Fifth Third Bank 2014 Annual Report Download - page 166

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
164 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 2014 and
2013, the banking subsidiary was required to maintain average cash
reserve balances of $1.7 billion and $1.6 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 BHC and in
analyzing applications to it under the BHCA 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 risk-based 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, 2014, 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 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 FDIA. 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 risk-
based 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 FDIA.
The Bancorp and its banking subsidiary, Fifth Third Bank, had
Tier I risk-based capital, Total risk-based capital and Tier I leverage
ratios above the well-capitalized levels at December 31, 2014 and
2013. As of December 31, 2014, 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:
2014 2013
($ in millions) Amount Ratio Amount Ratio
Tier I risk-based capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) $12,764 10.83% $12,094 10.43%
Fifth Third Bank 13,760 11.85 13,245 11.59
Total risk-based capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) 16,895 14.33 16,431 14.17
Fifth Third Bank 15,213 13.10 14,785 12.94
Tier I leverage (to average assets):
Fifth Third Bancorp (Consolidated) 12,764 9.66 12,094 9.73
Fifth Third Bank 13,760 10.58 13,245 10.83