Fifth Third Bancorp Reports First
Quarter 2008 Earnings of $0.55 Per Diluted Share
CINCINNATI, April 22 /PRNewswire-FirstCall/ --
-- Net interest income increased 11 percent versus first quarter
2007
-- Average loans up 9 percent and core deposits up 5
percent
-- Net interest margin expanded 12 basis points sequentially
-- Noninterest income increased 43 percent from first
quarter 2007
-- Payments processing income growth of 15 percent
-- Deposit service revenue up 17 percent
-- Corporate banking income growth of 30 percent
-- Tangible common equity ratio expanded to 6.22 percent; total capital
ratio up 116 bps to 11.32 percent
-- Allowance to loan ratio increased to 1.49 percent
Earnings Highlights
For the Three Months Ended % Change
March December September June March
2008 2007 2007 2007 2007 Seq Yr/Yr
Net income
(in millions) $292 $16 $325 $376 $359 NM (19%)
Common Share Data
Earnings per share,
basic 0.55 0.03 0.61 0.69 0.65 NM (15%)
Earnings per share,
diluted 0.55 0.03 0.61 0.69 0.65 NM (15%)
Cash dividends per
common share 0.44 0.44 0.42 0.42 0.42 - 5%
Financial Ratios
Return on average
assets 1.06% 0.06% 1.26% 1.49% 1.47% NM (28%)
Return on average
equity 12.5 0.7 13.8 15.7 14.6 NM (14%)
Tangible equity 6.22 6.05 6.83 6.92 7.65 3% (19%)
Net interest
margin (a) 3.41 3.29 3.34 3.37 3.44 4% (1%)
Efficiency (a) 42.1 72.6 59.2 54.1 55.8 (42%) (25%)
Common shares
outstanding
(in thousands) 532,106 532,672 532,627 535,697 550,077 - (3%)
Average common
shares
outstanding
(in thousands):
Basic 528,498 529,120 530,123 540,264 551,501 - (4%)
Diluted 530,372 530,939 532,471 543,228 554,175 - (4%)
(a) Presented on a fully taxable equivalent basis
NM: not meaningful
Fifth Third Bancorp (
NASDAQ:FITB
) today reported first quarter 2008 earnings of $292 million, or $0.55 per
diluted share, compared with $16 million, or $0.03 per diluted share in
the fourth quarter of 2007 and $359 million, or $0.65 per diluted share,
for the same period in 2007.
Reported results include a gain of $273 million pre-tax, or
$0.33 per share after-tax, related to the redemption of a portion of our
ownership interests in Visa, Inc., as well as the reversal of $152 million
pre-tax in expenses, or $0.19 per share after-tax, representing a portion
of the previously recorded litigation reserves, both related to Visa's
initial public offering. Reported results also include a non-cash
estimated charge of $144 million pre-tax, or $0.21 per share after-tax, to
further reduce the current cash surrender value of one of our Bank-Owned
Life Insurance ("BOLI") policies, and expenses related to
acquisitions and severance expenses totaling $16 million pre-tax, or $0.02
per share after-tax.
As noted above, the BOLI charge is based on quarter-end
estimated values and is subject to change. Our financial results, which we
expect to file on Form 10-Q in early May, will be based on the most
current March 31, 2008 performance information we have received concerning
the performance of the underlying investments. Performance information
received after the date of this release could result in changes that would
affect the reported earnings, earnings per share, and other financial
measures reported in the release.
"This quarter we produced excellent loan and deposit
growth that drove impressive performance in net interest income and
continued strong fee growth from our businesses," said Kevin T. Kabat,
President and CEO of Fifth Third Bancorp. "However, strong operating
performance continues to be offset by higher credit costs, primarily
reflecting further deterioration of residential real estate, homebuilder
and residential development loans. Nonperforming asset growth and higher
loan losses reflect a weaker economic environment and continue to be
disproportionately experienced in Florida and Michigan. Based on these
developments, we significantly increased our allowance for loan and lease
losses during the quarter.
We remain very active in taking steps to address the
issues we and the industry are facing, and to work with borrowers to
address difficulties they are experiencing. We expect credit conditions to
continue to deteriorate in the near term, and to experience higher
nonperforming assets and credit losses during this period.
Although every credit cycle differs, we expect them to
occur. We take seriously our responsibility to provide credit to our
customers, to lend prudently, and to maintain the capital necessary to
manage through these cycles. This is an unusually difficult cycle, but we
believe Fifth Third is well-positioned relative to many of its peers. We
expect to continue to post strong operating results, to execute on our
strategic plans, and to capitalize on the opportunities that are created
by an environment such as this."
