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10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-Q


☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from (not applicable)

Commission file number

1-6880

U.S. BANCORP

(Exact name of registrant as specified in its charter)


Delaware		41-0255900
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

800 Nicollet Mall

Minneapolis, Minnesota 55402

(Address of principal executive offices, including zip code)

651-466-3000

(Registrant’s telephone number, including area code)

(not applicable)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbols	Name of each exchange on which registered
Common Stock, $.01 par value per share	USB	New York Stock Exchange
Depositary Shares (each representing 1/100th interest in a share of Series A Non-Cumulative Perpetual Preferred Stock, par value $1.00)	USB PrA	New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series B Non-Cumulative Perpetual Preferred Stock, par value $1.00)	USB PrH	New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series K Non-Cumulative Perpetual Preferred Stock, par value $1.00)	USB PrP	New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series L Non-Cumulative Perpetual Preferred Stock, par value $1.00)	USB PrQ	New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series M Non-Cumulative Perpetual Preferred Stock, par value $1.00)	USB PrR	New York Stock Exchange
Depositary Shares (each representing 1/1,000th interest in a share of Series O Non-Cumulative Perpetual Preferred Stock, par value $1.00)	USB PrS	New York Stock Exchange
0.850% Medium-Term Notes, Series X (Senior), due June 7, 2024	USB/24B	New York Stock Exchange

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

YES ☑ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☑ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2

of the Exchange Act.


Large accelerated filer ☑		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☐ Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act).

YES ☐ NO ☑

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


Class		Outstanding as of October 31, 2023
Common Stock, $0.01 Par Value		1,557,012,406 shares

Table of Contents

Table of Contents and

Form 10-Q

Cross Reference Index


Part I — Financial Information

1) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2)			4

a) Overview			4

b) Statement of Income Analysis			5

c) Balance Sheet Analysis			7

d) Non-GAAP Financial Measures			32

e) Critical Accounting Policies			33

f) Controls and Procedures (Item 4)			33

2) Quantitative and Qualitative Disclosures About Market Risk/Corporate Risk Profile (Item 3)			9

a) Overview			9

b) Credit Risk Management			10

c) Residual Value Risk Management			21

d) Operational Risk Management			21

e) Compliance Risk Management			21

f) Interest Rate Risk Management			21

g) Market Risk Management			23

h) Liquidity Risk Management			24

i) Capital Management			26

3) Line of Business Financial Review			27

4) Financial Statements (Item 1)			34

Part II — Other Information

1) Legal Proceedings (Item 1)			82

2) Risk Factors (Item 1A)			82

3) Unregistered Sales of Equity Securities and Use of Proceeds (Item 2)			82

4) Exhibits (Item 6)			82

5) Signature			83

6) Exhibits			84

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

This quarterly report on

Form 10-Q

contains forward-looking statements about U.S. Bancorp. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, future economic conditions and the anticipated future revenue, expenses, financial condition, asset quality, capital and liquidity levels, plans, prospects and operations of U.S. Bancorp. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “projects,” “forecasts,” “intends,” “plans,” “goals,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.”

Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those set forth in forward-looking statements, including the following risks and uncertainties:

•

Deterioration in general business and economic conditions or turbulence in domestic or global financial markets, which could adversely affect U.S. Bancorp’s revenues and the values of its assets and liabilities, reduce the availability of funding to certain financial institutions, lead to a tightening of credit, and increase stock price volatility;

•

Turmoil and volatility in the financial services industry, including failures or rumors of failures of other depository institutions, which could affect the ability of depository institutions, including U.S. Bank National Association, to attract and retain depositors, and could affect the ability of financial services providers, including U.S. Bancorp, to borrow or raise capital;

•

Increases in Federal Deposit Insurance Corporation (“FDIC”) assessments due to bank failures;

•

Actions taken by governmental agencies to stabilize the financial system and the effectiveness of such actions;

•

Changes to regulatory capital, liquidity and resolution-related requirements applicable to large banking organizations in response to recent developments affecting the banking sector;

•

Changes to statutes, regulations, or regulatory policies or practices, including capital and liquidity requirements, and the enforcement and interpretation of such laws and regulations, and U.S. Bancorp’s ability to address or satisfy those requirements and other requirements or conditions imposed by regulatory entities;


U.S. Bancorp		1

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•

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, technology or security systems or infrastructure, or those of third parties;

