Fifth Third Announces 2012 Earnings Per Share of $1.66, Up 41 Percent from 2011

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Fifth Third Announces 2012 Earnings Per Share of $1.66, Up 41 Percent from 2011

Fourth quarter earnings per share $0.43, up 30 percent from fourth quarter 2011

  • 4Q12 net income available to common shareholders of $390 million, or $0.43 per diluted share, vs. $354 million, or $0.38 per diluted share, in 3Q12 and $305 million, or $0.33 per diluted share, in 4Q11. 4Q12 results included:
    • $157 million pre-tax gain (~$102 million after-tax, or $0.11 per share) on the sale of Vantiv shares
    • $134 million pre-tax expense for debt extinguishment (~$87 million after-tax, or $0.09 per share) associated with the termination of FHLB debt
    • $19 million pre-tax negative adjustment (~$12 million after-tax, or $0.01 per share) on the valuation of the warrant Fifth Third holds in Vantiv
    • $15 million pre-tax charge ($10 million after-tax, or $0.01 per share) related to valuation of Visa total return swap
    • $29 million (~$19 million after-tax, or $0.02 per share) in charges related to an increase in the mortgage representation and warranty reserve due to new Freddie Mac guidance for potential 2004-06 repurchase claims
  • 4Q12 return on assets (ROA) of 1.33%; return on average common equity of 11.5%; return on average tangible common equity** of 14.1%
  • Pre-provision net revenue (PPNR)** of $616 million in 4Q12
    • Net interest income (FTE) of $903 million, down $4 million from 3Q12; net interest margin 3.49%; end of period loans up $2.7 billion, or 3 percent, sequentially
    • Noninterest income of $880 million included $157 million gain on Vantiv shares and $37 million charges above
    • Noninterest expense of $1.2 billion included $134 million of debt extinguishment costs associated with the termination of FHLB debt as well as $26 million in additional expenses resulting from an increase in mortgage representation and warranty reserve
  • 4Q12 effective tax rate of 26.8% compared with 27.7% in 3Q12
  • Credit trends remain favorable
    • 4Q12 net charge-offs of $147 million (0.70% of loans and leases) vs. 3Q12 NCOs of $156 million and 4Q11 NCOs of $239 million; lowest NCO level since 3Q07; 4Q12 provision expense of $76 million compared with 3Q12 provision of $65 million and 4Q11 provision of $55 million
    • Loan loss allowance declined $71 million sequentially reflecting continued improvement in credit trends; allowance to loan ratio of 2.16%, 144% of nonperforming assets, 180% of nonperforming loans and leases, and 3.2 times 4Q12 annualized net charge-offs
    • Total nonperforming assets (NPAs) of $1.3 billion including loans held-for-sale (HFS) declined $174 million, or 12%, sequentially; NPAs excluding loans HFS of $1.3 billion declined $160 million, or 11%, lowest since 4Q07; NPA ratio of 1.49% down 24 bps from 3Q12, NPL ratio of 1.19% down 19 bps from 3Q12
    • Total delinquencies (includes loans 30-89 days past due and over 90 days past due) down 4% sequentially, lowest levels since 2Q04
  • Strong capital ratios*
    • Tier 1 common ratio 9.51%**, down 16 bps sequentially (Basel III pro forma estimate of ~8.8%)
    • Tier 1 capital ratio 10.65%, Total capital ratio 14.42%, Leverage ratio 10.05%
    • Tangible common equity ratio** of 8.83% excluding unrealized gains/losses; 9.10% including them
    • Repurchased ~14 million common shares through share repurchase transactions expected to settle in 1Q13 (these transaction are expected to further reduce average share count in 1Q13 versus 4Q12 by ~5 million shares)
  • Book value per share of $15.10; tangible book value per share** of $12.33 up 2% from 3Q12 and 10% from 4Q11

* Capital ratios estimated; presented under current U.S. capital regulations.The pro forma Basel III Tier I common equity ratio is management's estimate based upon its current interpretation of the three draft Federal Register notices proposing enhancements to regulatory capital requirements published in June 2012. The actual impact to the Bancorp's Tier I common equity ratio may change significantly due to revisions to the agencies' final rules. See pp. 15-16 in Exhibit 99.1 of 8-k filing dated 1/17/13 for more information.


** Non-GAAP measure; see Reg. G reconciliation on page 34 in Exhibit 99.1 of 8-k filing dated 1/17/13.

CINCINNATI--(BUSINESS WIRE)-- Fifth Third Bancorp (NAS: FITB) today reported full year 2012 net income of $1.6 billion, up 22 percent from net income of $1.3 billion in 2011. After preferred dividends, 2012 net income available to common shareholders was $1.5 billion, or $1.66 per diluted share, up 41 percent compared with 2011 net income available to common shareholders of $1.1 billion, or $1.18 per diluted share.

