Table of Contents
• | 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. |
• | 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. |
• | 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. |
• | 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. |
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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 available-for-sale held-to-maturity. |
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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 available-for-sale held-to-maturity. |
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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. |
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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. |
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. |
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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 | % |
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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 | % |
31 | ||||
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 | % |
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 | % |
32 | ||||||
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 | % |
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 held-to-maturity. |
33 | ||||
34 | ||||||
TABLE 14 | Deposits |
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. |
(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 |
35 | ||||
– | 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. |
36 | ||||||
37 | ||||
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 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 | % |
38 | ||||||
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 |
Percent of Total (a) | ||||
Credit score > 660 | 87 | % | ||
Credit score < 660 | 13 | |||
No credit score | — |
(a) | Credit score distribution excludes loans serviced by others. |
39 | ||||
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. |
40 | ||||||
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. |
41 | ||||
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. |
42 | ||||||
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 | % |
(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. |
43 | ||||
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 | % |
44 | ||||||
45 | ||||
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. |
46 | ||||||
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. |
47 | ||||
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 | % |
48 | ||||||
– | To convert fixed-rate debt and available-for-sale |
– | To convert floating-rate loans and debt from floating-rate payments to fixed-rate payments; |
– | To mitigate changes in value of the Company’s unfunded mortgage loan commitments, funded MLHFS and MSRs; |
– | To mitigate remeasurement volatility of foreign currency denominated balances; and |
– | To mitigate the volatility of the Company’s net investment in foreign operations driven by fluctuations in foreign currency exchange rates. |
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. |
49 | ||||
50 | ||||||
Year Ended December 31 (Dollars in Millions) | 2022 | 2021 | ||||||
Average | $ | 2 | $ | 2 | ||||
High | 7 | 4 | ||||||
Low | 1 | 1 | ||||||
Period-end | 5 | 2 |
Year Ended December 31 (Dollars in Millions) | 2022 | 2021 | ||||||
Average | $ | 10 | $ | 7 | ||||
High | 19 | 9 | ||||||
Low | 6 | 5 | ||||||
Period-end | 13 | 7 |
51 | ||||
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 |
52 | ||||||
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 |
53 | ||||
54 | ||||||
55 | ||||
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- andoff-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 |
(b) | Includes the remaining portion of deferred tax assets not eligible for total tier 1 capital. |
56 | ||||||
57 | ||||
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 |
58 | ||||||
– | 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. |
59 | ||||
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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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. |
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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. |
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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 an d compared m anagement’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. |
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At December 31 (Dollars in Millions) | 2022 | 2021 | ||||||
Assets | ||||||||
Cash and due from banks | $ | 53,542 | $ | 28,905 | ||||
Investment securities | ||||||||
Held-to-maturity | 88,740 | 41,858 | ||||||
Available-for-sale (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. |
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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 |
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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 |
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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. |
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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 | 36,391 | 16,075 | 15,596 | |||||||||
Proceeds from maturities of held-to-maturity | 5,759 | 1,093 | — | |||||||||
Proceeds from maturities of available-for-sale | 14,927 | 41,199 | 40,639 | |||||||||
Purchases of held-to-maturity | (7,091 | ) | (1,088 | ) | — | |||||||
Purchases of available-for-sale | (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 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 |
75 | ||||
NOTE 1 | Significant Accounting Policies |
76 | ||||||
77 | ||||
78 | ||||||
79 | ||||
80 | ||||||
81 | ||||
82 | ||||||
NOTE 2 | Accounting Changes |
NOTE 3 | Business Combinations |
83 | ||||
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. |
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 |
(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. |
84 | ||||||
(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. |
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 |
85 | ||||
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 |
NOTE 5 | Investment Securities |
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 |
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 |
86 | ||||||
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 |
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 | ) |
87 | ||||
(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 available-for-sale |
(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 held-to maturity. |
88 | ||||||
NOTE 6 | Loans and Allowance for Credit Losses |
(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 |
89 | ||||
(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 previouslycharged-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. |
90 | ||||||
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. |
91 | ||||
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 | ||||||
(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 | |||||||
93 | ||||
(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 | |||||
94 | ||||||
NOTE 7 | Leases |
(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 |
(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 |
(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 |
95 | ||||
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 | % |
(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 |
96 | ||||||
NOTE 8 | Accounting for Transfers and Servicing of Financial Assets and Variable Interest | |
Entities |
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 |
97 | ||||
NOTE 9 | Premises and Equipment |
(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 |
9 8 | ||||||
NOTE 10 | Mortgage Servicing Rights |
(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. |
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) |
99 | ||||
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 |
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 |
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 |
(Dollars in Millions) | ||||||||
2023 | $ | 647 | ||||||
2024 | 572 | |||||||
2025 | 490 | |||||||
2026 | 422 | |||||||
2027 | 350 |
100 | ||||||
