Fifth Third Bank 2008 Annual Report Download

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RESiLiEnT FOcUSED
FiFTh ThiRD
2008 fifth thirD bancorp annual report

Table of contents

  • Page 1
    RESiLiEnT FOcUSED FiFTh ThiRD 2008 fifth thirD bancorp annual report

  • Page 2
    ...Bank Mart® 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...

  • Page 3
    ..., Fifth Third participated in the government's Capital Purchase Program ("CPP") and issued $3.4 billion of preferred stock and warrants to the U.S. Treasury to further bolster our capital levels. In fact, one important distinction of the CPP is that it is intended to inject capital in healthy banks...

  • Page 4
    ... capital and liquidity to healthy banks. As 2008 progressed, many of our competitors who were large originators of subprime and Alt-A mortgage loans discontinued operations as independent companies, and several investment banks holding securities backed by these risky assets have been purchased...

  • Page 5
    ... on selling a home in the current market. We remain committed to supporting our customers with tailored solutions so that they remain loyal to the Fifth Third brand when the economy improves. 2008 results 2008 was an extremely challenging year, and our results reflect that. Fifth Third reported...

  • Page 6
    ... actively working to position ourselves to take advantage of any future economic recovery. In the Commercial Banking line of business, we saw continued momentum in our Treasury Management area, with revenue up 5 percent on a year-over-year basis. In 2008, 808 new customers adopted our Remote Deposit...

  • Page 7
    ... (HSA) product a Growth Initiative in early 2008. Year-overyear core HSA deposits are up 84 percent, while total HSA accounts have increased 37 percent. This includes over 350 new employer groups, as well as new individual consumer relationships from coast to coast. Fifth Third Processing Solutions...

  • Page 8
    ...Advisors line of business, sales within Global Securities Services were $6 million in 2008, the highest sales year in our history. This was driven by cross selling Fifth Third Capital Market's foreign exchange services and continued emphasis on providing personalized service to our customers - a key...

  • Page 9
    ...Banking provides deposit, lending and investment products and services for customers at every stage of life or career. Branch Banking's 9,600 employees provide knowledgeable and reliable guidance, whether customers meet with them personally or via any of our automated banking solutions. Our business...

  • Page 10
    ... billion mortgage servicing portfolio 8,100 dealer indirect auto lending network Business Description Consumer Lending provides loan products to customers across and beyond Fifth Third's footprint. Our loan products include real estate-secured mortgages, home equity loans and lines, and federal and...

  • Page 11
    ... in investable assets in wealth planning, investment and trust services, private banking, insurance and wealth protection. Fifth Third Securities offers a suite of products from full-service brokerage to self-managed investing to provide our clients with customized programs to meet their needs today...

  • Page 12
    ... deposits 675 corporate client relationships 10,500 middle market client relationships 290,500 treasury management relationships* *includes small business relationships in Branch Banking Business Description Fifth Third's 900 Commercial bankers serve clients ranging from middle market companies...

  • Page 13
    ... funds transfer and gift card/stored value processing. Fifth Third Processing Solutions also manages Fifth Third's debit and credit card issuing businesses and operates the Jeanie® ATM and point-of-sale networks. Our flexible system architecture and processing features are capable of meeting...

  • Page 14
    ... effort that paid dividends for all who live and work where the Bank operates. The Young Bankers Club expanded to Fifth Third Bank (Central Florida) in 2008. Pictured here is Jeff Keim, assistant vice president and Commercial Relationship Manager, with members of the graduating class from Nap Ford...

  • Page 15
    2008 ANNUAL REPORT FINANCIAL CONTENTS Management's Discussion and Analysis of Financial Condition and Results of Operations Selected Financial Data Overview Recent Accounting Standards Critical Accounting Policies Risk Factors Statements of Income Analysis Business Segment Review Fourth Quarter ...

  • Page 16
    ... checking, savings, money market and foreign office deposits. (e) Includes transaction deposits plus other time deposits. (f) Includes certificates $100,000 and over, other foreign office deposits, federal funds purchased, short-term borrowings and long-term debt. TABLE 2: QUARTERLY INFORMATION...

