Fifth Third Bancorp Reports 2009 Net Income of $737 Million Includes fourth quarter 2009 net loss of $98 million

CINCINNATI, Jan. 21 /PRNewswire-FirstCall/ --

  • Fourth quarter 2009 net loss of $0.20 per diluted share
    • Third quarter 2009 net loss of $97 million; $0.20 per diluted share
    • Third quarter 2009 results included net benefit related to Visa shares of $317 million pre-tax or $206 million after tax; $0.26 per diluted share
  • Net interest margin of 3.55%, up 12 bps from the previous quarter
  • Noninterest income up 7% sequentially excluding the third quarter 2009 Visa gain
  • Improving credit trends
    • Net charge-offs declined 6%
    • Both early and late stage delinquencies declined significantly from the third quarter
    • Nonperforming assets increased 1 percent sequentially; including loans held-for-sale, total nonperforming assets declined 1 percent
  • Average core deposits up 11%, wholesale funding down 44% from a year ago
  • Tangible common equity ratio of 6.45%, Tier 1 common ratio of 7.00%, Leverage ratio of 12.43%, Tier 1 ratio of 13.31%, total capital ratio of 17.48%

  • Allowance to loan ratio increased to 4.88%, allowance to nonperforming loans ratio increased to 127%, allowance 1.3 times annualized net charge-offs
  • Extended $19 billion of new and renewed credit in the fourth quarter

Earnings Highlights


For the Three Months Ended

% Change


December

September

June

March

December




2009

2009

2009

2009

2008

Seq

Yr/Yr

Earnings ($ in millions)








Net income (loss)

($98)  

($97)  

$882   

$50   

($2,142)  

(1%)

95%

Net income (loss) available to common shareholders

($160)  

($159)  

$856   

($26)  

($2,184)  

(1%)

93%









Common Share Data








Earnings per share, basic

(0.20)  

(0.20)  

1.35   

(0.04)  

(3.78)  

-   

95%

Earnings per share, diluted

(0.20)  

(0.20)  

1.15   

(0.04)  

(3.78)  

-   

95%

Cash dividends per common share

0.01   

0.01   

0.01   

0.01   

0.01   

-   

-   









Financial Ratios








Return on average assets

(.35%)

(.34%)

3.05%

0.17%

(7.16%)

(3%)

95%

Return on average common equity

(6.3)  

(6.1)  

41.2   

(1.4)  

(94.6)  

(3%)

93%

Tier I capital

13.31   

13.19   

12.90   

10.93   

10.59   

1%

26%

Tier I common equity

7.00   

7.01   

6.94   

4.50   

4.37   

-   

60%

Net interest margin (a)

3.55   

3.43   

3.26   

3.06   

3.46   

3%

3%

Efficiency (a)

63.1   

50.8   

29.9   

65.1   

131.3   

24%

(52%)









Common shares outstanding (in thousands)

795,068   

795,316   

795,313   

576,936   

577,387   

-   

38%

Average common shares outstanding (in thousands):








  Basic

790,442   

790,334   

629,789   

571,810   

571,809   

-   

38%

  Diluted

790,442   

790,334   

718,245   

571,810   

571,809   

-   

38%









(a) Presented on a fully taxable equivalent basis


Fifth Third Bancorp (Nasdaq: FITB) today reported full year 2009 net income of $737 million compared with a net loss of $2.1 billion in 2008. 2009 net income available to common shareholders was $511 million or $0.67 per diluted share compared with a 2008 net loss of $2.2 billion or $3.91 per diluted share.

Fourth quarter 2009 results were a net loss of $98 million compared with a net loss of $97 million in the third quarter of 2009 and a net loss of $2.1 billion in the fourth quarter of 2008. After preferred dividends, the fourth quarter 2009 net loss available to common shareholders was $160 million or $0.20 per diluted share, compared with a third quarter net loss of $159 million or $0.20 per diluted share, and a net loss of $2.2 billion or $3.78 per diluted share in the fourth quarter of 2008.

Fourth quarter results included the benefit of a $20 million pre-tax mark-to-market adjustment on warrants related to the Fifth Third Processing Solutions joint venture, recorded in other noninterest income, offset by a $22 million pre-tax litigation reserve accrual recorded in other noninterest expense for litigation associated with bank card association membership. Third quarter 2009 results included a pre-tax net benefit of $317 million, or $0.26 per diluted share after-tax, from the sale of our Visa, Inc. Class B common shares and the release of Visa litigation reserves. Fourth quarter 2008 results included net charges of $1.0 billion pre-tax or $1.76 per diluted share: a $965 million goodwill impairment charge, a $40 million other-than-temporary-impairment charge on securities, a $34 million charge to lower the cash surrender value of a BOLI policy, and an $8 million charge due to changes in loss estimates related to the Bancorp's indemnification obligation with Visa.

