US BANCORP \DE\ (USB) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from US BANCORP \DE\'s 10-K for fiscal year 2022. Filing date: 2023-02-27. Report date: 2022-12-31. Accession: 0001193125-23-050691.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Source document followed from filing index: d410791dex13.htm. Confidence: high.

Company profile: USB · All MD&A years: index · Previous year: FY 2021 · Next year: FY 2023

Management’s Discussion and Analysis

Overview

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

MUFG Union Bank Acquisition

On December 1, 2022, the Company acquired MUFG Union Bank N.A.’s core regional banking franchise (“MUB”) from Mitsubishi UFJ Financial Group, Inc. Pursuant to the terms of a previously announced Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of common stock of MUB for a purchase price consisting of $5.5 billion in cash and approximately 44 million shares of the Company’s common stock. The Company also received additional MUB capital of $3.5 billion upon completion of the acquisition. The additional capital received is held at the MUB subsidiary and required to be repaid to Mitsubishi UFJ Financial Group, Inc. on or prior to the fifth anniversary date of the completion of the purchase, in accordance with the terms of the Share Purchase Agreement. As such, it is recognized as debt at the parent company. The transaction excludes the purchase of substantially all of MUB’s Global Corporate & Investment Bank (other than certain deposits), certain middle and back-office functions, and other assets. MUB operates approximately 300 branches in California, Washington and Oregon. The Company’s 2022 results reflect MUB’s operations for the month of December 2022, and the Company’s balance sheet as of December 31, 2022 includes MUB’s balances acquired or assumed in the transaction, including $81.4 billion in total assets, $53.1 billion of loans and $82.0 billion of deposits. As of the date of acquisition, MUB is a wholly-owned subsidiary of the Company and an affiliate of U.S. Bank National Association (“USBNA”), the Company’s primary banking subsidiary. The Company expects to merge MUB into USBNA in connection with the conversion of MUB customers and systems to the USBNA platform over Memorial Day weekend in 2023.

Financial Performance

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

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•		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;

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•		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;

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•		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;

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•		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;

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•		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

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

Credit Quality

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

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•		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.

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•		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.

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

Capital Management

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

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

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

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

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TABLE 1		Selected Financial Data

Year Ended December 31(Dollars and Shares in Millions, Except Per Share Data)	2022					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

Column 1	Column 2
(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.

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

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

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

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Earnings Summary

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

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

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

Results for 2021 Compared With 2020

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

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

Statement of Income Analysis

Net Interest Income

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

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

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TABLE 2		Analysis of Net Interest Income(a)

Year Ended December 31 (Dollars in Millions)	2022					2020		2022v 2021		2021v 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	)

Column 1	Column 2
(a)	Interest and rates are presented on a fully taxable-equivalent basis based on a federal income tax rate of 21 percent.

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

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

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

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

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

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

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

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(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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Column 2

(a)

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

Provision for Credit Losses

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

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

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

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

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TABLE 4		Noninterest Income

Year Ended December 31 (Dollars in Millions)	2022						2022 v 2021
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	)%

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

Noninterest Income

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

end-of-term

residual gains. Service charges

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

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TABLE 5		Noninterest Expense

Year Ended December 31 (Dollars in Millions)	2022					2020		2022 v 2021
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	%

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*	Not meaningful

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

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Noninterest Expense

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

Income Tax Expense

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

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

Balance Sheet Analysis

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

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

Loans

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

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Column 1	Column 2	Column 3
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	%

Column 1	Column 2	Column 3
TABLE 7		Selected Loan Maturity Distribution

At December 31, 2022 (Dollars in Millions)	One Year or Less					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

Column 1	Column 2
(a)	Primarily represents construction loans for single-family residences or loans guaranteed by the Small Business Administration.

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Column 1	Column 2	Column 3
TABLE 8		Commercial Loans by Industry Group and Geography

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

Commercial

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

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

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Column 1	Column 2	Column 3
TABLE 9		Commercial Real Estate Loans by Property Type and Geography

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

Commercial Real Estate

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

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

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

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Column 1	Column 2	Column 3
TABLE 10		Residential Mortgages by Geography

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

Residential Mortgages

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

Credit Card

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

Other Retail

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

Column 1	Column 2	Column 3
TABLE 11		Credit Card Loans by Geography

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

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Column 1	Column 2	Column 3
TABLE 12		Other Retail Loans by Geography

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

The Company generally retains portfolio loans through maturity; however, the Company’s intent may change over time based upon various factors such as ongoing asset/liability management activities, assessment of product profitability, credit risk, liquidity needs, and capital implications. If the Company’s intent or ability to hold an existing portfolio loan changes, it is transferred to loans held for sale.

Loans Held for Sale

Loans held for sale, consisting primarily of residential mortgages to be sold in the secondary market, were

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

Column 1	Column 2	Column 3
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	%

Column 1	Column 2
(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.

Column 1	Column 2
(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.

Column 1	Column 2
(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.

Column 1

Column 2

(d)

Weighted-average yields for obligations of state and political subdivisions are presented on a fully-taxable equivalent basis based on a federal income tax rate of 21 percent. Yields on investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity.

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Investment Securities

The Company uses its investment securities portfolio to manage interest rate risk, provide liquidity (including the ability to meet regulatory requirements), generate interest and dividend income, and as collateral for public deposits and wholesale funding sources. While the Company intends to hold its investment securities indefinitely, it may sell

available-for-sale

investment securities in response to structural changes in the balance sheet and related interest rate risk and to meet liquidity requirements, among other factors.

Investment securities totaled $161.7 billion at December 31, 2022, compared with $174.8 billion at December 31, 2021. The $13.2 billion (7.5 percent) decrease was primarily due to $25.4 billion of net investment sales, including the sale of certain investment securities acquired as part of the MUB acquisition, and a $13.3 billion unfavorable change in net unrealized gains (losses) on

available-for-sale

investment securities, partially offset by $22.7 billion of acquired investment securities and $3.4 billion of senior notes the Company received as part of the sale of approximately $4 billion of indirect auto loans to third-party securitization vehicles during 2022. During 2022, the Company transferred $45.1 billion amortized cost ($40.7 billion fair value) of

available-for-sale

investment securities to the

held-to-maturity

category to reflect its new intent for these securities. Average investment securities were $169.4 billion in 2022, compared with $154.7 billion in 2021. Investment securities by type are shown in Table 13.