  • Page 17
    ... open seven days a week inside select grocery stores and 2,341 Jeanie® ATMs in the Midwestern and Southeastern regions of the United States. The Bancorp reports on five business segments: Commercial Banking, Branch Banking, Consumer Lending, Fifth Third Processing Solutions (FTPS) and Investment...

  • Page 18
    ... quarter of 2008, the Bancorp sold or transferred to held-for-sale $1.3 billion in carrying value of commercial loans and incurred $800 million in charge-offs on those loans, in order to address some of the more problematic loan portfolios, specifically real estate loans in Florida and Michigan...

  • Page 19
    ... volume of delinquencies, charge-offs and nonaccrual loans; changes in loan mix; credit score migration comparisons; asset quality trends; risk management and loan administration; changes in the internal lending policies and credit standards; collection practices; and examination results from bank...

  • Page 20
    ... classes based on the financial asset type and interest rates. Fees received for servicing loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in noninterest income in the Consolidated Statements of Income as loan payments...

  • Page 21
    ...the financial assets and liabilities measured at fair value on a recurring basis, the Bancorp measures servicing rights and certain loans at fair value on a nonrecurring basis. Refer to Note 25 of the Notes to Consolidated Financial Statements for further information. Goodwill Business combinations...

  • Page 22
    ... Third's residential mortgage and commercial real estate loan portfolios are comprised of borrowers in Michigan, Northern Ohio and Florida, which markets have been particularly adversely affected by job losses, declines in real estate value, declines in home sale volumes, and declines in new home...

  • Page 23
    ... the liquidity support available to financial institutions, establishing a commercial paper funding facility, temporarily guaranteeing money market funds and certain types of debt issuances, and increasing insured deposits. These programs subject Fifth Third and other financial institutions who have...

  • Page 24
    ...of other companies deemed to be peers; • Actions by government regulators; • New technology used or services offered by traditional and non-traditional competitors; and • News reports of trends, concerns and other issues related to the financial services industry. Fifth Third's stock price may...

  • Page 25
    ... AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Fifth Third's ability to pay or increase dividends on its common stock or to repurchase its capital stock is restricted by the terms of the U.S. Treasury's preferred stock investment in Fifth Third. In December 2008, Fifth Third sold...

  • Page 26
    ...) and other interest-earning assets less the interest paid for core deposits (includes transaction deposits and other time deposits) and wholesale funding (includes certificates $100,000 and over, other deposits, federal funds purchased, short-term borrowings and long-term debt). The net interest...

  • Page 27
    ... Bancorp issued $750 million of senior notes in April 2008 and $400 million of trust preferred securities in May 2008. The Bancorp's equity funding position increased approximately $500 million compared to 2007 from the issuance of $1.1 billion in preferred shares during the second quarter of 2008...

  • Page 28
    ...(421) ($114) Liabilities and Shareholders' Equity Increase (decrease) in interest expense: Interest-bearing core deposits: Interest checking ($15) (177) (192) ($41) Savings 39 (271) (232) 81 Money market (7) (144) (151) (2) Foreign office deposits 13 (52) (39) 43 Other time deposits 16 (100) (84) 12...

  • Page 29
    ... and growth in the number of customer deposit account relationships continue to be a primary focus of the Bancorp. Corporate banking revenue increased $77 million, or 21%, in 2008 over 2007, and reflects benefits from the broadening of the Bancorp's suite of commercial products. Foreign exchange...

  • Page 30
    ... rates return to a level commensurate with the borrower's loan rate. Further detail on the valuation of mortgage servicing rights can be found in Note 10 of the Notes to Consolidated Financial Statements. The Bancorp maintains a non-qualifying hedging strategy to manage a portion of the risk...

  • Page 31
    ... of 80 new banking centers. Growth in the number of banking centers was primarily driven by acquisitions, which added 69 banking centers since 2007. Payment processing expense, which includes third-party processing expenses, card management fees and other bankcard processing, increased 12% in 2008...

