UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended June 30, 2017March 31, 2018

OR

For the transition period from (not applicable)

Commission file number 1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices, including zip code)

651-466-3000

(Registrant’s telephone number, including area code)

(not applicable)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES ☑    NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☑    NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐    NO ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Table of Contents andForm 10-Q Cross Reference Index

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.

This quarterly report onForm 10-Q contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of U.S. Bancorp. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. A reversal or slowing of the current economic recovery or another severe contraction could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Stress in the commercial real estate markets, as well as a downturn in the residential real estate markets could cause credit losses and deterioration in asset values. In addition, changes to statutes, regulations, or regulatory policies or practices could affect U.S. Bancorp in substantial and unpredictable ways. U.S. Bancorp’s results could also be adversely affected by deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio;securities; legal and regulatory developments; litigation; increased competition from both banks andnon-banks; changes in customer behavior and preferences; breaches in data security; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputational risk.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to U.S. Bancorp’s Annual Report on Form10-K for the year ended December 31, 2016,2017, on file with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Corporate Risk Profile” and “Risk Factors” contained in Exhibit 13, and all subsequent filings with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. However, factors other than these also could adversely affect U.S. Bancorp’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. 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.

Management’s Discussion and Analysis

OVERVIEW

Earnings Summary U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $1.5$1.7 billion for the secondfirst quarter of 2017,2018, or $0.85$0.96 per diluted common share, compared with $1.5 billion, or $0.83$0.82 per diluted common share, for the secondfirst quarter of 2016.2017. Return on average assets and return on average common equity were 1.351.50 percent and 13.414.9 percent, respectively, for the secondfirst quarter of 2017,2018, compared with 1.431.35 percent and 13.813.3 percent, respectively, for the secondfirst quarter of 2016.2017.

Total net revenue for the secondfirst quarter of 20172018 was $39$180 million (0.7(3.4 percent) higher than the secondfirst quarter of 2016,2017, reflecting a 6.06.3 percent increase in net interest income (5.9(5.5 percent on a taxable-equivalent basis), partially offset by and a 5.20.6 percent decreaseincrease in noninterest income. The increase in net interest income from the secondfirst quarter of 20162017 was mainly a result of loan growth and the impact of higherrising interest rates.rates and loan growth. The noninterest income decreaseincrease was primarilyprincipally due to equity investment income recognized in the second quarter of 2016 related to the sale of the Company’s membership in Visa Europe Limited (“Visa Europe”) to Visa Inc., partially offset by higher payment services revenue, trust and investment management fees and treasury management feesdeposit service charges, partially offset by decreases in the second quarter of 2017.commercial products revenue and mortgage banking revenue, in addition to lower equity investment income and securities gains compared with a year ago.

Noninterest expense in the secondfirst quarter of 20172018 was $31$146 million (1.0(5.0 percent) higher than the secondfirst quarter of 2016, reflecting2017, primarily due to increased compensation expense related to hiring to support business growth and compliance programs, merit increases, variable compensation related to revenue growth, increased expense from a change to a shorter vesting period for new stock-based compensation grants, and higher variable compensation, as well as a Federal Deposit Insurance Corporation (“FDIC”) insurance surcharge which began in late 2016. The increase from the second quarter of 2016 wasemployee benefits expense, partially offset by an increase in reserves related to legallower professional services expense driven by lower consulting costs for risk and regulatory matterscompliance programs, and a charitable contribution both recognized in the second quarter of 2016.other expenses.

The provision for credit losses for the secondfirst quarter of 20172018 of $350$341 million was $23$4 million (7.0(1.2 percent) higherlower than the secondfirst quarter of 2016.2017. Net charge-offs in the secondfirst quarter of 20172018 were $340$341 million, compared with $317$335 million in the secondfirst quarter of 2016.2017. 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.

