CINCINNATI, Jan. 22 /PRNewswire-FirstCall/ --
-- Net loss of $2.2 billion ($3.82 per diluted common share) driven
primarily by goodwill impairment, credit actions, higher credit costs
and market valuation adjustments
-- Non-cash goodwill impairment charge of $965 million; no negative
effect on regulatory, other capital ratios
-- Securities other-than-temporary impairment (OTTI) of $0.05 per
share; estimated non-cash BOLI charge of $0.06 per share; changes in
loss estimates related to an indemnification obligation with Visa of
$0.01 per share (all per share figures after-tax)
-- Losses on loans sold or transferred to held-for-sale of $800 million
pre-tax; provision for loan losses $729 million in excess of loan
losses
-- Reported net interest income up 14 percent versus the fourth quarter
2007; up 4 percent excluding First Charter loan discount accretion
-- Average core deposits up 2 percent, average total deposits up 8
percent
-- Noninterest income increased 26 percent from the fourth quarter 2007,
or 4 percent excluding BOLI charges and OTTI charges
-- Payments processing revenue up 3 percent
-- Deposit service revenue up 2 percent
-- Corporate banking revenue growth of 14 percent
-- Completed the sale of approximately $3.4 billion in preferred shares to
U.S. Department of the Treasury under the Capital Purchase Program
-- Tier 1 capital ratio of 10.59 percent (target range 8-9 percent)
-- Total capital ratio of 14.79 percent (target range 11.5-12.5
percent)
-- Tangible equity ratio of 7.86 percent (target range 6-7 percent)
-- Allowance to loan ratio increased to 3.31 percent, allowance to
nonperforming loans ratio of 123 percent
Earnings Highlights
For the Three Months Ended
December September June March December
2008 2008 2008 2008 2007
Net income (loss) (in
millions) ($2,142) ($56) ($202) $286 $16
Net income (loss) available
to common shareholders ($2,184) ($81) ($202) $286 $16
Common Share Data
Earnings per share, basic (3.82) (0.14) (0.37) 0.54 0.03
Earnings per share, diluted (3.82) (0.14) (0.37) 0.54 0.03
Cash dividends per common
share 0.01 0.15 0.15 0.44 0.44
Financial Ratios
Return on average assets (7.16%) (.19%) (.72%) 1.03% 0.06%
Return on average equity (94.6) (3.3) (8.5) 12.3 0.7
Tier I capital 10.59 8.57 8.51 7.72 7.72
Net interest margin (a) 3.46 4.24 3.04 3.41 3.29
Efficiency (a) 131.3 54.2 58.6 42.3 72.6
Common shares outstanding
(in thousands) 577,387 577,487 577,530 532,106 532,672
Average common shares
outstanding
(in thousands):
Basic 571,809 571,705 540,030 528,498 529,120
Diluted 571,809 571,705 540,030 530,372 530,939
% Change
Seq Yr/Yr
Net income (loss) (in millions) NM NM
Net income (loss) available to
common shareholders NM NM
Common Share Data
Earnings per share, basic NM NM
Earnings per share, diluted NM NM
Cash dividends per common share (93%) (98%)
Financial Ratios
Return on average assets NM NM
Return on average equity NM NM
Tier I capital 24% 37%
Net interest margin (a) (18%) 5%
Efficiency (a) 142% 81%
Common shares outstanding (in thousands) - 8%
Average common shares outstanding
(in thousands):
Basic - 8%
Diluted - 8%
(a) Presented on a fully taxable equivalent basis
NM: not meaningful
Fifth Third Bancorp (Nasdaq: FITB) today reported a full year 2008 net
loss of $2.2 billion, or $3.94 per diluted share, compared with net income of
$1.1 billion, or $1.99 per diluted share in 2007. Reported fourth quarter 2008
earnings were a net loss of $2.2 billion, or $3.82 per diluted share, compared
with a net loss of $81 million, or $0.14 per diluted share, in the third
quarter of 2008 and net income of $16 million, or $0.03 per diluted share, in
the fourth quarter of 2007.
Fourth quarter results included a non-cash charge of $965 million pre-tax,
or $1.64 per share after-tax, to record the impairment of goodwill. This
write-down resulted from goodwill impairment testing that was performed at the
end of the fourth quarter due to the decline in the stock price during the
quarter, and the resulting difference between market capitalization and book
value of the Bancorp. The results of the goodwill impairment testing showed
that the estimated fair values of certain of the Bancorp's reporting units
were less than their book values, resulting in this charge.
Fourth quarter results also included the effect of actions taken to
address areas of the loan portfolio exhibiting the most significant credit
deterioration. During the fourth quarter, the Bank sold or transferred to
held-for-sale loans with contractual balances of $1.6 billion and a carrying
value of approximately $1.3 billion at the end of the third quarter.
Approximately 90 percent of these loans were commercial real estate secured
loans in Florida and Michigan. Loans sold had contractual balances of $240
million, carrying values (net of prior charge-offs) at the end of the third
quarter of $177 million, on which we recorded fourth quarter net charge-offs
of $120 million. Loans transferred to held-for-sale had contractual balances
of $1.4 billion and carrying values of $1.2 billion at the end of the third
quarter. Net charge-offs of $680 million were recorded in the fourth quarter
on these loans as they were written down to bids received or collateral
liquidation values. Overall, net charge-offs on loans either sold or
transferred to held-for-sale during the fourth quarter totaled $800 million,
which reflected a reduction in the value of loans sold or transferred to
approximately 33 cents of their contractual balances. Fifth Third also
significantly increased its reserve for loan and lease losses to $2.8 billion,
resulting in an allowance to loan and lease ratio of 3.31 percent, up from
2.41 percent in the third quarter, and an allowance to nonperforming loans
ratio of 123 percent, up from 79 percent in the third quarter.