"Fourth quarter credit trends were better than expected and showed encouraging signs of improvement," said Kevin T. Kabat, Chairman, CEO and President of Fifth Third Bancorp. "Net charge-offs were $708 million, down $48 million from the third quarter, with improvement in both commercial and consumer loan losses. We expect net charge-offs to decline again in the first quarter, reflecting relatively stable consumer trends and lower C&I and commercial real estate losses, and our current expectation is for full-year 2010 net charge-offs to decline from those realized in 2009 as we experience lower loss content in problem assets at this stage of the cycle. Loans 30-89 days past due and loans more than 90 days past due were down significantly during the quarter primarily due to improvement in commercial delinquencies. Nonperforming assets increased 1 percent, significantly lower than previous quarters during this cycle. Our current expectation is for nonperforming assets to increase moderately in the first quarter and for growth to continue to slow moving forward.

"The provision for loan losses exceeded net charge-offs by $68 million, increasing the reserve to loan ratio to 4.88 percent and coverage of non-performing loans and leases to 127 percent. We do not expect further appreciable increases in our loan loss reserve levels to be necessary, given our strong reserve position and current expectations for credit trends.

"In addition to credit results, fourth quarter operating results were significantly improved. Net interest income was up modestly from last quarter with 12 bps of net interest margin expansion. Core deposit growth remains strong, particularly in transaction deposits which were up 6 percent sequentially. This transaction deposit growth offset a reduction in retail CDs and allowed us to reduce wholesale funding that resulted in a significantly better liquidity position. We originated $19 billion in loans and renewals during the quarter despite loan demand that remains weak. Excluding the benefit of actions related to our shares in Visa, Inc., noninterest income increased 7 percent and expenses increased 2 percent. Pre-provision net revenue of $562 million increased 7 percent excluding the Visa benefit.

"We currently expect credit and operating results to improve further in the first quarter, and that our aggressive actions to address the issues presented by this cycle will continue to serve us well as the economic environment stabilizes and improves."

Income Statement Highlights


For the Three Months Ended

% Change


December

September

June

March

December




2009

2009

2009

2009

2008

Seq

Yr/Yr

Condensed Statements of Income ($ in millions)








Net interest income (taxable equivalent)

$882   

$874   

$836   

$781   

$897   

1%

(2%)

Provision for loan and lease losses

776   

952   

1,041   

773   

2,356   

(18%)

(67%)

Total noninterest income

651   

851   

2,583   

697   

642   

(23%)

1%

Total noninterest expense

967   

876   

1,021   

962   

2,022   

10%

(52%)

Income (loss) before income taxes (taxable equivalent)

(210)  

(103)  

1,357   

(257)  

(2,839)  

(104%)

93%









Taxable equivalent adjustment

4   

5   

5   

5   

5   

(20%)

(20%)

Applicable income taxes

(116)  

(11)  

470   

(312)  

(702)  

(955%)

83%

Net income (loss)

(98)  

(97)  

882   

50   

(2,142)  

(1%)

95%

Dividends on preferred stock

62   

62   

26   

76   

42   

-   

48%

Net income (loss) available to common shareholders

(160)  

(159)  

856   

(26)  

(2,184)  

(1%)

93%

Earnings per share, diluted

($0.20)  

($0.20)  

$1.15   

($0.04)  

($3.78)  

-   

95%


Net Interest Income


For the Three Months Ended

% Change


December

September

June

March

December




2009

2009

2009

2009

2008

Seq

Yr/Yr

Interest Income ($ in millions)








Total interest income (taxable equivalent)

$1,147   

$1,174   

$1,184   

$1,183   

$1,411   

(2%)

(19%)

Total interest expense

265   

300   

348   

402   

514   

(12%)

(48%)

Net interest income (taxable equivalent)

$882   

$874   

$836   

$781   

$897   

1%

(2%)









Average Yield








Yield on interest-earning assets

4.61%

4.61%

4.62%

4.63%

5.44%

-   

(15%)

Yield on interest-bearing liabilities

1.39%

1.51%

1.67%

1.89%

2.28%

(8%)

(39%)

  Net interest rate spread (taxable equivalent)

3.22%

3.10%

2.95%

2.74%

3.16%

4%

2%

  Net interest margin (taxable equivalent)

3.55%

3.43%

3.26%

3.06%

3.46%

3%

3%









Average Balances ($ in millions)








Loans and leases, including held for sale

$79,920   

$82,888   

$84,996   

$85,829   

$87,426   

(4%)

(9%)

Total securities and other short-term investments

18,869   

18,065   

17,762   

17,835   

15,683   

4%

20%

Total interest-bearing liabilities

75,815   

78,759   

83,407   

86,218   

89,440   

(4%)

(15%)

Shareholders' equity

13,724   

13,885   

12,490   

12,084   

10,291   

(1%)

33%


Net interest income of $882 million on a taxable equivalent basis increased $8 million, or 1 percent, from the third quarter of 2009. The net interest margin was 3.55 percent, up 12 bps from 3.43 percent in the previous quarter. The sequential increase in net interest income and net interest margin was largely driven by reduced funding costs as our deposit mix continued to shift to lower cost core deposits from higher priced term deposits. This positive funding effect was partially offset by lower loan balances coupled with stabilization of spreads on loans originated during the quarter.

