Fifth Third Bank 2012 Annual Report Download - page 79

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
77 Fifth Third Bancorp
TABLE 59: CAPITAL RATIOS
As of December 31 ($ in millions) 2012 2011 2010 2009 2008
Average equity as a percent of average assets 11.65 % 11.41 12.22 11.36 8.78
Tangible equity as a percent of tangible assets(a) 9.17 9.03 10.42 9.71 7.86
Tangible common equity as a percent of tangible assets(a) 8.83 8.68 7.04 6.45 4.23
Tier I capital $ 11,685 12,503 13,965 13,428 11,924
Total risk-based capital 15,816 16,885 18,178 17,648 16,646
Risk-weighted assets(b) 109,699 104,945 100,561 100,933 112,622
Regulatory capital ratios:
Tier I capital 10.65 % 11.91 13.89 13.30 10.59
Total risk-based capital 14.42 16.09 18.08 17.48 14.78
Tier I leverage 10.05 11.10 12.79 12.34 10.27
Tier I common equity(a) 9.51 9.35 7.48 6.99 4.37
(a) For further information on these ratios, see the Non-GAAP Financial Measures section of the MD&A.
(b) 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.
2012 Capital Actions
As part of the 2012 CCAR, on January 9, 2012, the Bancorp
submitted to the FRB a capital plan approved by its Board of
Directors covering the period from January 1, 2012 to March 31,
2013. The mandatory elements of the capital plan were 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 assessed the comprehensiveness of the capital plan,
the reasonableness of the assumptions and the analysis underlying
the capital plan and reviewed 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
I common ratio of 5% on a pro-forma basis under expected and
stressful conditions throughout the planning horizon.
On March 13, 2012 the Bancorp announced the FRB’s
response to the capital plan it submitted as part of the 2012 CCAR.
The FRB indicated that it did not object to the following capital
actions: a continuation of its quarterly common dividend of $0.08
per share; the redemption of up to $1.4 billion in certain TruPS; and
the repurchase of common shares in an amount equal to any after-
tax gains realized by Fifth Third from the sale of Vantiv, Inc.
common shares by either Fifth Third or Vantiv, Inc.
The FRB indicated to the Bancorp that it did object to other
elements of its capital plan, including increases in its quarterly
common dividend and the initiation of common share repurchases
other than those described in the paragraph above. The Bancorp
resubmitted its capital plan to the FRB on June 8, 2012. The
resubmitted plan included capital actions and distributions for the
covered period through March 31, 2013 that were substantially
similar to those included in the original submission, with
adjustments primarily reflecting the change in the expected timing
of capital actions and distributions relative to the timing assumed in
the original submission.
Consistent with the 2012 CCAR plan, the Bancorp redeemed
all $862.5 million of the outstanding TruPS issued by Fifth Third
Capital Trust VI and recognized a $9 million loss on extinguishment
in the Bancorp’s Consolidated Financial Statements. Additionally,
the Bancorp redeemed all $575 million of the outstanding TruPS
issued by Fifth Third Capital Trust V and recognized a $17 million
loss on extinguishment in the Bancorp’s Consolidated Financial
Statements.
On August 21, 2012, the Bancorp announced that the FRB did
not object to its capital plan resubmitted under the CCAR process,
which included potential increases to the quarterly common stock
dividend and the repurchases of common shares of up to $600
million through the first quarter of 2013, in addition to any
incremental repurchase of common shares related to any after-tax
gains realized by the Bancorp from the sale of Vantiv, Inc. common
shares by either the Bancorp or Vantiv, Inc.
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 declared dividends per common share of $0.36 and
$0.28 during the years ended December 31, 2012 and 2011,
respectively.
Consistent with the 2012 CCAR plan, on April 23, 2012, the
Bancorp entered into an accelerated share repurchase transaction
with a counterparty pursuant to which the Bancorp purchased
4,838,710 shares, or approximately $75 million, of its outstanding
common stock on April 26, 2012. As part of this transaction, and all
subsequent accelerated share repurchase transactions in 2012, the
Bancorp entered into a forward contract in which the final number
of shares delivered at settlement of the accelerated share repurchase
transaction was based on a discount to the average daily volume-
weighted average price of the Bancorp’s common stock during the
term of the Repurchase Agreement. The accelerated share
repurchase was treated as two separate transactions (i) the
acquisition of treasury shares on the acquisition date and (ii) a
forward contract indexed to the Bancorp’s stock. At settlement of
the April 2012 forward contract on June 1, 2012, the Bancorp
received an additional 631,986 shares which were recorded as an
adjustment to the basis in the treasury shares purchased on the
acquisition date.
As a result of the FRB’s non-objection to the Bancorp’s capital
plan resubmitted under the CCAR process, on August 21, 2012,
Fifth Third’s Board of Directors authorized the Bancorp to
repurchase up to 100 million shares of its outstanding common
stock in the open market or in privately negotiated transactions, and
to utilize any derivative or similar instrument to affect share
repurchase transactions.
Additionally, on August 23, 2012, the Bancorp entered into an
accelerated share repurchase transaction with a counterparty
pursuant to which the Bancorp purchased 21,531,100 shares or