STATEMENT OF INCOME ANALYSIS

Net Interest Income Net interest income, attributable to U.S. Bancorp foron a taxable-equivalent basis, was $3.2 billion in the first six monthsquarter of 2017 was $3.0 billion, or $1.66 per diluted common share, compared with $2.9 billion, or $1.59 per diluted common share, for2018, representing an increase of $167 million (5.5 percent) over the first six monthsquarter of 2016. Return on average2017. The increase was principally driven by the impact of rising interest rates and loan growth, partially offset by changes in deposit and funding mix and the impact of the Tax Cuts and Jobs Act (“tax reform”) enacted by Congress in late 2017 which reduced the taxable-equivalent adjustment benefit related to tax exempt assets. Average earning assets and return on average common equity were 1.35 percent and 13.4 percent, respectively, for the first six months of 2017, compared with 1.38 percent and 13.4 percent, respectively, for the first six months of 2016.

Total net revenue for the first six months of 2017 was $326 million$12.6 billion (3.1 percent) higher than the first six monthsquarter of 2016,2017, reflecting a 5.0 percent increaseincreases of $6.2 billion (2.3 percent) in loans, $2.7 billion (2.5 percent) in investment securities and $4.1 billion (34.9 percent) in other earning assets. The net interest income (4.8 percentmargin, on a taxable-equivalent basis) and a 1.0basis, in the first quarter of 2018 was 3.13 percent, increasecompared with 3.06 percent in noninterest income.the first quarter of 2017. The increase in the net interest incomemargin from a year agothe first quarter of 2017 was mainly a result ofprimarily due to higher interest rates, partially offset by changes in loan growth andmix, the impact of tax reform, higher funding costs and higher cash balances. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest rates.income.

Average total loans were $6.2 billion (2.3 percent) higher in the first quarter of 2018 than the first quarter of 2017, due to growth in commercial loans (4.0 percent), other retail loans (6.1 percent), residential mortgages (3.9 percent) and credit card loans (2.1 percent). The noninterest income increase wasincreases were driven by higher payment services revenue, trustdemand for loans from new and investment management fees and treasury management fees,existing customers. These increases were partially offset by lower equitya decrease in commercial real estate loans (6.5 percent) due to disciplined underwriting and customers paying down balances, as well as a decrease in loans covered by loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”) (18.3 percent), arun-off portfolio.

Average investment income, reflecting the impact of the second quarter 2016 Visa Europe sale.

Noninterest expensesecurities in the first six monthsquarter of 2017 was $226 million (3.92018 were $2.7 billion (2.5 percent) higher than the first six monthsquarter of 2016,2017, primarily due to purchases of U.S. Treasury and U.S. government mortgage-backed securities, net of prepayments and maturities, in support of liquidity management.

Average total deposits for the resultfirst quarter of increased compensation expense2018 were $6.1 billion (1.9 percent) higher than the first quarter of 2017. Average time deposits were $6.3 billion (20.7 percent) higher year-over-year. The increase was largely related to hiringthose deposits managed as an alternative to support businessother funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics. Average total savings deposits were $1.1 billion (0.5 percent) higher, driven by growth in Consumer and compliance programs, merit increases and higher variable compensation, as well as the FDIC insurance surcharge,Business Banking balances, partially offset by a decrease in Corporate and Commercial Banking balances. Average noninterest-bearing deposits decreased $1.3 billion (1.6 percent) from the increaseprior year, primarily due to a decrease in reserves related to legalCorporate and regulatory mattersCommercial Banking balances, partially offset by increases in Consumer and charitable contribution recognized in the second quarter of 2016.Business Banking, and Wealth Management and Investment Services balances.

Provision for Credit LossesThe provision for credit losses for the first six monthsquarter of 20172018 was $341 million, a decrease of $695$4 million was $38 million (5.8(1.2 percent) higher thanfrom the first six monthsquarter of 2016.2017. Net charge-offs increased $6 million (1.8 percent) in the first six monthsquarter of 2018, compared with the first quarter of 2017, were $675 million, compared with $632 million in the first six months of 2016.primarily due to higher credit card loan net charge-offs, partially offset by lower commercial loan net charge-offs driven by higher recoveries. 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.