Fourth quarter 2012 net income was $399 million, an increase of 10 percent from net income of $363 million in the third quarter of 2012 and 27 percent from net income of $314 million in the fourth quarter of 2011. After preferred dividends, net income available to common shareholders was $390 million, or $0.43 per diluted share, in the fourth quarter of 2012, compared with $354 million, or $0.38 per diluted share, in the third quarter of 2012, and $305 million, or $0.33 per diluted share, in the fourth quarter of 2011. Earnings per diluted share increased 13 percent from the third quarter of 2012 and 30 percent from the fourth quarter of 2011.

Fourth quarter 2012 noninterest income included a $157 million gain on the sale of Vantiv shares; a $19 million negative valuation adjustment on the Vantiv warrant; and a $15 million charge related to the valuation of the Visa total return swap. Net gains on investment securities were $2 million. Fourth quarter noninterest expense included $134 million of debt extinguishment costs associated with the termination of Federal Home Loan Bank (FHLB) debt and $13 million in charges to increase litigation reserves. Results also included an additional $29 million of charges to increase the mortgage representation and warranty reserve due to new Freddie Mac guidance for potential 2004-2006 repurchase claims. Fourth quarter 2012 taxes were reduced by approximately $10 million due to the termination of certain leases.

Third quarter 2012 noninterest income included a $16 million negative valuation adjustment on the Vantiv warrant; $13 million in gains recognized on the sale of certain Fifth Third funds; and a $1 million reduction related to the valuation of the Visa total return swap. Net gains on investment securities were $2 million. Third quarter noninterest expense included $26 million of debt extinguishment costs associated with the redemption of Fifth Third Capital Trust V and Fifth Third Capital Trust VI trust preferred securities (TruPS), a $5 million benefit from the sale of affordable housing investments, $5 million in charges to increase litigation reserves, and $2 million of expenses associated with the sale of certain Fifth Third funds. Results also included an additional $24 million of charges associated with the increase of the mortgage representation and warranty reserve. Fourth quarter 2011 results included a $54 million pre-tax charge to noninterest income related to the valuation of the Visa total return swap and $10 million in charges to increase litigation reserves, primarily reserves associated with bankcard association membership. Fourth quarter 2011 results also included $10 million in positive valuation adjustments on Vantiv puts and warrants and investment securities gains of $5 million.

Earnings Highlights

 For the Three Months Ended % Change
December September June March December  
2012 2012 2012 2012 2011 Seq Yr/Yr
Earnings ($ in millions)
Net income attributable to Bancorp$399$363$385$430$31410%27%
Net income available to common shareholders$390$354$376$421$30510%28%
 
Common Share Data
Earnings per share, basic0.440.390.410.460.3313%33%
Earnings per share, diluted0.430.380.400.450.3313%30%
Cash dividends per common share0.100.100.080.080.08-25%
 
Financial Ratios
Return on average assets1.33%1.23%1.32%1.49%1.08%8%23%
Return on average common equity11.510.411.413.19.511%21%
Return on average tangible common equity14.112.814.116.211.910%19%
Tier I capital10.6510.8512.3112.2011.91(2%)(11%)
Tier I common equity9.519.679.779.649.35(2%)2%
Net interest margin (a)3.493.563.563.613.67(2%)(5%)
Efficiency (a)65.263.759.458.367.52%(3%)
 
Common shares outstanding (in thousands)882,152897,467918,913920,056919,804(2%)(4%)
Average common shares outstanding (in thousands):
Basic884,676904,475913,541915,226914,997(2%)(3%)
Diluted925,585944,821954,622957,416956,349(2%)(3%)
 
(a) Presented on a fully taxable equivalent basis
The percentages in all of the tables in this earning release are calculated on actual dollar amounts rather than the rounded dollar amounts.

"Strong fourth quarter earnings of $399 million were highlighted by quality loan production, fee income growth, and credit improvement," said Kevin Kabat, CEO of Fifth Third Bancorp. "Every caption in fee income was up for the quarter, including mortgage banking revenue up 29 percent and corporate banking revenue up 13 percent sequentially. Net interest income was consistent with third quarter results and stronger than expected.

"These quarterly results capped a solidly profitable year in which Fifth Third generated the second highest level of net income in our Company's history and pre-provision net revenue of $2.5 billion. Loans increased nearly $5 billion on an end of period basis. We produced double-digit growth in commercial and industrial loans and residential mortgage loan originations due to higher demand and low interest rates. Average core deposits increased 5 percent with a continued favorable mix shift to lower cost deposits.

"Credit trends continued to be favorable, with full year net charge-offs down 40 percent from 2011 and nonperforming assets declining 29 percent, both the lowest levels reported since 2007. At year end, total delinquencies were at their lowest level since the second quarter of 2004. The improvement in credit trends resulted in a $400 million reduction in loan loss reserves during the year, although reserve levels and coverage ratios remain strong at 2.16 percent of loans and 180 percent of nonperforming portfolio loans.

