in 2022 from 2021 reflected lower mortgage banking revenue, lower other noninterest income, lower service charges and lower gains on the sale of securities, partially offset by higher trust and investment management fees and payment services revenue. Mortgage banking revenue decreased 61.3 percent in 2022, compared with 2021, reflecting lower application volume, given declining refinancing activities experienced in the mortgage industry, lower related gain on sale margins and lower performing loan sales, partially offset by increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities. Other noninterest income decreased 62.1 percent in 2022, compared with 2021, primarily due to the impact of interest rate economic hedges, entered into after regulatory approval of the MUB acquisition was obtained, to manage the impact of interest rate volatility on capital prior to closing the transaction in December, as well as lower retail leasing end-of-term residual gains. Service charges

decreased 3.0 percent primarily due to the impact of the elimination of certain consumer overdraft fees in 2022. Trust and investment management fees increased 20.6 percent primarily due to lower money market fee waivers, activity related to the fourth quarter of 2021 acquisition of PFM Asset Management LLC (“PFM”) and core business growth, partially offset by unfavorable market conditions. Payment services revenue increased in 2022, compared with 2021, driven by a 21.4 percent increase in corporate payment products revenue and a 9.0 percent increase in merchant processing services revenue. Corporate payment products revenue increased due to improving business spending across all product groups, while merchant processing services revenue increased driven by higher sales volume and merchant fees. The increase in merchant processing services revenue was partially offset by the impact of foreign currency rate changes, as the U.S. dollar has strengthened considerably compared to European currencies given recent uncertainties in Europe.

  TABLE 5   Noninterest Expense

Year Ended December 31 (Dollars in Millions)	2022			2021			2020			2022 v 2021			2021 v 2020
Compensation and employee benefits	$	9,157		$	8,728		$	7,938			4.9	%		10.0	%
Net occupancy and equipment		1,096			1,048			1,092			4.6			(4.0	)
Professional services		529			492			430			7.5			14.4
Marketing and business development		456			366			318			24.6			15.1
Technology and communications		1,726			1,728			1,582			(.1	)		9.2
Other intangibles		215			159			176			35.2			(9.7	)
Other		1,398			1,207			1,833			15.8			(34.2	)
Total before merger and integration charges		14,577			13,728			13,369			6.2			2.7
Merger and integration charges		329			—			—			*			—
Total noninterest expense	$	14,906		$	13,728		$	13,369			8.6	%		2.7	%
Efficiency ratio(a)		61.4	%		60.4	%		57.8	%

* Not meaningful

(a) See Non-GAAP Financial Measures beginning on page 59.

27    

Noninterest Expense Noninterest expense in 2022 was $14.9 billion, compared with $13.7 billion in 2021. The Company’s efficiency ratio was 61.4 percent in 2022, compared with 60.4 percent in 2021. The $1.2 billion (8.6 percent) increase in noninterest expense in 2022 over 2021 was driven by higher compensation and employee benefits expense, marketing and business development expense, net occupancy and equipment expense and other noninterest expense. The increase in noninterest expense included the impact of the MUB acquisition, including $329 million of merger and integration-related charges and $42 million of intangible amortization primarily related to core deposit intangibles. Compensation and employee benefits expense increased 4.9 percent in 2022 over 2021, primarily due to MUB expense as well as merit increases and hiring to support business growth and higher post-pandemic medical expenses, partially offset by lower performance-based incentives and variable compensation. Marketing and business development expense increased 24.6 percent due to the timing of marketing campaigns as well as increased travel and entertainment. Net occupancy and equipment expense increased 4.6 percent to support business growth. Other noninterest expense increased 15.8 percent due to accruals related to future delivery exposures for merchant and airline processing as processing volumes recover, higher Federal Deposit Insurance Company (“FDIC”) insurance expense driven by an increase in the assessment base and rate, and higher other accruals, partially offset by lower costs related to tax-advantaged projects and lower other expenses related to the decline in mortgage production.

Income Tax Expense The provision for income taxes was $1.5 billion (an effective rate of 20.0 percent) in 2022, compared with $2.2 billion (an effective rate of 21.5 percent) in 2021.

For further information on income taxes, refer to Note 19 of the Notes to Consolidated Financial Statements.

Balance Sheet Analysis

Average earning assets were $545.3 billion in 2022, compared with $506.1 billion in 2021. The increase in average earning assets of $39.2 billion (7.7 percent), including the $6.5 billion (1.3 percent) impact of the MUB acquisition, was primarily due to increases in loans of $36.6 billion (12.3 percent) and investment securities of $14.7 billion (9.5 percent), partially offset by a decrease in interest-bearing deposits with banks of $8.5 billion (21.3 percent).

For average balance information, refer to Consolidated Daily Average Balance Sheet and Related Yields and Rates on page 138.

Loans The Company’s loan portfolio was $388.2 billion at December 31, 2022, compared with $312.0 billion at December 31, 2021, an increase of $76.2 billion (24.4 percent), which includes $53.1 billion of loans acquired from MUB. The increase was driven by increases in residential mortgages of $39.4 billion (51.4 percent), commercial loans of $23.7 billion (21.1 percent), commercial real estate loans of $16.4 billion (42.1 percent), credit card loans of $3.8 billion (16.9 percent), partially offset by a decrease in other retail loans of $7.1 billion (11.4 percent). Table 6 provides a summary of the loan distribution by product type, while Table 7 provides a summary of the selected loan maturity distribution by loan category. Average total loans increased $36.6 billion (12.3 percent) in 2022, compared with 2021. The increase was primarily driven by higher commercial loans and residential mortgages.

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  TABLE 6   Loan Portfolio Distribution

	2022					2021
At December 31 (Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	131,128		33.8	%	$	106,912		34.3	%
Lease financing		4,562		1.2			5,111		1.6
Total commercial		135,690		35.0			112,023		35.9
Commercial Real Estate
Commercial mortgages		43,765		11.3			28,757		9.2
Construction and development		11,722		3.0			10,296		3.3
Total commercial real estate		55,487		14.3			39,053		12.5
Residential Mortgages
Residential mortgages		107,858		27.8			67,546		21.6
Home equity loans, first liens		7,987		2.0			8,947		2.9
Total residential mortgages		115,845		29.8			76,493		24.5
Credit Card		26,295		6.8			22,500		7.2
Other Retail
Retail leasing		5,519		1.4			7,256		2.3
Home equity and second mortgages		12,863		3.3			10,446		3.4
Revolving credit		3,983		1.0			2,750		.9
Installment		14,592		3.8			16,641		5.3
Automobile		17,939		4.6			24,866		8.0
Total other retail		54,896		14.1			61,959		19.9
Total loans	$	388,213		100.0	%	$	312,028		100.0	%

  TABLE 7   Selected Loan Maturity Distribution

At December 31, 2022 (Dollars in Millions)	One Year or Less		Over One Through Five Years		Over Five Through Fifteen Years		Over Fifteen Years			Total
Commercial	$	29,430	$	96,841	$	9,158	$	261		$	135,690
Commercial real estate		12,181		27,081		8,136		8,089	(a)		55,487
Residential mortgages		3,303		5,042		21,350		86,150			115,845
Credit card		26,295		—		—		—			26,295
Other retail		3,428		17,759		18,643		15,066			54,896
Total loans	$	74,637	$	146,723	$	57,287	$	109,566		$	388,213
Total of loans due after one year with:
							Predetermined Interest Rates			Floating Interest Rates
Commercial							$	14,892		$	91,368
Commercial real estate								14,761			28,545
Residential mortgages								64,306			48,236
Credit card								—			—
Other retail								38,959			12,509
Total							$	132,918		$	180,658

(a) Primarily represents construction loans for single-family residences or loans guaranteed by the Small Business Administration.

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  TABLE 8   Commercial Loans by Industry Group and Geography

	2022					2021
At December 31 (Dollars in Millions)	Loans		Percent			Loans		Percent
Industry Group
Real-estate related	$	19,539		14.4	%	$	16,646		14.9	%
Financial institutions		17,381		12.8			14,002		12.5
Personal, professional and commercial services		10,106		7.5			7,095		6.3
Healthcare		8,536		6.3			6,923		6.2
Automotive		7,154		5.3			7,590		6.8
Media and entertainment		5,867		4.3			4,623		4.1
Food and beverage		5,574		4.1			4,097		3.6
Technology		5,425		4.0			5,119		4.6
Capital goods		5,332		3.9			4,099		3.6
Retail		5,128		3.8			4,717		4.2
Transportation		4,988		3.7			3,895		3.5
Power		4,945		3.6			3,028		2.7
Energy		3,811		2.8			2,299		2.1
Metals and mining		3,700		2.7			3,342		3.0
Education and non-profit		3,609		2.7			3,721		3.3
Building materials		3,293		2.4			2,687		2.4
State and municipal government		3,240		2.4			3,166		2.8
Agriculture		1,909		1.4			1,796		1.6
Other		16,153		11.9			13,178		11.8
Total	$	135,690		100.0	%	$	112,023		100.0	%
Geography
California	$	23,736		17.5	%	$	15,439		13.8	%
Texas		10,244		7.6			6,748		6.0
New York		8,989		6.6			7,483		6.7
Illinois		7,626		5.6			6,572		5.9
Minnesota		6,707		5.0			6,730		6.0
Ohio		4,497		3.3			4,310		3.8
Wisconsin		4,112		3.0			3,894		3.5
Florida		3,777		2.8			3,790		3.4
Washington		3,721		2.7			2,936		2.6
Colorado		3,613		2.7			3,791		3.4
All other states		58,668		43.2			50,330		44.9
Total	$	135,690		100.0	%	$	112,023		100.0	%

Commercial Commercial loans, including lease financing, increased $23.7 billion (21.1 percent) at December 31, 2022, compared with December 31, 2021, due to higher utilization driven by working capital needs of corporate customers, slower payoffs given higher volatility in the capital markets, core growth and the impact of the MUB acquisition. Average commercial

loans increased $20.9 billion (20.4 percent) in 2022, compared with 2021. Table 8 provides a summary of commercial loans by industry and geographical location.

30    

  TABLE 9   Commercial Real Estate Loans by Property Type and Geography

	2022					2021
At December 31 (Dollars in Millions)	Loans		Percent			Loans		Percent
Property Type
Multi-family	$	16,722		30.1	%	$	9,293		23.8	%
Business owner occupied		11,487		20.7			8,238		21.1
Office		7,239		13.1			5,814		14.9
Industrial		5,258		9.5			3,672		9.4
Residential land and development		4,454		8.0			2,788		7.1
Retail		4,011		7.2			3,382		8.7
Lodging		1,932		3.5			2,422		6.2
Other		4,384		7.9			3,444		8.8
Total	$	55,487		100.0	%	$	39,053		100.0	%
Geography
California	$	22,250		40.1	%	$	9,683		24.8	%
Washington		4,235		7.6			3,680		9.4
New York		2,547		4.6			859		2.2
Texas		2,337		4.2			1,662		4.3
Illinois		1,830		3.3			1,409		3.6
Colorado		1,648		3.0			1,684		4.3
Oregon		1,622		2.9			1,526		3.9
Minnesota		1,470		2.7			1,717		4.4
Florida		1,276		2.3			1,520		3.9
Ohio		1,247		2.2			1,215		3.1
All other states		15,025		27.1			14,098		36.1
Total	$	55,487		100.0	%	$	39,053		100.0	%

Commercial Real Estate The Company’s portfolio of commercial real estate loans, which includes commercial mortgages and construction and development loans, increased $16.4 billion (42.1 percent) at December 31, 2022, compared with December 31, 2021. The increase was primarily due to the impact of the MUB acquisition. Average commercial real estate loans increased $2.3 billion (6.0 percent) in 2022, compared with 2021. Table 9 provides a summary of commercial real estate loans by property type and geographical location.

The Company’s commercial mortgage and construction and development loans had unfunded commitments of $13.8 billion and $11.8 billion at December 31, 2022 and 2021, respectively.

The Company also finances the operations of real estate developers and other entities with operations related to real estate. These loans are not secured directly by real estate but have similar characteristics to commercial real estate loans. These loans were included in the commercial loan category and totaled $19.5 billion and $16.6 billion at December 31, 2022 and 2021, respectively.

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  TABLE 10   Residential Mortgages by Geography

	2022					2021
At December 31 (Dollars in Millions)	Loans		Percent			Loans		Percent
California	$	53,967		46.7	%	$	23,568		30.8	%
Washington		6,343		5.5			4,002		5.2
Colorado		4,192		3.6			3,612		4.7
Florida		3,946		3.4			3,340		4.4
Minnesota		3,692		3.2			3,767		4.9
Illinois		3,592		3.1			3,392		4.4
Arizona		3,178		2.7			2,684		3.5
Texas		2,801		2.4			2,209		2.9
Oregon		2,701		2.3			2,332		3.1
Massachusetts		2,536		2.2			1,995		2.6
All other states		28,897		24.9			25,592		33.5
Total	$	115,845		100.0	%	$	76,493		100.0	%

Residential Mortgages Residential mortgages held in the loan portfolio at December 31, 2022, increased $39.4 billion (51.4 percent) compared to December 31, 2021, due to $26.4 billion of acquired MUB residential mortgages, as well as stronger on-balance sheet loan activities and slower refinance activity. Average residential mortgages increased $10.1 billion (13.6 percent) in 2022, compared with 2021. Residential mortgages originated and placed in the Company’s loan portfolio include well-secured jumbo mortgages and branch-originated first lien home equity loans to borrowers with high credit quality.

Credit Card Total credit card loans increased $3.8 billion (16.9 percent) at December 31, 2022, compared with December 31, 2021, primarily driven by higher spend volumes, account growth and lower payment rates. Average credit card balances increased $1.8 billion (8.5 percent) in 2022, compared with 2021.

Other Retail Total other retail loans, which include retail leasing, home equity and second mortgages and other retail loans, decreased $7.1 billion (11.4 percent) at December 31, 2022, compared with December 31, 2021, reflecting decreases in auto loans, installment loans and retail leasing balances, partially offset by increases in home equity loans and revolving credit balances. The decrease in auto loans was primarily driven by the sale of approximately $4 billion of indirect auto loans as part of balance sheet repositioning and capital management actions taken in the fourth quarter of 2022 in connection with the acquisition of MUB. Average other retail loans increased $1.4 billion (2.4 percent) in 2022, compared with 2021. Tables 10, 11 and 12 provide a geographic summary of residential mortgages, credit card loans and other retail loans outstanding, respectively, as of December 31, 2022 and 2021.

  TABLE 11   Credit Card Loans by Geography

	2022					2021
At December 31 (Dollars in Millions)	Loans		Percent			Loans		Percent
California	$	2,609		9.9	%	$	2,134		9.5	%
Texas		1,584		6.0			1,343		6.0
Illinois		1,330		5.1			1,108		4.9
Ohio		1,320		5.0			1,113		4.9
Minnesota		1,257		4.8			1,109		4.9
Florida		1,252		4.8			1,046		4.6
Wisconsin		1,029		3.9			895		4.0
Michigan		925		3.5			822		3.7
Colorado		862		3.3			761		3.4
Missouri		850		3.2			704		3.1
All other states		13,277		50.5			11,465		51.0
Total	$	26,295		100.0	%	$	22,500		100.0	%

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  TABLE 12   Other Retail Loans by Geography

	2022					2021
At December 31 (Dollars in Millions)	Loans		Percent			Loans		Percent
California	$	11,098		20.2	%	$	9,605		15.5	%
Texas		5,149		9.4			7,570		12.2
Florida		3,449		6.3			3,850		6.2
Minnesota		2,527		4.6			2,947		4.8
Illinois		2,180		4.0			2,692		4.3
Ohio		2,083		3.8			2,634		4.2
Washington		1,999		3.6			1,913		3.1
New York		1,878		3.4			2,014		3.3
Colorado		1,673		3.0			1,859		3.0
Oregon		1,414		2.6			1,451		2.3
All other states		21,446		39.1			25,424		41.1
Total	$	54,896		100.0	%	$	61,959		100.0	%

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

$2.2 billion at December 31, 2022, compared with $7.8 billion at December 31, 2021. The decrease in loans held for sale was principally due to a lower level of mortgage loan closings in late 2022, compared with the same period of 2021. Almost all of the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets, in particular in government agency transactions and to government sponsored enterprises (“GSEs”).

  TABLE 13   Investment Securities

	2022									2021
At December 31 (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	$	1,293		3.3		2.85	%	$	—	$	—		—		—	%
Mortgage-backed securities(a)		87,396		76,581		9.3		2.17			41,858		41,812		7.4		1.45
Total held-to-maturity	$	88,740	$	77,874		9.2		2.18	%	$	41,858	$	41,812		7.4		1.45	%
Available-for-sale
U.S. Treasury and agencies	$	24,801	$	22,033		7.1		2.43	%	$	36,648	$	36,609		6.7		1.54	%
Mortgage-backed securities(a)		40,803		36,423		6.6		2.83			85,394		85,564		4.9		1.58
Asset-backed securities(a)		4,356		4,323		1.3		4.59			62		66		5.2		1.53
Obligations of state and political subdivisions(b)(c)		11,484		10,125		13.6		3.76			10,130		10,717		6.6		3.67
Other		6		6		.1		1.99			7		7		3.4		2.07
Total available-for-sale	$	81,450	$	72,910		7.4		2.94	%	$	132,241	$	132,963		5.5		1.73	%

(a) Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities that take into account anticipated future prepayments.

(b) Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, and yield to maturity if the security is purchased at par or a discount.

(c) Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and the contractual maturity date for securities with a fair value equal to or below par.

(d) 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.

33    

Investment Securities The Company uses its investment securities portfolio to manage interest rate risk, provide liquidity (including the ability to meet regulatory requirements), generate interest and dividend income, and as collateral for public deposits and wholesale funding sources. While the Company intends to hold its investment securities indefinitely, it may sell available-for-sale investment securities in response to structural changes in the balance sheet and related interest rate risk and to meet liquidity requirements, among other factors.

Investment securities totaled $161.7 billion at December 31, 2022, compared with $174.8 billion at December 31, 2021. The $13.2 billion (7.5 percent) decrease was primarily due to $25.4 billion of net investment sales, including the sale of certain investment securities acquired as part of the MUB acquisition, and a $13.3 billion unfavorable change in net unrealized gains (losses) on available-for-sale investment securities, partially offset by $22.7 billion of acquired investment securities and $3.4 billion of senior notes the Company received as part of the sale of approximately $4 billion of indirect auto loans to third-party securitization vehicles during 2022. During 2022, the Company transferred $45.1 billion amortized cost ($40.7 billion fair value) of available-for-sale investment securities to the held-to-maturity category to reflect its new intent for these securities. Average investment securities were $169.4 billion in 2022, compared with $154.7 billion in 2021. Investment securities by type are shown in Table 13.

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 December 31, 2022, the Company’s net unrealized losses on available-for-sale investment securities were $8.5 billion, compared with net unrealized gains of $722 million at December 31, 2021. The unfavorable change in net unrealized gains (losses) was primarily due to decreases in the fair value of mortgage-backed, U.S. Treasury and state and political securities as a result of changes in interest rates, partially offset by the impact of the transfer of available-for-sale investment securities to the held-to-maturity category. Gross unrealized losses on available-for-sale investment securities totaled $8.6 billion at December 31, 2022, compared with $812 million at December 31, 2021. 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 December 31, 2022, the Company had no plans to sell securities with unrealized losses, and believes 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 5 and 22 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits Total deposits were $525.0 billion at December 31, 2022, including $82.0 billion of deposits related to the MUB acquisition, compared with $456.1 billion at December 31, 2021. The $68.9 billion (15.1 percent) increase in total deposits reflected increases in total savings deposits, time deposits and noninterest-bearing deposits. Average total deposits in 2022 increased $28.1 billion (6.5 percent) over 2021.

Interest-bearing savings deposits increased $55.8 billion (18.7 percent) at December 31, 2022, compared with December 31, 2021. The increase was related to higher money market, interest checking and savings account deposit balances, including those balances related to the MUB acquisition. Money market deposit balances increased $30.4 billion (25.8 percent), primarily due to higher Wealth Management and Investment Services, Corporate and Commercial Banking, and Consumer and Business Banking balances. Interest checking balances increased $19.4 billion (16.8 percent) primarily due to higher Corporate and Commercial Banking, and Consumer and Business Banking balances. Savings account balances increased $6.0 billion (9.1 percent), driven by higher Consumer and Business Banking balances, partially offset by lower Wealth Management and Investment Services balances. Average interest-bearing savings deposits increased $28.8 billion (10.2 percent) in 2022, compared with 2021, reflecting higher Corporate and Commercial Banking, and Consumer and Business Banking balances, partially offset by lower Wealth Management and Investment Services balances.

Interest-bearing time deposits at December 31, 2022, increased $10.3 billion (45.4 percent), compared with December 31, 2021. Average time deposits increased $6.1 billion (24.8 percent) in 2022, compared with 2021. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics.

Noninterest-bearing deposits at December 31, 2022, increased $2.8 billion (2.1 percent) from December 31, 2021. The increase was driven by higher Consumer and Business Banking balances, primarily related to the MUB acquisition, partially offset by lower Wealth Management and Investment Services, and Corporate and Commercial Banking balances. Average noninterest-bearing deposits decreased $6.8 billion (5.4 percent) in 2022, compared with 2021.

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  TABLE 14   Deposits

The composition of deposits was as follows:

	2022					2021
At December 31 (Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Noninterest-bearing deposits	$	137,743		26.2	%	$	134,901		29.6	%
Interest-bearing deposits
Interest checking		134,491		25.6			115,108		25.2
Money market savings		148,014		28.2			117,619		25.8
Savings accounts		71,782		13.7			65,790		14.4
Total savings deposits		354,287		67.5			298,517		65.4
Domestic time deposits less than $250,000		16,329		3.1			11,303		2.5
Domestic time deposits greater than $250,000		11,999		2.3			2,743		.6
Foreign time deposits		4,618		.9			8,619		1.9
Total interest-bearing deposits		387,233		73.8			321,182		70.4
Total deposits(a)	$	524,976		100.0	%	$	456,083		100.0	%

(a) Includes $289.3 billion and $238.0 billion of deposits at December 31, 2022 and 2021, respectively, that are not subject to any federal, state or foreign deposit insurance program.

The maturity of domestic time deposits in excess of the insurance limit and those time deposits not subject to any federal, state or foreign deposit insurance program at December 31, 2022 was as follows:

(Dollars in Millions)	Domestic Time Deposits Greater Than $250,000		Foreign Time Deposits		Total
Three months or less	$	5,805	$	4,618	$	10,423
Three months through six months		2,448		—		2,448
Six months through one year		1,967		—		1,967
Thereafter		1,779		—		1,779
Total	$	11,999	$	4,618	$	16,617

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 $31.2 billion at December 31, 2022, compared with $11.8 billion at December 31, 2021. The $19.4 billion increase in short-term borrowings at December 31, 2022, compared with December 31, 2021, reflected higher short-term Federal Home Loan Bank (“FHLB”) advances and commercial paper balances, including assumed short-term borrowing balances as a result of the MUB acquisition.

Long-term debt was $39.8 billion at December 31, 2022, compared with $32.1 billion at December 31, 2021. The $7.7 billion (24.0 percent) increase was primarily due to $6.9 billion of medium-term note and $1.3 billion of subordinated note issuances, along with a $1.6 billion increase in FHLB advances including those balances assumed as a result of the MUB acquisition. In addition, long-term debt increased as a result of the $3.5 billion obligation to repay Mitsubishi UFJ Financial Group, Inc., which was incurred as part of the acquisition. These increases were partially offset by $3.2 billion of bank note repayments and maturities, $1.3 billion of subordinated note repayments and $1.0 billion of medium-term note repayments.

Refer to Notes 13 and 14 of the Notes to Consolidated Financial Statements for additional information regarding short-term borrowings and long-term debt, and 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

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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 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” beginning on page 140, 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

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geographic, industry and customer level, regular credit examinations and management reviews of loans exhibiting deterioration of credit quality. The Risk Management Committee oversees the Company’s credit risk management process.

In addition, credit quality ratings, as defined by the Company, are an important part of the Company’s overall credit risk management and evaluation of its allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Loans with a special mention or classified rating, including consumer lending and small business loans that are 90 days or more past due and still accruing, nonaccrual loans, those loans considered troubled debt restructurings (“TDRs”), and loans in a junior lien position that are current but are behind a first lien position on nonaccrual, encompass all loans held by the Company that it considers to have a potential or well-defined weakness that may put full collection of contractual cash flows at risk. The Company’s internal credit quality ratings for consumer loans are primarily based on delinquency and nonperforming status, except for a limited population of larger loans within those portfolios that are individually evaluated. For this limited population, the determination of the internal credit quality rating may also consider collateral value and customer cash flows. Refer to Notes 1 and 6 in the Notes to Consolidated Financial Statements for further discussion of the Company’s loan portfolios including internal credit quality ratings.

The Company categorizes its loan portfolio into two segments, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses. The Company’s two loan portfolio segments are commercial lending and consumer lending.

The commercial lending segment includes loans and leases made to small business, middle market, large corporate, commercial real estate, financial institution, non-profit and public sector customers. Key risk characteristics relevant to commercial lending segment loans include the industry and geography of the borrower’s business, purpose of the loan, repayment source, borrower’s debt capacity and financial flexibility, loan covenants, and nature of pledged collateral, if any, as well as macroeconomic factors such as unemployment rates, gross domestic product levels, corporate bond spreads and long-term interest rates. These risk characteristics, among others, are considered in determining estimates about the likelihood of default by the borrowers and the severity of loss in the event of default. The Company considers these risk characteristics in assigning internal risk ratings to, or forecasting losses on, these loans, which are the significant factors in determining the allowance for credit losses for loans in the commercial lending segment.

The consumer lending segment represents loans and leases made to consumer customers, including residential mortgages, credit card loans, and other retail loans such as revolving consumer lines, auto loans and leases, home equity loans and lines, and student loans, a run-off portfolio. Home equity or

second mortgage loans are junior lien closed-end accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a 10- or 15-year fixed payment amortization schedule. Home equity lines are revolving accounts giving the borrower the ability to draw and repay balances repeatedly, up to a maximum commitment, and are secured by residential real estate. These include accounts in either a first or junior lien position. Typical terms on home equity lines in the portfolio are variable rates benchmarked to the prime rate, with a 10- or 15-year draw period during which a minimum payment is equivalent to the monthly interest, followed by a 20- or 10-year amortization period, respectively. At December 31, 2022, substantially all of the Company’s home equity lines were in the draw period. Key risk characteristics relevant to consumer lending segment loans primarily relate to the borrowers’ capacity and willingness to repay and include unemployment rates, consumer bankruptcy filings and other macroeconomic factors, customer payment history and credit scores, and in some cases, updated loan-to-value (“LTV”) information reflecting current market conditions on real estate-based loans. These and other risk characteristics are reflected in forecasts of delinquency levels, bankruptcies and losses which are the primary factors in determining the allowance for credit losses for the consumer lending segment.

The Company further disaggregates its loan portfolio segments into various classes based on their underlying risk characteristics. The two classes within the commercial lending segment are commercial loans and commercial real estate loans. The three classes within the consumer lending segment are residential mortgages, credit card loans and other retail loans.

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 Company also engages in non-lending activities that may give rise to credit risk, including derivative transactions for balance sheet hedging purposes, foreign exchange transactions, deposit overdrafts and interest rate contracts for customers, investments in securities and other financial assets, and settlement risk, including Automated Clearing House transactions and the processing of credit card transactions for merchants. These activities are subject to credit review, analysis and approval processes.

Economic and Other Factors 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.

During 2021, factors affecting economic conditions, including the further enactment of government stimulus programs and declining impacts from the pandemic in the United States, contributed to economic improvement. During 2022, economic

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uncertainty and recession risk increased due to ongoing supply chain challenges, rising interest rates and inflationary concerns, market volatility, rising energy prices resulting from the Russia-Ukraine conflict and related pressure on corporate earnings. In addition to these broad economic factors, expected loss estimates consider various factors including customer specific information impacting changes in risk ratings, projected delinquencies, potential effects of inflationary pressures and the impact of rising interest rates on selected borrowers’ liquidity and ability to repay.

Credit Diversification The Company manages its credit risk, in part, through diversification of its loan portfolio which is achieved through limit setting by product type criteria, such as industry, and identification of credit concentrations. As part of its normal business activities, the Company offers a broad array of traditional commercial lending products and specialized products such as asset-based lending, commercial lease financing, agricultural credit, warehouse mortgage lending, small business lending, commercial real estate lending, health care lending and correspondent banking financing. The Company also offers an array of consumer lending products, including residential mortgages, credit card loans, auto loans, retail leases, home equity loans and lines, revolving credit arrangements and other consumer loans. These consumer lending products are primarily offered through the branch office network, home mortgage and loan production offices, mobile and on-line banking, and indirect distribution channels, such as auto and recreational vehicle dealers. The Company monitors and manages the portfolio diversification by industry, customer and geography. Table 6 provides information with respect to the overall product diversification and changes in the mix during 2022.

The commercial loan class is diversified among various industries with higher concentrations in real estate and financial institutions. Additionally, the commercial loan class is diversified across the Company’s geographical markets, with a higher concentration in California. Table 8 provides a summary of significant industry groups and geographical locations of commercial loans outstanding at December 31, 2022 and 2021.

The commercial real estate loan class reflects the Company’s focus on serving business owners within its local network, as well as regional and national investment-based real estate owners and developers. Within the commercial real estate loan class, different property types have varying degrees of credit risk. Table 9 provides a summary of the significant property types and geographical locations of commercial real estate loans outstanding at December 31, 2022 and 2021. Commercial real estate loans are diversified among various property types with higher concentrations in business owner-occupied, multi-family and office properties.

The Company’s consumer lending segment utilizes several distinct business processes and channels to originate consumer credit, including traditional branch lending, mobile and on-line banking, indirect lending, alliance partnerships and correspondent banks. Each distinct underwriting and origination

activity manages unique credit risk characteristics and prices its loan production commensurate with the differing risk profiles.

Residential mortgage originations are generally limited to prime borrowers and are performed through the Company’s branches, loan production offices, mobile and on-line services, and a wholesale network of originators. The Company may retain residential mortgage loans it originates on its balance sheet or sell the loans into the secondary market while retaining the servicing rights and customer relationships. Utilizing the secondary markets enables the Company to effectively reduce its credit and other asset/liability risks. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is 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 December 31, 2022:

Residential Mortgages (Dollars in Millions)	Interest Only		Amortizing		Total		Percent of Total
Loan-to-Value
Less than or equal to 80%	$	15,474	$	82,114	$	97,588		84.2	%
Over 80% through 90%		557		8,440		8,997		7.8
Over 90% through 100%		44		1,514		1,558		1.4
Over 100%		6		368		374		.3
No LTV available		—		11		11		—
Loans purchased from GNMA mortgage pools(a)		—		7,317		7,317		6.3
Total	$	16,081	$	99,764	$	115,845		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%	$	10,657	$	1,331	$	11,988		93.2	%
Over 80% through 90%		574		130		704		5.5
Over 90% through 100%		61		12		73		.6
Over 100%		37		9		46		.3
No LTV/CLTV available		50		2		52		.4
Total	$	11,379	$	1,484	$	12,863		100.0	%

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Home equity and second mortgages were $12.9 billion at December 31, 2022, compared with $10.4 billion at December 31, 2021, and included $2.9 billion of home equity lines in a first lien position and $10.0 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at December 31, 2022, included approximately $3.3 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $6.7 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 December 31, 2022:

	Junior Liens Behind
(Dollars in Millions)	Company Owned or Serviced First Lien			Third Party First Lien			Total
Total	$	3,311		$	6,693		$	10,004
Percent 30 - 89 days past due		.50	%		.42	%		.45	%
Percent 90 days or more past due		.03	%		.04	%		.03	%
Weighted-average CLTV		70	%		68	%		69	%
Weighted-average credit score		782			783			783

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.

Tables 10, 11 and 12 provide a geographical summary of the residential mortgage, credit card and other retail loan portfolios, respectively.

The following table provides a summary of the Company’s credit card loan balances disaggregated based upon updated credit score at December 31, 2022:

	Percent of Total(a)
Credit score > 660		87	%
Credit score < 660		13
No credit score		—

(a) Credit score distribution excludes loans serviced by others.

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  TABLE 15   Delinquent Loan Ratios as a Percent of Ending Loan Balances

At December 31 90 days or more past due	2022			2021
Commercial
Commercial		.07	%		.05	%
Lease financing		—			—
Total commercial		.07			.04
Commercial Real Estate
Commercial mortgages		—			—
Construction and development		.03			.10
Total commercial real estate		.01			.03
Residential Mortgages(a)		.08			.24
Credit Card		.88			.73
Other Retail
Retail leasing		.04			.04
Home equity and second mortgages		.28			.35
Other		.08			.06
Total other retail		.12			.11
Total loans		.13	%		.15	%
At December 31 90 days or more past due and nonperforming loans	2022			2021
Commercial		.19	%		.20	%
Commercial real estate		.62			.76
Residential mortgages(a)		.36			.53
Credit card		.88			.73
Other retail		.37			.35
Total loans		.38	%		.42	%

(a) Delinquent loan ratios exclude $2.2 billion and $1.5 billion at December 31, 2022 and 2021, respectively, 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 2.28 percent and 2.43 percent at December 31, 2022 and 2021, respectively.

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. In addition, in certain situations, a consumer lending customer’s account may be re-aged to remove it from delinquent status. Generally, the purpose of re-aging accounts is to assist customers who have recently overcome temporary financial difficulties and have demonstrated both the ability and willingness to resume regular payments. In addition, the Company may re-age the consumer lending account of a customer who has experienced longer-term

financial difficulties and apply modified, concessionary terms and conditions to the account. Commercial lending loans are generally not subject to re-aging policies.

Accruing loans 90 days or more past due totaled $491 million at December 31, 2022, and included $22 million of accruing loans 90 days or more past due acquired as part of the MUB acquisition, compared with $472 million at December 31, 2021. 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 December 31, 2022, compared with 0.15 percent at December 31, 2021.

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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:

At December 31 (Dollars in Millions)	Amount				As a Percent of Ending Loan Balances
	2022		2021		2022			2021
Residential Mortgages(a)
30-89 days	$	201	$	124		.17	%		.15	%
90 days or more		95		181		.08			.24
Nonperforming		325		226		.28			.30
Total	$	621	$	531		.54	%		.69	%
Credit Card
30-89 days	$	283	$	193		1.08	%		.86	%
90 days or more		231		165		.88			.73
Nonperforming		1		—		—			—
Total	$	515	$	358		1.96	%		1.59	%
Other Retail
Retail Leasing
30-89 days	$	27	$	29		.49	%		.40	%
90 days or more		2		3		.04			.04
Nonperforming		8		10		.14			.14
Total	$	37	$	42		.67	%		.58	%
Home Equity and Second Mortgages
30-89 days	$	65	$	55		.51	%		.53	%
90 days or more		36		37		.28			.35
Nonperforming		110		116		.86			1.11
Total	$	211	$	208		1.64	%		1.99	%
Other(b)
30-89 days	$	217	$	191		.59	%		.43	%
90 days or more		28		26		.08			.06
Nonperforming		21		24		.06			.05
Total	$	266	$	241		.73	%		.54	%

(a) Excludes $647 million of loans 30-89 days past due and $2.2 billion of loans 90 days or more past due at December 31, 2022, purchased and that could be purchased from GNMA mortgage pools under delinquent loan repurchase options that continue to accrue interest, compared with $791 million and $1.5 billion at December 31, 2021.

(b) Includes revolving credit, installment and automobile loans.

Restructured Loans In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered.

Troubled Debt Restructurings Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in the payments to be received. TDRs accrue

interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. At December 31, 2022, performing TDRs were $3.3 billion, compared with $3.1 billion at December 31, 2021.

The Company continues to work with customers to modify loans for borrowers who are experiencing financial difficulties. Many of the Company’s TDRs are determined on a case-by-case basis in connection with ongoing loan collection processes. The modifications vary within each of the Company’s loan classes. Commercial lending segment TDRs generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate. The Company may also work with the borrower to make other changes to the loan to mitigate losses, such as obtaining additional collateral and/or guarantees to support the loan.

The Company has also implemented certain residential mortgage loan restructuring programs that may result in TDRs. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, and its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extensions of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.

Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers modification solutions over a specified time period, generally up to 60 months.

In accordance with regulatory guidance, the Company considers secured consumer loans that have had debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs. If the loan amount exceeds the collateral value, the loan is charged down to collateral value and the remaining amount is reported as nonperforming.

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The following table provides a summary of TDRs by loan class, including the delinquency status for TDRs that continue to accrue interest and TDRs included in nonperforming assets:

			As a Percent of Performing TDRs
At December 31, 2022 (Dollars in Millions)	Performing TDRs		30-89 Days Past Due			90 Days or More Past Due			Nonperforming TDRs			Total TDRs
Commercial	$	141		6.0	%		2.9	%	$	44	(a)	$	185
Commercial real estate		102		.3			—			101	(b)		203
Residential mortgages		1,600		2.5			2.9			122			1,722	(d)
Credit card		296		15.8			7.7			—			296
Other retail		179		11.2			4.5			31	(c)		210	(e)
TDRs, excluding loans purchased from GNMA mortgage pools		2,318		5.0			3.5			298			2,616
Loans purchased from GNMA mortgage pools (g)		1,018		—			—			—			1,018	(f)
Total	$	3,336		3.5	%		2.4	%	$	298		$	3,634

(a) Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months) and small business credit cards with a modified rate equal to 0 percent.

(b) Primarily represents loans less than six months from the modification date that have not met the performance period required to return to accrual status (generally six months).

(c) Primarily represents loans with a modified rate equal to 0 percent.

(d) Includes $205 million of residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $18 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.

(e) Includes $52 million of other retail loans to borrowers that have had debt discharged through bankruptcy and $13 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.

(f) Includes $155 million of Federal Housing Administration and United States Department of Veterans Affairs residential mortgage loans to borrowers that have had debt discharged through bankruptcy and $105 million in trial period arrangements or previously placed in trial period arrangements but not successfully completed.

(g) Approximately 6.8 percent and 32.4 percent of the total TDR loans purchased from GNMA mortgage pools are 30-89 days past due and 90 days or more past due, respectively, but are not classified as delinquent as their repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

Short-term and Other Loan Modifications The Company makes short-term and other modifications that it does not consider to be TDRs, in limited circumstances, to assist borrowers experiencing temporary hardships, including previously offering payment relief to borrowers that experienced financial hardship resulting directly from the effects of the COVID-19 pandemic. Short-term consumer lending modification programs include payment reductions, deferrals of up to three past due payments, and the ability to return to current status if the borrower makes required payments. The Company may also make short-term modifications to commercial lending loans, with the most common modification being an extension of the maturity date of three months or less. Such extensions generally are used when the maturity date is imminent and the borrower is experiencing some level of financial stress, but the Company believes the borrower will pay all contractual amounts owed.

Nonperforming Assets The level of nonperforming assets represents another indicator of the potential for future credit losses. Nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms and not accruing interest, restructured loans that have not met the performance period required to return to accrual status, other real estate owned (“OREO”) and other nonperforming

assets owned by the Company. Interest payments collected from assets on nonaccrual status are generally applied against the principal balance and not recorded as income. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.

At December 31, 2022, total nonperforming assets were $1.0 billion, and included $329 million of nonperforming loans related to the MUB acquisition, compared with $878 million at December 31, 2021. The $138 million (15.7 percent) increase in nonperforming assets, from December 31, 2021 to December 31, 2022, was driven by acquired balances partially offset by decreases in legacy portfolio nonperforming loans across all loan classes. The ratio of total nonperforming assets to total loans and other real estate was 0.26 percent at December 31, 2022, compared with 0.28 percent at December 31, 2021.

OREO was $23 million at December 31, 2022, compared with $22 million at December 31, 2021, and was related to foreclosed properties that previously secured loan balances. These balances exclude foreclosed GNMA loans whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

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  TABLE 16   Nonperforming Assets(a)

At December 31 (Dollars in Millions)	2022			2021
Commercial
Commercial	$	139		$	139
Lease financing		30			35
Total commercial		169			174
Commercial Real Estate
Commercial mortgages		251			213
Construction and development		87			71
Total commercial real estate		338			284
Residential Mortgages(b)		325			226
Credit Card		1			—
Other Retail
Retail leasing		8			10
Home equity and second mortgages		110			116
Other		21			24
Total other retail		139			150
Total nonperforming loans(1)		972			834
Other Real Estate(c)		23			22
Other Assets		21			22
Total nonperforming assets	$	1,016		$	878
Accruing loans 90 days or more past due(b)	$	491		$	472
Period-end loans(2)	$	388,213		$	312,028
Nonperforming loans to total loans(1)/(2)		.25	%		.27	%
Nonperforming assets to total loans plus other real estate(c)		.26	%		.28	%

Changes in Nonperforming Assets

(Dollars in Millions)	Commercial and Commercial Real Estate			Residential Mortgages, Credit Card and Other Retail			Total
Balance December 31, 2021	$	461		$	417		$	878
Additions to nonperforming assets
New nonaccrual loans and foreclosed properties		327			191			518
Advances on loans		7			2			9
Acquired nonperforming assets		182			148			330
Total additions		516			341			857
Reductions in nonperforming assets
Paydowns, payoffs		(282	)		(78	)		(360	)
Net sales		(8	)		(23	)		(31	)
Return to performing status		(65	)		(143	)		(208	)
Charge-offs(d)		(113	)		(7	)		(120	)
Total reductions		(468	)		(251	)		(719	)
Net additions to (reductions in) nonperforming assets		48			90			138
Balance December 31, 2022	$	509		$	507		$	1,016

(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 and $1.5 billion at December 31, 2022 and 2021, respectively, 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 $53 million and $22 million at December 31, 2022 and 2021, respectively, 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 17   Net Charge-offs as a Percent of Average Loans Outstanding

	2022								2021								2020
Year Ended December 31 (Dollars in Millions)	Average Loan Balance		Net Charge-offs			Percent			Average Loan Balance		Net Charge-offs			Percent			Average Loan Balance		Net Charge-offs			Percent
Commercial
Commercial	$	118,967	$	211			.18	%	$	97,649	$	97			.10	%	$	108,367	$	483			.45	%
Lease financing		4,830		16			.33			5,206		6			.12			5,600		30			.54
Total commercial		123,797		227			.18			102,855		103			.10			113,967		513			.45
Commercial real estate
Commercial mortgages		30,890		17			.06			27,997		(14	)		(.05	)		29,641		185			.62
Construction		10,208		20			.20			10,784		16			.15			10,907		2			.02
Total commercial real estate		41,098		37			.09			38,781		2			.01			40,548		187			.46
Residential mortgages		84,749		(23	)		(.03	)		74,629		(32	)		(.04	)		73,667		(12	)		(.02	)
Credit card		23,478		524			2.23			21,645		512			2.37			22,332		829			3.71
Other retail
Retail leasing		6,459		3			.05			7,710		2			.03			8,405		81			.96
Home equity and second mortgages		11,051		(7	)		(.06	)		11,228		(10	)		(.09	)		13,894		(4	)		(.03	)
Other		42,941		302			.70			40,117		105			.26			34,456		192			.56
Total other retail		60,451		298			.49			59,055		97			.16			56,755		269			.47
Total loans	$	333,573	$	1,063			.32	%	$	296,965	$	682			.23	%	$	307,269	$	1,786			.58	%

Analysis of Loan Net Charge-offs Total loan net charge-offs were $1.1 billion in 2022, compared with $682 million in 2021. The $381 million (55.9 percent) increase in total net charge-offs in 2022, compared with 2021, reflected $179 million of uncollectible MUB acquired loans, of which the majority of this balance related to loans that were previously charged-off by MUB, as well as $189 million of net charge-offs related to balance sheet repositioning and capital management actions taken during the fourth quarter of 2022 in connection with the acquisition. These increases in net charge-offs were partially offset by lower credit card net charge-offs in the legacy portfolio. The ratio of total loan net charge-offs to average loans outstanding, including the impacts of the acquisition, was 0.32 percent in 2022, compared with 0.23 percent in 2021.