Compared with the fourth quarter of 2008, net interest income decreased $15 million and the net interest margin increased 9 bps from 3.46 percent. Fourth quarter 2008 results included $81 million in loan discount accretion related to the First Charter acquisition compared with $23 million this quarter and $27 million last quarter. Excluding this impact in both periods, year-over-year net interest income increased by 5 percent and net interest margin increased by 30 bps largely as a result of the runoff of higher cost term deposits throughout the year.

Average Securities

During the quarter, average securities balances increased by $804 million, primarily through the purchase of agency mortgage-backed securities partially offset by a reduction in Variable Rate Demand Notes (VRDNs) during the quarter.

Average Loans


For the Three Months Ended

% Change


December

September

June

March

December




2009

2009

2009

2009

2008

Seq

Yr/Yr

Average Portfolio Loans and Leases ($ in millions)








Commercial:








  Commercial loans

$25,816   

$27,400   

$28,027   

$28,949   

$30,227   

(6%)

(15%)

  Commercial mortgage

11,981   

12,269   

12,463   

12,508   

13,189   

(2%)

(9%)

  Commercial construction

4,024   

4,337   

4,672   

4,987   

5,990   

(7%)

(33%)

  Commercial leases

3,574   

3,522   

3,477   

3,564   

3,629   

1%

(2%)

Subtotal - commercial loans and leases

45,395   

47,528   

48,639   

50,008   

53,035   

(4%)

(14%)

Consumer:








  Residential mortgage loans

8,129   

8,355   

8,713   

9,195   

9,335   

(3%)

(13%)

  Home equity

12,291   

12,452   

12,636   

12,763   

12,677   

(1%)

(3%)

  Automobile loans

8,973   

8,871   

8,692   

8,687   

8,428   

1%

6%

  Credit card

1,982   

1,955   

1,863   

1,825   

1,748   

1%

13%

  Other consumer loans and leases

831   

899   

1,030   

1,083   

1,146   

(8%)

(27%)

Subtotal - consumer loans and leases

32,206   

32,532   

32,934   

33,553   

33,334   

(1%)

(3%)

Total average loans and leases (excluding held for sale)

$77,601   

$80,060   

$81,573   

$83,561   

$86,369   

(3%)

(10%)









Average loans held for sale

2,319   

2,828   

3,422   

2,268   

1,057   

(18%)

119%


Average portfolio loan and lease balances decreased 3 percent sequentially and declined 10 percent from the fourth quarter of 2008 primarily due to lower demand for consumer and commercial loans and leases.

Average commercial loan and lease balances decreased 4 percent sequentially and declined 14 percent from the fourth quarter of the previous year. The sequential and year-over-year decline in average commercial loan and lease balances was largely driven by lower customer line usage, which was down $1.0 billion from the previous quarter and $3.9 billion from the same quarter the previous year. During the fourth quarter of 2009, commercial and industrial (C&I) average loans decreased by 6 percent sequentially and 15 percent from the previous year primarily due to lower customer line usage. Average commercial mortgage and commercial construction loan balances declined by a combined 4 percent sequentially and 17 percent from the same period the previous year, reflecting low customer demand and tighter underwriting standards.

Average consumer loan and lease balances decreased 1 percent sequentially and declined 3 percent from the fourth quarter of 2008. Both sequential and year-over-year comparisons reflect lower home equity and residential mortgage loan balances partially offset by growth in credit card and auto balances.

Nearly all of Fifth Third's mortgages are originated to be sold to agencies and are not reflected in portfolio loans or portfolio loan growth. Warehoused residential mortgages held-for-sale remain at relatively high levels of $2.0 billion due to continued high mortgage origination volumes.

Average Deposits


For the Three Months Ended

% Change


December

September

June

March

December




2009

2009

2009

2009

2008

Seq

Yr/Yr

Average Deposits ($ in millions)








  Demand deposits

$18,137   

$17,059   

$16,689   

$15,532   

$14,602   

6%

24%

  Interest checking

16,324   

14,869   

14,837   

14,229   

13,698   

10%

19%

  Savings

17,540   

16,967   

16,705   

16,272   

15,960   

3%

10%

  Money market

4,279   

4,280   

4,167   

4,559   

4,983   

-   

(14%)

  Foreign office (a)

2,516   

2,432   

1,717   

1,755   

1,876   

3%

34%

Subtotal - Transaction deposits

58,796   

55,607   

54,115   

52,347   

51,119   

6%

15%

  Other time

13,049   

14,264   

14,612   

14,501   

13,337   

(9%)

(2%)

Subtotal - Core deposits

71,845   

69,871   

68,727   

66,848   

64,456   

3%

11%

  Certificates - $100,000 and over

8,200   

10,055   

11,455   

11,802   

12,468   

(18%)

(34%)

  Other

51   

95   

240   

247   

1,090   

(46%)

(95%)

Total deposits

$80,096   

$80,021   

$80,422   

$78,897   

$78,014   

-   

3%

(a) Includes commercial customer Eurodollar sweep balances for which the Bancorp pays rates comparable to other commercial deposit accounts.


Average core deposits increased 3 percent sequentially and 11 percent from the fourth quarter of 2008. Sequential growth in demand deposit accounts (DDA), interest checking and savings was partially offset by lower consumer CD balances. Higher priced, short-term consumer CDs originated in the second half of 2008 continue to be replaced by lower cost deposit products. Average transaction deposits excluding consumer time deposits were up 6 percent from third quarter of 2009 and increased 15 percent from the same period the previous year.