Reported results for the fourth quarter also included $40 million pre-tax,
or $0.05 per share after-tax, in other-than-temporary impairment (OTTI)
charges on securities, a non-cash estimated charge of $34 million pre-tax, or
$0.06 per share after-tax, to lower the current cash surrender value of one of
our BOLI policies, and an estimated $8 million pre-tax, or $0.01 per share
after-tax, due to changes on loss estimates related to the Bancorp's
indemnification obligation with Visa.
During the quarter, Fifth Third Bancorp sold $3.4 billion in preferred
shares to the U.S. Department of the Treasury under its Capital Purchase
Program, which represented approximately 3.0% of September 30, 2008 risk-
weighted assets. This investment was the primary cause of the increase in our
tangible equity ratio to 7.86 percent, our Tier 1 capital ratio to 10.59
percent, and our total capital ratio to 14.79 percent. In order to meet the
standard terms of the Capital Purchase Program, Fifth Third repurchased its
Series D and Series E preferred stock for aggregate consideration in cash of
$28 million. The purchase was accounted for as a retirement of the $9 million
par value of Series D and Series E preferred stock and the remaining $19
million was paid as an extraordinary dividend to the holders of those
preferred stock issues. Overall, this action represented a charge of $0.05 per
diluted share.
"Economic conditions have deteriorated across our footprint and have
placed both our consumer and commercial loan portfolios under significant
stress, as evident in our bottom line results for the year," said Kevin T.
Kabat, Chairman, President and CEO of Fifth Third Bancorp. "The resultant
decline in our stock price during the quarter, and the evaluation of goodwill,
led to our recording of goodwill impairment of $940 million after-tax during
the quarter. This is a non-cash charge and it doesn't negatively affect our
cash flow or our capital ratios."
Our underlying business results continue to be solid. We produced growth
in both consumer and commercial deposit accounts of 4%, excluding
acquisitions. Our Everyday Great Rates strategy helped us expand our customer
base despite the extremely aggressive deposit competition we saw in 2008.
Additionally, corporate banking fees were $444 million for the full year, up
21% in 2008, and electronic payments processing revenue and service charges on
deposits were both up 11%.
Since the beginning of the current credit cycle in the second half of
2007, we have been aggressively addressing our loan portfolio exposure to the
geographies and industries most affected by this credit downturn. Actions
we've taken include suspending originations of residential homebuilder and
developer loans and commercial non-owner occupied real estate loans,
discontinuing all brokered home equity products, and implementing more
stringent underwriting standards. We have significantly increased our reserves
by over $1.9 billion over the course of 2008, including over $700 million in
the fourth quarter.
During the fourth quarter, we took actions that resulted in the recording
of significant losses. We sold or transferred to held-for-sale of $1.3 billion
of commercial loans, based on the combined carrying value of these loans at
the end of the third quarter. These steps were intended to further reduce the
risk of our most problematic loan portfolios, primarily residential
homebuilder and commercial non-owner occupied real estate loans in Michigan
and Florida. During the quarter, $800 million in losses were recorded on these
loans sold or transferred to held-for-sale. We also continued to be very
aggressive in dealing with problematic loans in our consumer portfolio,
modifying a total of $218 million loans during the quarter. Modifying these
loans is beneficial not only to our shareholders but is also consistent with
the needs of our customers, and result in a greater likelihood of payment and
more value ultimately received by Fifth Third. As of year-end, we had $574
million in restructured customer loans on our books. We understand that these
actions significantly impacted our bottom line results, but we believe the
actions taken in 2008 to mitigates risks and fortify the balance sheet will
benefit our shareholders and customers in 2009 as this credit cycle
progresses.
During 2008, we raised a combined $4.5 billion in preferred equity,
including $3.4 billion under the U.S. Treasury's Capital Purchase Program, and
increased our reserve for loan and lease losses by $1.9 billion from the prior
year's level, bolstering the strength of our balance sheet. The investment by
the Treasury was made on December 31, 2008. This additional capital increases
our capacity to provide credit to businesses and consumers in our markets in
coming periods and to further assist struggling borrowers as we work together
to manage through this difficult environment."
Income Statement Highlights
For the Three Months Ended % Change
Dec. Sept. June March Dec.
2008 2008 2008 2008 2007 Seq Yr/Yr
Condensed Statements
of Income ($ in
millions)
Net interest income
(taxable equivalent) $897 $1,068 $744 $826 $785 (16%) 14%
Provision for loan and
lease losses 2,356 941 719 544 284 151% 729%
Total noninterest
income 642 717 722 864 509 (11%) 26%
Total noninterest
expense 2,022 967 858 715 940 109% 115%
Income (loss) before
income taxes (taxable
equivalent) (2,839) (123) (111) 431 70 NM NM
Taxable equivalent
adjustment 5 5 6 6 6 - (17%)
Applicable income
taxes (702) (72) 85 139 48 NM NM
Net income (loss) (2,142) (56) (202) 286 16 NM NM
Dividends on preferred
stock 42 25 - - - 68% NM
Net income (loss)
available to common
shareholders (2,184) (81) (202) 286 16 NM NM
Earnings per share,
diluted ($3.82) ($0.14) ($0.37) $0.54 $0.03 NM NM
NM: not meaningful
Net Interest Income
For the Three Months Ended
December September June March December
2008 2008 2008 2008 2007
Interest Income ($ in
millions)
Total interest income
(taxable equivalent) $1,411 $1,553 $1,213 $1,453 $1,556
Total interest expense 514 485 469 627 771
Net interest income (taxable
equivalent) $897 $1,068 $744 $826 $785
Average Yield
Yield on interest-earning
assets 5.44% 6.16% 4.95% 5.99% 6.52%
Yield on interest-bearing
