Fifth Third Bank 2010 Annual Report Download - page 64

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
62 Fifth Third Bancorp
Capital Ratios
The Federal Reserve Board established quantitative measures that
assign risk weightings to assets and off-balance sheet items and
also define and set minimum regulatory capital requirements (risk-
based capital ratios). Additionally, the guidelines define “well-
capitalized” ratios for Tier I and total risk-based capital as 6% and
10%, respectively. The Bancorp exceeded these “well-capitalized”
ratios for all periods presented. Additionally, although the assessed
companies under SCAP were only required to demonstrate that
they met the 4% Tier I common equity ratio requirement for the
period evaluated in the SCAP, it is reasonable to assume the
supervisory agencies expect the 19 large bank holding companies
assessed under the SCAP stress tests to maintain their Tier I
common equity ratio above 4%, although no formal requirement
exists.
On November 17, 2010, the Federal Reserve issued a revised
temporary addendum to Supervision and Regulation letter 09-4,
"Dividend Increases and Other Capital Distributions for the 19
Supervisory Capital Assessment Program Firms." This letter
requires the 19 financial institutions including the Bancorp, to
undergo a review of their capital planning processes and plans
regarding capital redistribution and absorption activity. As part of
this review, the Bancorp was required to submit a comprehensive
capital plan by January 7, 2011, that demonstrated its ability to
withstand losses under “adverse” economic conditions over the
next two years. The Bancorp submitted all of its documents
according to the regulatory timeline. The results of this assessment
process are not expected to be made public.
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. At
December 31, 2010, the Bancorp’s Tier I capital included $2.8
billion of trust preferred securities representing approximately 276
bp of risk-weighted assets.
The Bancorp manages the adequacy of its capital, including
Tier I common equity, by conducting ongoing internal stress tests
and ensuring the results are properly considered in capital
planning. It is the intent of the Bancorp’s capital planning process
to ensure that the Bancorp’s capital positions remain in excess of
well-capitalized minimums as defined by the Board of Governors
of the Federal Reserve System in the “Capital Adequacy
Guidelines for Bank Holding Companies,” and any other
regulatory requirements. The Bancorp’s Tier I common equity
ratio was 7.50% as of December 31, 2010.
Dividend Policy and Stock Repurchase Program
The Bancorp’s common stock dividend policy and stock
repurchase program reflect its earnings outlook, desired payout
ratios, the need to maintain adequate capital levels, alternative
investment opportunities and the need to comply with safe and
sound banking practices as well as meet regulatory expectations.
In each of the years ended December 31, 2010 and 2009, the
Bancorp paid dividends per common share of $0.04.
The Bancorp issued $3.4 billion in senior preferred stock
(Series F) and related warrants to the U.S. Treasury as part of the
CPP. Upon issuance, the Bancorp agreed to limit dividends to
common stock holders to the quarterly dividend rate paid prior to
October 14, 2008, which was $0.15. This restriction was in effect
until the earlier of December 31, 2011 or the date upon which the
Series F senior preferred shares were redeemed in whole or
transferred to an unaffiliated third party. On February 2, 2011, the
Bancorp repurchased all $3.4 billion of its Series F Preferred Stock
held by the U.S. Treasury.
The Bancorp’s repurchase of common stock is shown in
Table 48. The Bancorp’s Board of Directors had previously
authorized management to purchase 30 million shares of the
Bancorp’s common stock through the open market or in any
private transaction. The authorization does not include specific
price targets or an expiration date. Under the agreement with the
U.S. Treasury, as part of the CPP, the Bancorp is restricted in its
repurchases of its common stock. This restriction was in effect
until the earlier of December 31, 2011 or the date upon which the
Series F senior preferred shares were redeemed in whole or
transferred to an unaffiliated third party. On February 2, 2011, the
Bancorp repurchased all $3.4 billion of its Series F Preferred Stock
held by the U.S. Treasury.
TABLE 48: SHARE REPURCHASES
For the years ended December 31 2010 2009 2008
Shares authorized for repurchase at January 1 19,201,518 19,201,518 19,201,518
A
dditional authorizations - - -
Shares repurchases (a) - - -
Shares authorized for repurchase at December 31 19,201,518 19,201,518 19,201,518
A
verage price paid per share N/A N/A N/A
(a) Excludes 333,808 , 265,802 and 63,270 shares repurchased during 2010 , 2009 and 2008, respectively, in connection with various employee compensation plans. These repurchases are not
included in the calculation for average price paid and do not count against the maximum number of shares that may yet be repurchased under the Board of Directors’ authorization.