Retail average core deposits were flat sequentially and increased 6 percent from the fourth quarter of 2008. Sequential growth in DDA, interest checking, and savings deposits was offset by a decline in consumer CD balances. Higher average account balances drove the increase. On a year-over-year basis, growth in DDA, interest checking, and savings was partially offset by lower money market and consumer CD balances. Commercial average core deposits increased 12 percent sequentially and 28 percent from the previous year. The sequential and year-over-year growth was driven by DDA and interest checking, as average account balances increased and public funds balances were higher in the fourth quarter due to seasonality.

Noninterest Income


For the Three Months Ended

% Change


December

September

June

March

December




2009

2009

2009

2009

2008

Seq

Yr/Yr

Noninterest Income ($ in millions)








Service charges on deposits

$159   

$164   

$162   

$146   

$162   

(3%)

(2%)

Corporate banking revenue

98   

86   

99   

116   

121   

15%

(19%)

Mortgage banking net revenue

132   

140   

147   

134   

(29)  

(6%)

NM

Investment advisory revenue

77   

74   

73   

76   

78   

4%

(2%)

Card and processing revenue

76   

74   

243   

223   

230   

3%

(67%)

Gain on sale of FTPS joint venture

-   

(6)  

1,764   

-   

-   

100%

NM

Other noninterest income

107   

311   

49   

10   

24   

(66%)

349%

Securities gains (losses), net

2   

8   

5   

(24)  

(40)  

(75%)

NM

Securities gains, net - non-qualifying hedges on mortgage servicing rights

-   

-   

41   

16   

96   

NM

(100%)

Total noninterest income

$651   

$851   

$2,583   

$697   

$642   

(23%)

1%









NM: Not Meaningful



Noninterest income of $651 million decreased $200 million sequentially and increased $9 million from a year ago. Third quarter 2009 results included a $244 million gain from the sale of our Visa, Inc. Class B common shares, while fourth quarter 2009 included a benefit of $20 million in mark-to-market adjustments on warrants related to the Fifth Third Processing Solutions joint venture. Excluding these items, as well as investment securities gains/losses in all periods, noninterest income increased by $30 million, or 5 percent, from the previous quarter driven by strong growth in corporate banking revenue as well as growth in card and processing revenue and investment advisory revenue. Additionally, losses on the sale of other real estate owned (OREO), fair value adjustments on commercial loans held-for-sale, and gains and losses on loan sales adversely affected fee income by $30 million in the fourth quarter of 2009 compared with $45 million in the previous quarter.

Fourth quarter 2009 results benefited from $39 million in revenue associated with the transition service agreement (TSA) entered into as part of our processing joint venture, under which the Bancorp provides services to the processing business to support its operations during the deconversion period. Revenue from the TSA was $38 million in the previous quarter. Fourth quarter 2008 results included a non-cash charge of $34 million to lower the cash surrender value of one of our BOLI policies and $40 million in other than temporary impairment (OTTI) charges on certain securities. Fourth quarter 2008 results also included $160 million of revenue from the merchant processing and financial institutions businesses that were sold in the second quarter of 2009. Excluding these items and those noted above, noninterest income increased by $73 million, or 13 percent, from the fourth quarter of 2008, driven by strong mortgage banking revenue. Losses on the sale of OREO, fair value adjustments on commercial loans held-for-sale, and gains and losses on loan sales adversely affected noninterest income by $22 million in the fourth quarter of 2008.

Service charges on deposits of $159 million declined 3 percent sequentially and 2 percent compared with the same quarter last year. Retail service charges declined 6 percent from the previous quarter and 3 percent compared with the fourth quarter of 2008. The sequential and year-over-year declines were largely driven by a reduction of NSF fees due to changes in overdraft policies. Commercial service charges increased 1 percent sequentially and declined by 1 percent versus last year.

Corporate banking revenue of $98 million increased 15 percent from soft third quarter results and declined 19 percent from the same period the previous year. Sequential results were driven primarily by growth in institutional sales, interest rate derivative sales revenue, and business lending fees, partially offset by a decline in foreign exchange revenue. On a year-over-year basis, lower foreign exchange and interest rate derivative sales revenue more than offset growth in institutional sales and business lending fees.

Mortgage banking net revenue was $132 million in the fourth quarter of 2009, a decrease of $8 million from strong third quarter 2009 results and an increase of $161 million from the fourth quarter of 2008. Fourth quarter 2008 results included mortgage servicing rights (MSR) valuation adjustments, including mark-to-market related adjustments on free-standing derivatives that represented a net loss of $96 million; this net loss was fully offset by gains in MSR balance sheet hedges reported in securities gains, net non-qualifying hedges on mortgage servicing rights. Fourth quarter 2009 originations of $4.4 billion were unchanged from the previous quarter and up from $2.1 billion in the fourth quarter of 2008. Fourth quarter 2009 originations resulted in gains of $97 million on mortgages sold compared with gains of $96 million during the previous quarter and $45 million during the same period in 2008. Net servicing revenue, before MSR valuation adjustments, totaled $26 million in the third quarter, compared with $21 million last quarter and $22 million a year ago. MSR valuation adjustments, including mark-to-market related adjustments on free-standing derivatives used to economically hedge the MSR portfolio, represented a net gain of $9 million in the fourth quarter of 2009, compared with a net gain of $23 million last quarter and a net loss of $96 million a year ago. The mortgage-servicing asset, net of the valuation reserve, was $699 million at quarter end on a servicing portfolio of $49 billion.