liabilities 2.28% 2.25% 2.23% 2.99% 3.78%
Net interest rate spread
(taxable equivalent) 3.16% 3.91% 2.72% 3.00% 2.74%
Net interest margin
(taxable equivalent) 3.46% 4.24% 3.04% 3.41% 3.29%
Average Balances ($ in
millions)
Loans and leases, including
held for sale $87,426 $85,772 $85,212 $84,912 $82,172
Total securities and other
short-term investments 15,683 14,515 13,363 12,597 12,506
Total interest-bearing
liabilities 89,440 85,990 84,417 84,353 80,977
Shareholders' equity 10,291 10,843 9,629 9,379 9,446
% Change
Seq Yr/Yr
Interest Income ($ in millions)
Total interest income (taxable equivalent) (9%) (9%)
Total interest expense 6% (33%)
Net interest income (taxable equivalent) (16%) 14%
Average Yield
Yield on interest-earning assets (12%) (17%)
Yield on interest-bearing liabilities 1% (40%)
Net interest rate spread (taxable
equivalent) (19%) 15%
Net interest margin (taxable
equivalent) (18%) 5%
Average Balances ($ in millions)
Loans and leases, including held for sale 2% 6%
Total securities and other short-
term investments 8% 25%
Total interest-bearing liabilities 4% 10%
Shareholders' equity (5%) 9%
Net interest income of $897 million on a taxable equivalent basis declined
$171 million from the third quarter of 2008, largely driven by a $134 million
reduction in loan discount accretion related to the second quarter 2008
acquisition of First Charter Corporation ("First Charter"). Excluding the
benefit of the loan discount accretion of $81 million in the fourth quarter
and $215 million in the third quarter, net interest income declined $37
million, or 4 percent, from the third quarter 2008. This sequential decline
was driven by a number of factors, which included the effect of loan interest
reversals and higher nonperforming loan balances, a change in the mix of
deposits to higher priced CDs and savings products as a result of a highly
competitive deposit pricing environment, and the effect of lower market
interest rates on deposit spreads. In a low rate environment, asset yields
decline but it is difficult to reduce rates paid on lower yielding deposit
accounts to the same extent. These negative effects were partially offset by
wider loan spreads and the addition of assets related to certain off-balance
sheet programs.
The reported net interest margin was 3.46 percent, down 78 bps from 4.24
percent in the third quarter of 2008. The decrease was primarily due to a 54
bps reduction in the impact of purchase accounting adjustments for First
Charter loan discount accretion, which contributed 31 bps to the fourth
quarter margin versus 85 bps of benefit to the third quarter margin. Excluding
this impact, the net interest margin would have been 3.15 percent, a decline
of 24 bps from the previous quarter. This decline was driven by the change in
mix of deposits, deposit costs declining less than asset yields, higher
interest reversals, and the addition of assets due to customer use of
contingent liquidity facilities related to certain off-balance sheet programs.
These items were partially offset by wider loans spreads.
Compared with the fourth quarter of 2007, net interest income increased
$112 million and the net interest margin increased 17 bps from 3.29 percent,
both primarily due to the impact of loan discount accretion from the First
Charter acquisition. Excluding this effect, net interest income increased by
$31 million, or 4 percent, from the same period in 2007, and the net interest
margin declined 14 bps.
Average Loans
For the Three Months Ended
December September June March December
2008 2008 2008 2008 2007
Average Portfolio Loans and
Leases ($ in millions)
Commercial:
Commercial loans $30,227 $28,284 $28,299 $25,367 $23,650
Commercial mortgage 13,189 13,257 12,590 12,016 11,497
Commercial construction 5,990 6,110 5,700 5,577 5,544
Commercial leases 3,610 3,641 3,747 3,723 3,692
Subtotal - commercial loans
and leases 53,016 51,292 50,336 46,683 44,383
Consumer:
Residential mortgage
loans 9,335 9,681 9,922 10,395 9,943
Home equity 12,677 12,534 12,012 11,846 11,843
Automobile loans 8,428 8,303 8,439 9,278 9,445
Credit card 1,748 1,720 1,703 1,660 1,461
Other consumer loans and
leases 1,165 1,165 1,125 1,083 1,099
Subtotal - consumer loans
and leases 33,353 33,403 33,201 34,262 33,791
Total average loans and
leases (excluding held for
sale) $86,369 $84,695 $83,537 $80,945 $78,174
Average loans held for sale 1,057 1,077 1,676 3,967 3,998
% Change
Seq Yr/Yr
Average Portfolio Loans and Leases
($ in millions)
Commercial:
Commercial loans 7% 28%
Commercial mortgage (1%) 15%
Commercial construction (2%) 8%
Commercial leases (1%) (2%)
Subtotal - commercial loans and leases 3% 19%
Consumer:
Residential mortgage loans (4%) (6%)
Home equity 1% 7%
Automobile loans 2% (11%)
Credit card 2% 20%
Other consumer loans and leases - 6%
Subtotal - consumer loans and leases - (1%)
Total average loans and leases
(excluding held for sale) 2% 10%
Average loans held for sale (2%) (74%)
Average portfolio loan and lease balances increased 2 percent sequentially
and were up 10 percent from the fourth quarter of 2007. Acquisitions had no
impact on sequential growth and accounted for 3 percent of average loan growth
on a year-over-year basis.
Average commercial loan and lease balances grew 3 percent sequentially and
19 percent compared with the previous year. During the fourth quarter,
commercial and industrial (C&I) average loans grew by approximately $1.7
billion primarily due to the use of contingent liquidity facilities related to
certain off-balance sheet programs. Excluding these items and the impact of
acquisitions, commercial loan balances were consistent with third quarter
balances and increased 12 percent from the previous year, with year-over-year
growth driven by C&I lending, up 19 percent due primarily to strong production
during the first and second quarters of 2008. Nearly half of the growth in
commercial mortgage balances and all of the growth in commercial construction
balances from the same period in 2007 was attributable to acquisitions. During
the fourth quarter, $1.3 billion in commercial loans were either sold or
transferred to held-for-sale, but there was minimal impact to average loan
balances due to the timing of these actions.
