Fifth Third Bank 2013 Annual Report Download - page 139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
137 Fifth Third Bancorp
19. RELATED PARTY TRANSACTIONS
The Bancorp maintains written policies and procedures covering
related party transactions to principal shareholders, directors and
executives of the Bancorp. These procedures cover transactions
such as employee-stock purchase loans, personal lines of credit,
residential secured loans, overdrafts, letters of credit and increases in
indebtedness. Such transactions are subject to the Bancorp’s normal
underwriting and approval procedures. Prior to the closing of a loan
to a related party, Compliance Risk Management must approve and
determine whether the transaction requires approval from or a post
notification be sent to the Bancorp’s Board of Directors. At
December 31, 2013 and 2012, certain directors, executive officers,
principal holders of Bancorp common stock, associates of such
persons, and affiliated companies of such persons were indebted,
including undrawn commitments to lend, to the Bancorp’s banking
subsidiary.
The following table summarizes the Bancorp’s activities with its principal shareholders, directors and executives at December 31:
($ in millions) 2013 2012
Commitments to lend, net of participations:
Directors and their affiliated companies $586 364
Executive officers 2 3
Total $588 367
Outstanding balance on loans, net of participations and undrawn commitments $86 93
The commitments to lend are in the form of loans and guarantees
for various business and personal interests. This indebtedness was
incurred in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated parties. This
indebtedness does not involve more than the normal risk of
repayment or present other features unfavorable to the Bancorp.
On June 30, 2009, the Bancorp completed the sale of a
majority interest in its processing business, Vantiv Holding, LLC.
Advent International acquired an approximate 51% interest in
Vantiv Holding, LLC for cash and a warrant. The Bancorp retained
the remaining approximate 49% interest in Vantiv Holding, LLC.
During the first quarter of 2012, Vantiv, Inc. priced an IPO of
its shares and contributed the net proceeds to Vantiv Holding, LLC
for additional ownership interests. As a result of this offering, the
Bancorp’s ownership of Vantiv Holding, LLC was reduced to
approximately 39%. The impact of the capital contributions to
Vantiv Holding, LLC and the resulting dilution in the Bancorp’s
interest resulted in a gain of $115 million recognized by the Bancorp
in the first quarter of 2012. The Bancorp’s ownership share in
Vantiv Holding, LLC was further reduced during the fourth quarter
of 2012 when the Bancorp sold an approximate six percent interest
and recognized a $157 million gain. The Bancorp’s ownership of
Vantiv Holding, LLC was reduced to 33% as a result of this sale and
had a carrying value of $563 million as of December 31, 2012.
The Bancorp’s ownership position in Vantiv Holding, LLC was
reduced in the second quarter of 2013 when the Bancorp sold an
approximate five percent interest and recognized a $242 million
gain. The Bancorp’s ownership percentage was further reduced in
the third quarter of 2013 when the Bancorp sold an approximate
three percent interest and recognized an $85 million gain. The
Bancorp’s remaining approximate 25% ownership in Vantiv
Holding, LLC was accounted for as an equity method investment in
the Bancorp’s Consolidated Financial Statements and had a carrying
value of $423 million as of December 31, 2013.
As of December 31, 2013, the Bancorp continued to hold
approximately 48.8 million Class B units of Vantiv Holding, LLC
and a warrant to purchase approximately 20.4 million Class C non-
voting units of Vantiv Holding, LLC, both of which may be
exchanged for Class A Common Stock of Vantiv, Inc. on a one for
one basis or at Vantiv, Inc.’s option for cash. In addition, the
Bancorp holds approximately 48.8 million Class B common shares
of Vantiv, Inc. The Class B common shares give the Bancorp voting
rights, but no economic interest in Vantiv, Inc. The voting rights
attributable to the Class B common shares are limited to 18.5% of
the voting power in Vantiv, Inc. at any time other than in
connection with a stockholder vote with respect to a change in
control in Vantiv, Inc. These securities are subject to certain terms
and restrictions.
The Bancorp recognized $77 million, $61 million and $57
million respectively, in noninterest income as part of its equity
method investment in Vantiv Holding, LLC for the years ended
December 31, 2013, 2012 and 2011 and received cash distributions
totaling $40 million and $30 million during 2013 and 2012,
respectively.
The Bancorp and Vantiv Holding, LLC have various
agreements in place covering services relating to the operations of
Vantiv Holding, LLC. The services provided by the Bancorp to
Vantiv Holding, LLC were initially required to support Vantiv
Holding, LLC as a standalone entity during the deconversion
period. The majority of services previously provided by the Bancorp
to support Vantiv Holding, Inc. as a standalone entity are no longer
necessary and are now limited to certain general business resources.
Vantiv Holding, LLC paid the Bancorp $1 million for these services
for the years ended December 31, 2013 and 2012 and $21 million
for the year ended December 31, 2011. Other services provided to
Vantiv Holding, LLC by the Bancorp, have continued beyond the
deconversion period, include clearing, settlement and sponsorship.
Vantiv Holding, LLC paid the Bancorp $34 million for these
services for the years ended December 31, 2013 and 2012 and $37
million for the year ended December 31, 2011. In addition to the
previously mentioned services, the Bancorp entered into an
agreement under which Vantiv Holding, LLC will provide
processing services to the Bancorp. The total amount of fees
relating to the processing services provided to the Bancorp by
Vantiv Holding, LLC totaled $88 million, $83 million and $74
million for the years ended December 31, 2013, 2012 and 2011,
respectively.
As part of the sale, Vantiv Holding, LLC assumed loans
totaling $1.25 billion owed to the Bancorp, which were refinanced
in 2010 into a larger syndicated loan structure that included the
Bancorp. The outstanding balance of loans to Vantiv Holding, LLC
was $348 million and $325 million at December 31, 2013 and 2012,
respectively. Interest income relating to the loans was $7 million,
$11 million and $18 million, respectively, for the years ended
December 31, 2013, 2012 and 2011 and is included in interest and
fees on loans and leases in the Consolidated Statements of Income.
Vantiv Holding, LLC’s line of credit was $50 million as of