FIFTH THIRD BANCORP - FORM 8-K - EX-99.1 - FIFTH THIRD BANCORP PRESENTATION

Attached files

file	filename
8-K - CURRENT REPORT - FIFTH THIRD BANCORP	d8k.htm

UBS Global Financial Services Conference

Kevin T. Kabat

Chairman, President & Chief Executive Officer

May 11, 2010

Please refer to earnings release dated April 22, 2010 and 10-K dated

May 7, 2010 for further information, including full results reported on a U.S.

GAAP basis

Exhibit 99.1

1Q10 in review

Significant improvement in credit trends

•

Nonperforming assets declined 3% and nonperforming

loans declined 7% sequentially (lowest levels since

2Q09)

–

Total delinquencies declined 15% sequentially

(lowest level since 3Q07)

•

Net charge-offs declined 18% sequentially (lowest level

since 1Q09)

•

Allowance to loan ratio of 4.91%, 139% of

nonperforming loans and leases and 1.6 times

annualized 1Q10 net charge-offs

•

Realized credit losses have been significantly below

SCAP scenarios

Capital position remains very strong

•

Tangible common equity ratio of 6.4%

•

Tier 1 common ratio of 7.0%

•

Leverage ratio of 12.0% (8.9% ex-TARP)

•

Tier 1 capital ratio of 13.4% (10.0% ex-TARP)

Continued strong operating results

•

Net loss of $10 million versus 4Q09 net loss of $98

million

•

Pre-provision net revenue of $568 million, up $6 million

from 4Q09

•

Net interest margin of 3.63%, up 8 bps sequentially

•

Average core deposits up 6% sequentially

•

Extended $18 billion of new and renewed credit

Peer performance summary

(1)

Large bank peer average consists of BBT, CMA, HBAN, KEY, MTB, MI, PNC, RF, STI, USB, WFC, and ZION, unless otherwise noted.

(2)

Midwest peer average consists of CMA, HBAN, KEY, MI, and USB, unless otherwise noted.

^ Operating fee growth, core pre-tax pre-provision earnings, and operating efficiency ratio exclude the following items where appropriate: securities gains/losses,

gains/losses from debt extinguishments, leveraged lease gains/losses, gains from asset sales, goodwill impairment charges, and other non-recurring items where

appropriate.

* Average loans include only loans held-for-investment.

** NPAs

exclude loans held-for-sale and covered assets.

Source: SNL and company reports.

Continue to outperform on key value drivers

FITB

1Q10

Regional

bank peers

(1)

1Q10

Midwest

peers

(2)

1Q10

SEQ performance

vs. peers

Net interest margin /

(bps)

3.63% (+8)

3.60% (+13)

3.37% (+18)

Better

Operating fee growth^

-1%

-9%

-5%

Better

Operating efficiency ratio^

62%

64%

65%

Better

Average core deposits growth

Better

Average loan growth*

-1%

-2%

Better

NPA ratio** /

(bps)

4.03% (-18)

4.33% (+11)

3.47% (-7)

Better

Core pre-tax pre-provision earnings^ / loans

2.9%

2.7%

2.6%

Better

Net charge-off ratio /

(bps)

3.01% (-61)

2.48% (-46)

2.86% (-90)

Worse

Pre-tax pre-provision earnings

Peer average: 2.7%

1Q10 core PPNR / average loans (annualized)*

Core PPNR trend

Fifth

Third’s

pre-tax,

pre-provision

net

revenue

(PPNR)

loans

higher

than

most

regional

bank

peers

Core PPNR reconciliation

Credit adjusted PPNR

/ Average Loans

Source: SNL and company reports. Core PPNR excludes securities gains/losses, gains/losses from debt extinguishments, leveraged lease gains/losses, gains from asset

sales, goodwill impairment charges, divested fees and expenses related to FTPS, and other non-recurring items where appropriate. Credit-related adjustments include

mortgage

repurchase

expenses,

provision

for

unfunded

commitments

expense,

derivative

valuation

adjustments,

OREO

expenses

and

other

workout

expenses.