Income Statement Highlights
For the Three Months Ended % Change
March December September June March
2008 2007 2007 2007 2007 Seq Yr/Yr
Condensed Statements
of Income
($ in millions)
Net interest income
(taxable equivalent) $826 $785 $760 $745 $742 5% 11%
Provision for loan
and lease losses 544 284 139 121 84 91% 550%
Total noninterest
income 872 509 681 669 608 71% 43%
Total noninterest
expense 715 940 853 765 753 (24%) (5%)
Income before income
taxes (taxable
equivalent) 439 70 449 528 513 527% (15%)
Taxable equivalent
adjustment 6 6 6 6 6 - -
Applicable income
taxes 141 48 118 146 148 194% (5%)
Net income available
to common
shareholders (a) 292 16 325 375 359 NM (19%)
Earnings per share,
diluted $0.55 $0.03 $0.61 $0.69 $0.65 NM (15%)
(a) Dividends on preferred stock are $.185 million for all quarters
presented
NM: not meaningful
Net Interest Income
For the Three Months Ended % Change
March December September June March
2008 2007 2007 2007 2007 Seq Yr/Yr
Interest Income
($ in millions)
Total interest
income (taxable
equivalent) $1,453 $1,556 $1,535 $1,495 $1,466 (7%) (1%)
Total interest
expense 627 771 775 750 724 (19%) (13%)
Net interest income
(taxable
equivalent) $826 $785 $760 $745 $742 5% 11%
Average Yield
Yield on interest-
earning assets 5.99% 6.52% 6.73% 6.75% 6.79% (8%) (12%)
Yield on interest-
bearing liabilities 2.99% 3.78% 4.04% 4.08% 4.07% (21%) (27%)
Net interest rate
spread (taxable
equivalent) 3.00% 2.74% 2.69% 2.67% 2.72% 9% 10%
Net interest
margin (taxable
equivalent) 3.41% 3.29% 3.34% 3.37% 3.44% 4% (1%)
Average Balances
($ in millions)
Loans and leases,
including held
for sale $84,912 $82,172 $78,243 $77,048 $75,860 3% 12%
Total securities
and other short-
term investments 12,597 12,506 12,169 11,741 11,710 1% 8%
Total interest-
bearing
liabilities 84,353 80,977 76,070 73,735 72,148 4% 17%
Shareholders'
equity 9,379 9,446 9,324 9,599 9,970 (1%) (6%
Net interest income of $826 million on a taxable
equivalent basis grew $41 million, or 5 percent, from the fourth quarter
of 2007. Net interest income benefited from lower funding costs on core
deposits and wholesale borrowings as well as strong growth in earning
assets, which more than offset the effect of lower asset yields, the
effect of loan securitizations, tightening spreads between LIBOR and Fed
Funds rates and growth in non-earning assets. The net interest margin was
3.41 percent, up 12 bps from the fourth quarter of 2007, primarily driven
by 26 bps widening of the net interest rate spread resulting from
effective rate management as market rates have declined.
Compared with the first quarter of 2007, net interest
income increased $84 million, or 11 percent, and net interest margin
compressed 3 bps from 3.44 percent. The increase in net interest income
reflected earning assets growth and 28 bps widening in the net interest
rate spread. The growth in assets and lower free funding offset the
benefits of wider spreads in the net interest margin.