Commercial and commercial real estate loan net charge-offs for 2022 were $264 million (0.16 percent of average loans outstanding), compared with $105 million (0.07 percent of average loans outstanding) in 2021. The increase in net charge-offs in 2022, compared with 2021, were driven primarily by MUB purchase accounting related net charge-offs of $143 million.

Residential mortgage loan net charge-offs for 2022 reflected a net recovery of $23 million (0.03 percent of average loans outstanding), compared with a net recovery of $32 million (0.04 percent of average loans outstanding) in 2021. Credit card loan net charge-offs in 2022 were $524 million (2.23 percent of average loans outstanding), compared with $512 million (2.37 percent of average loans outstanding) in 2021. Other retail loan net charge-offs for 2022 were $298 million (0.49 percent of average loans outstanding), compared with $97 million (0.16 percent of average loans outstanding) in 2021. The increase in total residential mortgage, credit card and other retail loan net charge-offs in 2022, compared with 2021, was driven by charge-offs related to the balance sheet repositioning and capital management actions taken in the fourth quarter of 2022, along

with MUB purchase accounting related net charge-offs, partially offset by lower net charge-offs in the legacy portfolio.

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.

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Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments, which is included in other liabilities in the Consolidated Balance Sheet. Both the allowance for loan losses and the liability for unfunded credit commitments are included in the Company’s analysis of credit losses and reported reserve ratios.

The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels, inflation, interest rates, and corporate bond spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores, delinquency status, collateral type and available valuation information, consideration of end-of-term losses on lease residuals, and the remaining term of the loan, adjusted for expected prepayments. For each loan portfolio, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or other factors that may affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off or expected recoveries on collateral-dependent loans where recovery is expected through sale of the collateral. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses.

The allowance recorded for individually evaluated loans greater than $5 million in the commercial lending segment is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans.

The allowance recorded for TDR loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the current fair value of the collateral less costs to sell.

When evaluating the appropriateness of the allowance for credit losses for any loans and lines in a junior lien position, the Company considers the delinquency and modification status of

the first lien. At December 31, 2022, 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 $195 million or 1.5 percent of its total home equity portfolio at December 31, 2022, 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 $5.1 billion of PCD loans, primarily related to the MUB acquisition, included in its loan portfolio at December 31, 2022.

The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above are adjusted by management to consider the potential impact of other qualitative factors not captured in quantitative model adjustments which include, but are not limited to, the following: model imprecision, imprecision in economic scenario assumptions, and emerging risks related to either changes in the economic environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio.

The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each loan portfolio. Table 19 shows the amount of the allowance for credit losses by loan class and underlying portfolio category.

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.

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At December 31, 2022, the allowance for credit losses was $7.4 billion, compared with an allowance of $6.2 billion at December 31, 2021. The increase in the allowance for credit losses of $1.2 billion (20.3 percent) at December 31, 2022, compared with December 31, 2021, included $336 million of initial allowance recorded through purchase accounting as well as the provision for credit losses of $662 million related to acquired loans from MUB, along with loan growth in the legacy portfolio and increased economic uncertainty.

The ratio of the allowance for credit losses to period-end loans was 1.91 percent at December 31, 2022, compared with 1.97 percent at December 31, 2021. The ratio of the allowance for credit losses to nonperforming loans was 762 percent at December 31, 2022, compared with 738 percent at

December 31, 2021. The ratio of the allowance for credit losses to annual loan net charge-offs at December 31, 2022, was 697 percent, compared with 902 percent at December 31, 2021. Management determined the allowance for credit losses was appropriate on December 31, 2022 and 2021.

Economic conditions considered in estimating the allowance for credit losses at December 31, 2022 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 3.5 percent to 8.4 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 December 31, 2022 and 2021:

	December 31, 2022			December 31, 2021
United States unemployment rate for the three months ending(a)
December 31, 2022		3.7	%		3.5	%
June 30, 2023		4.0			3.5
December 31, 2023		4.2			3.5
United States real gross domestic product for the three months ending(b)
December 31, 2022		.4	%		3.4	%
June 30, 2023		1.1			2.9
December 31, 2023		1.0			2.9

(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 $516 million during the year ended December 31, 2022, reflecting the impact of the MUB acquisition, along with the impacts of loan growth and increasing economic uncertainty.

The allowance for credit losses related to consumer lending segment loans increased $733 million during the year ended

December 31, 2022, due to the impacts of the MUB acquisition, loan growth and economic uncertainty, along with the effects of higher interest rates on the life of the residential mortgage portfolios and normalizing credit trends in the unsecured portfolios.

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  TABLE 18   Summary of Allowance for Credit Losses

(Dollars in Millions)	2022			2021			2020
Balance at beginning of year	$	6,155		$	8,010		$	4,491
Allowance for acquired credit losses(a)		336			—			—
Change in accounting principle(b)		—			—			1,499
Charge-Offs
Commercial
Commercial		294			206			536
Lease financing		25			16			39
Total commercial		319			222			575
Commercial real estate
Commercial mortgages		28			9			202
Construction and development		26			20			8
Total commercial real estate		54			29			210
Residential mortgages		13			18			19
Credit card		696			686			975
Other retail
Retail leasing		18			26			101
Home equity and second mortgages		9			12			16
Other		391			215			284
Total other retail		418			253			401
Total charge-offs		1,500			1,208			2,180
Recoveries
Commercial
Commercial		83			109			53
Lease financing		9			10			9
Total commercial		92			119			62
Commercial real estate
Commercial mortgages		11			23			17
Construction and development		6			4			6
Total commercial real estate		17			27			23
Residential mortgages		36			50			31
Credit card		172			174			146
Other retail
Retail leasing		15			24			20
Home equity and second mortgages		16			22			20
Other		89			110			92
Total other retail		120			156			132
Total recoveries		437			526			394
Net Charge-Offs
Commercial
Commercial		211			97			483
Lease financing		16			6			30
Total commercial		227			103			513
Commercial real estate
Commercial mortgages		17			(14	)		185
Construction and development		20			16			2
Total commercial real estate		37			2			187
Residential mortgages		(23	)		(32	)		(12	)
Credit card		524			512			829
Other retail
Retail leasing		3			2			81
Home equity and second mortgages		(7	)		(10	)		(4	)
Other		302			105			192
Total other retail		298			97			269
Total net charge-offs		1,063	(c)		682			1,786
Provision for credit losses		1,977	(d)		(1,173	)		3,806
Other changes		(1	)		—			—
Balance at end of year	$	7,404		$	6,155		$	8,010
Components
Allowance for loan losses	$	6,936		$	5,724		$	7,314
Liability for unfunded credit commitments		468			431			696
Total allowance for credit losses(1)	$	7,404		$	6,155		$	8,010
Period-end loans(2)	$	388,213		$	312,028		$	297,707
Nonperforming loans(3)		972			834			1,224
Allowance for Credit Losses as a Percentage of
Period-end loans(1)/(2)		1.91	%		1.97	%		2.69	%
Nonperforming loans(1)/(3)		762			738			654
Nonperforming and accruing loans 90 days or more past due		506			471			471
Nonperforming assets		729			701			617
Net charge-offs		697			902			448

(a) Allowance for purchased credit deteriorated and charged-off loans acquired from MUB.

(b) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than incurred losses.

(c) Includes $179 million of net charge-offs related to uncollectible MUB acquired loans, of which the majority of this balance related to loans that were previously charged-off by MUB, as well as $189 million of net charge-offs related to balance sheet repositioning and capital management actions taken during the fourth quarter of 2022 in connection with the acquisition.

(d) Includes provision for credit losses of $662 million related to the acquisition of MUB and a $129 million provision impact of balance sheet repositioning and capital management actions taken in the fourth quarter of 2022 related to the acquisition.

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  TABLE 19   Allocation of the Allowance for Credit Losses

	Allowance Amount				Allowance as a Percent of Loans
At December 31 (Dollars in Millions)	2022		2021		2022			2021
Commercial
Commercial	$	2,087	$	1,779		1.59	%		1.66	%
Lease financing		76		70		1.67			1.37
Total commercial		2,163		1,849		1.59			1.65
Commercial Real Estate
Commercial mortgages		878		699		2.01			2.43
Construction and development		447		424		3.81			4.12
Total commercial real estate		1,325		1,123		2.39			2.88
Residential Mortgages		926		565		.80			.74
Credit Card		2,020		1,673		7.68			7.44
Other Retail
Retail leasing		127		136		2.30			1.87
Home equity and second mortgages		298		231		2.32			2.21
Other		545		578		1.49			1.31
Total other retail		970		945		1.77			1.53
Total allowance	$	7,404	$	6,155		1.91	%		1.97	%

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. Lease originations are subject to the same well-defined underwriting standards referred to in the “Credit Risk Management” section, which includes an evaluation of the residual value risk. Retail lease residual value risk is mitigated further by effective end-of-term marketing of off-lease vehicles.

Included in the retail leasing portfolio was approximately $4.4 billion of retail leasing residuals at December 31, 2022, compared with $5.6 billion at December 31, 2021. The Company monitors concentrations of leases by manufacturer and vehicle type. As of December 31, 2022, vehicle lease residuals related to sport utility vehicles were 49.9 percent of the portfolio, while truck and crossover utility vehicle classes represented approximately 29.2 percent and 14.7 percent of the portfolio, respectively. At year-end 2022, the individual vehicle model with the largest residual value outstanding represented 19.8 percent of the aggregate residual value of all vehicles in the portfolio. At December 31, 2022, the weighted-average origination term of the portfolio was 42 months, compared with 41 months at December 31, 2021. At December 31, 2022, the commercial leasing portfolio had $500 million of residuals, compared with $515 million at December 31, 2021. At year-end 2022, lease residuals related to trucks and other transportation equipment represented 36.1 percent of the total residual portfolio, while business and office equipment represented 29.3 percent.

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.

Business continuation and disaster recovery planning is also critical to effectively managing operational risks. Each business unit of the Company is required to develop, maintain and test these plans at least annually to ensure that recovery activities, if needed, can support mission critical functions, including technology, networks and data centers supporting customer applications and business operations.

While the Company believes it has designed effective processes to minimize operational risks, there is no absolute assurance that business disruption or operational losses would not occur from an external event or internal control breakdown. On an ongoing basis, management makes process changes and investments to enhance its systems of internal controls and business continuity and disaster recovery plans.

In the past, the Company has experienced attack attempts on its computer systems, including various denial-of-service attacks on customer-facing websites. The Company has not experienced any material losses relating to these attempts, as a result of its controls, processes and systems to protect its networks, computers, software and data from attack, damage or unauthorized access but future attacks could be more disruptive or damaging. Attack attempts on the Company’s computer systems are evolving and increasing, and the Company continues

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to develop and enhance its controls and processes to protect against these attempts.

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 “Supervision and Regulation” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion of the regulatory framework applicable to bank holding companies and their subsidiaries.

Interest Rate Risk Management In the banking industry, changes in interest rates are a significant risk that can impact earnings and the safety and soundness of an entity. The Company manages its exposure to changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Management Committee (“ALCO”) and approved by the Board of Directors. The ALCO has the responsibility for approving and overseeing compliance with the ALCO management policies, including interest rate risk exposure. One way the Company measures and analyzes its interest rate risk is through net interest income simulation analysis.

Simulation analysis incorporates substantially all of the Company’s assets and liabilities and off-balance sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through this simulation, management estimates the impact on net interest income of various interest rate changes that differ in the direction, amount and speed of change over time, as well as the shape of the yield curve. This simulation includes assumptions about how the balance sheet is likely to be affected by changes in loan and deposit growth. Assumptions are made to project interest rates for new loans and deposits based on historical analysis, management’s outlook and re-pricing strategies. These assumptions are reviewed and validated on a periodic basis with sensitivity analysis being provided for key variables of the simulation. The results are reviewed monthly by the ALCO and are used to guide asset/liability management strategies.

The Company manages its interest rate risk position by holding assets with desired interest rate risk characteristics on its balance sheet, implementing certain pricing strategies for loans and deposits and selecting derivatives and various funding and investment portfolio strategies.

Table 20 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.

  TABLE 20   Sensitivity of Net Interest Income

	December 31, 2022(a)												December 31, 2021
	Down 50 bps Immediate			Up 50 bps Immediate			Down 200 bps Gradual			Up 200 bps Gradual			Down 50 bps Immediate			Up 50 bps Immediate			Down 200 bps Gradual		Up 200 bps Gradual
Net interest income		(.58	)%		.95	%		(2.02	)%		1.44	%		(3.77	)%		3.09	%		*		5.39	%

* Given the level of interest rates, downward rate scenario is not computed.

(a) December 31, 2022 amounts include MUB.

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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. Refer to Note 10 of the Notes to Consolidated Financial Statements for additional information regarding MSRs, including management of the changes in fair value.

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.

For additional information on derivatives and hedging activities, refer to Notes 20 and 21 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

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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” beginning on page 140, for further discussion on potential risks that could adversely affect the Company’s financial results as a result of the LIBOR transition.

Market Risk Management In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support customers’ strategies to manage their own foreign currency, interest rate risk and funding activities. For purposes of its internal capital adequacy assessment process, the Company considers risk arising from its trading activities, as well as the remeasurement volatility of foreign currency denominated balances included on its Consolidated Balance Sheet (collectively, “Covered Positions”), employing methodologies consistent with the requirements of regulatory rules for market risk. The Company’s Market Risk Committee (“MRC”), within the framework of the ALCO, oversees market risk management. The MRC monitors and reviews the Company’s Covered Positions and establishes policies for market risk management, including exposure limits for each portfolio. The Company uses a VaR approach to measure general market risk. Theoretically, VaR represents the statistical risk of loss the Company has to adverse market movements over a one-day time horizon. The Company uses the Historical Simulation method to calculate VaR for its Covered Positions measured at the ninety-ninth percentile using a one-year look-back period for distributions derived from past market data. The market factors used in the calculations include those pertinent to market risks inherent in the underlying trading portfolios, principally those that affect the Company’s corporate bond trading business, foreign currency transaction business, client derivatives business, loan trading business and municipal securities business, as well as those inherent in the Company’s foreign denominated balances and the derivatives used to mitigate the related measurement volatility. On average, the Company expects the one-day VaR to be exceeded by actual losses two to three times per year related to these positions. The Company monitors the accuracy of internal VaR models and modeling processes by back-testing model performance, regularly updating the historical data used by the VaR models and regular model validations to assess the accuracy of the models’ input, processing, and reporting components. All models are required to be independently reviewed and approved prior to being placed in use. If the Company were to experience market losses in excess of the estimated VaR more often than expected, the VaR models and associated assumptions would be analyzed and adjusted. 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:

Year Ended December 31 (Dollars in Millions)	2022		2021
Average	$	2	$	2
High		7		4
Low		1		1
Period-end		5		2

The Company did not experience any actual losses for its combined Covered Positions that exceeded VaR during the years ended December 31, 2022 and 2021. The Company stress tests its market risk measurements to provide management with perspectives on market events that may not be captured by its VaR models, including worst case historical market movement combinations that have not necessarily occurred on the same date.

The Company calculates Stressed VaR using the same underlying methodology and model as VaR, except that a historical continuous one-year look-back period is utilized that reflects a period of significant financial stress appropriate to the Company’s Covered Positions. The period selected by the Company includes the significant market volatility of the last four months of 2008.

The average, high, low and period-end one-day Stressed VaR amounts for the Company’s Covered Positions were as follows:

Year Ended December 31 (Dollars in Millions)	2022		2021
Average	$	10	$	7
High		19		9
Low		6		5
Period-end		13		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 valuation of the assets and hedges. A one-year look-back period is used to obtain past market data for the models.

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The average, high and low VaR amounts for the residential MLHFS and related hedges and the MSRs and related hedges were as follows:

Year Ended December 31 (Dollars in Millions)	2022		2021
Residential Mortgage Loans Held For Sale and Related Hedges
Average	$	2	$	9
High		5		19
Low		—		4
Mortgage Servicing Rights and Related Hedges
Average	$	8	$	4
High		20		11
Low		3		1

Liquidity Risk Management The Company’s liquidity risk management process is designed to identify, measure, and manage the Company’s funding and liquidity risk to meet its daily funding needs and to address expected and unexpected changes in its funding requirements. The Company engages in various activities to manage its liquidity risk. These activities include diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity if needed. In addition, the Company’s profitable operations, sound credit quality and strong capital position have enabled it to develop a large and reliable base of core deposit funding within its market areas and in domestic and global capital markets.

The Company’s Board of Directors approves the Company’s liquidity policy. The Risk Management Committee of the Company’s Board of Directors oversees the Company’s liquidity risk management process and approves a contingency funding plan. The ALCO reviews the Company’s liquidity policy and limits, and regularly assesses the Company’s ability to meet funding requirements arising from adverse company-specific or market events.

The Company’s liquidity policy requires it to maintain diversified wholesale funding sources to avoid maturity, entity and market concentrations. The Company operates a Cayman Islands branch for issuing Eurodollar time deposits. In addition, the Company has relationships with dealers to issue national market retail and institutional savings certificates and short-term and medium-term notes. The Company also maintains a significant correspondent banking network and relationships. Accordingly, the Company has access to national federal funds, funding through repurchase agreements and sources of stable certificates of deposit and commercial paper.

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. 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 December 31, 2022, the fair value of unencumbered investment securities totaled $135.5 billion, compared with $144.0 billion at December 31, 2021. Refer to Note 5 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. At December 31, 2022, the Company could have borrowed a total of an additional $114.8 billion from the FHLB and Federal Reserve Bank based on collateral available for additional borrowings.

The Company’s diversified deposit base provides a sizeable source of relatively stable and low-cost funding, while reducing the Company’s reliance on the wholesale markets. Total deposits were $525.0 billion at December 31, 2022, compared with $456.1 billion at December 31, 2021. Refer to Note 12 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on the maturities, terms and trends of the Company’s deposits.

Additional funding is provided by long-term debt and short-term borrowings. Long-term debt was $39.8 billion at December 31, 2022, and is an important funding source because of its multi-year borrowing structure. Refer to Note 14 of the Notes to Consolidated Financial Statements for information on the terms and maturities of the Company’s long-term debt issuances and “Balance Sheet Analysis” for discussion on long-term debt trends. Short-term borrowings were $31.2 billion at December 31, 2022, and supplement the Company’s other funding sources. Refer to Note 13 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on the terms and trends of the Company’s short-term borrowings.

The Company’s ability to raise negotiated funding at competitive prices is influenced by rating agencies’ views of the Company’s credit quality, liquidity, capital and earnings. Table 21 details the rating agencies’ most recent assessments.

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  TABLE 21   Credit Ratings

	Moody’s		S&P Global Ratings		Fitch Ratings		DBRS Morningstar
U.S. Bancorp
Long-term issuer rating		A2		A+		AA-		AA
Short-term issuer rating				A-1		F1+		R-1 (middle)
Senior unsecured debt		A2		A+		A+		AA
Subordinated debt		A2		A		A		AA (low)
Junior subordinated debt		A3
Preferred stock		Baa1		BBB+		BBB+		A
Commercial paper		P-1				F1+
U.S. Bank National Association
Long-term issuer rating		A1		AA-		AA-		AA (high)
Short-term issuer rating		P-1		A-1+		F1+		R-1 (high)
Long-term deposits		Aa2				AA		AA (high)
Short-term deposits		P-1				F1+
Senior unsecured debt		A1		AA-		AA-		AA (high)
Subordinated debt		A1		A+				AA
Commercial paper		P-1		A-1+		F1+
Counterparty risk assessment		Aa3(cr)/P-1(cr)
Counterparty risk rating		A1/P-1
Baseline credit assessment		a1

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. During 2022, the Company used approximately $5.5 billion of parent company cash to acquire MUB. 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 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.

Under United States Securities and Exchange Commission rules, the parent company is classified as a “well-known seasoned issuer,” which allows it to file a registration statement that does not have a limit on issuance capacity. “Well-known seasoned issuers” generally include those companies with outstanding common securities with a market value of at least $700 million held by non-affiliated parties or those companies that have issued at least $1 billion in aggregate principal amount of non-convertible securities, other than common equity, in the last three years. However, the parent company’s ability to issue

debt and other securities under a registration statement filed with the United States Securities and Exchange Commission under these rules is limited by the debt issuance authority granted by the Company’s Board of Directors and/or the ALCO policy.

At December 31, 2022, parent company long-term debt outstanding was $27.0 billion, compared with $18.9 billion at December 31, 2021. The increase was primarily due to $6.9 billion of medium-term note and $1.3 billion of subordinated note issuances, along with an increase related to the $3.5 billion of additional capital received as part of the MUB acquisition. These increases were partially offset by $1.3 billion of subordinated note and $1.0 billion of medium-term note repayments. As of December 31, 2022, there was no parent company debt scheduled to mature in 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.

Dividend payments to the Company by its subsidiary banks are subject to regulatory review and statutory limitations and, in some instances, regulatory approval. In general, dividends to the parent company from its banking subsidiaries are limited by rules which compare dividends to net income for regulatorily-defined periods. For further information, see Note 25 of the Notes to Consolidated Financial Statements.

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 December 31, 2022, the Company was compliant with this requirement.

The Company is also subject to a regulatory Net Stable Funding Ratio (“NSFR”) requirement which requires banks to maintain a minimum level of stable funding based on the liquidity

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characteristics of their assets, commitments, and derivative exposures over a one-year time horizon. At December 31, 2022, the Company was compliant with this requirement.

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 2022. Operating cash for these businesses is deposited on a short-term basis typically with certain European central banks. For deposits placed at other European banks, exposure is mitigated by the Company placing deposits at multiple banks and managing the amounts on deposit at any bank based on institution-specific deposit limits. At December 31, 2022, the Company had an aggregate amount on deposit with European banks of approximately $7.7 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 also include any obligation related to a variable interest held in an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support.

In the ordinary course of business, the Company enters into contractual obligations that may require future cash payments, including funding for customer loan requests, customer deposit maturities and withdrawals, debt service, leases for premises and equipment, and other cash commitments. Refer to Notes 7, 12, 14, 17 and 23 in the Notes to Consolidated Financial Statements for information on the Company’s operating lease obligations, deposits, long-term debt, benefit obligations and guarantees and other commitments, respectively.

Commitments to extend credit are legally binding and generally have fixed expiration dates or other termination clauses. Many of the Company’s commitments to extend credit expire without being drawn and, therefore, total commitment amounts do not necessarily represent future liquidity requirements or the Company’s exposure to credit loss. Commitments to extend credit also include consumer credit lines that are cancelable upon notification to the consumer. Total contractual amounts of commitments to extend credit at December 31, 2022 were

$387.4 billion. The Company also issues and confirms various types of letters of credit, including standby and commercial. Total contractual amounts of letters of credit at December 31, 2022 were $11.4 billion. For more information on the Company’s commitments to extend credit and letters of credit, refer to Note 23 in the Notes to Consolidated Financial Statements.

The Company’s off-balance sheet arrangements with unconsolidated entities primarily consist of private investment funds or partnerships that make equity investments, provide debt financing or support community-based investments in tax-advantaged projects. In addition to providing investment returns, these arrangements in many cases assist the Company in complying with requirements of the Community Reinvestment Act. The 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. The entities in which the Company invests are generally considered variable interest entities (“VIEs”). The Company’s recorded investment in these entities, net of contractual equity investment commitments of $2.4 billion, was $3.0 billion at December 31, 2022.

The Company also has non-controlling financial investments in private funds and partnerships considered VIEs. The Company’s recorded investment in these entities was approximately $177 million at December 31, 2022, and the Company had unfunded commitments to invest an additional $133 million. For more information on the Company’s interests in unconsolidated VIEs, refer to Note 8 in the Notes to Consolidated Financial Statements.

Guarantees are contingent commitments issued by the Company to customers or other third parties requiring the Company to perform if certain conditions exist or upon the occurrence or nonoccurrence of a specified event, such as a scheduled payment to be made under contract. The Company’s primary guarantees include commitments from securities lending activities in which indemnifications are provided to customers; indemnification or buy-back provisions related to sales of loans and tax credit investments; and merchant charge-back guarantees through the Company’s involvement in providing merchant processing services. For certain guarantees, the Company may have access to collateral to support the guarantee, or through the exercise of other recourse provisions, be able to offset some or all of any payments made under these guarantees.

The Company and certain of its subsidiaries, along with other Visa U.S.A. Inc. member banks, have a contingent guarantee obligation to indemnify Visa Inc. for potential losses arising from antitrust lawsuits challenging the practices of Visa U.S.A. Inc. and MasterCard International. The indemnification by the Company and other Visa U.S.A. Inc. member banks has no maximum amount. Refer to Note 23 in the Notes to Consolidated Financial Statements for further details regarding guarantees, other commitments, and contingent liabilities, including maximum potential future payments and current carrying amounts.

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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 Company announced on December 22, 2020 that its Board of Directors had approved an authorization to repurchase $3.0 billion of its common stock beginning January 1, 2021, and repurchased $1.5 billion of its common stock during the first six months of 2021 under this program. The Company suspended all common stock repurchases at the beginning of the third quarter of 2021, except for those done exclusively in connection with its stock-based compensation programs, due to its acquisition of MUB. The Company does not expect to commence repurchasing its common stock until after its common equity tier 1 capital ratio approximates 9.0 percent at which time the Company will assess its capital position relative to existing and proposed regulatory capital requirements.

The Company announced on September 13, 2022 that its Board of Directors had approved a regular quarterly dividend of $0.48 per common share. This represented a 4.3 percent increase over the previous dividend rate per common share of $0.46 per quarter.

The Company will continue to monitor its capital position and may adjust its capital distributions based on economic conditions, existing and proposed regulatory capital requirements and its financial performance. Capital distributions, including dividends and stock repurchases, are subject to the approval of the Company’s Board of Directors and compliance with regulatory requirements. For a more complete analysis of activities impacting shareholders’ equity and capital management programs, refer to Note 15 of the Notes to Consolidated Financial Statements.

Total U.S. Bancorp shareholders’ equity was $50.8 billion at December 31, 2022, compared with $54.9 billion at December 31, 2021. The decrease was primarily the result of changes in unrealized gains and losses on available-for-sale investment securities included in other comprehensive income (loss) and dividends paid, partially offset by corporate earnings, the issuance of additional common shares related to the acquisition of MUB and the issuance of preferred stock.

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. Under Basel III, banking regulators define minimum capital requirements for banks and financial services holding companies. These requirements are expressed in the form of a minimum common equity tier 1 capital ratio, tier 1 capital ratio, total risk-based capital ratio, tier 1 leverage ratio and a tier 1 total leverage exposure, or supplementary leverage, ratio. The Company’s minimum required level for these ratios at December 31, 2022, which include a stress capital buffer of 2.5 percent for the common equity tier 1 capital, tier 1 capital and total capital ratios, was 7.0 percent, 8.5 percent, 10.5 percent, 4.0 percent, and 3.0 percent, respectively. The Company targets its regulatory capital levels, at both the bank and bank holding company level, to exceed the “well-capitalized” threshold for these ratios under the FDIC Improvement Act prompt corrective action provisions that are applicable to all banks. At December 31, 2022, the minimum “well-capitalized” thresholds under the prompt corrective action framework for the common equity tier 1 capital ratio, tier 1 capital ratio, total risk-based capital ratio, tier 1 leverage ratio, and tier 1 total leverage exposure ratio was 6.5 percent, 8.0 percent, 10.0 percent, 5.0 percent, and 3.0 percent, respectively. Beginning in 2022, the Company began to phase into its regulatory capital requirements the cumulative deferred impact of its 2020 adoption of the accounting guidance related to the impairment of financial instruments based on the current expected credit losses (“CECL”) methodology plus 25 percent of its quarterly credit reserve increases over the past two years. This cumulative deferred impact will be phased into the Company’s regulatory capital over the next three years, culminating with a fully phased in regulatory capital calculation beginning in 2025. As of December 31, 2022, the Company’s bank subsidiaries met all regulatory capital ratios to be considered “well-capitalized”. There are no conditions or events since December 31, 2022 that management believes have changed the risk-based category of its covered subsidiary banks.

As an approved mortgage seller and servicer, the Company’s banking subsidiaries, through their mortgage banking divisions, are required to maintain various levels of shareholder’s equity, as specified by various agencies, including the United States Department of Housing and Urban Development, Government National Mortgage Association, Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. At December 31, 2022, the Company’s banking subsidiaries met these requirements.

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  TABLE 22   Regulatory Capital Ratios

At December 31 (Dollars in Millions)	2022			2021
Basel III standardized approach:
Common shareholders’ equity	$	43,958		$	48,547
Less intangible assets
Goodwill (net of deferred tax liability)		(11,395	)		(9,323	)
Other disallowed intangible assets (net of deferred tax liability)		(2,792	)		(785	)
Other(a)		11,789			3,262
Common equity tier 1 capital		41,560			41,701
Qualifying preferred stock		6,808			6,371
Noncontrolling interests eligible for tier 1 capital		450			450
Other(b)		(5	)		(6	)
Tier 1 capital		48,813			48,516
Eligible portion of allowance for credit losses		5,682			4,081
Subordinated debt and noncontrolling interests eligible for tier 2 capital		4,520			3,653
Tier 2 capital		10,202			7,734
Total risk-based capital	$	59,015		$	56,250
Risk-weighted assets	$	496,500		$	418,571
Common equity tier 1 capital as a percent of risk-weighted assets		8.4	%		10.0	%
Tier 1 capital as a percent of risk-weighted assets		9.8			11.6
Total risk-based capital as a percent of risk-weighted assets		11.9			13.4
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)		7.9			8.6
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)		6.4			6.9

(a) Includes the impact of items included in other comprehensive income (loss), such as unrealized gains (losses) on available-for-sale securities, accumulated net gains on cash flow hedges, pension liability adjustments, etc., and the portion of deferred tax assets related to net operating loss and tax credit carryforwards not eligible for common equity tier 1 capital.

(b) Includes the remaining portion of deferred tax assets not eligible for total tier 1 capital.

Table 22 provides a summary of statutory regulatory capital ratios in effect for the Company at December 31, 2022 and 2021. All regulatory ratios exceeded regulatory “well-capitalized” requirements.

The Company believes certain other capital ratios are useful in evaluating its capital adequacy. The Company’s tangible common equity, as a percent of tangible assets and as a percent of risk-weighted assets determined in accordance with transitional regulatory capital requirements related to the CECL methodology under the standardized approach, was 4.5 percent and 6.0 percent, respectively, at December 31, 2022, compared with 6.8 percent and 9.2 percent at December 31, 2021, respectively. In addition, the Company’s common equity tier 1 capital to risk-weighted assets ratio, reflecting the full implementation of the CECL methodology was 8.1 percent at December 31, 2022, compared with 9.6 percent at December 31, 2021. Refer to “Non-GAAP Financial Measures” beginning on page 59 for further information on these other capital ratios.

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 24 of the Notes to Consolidated Financial Statements for further information on the business lines’ basis for financial presentation.

Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2022, certain organization and methodology changes were made and, accordingly, 2021 results were restated and presented on a comparable basis. Effective with the close of the MUB acquisition, MUB related business activities were integrated into the applicable line of business results.

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 $1.8 billion of the Company’s net income in 2022, or an increase of $277 million (17.7 percent), compared with 2021.

Net revenue increased $584 million (15.0 percent) in 2022, compared with 2021. Net interest income, on a taxable-

56    

equivalent basis, increased $615 million (21.6 percent) in 2022, compared with 2021, primarily due to higher loan and interest-bearing deposit balances, including those balances related to MUB, 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 decreased $31 million (3.0 percent) in 2022, compared with 2021, primarily due to lower commercial products revenue due to lower capital markets revenue, partially offset by higher trading revenue.

Noninterest expense increased $131 million (7.5 percent) in 2022, compared with 2021, 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, as well as higher compensation and employee benefits expense primarily due to merit increases and hiring to support business growth, partially offset by lower performance-based incentives related to capital markets activity. The provision for credit losses increased $84 million in 2022, compared with 2021, primarily due to loan loss provisions supporting growth in loan balances.

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 $1.8 billion of the Company’s net income in 2022, or a decrease of $551 million (23.4 percent), compared with 2021.

Net revenue decreased $121 million (1.4 percent) in 2022, compared with 2021. Noninterest income decreased $940 million (37.7 percent) in 2022, compared with 2021, primarily due to lower mortgage banking revenue reflecting lower application volume, lower related gain on sale margins and lower performing loan sales, partially offset by an increase in the fair value of MSRs, net of hedging activities. Net interest income, on a taxable-equivalent basis, increased $819 million (13.5 percent) in 2022, compared with 2021, reflecting the favorable impact of higher rates on the margin benefit of deposits, partially offset by lower spreads on loans and lower loan fees.

Noninterest expense increased $249 million (4.5 percent) in 2022, compared with 2021, primarily due to increases in net shared services expense due to investments in digital capabilities and the impact of the MUB acquisition, as well as lower capitalized loan costs driven by lower mortgage production, partially offset by lower compensation and employee benefits expense and related loan expenses due to lower mortgage production. The provision for credit losses increased $364 million in 2022, compared with 2021, due to the impacts of balance sheet repositioning and capital management actions taken in the fourth quarter of 2022 in connection with the acquisition, along with loan balance growth and more favorable credit trends in 2021.

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 $1.3 billion of the Company’s net income in 2022, or an increase of $471 million (55.9 percent), compared with 2021.

Net revenue increased $953 million (29.6 percent) in 2022, compared with 2021. Net interest income, on a taxable-equivalent basis, increased $622 million (62.1 percent) in 2022, compared with 2021, primarily due to the favorable impact of higher rates on the margin benefit from deposits. Noninterest income increased $331 million (14.9 percent) in 2022, compared with 2021, primarily driven by higher trust and investment management fees reflecting lower money market fund fee waivers, the impact of the PFM acquisition and core business growth, partially offset by the impact of unfavorable market conditions.

Noninterest expense increased $323 million (15.4 percent) in 2022, compared with 2021, reflecting higher compensation and employee benefits expense as a result of merit increases, the PFM acquisition, core business growth and performance-based incentives, as well as higher net shared services expense driven by investment in support of business growth and the impact of the MUB acquisition.

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 $1.3 billion of the Company’s net income in 2022, or a decrease of $380 million (22.3 percent), compared with 2021.

Net revenue increased $290 million (4.8 percent) in 2022, compared with 2021. Net interest income, on a taxable-equivalent basis, increased $41 million (1.7 percent) in 2022, compared with 2021, primarily due to higher loan balances, higher loan fees and higher loan yields driven by higher interest rates, partially offset by higher funding costs. Noninterest income increased $249 million (7.0 percent) in 2022, compared with 2021, 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.

Noninterest expense increased $165 million (4.9 percent) in 2022, compared with 2021, reflecting higher net shared services expense driven by investment in infrastructure and technology development, in addition to higher compensation and employee benefits expense as a result of merit increases and core business growth. The provision for credit losses increased $631 million in 2022, compared with 2021, primarily due to the impacts of increasing delinquency rates, along with stronger growth in loan balances.

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  TABLE 23   Line of Business Financial Performance

	Corporate and Commercial Banking							Consumer and Business Banking								Wealth Management and Investment Services
Year Ended December 31 (Dollars in Millions)	2022		2021		Percent Change			2022		2021			Percent Change			2022		2021		Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	3,468	$	2,853		21.6	%	$	6,904	$	6,085			13.5	%	$	1,624	$	1,002		62.1	%
Noninterest income		1,008		1,039		(3.0	)		1,556		2,496			(37.7	)		2,553		2,222		14.9
Total net revenue		4,476		3,892		15.0			8,460		8,581			(1.4	)		4,177		3,224		29.6
Noninterest expense		1,872		1,741		7.5			5,824		5,575			4.5			2,417		2,094		15.4
Income (loss) before provision and income taxes		2,604		2,151		21.1			2,636		3,006			(12.3	)		1,760		1,130		55.8
Provision for credit losses		149		65		*			228		(136	)		*			9		7		28.6
Income (loss) before income taxes		2,455		2,086		17.7			2,408		3,142			(23.4	)		1,751		1,123		55.9
Income taxes and taxable-equivalent adjustment		614		522		17.6			602		785			(23.3	)		438		281		55.9
Net income (loss)		1,841		1,564		17.7			1,806		2,357			(23.4	)		1,313		842		55.9
Net (income) loss attributable to noncontrolling interests		—		—		—			—		—			—			—		—		—
Net income (loss) attributable to U.S. Bancorp	$	1,841	$	1,564		17.7		$	1,806	$	2,357			(23.4	)	$	1,313	$	842		55.9
Average Balance Sheet
Loans	$	127,916	$	103,404		23.7		$	145,079	$	140,890			3.0		$	22,410	$	18,095		23.8
Goodwill		1,915		1,715		11.7			3,249		3,429			(5.2	)		1,720		1,628		5.7
Other intangible assets		57		5		*			3,785		2,761			37.1			308		84		*
Assets		143,370		115,423		24.2			160,713		161,385			(.4	)		26,036		21,303		22.2
Noninterest-bearing deposits		57,451		61,991		(7.3	)		32,256		33,063			(2.4	)		24,721		24,663		.2
Interest-bearing deposits		97,169		71,711		35.5			167,938		157,592			6.6			73,461		76,000		(3.3	)
Total deposits		154,620		133,702		15.6			200,194		190,655			5.0			98,182		100,663		(2.5	)
Total U.S. Bancorp shareholders’ equity		14,403		13,906		3.6			12,550		12,319			1.9			3,675		3,154		16.5

	Payment Services							Treasury and Corporate Support									Consolidated Company
Year Ended December 31 (Dollars in Millions)	2022		2021		Percent Change			2022			2021			Percent Change			2022			2021			Percent Change
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	2,498	$	2,457		1.7	%	$	352		$	203			73.4	%	$	14,846		$	12,600			17.8	%
Noninterest income		3,799		3,550		7.0			540			920			(41.3	)		9,456			10,227			(7.5	)
Total net revenue		6,297		6,007		4.8			892			1,123			(20.6	)		24,302			22,827			6.5
Noninterest expense		3,551		3,386		4.9			1,242			932			33.3			14,906			13,728			8.6
Income (loss) before provision and income taxes		2,746		2,621		4.8			(350	)		191			*			9,396			9,099			3.3
Provision for credit losses		980		349		*			611			(1,458	)		*			1,977			(1,173	)		*
Income (loss) before income taxes		1,766		2,272		(22.3	)		(961	)		1,649			*			7,419			10,272			(27.8	)
Income taxes and taxable-equivalent adjustment		442		568		(22.2	)		(515	)		131			*			1,581			2,287			(30.9	)
Net income (loss)		1,324		1,704		(22.3	)		(446	)		1,518			*			5,838			7,985			(26.9	)
Net (income) loss attributable to noncontrolling interests		—		—		—			(13	)		(22	)		40.9			(13	)		(22	)		40.9
Net income (loss) attributable to U.S. Bancorp	$	1,324	$	1,704		(22.3	)	$	(459	)	$	1,496			*		$	5,825		$	7,963			(26.8	)
Average Balance Sheet
Loans	$	34,627	$	30,856		12.2		$	3,541		$	3,720			(4.8	)	$	333,573		$	296,965			12.3
Goodwill		3,305		3,184		3.8			—			—			—			10,189			9,956			2.3
Other intangible assets		423		507		(16.6	)		4			—			*			4,577			3,357			36.3
Assets		41,109		36,549		12.5			220,921			221,872			(.4	)		592,149			556,532			6.4
Noninterest-bearing deposits		3,410		4,861		(29.8	)		2,556			2,626			(2.7	)		120,394			127,204			(5.4	)
Interest-bearing deposits		162		145		11.7			3,260			1,629			*			341,990			307,077			11.4
Total deposits		3,572		5,006		(28.6	)		5,816			4,255			36.7			462,384			434,281			6.5
Total U.S. Bancorp shareholders’ equity		8,235		7,642		7.8			11,553			16,789			(31.2	)		50,416			53,810			(6.3	)

* Not meaningful

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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 $459 million in 2022, compared with net income of $1.5 billion in 2021.

Net revenue decreased $231 million (20.6 percent) in 2022, compared with 2021. Noninterest income decreased $380 million (41.3 percent) in 2022, compared with 2021, primarily due to the impacts of balance sheet repositioning and capital management actions taken in the fourth quarter of 2022 associated with the acquisition of MUB, partially offset by higher tax-advantaged investment syndication revenue. Net interest income, on a taxable-equivalent basis, increased $149 million (73.4 percent) in 2022, compared with 2021, primarily due to higher yields on the investment securities portfolio and interest-bearing deposits with banks, mostly offset by higher funding costs.

Noninterest expense increased $310 million (33.3 percent) in 2022, compared with 2021, primarily due to merger and integration charges associated with the acquisition of MUB, other accruals and higher compensation and employee benefits expense reflecting merit increases and hiring to support business growth, partially offset by lower net shared services expense. The provision for credit losses was $2.1 billion higher in 2022, compared with 2021, primarily due to the initial provision for credit losses recorded in the fourth quarter of 2022 related to the MUB acquisition and additional impacts to the allowance for credit losses related to increasing economic uncertainty in the current year, compared to improving economic conditions in the prior year.

Income taxes are assessed to each line of business at a managerial tax rate of 25.0 percent with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.

Non-GAAP Financial Measures

In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:

– Tangible common equity to tangible assets,

– Tangible common equity to risk-weighted assets, and

– Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology.