Consumer loan and lease balances were flat sequentially and declined 1
percent from the fourth quarter of 2007. Excluding acquisitions, consumer loan
balances declined 5 percent from the previous year, which included a decline
in auto loans as a result of $2.7 billion in securitizations in the first
quarter of 2008. Sequentially, modest home equity loan growth, a result of
lower pay-downs in the quarter, along with credit card and auto loan growth
was offset by declines in residential mortgage loans. On a year-over-year
basis, growth in home equity and credit card loans was more than offset by a
reduction in residential mortgage and auto loan balances. Excluding
acquisitions, residential mortgage loans declined 14 percent from the previous
year.
Average Deposits
For the Three Months Ended
December September June March December
2008 2008 2008 2008 2007
Average Deposits ($ in
millions)
Demand deposits $14,602 $14,225 $14,023 $13,208 $13,345
Interest checking 13,315 13,843 14,396 14,836 14,394
Savings 15,960 16,154 16,583 16,075 15,616
Money market 4,983 6,051 6,592 6,896 6,363
Foreign office (a) 1,876 2,126 2,169 2,443 2,249
Subtotal - Transaction
deposits 50,736 52,399 53,763 53,458 51,967
Other time 13,337 10,780 9,517 10,884 11,011
Subtotal - Core deposits 64,073 63,179 63,280 64,342 62,978
Certificates - $100,000
and over 12,468 11,623 8,143 5,835 6,613
Other 1,473 395 2,948 3,861 2,464
Total deposits $78,014 $75,197 $74,371 $74,038 $72,055
% Change
Seq Yr/Yr
Average Deposits ($ in millions)
Demand deposits 3% 9%
Interest checking (4%) (7%)
Savings (1%) 2%
Money market (18%) (22%)
Foreign office (a) (12%) (17%)
Subtotal - Transaction deposits (3%) (2%)
Other time 24% 21%
Subtotal - Core deposits 1% 2%
Certificates - $100,000 and over 7% 89%
Other 273% (40%)
Total deposits 4% 8%
(a) Includes commercial customer Eurodollar sweep balances for
which the Bancorp pays rates comparable to other commercial deposit
accounts.
Average core deposits increased 1 percent sequentially and were up 2
percent from the fourth quarter of 2007. Acquisitions had no effect on
sequential core deposit growth and a 4 percent positive effect compared with
the same quarter last year. Sequential growth in average demand deposit (DDA)
and consumer CD balances was partially offset by lower interest checking,
savings and money market deposits, and foreign office commercial sweep
deposits. On a year-over-year basis, growth in DDA, savings, and consumer CD
balances more than offset lower interest checking, money market, and foreign
office commercial sweep deposits. Average transaction deposits (excluding
consumer time deposits) were down 3 percent from the third quarter and
declined 2 percent from a year ago. The decline was driven by lower average
balances resulting from weaker economic conditions, as well as the migration
of savings balances to higher rate CDs.
Retail average core deposits increased 4 percent both sequentially and
from the fourth quarter of 2007. Strong sequential growth in consumer CD
balances was partially offset by lower interest checking balances, a result of
lower average balances during the quarter. DDA and savings balances were
consistent with the previous quarter as lower average balances offset net new
account growth. Commercial core deposits decreased 5 percent sequentially and
were down 6 percent from the previous year as lower market rates led customers
to carry lower balances and to substitute fees for compensating balances in
payment for treasury management services. Sequential growth in DDA and
interest checking account balances was driven by customers shifting balances
into DDA products given the increased FDIC insurance limits, and was more than
offset by lower savings and money market account balances. The sequential
increase in CDs $100,000 and over was driven by growth in customer jumbo CDs
and other time deposits in an overall effort to reduce exposure to market-
related funding sources.
Noninterest Income
For the Three Months Ended % Change
Dec. Sept. June March Dec.
2008 2008 2008 2008 2007 Seq Yr/Yr
Noninterest Income ($ in
millions)
Electronic payment processing
revenue $230 $235 $235 $213 $223 (2%) 3%
Service charges on deposits 162 172 159 147 160 (6%) 2%
Investment advisory revenue 78 90 92 93 94 (13%) (17%)
Corporate banking revenue 121 104 111 107 106 16% 14%
Mortgage banking net revenue (29) 45 86 97 2 NM NM
Other noninterest income 24 112 49 177 (113) (79%) NM
Securities gains (losses), net (40) (63) (10) 27 7 (37%) NM
Securities gains, net - non-
qualifying hedges on mortgage
servicing rights 96 22 - 3 6 345% 1583%
Total noninterest income $642 $717 $722 $864 $509 (11%) 26%
Noninterest income of $642 million decreased $75 million sequentially and
increased $133 million from a year ago. Fourth quarter results included a non-
cash estimated charge of $34 million to lower the current cash surrender value
of one of our BOLI policies. The remaining carrying value on this BOLI policy
is $290 million. Fourth quarter results also included securities OTTI charges
of $40 million. Third quarter results were impacted by a $76 million gain
related to a satisfactory resolution of a court case related to goodwill
stemming from a previous acquisition in 1998, a $51 million OTTI charge on
Fannie Mae and Freddie Mac preferred stock, and a non-cash BOLI charge of $27
million. Excluding these items, noninterest income of $716 million was
consistent with the third quarter, driven primarily by strong corporate
banking revenue offset by declines in deposit fees and investment advisory
fees. Fourth quarter 2007 results included a $177 million non-cash BOLI
charge. Excluding the BOLI charge in both periods and the $40 million in OTTI
charges in the fourth quarter of 2008, noninterest income increased by $30
million, or 4 percent from the previous year. Year-over-year growth in
noninterest income was driven by stronger mortgage activity, growth in
corporate banking, and growth in payments processing revenue.
Electronic payment processing (EPP) revenue of $230 million declined 2
percent sequentially and increased 3 percent from a year ago. Merchant
processing revenue was relatively flat sequentially and compared to the
previous year, as the benefit of continued account acquisition was offset by a
decline in average dollar amount per credit card transaction due to lower
consumer spending. Card issuer interchange revenue declined 2 percent
sequentially, driven primarily by a decline in the average dollar amount per
debit and credit card transaction. Interchange revenue increased 7 percent
from the previous year, driven by higher credit card transactions as a result
of the Bancorp's credit card growth initiative, partially offset by a lower
dollar amount per transaction. Financial institutions revenue decreased 3
percent compared with the previous quarter, relating to lower transaction
volume in a weaker economic environment, and grew 4 percent from the fourth
quarter of 2007 on higher transaction volumes as card use continues to replace
cash at the point of transaction.