  • Page 32
    ... 2006. For the years ended December 31 ($ in millions) Income Statement Data Commercial Banking Branch Banking Consumer Lending Processing Solutions Investment Advisors General Corporate and Other Net income (loss) Dividends on preferred stock Net income (loss) available to common shareholders 2008...

  • Page 33
    ...and small businesses through 1,307 full-service banking centers. Branch Banking offers depository and loan products, such as checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobile and other personal financing needs, as well as products designed to...

  • Page 34
    ... equity lines and loans with high loan-to-value (LTV) ratios, reflecting borrower stress and lower home prices. Noninterest income increased nine percent from 2006 as service charges on deposits grew 15% compared to the prior year due to growth in consumer deposit fees driven by new account openings...

  • Page 35
    ...Fifth Third Processing Solutions provides electronic funds transfer, debit, credit and merchant transaction processing, operates the Jeanie® ATM network and provides other data processing services to affiliated and unaffiliated customers. Table 17 contains selected financial data for the Processing...

  • Page 36
    ..., noninterest income increased six percent from 2006. Fifth Third Private Bank, the Bancorp's wealth management group, increased revenues by six percent on execution of cross-sell initiatives. Brokerage income also increased seven percent compared to 2006 as the overall equity markets performed well...

  • Page 37
    ... of lower consumer activity levels, including average credit and debit card transaction and consumer deposit activity, while the year-overyear increase is a result of the growth in customers, particularly in commercial and Fifth Third Processing Solutions. Electronic payment processing (EPP) revenue...

  • Page 38
    ... a subsidiary of R&G Financial Corporation, with $2.8 billion in assets and $1.7 billion in deposits located in Florida and Augusta, Georgia. Additionally, on August 16, 2007, the Bancorp announced its introduction into the North Carolina markets of Charlotte and Raleigh with an agreement to acquire...

  • Page 39
    ... financial services and insurance, manufacturing, healthcare and business services. Reductions among originations to the real estate and construction industries were offset by the second quarter 2008 acquisition of First Charter. In aggregate, commercial loans in the states of Michigan and Florida...

  • Page 40
    ... of commercial paper, non-agency mortgage backed securities, certain other asset backed securities (primarily automobile and commercial loan backed securities) and corporate bond securities. Other securities consist of Federal Home Loan Bank (FHLB) and Federal Reserve Bank restricted stock holdings...

  • Page 41
    ... available-for-sale securities portfolio relate to the Bancorp's overall balance sheet growth coupled with the increased purchase of securities as a part of the Bancorp's non-qualifying hedging strategy related to mortgage servicing rights. The estimated weighted-average life of the debt securities...

  • Page 42
    ...provided other financial institutions limited access to alternative funding sources. The Bancorp increased its rates during the third quarter of 2008 to approximate competitor rates and experienced increases in its interest-bearing core deposit products following these actions. Certificates $100,000...

  • Page 43
    ... rate risk, and risk tolerances within the Treasury, Mortgage Company, and Capital Markets groups and utilizing a value at risk model for Bancorp market risk exposure; • Regulatory Compliance Risk Management ensures that processes are in place to monitor and comply with federal and state banking...

  • Page 44
    ... maximum loan-to-values (LTV), minimum debt service coverage ratios, construction loan monitoring procedures, appraisal requirements, pre-leasing requirements (as applicable) and sensitivity and proforma analysis requirements. The commercial real estate portfolio is diversified by product type, loan...

  • Page 45
    ...order to mitigate credit risk. Certain mortgage products have contractual features that may increase the risk of loss to the Bancorp in the event of a decline in housing prices. These types of mortgage products offered by the Bancorp include loans with high loan-to-value (LTV) ratios, multiple loans...

  • Page 46
    ... 31, 2006. At December 31, 2008, $473 million of nonaccrual commercial loans were held-for-sale, consisting primarily of real estate secured loans in Michigan and TABLE 30: HOME EQUITY OUTSTANDINGS Retail 2008 As of December 31 ($ in millions) Ohio Michigan Illinois Indiana Kentucky Florida All...

  • Page 47
    ... loans and leases: Commercial loans Residential mortgage loans 342 Home equity 196 Automobile loans 6 Credit card 30 Total nonperforming loans and leases 2,270 Repossessed personal property and other real estate owned 230 Total nonperforming assets (b) 2,500 Nonaccrual loans held for sale...