These capital measures are viewed by management as useful additional methods of evaluating the Company’s utilization of its capital held and the level of capital available to withstand unexpected negative market or economic conditions. Additionally, presentation of these measures allows investors, analysts and banking regulators to assess the Company’s capital position relative to other financial services companies. These capital measures are not defined in generally accepted accounting principles (“GAAP”), or are not currently effective or defined in banking regulations. In addition, certain of these measures differ from currently effective capital ratios defined by banking regulations principally in that the currently effective ratios, which are subject to certain transitional provisions, temporarily exclude the impact of the 2020 adoption of accounting guidance related to impairment of financial instruments based on the CECL methodology. As a result, these capital measures disclosed by the Company may be considered non-GAAP financial measures. Management believes this information helps investors assess trends in the Company’s capital adequacy.

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 tables show the Company’s calculation of these non-GAAP financial measures:

At December 31 (Dollars in Millions)	2022			2021
Total equity	$	51,232		$	55,387
Preferred stock		(6,808	)		(6,371	)
Noncontrolling interests		(466	)		(469	)
Goodwill (net of deferred tax liability)(1)		(11,395	)		(9,323	)
Intangible assets (net of deferred tax liability), other than mortgage servicing rights		(2,792	)		(785	)
Tangible common equity(a)		29,771			38,439
Common equity tier 1 capital, determined in accordance with transitional regulatory capital requirements related to the CECL methodology implementation		41,560			41,701
Adjustments(2)		(1,299	)		(1,733	)
Common equity tier 1 capital, reflecting the full implementation of the CECL methodology(b)		40,261			39,968
Total assets		674,805			573,284
Goodwill (net of deferred tax liability)(1)		(11,395	)		(9,323	)
Intangible assets (net of deferred tax liability), other than mortgage servicing rights		(2,792	)		(785	)
Tangible assets(c)		660,618			563,176
Risk-weighted assets, determined in accordance with prescribed regulatory capital requirements effective for the Company(d)		496,500			418,571
Adjustments(3)		(620	)		(357	)
Risk-weighted assets, reflecting the full implementation of the CECL methodology(e)		495,880			418,214
Ratios
Tangible common equity to tangible assets(a)/(c)		4.5	%		6.8	%
Tangible common equity to risk-weighted assets(a)/(d)		6.0			9.2
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology(b)/(e)		8.1			9.6

	Year Ended December 31
	2022			2021			2020
Net interest income		$14,728			$12,494			$12,825
Taxable-equivalent adjustment(4)		118			106			99
Net interest income, on a taxable-equivalent basis		14,846			12,600			12,924
Net interest income, on a taxable-equivalent basis (as calculated above)		14,846			12,600			12,924
Noninterest income		9,456			10,227			10,401
Less: Securities gains (losses), net		20			103			177
Total net revenue, excluding net securities gains (losses)(f)		24,282			22,724			23,148
Noninterest expense(g)		14,906			13,728			13,369
Efficiency ratio(g)/(f)		61.4	%		60.4	%		57.8	%

	Year Ended December 31, 2022
	Net Revenue		Net Revenue as a Percent of the Consolidated Company			Net Revenue as a Percent of the Consolidated Company Excluding Treasury and Corporate Support
Corporate and Commercial Banking	$	4,476		18	%		19	%
Consumer and Business Banking		8,460		35			36
Wealth Management and Investment Services		4,177		17			18
Payment Services		6,297		26			27
Treasury and Corporate Support		892		4
Consolidated Company		24,302		100	%
Less: Treasury and Corporate Support		892
Consolidated Company excluding Treasury and Corporate Support	$	23,410					100	%

(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 federal income tax rate of 21 percent for those assets and liabilities whose income or expense is not included for federal income tax purposes.

60    

	Year Ended December 31					Percent Change
(Dollars in Millions)	2022			2021
Net interest income	$	14,728		$	12,494
Taxable-equivalent adjustment(1)		118			106
Net interest income, on a taxable-equivalent basis		14,846			12,600
Net interest income, on a taxable-equivalent basis (as calculated above)		14,846			12,600
Noninterest income		9,456			10,227
Total net revenue		24,302			22,827		6.5	%(a)
Less: MUB net revenue		302			—
Less: Notable items(2)		(399	)		—
Total net revenue, excluding MUB and notable items		24,399			22,827		6.9	%(b)
Noninterest expense		14,906			13,728		8.6	%(c)
Less: MUB noninterest expense		221			—
Less: Notable items(3)		329			—
Total noninterest expense, excluding MUB and notable items		14,356			13,728		4.6	%(d)
Operating leverage (a) - (c)		(2.1	)%
Operating leverage, excluding MUB and notable items (b) - (d)		2.3	%

(1) 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.

(2) Represents $399 million of losses primarily related to interest rate economic hedges, entered into after regulatory approval was obtained, to manage the impact of interest rate volatility on capital prior to closing the MUB acquisition.

(3) Represents $329 million of merger and integration charges.

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Accounting Changes

Note 2 of the Notes to Consolidated Financial Statements discusses accounting standards recently issued but not yet required to be adopted and the expected impact of these changes in accounting standards. To the extent the adoption of new accounting standards materially affects the Company’s financial condition or results of operations, the impacts are discussed in the applicable section(s) of the Management’s Discussion and Analysis and the Notes to Consolidated Financial Statements.

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. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information (including third-party sources or available prices), sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under GAAP. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee.

Significant accounting policies are discussed in Note 1 of the Notes to Consolidated Financial Statements. Those policies considered to be critical accounting policies are described below.

Allowance for Credit Losses Management’s evaluation of the appropriate allowance for credit losses is often the most critical of all the accounting estimates for a banking institution. It is an inherently subjective process impacted by many factors as discussed throughout the Management’s Discussion and Analysis section of the Annual Report.

The methods utilized to estimate the allowance for credit losses, key assumptions and quantitative and qualitative information considered by management in determining the appropriate allowance for credit losses at December 31, 2022 are discussed in the “Credit Risk Management” section. Although methodologies utilized to determine each element of the allowance reflect management’s assessment of credit risk, imprecision exists in these measurement tools due in part to

subjective judgments involved and an inherent lag in the data available to quantify current conditions and events that affect credit loss reserve estimates.

Given the many quantitative variables and subjective factors affecting the credit portfolio, changes in the allowance for credit losses may not directly coincide with changes in risk ratings or delinquency status within loan and lease portfolios. This is in part due to the timing of the risk rating process in relation to changes in the business cycle, the exposure and mix of loans within risk rating categories, levels of nonperforming loans and the timing of charge-offs and expected recoveries. The allowance for credit losses measures the expected loss content on the remaining portfolio exposure, while nonperforming loans and net charge-offs are measures of specific impairment events that have already been confirmed. Therefore, the degree of change in the forward-looking expected loss in the allowance may differ from the level of changes in nonperforming loans and net charge-offs. Management maintains an appropriate allowance for credit losses by updating allowance rates to reflect changes in expected losses, including expected changes in economic or business cycle conditions. Some factors considered in determining the appropriate allowance for credit losses are more readily quantifiable while other factors require extensive qualitative judgment in determining the overall level of the allowance for credit losses.

The Company considers a range of economic scenarios in its determination of the allowance for credit losses. These 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, and also the expectation that conditions will eventually normalize over the longer run. Scenarios worse than the Company’s expected outcome at December 31, 2022 include risks that inflationary pressures persist longer than anticipated, which could precipitate a moderate to severe recession that increases credit losses.

Under the range of economic scenarios considered, the allowance for credit losses would have been lower by $1.4 billion or higher by $2.1 billion. This range reflects the sensitivity of the allowance for credit losses specifically related to the scenarios and weights considered as of December 31, 2022, and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.

Because several quantitative and qualitative factors are considered in determining the allowance for credit losses, these sensitivity analyses do not necessarily reflect the nature and extent of future changes in the allowance for credit losses. They are intended to provide insights into the impact of adverse changes in the economy on the Company’s modeled loss estimates for the loan portfolio and do not imply any expectation of future deterioration in the risk rating or loss rates. Given current processes employed by the Company, management believes the risk ratings and loss model estimates currently assigned are appropriate. It is possible that others, given the same information,

62    

may at any point in time reach different reasonable conclusions that could be significant to the Company’s financial statements. Refer to the “Analysis and Determination of the Allowance for Credit Losses” section for further information.

Fair Value Estimates A portion of the Company’s assets and liabilities are carried at fair value on the Consolidated Balance Sheet, with changes in fair value recorded either through earnings or other comprehensive income (loss) in accordance with applicable accounting principles generally accepted in the United States. These include all of the Company’s available-for-sale investment securities, derivatives and other trading instruments, MSRs and MLHFS. The estimation of fair value also affects other loans held for sale, which are recorded at the lower-of-cost-or-fair value. The determination of fair value is important for certain other assets that are periodically evaluated for impairment using fair value estimates, including goodwill and other intangible assets, impaired loans, OREO and other repossessed assets. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information on fair value estimates of assets and liabilities assumed in the MUB acquisition.

Fair value is generally defined as the exit price at which an asset or liability could be exchanged in a current transaction between willing, unrelated parties, other than in a forced or liquidation sale. Fair value is based on quoted market prices in an active market, or if market prices are not available, is estimated using models employing techniques such as matrix pricing or discounting expected cash flows. The significant assumptions used in the models, which include assumptions for interest rates, discount rates, prepayments and credit losses, are independently verified against observable market data where possible. Where observable market data is not available, the estimate of fair value becomes more subjective and involves a high degree of judgment. In this circumstance, fair value is estimated based on management’s judgment regarding the value that market participants would assign to the asset or liability. This valuation process takes into consideration factors such as market illiquidity. Imprecision in estimating these factors can impact the amount recorded on the balance sheet for a particular asset or liability with related impacts to earnings or other comprehensive income (loss).

When available, trading and available-for-sale securities are valued based on quoted market prices. However, certain securities are traded less actively and, therefore, quoted market prices may not be available. The determination of fair value may require benchmarking to similar instruments or performing a discounted cash flow analysis using estimates of future cash flows and prepayment, interest and default rates. For more information on investment securities, refer to Note 5 of the Notes to Consolidated Financial Statements.

As few derivative contracts are listed on an exchange, the majority of the Company’s derivative positions are valued using valuation techniques that use readily observable market inputs. Certain derivatives, however, must be valued using techniques that include unobservable inputs. For these instruments, the significant assumptions must be estimated and, therefore, are

subject to judgment. Note 20 of the Notes to Consolidated Financial Statements provides a summary of the Company’s derivative positions.

Refer to Note 22 of the Notes to Consolidated Financial Statements for additional information regarding estimations of fair value.

Mortgage Servicing Rights MSRs are capitalized as separate assets when loans are sold and servicing is retained, or may be purchased from others. The Company records MSRs at fair value. Because MSRs do not trade in an active market with readily observable prices, the Company determines the fair value by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, option adjusted spread, and other assumptions validated through comparison to trade information, industry surveys and independent third-party valuations. Changes in the fair value of MSRs are recorded in earnings during the period in which they occur. Risks inherent in the valuation of MSRs include higher than expected prepayment rates and/or delayed receipt of cash flows. The Company utilizes derivatives, including interest rate swaps, swaptions, forward commitments to buy TBAs, U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures, to mitigate the valuation risk. Refer to Notes 10 and 22 of the Notes to Consolidated Financial Statements for additional information on the assumptions used in determining the fair value of MSRs and an analysis of the sensitivity to changes in interest rates of the fair value of the MSRs portfolio and the related derivative instruments used to mitigate the valuation risk.

Income Taxes The Company estimates income tax expense based on amounts expected to be owed to the various tax jurisdictions in which it operates, including federal, state and local domestic jurisdictions, and an insignificant amount to foreign jurisdictions. The estimated income tax expense is reported in the Consolidated Statement of Income. Accrued taxes are reported in other assets or other liabilities on the Consolidated Balance Sheet and represent the net estimated amount due to or to be received from taxing jurisdictions either currently or deferred to future periods. Deferred taxes arise from differences between assets and liabilities measured for financial reporting purposes versus income tax reporting purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit management believes is more likely than not to be realized upon settlement. In estimating accrued taxes, the Company assesses the relative merits and risks of the appropriate tax treatment considering statutory, judicial and regulatory guidance in the context of the tax position. Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment given specific facts and circumstances. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions regarding the estimated amounts of accrued taxes.

63    

Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by various taxing authorities, and newly enacted statutory, judicial and regulatory guidance that impacts the relative merits and risks of tax positions. These changes, when they occur, affect accrued taxes and can be significant to the operating results of the Company. Refer to Note 19 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.

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, which excluded the operations of MUB as noted in the Report of Management below, the principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

During the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial

reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

As permitted by Securities and Exchange Commission-issued guidance that an assessment of internal controls over financial reporting of a recently acquired business may be excluded from management’s evaluation of disclosure controls and procedures for up to a year from the date of acquisition, the Company has excluded MUB from management’s reporting on internal control over financial reporting as of December 31, 2022 as MUB was acquired by the Company during 2022. The Company will continue to evaluate the effectiveness of internal controls over financial reporting as it completes the integration of MUB with the Company and will make changes to its internal control framework, as necessary. The acquisition of MUB contributed $81.4 billion of assets, or 12 percent of the Company’s total assets, at December 31, 2022 and $281 million of revenue, or 1 percent of the Company’s total revenue for the year ended December 31, 2022.

The annual report of the Company’s management on internal control over financial reporting is provided on page 65. The audit report of Ernst & Young LLP, the Company’s independent accountants, regarding the Company’s internal control over financial reporting is provided on page 69.

64    

Report of Management

Responsibility for the financial statements and other information presented throughout this Annual Report rests with the management of U.S. Bancorp. The Company believes the consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States and present the substance of transactions based on the circumstances and management’s best estimates and judgment.

In meeting its responsibilities for the reliability of the financial statements, management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s system of internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of publicly filed financial statements in accordance with accounting principles generally accepted in the United States.

To test compliance, the Company carries out an extensive audit program. This program includes a review for compliance with written policies and procedures and a comprehensive review of the adequacy and effectiveness of the system of internal control. Although control procedures are designed and tested, it must be recognized that there are limits inherent in all systems of internal control and, therefore, errors and irregularities may nevertheless occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. Projection of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Board of Directors of the Company has an Audit Committee composed of directors who are independent of U.S. Bancorp. The Audit Committee meets periodically with management, the internal auditors and the independent accountants to consider audit results and to discuss internal accounting control, auditing and financial reporting matters.

Management assessed the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its Internal Control-Integrated Framework (2013 framework). Based on its assessment and those criteria, which excluded the operations of MUB as noted below, management believes the Company designed and maintained effective internal control over financial reporting as of December 31, 2022.

In conducting the evaluation of the effectiveness of its system of internal control over financial reporting as of December 31, 2022, the Company has excluded the operations of MUB as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). In conducting the evaluation of the effectiveness of its disclosure controls and procedures as of December 31, 2022, the Company has excluded those disclosure controls and procedures of MUB that are subsumed by the system of internal control over financial reporting. The acquisition of MUB was completed on December 1, 2022. As of and for the year ended December 31, 2022, MUB’s assets represented approximately 12 percent of the Company’s consolidated assets and its revenues represented approximately 1 percent of the Company’s consolidated revenues. Refer to Note 3 of the Notes to Consolidated Financial Statements for further discussion of the acquisition and its impact on the Company’s consolidated financial statements.

The Company’s independent registered accountants, Ernst & Young LLP, have been engaged to render an independent professional opinion on the financial statements and issue an audit report on the Company’s internal control over financial reporting. Their opinion on the financial statements appearing on pages 66 to 68 and their audit report on internal control over financial reporting appearing on page 69 are based on procedures conducted in accordance with auditing standards of the Public Company Accounting Oversight Board (United States).

65    

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of U.S. Bancorp

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of U.S. Bancorp (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

Description of the Matter

The Company’s loan and lease portfolio and the associated allowance for credit losses (ACL), were $388.2 billion and $7.4 billion as of December 31, 2022, respectively. The provision for credit losses was $2.0 billion for the year ended December 31, 2022. As discussed in Notes 1 and 6 to the financial statements, the ACL is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments, by utilizing forward-looking expected loss models. When determining expected losses, the Company uses multiple probability weighted economic scenarios over a reasonable and supportable forecast period and then fully reverts to historical loss experience to estimate losses over the remaining asset lives. Model estimates are adjusted to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices or economic conditions that would affect the accuracy of the model. Additionally, management may adjust ACL for other qualitative factors such as model imprecision, imprecision in economic scenario assumptions, and emerging risks related to either changes in the environment that are affecting specific portfolio segments, or changes in portfolio concentrations. Auditing management’s ACL estimate and related provision for credit losses was complex due to the highly judgmental nature of the probability weighted economic scenarios, expected loss models, as well as model and qualitative factor adjustments.

66    

How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s process for establishing the ACL, including management’s controls over: 1) selection and implementation of forward-looking economic scenarios and the probability weights assigned to them; 2) expected loss models, including model validation, implementation, monitoring, the completeness and accuracy of key inputs and assumptions used in the models, and management’s output assessment and related adjustments; 3) adjustments to reflect management’s consideration of qualitative factors; 4) the ACL methodology and governance process. With the support of specialists, we assessed the economic scenarios and related probability weights by, among other procedures, evaluating management’s methodology and agreeing a sample of key economic variables used to external sources. We also performed and considered the results of various sensitivity analyses and analytical procedures, including comparison of a sample of the key economic variables to alternative external sources, historical statistics and peer bank information. With respect to expected loss models, with the support of specialists, we evaluated model calculation design and reperformed the calculation for a sample of models. We also tested the appropriateness of key inputs and assumptions used in these models by agreeing a sample of inputs to internal and external sources. As to model adjustments, with the support of specialists, we evaluated management’s estimate methodology and assessment of factors that could potentially impact the accuracy of expected loss models. We also recalculated a sample of model adjustments and tested internal and external data used by agreeing a sample of inputs to internal and external sources. Regarding the completeness of qualitative factors identified and incorporated into measuring the ACL, we evaluated the potential impact of imprecision in the expected loss models and economic scenario assumptions; emerging risks related to changes in the environment impacting specific portfolio segments and portfolio concentrations. We also evaluated and tested internal and external data used in the qualitative adjustments by agreeing significant inputs and underlying data to internal and external sources. We evaluated the overall ACL amount, including model estimates and adjustments, qualitative factors adjustments, and whether the recorded ACL appropriately reflects expected credit losses on the loan and lease portfolio and unfunded credit commitments. We reviewed historical loss statistics, peer-bank information, subsequent events and transactions and considered whether they corroborate or contradict the Company’s measurement of the ACL. We searched for and evaluated information that corroborates or contradicts management’s forecasted assumptions and related probability weights as well as identification and measurement of adjustments to model estimates and qualitative factors.
	Fair Value of Acquired Loans Recognized as Part of the Acquisition of MUFG Union Bank
Description of the Matter	As described in Note 3 to the consolidated financial statements, the Company acquired MUFG Union Bank (MUB) on December 1, 2022. The transaction has been accounted for as a business combination and accordingly, the assets acquired and liabilities assumed from MUB were recorded at fair value as of the acquisition date. The fair value of loans acquired from MUB was approximately $53.0 billion as of December 1, 2022. As disclosed by the Company, the fair value of acquired loans is based on a discounted cash flow methodology that considers credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity. Auditing the Company’s estimate of the fair value of acquired loans was complex due to the significant judgment required by management in developing the credit loss and prepayment expectations, and market interest rates used in the discounted cash flow methodology. This required a high degree of auditor judgment and effort in performing procedures and evaluating audit evidence obtained related to the significant judgments made by management and required the use of professionals with specialized skill and knowledge.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s process for estimating the acquired loans fair value, including management’s controls over: 1) developing credit loss and prepayment expectations and establishing market interest rates used in the discounted cash flow methodology, and 2) completeness and accuracy of key inputs and assumptions used in the discounted cash flow methodology, including loan data.

67    

	To test the estimated fair value of acquired loans, our audit procedures included, among others, involving valuation specialists to assist us in testing management’s methodology and significant assumptions used in measuring the fair value of the acquired loan portfolio. For example, we involved our specialists to develop, on a sample basis, independent expectations for credit losses, prepayments and market interest rates and compared management’s assumptions to the independently developed ranges based on third party market data. Additionally, we tested, on a sample basis, completeness and accuracy of the underlying loan data provided by management that was used in the discounted cash flow model. Lastly, on a sample basis, we performed independent comparative calculations of the fair value adjustment to the acquired loans. We searched for and evaluated information that corroborates or contradicts management’s selected assumptions, including current external economic information and historical Company-specific information.
	Fair Value of Core Deposit Intangible Asset Recognized as Part of the MUB Acquisition
Description of the Matter	As described in Note 3 to the consolidated financial statements, the Company acquired MUB on December 1, 2022. The transaction has been accounted for as a business combination and accordingly, the assets acquired and liabilities assumed from MUB were recorded at fair value as of the acquisition date. The fair value of the core deposit intangible (CDI) recognized was approximately $2.7 billion. To estimate the fair value of the CDI, management used a discounted cash flow methodology that considers estimates of deposit costs including cost of funds, net maintenance costs or servicing costs, client retention rates and alternative funding source costs, and a market discount rate.
How We Addressed the Matter in Our Audit	Auditing the Company’s estimate of the CDI fair value was complex due to the significant judgment required by management in developing the estimated net maintenance costs, client retention rates and alternative funding source costs used in the discounted cash flow model. This required a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence obtained related to the significant judgments made by management and required the use of professionals with specialized skill and knowledge. We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s process for estimating the CDI fair value, including management’s controls over: 1) developing net maintenance costs, client retention rates and alternative funding source cost assumptions used in the discounted cash flow model, and 2) completeness and accuracy of key inputs and significant assumptions used in the discounted cash flow model, including deposit data. To test the estimated fair value of the CDI, our audit procedures included, among others, involving valuation specialists to assist us in testing management’s discounted cash flow methodology and significant assumptions used in measuring the fair value of the CDI. For example, we involved our specialists to develop independent expectations for net maintenance costs, client retention rates and alternative funding source costs, and compared management’s assumptions to our independently developed ranges. Additionally, we tested the completeness and accuracy of the deposit data used in the discounted cash flow model. We searched for and evaluated information that corroborates or contradicts management’s selected significant assumptions, including current external economic and historical Company-specific information.

We have served as the Company’s auditor since 2003.

Minneapolis, Minnesota

February 27, 2023

68    

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of U.S. Bancorp

Opinion on Internal Control over Financial Reporting

We have audited U.S. Bancorp’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, U.S. Bancorp (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

As indicated in the accompanying Report of Management, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of MUFG Union Bank, which is included in the 2022 consolidated financial statements of the Company and constituted 12% of total assets and 1% of revenue, as of and for the year ended December 31, 2022. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of MUFG Union Bank.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 27, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Minneapolis, Minnesota

February 27, 2023

69    

Consolidated Financial Statements and Notes Table of Contents

Consolidated Financial Statements
Consolidated Balance Sheet	71
Consolidated Statement of Income	72
Consolidated Statement of Comprehensive Income	73
Consolidated Statement of Shareholders’ Equity	74
Consolidated Statement of Cash Flows	75
Notes to Consolidated Financial Statements
Note 1 — Significant Accounting Policies	76
Note 2 — Accounting Changes	83
Note 3 — Business Combinations	83
Note 4 — Restrictions on Cash and Due From Banks	86
Note 5 — Investment Securities	86
Note 6 — Loans and Allowance for Credit Losses	89
Note 7 — Leases	95
Note 8 — Accounting for Transfers and Servicing of Financial Assets and Variable Interest Entities	97
Note 9 — Premises and Equipment	98
Note 10 — Mortgage Servicing Rights	99
Note 11 — Intangible Assets	100
Note 12 — Deposits	101
Note 13 — Short-Term Borrowings	101
Note 14 — Long-Term Debt	102
Note 15 — Shareholders’ Equity	103
Note 16 — Earnings Per Share	108
Note 17 — Employee Benefits	108
Note 18 — Stock-Based Compensation	113
Note 19 — Income Taxes	115
Note 20 — Derivative Instruments	117
Note 21 — Netting Arrangements for Certain Financial Instruments and Securities Financing Activities	121
Note 22 — Fair Values of Assets and Liabilities	124
Note 23 — Guarantees and Contingent Liabilities	130
Note 24 — Business Segments	133
Note 25 — U.S. Bancorp (Parent Company)	136
Note 26 — Subsequent Events	137

70    

U.S. Bancorp    

Consolidated Balance Sheet    

At December 31 (Dollars in Millions)	2022			2021
Assets
Cash and due from banks	$	53,542		$	28,905
Investment securities
Held-to-maturity (fair value $77,874 and $41,812, respectively)		88,740			41,858
Available-for-sale ($858 and $557 pledged as collateral, respectively)(a)		72,910			132,963
Loans held for sale (including $1,849 and $6,623 of mortgage loans carried at fair value, respectively)		2,200			7,775
Loans
Commercial		135,690			112,023
Commercial real estate		55,487			39,053
Residential mortgages		115,845			76,493
Credit card		26,295			22,500
Other retail		54,896			61,959
Total loans		388,213			312,028
Less allowance for loan losses		(6,936	)		(5,724	)
Net loans		381,277			306,304
Premises and equipment		3,858			3,305
Goodwill		12,373			10,262
Other intangible assets		7,155			3,738
Other assets (including $702 and $1,193 of trading securities at fair value pledged as collateral, respectively)(a)		52,750			38,174
Total assets	$	674,805		$	573,284
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	$	137,743		$	134,901
Interest-bearing		387,233			321,182
Total deposits		524,976			456,083
Short-term borrowings		31,216			11,796
Long-term debt		39,829			32,125
Other liabilities		27,552			17,893
Total liabilities		623,573			517,897
Shareholders’ equity
Preferred stock		6,808			6,371
Common stock, par value $0.01 a share — authorized: 4,000,000,000 shares; issued: 2022 and 2021—2,125,725,742 shares		21			21
Capital surplus		8,712			8,539
Retained earnings		71,901			69,201
Less cost of common stock in treasury: 2022 — 594,747,484 shares; 2021 — 642,223,571 shares		(25,269	)		(27,271	)
Accumulated other comprehensive income (loss)		(11,407	)		(1,943	)
Total U.S. Bancorp shareholders’ equity		50,766			54,918
Noncontrolling interests		466			469
Total equity		51,232			55,387
Total liabilities and equity	$	674,805		$	573,284

(a) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.    

See Notes to Consolidated Financial Statements.    

71    

U.S. Bancorp    

Consolidated Statement of Income    

Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)	2022			2021			2020
Interest Income
Loans	$	13,603		$	10,747		$	12,018
Loans held for sale		201			232			216
Investment securities		3,378			2,365			2,428
Other interest income		763			143			178
Total interest income		17,945			13,487			14,840
Interest Expense
Deposits		1,872			320			950
Short-term borrowings		565			70			141
Long-term debt		780			603			924
Total interest expense		3,217			993			2,015
Net interest income		14,728			12,494			12,825
Provision for credit losses		1,977			(1,173	)		3,806
Net interest income after provision for credit losses		12,751			13,667			9,019
Noninterest Income
Card revenue		1,512			1,507			1,338
Corporate payment products revenue		698			575			497
Merchant processing services		1,579			1,449			1,261
Trust and investment management fees		2,209			1,832			1,736
Service charges		1,298			1,338			1,245
Commercial products revenue		1,105			1,102			1,143
Mortgage banking revenue		527			1,361			2,064
Investment products fees		235			239			192
Securities gains (losses), net		20			103			177
Other		273			721			748
Total noninterest income		9,456			10,227			10,401
Noninterest Expense
Compensation and employee benefits		9,157			8,728			7,938
Net occupancy and equipment		1,096			1,048			1,092
Professional services		529			492			430
Marketing and business development		456			366			318
Technology and communications		1,726			1,728			1,582
Other intangibles		215			159			176
Merger and integration charges		329			–			–
Other		1,398			1,207			1,833
Total noninterest expense		14,906			13,728			13,369
Income before income taxes		7,301			10,166			6,051
Applicable income taxes		1,463			2,181			1,066
Net income		5,838			7,985			4,985
Net (income) loss attributable to noncontrolling interests		(13	)		(22	)		(26	)
Net income attributable to U.S. Bancorp	$	5,825		$	7,963		$	4,959
Net income applicable to U.S. Bancorp common shareholders	$	5,501		$	7,605		$	4,621
Earnings per common share	$	3.69		$	5.11		$	3.06
Diluted earnings per common share	$	3.69		$	5.10		$	3.06
Average common shares outstanding		1,489			1,489			1,509
Average diluted common shares outstanding		1,490			1,490			1,510

See Notes to Consolidated Financial Statements.    

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U.S. Bancorp    

Consolidated Statement of Comprehensive Income    

Year Ended December 31 (Dollars in Millions)	2022			2021			2020
Net income	$	5,838		$	7,985		$	4,985
Other Comprehensive Income (Loss)
Changes in unrealized gains (losses) on investment securities available-for-sale		(13,656	)		(3,698	)		2,905
Changes in unrealized gains (losses) on derivative hedges		(75	)		125			(194	)
Foreign currency translation		(10	)		35			2
Changes in unrealized gains (losses) on retirement plans		526			400			(401	)
Reclassification to earnings of realized (gains) losses		544			104			(42	)
Income taxes related to other comprehensive income (loss)		3,207			769			(575	)
Total other comprehensive income (loss)		(9,464	)		(2,265	)		1,695
Comprehensive income (loss)		(3,626	)		5,720			6,680
Comprehensive (income) loss attributable to noncontrolling interests		(13	)		(22	)		(26	)
Comprehensive income (loss) attributable to U.S. Bancorp	$	(3,639	)	$	5,698		$	6,654

See Notes to Consolidated Financial Statements.    

73    

U.S. Bancorp

Consolidated Statement of Shareholders’ Equity

	U.S. Bancorp Shareholders
(Dollars and Shares in Millions, Except Per Share Data)	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, 2019		1,534		$	5,984		$	21	$	8,475		$	63,186		$	(24,440	)	$	(1,373	)	$	51,853		$	630		$	52,483
Change in accounting principle(a)													(1,099	)								(1,099	)					(1,099	)
Net income (loss)													4,959									4,959			26			4,985
Other comprehensive income (loss)																			1,695			1,695						1,695
Preferred stock dividends(b)													(304	)								(304	)					(304	)
Common stock dividends ($1.68 per share)													(2,541	)								(2,541	)					(2,541	)
Issuance of preferred stock					486																	486						486
Call of preferred stock					(487	)							(13	)								(500	)					(500	)
Issuance of common and treasury stock		4								(154	)					171						17						17
Purchase of treasury stock		(31	)													(1,661	)					(1,661	)					(1,661	)
Distributions to noncontrolling interests																						—			(25	)		(25	)
Net other changes in noncontrolling interests																						—			(1	)		(1	)
Stock option and restricted stock grants										190												190						190
Balance December 31, 2020		1,507		$	5,983		$	21	$	8,511		$	64,188		$	(25,930	)	$	322		$	53,095		$	630		$	53,725
Net income (loss)													7,963									7,963			22			7,985
Other comprehensive income (loss)																			(2,265	)		(2,265	)					(2,265	)
Preferred stock dividends(c)													(303	)								(303	)					(303	)
Common stock dividends ($1.76 per share)													(2,630	)								(2,630	)					(2,630	)
Issuance of preferred stock					2,221																	2,221						2,221
Call and redemption of preferred stock					(1,833	)							(17	)								(1,850	)					(1,850	)
Issuance of common and treasury stock		5								(169	)					215						46						46
Purchase of treasury stock		(28	)													(1,556	)					(1,556	)					(1,556	)
Distributions to noncontrolling interests																						—			(20	)		(20	)
Purchase of noncontrolling interests																						—			(167	)		(167	)
Net other changes in noncontrolling interests																						—			4			4
Stock option and restricted stock grants										197												197						197
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)													5,825									5,825			13			5,838
Other comprehensive income (loss)																			(9,464	)		(9,464	)					(9,464	)
Preferred stock dividends(d)													(296	)								(296	)					(296	)
Common stock dividends ($1.88 per share)													(2,829	)								(2,829	)					(2,829	)
Issuance of preferred stock					437																	437						437
Issuance of common and treasury stock		48								(32	)					2,071						2,039						2,039
Purchase of treasury stock		(1	)													(69	)					(69	)					(69	)
Distributions to noncontrolling interests																						—			(13	)		(13	)
Net other changes in noncontrolling interests																						—			(3	)		(3	)
Stock option and restricted stock grants										205												205						205
Balance December 31, 2022		1,531		$	6,808		$	21	$	8,712		$	71,901		$	(25,269	)	$	(11,407	)	$	50,766		$	466		$	51,232

(a) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than incurred losses. Upon adoption, the Company increased its allowance for credit losses and reduced retained earnings net of deferred taxes through a cumulative-effect adjustment.

(b) Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series H, Series I, Series J, Series K and Series L Non-Cumulative Perpetual Preferred Stock of $3,558.332, $889.58, $1,625.00, $1,287.52, $1,281.25, $1,325.00, $1,375.00 and $203.13, respectively.

(c) Reflects dividends declared per share on the Company’s Series A, Series B, Series F, Series I, Series J, Series K, Series L, Series M and Series N Non-Cumulative Perpetual Preferred Stock of $3,548.61, $887.153, $1,625.00, $232.953, $1,325.00, $1,375.00, $937.50, $952.778 and $202.986, respectively.

(d) Reflects dividends declared per share on the Company’s Series A, Series B, Series J, Series K, Series L, Series M, Series N and Series O Non-Cumulative Perpetual Preferred Stock of $3,965.458, $962.487, $1,325.00, $1,375.00, $937.50, $1,000.00, $925.00, and $1,050.00, respectively.

See Notes to Consolidated Financial Statements.

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U.S. Bancorp    

Consolidated Statement of Cash Flows    

Year Ended December 31 (Dollars in Millions)	2022			2021			2020
Operating Activities
Net income attributable to U.S. Bancorp	$	5,825		$	7,963		$	4,959
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses		1,977			(1,173	)		3,806
Depreciation and amortization of premises and equipment		345			338			351
Amortization of intangibles		215			159			176
(Gain) loss on sale of loans held for sale		387			(1,135	)		(2,193	)
(Gain) loss on sale of securities and other assets		(188	)		(398	)		(344	)
Loans originated for sale, net of repayments		(33,127	)		(72,627	)		(67,449	)
Proceeds from sales of loans held for sale		38,895			74,315			65,468
Other, net		6,790			2,428			(1,058	)
Net cash provided by operating activities		21,119			9,870			3,716
Investing Activities
Proceeds from sales of available-for-sale investment securities		36,391			16,075			15,596
Proceeds from maturities of held-to-maturity investment securities		5,759			1,093			—
Proceeds from maturities of available-for-sale investment securities		14,927			41,199			40,639
Purchases of held-to-maturity investment securities		(7,091	)		(1,088	)		—
Purchases of available-for-sale investment securities		(24,592	)		(99,045	)		(68,662	)
Net (increase) decrease in loans outstanding		(27,318	)		(17,459	)		6,350
Proceeds from sales of loans		4,420			6,183			2,250
Purchases of loans		(2,113	)		(4,466	)		(11,622	)
Net decrease in securities purchased under agreements to resell		252			18			645
Net cash received from (paid for) acquisitions		12,257			(661	)		(556	)
Other, net		(5,392	)		664			(80	)
Net cash provided by (used in) investing activities		7,500			(57,487	)		(15,440	)
Financing Activities
Net (decrease) increase in deposits		(17,215	)		26,313			67,854
Net increase (decrease) in short-term borrowings		15,213			30			(11,957	)
Proceeds from issuance of long-term debt		8,732			2,626			14,501
Principal payments or redemption of long-term debt		(6,926	)		(11,432	)		(14,476	)
Proceeds from issuance of preferred stock		437			2,221			486
Proceeds from issuance of common stock		21			43			15
Repurchase of preferred stock		(1,100	)		(1,250	)		—
Repurchase of common stock		(69	)		(1,555	)		(1,672	)
Cash dividends paid on preferred stock		(299	)		(308	)		(300	)
Cash dividends paid on common stock		(2,776	)		(2,579	)		(2,552	)
Purchase of noncontrolling interests		—			(167	)		—
Net cash (used in) provided by financing activities		(3,982	)		13,942			51,899
Change in cash and due from banks		24,637			(33,675	)		40,175
Cash and due from banks at beginning of period		28,905			62,580			22,405
Cash and due from banks at end of period	$	53,542		$	28,905		$	62,580
Supplemental Cash Flow Disclosures
Cash paid for income taxes	$	767		$	535		$	1,025
Cash paid for interest		2,717			1,061			2,199
Noncash transfer of available-for-sale investment securities to held-to-maturity		40,695			41,823			—
Net noncash transfers to foreclosed property		23			14			23
Acquisitions
Assets (sold) acquired	$	106,209		$	749		$	828
Liabilities sold (assumed)		(95,753	)		(88	)		(272	)
Net	$	10,456		$	661		$	556

See Notes to Consolidated Financial Statements.    

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Notes to Consolidated Financial Statements

  NOTE 1   Significant  Accounting  Policies

U.S. Bancorp is a financial services holding company headquartered in Minneapolis, Minnesota, serving millions of local, national and global customers. U.S. Bancorp and its subsidiaries (the “Company”) provide a full range of financial services, including lending and depository services through banking offices principally in the Midwest and West regions of the United States, through on-line services, over mobile devices and through other distribution channels. The Company also engages in credit card, merchant, and ATM processing, mortgage banking, cash management, capital markets, insurance, trust and investment management, brokerage, and leasing activities, principally in domestic markets.

Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries and all variable interest entities (“VIEs”) for which the Company has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. Consolidation eliminates intercompany accounts and transactions. Certain items in prior periods have been reclassified to conform to the current period presentation.

On December 1, 2022, the Company acquired MUB’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. The Company’s results for the year ended December 31, 2022 reflect MUB’s business operations for the month of December 2022 and the Company’s Consolidated Balance Sheet at December 31, 2022 includes MUB’s balances. Refer to Note 3 for additional information on this acquisition.

Uses of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual experience could differ from those estimates and assumptions.

Securities

Realized gains or losses on securities are determined on a trade date basis based on the specific amortized cost of the investments sold.

Trading Securities Securities held for resale are classified as trading securities and are included in other assets and reported at fair value. Changes in fair value and realized gains or losses are reported in noninterest income.

Available-for-sale Securities Debt securities that are not trading securities but may be sold before maturity in response to changes in the Company’s interest rate risk profile, funding needs, demand for collateralized deposits by public entities or other reasons, are carried at fair value with unrealized net gains or

losses reported within other comprehensive income (loss). Declines in fair value related to credit, if any, are recorded through the establishment of an allowance for credit losses.

Held-to-maturity Securities Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Expected credit losses, if any, are recorded through the establishment of an allowance for credit losses.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized financing transactions with a receivable or payable recorded at the amounts at which the securities were acquired or sold, plus accrued interest. Collateral requirements are continually monitored and additional collateral is received or provided as required. The Company records a receivable or payable for cash collateral paid or received.

Equity Investments

Equity investments in entities where the Company has a significant influence (generally between 20 percent and 50 percent ownership), but does not control the entity, are accounted for using the equity method. Investments in limited partnerships and similarly structured limited liability companies where the Company’s ownership interest is greater than 5 percent are accounted for using the equity method. Equity investments not using the equity method are accounted for at fair value with changes in fair value and realized gains or losses reported in noninterest income, unless fair value is not readily determinable, in which case the investment is carried at cost subject to adjustments for any observable market transactions on the same or similar instruments of the investee. Most of the Company’s equity investments do not have readily determinable fair values. All equity investments are evaluated for impairment at least annually and more frequently if certain criteria are met.

Loans

The Company offers a broad array of lending products and 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 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.

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Originated Loans Held for Investment Loans the Company originates as held for investment are reported at the principal amount outstanding, net of unearned interest income and deferred fees and costs, and any direct principal charge-offs. Interest income is accrued on the unpaid principal balances as earned. Loan and commitment fees and certain direct loan origination costs are deferred and recognized over the life of the loan and/or commitment period as yield adjustments.

Purchased Loans All purchased loans are recorded at fair value at the date of purchase and those acquired on or after January 1,

2020 are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered PCD. An allowance for credit losses is established for each population and considers product mix, risk characteristics of the portfolio, delinquency status and refreshed loan-to-value ratios when possible. The allowance established for purchased loans not considered PCD is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to purchased loans, regardless of PCD status, are recognized through provision expense, with charge-offs charged to the allowance.

Commitments to Extend Credit Unfunded commitments for residential mortgage loans intended to be held for sale are considered derivatives and recorded in other assets and other liabilities on the Consolidated Balance Sheet at fair value with changes in fair value recorded in noninterest income. All other unfunded loan commitments are not considered derivatives and are not reported on the Consolidated Balance Sheet. Reserves for credit exposure on all other unfunded credit commitments are recorded in other liabilities.

Allowance for Credit Losses Beginning January 1, 2020, the allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis.

Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates, from better to worse than current 

expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of economic forecast uncertainty. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions.

The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels, 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, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or other factors that would affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off or expected recoveries on collateral dependent loans where recovery is expected through sale of the collateral. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses. The allowance recorded for individually evaluated loans greater than $5 million in the commercial lending segment is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans as appropriate.

The allowance recorded for Troubled Debt Restructuring (“TDR”) loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral less costs to sell. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans.

The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various

77    

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.

Prior to January 1, 2020, the allowance for credit losses was established based on an incurred loss model. The allowance recorded for loans in the commercial lending segment was based on the migration analysis of commercial loans and actual loss experience. The allowance recorded for loans in the consumer lending segment was determined on a homogenous pool basis and primarily included consideration of delinquency status and historical losses. In addition to the amounts determined under the methodologies described above, management also considered the potential impact of qualitative factors.

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.

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,

78    

may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.

Troubled Debt Restructurings In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR.

The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a case-by-case basis in connection with ongoing loan collection processes.

For the commercial lending segment, modifications generally result in the Company working with borrowers on a case-by-case basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market interest rate. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies all of the above concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.

Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.

Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers experiencing

financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.

In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs.

Leases The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Retail leases, primarily automobiles, have 3 to 5 year terms. Commercial leases may include high dollar assets such as aircraft or lower cost items such as office equipment. At lease inception, retail lease customers may be provided with an end-of-term purchase option, which is based on the contractual residual value of the automobile at the expiration of the lease. Automobile leases do not typically contain options to extend or terminate the lease. Equipment leases may contain various types of purchase options. Some option amounts are a stated value, while others are determined using the fair market value at the time of option exercise.

Residual values on leased assets are reviewed regularly for impairment. Residual valuations for retail leases are based on independent assessments of expected used automobile sale prices at the end of the lease term. Impairment tests are conducted based on these valuations considering the probability of the lessee returning the asset to the Company, re-marketing efforts, insurance coverage and ancillary fees and costs. Valuations for commercial leases are based upon external or internal management appraisals. 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 setting 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. Retail lease residual value risk is mitigated further by the purchase of residual value insurance coverage and effective end-of-term marketing of off-lease vehicles.