Service charges on deposits of $162 million decreased 6 percent
sequentially and increased 2 percent compared with the same quarter last year.
Retail service charges decreased 12 percent from the third quarter and 7
percent from the fourth quarter of 2007 due to lower checking account
transaction volume. Commercial service charges increased 3 percent
sequentially and 14 percent compared with last year. This growth primarily
reflected an increase in customer accounts and lower market interest rates, as
reduced earnings credit rates paid on customer balances have resulted in
higher realized net services fees to pay for treasury management services.
Corporate banking revenue of $121 million increased by $17 million, or 16
percent from the previous quarter. Sequential results were driven by strong
growth in interest rate derivative revenue, up 50 percent; business lending
fees, up 13 percent; institutional sales, up 7 percent; and foreign exchange
revenue, up 4 percent. Corporate banking revenue increased by $15 million, or
14 percent on a year-over-year basis. Strong growth in foreign exchange
revenue, up 64 percent, business lending fees, up 10 percent, and
institutional sales revenue, up 4 percent, more than offset declines in
interest rate derivative revenue, down 27 percent.
Investment advisory revenue of $78 million was down 13 percent
sequentially and 17 percent from the fourth quarter of 2007. Institutional
trust revenue decreased 22 percent from the same period the previous year
largely driven by lower asset values. Mutual fund fees were down 21 percent
year-over-year, as a shift to lower yielding investments and lower asset
values drove declines. Brokerage fees were down 14 percent from the fourth
quarter of 2007, reflecting the continued shift in assets from equity products
to lower yielding money market funds due to extreme market volatility as well
as a decline in transaction-based revenues.
Mortgage banking net revenue was a net loss of $29 million in the fourth
quarter of 2008, a decline of $74 million from third quarter results and a $55
million decline from the fourth quarter of 2007. MSR valuation adjustments,
including mark-to-market related adjustments on free-standing derivatives,
represented a net loss of $96 million in the fourth quarter of 2008, compared
with a net loss of $15 million last quarter and a net loss of $6 million a
year ago. These losses were fully offset by gains in MSR balance sheet hedges
reported in securities gains and losses. Fourth quarter originations were $2.1
billion, up from $2.0 billion the previous quarter, and resulted in fees and
the sale of mortgages held for sale of $45 million compared with gains of $43
million during the previous quarter, and $18 million during the same period in
2007. Revenue for the fourth quarter included $3 million of gains on the sale
of portfolio loans compared with $8 million in the previous quarter and $1
million in the fourth quarter of 2007. The adoption of FAS 159 for mortgage
banking in the first quarter of 2008 contributed $12 million of the year-over-
year increase in mortgage banking revenue, with corresponding origination
costs recorded in noninterest expense. Net servicing revenue, before mortgage
servicing rights (MSR) valuation adjustments, totaled $22 million in the
fourth quarter, compared with $17 million last quarter and $14 million a year
ago. The mortgage-servicing asset, net of the valuation reserve, was $496
million at quarter end on a servicing portfolio of $40.4 billion.
Net securities gains on non-qualifying hedges on MSRs were $96 million in
the fourth quarter of 2008, $22 million in the third quarter and $6 million in
the fourth quarter of 2007.
Net losses on investment securities were $40 million in the fourth quarter
of 2008 compared with a net loss of $63 million last quarter. The fourth
quarter losses were driven by an OTTI charge of $37 million on trust preferred
securities. These securities are now carried at $172 million on a combined
basis, versus an original par value of $209 million. Results also included an
OTTI charge of $3 million on Fannie Mae and Freddie Mac preferred stock, which
are now carried at $1 million in aggregate versus original par values of $69
million.
Other noninterest income totaled $24 million in the fourth quarter of 2008
compared with $112 million last quarter and negative $113 million in the
fourth quarter of 2007. Fourth quarter results included an estimated non-cash
charge of $34 million that lowered the current cash surrender value of one of
our BOLI policies, while third quarter 2008 results included the $76 million
gain related to a satisfactory resolution of a court related to supervisory
goodwill in a case stemming from a prior acquisition in 1998, partially offset
by a $27 million non-cash BOLI charge. Fourth quarter 2007 results also
included a $177 million BOLI charge. Excluding these items, other noninterest
income decreased by $5 million from the previous quarter and $6 million from
the previous year. Both the sequential and year-over-year declines were
primarily driven by higher write-downs on other real estate owned (OREO)
properties.
Noninterest Expense
For the Three Months Ended % Change
Dec. Sept. June March Dec.
2008 2008 2008 2008 2007 Seq Yr/Yr
Noninterest Expense ($ in
millions)
Salaries, wages and incentives $337 $321 $331 $347 $328 5% 3%
Employee benefits 61 72 60 85 56 (14%) 10%
Payment processing expense 70 70 67 66 68 1% 3%
Net occupancy expense 77 77 73 72 70 1% 11%
Technology and communications 48 47 49 47 47 3% 3%
Equipment expense 35 34 31 31 32 3% 7%
Other noninterest expense 1,394 346 247 67 339 303% 311%
Total noninterest expense $2,022 $967 $858 $715 $940 109% 115%
Noninterest expense of $2.0 billion increased $1.1 billion both
sequentially and from a year ago. The significant increase in expenses was
primarily driven by the $965 million pre-tax charge to record goodwill
impairment in the fourth quarter of 2008. Excluding this charge, noninterest
expense of $1.1 billion increased $90 million sequentially and $117 million
from a year ago. Fourth quarter results included higher expenses related to
the difficult operating environment that included higher provision for
unfunded commitments, higher reinsurance reserve accruals to cover losses on
proprietary private residential mortgage insurance, and increased reserves for
derivative counterparty losses. The combination of these expenses accounted
for $91 million of expense increase sequentially and $96 million compared to
the previous year. Additionally, fourth quarter 2008 results included an
estimated net $8 million charge due to changes on loss estimates related to
our indemnification obligation with Visa, while third quarter results included
a $45 million charge related to Visa litigation, $36 million related to legal
expenses associated with the satisfactory resolution of a goodwill suit
related to a 1998 acquisition, and $7 million in seasonally higher pension
expense. Fourth quarter 2007 results included a $94 million charge due to Visa
litigation and $8 million in acquisition related expenses. On a year-over-year
comparison basis, acquisitions added approximately $26 million of additional
operating expense, and the impact of the adoption of FAS 159 on the
classification of mortgage origination costs has added approximately $12
million. Remaining expense growth on both a sequential and year-over-year
basis was attributable to higher volume-related payment processing expense,
increased equipment and occupancy expense, and higher loan and lease
processing costs as a result of increased collection activities.
