Fifth Third Bank 2012 Annual Report Download - page 97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
95 Fifth Third Bancorp
2. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments related to interest and income taxes, in addition to noncash investing and financing activities, are presented
i
n the following table
for the years ended December 31:
($ in millions) 2012 2011 2010
Cash payments:
Interest $524 658 920
Income taxes 383 102 79
Transfers:
Portfolio loans to held for sale loans 62 143 650
Held for sale loans to portfolio loans 77 32 160
Portfolio loans to OREO 272 342 662
Held for sale loans to OREO 23 43 68
Impact of change in accounting principle:
Decrease in available-for-sale securities, net - - 941
Increase in portfolio loans - - 2,217
Decrease in demand deposits - - 18
Increase in other short-term borrowings - - 122
Increase in long-term debt - - 1,344
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3. RESTRICTIONS ON CASH AND DIVIDENDS
The FRB, under Regulation D, requires that banks hold cash in
reserve against deposit liabilities, known as the reserve requirement.
The reserve requirement is calculated based on a two-week average
of daily net transaction account deposits as defined by the FRB and
may be satisfied with vault cash. When vault cash is not sufficient to
meet the reserve requirement, the remaining amount must be
satisfied with funds held at the FRB. At the years ended 2012 and
2011, the Bancorp’s banking subsidiary reserve requirement was
$1.5 billion and $1.1 billion, respectively. Vault cash was not
sufficient to meet the total reserve requirement; therefore, for the
years ended 2012 and 2011, the Bancorp’s banking subsidiary
satisfied the remaining reserve requirement with $1.1 billion and
$265 million, respectively, of the Bancorp’s total deposit at the FRB.
The Bancorp’s total deposit at the FRB is held in short-term
investments in the Consolidated Balance Sheets.
The dividends paid by the Bancorp’s banking subsidiary are
subject to regulations and limitations prescribed by state and federal
supervisory agencies. Due to the regulations and limitations, the
Bancorp’s banking subsidiary was prohibited from declaring
dividends without also obtaining prior approval from supervisory
agencies at December 31, 2012 and 2011. The Bancorp’s banking
subsidiary paid the Bancorp’s nonbank subsidiary holding company
$2.0 billion in dividends during both of the years ended December
31, 2012 and 2011. The Bancorp’s nonbank subsidiary holding
company paid the Bancorp $2.0 billion and $1.7 billion in dividends
during the years ended December 31, 2012 and 2011, respectively.
In 2008, the Bancorp sold $3.4 billion in Series F senior
preferred stock and related warrants to the U.S. Treasury under the
terms of the CPP. The terms included certain restrictions on
common stock dividends, which required the U.S. Treasury’s
consent to increase common stock dividends for a period of three
years from the date of investment unless the preferred shares were
redeemed in whole or the U.S. Treasury transferred all of the
preferred shares to a third party. Also, no dividends could be
declared or paid on the Bancorp’s common stock unless all accrued
and unpaid dividends had been paid on the preferred shares and
certain other outstanding securities. Additionally, the Bancorp’s
ability to pay dividends on its common stock was limited by its need
to maintain adequate capital levels, comply with safe and sound
banking practices and meet regulatory expectations.
On February 2, 2011, the Bancorp redeemed all 136,320 shares
of its Series F senior preferred stock held by the U.S. Treasury
under the CPP totaling $3.4 billion. As such, the Bancorp had no
restrictions on common stock dividends pursuant to the CPP as of
December 31, 2012 and 2011. See Note 22 for further information
on the redemption of the preferred shares.
In February 2009, the FRB advised bank holding companies
that safety and soundness considerations required that dividends be
substantially reduced or eliminated. Subsequently, the FRB indicated
that increased capital distributions would generally not be
considered prudent in the absence of a well-developed capital plan
and a capital position that would remain strong even under adverse
conditions. In November 2010, the FRB issued guidelines to
provide a common, conservative approach to ensure bank holding
companies hold adequate capital to maintain ready access to
funding, continue operations and meet their obligations to creditors
and counterparties, and continue to serve as credit intermediaries,
even in adverse conditions. These guidelines required the nineteen
bank holding companies that participated in the 2009 SCAP to
participate in the CCAR process. The CCAR process required the
submission of a comprehensive capital plan that assumed a
minimum planning horizon of nine quarters under various
economic scenarios. The mandatory elements of the capital plan
among others 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.
In March 2012, the FRB announced it had completed the 2012
CCAR and for bank holding companies that proposed capital
distributions in their plan, the FRB either objected to the plan or
provided a non objection whereby the FRB concurred with the
proposed 2012 capital distributions. The FRB indicated to the
Bancorp that it did not object to the following capital actions: a
continuation of its quarterly common dividend, the redemption of
certain TruPS and the repurchase of common shares in an amount
equal to any after-tax gains realized by the Bancorp from the sale of
Vantiv, Inc. common shares by either the Bancorp or Vantiv, Inc.
The FRB indicated to the Bancorp that it did object to other