Fifth Third Announces Third Quarter 2012 Net Income to Common Shareholders of $354 Million or $0.38

Fifth Third Announces Third Quarter 2012 Net Income to Common Shareholders of $354 Million or $0.38 Per Diluted Share

• 3Q12 net income available to common shareholders of $354 million, or $0.38 per diluted common share, vs. $376 million, or $0.40 per diluted share, in 2Q12 and $373 million, or $0.40 per diluted share, in 3Q11

  • 3Q12 results included $26 million pre-tax in debt extinguishment costs (~$17 million after-tax, or $0.02 per share) associated with the August redemption of trust preferred securities (TruPS); a $16 million pre-tax negative adjustment (~$10 million after-tax, or $0.01 per share) on the valuation of the warrant Fifth Third holds in Vantiv; and $11 million in pre-tax income (~$8 million after-tax, or $0.01 per share) on the sale of certain Fifth Third funds. 3Q12 results also included additional charges of $24 million (~$16 million after-tax, or $0.02 per share) related to an increase in mortgage representation and warranty reserve

  • 2Q12 results included a $56 million pre-tax gain (~$36 million after-tax, or $0.04 per share) on the valuation of the warrant Fifth Third holds in Vantiv

  • 3Q12 return on assets (ROA) of 1.23%; return on average common equity of 10.4%; return on average tangible common equity** of 12.8%

• Pre-provision net revenue (PPNR)** of $568 million in 3Q12, or $617 million excluding items noted on following page

  • Net interest income (FTE) of $907 million, up 1% sequentially; net interest margin 3.56%

  • Noninterest income of $671 million included $16 million negative valuation adjustment on Vantiv warrant and $13 million in gains recognized from sale of certain Fifth Third funds

  • Noninterest expense of $1.0 billion included $26 million of debt extinguishment costs associated with 3Q12 TruPS redemptions and $22 million in additional expenses resulting from increase in mortgage representation and warranty reserve

• 3Q12 effective tax rate of 27.7%; elevated level of 31.8% in 2Q12 due to seasonal stock options expirations

• Credit trends remain favorable

  • 3Q12 net charge-offs of $156 million (0.75% of loans and leases) vs. 2Q12 NCOs of $181 million and 3Q11 NCOs of $262 million; lowest NCO level since 3Q07; 3Q12 provision expense of $65 million compared with 2Q12 provision of $71 million and 3Q11 provision of $87 million

  • Loan loss allowance declined $91 million sequentially reflecting continued improvement in credit trends; allowance to loan ratio of 2.32%, 133% of nonperforming assets, 167% of nonperforming loans and leases, and 3.1 times 3Q12 annualized net charge-offs

  • Total nonperforming assets (NPAs) of $1.5 billion including loans held-for-sale (HFS) declined $190 million, or 11%, sequentially; NPAs excluding loans HFS of $1.4 billion declined $173 million, or 11%; lowest since 4Q07; NPA ratio of 1.73% down 23 bps from 2Q12, NPL ratio of 1.38% down 24 bps from 2Q12

  • Total delinquencies (includes loans 30-89 days past due and over 90 days past due) down 5% sequentially, lowest levels since 2005

• Strong capital ratios*; repurchased ~22 million common shares through share repurchase transaction expected to settle in 4Q12 (~8 million impact on average share count)

  • Tier 1 common ratio 9.67%**, down 10 bps sequentially (Basel III pro forma estimate of ~9%)

  • Tier 1 capital ratio 10.85%, Total capital ratio 14.76%, Leverage ratio 10.09%

  • Tangible common equity ratio** of 9.10% excluding unrealized gains/losses; 9.45% including them

• Book value per share of $14.84; tangible book value per share** of $12.12 up 2% from 2Q12 and 10% from 3Q11

* Capital ratios estimated; presented under current U.S. capital regulations.The pro forma 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 further clarification of the agencies proposals or revisions to the agencies final rules, which remain subject to public comment. See pp.15-16 in Exhibit 99.1 of 8-k filing dated 10/18/12 for more information.

** Non-GAAP measure; see Reg. G reconciliation on page 34 in Exhibit 99.1 of 8-k filing dated 10/18/12.

CINCINNATI--(BUSINESS WIRE)-- Fifth Third Bancorp (NAS: FITB) today reported third quarter 2012 net income of $363 million, compared with net income of $385 million in the second quarter of 2012 and net income of $381 million in the third quarter of 2011. After preferred dividends, net income available to common shareholders was $354 million, or $0.38 per diluted share, in the third quarter of 2012, compared with $376 million, or $0.40 per diluted share, in the second quarter of 2012, and $373 million, or $0.40 per diluted share, in the third quarter of 2011.

