Fifth Third Bank 2013 Annual Report Download - page 150

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
148 Fifth Third Bancorp
Preferred Stock—Series F
On December 31, 2008, the U.S. Treasury purchased $3.4 billion, or
136,320 shares, of the Bancorp’s fixed rate cumulative perpetual
preferred stock, Series F, with a liquidation preference of $25,000
per share and related 10-year warrant in the amount of 15% of the
preferred stock investment. The warrant gave the U.S Treasury the
right to purchase 43,617,747 shares of the Bancorp’s common stock
at $11.72 per share. The Series F senior preferred stock was issued
complying with the terms established by the CPP. Per the program
terms, the U.S. Treasury’s investment consisted of senior preferred
stock with a five percent dividend for each of the first five years of
investment and nine percent thereafter, unless the shares were
redeemed. The shares were callable by the Bancorp at par after three
years and could be repurchased at any time under certain
circumstances. The terms also included restrictions on the
repurchase of common stock and increases in common stock
dividends, which required the U.S. Treasury’s consent, for a period
of three years from the date of investment unless the preferred
shares were redeemed in whole or the U.S. Treasury had transferred
all of the preferred shares to a third party.
The proceeds from issuance of the Series F preferred stock
were allocated to the preferred stock and to the warrant based on
their relative fair values, which resulted in an initial book value of
$3.2 billion for the preferred stock and $239 million for the warrant.
The resulting discount to the preferred stock was being accreted
over five years through retained earnings as a preferred stock
dividend, resulting in an effective yield of 6.7% for the Series F
preferred stock for the first five years.
On February 2, 2011, the Bancorp used proceeds from the
issuance of common shares along with proceeds from a senior debt
offering and other available resources to repurchase all 136,320
Series F preferred shares. In connection with the redemption of the
Series F preferred stock, the Bancorp accelerated the accretion of
the remaining issuance discount on the Series F preferred stock and
recorded a reduction in retained earnings and a corresponding
increase in preferred stock of $153 million in the Bancorp’s
Consolidated Balance Sheet. On March 16, 2011, the Bancorp
repurchased the warrant issued to the U.S. Treasury in connection
with the CPP preferred stock investment at an agreed upon price of
$280 million, which was recorded as a reduction to capital surplus in
the Bancorp’s Consolidated Financial Statements.
Treasury Stock
On March 13, 2012, the Bancorp announced the results of its capital
plan submitted to the FRB as part of the 2012 CCAR. The FRB
indicated to the Bancorp that it did not object to 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. Following the Vantiv Inc. IPO, 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 and
2013, the Bancorp entered into forward contracts in which the final
number of shares to be 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 Agreements. Each of the
accelerated share repurchases 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.
On August 21, 2012, the Bancorp announced that the FRB did
not object to its capital plan resubmitted under the 2012 CCAR
process, which included 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. As a result, 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. This share repurchase authorization
replaced the Board’s previous authorization pursuant to which
approximately 14 million shares remained available for repurchase
by the Bancorp.
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 approximately $350
million, of its outstanding common stock on August 28, 2012. At
settlement of the forward contract on October 24, 2012, the
Bancorp received an additional 1,444,047 shares which were
recorded as an adjustment to the basis in the treasury shares
purchased on the acquisition date.
On November 6, 2012, the Bancorp entered into an
accelerated share repurchase transaction with a counterparty
pursuant to which the Bancorp purchased 7,710,761 shares, or
approximately $125 million, of its outstanding common stock on
November 9, 2012. At settlement of the forward contract on
February 12, 2013, the Bancorp received an additional 657,914
shares which were recorded as an adjustment to the basis in the
treasury shares purchased on the acquisition date.
Following the sale of a portion of the Bancorp’s shares of Class
A Vantiv, Inc. common stock, the Bancorp entered into an
accelerated share repurchase transaction on December 14, 2012
with a counterparty pursuant to which the Bancorp purchased
6,267,410 shares, or approximately $100 million, of its outstanding
common stock on December 19, 2012. The Bancorp repurchased
the shares of its common stock as part of its previously announced
100 million share repurchase program. At settlement of the
transaction on February 27, 2013, the Bancorp received an
additional 127,760 shares which were recorded as an adjustment to
the basis in the treasury shares purchased on the acquisition date.
On January 28, 2013, the Bancorp entered into an accelerated
share repurchase transaction with a counterparty pursuant to which
the Bancorp purchased 6,953,028 shares, or approximately $125
million, of its outstanding common stock on January 31, 2013. The
Bancorp repurchased the shares of its common stock as part of its
previously announced Board approved 100 million share repurchase
program. This repurchase transaction concluded the $600 million of
common share repurchases not objected to by the FRB in the 2012
CCAR process. At settlement of the forward contract on April 5,
2013, the Bancorp received an additional 849,037 shares which were
recorded as an adjustment to the basis in the treasury shares
purchased on the acquisition date.
On March 14, 2013, the Bancorp announced the results of its
capital plan submitted to the FRB as part of the 2013 CCAR. The
FRB indicated to the Bancorp that it did not object to the
repurchase of common shares in an amount up to $984 million,
including any shares issued in a Series G preferred stock conversion,
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 stock, which totaled $157 million and $55 million in after-
tax gains during the second and third quarters of 2013, respectively.