Fifth Third Bank 2011 Annual Report Download - page 118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
116 Fifth Third Bancorp
notes due in 2017 and 2018 were 0.82% and 0.78%, respectively, at
December 31, 2011. Of the $1.0 billion in 8.25% subordinated fixed
rate notes due in 2038, $705 million were subsequently hedged to
floating and paid a rate of 3.58% at December 31, 2011.
Junior Subordinated Debt
The 6.50% junior subordinated notes due in 2067, with a carrying
and outstanding principal balance of $750 million at December 31,
2011, pay a fixed rate of 6.50% until 2017, then convert to a floating
rate at three-month LIBOR plus 137 bps until 2047. Thereafter, the
notes pay a floating rate at one-month LIBOR plus 237 bps. Junior
subordinated notes due in 2067, with a carrying amount of $594
million and an outstanding principal balance of $575 million at
December 31, 2011, pay a fixed rate of 7.25% until 2057, then
convert to a floating rate at three-month LIBOR plus 257 bps. The
Bancorp entered into interest rate swaps to convert $500 million of
the fixed-rate debt into a floating rate. At December 31, 2011, the
weighted-average rate paid on these swaps was 1.18%. Junior
subordinated notes due in 2067, with a carrying amount of $894
million and an outstanding principal balance of $863 million at
December 31, 2011, pay a fixed rate of 7.25% until 2057, then
convert to a floating rate at three-month LIBOR plus 303 bps
thereafter. The Bancorp entered into interest rate swaps to convert
$700 million of the fixed-rate debt into a floating rate. At December
31, 2011, the weighted-average rate paid on the swaps was 1.61%.
The obligations were issued to Fifth Third Capital Trusts IV, V and
VI, respectively. The Bancorp has fully and unconditionally
guaranteed all obligations under the trust preferred securities issued
by Fifth Third Capital Trusts IV, V and VI. In addition, the
Bancorp entered into replacement capital covenants for the benefit
of holders of long-term debt senior to the junior subordinated notes
that limits, subject to certain restrictions, the Bancorp’s ability to
redeem the junior subordinated notes prior to their scheduled
maturity. In November 2010, the Bancorp amended the debt
covenants to remove a requirement to issue replacement capital
securities at least 180 days prior to calling the trust preferred
securities.
Under recent regulatory developments, certain of the
Bancorp’s trust preferred securities are callable at par as of certain
dates, or may become callable at par under certain circumstances.
On March 18, 2011, the Bancorp announced that the Federal
Reserve Board did not object to the Bancorp’s capital plan
submitted under the Federal Reserve’s 2011 CCAR. Pursuant to
this plan, the Bancorp redeemed $452 million of certain trust
preferred securities, at par, classified as long-term debt during 2011.
The trust preferred securities redeemed related to the Fifth Third
Capital Trust VII, First National Bankshares Statutory Trust I and
R&G Capital Trust II, LLT. As a result of these redemptions the
Bancorp recorded a $6 million gain on the extinguishment within
other noninterest expense in the Consolidated Statements of
Income. All redemptions are subject to certain conditions and
generally require approval by the FRB.
Structured Repurchase Agreements
In order to meet its funding obligations, the Bancorp enters into
repurchase agreements with customers, which are accounted for as
collateralized financing transactions, where excess customer funds
are borrowed overnight by the Bancorp, and later repurchased by
the customers. At December 31, 2011, the total amount of
repurchase agreements outstanding was $375 million.
SUBSIDIARY LONG-TERM BORROWINGS
Senior and Subordinated Debt
Medium-term senior notes and subordinated bank notes with
maturities ranging from one year to 30 years can be issued by the
Bancorp’s banking subsidiary, of which $1.0 billion was outstanding
at December 31, 2011 and 2010 with $19.0 billion available for
future issuance. The senior floating-rate bank notes due in 2013 pay
a floating rate at three-month LIBOR plus 11 bps. For the
subordinated fixed-rate bank notes due in 2015, the Bancorp
entered into interest rate swaps to convert the fixed-rate debt into
floating rate. At December 31, 2011, the weighted-average rate paid
on the swaps was 0.53%. In addition to the aforementioned
redemption of trust preferred securities, the Bancorp redeemed
certain trust preferred securities of $65 million through the
remainder of 2011, which related to the R&G Crown Cap Trust IV,
the R&G Crown Cap Trust I and First National Bankshares
Statutory Trust II. As a result of these redemptions, the Bancorp
recorded a $1 million gain on the extinguishment within other
noninterest expense in the Consolidated Statements of Income.
Junior Subordinated Debt
The junior subordinated floating-rate bank notes due in 2035 were
assumed by a subsidiary of the Bancorp as part of the acquisition of
First Charter in May 2008. The obligation was issued to First
Charter Capital Trust I and II, respectively. The notes of First
Charter Capital Trust I and II pay floating at three-month LIBOR
plus 169 bps and 142 bps, respectively. The Bancorp has fully and
unconditionally guaranteed all obligations under the acquired trust
preferred securities issued by First Charter Capital Trust I and II. As
previously mentioned, in the junior subordinated debt section of the
parent company long-term borrowings, the FRB did not object to
the Bancorp’s capital plan under the Federal Reserve’s 2011 CCAR
and therefore the Bancorp redeemed $65 million of trust preferred
securities previously acquired by a Bancorp subsidiary, at par, during
2011.
FHLB Advances
At December 31, 2011, FHLB advances have rates ranging from
0.05% to 8.34%, with interest payable monthly. The advances are
secured by certain residential mortgage loans and securities totaling
$17.5 billion. At December 31, 2010, $500 million of FHLB
advances were floating-rate. The Bancorp entered into an interest
rate swap with a notional value of $500 million to convert the
floating-rate advances to a fixed rate of 2.63%. During the third
quarter of 2011, the Bancorp terminated a $500 million FHLB
advance and incurred a termination fee of $2 million within other
noninterest expense in the Consolidated Statements of Income. In
November 2010, the Bancorp repaid a floating-rate advance of $1.0
billion due in 2012 and terminated the interest rate cap associated
with this advance. The Bancorp recognized a gain on this
extinguishment of debt of $1 million. The $1.1 billion in remaining
advances mature as follows: $3 million in 2014, $5 million in 2015,
$1 billion in 2016, and $43 million thereafter.
Notes Associated with Consolidated VIEs
As previously discussed in Note 11, the Bancorp was determined to
be the primary beneficiary of VIEs associated with certain
automobile loan and home equity securitizations and, effective
January 1, 2010, these VIEs have been consolidated in the
Bancorp’s Consolidated Financial Statements. As of December 31,
2011, the outstanding long-term debt associated with the
automobile loan securitizations and home equity securitization was
$171 million and $22 million, respectively. Third-party holders of
this debt do not have recourse to the general assets of the Bancorp.