Credit Quality
For the Three Months Ended
Dec. Sept. June March Dec.
2008 2008 2008 2008 2007
Total net losses charged off
($ in millions)
Commercial loans ($422) ($85) ($107) ($36) ($48)
Commercial mortgage loans (465) (94) (21) (33) (15)
Commercial construction loans (539) (88) (49) (72) (12)
Commercial leases - - - - -
Residential mortgage loans (68) (77) (63) (34) (18)
Home equity (54) (55) (54) (41) (32)
Automobile loans (43) (32) (26) (35) (30)
Credit card (30) (24) (21) (20) (15)
Other consumer loans and leases (6) (8) (3) (5) (4)
Total net losses charged off (1,627) (463) (344) (276) (174)
Total losses (1,652) (481) (365) (293) (193)
Total recoveries 25 18 21 17 19
Total net losses charged off ($1,627) ($463) ($344) ($276) ($174)
Ratios
Net losses charged off as a percent
of average loans and leases
(excluding held for sale) 7.50% 2.17% 1.66% 1.37% 0.89%
Commercial 10.70% 2.07% 1.41% 1.21% 0.66%
Consumer 2.40% 2.33% 2.04% 1.58% 1.18%
Net charge-offs totaled $1.6 billion in the fourth quarter. Results
included net losses of $800 million on commercial loans that were either sold
or transferred to held-for-sale during the quarter and an additional $827
million of losses, or 381 bps, on average portfolio loans and leases. Loss
experience overall continues to be primarily associated with commercial
residential builder and developer loans and consumer residential real estate
loans, and to be disproportionately concentrated in Michigan and Florida. In
aggregate, Florida and Michigan represented approximately 66 percent of total
losses during the quarter and less than 30 percent of total loans and leases.
Losses on commercial and consumer real estate loans in these states
represented approximately 56 percent of total fourth quarter net charge-offs.
Losses on loans to homebuilders and developers represented $568 million, or 35
percent of total losses, of which $128 million were incurred on loans
remaining in the loan portfolio (primarily states outside of Florida and
Michigan) and $440 million were on loans sold or transferred to held-for-sale.
Commercial net charge-offs were $1.4 billion in the fourth quarter and
represented 88 percent of total losses. During the quarter, the Bank either
sold or transferred to held-for-sale commercial loans that had contractual
balances of $1.6 billion. At the end of the third quarter, the loans sold or
transferred to held-for-sale had balances of $1.3 billion, and net losses on
these loans totaled $800 million for the quarter. Of that, $120 million was
realized on loans sold and $680 million was recognized on loans transferred to
held-for-sale, with $39 million on C&I loans, $389 million on commercial
construction loans, and $372 million on commercial mortgage loans.
Approximately 49 percent of those losses were on real estate secured loans in
Florida, while another 44 percent were on real estate secured loans in
Michigan. Loans to residential builder and developers accounted for $440
million, or 55 percent of these total losses, of which $17 million were C&I
losses, $233 million were commercial construction losses, and $190 million
were commercial mortgage losses. Loans sold during the quarter had customer
balances of $240 million and carrying values of $177 million at the end of the
third quarter. Loans transferred to held-for-sale during the quarter had
customer balances of $1.4 billion and carrying values of $1.2 billion as of
the end of the third quarter.
Excluding losses from loans sold or transferred to held-for-sale,
commercial net charge-offs on portfolio loans were $626 million or 470 bps.
Portfolio C&I losses were $383 million, an increase of $298 million from the
previous quarter. Auto dealers accounted for $84 million, or 22 percent, of
C&I net charge-offs and included a $26 million customer fraud loss in
Illinois. Additionally, $105 million of C&I losses were attributable to loans
to companies in real estate related industries and $43 million were
attributable to loans to companies in the finance and insurance industry.
Commercial mortgage net losses totaled $93 million, a decrease of $1 million
from the previous quarter. Michigan and Florida accounted for 47 percent of
commercial mortgage losses. Commercial construction net losses were $150
million, and increased $62 million from the previous quarter. Michigan and
Florida accounted for 47 percent of commercial construction losses. Net losses
on residential builder and developer portfolio loans totaled $128 million and
decreased by 24 percent from the third quarter, and were composed of $15
million on C&I loans, $32 million on commercial mortgage loans, and $81
million on commercial construction loans. Originations of
homebuilder/developer loans were suspended in 2008 and remaining portfolio
balances total $2.5 billion. Commercial portfolio net charge-offs for the
quarter were $498 million, or 393 bps, excluding losses on the suspended
homebuilder/developer portfolio.
Consumer net charge-offs of $201 million, or 240 bps, were up $5 million
from the third quarter of 2008. Net charge-offs in Michigan and Florida
represented 49 percent of consumer losses in the fourth quarter, down from 52
percent in the third quarter of 2008. Home equity net charge-offs of $54
million declined $1 million sequentially and continued to be driven by losses
on brokered home equity loans, reflecting borrower stress and lower home price
valuations. Net losses on brokered home equity loans were $26 million or 49
percent of fourth quarter home equity losses, while brokered home equity loans
represented $2.3 billion, or 18 percent, of the total home equity portfolio.