Average Loans
For the Three Months Ended % Change
March December September June March
2008 2007 2007 2007 2007 Seq Yr/Yr
Average Portfolio
Loans and Leases
($ in millions)
Commercial:
Commercial loans $25,367 $23,650 $22,183 $21,584 $20,908 7% 21%
Commercial
mortgage 12,016 11,497 11,041 11,008 10,566 5% 14%
Commercial
construction 5,577 5,544 5,499 5,595 6,014 1% (7%)
Commercial leases 3,723 3,692 3,698 3,673 3,658 1% 2%
Subtotal -
commercial loans
and leases 46,683 44,383 42,421 41,860 41,146 5% 13%
Consumer:
Residential
mortgage loans 10,395 9,943 8,765 8,490 8,830 5% 18%
Home equity 11,846 11,843 11,752 11,881 12,062 - (2%)
Automobile loans 9,278 9,445 10,853 10,552 10,230 (2%) (9%)
Credit card 1,660 1,461 1,366 1,248 1,021 14% 63%
Other consumer
loans and leases 1,083 1,099 1,138 1,174 1,127 (1%) (4%)
Subtotal - consumer
loans and leases 34,262 33,791 33,874 33,345 33,270 1% 3%
Total average loans
and leases
(excluding held
for sale) $80,945 $78,174 $76,295 $75,205 $74,416 4% 9%
Average loans held
for sale 3,967 3,998 1,950 1,843 1,445 (1%) 175%
Average loan and lease balances grew 4 percent
sequentially and 9 percent from the first quarter of last year. Average
commercial loans and leases grew 5 percent sequentially and 13 percent
compared with the first quarter of 2007. Growth was primarily driven by
commercial and industrial (C&I) lending, up 7 percent sequentially and
21 percent versus a year ago, reflecting solid production across most of
our footprint. Compared with last quarter, commercial mortgage balances
increased $519 million. Consumer loans and leases were up 1 percent
sequentially and increased 3 percent compared with the first quarter of
2007. Comparisons with both periods reflect growth in residential
mortgages and credit card loans, offset by lower home equity originations
and securitization activity.
First quarter loan sales and securitizations totaled
approximately $3.3 billion, including $2.7 billion of auto loans and $615
million in residential mortgage-related loans.
Average Deposits
For the Three Months Ended % Change
March December September June March
2008 2007 2007 2007 2007 Seq Yr/Yr
Average Deposits
($ in millions)
Demand deposits $13,208 $13,345 $13,143 $13,370 $13,185 (1%) -
Interest checking 14,836 14,394 14,334 15,061 15,509 3% (4%)
Savings 16,075 15,616 15,390 14,620 13,689 3% 17%
Money market 6,896 6,363 6,247 6,244 6,377 8% 8%
Foreign office (a) 2,443 2,249 1,808 1,637 1,343 9% 82%
Subtotal -
Transaction
deposits 53,458 51,967 50,922 50,932 50,103 3% 7%
Other time 10,884 11,011 10,290 10,780 11,037 (1%) (1%)
Subtotal - Core
deposits 64,342 62,978 61,212 61,712 61,140 2% 5%
Certificates -
$100,000 and over 5,835 6,613 6,062 6,511 6,682 (12%) (13%)
Other foreign
office 3,861 2,464 1,981 732 364 57% 960%
Total deposits $74,038 $72,055 $69,255 $68,955 $68,186 3% 9%
(a) Includes commercial customer Eurodollar sweep balances for which the
Bancorp pays rates comparable to other commercial deposit accounts.
Average core deposits were up 2 percent sequentially and 5
percent year- over-year, with transaction deposits (excluding consumer
time deposits) growing 3 percent sequentially and 7 percent from a year
ago. Core deposit growth versus the fourth quarter of 2007 was driven
primarily by growth in interest checking, savings and money market
balances which offset a seasonal decline in demand deposit account (DDA)
and consumer certificate of deposits (CD) balances. On a year-over-year
basis, strong growth in savings, foreign office deposits and money market
balances more than offset lower interest checking balances.
Retail core deposits increased 2 percent sequentially and
4 percent year- over-year. Growth in savings, money market balances, and
demand deposit accounts more than offset a sequential decline in CD
balances and a year-over- year decline in interest checking and CDs.
Commercial core deposits increased 2 percent sequentially and 7 percent
year-over-year. Strong sequential growth in money market accounts,
interest checking, and foreign office deposits more than offset declines
in seasonally lower DDA and savings balances. On a year- over-year basis,
strong growth in foreign office deposits, interest checking, money market
accounts, and CDs more than offset lower DDA and savings balances.