  • Page 48
    ...In addition, management actively manages lines of credit and makes reductions in lending limits when it believes it is necessary based on FICO score deterioration and property devaluation. The ratio of automobile loan net charge-offs to average automobile loans was 156 bp for 2008, an increase of 73...

  • Page 49
    ... to the increased volume of impaired commercial loans, required loan and lease reserves on these loans were generally higher due to the deterioration in collateral values. Delinquency trends have increased across most product lines and credit grades, leading to increases in expected loss rates and...

  • Page 50
    ... key lending markets of the Bancorp. The deterioration in real estate values increased the expected loss once a loan becomes delinquent, particularly for residential mortgage and home equity loans with high loan-to-value ratios. Economic trends such as gross domestic product, unemployment rate, home...

  • Page 51
    ... servicing fees are collected on repaid loans. The Bancorp maintains a non-qualifying hedging strategy relative to its mortgage banking activity in order to manage a portion of the risk associated with changes in the value of its MSR portfolio as a result of changing interest rates. Mortgage rates...

  • Page 52
    ... include the use of various regional Federal Home Loan Banks as a funding source. Certificates carrying a balance of $100,000 or more and deposits in the Bancorp's foreign branch located in the Cayman Islands are wholesale funding tools utilized to fund asset growth. Management does not rely on any...

  • Page 53
    ...OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL MANAGEMENT Management, including the Bancorp's Board of Directors, regularly reviews the Bancorp's capital position to help ensure it is appropriately positioned under various operating environments. In May 2008, Fifth Third Capital Trust VII...

  • Page 54
    ...$686 million of commercial loans at par from the QSPE under the liquidity asset purchase agreement. Fair value adjustment charges of $3 million were recorded on these loans upon repurchase. As of December 31, 2008, there were no outstanding balances on the line of credit from the Bancorp to the QSPE...

  • Page 55
    ...404 58,421 (a) Includes demand, interest checking, savings, money market and foreign office deposits. For additional information, see the Deposits discussion in the Balance Sheet Analysis section of Management's Discussion and Analysis. (b) Includes other time and certificates $100,000 and over. For...

  • Page 56
    ...public accounting firm, that audited the Bancorp's consolidated financial statements included in this annual report, has issued an audit report on our internal control over financial reporting as of December 31, 2008. This report appears on page 55 of the annual report. The Bancorp's management also...

  • Page 57
    ... 2008 of the Bancorp and our report dated February 27, 2009 expressed an unqualified opinion on those consolidated financial statements. Cincinnati, Ohio February 27, 2009 To the Shareholders and Board of Directors of Fifth Third Bancorp: We have audited the accompanying consolidated balance sheets...

  • Page 58
    ... equipment Operating lease equipment Goodwill Intangible assets Servicing rights Other assets Total Assets Liabilities Deposits: Demand Interest checking Savings Money market Other time Certificates - $100,000 and over Foreign office and other Total deposits Federal funds purchased Other short-term...

  • Page 59
    ...), net (86) Securities gains - non-qualifying hedges on mortgage servicing rights 120 Total noninterest income 2,946 Noninterest Expense Salaries, wages and incentives 1,337 Employee benefits 278 Net occupancy expense 300 Payment processing expense 274 Technology and communications 191 Equipment...

  • Page 60
    ..., including treasury shares issued Loans repaid related to the exercise of stock-based awards, net Change in corporate tax benefit related to stock-based compensation Other Balance at December 31, 2008 $1,295 4,241 See Notes to Consolidated Financial Statements. Accumulated Other Capital Retained...

  • Page 61
    ...foreign office (Decrease) increase in federal funds purchased Increase (decrease) in other short-term borrowings Proceeds from issuance of long-term debt Repayment of long-term debt Purchases of treasury stock Issuance of preferred stock, series F, G Payment of cash dividends Retirement of preferred...

  • Page 62
    ... TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES Nature of Operations The accrual of interest income for commercial loans is Fifth Third Bancorp (Bancorp), an Ohio corporation, conducts its principal lending, deposit gathering, transaction processing...