The Company’s

available-for-sale

investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) unless a portion of a security’s unrealized loss is related to credit and an allowance for credit losses is necessary. At December 31, 2022, the Company’s net unrealized losses on

available-for-sale

investment securities were $8.5 billion, compared with net unrealized gains of $722 million at December 31, 2021. The unfavorable change in net unrealized gains (losses) was primarily due to decreases in the fair value of mortgage-backed, U.S. Treasury and state and political securities as a result of changes in interest rates, partially offset by the impact of the transfer of

available-for-sale

investment securities to the

held-to-maturity

category. Gross unrealized losses on

available-for-sale

investment securities totaled $8.6 billion at December 31, 2022, compared with $812 million at December 31, 2021. When evaluating credit losses, the Company considers various factors such as the nature of the investment security, the credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows of the underlying collateral, the existence of any government or agency guarantees, and market conditions. At December 31, 2022, the Company had no plans to sell securities with unrealized losses, and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost.

Refer to Notes 5 and 22 in the Notes to Consolidated Financial Statements for further information on investment securities.

Deposits

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

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

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

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

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Column 1	Column 2	Column 3
TABLE 14		Deposits

The composition of deposits was as follows:

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

Column 1	Column 2
(a)	Includes $289.3 billion and $238.0 billion of deposits at December 31, 2022 and 2021, respectively, that are not subject to any federal, state or foreign deposit insurance program.

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

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

Borrowings

The Company utilizes both short-term and long-term borrowings as part of its asset/liability management and funding strategies. Short-term borrowings, which include federal funds purchased, commercial paper, repurchase agreements, borrowings secured by high-grade assets and other short-term borrowings, were $31.2 billion at December 31, 2022, compared with $11.8 billion at December 31, 2021. The $19.4 billion increase in short-term borrowings at December 31, 2022, compared with December 31, 2021, reflected higher short-term Federal Home Loan Bank (“FHLB”) advances and commercial paper balances, including assumed short-term borrowing balances as a result of the MUB acquisition.

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

Refer to Notes 13 and 14 of the Notes to Consolidated Financial Statements for additional information regarding short-term borrowings and long-term debt, and the “Liquidity Risk Management” section for discussion of liquidity management of the Company.

Corporate Risk Profile

Overview

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

The Executive Risk Committee (“ERC”), which is chaired by the Chief Risk Officer and includes the Chief Executive Officer and other members of the executive management team, oversees execution against the risk management framework and risk appetite statements. The ERC focuses on current and emerging risks, including strategic and reputation risks, by directing timely and comprehensive actions. Senior operating committees have also been established, each responsible for overseeing a specified category of risk.

Upon closing of the MUB acquisition, the Company’s risk management framework applies to the legal entities acquired from Mitsubishi UFJ Financial Group, Inc., including MUB. Prior to closing, the Company evaluated the frameworks, policies and procedures of the acquired entities as necessary. Updates were made to align the acquired entities with the Company’s risk

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appetite and connect the elements of their respective risk governance and reporting into the Company’s existing risk management framework. Connecting the existing MUB risk governance and reporting framework into the Company’s existing risk management framework allows separate risk profiles, governance, and reporting for the Company and the acquired entities, during the period from acquisition through bank merger, while also providing the ability to consolidate reporting for the Company. Upon completing the merger of MUB into USBNA, which is expected to occur in connection with the conversion of MUB customers and systems to the USBNA platform over Memorial Day weekend in 2023, the MUB risk governance and reporting framework will no longer be applicable.

The Company’s most prominent risk exposures are credit, interest rate, market, liquidity, operational, compliance, strategic, and reputation. Credit risk is the risk of loss associated with a change in the credit profile or the failure of a borrower or counterparty to meet its contractual obligations. Interest rate risk is the current or prospective risk to earnings and capital, or market valuations, arising from the impact of changes in interest rates. Market risk arises from fluctuations in interest rates, foreign exchange rates, and security prices that may result in changes in the values of financial instruments, such as trading and

available-for-sale

securities, mortgage loans held for sale (“MLHFS”), MSRs and derivatives that are accounted for on a fair value basis. Liquidity risk is the risk that financial condition or overall safety and soundness is adversely affected by the Company’s inability, or perceived inability, to meet its cash flow obligations in a timely and complete manner in either normal or stressed conditions. Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or misconduct), or adverse external events, including the risk of loss resulting from breaches in data security. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business. Compliance risk is the risk that the Company may suffer legal or regulatory sanctions, financial losses, and reputational damage if it fails to adhere to compliance requirements and the Company’s compliance policies. Strategic risk is the risk to current or projected financial condition and resilience arising from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the banking industry and operating environment. Reputation risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from negative public opinion. This risk may impair the Company’s competitiveness by affecting its ability to establish new relationships or services, or continue serving existing relationships. In addition to the risks identified above, other risk factors exist that may impact the Company. Refer to “Risk Factors” beginning on page 140, for a detailed discussion of these factors.

The Company’s Board and management-level governance committees are supported by a “three lines of defense” model for establishing effective checks and balances. The first line of

defense, the business lines, manages risks in conformity with established limits and policy requirements. In turn, business line leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, which includes the Chief Risk Officer’s organization as well as policy and oversight activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors first line of defense conformity with limits and policies, and provides reporting and escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee of the Board of Directors and senior management with independent assessment and assurance regarding the effectiveness of the Company’s governance, risk management and control processes.