STATEMENT OF INCOME ANALYSIS

Net InterestNoninterest Income Net interest Noninterest income on a taxable-equivalent basis, was $3.1 billion in the second quarter and $6.1$2.3 billion in the first six months of 2017, representing increases of $172 million (5.9 percent) and $279 million (4.8 percent), respectively, over the same periods of 2016. The increases were principally driven by loan growth and the impact of higher interest rates. Average earning assets were $18.5 billion (4.8 percent) higher in the second quarter and $19.8 billion (5.2 percent) higher in the first six months of 2017, compared with the same periods of 2016, reflecting increases in loans and investment securities and higher average cash balances to meet certain regulatory liquidity expectations. The net interest margin, on a taxable-equivalent basis, in the second quarter of 2017 was 3.04 percent,2018, representing an increase of $13 million (0.6 percent), compared with 3.02 percent in the second quarter of 2016. The increase in the net interest margin from the second quarter of 2016 was due to rising interest rates partially offset by loan portfolio mix, lower reinvestment rates on maturing securities through the first quarter of 2017 and higher cash balances. The net interest margin, on a taxable-equivalent basis, in the first six months of 2017 was 3.04 percent, unchanged from the same period of the prior year. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” tables for further information on net interest income.

Average investment securities in the second quarter and first six months of 2017 were $4.2 billion (4.0 percent) and $4.5 billion (4.2 percent) higher, respectively, than the same periods of 2016, primarily due to purchases of U.S. Treasury and U.S. government agency-backed securities, net of prepayments and maturities, in support of liquidity management.

Average total loans in the second quarter and first six months of 2017 were $8.9 billion (3.4 percent) and $9.9 billion (3.8 percent) higher, respectively, than the same periods of 2016, due to growth in commercial loans, residential mortgages, other retail loans and credit card loans. The increases were driven by higher demand for loans from new and existing customers. These increases were partially offset by a decline in loans covered by loss sharing agreements with the FDIC, a run-off portfolio. In addition, average commercial real estate loans decreased in the second quarter of 2017, compared with the same period of the prior year, primarily the result of customers paying down balances.

Average total deposits for the second quarter and first six months of 2017 were $23.8 billion (7.7 percent) and $28.2 billion (9.3 percent) higher, respectively, than the same periods of 2016. Average noninterest-bearing deposits for the second quarter and first six months of 2017 increased $3.5 billion (4.5 percent) and $2.9 billion (3.6 percent), respectively, over the same periods of 2016, while average total savings deposits for the second quarter and first six months of 2017 increased $23.6 billion (12.2 percent) and $28.5 billion (15.1 percent), respectively, over the same periods of 2016. The increases in noninterest-bearing and total savings deposit balances were the result of growth across all business lines. Average time deposits for the second quarter and first six months of 2017 were $3.3 billion (9.8 percent) and $3.2 billion (9.4 percent) lower, respectively, than the same periods of 2016. The decreases were largely related to those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics.

Provision for Credit Losses The provision for credit losses for the second quarter and first six months of 2017 increased $23 million (7.0 percent) and $38 million (5.8 percent), respectively, over the same periods of 2016. The provision for credit losses was $10 million higher than net charge-offs in the second quarter and $20 million higher than net-charge-offs in the first six months of 2017. The provision for credit losses was higher than net charge-offs by $10 million and $25 million in the second quarter and first six months of 2016, respectively. The increase in the allowance for credit losses during the second quarter and first six months of 2017 was primarily driven by loan portfolio growth. Net charge-offs increased $23 million (7.3 percent) and $43 million (6.8 percent) in the second quarter and first six months of 2017, respectively, compared with the same periods of the priorfrom a year primarily due to higher credit card and other retail loan net charge-offs, partially offset by lower net charge-offs related to residential mortgages and commercial and commercial real estate loans. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income Noninterest income was $2.4 billion in the second quarter and $4.7 billion in the first six months of 2017, representing a decrease of $133 million (5.2 percent) and an increase of $47 million (1.0 percent), respectively, compared with the same periods of 2016. The decrease in the second quarter of 2017, compared with the second quarter of 2016, was primarily due to decreases in other revenue, commercial products revenue and mortgage banking revenue, partially offset by increasesago reflected strong growth in payment services revenue, trust and investment management fees, and treasury management fees.deposit service charges, partially offset by lower commercial products revenue and mortgage banking revenue, reflecting industry trends in these revenue categories. The increase in the first six months of 2017,noninterest income was further offset by lower equity investment income, included in other income, and securities gains compared with the same period of the priora year was driven by increases in payment services revenue, trust and investment management fees and treasury management fees, as well as higher gains on sales of investment securities, partially offset by decreases in other revenue and commercial products revenue.ago. Payment services revenue was higher principallyincreased 6.5 percent due to an increase instronger credit and debit card revenue driven byof $25 million (8.4 percent), an increase in corporate payment products revenue of $17 million (12.4 percent), and improving merchant processing services revenue due to higher sales volumes. Merchant processing services revenue increased 1.0 percent in the second quarter and 1.2 percent in the first six months of 2017, compared with the same periods of 2016. Adjusted for the impact of foreign currency rate changes, the year-over-year increases would have both been approximately 2.7 percent. Trust and investment management fees were higher primarilyincreased $30 million (8.2 percent) due to business growth, net asset inflows and favorable market conditions and account growth, and treasury management feesconditions. Deposit service charges increased $10 million (5.8 percent) primarily due to higher transaction volume.volumes and account growth. Commercial products revenue decreased primarily$27 million (10.9 percent) mainly due to significant market activity in the second quarter of 2016,lower corporate bond underwriting fees and syndication fees, while mortgage banking revenue declined due to lower origination and sales volume from home refinancing. Refinancing activities were significantly higher in the second quarter of 2016 due to lower long-term interest rates. Other revenue decreased $23 million (11.1 percent) primarily due to lower equity investment income, reflecting the impact of the second quarter 2016 Visa Europe sale.margin on mortgage loan sales.

