Fifth Third Bank 2013 Annual Report Download - page 83

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
81 Fifth Third Bancorp
Preferred Stock Offering and Conversion
As contemplated by the 2013 CCAR, on May 16, 2013 the Bancorp
issued in a registered public offering 600,000 depositary shares,
representing 24,000 shares of 5.10% fixed-to-floating rate non-
cumulative Series H perpetual preferred stock, for net proceeds of
$593 million. Each preferred share has a $25,000 liquidation
preference. The preferred stock accrues dividends, on a non-
cumulative semi-annual basis, at an annual rate of 5.10% through
but excluding June 30, 2023, at which time it converts to a quarterly
floating rate dividend of three-month LIBOR plus 3.033%. Subject
to any required regulatory approval, the Bancorp may redeem the
Series H preferred shares at its option in whole or in part, at any
time on or after June 30, 2023 and may redeem in whole, but not in
part, following a regulatory capital event at any time prior to June
30, 2023. The Series H preferred shares are not convertible into
Bancorp common shares or any other securities.
On June 11, 2013, the Bancorp’s Board of Directors authorized
the conversion into common stock, no par value, of all outstanding
shares of the Bancorp’s 8.50% non-cumulative convertible perpetual
preferred stock, Series G, which shares are represented by
depositary shares each representing 1/250th of a share of Series G
preferred stock, pursuant to the Amended Articles of Incorporation.
The Articles grant the Bancorp the right, at its option, to convert all
outstanding shares of Series G preferred stock if the closing price of
common stock exceeded 130% of the applicable conversion price
for 20 trading days within any period of 30 consecutive trading days.
The closing price of shares of common stock satisfied such
threshold for the 30 trading days ended June 10, 2013, and the
Bancorp gave the required notice of its exercise of its conversion
right.
On July 1, 2013, the Bancorp converted the remaining 16,442
outstanding shares of Series G preferred stock, which represented
4,110,500 depositary shares, into shares of Fifth Third’s common
stock. Each share of Series G preferred stock was converted into
2,159.8272 shares of common stock, representing a total of
35,511,740 issued shares. The common shares issued in the
conversion are exempt securities pursuant to Section 3(a)(9) of the
Securities Act of 1933, as amended, as the securities exchanged were
exclusively with Bancorp’s existing security holders where no
commission or other remuneration was paid. Upon conversion, the
depositary shares were delisted from the NASDAQ Global Select
Market and withdrawn from the Exchange.
On December 9, 2013, the Bancorp issued, in a registered
public offering, 18,000,000 depositary shares, representing 18,000
shares of 6.625% fixed-to-floating rate non-cumulative Series I
perpetual preferred stock, for net proceeds of $441 million. Each
preferred share has a $25,000 liquidation preference. The preferred
stock accrues dividends, on a non-cumulative quarterly basis, at an
annual rate of 6.625% through but excluding December 31, 2023, at
which time it converts to a quarterly floating rate dividend of three-
month LIBOR plus 3.71%. Subject to any required regulatory
approval, the Bancorp may redeem the Series I preferred shares at
its option in whole or in part, at any time on or after December 31,
2023 and may redeem in whole, but not in part, following a
regulatory capital event at any time prior to December 31, 2023. The
Series I preferred shares are not convertible into Bancorp common
shares or any other securities.
Redemption of TruPS
The Bancorp redeemed all $750 million of the outstanding TruPS
issued by Fifth Third Capital Trust IV on December 30, 2013.
These securities had a distribution rate of 6.50% and a scheduled
maturity date of April 1, 2067. Pursuant to the terms of the TruPS,
the securities of Fifth Third Capital Trust IV were redeemable
within ninety days of a Capital Treatment Event. The Bancorp
determined that a Capital Treatment Event occurred upon the
publication of a Final Rule regarding Regulatory Capital Rules
jointly by the Federal Reserve System and the Office of the
Comptroller of the Currency. The redemption price was $1,000 per
security, which reflected 100% of the liquidation amount, plus
accrued and unpaid distributions to the actual redemption date of
$10 million. The Bancorp recognized an $8 million loss on the
extinguishment of this debt within other noninterest expense in the
Consolidated Statements of Income.
Dividend Policy and Stock Repurchase Program
The Bancorp’s common stock dividend policy and stock repurchase
program reflect its earnings outlook, desired payout ratios, the need
to maintain adequate capital levels, the ability of its subsidiaries to
pay dividends, the need to comply with safe and sound banking
practices as well as meet regulatory requirements and expectations.
The Bancorp declared dividends per common share of $0.47 and
$0.36 during the years ended December 31, 2013 and 2012,
respectively.
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. The Bancorp repurchased the shares as part of
its 100 million share repurchase program announced in August of
2012. As part of this transaction and all subsequent accelerated
share repurchases, the Bancorp entered into a forward contract in
which the final number of shares to be delivered at settlement of the
accelerated share repurchase transaction will be based generally on a
discount to the average daily volume-weighted average price of the
Bancorp's common stock during the term of the Repurchase
Agreement. The accelerated share repurchase 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 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 in 2012, 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 in August of 2012. At
settlement of the forward contract 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
August of 2012 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.
As a result of the FRB’s non-objection to the Bancorp’s capital
plan under the 2013 CCAR process, on March 19, 2013, Fifth
Third’s Board of Directors authorized the Bancorp to repurchase up