US Bank 2012 Annual Report Download - page 62

extend credit and letters of credit, refer to Note 21 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 tax-advantaged
investments. 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.
The entities in which the Company invests are generally
considered variable interest entities. The Company’s recorded
investment in these entities as of December 31, 2012 was
approximately $1.8 billion.
The Company also has non-controlling financial
investments in private funds and partnerships considered
variable interest entities. The Company’s recorded investment
in these entities was approximately $72 million at
December 31, 2012 and the Company had unfunded
commitments to invest an additional $16 million. For more
information on the Company’s interests in unconsolidated
variable interest entities, refer to Note 7 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;
merchant charge-back guarantees through the Company’s
involvement in providing merchant processing services; and
minimum revenue guarantee arrangements. 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., MasterCard International, the Company
and several other Visa U.S.A. Inc. member banks. The
indemnification by the Company and other Visa U.S.A. Inc.
member banks has no maximum amount. Refer to Note 21 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.
Capital Management The Company is committed to managing
capital to maintain strong protection for depositors and
creditors and for maximum shareholder benefit. The
Company continually assesses its business risks and capital
position. The Company also manages its capital to exceed
regulatory capital requirements for well-capitalized bank
holding companies. These requirements follow the Capital
Accord of the Basel Committee on Banking Supervision
(“Basel I”). 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.
On March 13, 2012, the Company increased its dividend
rate per common share by 56 percent, from $.125 per quarter
to $.195 per quarter.
The Company repurchased approximately 59 million
shares of its common stock in 2012, compared with
approximately 22 million shares in 2011. The average price
paid for the shares repurchased in 2012 was $31.78 per share,
compared with $24.71 per share in 2011. As of December 31,
2012, the Company had approximately 54 million shares that
may yet be purchased under the current Board of Directors
approved authorization. For a more complete analysis of
activities impacting shareholders’ equity and capital
management programs, refer to Note 14 of the Notes to
Consolidated Financial Statements.
Total U.S. Bancorp shareholders’ equity was $39.0 billion
at December 31, 2012, compared with $34.0 billion at
December 31, 2011. The increase was primarily the result of
corporate earnings and the issuance of $2.2 billion of non-
cumulative perpetual preferred stock to replace certain junior
subordinated debentures, due to proposed rule changes for
securities that qualify as Tier 1 capital, partially offset by
dividends and common share repurchases.
Banking regulators define minimum capital requirements
for banks and financial services holding companies. These
requirements are expressed in the form of a minimum Tier 1
capital ratio, total risk-based capital ratio, and Tier 1 leverage
ratio. The minimum required level for these ratios is 4.0
percent, 8.0 percent, and 4.0 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 of 6.0 percent,
10.0 percent, and 5.0 percent, respectively. The most recent
notification from the Office of the Comptroller of the
Currency categorized each of the Company’s banks as “well-
capitalized”, under the FDIC Improvement Act prompt
corrective action provisions that are applicable to all banks.
There are no conditions or events since that notification that
management believes have changed the risk-based category of
any covered subsidiary banks.
58 U.S. BANCORP