Company: USB-PA
Filing Date: 2025-11-05
Form Type: 10-Q
Source: 0000036104-25-000064
Chunk: 113

Company: US BANCORP \DE\
Filing Date: 2025-11-05
Form: 10-Q
Item: Item 8
Chunk 113
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 notes measured at fair value are valued using a discounted cash flow model that utilizes market observable inputs and are classified within Level 2. The discount rate used in the discounted cash flow model incorporates the impact of the Company’s credit spread, which is based on observable spreads in the secondary bond market. Changes in fair value 

U.S. Bancorp65

attributable to instrument specific credit risk are recorded as debit valuation adjustments (“DVA”) in other comprehensive income (loss) with all other changes in fair value recorded in interest expense. Included in other comprehensive income (loss) and interest expense on long-term debt were net DVA losses of $5 million and $1 million, respectively, for the three months ended September 30, 2025, and net DVA losses of $8 million and net gains of $1 million, respectively, for the nine months ended September 30, 2025, from the changes in the fair value of structured notes under fair value option account guidance.Mortgage Servicing Rights MSRs are valued using a discounted cash flow methodology, and are classified within Level 3. The Company determines fair value of the MSRs by projecting future cash flows for different interest rate scenarios using prepayment rates and other assumptions, and discounts these cash flows using a risk adjusted rate based on option adjusted spread levels. There is minimal observable market activity for MSRs on comparable portfolios, and therefore, the determination of fair value requires significant management judgment. Refer to Note 6 for further information on MSR valuation assumptions. Derivatives The majority of derivatives held by the Company are executed over-the-counter or centrally cleared through clearinghouses and are valued using market standard cash flow valuation techniques. The models incorporate inputs, depending on the type of derivative, including interest rate curves, foreign exchange rates and volatility. All derivative values incorporate an assessment of the risk of counterparty nonperformance, measured based on the Company’s evaluation of credit risk including external assessments of credit risk. The Company monitors and manages its nonperformance risk by considering its ability to net derivative positions under master netting arrangements, as well as collateral received or provided under collateral arrangements. Accordingly, the Company has elected to measure the fair value of derivatives, at a counterparty level, on a net basis. The majority of the derivatives are classified within Level 2 of the fair value hierarchy, as the significant inputs to the models, including nonperformance risk, are observable. However, certain derivative transactions are with counterparties where risk of nonperformance cannot be observed in the market and, therefore, the credit