Fifth Third Bank 2014 Annual Report Download - page 102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
100 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 in the following table fo
r
the years ended December 31:
($ in millions) 2014 2013 2012
Cash payments:
Interest $429 406 524
Income taxes 550 535 383
Noncash Investing and Financing Activities:
Portfolio loans to loans held for sale 855 641 62
Loans held for sale to portfolio loans 31 44 77
Portfolio loans to OREO 145 204 272
Loans held for sale to OREO 2 4 23
Capital lease obligation 15 - -
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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, 2014 and
2013, the Bancorp’s banking subsidiary reserve requirement was
$1.8 billion and $1.6 billion, respectively. Vault cash was not
sufficient to meet the total reserve requirement; therefore, as of
December 31, 2014 and 2013, the Bancorp’s banking subsidiary
satisfied the remaining reserve requirement with $1.0 billion and
$942 million, respectively, of the Bancorp’s total deposit at the FRB.
The noninterest-bearing portion of the Bancorp’s deposit at the
FRB is held in cash and due from banks in the Consolidated
Balance Sheets while the interest bearing portion 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. The Bancorp’s banking subsidiary paid the
Bancorp’s nonbank subsidiary holding company, which in turn paid
the Bancorp $1.1 billion and $859 million in dividends during the
years ended December 31, 2014 and 2013, respectively.
In 2011, the FRB adopted the capital plan rule, which requires
BHCs with consolidated assets of $50 billion or more to submit
annual capital plans to the FRB for review. Under the rule, these
capital plans must include detailed descriptions of the following: the
BHC’s internal processes for assessing capital adequacy; the policies
governing capital actions such as common stock issuances,
dividends, and share repurchases; and all planned capital actions
over a nine-quarter planning horizon. Further, each BHC must also
report to the FRB the results of stress tests conducted by the BHC
under a number of scenarios that assess the sources and uses of
capital under baseline and stressed economic scenarios. The FRB
launched the 2014 stress testing program and CCAR on November
1, 2013, with firm submissions of stress test results and capital plans
due to the FRB on January 6, 2014, which the Bancorp submitted as
required.
The FRB’s review of the capital plan assessed the
comprehensiveness of the capital plan, the reasonableness of the
assumptions and the analysis underlying the capital plan.
Additionally, the FRB reviewed the robustness of the capital
adequacy process, the capital policy and the Bancorp’s ability to
maintain capital above the minimum regulatory capital ratios and
above a Tier I common ratio of five percent on a pro forma basis
under expected and stressful conditions throughout the planning
horizon. The FRB assessed the Bancorp’s strategies for addressing
proposed revisions to the regulatory capital framework agreed upon
by the BCBS and requirements arising from the DFA.
On March 26, 2014, the FRB announced it had completed the
2014 CCAR. For BHCs that proposed capital distributions in their
plans, the FRB either objected to the plan or provided a non-
objection whereby the FRB permitted the proposed 2014 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, 2014 and ending March 31, 2015:
(a) The potential increase in the quarterly common stock
dividend to $0.13 per share;
(b) The potential repurchase of common shares in an amount
up to $669 million;
(c) The additional ability to repurchase shares in the amount
of any after-tax gains from the sale of Vantiv, Inc.
common stock; and
(d) The issuance of $300 million in preferred stock.
As contemplated by the 2014 CCAR, during the second quarter
of 2014, the Bancorp increased the quarterly common stock
dividend from $0.12 to $0.13 per share, entered into a $150 million
accelerated share repurchase transaction, and issued 300,000
depositary shares of non-cumulative perpetual preferred stock for
net proceeds of $297 million. Additionally, during the third and
fourth quarters of 2014, the Bancorp entered into accelerated share
repurchase transactions of $225 million and $180 million,
respectively.
Additionally, as a CCAR institution, the Bancorp is required to
disclose the results of its company-run stress test under the
supervisory severely adverse scenario, and to provide information
related to the types of risk included in its stress testing; a general
description of the methodologies used; estimates of certain financial
results and pro forma capital ratios; and an explanation of the most
significant causes of changes in regulatory capital ratios. On March
26, 2014 the Bancorp publicly disclosed the results of its company-
run stress test as required by the DFA stress testing rules.
The BHCs that participated in the 2014 CCAR, including the
Bancorp, are required to conduct mid-cycle company-run stress
tests using data as of March 31, 2014. The stress tests must be based
on three BHC defined scenarios – baseline, adverse and severely
adverse. As required, the Bancorp reported the mid-cycle stress test
results to the FRB on July 7, 2014. These results represented
estimates of the Bancorp’s results from the second quarter of 2014
through the second quarter of 2016 under the severely adverse
scenario, which is considered highly unlikely to occur.