1Q09

2Q09

3Q09

4Q09

1Q10

Reported PPNR (GAAP)

$511

$2,393

$844

$562

$568

Adjustments:

Gain on sale of Visa shares

(244)

BOLI charge

Gain from sale of processing interest

(1,764)

Divested merchant and EFT revenue

(155)

(169)

Class B Visa swap fair value adjustment

Securities gains/losses

(5)

(8)

(2)

(14)

Visa litigation reserve expense

(73)

Other litigation reserve expense

FTPS Warrants

(20)

Seasonal pension expense

FDIC special assessment

Divested merchant and EFT expense (estimated)

Core PPNR

$483

$564

$535

$562

$569

Credit

Items:

OREO write-downs, FV adjs, & G/L on loan sales

Problem asset work-out expenses

111

Credit adjusted PPNR

$580

$629

$691

$665

$661

Net interest income

Core NII and NIM*

•

Trends in net interest income and net

interest margin favorably compare with

peers

–

NIM up 8 bps in 1Q10 vs. 4Q09

•

Expect continued margin benefit

through 2010 from CD maturities and

improved loan spreads

Reported NIM and YOY growth versus peers

Peers include: BBT, CMA, HBAN, KEY, MI, MTB, PNC, RF, STI, USB, WFC, ZION

Source: SNL and company reports

Core results exclude $6M charge related to leveraged lease litigation in 1Q09. Also excluded are $41M, $35M, $27M, $24M, and $19M in loan discount

accretion from the First Charter acquisition in 1Q09, 2Q09, 3Q09, 4Q09, and 1Q10 respectively.

Yields and rates*

Fee income and expenses –

core trends*

Core fee income ($M)

Core expenses ($M)

•

Strong mortgage banking results continued in 1Q10,

resulting in $3.5B of originations and $152M in net revenue

•

Investment advisory revenue up 5% from the previous

quarter due to seasonality and growth in brokerage fees

•

Card and processing revenue decreased 4% sequentially

and 8% from the previous year (excluding divested EPP

revenue)

•

Corporate banking revenue down 8% sequentially driven by

declines in business lending fees, foreign exchange

revenue, and institutional sales

•

Credit related cost affected fee income by $1M in 1Q10

compared with $30M the previous quarter

•

Sequential increase in core expenses driven by elevated

credit costs and seasonal benefits expense partially offset

by disciplined discretionary expense control

•

Core efficiency ratio of 62.4% in 1Q10, an improvement from

62.5% in 4Q09 and 65.1% in 1Q09

•

Credit-related costs affected non-interest expenses by $91M

in 1Q10 compared with $73M the previous quarter

•

Total expense related to mortgage repurchases ~$39M in

1Q10 compared with $18M in 4Q09 and $6M in 1Q09

* Refer to slide 4 for itemized effects of non-core fees and expenses

Liability mix and pricing discipline drive

strong net interest income/NIM results

•

Strong, deposit rich core funding mix

supports relatively low cost of funds

–

Low reliance on wholesale funding

•

Continued pricing discipline on

commercial loans, consistent with market

trends toward better risk-adjusted spreads

–

C&I spreads over 1-month LIBOR

have increased more than 150 bps in

the past two years

Source:

SNL

and

company

reports.

Transaction

deposits

defined

DDA,

NOW

and

Savings/MMDA

accounts.

