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Shareholders' Equity
12 Months Ended
Dec. 31, 2016
Equity [Abstract]  
Shareholders' Equity

  NOTE 14   Shareholders’ Equity

 

At December 31, 2016 and 2015, the Company had authority to issue 4 billion shares of common stock and 50 million shares of preferred stock. The Company had 1.7 billion shares of common stock outstanding at December 31, 2016 and 2015. The Company had 67 million shares reserved for future issuances, primarily under its stock incentive plans at December 31, 2016.

 

The number of shares issued and outstanding and the carrying amount of each outstanding series of the Company’s preferred stock was as follows:

 

     2016      2015  

At December 31

(Dollars in Millions)

   Shares
Issued and
Outstanding
     Liquidation
Preference
     Discount      Carrying
Amount
     Shares
Issued and
Outstanding
     Liquidation
Preference
     Discount      Carrying
Amount
 

Series A

     12,510       $ 1,251       $ 145       $ 1,106         12,510       $ 1,251       $ 145       $ 1,106   

Series B

     40,000         1,000                 1,000         40,000         1,000                 1,000   

Series F

     44,000         1,100         12         1,088         44,000         1,100         12         1,088   

Series G

     43,400         1,085         10         1,075         43,400         1,085         10         1,075   

Series H

     20,000         500         13         487         20,000         500         13         487   

Series I

     30,000         750         5         745         30,000         750         5         745   

Total preferred stock(a)

     189,910       $ 5,686       $ 185       $ 5,501         189,910       $ 5,686       $ 185       $ 5,501   
(a) The par value of all shares issued and outstanding at December 31, 2016 and 2015, was $1.00 per share.

 

During 2015, the Company issued depositary shares representing an ownership interest in 30,000 shares of Series I Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series I Preferred Stock”). The Series I Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable semiannually, in arrears, at a rate per annum equal to 5.125 percent from the date of issuance to, but excluding, January 15, 2021, and thereafter will accrue and be payable quarterly at a floating rate per annum equal to three-month LIBOR plus 3.486 percent. The Series I Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after January 15, 2021. The Series I Preferred stock is redeemable at the Company’s option, in whole, but not in part, prior to January 15, 2021 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series I Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2013, the Company issued depositary shares representing an ownership interest in 20,000 shares of Series H Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series H Preferred Stock”). The Series H Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 5.15 percent. The Series H Preferred Stock is redeemable at the Company’s option, in whole or in part, on or after July 15, 2018. The Series H Preferred stock is redeemable at the Company’s option, in whole, but not in part, prior to July 15, 2018 within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series H Preferred Stock as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve.

During 2012, the Company issued depositary shares representing an ownership interest in 44,000 shares of Series F Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series F Preferred Stock”), and depositary shares representing an ownership interest in 43,400 shares of Series G Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series G Preferred Stock”). The Series F Preferred Stock and Series G Preferred Stock have no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to 6.50 percent from the date of issuance to, but excluding, January 15, 2022, and thereafter at a floating rate per annum equal to three-month LIBOR plus 4.468 percent for the Series F Preferred Stock, and 6.00 percent from the date of issuance to, but excluding, April 15, 2017, and thereafter at a floating rate per annum equal to three-month LIBOR plus 4.86125 percent for the Series G Preferred Stock. Both series are redeemable at the Company’s option, in whole or in part, on or after January 15, 2022, for the Series F Preferred Stock and April 15, 2017, for the Series G Preferred Stock. Both series are redeemable at the Company’s option, in whole, but not in part, prior to January 15, 2022, for the Series F Preferred Stock and prior to April 15, 2017, for the Series G Preferred Stock, within 90 days following an official administrative or judicial decision, amendment to, or change in the laws or regulations that would not allow the Company to treat the full liquidation value of the Series F Preferred Stock or Series G Preferred Stock, respectively, as Tier 1 capital for purposes of the capital adequacy guidelines of the Federal Reserve Board.

During 2010, the Company issued depositary shares representing an ownership interest in 5,746 shares of Series A Non-Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”) to investors, in exchange for their portion of USB Capital IX Income Trust Securities. During 2011, the Company issued depositary shares representing an ownership interest in 6,764 shares of Series A Preferred Stock to USB Capital IX, thereby settling the stock purchase contract established between the Company and USB Capital IX as part of the 2006 issuance of USB Capital IX Income Trust Securities. The preferred shares were issued to USB Capital IX for the purchase price specified in the stock forward purchase contract. The Series A Preferred Stock has a liquidation preference of $100,000 per share, no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to the greater of three-month LIBOR plus 1.02 percent or 3.50 percent. The Series A Preferred Stock is redeemable at the Company’s option, subject to prior approval by the Federal Reserve Board.