The Company, as lessee, leases certain assets for use in its operations. Leased assets primarily include retail branches, operations centers and other corporate locations, and, to a lesser extent, office and computer equipment. For each lease with an original term greater than 12 months, the Company records a lease liability and a corresponding right of use (“ROU”) asset. The Company accounts for the lease and non-lease components in the majority of its lease contracts as a single lease component, with the determination of the lease liability at lease inception based on the present value of the consideration to be paid under the contract. The discount rate used by the Company is determined at commencement of the lease using a secured rate for a similar term as the period of the lease. The Company’s leases do not include significant variable lease payments.

Certain of the Company’s real estate leases include options to extend. Lease extension options are generally exercisable at market rates. Such option periods do not provide a significant incentive, and their exercise is not reasonably certain.

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Accordingly, the Company does not generally recognize payments occurring during option periods in the calculation of its ROU assets and lease liabilities.

Other Real Estate Other real estate owned (“OREO”) is included in other assets, and is property acquired through foreclosure or other proceedings on defaulted loans. OREO is initially recorded at fair value, less estimated selling costs. The fair value of OREO is evaluated regularly and any decreases in value along with holding costs, such as taxes and insurance, are reported in noninterest expense.

Loans Held For Sale

Loans held for sale (“LHFS”) represent mortgage loans intended to be sold in the secondary market and other loans that management has an active plan to sell. LHFS are carried at the lower-of-cost-or-fair value as determined on an aggregate basis by type of loan with the exception of loans for which the Company has elected fair value accounting, which are carried at fair value. Any writedowns to fair value upon the transfer of loans to LHFS are reflected in loan charge-offs.

Where an election is made to carry the LHFS at fair value, any change in fair value is recognized in noninterest income. Where an election is made to carry LHFS at lower-of-cost-or-fair value, any further decreases are recognized in noninterest income and increases in fair value above the loan cost basis are not recognized until the loans are sold. Fair value elections are made at the time of origination or purchase based on the Company’s fair value election policy. The Company has elected fair value accounting for substantially all its mortgage loans held for sale (“MLHFS”).

Derivative Financial 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. Derivative instruments are reported in other assets or other liabilities at fair value. Changes in a derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are met.

All derivative instruments that qualify and are designated for hedge accounting are recorded at fair value and classified as either a hedge of the fair value of a recognized asset or liability (“fair value hedge”); a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”); or a hedge of the volatility of a net investment in foreign operations driven by changes in foreign currency exchange rates (“net investment hedge”). Changes in the fair value of a derivative that is highly effective and designated as a fair value hedge, and the offsetting changes in the fair value of the hedged item, are recorded in earnings. Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recorded in other comprehensive income (loss) until cash flows of the hedged

item are realized. Changes in the fair value of net investment hedges that are highly effective are recorded in other comprehensive income (loss). 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).

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).

Revenue Recognition

In the ordinary course of business, the Company recognizes income derived from various revenue generating activities. Certain revenues are generated from contracts where they are recognized when, or as services or products are transferred to customers for amounts the Company expects to be entitled. Revenue generating activities related to financial assets and liabilities are also recognized, including mortgage servicing fees, loan commitment fees, foreign currency remeasurements, and gains and losses on securities, equity investments and unconsolidated subsidiaries. Certain specific policies include the following:

Card Revenue Card revenue includes interchange from credit and debit cards processed through card association networks, annual fees, and other transaction and account management fees. Interchange rates are generally set by the card associations and based on purchase volumes and other factors. The Company records interchange as services are provided. Transaction and account management fees are recognized as services are provided, except for annual fees which are recognized over the applicable period. Costs for rewards programs and certain payments to partners and card associations are also recorded within card revenue when services are provided. The Company predominately records card revenue within the Payment Services line of business. 

Corporate Payment Products Revenue Corporate payment products revenue primarily includes interchange from commercial card products processed through card association networks and revenue from proprietary network transactions. The Company records corporate payment products revenue as services are provided. Certain payments to card associations and customers are also recorded within corporate payment products revenue as services are provided. Corporate payment products revenue is recorded within the Payment Services line of business. 

Merchant Processing Services Merchant processing services revenue consists principally of merchant discount and other 

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transaction and account management fees charged to merchants for the electronic processing of card association network transactions, less interchange paid to the card-issuing bank, card association assessments, and revenue sharing amounts. All of these are recognized at the time the merchant’s services are performed. The Company may enter into revenue sharing agreements with referral partners or in connection with purchases of merchant contracts from sellers. The revenue sharing amounts are determined primarily on sales volume processed or revenue generated for a particular group of merchants. Merchant processing revenue also includes revenues related to point-of-sale equipment recorded as sales when the equipment is shipped or as earned for equipment rentals. The Company records merchant processing services revenue within the Payment Services line of business.

Trust and Investment Management Fees Trust and investment management fees are recognized over the period in which services are performed and are based on a percentage of the fair value of the assets under management or administration, fixed based on account type, or transaction-based fees. Services provided to clients include trustee, transfer agent, custodian, fiscal agent, escrow, fund accounting and administration services. Services provided to mutual funds may include selling, distribution and marketing services. Trust and investment management fees are predominately recorded within the Wealth Management and Investment Services line of business.

Service Charges Service charges include fees received on deposit accounts under depository agreements with customers to provide access to deposited funds, serve as a custodian of funds, and when applicable, pay interest on deposits. Checking or savings accounts may contain fees for various services used on a day-to-day basis by a customer. Fees are recognized as services are delivered to and consumed by the customer, or as penalty fees are charged. Service charges also include revenue generated from ATM transaction processing and settlement services which is recognized at the time the services are performed. Certain payments to partners and card associations related to ATM processing services are also recorded within service charges as services are provided. Further, revenue generated from treasury management services are included in service charges and include fees for a broad range of products and services that enable customers to manage their cash more efficiently. These products and services include cash and investment management, receivables management, disbursement services, funds transfer services, and information reporting. Treasury management revenue is recognized as products and services are provided to customers. The Company reflects a discount calculated on monthly average collected customer balances. Service charges are reported primarily within the Corporate and Commercial Banking and Consumer and Business Banking lines of business.

Commercial Products Revenue Commercial products revenue primarily includes revenue related to ancillary services provided to Corporate and Commercial Banking and Consumer and Business Banking customers, including standby letter of credit fees,

non-yield related loan fees, capital markets related revenue, sales of direct financing leases, and loan and syndication fees. Sales of direct financing leases are recognized at the point of sale. In addition, the Company may lead or participate with a group of underwriters in raising investment capital on behalf of securities issuers and charge underwriting fees. These fees are recognized at securities issuance. The Company, in its role as lead underwriter, arranges deal structuring and use of outside vendors for the underwriting group. The Company recognizes only those fees and expenses related to its underwriting commitment.

Mortgage Banking Revenue Mortgage banking revenue includes revenue derived from mortgages originated and subsequently sold, generally with servicing retained. The primary components include: gains and losses on mortgage sales; servicing revenue; changes in fair value for mortgage loans originated with the intent to sell and measured at fair value under the fair value option; changes in fair value for derivative commitments to purchase and originate mortgage loans; changes in the fair value of mortgage servicing rights (“MSRs”); and the impact of risk management activities associated with the mortgage origination pipeline, funded loans and MSRs. Net interest income from mortgage loans is recorded in interest income. Refer to Other Significant Policies in Note 1, as well as Note 10 and Note 22 for a further discussion of MSRs. Mortgage banking revenue is reported within the Consumer and Business Banking line of business.

Investment Products Fees Investment products fees include commissions related to the execution of requested security trades, distribution fees from sale of mutual funds, and investment advisory fees. Commissions and investment advisory fees are recognized as services are delivered to and utilized by the customer. Distribution fees are received over time, are dependent on the consumer maintaining their mutual fund asset position and the value of such position. These revenues are estimated and recognized at the point a significant reversal of revenue becomes remote. Investment products fees are predominately reported within the Wealth Management and Investment Services line of business.

Other Noninterest Income Other noninterest income is primarily related to financial assets including income on unconsolidated subsidiaries and equity method investments, gains on sale of other investments and corporate owned life insurance proceeds. The Company reports other noninterest income across all lines of business.

Other Significant Policies

Goodwill and Other Intangible Assets Goodwill is recorded on acquired businesses if the purchase price exceeds the fair value of the net assets acquired. Goodwill is not amortized but is subject, at a minimum, to annual tests for impairment at a reporting unit level. In certain situations, an interim impairment test may be required if events occur or circumstances change that would more likely than not reduce the fair value of a reporting

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unit below its carrying amount. Determining the amount of goodwill impairment, if any, includes assessing whether the carrying value of a reporting unit exceeds its fair value. Other intangible assets are recorded at their fair value upon completion of a business acquisition or certain other transactions, and generally represent the value of customer contracts or relationships. Other intangible assets are amortized over their estimated useful lives, using straight-line and accelerated methods and are reviewed for impairment when indicators of impairment are present. Determining the amount of other intangible asset impairment, if any, includes assessing the present value of the estimated future cash flows associated with the intangible asset and comparing it to the carrying amount of the asset.

Income Taxes Deferred taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting carrying amounts. The Company uses the deferral method of accounting on investments that generate investment tax credits. Under this method, the investment tax credits are recognized as a reduction to the related asset. For certain investments in qualified affordable housing projects, the Company presents the expense in tax expense rather than noninterest expense.

Mortgage Servicing Rights MSRs are capitalized as separate assets when loans are sold and servicing is retained or if they are purchased from others. MSRs are recorded at fair value. The Company determines the fair value by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, option adjusted spread, and other assumptions validated through comparison to trade information, industry surveys and independent third-party valuations. Changes in the fair value of MSRs are recorded in earnings as mortgage banking revenue during the period in which they occur.

Pensions For purposes of its pension plans, the Company utilizes its fiscal year-end as the measurement date. At the measurement date, plan assets are determined based on fair value, generally representing observable market prices or the net asset value provided by the funds’ trustee or administrator. The actuarial cost method used to compute the pension liabilities and related expense is the projected unit credit method. The projected benefit obligation is principally determined based on the present value of projected benefit distributions at an assumed discount rate. The discount rate utilized is based on the investment yield of high quality corporate bonds available in the marketplace with maturities equal to projected cash flows of future benefit payments as of the measurement date. Periodic pension expense (or income) includes service costs, interest costs based on the assumed discount rate, the expected return on plan assets based on an actuarially derived market-related value and amortization of actuarial gains and losses. Service cost is included in compensation and employee benefits expense on the Consolidated Statement of Income, with all other components of periodic pension expense included in other noninterest expense on the Consolidated Statement of Income. Pension

accounting reflects the long-term nature of benefit obligations and the investment horizon of plan assets, and can have the effect of reducing earnings volatility related to short-term changes in interest rates and market valuations. Actuarial gains and losses include the impact of plan amendments and various unrecognized gains and losses which are deferred, and to the extent exceed 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets, are amortized over the future service periods of active employees or the remaining life expectancies of inactive participants. The market-related value utilized to determine the expected return on plan assets is based on fair value adjusted for the difference between expected returns and actual performance of plan assets. The unrealized difference between actual experience and expected returns is included in expense over a period of approximately 15 years for active employees and approximately 30 years for inactive participants. The overfunded or underfunded status of each plan is recorded as an asset or liability on the Consolidated Balance Sheet, with changes in that status recognized through other comprehensive income (loss).

Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and depreciated primarily on a straight-line basis over the estimated life of the assets. Estimated useful lives range up to 40 years for newly constructed buildings and from 3 to 25 years for furniture and equipment.

The Company, as lessee, records an ROU asset for each lease with an original term greater than 12 months. ROU assets are included in premises and equipment, with the corresponding lease liabilities included in long-term debt and other liabilities.

Capitalized Software The Company capitalizes certain costs associated with the acquisition or development of internal-use software. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software’s expected useful life and reviewed for impairment on an ongoing basis. Estimated useful lives are generally 3 to 5 years, but may range up to 7 years.

Stock-Based Compensation The Company grants stock-based awards, which may include restricted stock, restricted stock units and options to purchase common stock of the Company. Stock option grants are for a fixed number of shares to employees and directors with an exercise price equal to the fair value of the shares at the date of grant. Restricted stock and restricted stock unit grants are awarded at no cost to the recipient. Stock-based compensation for awards is recognized in the Company’s results of operations over the vesting period. The Company immediately recognizes compensation cost of awards to employees that meet retirement status, despite their continued active employment. The amortization of stock-based compensation reflects estimated forfeitures adjusted for actual forfeiture experience. As compensation expense is recognized, a deferred tax asset is recorded that represents an estimate of the future tax deduction from exercise or release of restrictions. At the time stock-based awards are exercised, cancelled, expire, or restrictions are released, the Company may be required to

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recognize an adjustment to tax expense, depending on the market price of the Company’s common stock at that time.

Per Share Calculations Earnings per common share is calculated using the two-class method under which earnings are allocated to common shareholders and holders of participating securities. Unvested stock-based compensation awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities under the two-class method. Net income applicable to U.S. Bancorp common shareholders is then divided by the weighted-average number of common shares outstanding to determine earnings per common share. Diluted earnings per common share is calculated by adjusting income and outstanding shares, assuming conversion of all potentially dilutive securities.

  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 is 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, issued by the FASB in March 2022,

related to the recognition and measurement of 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 is not material to the Company’s financial statements.

  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. Pursuant to the terms of a previously announced 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 in capital over the $6.25 billion tangible book value target. The additional capital received is held at the MUB subsidiary and is required to be repaid to Mitsubishi UFJ Financial Group, Inc. 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. 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 $329 million of nonrecurring merger and integration charges during 2022 recorded within noninterest expense. These expenses are primarily comprised of personnel, legal, advisory and technology related costs. 

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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 Mitsubishi UFJ Financial Group, Inc. (a)		2,944
Total	$	10,458
Fair Value of MUB assets and liabilities
Assets
Cash and due from banks	$	17,757
Investment securities		22,725
Loans held for sale		2,220
Loans		53,374
Less allowance for loan losses		(336	)
Net loans		53,038
Premises and equipment		646
Other intangible assets (excluding goodwill)		2,883
Other assets		4,719
Total assets	$	103,988
Liabilities
Deposits	$	86,108
Short-term borrowings		4,207
Long-term debt		2,584
Other liabilities		2,854
Total liabilities		95,753
Less: Net assets	$	8,235
Goodwill	$	2,223

(a) Represents $3.5 billion of noninterest-bearing additional capital held by MUB upon close of the acquisition to be delivered to Mitsubishi UFJ Financial Group, Inc. 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.

Preliminary goodwill of $2.2 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 for the amount of goodwill allocated to each business segment in connection with the transaction.

The following table includes the fair value and unpaid principal balance of the loans from the MUB acquisition:

December 1, 2022 (Dollars in Millions)	Unpaid Principal Balance		Fair Value
Commercial	$	11,771	$	11,366
Commercial real estate		14,397		13,843
Residential mortgages		28,256		26,247
Credit card		299		212
Other retail		1,397		1,370
Total loans	$	56,120	$	53,038

Other intangible assets from the MUB acquisition, as of December 1, 2022, consisted of the following: 

(Dollars in Millions)	Weighted-average Estimated Life		Amortization Method			Fair Value
Mortgage servicing rights		–		(a	)	$	147
Core deposit benefits		10 years		Accelerated			2,710
Other		11 years		Accelerated			26
Total other intangible assets (excluding goodwill)						$	2,883

(a) Mortgage servicing rights are recorded at fair value and are not amortized.

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Valuation Methodologies

The methods used to determine the fair values of the significant assets acquired and liabilities assumed as part of the MUB acquisition are described below.

Cash and Due from Banks The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment Securities Fair value estimates for the investment securities were determined by using quoted market prices for identical securities in active markets when available. For certain securities where quoted market prices were not readily available, the Company utilized a third-party pricing service. The third-party pricing service used a variety of methods that incorporated relevant market data to arrive at an estimate of what a buyer in the marketplace would have paid for these securities under current market conditions. These methods included the use of quoted prices for similar securities, inactive transaction prices and broker quotes, as well as discounted cash flow methodologies.

Loans Held for Sale Fair value estimates for loans held for sale were valued based on quoted market prices, where available, and by comparison to instruments with similar collateral and risk profiles.

Loans Fair value estimates for loans were based on discounted cash flow methodologies that considered credit loss and prepayment expectations, market interest rates and other market

factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The probability of default, loss given default, exposure at default and prepayment assumptions were the key factors in determining expected credit losses which were embedded into the estimated cash flows. 

Core Deposit Benefits This intangible asset represents the economic benefit created by certain client deposit relationships by way of favorable funding relative to alternative sources. The fair value was estimated utilizing the after-tax cost savings method of the income approach. Appropriate consideration was given to deposit costs including cost of funds, net maintenance costs or servicing costs, client retention and alternative funding source costs at the time of acquisition. The discount rate used was derived taking into account the estimated cost of equity, risk-free return rate and risk premium for the market and specific risk related to the asset’s cash flows. 

Other Assets Included in other assets are tax-advantaged investments promoting affordable housing. The fair value of these investments was estimated based on the value of the expected future benefits.

Deposits and Borrowed Funds The fair values for deposits, short-term borrowings and long-term debt were estimated by discounting contractual cash flows using current market rates for instruments with similar maturities.

The following table presents financial results of MUB included in the Consolidated Statement of Income from the date of acquisition through December 31, 2022.

(Dollars in Millions)	One Month Ended December 31, 2022
Net interest income	$	255
Noninterest income		(38	)(a)
Net income (loss)		(562	)

(a) Includes realized losses on investment securities sold.

The following table presents unaudited pro forma results as if the acquisition of MUB by the Company occurred on January 1, 2021 and includes the impact of amortizing and accreting certain estimated purchase accounting adjustments such as intangible assets as well as fair value adjustments to investment securities, loans, deposits and long-term debt. The pro forma information does not necessarily reflect the results that would have occurred had the Company acquired MUB on January 1, 2021.

Year Ended December 31 (Dollars in Millions)	2022		2021
Net interest income	$	17,541	$	14,958
Noninterest income		10,068		11,071
Net income		7,184		7,187

The Company initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan’s purchase price. The initial allowance for credit losses for PCD loans of $336 million was established through an adjustment to the MUB loan balance reflected in the related purchase accounting mark. Non-PCD loans and PCD loans had a fair value of $48.5 billion and $4.5 billion, respectively, at the

acquisition date with unpaid principal balances of $51.0 billion and $5.1 billion, respectively. In accordance with authoritative accounting guidance, there was no carryover of the allowance for credit losses that had been previously recorded by MUB. Subsequent to acquisition, the Company recorded an allowance for credit losses primarily on non-PCD loans of $662 million through an increase to the provision for credit losses.

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The following table provides information about the determination of the purchase price of PCD loans at the acquisition date:

December 1, 2022 (Dollars in Millions)
Principal balance	$	5,097
Allowance for credit losses at acquisition		(336	)
Non-credit discount		(213	)
Purchase price	$	4,548

  NOTE 4   Restrictions on Cash and Due from Banks

Banking regulators require bank subsidiaries to maintain minimum average reserve balances, either in the form of vault cash or reserve balances held with central banks or other financial institutions. The amount of required reserve balances were approximately $45 million and $78 million at December 31, 2022 and 2021, respectively. The Company held balances at central

banks and other financial institutions of $41.6 billion and $23.0 billion at December 31, 2022 and 2021, respectively, to meet these requirements and for other purposes. These balances are included in cash and due from banks on the Consolidated Balance Sheet. 

  NOTE 5   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 at December 31 were as follows:

	2022									2021
(Dollars in Millions)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Held-to-maturity
U.S. Treasury and agencies	$	1,344	$	–	$	(51	)	$	1,293	$	–	$	–	$	–		$	–
Mortgage-backed securities
Residential agency		85,693		2		(10,810	)		74,885		41,858		2		(48	)		41,812
Commercial agency		1,703		1		(8	)		1,696		–		–		–			–
Total held-to-maturity	$	88,740	$	3	$	(10,869	)	$	77,874	$	41,858	$	2	$	(48	)	$	41,812
Available-for-sale
U.S. Treasury and agencies	$	24,801	$	1	$	(2,769	)	$	22,033	$	36,648	$	205	$	(244	)	$	36,609
Mortgage-backed securities
Residential agency		32,060		8		(2,797	)		29,271		76,761		665		(347	)		77,079
Commercial
Agency		8,736		–		(1,591	)		7,145		8,633		53		(201	)		8,485
Non-agency		7		–		–			7		–		–		–			–
Asset-backed securities		4,356		5		(38	)		4,323		62		4		–			66
Obligations of state and political subdivisions		11,484		12		(1,371	)		10,125		10,130		607		(20	)		10,717
Other		6		–		–			6		7		–		–			7
Total available-for-sale	$	81,450	$	26	$	(8,566	)	$	72,910	$	132,241	$	1,534	$	(812	)	$	132,963

During 2022, the Company transferred $45.1 billion amortized cost ($40.7 billion fair value) of available-for-sale investment securities to the held-to-maturity category to reflect its new intent for these securities.

Investment securities with a fair value of $15.3 billion at December 31, 2022, and $30.7 billion at December 31, 2021, were pledged to secure public, private and trust deposits,

repurchase agreements and for other purposes required by contractual obligation or law. Included in these amounts were securities where the Company and certain counterparties have agreements granting the counterparties the right to sell or pledge the securities. Investment securities securing these types of arrangements had a fair value of $858 million at December 31, 2022, and $557 million at December 31, 2021.

The following table provides information about the amount of interest income from taxable and non-taxable investment securities:

Year Ended December 31 (Dollars in Millions)	2022		2021		2020
Taxable	$	3,081	$	2,103	$	2,201
Non-taxable		297		262		227
Total interest income from investment securities	$	3,378	$	2,365	$	2,428

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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:

Year Ended December 31 (Dollars in Millions)	2022			2021			2020
Realized gains	$	163		$	122		$	200
Realized losses		(143	)		(19	)		(23	)
Net realized gains	$	20		$	103		$	177
Income tax on net realized gains	$	5		$	26		$	45

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 December 31, 2022 and December 31, 2021.

At December 31, 2022, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at December 31, 2022:

	Less Than 12 Months					12 Months or Greater					Total
(Dollars in Millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury and agencies	$	13,265	$	(1,193	)	$	7,962	$	(1,576	)	$	21,227	$	(2,769	)
Mortgage-backed securities
Residential agency		20,854		(1,461	)		7,752		(1,336	)		28,606		(2,797	)
Commercial
Agency		2,029		(311	)		5,115		(1,280	)		7,144		(1,591	)
Non-agency		7		–			–		–			7		–
Asset-backed securities		3,476		(38	)		–		–			3,476		(38	)
Obligations of state and political subdivisions		8,246		(944	)		1,088		(427	)		9,334		(1,371	)
Other		–		–			4		–			4		–
Total investment securities	$	47,877	$	(3,947	)	$	21,921	$	(4,619	)	$	69,798	$	(8,566	)

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 December 31, 2022, the Company had no plans to sell investment securities with unrealized losses, and believes it is

more likely than not it would not be required to sell such investment securities before recovery of their amortized cost.

During the year ended December 31, 2022 and 2021, the Company did not purchase any investment securities that had more-than-insignificant credit deterioration.

All of the Company’s held-to-maturity investment securities are U.S. Treasury and agencies securities and highly rated agency mortgage-backed securities that are guaranteed or otherwise supported by the United States government and have no history of credit losses. Accordingly the Company does not expect to incur any credit losses on held-to-maturity investment securities and has no allowance for credit losses recorded for these securities.

87    

The following table provides information about the amortized cost, fair value and yield by maturity date of the investment securities outstanding at December 31, 2022:

(Dollars in Millions)	Amortized Cost		Fair Value		Weighted- Average Maturity in Years		Weighted- Average Yield(e)
Held-to-maturity
U.S. Treasury and Agencies
Maturing in one year or less	$	–	$	–		–		–	%
Maturing after one year through five years		1,344		1,293		3.3		2.85
Maturing after five years through ten years		–		–		–		–
Maturing after ten years		–		–		–		–
Total	$	1,344	$	1,293		3.3		2.85	%
Mortgage-Backed Securities(a)
Maturing in one year or less	$	19	$	19		.7		3.08	%
Maturing after one year through five years		1,549		1,546		2.7		4.35
Maturing after five years through ten years		67,062		59,194		9.2		2.15
Maturing after ten years		18,766		15,822		10.2		2.05
Total	$	87,396	$	76,581		9.3		2.17	%
Total held-to-maturity(b)	$	88,740	$	77,874		9.2		2.18	%
Available-for-sale
U.S. Treasury and Agencies
Maturing in one year or less	$	259	$	259		.4		4.72	%
Maturing after one year through five years		4,900		4,606		3.8		2.51
Maturing after five years through ten years		15,937		14,114		7.0		2.24
Maturing after ten years		3,705		3,054		12.0		2.97
Total	$	24,801	$	22,033		7.1		2.43	%
Mortgage-Backed Securities(a)
Maturing in one year or less	$	44	$	43		.8		2.55	%
Maturing after one year through five years		10,976		10,242		3.1		2.33
Maturing after five years through ten years		28,277		24,827		7.7		3.00
Maturing after ten years		1,506		1,311		11.2		3.54
Total	$	40,803	$	36,423		6.6		2.83	%
Asset-Backed Securities
Maturing in one year or less	$	3,429	$	3,391		.6		4.25	%
Maturing after one year through five years		500		503		2.8		5.68
Maturing after five years through ten years		427		429		5.3		6.00
Maturing after ten years		–		–		–		–
Total	$	4,356	$	4,323		1.3		4.59	%
Obligations of State and Political Subdivisions(c) (d)
Maturing in one year or less	$	106	$	107		.2		5.12	%
Maturing after one year through five years		1,756		1,747		3.7		4.72
Maturing after five years through ten years		1,341		1,286		8.3		4.10
Maturing after ten years		8,281		6,985		16.8		3.49
Total	$	11,484	$	10,125		13.6		3.76	%
Other
Maturing in one year or less	$	6	$	6		.1		1.99	%
Maturing after one year through five years		–		–		–		–
Maturing after five years through ten years		–		–		–		–
Maturing after ten years		–		–		–		–
Total	$	6	$	6		.1		1.99	%
Total available-for-sale(b)	$	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) The weighted-average maturity of total held-to-maturity investment securities was 7.4 years at December 31, 2021, with a corresponding weighted-average yield of 1.45 percent. The weighted-average maturity of total available-for-sale investment securities was 5.5 years at December 31, 2021, with a corresponding weighted-average yield of 1.73 percent.

(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.

88    

  NOTE 6   Loans and Allowance for Credit Losses

The composition of the loan portfolio at December 31, disaggregated by class and underlying specific portfolio type, was as follows:

(Dollars in Millions)	2022		2021
Commercial
Commercial	$	131,128	$	106,912
Lease financing		4,562		5,111
Total commercial		135,690		112,023
Commercial Real Estate
Commercial mortgages		43,765		28,757
Construction and development		11,722		10,296
Total commercial real estate		55,487		39,053
Residential Mortgages
Residential mortgages		107,858		67,546
Home equity loans, first liens		7,987		8,947
Total residential mortgages		115,845		76,493
Credit Card		26,295		22,500
Other Retail
Retail leasing		5,519		7,256
Home equity and second mortgages		12,863		10,446
Revolving credit		3,983		2,750
Installment		14,592		16,641
Automobile		17,939		24,866
Total other retail		54,896		61,959
Total loans	$	388,213	$	312,028

The Company had loans of $134.6 billion at December 31, 2022, and $92.1 billion at December 31, 2021, pledged at the Federal Home Loan Bank, and loans of $85.8 billion at December 31, 2022, and $76.9 billion at December 31, 2021, pledged at the Federal Reserve Bank.

The Company offers a broad array of lending products to consumer and commercial customers, in various industries, across several geographical locations, predominately in the states in which it has Consumer and Business Banking offices. Collateral for commercial and commercial real estate loans may include marketable securities, accounts receivable, inventory, equipment, real estate, or the related property.

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 $3.1 billion at December 31, 2022 and $475 million at December 31, 2021. 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.

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Activity in the allowance for credit losses by portfolio class was as follows:

(Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans
Balance at December 31, 2021	$	1,849		$	1,123		$	565		$	1,673		$	945		$	6,155
Add
Allowance for acquired credit losses(a)		163			87			36			45			5			336
Provision for credit losses(b)		378			152			302			826			319			1,977
Deduct
Loans charged-off(c)		319			54			13			696			418			1,500
Less recoveries of loans charged-off		(92	)		(17	)		(36	)		(172	)		(120	)		(437	)
Net loan charge-offs (recoveries)		227			37			(23	)		524			298			1,063
Other Changes		–			–			–			–			(1	)		(1	)
Balance at December 31, 2022	$	2,163		$	1,325		$	926		$	2,020		$	970		$	7,404
Balance at December 31, 2020	$	2,423		$	1,544		$	573		$	2,355		$	1,115		$	8,010
Add
Provision for credit losses		(471	)		(419	)		(40	)		(170	)		(73	)		(1,173	)
Deduct
Loans charged-off		222			29			18			686			253			1,208
Less recoveries of loans charged-off		(119	)		(27	)		(50	)		(174	)		(156	)		(526	)
Net loan charge-offs (recoveries)		103			2			(32	)		512			97			682
Balance at December 31, 2021	$	1,849		$	1,123		$	565		$	1,673		$	945		$	6,155
Balance at December 31, 2019	$	1,484		$	799		$	433		$	1,128		$	647		$	4,491
Add
Change in accounting principle(d)		378			(122	)		(30	)		872			401			1,499
Provision for credit losses		1,074			1,054			158			1,184			336			3,806
Deduct
Loans charged-off		575			210			19			975			401			2,180
Less recoveries of loans charged-off		(62	)		(23	)		(31	)		(146	)		(132	)		(394	)
Net loan charge-offs (recoveries)		513			187			(12	)		829			269			1,786
Balance at December 31, 2020	$	2,423		$	1,544		$	573		$	2,355		$	1,115		$	8,010

(a) Represents allowance for purchased credit deteriorated and charged-off loans acquired from MUB. 

(b) Includes $662 million of provision for credit losses related to the acquisition of MUB.

(c) Includes $179 million of total charge-offs primarily on loans previously charged-off by MUB, which were written up upon acquisition to unpaid principal balance as required by purchase accounting.

(d) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than incurred losses.

The increase in the allowance for credit losses from December 31, 2021 to December 31, 2022 reflected $336 million for purchased credit deteriorated and charged-off loans acquired from MUB and the impact of MUB‘s provision for credit losses of $662 million for loans acquired, as well as the impact of loan growth and increased economic uncertainty.

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. These credit quality ratings are an important part of the Company’s overall credit risk management process and evaluation of the allowance for credit losses.

90    

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
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
December 31, 2021
Commercial	$	111,270	$	530	$	49	$	174	$	112,023
Commercial real estate		38,678		80		11		284		39,053
Residential mortgages(a)		75,962		124		181		226		76,493
Credit card		22,142		193		165		–		22,500
Other retail		61,468		275		66		150		61,959
Total loans	$	309,520	$	1,202	$	472	$	834	$	312,028

(a) At December 31, 2022, $647 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 $791 million and $1.5 billion at December 31, 2021, respectively.

(b) Substantially all nonperforming loans at December 31, 2022 and 2021, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $19 million and $16 million for the years ended December 31, 2022 and 2021, respectively, compared to what would have been recognized at the original contracual terms of the loans of $34 million for both periods.

At December 31, 2022, total nonperforming assets held by the Company were $1.0 billion, compared with $878 million at December 31, 2021. Total nonperforming assets included $972 million of nonperforming loans, $23 million of OREO and $21 million of other nonperforming assets owned by the Company at December 31, 2022, compared with $834 million, $22 million and $22 million, respectively at December 31, 2021.

At December 31, 2022, the amount of foreclosed residential real estate held by the Company, and included in OREO, was $23 million, compared with $22 million at December 31, 2021. These amounts excluded $54 million and $22 million at December 31, 2022 and December 31, 2021, respectively, of foreclosed residential real estate related to mortgage loans whose

payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at December 31, 2022 and December 31, 2021, was $1.1 billion and $696 million, respectively, of which $830 million and $555 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.

91    

The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:

	December 31, 2022										December 31, 2021
			Criticized										Criticized
(Dollars in Millions)	Pass		Special Mention		Classified(a)		Total Criticized		Total		Pass		Special Mention		Classified(a)		Total Criticized		Total
Commercial
Originated in 2022	$	61,229	$	245	$	315	$	560	$	61,789	$	–	$	–	$	–	$	–	$	–
Originated in 2021		26,411		159		78		237		26,648		51,155		387		287		674		51,829
Originated in 2020		7,049		68		138		206		7,255		14,091		304		133		437		14,528
Originated in 2019		3,962		51		210		261		4,223		10,159		151		54		205		10,364
Originated in 2018		2,119		31		32		63		2,182		5,122		3		36		39		5,161
Originated prior to 2018		6,867		33		97		130		6,997		4,923		30		81		111		5,034
Revolving(b)		25,888		344		364		708		26,596		24,722		268		117		385		25,107
Total commercial		133,525		931		1,234		2,165		135,690		110,172		1,143		708		1,851		112,023
Commercial real estate
Originated in 2022		14,527		206		519		725		15,252		–		–		–		–		–
Originated in 2021		13,565		171		99		270		13,835		13,364		6		990		996		14,360
Originated in 2020		6,489		97		117		214		6,703		7,459		198		263		461		7,920
Originated in 2019		6,991		251		304		555		7,546		6,368		251		610		861		7,229
Originated in 2018		3,550		88		501		589		4,139		2,996		29		229		258		3,254
Originated prior to 2018		6,089		50		374		424		6,513		4,473		55		224		279		4,752
Revolving		1,489		–		10		10		1,499		1,494		1		43		44		1,538
Total commercial real estate		52,700		863		1,924		2,787		55,487		36,154		540		2,359		2,899		39,053
Residential mortgages(c)
Originated in 2022		28,452		–		–		–		28,452		–		–		–		–		–
Originated in 2021		39,527		–		7		7		39,534		29,882		–		3		3		29,885
Originated in 2020		16,556		–		8		8		16,564		15,948		1		8		9		15,957
Originated in 2019		7,222		–		18		18		7,240		6,938		–		36		36		6,974
Originated in 2018		2,934		–		26		26		2,960		2,889		–		30		30		2,919
Originated prior to 2018		20,724		–		371		371		21,095		20,415		–		342		342		20,757
Revolving		–		–		–		–		–		1		–		–		–		1
Total residential mortgages		115,415		–		430		430		115,845		76,073		1		419		420		76,493
Credit card(d)		26,063		–		232		232		26,295		22,335		–		165		165		22,500
Other retail
Originated in 2022		9,563		–		6		6		9,569		–		–		–		–		–
Originated in 2021		15,352		–		12		12		15,364		22,455		–		6		6		22,461
Originated in 2020		7,828		–		11		11		7,839		12,071		–		9		9		12,080
Originated in 2019		3,418		–		13		13		3,431		7,223		–		17		17		7,240
Originated in 2018		1,421		–		9		9		1,430		3,285		–		14		14		3,299
Originated prior to 2018		2,268		–		22		22		2,290		3,699		–		24		24		3,723
Revolving		14,029		–		98		98		14,127		12,532		–		112		112		12,644
Revolving converted to term		800		–		46		46		846		472		–		40		40		512
Total other retail		54,679		–		217		217		54,896		61,737		–		222		222		61,959
Total loans	$	382,382	$	1,794	$	4,037	$	5,831	$	388,213	$	306,471	$	1,684	$	3,873	$	5,557	$	312,028
Total outstanding commitments	$	772,804	$	2,825	$	5,041	$	7,866	$	780,670	$	662,363	$	3,372	$	5,684	$	9,056	$	671,419

Note: Year of origination is based on the origination date of a loan, or for existing loans the date when the maturity date, pricing or commitment amount is amended.

(a) Classified rating on consumer loans primarily based on delinquency status.

(b) Includes an immaterial amount of revolving converted to term loans.

(c) At December 31, 2022, $2.2 billion of GNMA loans 90 days or more past due and $1.0 billion of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $1.5 billion and $1.1 billion at December 31, 2021, respectively.

(d) Predominately all credit card loans are considered revolving loans. Includes an immaterial amount of revolving converted to term loans.

92    

Troubled Debt Restructurings In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. The following table provides a summary of loans modified as TDRs for the years ended December 31, by portfolio class:

(Dollars in Millions)	Number of Loans		Pre-Modification Outstanding Loan Balance		Post-Modification Outstanding Loan Balance
2022
Commercial		2,259	$	148	$	134
Commercial real estate		75		50		47
Residential mortgages		1,699		475		476
Credit card		44,470		243		246
Other retail		2,514		89		85
Total loans, excluding loans purchased from GNMA mortgage pools		51,017		1,005		988
Loans purchased from GNMA mortgage pools		1,640		226		230
Total loans		52,657	$	1,231	$	1,218
2021
Commercial		2,156	$	140	$	127
Commercial real estate		112		193		179
Residential mortgages		977		329		328
Credit card		25,297		144		146
Other retail		2,576		74		67
Total loans, excluding loans purchased from GNMA mortgage pools		31,118		880		847
Loans purchased from GNMA mortgage pools		2,311		334		346
Total loans		33,429	$	1,214	$	1,193
2020
Commercial		3,423	$	628	$	493
Commercial real estate		149		262		218
Residential mortgages		1,176		402		401
Credit card		23,549		135		136
Other retail		4,027		117		114
Total loans, excluding loans purchased from GNMA mortgage pools		32,324		1,544		1,362
Loans purchased from GNMA mortgage pools		4,630		667		659
Total loans		36,954	$	2,211	$	2,021

Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification

programs. At December 31, 2022, 4 residential mortgages, 5 home equity and second mortgage loans and 52 loans purchased from GNMA mortgage pools with outstanding balances of less than $1 million, less than $1 million and $6 million, respectively, were in a trial period and have estimated post-modification balances of less than $1 million, less than $1 million and $6 million, respectively, assuming permanent modification occurs at the end of the trial period.

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The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more past due) for the years ended December 31, that were modified as TDRs within 12 months previous to default:

(Dollars in Millions)	Number of Loans		Amount Defaulted
2022
Commercial		767	$	24
Commercial real estate		20		11
Residential mortgages		235		28
Credit card		7,904		42
Other retail		307		5
Total loans, excluding loans purchased from GNMA mortgage pools		9,233		110
Loans purchased from GNMA mortgage pools		282		59
Total loans		9,515	$	169
2021
Commercial		1,084	$	32
Commercial real estate		16		7
Residential mortgages		81		9
Credit card		7,700		43
Other retail		714		11
Total loans, excluding loans purchased from GNMA mortgage pools		9,595		102
Loans purchased from GNMA mortgage pools		176		26
Total loans		9,771	$	128
2020
Commercial		1,148	$	80
Commercial real estate		50		30
Residential mortgages		38		5
Credit card		6,688		35
Other retail		307		4
Total loans, excluding loans purchased from GNMA mortgage pools		8,231		154
Loans purchased from GNMA mortgage pools		498		66
Total loans		8,729	$	220

In addition to the defaults in the table above, the Company had a total of 16 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the year ended December 31, 2022, where borrowers did not successfully complete the trial period arrangement and, therefore, are no longer eligible for a

permanent modification under the applicable modification program. These loans had aggregate outstanding balances of $2 million for the year ended December 31, 2022.

As of December 31, 2022, the Company had $21 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified in TDRs.

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  NOTE 7   Leases

The Company, as a lessor, originates retail and commercial leases either directly to the consumer or indirectly through dealer networks. Retail leases consist primarily of automobiles, while

commercial leases may include high dollar assets such as aircraft or lower cost items such as office equipment.

The components of the net investment in sales-type and direct financing leases, at December 31, were as follows:

(Dollars in Millions)	2022		2021
Lease receivables	$	8,731	$	10,738
Unguaranteed residual values accruing to the lessor’s benefit		1,323		1,610
Total net investment in sales-type and direct financing leases	$	10,054	$	12,348

The Company, as a lessor, recorded $764 million, $888 million and $952 million of revenue on its Consolidated Statement of Income for the years ended December 31, 2022,

2021 and 2020, respectively, primarily consisting of interest income on sales-type and direct financing leases.

The contractual future lease payments to be received by the Company, at December 31, 2022, were as follows:

(Dollars in Millions)	Sales-type and direct financing leases			Operating leases
2023	$	3,496		$	134
2024		2,765			103
2025		1,665			69
2026		658			33
2027		284			18
Thereafter		447			26
Total lease payments		9,315		$	383
Amounts representing interest		(584	)
Lease receivables	$	8,731

The Company, as lessee, leases certain assets for use in its operations. Leased assets primarily include retail branches, operations centers and other corporate locations, and, to a lesser extent, office and computer equipment. For each lease with an original term greater than 12 months, the Company records a lease liability and a corresponding right of use (“ROU”) asset. At December 31, 2022, the Company’s ROU assets included in premises and equipment and lease liabilities included in long-term debt and other liabilities, were $1.6 billion and $1.7 billion,

respectively, compared with $1.2 billion of ROU assets and $1.3 billion of lease liabilities at December 31, 2021, respectively.

Total costs incurred by the Company, as a lessee, were $390 million, $364 million and $374 million for the years ended December 31, 2022, 2021 and 2020, respectively, and principally related to contractual lease payments on operating leases. The Company’s leases do not impose significant covenants or other restrictions on the Company.

The following table presents amounts relevant to the Company’s assets leased for use in its operations for the years ended December 31:

(Dollars in Millions)	2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	294	$	288	$	305
Operating cash flows from finance leases		4		5		6
Financing cash flows from finance leases		14		12		12
Right of use assets obtained in exchange for new operating lease liabilities		239		164		128
Right of use assets obtained in exchange for new finance lease liabilities		91		75		6

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The following table presents the weighted-average remaining lease terms and discount rates of the Company’s assets leased for use in its operations at December 31:

	2022			2021
Weighted-average remaining lease term of operating leases (in years)		6.8			7.0
Weighted-average remaining lease term of finance leases (in years)		8.5			9.5
Weighted-average discount rate of operating leases		3.3	%		2.7	%
Weighted-average discount rate of finance leases		7.9	%		9.3	%

The contractual future lease obligations of the Company at December 31, 2022, were as follows:

(Dollars in Millions)	Operating leases			Finance leases
2023	$	369		$	29
2024		318			51
2025		255			48
2026		198			33
2027		152			10
Thereafter		410			28
Total lease payments		1,702			199
Amounts representing interest		(202	)		(22	)
Lease liabilities	$	1,500		$	177

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NOTE 8	Accounting for Transfers and Servicing of Financial Assets and Variable Interest
	Entities

The Company transfers financial assets in the normal course of business. The majority of the Company’s financial asset transfers are residential mortgage loan sales primarily to government-sponsored enterprises (“GSEs”), transfers of tax-advantaged investments, commercial loan sales through participation agreements, and other individual or portfolio loan and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. Guarantees provided to certain third parties in connection with the transfer of assets are further discussed in Note 23.

