Fifth Third Bank 2009 Annual Report Download - page 111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 109
28. CERTAIN REGULATORY REQUIREMENTS AND CAPITAL RATIOS
The principal source of income and funds for the Bancorp (parent
company) are dividends from its subsidiaries. During 2009, the
amount of dividends the bank subsidiaries could pay to the
Bancorp without prior approval of regulatory agencies was limited
to their 2009 eligible net profits and the adjusted retained 2008 and
2007 net income of those subsidiaries.
The Bancorp’s subsidiary banks must maintain cash reserve
balances when total reservable deposit liabilities are greater than
the regulatory exemption. These reserve requirements may be
satisfied with vault cash and noninterest-bearing cash balances on
reserve with a Federal Reserve Bank. In 2009 and 2008, the
subsidiary banks were required to maintain average cash reserve
balances of $439 million and $403 million, respectively.
The FRB adopted guidelines pursuant to which it assesses the
adequacy of capital in examining and supervising a bank holding
company and in analyzing applications to it under the Bank
Holding Company Act of 1956, as amended. These guidelines
include quantitative measures that assign risk weightings to assets
and off-balance sheet items, as well as define and set minimum
regulatory capital requirements. All bank holding companies are
required to maintain core capital (Tier I) of at least four percent of
risk-weighted assets and off-balance sheet items (Tier I capital
ratio), total capital of at least eight percent of risk-weighted assets
and off-balance sheet items (Total risk-based capital ratio) and Tier
I capital of at least three percent of adjusted quarterly average
assets (Tier I leverage ratio). Failure to meet the minimum capital
requirements can initiate certain actions by regulators that could
have a direct material effect on the Consolidated Financial
Statements of the Bancorp.
Tier I capital consists principally of shareholders’ equity
including Tier I qualifying trust preferred securities or notes
payable pertaining to unconsolidated special purpose entities that
issue trust preferred securities. It excludes unrealized gains and
losses on available-for-sale securities and unrecognized pension
actuarial gains and losses and prior service cost, goodwill and
certain other intangibles.
Tier II capital consists principally of perpetual and trust
preferred stock that is not eligible to be included as Tier I capital,
term subordinated debt, intermediate-term preferred stock and,
subject to limitations, general allowances for loan and lease losses.
Assets are adjusted under the risk-based guidelines to take into
account different risk characteristics. Average assets for this
purpose does not include goodwill and any other intangible assets
and investments that the FRB determines should be deducted
from Tier I capital.
The supervisory agencies, including the Bancorp’s primary
regulator, the Federal Reserve Bank of Cleveland, have issued
regulations regarding the capital adequacy of subsidiary banks.
These requirements are substantially similar to those adopted by
the FRB regarding bank holding companies, as described
previously. In addition, the federal banking agencies have issued
substantially similar regulations to implement the system of
prompt corrective action established by Section 38 of the Federal
Deposit Insurance Act. Under the regulations, a bank generally
shall be deemed to be well-capitalized if it has a Total risk-based
capital ratio of 10% or more, a Tier I capital ratio of six percent or
more, a Tier I leverage ratio of five percent or more and is not
subject to any written capital order or directive. If an institution
becomes undercapitalized, it would become subject to significant
additional oversight, regulations and requirements as mandated by
the Federal Deposit Insurance Act.
On September 30, 2009 the Bancorp merged its Fifth Third
Bank (Michigan) and Fifth Third Bank N.A. charters into the Fifth
Third Bank (Ohio) charter. As a result, regulatory capital
requirements are only applicable to the Bancorp and its subsidiary
bank, Fifth Third Bank (Ohio) as of December 31, 2009. The
Bancorp and its subsidiary bank had Tier I, Total risk-based capital
and Tier I leverage ratios above the well-capitalized levels at
December 31, 2009 and 2008. As of December 31, 2009, the most
recent notification from the FRB categorized the Bancorp and
each its subsidiary bank as well-capitalized under the regulatory
framework for prompt corrective action. To continue to qualify
for financial holding company status pursuant to the Gramm-
Leach-Bliley Act of 1999, the Bancorp’s subsidiary banks must,
among other things, maintain “well-capitalized” capital ratios.
Bank regulatory authorities in the United States and
international bank supervisory organizations, principally the Basel
Committee on Banking Supervision, are currently considering
changes to the risk-based capital adequacy framework for banks,
including emphasis on credit, market and operational risk
components, which ultimately could affect the appropriate capital
guidelines for bank holding companies such as the Bancorp. The
following table presents capital and risk-based capital and leverage
ratios for the Bancorp and its significant subsidiary banks at
December 31:
2009 2008
($ in millions) Amount Ratio Amount Ratio
Total risk-based capital (to risk-weighted assets): (a)
Fifth Third Bancorp (Consolidated) $17,635 17.48 % $16,646 14.78 %
Fifth Third Bank (Ohio) 15,648 15.56 6,444 10.92
Fifth Third Bank (Michigan) (b) N/A N/A 6,664 12.95
Fifth Third Bank, N.A. (b) N/A N/A 948 17.59
Tier I capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) 13,428 13.31 11,924 10.59
Fifth Third Bank (Ohio) 13,575 13.49 4,799 8.13
Fifth Third Bank (Michigan) (b) N/A N/A 5,692 11.06
Fifth Third Bank, N.A. (b) N/A N/A 880 16.33
Tier I leverage (to average assets):
Fifth Third Bancorp (Consolidated) 13,428 12.43 11,924 10.27
Fifth Third Bank (Ohio) 13,575 12.69 4,799 7.03
Fifth Third Bank (Michigan) (b) N/A N/A 5,692 10.45
Fifth Third Bank, N.A. (b) N/A N/A 880 14.11
(a) Under the banking agencies risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The
aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. The resulting weighted values are added together resulting in the Bancorp’s total
risk-weighted assets.
(b) The Bancorp merged its Fifth Third Bank (Michigan) and Fifth Third Bank N.A. charters into the Fifth Third Bank (Ohio) charter on September 30, 2009. As such, amounts
and ratios are not applicable (N/A) as of December 31, 2009.