Fifth Third Bank | All Rights Reserved Citigroup 2009 Financial Services Conference Kevin Kabat, Chairman, President and CEO January 28, 2009 Please refer to earnings release dated January 22, 2009 for further information, including full results reported on a GAAP basis Exhibit 99.1 |
2 Fifth Third Bank | All Rights Reserved 4Q08 IN REVIEW Difficult quarter due to continued deterioration in credit and significant non-recurring items — 4Q08 net loss of $2.2 billion, or $3.82 per diluted share; full year net loss of $2.2 billion or $3.94 per diluted share — Sold or transferred to held-for-sale $1.6 billion in original loan balances, incurred losses of $800 million on these loans; allowance for loan and lease losses increased $729 million — Non-cash goodwill impairment charge of $965 million Core business momentum remains solid — Net interest income growth of 14% from the previous year driven by loan discount accretion related to the second quarter First Charter acquisition. Excluding loan discount accretion, net interest income increased 4% — Fee income growth of 26%, up 4% excluding BOLI and OTTI charges, on continued growth in payments processing revenue, deposit service revenue and corporate banking revenue — Average core deposits up 2% and average total deposits up 8% Strong capital position, well above target ranges — Tier 1 capital ratio of 10.6% — Total capital ratio of 14.8% — Tangible equity ratio of 7.9% — Capital actions included reducing the dividend to $0.01 from $0.15 per share and completing the sale of approximately $3.4 billion in preferred shares to the U.S. Treasury |
3 Fifth Third Bank | All Rights Reserved SIGNIFICANTLY STRENGTHENED CREDIT METRICS/RISK PROFILE Source: SNL and company reports. Peer medians exclude banks for which data is not yet available. Peers include BAC, BBT, COF, C, CMA, FHN, HBAN, JPM, KEY, MTB, MI, RF, SNV, STI, USB and ZION. * Excludes NPAs held-for-sale for all banks. Credit Metrics FITB 3Q08 FITB 4Q08 Peer 4Q08 Median Allowance/Loans 2.41 3.31 +90 bps 2.17 NPLs/Loans* 3.04 2.69 -35 bps 1.81 NPAs/Loans* 3.30 2.96 -34 bps 2.09 Allowance/NPLs* 0.79 1.23 +44 bps 0.93 Allowance/NPAs* 0.73 1.11 +38 bps 0.78 Capital Ratios Tier 1 Ratio 8.57 10.59 +202 bps 10.81 Tangible Equity/Tangible Assets 6.19 7.86 +167 bps 7.51 Tangible Common Equity/Tangible Assets 5.23 4.23 -100 bps 4.97 |
4 Fifth Third Bank | All Rights Reserved Tangible book value $1.5 billion lower than year-end 2007 after challenging 2008 — Allowance/reserves for loan losses and unfunded commitments increased $2.0 billion — Net reduction of $223 million of combined capital and after-tax reserves, or 3% of year-end 2007 levels • Pre-tax pre-provision earnings, before goodwill impairment of $2.9 billion, has been sufficient to absorb $2.7 billion in net-charge-offs, including $800 million in charge-offs related to loans sold or moved to held for sale in 4Q08 • Fifth Third retains virtually all of its pre-2008 loss absorption capacity; preferred shares have added to that capacity 4Q07 1Q08 2Q08 3Q08 4Q08 2008 Tangible book value 6.5 6.7 5.9 5.8 5.0 (1.5) Allowance for loan losses 0.9 1.2 1.6 2.1 2.8 1.9 Reserves for unfunded commitments 0.1 0.1 0.1 0.1 0.2 0.1 Total reserves 1.0 1.3 1.7 2.2 3.0 2.0 Total reserves (after-tax) 0.7 0.9 1.1 1.4 1.9 1.3 Tangible book value plus after-tax reserves 7.2 7.6 7.0 7.3 7.0 (0.2) STRONG CAPACITY TO ABSORB LOSSES Loss Absorption Capacity: 2008 2008 PTPP Income* 2.9 YE08 Allowance for Loan Losses 2.8 YE08 Tangible Common Equity 5.0 YE08 Preferred stock 4.2 Total 15.3 Current 1Q09 expected net charge-offs ~$0.5 B * Excluding $965 million in 4Q08 goodwill impairment. YE08 Purchase Accounting Marks 0.4 |
5 Fifth Third Bank | All Rights Reserved • Capital plans and targets designed to help ensure strong capital levels, positioning Fifth Third to absorb significant potential losses and provisions in a potentially more difficult environment through 2009 • Revised capital targets in June 2008 in order to provide greater cushion • Strengthened Fifth Third’s capital position through several capital actions intended to maintain a Tier 1 ratio within or above target range — Capital issuances – Issued $1.1 billion of Tier 1 capital in the form of convertible preferred securities; achieved new Tier 1 target immediately – Completed the sale of $3.4 billion in senior preferred shares to the U.S. Department of the Treasury under the Capital Purchase Program — Dividend reductions – Reduced quarterly common dividend to $0.01 per share, conserves approximately $300 million in common equity on a full year basis STRONG CAPITAL POSITION N/A 6-7% 7.9% TE/TA 14.8% 10.6% 4Q08 11.5-12.5% 8-9% Target 10% 6% Regulatory “well- capitalized” minimum Total Capital Tier 1 Capital Ratio |