Management regularly provides reports to the Risk Management Committee of the Board of Directors. The Risk Management Committee discusses with management the Company’s risk management performance, and provides a summary of key risks to the entire Board of Directors, covering the status of existing matters, areas of potential future concern and specific information on certain types of loss events. The Risk Management Committee considers quarterly reports by management assessing the Company’s performance relative to the risk appetite statements and the associated risk limits, including:

Column 1	Column 2	Column 3
–		Macroeconomic environment and other qualitative considerations, such as regulatory and compliance changes, litigation developments, geopolitical events, and technology and cybersecurity;

Column 1	Column 2	Column 3
–		Credit measures, including adversely rated and nonperforming loans, leveraged transactions, credit concentrations and lending limits;

Column 1	Column 2	Column 3
–		Interest rate and market risk, including market value and net income simulation, and trading-related Value at Risk (“VaR”);

Column 1	Column 2	Column 3
–		Liquidity risk, including funding projections under various stressed scenarios;

Column 1	Column 2	Column 3
–		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;

Column 1	Column 2	Column 3
–		Capital ratios and projections, including regulatory measures and stressed scenarios; and

Column 1	Column 2	Column 3
–		Strategic and reputation risk considerations, impacts and responses.

Credit Risk Management

The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The strategy also emphasizes diversification on a

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

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

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

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

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

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

loan-to-value

(“LTV”) information reflecting current market conditions on real estate-based loans. These and other risk characteristics are reflected in forecasts of delinquency levels, bankruptcies and losses which are the primary factors in determining the allowance for credit losses for the consumer lending segment.

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

Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments. The Company also engages in
non-lending
activities that may give rise to credit risk, including derivative transactions for balance sheet hedging purposes, foreign exchange transactions, deposit overdrafts and interest rate contracts for customers, investments in securities and other financial assets, and settlement risk, including Automated Clearing House transactions and the processing of credit card transactions for merchants. These activities are subject to credit review, analysis and approval processes.

Economic and Other Factors

In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), collateral values, trends in loan performance and macroeconomic factors, such as changes in unemployment rates, gross domestic product levels, inflation, interest rates and consumer bankruptcy filings.

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

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

Credit Diversification

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

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

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

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

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

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

The Company estimates updated LTV information on its outstanding residential mortgages quarterly, based on a method that combines automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current estimate of property value. For home equity and second mortgages, combined

loan-to-value

(“CLTV”) is the combination of the first mortgage original principal balance and the second lien outstanding principal balance, relative to the current estimate of property value. Certain loans do not have an LTV or CLTV, primarily due to lack of availability of relevant automated valuation model and/or home price indices values, or lack of necessary valuation data on acquired loans.

The following tables provide summary information of residential mortgages and home equity and second mortgages by LTV at December 31, 2022:

Residential Mortgages(Dollars in Millions)	Interest Only					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	%

Column 1	Column 2
(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					Percent of Total
Loan-to-Value / Combined Loan-to-Value
Less than or equal to 80%	$	10,657	$	1,331	$	11,988	93.2	%
Over 80% through 90%		574		130		704	5.5
Over 90% through 100%		61		12		73	.6
Over 100%		37		9		46	.3
No LTV/CLTV available		50		2		52	.4
Total	$	11,379	$	1,484	$	12,863	100.0	%

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Home equity and second mortgages were $12.9 billion at December 31, 2022, compared with $10.4 billion at December 31, 2021, and included $2.9 billion of home equity lines in a first lien position and $10.0 billion of home equity and second mortgage loans and lines in a junior lien position. Loans and lines in a junior lien position at December 31, 2022, included approximately $3.3 billion of loans and lines for which the Company also serviced the related first lien loan, and approximately $6.7 billion where the Company did not service the related first lien loan. The Company was able to determine the status of the related first liens using information the Company has as the servicer of the first lien or information reported on customer credit bureau files. The Company also evaluates other indicators of credit risk for these junior lien loans and lines, including delinquency, estimated average CLTV ratios and updated weighted-average credit scores in making its assessment of credit risk, related loss estimates and determining the allowance for credit losses.

The following table provides a summary of delinquency statistics and other credit quality indicators for the Company’s junior lien positions at December 31, 2022:

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

See the “Analysis and Determination of the Allowance for Credit Losses” section for additional information on how the Company determines the allowance for credit losses for loans in a junior lien position.

Credit card and other retail loans are diversified across customer segments and geographies. Diversification in the credit card portfolio is achieved with broad customer relationship distribution through the Company’s and financial institution partners’ branches, retail and affinity partners, and digital channels.

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

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


Credit score 660	87	%
Credit score 660	13
No credit score	—

Column 1	Column 2
(a)	Credit score distribution excludes loans serviced by others.

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Column 1	Column 2	Column 3
TABLE 15		Delinquent Loan Ratios as a Percent of Ending Loan Balances

At December 3190 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 3190 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	%

Column 1

Column 2

(a)

Delinquent loan ratios exclude $2.2 billion and $1.5 billion at December 31, 2022 and 2021, respectively, of loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. Including these loans, the ratio of residential mortgages 90 days or more past due and nonperforming to total residential mortgages was 2.28 percent and 2.43 percent at December 31, 2022 and 2021, respectively.

Loan Delinquencies

Trends in delinquency ratios are an indicator, among other considerations, of credit risk within the Company’s loan portfolios. The entire balance of a loan account is considered delinquent if the minimum payment contractually required to be made is not received by the date specified on the billing statement. Delinquent loans purchased and loans that could be purchased from GNMA mortgage pools under delinquent loan repurchase options whose repayments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, are excluded from delinquency statistics. In addition, in certain situations, a consumer lending customer’s account may be
re-aged
to remove it from delinquent status. Generally, the purpose of
re-aging
accounts is to assist customers who have recently overcome temporary financial difficulties and have demonstrated both the ability and willingness to resume regular payments. In addition, the Company may
re-age
the consumer lending account of a customer who has experienced longer-term

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

Accruing loans 90 days or more past due totaled $491 million at December 31, 2022, and included $22 million of accruing loans 90 days or more past due acquired as part of the MUB acquisition, compared with $472 million at December 31, 2021. Accruing loans 90 days or more past due are not included in nonperforming assets and continue to accrue interest because they are adequately secured by collateral, are in the process of collection and are reasonably expected to result in repayment or restoration to current status, or are managed in homogeneous portfolios with specified
charge-off
timeframes adhering to regulatory guidelines. The ratio of accruing loans 90 days or more past due to total loans was 0.13 percent at December 31, 2022, compared with 0.15 percent at December 31, 2021.