Noninterest Expense Noninterest expense was $3.0 billion in the second quarter and $6.0$3.1 billion in the first six monthsquarter of 2017,2018, representing increasesan increase of $31$146 million (1.0(5.0 percent) and $226 million (3.9 percent), respectively, over the same periodsfirst quarter of 2016.2017. The increasesincrease from a year ago werewas primarily due to higher compensationpersonnel expense, net occupancy and equipment costs, and technology and communications expense, partially offset by lower marketing and business developmentother noninterest expense and otherprofessional services expense. Compensation expense increased $132 million (9.5 percent), principally due to the impact of hiring to support business growth and compliance programs, merit increases, and higher variable compensation. Marketingcompensation related to business production, and business development expense decreased primarily due to the impact of the charitable contributionchanges in the second quarter of 2016. Other expense was lower, primarily due to the impact of the increase in reservesvesting provisions related to legalstock-based compensation programs. Employee benefits expense increased $29 million (9.6 percent), primarily driven by increased medical costs and regulatory matters recorded in the second quarter of 2016, partially offset by the FDIC insurance surcharge which began in late 2016.

expense increased $18 million (7.3 percent) due to higher rent and maintenance costs, while technology and communications expense increased $18 million (8.3 percent) primarily due to technology investment initiatives. Other noninterest expense decreased $39 million (8.8 percent) due to lower mortgage servicing-related costs and lower pension-related costs as a result of contributions to the Company’s pension plans in 2017. Professional services expense decreased $13 million (13.5 percent), primarily due to fewer consulting services as compliance programs near maturity.

Income Tax Expense The provision for income taxes was $551$362 million (an effective rate of 26.7 percent) for the second quarter and $1.1 billion (an effective rate of 25.917.7 percent) for the first six monthsquarter of 2017,2018, compared with $542$499 million (an effective rate of 26.1 percent) and $1.0 billion (an effective rate of 26.325.1 percent) for the same periodsfirst quarter of 2016.2017. The first quarter of 2018 tax rate reflected tax reform, a favorable settlement of tax matters, and the tax benefit of restricted stock vesting and option exercises. For further information on income taxes, refer to Note 11 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans The Company’s loan portfolio was $277.3$277.9 billion at June 30, 2017,March 31, 2018, compared with $273.2$280.4 billion at December 31, 2016, an increase2017, a decrease of $4.1$2.5 billion (1.5(0.9 percent). The increasedecrease was driven primarily by higher commercial loans, residential mortgages andlower other retail loans, credit card loans, commercial real estate loans and covered loans, partially offset by lowerhigher residential mortgages and commercial real estate loans, credit card loans and covered loans.

CommercialOther retail loans increased $3.5decreased $2.0 billion (3.7(3.5 percent) at June 30, 2017,March 31, 2018, compared with December 31, 2016,2017, reflecting higher demandthe transfer of the Company’s federally guaranteed student loans from newthe loan portfolio to loans held for sale at the end of the first quarter of 2018, along with decreases in home equity loans, auto loans and existing customers.revolving credit balances. Partially offsetting these decreases were increases in installment and retail leasing loans.