6 Fifth Third Bank | All Rights Reserved CAPITAL PLANS Expect capital levels to continue to exceed targets near-term in difficult economic environment Comfortable with current levels of capital, including tangible common equity (TCE) ratio Longer-term, expect to manage company at higher TCE levels Potential or expected avenues of improvement — Stronger earnings as credit cycle subsides — Strategic avenues including potential sale of high-value assets — Eventual conversion of convertible preferred stock into $1.1 billion in common equity (stock convertible into 96 million common shares) |
7 Fifth Third Bank | All Rights Reserved STRONG FUNDING POSITION Fifth Third remains heavily core funded — Core deposit growth of $3.5 billion, total deposit growth of $5.6 billion since July 2008 Flexibility and liquidity further enhanced by — — Large capital raise further bolstered Holding Company cash and capital levels — Significant committed lines available to access secured borrowings against assets Stable Funding Highlights Equity 10% Other liabilities 4% ST Borrowings 9% Savings / MMDA 17% Interest Checking 12% Foreign Office 2% Non-core Deposits 10% Consumer Time 12% Demand 13% Long Term Debt 11% Current holding company cash position through 1Q10 sufficient to satisfy all fixed obligations over the next 24 months — debt maturities; common and preferred dividends; interest and other expenses without accessing capital markets, relying on dividends from subsidiaries, or proceeds from asset sales $31 million in debt maturities in 2009; none in next four years Holding Company Highlights Significant available borrowing capacity at each subsidiary bank Reduction of overnight borrowings through use of more dependable, less expensive secured facilities Current unused borrowing capacity under secured facilities sufficient to fund all unsecured maturities for over five years — Assumes no access to capital markets Active management to maintain available lines associated with pledgeable assets to ensure contingency funding — Current unused available borrowing capacity $17 billion Bank Sub Highlights Wholesale |
8 Fifth Third Bank | All Rights Reserved PORTFOLIO PERFORMANCE DRIVERS * Performance Largely Driven By No Participation In Subprime mortgages Option ARMs Discontinued or Suspended Lending Discontinued in 2007: Brokered home equity ($2.3B) Suspended in 2008: Homebuilder/residential development ($2.5B) Other non-owner occupied commercial RE ($8.6B) Saleability: All mortgages originated for intended sale ** ** Residential construction-related consumer mortgages intended to be held in portfolio until permanent financing complete. Jumbo mortgage originations currently being held due to market conditions. * Loans remaining in loan portfolio as of December 31, 2008 (data excludes loans held-for-sale) Geography: Florida, Michigan most stressed FY2008 C/O ratio: Total loan portfolio 3.7% Commercial portfolio 4.0% Consumer portfolio 3.3% Remaining Midwest, Southeast performance reflects economic trends FY2008 C/O ratio: Total loan portfolio 1.7% ex-FL/MI Commercial portfolio 1.7% ex-FL/MI Consumer portfolio 1.5% ex-FL/MI Products: Homebuilder/developer charge-offs $368 million for FY 2008 Total charge-off ratio 2.3% (1.9% ex-HBs) Commercial charge-off ratio 2.4% (1.8% ex-HBs) Brokered home equity charge-offs 4.7% in 4Q08 Direct home equity portfolio 1.0% |
9 Fifth Third Bank | All Rights Reserved 86% OF COMMERCIAL LOAN CHARGE-OFFS (BY VALUE) IN 2008 ARE FROM LOANS ORIGINATED BEFORE 2007 2004 & prior 32% 2007 Core* 12% 2008 2% 2007 Crown 6% 2005 23% 2006 25% Profile of 2008 commercial charge-offs ($) by obligor vintage Note: Core excludes acquired portfolios * Includes a $25MM fraud loss, which accounts for 37% of the core 2007 vintage losses 2006 was the single greatest contributing year to commercial charge-offs in 2008, comprising 25% of charge-offs 14% of charge-offs in 2008 from loans originated in 2007 or later Loans originated in 2005 and 2006 expected to continue to account for majority of losses Highlights |