Investment advisory revenue of $77 million was up 4 percent sequentially and down 2 percent from the fourth quarter of 2008. Institutional trust revenue was up 10 percent from the previous quarter and 13 percent from the previous year while private client revenue increased 5 percent both sequentially and versus the fourth quarter of 2008. Both sequential and year-over-year comparisons were driven by increases in market values of assets. Mutual fund fees were down 14 percent from the previous quarter and 27 percent from the previous year generally due to lower mutual fund balances. Brokerage fees were up 9 percent from the third quarter of 2009 and declined 7 percent from the same period the previous year. Sequential growth was due to higher retail trading volumes and strong volume in structured products.

Card and processing revenue was $76 million in the fourth quarter, an increase of 3 percent from the previous quarter. Results from the fourth quarter of 2008 included merchant processing revenue and financial institutions revenue, which are now part of the processing business joint venture. These items contributed $160 million to card and processing revenue in the fourth quarter of 2008. Excluding the divested revenue, card and processing revenue increased by $6 million, or 9 percent, from the previous year due to growth in debit card transaction volumes.

Other noninterest income totaled $107 million in the fourth quarter of 2009 versus $311 million in the previous quarter and $24 million in the fourth quarter of 2008. Fourth quarter 2009 results included a benefit of $20 million of mark-to-market adjustments on warrants related to the Fifth Third Processing Solutions joint venture. Third quarter 2009 results included a $244 million gain from the Visa transaction, while fourth quarter 2008 results included a non-cash charge of $34 million that lowered the cash surrender value of one of our BOLI policies. Excluding these items, other noninterest income increased by $20 million compared with the previous quarter and increased by $29 million from the same period the previous year. Fourth quarter 2009 results included $39 million of revenue related to the processing business TSA compared with $38 million in the third quarter. Income from our ownership interest in the processing business joint venture was $8 million in the fourth quarter of 2009 versus $7 million in the previous quarter. Losses on the sale of OREO totaled $21 million in the fourth quarter compared with $22 million in the previous quarter and in the fourth quarter of 2008. Fair value charges on commercial loans held-for-sale totaled $17 million in the fourth quarter of 2009 compared with $30 million in the previous quarter. There were no fair value adjustments that affected other noninterest income in the fourth quarter of 2008. There were no gains from loan sales recorded in the fourth quarter of 2008 compared with net gains on loan sales of $8 million in both the third and fourth quarters of 2009.

There were no net securities gains on non-qualifying hedges on MSRs in the fourth quarter of 2009 or in the previous quarter while fourth quarter 2008 results included gains of $96 million.

Net gains on investment securities were $2 million in the fourth quarter of 2009, compared with securities gains of $8 million in the previous quarter and net losses of $40 million in the same period the previous year.

Noninterest Expense


For the Three Months Ended

% Change


December

September

June

March

December




2009

2009

2009

2009

2008

Seq

Yr/Yr

Noninterest Expense ($ in millions)








Salaries, wages and incentives

$331   

$335   

$346   

$327   

$337   

(1%)

(2%)

Employee benefits

$69   

$83   

$75   

$83   

$61   

(16%)

13%

Net occupancy expense

$75   

$75   

$79   

$79   

$77   

1%

(3%)

Technology and communications

$47   

$43   

$45   

$45   

$48   

9%

(2%)

Equipment expense

$31   

$30   

$30   

$31   

$35   

4%

(11%)

Card and processing expense

$27   

$25   

$75   

$67   

$70   

5%

(62%)

Other noninterest expense

$387   

$285   

$370   

$330   

$1,394   

36%

(72%)

Total noninterest expense

$967   

$876   

$1,021   

$962   

$2,022   

10%

(52%)


Noninterest expense of $967 million increased $91 million sequentially and decreased $1.1 billion from a year ago. Fourth quarter 2009 results included a $22 million reserve established for litigation associated with bank card association memberships. Third quarter 2009 results included the Visa litigation reserve reversal of $73 million and $10 million of seasonal pension settlement expense. Excluding the effect of these items, fourth quarter 2009 noninterest expense increased by $6 million, or 1 percent, from the previous quarter, driven largely by tax related accruals and higher marketing expenses. Fourth quarter 2008 results included a $965 million charge to record goodwill impairment and an $8 million charge due to loss estimates related to the Bancorp's indemnification obligation with Visa. Excluding these items, expenses decreased by $104 million from a year ago, or 10 percent, driven by lower credit-related costs and a reduction in core expenses due to the processing business sale.

During the fourth quarter we incurred approximately $39 million in operating expenses compared with $38 million in the previous quarter, related to the processing business joint venture that were offset with revenue under the transition service agreement (TSA) that was reported in other noninterest income.