•

Failures to safeguard personal information;

•

Impacts of pandemics, including the

COVID-19

pandemic, natural disasters, terrorist activities, civil unrest, international hostilities and geopolitical events;

•

Impacts of supply chain disruptions, rising inflation, slower growth or a recession;

•

Failure to execute on strategic or operational plans;

•

Effects of mergers and acquisitions and related integration;

•

Effects of critical accounting policies and judgments;

•

Effects of changes in or interpretations of tax laws and regulations;

•

Management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk; and

•

The risks and uncertainties more fully discussed in the section entitled “Risk Factors” of U.S. Bancorp’s Form

10-K

for the year ended December 31, 2022, and subsequent filings with the Securities and Exchange Commission.

In addition, U.S. Bancorp’s acquisition of MUFG Union Bank, N.A. (“MUB”) presents risks and uncertainties, including, among others: the risk that the cost savings, any revenue synergies and other anticipated benefits of the acquisition may not be realized or may take longer than anticipated to be realized; and the possibility that the combination of MUB with U.S. Bancorp, including the integration of MUB, may be more costly or difficult to complete than anticipated or have unanticipated adverse results.

In addition, factors other than these risks also could adversely affect U.S. Bancorp’s results, and the reader should not consider these risks to be a complete set of all potential risks or uncertainties. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date hereof, and U.S. Bancorp undertakes no obligation to update them in light of new information or future events.


2		U.S. Bancorp

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Table 1		Selected Financial Data


	Three Months Ended September 30									Nine Months Ended September 30
(Dollars and Shares in Millions, Except Per Share Data)	2023			2022			Percent Change			2023			2022			Percent Change
Condensed Income Statement
Net interest income	$	4,236		$	3,827			10.7	%	$	13,285		$	10,435			27.3	%
Taxable-equivalent adjustment (a)		32			30			6.7			100			86			16.3
Net interest income (taxable-equivalent basis) (b)		4,268			3,857			10.7			13,385			10,521			27.2
Noninterest income		2,764			2,469			11.9			7,997			7,413			7.9
Total net revenue		7,032			6,326			11.2			21,382			17,934			19.2
Noninterest expense		4,530			3,637			24.6			13,654			10,863			25.7
Provision for credit losses		515			362			42.3			1,763			785			*
Income before taxes		1,987			2,327			(14.6	)		5,965			6,286			(5.1	)
Income taxes and taxable-equivalent adjustment		463			511			(9.4	)		1,368			1,378			(.7	)
Net income		1,524			1,816			(16.1	)		4,597			4,908			(6.3	)
Net (income) loss attributable to noncontrolling interests		(1	)		(4	)		75.0			(15	)		(8	)		(87.5	)
Net income attributable to U.S. Bancorp	$	1,523		$	1,812			(15.9	)	$	4,582		$	4,900			(6.5	)
Net income applicable to U.S. Bancorp common shareholders	$	1,412		$	1,718			(17.8	)	$	4,285		$	4,648			(7.8	)
Per Common Share
Earnings per share	$	.91		$	1.16			(21.6	)%	$	2.79		$	3.13			(10.9	)%
Diluted earnings per share		.91			1.16			(21.6	)		2.79			3.13			(10.9	)
Dividends declared per share		.48			.48			—			1.44			1.40			2.9
Book value per share (c)		29.74			27.39			8.6
Market value per share		33.06			40.32			(18.0	)
Average common shares outstanding		1,548			1,486			4.2			1,538			1,485			3.6
Average diluted common shares outstanding		1,549			1,486			4.2			1,538			1,486			3.5
Financial Ratios
Return on average assets		.91	%		1.22	%					.92	%		1.13	%
Return on average common equity		11.9			15.8						12.3			14.1
Net interest margin (taxable-equivalent basis) (a)		2.81			2.83						2.94			2.62
Efficiency ratio (b)		64.4			57.5						63.8			60.7
Net charge-offs as a percent of average loans outstanding		.44			.19						.50			.20
Average Balances
Loans	$	376,877		$	336,778			11.9	%	$	384,112		$	324,731			18.3	%
Loans held for sale		2,661			3,499			(23.9	)		2,564			4,214			(39.2	)
Investment securities (d)		163,236			164,851			(1.0	)		163,051			170,267			(4.2	)
Earning assets		605,245			541,666			11.7			608,891			536,131			13.6
Assets		663,999			588,764			12.8			667,481			582,067			14.7
Noninterest-bearing deposits		97,524			114,044			(14.5	)		113,556			120,893			(6.1	)
Deposits		512,291			456,769			12.2			506,633			455,829			11.1
Short-term borrowings		27,550			29,034			(5.1	)		39,364			23,825			65.2
Long-term debt		43,826			31,814			37.8			42,551			32,055			32.7
Total U.S. Bancorp shareholders’ equity		53,817			49,820			8.0			53,440			50,804			5.2