* MI as of 12/31/09

C&I Spread to 1-month LIBOR

1Q10 Cost of Funds Peer Comparison

Peer average 1.10%

Balance sheet:

Continued growth in core funding

•

Extended $18B of new and renewed credit in 1Q10

•

CRE loans down 4% sequentially and 12% from the previous year

–

New homebuilder/developer, non-owner occupied CRE suspended 2008

•

C&I loans down 1% sequentially and 12% from the previous year largely due

to lower line utilization and soft demand*

•

Strong

mortgage

originations

$1.5B

residential

mortgage

loans

held-for-

sale warehouse (not carried in loans held-for investment)

•

Core deposit to loan ratio of 97%, up from 80% in 1Q09

•

Everyday Great Rates strategy continues to drive core deposit growth

–

DDAs

up 4% sequentially and 21% from the previous year

–

Commercial core deposits up 20% sequentially and 46% from the previous

year

–

Retail

core

deposits

sequentially

and

from

the

year

Average loan growth ($B)^

Average core deposit growth ($B)

Average wholesale funding ($B)

•

Reduced

wholesale

funding

$1.9

billion

sequentially

and

$14.7

billion

from

the previous year

–

Non-core deposits down 14% sequentially and 40% from the previous year

–

Short term borrowings down 52% sequentially and 84% from the previous

year

–

Long-term debt up 10% sequentially and down 8% from the previous year

•

Portion of excess core funding invested in agency mortgage-backed securities

(balance sheet hedges added to mitigate interest rate risk)

^ Excludes loans held-for-sale

* Excludes the impact of $724M in C&I balances that were consolidated on January 1, 2010

Note: Numbers may not sum due to rounding

Deposit share momentum

Source: FDIC, SNL Financial; branches included are full service retail / brick and mortar; data excludes headquarters branches with over $250 million in deposits.

•

Continued focus on

customer satisfaction

and building full

relationships has

given strong

momentum to the

retail network

•

Fifth Third grew

deposits in 15 of 16

affiliate markets in

2009

–

Modest attrition in

North Carolina

acquisition market

•

Fifth Third grew

deposit market share

in 75% of affiliate

markets in 2009

Affiliate

5/3 Deposit

(08-09)

5/3 Market Share

Name

Deposit

($)

(%)

2009

2008

Chicago

788,601

9.8%

4.0%

3.8%

Northeastern Ohio

606,708

17.0%

4.2%

3.8%

South Florida

579,342

21.1%

3.1%

2.8%

Eastern Michigan

418,525

11.9%

5.4%

5.0%

Central Florida

338,091

28.9%

3.0%

2.5%

Tampa

334,080

24.5%

3.5%

3.1%

Central Ohio

213,971

5.6%

11.1%

11.2%

Cincinnati

212,656

2.2%

21.5%

21.9%

Southern Indiana

195,169

8.6%

4.1%

4.0%

Louisville

194,593

13.0%

8.9%

8.2%

Northwestern Ohio

177,122

7.5%

16.2%

15.4%

Western Michigan

149,252

2.1%

18.4%

Tennessee

142,615

12.8%

3.5%

3.3%

Central Indiana

139,354

4.7%

8.4%

8.3%

Central Kentucky

2,608

0.3%

8.1%

8.7%

North Carolina

(113,631)

-4.4%

4.8%

5.3%

Continuing to invest for the future

Strong capital position

Source: SNL and company reports.

* MTB Tier 1 common ratio as of 12/31/09.

Strong capital ratios relative to peers, particularly considering reserve levels

(TCE + reserves) / Loans

Peer average: 12.6%

Peer average w/

TARP: 11.1%

Peer average

w/o TARP: 9.4%

Tier 1 capital ratio (with and without TARP)

Tangible common equity ratio

Peer average: 6.5%

Tier 1 common ratio

Peer average: 7.4%

Strong reserve position

Industry leading reserve level

Coverage ratios are strong relative to peers

Source: SNL and company reports. NPAs/NPLs

exclude held-for-sale portion for all banks and covered assets for BBT, USB, and ZION.

FITB

4.91%

KEY

4.34%

ZION

4.05%

HBAN

4.00%

3.61%

3.55%

PNC

3.38%

WFC

3.22%

USB

2.80%

10.

STI

2.79%

11.

BBT

2.65%

12.

CMA

2.42%

13.