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The following table provides summary delinquency information for residential mortgages, credit card and other retail loans included in the consumer lending segment:

At December 31(Dollars in Millions)		Amount
	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	%

Column 1	Column 2
(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.

Column 1	Column 2
(b)	Includes revolving credit, installment and automobile loans.

Restructured Loans

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

Troubled Debt Restructurings

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

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

The Company continues to work with customers to modify loans for borrowers who are experiencing financial difficulties. Many of the Company’s TDRs are determined on a

case-by-case

basis in connection with ongoing loan collection processes. The modifications vary within each of the Company’s loan classes. Commercial lending segment TDRs generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate. The Company may also work with the borrower to make other changes to the loan to mitigate losses, such as obtaining additional collateral and/or guarantees to support the loan.

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

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

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

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

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

Column 1	Column 2
(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.

Column 1	Column 2
(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).

Column 1	Column 2
(c)	Primarily represents loans with a modified rate equal to 0 percent.

Column 1	Column 2
(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.

Column 1	Column 2
(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.

Column 1	Column 2
(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.

Column 1	Column 2
(g)	Approximately 6.8 percent and 32.4 percent of the total TDR loans purchased from GNMA mortgage pools are 30-89 days past due and 90 days or more past due, respectively, but are not classified as delinquent as their repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

Short-term and Other Loan Modifications

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

Nonperforming Assets

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

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

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

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

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Column 1	Column 2	Column 3
TABLE 16		Nonperforming Assets(a)

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

Changes in Nonperforming Assets

(Dollars in Millions)	Commercial and Commercial Real Estate					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

Column 1	Column 2
(a)	Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due.

Column 1

Column 2

(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.

Column 1	Column 2
(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.

Column 1	Column 2
(d)	Charge-offs exclude actions for certain card products and loan sales that were not classified as nonperforming at the time the charge-off occurred.

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Column 1	Column 2	Column 3
TABLE 17		Net Charge-offs as a Percent of Average Loans Outstanding

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

Analysis of Loan Net Charge-offs

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

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

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

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

Analysis and Determination of the Allowance for Credit Losses

The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs.

Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis. Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of economic forecast uncertainty. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions.

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

The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels, inflation, interest rates, and corporate bond spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores, delinquency status, collateral type and available valuation information, consideration of

end-of-term

losses on lease residuals, and the remaining term of the loan, adjusted for expected prepayments. For each loan portfolio, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices, economic conditions or other factors that may affect the accuracy of the model. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously
charged-off
or expected recoveries on collateral-dependent loans where recovery is expected through sale of the collateral. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses.

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

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

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

the first lien. At December 31, 2022, the Company serviced the first lien on 33 percent of the home equity loans and lines in a junior lien position. The Company also considers the status of first lien mortgage accounts reported on customer credit bureau files when the first lien is not serviced by the Company. Regardless of whether the Company services the first lien, an assessment is made of economic conditions, problem loans, recent loss experience and other factors in determining the allowance for credit losses. Based on the available information, the Company estimated $195 million or 1.5 percent of its total home equity portfolio at December 31, 2022, represented
non-delinquent
junior liens where the first lien was delinquent or modified.

When a loan portfolio is purchased, the acquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered PCD. An allowance is established for each population and considers product mix, risk characteristics of the portfolio and delinquency status and refreshed LTV ratios when possible. PCD loans also consider whether the loan has experienced a
charge-off,
bankruptcy or significant deterioration since origination. The allowance established for purchased loans not considered PCD is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to purchased loans, regardless of PCD status, are recognized through provision expense, with charge-offs charged to the allowance. The Company had a total unpaid principal balance of $5.1 billion of PCD loans, primarily related to the MUB acquisition, included in its loan portfolio at December 31, 2022.

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

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

Although the Company determined the amount of each element of the allowance separately and considers this process to be an important credit management tool, the entire allowance for credit losses is available for the entire loan portfolio. The actual amount of losses can vary significantly from the estimated amounts.

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

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

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

Economic conditions considered in estimating the allowance for credit losses at December 31, 2022 included changes in projected gross domestic product and unemployment levels. These factors are evaluated through a combination of quantitative calculations using multiple economic scenarios and additional qualitative assessments that consider the high degree of economic uncertainty in the current environment. The projected unemployment rates for 2023 considered in the estimate range from 3.5 percent to 8.4 percent.

The following table summarizes the baseline forecast for key economic variables the Company used in its estimate of the allowance for credit losses at December 31, 2022 and 2021:


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

Column 1	Column 2
(a)	Reflects quarterly average of forecasted reported United States unemployment rate.

Column 1	Column 2
(b)	Reflects year-over-year growth rates.

The allowance for credit losses related to commercial lending segment loans increased $516 million during the year ended December 31, 2022, reflecting the impact of the MUB acquisition, along with the impacts of loan growth and increasing economic uncertainty.

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

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

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Column 1	Column 2	Column 3
TABLE 18		Summary of Allowance for Credit Losses

(Dollars in Millions)	2022					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

Column 1	Column 2
(a)	Allowance for purchased credit deteriorated and charged-off loans acquired from MUB.

Column 1	Column 2
(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.

Column 1	Column 2
(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.

Column 1	Column 2
(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.

Column 1	Column 2	Column 3
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Column 1	Column 2	Column 3
TABLE 19		Allocation of the Allowance for Credit Losses

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

Residual Value Risk Management

The Company manages its risk to changes in the residual value of leased vehicles, office and business equipment, and other assets through disciplined residual valuation at the inception of a lease, diversification of its leased assets, regular residual asset valuation reviews and monitoring of residual value gains or losses upon the disposition of assets. Lease originations are subject to the same well-defined underwriting standards referred to in the “Credit Risk Management” section, which includes an evaluation of the residual value risk. Retail lease residual value risk is mitigated further by effective

end-of-term

marketing of
off-lease
vehicles.