	September 30, 2023			December 31, 2022
Period End Balances
Loans	$	375,234		$	388,213			(3.3	)%
Investment securities		152,549			161,650			(5.6	)
Assets		668,039			674,805			(1.0	)
Deposits		518,358			524,976			(1.3	)
Long-term debt		43,074			39,829			8.1
Total U.S. Bancorp shareholders’ equity		53,113			50,766			4.6
Asset Quality
Nonperforming assets	$	1,310		$	1,016			28.9	%
Allowance for credit losses		7,790			7,404			5.2
Allowance for credit losses as a percentage of period-end loans		2.08	%		1.91	%
Capital Ratios
Common equity tier 1 capital		9.7	%		8.4	%
Tier 1 capital		11.2			9.8
Total risk-based capital		13.4			11.9
Leverage		7.9			7.9
Total leverage exposure		6.4			6.4
Tangible common equity to tangible assets (b)		5.0			4.5
Tangible common equity to risk-weighted assets (b)		7.0			6.0
Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the current expected credit losses methodology (b)		9.5			8.1

*	Not meaningful

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

(b)	See Non-GAAP Financial Measures beginning on page 32.

(c)	Calculated as U.S. Bancorp common shareholders’ equity divided by common shares outstanding at end of the period.

(d)	Excludes unrealized gains and losses on available-for-sale investment securities and any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.


U.S. Bancorp		3

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Management’s Discussion and Analysis

OVERVIEW

Earnings Summary

U.S. Bancorp and its subsidiaries (the “Company”) reported net income attributable to U.S. Bancorp of $1.5 billion for the third quarter of 2023, or $0.91 per diluted common share, compared with $1.8 billion, or $1.16 per diluted common share, for the third quarter of 2022. Return on average assets and return on average common equity were 0.91 percent and 11.9 percent, respectively, for the third quarter of 2023, compared with 1.22 percent and 15.8 percent, respectively, for the third quarter of 2022. The results for the third quarter of 2023 included the impact of $284 million of merger and integration-related charges associated with the acquisition of MUFG Union Bank, N.A. (“MUB”), which decreased diluted earnings per common share by $0.14.

Total net revenue for the third quarter of 2023 was $706 million (11.2 percent) higher than the third quarter of 2022, reflecting a 10.7 percent increase in net interest income and an 11.9 percent increase in noninterest income. The increase in net interest income from the third quarter of 2022 was primarily due to the impacts of rising interest rates on earning assets and the MUB acquisition. The increase in noninterest income reflected higher commercial products revenue, mortgage banking revenue, payment services revenue and trust and investment management fees.

Noninterest expense in the third quarter of 2023 was $893 million (24.6 percent) higher than the third quarter of 2022, reflecting merger and integration charges and operating expenses related to the MUB acquisition, including core deposit intangible amortization expense, as well as increases in compensation and employee benefits expense to support business growth.

The provision for credit losses for the third quarter of 2023 of $515 million was $153 million (42.3 percent) higher than the third quarter of 2022, driven by normalizing credit losses and commercial real estate credit quality. Net charge-offs in the third quarter of 2023 were $420 million, compared with $162 million in the third quarter of 2022. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Net income attributable to U.S. Bancorp for the first nine months of 2023 was $4.6 billion, or $2.79 per diluted common share, compared with $4.9 billion, or $3.13 per diluted common share, for the first nine months of 2022. Return on average assets and return on average common equity were 0.92 percent and 12.3 percent, respectively, for the first nine months of 2023, compared with 1.13 percent and 14.1 percent, respectively, for the first nine months of 2022. The results for the first nine months of 2023 included the impact of $838 million of merger and integration-related charges, $243 million of provision for credit losses and an additional $22 million of losses related to balance sheet repositioning and capital management actions. Combined, these items decreased diluted earnings per common share by $0.53.