"Pursuant to our capital plan, we increased the return of capital to shareholders in 2012, with our recent increase of the quarterly common stock dividend to $0.10 per share and common stock repurchases of approximately $650 million during the year, including $175 million related to Vantiv gains. Despite these actions, our strong common equity capital ratios increased for the year. Our capital plan included the potential repurchase of an additional $125 million in the first quarter of 2013. Given our capacity for internal capital generation, we would expect to continue to return capital to shareholders in a responsible manner, absent unforeseen developments."

Income Statement Highlights

 For the Three Months Ended % Change
December September June March December  
2012 2012 2012 2012 2011 Seq Yr/Yr
Condensed Statements of Income ($ in millions)
Net interest income (taxable equivalent)$903$907$899$903$920-(2%)
Provision for loan and lease losses766571915517%38%
Total noninterest income88067167876955031%60%
Total noninterest expense 1,163 1,006 937 973 993 16% 17%
Income before income taxes (taxable equivalent) 544 507 569 608 422 7% 29%
 
Taxable equivalent adjustment44454--
Applicable income taxes 144 139 180 173 104 4% 38%
Net income3963643854303149%26%
Less: Net income attributable to noncontrolling interest (3) 1 - - - NM NM
Net income attributable to Bancorp39936338543031410%27%
Dividends on preferred stock 9 9 9 9 9 - -
Net income available to common shareholders 390 354 376 421 305 10% 28%
Earnings per share, diluted$0.43$0.38$0.40$0.45$0.3313%30%
               

Net Interest Income

 For the Three Months Ended % Change
December September June March December  
2012 2012 2012 2012 2011 Seq Yr/Yr
Interest Income ($ in millions)
Total interest income (taxable equivalent)$1,020$1,027$1,031$1,045$1,061(1%)(4%)
Total interest expense 117 120 132 142 141 (3%) (17%)
Net interest income (taxable equivalent) $903 $907 $899 $903 $920 - (2%)
 
Average Yield
Yield on interest-earning assets (taxable equivalent)3.94%4.03%4.08%4.18%4.23%(2%)(7%)
Yield on interest-bearing liabilities 0.65% 0.67% 0.73% 0.79% 0.79% (3%) (18%)
Net interest rate spread (taxable equivalent) 3.29% 3.36% 3.35% 3.39% 3.44% (2%) (4%)
Net interest margin (taxable equivalent)3.49%3.56%3.56%3.61%3.67%(2%)(5%)
 
Average Balances ($ in millions)
Loans and leases, including held for sale$86,180$84,829$84,508$83,757$82,2782%5%
Total securities and other short-term investments16,76516,58817,16816,73517,2431%(3%)
Total interest-earning assets102,945101,417101,676100,49299,5212%3%
Total interest-bearing liabilities71,42072,02673,16272,21971,467(1%)-
Bancorp shareholders' equity 13,855 13,887 13,628 13,366 13,147 - 5%
 

Net interest income of $903 million on a fully taxable equivalent basis decreased $4 million from the third quarter. The decline in net interest income was driven by the effect of approximately $10 million in non-recurring benefits recorded in the third quarter. Otherwise, net interest income benefited from a decline in interest expense driven by higher demand deposit balances and continued runoff in consumer CD balances; a $2 million reduction in long-term debt expense due to the FHLB debt termination in December; and a $5 million reduction in long-term debt expense due to the full quarter impact of the TruPS redemption in the third quarter. The benefit of net loan growth on interest income was offset by a decline in interest income attributable to loan repricing, primarily in the C&I, auto, and residential mortgage portfolios, as well as lower reinvestment rates on the securities portfolio.

The net interest margin was 3.49 percent, a decrease of 7 bps from 3.56 percent in the previous quarter. The decline in net interest margin was driven by the 4 bps benefit in the third quarter from non-recurring items described above as well as lower loan and securities yields. The margin otherwise benefited by 2 bps from the full quarter impact of the TruPS redemption in the third quarter and 1 bp from the FHLB debt termination in December.

Compared with the fourth quarter of 2011, net interest income decreased $17 million and the net interest margin decreased 18 bps, driven by lower asset yields partially offset by higher average loan balances, run-off in higher-priced CDs and mix shift to lower cost deposit products.

Securities

Average securities and other short-term investments were $16.8 billion in the fourth quarter of 2012 compared with $16.6 billion in the previous quarter and $17.2 billion in the fourth quarter of 2011. The sequential increase in average balances was related to the pre-investment in the third quarter of anticipated fourth quarter cash flows. The year-over-year decline was due to the timing of reinvestment in portfolio cash flows during 2011 as well as lower cash balances held at the Federal Reserve.

Loans

 For the Three Months Ended % Change
December September June March December  
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