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

Operational Risk Management

. The Company operates in many different businesses in diverse markets and relies on the ability of its employees and systems to process a high number of transactions. Operational risk is inherent in all business activities,

and the management of this risk is important to the achievement of the Company’s objectives. Business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities, including those additional or increased risks created by economic and financial disruptions. The Company maintains a system of controls with the objective of providing proper transaction authorization and execution, proper system operations, proper oversight of third parties with whom it does business, safeguarding of assets from misuse or theft, and ensuring the reliability and security of financial and other data.

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

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

In the past, the Company has experienced attack attempts on its computer systems, including various

denial-of-service

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

Column 1	Column 2	Column 3	Column 4	Column 5
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to develop and enhance its controls and processes to protect against these attempts.

Compliance Risk Management

The Company may suffer legal or regulatory sanctions, material financial loss, or damage to its reputation through failure to comply with laws, regulations, rules, standards of good practice, and codes of conduct, including those related to compliance with Bank Secrecy Act/anti-money laundering requirements, sanctions compliance requirements as administered by the Office of Foreign Assets Control, consumer protection and other requirements. The Company has controls and processes in place for the assessment, identification, monitoring, management and reporting of compliance risks and issues, including those created or increased by economic and financial disruptions. Refer to “Supervision and Regulation” in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022, for further discussion of the regulatory framework applicable to bank holding companies and their subsidiaries.

Interest Rate Risk Management

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

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

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

Table 20 summarizes the projected impact to net interest income over the next 12 months of various potential interest rate changes. The sensitivity of the projected impact to net interest income over the next 12 months is dependent on balance sheet growth, product mix, deposit behavior, pricing and funding decisions. While the Company utilizes models and assumptions based on historical information and expected behaviors, actual outcomes could vary significantly. Net interest income sensitivities reflect the impact of current market expectations for interest rates, driving an increase in baseline projected net interest income. As market expectations are reflected in projected results, incremental interest rate sensitivity declines on a percentage basis.

Use of Derivatives to Manage Interest Rate and Other Risks

To manage the sensitivity of earnings and capital to interest rate, prepayment, credit, price and foreign currency fluctuations (asset and liability management positions), the Company enters into derivative transactions. The Company uses derivatives for asset and liability management purposes primarily in the following ways:

Column 1	Column 2	Column 3
–		To convert fixed-rate debt and available-for-sale investment securities from fixed-rate payments to floating-rate payments;

Column 1	Column 2	Column 3
–		To convert floating-rate loans and debt from floating-rate payments to fixed-rate payments;

Column 1	Column 2	Column 3
–		To mitigate changes in value of the Company’s unfunded mortgage loan commitments, funded MLHFS and MSRs;

Column 1	Column 2	Column 3
–		To mitigate remeasurement volatility of foreign currency denominated balances; and

Column 1	Column 2	Column 3
–		To mitigate the volatility of the Company’s net investment in foreign operations driven by fluctuations in foreign currency exchange rates.

In addition, the Company enters into interest rate and foreign exchange derivative contracts to support the business requirements of its customers (customer-related positions). The Company minimizes the market and liquidity risks of customer-related positions by either entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or
non-derivative
financial instruments that partially or fully offset the exposure from these customer-related positions. The Company may enter into derivative contracts that are either exchange-traded, centrally cleared through clearinghouses or

over-the-counter.

The Company does not utilize derivatives for speculative purposes.

Column 1	Column 2	Column 3
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	%

Column 1	Column 2
*	Given the level of interest rates, downward rate scenario is not computed.

Column 1	Column 2
(a)	December 31, 2022 amounts include MUB.

Column 1	Column 2	Column 3
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The Company does not designate all of the derivatives that it enters into for risk management purposes as accounting hedges because of the inefficiency of applying the accounting requirements and may instead elect fair value accounting for the related hedged items. In particular, the Company enters into interest rate swaps, swaptions, forward commitments to buy

to-be-announced

securities (“TBAs”), U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to mitigate fluctuations in the value of its MSRs, but does not designate those derivatives as accounting hedges. Refer to Note 10 of the Notes to Consolidated Financial Statements for additional information regarding MSRs, including management of the changes in fair value.

Additionally, the Company uses forward commitments to sell TBAs and other commitments to sell residential mortgage loans at specified prices to economically hedge the interest rate risk in its residential mortgage loan production activities. The forward commitments to sell and the unfunded mortgage loan commitments on loans intended to be sold are considered derivatives under the accounting guidance related to accounting for derivative instruments and hedging activities. The Company has elected the fair value option for the MLHFS.

Derivatives are subject to credit risk associated with counterparties to the contracts. Credit risk associated with derivatives is measured by the Company based on the probability of counterparty default. The Company manages the credit risk of its derivative positions by diversifying its positions among various counterparties, by entering into master netting arrangements, and, where possible, by requiring collateral arrangements. The Company may also transfer counterparty credit risk related to interest rate swaps to third parties through the use of risk participation agreements. In addition, certain interest rate swaps, interest rate forwards and credit contracts are required to be centrally cleared through clearinghouses to further mitigate counterparty credit risk. The Company may mitigate credit risk on loans or lending portfolios through the use of credit contracts.

For additional information on derivatives and hedging activities, refer to Notes 20 and 21 in the Notes to Consolidated Financial Statements.

LIBOR Transition

In July 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) announced that it would no longer require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021. In March 2021, the FCA and the administrator of LIBOR announced that, with respect to the most commonly used tenors of United States Dollar LIBOR, LIBOR will no longer be published on a representative basis after June 30, 2023. The publication of all other tenors of United States Dollar LIBOR, as well as all
non-United
States Dollar LIBOR tenors, ceased to be provided or ceased to be representative after December 31, 2021. The Company holds financial instruments impacted by the discontinuance of LIBOR, including certain loans, investment securities, derivatives, borrowings and other financial instruments that use LIBOR as the benchmark rate. The Company also provides various services to

customers in its capacities as trustee, servicer, and asset manager, which involve financial instruments that will be similarly impacted by the discontinuance of LIBOR.