Total net revenue for the first nine months of 2023 was $3.4 billion (19.2 percent) higher than the first nine months of 2022, reflecting a 27.3 percent increase in net interest income (27.2 percent on a taxable-equivalent basis) and a 7.9 percent increase in noninterest income. The increase in net interest income from the first nine months of 2022 was primarily due to the impacts of rising interest rates on earning assets and the MUB acquisition. The increase in noninterest income reflected higher commercial products revenue, trust and investment management fees and payment services revenue, partially offset by losses on securities.

Noninterest expense in the first nine months of 2023 was $2.8 billion (25.7 percent) higher than the first nine months of 2022, reflecting merger and integration charges and operating expenses related to the MUB acquisition, including core deposit intangible amortization expense, as well as increases in compensation and employee benefits expense to support business growth.

The provision for credit losses for the first nine months of 2023 of $1.8 billion was $978 million higher than the first nine months of 2022, driven by the impacts of balance sheet repositioning and capital management actions, normalizing credit losses and increased economic uncertainty. Net charge-offs in the first nine months of 2023 were $1.4 billion, compared with $485 million in the first nine months of 2022. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and


4		U.S. Bancorp

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other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

MUFG Union Bank Acquisition

On December 1, 2022, the Company acquired MUB’s core regional banking franchise from Mitsubishi UFJ Financial Group, Inc. (“MUFG”). Pursuant to the terms of the Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of common stock of MUB for a purchase price consisting of $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The Company also received additional MUB cash of $3.5 billion upon completion of the acquisition, which is required to be repaid to MUFG on or prior to the fifth anniversary date of the completion of the purchase. On August 3, 2023, the Company completed a debt/equity conversion with MUFG. As a result, the Company repaid $936 million of its debt obligation from the proceeds of the issuance of 24 million shares of common stock of the Company to an affiliate of MUFG (the “Debt/Equity Conversion”). After the Debt/Equity Conversion, the Company had a remaining repayment obligation of $2.6 billion. On May 26, 2023, the Company merged MUB into U.S. Bank National Association (“USBNA”), the Company’s primary banking subsidiary. The Company’s results for the third quarter and first nine months of 2023 reflect the full financial results of the acquired business.

STATEMENT OF INCOME ANALYSIS

Net Interest Income

Net interest income, on a taxable-equivalent basis, was $4.3 billion in the third quarter and $13.4 billion in the first nine months of 2023, representing increases of $411 million (10.7 percent) and $2.9 billion (27.2 percent), respectively, compared with the same periods of 2022. The increases were primarily due to the impact of rising interest rates on earning assets and the acquisition of MUB. Average earning assets for the third quarter and first nine months of 2023 were $63.6 billion (11.7 percent) and $72.8 billion (13.6 percent) higher, respectively, than the same periods of 2022, reflecting increases in loans and interest-bearing deposits with banks, partially offset by a decrease in investment securities. The net interest margin, on a taxable-equivalent basis, in the third quarter and first nine months of 2023 was 2.81 percent and 2.94 percent, respectively, compared with 2.83 percent and 2.62 percent in the third quarter and first nine months of 2022, respectively. The decrease in net interest margin in the third quarter of 2023, compared with the third quarter of 2022, was primarily due to the impact of deposit mix and pricing, partially offset by the impact of higher rates on earning assets and the acquisition of MUB. The increase in net interest margin in the first nine months of 2023, compared with the same period of the 2022, was primarily due to the impact of higher rates on earning assets and the acquisition of MUB, partially offset by the impact of deposit mix and pricing. Refer to the “Consolidated Daily Average Balance Sheet and Related Yields and Rates” table for further information on net interest income.

