US Bank 2015 Annual Report Download - page 67

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 net investment in these
entities as of December 31, 2015 was approximately
$2.8 billion.
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 $32 million at December 31, 2015, and
the Company had unfunded commitments to invest an
additional $15 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;
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. 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.
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 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.
On June 16, 2015, the Company announced its Board of
Directors had approved a 4.1 percent increase in the
Company’s dividend rate per common share, from $0.245
per quarter to $0.255 per quarter.
The Company repurchased approximately 52 million shares
of its common stock in 2015, compared with approximately
54 million shares in 2014. The average price paid for the
shares repurchased in 2015 was $43.54 per share, compared
with $41.65 per share in 2014. As of December 31, 2015, the
approximate dollar value of shares that may yet be purchased
by the Company under the current Board of Directors
approved authorization was $1.3 billion. 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 $46.1 billion
at December 31, 2015, compared with $43.5 billion at
December 31, 2014. The increase was primarily the result of
corporate earnings, partially offset by dividends and common
share repurchases.
Beginning January 1, 2014, the regulatory capital
requirements effective for the Company follow Basel III,
subject to certain transition provisions from Basel I over the
following four years to full implementation by January 1, 2018.
Basel III includes two comprehensive methodologies for
calculating risk-weighted assets: a general standardized
approach and more risk-sensitive advanced approaches, with
the Company’s capital adequacy being evaluated against the
methodology that is most restrictive. 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,
and tier 1 leverage ratio. The minimum required level for these
ratios at December 31, 2015, was 4.5 percent, 6.0 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. At December 31, 2015, the
minimum “well-capitalized” threshold for the common equity
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