  • Page 63
    ... and volume of delinquencies, charge-offs and nonaccrual loans; changes in mix; credit score migration comparisons; asset quality trends; risk management and loan administration; changes in the internal lending policies and credit standards; collection practices; and examination results from bank...

  • Page 64
    ... on the financial asset type (fixed-rate vs. adjustable-rate) and interest rates. Fees received for servicing loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in noninterest income in the Consolidated Statements of Income...

  • Page 65
    .... The Bancorp invests in these policies, known as BOLI, to provide an efficient form of funding for longterm retirement and other employee benefits costs. The Bancorp records these BOLI policies within other assets in the Consolidated Balance Sheets at each policy's respective cash surrender value...

  • Page 66
    .... The Bancorp's adoption of this statement will impact the accounting and reporting of business combinations for which the acquisition date is on or after January 1, 2009. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements an Amendment...

  • Page 67
    ... 15, 2008. The disclosure requirements of this FSP have been incorporated in the Notes to the Consolidated Financial Statements. In June 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards." The Issue...

  • Page 68
    ... leased by Crown for certain branches. The assets and liabilities of Crown were recorded on the Bancorp's Consolidated Balance Sheets at their respective fair values as of the closing date. The results of Crown's operations were included in the Bancorp's Consolidated Statements of Income from the...

  • Page 69
    ... securities held at December 31, 2008 and 2007 were immaterial to the Consolidated Financial Statements. In 2008, 2007, and 2006, gross realized securities gains were Amortized Cost 2008 Unrealized Unrealized Gains Losses ($ in millions) Available-for-sale and other: U.S. Treasury and Government...

  • Page 70
    ... consists of lending to various industry types. Management periodically 68 Fifth Third Bancorp reviews the performance of its loan and lease products to ensure they are performing within acceptable interest rate and credit risk levels and changes are made to underwriting policies and procedures as...

  • Page 71
    ... debt Estimated residual value of leased assets Initial direct cost, net of amortization Gross investment in lease financing Unearned income Net investment in lease financing 2008 $4,415 1,381 24 5,820 (1,384) $4,436 2007 4,438 1,397 24 5,859 (1,325) 4,534 The Bancorp periodically reviews...

  • Page 72
    ...purchase accounting. Loans carried at fair value, mortgage loans held for sale and loans under revolving credit agreements are excluded from the scope of SOP 03-3. During 2008, the Bancorp recorded provision expense for loans accounted for under SOP 03-3 of $35 million in the Consolidated Statements...

  • Page 73
    ... 2006 Acquisition activity Balance as of December 31, 2007 Acquisition activity Impairment Balance as of December 31, 2008 Commercial Banking $871 124 995 369 (750) $614 Branch Banking 797 153 950 707 1,657 Consumer Lending 182 182 33 (215) Investment Advisors 138 138 10 148 Processing Solutions 205...

  • Page 74
    ... mortgage loans held in its loan portfolio. the key assumptions, which are further discussed below. Commercial Loan Sales to a QSPE Through December 31, 2008, 2007 and 2006, the Bancorp had transferred, subject to credit recourse, certain primarily floatingrate, short-term, investment grade...

  • Page 75
    ... of commercial loans at par from the QSPE under the liquidity asset purchase agreement. Fair value adjustment charges of $3 million were recorded on these loans upon repurchase. As of December 31, 2008, there were no outstanding balances on the line of credit from the Bancorp to the QSPE. Servicing...

  • Page 76
    ... loans and leases managed and securitized (a) Less: Automobile loans securitized Home equity loans securitized Residential mortgage loans securitized Commercial loans sold to unconsolidated QSPE Loans held for sale Total portfolio loans and leases (a) Excluding securitized assets that the Bancorp...

  • Page 77
    ..., prepayment and foreign currency volatility. Additionally, the Bancorp holds derivative instruments for the benefit of its commercial customers. The Bancorp does not enter into derivative instruments for speculative purposes. The Bancorp's interest rate risk management strategy involves modifying...