10 Fifth Third Bank | All Rights Reserved ‘HOME BUILDER’ LOANS ACCOUNT FOR 40% OF TOTAL 2008 COMMERCIAL LOSSES, LARGELY FROM LOANS IN FLORIDA AND MICHIGAN Other 4% FL (Other) 31% OH 7% MI 42% TN 1% FL (Crown)** 14% ‘Home Builder’ loan losses by geography * Home builder loans represent loans extended to home builders and developers to support residential real estate ** Crown losses were driven by several large home builders significantly exceeding their MTM purchase accounting adjustments • Florida and Michigan account for 37% of the total homebuilder loan portfolio but 87% of the ‘home builder’ losses through December 2008 • Expected home builder charge-offs absent any other credit actions, will likely remain high in 2009 as residential and land valuations remain under stress • Suspended new originations to sector in 2007 • 5% of commercial loans; < 3% of total gross loans Highlights Overview of 2008 commercial loan losses 60% 40% 2008 Losses Other ‘Home builder’* 100% = $2.0 BN |
11 Fifth Third Bank | All Rights Reserved 2008 2007 2006 OVERVIEW OF ACTIONS TAKEN TO IMPROVE COMMERCIAL CREDIT PROCESS Tightened underwriting Centralized underwriting to drive consistency Implemented concentration limits Adopted aggressive portfolio management 1 2 3 4 • Created centralized business banking underwriting channel at two centers • Centralized credit reporting lines from affiliates • Enhanced tracking of covenant and policy exceptions • Reduced individuals with business banking override authority by two-thirds • Stopped new originations to home builders • Adopted new commercial concentration limits by geography and asset type • Implemented reduction of watch and criticized loans • Stopped new originations for non-owner occupied RE • Created centralized private banking credit function Key actions • Sold or transferred to held- for-sale loans with a contractual balance of $1.6B |
12 Fifth Third Bank | All Rights Reserved COMMERCIAL PORTFOLIO ACTIONS Loans identified where sale value believed to exceed work out value Portfolio actions reduced risk of further loss on more problematic loan portfolios Loans sold or transferred to held-for- sale reduced to value of approximately $0.33 on dollar $440 million, or 55%, of losses were on homebuilder / developer credits 55% of carrying values on non-accrual as of 9/30/08; remainder believed to have significant potential issues warranting sale Of the $800 million in 4Q08 losses: — 93% in Michigan and Florida — 95% on CRE loans 9/30/2008 Total Current Contractual carrying 4Q08 carrying ($ in millions) balance value charge-offs value Sold 240 177 120 - Moved to held-for-sale 1,370 1,165 680 473 Total $1,610 $1,342 $800 $473 NPAs as of 9/30/2008 980 732 474 229 Non-NPAs as of 9/30/2008 630 609 326 244 Total $1,610 $1,342 $800 $473 Florida 809 670 394 261 Michigan 651 538 354 138 Georgia 17 16 5 7 North Carolina 27 16 2 14 Other 106 102 45 53 Total $1,610 $1,342 $800 $473 C&I 75 60 39 24 Commercial Mortgage 718 625 372 231 Commercial Construction 817 657 389 218 Commercial Lease - - - - Total $1,610 $1,342 $800 $473 |
13 Fifth Third Bank | All Rights Reserved 81% OF CONSUMER LOAN CHARGE-OFFS (BY VALUE) IN 2008 ARE FROM LOANS ORIGINATED BEFORE 2007 2006 30% 2005 32% 2007 16% 2008 3% 2004 & prior 19% Profile of 2008 consumer charge-offs ($) by obligor vintage 2005 contributed the largest proportion (32%) of consumer charge-offs 19% of charge-offs in 2008 from consumer loans originated in 2007 or later 2005 and 2006 vintages expected to continue to account for majority of losses in 2009 Highlights * Excluding credit card. |
14 Fifth Third Bank | All Rights Reserved FITB HAS ADDRESSED THE ORIGINATION SOURCES THAT LED TO THE MAJORITY OF CONSUMER HOME EQUITY CREDIT LOSSES 29% 22% 8% 41% 2008 consumer home equity dollar charge-offs by source/root cause Targeted actions have addressed the source of 92% of home equity losses With these actions in place, relationship- based underwriting losses would account for 8% of the total Similar actions have been taken to address losses in mortgage portfolio Highlights On-going originations Addressed through guideline restrictions Retail broker HEA (e.g., increases in required CLTVs, FICO scores, exceptions) • Exit/shut-down in Q108 • Exit/shut-down in Q307 |
15 Fifth Third Bank | All Rights Reserved 68.4% 75.5% 80.1% 2006 2007 2008 775 761 751 2006 2007 2008 UNDERWRITING ACTIONS HAVE IMPROVED HOME EQUITY QUALITY 1% 7% 14% 2006 2007 2008 40% 28% 25% 2006 2007 2008 Weighted avg. CLTV (combined loan-to-value) Weighted avg. FICO score* % of broker originated loans % 1 st lien position * At origination |
