Fifth Third Bank 2013 Annual Report Download - page 167

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
165 Fifth Third Bancorp
28. CERTAIN REGULATORY REQUIREMENTS AND CAPITAL RATIOS
The principal source of income and funds for the Bancorp (parent
company) are dividends from its subsidiaries. The dividends paid by
the Bancorp’s banking subsidiary are subject to regulations and
limitations prescribed by the appropriate state and federal
supervisory authorities. The Bancorp’s nonbank subsidiaries are also
limited by certain federal and state statutory provisions and
regulations covering the amount of dividends that may be paid in
any given year.
The Bancorp’s banking subsidiary must maintain cash reserve
balances when total reservable deposit liabilities are greater than the
regulatory exemption. These reserve requirements may be satisfied
with vault cash and balances on deposit with the FRB. In 2013 and
2012, the banking subsidiary was required to maintain average cash
reserve balances of $1.6 billion and $1.5 billion, respectively.
The Board of Governors of the Federal Reserve System issued
capital adequacy guidelines pursuant to which it assesses the
adequacy of capital in examining and supervising a bank holding
company and in analyzing applications to it under the Bank Holding
Company Act of 1956, as amended. These guidelines include
quantitative measures that assign risk weightings to assets and off-
balance sheet items, as well as define and set minimum regulatory
capital requirements. All bank holding companies are required to
maintain Tier I capital (core capital) of at least four percent of risk-
weighted assets (Tier I capital ratio), total capital (Tier I plus Tier II
capital) of at least eight percent of risk-weighted assets (Total risk-
based capital ratio), and Tier I capital of at least three percent of
adjusted quarterly average assets (Tier I leverage ratio). Failure to
meet the minimum capital requirements can initiate certain actions
by regulators that could have a direct material effect on the
Consolidated Financial Statements of the Bancorp.
Tier I capital consists principally of shareholders’ equity
including Tier I qualifying TruPS. It excludes unrealized gains and
losses on available-for-sale securities and unrecognized pension
actuarial gains and losses and prior service cost, goodwill, certain
other intangibles and unrealized gains and losses on cash flow
hedges. The revised regulatory capital rules known as Basel III will
phase out the inclusion of certain TruPS as a component of Tier I
capital when the rules become effective for the Bancorp beginning
January 1, 2015. Under these provisions, these TruPS would qualify
as a component of Tier II capital. At December 31, 2013, the
Bancorp’s Tier I capital included $60 million of TruPS representing
approximately 5 bps of risk-weighted assets.
Tier II capital consists principally of term subordinated debt,
redeemable preferred stock and, subject to limitations, allowances
for credit losses.
Assets and credit equivalent amounts of off-balance-sheet
items are assigned to one of several broad risk categories, according
to the obligor, guarantor or nature of collateral. The aggregate dollar
value of the amount of each category is multiplied by the associated
risk weighting of that category. The resulting weighted values from
each of the risk categories in sum is the total risk-weighted assets.
Quarterly average assets for this purpose do not include goodwill
and any other intangible assets and other investments that the FRB
determines should be deducted from Tier I capital.
The Board of Governors of the Federal Reserve System issued
capital adequacy guidelines for banking subsidiaries substantially
similar to those adopted for bank holding companies, as described
previously. In addition, the federal banking agencies have issued
substantially similar regulations to implement the system of prompt
corrective action established by Section 38 of the Federal Deposit
Insurance Act. Under the regulations, a bank generally shall be
deemed to be well-capitalized if it has a Total risk-based capital ratio
of 10% or more, a Tier I capital ratio of six percent or more, a Tier
I leverage ratio of five percent or more and is not subject to any
written capital order or directive. If an institution becomes
undercapitalized, it would become subject to significant additional
oversight, regulations and requirements as mandated by the Federal
Deposit Insurance Act.
The Bancorp and its banking subsidiary, Fifth Third Bank, had
Tier I capital, Total risk-based capital and Tier I leverage ratios
above the well-capitalized levels at December 31, 2013 and 2012. As
of December 31, 2013, the most recent notification from the FRB
categorized the Bancorp and its banking subsidiary as well-
capitalized under the regulatory framework for prompt corrective
action. To continue to qualify for financial holding company status
pursuant to the Gramm-Leach-Bliley Act of 1999, the Bancorp’s
banking subsidiary must, among other things, maintain “well-
capitalized” capital ratios.
The following table presents capital and risk-based capital and leverage ratios for the Bancorp and its banking subsidiary at December 31:
2013 2012
($ in millions) Amount Ratio Amount Ratio
Tier I risk-based capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) $12,094 10.36% $11,685 10.65%
Fifth Third Bank 13,245 11.52 12,145 11.28
Total risk-based capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) 16,441 14.08 15,816 14.42
Fifth Third Bank 14,795 12.86 13,721 12.74
Tier I leverage (to average assets):
Fifth Third Bancorp (Consolidated) 12,094 9.64 11,685 10.05
Fifth Third Bank 13,245 10.73 12,145 10.65