In order to facilitate the transition process, the Company has instituted a LIBOR Transition Office and commenced an enterprise-wide project to (1) identify, assess, monitor and mitigate risks associated with the expected discontinuance or unavailability of LIBOR, (2) actively engage with industry working groups and regulators, (3) develop and implement training and education materials with respect to LIBOR and its discontinuance for the Company and for customers, (4) achieve operational readiness for the use of alternative reference rates (“ARRs”) in new financial instruments and transition existing LIBOR financial instruments to ARRs, (5) develop and implement customer notification programs across the Company and engage impacted customers to remediate and transition impacted instruments, and (6) develop reporting on remediation of LIBOR instruments across the Company for both internal and external stakeholders. The Company has also invested in updating its systems, models, procedures and internal infrastructure as part of the transition program.

The Company transitioned its financial instruments associated to LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021, to ARRs, with limited exceptions. Additionally, in alignment with guidance from United States banking agencies and the FCA, the Company has ceased the use of LIBOR as a reference rate in new contracts, with limited exceptions, and continues to increase the usage of ARRs such as the Secured Overnight Financing Rate (“SOFR”). The Company also anticipates that additional financial instruments associated with the remaining United States Dollar LIBOR tenors will require transition to a new reference rate by June 30, 2023. The Company has been undergoing an enterprise-wide effort to proactively reprice LIBOR loans and derivatives that mature after June 30, 2023, with customers to an ARR. The Company has also adopted industry best practice guidelines for fallback language for new transactions, converted its cleared interest rate swaps discounting to SOFR discounting, and distributed communications related to the transition to certain impacted parties, both inside and outside the Company.

The Company’s MUB acquisition impacts the execution of the Company’s LIBOR transition strategies and execution plans. The Company is currently assessing MUB’s LIBOR transition program, remediation strategies, and preparedness to execute on remediation strategies. In certain instances, the Company and MUB have different remediation strategies. As a result, the Company is updating its LIBOR transition plans to ensure that the Company can execute remediation plans across all products and business units, including with respect to MUB.

The Company is currently assessing the applicability and scope of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), which was enacted on March 15, 2022, and the Regulations Implementing the Adjustable Interest Rate (LIBOR) Act (Regulation ZZ) (the “Final Rules”), which were implemented

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on December 16, 2022. The LIBOR Act and Final Rules establish a process for replacing LIBOR in existing LIBOR contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate by providing that a benchmark replacement identified by the Federal Reserve Board that is based on SOFR will replace LIBOR as the benchmark for those contracts as a matter of law, without the need to be amended by the parties. The Company is currently assessing its outstanding LIBOR portfolio to determine the eligibility of certain financial instruments for the LIBOR Act and will incorporate the LIBOR Act as a remediation strategy where prudent. Refer to “Risk Factors” beginning on page 140, for further discussion on potential risks that could adversely affect the Company’s financial results as a result of the LIBOR transition.

Market Risk Management

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

amounts reflect MUB beginning December 1, 2022, the day the acquisition transaction closed.

The average, high, low and
period-end

one-day
VaR amounts for the Company’s Covered Positions were as follows:

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

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

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

The average, high, low and
period-end

one-day
Stressed VaR amounts for the Company’s Covered Positions were as follows:

Year Ended December 31(Dollars in Millions)	2022
Average	$	10	$	7
High		19		9
Low		6		5
Period-end		13		7

Valuations of positions in client derivatives and foreign currency activities are based on discounted cash flow or other valuation techniques using market-based assumptions. These valuations are compared to third-party quotes or other market prices to determine if there are significant variances. Significant variances are approved by senior management in the Company’s corporate functions. Valuation of positions in the corporate bond trading, loan trading and municipal securities businesses are based on trader marks. These trader marks are evaluated against third-party prices, with significant variances approved by senior management in the Company’s corporate functions.

The Company also measures the market risk of its hedging activities related to residential MLHFS and MSRs using the Historical Simulation method. The VaRs are measured at the ninety-ninth percentile and employ factors pertinent to the market risks inherent in the valuation of the assets and hedges. A
one-year
look-back period is used to obtain past market data for the models.

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

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

Liquidity Risk Management

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

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

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

The Company regularly projects its funding needs under various stress scenarios and maintains a contingency funding plan consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of
on-balance
sheet and
off-balance
sheet funding sources. These liquidity sources include cash at the Federal Reserve Bank and certain European central banks, unencumbered liquid assets, and capacity to borrow from the FHLB and at the Federal Reserve Bank’s Discount Window. Unencumbered liquid assets in the Company’s investment securities portfolio provides asset liquidity through the Company’s ability to sell the securities or pledge and borrow against them. At December 31, 2022, the fair value of unencumbered investment securities totaled $135.5 billion, compared with $144.0 billion at December 31, 2021. Refer to Note 5 of the Notes to Consolidated Financial Statements and “Balance Sheet Analysis” for further information on investment securities maturities and trends. Asset liquidity is further enhanced by the Company’s practice of pledging loans to access secured borrowing facilities through the FHLB and Federal Reserve Bank. At December 31, 2022, the Company could have borrowed a total of an additional $114.8 billion from the FHLB and Federal Reserve Bank based on collateral available for additional borrowings.

