Fifth Third Bank 2010 Annual Report Download - page 126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
124 Fifth Third Bancorp
29. CERTAIN REGULATORY REQUIREMENTS AND CAPITAL RATIOS
The principal source of income and funds for the Bancorp (parent
company) are dividends from its subsidiaries. The dividends paid
by the Bancorp’s state chartered bank are subject to regulations
and limitations prescribed by the appropriate state authority. The
Bancorp’s nonbank subsidiaries are also limited by certain federal
and state statutory provisions and regulations covering the amount
of dividends that may be paid in any given year.
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
deposit with the FRB. In 2010 and 2009, the subsidiary banks were
required to maintain average cash reserve balances of $547 million
and $439 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 (Tier I capital ratio), total capital of at least
eight percent of risk-weighted assets. (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. 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. Current provisions of
the recently enacted Dodd-Frank Act will phase out the inclusion
of certain trust preferred securities as a component of Tier I
capital beginning January 1, 2013. Under these provisions, these
trust preferred securities would qualify as a component of Tier II
capital. At December 31, 2010, the Bancorp’s Tier I capital
included $2.8 billion of trust preferred securities.
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, allowances for loan and lease losses.
Assets and credit equivalent amounts of off-balance-sheet
items are assigned to one of several broad risk categories,
according to the obligor, guarantor or nature of collateral. The
aggregate dollar value of the amount of each category is multiplied
by the associated risk weighting of that category. The resulting
weighted values from each of the risk categories in sum is the total
risk-weighted assets. Quarterly average assets for this purpose do
not include goodwill and any other intangible assets and other
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, 2010 and 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, 2010 and 2009. As of December 31, 2010, the most
recent notification from the FRB categorized the Bancorp and 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.
The following table presents capital and risk-based capital and
leverage ratios for the Bancorp and its subsidiary bank at
December 31:
2010 2009
($ in millions) Amount Ratio Amount Ratio
Total risk-based capital (to risk-weighted assets): (a)
Fifth Third Bancorp (Consolidated) $18,173 18.14 % $17,648 17.48 %
Fifth Third Bank 14,931 15.17 15,663 15.56
Tier I capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) 13,965 13.94 13,428 13.30
Fifth Third Bank 12,976 13.18 13,574 13.49
Tier I leverage (to average assets):
Fifth Third Bancorp (Consolidated) 13,965 12.79 13,428 12.34
Fifth Third Bank 12,976 12.08 13,574 12.69
(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.