Originations of brokered home equity loans were discontinued in 2007. Michigan
and Florida represented 45 percent of fourth quarter home equity losses and 29
percent of total home equity loans. Net charge-offs within the residential
mortgage portfolio were $68 million, a decrease of $9 million from the
previous quarter, with losses in Michigan and Florida representing 80 percent
of losses in the fourth quarter. Net charge-offs in the auto portfolio
increased by $11 million from the third quarter to $43 million and losses on
consumer credit card loans were $30 million, up $6 million from the third
quarter, as higher unemployment and weakening economic conditions continue to
impact these portfolios. Auto losses were also affected by declining values of
repossessed autos at auction.
For the Three Months Ended
Dec. Sept. June March Dec.
2008 2008 2008 2008 2007
Allowance for Credit Losses ($ in
millions)
Allowance for loan and lease
losses, beginning $2,058 $1,580 $1,205 $937 $827
Total net losses charged off (1,627) (463) (344) (276) (174)
Provision for loan and lease
losses 2,356 941 719 544 284
Allowance for loan and lease
losses, ending 2,787 2,058 1,580 1,205 937
Reserve for unfunded commitments,
beginning 132 115 103 95 79
Provision for unfunded
commitments 63 17 10 8 13
Acquisitions - - 2 - 3
Reserve for unfunded commitments,
ending 195 132 115 103 95
Components of allowance for
credit losses:
Allowance for loan and lease
losses 2,787 2,058 1,580 1,205 937
Reserve for unfunded
commitments 195 132 115 103 95
Total allowance for credit losses $2,982 $2,190 $1,695 $1,308 $1,032
Allowance for loan and lease
losses ratio
As a percent of loans and
leases 3.31% 2.41% 1.85% 1.49% 1.17%
As a percent of nonperforming
loans and leases (a) 123% 79% 79% 87% 105%
As a percent of nonperforming
assets (a) 111% 73% 72% 76% 88%
(a) excludes nonaccrual loans and leases in loans held for sale
Provision for loan and lease losses totaled $2.8 billion in the fourth
quarter of 2008, exceeding net charge-offs by $729 million. The increase in
the allowance for loan and lease losses is reflective of a number of factors
including: increased estimated loss factors due to negative trends in
nonperforming assets and overall delinquencies; increased loss estimates due
to the real estate price deterioration in some of the Bancorp's key lending
markets; and significant declines in general economic conditions.
The allowance for loan and lease losses represented 3.31 percent of total
loans and leases outstanding as of quarter end, compared with 2.41 percent
last quarter, and represented 123 percent of nonperforming loans, up from 79
percent the previous quarter.
As of
Nonperforming Assets and Dec. Sept. June March Dec.
Delinquency ($ in millions) 2008 2008 2008 2008 2007
Nonaccrual loans and leases:
Commercial loans $541 $550 $407 $300 $175
Commercial mortgage 482 724 524 312 243
Commercial construction 362 636 537 408 249
Commercial leases 21 23 18 11 5
Residential mortgage 259 216 142 138 92
Home equity 26 27 35 42 45
Automobile 5 3 7 13 3
Other consumer loans and
leases - - - - 1
Total nonaccrual
loans and leases $1,696 $2,179 $1,670 $1,224 $813
Restructured loans and
leases 574 427 318 164 80
Total nonperforming
loans and leases $2,270 $2,606 $1,988 $1,388 $893
Repossessed personal
property 24 24 22 22 21
Other real estate owned (a) 206 198 190 182 150
Total nonperforming
assets (b) $2,500 $2,828 $2,200 $1,592 $1,064
Nonaccrual loans held for
sale 473 - - - -
Total nonperforming
assets including
loans held for sale $2,973 $2,828 $2,200 $1,592 $1,064
Total loans and leases 90
days past due $662 $671 $608 $539 $491
Nonperforming loans and
leases as a percent of
portfolio loans, leases and
other assets, including
other real estate owned (b) 2.69% 3.04% 2.32% 1.71% 1.11%
Nonperforming assets as a
percent of portfolio loans,
leases and other assets,
including other real estate
owned (b) 2.96% 3.30% 2.57% 1.96% 1.32%
a) Excludes government insured advances.
b) Does not include nonaccrual loans held for sale.
Nonperforming assets (NPAs) at quarter end were $3.0 billion, of which
$473 million were classified as held-for-sale and have been charged down or
marked to their fair market value. Excluding the held-for-sale portion, NPAs
were $2.5 billion, or 2.96 percent of total loans and leases and OREO, down
from $2.8 billion, or 3.30 percent, last quarter. This reduction in NPAs was
driven by the sale or transfer to held-for-sale of a portion of the Bank's
Florida and Michigan real estate secured loan portfolios, partially offset by
the effect of continued restructurings of mortgage and home equity loans in
the consumer portfolio. Portfolio NPAs at quarter end consisted of $1.7
billion of non-accrual loans, down $483 million from last quarter; $574
million of restructured consumer loans, up $147 million from the previous
quarter; and $230 million of other real estate owned (OREO) and repossessed
personal property, up $8 million from the third quarter of 2008.
Excluding NPAs in held-for-sale, commercial NPAs of $1.5 billion, or 2.91
percent, declined $515 million, or 26 percent, from the third quarter of 2008.
Residential real estate builder and developer NPAs were $366 million in the
fourth quarter, down $377 million, or 51 percent, from the previous quarter.