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

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

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

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Column 1	Column 2	Column 3
TABLE 21		Credit Ratings

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

In addition to assessing liquidity risk on a consolidated basis, the Company monitors the parent company’s liquidity. The parent company’s routine funding requirements consist primarily of operating expenses, dividends paid to shareholders, debt service, repurchases of common stock and funds used for acquisitions. During 2022, the Company used approximately $5.5 billion of parent company cash to acquire MUB. The parent company obtains funding to meet its obligations from dividends collected from its subsidiaries and the issuance of debt and capital securities. The Company establishes limits for the minimal number of months into the future where the parent company can meet existing and forecasted obligations with cash and securities held that can be readily monetized. The Company measures and manages this limit in both normal and adverse conditions. The Company maintains sufficient funding to meet expected capital and debt service obligations for 24 months without the support of dividends from subsidiaries and assuming access to the wholesale markets is maintained. The Company maintains sufficient liquidity to meet its capital and debt service obligations for 12 months under adverse conditions without the support of dividends from subsidiaries or access to the wholesale markets. The parent company is currently in excess of required liquidity minimums.

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

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

At December 31, 2022, parent company long-term debt outstanding was $27.0 billion, compared with $18.9 billion at December 31, 2021. The increase was primarily due to $6.9 billion of medium-term note and $1.3 billion of subordinated note issuances, along with an increase related to the $3.5 billion of additional capital received as part of the MUB acquisition. These increases were partially offset by $1.3 billion of subordinated note and $1.0 billion of medium-term note repayments. As of December 31, 2022, there was no parent company debt scheduled to mature in 2023. Future debt maturities may be met through medium-term note and capital security issuances and dividends from subsidiaries, as well as from parent company cash and cash equivalents.

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

The Company is subject to a regulatory Liquidity Coverage Ratio (“LCR”) requirement which requires banks to maintain an adequate level of unencumbered high quality liquid assets to meet estimated liquidity needs over a
30-day
stressed period. At December 31, 2022, the Company was compliant with this requirement.

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

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

European Exposures

The Company provides merchant processing and corporate trust services in Europe either directly or through banking affiliations in Europe. Revenue generated from sources in Europe represented approximately 2 percent of the Company’s total net revenue for 2022. Operating cash for these businesses is deposited on a short-term basis typically with certain European central banks. For deposits placed at other European banks, exposure is mitigated by the Company placing deposits at multiple banks and managing the amounts on deposit at any bank based on institution-specific deposit limits. At December 31, 2022, the Company had an aggregate amount on deposit with European banks of approximately $7.7 billion, predominately with the Central Bank of Ireland and Bank of England.

In addition, the Company provides financing to domestic multinational corporations that generate revenue from customers in European countries, transacts with various European banks as counterparties to certain derivative-related activities, and through a subsidiary, manages money market funds that hold certain investments in European sovereign debt. Any deterioration in economic conditions in Europe, including the impacts resulting from the Russia-Ukraine conflict, is not expected to have a significant effect on the Company related to these activities.

Commitments, Contingent Liabilities and Other Contractual Obligations

The Company participates in many different contractual arrangements which may or may not be recorded on its balance sheet, with unrelated or consolidated entities, under which the Company has an obligation to pay certain amounts, provide credit or liquidity enhancements or provide market risk support. These arrangements also include any obligation related to a variable interest held in an unconsolidated entity that provides financing, liquidity, credit enhancement or market risk support.

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

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

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

The Company’s
off-balance
sheet arrangements with unconsolidated entities primarily consist of private investment funds or partnerships that make equity investments, provide debt financing or support community-based investments in
tax-advantaged
projects. In addition to providing investment returns, these arrangements in many cases assist the Company in complying with requirements of the Community Reinvestment Act. The investments in these entities generate a return primarily through the realization of federal and state income tax credits and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. The entities in which the Company invests are generally considered variable interest entities (“VIEs”). The Company’s recorded investment in these entities, net of contractual equity investment commitments of $2.4 billion, was $3.0 billion at December 31, 2022.

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

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

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

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Capital Management

The Company is committed to managing capital to maintain strong protection for depositors and creditors and for maximum shareholder benefit. The Company also manages its capital to exceed regulatory capital requirements for banking organizations. To achieve its capital goals, the Company employs a variety of capital management tools, including dividends, common share repurchases, and the issuance of subordinated debt,
non-cumulative
perpetual preferred stock, common stock and other capital instruments.

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

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

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

Total U.S. Bancorp shareholders’ equity was $50.8 billion at December 31, 2022, compared with $54.9 billion at December 31, 2021. The decrease was primarily the result of changes in unrealized gains and losses on

available-for-sale

investment securities included in other comprehensive income (loss) and dividends paid, partially offset by corporate earnings, the issuance of additional common shares related to the acquisition of MUB and the issuance of preferred stock.

The regulatory capital requirements effective for the Company follow Basel III, with the Company being subject to calculating its

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

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

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Column 1	Column 2	Column 3
TABLE 22		Regulatory Capital Ratios

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

Column 1	Column 2
(a)	Includes the impact of items included in other comprehensive income (loss), such as unrealized gains (losses) on available-for-sale securities, accumulated net gains on cash flow hedges, pension liability adjustments, etc., and the portion of deferred tax assets related to net operating loss and tax credit carryforwards not eligible for common equity tier 1 capital.

Column 1	Column 2
(b)	Includes the remaining portion of deferred tax assets not eligible for total tier 1 capital.

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

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

Line of Business Financial Review

The Company’s major lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support. These operating segments are components of the Company about which financial information is prepared and is evaluated regularly by management in deciding how to allocate resources and assess performance.

Basis for Financial Presentation

Business line results are derived from the Company’s business unit profitability reporting systems by specifically attributing managed balance sheet assets, deposits and other liabilities and their related income or expense. Refer to Note 24 of the Notes to Consolidated Financial Statements for further information on the business lines’ basis for financial presentation.

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

Corporate and Commercial Banking

Corporate and Commercial Banking offers lending, equipment finance and small-ticket leasing, depository services, treasury management, capital markets services, international trade services and other financial services to middle market, large corporate, commercial real estate, financial institution,
non-profit
and public sector clients. Corporate and Commercial Banking contributed $1.8 billion of the Company’s net income in 2022, or an increase of $277 million (17.7 percent), compared with 2021.