Credit card loans decreased $1.3 billion (5.8 percent) at March 31, 2018, compared with December 31, 2017, primarily the result of customers seasonally paying down balances.

Commercial real estate loans decreased $323 million (0.8 percent) at March 31, 2018, compared with December 31, 2017, primarily the result of disciplined underwriting and customers paying down balances.

Residential mortgages held in the loan portfolio increased $1.5 billion (2.7$694 million (1.2 percent) at June 30, 2017,March 31, 2018, compared with December 31, 2016,2017, as origination activity more than offset the effect of customers paying down balances in the first six monthsquarter of 2017.2018. 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.

Other retailCommercial loans increased $1.6 billion (2.9$536 million (0.5 percent) at June 30, 2017,March 31, 2018, compared with December 31, 2016, primarily driven by2017, reflecting higher retail leasingdemand from new and installment loans, partially offset by decreases in student loans, home equity loans and revolving credit balances.

Commercial real estate loans decreased $1.2 billion (2.8 percent) at June 30, 2017, compared with December 31, 2016, primarily the result of customers paying down balances.

Credit card loans decreased $888 million (4.1 percent) at June 30, 2017, compared with December 31, 2016, primarily the result of customers paying down balances.existing customers.

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 and other loans to be sold in the secondary market, were $3.7$4.8 billion at June 30, 2017,March 31, 2018, compared with $4.8$3.6 billion at December 31, 2016.2017. The decreaseincrease in loans held for sale was principally due to a lower levelthe transfer of mortgagethe Company’s federally guaranteed student loan closings inbalances to loans held for sale at the secondend of the first quarter of 2017. Almost all of the2018, partially offset by a decrease in residential mortgage loans the Company originates or purchasesheld 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”MLHFS”).

Investment Securities Investment securities totaled $111.1 billion at June 30, 2017, compared with $109.3 billion at December 31, 2016. The $1.8 billion (1.7 percent) increase was primarily due to $1.5 billion of net investment purchases and a $417 million favorable change in net unrealized gains (losses) on available-for-sale investment securities.

balances due to a lower level of mortgage loan closings in the first quarter of 2018.

Almost all of the residential mortgage loans the Company originates or purchases for sale follow guidelines that allow the loans to be sold into existing, highly liquid secondary markets; in particular in government agency transactions and to government-sponsored enterprises (“GSEs”).

Investment Securities Investment securities totaled $111.7 billion at March 31, 2018, compared with $112.5 billion at December 31, 2017. The $762 million (0.7 percent) decrease was primarily due to a $782 million unfavorable change in net unrealized gains (losses) onavailable-for-sale investment securities.

The Company’savailable-for-sale securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a security is deemed to be other-than-temporarily impaired. At June 30, 2017,March 31, 2018, the Company’s net unrealized losses onavailable-for-sale securities were $284 million,$1.4 billion, compared with $701$580 million at December 31, 2016.2017. The favorableunfavorable change in net unrealized gains (losses) was primarily due to increasesdecreases in the fair value of U.S. Treasury, U.S. government agency-backedmortgage-backed and state and political securities as a result of changes in interest rates. Gross unrealized losses onavailable-for-sale securities totaled $625 million$1.6 billion at June 30, 2017,March 31, 2018, compared with $1.0 billion$888 million at December 31, 2016.2017. At June 30, 2017,March 31, 2018, 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 3 and 14 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits Total deposits were $347.3$344.5 billion at June 30, 2017,March 31, 2018, compared with $334.6$347.2 billion at December 31, 2016,2017, the result of increasesdecreases in noninterest-bearing deposits and total savings deposits, andpartially offset by an increase in time deposits. Noninterest-bearing deposits increased $6.9decreased $5.3 billion (8.1(6.1 percent) at June 30, 2017,March 31, 2018, compared with December 31, 2016,2017, primarily due to higher corporate trustlower Wealth Management and Investment Services balances. Money market deposit balances decreased $3.6 billion (3.4 percent) at March 31, 2018, compared with December 31, 2017, primarily due to lower Wealth Management and Investment Services, and Corporate and Commercial Banking balances. Interest checking balances decreased $1.4 billion (1.9 percent) primarily due to lower Wealth Management and Investment Services, and Corporate and Commercial Banking balances, partially offset by lower Wholesale Banking and Commercial Real Estate balances. Interest checking balances increased $2.4 billion (3.6 percent) primarily due to higher Consumer and Small Business Banking and Wholesale Banking and Commercial Real Estate balances, partially offset by lower Wealth Management and Securities Services balances. Savings account balances increased $1.8$1.4 billion (4.3(3.3 percent), primarily due to higher Consumer and Small Business Banking balances. Money market deposit balances decreased $3.6Time deposits increased $6.2 billion (3.3(18.7 percent) at June 30, 2017,March 31, 2018, compared with December 31, 2016, primarily due to lower Wholesale Banking and Commercial Real Estate balances, partially offset by higher Wealth Management and Securities Services balances. Time deposits increased $5.2 billion (17.0 percent) at June 30, 2017, compared with December 31, 2016, driven by an increase in those deposits managed as an alternative to other funding sources such as wholesale borrowing, based largely on relative pricing and liquidity characteristics, partially offset by lower Consumer and Small Business Banking balances resulting from maturities.characteristics.