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 MSR’s, refer to Note 10. 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 also provides financial support primarily through the use of waivers of trust and investment management fees associated with various unconsolidated registered money market funds it manages. The Company discontinued providing this support beginning in the third quarter of 2022 due to rising interest rates in the current year. The Company provided $65 million, $250 million and $89 million of support to the funds during the years ended December 31, 2022, 2021 and 2020, respectively.

The Company is involved in various entities that are considered to be 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 $461 million, $508 million and $578 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company also recognized $527 million, $418 million and $414 million of investment tax credits for the years ended December 31, 2022, 2021 and 2020, respectively. The Company recognized $424 million, $468 million and $545 million of expenses related to all of these investments for the years ended December 31, 2022, 2021 and 2020, respectively, of which $359 million, $336 million and $367 million, respectively, were included in tax expense and the remaining amounts were included in noninterest expense.

The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.

The Company’s investments in these unconsolidated VIEs are carried in other assets on the Consolidated Balance Sheet. The Company’s unfunded capital and other commitments related to these unconsolidated VIEs are generally carried in other liabilities on the Consolidated Balance Sheet. The Company’s maximum exposure to loss from these unconsolidated VIEs include the investment recorded on the Company’s Consolidated Balance Sheet, net of unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level. While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the community-based business and housing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.

The following table provides a summary of investments in community development and tax-advantaged VIEs that the Company has not consolidated:

At December 31 (Dollars in Millions)	2022		2021
Investment carrying amount	$	5,452	$	4,484
Unfunded capital and other commitments		2,416		1,890
Maximum exposure to loss		9,761		9,899

The Company also has noncontrolling financial investments in private investment funds and partnerships considered to be VIEs, which are not consolidated. The Company’s recorded investment in these entities, carried in other assets on the Consolidated Balance Sheet, was approximately $177 million at December 31, 2022 and $40 million at December 31, 2021. The maximum exposure to loss related to these VIEs was $310 million at December 31, 2022 and $84 million at December 31, 2021, representing the Company’s investment balance and its unfunded commitments to invest additional amounts.

97    

The Company also holds $3.4 billion of senior notes as available-for-sale investment securities. These senior notes were issued by third-party securitization vehicles that hold $4 billion 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 $116 million at December 31, 2022, compared with less than $1 million to $75 million at December 31, 2021.

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 December 31, 2022, approximately $5.9 billion of the Company’s assets and $4.2 billion of its liabilities included on the Consolidated Balance Sheet were related to community development and tax-advantaged investment VIEs which the Company has consolidated, primarily related to these transfers. These amounts compared to $5.0 billion and $3.4 billion, respectively, at

December 31, 2021. The majority of the assets of these consolidated VIEs are reported in other assets, and the liabilities are reported in long-term debt and other liabilities. The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIEs do not have recourse to the general credit of the Company. The Company’s exposure to the consolidated VIEs is generally limited to the carrying value of its variable interests plus any related tax credits previously recognized or transferred to others with a guarantee.

In addition, the Company sponsors a municipal bond securities tender option bond program. The Company controls the activities of the program’s entities, is entitled to the residual returns and provides liquidity and remarketing arrangements to the program. As a result, the Company has consolidated the program’s entities. At December 31, 2022, $1.5 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 $1.7 billion of available-for-sale investment securities and $1.2 billion of short-term borrowings at December 31, 2021.

    NOTE 9   Premises and Equipment

Premises and equipment at December 31 consisted of the following:

(Dollars in Millions)	2022			2021
Land	$	535		$	445
Buildings and improvements		3,296			3,161
Furniture, fixtures and equipment		3,485			3,438
Right of use assets on operating leases		1,296			1,014
Right of use assets on finance leases		269			172
Construction in progress		46			23
		8,927			8,253
Less accumulated depreciation and amortization		(5,069	)		(4,948	)
Total	$	3,858		$	3,305

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    NOTE 10   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 $243.6 billion of residential mortgage loans for others at December 31, 2022, and $222.4 billion at December 31, 2021, including subserviced mortgages with no corresponding MSR asset. Included in mortgage banking revenue are the MSR fair value changes arising

from market rate and model assumption changes, net of the value change in derivatives used to economically hedge MSRs. These changes resulted in net losses of $45 million and $183 million, and a net gain of $18 million for the years ended December 31, 2022, 2021 and 2020, respectively. Loan servicing and ancillary fees, not including valuation changes, included in mortgage banking revenue were $754 million, $725 million and $718 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Changes in fair value of capitalized MSRs are summarized as follows:

(Dollars in Millions)	2022			2021			2020
Balance at beginning of period	$	2,953		$	2,210		$	2,546
Rights purchased		156			42			34
Rights capitalized		590			1,136			1,030
Rights sold(a)		(255	)		2			3
Changes in fair value of MSRs
Due to fluctuations in market interest rates(b)		804			272			(719	)
Due to revised assumptions or models(c)		(29	)		(196	)		(12	)
Other changes in fair value(d)		(464	)		(513	)		(672	)
Balance at end of period	$	3,755		$	2,953		$	2,210

(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.

The estimated sensitivity to changes in interest rates of the fair value of the MSR portfolio and the related derivative instruments as of December 31 follows:

	2022																	2021
(Dollars in Millions)	Down 100 bps			Down 50 bps			Down 25 bps			Up 25 bps			Up 50 bps			Up 100 bps		Down 100 bps			Down 50 bps			Down 25 bps			Up 25 bps		Up 50 bps		Up 100 bps
MSR portfolio	$	(334	)	$	(153	)	$	(73	)	$	66		$	125		$	224	$	(636	)	$	(324	)	$	(160	)	$	150	$	287	$	511
Derivative instrument hedges		337			153			73			(67)			(127)			(236)		614			309			152			(142)		(278)		(536)
Net sensitivity	$	3		$	–		$	–		$	(1	)	$	(2	)	$	(12)	$	(22	)	$	(15	)	$	(8)		$	8	$	9	$	(25)

The fair value of MSRs and their sensitivity to changes in interest rates is influenced by the mix of the servicing portfolio and characteristics of each segment of the portfolio. The Company’s servicing portfolio consists of the distinct portfolios of government-insured mortgages, conventional mortgages and Housing Finance Agency (“HFA”) mortgages. The servicing portfolios are predominantly comprised of fixed-rate agency loans 

with limited adjustable-rate or jumbo mortgage loans. The HFA servicing portfolio is comprised of loans originated under state and local housing authority program guidelines which assist purchases by first-time or low- to moderate-income homebuyers through a favorable rate subsidy, down payment and/or closing cost assistance on government- and conventional-insured mortgages.

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A summary of the Company’s MSRs and related characteristics by portfolio as of December 31 follows:

	2022												2021
(Dollars in Millions)	HFA			Government			Conventional(d)			Total			HFA			Government			Conventional(d)			Total
Servicing portfolio(a)	$	44,071		$	23,141		$	172,541		$	239,753		$	40,652		$	21,919		$	156,382		$	218,953
Fair value	$	725		$	454		$	2,576		$	3,755		$	527		$	308		$	2,118		$	2,953
Value (bps)(b)		165			196			149			157			130			141			135			135
Weighted-average servicing fees (bps)		36			42			27			30			36			41			30			32
Multiple (value/servicing fees)		4.56			4.69			5.52			5.20			3.63			3.43			4.50			4.18
Weighted-average note rate		4.16	%		3.81	%		3.52	%		3.67	%		4.07	%		3.70	%		3.41	%		3.56	%
Weighted-average age (in years)		4.0			5.7			3.7			3.9			3.8			5.9			3.3			3.7
Weighted-average expected prepayment (constant prepayment rate)		7.4	%		8.5	%		7.8	%		7.8	%		11.5	%		13.2	%		9.6	%		10.3	%
Weighted-average expected life (in years)		8.8			7.6			7.5			7.7			6.5			5.6			6.9			6.7
Weighted-average option adjusted spread(c)		7.6	%		6.9	%		5.1	%		5.8	%		7.3	%		7.3	%		6.3	%		6.6	%

(a) Represents principal balance of mortgages having corresponding MSR asset.     

(b) Calculated as fair value divided by the servicing portfolio.     

(c) Option adjusted spread is the incremental spread added to the risk-free rate to reflect optionality and other risk inherent in the MSRs.     

(d) Represents loans sold primarily to GSEs.     

    NOTE 11   Intangible Assets

Intangible assets consisted of the following:

At December 31 (Dollars in Millions)	2022		2021
Goodwill	$	12,373	$	10,262
Merchant processing contracts		155		195
Core deposit benefits		2,706		49
Mortgage servicing rights		3,755		2,953
Trust relationships		50		62
Other identified intangibles		489		479
Total	$	19,528	$	14,000

Aggregate amortization expense consisted of the following:

Year Ended December 31 (Dollars in Millions)	2022		2021		2020
Merchant processing contracts	$	38	$	45	$	49
Core deposit benefits		53		15		18
Trust relationships		12		10		9
Other identified intangibles		112		89		100
Total	$	215	$	159	$	176

The estimated amortization expense for the next five years is as follows:

(Dollars in Millions)
2023	$	647
2024		572
2025		490
2026		422
2027		350

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The following table reflects the changes in the carrying value of goodwill for the years ended December 31, 2022, 2021 and 2020:

(Dollars in Millions)	Corporate and Commercial Banking		Consumer and Business Banking			Wealth Management and Investment Services			Payment Services			Treasury and Corporate Support		Consolidated Company
Balance at December 31, 2019	$	1,647	$	3,475		$	1,617		$	2,916		$	—	$	9,655
Goodwill acquired		—		—			—			180			—		180
Foreign exchange translation and other		—		—			2			81			—		83
Balance at December 31, 2020	$	1,647	$	3,475		$	1,619		$	3,177		$	—	$	9,918
Goodwill acquired		—		35			144			192			—		371
Foreign exchange translation and other		265		(265	)		(2	)		(25	)		—		(27	)
Balance at December 31, 2021	$	1,912	$	3,245		$	1,761		$	3,344		$	—	$	10,262
Goodwill acquired		889		1,220			29			11			—		2,149
Foreign exchange translation and other		—		—			(2	)		(36	)		—		(38	)
Balance at December 31, 2022	$	2,801	$	4,465		$	1,788		$	3,319		$	—	$	12,373

    NOTE 12   Deposits

The composition of deposits at December 31 was as follows:

(Dollars in Millions)	2022		2021
Noninterest-bearing deposits	$	137,743	$	134,901
Interest-bearing deposits
Interest checking		134,491		115,108
Money market savings		148,014		117,619
Savings accounts		71,782		65,790
Time deposits		32,946		22,665
Total interest-bearing deposits		387,233		321,182
Total deposits	$	524,976	$	456,083

The maturities of time deposits outstanding at December 31, 2022 were as follows:

(Dollars in Millions)
2023	$	26,622
2024		3,879
2025		1,668
2026		458
2027		317
Thereafter		2
Total	$	32,946

    NOTE 13   Short-Term Borrowings

Short-term borrowings at December 31 consisted of the following:

(Dollars in Millions)	2022			2021
Federal funds purchased	$	226		$	628
Securities sold under agreements to repurchase		1,431			1,575
Commercial paper		8,145			6,026
Other short-term borrowings		21,414	(a)		3,567
Total	$	31,216		$	11,796

(a) Balance primarily includes short-term FHLB advances.

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  NOTE 14   Long-Term Debt

Long-term debt (debt with original maturities of more than one year) at December 31 consisted of the following:

(Dollars in Millions)	Rate Type			Rate(a)			Maturity Date		2022		2021
U.S. Bancorp (Parent Company)
Subordinated notes		Fixed			2.950	%		2022	$	–	$	1,300
		Fixed			3.600	%		2024		1,000		1,000
		Fixed			7.500	%		2026		199		199
		Fixed			3.100	%		2026		1,000		1,000
		Fixed			3.000	%		2029		1,000		1,000
		Fixed			4.967	%		2033		1,300		–
		Fixed			2.491	%		2036		1,300		1,300
Medium-term notes		Fixed			.850% - 5.850	%		2024 - 2033		18,468		12,631
Other(b)										2,716		472
Subtotal										26,983		18,902
Subsidiaries
Federal Home Loan Bank advances		Fixed			2.289% - 8.250%			2023 - 2026		2,051		2
		Floating	(d)		5.190% - 5.197%			2025 - 2026		3,000		3,272
Bank notes		Fixed			1.950% - 3.400%			2023 - 2025		4,800		5,700
		Floating	(d)		–% - 4.758%			2023 - 2062		1,352		3,337
Other(c)										1,643		912
Subtotal										12,846		13,223
Total									$	39,829	$	32,125

(a) Weighted-average interest rates of medium-term notes, Federal Home Loan Bank advances and bank notes were 3.20 percent, 4.02 percent and 2.78 percent, respectively.

(b) Includes $2.9 billion of discounted noninterest-bearing additional capital received by the Company upon close of the MUB acquisition to be delivered to Mitsubishi UFJ Financial Group, Inc. on or prior to December 1, 2027, discounted at the Company’s 5-year unsecured borrowing rate as of the acquisition date, as well as debt issuance fees and unrealized gains and losses and deferred amounts relating to derivative instruments.

(c) Includes consolidated community development and tax-advantaged investment VIEs, finance lease obligations, debt issuance fees, and unrealized gains and losses and deferred amounts relating to derivative instruments.

d) Includes $3.0 billion of Federal Home Loan Bank advances and $1.0 billion of bank notes for which interest is calculated by reference to LIBOR. For any outstanding LIBOR-linked instrument that matures after June 30, 2023, the interest rate will transition from a LIBOR-based rate to an alternative reference rate. For outstanding debt subject to the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) that does not contain a fallback provision or does not contain a clearly defined or practicable fallback provision in the event that LIBOR is no longer published or quoted, the interest rate will transition pursuant to the LIBOR Act to a rate based on the Secured Overnight Financing Rate (“SOFR”) after June 30, 2023. For outstanding debt that contains adequate fallback provisions in the event that LIBOR is no longer published or quoted, these fallback provisions will be utilized to determine the replacement rate applied after June 30, 2023.

The Company has arrangements with the Federal Home Loan Bank and Federal Reserve Bank whereby the Company could have borrowed an additional $114.8 billion and $101.0 billion at December 31, 2022 and 2021, respectively, based on collateral available.

Maturities of long-term debt outstanding at December 31, 2022, were:

(Dollars in Millions)	Parent Company		Consolidated
2023	$	899	$	4,854
2024		5,424		5,490
2025		1,965		5,498
2026		3,978		7,397
2027		3,722		3,751
Thereafter		10,995		12,839
Total	$	26,983	$	39,829

102    

  NOTE 15   Shareholders’  Equity

At December 31, 2022 and 2021, the Company had authority to issue 4 billion shares of common stock and 50 million shares of preferred stock. The Company had 1.5 billion shares of common

stock outstanding at December 31, 2022 and 2021. The Company had 31 million shares reserved for future issuances, primarily under its stock incentive plans at December 31, 2022.

The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock were as follows:

	2022								2021
(Dollars in Millions)	Shares Issued and Outstanding		Liquidation Preference		Discount		Carrying Amount		Shares Issued and Outstanding		Liquidation Preference		Discount		Carrying Amount
Series A		12,510	$	1,251	$	145	$	1,106		12,510	$	1,251	$	145	$	1,106
Series B		40,000		1,000		–		1,000		40,000		1,000		–		1,000
Series J		40,000		1,000		7		993		40,000		1,000		7		993
Series K		23,000		575		10		565		23,000		575		10		565
Series L		20,000		500		14		486		20,000		500		14		486
Series M		30,000		750		21		729		30,000		750		21		729
Series N		60,000		1,500		8		1,492		60,000		1,500		8		1,492
Series O		18,000		450		13		437		–		–		–		–
Total preferred stock(a)		243,510	$	7,026	$	218	$	6,808		225,510	$	6,576	$	205	$	6,371

(a) The par value of all shares issued and outstanding at December 31, 2022 and 2021, was $1.00 per share.

During 2022, the Company issued depositary shares representing an ownership interest in 18,000 shares of Series O Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series O Preferred Stock”). The Series O Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 4.50 percent. The Series O Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after April 15, 2027. The Series O Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to April 15, 2027 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series O Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2021, the Company issued depositary shares representing an ownership interest in 60,000 shares of Series N Fixed Rate Reset 
Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series N Preferred Stock”). The Series N Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 3.70 percent from the date of issuance to, but excluding, January 15, 2027, and thereafter will accrue and be payable quarterly at a floating rate per annum equal to the five-year treasury rate plus 2.541 percent. The Series N Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after January 15, 2027. The Series N Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to January 15, 2027 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat 

the full liquidation value of the Series N Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2021, the Company issued depositary shares representing an ownership interest in 30,000 shares of Series M Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series M Preferred Stock”). The Series M Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 4.00 percent. The Series M Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after April 15, 2026. The Series M Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to April 15, 2026 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series M Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2020, the Company issued depositary shares representing an ownership interest in 20,000 shares of Series L Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series L Preferred Stock”). The Series L Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 3.75 percent. The Series L Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after January 15, 2026. The Series L Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to January 15, 2026 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series L 

103    

Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2018, the Company issued depositary shares representing an ownership interest in 23,000 shares of Series K Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series K Preferred Stock”). The Series K Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 5.50 percent. The Series K Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after October 15, 2023. The Series K Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to October 15, 2023 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series K Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2017, the Company issued depositary shares representing an ownership interest in 40,000 shares of Series J Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series J Preferred Stock”). The Series J Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable semiannually, in arrears, at a rate per annum equal to 5.300 percent from the date of issuance to, but excluding, April 15, 2027, and thereafter will accrue and be payable quarterly at a floating rate per annum equal to the three-month London Interbank Offered Rate (“LIBOR”) plus 2.914 percent. The Series J Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after April 15, 2027. The Series J Preferred Stock is redeemable at the Company’s option, in whole, but not in part, prior to April 15, 2027 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series J Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2010, the Company issued depositary shares representing an ownership interest in 5,746 shares of Series A Non-Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”) to investors, in exchange for their portion of USB Capital IX Income Trust Securities. During 2011, the Company issued depositary shares representing an ownership interest in 6,764 shares of Series A Preferred Stock to USB Capital IX, thereby settling the stock purchase contract

established between the Company and USB Capital IX as part of the 2006 issuance of USB Capital IX Income Trust Securities. The preferred shares were issued to USB Capital IX for the purchase price specified in the stock forward purchase contract. The Series A Preferred Stock has a liquidation preference of $100,000 per share, no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to the greater of three-month LIBOR plus 1.02 percent or 3.50 percent. The Series A Preferred Stock is redeemable at the Company’s option, subject to prior approval by the Federal Reserve Board.

During 2006, the Company issued depositary shares representing an ownership interest in 40,000 shares of Series B Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series B Preferred Stock”). The Series B Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to the greater of three-month LIBOR plus .60 percent, or 3.50 percent. The Series B Preferred Stock is redeemable at the Company’s option, subject to the prior approval of the Federal Reserve Board.

Dividends for certain of the Company’s outstanding series of preferred stock described above are, or will in the future be, calculated by reference to LIBOR. The interest rate on these series of preferred stock will transition pursuant to the LIBOR Act to a rate based on SOFR after June 30, 2023. 

During 2022, 2021 and 2020, the Company repurchased shares of its common stock under various authorizations approved by its Board of Directors. The Company suspended all common stock repurchases at the beginning of the third quarter of 2021 and continuing through the remainder of 2022, except for those done exclusively in connection with its stock-based compensation programs, due to its pending acquisition of MUB’s core regional banking franchise. The Company does not expect to commence repurchasing its common stock again until its common equity tier 1 ratio approximates 9.0 percent, at which time the Company will assess its capital position relative to existing and proposed regulatory capital requirements.

The following table summarizes the Company’s common stock repurchased in each of the last three years:

(Dollars and Shares in Millions)	Shares		Value
2022		1	$	69
2021		28		1,556
2020		31		1,661

104    

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 years ended December 31, is as follows:

(Dollars in Millions)	Unrealized Gains (Losses) on Investment Securities Available-For-Sale			Unrealized Gains (Losses) on Investment Securities Transferred From Available-For-Sale to Held-To-Maturity			Unrealized Gains (Losses) on Derivative Hedges			Unrealized Gains (Losses) on Retirement Plans			Foreign Currency Translation			Total
2022
Balance at beginning of period	$	540		$	(935	)	$	(85	)	$	(1,426	)	$	(37	)	$	(1,943	)
Changes in unrealized gains (losses)		(13,656	)		–			(75	)		526			–			(13,205	)
Transfer of securities from available-for-sale to held-to-maturity		4,413			(4,413	)		–			–			–			–
Foreign currency translation adjustment(a)		–			–			–			–			(10	)		(10	)
Reclassification to earnings of realized (gains) losses		(20	)		400			36			128			–			544
Applicable income taxes		2,345			1,015			10			(167	)		4			3,207
Balance at end of period	$	(6,378	)	$	(3,933	)	$	(114	)	$	(939	)	$	(43	)	$	(11,407	)
2021
Balance at beginning of period	$	2,417		$	–		$	(189	)	$	(1,842	)	$	(64	)	$	322
Changes in unrealized gains and losses		(3,698	)		–			125			400			–			(3,173	)
Transfer of securities from available-for-sale to held-to-maturity		1,289			(1,289	)		–			–			–			–
Foreign currency translation adjustment(a)		–			–			–			–			35			35
Reclassification to earnings of realized gains and losses		(103	)		36			14			157			–			104
Applicable income taxes		635			318			(35	)		(141	)		(8	)		769
Balance at end of period	$	540		$	(935	)	$	(85	)	$	(1,426	)	$	(37	)	$	(1,943	)
2020
Balance at beginning of period	$	379		$	–		$	(51	)	$	(1,636	)	$	(65	)	$	(1,373	)
Changes in unrealized gains and losses		2,905			–			(194	)		(401	)		–			2,310
Foreign currency translation adjustment(a)		–			–			–			–			2			2
Reclassification to earnings of realized gains and losses		(177	)		–			10			125			–			(42	)
Applicable income taxes		(690	)		–			46			70			(1	)		(575	)
Balance at end of period	$	2,417		$	–		$	(189	)	$	(1,842	)	$	(64	)	$	322

(a) Represents the impact of changes in foreign currency exchange rates on the Company’s investment in foreign operations and related hedges.

105    

Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and into earnings for the years ended December 31, is as follows:

	Impact to Net Income									Affected Line Item in the Consolidated Statement of Income
(Dollars in Millions)	2022			2021			2020
Unrealized gains (losses) on investment securities available-for-sale
Realized gains (losses) on sale of investment securities	$	20		$	103		$	177		Securities gains (losses), net
		(5	)		(26	)		(45	)	Applicable income taxes
		15			77			132		Net-of-tax
Unrealized gains (losses) on investment securities transferred from available-for-sale to held-to-maturity
Amortization of unrealized gains (losses)		(400	)		(36	)		–		Interest income
		119			9			–		Applicable income taxes
		(281	)		(27	)		–		Net-of-tax
Unrealized gains (losses) on derivative hedges
Realized gains (losses) on derivative hedges		(36	)		(14	)		(10	)	Interest expense
		9			4			3		Applicable income taxes
		(27	)		(10	)		(7	)	Net-of-tax
Unrealized gains (losses) on retirement plans
Actuarial gains (losses) and prior service cost (credit) amortization		(128	)		(157	)		(125	)	Other noninterest expense
		33			40			32		Applicable income taxes
		(95	)		(117	)		(93	)	Net-of-tax
Total impact to net income	$	(388	)	$	(77	)	$	32

Regulatory Capital The Company uses certain measures defined by bank regulatory agencies to assess its capital. 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.

Tier 1 capital is considered core capital and includes common shareholders’ equity adjusted for the aggregate impact of certain items included in other comprehensive income (loss) (“common equity tier 1 capital”), plus qualifying preferred stock, trust preferred securities and noncontrolling interests in consolidated subsidiaries subject to certain limitations. Total risk-based capital includes Tier 1 capital and other items such as subordinated debt and the allowance for credit losses. Capital measures are stated as a percentage of risk-weighted assets, which are measured based on their perceived credit risks and include certain off-balance sheet exposures, such as unfunded loan

commitments, letters of credit, and derivative contracts. Beginning in 2022, the Company began to phase into its regulatory capital requirements the cumulative deferred impact of its 2020 adoption of the accounting guidance related to the impairment of financial instruments based on the current expected credit losses (“CECL”) methodology plus 25 percent of its quarterly credit reserve increases over the past two years. This cumulative deferred impact will be phased into the Company’s regulatory capital over the next three years, culminating with a fully phased in regulatory capital calculation beginning in 2025.

The Company is also subject to leverage ratio requirements, which is defined as Tier 1 capital as a percentage of adjusted average assets under the standardized approach and Tier 1 capital as a percentage of total on- and off-balance sheet leverage exposure under more risk-sensitive advanced approaches.

106    

The following table provides a summary of the regulatory capital requirements in effect, along with the actual components and ratios for the Company and its bank subsidiaries, at December 31, 2022 and 2021:

	U.S. Bancorp						U.S. Bank National Association						MUFG Union Bank National Association
(Dollars in Millions)	2022			2021			2022			2021			2022
Basel III standardized approach:
Common equity tier 1 capital	$	41,560		$	41,701		$	46,681		$	45,000		$	10,888
Tier 1 capital		48,813			48,516			47,127			45,444			10,888
Total risk-based capital		59,015			56,250			56,736			53,125			11,565
Risk-weighted assets		496,500			418,571			436,764			412,979			58,641
Common equity tier 1 capital as a percent of risk-weighted assets		8.4	%		10.0	%		10.7	%		10.9	%		18.6	%
Tier 1 capital as a percent of risk-weighted assets		9.8			11.6			10.8			11.0			18.6
Total risk-based capital as a percent of risk-weighted assets		11.9			13.4			13.0			12.9			19.7
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)		7.9			8.6			8.1			8.2			10.9
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)		6.4			6.9			6.5			6.6			10.1

	Minimum(a)			Well- Capitalized
Bank Regulatory Capital Requirements
Common equity tier 1 capital as a percent of risk-weighted assets		7.0	%		6.5	%
Tier 1 capital as a percent of risk-weighted assets		8.5			8.0
Total risk-based capital as a percent of risk-weighted assets		10.5			10.0
Tier 1 capital as a percent of adjusted quarterly average assets (leverage ratio)		4.0			5.0
Tier 1 capital as a percent of total on- and off-balance sheet leverage exposure (total leverage exposure ratio)		3.0			3.0	(b)

(a) The minimum common equity tier 1 capital, tier 1 capital and total risk-based capital ratio requirements reflect a stress capital buffer requirement of 2.5 percent. Banks and financial services holding companies must maintain minimum capital levels, including a stress capital buffer requirement, to avoid limitations on capital distributions and certain discretionary compensation payments.

(b) A minimum well-capitalized threshold does not apply to U.S. Bancorp for this ratio as it is not formally defined under applicable banking regulations for bank holding companies.

Noncontrolling interests principally represent third-party investors’ interests in consolidated entities, including preferred stock of consolidated subsidiaries. During 2006, the Company’s banking subsidiary formed USB Realty Corp., a real estate investment trust, for the purpose of issuing 5,000 shares of Fixed-to-Floating Rate Exchangeable Non-cumulative Perpetual Series A Preferred Stock with a liquidation preference of $100,000 per share (“Series A Preferred Securities”) to third-party investors. Dividends on the Series A Preferred Securities, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to three-month LIBOR plus 1.147 percent. If USB Realty Corp. has not declared a dividend on the Series A Preferred Securities before the dividend payment date for any

dividend period, such dividend shall not be cumulative and shall cease to accrue and be payable, and USB Realty Corp. will have no obligation to pay dividends accrued for such dividend period, whether or not dividends on the Series A Preferred Securities are declared for any future dividend period.

The Series A Preferred Securities will be redeemable, in whole or in part, at the option of USB Realty Corp. on each fifth anniversary after the dividend payment date occurring in January 2012. Any redemption will be subject to the approval of the Office of the Comptroller of the Currency. During 2016, the Company purchased 500 shares of the Series A Preferred Securities held by third-party investors. As of December 31, 2022, 4,500 shares of the Series A Preferred Securities remain outstanding.

107    

  NOTE 16   Earnings Per Share  

The components of earnings per share were:    

Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data)	2022			2021			2020
Net income attributable to U.S. Bancorp	$	5,825		$	7,963		$	4,959
Preferred dividends		(296	)		(303	)		(304	)
Impact of preferred stock call and redemption		–			(17	)(a)		(13	)(b)
Earnings allocated to participating stock awards		(28	)		(38	)		(21	)
Net income applicable to U.S. Bancorp common shareholders	$	5,501		$	7,605		$	4,621
Average common shares outstanding		1,489			1,489			1,509
Net effect of the exercise and assumed purchase of stock awards		1			1			1
Average diluted common shares outstanding		1,490			1,490			1,510
Earnings per common share	$	3.69		$	5.11		$	3.06
Diluted earnings per common share	$	3.69		$	5.10		$	3.06

(a) Represents stock issuance costs originally recorded in preferred stock upon the issuance of the Company’s Series I and Series F Preferred Stock that were reclassified to retained earnings on the date the Company announced its intent to redeem the outstanding shares.

(b) Represents stock issuance costs originally recorded in preferred stock upon the issuance of the Company’s Series H Preferred Stock that were reclassified to retained earnings on the date the Company announced its intent to redeem the outstanding shares.

Options outstanding at December 31, 2022 and 2020, to purchase 1 million and 2 million common shares, respectively, were not included in the computation of diluted earnings per share for the years ended December 31, 2022 and 2020, because they were antidilutive.

  NOTE 17   Employee Benefits

Employee Retirement Savings Plan The Company has a defined contribution retirement savings plan that covers substantially all its employees. Qualified employees are allowed to contribute up to 75 percent of their annual compensation, subject to Internal Revenue Service limits, through salary deductions under Section 401(k) of the Internal Revenue Code. Employee contributions are invested at their direction among a variety of investment alternatives. Employee contributions are 100 percent matched by the Company, up to four percent of each employee’s eligible annual compensation. The Company’s matching contribution vests immediately and is invested in the same manner as each employee’s future contribution elections. Total expense for the Company’s matching contributions was $211 million, $213 million and $192 million in 2022, 2021 and 2020, respectively.

Pension and Postretirement Welfare Plans The Company has tax qualified noncontributory defined benefit pension plans, nonqualified pension plans and postretirement welfare plans. As part of the transaction discussed in Note 3, the Company assumed the December 1, 2022 assets and obligations of four MUB retiree benefit plans based on the Company’s share of the underlying participant obligations of the respective plans.

Pension Plans The funded tax qualified noncontributory defined benefit pension plans are the U.S. Bank Pension Plan, U.S. Bank Legacy Pension Plan and the U.S. Bank MUFG Pension Plan. The plans provide benefits to substantially all the Company’s employees. Participants receive annual cash balance pay credits

based on eligible pay multiplied by a percentage determined by their age and/or years of service, as defined by the plan documents. Participants also receive an annual interest credit. Generally, employees become vested upon completing three years of vesting service. The U.S. Bank MUFG Pension Plan was closed to new participants effective December 1, 2022, and existing participants became vested effective January 1, 2023. The Company did not contribute to its qualified pension plans in 2022 and 2021 and does not expect to contribute to the plans in 2023.

The Company also maintains two non-qualified plans that are unfunded and provide benefits to certain employees. The assumptions used in computing the accumulated benefit obligation, the projected benefit obligation and net pension expense are substantially consistent with those assumptions used for the funded qualified plans. The U.S. Bank MUFG Supplemental Executive Retirement Plan was closed to new participants effective December 31, 2016. In 2023, the Company expects to contribute approximately $26 million to its non-qualified pension plans, which equals the 2023 expected benefit payments.

Postretirement Welfare Plans In addition to providing pension benefits, the Company has funded and unfunded postretirement welfare plans available to certain eligible participants based on their hire or retirement date. The plans are closed to new participants. In 2023, the Company expects to contribute approximately $4 million to its postretirement welfare plans.

108    

The following table summarizes the changes in benefit obligations and plan assets for the years ended December 31, and the funded status and amounts recognized in the Consolidated Balance Sheet at December 31 for the retirement plans:

	Pension Plans						Postretirement Welfare Plans
(Dollars in Millions)	2022			2021			2022			2021
Change In Projected Benefit Obligation(a)
Benefit obligation at beginning of measurement period	$	8,030		$	7,805		$	34		$	38
Service cost		280			265			–			–
Interest cost		248			219			1			1
Participants’ contributions		–			–			3			4
Plan amendments		2			–			–			–
Actuarial (gain) loss		(2,250	)		(4	)		(6	)		(2	)
Lump sum settlements		(76	)		(71	)		–			–
Benefit payments		(195	)		(184	)		(8	)		(7	)
Acquisitions (divestitures)		578			–			27			–
Benefit obligation at end of measurement period(b)	$	6,617		$	8,030		$	51		$	34
Change In Fair Value Of Plan Assets
Fair value at beginning of measurement period	$	8,113		$	7,498		$	–		$	–
Actual return on plan assets		(1,245	)		844			(1	)		–
Employer contributions		28			26			5			3
Participants’ contributions		–			–			4			4
Lump sum settlements		(76	)		(71	)		–			–
Benefit payments		(195	)		(184	)		(8	)		(7	)
Acquisitions (divestitures)		750			–			42			–
Fair value at end of measurement period	$	7,375		$	8,113		$	42		$	–
Funded (Unfunded) Status	$	758		$	83		$	(9	)	$	(34	)
Components Of The Consolidated Balance Sheet
Noncurrent benefit asset	$	1,286		$	776		$	15		$	–
Current benefit liability		(25	)		(26	)		(4	)		(5	)
Noncurrent benefit liability		(503	)		(667	)		(20	)		(29	)
Recognized amount	$	758		$	83		$	(9	)	$	(34	)
Accumulated Other Comprehensive Income (Loss), Pretax
Net actuarial (loss) gain	$	(1,326	)	$	(1,989	)	$	57		$	58
Net prior service credit (cost)		12			16			5			8
Recognized amount	$	(1,314	)	$	(1,973	)	$	62		$	66

(a) The decrease in the projected benefit obligation for 2022 was primarily due to a higher discount rate partially offset by the acquired MUB benefit obligations, and the increase for 2021 was primarily due to demographic experience partially offset by a higher discount rate.

(b) At December 31, 2022 and 2021, the accumulated benefit obligation for all pension plans was $5.0 billion and $7.3 billion, respectively.

The following table provides information for pension plans with benefit obligations in excess of plan assets at December 31:

	Pension Plans				Postretirement Welfare Plans
(Dollars in Millions)	2022		2021		2022		2021
Plans with Projected Benefit Obligations in Excess of Plan Assets
Projected benefit obligation	$	528	$	692	$	–	$	–
Fair value of plan assets		–		–		–		–
Plans with Accumulated Benefit Obligations in Excess of Plan Assets
Accumulated benefit obligation	$	487	$	631	$	24	$	34
Fair value of plan assets		–		–		–		–

109    

The following table sets forth the components of net periodic benefit cost and other amounts recognized in accumulated other comprehensive income (loss) for the years ended December 31 for the retirement plans:

	Pension Plans									Postretirement Welfare Plans
(Dollars in Millions)	2022			2021			2020			2022			2021			2020
Components Of Net Periodic Benefit Cost
Service cost	$	280		$	265		$	235		$	–		$	–		$	–
Interest cost		248			219			235			1			1			1
Expected return on plan assets		(481	)		(450	)		(403	)		–			–			(3	)
Prior service cost (credit) amortization		(2	)		(2	)		–			(3	)		(3	)		(3	)
Actuarial loss (gain) amortization		140			169			134			(7	)		(7	)		(6	)
Net periodic benefit cost	$	185		$	201		$	201		$	(9	)	$	(9	)	$	(11	)
Other Changes In Plan Assets And Benefit Obligations
Recognized In Other Comprehensive Income (Loss)
Net actuarial gain (loss) arising during the year	$	523		$	398		$	(420	)	$	5		$	2		$	1
Net actuarial loss (gain) amortized during the year		140			169			134			(7	)		(7	)		(6	)
Net prior service (cost) credit arising during the year		(2	)		–			18			–			–			–
Net prior service cost (credit) amortized during the year		(2	)		(2	)		–			(3	)		(3	)		(3	)
Total recognized in other comprehensive income (loss)	$	659		$	565		$	(268	)	$	(5	)	$	(8	)	$	(8	)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	474		$	364		$	(469	)	$	4		$	1		$	3

The following table sets forth weighted average assumptions used to determine the projected benefit obligations at December 31:

	Pension Plans						Postretirement Welfare Plans
(Dollars in Millions)	2022			2021			2022			2021
Discount rate		5.55	%		3.00	%		5.43	%		2.37	%
Cash balance interest crediting rate		3.36			3.00			*			*
Rate of compensation increase(a)		4.13			3.56			*			*
Health care cost trend rate(b)
Prior to age 65								6.50	%		5.75	%
After age 65								6.50	%		5.75	%

(a) Determined on an active liability-weighted basis.    

(b) The 2022 pre-65 and post-65 rates are both assumed to decrease gradually to 5.00 percent by 2029 and remain at this level thereafter, and the 2021 pre-65 and post-65 rates were both assumed to decrease gradually to 5.00 percent by 2025 and remain at this level thereafter.    

* Not applicable    

The following table sets forth weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:

	Pension Plans									Postretirement Welfare Plans
(Dollars in Millions)	2022			2021			2020			2022			2021			2020
Discount rate		3.00	%		2.75	%		3.40	%		2.37	%		2.37	%		2.80	%
Cash balance interest crediting rate		3.00			3.00			3.00			*			*			*
Expected return on plan assets(a)		6.50			6.50			7.25			6.50			*			3.50
Rate of compensation increase(b)		3.56			3.56			3.56			*			*			*
Health care cost trend rate(c)
Prior to age 65											5.75	%		5.75	%		6.25	%
After age 65											5.75			5.75			6.25

(a) With the help of an independent pension consultant, the Company considers several sources when developing its expected long-term rates of return on plan assets assumptions, including, but not limited to, past returns and estimates of future returns given the plans’ asset allocation, economic conditions, and peer group LTROR information. The Company determines its expected long-term rates of return reflecting current economic conditions and plan assets.

(b) Determined on an active liability weighted basis.

(c) The 2022, 2021 and 2020 pre-65 and post-65 rates were both assumed to decrease gradually to 5.00 percent by 2025 and remain at that level thereafter.

* Not applicable

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Investment Policies and Asset Allocation In establishing its investment policies and asset allocation strategies, the Company considers expected returns and the volatility associated with different strategies. An independent consultant performs modeling that projects numerous outcomes using a broad range of possible scenarios, including a mix of possible rates of inflation and economic growth. Starting with current economic information, the model bases its projections on past relationships between inflation, fixed income rates and equity returns when these types of economic conditions have existed over the previous 30 years, both in the United States and in foreign countries. Estimated future returns and other actuarially determined adjustments are also considered in calculating the estimated return on assets.

Generally, based on historical performance of the various investment asset classes, investments in equities have outperformed other investment classes but are subject to higher volatility. In an effort to minimize volatility, while recognizing the long-term up-side potential of investing in equities, the
Company’s Compensation and Human Resources Committee has determined that a target asset allocation of 35 percent long duration bonds, 30 percent global equities, 10 percent real assets, 10 percent private equity funds, 5 percent domestic mid-small cap equities, 5 percent emerging markets equities, and 5 percent hedge funds is appropriate.

At December 31, 2022 and 2021 plan assets included an asset management arrangement with a related party totaling $87.8 million and $55.3 million, respectively.

In accordance with authoritative accounting guidance, the Company groups plan assets into a three-level hierarchy for valuation techniques used to measure their fair value based on whether the valuation inputs are observable or unobservable. Refer to Note 22 for further discussion on these levels.

The assets of the qualified pension plans include investments in equity and U.S. Treasury securities whose fair values are determined based on quoted prices in active markets and are classified within Level 1 of the fair value hierarchy. The qualified pension plans also invest in U.S. agency, corporate and municipal debt securities, which are all valued based on observable market prices or data by third party pricing services, and mutual funds which are valued based on quoted net asset values provided by the trustee of the fund; these assets are classified as Level 2. Additionally, the qualified pension plans invest in certain assets that are valued based on net asset values as a practical expedient, including investments in collective investment funds, hedge funds, and private equity funds; the net asset values are provided by the fund trustee or administrator and are not classified in the fair value hierarchy.

The following table summarizes plan investment assets measured at fair value at December 31:

	Qualified Pension Plans																Postretirement Welfare Plans
	2022								2021								2022
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	202	$	–	$	–	$	202	$	43	$	–	$	–	$	43	$	7	$	–	$	–	$	7
Debt securities		961		855		–		1,816		1,022		1,096		–		2,118		5		4		–		9
Mutual funds
Debt securities		–		382		–		382		–		409		–		409		–		2		–		2
Emerging markets equity securities		–		156		–		156		–		188		–		188		–		1		–		1
Other		–		–		6		6		–		–		4		4		–		–		–		–
	$	1,163	$	1,393	$	6		2,562	$	1,065	$	1,693	$	4		2,762	$	12	$	7	$	–		19
Plan investment assets not classified in fair value hierarchy(a):
Collective investment funds
Domestic equity securities								1,494								1,958								7
Mid-small cap equity securities(b)								313								433								2
International equity securities								620								867								3
Domestic real estate securities								907								829								4
Hedge funds(c)								451								450								2
Private equity funds(d)								1,028								814								5
Total plan investment assets at fair value							$	7,375							$	8,113							$	42

(a) These investments are valued based on net asset value per share as a practical expedient; fair values are provided to reconcile to total investment assets of the plans at fair value.

(b) At December 31, 2022 and 2021, securities included $315 million and $433 million in domestic equities, respectively.

(c) This category consists of several investment strategies diversified across several hedge fund managers.

(d) This category consists of several investment strategies diversified across several private equity fund managers.

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The following table summarizes the changes in fair value for qualified pension plans investment assets measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31:

	2022		2021			2020
(Dollars in Millions)	Other		Other			Other
Balance at beginning of period	$	4	$	6		$	3
Unrealized gains (losses) relating to assets still held at end of year		2		(2	)		3
Purchases, sales, and settlements, net		–		–			–
Balance at end of period	$	6	$	4		$	6

The following benefit payments are expected to be paid from the retirement plans for the years ended December 31:

(Dollars in Millions)	Pension Plans		Postretirement Welfare Plans(a)
2023	$	337	$	5
2024		332		5
2025		387		5
2026		394		5
2027		409		5
2028-2032		2,359		19

(a) Net of expected retiree contributions.    