Average total loans in the third quarter and first nine months of 2023 were $40.1 billion (11.9 percent) and $59.4 billion (18.3 percent) higher, respectively, than the same periods of 2022. The increases were driven by growth in the Company’s legacy loan portfolio as well as balances from the MUB acquisition. Increases in residential mortgages, commercial real estate loans, commercial loans and credit card loans were partially offset by lower other retail loans. The increase in residential mortgages was driven by the impact related to the MUB acquisition, along with

on-balance

sheet loan activities and slower refinancing activity, partially offset by the impact of a sale of residential mortgages in the second quarter of 2023 as part of balance sheet repositioning and capital management actions. The increase in commercial loans was primarily due to higher utilization driven by working capital needs of corporate customers, slower payoffs given higher volatility in the capital markets, as well as core growth and the impact related to the MUB acquisition. The increase in commercial real estate loans was driven by the impact of the MUB acquisition, while the increase in credit cards loans was primarily driven by higher spend volume and lower payment rates. The decrease in other retail loans was driven by lower auto loans primarily due to balance sheet repositioning and capital management actions, along with lower installment loans and lower retail leasing balances, partially offset by higher home equity and second mortgages.

Average investment securities in the third quarter and first nine months of 2023 were $1.6 billion (1.0 percent) and $7.2 billion (4.2 percent) lower, respectively, than the same periods of 2022, driven by balance sheet repositioning and liquidity management in connection with the acquisition of MUB. The decrease from the prior year reflected sales of investment securities, partially offset by the impact of acquired MUB investment securities.

Average total deposits for the third quarter and first nine months of 2023 were $55.5 billion (12.2 percent) and $50.8 billion (11.1 percent) higher, respectively, than the same periods of 2022. Average total savings deposits for the third quarter and first nine months of 2023 were


U.S. Bancorp		5

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Table 2		Noninterest Income


	Three Months Ended September 30							Nine Months Ended September 30
(Dollars in Millions)	2023		2022		Percent Change			2023			2022		Percent Change
Card revenue	$	412	$	391		5.4	%	$	1,194		$	1,128		5.9	%
Corporate payment products revenue		198		190		4.2			577			520		11.0
Merchant processing services		427		406		5.2			1,250			1,194		4.7
Trust and investment management fees		627		572		9.6			1,838			1,638		12.2
Service charges		334		317		5.4			982			984		(.2	)
Commercial products revenue		354		285		24.2			1,046			841		24.4
Mortgage banking revenue		144		81		77.8			403			423		(4.7	)
Investment products fees		70		56		25.0			206			177		16.4
Securities gains (losses), net		—		1		*			(29	)		38		*
Other		198		170		16.5			530			470		12.8
Total noninterest income	$	2,764	$	2,469		11.9	%	$	7,997		$	7,413		7.9	%

*	Not meaningful

$53.5 billion (17.5 percent) and $42.7 billion (14.0 percent) higher, respectively, than the same periods of 2022, driven by increases in Wealth, Corporate, Commercial and Institutional Banking, and Consumer and Business Banking balances, including the impact of the MUB acquisition. Average time deposits for the third quarter and first nine months of 2023 were $18.5 billion (51.2 percent) and $15.4 billion (52.6 percent) higher, respectively, than the same periods of the prior year, mainly due to the acquisition of MUB and increases in Consumer and Business Banking balances, partially offset by decreases in Wealth, Corporate, Commercial and Institutional Banking balances. Changes in time deposits are primarily related to those deposits managed as an alternative to other funding sources, based largely on relative pricing and liquidity characteristics. Average noninterest-bearing deposits for the third quarter and first nine months of 2023 were $16.5 billion (14.5 percent) and $7.3 billion (6.1 percent) lower, respectively, than the same periods of 2022, driven by decreases in Wealth, Corporate, Commercial and Institutional Banking balances, partially offset by the impact of the MUB acquisition. Average noninterest-bearing deposits further decreased in the third quarter of 2023, compared with the third quarter of 2022, due to decreases in Consumer and Business Banking balances.

Provision for Credit Losses

The provision for credit losses was $515 million in the third quarter and $1.8 billion in the first nine months of 2023, representing increases of $153 million (42.3 percent) and $978 million, respectively, from the same periods of 2022. The increases were driven by normalizing credit losses, commercial real estate credit quality and increased economic uncertainty. The provision for credit losses further increased in the first nine months of 2023, compared with the same period of the prior year, due to the impact of balance sheet repositioning and capital management actions taken in the second quarter of 2023. Net charge-offs increased $258 million in the third quarter and $957 million in the first nine months of 2023, compared with the same periods of 2022, reflecting higher charge-offs in most loan categories consistent with normalizing credit conditions and adverse conditions in commercial real estate. In addition, net charge-offs were higher in the first nine months of 2023, compared with the first nine months of the prior year, due to charge-offs related to balance sheet repositioning and capital management actions, along with charge-offs in the first quarter of 2023 related to the uncollectible amount of acquired loans, which were considered purchased credit deteriorated as of the date of the MUB acquisition. Refer to “Corporate Risk Profile” for further information on the provision for credit losses, net charge-offs, nonperforming assets and other factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for credit losses.