Borrowings The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $14.4$17.7 billion at June 30, 2017,March 31, 2018, compared with $14.0$16.7 billion at December 31, 2016.2017. The $449 million (3.2$1.1 billion (6.3 percent) increase in short-term borrowings was primarily due to higher other short-term borrowings balances, partially offset by lower commercial paper balances. Long-term debt was $37.8$33.2 billion at June 30, 2017,March 31, 2018, compared with $33.3$32.3 billion at December 31, 2016.2017. The $4.5 billion (13.5$942 million (2.9 percent) increase was primarily due to issuances of $3.9 billion of medium-term notes and $2.6$2.0 billion of bank notes, partially offset by $1.3a $1.0 billion of medium-term note maturities and a $781 million decrease in Federal Home Loan Bank (“FHLB”) advances. Refer to the “Liquidity Risk Management” section for discussion of liquidity management of the Company.

CORPORATE RISK PROFILE

Overview Managing risks is an essential part of successfully operating a financial services company. The Company’s Board of Directors has approved a risk management framework which establishes governance and risk management requirements for all risk-taking activities. This framework includes Company and business line risk appetite statements which set boundaries for the types and amount of risk that may be undertaken in pursuing business objectives and initiatives. The Board of Directors, primarily through its Risk Management Committee, oversees performance relative to the risk management framework, risk appetite statements, and other policy requirements.

The Executive Risk Committee (“ERC”), which is chaired by the Chief Risk Officer and includes the Chief Executive Officer and other members of the executive management team, oversees execution against the risk management framework and risk appetite statements. The ERC focuses on current and emerging risks,

including strategic and reputational risks, by directing timely and comprehensive actions. Senior operating committees have also been established, each responsible for overseeing a specified category of risk.

The Company’s most prominent risk exposures are credit, interest rate, market, liquidity, operational, compliance, strategic, and reputational. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan, investment or derivative contract when it is due. Interest rate risk is the potential reduction of net interest income or market valuations as a result 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 andavailable-for-sale securities, mortgage loans held for sale (“MLHFS”),MLHFS, mortgage servicing rights (“MSRs”) and derivatives that are accounted for on a fair value basis. Liquidity risk is the possible inability to fund obligations or new business at a reasonable cost and in a timely manner. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from 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 of loss arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, internal policies, and procedures, or ethical standards, potentially exposing the Company to fines, civil money penalties, payment of damages and the voiding of contracts. Compliance risk also arises in situations where the laws or rules governing certain Company products or activities of the Company’s customers may be ambiguous or untested. Strategic risk is the risk to earningscurrent or capitalprojected financial condition arising from adverse business decisions, or improperpoor implementation of those decisions.business decisions, or lack of responsiveness to changes in the banking industry and operating environment. Reputational 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, offer new services or continue serving existing relationships. In addition to the risks identified above, other risk factors exist that may impact the Company. Refer to “Risk Factors” in the Company’s Annual Report on Form10-K for the year ended December 31, 2016,2017, 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:

Credit Risk Management The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and

ongoing risk monitoring and review processes for all commercial and consumer credit exposures. In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), collateral values, trends in loan performance and macroeconomic factors, such as changes in unemployment rates, gross domestic product and consumer bankruptcy filings. The Risk Management Committee oversees the Company’s credit risk management process.