  • Page 78
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Bancorp previously entered into forward contracts that met the criteria for fair value hedge accounting to hedge its residential mortgage loans held for sale. Upon adoption of SFAS No. 159 on January 1, 2008 and the Bancorp's election to carry ...

  • Page 79
    ... an asset position at the time of default. The Bancorp monitors the credit risk associated with the underlying customers in the risk participation agreements through the same risk grading system currently utilized for establishing loss reserves in its loan and lease portfolio. Under this risk rating...

  • Page 80
    ... contracts for customers in a gain position reflect fair value with a credit related mark of $37 million. Consolidated Statements of Income Caption Mortgage banking net revenue Corporate banking revenue Corporate banking revenue 2008 $54 7 106 2007 3 2 60 2006 (2) 53 78 Fifth Third Bancorp

  • Page 81
    ... 31, 2008, the cash surrender value protection had not been exceeded for any other BOLI policy. Fifth Third Community Development Corporation (CDC), a wholly owned subsidiary of the Bancorp, was created to invest in Low Income Housing, Historic Rehabilitation, and New Market Tax Credit projects...

  • Page 82
    ... to their scheduled maturity. In May 2008, Fifth Third Capital Trust VII (Trust VII), a wholly-owned non-consolidated subsidiary of the Bancorp, issued $400 million of Tier 1-qualifying trust preferred securities to third party investors and invested these proceeds in junior subordinated notes (JSN...

  • Page 83
    ...into financial instruments and various agreements to meet the financing needs of its customers. The Bancorp also enters into certain transactions and agreements to manage its interest rate and prepayment risks, provide funding, equipment and locations for its operations and invest in its communities...

  • Page 84
    ...2008, the Bancorp had outstanding letters of credit that were supporting certain securities issued as VRDNs. The Bancorp facilitates financing for its commercial customers, which consist of companies and municipalities, by marketing the VRDNs to investors. The VRDNs pay interest to holders at a rate...

  • Page 85
    ...Court, District of Massachusetts (District Court) issued an order denying Plaintiffs' Motion for Class Certification in the consolidated cases brought by financial institutions (the "Financial Institution Track"). On December 18, 2007, the Fifth Third Bancorp 83 16. LEGAL AND REGULATORY PROCEEDINGS...

  • Page 86
    ... as employee-stock purchase loans, personal lines of credit, residential secured loans, overdrafts, letters of credit and increases in indebtedness. Such transactions are subject to the Bancorp's normal underwriting and approval procedures. Prior to the loan closing, Compliance Risk Management must...

  • Page 87
    ... Net unrealized gains (losses) on cash flow hedge derivatives Defined benefit plans: Net prior service cost Net actuarial gain Defined benefit plans, net Total 2006 Unrealized holding gains on available-for-sale securities arising during period Reclassification adjustment for net losses included in...

  • Page 88
    ... surplus at their initial book value until they are exercised or expire. The CPP terms also required that preferred stock issued to U.S. Treasury rank senior to, or pari passu with, other preferred stock. In order to meet the U.S. Treasury's standard terms, in the fourth quarter of 2008, the Bancorp...

  • Page 89
    ... Third common stock under the Bancorp's 1993 Stock Purchase Plan, as amended and restated, including an additional 1,500,000 shares approved by shareholders on March 28, 2006. Stock-based awards are eligible for issuance under the Bancorp's Incentive Compensation Plan to key employees and directors...

  • Page 90
    ... 31, 2008, the aggregate intrinsic value of both outstanding options and exercisable options was $28 thousand. At December 31, 2008, stock-based compensation expense related to non-vested stock options not yet recognized was immaterial to the Bancorp's Consolidated Financial Statements. 2007 2006...

  • Page 91
    ... sale of other real estate owned Bank owned life insurance income (loss) Other Total Other noninterest expense: Loan processing Marketing Professional services fees Provision for unfunded commitments and letters of credit FDIC insurance and other taxes Affordable housing investments Intangible asset...