During 2006, the Company issued depositary shares representing an ownership interest in 40,000 shares of Series B Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $25,000 per share (the “Series B Preferred Stock”). The Series B Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to the greater of three-month LIBOR plus .60 percent, or 3.50 percent. The Series B Preferred Stock is redeemable at the Company’s option, subject to the prior approval of the Federal Reserve Board.

During 2016, 2015 and 2014, the Company repurchased shares of its common stock under various authorizations approved by its Board of Directors. As of December 31, 2016, 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.

The following table summarizes the Company’s common stock repurchased in each of the last three years:

 

(Dollars and Shares in Millions)      Shares        Value  

2016

       61         $ 2,600   

2015

       52           2,246   

2014

       54           2,262   

 

Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss). The reconciliation of the transactions affecting accumulated other comprehensive income (loss) included in shareholders’ equity for the years ended December 31, is as follows:

 

(Dollars in Millions)   Unrealized Gains
(Losses) on
Securities
Available-For-
Sale
    Unrealized Gains
(Losses) on Securities
Transferred From
Available-For-Sale to
Held-To-Maturity
    Unrealized Gains
(Losses) on
Derivative Hedges
    Unrealized Gains
(Losses) on
Retirement Plans
    Foreign Currency
Translation
    Total  

2016

           

Balance at beginning of period

  $ 111      $ 36      $ (67   $ (1,056   $ (43   $ (1,019

Changes in unrealized gains and losses

    (858            74        (255            (1,039

Other-than-temporary impairment not recognized in earnings on securities available-for-sale

    (1                                 (1

Foreign currency translation adjustment(a)

                                (28     (28

Reclassification to earnings of realized gains and losses

    (22     (18     124        163               247   

Applicable income taxes

    339        7        (76     35               305   
 

 

 

 

Balance at end of period

  $ (431   $ 25      $ 55      $ (1,113   $ (71   $ (1,535
 

 

 

 

2015

           

Balance at beginning of period

  $ 392      $ 52      $ (172   $ (1,106   $ (62   $ (896

Changes in unrealized gains and losses

    (457            (25     (142            (624

Foreign currency translation adjustment(a)

                                20        20   

Reclassification to earnings of realized gains and losses

           (25     195        223               393   

Applicable income taxes

    176        9        (65     (31     (1     88   
 

 

 

 

Balance at end of period

  $ 111      $ 36      $ (67   $ (1,056   $ (43   $ (1,019
 

 

 

 

2014

           

Balance at beginning of period

  $ (77   $ 70      $ (261   $ (743   $ (60   $ (1,071

Changes in unrealized gains and losses

    764               (41     (733            (10

Other-than-temporary impairment not recognized in earnings on securities available-for-sale

    1                                    1   

Foreign currency translation adjustment(a)

                                (4     (4

Reclassification to earnings of realized gains and losses

    (3     (30     186        144               297   

Applicable income taxes

    (293     12        (56     226        2        (109
 

 

 

 

Balance at end of period

  $ 392      $ 52      $ (172   $ (1,106   $ (62   $ (896
(a) Represents the impact of changes in foreign currency exchange rates on the Company’s net investment in foreign operations and related hedges.

 

Additional detail about the impact to net income for items reclassified out of accumulated other comprehensive income (loss) and into earnings for the years ended December 31, is as follows:

 

    Impact to Net Income     

Affected Line Item in the
Consolidated Statement of Income

(Dollars in Millions)   2016        2015        2014     

Unrealized gains (losses) on securities available-for-sale

              

Realized gains (losses) on sale of securities

  $ 27         $ 1         $ 11       Total securities gains (losses), net

Other-than-temporary impairment recognized in earnings

    (5        (1        (8   
 

 

 

    
    22                     3       Total before tax
    (9                  (1    Applicable income taxes
 

 

 

    
    13                     2       Net-of-tax

Unrealized gains (losses) on securities transferred from available-for-sale to held-to-maturity

              

Amortization of unrealized gains

    18           25           30       Interest income
    (7        (9        (12    Applicable income taxes
 

 

 

    
    11           16           18       Net-of-tax

Unrealized gains (losses) on derivative hedges

              

Realized gains (losses) on derivative hedges

    (124        (195        (186    Net interest income
    48           75           71       Applicable income taxes
 

 

 

    
    (76        (120        (115    Net-of-tax

Unrealized gains (losses) on retirement plans

              

Actuarial gains (losses), prior service cost (credit) and transition obligation (asset) amortization

    (163        (223        (144    Employee benefits expense
    63           85           56       Applicable income taxes
 

 

 

    
    (100        (138        (88    Net-of-tax

Total impact to net income

  $ (152      $ (242      $ (183     

 

Regulatory Capital The Company uses certain measures defined by bank regulatory agencies to assess its capital. 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.