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  NOTE 18   Stock-Based Compensation

As part of its employee and director compensation programs, the Company currently may grant certain stock awards under the provisions of its stock incentive plan. The plan provides for grants of options to purchase shares of common stock at a fixed price equal to the fair value of the underlying stock at the date of grant. Option grants are generally exercisable up to ten years from the date of grant. In addition, the plan provides for grants of shares of common stock or stock units that are subject to restriction on transfer prior to vesting. Most stock and unit awards vest over

three to five years and are subject to forfeiture if certain vesting requirements are not met. Stock incentive plans of acquired companies are generally terminated at the merger closing dates. Participants under such plans receive the Company’s common stock, options to buy the Company’s common stock, or long term cash incentives, based on the conversion terms of the various merger agreements. At December 31, 2022, there were 20 million shares (subject to adjustment for forfeitures) available for grant under the Company’s stock incentive plan.

Stock Option Awards

The following is a summary of stock options outstanding and exercised under prior and existing stock incentive plans of the Company:

Year Ended December 31	Stock Options/Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value (in millions)
2022
Number outstanding at beginning of period		3,890,131		$	42.58
Exercised		(624,729	)		32.87
Cancelled(a)		(12,312	)		50.97
Number outstanding at end of period(b)		3,253,090		$	44.42		2.7	$	–
Exercisable at end of period		3,253,090		$	44.42		2.7	$	–
2021
Number outstanding at beginning of period		5,180,391		$	40.38
Exercised		(1,281,646	)		33.66
Cancelled(a)		(8,614	)		48.20
Number outstanding at end of period(b)		3,890,131		$	42.58		3.3	$	53
Exercisable at end of period		3,890,131		$	42.58		3.3	$	53
2020
Number outstanding at beginning of period		5,718,256		$	39.25
Exercised		(513,293	)		27.48
Cancelled(a)		(24,572	)		45.08
Number outstanding at end of period(b)		5,180,391		$	40.38		3.7	$	32
Exercisable at end of period		4,942,077		$	39.68		3.6	$	34

Note: The Company did not grant any stock option awards during 2022, 2021, and 2020.

(a) Options cancelled include both non-vested (i.e., forfeitures) and vested options.

(b) Outstanding options include stock-based awards that may be forfeited in future periods. The impact of the estimated forfeitures is reflected in compensation expense.

Stock-based compensation expense is based on the estimated fair value of the award at the date of grant or modification. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, requiring the use of subjective assumptions. Because employee

stock options have characteristics that differ from those of traded options, including vesting provisions and trading limitations that impact their liquidity, the determined value used to measure compensation expense may vary from the actual fair value of the employee stock options.

The following summarizes certain stock option activity of the Company:

Year Ended December 31 (Dollars in Millions)	2022		2021		2020
Fair value of options vested	$	–	$	3	$	7
Intrinsic value of options exercised		15		27		11
Cash received from options exercised		21		43		14
Tax benefit realized from options exercised		4		7		3

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To satisfy option exercises, the Company predominantly uses treasury stock.

Additional information regarding stock options outstanding as of December 31, 2022, is as follows:

	Outstanding Options						Exercisable Options
Range of Exercise Prices	Shares		Weighted- Average Remaining Contractual Life (Years)		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
$30.01—$35.00		141,571		.1		33.95		141,571		33.95
$35.01—$40.00		1,019,379		3.1		39.49		1,019,379		39.49
$40.01—$45.00		1,242,665		1.7		42.44		1,242,665		42.44
$45.01—$50.00		–		–		–		–		–
$50.01—$55.01		849,475		4.1		54.96		849,475		54.96
		3,253,090		2.7	$	44.42		3,253,090	$	44.42

Restricted Stock and Unit Awards

A summary of the status of the Company’s restricted shares of stock and unit awards is presented below:

	2022					2021					2020
Year Ended December 31	Shares			Weighted- Average Grant- Date Fair Value		Shares			Weighted- Average Grant- Date Fair Value		Shares			Weighted- Average Grant- Date Fair Value
Outstanding at beginning of period		6,812,753		$	51.04		6,343,313		$	51.38		6,606,833		$	48.99
Granted		4,109,793			55.62		4,512,995			52.54		3,552,923			53.90
Vested		(3,690,666	)		52.88		(3,793,978	)		53.27		(3,534,770	)		49.28
Cancelled		(351,054	)		54.95		(249,577	)		52.83		(281,673	)		53.51
Outstanding at end of period		6,880,826		$	52.59		6,812,753		$	51.04		6,343,313		$	51.38

The total fair value of shares vested was $198 million, $191 million and $182 million for the years ended December 31, 2022, 2021 and 2020, respectively. Stock-based compensation expense was $202 million, $207 million and $189 million for the years ended December 31, 2022, 2021 and 2020, respectively. On an after-tax basis, stock-based compensation was $152 million, $155 million and $142 million for the years ended

December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, there was $158 million of total unrecognized compensation cost related to nonvested share-based arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.8 years as compensation expense.

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  NOTE 19   Income Taxes

The components of income tax expense were:

Year Ended December 31 (Dollars in Millions)	2022			2021		2020
Federal
Current	$	1,366		$	1,203	$	1,146
Deferred		(108	)		469		(291	)
Federal income tax		1,258			1,672		855
State
Current		401			398		355
Deferred		(196	)		111		(144	)
State income tax		205			509		211
Total income tax provision	$	1,463		$	2,181	$	1,066

A reconciliation of expected income tax expense at the federal statutory rate of 21 percent to the Company’s applicable income tax expense follows:

Year Ended December 31 (Dollars in Millions)	2022			2021			2020
Tax at statutory rate	$	1,533		$	2,135		$	1,271
State income tax, at statutory rates, net of federal tax benefit		305			439			240
Tax effect of
Tax credits and benefits, net of related expenses		(273	)		(331	)		(370	)
Tax-exempt income		(121	)		(114	)		(117	)
Revaluation of tax related assets and liabilities(a)		(79	)		—			—
Nondeductible legal and regulatory expenses		37			24			29
Other items		61			28			13
Applicable income taxes	$	1,463		$	2,181		$	1,066

(a) The 2022 acquisition of MUB resulted in an increase in the Company’s state effective tax rate, requiring the Company to revalue its state deferred tax assets and liabilities. As a result of this revaluation, the Company recorded an estimated net tax benefit of $79 million during 2022.

The tax effects of fair value adjustments on securities available-for-sale, derivative instruments in cash flow hedges, foreign currency translation adjustments, and pension and post-retirement plans are recorded directly to shareholders’ equity as part of other comprehensive income (loss).

In preparing its tax returns, the Company is required to interpret complex tax laws and regulations and utilize income and cost allocation methods to determine its taxable income. On an ongoing basis, the Company is subject to examinations by federal, state, local and foreign taxing authorities that may give

rise to differing interpretations of these complex laws, regulations and methods. Due to the nature of the examination process, it generally takes years before these examinations are completed and matters are resolved. 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.

A reconciliation of the changes in the federal, state and foreign uncertain tax position balances are summarized as follows:

Year Ended December 31 (Dollars in Millions)	2022			2021			2020
Balance at beginning of period	$	487		$	474		$	432
Additions for tax positions taken in prior years		35			14			62
Additions for tax positions taken in the current year		3			7			6
Exam resolutions		(8	)		(1	)		(8	)
Statute expirations		(4	)		(7	)		(18	)
Balance at end of period	$	513		$	487		$	474

The total amount of uncertain tax positions that, if recognized, would impact the effective income tax rate as of December 31, 2022, 2021 and 2020, were $294 million, $285 million and $280 million, respectively. The Company classifies interest and penalties related to uncertain tax positions as a component of income tax expense. At December 31, 2022, the Company’s

uncertain tax position balance included $52 million of accrued interest and penalties. During the years ended December 31, 2022, 2021 and 2020 the Company recorded approximately $7 million, $5 million and $5 million, respectively, in interest and penalties on uncertain tax positions.

115    

Deferred income tax assets and liabilities reflect the tax effect of estimated temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes.

The significant components of the Company’s net deferred tax asset (liability) follows:

At December 31 (Dollars in Millions)	2022			2021
Deferred Tax Assets
Securities available-for-sale and financial instruments	$	3,992		$	163
Federal, state and foreign net operating loss, credit carryforwards and other carryforwards		2,677			2,331
Allowance for credit losses		1,980			1,561
Loans		1,287			—
Accrued expenses		618			568
Obligation for operating leases		368			281
Partnerships and other investment assets		112			—
Stock compensation		81			76
Pension and postretirement benefits		—			8
Other deferred tax assets, net		501			451
Gross deferred tax assets		11,616			5,439
Deferred Tax Liabilities
Leasing activities		(1,813	)		(2,263	)
Goodwill and other intangible assets		(1,575	)		(845	)
Mortgage servicing rights		(815	)		(593	)
Right of use operating leases		(325	)		(246	)
Pension and postretirement benefits		(172	)		—
Fixed assets		(125	)		(238	)
Loans		—			(85	)
Partnerships and other investment assets		—			(8	)
Other deferred tax liabilities, net		(234	)		(127	)
Gross deferred tax liabilities		(5,059	)		(4,405	)
Valuation allowance		(263	)		(249	)
Net Deferred Tax Asset	$	6,294		$	785

The Company has approximately $2.8 billion of federal, state and foreign net operating loss carryforwards which expire at various times beginning in 2023. A substantial portion of these carryforwards relate to state-only net operating losses, for which the related deferred tax asset is subject to a full valuation allowance as the carryforwards are not expected to be realized within the carryforward period. Management has determined it is more likely than not the other net deferred tax assets could be realized through carry back to taxable income in prior years, future reversals of existing taxable temporary differences and future taxable income.

In addition, the Company has $1.7 billion of federal credit carryforwards which expire at various times through 2042 which

are not subject to a valuation allowance as management believes that it is more likely than not that the credits will be utilized within the carryforward period.

At December 31, 2022, retained earnings included approximately $102 million of base year reserves of acquired thrift institutions, for which no deferred federal income tax liability has been recognized. These base year reserves would be recaptured if certain subsidiaries of the Company cease to qualify as a bank for federal income tax purposes. The base year reserves also remain subject to income tax penalty provisions that, in general, require recapture upon certain stock redemptions of, and excess

distributions to, stockholders.

116    

  NOTE 20   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 December 31, 2022, the Company had $114 million (net-of-tax) of realized and unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared with $85 million (net-of-tax) of realized and unrealized losses at December 31, 2021. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the

next 12 months is a loss of $52 million (net-of-tax). All cash flow hedges were highly effective for the twelve months ended December 31, 2022. There were no derivatives held as cash flow hedges at December 31, 2021.

Net Investment Hedges The Company uses forward commitments to sell specified amounts of certain foreign currencies, and non-derivative debt instruments, to hedge the volatility of its net investment in foreign operations driven by fluctuations in foreign currency exchange rates. The carrying amount of non-derivative debt instruments designated as net investment hedges was $1.3 billion at December 31, 2022 and December 31, 2021.

Other Derivative Positions The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell to-be-announced securities (“TBAs”) and other commitments to sell residential mortgage loans, which are used to economically hedge the interest rate risk related to mortgage loans held for sale (“MLHFS”) and unfunded mortgage loan commitments. The Company also enters into interest rate swaps, swaptions, forward commitments to buy TBAs, U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to economically hedge the change in the fair value of the Company’s MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. The Company mitigates the market and liquidity risk associated with these customer derivatives by entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or non-derivative financial instruments that partially or fully offset the exposure to earnings from these customer-related positions. The Company’s customer derivatives and related hedges are monitored and reviewed by the Company’s Market Risk Committee, which establishes policies for market risk management, including exposure limits for each portfolio. The Company also has derivative contracts that are created through its operations, including certain unfunded mortgage loan commitments and swap agreements related to the sale of a portion of its Class B common and preferred shares of Visa Inc. Refer to Note 23 for further information on these swap agreements. The Company may use credit derivatives to economically hedge credit risk.

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The following table summarizes the asset and liability management derivative positions of the Company at December 31:

	2022						2021
	Notional Value		Fair Value				Notional Value		Fair Value
(Dollars in Millions)			Assets		Liabilities				Assets		Liabilities
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps	$	17,400	$	–	$	9	$	12,350	$	–	$	–
Pay fixed/receive floating swaps		5,542		–		–		16,650		–		–
Cash flow hedges
Interest rate contracts
Receive fixed/pay floating swaps		14,300		–		–		–		–		–
Net investment hedges
Foreign exchange forward contracts		778		–		–		793		–		4
Other economic hedges
Interest rate contracts
Futures and forwards
Buy		3,546		10		18		9,322		10		16
Sell		7,522		20		38		29,348		25		27
Options
Purchased		11,434		346		–		18,570		256		–
Written		7,849		7		148		9,662		52		231
Receive fixed/pay floating swaps		9,215		–		3		9,653		–		–
Pay fixed/receive floating swaps		9,616		–		–		7,033		–		–
Foreign exchange forward contracts		962		2		6		735		2		6
Equity contracts		361		–		10		209		5		–
Credit contracts		330		–		–		–		–		–
Other(a)		1,908		11		190		1,792		–		125
Total	$	90,763	$	396	$	422	$	116,117	$	350	$	409

(a) Includes derivative liability swap agreements related to the sale of a portion of the Company’s Class B common and preferred shares of Visa Inc. The Visa swap agreements had a total notional value and fair value of $1.8 billion and $190 million at December 31, 2022, respectively, compared to $1.8 billion and $125 million at December 31, 2021, respectively. In addition, includes short-term underwriting purchase and sale commitments with total notional values of $13 million at December 31, 2022, and $8 million at December 31, 2021.

The following table summarizes the customer-related derivative positions of the Company at December 31:
	2022						2021
	Notional Value		Fair Value				Notional Value		Fair Value
(Dollars in Millions)			Assets		Liabilities				Assets		Liabilities
Interest rate contracts
Receive fixed/pay floating swaps	$	301,690	$	309	$	5,689	$	178,701	$	2,007	$	438
Pay fixed/receive floating swaps		316,133		2,323		206		174,176		134		670
Other(a)		40,261		3		16		16,267		1		2
Options
Purchased		103,489		1,794		5		89,679		194		36
Written		99,923		6		1,779		85,211		36		176
Futures
Buy		3,623		–		4		3,607		–		–
Sell		2,376		8		–		3,941		–		–
Foreign exchange rate contracts
Forwards, spots and swaps		134,666		3,010		2,548		89,321		1,145		1,143
Options
Purchased		954		22		–		805		19		–
Written		954		–		22		805		–		19
Credit contracts		10,765		1		8		9,331		1		5
Total	$	1,014,834	$	7,476	$	10,277	$	651,844	$	3,537	$	2,489
(a) Primarily represents floating rate interest rate swaps that pay based on differentials between specified interest rate indexes.

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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 years ended December 31:

	Gains (Losses) Recognized in Other Comprehensive Income (Loss)								Gains (Losses) Reclassified from Other Comprehensive Income (Loss) into Earnings
(Dollars in Millions)	2022			2021		2020			2022			2021			2020
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts	$	(56	)	$	94	$	(145	)	$	(27	)	$	(10	)		$(7)
Net investment hedges
Foreign exchange forward contracts		42			19		(21	)		–			–			–
Non-derivative debt instruments		59			84		(90	)		–			–			–

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 years ended December 31:

	Interest Income									Interest Expense
(Dollars in Millions)	2022			2021			2020			2022			2021			2020
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	$	17,945		$	13,487		$	14,840		$	3,217		$	993		$	2,015
Asset and Liability Management Positions
Fair value hedges
Interest rate contract derivatives		138			17			1			482			232			(134)
Hedged items		(139	)		(19	)		(1	)		(486	)		(232	)		134
Cash flow hedges
Interest rate contract derivatives		–			–			–			–			14			10

Note: The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $36 million, $53 million and $41 million into earnings during the years ended December 31, 2022, 2021 and 2020, 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.

The table below shows cumulative hedging adjustments and the carrying amount of assets and liabilities designated in fair value hedges at December 31:

	Carrying Amount of the Hedged Assets and Liabilities				Cumulative Hedging Adjustment(a)
(Dollars in Millions)	2022		2021		2022			2021
Line Item in the Consolidated Balance Sheet
Available-for-sale investment securities	$	4,937	$	16,445	$	(552	)		$(26)
Long-term debt		17,190		12,278		(142	)		585

(a) The cumulative hedging adjustment related to discontinued hedging relationships on available-for-sale investment securities and long-term debt was $(392) million and $399 million, respectively, at December 31, 2022, compared with $(6) million and $640 million at December 31, 2021, respectively.

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The table below shows the gains (losses) recognized in earnings for other economic hedges and the customer-related positions for the years ended December 31:

(Dollars in Millions)	Location of Gains (Losses) Recognized in Earnings	2022			2021			2020
Asset and Liability Management Positions
Other economic hedges
Interest rate contracts
Futures and forwards	Mortgage banking revenue	$	407		$	511		$	82
Purchased and written options	Mortgage banking revenue		1			527			1,527
Swaps	Mortgage banking revenue/ Other noninterest income		(1,010	)		(197	)		598
Foreign exchange forward contracts	Other noninterest income		(1	)		1			3
Equity contracts	Compensation expense		(8	)		7			3
Other	Other noninterest income		(181	)		5			(70	)
Customer-Related Positions
Interest rate contracts
Swaps	Commercial products revenue		98			110			135
Purchased and written options	Commercial products revenue		20			(5	)		(8	)
Futures	Commercial products revenue		30			3			(18	)
Foreign exchange rate contracts
Forwards, spots and swaps	Commercial products revenue		100			93			78
Purchased and written options	Commercial products revenue		1			1			1
Credit contracts	Commercial products revenue-		20			(7	)		(32	)

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 December 31, 2022, was $2.6 billion. At December 31, 2022, the Company had $2.1 billion of cash posted as collateral against this net liability position.

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NOTE 21	Netting Arrangements for Certain Financial Instruments and Securities Financing
	Activities

The Company’s derivative portfolio consists of bilateral over-the-counter trades, certain interest rate derivatives and credit contracts required to be centrally cleared through clearinghouses per current regulations, and exchange-traded positions which may include U.S. Treasury and Eurodollar futures or options on U.S. Treasury futures. Of the Company’s $1.1 trillion total notional amount of derivative positions at December 31, 2022, $526.3 billion related to bilateral over-the-counter trades, $571.5 billion related to those centrally cleared through clearinghouses and $7.8 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 20 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
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
December 31, 2021
Repurchase agreements
U.S. Treasury and agencies	$	378	$	–	$	–	$	–	$	378
Residential agency mortgage-backed securities		551		–		–		–		551
Corporate debt securities		646		–		–		–		646
Total repurchase agreements		1,575		–		–		–		1,575
Securities loaned
Corporate debt securities		169		–		–		–		169
Total securities loaned		169		–		–		–		169
Gross amount of recognized liabilities	$	1,744	$	–	$	–	$	–	$	1,744

The Company executes its derivative, repurchase/reverse repurchase and securities loaned/borrowed transactions under the respective industry standard agreements. These agreements include master netting arrangements that allow for multiple contracts executed with the same counterparty to be viewed as a single arrangement. This allows for net settlement of a single amount on a daily basis. In the event of default, the master netting arrangement provides for close-out netting, which allows all of these positions with the defaulting counterparty to be terminated and net settled with a single payment amount.

The Company has elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of the majority of its derivative counterparties. The netting occurs at the counterparty level, and includes all assets and liabilities related to the derivative contracts, including those associated with cash collateral received or delivered. The Company has not elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of repurchase/reverse repurchase and securities loaned/borrowed transactions.

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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
								Financial Instruments(b)			Collateral Received(c)			Net Amount
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
December 31, 2021
Derivative assets(d)	$	3,830	$	(1,609	)	$	2,221	$	(142	)	$	(106	)	$	1,973
Reverse repurchase agreements		359		–			359		(249	)		(110	)		–
Securities borrowed		1,868		–			1,868		–			(1,818	)		50
Total	$	6,057	$	(1,609	)	$	4,448	$	(391	)	$	(2,034	)	$	2,023

(a) Includes $3.0 billion and $528 million of cash collateral related payables that were netted against derivative assets at December 31, 2022 and 2021, respectively.

(b) For derivative assets this includes any derivative liability fair values that could be offset in the event of counterparty default; for reverse repurchase agreements this includes any repurchase agreement payables that could be offset in the event of counterparty default; for securities borrowed this includes any securities loaned payables that could be offset in the event of counterparty default.

(c) Includes the fair value of securities received by the Company from the counterparty. These securities are not included on the Consolidated Balance Sheet unless the counterparty defaults.    

(d) Excludes $20 million and $57 million at December 31, 2022 and 2021, respectively, of derivative assets not subject to netting arrangements.

(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)
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
December 31, 2021
Derivative liabilities(d)	$	2,761	$	(1,589	)	$	1,172	$	(142	)	$	–		$	1,030
Repurchase agreements		1,575		–			1,575		(249	)		(1,326	)		–
Securities loaned		169		–			169		–			(167	)		2
Total	$	4,505	$	(1,589	)	$	2,916	$	(391	)	$	(1,493	)	$	1,032

(a) Includes $2.1 billion and $508 million of cash collateral related receivables that were netted against derivative liabilities at December 31, 2022 and 2021, respectively.

(b) For derivative liabilities this includes any derivative asset fair values that could be offset in the event of counterparty default; for repurchase agreements this includes any reverse repurchase agreement receivables that could be offset in the event of counterparty default; for securities loaned this includes any securities borrowed receivables that could be offset in the event of counterparty default.

(c) Includes the fair value of securities pledged by the Company to the counterparty. These securities are included on the Consolidated Balance Sheet unless the Company defaults.    

(d) Excludes $193 million and $137 million at December 31, 2022 and 2021, respectively, of derivative liabilities not subject to netting arrangements.

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  NOTE 22 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. In addition, refer to Note 3 regarding the fair value of assets and liabilities acquired in the MUB acquisition. 

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.

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 years ended December 31, 2022, 2021 and 2020, there were no significant changes to the valuation techniques used by the Company to measure fair value.

Available-For-Sale Investment Securities When quoted market prices for identical securities are available in an active market, these prices are used to determine fair value and these securities are classified within Level 1 of the fair value hierarchy. Level 1 investment securities include U.S. Treasury and exchange-traded securities.

For other securities, quoted market prices may not be readily available for the specific securities. When possible, the Company determines fair value based on market observable information, including quoted market prices for similar securities, inactive transaction prices, and broker quotes. These securities are classified within Level 2 of the fair value hierarchy. Level 2 valuations are generally provided by a third-party pricing service. Level 2 investment securities are predominantly agency mortgage-backed securities, certain other asset-backed securities, obligations of state and political subdivisions and agency debt securities.

Mortgage Loans Held For Sale MLHFS measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by comparison to instruments with similar collateral and risk profiles. MLHFS are classified within Level 2. Included in mortgage banking revenue was a net loss of $450 million, a net loss of $145 million and a net gain of $362 million for the years ended December 31, 2022, 2021 and 2020, 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

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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 10 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. 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 23 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 December 31, 2022:

	Minimum			Maximum			Weighted- Average(a)
Expected prepayment		5	%		17	%		8	%
Option adjusted spread		5			11			6

(a) Determined based on the relative fair value of the related mortgage loans serviced.

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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 December 31, 2022:

	Minimum			Maximum			Weighted- Average(a)
Expected loan close rate		3	%		100	%		81	%
Inherent MSR value (basis points per loan)		31			187			112

(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. 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 December 31, 2022, the minimum, maximum and weighted-average credit valuation adjustment as a percentage of the net

fair value of the counterparty’s derivative contracts prior to adjustment was 0 percent, 1,867 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.

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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
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
December 31, 2021
Available-for-sale securities
U.S. Treasury and agencies	$	30,917	$	5,692	$	–	$	–		$	36,609
Mortgage-backed securities
Residential agency		–		77,079		–		–			77,079
Commercial agency		–		8,485		–		–			8,485
Asset-backed securities		–		59		7		–			66
Obligations of state and political subdivisions		–		10,716		1		–			10,717
Other		–		7		–		–			7
Total available-for-sale		30,917		102,038		8		–			132,963
Mortgage loans held for sale		–		6,623		–		–			6,623
Mortgage servicing rights		–		–		2,953		–			2,953
Derivative assets		8		2,490		1,389		(1,609	)		2,278
Other assets		278		1,921		–		–			2,199
Total	$	31,203	$	113,072	$	4,350	$	(1,609	)	$	147,016
Derivative liabilities	$	–	$	2,308	$	590	$	(1,589	)	$	1,309
Short-term borrowings and other liabilities (a)		209		1,837		–		–			2,046
Total	$	209	$	4,145	$	590	$	(1,589	)	$	3,355

Note: Excluded from the table above are equity investments without readily determinable fair values. The Company has elected to carry these investments at historical cost, adjusted for impairment and any changes resulting from observable price changes for identical or similar investments of the issuer. The aggregate carrying amount of these equity investments was $104 million and $79 million at December 31, 2022 and 2021, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during 2022 and 2021, or on a cumulative basis.

(a) Primarily represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.

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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 years ended December 31:

(Dollars in Millions)	Beginning of Period Balance		Net Gains (Losses) Included in Net Income			Net Gains (Losses) Included in Other Comprehensive Income (Loss)			Purchases		Sales			Principal Payments			Issuances			Settlements			Transfers into Level 3		End of Period Balance			Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Held at End of Period
2022
Available-for-sale securities
Asset-backed securities	$	7	$	–		$	(3	)	$	–	$	(4	)	$	–		$	–		$	–		$	–	$	–		$	–
Obligations of state and political subdivisions		1		–			–			–		–			–			–			–			–		1			–
Total available-for-sale		8		–			(3	)		–		(4	)		–			–			–			–		1			–
Mortgage servicing rights		2,953		311	(a)		–			156		(255	)		–			590	(c)		–			–		3,755			311	(a)
Net derivative assets and liabilities		799		(5,940	)(b)		–			716		(36	)		–			11			1,251			–		(3,199	)		(3,538	)(d)
2021
Available-for-sale securities
Asset-backed securities	$	7	$	–		$	1		$	–	$	–		$	(1	)	$	–		$	–		$	–	$	7		$	1
Obligations of state and political subdivisions		1		–			–			–		–			–			–			–			–		1			–
Total available-for-sale		8		–			1			–		–			(1	)		–			–			–		8			1
Mortgage servicing rights		2,210		(437	)(a)		–			42		2			–			1,136	(c)		–			–		2,953			(437	)(a)
Net derivative assets and liabilities		2,326		(924	)(e)		–			337		(3	)		–			–			(937	)		–		799			(968	)(f)
2020
Available-for-sale securities
Asset-backed securities	$	8	$	–		$	–		$	–	$	–		$	(1	)	$	–		$	–		$	–	$	7		$	–
Obligations of state and political subdivisions		1		–			–			–		–			–			–			–			–		1			–
Total available-for-sale		9		–			–			–		–			(1	)		–			–			–		8			–
Mortgage servicing rights		2,546		(1,403	)(a)		–			34		3			–			1,030	(c)		–			–		2,210			(1,403	)(a)
Net derivative assets and liabilities		810		2,922	(g)		–			247		(3	)		–			–			(1,650	)		–		2,326			1,649	(h)

(a) Included in mortgage banking revenue.

(b) Approximately $(141) million, $(5.6) billion and $(181) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(c) Represents MSRs capitalized during the period.

(d) Approximately $5 million, $(3.4) billion and $(181) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(e) Approximately $666 million, $(1.6) billion and $5 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(f) Approximately $42 million, $(1.0) billion and $5 million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(g) Approximately $1.9 billion, $1.1 billion and $(70) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(h) Approximately $247 million, $1.5 billion and $(70) 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 December 31:

2022

2021

(Dollars in Millions)

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Loans (a)

$ –

$ –

$ 97

$ 97

$ –

$ –

$ 59

$ 59

Other assets (b)

–

–

21

21

–

–

77

77

(a) Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully charged-off.

(b) Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.

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The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios for the years ended December 31:

(Dollars in Millions)	2022		2021		2020
Loans(a)	$	40	$	60	$	426
Other assets(b)		20		25		21

(a) Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully charged-off.

(b) Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.

Fair Value Option

The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity as of December 31:

	2022						2021
(Dollars in Millions)	Fair Value Carrying Amount		Aggregate Unpaid Principal		Carrying Amount Over (Under) Unpaid Principal		Fair Value Carrying Amount		Aggregate Unpaid Principal		Carrying Amount Over (Under) Unpaid Principal
Total loans		$1,849		$1,848		$1		$6,623		$6,453		$170
Nonaccrual loans		1		1		–		1		1		–
Loans 90 days or more past due		1		1		–		2		2		–

Fair Value of Financial Instruments

The following section summarizes the estimated fair value for financial instruments accounted for at amortized cost as of December 31, 2022 and 2021. In accordance with disclosure guidance related to fair values of financial instruments, the Company did not include assets and liabilities that are not financial instruments, such as the value of goodwill, long-term

relationships with deposit, credit card, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other liabilities. Additionally, in accordance with the disclosure guidance, receivables and payables due in one year or less, insurance contracts, equity investments not accounted for at fair value, and deposits with no defined or contractual maturities are excluded.

The estimated fair values of the Company’s financial instruments as of December 31, are shown in the table below:

	2022										2021
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
(Dollars in Millions)			Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from banks	$	53,542	$	53,542	$	–	$	–	$	53,542	$	28,905	$	28,905	$	–	$	–	$	28,905
Federal funds sold and securities purchased under resale agreements		356		–		356		–		356		359		–		359		–		359
Investment securities held-to-maturity		88,740		1,293		76,581		–		77,874		41,858		–		41,812		–		41,812
Loans held for sale(a)		351		–		–		351		351		1,152		–		–		1,152		1,152
Loans		318,277		–		–		368,874		368,874		306,304		–		–		312,724		312,724
Other(b)		2,962		–		2,224		738		2,962		1,521		–		630		891		1,521
Financial Liabilities
Time deposits		32,946		–		32,338		–		32,338		22,665		–		22,644		–		22,644
Short-term borrowings(c)		29,527		–		29,145		–		29,145		9,750		–		9,646		–		9,646
Long-term debt		39,829		–		37,622		–		37,622		32,125		–		32,547		–		32,547
Other(d)		5,137		–		1,500		3,637		5,137		3,862		–		1,170		2,692		3,862

(a) Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.

(b) Includes investments in Federal Reserve Bank and Federal Home Loan Bank stock and tax-advantaged investments.

(c) Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.

(d) Includes operating lease liabilities and liabilities related to tax-advantaged investments.

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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 $498 million and $495 million at December 31, 2022 and 2021, respectively. The carrying value of other guarantees was $241 million and $245 million at December 31, 2022 and 2021, respectively.

  NOTE 23   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.

Commitments to Extend Credit Commitments to extend credit are legally binding and generally have fixed expiration dates or other termination clauses. The contractual amount represents the Company’s exposure to credit loss, in the event of default by the

borrower. The Company manages this credit risk by using the same credit policies it applies to loans. Collateral is obtained to secure commitments based on management’s credit assessment of the borrower. The collateral may include marketable securities, receivables, inventory, equipment and real estate. Since the Company expects many of the commitments to expire without being drawn, total commitment amounts do not necessarily represent the Company’s future liquidity requirements. In addition, the commitments include consumer credit lines that are cancelable upon notification to the consumer.

The contract or notional amounts of unfunded commitments to extend credit at December 31, 2022, excluding those commitments considered derivatives, were as follows:

	Term
(Dollars in Millions)	Less Than One Year		Greater Than One Year		Total
Commercial and commercial real estate loans	$	43,294	$	139,630	$	182,924
Corporate and purchasing card loans(a)		34,491		—		34,491
Residential mortgages		214		1		215
Retail credit card loans(a)		120,730		—		120,730
Other retail loans		15,012		27,641		42,653
Other		6,419		—		6,419

(a) Primarily cancelable at the Company’s discretion.

Other Guarantees and Contingent Liabilities

The following table is a summary of other guarantees and contingent liabilities of the Company at December 31, 2022:

(Dollars in Millions)	Collateral Held		Carrying Amount		Maximum Potential Future Payments
Standby letters of credit	$	—	$	19	$	10,813
Third party borrowing arrangements		—		—		7
Securities lending indemnifications		6,876		—		6,685
Asset sales		—		102		8,261
Merchant processing		818		118		134,611
Tender option bond program guarantee		1,508		—		1,501
Other		—		21		2,032

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Letters of Credit Standby letters of credit are commitments the Company issues to guarantee the performance of a customer to a third party. The guarantees frequently support public and private borrowing arrangements, including commercial paper issuances, bond financings and other similar transactions. The Company also issues and confirms commercial letters of credit on behalf of customers to ensure payment or collection in connection with trade transactions. In the event of a customer’s or counterparty’s nonperformance, the Company’s credit loss exposure is similar to that in any extension of credit, up to the letter’s contractual amount. Management assesses the borrower’s credit to determine the necessary collateral, which may include marketable securities, receivables, inventory, equipment and real estate. Since the conditions requiring the Company to fund letters of credit may not occur, the Company expects its liquidity requirements to be less than the total outstanding commitments. The maximum potential future payments guaranteed by the Company under standby letter of credit arrangements at December 31, 2022, were approximately $10.8 billion with a weighted-average term of approximately 19 months. The estimated fair value of standby letters of credit was approximately $19 million at December 31, 2022.

The contract or notional amount of letters of credit at December 31, 2022, were as follows:

	Term
(Dollars in Millions)	Less Than One Year		Greater Than One Year		Total
Standby	$	5,110	$	5,703	$	10,813
Commercial		460		172		632

Guarantees Guarantees are contingent commitments issued by the Company to customers or other third parties. The Company’s guarantees primarily include parent guarantees related to subsidiaries’ third party borrowing arrangements; third party performance guarantees inherent in the Company’s business operations, such as indemnified securities lending programs and merchant charge-back guarantees; and indemnification or buy-back provisions related to certain asset sales. For certain guarantees, the Company has recorded a liability related to the potential obligation, or has access to collateral to support the guarantee or through the exercise of other recourse provisions can offset some or all of the maximum potential future payments made under these guarantees.

Third Party Borrowing Arrangements The Company provides guarantees to third parties as a part of certain subsidiaries’ borrowing arrangements. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $7 million at December 31, 2022.

Commitments from Securities Lending The Company participates in securities lending activities by acting as the customer’s agent involving the loan of securities. The Company indemnifies customers for the difference between the fair value of the securities lent and the fair value of the collateral received.

Cash collateralizes these transactions. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $6.7 billion at December 31, 2022, and represent the fair value of the securities lent to third parties. At December 31, 2022, the Company held $6.9 billion of cash as collateral for these arrangements.

Asset Sales The Company has provided guarantees to certain third parties in connection with the sale or syndication of certain assets, primarily loan portfolios and tax-advantaged investments. These guarantees are generally in the form of asset buy-back or make-whole provisions that are triggered upon a credit event or a change in the tax-qualifying status of the related projects, as applicable, and remain in effect until the loans are collected or final tax credits are realized, respectively. The maximum potential future payments guaranteed by the Company under these arrangements were approximately $8.3 billion at December 31, 2022, and represented the proceeds received from the buyer or the guaranteed portion in these transactions where the buy-back or make-whole provisions have not yet expired. At December 31, 2022, the Company had reserved $85 million for potential losses related to the sale or syndication of tax-advantaged investments.

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.

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 December 31, 2022, the Company had reserved $17 million for potential losses from representation and warranty obligations, compared with $18 million at December 31, 2021. The Company’s reserve reflects management’s best estimate of losses for representation and warranty obligations. The Company’s repurchase reserve is modeled at the loan level, taking into consideration the individual credit quality and borrower activity that has transpired since origination. The model applies credit quality and economic risk factors to derive a probability of default and potential repurchase that are based on the Company’s historical loss experience, and

131    

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 December 31, 2022 and 2021, the Company had $39 million and $19 million, respectively, of unresolved representation and warranty claims from GSEs. The Company does not have a significant amount of unresolved claims from investors other than GSEs.

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.

A cardholder, through its issuing bank, generally has until the later of up to four months after the date the transaction is processed or the receipt of the product or service to present a charge-back to the Company as the merchant processor. The absolute maximum potential liability is estimated to be the total volume of credit card transactions that meet the associations’ requirements to be valid charge-back transactions at any given time. Management estimates that the maximum potential exposure for charge-backs would approximate the total amount of merchant transactions processed through the credit card associations for the last four months. For the last four months of 2022 this amount totaled approximately $134.6 billion. In most cases, this contingent liability is unlikely to arise, as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. However, where the product or service has been purchased but is not provided until a future date (“future delivery”), the potential for this contingent liability increases. To mitigate this risk, the Company may require the merchant to make an escrow deposit, place maximum volume limitations on future delivery transactions processed by the merchant at any point in time, or require various credit enhancements (including letters of credit and bank guarantees). Also, merchant processing contracts may include event triggers to provide the Company more financial and operational control in the event of financial deterioration of the merchant.

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 December 31, 2022, the value of airline tickets purchased to be delivered at a future date through card transactions processed by the Company was $9.9 billion. The Company held collateral of $572 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 December 31, 2022, the liability was $100 million primarily related to these airline processing arrangements.

In the normal course of business, the Company has unresolved charge-backs. The Company assesses the likelihood of its potential liability based on the extent and nature of unresolved charge-backs and its historical loss experience. At December 31, 2022, the Company held $196 million of merchant escrow deposits as collateral and had a recorded liability for potential losses of $18 million.

Tender Option Bond Program Guarantee As discussed in Note 8, the Company sponsors a municipal bond securities tender option bond program and consolidates the program’s entities on its Consolidated Balance Sheet. The Company provides financial performance guarantees related to the program’s entities. At December 31, 2022, the Company guaranteed $1.5 billion of borrowings of the program’s entities, included on the Consolidated Balance Sheet in short-term borrowings. The Company also included on its Consolidated Balance Sheet the related $1.5 billion of available-for-sale investment securities serving as collateral for this arrangement.

Other Guarantees and Commitments As of December 31, 2022, the Company sponsored, and owned 100 percent of the common equity of, USB Capital IX, a wholly-owned unconsolidated trust, formed for the purpose of issuing redeemable Income Trust Securities (“ITS”) to third-party investors, originally investing the proceeds in junior subordinated debt securities (“Debentures”) issued by the Company and entering into stock purchase contracts to purchase the Company’s preferred stock in the future. As of December 31, 2022, all of the Debentures issued by the Company have either matured or been retired. Total assets of USB Capital IX were $682 million at December 31, 2022, consisting primarily of the Company’s Series A Preferred Stock. The Company’s obligations under the transaction documents, taken together, have the effect of providing a full and unconditional guarantee by the Company, on a junior subordinated basis, of the payment obligations of the trust to third-party investors totaling $681 million at December 31, 2022.

The Company has also made other financial performance guarantees and commitments primarily related to the operations of its subsidiaries. At December 31, 2022, the maximum potential future payments guaranteed or committed by the Company under these arrangements were approximately $1.4 billion.

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Litigation and Regulatory Matters

The Company is subject to various litigation and regulatory matters that arise in the ordinary course of its business. The Company establishes reserves for such matters when potential losses become probable and can be reasonably estimated. The Company believes the ultimate resolution of existing legal and regulatory matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution of one or more of these matters may have a material adverse effect on the Company’s results from operations for a particular period, and future changes in circumstances or additional information could result in additional accruals or resolution in excess of established accruals, which could adversely affect the Company’s results from operations, potentially materially.

Residential Mortgage-Backed Securities Litigation Starting in 2011, the Company and other large financial institutions have been sued in their capacity as trustee for residential mortgage–backed securities trusts 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, 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).

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 24   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.

133    

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 business of an entity acquired by the Company. Within the Company, capital levels are evaluated and managed centrally; however, capital is allocated to the business segments to support evaluation of business performance. Business segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. Generally, the determination of the amount of capital allocated to each business segment includes credit allocations following a Basel III regulatory framework. Interest income and expense is determined based on the assets and liabilities managed by the business segment. Because funding and asset/liability management is a central function, funds transfer-pricing methodologies are utilized to

allocate a cost of funds used or credit for funds provided to all business
segment assets and liabilities, respectively, using a matched funding concept. Also, each business unit is allocated the taxable-equivalent benefit of
tax-exempt products. The residual effect on net interest income of asset/
liability management activities is included in Treasury and Corporate Support. Noninterest income and expenses directly managed by each business
segment, including fees, service charges, salaries and benefits, and other
direct revenues and costs are accounted for within each segment’s financial results in a manner similar to the consolidated financial statements. Occupancy costs are allocated based on utilization of facilities by the business
segments. Generally, operating losses are charged to the business segment
when the loss event is realized in a manner similar to a loan charge-off. Noninterest expenses incurred by centrally managed operations or business segments that directly support another business segment’s operations are charged to the applicable business segment based on its utilization of those services, primarily measured by the volume of customer activities, number of employees or other relevant factors. These allocated expenses are reported as net shared services expense within noninterest expense. Certain activities that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance are not charged to the business segments. The income or expenses associated with these corporate activities, including merger and integration charges, are reported within the Treasury and Corporate Support business segment. Income taxes are assessed to each business segment at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Treasury and Corporate Support.

Designations, assignments and allocations change from time to time as management systems are enhanced, methods of evaluating performance or product lines change or business segments are realigned to better respond to the Company’s diverse customer base. During 2022, certain organization and methodology changes were made and, accordingly, 2021 results were restated and presented on a comparable basis. MUB related business activities were integrated into the applicable line of business results effective with the close of the acquisition by the Company.