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

Column 1	Column 2	Column 3	Column 4	Column 5
				56

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equivalent basis, increased $615 million (21.6 percent) in 2022, compared with 2021, primarily due to higher loan and interest-bearing deposit balances, including those balances related to MUB, and the impact of higher rates on the margin benefit from deposits, partially offset by lower spreads on loans and lower noninterest-bearing deposits. Noninterest income decreased $31 million (3.0 percent) in 2022, compared with 2021, primarily due to lower commercial products revenue due to lower capital markets revenue, partially offset by higher trading revenue.

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

Consumer and Business Banking

Consumer and Business Banking comprises consumer banking, small business banking and consumer lending. Products and services are delivered through banking offices, telephone servicing and sales,
on-line
services, direct mail, ATM processing, mobile devices, distributed mortgage loan officers, and intermediary relationships including auto dealerships, mortgage banks, and strategic business partners. Consumer and Business Banking contributed $1.8 billion of the Company’s net income in 2022, or a decrease of $551 million (23.4 percent), compared with 2021.

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

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

Wealth Management and Investment Services

Wealth Management and Investment Services provides private banking,

financial advisory services, investment management, retail brokerage services, insurance, trust, custody and fund servicing through four businesses: Wealth Management, Global Corporate Trust & Custody, U.S. Bancorp Asset Management and Fund Services. Wealth Management and Investment Services contributed $1.3 billion of the Company’s net income in 2022, or an increase of $471 million (55.9 percent), compared with 2021.

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

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

Payment Services

Payment Services includes consumer and business credit cards, stored-value cards, debit cards, corporate, government and purchasing card services and merchant processing. Payment Services contributed $1.3 billion of the Company’s net income in 2022, or a decrease of $380 million (22.3 percent), compared with 2021.

Net revenue increased $290 million (4.8 percent) in 2022, compared with 2021. Net interest income, on a taxable-equivalent basis, increased $41 million (1.7 percent) in 2022, compared with 2021, primarily due to higher loan balances, higher loan fees and higher loan yields driven by higher interest rates, partially offset by higher funding costs. Noninterest income increased $249 million (7.0 percent) in 2022, compared with 2021, mainly due to continued strengthening of consumer and business spending across most sectors. As a result, there was strong growth in corporate payment products revenue driven by improving business spending across all product groups. In addition, merchant processing services revenue increased due to higher sales volume and higher merchant fees, partially offset by the impact of foreign currency rate changes in Europe.

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

Column 1	Column 2	Column 3
		57

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Column 1	Column 2	Column 3
TABLE 23		Line of Business Financial Performance

	Corporate andCommercial Banking					Consumer andBusiness Banking			Wealth Management andInvestment 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

	PaymentServices					Treasury andCorporate Support			ConsolidatedCompany
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	)

Column 1	Column 2
*	Not meaningful

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Treasury and Corporate Support

Treasury and Corporate Support includes the Company’s investment portfolios, funding, capital management, interest rate risk management, income taxes not allocated to the business lines, including most investments in
tax-advantaged
projects, and the residual aggregate of those expenses associated with corporate activities that are managed on a consolidated basis. Treasury and Corporate Support recorded a net loss of $459 million in 2022, compared with net income of $1.5 billion in 2021.

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

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

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

Non-GAAP
Financial Measures

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

Column 1	Column 2	Column 3
–		Tangible common equity to tangible assets,

Column 1	Column 2	Column 3
–		Tangible common equity to risk-weighted assets, and

Column 1	Column 2	Column 3
–		Common equity tier 1 capital to risk-weighted assets, reflecting the full implementation of the CECL methodology.

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

The Company also discloses net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered
non-GAAP
financial measures. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and
tax-exempt
sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.

There may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this report in their entirety, and not to rely on any single financial measure.

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		59

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

At December 31 (Dollars in Millions)	2022
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	%

Column 1	Column 2
(1)	Includes goodwill related to certain investments in unconsolidated financial institutions per prescribed regulatory requirements.

Column 1	Column 2
(2)	Includes the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology net of deferred taxes.

Column 1	Column 2
(3)	Includes the impact of the estimated increase in the allowance for credit losses related to the adoption of the CECL methodology.

Column 1	Column 2
(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.

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	Year Ended December 31			PercentChange
(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	%

Column 1	Column 2
(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.

Column 1	Column 2
(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.

Column 1	Column 2
(3)	Represents $329 million of merger and integration charges.

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Accounting Changes

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

Critical Accounting Policies

The accounting and reporting policies of the Company comply with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding the Company’s financial statements. Critical accounting policies are those policies management believes are the most important to the portrayal of the Company’s financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information (including third-party sources or available prices), sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under GAAP. Management has discussed the development and the selection of critical accounting policies with the Company’s Audit Committee.

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

Allowance for Credit Losses

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

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

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

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

The Company considers a range of economic scenarios in its determination of the allowance for credit losses. These scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses, and also the expectation that conditions will eventually normalize over the longer run. Scenarios worse than the Company’s expected outcome at December 31, 2022 include risks that inflationary pressures persist longer than anticipated, which could precipitate a moderate to severe recession that increases credit losses.

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

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

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

Fair Value Estimates

A portion of the Company’s assets and liabilities are carried at fair value on the Consolidated Balance Sheet, with changes in fair value recorded either through earnings or other comprehensive income (loss) in accordance with applicable accounting principles generally accepted in the United States. These include all of the Company’s

available-for-sale

investment securities, derivatives and other trading instruments, MSRs and MLHFS. The estimation of fair value also affects other loans held for sale, which are recorded at the

lower-of-cost-or-fair

value. The determination of fair value is important for certain other assets that are periodically evaluated for impairment using fair value estimates, including goodwill and other intangible assets, impaired loans, OREO and other repossessed assets. Refer to Note 3 of the Notes to Consolidated Financial Statements for additional information on fair value estimates of assets and liabilities assumed in the MUB acquisition.

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

When available, trading and

available-for-sale

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

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

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

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

Mortgage Servicing Rights

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

Income Taxes

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

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

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