Noninterest Income

Noninterest income was $2.8 billion in the third quarter and $8.0 billion in the first nine months of 2023, representing increases of $295 million (11.9 percent) and $584 million (7.9 percent), respectively, compared with the same periods of 2022. The increases over the prior year reflected stronger commercial products revenue, trust and investment management fees, payment services revenue and other noninterest income. The increase in noninterest income in the first nine months of 2023, compared with the same period of the prior year, was partially offset by losses on the sale of securities. Commercial products revenue increased primarily due to higher trading revenue, commercial loan fees, corporate bond fees and the acquisition of MUB. Trust and investment management fees increased primarily due to the acquisition of MUB and core business growth. Payment services revenue increased due to higher card revenue driven by higher spend volume and favorable rates, and increased merchant processing


6		U.S. Bancorp

Table of Contents


Table 3		Noninterest Expense


	Three Months Ended September 30									Nine Months Ended September 30
(Dollars in Millions)	2023			2022			Percent Change			2023			2022			Percent Change
Compensation and employee benefits	$	2,615		$	2,260			15.7	%	$	7,907		$	6,755			17.1	%
Net occupancy and equipment		313			272			15.1			950			806			17.9
Professional services		127			131			(3.1	)		402			356			12.9
Marketing and business development		176			126			39.7			420			312			34.6
Technology and communications		511			427			19.7			1,536			1,267			21.2
Other intangibles		161			43			*			480			130			*
Other		343			336			2.1			1,121			998			12.3
Total before merger and integration charges		4,246			3,595			18.1			12,816			10,624			20.6
Merger and integration charges		284			42			*			838			239			*
Total noninterest expense	$	4,530		$	3,637			24.6	%	$	13,654		$	10,863			25.7	%
Efficiency ratio (a)		64.4	%		57.5	%					63.8	%		60.7	%

*	Not meaningful

(a)	See Non-GAAP Financial Measures beginning on page 32.

services revenue and corporate payment products revenue due to higher spend volume. Noninterest income further increased in the third quarter of 2023, compared with the third quarter of 2022, mainly due to higher mortgage banking revenue driven by higher gain on sale margins and increases in mortgage servicing rights (“MSRs”) valuations, net of hedging activities.

Noninterest Expense

Noninterest expense was $4.5 billion in the third quarter and $13.7 billion in the first nine months of 2023, representing increases of $893 million (24.6 percent) and $2.8 billion (25.7 percent), respectively, over the same periods of 2022. The increases from the prior year reflected the impact of merger and integration charges, as well as operating expenses related to the MUB acquisition, higher compensation and employee benefits expense and higher other intangibles expense. Compensation and employee benefits expense increased primarily due to MUB expense as well as merit increases and hiring to support business growth. Other intangibles expense increased primarily due to the core deposit intangible created as a result of the MUB acquisition.

On May 11, 2023, the FDIC released a proposed rule that would impose special assessments to recover the losses to the deposit insurance fund resulting from the recent failures of other banking institutions. The Company expects the special assessments would be tax deductible. Although the proposal could change and the timing of accounting recognition is still under consideration, if the final rule is issued as proposed, the Company estimates it would recognize additional noninterest expense of approximately $650 million ($500 million

net-of-tax),

representing a potential 10 basis point reduction in the Company’s common equity tier 1 capital ratio, upon finalization of the rule.

Income Tax Expense

The provision for income taxes was $431 million (an effective rate of 22.0 percent) for the third quarter and $1.3 billion (an effective rate of 21.6 percent) for the first nine months of 2023, compared with $481 million (an effective rate of 20.9 percent) and $1.3 billion (an effective rate of 20.8 percent) for the same periods of 2022, respectively. For further information on income taxes, refer to Note 12 of the Notes to Consolidated Financial Statements.

BALANCE SHEET ANALYSIS

Loans

The Company’s loan portfolio was $375.2 billion at September 30, 2023, compared with $388.2 billion at December 31, 2022, a decrease of $13.0 billi