Expenses incurred related to problem assets totaled $55 million in the fourth quarter of 2009, compared with $100 million in the previous quarter and $105 million in the fourth quarter of 2008. The largest driver of the sequential and year-over-year decline was in the provision expense for unfunded commitments, which was $10 million in the fourth quarter of 2009 compared with $45 million the previous quarter and $63 million in the fourth quarter of 2008. Derivative valuation adjustments related to customer risk resulted in a $2 million gain this quarter versus $21 million of expense last quarter and no effect a year ago. Other work-out related expenses were $37 million in the fourth quarter, compared with $28 million the previous quarter and $39 million in the same period last year. OREO expense was $9 million this quarter, compared with $6 million last quarter and $4 million a year ago.

Credit Quality


For the Three Months Ended


December

September

June

March

December


2009

2009

2009

2009

2008

Total net losses charged off ($ in millions)






  Commercial loans

($183)  

($256)  

($177)  

($103)  

($422)  

  Commercial mortgage loans

(142)  

(118)  

(85)  

(77)  

(465)  

  Commercial construction loans

(135)  

(126)  

(79)  

(76)  

(539)  

  Commercial leases

(8)  

-   

(1)  

-   

-   

  Residential mortgage loans

(78)  

(92)  

(147)  

(75)  

(49)  

  Home equity

(82)  

(80)  

(88)  

(72)  

(54)  

  Automobile loans

(32)  

(34)  

(36)  

(46)  

(43)  

  Credit card

(44)  

(45)  

(45)  

(36)  

(30)  

  Other consumer loans and leases

(4)  

(5)  

32   

(5)  

(25)  

Total net losses charged off

(708)  

(756)  

(626)  

(490)  

(1,627)  







Total losses

(743)  

(796)  

(693)  

(521)  

(1,633)  

Total recoveries

35   

40   

67   

31   

6   

Total net losses charged off

($708)  

($756)  

($626)  

($490)  

($1,627)  

Ratios (annualized)






Net losses charged off as a percent of average loans and leases (excluding held for sale)

3.62%

3.75%

3.08%

2.38%

7.50%

Commercial

4.08%

4.17%

2.81%

2.08%

10.70%

Consumer

2.97%

3.13%

3.48%

2.82%

2.40%


Net charge-offs were $708 million in the fourth quarter of 2009, or 362 bps of average loans on an annualized basis. Third quarter net charge-offs were $756 million, or 375 bps of average loans on an annualized basis. Loss experience overall continues to be disproportionately affected by commercial and residential real estate loans in Michigan and Florida. In aggregate, Florida and Michigan represented approximately 53 percent of total losses during the quarter and 27 percent of total loans and leases.

Commercial net charge-offs were $468 million, or 408 bps, in the fourth quarter of 2009, a decrease of $32 million from the third quarter of 2009, which included $95 million of losses on shared national credits. Within the commercial portfolio, C&I losses were $183 million, a decrease of $73 million from the previous quarter. Losses on loans to companies in real estate-related industries were $71 million, an increase of $31 million from the previous quarter. Commercial mortgage net losses totaled $142 million, an increase of $24 million from the previous quarter. Michigan and Florida accounted for 56 percent of commercial mortgage losses. Commercial construction net losses were $135 million, an increase of $9 million from the previous quarter. Michigan and Florida accounted for 61 percent of total commercial construction losses. Across all commercial portfolios, net losses on residential builder and developer portfolio loans totaled $110 million, compared with $108 million in the third quarter. These homebuilder losses included $58 million on commercial construction loans, $39 million on commercial mortgage loans, and $13 million on C&I loans. Originations of homebuilder/developer loans were suspended in 2007 and the remaining portfolio balance totals $1.6 billion.

Consumer net charge-offs of $240 million, or 297 bps, declined $16 million from the third quarter of 2009. Michigan and Florida represented 47 percent of third quarter home equity losses and 29 percent of total home equity loans. Net charge-offs within the residential mortgage portfolio were $78 million, a decrease of $14 million from the previous quarter, with losses in Michigan and Florida representing 73 percent of losses in the fourth quarter and approximately 42 percent of total residential mortgage loans. Home equity net charge-offs of $82 million increased $2 million sequentially. Net losses on brokered home equity loans were $34 million, up $4 million sequentially, and represented 42 percent of fourth quarter home equity losses. Brokered home equity loans represented $1.9 billion, or 16 percent, of the total home equity portfolio with originations being discontinued in 2007. Net charge-offs in the auto portfolio decreased by $2 million from the third quarter of 2009 to $32 million reflecting improved values on used cars sold at auction. Net losses on consumer credit card loans were $44 million, a $1 million decrease from the previous quarter, as higher unemployment and weakened economic conditions continue to affect the credit card portfolio.