Of the residential real estate builder and developer NPAs, $21 million were
C&I NPAs, $210 million were commercial construction NPAs, and $135 million
were commercial mortgage NPAs. C&I portfolio NPAs of $548 million decreased $9
million, or 2 percent, from the previous quarter. Commercial construction NPAs
were $400 million, a decrease of $259 million, or 39 percent, from the third
quarter of 2008. Commercial mortgage NPAs were $502 million, a sequential
decline of $247 million, or 33 percent. Commercial real estate loans in
Michigan and Florida represented 38 percent of our total commercial real
estate portfolio in the fourth quarter 2008, compared with 42 percent the
previous quarter, and 37 percent of commercial real estate NPAs, compared to
68 percent the previous quarter.
Consumer NPAs of $1.0 billion, or 3.04 percent, increased $186 million, or
22 percent, from the third quarter of 2008, of which $175 million were in
residential real estate portfolios. Included in consumer NPAs were $574
million in debt restructurings, of which $218 million represented loans
restructured in the fourth quarter of 2008. These debt restructurings assist
qualifying borrowers by creating workable payment plans to enable them to
remain in their homes. Residential mortgage NPAs increased $126 million to
$719 million and home equity NPAs increased $49 million to $243 million.
Fourth quarter other real estate owned (OREO) of $206 million included $118
million of total residential mortgage NPAs and $21 million in total home
equity NPAs, compared with OREO of $198 million in the third quarter of 2008.
Residential real estate loans in Michigan and Florida represented 52 percent
of the growth in residential real estate NPAs, 57 percent of total residential
real estate NPAs, and 35 percent of total residential real estate loans.
Loans still accruing over 90 days past due were $662 million, down $9
million from the third quarter of 2008. Commercial 90 days past due balances
declined 18 percent from the previous quarter, driven by a 30 percent
reduction in C&I 90 days past due balances. Consumer 90 days past due balances
increased 17 percent from the previous quarter, driven by 14 percent growth in
residential real estate, 30 percent growth in auto and 29 percent growth in
credit card 90 days past due balances.
Capital Position
For the Three Months Ended
December September June March December
2008 (a) 2008 2008 2008 2007
Capital Position
Tangible equity 7.86% 6.19% 6.37% 6.19% 6.14%
Tangible common equity 4.23% 5.23% 5.40% 6.19% 6.14%
Regulatory capital ratios:
Tier I capital 10.59% 8.57% 8.51% 7.72% 7.72%
Total risk-based capital 14.79% 12.30% 12.15% 11.34% 10.16%
Tier I leverage 10.27% 8.77% 9.08% 8.28% 8.50%
Book value 13.57 16.65 16.75 17.56 17.18
Tangible book value 8.74 10.10 10.16 12.66 12.27
(a) Current period regulatory capital data and ratios are estimated
Regulatory capital ratios and the tangible equity ratio increased
significantly during the quarter. The tangible equity ratio increased 167 bps
to 7.86 percent, the Tier 1 capital ratio increased 202 bps to 10.59 percent,
and the total capital ratio increased 249 bps to 14.79. These ratios were
higher in the fourth quarter as the issuance of $3.4 billion of preferred
shares to the U.S. Treasury more than offset the effect of losses recognized
during the quarter. The goodwill impairment charge of $965 million did not
significantly affect our capital ratios as goodwill is excluded from these
ratios by definition. The Tier 1 and total capital ratios were also helped by
a reduction in risk-weighted assets due to lower off-balance sheet exposures
and the increase in the reserve for loan and lease losses.
Fifth Third's tangible equity to tangible assets ratio target is 6 to 7
percent; the Tier 1 capital ratio target is 8 to 9 percent; and the total
capital ratio target is 11.5 to 12.5 percent.
Other
During the fourth quarter of 2008, Fifth Third acquired approximately $250
million of deposits from the Federal Deposit Insurance Corporation (FDIC),
acting as receiver for Freedom Bank in Bradenton, Florida. The FDIC retained
substantially all of Freedom Bank's loan portfolio. This transaction raised
Fifth Third's market share in the Bradenton-Sarasota-Venice Metropolitan
Statistical Area (MSA) to 4th, according to FDIC data at the time of the
acquisition.
During the fourth quarter, Fifth Third reduced its common dividend due to
the outlook for a continued negative credit environment. The reduction is
expected to conserve approximately $300 million of common equity on a full
year basis, relative to the previous dividend level.
Conference Call
Fifth Third will host a conference call to discuss these financial results
at 8:30 a.m. (Eastern Time) today. This conference call will be webcast live
by Thomson Financial and may be accessed through the Fifth Third Investor
Relations website at www.53.com (click on "About Fifth Third" then "Investor
Relations"). The webcast also is being distributed over Thomson Financial's
Investor Distribution Network to both institutional and individual investors.
Individual investors can listen to the call through Thomson Financial's
individual investor center at www.earnings.com or by visiting any of the
investor sites in Thomson Financial's Individual Investor Network.
Institutional investors can access the call via Thomson Financial's password-
protected event management site, StreetEvents (www.streetevents.com).
Those unable to listen to the live webcast may access a webcast replay or
podcast through the Fifth Third Investor Relations website at the same web
address. Additionally, a telephone replay of the conference call will be
available beginning approximately two hours after the conference call until
Thursday, February 5th by dialing 800-642-1687 for domestic access and 706-
645-9291 for international access (passcode 78343257#).
Corporate Profile
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. As of December 31, 2008, the Company has
$120 billion in assets, operates 18 affiliates with 1,307 full-service Banking
Centers, including 92 Bank Mart(R) locations open seven days a week inside
select grocery stores and 2,341 ATMs in Ohio, Kentucky, Indiana, Michigan,
Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia
and North Carolina. Fifth Third operates five main businesses: Commercial
Banking, Branch Banking, Consumer Lending, Investment Advisors and Fifth Third
Processing Solutions. Fifth Third is among the largest money managers in the
Midwest and, as of December 31, 2008, has $179 billion in assets under care,
of which it managed $25 billion for individuals, corporations and not-for-
profit organizations. Investor information and press releases can be viewed at
www.53.com. Fifth Third's common stock is traded on the NASDAQ(R) National
Global Select Market under the symbol "FITB."
FORWARD-LOOKING STATEMENTS
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 promulg