Fifth Third Bank 2011 Annual Report Download - page 74

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
72 Fifth Third Bancorp
Capital Ratios
The U.S banking agencies established quantitative measures that
assign risk weightings to assets and off-balance sheet items and also
define and set minimum regulatory capital requirements. The U.S.
banking agencies 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.
The Basel II advanced approach framework was finalized by
U.S. banking agencies in 2007. Core banks, defined as those with
consolidated total assets in excess of $250 billion or on balance
sheet foreign exposures of $10 billion were required to adopt the
advanced approach effective April 1, 2008. The Bancorp is not
subject to the requirements of Basel II.
The 19 large bank holding companies assessed under SCAP
were required to demonstrate that they met the 4% Tier I common
equity ratio threshold for the period evaluated in the SCAP. The
Bancorp exceeded this threshold for all periods presented. The
Bancorp’s Tier I common equity ratio was 9.35% as of December
31, 2011, compared to 7.48% as of December 31, 2010. 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
standards and any other regulatory requirements.
The Dodd-Frank Act requires more stringent prudential
standards, including capital and liquidity requirements, for larger
institutions. It addresses the quality of capital components by
limiting the degree to which certain hybrid instruments can be
included. 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. At December 31, 2011, the Bancorp’s
Tier I capital included $2.2 billion of trust preferred securities
representing approximately 214 bps of risk-weighted assets.
In December of 2010 and revised in June of 2011, the Basel
Committee on Banking Supervision issued Basel III, a global
regulatory framework, to enhance the international capital
standards. It imposes a stricter definition of capital, with greater
reliance on common equity and sets higher minimum capital
requirements. It creates a new capital measure, Tier I common
equity, which proposes changes to the current calculation of the
Tier I common equity ratio by the Bancorp and several other
financial institutions. The U.S. banking agencies are in the process
of developing rules to implement the new capital standards as part
of the Collins Amendment within the Dodd-Frank Act.
Management believes that the Bancorp’s capital levels will continue
to exceed U.S. “well-capitalized” standards, including the adoption
of U.S. rules that incorporate changes under Basel III, to the extent
applicable.
The FRB provided final rules of the 2012 CCAR on November
22, 2011. The CCAR requires the 19 largest Bank Holding
Companies submit a capital plan to the FRB by January 9, 2012.
The mandatory elements of the capital plan are an assessment of the
expected use and sources of capital over the planning horizon, a
description of all planned capital actions over the planning horizon,
a discussion of any expected changes to the Bancorp’s business plan
that are likely to have a material impact on its capital adequacy or
liquidity, a detailed description of the Bancorp’s process for
assessing capital adequacy and the Bancorp’s capital policy.
The FRB’s review of the capital plan will assess the
comprehensiveness of the capital plan, the reasonableness of the
assumptions and the analysis underlying the capital plan and a
review of the robustness of the capital adequacy process, the capital
policy and the Bancorp’s ability to maintain capital above the
minimum regulatory capital ratio and above a tier 1 common ratio
of 5 percent on a pro forma basis under expected and stressful
conditions throughout the planning horizon. Following the FRB’s
assessment of the capital plan, it will either object or provide a
notice of non-objection to the submitted capital plan by March 15,
2012.
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, the ability of its subsidiaries to
pay dividends, the need to comply with safe and sound banking
practices as well as meet regulatory requirements and expectations.
The Bancorp received a notice of non-objection to its dividend
distribution proposal within its capital plan submitted to the FRB
pursuant to the 2011 CCAR. The Bancorp declared dividends per
common share of $0.28 and $0.04 during the years ended December
31, 2011 and 2010, respectively.
The Bancorp submitted a capital plan to the FRB on January 9,
2012 in accordance with the requirements of the 2012 CCAR.
Following the FRB’s assessment of the capital plan, it will object or
provide notice of non-objection to the submitted capital plan by
March 15, 2012.
The Bancorp’s repurchase of common stock for the years
ended December 31, 2011, 2010, and 2009 is shown in the table
below. 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 amounts below reflect the remaining shares from
the Board’s authorized program as of the dates presented.
TABLE 57: SHARE REPURCHASES
For the years ended December 31 2011 2010 2009
Shares authorized for repurchase at January 1 19,201,518 19,201,518 19,201,518
A
dditional authorizations - - -
Share repurchases - - -
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 1,164,254 , 333,808 and 265,802 shares repurchased during 2011, 2010, and 2009, 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.