  • Page 92
    ...) Deferred tax assets: Allowance for credit losses Deferred compensation Accrued interest Other comprehensive income State net operating losses Other Total deferred tax assets Deferred tax liabilities: Lease financing State deferred taxes Bank premises and equipment Mortgage servicing rights Other...

  • Page 93
    ..., 2008 and 2007, $124 million and $153 million, respectively, of plan assets were managed by Fifth Third Bank, a subsidiary of the Bancorp, through common trust and mutual funds and included $3 million and $9 million, respectively, of Bancorp common stock. Plan assets are not expected to be returned...

  • Page 94
    ...in the portfolio's value are tolerated in an effort to achieve real capital growth. Prohibited asset classes of the plan include precious metals, venture capital, short sales and leveraged transactions. Per the Employee Retirement Income Security Act (ERISA), the Bancorp's common stock cannot exceed...

  • Page 95
    ...-sale and trading securities Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include government bonds and exchange traded equities. If quoted market prices are not available, then fair values are estimated...

  • Page 96
    ...3 assets and liabilities still held at December 31, 2008 were recorded in the Consolidated Statements of Income as follows: ($ in millions) Interest income Corporate banking revenue Mortgage banking net revenue Other noninterest income Securities losses, net Total gains 94 Fifth Third Bancorp Gains...

  • Page 97
    ... from held for sale to held for investment were $1 million for the year ended December 31, 2008. Instrumentspecific credit risk for residential mortgage loans held for sale measured at fair value are immaterial to the Bancorp's Consolidated Financial Statements due to the short time period between...

  • Page 98
    ... include cash and due from banks, FHLB and FRB restricted stock, other short-term investments, certain deposits (demand, interest checking, savings, money market and foreign office deposits), and federal funds purchased. Fair values for other time deposits, certificates of deposit $100,000 and over...

  • Page 99
    ... principally of perpetual and trust preferred stock that is not eligible to be included as Tier I capital, term subordinated debt, intermediate-term preferred stock and, ($ in millions) Total risk-based capital (to risk-weighted assets): Fifth Third Bancorp (Consolidated) Fifth Third Bank (Ohio...

  • Page 100
    ...Net Cash (Used in) Provided by Operating Activities (192) 873 Investing Activities Increase in short-term investments (2,423) (304) Capital contribution to subsidiaries (2,000) Decrease in held-to-maturity and availablefor-sale securities 6 (Increase) decrease in loans to subsidiaries (42) (565) Net...

  • Page 101
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 28. SEGMENTS The Bancorp reports on five business segments: Commercial Banking, Branch Banking, Consumer Lending, Processing Solutions and Investment Advisors. Results of the Bancorp's business segments are presented based on its management structure and ...

  • Page 102
    ... payment processing service revenues provided to the banking segments are eliminated in the Consolidated Statements of Income. (c) Revenue sharing agreements between Investment Advisors and Branch Banking are eliminated in the Consolidated Statements of Income. (d) Dividends on preferred stock...

  • Page 103
    ... Address: 38 Fountain Square Plaza Cincinnati, Ohio 45263 Telephone: (513) 534-5300 Securities registered pursuant to Section 12(b) of the Act: Common Stock , Without Par Value 8.5% Non-Cumulative Series G Convertible Perpetual Preferred Stock 7.25% Trust Preferred Securities of Fifth Third Capital...

  • Page 104
    ...principal office is located in Cincinnati, Ohio. The Bancorp's subsidiaries provide a wide range of financial products and services to the retail, commercial, financial, governmental, educational and medical sectors, including a wide variety of checking, savings and money market accounts, and credit...

  • Page 105
    ... financial ratios derived from the Consolidated Report of Condition and Income (Call Report). In 2008, the FDIC set the Deposit Insurance Fund's designated reserve ratio at 1.25%. Due to recent bank failures, on December 16, 2008, the FDIC adopted a final rule increasing its risk based deposit...

  • Page 106
    ...if they meet applicable qualification requirements), but they are not required to apply them. In July 2008, the federal banking agencies issued a proposed rule that would give all non-core banking organizations, which are not required to adopt Basel II's advance approaches, such as Bancorp, with the...

