Fifth Third Bank 2011 Annual Report Download - page 147

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 145
28. 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 banking subsidiary are subject to regulations and
limitations prescribed by the appropriate state and federal
supervisory authorities. 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 banking subsidiary 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 2011 and 2010, the banking subsidiary was
required to maintain average cash reserve balances of $744 million
and $547 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 Tier I capital (core capital) of at least four percent of risk-
weighted assets (Tier I capital ratio), total capital (Tier I plus Tier II
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, certain other intangibles and unrealized cash flow
hedges. Current provisions of the 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, 2011, the Bancorp’s Tier I capital
included $2.2 billion of trust preferred securities.
Tier II capital consists principally of term subordinated debt,
redeemable 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 banking subsidiaries.
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.
The Bancorp and its banking subsidiary, Fifth Third Bank
(Ohio), had Tier I, Total risk-based capital and Tier I leverage ratios
above the well-capitalized levels at December 31, 2011 and 2010. As
of December 31, 2011, the most recent notification from the FRB
categorized the Bancorp and its banking subsidiary 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
banking subsidiary 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 banking subsidiary at
December 31:
2011 2010
($ in millions) Amount Ratio Amount Ratio
Tier I capital (to risk-weighted assets):(a)
Fifth Third Bancorp (Consolidated) $ 12,503 11.91% $13,965 13.89%
Fifth Third Bank 12,373 12.02 12,976 13.13
Total risk-based capital (to risk-weighted assets):(a)
Fifth Third Bancorp (Consolidated) 16,885 16.09 18,178 18.08
Fifth Third Bank 14,013 13.61 14,936 15.12
Tier I leverage (to average assets):
Fifth Third Bancorp (Consolidated) 12,503 11.10 13,965 12.79
Fifth Third Bank 12,373 11.20 12,976 12.08
(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.