Fifth Third Bank 2014 Annual Report Download - page 81

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
79 Fifth Third Bancorp
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Market and withdrawn from the Exchange.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.
As contemplated by the 2014 CCAR, on June 5, 2014, the
Bancorp issued in a registered public offering 300,000 depositary
shares, representing 12,000 shares of 4.90% fixed-to-floating rate
non-cumulative Series J perpetual preferred stock, for net proceeds
of $297 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 4.90% through
but excluding September 30, 2019, at which time it converts to a
quarterly floating rate dividend of three-month LIBOR plus
3.129%. Subject to any required regulatory approval, the Bancorp
may redeem the Series J preferred shares at its option in whole or in
part, at any time on or after September 30, 2019, or at any time
following a regulatory capital event. The Series J 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 OCC. 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 $0.51 and
$0.47 during the years ended December 31, 2014 and 2013,
respectively. The Bancorp entered into accelerated share repurchase
transactions during the years ended December 31, 2014 and 2013.
Refer to the Overview section of MD&A and Note 23 of the Notes
to Consolidated Financial Statements for additional information on
the accelerated share repurchase transactions.
A
The following table summarizes shares authorized for repurchase for the years ended December 31, 2014 and 2013:
TABLE 62: SHARE REPURCHASES
For the years ended December 31 2014 2013 2012
Shares authorized for repurchase at January 1 43,071,613 63,046,682 19,201,518
A
dditional authorizations(a) (b) 64,908,628 45,541,057 86,269,178
Share repurchases(c) (34,799,873) (65,516,126) (42,424,014)
Shares authorized for repurchase at December 31 73,180,368 43,071,613 63,046,682
A
verage price paid per share $ 20.87 $ 18.80 $ 14.82
(a) In March 2014, the Bancorp announced that its Board of Directors had authorized management to purchase 100 million shares of the Bancorp’s common stock through the open market or in any
private transaction. The authorization does not include specific price targets or an expiration date. This share repurchase authorization replaces the Board’s previous authorization pursuant to which
approximately 35 million shares remained available for repurchase by the Bancorp.
(b) In March 2013, the Bancorp announced that its Board of Directors had authorized management to purchase 100 million shares of the Bancorp’s common stock through the open market or in any
private transaction. The authorization does not include specific price targets or an expiration date. This share repurchase authorization replaces the Board’s previous authorization pursuant to which
approximately 54 million shares remained available for repurchase by the Bancorp.
(c) Excludes
2,116,370 , 1,863,097 and 2,059,003 shares repurchased during 2014 , 2013 and 2012, respectively, in connection with various employee compensation plans. These repurchases are not
included in the calculation for average price paid and do not count against the maximum number of shares that may yet be repurchased under the Board of Directors’ authorization.
Stress Tests and CCAR
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 included 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. Refer to Note 3 of the Notes to Consolidated Financial