In addition, credit quality ratings as defined by the Company are an important part of the Company’s overall credit risk management and evaluation of its allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal risk has been identified. Loans with a special mention or classified rating, including 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 modified or delinquent loan in a first lien position, 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. The Company obtains recent collateral value estimates for the majority of its residential mortgage and home equity and second mortgage portfolios, which allows the Company to compute estimated loan-to-value (“LTV”) ratios reflecting current market conditions. These individual refreshed LTV ratios are considered in the determination of the appropriate allowance for credit losses. However, the underwriting criteria the Company employs consider the relevant income and credit characteristics of the borrower, such that the collateral is not the primary source of repayment. Refer to Note 4 in the Notes to Consolidated Financial Statements for further discussion of the Company’s loan portfolios including internal credit quality ratings. In addition, refer to “Management’s Discussion and Analysis — Credit Risk Management” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2016,2017, for a more detailed discussion on credit risk management processes.

The Company manages its credit risk, in part, through diversification of its loan portfolio andwhich is achieved through limit setting by product type criteria, such as industry, and identification of credit concentrations. As part of its normal business activities, the Company offers a broad array of lending products. The Company categorizes its loan portfolio into three segments, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses. The Company’s three loan portfolio segments are commercial lending, consumer lending and covered loans.

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. 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.

Included within the commercial lending segment are energy loans, which represented 0.9 percent of the Company’s total loans outstanding at June 30, 2017. The

effects of low energy prices beginning in late 2014, have resulted in higher than historical levels of criticized commitments and nonperforming assets at June 30, 2017 and December 31, 2016.

The following table provides a summary of the Company’s energy loans:

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, arun-off portfolio. Home equity or second mortgage loans are junior lienclosed-end accounts fully disbursed at origination. These loans typically are fixed rate loans, secured by residential real estate, with a10- or15-year fixed payment amortization schedule. Home equity lines are revolving accounts giving the borrower the ability to draw and repay balances repeatedly, up to a maximum commitment, and are secured by residential real estate. These include accounts in either a first or junior lien position. Typical terms on home equity lines in the portfolio are variable rates benchmarked to the prime rate, with a10- or15-year draw period during which a minimum payment is equivalent to the monthly interest, followed by a20- or10-year amortization period, respectively. At June 30, 2017,March 31, 2018, substantially all of the Company’s home equity lines were in the draw period. Approximately $1.2$1.4 billion, or 89 percent, of the outstanding home equity line balances at June 30, 2017,March 31, 2018, will enter the amortization period within the next 36 months. Key risk characteristics relevant to consumer lending segment loans primarily relate to the borrowers’ capacity and willingness to repay and include unemployment rates and other economic factors, customer payment history and credit scores, and in some cases, updated LTVloan-to-value (“LTV”) information reflecting current market conditions on real estate based loans. These risk characteristics, among others, 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 covered loan segment represents loans acquired in FDIC-assisted transactions that are covered by loss sharing agreements with the FDIC that greatly reduce the risk of future credit losses to the Company. Key risk characteristics for covered segment loans are consistent with the segment they would otherwise be included in had the loss share coverage not been in place, but consider the indemnification provided by the FDIC.

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

The Company’s consumer lending segment utilizes several distinct business processes and channels to originate consumer credit, including traditional branch lending, mobile andon-line banking, indirect lending, portfolio acquisitions, correspondent banks and loan brokers. 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 andon-line services and a wholesale network of originators. The Company may retain residential mortgage loans it originates on its balance sheet or sell the loans into the secondary market while retaining the servicing rights and customer relationships. Utilizing the secondary markets enables the Company to effectively reduce its credit and other asset/liability risks. For residential mortgages that are retained in the Company’s portfolio and for home equity and second mortgages, credit risk is also diversified by geography and managed by adherence to LTV and borrower credit criteria during the underwriting process.

The Company estimates updated LTV information on its outstanding residential mortgages quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current estimate of property value. For home equity and second mortgages, combinedloan-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 a 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 and borrower type at June 30, 2017:March 31, 2018: