Fifth Third Bank 2009 Annual Report Download - page 59

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 57
LIQUIDITY RISK MANAGEMENT
The goal of liquidity management is to provide adequate funds to
meet changes in loan and lease demand, unexpected deposit
withdrawals and other contractual obligations. A summary of
certain obligations and commitments to make future payments
under contracts is included in Table 52. Mitigating liquidity risk is
accomplished by maintaining liquid assets in the form of
investment securities, maintaining sufficient unused borrowing
capacity in the debt markets and delivering consistent growth in
core deposits. Cash flows from estimated loan and lease
repayment are included in Table 47. Of the $17.9 billion
(amortized cost basis) of securities in the available-for-sale
portfolio at December 31, 2009, $4.9 billion in principal and
interest is expected to be received in the next 12 months and an
additional $2.3 billion is expected to be received in the next 13 to
24 months. For further information on the Bancorp’s available-
for-sale securities portfolio, see the Investment Securities section
of the MD&A.
In addition to available-for-sale securities, asset-driven
liquidity is provided by the Bancorp’s ability to sell or securitize
loan and lease assets. In order to reduce the exposure to interest
rate fluctuations and to manage liquidity, the Bancorp has
developed securitization and sale procedures for several types of
interest-sensitive assets. A majority of the long-term, fixed-rate
single-family residential mortgage loans underwritten according to
FHLMC or FNMA guidelines are sold for cash upon origination.
Additional assets such as jumbo fixed-rate residential mortgages,
certain commercial loans, home equity loans, automobile loans
and other consumer loans are also capable of being securitized or
sold. For the year ended December 31, 2009 and 2008, loans
totaling $21.8 billion and $15.7 billion, respectively, were sold,
securitized or transferred off-balance sheet. Recent developments
in accounting standards may impact the level and types of
structures that the Bancorp is able to utilize in order to securitize
or transfer assets off-balance sheet beginning in 2010. For further
information on the transfer of financial assets and consolidation
of VIEs, see Note 1 of the Notes to Consolidated Financial
Statements.
Core deposits have historically provided the Bancorp with a
sizeable source of relatively stable and low cost funds. The
Bancorp’s average core deposits and shareholders’ equity funded
72% of its average total assets during 2009 compared to 65%
during 2008. In addition to core deposit funding, the Bancorp also
accesses a variety of other short-term and long-term funding
sources, which include the use of various regional Federal Home
Loan Banks. 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 one source of liquidity
and manages availability in response to changing balance sheet
needs.
The Bancorp has a shelf registration in place with the SEC
permitting ready access to the public debt markets and qualifies as
a “well-known seasoned issuer” under SEC rules. As of December
31, 2009, $8.8 billion of debt or other securities were available for
issuance from this shelf registration under the current Bancorp’s
Board of Directors’ authorizations, however, access to these
markets may depend on market conditions. The Bancorp also has
$18.2 billion of funding available for issuance through private
offerings of debt securities pursuant to its bank note program and
currently has approximately $25.8 billion of borrowing capacity
available through secured borrowing sources including the Federal
Home Loan Banks and Federal Reserve Banks. The Bancorp has
approximately $6.8 billion of unsecured long-term debt
outstanding as of December 31, 2009. Long-term debt with a
principal balance of $800 million and a carrying value of $815
million will mature during 2010.
The Bancorp’s senior debt credit ratings as of February 26,
2010 are summarized in Table 49. The ratings reflect the ratings
agencies view on the Bancorp’s capacity to meet financial
commitments. * Additional information on senior debt credit
ratings is as follows:
• Moody’s “Baa1” rating is considered medium-grade
obligations and is the fourth highest ranking within its
overall classification system;
• Standard & Poor’s “BBB” rating indicates the obligor’s
capacity to meet its financial commitment is adequate
and is the fourth highest ranking within its overall
classification system;
• Fitch Ratings’ “A-” rating is considered high credit
quality and is the third highest ranking within its overall
classification system; and
• DBRS Ltd.’s “A” rating is considered satisfactory credit
quality and is the third highest ranking within its overall
classification system.
* As an investor, you should be aware that a security rating is not
a recommendation to buy, sell or hold securities, that it may be
subject to revision or withdrawal at any time by the assigning
rating organization and that each rating should be evaluated
independently of any other rating.
TABLE 49: AGENCY RATINGS
A
s of February 26, 2010 Moody’s Standard and Poor’s Fitch DBRS
Fifth Third Bancorp:
Commercial paper Prime-2 A-2 F1 R-1L
Senior debt Baa1 BBB A- A
Subordinated debt Baa2 BBB- BBB+ AL
Fifth Third Bank:
Short-term Prime-1 A-2 F1 R-1M
Long-term deposit A2 BBB+ A AH
Senior debt A2 BBB+ A- AH
Subordinated debt A3 BBB BBB+ A