16 Fifth Third Bank | All Rights Reserved 76.3% 80.7% 83.4% 2006 2007 2008 747 729 717 2006 2007 2008 UNDERWRITING ACTIONS SINCE 2006 HAVE SIGNIFICANTLY IMPROVED ORIGINATION QUALITY IN MORTGAGE 1.5% 5% 8% 2006 2007 2008 0% 3% 16% 2006 2007 2008 Weighted avg. LTV (loan-to-value) Weighted avg. FICO score* $ of non-owner occupied home originations % of lot loan originations *At origination Note: 2008 non-owner occupied data is YTD as of September 30, 2008 |
17 Fifth Third Bank | All Rights Reserved OVERVIEW OF ACTIONS TAKEN TO IMPROVE CONSUMER CREDIT PROCESS Tightened underwriting Centralized underwriting to drive consistency Adopted aggressive portfolio management • Established Regional Credit Centers for direct real estate and indirect underwriting • Reduced from 22 affiliate mortgage fulfillment centers to 13 centers • Began loan modification program for borrowers, resulting in 40% cure rate and ~20% re-default rate today • Limited exceptions in home equity, targeting broker and high LTV segments • Limited override authorities to affiliate presidents, LOB heads • Started home equity line management, reducing unutilized line exposure by nearly $1B • Reduced from 13 affiliate mortgage fulfillment centers to 3 centralized centers • Centralized underwriting of auto loans through indirect channel • Tightened home equity lending collateral and credit guidelines • Reduced policy exception levels to <5% • Ceased brokered home equity lending • Discontinued mortgage spec lending • Revised auto guidelines and improved risk/return through pricing changes • Implemented new bankcard scoring model with minimum FICO of 660 • Centralized underwriting of auto loans through direct channel • Adopted 95% mortgage salability strategy • Implemented appraisal review desk 2008 2007 2006 Key actions 1 2 3 |
18 Fifth Third Bank | All Rights Reserved SUMMARY Solid operating results despite sluggish economy Significant reduction in credit risk, improvement in coverage ratios Capital position remains strong in conjunction with credit risk actions Core funding orientation Proactive measure to mitigate exposures, tighten credit standards for new loans, improve operations to contain losses in existing portfolios |
19 Fifth Third Bank | All Rights Reserved CAUTIONARY STATEMENT This report may contain forward-looking statements about Fifth Third Bancorp within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. This report may contain certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Fifth Third Bancorp including statements preceded by, followed by or that include the words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic conditions and weakening in the economy, specifically the real estate market, either national or in the states in which Fifth Third, does business, are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequate sources of funding and liquidity; (7) changes and trends in capital markets; (8) competitive pressures among depository institutions increase significantly; (9) effects of critical accounting policies and judgments; (10) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies; (11) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third, or the businesses in which Fifth Third, is engaged; (12) ability to maintain favorable ratings from rating agencies; (13) fluctuation of Fifth Third’s stock price; (14) ability to attract and retain key personnel; (15) ability to receive dividends from its subsidiaries; (16) potentially dilutive effect of future acquisitions on current shareholders' ownership of Fifth Third; (17) effects of accounting or financial results of one or more acquired entities; (18) difficulties in combining the operations of acquired entities; (19) lower than expected gains related to any potential sale of businesses, (20) loss of income from any potential sale of businesses that could have an adverse effect on Fifth Third’s earnings and future growth (21) ability to secure confidential information through the use of computer systems and telecommunications networks; and (22) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Bancorp's Annual Report on Form 10-K for the year ended December 31, 2007, filed with the United States Securities and Exchange Commission (SEC). Copies of this filing are available at no cost on the SEC's Web site at www.sec.gov or on the Fifth Third’s Web site at www.53.com. Fifth Third undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report. |