(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 |
(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 |
(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 |
(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. |
101 | ||||
NOTE 14 | Long-Term Debt |
(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 additio capital received by the Company upon close of the MUn alB acquisition to be delivered to Mitsubishi UFJ Financial Group, Inc. on or prior to December 1, 2027, discounted at the Company’s5-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. |
(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 |
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. |
103 | ||||
(Dollars and Shares in Millions) | Shares | Value | ||||||
2022 | 1 | $ | 69 | |||||
2021 | 28 | 1,556 | ||||||
2020 | 31 | 1,661 |
104 | ||||||
(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 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 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 | ||||
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 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 |
106 | ||||||
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- andoff-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- andoff-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. |
107 | ||||
NOTE 16 | Earnings Per Share |
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. |
NOTE 17 | Employee Benefits |
108 | ||||||
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 | 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 | 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 MU B 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. |
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 | ||||
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 |
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 andpost-65 rates are both assumed to decrease gradually to 5.00 percent by 2029 and remain at this level thereafter, and the 2021pre-65 andpost-65 rates were both assumed to decrease gradually to 5.00 percent by 2025 and remain at this level thereafter. |
* | Not applicable |
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 andpost-65 rates were both assumed to decrease gradually to 5.00 percent by 2025 and remain at that level thereafter. |
* | Not applicable |
110 | ||||||
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. |
111 | ||||
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 |
(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. |
112 | ||||||
NOTE 18 | Stock-Based Compensation |
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. |
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 |
113 | ||||
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 |
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 |
114 | ||||||
NOTE 19 | Income Taxes |
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 |
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 MU B 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. |
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 |
115 | ||||
At December 31 (Dollars in Millions) | 2022 | 2021 | ||||||
Deferred Tax Assets | ||||||||
Securities available-for-sale | $ | 3,992 | $ | 163 | ||||
Federal, state and foreign net operating loss , credit carryforwardsand 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 | ||||
116 | ||||||
NOTE 20 | Derivative Instruments |
117 | ||||
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 |
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. |
118 | ||||||
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. |
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 |
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 | $ | 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 |
119 | ||||
(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 | ) |
120 | ||||||
NOTE 21 | Netting Arrangements for Certain Financial Instruments and Securities Financing | |
Activities |
121 | ||||
(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 |
122 | ||||||
(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. |
123 | ||||
NOTE 22 | Fair Values of Assets and Liabilities |
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 MU
– | 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. |
124 | ||||||
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. |
125 | ||||
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. |
126 | ||||||
(Dollars in Millions) | Level 1 | Level 2 | Level 3 | Netting | Total | |||||||||||||||
December 31, 2022 | ||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||
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 | ||||||||||||||||||||
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 |
(a) | Primarily represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance. |
127 | ||||
(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 | ||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||
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 |
(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. |
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. |
128 | ||||||
(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. |
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 | – |
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. |
129 | ||||
NOTE 23 | Guarantees and Contingent Liabilities |
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. |
(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 |
130 | ||||||
Term | ||||||||||||
(Dollars in Millions) | Less Than One Year | Greater Than One Year | Total | |||||||||
Standby | $ | 5,110 | $ | 5,703 | $ | 10,813 | ||||||
Commercial | 460 | 172 | 632 |
131 | ||||
132 | ||||||
NOTE 24 | Business Segments |
133 | ||||
segment
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
134 | ||||||
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) |
At December 31 (Dollars in Millions) | 2022 | 2021 | ||||||||||
Assets | ||||||||||||
Due from banks, principally interest-bearing | $ | 5,288 | $ | 8,369 | ||||||||
Available-for-sale | 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 |
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 | ||||||
Year Ended December 31 (Dollars in Millions) | 2022 | 2021 | 2020 | |||||||||
Operating Activities | ||||||||||||
Net income a t tributable 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 |
NOTE 26 | Subsequent Events |
137 | ||||
Table of Contents
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 | Interest | Yields and Rates | Average Balances | Interest | Yields and Rates |
Average | 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. |
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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.
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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 Cecere1,3,7
Chairman, President and Chief Executive Officer
U.S. Bancorp
Warner L. Baxter1,2,4
Executive Chairman and Former Chairman,
President and Chief Executive Officer
Ameren Corporation
(Energy)
Dorothy J. Bridges1,6,7
Chief Executive Officer
Metropolitan Economic Development Association (Meda)
(Economic Development)
Elizabeth L. Buse2,3
Former Chief Executive Officer
Monitise plc
(Financial services)
Alan B. Colberg2,6
Retired President and Chief Executive Officer
Assurant, Inc.
(Financial services and specialty insurance)
Kimberly N. Ellison-Taylor2,6
Founder and Chief Executive Officer
KET Solutions, LLC
(Technology)
Kimberly J. Harris1,4,5
Retired President and Chief Executive Officer
Puget Energy, Inc.
(Energy)
Roland A. Hernandez1,3,5
Founding Principal and Chief Executive Officer
Hernandez Media Ventures
(Media)
Olivia F. Kirtley1,4,5
Business Consultant
(Consulting)
Richard P. McKenney1,5,7
President and Chief Executive Officer
Unum Group
(Financial protection benefits)
Yusuf I. Mehdi6,7
Corporate Vice President
Microsoft Corporation
(Technology)
Loretta E. Reynolds3,7
Founder and Chief Executive Officer
LEReynolds Group, LLC
(Information Technology)
John P. Wiehoff6,7
Retired Chairman and Chief Executive Officer
C.H. Robinson Worldwide, Inc.
(Transportation and logistics services)
Scott W. Wine1,2,4
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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