For the Three Months Ended


December

September

June

March

December


2009

2009

2009

2009

2008

Allowance for Credit Losses ($ in millions)






Allowance for loan and lease losses, beginning

$3,681   

$3,485   

$3,070   

$2,787   

$2,058   

  Total net losses charged off

(708)  

(756)  

(626)  

(490)  

(1,627)  

  Provision for loan and lease losses

776   

952   

1,041   

773   

2,356   

Allowance for loan and lease losses, ending

3,749   

3,681   

3,485   

3,070   

2,787   







Reserve for unfunded commitments, beginning

284   

239   

231   

195   

132   

  Provision for unfunded commitments

10   

45   

8   

36   

63   

Reserve for unfunded commitments, ending

294   

284   

239   

231   

195   







Components of allowance for credit losses:






  Allowance for loan and lease losses

3,749   

3,681   

3,485   

3,070   

2,787   

  Reserve for unfunded commitments

294   

284   

239   

231   

195   

Total allowance for credit losses

$4,043   

$3,965   

$3,724   

$3,301   

$2,982   

Allowance for loan and lease losses ratio






  As a percent of loans and leases

4.88%

4.69%

4.28%

3.72%

3.31%

  As a percent of nonperforming loans and leases (a) (b)

127%

125%

135%

128%

157%

  As a percent of nonperforming assets (a) (b)

116%

114%

123%

116%

139%







(a) Excludes non accrual loans and leases in loans held for sale

(b) During 1Q09 the Bancorp modified its nonaccrual policy to exclude TDR loans less than 90 days past due because they were performing in accordance with restructured terms. For comparability purposes, prior periods were adjusted to reflect this reclassification.


Provision for loan and lease losses totaled $776 million in the fourth quarter of 2009, exceeding net charge-offs by $68 million. The allowance for loan and lease losses represented 4.88 percent of total loans and leases outstanding as of quarter end, compared with 4.69 percent last quarter, and represented 127 percent of nonperforming loans and leases and 132 percent of fourth quarter annualized net charge-offs.


As of


December

September

June

March

December

Nonperforming Assets and Delinquent Loans ($ in millions)

2009

2009

2009

2009

2008

Nonaccrual portfolio loans and leases:






 Commercial loans

$734   

$752   

$603   

$667   

$541   

 Commercial mortgage loans

898   

912   

760   

692   

482   

 Commercial construction loans

646   

697   

684   

551   

362   

 Commercial leases

67   

51   

51   

27   

21   

 Residential mortgage loans

275   

267   

262   

265   

259   

 Home equity

21   

24   

26   

25   

26   

 Automobile loans

1   

1   

1   

2   

5   

 Other consumer loans and leases

-   

-   

-   

-   

-   

Total nonaccrual loans and leases

$2,642   

$2,704   

$2,387   

$2,229   

$1,696   

Restructured loans and leases - commercial (non accrual) (a)

47   

18   

12   

-   

-   

Restructured loans and leases - consumer (non accrual) (a)

258   

225   

188   

167   

(67)  

Total nonperforming loans and leases

$2,947   

$2,947   

$2,587   

$2,396   

$1,629   

Repossessed personal property

22   

22   

21   

25   

24   

Other real estate owned (b)

275   

251   

232   

227   

206   

Total nonperforming assets (c)

$3,244   

$3,220   

$2,840   

$2,648   

$1,859   

Nonaccrual loans held for sale

220   

286   

352   

403   

473   

Restructured loans - commercial (non accrual) held for sale

4   

2   

-   

-   

-   

Total nonperforming assets including loans held for sale

$3,468   

$3,508   

$3,192   

$3,051   

$2,332   







Restructured Consumer loans and leases (accrual) (a)

$1,392   

$1,280   

$1,074   

$615   

494   

Restructured Commercial loans and leases (accrual) (a)

$68   

-   

-   

-   

-   







Total loans and leases 90 days past due

$567   

$992   

$762   

$733   

$662   

Nonperforming loans and leases as a percent of portfolio loans, leases and other assets, including other real estate owned (c)

3.82%

3.75%

3.17%

2.89%

2.11%

Nonperforming assets as a percent of portfolio loans, leases and other assets, including other real estate owned (c)

4.21%

4.09%

3.48%

3.20%

2.38%







(a) During 1Q09 the Bancorp modified its nonaccrual policy to exclude TDR loans less than 90 days past due because they were performing in accordance with

restructured terms. For comparability purposes, prior periods were adjusted to reflect this reclassification.

(b) Excludes government insured advances.

(c) Does not include non accrual loans held-for-sale.


Nonperforming assets (NPAs) at quarter end were $3.2 billion or 4.21 percent of total loans, leases and OREO, and increased $24 million, or 1 percent from the previous quarter. Including $224 million of nonaccrual loans classified as held-for-sale, total NPAs were $3.5 billion and were down $40 million, or 1 percent compared with the third quarter. In aggregate, Florida and Michigan represented approximately 44 percent of NPAs in the loan portfolio. Total NPAs are currently carried at approximately 59 percent of their original face value through the process of taking charge-offs, purchase accounting marks, and specific reserves recorded through the fourth quarter.

