Fifth Third Bank 2013 Annual Report Download - page 103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
101 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) 2013 2012 2011
Cash payments:
Interest $406 524 658
Income taxes 535 383 102
Noncash Investing and Financing Activities:
Portfolio loans to loans held for sale 641 62 143
Loans held for sale to portfolio loans 44 77 32
Portfolio loans to OREO 204 272 342
Loans held for sale to OREO 4 23 43
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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 December 31, 2013 and
2012, the Bancorp’s banking subsidiary reserve requirement was
$1.6 billion and $1.5 billion, respectively. Vault cash was not
sufficient to meet the total reserve requirement; therefore, as of
December 31, 2013 and 2012, the Bancorp’s banking subsidiary
satisfied the remaining reserve requirement with $942 million and
$1.1 billion, respectively, of the Bancorp’s total deposit at the FRB.
The Bancorp’s total deposit at the FRB is held in other 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, 2013 and 2012. The Bancorp’s banking
subsidiary paid the Bancorp’s nonbank subsidiary holding company,
which in turn paid the Bancorp $859 million and $2.0 billion in
dividends during the years ended December 31, 2013 and 2012,
respectively.
The FRB issued guidelines known as CCAR, which provide a
common, conservative approach to ensure BHCs, including the
Bancorp, 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. The CCAR process requires the submission
of a comprehensive capital plan that assumes a minimum planning
horizon of nine quarters under various economic scenarios.
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 capital plan must reflect the revised capital
framework that the FRB adopted in connection with the
implementation of the Basel III accord, including the framework’s
minimum regulatory capital ratios and transition arrangements.
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.
Additionally, the FRB reviews the robustness of the capital
adequacy process, the capital policy and the Bancorp’s ability to
maintain capital above the minimum regulatory capital ratios as they
transition to Basel III and above a Basel I Tier 1 common ratio of
five percent under baseline and stressful conditions throughout a
nine-quarter planning horizon.
The FRB issued stress testing rules that implement section
165(i)(1) and (i)(2) of the DFA. Large BHCs, including the Bancorp,
are subject to the final stress testing rules. The rules require both
supervisory and company-run stress tests, which provide forward-
looking information to supervisors to help assess whether
institutions have sufficient capital to absorb losses and support
operations during adverse economic conditions.
In March 2013, the FRB announced it had completed the 2013
CCAR. For BHCs 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 2013 capital
distributions. The FRB indicated to the Bancorp that it did not
object to the following proposed capital actions for the period
beginning April 1, 2013 and ending March 31, 2014: the potential
increase in its quarterly common stock dividend to $0.12 per share;
the potential repurchase of up to $750 million in TruPS, subject to
the determination of a regulatory capital event and replacement with
the issuance of a similar amount of Tier II-qualifying subordinated
debt; the potential conversion of the $398 million in outstanding
Series G 8.5% convertible preferred stock into approximately 35.5
million common shares issued to the holders and the repurchase an
equivalent amount of common shares issued in the conversion up
to $550 million in market value, and the issuance of $550 million in
preferred shares; the potential repurchase of common shares in an
amount up to $984 million, including any shares issued in a Series G
preferred stock conversion; incremental repurchase of common
shares in the amount of any after-tax gains from the sale of Vantiv,
Inc stock and the potential issuance of an additional $500 million in
preferred stock. Actions consistent with these proposed capital
actions were substantially completed in 2013.
The DFA requires that BHCs with over $50 billion in
consolidated assets that participated in the 2009 Supervisory Capital
Assessment Program, including the Bancorp, conduct two stress
tests each year. On May 13, 2013, the FRB launched the 2013 Mid-
Cycle Stress Tests, which was submitted to the FRB in July 2013.
The stress tests required the BHCs to develop their own baseline,
adverse and severely adverse scenarios to reflect its individual
operations and risks. Each BHC was required to release its results
under the severely adverse scenario, which the Bancorp disclosed on
its website on September 24, 2013.