134    

Business segment results for the years ended December 31 were as follows:

	Corporate and Commercial Banking						Consumer and Business Banking							Wealth Management and Investment Services
(Dollars in Millions)	2022			2021				2022			2021			2022			2021
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	3,468		$	2,853			$	6,904		$	6,085		$	1,624		$	1,002
Noninterest income		1,008			1,039				1,556			2,496			2,553			2,222
Total net revenue		4,476			3,892				8,460			8,581			4,177			3,224
Nointerest expense		1,872			1,741				5,824			5,575			2,417			2,094
Income (loss) before provision and income taxes		2,604			2,151				2,636			3,006			1,760			1,130
Provision for credit losses		149			65				228			(136	)		9			7
Income (loss) before income taxes		2,455			2,086				2,408			3,142			1,751			1,123
Income taxes and taxable-equivalent adjustment		614			522				602			785			438			281
Net income (loss)		1,841			1,564				1,806			2,357			1,313			842
Net (income) loss attributable to noncontrolling interests		–			–				–			–			–			–
Net income (loss) attributable to U.S. Bancorp	$	1,841		$	1,564			$	1,806		$	2,357		$	1,313		$	842
Average Balance Sheet
Loans	$	127,916		$	103,404			$	145,079		$	140,890		$	22,410		$	18,095
Other earning assets		4,532			4,537				3,117			8,093			273			242
Goodwill		1,915			1,715				3,249			3,429			1,720			1,628
Other intangible assets		57			5				3,785			2,761			308			84
Assets		143,370			115,423				160,713			161,385			26,036			21,303
Noninterest-bearing deposits		57,451			61,991				32,256			33,063			24,721			24,663
Interest-bearing deposits		97,169			71,711				167,938			157,592			73,461			76,000
Total deposits		154,620			133,702				200,194			190,655			98,182			100,663
Total U.S. Bancorp shareholders’ equity		14,403			13,906				12,550			12,319			3,675			3,154
	Payment Services							Treasury and Corporate Support						Consolidated Company
(Dollars in Millions)	2022			2021				2022			2021			2022			2021
Condensed Income Statement
Net interest income (taxable-equivalent basis)	$	2,498		$	2,457			$	352		$	203		$	14,846		$	12,600
Noninterest income		3,799	(a)		3,550	(a)			540			920			9,456	(b)		10,227	(b)
Total net revenue		6,297			6,007				892			1,123			24,302			22,827
Noninterest expense		3,551			3,386				1,242			932			14,906			13,728
Income (loss) before provision and income taxes		2,746			2,621				(350	)		191			9,396			9,099
Provision for credit losses		980			349				611			(1,458	)		1,977			(1,173	)
Income (loss) before income taxes		1,766			2,272				(961	)		1,649			7,419			10,272
Income taxes and taxable-equivalent adjustment		442			568				(515	)		131			1,581			2,287
Net income (loss)		1,324			1,704				(446	)		1,518			5,838			7,985
Net (income) loss attributable to noncontrolling interests		–			–				(13	)		(22	)		(13	)		(22	)
Net income (loss) attributable to U.S. Bancorp	$	1,324		$	1,704			$	(459	)	$	1,496		$	5,825		$	7,963
Average Balance Sheet
Loans	$	34,627		$	30,856			$	3,541		$	3,720		$	333,573		$	296,965
Other earning assets		634			93				203,214			196,211			211,770			209,176
Goodwill		3,305			3,184				–			–			10,189			9,956
Other intangible assets		423			507				4			–			4,577			3,357
Assets		41,109			36,549				220,921			221,872			592,149			556,532
Noninterest-bearing deposits		3,410			4,861				2,556			2,626			120,394			127,204
Interest-bearing deposits		162			145				3,260			1,629			341,990			307,077
Total deposits		3,572			5,006				5,816			4,255			462,384			434,281
Total U.S. Bancorp shareholders’ equity		8,235			7,642				11,553			16,789			50,416			53,810

(a) Presented net of related rewards and rebate costs and certain partner payments of $2.9 billion and $2.5 billion for 2022 and 2021, respectively.    

(b) Includes revenue generated from certain contracts with customers of $8.0 billion and $7.5 billion for 2022 and 2021, respectively.     

135    

  NOTE 25   U.S. Bancorp (Parent Company)  

Condensed Balance Sheet    

At December 31 (Dollars in Millions)	2022		2021
Assets
Due from banks, principally interest-bearing	$	5,288	$	8,369
Available-for-sale investment securities		672		1,209
Investments in bank subsidiaries		59,202		51,432
Investments in nonbank subsidiaries		3,575		3,632
Advances to bank subsidiaries		9,100		9,600
Advances to nonbank subsidiaries		150		707
Other assets		1,101		898
Total assets	$	79,088	$	75,847
Liabilities and Shareholders’ Equity
Long-term debt	$	26,983	$	18,902
Other liabilities		1,339		2,027
Shareholders’ equity		50,766		54,918
Total liabilities and shareholders’ equity	$	79,088	$	75,847

Condensed Income Statement

Year Ended December 31 (Dollars in Millions)	2022			2021			2020
Income
Dividends from bank subsidiaries	$	4,750		$	7,000		$	1,500
Dividends from nonbank subsidiaries		105			2			24
Interest from subsidiaries		119			112			172
Other income		31			46			85
Total income		5,005			7,160			1,781
Expense
Interest expense		505			348			433
Other expense		162			154			140
Total expense		667			502			573
Income before income taxes and equity in undistributed income of subsidiaries		4,338			6,658			1,208
Applicable income taxes		(138	)		(53	)		(78	)
Income of parent company		4,476			6,711			1,286
Equity in undistributed income of subsidiaries		1,349			1,252			3,673
Net income attributable to U.S. Bancorp	$	5,825		$	7,963		$	4,959

136    

Condensed Statement of Cash Flows

Year Ended December 31 (Dollars in Millions)	2022			2021			2020
Operating Activities
Net income attributable to U.S. Bancorp	$	5,825		$	7,963		$	4,959
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed income of subsidiaries		(1,349	)		(1,252	)		(3,673	)
Other, net		(398	)		(85	)		907
Net cash provided by operating activities		4,078			6,626			2,193
Investing Activities
Proceeds from sales and maturities of investment securities		423			200			258
Investments in subsidiaries		(5,030	)		–			–
Net decrease in short-term advances to subsidiaries		557			411			347
Long-term advances to subsidiaries		(2,000	)		(7,000	)		–
Principal collected on long-term advances to subsidiaries		2,500			1,250			–
Cash paid for acquisition		(5,500	)		–			–
Other, net		(173	)		(269	)		379
Net cash provided by (used in) investing activities		(9,223	)		(5,408	)		984
Financing Activities
Net decrease in short-term borrowings		–			–			(8	)
Proceeds from issuance of long-term debt		8,150			1,300			2,750
Principal payments or redemption of long-term debt		(2,300	)		(3,000	)		(1,200	)
Proceeds from issuance of preferred stock		437			2,221			486
Proceeds from issuance of common stock		21			43			15
Repurchase of preferred stock		(1,100	)		(1,250	)		–
Repurchase of common stock		(69	)		(1,555	)		(1,672	)
Cash dividends paid on preferred stock		(299	)		(308	)		(300	)
Cash dividends paid on common stock		(2,776	)		(2,579	)		(2,552	)
Net cash provided by (used in) financing activities		2,064			(5,128	)		(2,481	)
Change in cash and due from banks		(3,081	)		(3,910	)		696
Cash and due from banks at beginning of year		8,369			12,279			11,583
Cash and due from banks at end of year	$	5,288		$	8,369		$	12,279

Transfer of funds (dividends, loans or advances) from bank subsidiaries to the Company is restricted. Federal law requires loans to the Company or its affiliates to be secured and generally limits loans to the Company or an individual affiliate to 10 percent of each bank’s unimpaired capital and surplus. In the aggregate, loans to the Company and all affiliates cannot exceed 20 percent of each bank’s unimpaired capital and surplus.

Dividend payments to the Company by its subsidiary banks are subject to regulatory review and statutory limitations and, in some instances, regulatory approval. In general, dividends by the Company’s bank subsidiaries to the parent company are limited by rules which compare dividends to net income for regulatorily-defined periods. Furthermore, dividends are restricted by minimum capital constraints for all national banks.

  NOTE 26   Subsequent Events

The Company has evaluated the impact of events that have occurred subsequent to December 31, 2022 through the date the consolidated financial statements were filed with the United States Securities and Exchange Commission. Based on this

evaluation, the Company has determined none of these events were required to be recognized or disclosed in the consolidated financial statements and related notes.

137    

U.S. Bancorp

Consolidated Daily Average Balance Sheet and Related Yields and Rates (a) (Unaudited)

	2022								2021								2020
Year Ended December 31 (Dollars in Millions)	Average Balances			Interest		Yields and Rates			Average Balances			Interest		Yields and Rates			Average Balances			Interest		Yields and Rates
Assets
Investment securities	$	169,442		$	3,457		2.04	%	$	154,702		$	2,434		1.57	%	$	125,954		$	2,488		1.98	%
Loans held for sale		3,829			201		5.26			8,024			232		2.89			6,985			216		3.10
Loans (b)
Commercial		123,797			4,340		3.51			102,855			2,684		2.61			113,967			3,192		2.80
Commercial real estate		41,098			1,655		4.03			38,781			1,219		3.14			40,548			1,457		3.59
Residential mortgages		84,749			2,775		3.27			74,629			2,477		3.32			73,667			2,666		3.62
Credit card		23,478			2,583		11.00			21,645			2,278		10.52			22,332			2,392		10.71
Other retail		60,451			2,292		3.79			59,055			2,126		3.60			56,755			2,352		4.14
Total loans		333,573			13,645		4.09			296,965			10,784		3.63			307,269			12,059		3.92
Interest-bearing deposits with banks		31,425			559		1.78			39,914			42		.10			34,497			59		.17
Other earning assets		7,074			204		2.89			6,536			101		1.55			6,697			119		1.78
Total earning assets		545,343			18,066		3.31			506,141			13,593		2.69			481,402			14,941		3.10
Allowance for loan losses		(5,880	)							(6,326	)							(6,858	)
Unrealized gain (loss) on investment securities		(6,914	)							1,174								2,901
Other assets		59,600								55,543								53,762
Total assets	$	592,149							$	556,532							$	531,207
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits	$	120,394							$	127,204							$	98,539
Interest-bearing deposits
Interest checking		117,471			277		.24			103,198			24		.02			84,276			65		.08
Money market savings		126,221			1,220		.97			117,093			199		.17			125,786			528		.42
Savings accounts		67,722			10		.02			62,294			7		.01			52,142			46		.09
Time deposits		30,576			365		1.19			24,492			90		.37			37,872			311		.82
Total interest-bearing deposits		341,990			1,872		.55			307,077			320		.10			300,076			950		.32
Short-term borrowings
Federal funds purchased		687			8		1.12			1,507			2		.10			1,660			6		.35
Securities sold under agreements to repurchase		2,037			20		1.00			1,790			2		.13			1,686			8		.50
Commercial paper		7,186			69		.96			7,228			1		.01			8,141			21		.26
Other short-term borrowings		15,830			471		2.98			4,249			65		1.54			7,695			109		1.41
Total short-term borrowings		25,740			568		2.21			14,774			70		.47			19,182			144		.75
Long-term debt		33,114			780		2.35			36,682			603		1.64			44,040			924		2.10
Total interest-bearing liabilities		400,844			3,220		.80			358,533			993		.28			363,298			2,018		.56
Other liabilities		20,029								16,353								16,494
Shareholders’ equity
Preferred equity		6,761								6,255								6,042
Common equity		43,655								47,555								46,204
Total U.S. Bancorp shareholders’ equity		50,416								53,810								52,246
Noncontrolling interests		466								632								630
Total equity		50,882								54,442								52,876
Total liabilities and equity	$	592,149							$	556,532							$	531,207
Net interest income				$	14,846							$	12,600							$	12,923
Gross interest margin							2.51	%							2.41	%							2.54	%
Gross interest margin without taxable-equivalent increments							2.49	%							2.39	%							2.52	%
Percent of Earning Assets
Interest income							3.31	%							2.69	%							3.10	%
Interest expense							.59								.20								.42
Net interest margin							2.72	%							2.49	%							2.68	%
Net interest margin without taxable-equivalent increments							2.70	%							2.47	%							2.66	%

* 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.

138    

U.S. Bancorp

Supplemental Financial Data (Unaudited)

Earnings Per Common Share Summary	2022		2021		2020
Earnings per common share	$	3.69	$	5.11	$	3.06
Diluted earnings per common share		3.69		5.10		3.06
Dividends declared per common share		1.88		1.76		1.68
Other Statistics (Dollars and Shares in Millions)
Common shares outstanding (a)		1,531		1,484		1,507
Average common shares outstanding and common stock equivalents
Earnings per common share		1,489		1,489		1,509
Diluted earnings per common share		1,490		1,490		1,510
Number of shareholders (b)		30,280		31,111		32,520
Common dividends declared	$	2,829	$	2,630	$	2,541

(a) Defined as total common shares issued less common stock held in treasury at December 31.

(b) Based on number of common stock shareholders of record at December 31.

The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under the ticker symbol “USB.” At January 31, 2023, there were 30,217 holders of record of the Company’s common stock.

Stock Performance Chart

The following chart compares the cumulative total shareholder return on the Company’s common stock during the five years ended December 31, 2022, with the cumulative total return on the Standard & Poor’s 500 Index and the KBW Bank Index. The comparison assumes $100 was invested on December 31, 2017, in the Company’s common stock and in each of the foregoing indices and assumes the reinvestment of all dividends. The comparisons in the graph are based upon historical data and are not indicative of, nor intended to forecast, future performance of the Company’s common stock.

139    

Company Information

General Business Description U.S. Bancorp is a financial services holding company headquartered in Minneapolis, Minnesota, serving millions of local, national and global customers. U.S. Bancorp is registered as a bank holding company under the Bank Holding Company Act of 1956 (the “BHC Act”), and has elected to be treated as a financial holding company under the BHC Act. The Company provides a full range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and ATM processing, mortgage banking, insurance, brokerage and leasing. Effective December 1, 2022, the Company acquired MUB’s core regional banking franchise, consisting primarily of retail banking branches in California, Oregon and Washington.

U.S. Bancorp’s banking subsidiaries, USBNA and MUB, are engaged in the general banking business, principally in domestic markets, and hold all of the Company’s consolidated deposits of $525.0 billion at December 31, 2022. USBNA and MUB provide a wide range of products and services to individuals, businesses, institutional organizations, governmental entities and other financial institutions. Commercial and consumer lending services are principally offered to customers within the Company’s domestic markets, to domestic customers with foreign operations and to large national customers operating in specific industries targeted by the Company, such as healthcare, utilities, oil and gas, and state and municipal government. Lending services include traditional credit products as well as credit card services, lease financing and import/export trade, asset-backed lending, agricultural finance and other products. Depository services include checking accounts, savings accounts and time certificate contracts. Ancillary services such as capital markets, treasury management and receivable lock-box collection are provided to corporate and governmental entity customers. U.S. Bancorp’s bank and trust subsidiaries provide a full range of asset management and fiduciary services for individuals, estates, foundations, business corporations and charitable organizations.

Other U.S. Bancorp non-banking subsidiaries offer investment and insurance products to the Company’s customers principally within its domestic markets, and fund administration services to a broad range of mutual and other funds.

Banking and investment services are provided through a network of 2,494 banking offices as of December 31, 2022, principally operating in the Midwest and West regions of the United States, through on-line services, over mobile devices and through other distribution channels. The Company operates a network of 4,505 ATMs as of December 31, 2022, and provides 24-hour, seven day a week telephone customer service. Mortgage banking services are provided through banking offices and loan production offices throughout the Company’s domestic markets. Lending products may be originated through banking offices, indirect correspondents, brokers or other lending

sources. The Company is also one of the largest providers of corporate and purchasing card services and corporate trust services in the United States. The Company’s wholly-owned subsidiary, Elavon, Inc. (“Elavon”), provides domestic merchant processing services directly to merchants. Wholly-owned subsidiaries of Elavon provide similar merchant services in Canada and segments of Europe. The Company also provides corporate trust and fund administration services in Europe. These foreign operations are not significant to the Company.

On a full-time equivalent basis, as of December 31, 2022, U.S. Bancorp employed 76,646 people.

Risk Factors An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. Below are material risk factors that make an investment in the Company speculative or risky.

Economic and Market Conditions Risk

Deterioration in business and economic conditions could adversely affect the Company’s lending business and the value of loans and debt securities it holds The Company’s business activities and earnings are affected by general business conditions in the United States and abroad, including factors such as the level and volatility of short-term and long-term interest rates, inflation, home prices, unemployment and under-employment levels, bankruptcies, household income, consumer spending, fluctuations in both debt and equity capital markets, liquidity of the global financial markets, the availability and cost of capital and credit, investor sentiment and confidence in the financial markets, and the strength of the domestic and global economies in which the Company operates. Changes in these conditions caused by the COVID-19 pandemic adversely affected the Company’s consumer and commercial businesses and securities portfolios, its level of charge-offs and provision for credit losses, and its results of operations during 2020, 2021 and 2022, and changes in these conditions caused by Russia’s invasion of Ukraine impacted the Company’s results of operations in 2022. Other future changes in these conditions, whether related to the COVID-19 pandemic, the war in Ukraine, the threat or occurrence of a U.S. sovereign default or otherwise, could have additional adverse effects on the Company and its businesses.

Given the high percentage of the Company’s assets represented directly or indirectly by loans, and the importance of lending to its overall business, weak economic conditions have negatively affected the Company’s business and results of operations, including new loan origination activity, existing loan utilization rates and delinquencies, defaults and the ability of customers to meet obligations under the loans. In addition, future deterioration in economic conditions could have adverse effects on loan origination activity, loan utilization rates and delinquencies, defaults and the ability of customers to meet loan

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obligations. The value to the Company of other assets such as investment securities, most of which are debt securities or other financial instruments supported by loans, similarly have been, and would be, negatively impacted by widespread decreases in credit quality resulting from a weakening of the economy.

In addition, volatility and uncertainty related to inflation or a possible recession and their effects, which could potentially continue to contribute to poor economic conditions, may contribute to or enhance some of the risks described herein. For example, higher inflation, slower growth or a recession could reduce demand for the Company’s products, adversely affect the creditworthiness of its borrowers or result in lower values for its interest-earning assets and investment securities. Any of these effects, or others that the Company is not able to predict, could adversely affect its financial condition or results of operations.

Any deterioration in global economic conditions could damage the domestic economy or negatively affect the Company’s borrowers or other counterparties that have direct or indirect exposure to these regions. Such global disruptions, including disruptions in supply chains or geopolitical risk, can undermine investor confidence, cause a contraction of available credit, or create market volatility, any of which could have material adverse effects on the Company’s businesses, results of operations, financial condition and liquidity, even if the Company’s direct exposure to the affected region is limited. Global political trends toward nationalism and isolationism, could increase the probability of a deterioration in global economic conditions.

Changes in interest rates could reduce the Company’s net interest income The Company’s earnings are dependent to a large degree on net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Net interest income is significantly affected by market rates of interest, which in turn are affected by prevailing economic conditions, by the fiscal and monetary policies of the federal government and by the policies of various regulatory agencies. Volatility in interest rates can also result in the flow of funds away from financial institutions into direct investments. Direct investments, such as United States government and corporate securities and other investment vehicles (including mutual funds), generally pay higher rates of return than financial institutions because of the absence of federal insurance premiums and reserve requirements.

United States interest rates fell dramatically during the first quarter of 2020 and remained low through 2021, which adversely affected the Company’s net interest income. The Federal Reserve raised benchmark interest rates throughout 2022 and may continue to raise interest rates in response to economic conditions, particularly inflationary pressures.

When interest rates are increasing, the Company can generally be expected to earn higher net interest income. However, higher interest rates can also lead to fewer originations of loans, less liquidity in the financial markets, and higher funding costs, each of which could adversely affect the Company’s revenues and its liquidity and capital levels. In 2022, as a result of

the high interest rate environment, the Company earned higher net interest income but experienced fewer originations of mortgage loans and higher funding costs, and the Company expects these effects to continue in the future if interest rates remain elevated or increase further. Higher interest rates can also negatively affect the payment performance on loans that are linked to variable interest rates. If borrowers of variable rate loans are unable to afford higher interest payments, those borrowers may reduce or stop making payments, thereby causing the Company to incur losses and increased operational costs related to servicing a higher volume of delinquent loans.

The Company’s results may be materially affected by market fluctuations and significant changes in the value of financial instruments The value of securities, derivatives and other financial instruments which the Company owns or in which it makes markets can be materially affected by market fluctuations. Market volatility, illiquid market conditions and other disruptions in the financial markets may make it extremely difficult to value certain financial instruments. Subsequent valuations of financial instruments in future periods, in light of factors then prevailing, may result in significant changes in the value of these instruments. In addition, at the time of any disposition of these financial instruments, the price that the Company ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Any of these factors could cause a decline in the value of financial instruments that the Company owns or in which it makes markets, which may have an adverse effect on the Company’s results of operations. The Company’s risk management and monitoring processes, including its stress testing framework, seek to quantify and control the Company’s exposure to more extreme market moves. However, the Company’s hedging and other risk management strategies may not be effective, and it could incur significant losses, if extreme market events were to occur.

The discontinuance of the London Interbank Offered Rate (“LIBOR”) as an interest rate benchmark could adversely affect the Company’s business, financial condition and results of operations The publication of the most commonly used United States Dollar LIBOR settings will cease to be provided or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be provided or ceased to representative as of December 31, 2021. Additionally, the United States federal banking agencies issued guidance strongly encouraging banking organizations to cease using the United States Dollar LIBOR as a reference rate in “new” contracts by December 31, 2021, at the latest, with limited exceptions. In March 2022, the LIBOR Act was enacted. The LIBOR Act provides a uniform approach for replacing LIBOR as a reference rate in contracts that do not include effective fallback provisions. Under the LIBOR Act and its implementing regulations, references to the most common tenors of LIBOR in such contracts will be replaced as a matter of law to instead reference rates based on SOFR.

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The replacement of LIBOR is complex and could have a range of adverse impacts on the Company’s business and results of operations. The Company has various types of transactions, including derivatives, loans, bonds, and securitized products, that reference LIBOR and other Interbank Offered Rates (“IBORs”). The replacement of LIBOR and other IBORs with ARRs and the Company’s development of products linked to alternate benchmark rates has created a number of risks for the Company, its customers, and the financial services industry more widely.

The extensive changes to documentation that govern or reference LIBOR or LIBOR-based products create a variety of execution risks for the Company. The Company may be unable to modify contracts with its counterparties to replace the reference rate for existing contracts based on or linked to LIBOR and other interest rate benchmarks with ARRs by the dates set for cessation of LIBOR and other interest rate benchmarks. The Company will need to transition all contracts still tied to LIBOR on or shortly after the cessation of LIBOR, which becomes increasingly complicated with higher numbers of contracts due to variations across different products, types of fallback language, and remediation strategies. The Company will also need to communicate with counterparties regarding the transition of contracts to an ARR, and such communications will vary by customer and by product due to differences in product type, regulatory requirements, and other customer considerations.

The transition from LIBOR may also result in disputes, litigation or other actions with clients, counterparties or investors, including with respect to, among other things, (i) the interpretation and enforceability of provisions in LIBOR-based products such as fallback language or other related provisions, (ii) the interpretation and implementation of the LIBOR Act and the enforceability thereof, (iii) any economic, legal, operational or other impact from the fundamental differences between LIBOR and the various ARRs, (iv) any issues resulting from implementing fallback language in a large number of contracts over a short period of time, (v) a claimed failure to appropriately communicate possible remediation strategies and the effects of the transition, and (vi) any actions resulting from the Company’s interpretation and execution of its roles and responsibilities in corporate trust transactions. The transition may also result in additional inquiries or other actions from regulators regarding the Company’s preparation and readiness for the replacement of LIBOR.

The discontinuation of a LIBOR setting, changes in LIBOR or changes in market acceptance of LIBOR as a reference rate may also adversely affect the yield on loans or securities held by the Company; amounts paid on securities the Company has issued; amounts received and paid on derivative instruments it has entered into; the value of such loans, securities or derivative instruments; the trading market for securities; the terms of new loans being made using different or modified reference rates; the Company’s ability to effectively use derivative instruments to manage risk; and the availability or cost of floating-rate funding and the Company’s exposure to fluctuations in interest rates.

Changes to benchmark indices may also adversely affect the price, liquidity, value of, return on and trading for a broad array of financial products, including any LIBOR-linked securities, loans and derivatives that are included in the Company’s financial assets and liabilities.

The Company’s acquisition of MUB creates additional risks for the Company and compounds the risks noted above. In certain instances, the Company and MUB have different remediation strategies for similar products, which increases the complexity in planning for and executing remediation strategies related to customer communications and rate transitions. Additionally, in certain instances, the Company and MUB have taken different approaches to communications with customers. The dispute risks and economic risks noted above are heightened as well due to the increased number of financial instruments which must be transitioned from LIBOR.

The Company is also subject to the risk that its customers, counterparties and third-party vendors are not operationally ready to transition away from LIBOR, and the failure of such third parties to upgrade their operations to transition away from LIBOR on a timely basis could materially disrupt the Company’s operations.

Operations and Business Risk

A breach in the security of the Company’s information systems, or the information systems of certain third parties, could disrupt the Company’s businesses, result in the disclosure of confidential information, damage its reputation and create significant financial and legal exposure The Company continues to experience an increasing number of attempted attacks on its information systems, software, networks and other technologies. Although the Company devotes significant resources to maintain and regularly upgrade its systems and processes that are designed to protect the security of the Company’s computer systems, software, networks, technologies and intellectual property, and to protect the confidentiality, integrity and availability of information belonging to the Company and its customers, the Company’s security measures may not be effective against new threats. Malicious actors continue to develop increasingly sophisticated cyber attacks that could impact the Company. Many financial institutions, retailers and other companies engaged in data processing, including software and information technology service providers, have reported cyber attacks, some of which involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of software that is intentionally included or inserted in an information system for a harmful purpose (malware).

Attacks on financial or other institutions important to the overall functioning of the financial system could also adversely affect, directly or indirectly, aspects of the Company’s businesses. The increasing consolidation, interdependence and

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complexity of financial entities and technology systems increases the risk of operational failure, both for the Company and on an industry-wide basis, and means that a technology failure, cyber attack, or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could materially affect the Company, counterparties or other market participants.

Third parties that facilitate the Company’s business activities, including exchanges, clearinghouses, payment and ATM networks, financial intermediaries and vendors that provide services or technology solutions for the Company’s operations, are also sources of operational and security risks to the Company due to failures of their systems, misconduct by their employees or cyber attacks that could affect their ability to deliver a product or service to the Company, resulting in lost or compromised Company or customer information. Although the Company implements safeguards with respect to third-party systems, such safeguards may not always be effective. Furthermore, a third party may not reveal an attack or system failure to the Company in a timely manner, which could compromise the Company’s ability to respond effectively. Some of these third parties may engage vendors of their own, which introduces the risk that the third party’s vendors and subcontractors (“fourth parties”) could be the source of operational and security failures. In addition, if a third party obtains access to the customer account data on the Company’s systems, and that party experiences a breach via an external or internal threat or misappropriates such data, the Company and its customers could suffer material harm, including heightened risk of fraudulent transactions, losses from fraudulent transactions, increased operational costs to remediate any security breach and reputational harm. These risks are expected to continue to increase as the Company expands its interconnectivity with its customers and other third parties.

Within the past several years, multiple companies have disclosed substantial cybersecurity breaches affecting debit and credit card accounts of their customers, some of whom were the Company’s cardholders and who may experience fraud on their card accounts because of the breach. The Company has suffered, and will in the future suffer, losses associated with reimbursing its customers for such fraudulent transactions, as well as for other costs related to data security compromise events, such as replacing cards associated with compromised card accounts. These attacks involving Company cards are likely to continue and could, individually or in the aggregate, have a material adverse effect on the Company’s financial condition or results of operations.

It is possible that the Company may not be able to anticipate or to implement effective preventive measures against all cybersecurity breaches because malicious actor methods and techniques change frequently, increase in sophistication, often are not recognized until launched, sometimes go undetected even when successful, and originate from a wide variety of sources, including organized crime, hackers, terrorists, activists,

hostile foreign governments and other external parties. Those parties may also attempt to fraudulently induce employees, customers or other users of the Company’s systems to disclose sensitive information to gain access to the Company’s data or that of its customers or clients, such as through “phishing” and other “social engineering” schemes. Other types of attacks may include computer viruses, malicious or destructive code, denial-of-service attacks, cyber extortion and accompanying ransom demands. The Company’s information security risks may increase in the future as the Company continues to increase its mobile and internet-based product offerings and expands its internal usage of web-based products and applications. In addition, the Company’s customers often use their own devices, such as computers, smart phones and tablet computers, to make payments and manage their accounts, and are subject to “phishing” and other attempts from cyber criminals to compromise or deny access to their accounts. The Company has limited ability to assure the safety and security of its customers’ transactions with the Company to the extent they are using their own devices, which have been, and likely will continue to be, subject to such threats.

In addition, the Company’s acquisition of MUB has caused the Company to experience increased cybersecurity risk, which the Company expects to remain elevated until the integration of MUB is completed. Specifically, these risks include technology disruption during the integration phase, potential dormant threats in MUB, information technology resilience risk during integration and conversion, and risks related to the cybersecurity postures of USBNA and MUB.

If the Company’s physical or cybersecurity systems are penetrated or circumvented, or an authorized user intentionally or unintentionally removes, loses or destroys critical business data, serious negative consequences for the Company can follow, including significant disruption of the Company’s operations, misappropriation of confidential Company and/or customer information, or damage to the Company’s or customers’ or counterparties’ computers or systems. These consequences could result in violations of applicable privacy and other laws; financial loss to the Company or to its customers; loss of confidence in the Company’s security measures; customer dissatisfaction; significant litigation exposure; regulatory fines, penalties or intervention; reimbursement or other compensatory costs (including the costs of credit monitoring services); additional compliance costs; and harm to the Company’s reputation, all of which could adversely affect the Company.

Because the investigation of any information security breach is inherently unpredictable and would require substantial time to complete, the Company may not be able to quickly remediate the consequences of any breach, which may increase the costs of, and enhance the negative consequences associated with, a breach. In addition, to the extent the Company’s insurance covers aspects of any breach, such insurance may not be sufficient to cover all the Company’s losses.

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The Company relies on its employees, systems and third parties to conduct its business, and certain failures by systems or misconduct by employees or third parties could adversely affect its operations 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. The Company’s business, financial, accounting, data processing, and other operating systems and facilities may stop operating properly or become disabled or damaged due to a number of factors, including events that are out of its control. In addition to the risks posed by information security breaches, as discussed above, such systems could be compromised because of spikes in transaction volume, electrical or telecommunications outages, degradation or loss of internet or website availability, natural disasters, political or social unrest, and terrorist acts. The Company’s business operations may be adversely affected by significant disruption to the operating systems that support its businesses and customers. If backup systems are used during outages, they might not process data as quickly as do the primary systems, which could negatively impact the ability to back up data.

The Company could also incur losses resulting from the risk of human error by employees, fraud by employees or persons outside the Company, unauthorized access to its computer systems, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and business continuation and disaster recovery. This risk of loss also includes customer remediation costs, the potential legal actions, fines or civil money penalties that could arise resulting from an operational deficiency or noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.

Third parties provide key components of the Company’s business infrastructure, such as internet connections, network access and mutual fund distribution. While the Company has selected these third parties carefully, it is limited in its ability to control their actions. Any problems caused by third-party service providers, including failing to comply with their contractual obligations or performing their services negligently, could adversely affect the Company’s ability to deliver products and services to the Company’s customers and otherwise to conduct its business. Replacing third-party service providers could also entail significant delay and expense. In addition, failure of third-party service providers to handle current or higher volumes of use could adversely affect the Company’s ability to deliver products and services to clients and otherwise to conduct business. Technological or financial difficulties of a third-party service provider could adversely affect the Company’s businesses to the extent those difficulties result in the interruption or discontinuation of services provided by that party.

Operational risks for large financial institutions such as the Company have generally increased in recent years, in part because of the proliferation of new technologies, implementation of work-from-home and hybrid work arrangements, the use of internet services and telecommunications technologies to conduct financial transactions, the increased number and complexity of transactions being processed, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. In the event of a breakdown in the internal control system, improper operation of systems or improper employee or third-party actions, the Company could suffer financial loss, face legal or regulatory action and suffer damage to its reputation.

The Company could face material legal and reputational harm if it fails to safeguard personal information The Company is subject to complex and evolving laws and regulations, both inside and outside the United States, governing the privacy and protection of personal information. Individuals whose personal information may be protected by law can include the Company’s customers, customers’ customers, prospective customers, job applicants, current and former employees, the employees of the Company’s suppliers, and other individuals. Complying with laws and regulations applicable to the Company’s collection, use, transfer and storage of personal information can increase operating costs, impact the development and marketing of new products or services, and reduce operational efficiency. Any mishandling or misuse of personal information by the Company or its suppliers could expose the Company to litigation or regulatory fines, penalties or other sanctions.

In the United States, several states have recently enacted consumer privacy laws that impose compliance obligations with respect to personal information. In particular, the California Consumer Privacy Act (the “CCPA”) and its implementing regulations impose significant requirements on covered businesses with respect to consumer data privacy rights. In November 2020, voters in the State of California approved the California Privacy Rights Act (“CPRA”), a ballot measure that amends and supplements the CCPA by, among other things, expanding certain rights relating to personal information and its use, collection, deletion, correction, and disclosure by covered businesses. Compliance with the CCPA, the CPRA, and other state statutes, common law, or regulations designed to protect personal information could potentially require substantive technology infrastructure and process changes across many of the Company’s businesses. Non-compliance with the CCPA, CPRA, or similar laws and regulations could lead to substantial regulatory fines and penalties, damages from private causes of action, compelled changes to the Company’s business practices, and/or reputational harm. The Company cannot predict whether any pending or future state or federal legislation will be adopted, or the impact of any such adopted legislation on the Company.

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Future legislation could result in substantial costs to the Company and could have an adverse effect on its business, financial condition and results of operations.

In addition, legal requirements for cross-border personal data transfers are constantly changing, including the revisions made by the European Economic Area (“EEA”) that require the use of revised Standard Contractual Clauses (“SCCs”) for international data transfers from the EEA. The SCCs are required to be used for new agreements involving the cross-border transfer of personal data from the EEA and must be supplemented by an assessment and due diligence of the legal and regulatory landscape of the jurisdiction of the data importer, the channels used to transmit personal data and any sub-processors that may receive personal data. The UK has developed its own set of SCCs that must be used for transfers of personal data from the UK to the U.S. In December 2022, the European Commission announced a draft adequacy decision for the EU-U.S. Data Privacy Framework (the “EU-U.S. DPF”), a cross-border data transfer mechanism that will replace the EU-U.S. Privacy Shield that was invalidated in 2020. The EU-U.S. DPF is in development, and there is no guarantee that it will be approved in its current form. Compliance with these changes and any future changes to data transfer or privacy requirements could potentially require the Company to make significant technological and operational changes, any of which could result in substantial costs to the Company, and failure to comply with applicable data transfer or privacy requirements could subject the Company to fines or regulatory oversight.

Additional risks could arise from the failure of the Company or third parties to provide adequate notice to the Company’s customers about the personal information collected from them and the use of such information; to receive, document, and honor the privacy preferences expressed by the Company’s customers; to protect personal information from unauthorized disclosure; or to maintain proper training on privacy practices for all employees or third parties who have access to personal information. Concerns regarding the effectiveness of the Company’s measures to safeguard personal information and abide by privacy preferences, or even the perception that those measures are inadequate or that the Company does not abide by such privacy preferences, could cause the Company to lose existing or potential customers and thereby reduce its revenues. In addition, any failure or perceived failure by the Company to comply with applicable privacy or data protection laws and regulations could result in requirements to modify or cease certain operations or practices, and/or in material liabilities or regulatory fines, penalties, or other sanctions. Refer to “Supervision and Regulation” in the Company’s Annual Report on Form 10-K for additional information regarding data privacy laws and regulations. Any of these outcomes could materially damage the Company’s reputation and otherwise adversely affect its business.

The Company could lose market share and experience increased costs if it does not effectively develop and implement new technology The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services, including innovative ways that customers can make payments or manage their accounts, such as through the use of mobile payments, digital wallets or digital currencies. The growth of many of these technologies was accelerated as a result of the COVID-19 pandemic and the shift to increased digital activity. The Company’s continued success depends, in part, upon its ability to address customer needs by using technology to provide products and services that customers want to adopt and create additional efficiencies in the Company’s operations. When launching a new product or service or introducing a new platform for the delivery of products and services, the Company might not identify or fully appreciate new operational risks arising from those innovations or might fail to implement adequate controls to mitigate those risks. Developing and deploying new technology-driven products and services can also involve costs that the Company may not recover and divert resources away from other product development efforts. The Company may not be able to effectively develop and implement profitable new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry, including because larger competitors may have more resources to spend on developing new technologies or because non-bank competitors have a lower cost structure and more flexibility, could harm the Company’s competitive position and negatively affect its revenue and profit.

The Company may not realize the full value of its strategic plans and initiatives As the Company develops its strategic initiatives, it scans the internal and external environment to inform any changes required, take advantage of new opportunities and/or respond to unexpected challenges. Initiatives include focusing on customer growth with tailored products and experiences that meet customer needs; maintaining discipline centered on preserving the Company’s financial excellence and risk appetite; acquiring and integrating financial services businesses or assets; cultivating a future-focused and diverse talent strategy; and increasing access to banking services and economic empowerment. The Company’s initiatives are impacted by internal factors, rapid pace of change from an evolving competitive landscape, increased cybersecurity threats, accelerated digitalization, and emerging technologies. In addition, execution is impacted by the Company’s response to external economic conditions, global uncertainty, and regulatory factors that are beyond its control. The Company’s future growth and the value of its stock will depend, in part, on its ability to effectively implement its business strategy. If the Company is not able to

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successfully execute its business strategy, then the Company’s competitive position, reputation, prospects for growth, and results of operations may be adversely affected.

Damage to the Company’s reputation could adversely impact its business and financial results Reputation risk, or the risk to the Company’s business, earnings and capital from negative public opinion, is inherent in the Company’s business. Negative public opinion about the financial services industry generally or the Company specifically could adversely affect the Company’s ability to retain and attract stakeholders such as customers, investors, and employees and could expose the Company to litigation and regulatory action. Negative public opinion can result from the Company’s actual or alleged conduct in any number of activities, including lending practices, cybersecurity breaches, failures to safeguard personal information, discriminating or harassing behavior of employees toward other employees or customers, mortgage servicing and foreclosure practices, compensation practices, sales practices, regulatory compliance, mergers and acquisitions, and actions taken by government regulators and community organizations in response to that conduct. Additionally, the Company’s stakeholders often hold differing views on how the Company should address environmental, social and governance (“ESG”) goals as it relates to serving customers. The Company’s approach to ESG and customers may result in negative attention in traditional and social media, resulting in a negative perception of the Company depending on an individual’s view. In addition, failure to deliver against established ESG goals and objectives could present reputational and financial harm to the Company. If the Company is unable to design or execute against business strategies that balance conflicting views on how it supports ESG initiatives, while continuing to support customers from differing industries, reputational damage could result, leading to a loss of customers or negative investor sentiment. Although the Company takes steps to minimize reputation risk in dealing with customers and other constituencies, the Company, as a large diversified financial services company with a high industry profile, is inherently exposed to this risk.

The Company’s business and financial performance could be adversely affected, directly or indirectly, by natural disasters, pandemics, terrorist activities, civil unrest or international hostilities Neither the occurrence nor the potential impact of natural disasters, pandemics, terrorist activities, civil unrest or international hostilities can be predicted. However, these occurrences could impact the Company directly (for example, by interrupting the Company’s systems, which could prevent the Company from obtaining deposits, originating loans and processing and controlling its flow of business; causing significant damage to the Company’s facilities; or otherwise preventing the Company from conducting business in the ordinary course), or indirectly as a result of their impact on the Company’s borrowers, depositors, other customers, vendors or other counterparties (for example, by damaging properties pledged as collateral for the Company’s loans or impairing the

ability of certain borrowers to repay their loans). The Company has also suffered, and could in the future suffer, adverse consequences to the extent that natural disasters, pandemics, including the COVID-19 pandemic, terrorist activities, civil unrest or international hostilities, including Russia’s invasion of Ukraine, affect the financial markets or the economy in general or in any particular region.

For example, the COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and may in the future adversely affect, the Company’s business, financial condition, capital and results of operations. During the COVID-19 pandemic, the Company experienced significant disruptions to its normal operations, including the temporary closing of branches and a sudden increase in the volume of work-from-home arrangements. In addition, the Company has been indirectly negatively affected by the pandemic’s effects on the Company’s borrowers and other customers, and by its effects on global financial markets. The extent to which the COVID-19 pandemic will in the future negatively affect the Company’s business, financial condition, capital and results of operations will depend on developments that are highly uncertain and cannot be predicted at this time, including the scope and duration of any surges in the pandemic, the continued effectiveness of vaccines and their distribution and acceptance over the long term (including the effectiveness of vaccines against new COVID variants), the continued effectiveness of the Company’s business continuity plans, and governmental and other responses to the pandemic. The COVID-19 pandemic has caused, and other future natural disasters, pandemics, terrorist activities, civil unrest or international hostilities, may cause, an increase in delinquencies, bankruptcies or defaults that could result in the Company experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses.

Depending on the impact of the pandemic and current international hostilities on general economic and market conditions, there is a risk that adverse conditions could occur or worsen, including supply chain disruptions; higher inflation; a possible recession; decreased demand for the Company’s products and services or those of its borrowers, which could increase credit risk; challenges related to maintaining sufficient qualified personnel due to labor shortages, talent attrition, employee illness, or willingness to return to work; increased risk of cyber attacks; increased volatility in commodity, currency and other financial markets; and disruptions to business operations at the Company and at counterparties, vendors and other service providers.

The United States has in recent years faced periods significant civil unrest. Although civil unrest has not materially affected the Company’s businesses to date, similar events could, directly or indirectly, have a material adverse effect on the Company’s operations (for example, by causing shutdowns of branches or working locations of vendors or other counterparties or damaging property pledged as collateral for the Company’s loans).

The Company’s ability to mitigate the adverse consequences of these occurrences is in part dependent on the quality of the

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Company’s resiliency planning, and the Company’s ability, if any, to anticipate the nature of any such event that occurs. The adverse effects of natural disasters, pandemics, terrorist activities, civil unrest or international hostilities also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that the Company transacts with, particularly those that it depends upon, but has no control over. Additionally, both the frequency and severity of some kinds of natural disasters, including wildfires, flooding, tornadoes and hurricanes, have increased, and the Company expects will continue to increase, as a result of climate change.

The Company’s business strategy, operations, financial performance and customers could be materially adversely affected by the impacts related to climate change There is an increasing concern over the risks of climate change and the impact that climate change may have on the Company and its customers and communities. The physical risks of climate change include increasing average global temperatures, rising sea levels and an increase in the frequency and severity of extreme weather events and natural disasters, including wildfires, floods, tornadoes and hurricanes. Climate shifts and the increasing frequency and severity of natural disasters reduce the Company’s ability to predict accurately the effects of natural disasters. Such disasters could disrupt the Company’s operations or the operations of customers or third parties on which the Company relies. Such disasters could also result in market volatility, negatively impact customers’ ability to pay outstanding loans, damage collateral or result in the deterioration of the value of collateral. Such disasters may also result in reduced availability of insurance, including insurance that protects property pledged as collateral for Company loans, which could negatively affect the Company’s ability to predict credit losses accurately.

Additionally, climate change concerns could result in transition risk. Transition risks could include changes in consumer preferences, new technologies, and additional legislation and regulatory requirements, including those associated with the transition to a low-carbon economy. These physical risks and transition risks could increase expenses or otherwise adversely impact the Company’s business strategy, operations, financial performance and customers. In particular, new regulations or guidance, or the attitudes of regulators, shareholders and employees regarding climate change, may affect the activities in which the Company engages and the products that the Company offers. In addition, an increasing perspective that financial institutions, including the Company, play an important role in managing risks related to climate change, including indirectly with respect to their customers, may result in increased pressure on the Company to take additional steps to disclose and manage its climate risks and related lending and other activities. The Company could also experience increased expenses resulting from strategic planning, litigation and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny and

reduced investor and stakeholder confidence due to the Company’s response to climate change and the Company’s climate change strategy.