MTB

1.75%

Peer Average

3.21%

Reserves / Loans

Portfolio performance drivers

Performance Largely Driven By

No Participation In

Discontinued or Suspended Lending

* 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.

Geography

•

Florida and Michigan most stressed

•

Remaining Midwest and Southeast performance

reflect economic trends

Products

•

Homebuilder/developer

charge-offs

$81

million

1Q10

–

Total charge-off

ratio

3.0%

(2.4%

ex-HBs)

–

Commercial

charge-off

ratio

3.1%

(2.6%

ex-

HBs)

•

Brokered

home

equity

charge-offs

6.2%

1Q10

–

Direct home equity portfolio 1.6%

1Q10 NCO Ratios

Coml

Cons

Total

FL/MI

5.5%

5.2%

5.3%

Other

2.3%

2.1%

2.2%

•

Subprime

•

Option ARMs

Discontinued in 2007

•

Brokered home equity ($1.9B)

Suspended in 2008

•

Homebuilder/residential development ($1.3B)

•

Other non-owner occupied commercial RE

excluding homebuilder/developer ($8.0B)

Saleability

•

All mortgages originated for intended sale*

Total

3.1%

2.9%

3.0%

1Q10 credit results

Year-over-year NCO growth versus peers

NPA ratio versus peers

Year-over-year NPA growth versus peers

Net charge-off ratio versus peers

Source:

SNL

and

company

reports.

NPAs

exclude

loans

held-for-sale

and

covered

assets.

Nonperforming loan rollforward

Commercial

millions)

Beginning NPL amount

$1,406

$1,937

$2,110

$2,430

$2,392

New nonaccrual loans

799

544

832

602

405

Paydowns, transfers, and sales

(157)

(190)

(246)

(332)

(425)

Charge-offs

(111)

(181)

(266)

(308)

(200)

Ending Commercial NPL

$1,937

$2,110

$2,430

$2,392

$2,172

Consumer

Beginning NPL amount

$457

$459

$477

$517

$555

New nonaccrual loans

157

125

160

152

137

Net other activity

(155)

(107)

(120)

(114)

(131)

Ending Consumer NPL

$459

$477

$517

$555

$561

Total

Total NPL

$2,396

$2,587

$2,947

$2,733

Total new nonaccrual loans

$956

$669

$992

$754

$542

Manageable commercial real estate exposure

CRE / TCE

CRE / Assets

Peer average: 290%

Source: SNL and company reports.

CRE / (TCE + Reserves)

CRE / Loans

Peer average: 26%

Peer average: 216%

Peer average: 18%

CRE

exposure

lower

than

peer

average;

problems

relatively

manageable

given

capital

and

reserves

2010 developments

Fifth Third response

Macro themes

•

Sluggish loan demand

•

Deposits to grow but

expect some diminution

as later liquidity drawn

down by deposits to

support expansion in

spending

•

Additional consumer

regulation

•

Higher interest rates late

2010 / early 2011

•

TARP repayment

•

Leverage existing customer relationships at the local level to

offer our full portfolio of products and services across all of our

lines of business

•

Invest in sales force expansion initiatives to increase resources

and branch hours while maintaining focus on a near-term return

to profitability

•

Reorient fee structure of products and services to offer a

clearer and higher value proposition to our clients and create

more sustainable, consistent growth

•

Maintain excess liquidity, neutral to modest asset sensitive

positioning

•

Remain committed to repayment in a manner that is in the best

interest of all constituents, including shareholders

Summary

Fifth Third continues to execute on its strategic initiatives and

is focused on being well-positioned for the turn of the cycle.