Tier 1 capital is considered core capital and includes common shareholders’ equity adjusted for the aggregate impact of certain items included in other comprehensive income (loss) (“common equity tier 1 capital”), plus qualifying preferred stock, trust preferred securities and noncontrolling interests in consolidated subsidiaries subject to certain limitations. Total risk-based capital includes Tier 1 capital and other items such as subordinated debt and the allowance for credit losses. Capital measures are stated as a percentage of risk-weighted assets, which are measured based on their perceived credit and operational risks and include certain off-balance sheet exposures, such as unfunded loan commitments, letters of credit, and derivative contracts. Under the standardized approach, the Company is also subject to a leverage ratio requirement, a non risk-based asset ratio, which is defined as Tier 1 capital as a percentage of average assets adjusted for goodwill and other non-qualifying intangibles and other assets.

For a summary of the regulatory capital requirements and the actual ratios as of December 31, 2016 and 2015, for the Company and its bank subsidiary, see Table 23 included in Management’s Discussion and Analysis, which is incorporated by reference into these Notes to Consolidated Financial Statements.

 

The following table provides the components of the Company’s regulatory capital at December 31:

 

(Dollars in Millions)   2016        2015  

Basel III transitional standardized approach:

      

Common shareholders’ equity

  $ 41,797         $ 40,630   

Less intangible assets

      

Goodwill (net of deferred tax liability)

    (8,203        (8,295

Other disallowed intangible assets

    (427        (335

Other(a)

    553           612   
 

 

 

 

Total common equity tier 1 capital

    33,720           32,612   

Qualifying preferred stock

    5,501           5,501   

Noncontrolling interests eligible for tier 1 capital

    203           318   

Other

    (3          
 

 

 

 

Total tier 1 capital

    39,421           38,431   

Eligible portion of allowance for credit losses

    4,357           4,255   

Subordinated debt and noncontrolling interests eligible for tier 2 capital

    3,576           2,616   

Other

    1           11   
 

 

 

 

Total tier 2 capital

    7,934           6,882   
 

 

 

 

Total risk-based capital

  $ 47,355         $ 45,313   
 

 

 

 

Risk-weighted assets

  $ 358,237         $ 341,360   

Basel III transitional advanced approaches:

      

Common shareholders’ equity

  $ 41,797         $ 40,630   

Less intangible assets

      

Goodwill (net of deferred tax liability)

    (8,203        (8,295

Other disallowed intangible assets

    (427        (335

Other(a)

    553           612   
 

 

 

 

Total common equity tier 1 capital

    33,720           32,612   

Qualifying preferred stock

    5,501           5,501   

Noncontrolling interests eligible for tier 1 capital

    203           318   

Other

    (3          
 

 

 

 

Total tier 1 capital

    39,421           38,431   

Eligible portion of allowance for credit losses

    1,266           1,204   

Subordinated debt and noncontrolling interests eligible for tier 2 capital

    3,576           2,616   

Other

    1           11   
 

 

 

 

Total tier 2 capital

    4,843           3,831   
 

 

 

 

Total risk-based capital

  $ 44,264         $ 42,262   
 

 

 

 

Risk-weighted assets

  $ 277,141         $ 261,668   
(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.

 

Noncontrolling interests principally represent third party investors’ interests in consolidated entities, including preferred stock of consolidated subsidiaries. During 2006, the Company’s banking subsidiary formed USB Realty Corp., a real estate investment trust, for the purpose of issuing 5,000 shares of Fixed-to-Floating Rate Exchangeable Non-cumulative Perpetual Series A Preferred Stock with a liquidation preference of $100,000 per share (“Series A Preferred Securities”) to third party investors. Dividends on the Series A Preferred Securities, if declared, will accrue and be payable quarterly, in arrears, at a rate per annum equal to three-month LIBOR plus 1.147 percent. If USB Realty Corp. has not declared a dividend on the Series A Preferred Securities before the dividend payment date for any dividend period, such dividend shall not be cumulative and shall cease to accrue and be payable, and USB Realty Corp. will have no obligation to pay dividends accrued for such dividend period, whether or not dividends on the Series A Preferred Securities are declared for any future dividend period.

The Series A Preferred Securities will be redeemable, in whole or in part, at the option of USB Realty Corp. on each fifth anniversary after the dividend payment date occurring in January 2012. Any redemption will be subject to the approval of the Office of the Comptroller of the Currency. During 2016, the Company purchased 500 shares of the Series A Preferred Securities held by third party investors at an amount below their carrying amount, recording a net gain of $9 million directly to retained earnings. As of December 31, 2016, 4,500 shares of the Series A Preferred Securities remain outstanding.