  • Page 107
    ...created the TARP Capital Purchase Program (CPP) under which the Treasury Department will invest up to $250 billion in senior preferred stock of U.S. banks and savings associations or their holding companies. Qualifying financial institutions may issue senior preferred stock with a value equal to not...

  • Page 108
    ...CBLI, Treasury and the Federal Reserve have agreed to increase the size of the TALF from $200 billion to as much as $1 trillion and to expand the eligible asset classes. ITEM 2. PROPERTIES The Bancorp's executive offices and the main office of Fifth Third Bank are located on Fountain Square Plaza in...

  • Page 109
    ... Banking Division, Fifth Third Bank (Northwestern Ohio) since March 2001. Nancy R. Phillips, 41. Executive Vice President and Chief Human Resources Officer of the Bancorp since April 2008. Previously, Ms. Phillips was senior Human Resources Director for VetcoGray, General Electric Oil and Gas...

  • Page 110
    ...and December of 2008 in connection with various employee compensation plans of the Bancorp. These purchases are not included against the maximum number of shares that may yet be purchased under the Board of Directors authorization. Notes to the Consolidated Financial Statements. Additionally, as of...

  • Page 111
    ..., compared to the S&P 500 Stock and the S&P Banks indices. FIFTH THIRD BANCORP VS. MARKET INDICES 5 YEAR RETURN 60 40 Total Return Index 20 0 (20) (40) (60) (80) (100) 2003 2004 2005 2006 2007 2008 Fifth Third (FITB) S&P 500 (SPX) S&P Banks (BIX) 10 YEAR RETURN 60 40 Total Return Index 20 0 (20...

  • Page 112
    ...ACCOUNTING FIRM FEES" of the Bancorp's Proxy Statement for the 2009 Annual Meeting of Shareholders. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Financial Statements Filed Report of Independent Registered Public Accounting Firm Fifth Third Bancorp and Subsidiaries Consolidated Financial...

  • Page 113
    ... Form 10-Q filed for the quarter ended March 31, 2008. (1) Indenture for Senior Debt Securities dated as of April 30, 2008 between Fifth Third Bancorp and Wilmington Trust Company, as trustee. Incorporated by reference to Registrant's Current Report on Form 8-K filed with the Securities and Exchange...

  • Page 114
    ...to Purchase up to 43,617,747 shares of Common Stock. Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 31, 2008. 10.1 Fifth Third Bancorp Unfunded Deferred Compensation Plan for Non-Employee Directors...

  • Page 115
    ... Zink with the Company. Incorporated by reference to Registrant's Current Report on Form 8K filed with the Securities and Exchange Commission on December 31, 2008. * Form of Executive Agreements effective December 31, 2008, between Fifth Third Bancorp and Kevin T. Kabat, Robert A. Sullivan, Greg...

  • Page 116
    ..., thereunto duly authorized. FIFTH THIRD BANCORP Registrant Kevin T. Kabat Chairman, President and CEO Principal Executive Officer February 27, 2009 Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed on February 27, 2009 by the following persons on behalf of...

  • Page 117
    ...255 9 1,090 3,551 (302) 5,603 (a) Federal funds sold and interest-bearing deposits in banks are combined in other short-term investments in the Consolidated Financial Statements. (b) Adjusted for stock splits in 2000. Allowance Book Value for Loan and Lease Per Losses Share (b) $13.57 $2,787 17.18...

  • Page 118
    ... Wendzel FIFTH THIRD BANCORP OFFICERS Kevin T. Kabat Chairman, President & CEO Greg D. Carmichael Executive Vice President & Chief Operating Officer Charles D. Drucker Executive Vice President Ross J. Kari Executive Vice President & Chief Financial Officer Bruce K. Lee Executive Vice President Nancy...

  • Page 119
    ... Assets Total Loans and Leases Deposits Shareholder's Equity Ke ati 3.54 70.4 10.59 14.78 7.86 3.36 60.2 7.72 10.16 6.14 3.06 59.4 8.39 11.07 7.95 Net Interest Margin Efficiency Ratio Tier 1 Ratio Total Capital Ratio Tangible Equity Ratio t a Common Shares Outstanding Banking Centers Full-Time...

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