•

Dedicated to serving the needs

of families and businesses for

more than 150 years

•

Businesses creating new and

profitable opportunities to

enhance value

•

Trends in NII and NIM

favorably compare with peers

•

Ongoing expense control

•

Continued shift back toward

core funding

Core franchise remains strong

•

Strong reserve coverage of

problem loans

•

Aggressive management has

mitigated areas of highest risk

•

Significantly enhanced SAG

and workout resources, while

continuing prudent lending

practices

•

Significantly improved credit

trends in 1Q10

Aggressive management of

credit issues

•

Successfully completed June

2008 capital plan and SCAP

capital actions

•

Actions exceeded SCAP Tier 1

common equity commitment

by 80%

•

Current capital levels able to

withstand significant additional

economic deterioration as

demonstrated by the SCAP

assessment

Robust capital levels

Cautionary statement

This report may contain statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act

of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and

Rule 3b-6 promulgated thereunder. These statements relate to our financial condition, results of operations, plans, objectives, future

performance or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are

expected to,” “is anticipated,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as

“believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,”

“should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and

uncertainties, including but not limited to the risk factors set forth in our most recent Annual Report on Form 10-K and our most recent

quarterly report on Form 10-Q. When considering these forward-looking statements, you should keep in mind these risks and uncertainties,

as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are

made and based only on information then actually known to us.

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 nationally or in the states in which Fifth Third, one or more acquired

entities and/or the combined company do 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) maintaining capital

requirements may limit Fifth Third’s operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered

by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third (10) competitive pressures among

depository institutions increase significantly; (11) effects of critical accounting policies and judgments; (12) changes in accounting policies or

procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies; (13) legislative or

regulatory changes or actions, or significant litigation, adversely affect Fifth Third, one or more acquired entities and/or the combined

company or the businesses in which Fifth Third, one or more acquired entities and/or the combined company are engaged; (14) ability to

maintain favorable ratings from rating agencies; (15) fluctuation of Fifth Third’s stock price; (16) ability to attract and retain key personnel;

(17) ability to receive dividends from its subsidiaries; (18) potentially dilutive effect of future acquisitions on current shareholders’ ownership

of Fifth Third; (19) effects of accounting or financial results of one or more acquired entities; (20) difficulties in separating Fifth Third

Processing Solutions from Fifth Third; (21) loss of income from any sale or potential sale of businesses that could have an adverse effect on

Fifth Third’s earnings and future growth;(22) ability to secure confidential information through the use of computer systems and

telecommunications networks; and (23) the impact of reputational risk created by these developments on such matters as business

generation and retention, funding and liquidity.

You should refer to our periodic and current reports filed with the Securities and Exchange Commission, or “SEC,” for further information on

other factors, which could cause actual results to be significantly different from those expressed or implied by these forward-looking

statements.

Updated stress testing -

process overview

Similar

process

that

used

2008

and

SCAP

processes;

updated

for

actual

performance and current economic expectations

Moody’s

“Base”

and

“Longer

Recession

and

Weaker

Recovery”

case

scenarios

key

economic assumptions

Commercial

—

33 geographic/industry sectors analyzed and regressed against economic and

performance drivers

—

Migration trends from criticized to nonaccrual and charge-off evaluated by

region and industry

Consumer

—

Portfolios subdivided into appropriate categories (i.e. liquidating vs. non-

liquidating home equity)

—

Results derived using combination of regression models, loss curves and roll

rates, and applied economic factors

–

Mortgage and home equity key correlation: HPI

–

Credit card key correlation: unemployment

–

Other consumer key correlations: unemployment and GDP

Base

Adverse

Economic Assumptions*

2010

Peak Unemployment

10.3%

11.4%

GDP

2.4%

0.3%

Avg. change in quarterly HPI

(1.8%)

(2.7%)

* Moody’s Economy.com; as of March 2010

Updated credit loss expectations vs. SCAP scenarios

$4.1B

$5.0B

$2.8B

Moody’s Weaker

Recovery / Mild

Second Recession

Case** Assumptions

(Mar. 2010)

Moody’s Base

Case** Assumptions

(Mar. 2010)

Realized credit losses have been significantly below SCAP submissions; expected to continue

SCAP Baseline Scenario

(Submitted; Mar 2009)

SCAP Adverse Scenario

(Supervisory; Mar 2009)

* Red SCAP line represents more adverse scenario as adjusted by supervisors for additional assumed two-year losses. Supervisory estimates of total two-year losses

under more adverse scenario were not allocated by period. Estimate allocates total two-year supervisory losses using the allocation under Fifth Third’s submission.