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 TruPS, a $5 million benefit from the sale of affordable housing investments, 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.

Second quarter 2012 noninterest income included a $56 million positive valuation adjustment on the Vantiv warrant; a $17 million negative valuation adjustment associated with bank premises held-for-sale; and an $11 million reduction related to the valuation of the Visa total return swap. Net gains on investment securities were $3 million. Second quarter noninterest expense was reduced by $17 million related to affordable housing investments and FDIC insurance. Third quarter 2011 noninterest income included a $17 million reduction in other noninterest income related to the valuation of a total return swap entered into as part of the 2009 sale of Visa, Inc. Class B shares, a $3 million positive valuation adjustment on Vantiv puts and warrants, and net gains on investment securities of $26 million. Third quarter 2011 noninterest expense included $28 million related to the termination of certain FHLB borrowings and hedging transactions.

Earnings Highlights

"Third quarter earnings were highlighted by solid net interest income results and continued strong mortgage banking revenue, contributing to an ROA of 1.23 percent and a return on average common equity of 10.4 percent," said Kevin Kabat, CEO of Fifth Third Bancorp. "We had success across our commercial bank and consumer lending businesses, with double-digit growth in corporate banking revenue, up 16 percent year-over-year, and mortgage banking revenue, up 13 percent year-over-year.

"Results reflect our strong support of customers and communities in the midst of a relatively weak economic recovery. Mortgage loans have increased 16 percent and C&I loans have increased 15 percent from a year ago. Transaction deposits were up 7 percent over last year and charged-off loans dropped to 75 basis points of loans and leases, down 14 percent sequentially and 40 percent compared with a year ago. The overall quality of our portfolios continues to improve and is clearly reflected in our results.

"Pursuant to our 2012 capital plan, we increased our common stock dividend to $0.10 per share in September and entered into a share repurchase agreement for $350 million of common stock. Our current capital levels and ability to generate capital are strong, and we expect to continue to return capital to shareholders in a prudent manner, absent any significant changes in the operating environment. Tangible book value per share increased 10 percent from a year ago, our tangible common equity ratio ended the quarter at 9.5 percent, and the Tier 1 common ratio was 9.7 percent.

"Our capabilities and business model continue to position Fifth Third well to compete in this environment and in the future."

Income Statement Highlights

Net Interest Income

Net interest income of $907 million on a fully taxable equivalent basis increased $8 million from the second quarter, with a $4 million decrease in interest income and a $12 million decrease in interest expense. Net interest income included approximately $10 million in non-recurring benefits during the third quarter, primarily associated with hedge ineffectiveness from the redeemed TruPS and income related to the auto securitization clean-up call. An additional day in the quarter contributed $6 million to the sequential increase in net interest income. The decline in interest income was primarily attributable to loan repricing, particularly in the C&I and auto portfolios; lower reinvestment rates on the securities portfolio and higher average securities balances during the second quarter from the pre-investment of a portion of portfolio cash flows; and lower purchase accounting accretion. These effects were partially offset by the benefit of net loan growth. Interest expense declined primarily as a result of lower deposit costs and a reduction in long-term debt expense of $4 million due to the redemption of $1.4 billion of TruPS in August.

The net interest margin was 3.56 percent, consistent with 3.56 percent in the previous quarter, and benefited from the non-recurring items described above that, in total, contributed 4 bps to net interest margin. This impact was primarily offset by lower loan and securities yields, lower purchase accounting accretion (2 bps), and the negative effect of day count (1 bp). The margin otherwise benefited by 2 bps from the TruPS redemption.

Compared with the third quarter of 2011, net interest income increased $5 million, driven by the items noted above as well as higher average loan balances, run-off in higher-priced CDs and mix shift to lower cost deposit products, partially offset by lower asset yields. The net interest margin decreased 9 bps from a year ago.

Securities

Average securities and other short-term investments were $16.6 billion in the third quarter of 2012 compared with $17.2 billion in the previous quarter and $18.1 billion in the third quarter of 2011. The sequential decrease in average balances was related to the pre-investment in the second quarter of anticipated third 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 Fed.

Loans