Risks associated with climate change are continuing to evolve rapidly, making it difficult to assess the effects of climate change on the Company, and the Company expects that climate change-related risks will continue to evolve and increase over time.

Regulatory and Legal Risk

The Company is subject to extensive and evolving government regulation and supervision, which can increase the cost of doing business, limit the Company’s ability to make investments and generate revenue, and lead to costly enforcement actions Banking regulations are primarily intended to protect depositors’ funds, the federal Deposit Insurance Fund, and the United States financial system as a whole, and not the Company’s debt holders or shareholders. These regulations, and the Company’s inability to act in certain instances without receiving prior regulatory approval, affect the Company’s lending practices, capital structure, investment practices, dividend policy, ability to repurchase common stock, and ability to pursue strategic acquisitions, among other activities.

The Company expects that its business will remain subject to extensive regulation and supervision and that the level of scrutiny and the enforcement environment may fluctuate over time, based on numerous factors, including changes in the United States presidential administration or one or both houses of Congress and public sentiment regarding financial institutions (which can be influenced by scandals and other incidents that involve participants in the industry). In particular, changes in administration may result in the Company and other large financial institutions becoming subject to increased scrutiny and/or more extensive legal and regulatory requirements than under prior presidential and congressional regimes. In addition, changes in key personnel at the agencies that regulate the Company, including the federal banking regulators, may result in differing interpretations of existing rules and guidelines and potentially more stringent enforcement and more severe penalties than previously experienced. New regulations or modifications to existing regulations and supervisory expectations have increased, and may in the future increase, the Company’s costs over time and necessitate changes to the Company’s existing regulatory compliance and risk management infrastructure. In addition, regulatory changes may reduce the Company’s revenues (including by limiting the fees the Company may charge), limit the types of financial services and products it may offer, alter the investments it makes, affect the manner in which it operates its businesses, increase its litigation and regulatory costs should it fail to appropriately comply with new or modified laws and regulatory requirements, and increase the ability of non-banks to offer competing financial services and products.

Changes to statutes, regulations or regulatory policies, or their interpretation or implementation, and/or regulatory practices,

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requirements or expectations, could affect the Company in substantial and unpredictable ways. For example, the Inflation Reduction Act of 2022 imposed a new one percent excise tax on corporate stock repurchases, which could impact the extent of the Company’s common stock repurchases, preferred stock redemptions, and mergers and acquisitions activity, as well as increase the Company’s tax liability and reduce the Company’s net income in connection with these activities. Moreover, general regulatory practices, such as longer time frames to obtain regulatory approvals for acquisitions and other activities (and the resultant impact on businesses the Company may seek to acquire), could affect the Company’s ability or willingness to make certain acquisitions or introduce new products or services. In addition, the Biden Administration recently called on all regulatory agencies to reduce or eliminate certain fees relating to a number of services, including banking services. At the same time, the CFPB launched an initiative to reduce the amounts and types of fees financial institutions may charge, including by issuing a proposed rule that would significantly reduce the permissible amount of credit card late fees. Such changes could affect the Company’s ability or willingness to provide certain products or services, necessitate changes to the Company’s business practices or reduce the Company’s revenues.

Federal law grants substantial supervisory and enforcement powers to federal banking regulators and law enforcement agencies, including, among other things, the ability to assess significant civil or criminal monetary penalties, fines, or restitution; to issue cease and desist or removal orders; and to initiate injunctive actions against banking organizations and institution-affiliated parties. The financial services industry continues to face scrutiny from bank supervisors in the examination process and stringent enforcement of regulations on both the federal and state levels, including with respect to mortgage-related practices, fair lending practices, fees charged by banks, student lending practices, sales practices and related incentive compensation programs, and other consumer compliance matters, as well as compliance with Bank Secrecy Act/anti-money laundering (“BSA/AML”) requirements and sanctions compliance requirements as administered by the Office of Foreign Assets Control, and consumer protection issues more generally. This regulatory scrutiny, or the results of an investigation or examination, may lead to additional regulatory investigations or enforcement actions. There is no assurance that those actions will not result in regulatory settlements or other enforcement actions against the Company or any of the Company’s subsidiaries (including USBNA and MUB and, in the case of MUB, in respect of conduct or activities that may have occurred prior to the Company’s acquisition of MUB), which could cause the Company material financial and reputational harm. Furthermore, a single event involving a potential violation of law or regulation may give rise to numerous and overlapping investigations and proceedings, either by multiple federal and state agencies and officials in the United States or, in some instances, regulators and other governmental

officials in foreign jurisdictions. In addition, another financial institution’s violation of law or regulation relating to a business activity or practice often will give rise to an investigation of the same or similar activities or practices of the Company.

In general, the amounts paid by financial institutions in settlement of proceedings or investigations and the severity of other terms of regulatory settlements are likely to remain elevated. In some cases, governmental authorities have required criminal pleas or other extraordinary terms, including admissions of wrongdoing and the imposition of monitors, as part of such settlements, which could have significant consequences for a financial institution, including loss of customers, reputational harm, increased exposure to civil litigation, restrictions on the ability to access the capital markets, and the inability to operate certain businesses or offer certain products for a period of time.

Non-compliance with sanctions laws and/or BSA/AML laws or failure to maintain an adequate BSA/AML compliance program can lead to significant monetary penalties and reputational damage. In addition, federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity. There have been a number of significant enforcement actions against banks, broker-dealers and non-bank financial institutions with respect to sanctions laws and BSA/AML laws, and some have resulted in substantial penalties, including against the Company and USBNA in 2018.

Violations of laws and regulations or deemed deficiencies in risk management practices or consumer compliance also may be incorporated into the Company’s confidential supervisory ratings. A downgrade in these ratings, or these or other regulatory actions and settlements, could limit the Company’s ability to conduct expansionary activities for a period of time and require new or additional regulatory approvals before engaging in certain other business activities.

Differences in regulation can affect the Company’s ability to compete effectively The content and application of laws and regulations applicable to financial institutions vary according to the size of the institution, the jurisdictions in which the institution is organized and operates and other factors. Large institutions, such as the Company, often are subject to more stringent regulatory requirements and supervision than smaller institutions. In addition, financial technology companies and other non-bank competitors may not be subject to the prudential and consumer protection regulatory framework that applies to banks, or may be regulated by a national or state agency that does not have the same regulatory priorities or supervisory requirements as the Company’s regulators. These differences in regulation can impair the Company’s ability to compete effectively with competitors that are less regulated and that do not have similar compliance costs or restrictions on activities.

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Stringent requirements related to capital and liquidity have been adopted by United States banking regulators that may limit the Company’s ability to return earnings to shareholders or operate or invest in its business United States banking regulators have adopted stringent capital- and liquidity-related standards applicable to larger banking organizations, including the Company. The rules require banks to hold more and higher quality capital as well as sufficient unencumbered liquid assets to meet certain stress scenarios defined by regulation. In November 2019, the federal banking regulators adopted two final rules (the “Tailoring Rules”) that revised the criteria for determining the applicability of regulatory capital and liquidity requirements for large United States banking organizations, including the Company and USBNA, and that tailored the application of the Federal Reserve’s enhanced prudential standards to large banking organizations. Although the Tailoring Rules and other recent changes to capital- and liquidity-related rules generally have simplified the regulatory framework applicable to the Company, future changes to the implementation of these rules including the stress capital buffer, or additional capital- and liquidity-related rules, could require the Company to take further steps to increase its capital, increase its investment security holdings, divest assets or operations, or otherwise change aspects of its capital and/or liquidity measures, including in ways that may be dilutive to shareholders or could limit the Company’s ability to pay common stock dividends, repurchase its common stock, invest in its businesses or provide loans to its customers.

The effects of the COVID-19 pandemic and actions by the Federal Reserve have in the past limited and may in the future limit capital distributions, including suspension of the Company’s share repurchase program or reduction or suspension of the Company’s common stock dividend.

In addition, in connection with the Company’s acquisition of MUB, the Company committed to submit to the Federal Reserve quarterly implementation plans for complying with requirements application to “Category II” institutions (i.e., institutions with $700 billion or more in total assets or $75 billion or more in cross-jurisdictional activities). The Company also committed to meet requirements applicable to Category II institutions by the earlier of (1) the date required under the Tailoring Rules and (2) December 31, 2024, if the Federal Reserve notifies the Company by January 1, 2024, that the Company must comply with such rules. As a Category II institution (whether obligated by rule or Federal Reserve notice), the Company would be subject to the full LCR and NSFR requirements, which would require the Company to maintain higher amounts of liquidity than are currently required. The Company would also be required to conduct more frequent company-run stress tests. In addition, the Company would be subject to more stringent risk-based capital requirements. These and other requirements that would apply to the Company after it becomes a Category II institution likely would result in additional compliance and other costs that may adversely affect the Company’s results of operations.

Further, on October 14, 2022, the Federal Reserve published an advance notice of proposed rulemaking (ANPR) that together with the FDIC solicits public comment on potential changes to the resolution-related standards applicable to certain large banking organizations that are not globally systemically important banks (or GSIBs) such as the Company. The ANPR broadly focuses on whether and how certain elements of the GSIB resolution-related standards could be modified and applied to preserve optionality during the resolution of large banking organizations that are not GSIBs and address financial stability risks that may be associated with the material financial distress or failure of such organizations. In particular, the ANPR focuses on the potential imposition of a “long-term debt requirement” either at the holding company or bank level. If a long-term debt requirement was adopted, the Company may need to change its current funding mix, including being required to raise additional long-term debt, which could adversely impact net interest margin and net interest income.

Additional capital and liquidity requirements may be imposed in the future. In December 2017, the Basel Committee finalized a package of revisions to the Basel III framework. The changes are meant to improve the calculation of risk-weighted assets and the comparability of capital ratios. Federal banking regulators are expected to undertake rule-makings in future years to implement these revisions in the United States. The ultimate impact of revisions to the Basel III–based framework in the United States on the Company’s capital and liquidity will depend on the final rule-makings and the implementation process thereafter.

Refer to “Supervision and Regulation” in the Company’s Annual Report on Form 10-K for additional information regarding the Company’s capital and liquidity requirements.

The Company is subject to significant financial and reputation risks from potential legal liability and governmental actions The Company faces significant legal risks in its businesses, and the volume of claims and amount of damages and penalties claimed in litigation and governmental proceedings against it and other financial institutions are substantial. Customers, clients and other counterparties are making claims for substantial or indeterminate amounts of damages, while banking regulators and certain other governmental authorities have focused on enforcement. The Company is named as a defendant or is otherwise involved in many legal proceedings, including class actions and other litigation. As a participant in the financial services industry, it is likely that the Company will continue to experience a high level of litigation and government scrutiny related to its businesses and operations in the future. Substantial legal liability or significant governmental action against the Company could materially impact the Company’s financial condition and results of operations (including because such matters may be resolved for amounts that exceed established accruals for a particular period) or cause significant reputational harm to the Company.

Since 2020, many financial institutions, including the Company, have received regulatory and governmental inquiries

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regarding participation directly or on behalf of customers and clients in United States government programs designed to support individuals, households and businesses impacted by the economic disruptions caused by the COVID-19 pandemic. The Company’s participation in these and other programs used in response to the COVID-19 pandemic may lead to additional government and regulatory inquiries and litigation in the future, any of which could negatively impact the Company’s business, reputation, financial condition and results of operations.

Although, under the terms of the Share Purchase Agreement for the Company’s acquisition of MUB, the Company may be entitled to indemnification from Mitsubishi UFJ Financial Group, Inc. for certain losses, as the acquiror of MUB, the Company assumed MUB’s liabilities as part of the acquisition, which includes, as a condition to the regulatory approval for the transaction, ensuring ongoing compliance with an OCC consent order relating to MUB’s technology and operational risk management, and could also include other liabilities related to MUB’s compliance with banking law. Such liabilities could result in additional regulatory scrutiny, constraints on the Company’s business, or enforcement actions, including civil money penalties or fines. Any of those events could have a material adverse impact on the Company’s future operations, financial condition, growth, or other aspects of its business.

The Company may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches in contractual representations and warranties When the Company sells mortgage loans that it has originated to various parties, including GSEs, it is required to make customary representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. The Company may be required to repurchase mortgage loans or be subject to indemnification claims in the event of a breach of contractual representations or warranties that is not remedied within a certain period. Contracts for residential mortgage loan sales to the GSEs include various types of specific remedies and penalties that could be applied if the Company does not adequately respond to repurchase requests. If economic conditions and the housing market deteriorate or the GSEs increase their claims for breached representations and warranties, the Company could have increased repurchase obligations and increased losses on repurchases, requiring material increases to its repurchase reserve.

The Company’s failure to satisfy its obligations as servicer for automobile loan securitizations and residential mortgage loans owned by other entities, and other losses the Company could incur as servicer, could adversely impact the Company’s reputation, servicing costs or results of operations The Company services automobile loans on behalf of third-party securitization vehicles and also acts as servicer and master servicer for mortgage loans included in securitizations and for unsecuritized mortgage loans owned by investors. As a servicer or master servicer for those loans, the

Company has certain contractual obligations to the securitization trusts, investors, or other third parties. As a servicer, the Company’s obligations include foreclosing on defaulted loans or, to the extent consistent with the applicable securitization or other investor agreement, considering alternatives to foreclosure such as loan modifications or short sales, as applicable. In the Company’s capacity as a master servicer, obligations include overseeing the servicing of mortgage loans by the servicer. Generally, the Company’s servicing obligations are set by contract, for which the Company receives a contractual fee. However, with respect to mortgage loans, GSEs can amend their servicing guidelines, which can increase the scope or costs of the services required without any corresponding increase in the Company’s servicing fee. As a servicer, the Company also advances expenses on behalf of investors which it may be unable to collect. A material breach of the Company’s obligations as servicer or master servicer may result in contract termination if the breach is not cured within a specified period of time following notice. In addition, the Company may be required to indemnify the securitization trustee against losses from any failure by the Company, as a servicer or master servicer, to perform the Company’s servicing obligations or any act or omission on the Company’s part that involves willful misfeasance, bad faith, or gross negligence. For certain investors and certain transactions, the Company may be contractually obligated to repurchase a mortgage loan or reimburse the investor for credit losses incurred on the loan as a remedy for servicing errors with respect to the loan. The Company may be subject to increased repurchase obligations as a result of claims made that the Company did not satisfy its obligations as a servicer or master servicer. The Company may also experience increased loss severity on repurchases, which may require a material increase to the Company’s repurchase reserve. The Company has and may continue to receive indemnification requests related to the Company’s servicing of mortgage loans owned or insured by other parties, primarily GSEs.

Credit and Mortgage Business Risk

Heightened credit risk could require the Company to increase its provision for credit losses, which could have a material adverse effect on the Company’s results of operations and financial condition When the Company lends money, or commits to lend money, it incurs credit risk, or the risk of losses if its borrowers do not repay their loans. As one of the largest lenders in the United States, the credit performance of the Company’s loan portfolios significantly affects its financial results and condition. If the current economic environment were to further deteriorate, the Company’s customers may have more difficulty in repaying their loans or other obligations, which could result in a higher level of credit losses and higher provisions for credit losses. Stress on the United States economy or the local economies in which the Company does business, including the economic stress caused by the pandemic, supply chain

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disruptions, escalating geopolitical tensions and higher interest rates and inflation, has resulted, and in the future may result, in, among other things, borrowers’ inability to refinance loans at maturity and unexpected deterioration in credit quality of the loan portfolio or in the value of collateral securing those loans, which has caused, and in the future could cause, the Company to establish higher provisions for credit losses.

The Company reserves for credit losses by establishing an allowance through a charge to earnings to provide for loan defaults and nonperformance. The Company’s allowance for loan losses is compliant with the CECL methodology, which is based on the portfolio’s historical loss experience, an evaluation of the risks associated with its loan portfolio, including the size and composition of the loan portfolio, current and foreseeable economic conditions and borrower and collateral quality. These conditions inform the Company’s expected lifetime loss estimates of the portfolio, which is the foundation for the allowance for credit losses. These forecasts and estimates require difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of the Company’s borrowers to repay their loans. The Company may not be able to accurately predict these economic conditions and/or some or all of their effects, which may, in turn, negatively impact the reliability of the process. The Company also makes loans to borrowers where it does not have or service the loan with the first lien on the property securing its loan. For loans in a junior lien position, the Company may not have access to information on the position or performance of the first lien when it is held and serviced by a third party, which may adversely affect the accuracy of the loss estimates for loans of these types. Increases in the Company’s allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect its financial results. In addition, the Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches it uses to select, manage, and underwrite its customers become less predictive of future behaviors.

A concentration of credit and market risk in the Company’s loan portfolio could increase the potential for significant losses The Company may have higher credit risk, or experience higher credit losses, to the extent its loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral. For example, the Company’s credit risk and credit losses can increase if borrowers who engage in similar activities are uniquely or disproportionately affected by economic or market conditions, or by regulation, such as regulation related to climate change. Deterioration in economic conditions or real estate values in states or regions where the Company has relatively larger concentrations of residential or commercial real estate could result in higher credit costs. For example, the Company’s acquisition of MUB has increased the Company’s exposure to the markets in California. Deterioration in real estate

values and underlying economic conditions in California could result in higher credit losses to the Company.

Changes in interest rates can impact the value of the Company’s mortgage servicing rights and mortgages held for sale, and can make its mortgage banking revenue volatile from quarter to quarter, which can reduce its earnings The Company has a portfolio of MSRs, which is the right to service a mortgage loan—collect principal, interest and escrow amounts—for a fee, with a fair value of $3.8 billion as of December 31, 2022. The Company initially carries its MSRs using a fair value measurement of the present value of the estimated future net servicing income, which includes assumptions about the likelihood of prepayment by borrowers. Changes in interest rates can affect prepayment assumptions and thus fair value. When interest rates fall, prepayments tend to increase as borrowers refinance, and the fair value of MSRs can decrease, which in turn reduces the Company’s earnings. Further, it is possible that, because of economic conditions and/or a weak or deteriorating housing market, even when interest rates fall, mortgage originations may fall or any increase in mortgage originations may not be enough to offset the decrease in the MSRs’ value caused by the lower rates.

The Company relies on the mortgage secondary market and GSEs for some of the Company’s revenue and liquidity The Company sells a portion of the mortgage loans that it originates to increase revenue through origination fees and ongoing servicing of such loans and to provide funding capacity for originating additional loans. GSEs could limit their purchases of conforming loans due to capital constraints, other changes in their criteria for conforming loans or other reasons. This potential reduction in purchases could limit the Company’s ability to fund new loans. In addition, if GSEs limited their purchases of conforming loans, the Company may limit its originations of mortgage loans that it intends to sell, which could reduce the Company’s revenue from origination fees of such loans and the ongoing servicing fees it receives from such loans. Proposals have been presented to reform the housing finance market in the U.S., including the role of the GSEs in the housing finance market. The extent and timing of any such regulatory reform of the housing finance market and the GSEs, as well as any effect on the Company’s business and financial results, are uncertain.

A decline in the soundness of other financial institutions could adversely affect the Company’s results of operations The Company’s ability to engage in routine funding or settlement transactions could be adversely affected by the actions and commercial soundness of other domestic or foreign financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. The Company has exposure to many different counterparties, and the Company routinely executes and settles transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and

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hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, the soundness of one or more financial services institutions, or the financial services industry generally, could lead to losses or defaults by the Company or by other institutions and impact the Company’s predominately United States–based businesses or the less significant merchant processing, corporate trust and fund administration services businesses it operates in foreign countries. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In addition, the Company’s credit risk may be further increased when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due the Company. There is no assurance that any such losses would not adversely affect the Company’s results of operations.

Change in residual value of leased assets may have an adverse impact on the Company’s financial results The Company engages in leasing activities and is subject to the risk that the residual value of the property under lease will be less than the Company’s recorded asset value. Adverse changes in the residual value of leased assets can have a negative impact on the Company’s financial results. The risk of changes in the realized value of the leased assets compared to recorded residual values depends on many factors outside of the Company’s control, including supply and demand for the assets, condition of the assets at the end of the lease term, and other economic factors.

Liquidity Risk

If the Company does not effectively manage its liquidity, its business could suffer The Company’s liquidity is essential for the operation of its business. Market conditions, the threat or occurrence of a U.S. sovereign default, unforeseen outflows of funds or other events could negatively affect the Company’s level or cost of funding, affecting its ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a reasonable cost and in a timely manner. If the Company’s access to stable and low-cost sources of funding, such as customer deposits, is reduced, the Company might need to use alternative funding, which could be more expensive or of limited availability. Any substantial, unexpected or prolonged changes in the level or cost of liquidity could adversely affect the Company’s business.

Loss of customer deposits could increase the Company’s funding costs The Company relies on bank deposits to be a low-cost and stable source of funding. The Company competes with banks and other financial services companies for deposits, including those that offer on-line channels. Recent increases in

short-term interest rates have resulted in and are expected to continue to result in more intense competition in deposit pricing. If the Company’s competitors raise the interest rates they pay on deposits, the Company’s funding costs may increase, either because the Company raises the interest rates it pays on deposits to avoid losing deposits to competitors or because the Company loses deposits to competitors and must rely on more expensive sources of funding. Higher funding costs reduce the Company’s net interest margin and net interest income. Checking and savings account balances and other forms of customer deposits may decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff. When customers move money out of bank deposits and into other investments, the Company may lose a relatively low-cost source of funds, increasing the Company’s funding costs and reducing the Company’s net interest income.

The Company relies on dividends from its subsidiaries for its liquidity needs, and the payment of those dividends is limited by laws and regulations The Company is a separate and distinct legal entity from USBNA, MUB and the Company’s non-bank subsidiaries. The Company receives a significant portion of its cash from dividends paid by its subsidiaries. These dividends are the principal source of funds to pay dividends on the Company’s stock and interest and principal on its debt. Various federal and state laws and regulations limit the amount of dividends that USBNA, MUB and certain of the Company’s non-bank subsidiaries may pay to the Company without regulatory approval. Also, the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to prior claims of the subsidiary’s creditors, except to the extent that any of the Company’s claims as a creditor of that subsidiary may be recognized. Refer to “Supervision and Regulation” in the Company’s Annual Report on Form 10-K for additional information regarding limitations on the amount of dividends USBNA and MUB may pay.

Competitive and Strategic Risk

The financial services industry is highly competitive, and competitive pressures could intensify and adversely affect the Company’s financial results The Company operates in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological changes, as well as continued industry consolidation, which may increase in connection with current economic and market conditions. This consolidation may produce larger, better-capitalized and more geographically diverse companies that are capable of offering a wider array of financial products and services at more competitive prices. The Company competes with other commercial banks, savings and loan associations, mutual savings banks, finance companies, mortgage banking

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companies, credit unions, investment companies, credit card companies, and a variety of other financial services and advisory companies. Legislative or regulatory changes also could lead to increased competition in the financial services sector. For example, the Economic Growth Act and the Tailoring Rules have reduced the regulatory burden of large bank holding companies, including the Company and some of its competitors, and raised the asset thresholds at which more onerous requirements apply, which could cause certain large bank holding companies with less than $250 billion in total consolidated assets, which were previously subject to more stringent enhanced prudential standards, to become more competitive or to pursue expansion more aggressively.

The adoption and rapid growth of new technologies, including cryptocurrencies and blockchain and other distributed ledger technologies, have required the Company to invest resources to adapt its systems, products and services, and it expects to continue to make similar investments. In addition, technology has lowered barriers to entry and made it possible for non-banks to offer products and services, such as loans and payment services, that traditionally were banking products, and made it possible for technology companies to compete with financial institutions in providing electronic, internet-based, and mobile phone–based financial solutions. Competition with non-banks, including technology companies, to provide financial products and services is intensifying. In particular, the activity of financial technology companies (“fintechs”) has grown significantly over recent years and is expected to continue to grow. Fintechs have and may continue to offer bank or bank-like products. For example, a number of fintechs have applied for bank or industrial loan charters, which, in some cases, have been granted. In addition, other fintechs have partnered with existing banks to allow them to offer deposit products or payment services to their customers. Many of these companies, including the Company’s competitors, have fewer regulatory constraints, and some have lower cost structures, in part due to lack of physical structures. Also, the potential need to adapt to industry changes in information technology systems, on which the Company and financial services industry are highly dependent, could present operational issues and require capital spending. The Company’s ability to compete successfully depends on a number of factors, including, among others, its ability to develop and execute strategic plans and initiatives; developing, maintaining and building long-term customer relationships based on quality service, competitive prices, high ethical standards and safe, sound assets; and industry and general economic trends. A failure to compete effectively could contribute to downward price pressure on the Company’s products or services or a loss of market share.

The Company may need to lower prices on existing products and services and develop and introduce new products and services to maintain market share The Company’s success depends, in part, on its ability to adapt its products and services to evolving industry standards. There is increasing pressure to provide products and services at lower

prices. Lower prices can reduce the Company’s net interest margin and revenues from its fee-based products and services. In addition, the adoption of new technologies or further developments in current technologies require the Company to make substantial expenditures to modify or adapt its existing products and services. Also, these and other capital investments in the Company’s businesses may not produce expected growth in earnings anticipated at the time of the expenditure. The Company might not be successful in developing or introducing new products and services, adapting to changing customer preferences and spending and saving habits (which may be altered significantly and with little warning), achieving market acceptance of its products and services, or sufficiently developing and maintaining loyal customer relationships.

The Company may not be able to complete future acquisitions, and completed acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated, may result in unforeseen integration difficulties, and may dilute existing shareholders’ interests The Company regularly explores opportunities to acquire financial services businesses or assets and may also consider opportunities to acquire other banks or financial institutions. The Company cannot predict the number, size or timing of acquisitions it might pursue.

The Company must generally receive federal regulatory approval before it can acquire a bank or bank holding company. The Company’s ability to pursue or complete an attractive acquisition could be negatively impacted by regulatory delay or other regulatory issues. The Company cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. For example, the Company may be required to sell branches as a condition to receiving regulatory approval for bank acquisitions. If the Company commits certain regulatory violations, including those that result in a downgrade in certain of the Company’s bank regulatory ratings, governmental authorities could, as a consequence, preclude it from pursuing future acquisitions for a period of time.

There can be no assurance that acquisitions the Company completes, including its recently completed acquisition of MUB, will have the anticipated positive results, including results related to expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits. The Company may incur substantial expenses related to acquisitions and integration of acquired companies. Successful integration of an acquired company, including MUB, may present challenges due to differences in systems, operations, policies and procedures, management teams and corporate cultures and may be more costly or difficult to complete than anticipated or have unanticipated adverse results. Integration efforts could divert management’s attention and resources, which could adversely affect the Company’s operations or results. Integration efforts could result in higher than expected customer loss, deposit attrition, loss of key employees, issues with systems and technology, disruption of the Company’s businesses or the

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businesses of the acquired company, or otherwise adversely affect the Company’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition. Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected. In addition, future acquisitions may also expose the Company to increased legal or regulatory risks. Finally, future acquisitions could be material to the Company, and it may issue additional shares of stock to pay for those acquisitions, which would dilute current shareholders’ ownership interests.

Accounting and Tax Risk

The Company’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future The Company’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations. The Company’s management must exercise judgment in selecting and applying many of these accounting policies and methods, so they comply with generally accepted accounting principles and reflect management’s judgment regarding the most appropriate manner to report the Company’s financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in the Company’s reporting materially different results than would have been reported under a different alternative.

Certain accounting policies are critical to presenting the Company’s financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include the allowance for credit losses, estimations of fair value, the valuation of MSRs, and income taxes. Because of the uncertainty of estimates involved in these matters, the Company may be required to do one or more of the following: significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the reserve provided, recognize significant losses on the remeasurement of certain asset and liability balances, or significantly increase its accrued taxes liability. For more information, refer to “Critical Accounting Policies” in this Annual Report.

The Company’s investments in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on the Company’s financial results The Company invests in certain tax-advantaged projects promoting affordable housing, community development and renewable energy resources. The Company’s investments in these projects are designed to generate a return primarily through

the realization of federal and state income tax credits, and other tax benefits, over specified time periods. The Company is subject to the risk that previously recorded tax credits, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, will fail to meet certain government compliance requirements and will not be able to be realized. The possible inability to realize these tax credit and other tax benefits can have a negative impact on the Company’s financial results. The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside of the Company’s control, including changes in the applicable tax code and the ability of the projects to be completed.

General Risk Factors

The Company’s framework for managing risks may not be effective in mitigating risk and loss to the Company The Company’s risk management framework seeks to mitigate risk and loss. The Company has established processes and procedures intended to identify, measure, monitor, report, and analyze the types of risk to which it is subject, including liquidity risk, credit risk, market risk, interest rate risk, compliance risk, strategic risk, reputation risk, and operational risk related to its employees, systems and vendors, among others. However, as with any risk management framework, there are inherent limitations to the Company’s risk management strategies as there may exist, or develop in the future, risks that it has not appropriately anticipated or identified. In addition, the Company relies on quantitative models to measure certain risks and to estimate certain financial values, and these models could fail to predict future events or exposures accurately. The Company must also develop and maintain a culture of risk management among its employees, as well as manage risks associated with third parties, and could fail to do so effectively. If the Company’s risk management framework proves ineffective, the Company could incur litigation and negative regulatory consequences, and suffer unexpected losses that could affect its financial condition or results of operations.

The Company’s business could suffer if it fails to attract and retain skilled employees The Company’s success depends, in large part, on its ability to attract and retain key employees. Competition for the best people in most activities the Company engages in can be intense.

The impact of the COVID-19 pandemic had a significant impact on the longer-term labor and employment market, including heightened pressures on employers to increase compensation and provide work-from-home, hybrid and other flexible working arrangements. Employees have shifted their focus to expectations that extend beyond compensation, including better work-life balance, improved advancement opportunities and improved training, and many businesses, including the Company, have had to adapt quickly to the changing environment. The Company’s ability to compete successfully for talent has been and may continue to be affected

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by its ability to adapt quickly to such shifts in employee focus, and there is no assurance that these developments will not cause increased turnover or impede the Company’s ability to retain and attract the highest caliber employees.

A downgrade in the Company’s credit ratings could have a material adverse effect on its liquidity, funding costs and access to capital markets The Company’s credit ratings, which are subject to credit agencies’ ongoing review of a number of factors, including factors not within the Company’s control such as the threat or occurrence of a U.S. sovereign default, are important to the Company’s liquidity. A reduction in one or more of the Company’s credit ratings could adversely affect its liquidity, increase its funding costs or limit its access to the capital markets. Further, a downgrade could decrease the number of investors and counterparties willing or able, contractually or otherwise, to do business with or lend to the Company, thereby

adversely affecting the Company’s competitive position. There can be no assurance that the Company will maintain its current ratings and outlooks.

Changes in accounting standards could materially impact the Company’s financial statements From time to time, the Financial Accounting Standards Board and the United States Securities and Exchange Commission change the financial accounting and reporting standards that govern the preparation of the Company’s financial statements. These changes can be hard to predict and can materially impact how the Company records and reports its financial condition and results of operations. The Company could be required to apply a new or revised standard retroactively or apply an existing standard differently, on a retroactive basis, in each case potentially resulting in the Company restating prior period financial statements.

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Managing Committee

Andrew Cecere

Mr. Cecere is Chairman, President and Chief Executive Officer of U.S. Bancorp. Mr. Cecere, 62, has served as President of U.S. Bancorp since January 2016, Chief Executive Officer since April 2017 and Chairman since April 2018. He also served as Vice Chairman and Chief Operating Officer from January 2015 to January 2016 and was U.S. Bancorp’s Vice Chairman and Chief Financial Officer from February 2007 until January 2015. Until that time, he served as Vice Chairman, Wealth Management and Investment Services, of U.S. Bancorp since the merger of Firstar Corporation and U.S. Bancorp in February 2001. Previously, he had served as an executive officer of the former U.S. Bancorp, including as Chief Financial Officer from 2000 through 2001.

Souheil S. Badran

Mr. Badran is Senior Executive Vice President and Chief Operations Officer of U.S. Bancorp. Mr. Badran, 58, has served in this position since joining U.S. Bancorp in December 2022. From January 2019 until November 2022, he served as Executive Vice President and Chief Operating Officer at Northwestern Mutual, having also served as Chief Innovation Officer from January 2019 until September 2019. Previously Mr. Badran served as President of Alibaba’s Alipay business in the Americas from August 2016 until August 2018. From 2015 to 2016, Mr. Badran served as CEO at Edo Interactive, and from 2011 to 2015, he served as Senior Vice President and General Manager at Digital River.

Elcio R.T. Barcelos

Mr. Barcelos is Senior Executive Vice President and Chief Human Resources Officer of U.S. Bancorp. Mr. Barcelos, 52, has served in this position since joining U.S. Bancorp in September 2020. From April 2018 until August 2020, he served as Senior Vice President and Chief People and Places Officer of the Federal National Mortgage Association (Fannie Mae), having served as Senior Vice President, Human Resources of the DXC Technology Company from April 2017 to March 2018. Previously, Mr. Barcelos served as Senior Vice President and Head of Human Resources for the Enterprise Services business of Hewlett Packard Enterprise Company from June 2015 to April 2017, and in other human resources senior leadership positions at Hewlett-Packard Company and Hewlett Packard Enterprise Company from July 2009 to June 2015. He previously served in various leadership roles at Wells Fargo and Bank of America.

James L. Chosy

Mr. Chosy is Senior Executive Vice President and General Counsel of U.S. Bancorp. Mr. Chosy, 59, has served in this position since March 2013. He also served as Corporate

Secretary of U.S. Bancorp from March 2013 until April 2016. From 2001 to 2013, he served as the General Counsel and Secretary of Piper Jaffray Companies. From 1995 to 2001, Mr. Chosy was Vice President and Associate General Counsel of U.S. Bancorp, having also served as Assistant Secretary of U.S. Bancorp from 1995 through 2000 and as Secretary from 2000 until 2001.

Gregory G. Cunningham

Mr. Cunningham is Senior Executive Vice President and Chief Diversity Officer of U.S. Bancorp. Mr. Cunningham, 59, has served in this position since July 2020. From July 2019 until July 2020, he served as Senior Vice President and Chief Diversity Officer of U.S. Bancorp, having served as Vice President of Customer Engagement of U.S. Bancorp from October 2015, when he joined U.S. Bancorp, until July 2019. Previously, Mr. Cunningham served in various roles in the marketing department of Target Corporation from January 1998 until March 2015.

Venkatachari Dilip

Mr. Dilip is Executive Vice President and Global Chief Information and Technology Officer of U.S. Bancorp. Mr. Dilip, 63, has served in this position since September 2018, when he joined U.S. Bancorp. From May 2014 until July 2017, he served as Vice President at McKinsey Digital where he helped banks accelerate their digital transformation. From April 2009 to September 2013, he served as CEO at Compass Labs leading an innovative marketing analytics company. From March 2006 until April 2008, he served as Director of Products at Google where he led product teams for mobile ads and Google Checkout. From March 2004 until March 2006, he served as Vice President of PayPal/eBay and on the Board of PayPal Europe, where he was responsible for Payments Services, Risk and Fraud Management. Previously, Mr. Dilip co-founded and led startup companies CashEdge and CommerceSoft from 1996 until 2003.

Terrance R. Dolan

Mr. Dolan is Vice Chair and Chief Financial Officer of U.S. Bancorp. Mr. Dolan, 61, has served in this position since August 2016. From July 2010 to July 2016, he served as Vice Chair, Wealth Management and Investment Services, of U.S. Bancorp. From September 1998 to July 2010, Mr. Dolan served as U.S. Bancorp’s Controller. He additionally held the title of Executive Vice President from January 2002 until June 2010 and Senior Vice President from September 1998 until January 2002.

Gunjan Kedia

Ms. Kedia is Vice Chair, Wealth Management and Investment Services, of U.S. Bancorp. Ms. Kedia, 52, has served in this position since joining U.S. Bancorp in December 2016. From October 2008 until May 2016, she served as Executive Vice President of State Street Corporation where she led the core investment servicing business in North and South America and

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served as a member of State Street’s management committee, its senior most strategy and policy committee. Previously, Ms. Kedia was an Executive Vice President of global product management at Bank of New York Mellon from 2004 to 2008 and a Partner and associate at McKinsey from 1996 to 2004.

James B. Kelligrew

Mr. Kelligrew is Vice Chair, Corporate and Commercial Banking, of U.S. Bancorp. Mr. Kelligrew, 57, has served in this position since January 2016. From March 2014 until December 2015, he served as Executive Vice President, Fixed Income and Capital Markets, of U.S. Bancorp, having served as Executive Vice President, Credit Fixed Income, of U.S. Bancorp from May 2009 to March 2014. Prior to that time, he held various leadership positions with Wells Fargo Securities from 2003 to 2009.

Shailesh M. Kotwal

Mr. Kotwal is Vice Chair, Payment Services, of U.S. Bancorp. Mr. Kotwal, 58, has served in this position since joining U.S. Bancorp in March 2015. From July 2008 until May 2014, he served as Executive Vice President of TD Bank Group with responsibility for retail banking products and services and as Chair of its enterprise payments council. From 2006 until 2008, he served as President, International, of eFunds Corporation. Previously, Mr. Kotwal served in various leadership roles at American Express Company from 1989 until 2006, including responsibility for operations in North and South America, Europe and the Asia-Pacific regions.

Katherine B. Quinn

Ms. Quinn is Vice Chair and Chief Administrative Officer of U.S. Bancorp. Ms. Quinn, 58, has served in this position since April 2017. From September 2013 to April 2017, she served as Executive Vice President and Chief Strategy and Reputation Officer of U.S. Bancorp and has served on U.S. Bancorp’s Managing Committee since January 2015. From September 2010 until January 2013, she served as Chief Marketing Officer of WellPoint, Inc. (now known as Anthem, Inc.), having served as Head of Corporate Marketing of WellPoint from July 2005 until September 2010.

Jodi L. Richard

Ms. Richard is Vice Chair and Chief Risk Officer of U.S. Bancorp. Ms. Richard, 54, has served in this position since October 2018. She served as Executive Vice President and Chief Operational Risk Officer of U.S. Bancorp from January 2018 until October 2018, having served as Senior Vice President and Chief Operational Risk Officer from 2014 until January 2018. Prior to that time, Ms. Richard held various senior leadership roles at HSBC from 2003 until 2014, including Executive Vice President and Head of Operational Risk and Internal Control at HSBC North

America from 2008 to 2014. Ms. Richard started her career at the Office of the Comptroller of the Currency in 1990 as a national bank examiner.

Mark G. Runkel

Mr. Runkel is Senior Executive Vice President and Chief Transformation Officer of U.S. Bancorp. Mr. Runkel, 46, has served in this position since August 2021. From December 2013 to August 2021, he served as Senior Executive Vice President and Chief Credit Officer. From February 2011 until December 2013, he served as Senior Vice President and Credit Risk Group Manager of U.S. Bancorp Retail and Payment Services Credit Risk Management, having served as Senior Vice President and Risk Manager of U.S. Bancorp Retail and Small Business Credit Risk Management from June 2009 until February 2011. From March 2005 until May 2009, he served as Vice President and Risk Manager of U.S. Bancorp.

Dominic V. Venturo

Mr. Venturo is Senior Executive Vice President and Chief Digital Officer of U.S. Bancorp. Mr. Venturo, 56, has served in this position since July 2020. From January 2015 until July 2020, he served as Executive Vice President and Chief Innovation Officer of U.S. Bancorp, having served as Senior Vice President and Chief Innovation Officer of U.S. Bancorp Payment Services from January 2010 until January 2015. From January 2007 to December 2009, Mr. Venturo served as Senior Vice President and Chief Innovation Officer of U.S. Bancorp Retail Payment Solutions. Prior to that time, he served as Senior Vice President and held product management positions in various U.S. Bancorp Payment Services business lines from December 1998 to December 2006.

Jeffry H. von Gillern

Mr. von Gillern is Vice Chair, Technology and Operations Services, of U.S. Bancorp. Mr. von Gillern, 57, has served in this position since July 2010. From April 2001, when he joined U.S. Bancorp, until July 2010, Mr. von Gillern served as Executive Vice President of U.S. Bancorp, additionally serving as Chief Information Officer from July 2007 until July 2010.

Timothy A. Welsh

Mr. Welsh is Vice Chair, Consumer and Business Banking, of U.S. Bancorp. Mr. Welsh, 57, has served in this position since March 2019. Prior to that, he served as Vice Chair, Consumer Banking Sales and Support since joining U.S. Bancorp in July 2017. From July 2006 until June 2017, he served as a Senior Partner at McKinsey & Company where he specialized in financial services and the consumer experience. Previously, Mr. Welsh served as a Partner at McKinsey from 1999 to 2006.

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Directors

Andrew Cecere^1,3,7

Chairman, President and Chief Executive Officer

U.S. Bancorp

Warner L. Baxter^1,2,4

Executive Chairman and Former Chairman,

President and Chief Executive Officer

Ameren Corporation

(Energy)

Dorothy J. Bridges^1,6,7

Chief Executive Officer

Metropolitan Economic Development Association (Meda)

(Economic Development)

Elizabeth L. Buse^2,3

Former Chief Executive Officer

Monitise plc

(Financial services)

Alan B. Colberg^2,6

Retired President and Chief Executive Officer

Assurant, Inc.

(Financial services and specialty insurance)

Kimberly N. Ellison-Taylor^2,6

Founder and Chief Executive Officer

KET Solutions, LLC

(Technology)

Kimberly J. Harris^1,4,5

Retired President and Chief Executive Officer

Puget Energy, Inc.

(Energy)

Roland A. Hernandez^1,3,5

Founding Principal and Chief Executive Officer

Hernandez Media Ventures

(Media)

Olivia F. Kirtley^1,4,5

Business Consultant

(Consulting)

Richard P. McKenney^1,5,7

President and Chief Executive Officer

Unum Group

(Financial protection benefits)

Yusuf I. Mehdi^6,7

Corporate Vice President

Microsoft Corporation

(Technology)

Loretta E. Reynolds^3,7

Founder and Chief Executive Officer

LEReynolds Group, LLC

(Information Technology)

John P. Wiehoff^6,7

Retired Chairman and Chief Executive Officer

C.H. Robinson Worldwide, Inc.

(Transportation and logistics services)

Scott W. Wine^1,2,4

Chief Executive Officer

CNH Industrial N.V.

(Agricultural machinery)

1. Executive Committee

2. Audit Committee

3. Capital Planning Committee

4. Compensation and Human Resources Committee

5. Governance Committee

6. Public Responsibility Committee

7. Risk Management Committee

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