** Source for macroeconomic assumptions: Moody’s Economy.com. Assumptions as of March 2010.

Actual

$2.6B

Actual

$2.7B

Fifth Third

capitalized for this

level of credit losses

under SCAP (plus

surplus raised vs.

buffer)

Fifth Third’s realized credit losses

have been significantly below its

SCAP submitted baseline and

more adverse scenarios

–

In SCAP submissions, we

incorporated significant

conservatism, given then-

prevailing negative economic

and industry trends and

extreme uncertainty in

potential loss outcomes at

the time

–

Economic and credit market

conditions have been much

better than potential

downside expectations in

Spring 2009, benefiting

results vs. SCAP scenarios

Base and stress scenarios reflect

Moody’s Base Case and Moody’s

Weaker Recover / Mild Second

Recession Case (as of March

2010)**

Our current expectation is for

2010 losses to be lower than 2009

$2.9B

$1,500

$1,750

$2,000

$2,250

$2,500

$2,750

$3,000

$3,250

$3,500

$3,750

$4,000

$4,250

$4,500

$4,750

$5,000

$5,250

$5,500

2008

2009

2010

Troubled debt restructurings (TDR) overview

Successive improvement in vintage performance during 2008 and

2009, even as volume of modification increased

Fifth Third’s mortgage portfolio TDRs

have redefaulted

at a lower

rate than other bank held portfolio modifications

—

Fifth Third’s TDRs

are about a third less likely to redefault

than modifications on GSE mortgages

Of $1.8B in consumer TDRs, over $1.3B (76%) are current

—

$940M of those have been current more than 6 months,

approximately half of which have been current more than a

year

As current TDRs

season, their default propensity declines

significantly

—

We do not typically see significant defaults on current loans

once a vintage approaches 12 months since modification

Delinquent TDRs

total $415M (24%)

Of $1.8B in consumer TDRs, $1.5B are on accrual status and $271M

are nonaccruals

TDR performance has improved in newer vintages

Outperforming redefault

benchmarks

Source: Fifth Third and OCC/OTS data; data through 3Q09; industry data cumulative through 3Q09

Mortgage TDR

60+

redefault

trend

vintage

1Q08 $69M

2Q08 $135M

3Q08 $146M

4Q08 $176M

1Q09 $221M

2Q09 $257M

Mortgage

TDR

60+

redefault

rate:

Fifth

Third

comparison

(through Sept. 2009)

Fannie Mae

Industry

portfolio loans

Fifth Third

Volume by

vintage

Freddie Mac

3Q09 $386M

Current consumer TDRs

($ MMs)

Strong liquidity profile

Retail Brokered CD maturities: $813M in 2010; $31M in 2011

–

Institutional Brokered CD maturities: $50M in 2010

3/31 unused avail. capacity $27B ($18.5B in Fed and $8.7B in FHLB)

FHLB borrowings $2.6B; Q1 avg. core deposits $76B; equity $14B

All market borrowings by Fifth Third Bank

Holding Company cash at 3/31/10: $1.35B

Expected cash obligations over the next 12 months (assuming no

TARP repayment)

—

$0 debt maturities

—

~$39M common dividends

—

~$205M preferred dividends

–

~$35M Series G dividend

–

~$170M TARP dividend

—

~$237M interest and other expenses

Cash currently 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 or

relying on dividends from subsidiaries

Bank

unsecured

debt

maturities

($M

–

excl.

Brokered

CDs)

Heavily core funded

Holding company unsecured debt maturities ($M)

Attached files

Stock widget

Investing forum