Commercial NPAs at quarter-end were $2.5 billion, or 5.67 percent, and declined $20 million, or 1 percent, from the third quarter of 2009. C&I portfolio NPAs of $781 million declined $9 million from the previous quarter. Commercial construction portfolio NPAs were $707 million, a decline of $44 million from the third quarter of 2009. Commercial mortgage NPAs were $985 million, a sequential increase of $16 million. Commercial real estate loans in Michigan and Florida represented 37 percent of our total commercial real estate portfolio in the fourth quarter 2009 and 45 percent of commercial real estate NPAs. Across the entire commercial loan portfolio, residential real estate builder and developer portfolio NPAs were down $52 million from the third quarter to $548 million, of which $279 million were commercial construction NPAs, $240 million were commercial mortgage NPAs and $29 million were C&I NPAs.

At quarter-end, $224 million of commercial nonaccrual loans were held-for-sale, compared with $288 million at the end of the third quarter. During the fourth quarter, we recorded a net gain of $4 million on $61 million of loans that were sold or settled, and we transferred $3 million of loans to OREO. These loans continue to be carried at the lower of cost or market, currently recorded at 33 percent of the original balance.

Consumer NPAs of $704 million, or 2.20 percent, increased $44 million, or 7 percent, from the third quarter of 2009. Of consumer NPAs, $594 million were in residential real estate portfolios. Residential mortgage NPAs were $523 million, up $38 million from the previous quarter. Home equity NPAs decreased $1 million from last quarter to $71 million. Residential real estate loans in Michigan and Florida represented 59 percent of total residential real estate NPAs and 34 percent of total residential real estate loans. Consumer nonaccrual troubled debt restructurings (TDRs) were $258 million, compared with $225 million last quarter.

Fourth quarter OREO balances were $275 million compared with OREO balances of $251 million in the third quarter of 2009, and included $111 million in residential mortgage assets, $16 million in home equity assets, and $148 million in commercial real estate assets. Repossessed personal property of $22 million largely consisted of autos.

Loans still accruing over 90 days past due were $567 million, down $425 million from the third quarter of 2009. Commercial 90 days past due balances declined $414 million to $198 million in the fourth quarter of 2009. Consumer 90 days past due balances of $369 million declined by $12 million from the previous quarter, largely driven by a $10 million reduction in residential mortgage balances. Loans 30-89 days past due of $895 million declined $298 million from the third quarter. Commercial 30-89 days past due balances were down $318 million sequentially and consumer 30-89 days past due were up $20 million from the third quarter reflecting seasonality.

Capital Position


For the Three Months Ended


December

September

June

March

December


2009

2009

2009

2009

2008

Capital Position






Average shareholders' equity to average assets

12.31%

12.24%

10.78%

10.18%

8.65%

Tangible equity (a)

9.71%

10.08%

9.72%

7.89%

7.86%

Tangible common equity (excluding unrealized gains/losses) (a)

6.45%

6.74%

6.55%

4.23%

4.23%

Tangible common equity (including unrealized gains/losses) (a)

6.64%

6.98%

6.67%

4.35%

4.31%

Tangible common equity as a percent of risk-weighted assets (excluding unrealized gains/losses) (a) (b)

7.06%

7.07%

6.96%

4.51%

4.39%

Regulatory capital ratios: (c)






     Tier I capital

13.31%

13.19%

12.90%

10.93%

10.59%

     Total risk-based capital

17.48%

17.43%

16.96%

15.13%

14.78%

     Tier I leverage

12.43%

12.34%

12.17%

10.29%

10.27%

     Tier I common equity

7.00%

7.01%

6.94%

4.50%

4.37%

Book value per share

12.44   

12.69   

12.71   

13.61   

13.57   

Tangible book value per share (a)

9.26   

9.50   

9.51   

8.79   

8.74   







(a) The tangible equity ratio, tangible common equity ratios and tangible book value per share ratio, while not required by accounting principles generally accepted in the United States of America (GAAP), are considered to be critical metrics with which to analyze banks.  The ratios have been included herein to facilitate a greater understanding of the Bancorp's capital structure and financial condition.  See the Regulation G Non-GAAP Reconciliation table for a reconciliation of these ratios to GAAP.

(b) Under the banking agencies risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories.  The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category.  The resulting weighted values are added together resulting in the Bancorp's total risk weighted assets.

(c) Current period regulatory capital data ratios are estimated.


Compared with the prior quarter, the Tier 1 common equity ratio decreased 1 bp to 7.00 percent, the Tier 1 capital ratio increased 12 bps to 13.31 percent, and the total capital ratio increased 5 bps to 17.48 percent. The tangible common equity to tangible assets ratio decreased 29 bps to 6.45 percent, reflecting the addition of low risk-weighted investment securities. Book value per share at December 31, 2009 was $12.44 and tangible book value per share was $9.26, compared with September 30, 2009 book value per share of $12.69 and tangible book value per share of $9.50.

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 4th by dialing 800-642-1687 for domestic access and 706-645-9291 for international access (passcode 48111121#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of December 31, 2009, the Company has $113 billion in assets, operates 16 affiliates with 1,309 full-service Banking Centers, including 103 Bank Mart® locations open seven days a week inside select grocery stores and 2,358 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has a 49% interest in Fifth Third Processing Solutions, LLC. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2009, has $187 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® National Global Select Market under the symbol "FITB."

Forward-Looking Statements

This news release contains 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.

SOURCE Fifth Third Bancorp



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