Noninterest Income
For the Three Months Ended % Change
March December September June March
2008 2007 2007 2007 2007 Seq Yr/Yr
Noninterest Income
($ in millions)
Electronic payment
processing revenue $213 $223 $212 $205 $185 (5%) 15%
Service charges on
deposits 147 160 151 142 126 (8%) 17%
Investment advisory
revenue 93 94 95 97 96 (1%) (3%)
Corporate banking
revenue 107 106 91 88 83 1% 30%
Mortgage banking
net revenue 97 26 26 41 40 272% 144%
Other noninterest
income 185 (113) 93 96 78 NM 136%
Securities gains
(losses), net 27 7 13 - - 286% NM
Securities gains, net
- non-qualifying
hedges on mortgage
servicing rights 3 6 - - - (56%) NM
Total noninterest
income $872 $509 $681 $669 $608 71% 43%
Noninterest income of $872 million grew $363 million
sequentially and $264 million from a year ago. Growth was driven by the
$273 million gain resulting from the Visa IPO, partially offset by an
estimated $144 million pre-tax charge to further reduce the cash surrender
value of one of our BOLI policies. This charge was due to further
deterioration in the values of the underlying investments of the policy,
reflecting widening credit and municipal spreads during the quarter. First
quarter results also included net securities gains of $30 million. Fourth
quarter 2007 noninterest income included a $177 million charge related to
the same BOLI policy, a $22 million loss due to the termination of cash
flow hedges, and $13 million in net securities gains. Sequential growth
was otherwise driven by strong mortgage banking revenue that more than
offset seasonally lower payments processing and deposit service charge
revenue. Year-over-year comparisons reflected strong growth in mortgage
banking, payments processing, deposit service charges and corporate
banking revenue.
Electronic payment processing (EPP) revenue of $213
million decreased 5 percent sequentially from seasonally strong fourth
quarter levels. EPP revenue increased 15 percent from a year ago driven by
continued strong merchant processing results, up 23 percent, as well as 17
percent growth in card issuer interchange primarily due to higher debit
card usage. Higher debit and credit card usage volumes drove solid
financial institutions revenue growth of 6 percent versus the first
quarter of 2007.
Service charges on deposits of $147 million declined 8
percent sequentially and increased 17 percent compared with the same
quarter last year. Retail service charges declined 16 percent from the
fourth quarter, reflecting lower levels of customer activity compared with
seasonally strong fourth quarter levels. Retail service charges grew 17
percent compared with the first quarter a year ago on higher customer
activity and growth in the number of accounts. Commercial service charges
increased 3 percent sequentially and 17 percent compared with last year.
This growth primarily reflects the effect of lower market interest rates,
as reduced earnings credit rates paid to customers have resulted in higher
use of services fees to pay for treasury management services.
Corporate banking revenue of $107 million increased $1
million sequentially and $24 million or 30 percent year-over-year.
Included in revenue for the quarter were $8 million in losses related to
$102 million of commercial mortgages that were moved from the
held-for-sale portfolio to the held-for-investment portfolio during the
quarter. Revenue growth for both periods was driven by broad-based
strength, with particularly strong growth in foreign exchange and customer
interest rate derivative sales resulting from more volatile markets and
increased penetration of our middle-market customer base.
Investment advisory revenue of $93 million was down 1 percent
sequentially and 3 percent from the first quarter of 2007. Institutional
trust revenue decreased 4 percent sequentially and 1 percent
year-over-year largely due to market value declines. Brokerage fee revenue
was up 3 percent sequentially and down 4 percent from the first quarter of
2007, reflecting a shift in assets from stock and bond funds to money
market funds.
Mortgage banking net revenue totaled $97 million in the first quarter
of 2008, a $71 million increase from the previous quarter and a $57
million increase from the first quarter of 2007. First quarter
originations of $4 billion increased 49 percent sequentially and 41
percent from the prior year, driven by customer activity related to lower
interest rates during the quarter. Strong originations resulted in gains
on the sale of mortgages of $93 million, compared with $18 million in the
fourth quarter of 2007 and $26 million in the first quarter of 2007.
Effective January 1, 2008, the Bancorp adopted FAS No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities" ("FAS
159") for valuation and treatment of origination costs related to
mortgages originated for sale. The revenue impact of this adoption in the
first quarter of 2008 was an increase of approximately $25 million. Upon
adoption of FAS 159, origination costs of approximately $20 million this
quarter are now being recognized immediately in expense that previous to
this adoption were deferred and offset against flow revenue. Additionally,
we recognized gains of approximately $5 million in the first quarter
related to embedded gains which previous to this adoption would not have
been realized until sale. Revenue for the first quarter included $11
million related to gains on the sale of portfolio loans compared with $1
million and $5 million in the fourth and first quarters of 2007. Net
servicing revenue, before mortgage servicing rights (MSR) valuation
adjustments, totaled $8 million in the first quarter, compared with $14
million last quarter and $13 million a year ago. MSR valuation
adjustments, including mark-to-market related adjustments on free-standing
derivatives, netted to a $3 million loss in the first quarter of 2008,
compared with a $6 million loss last quarter. The mortgage servicing
asset, net of valuation reserve, was $592 million at quarter end on a
servicing portfolio of $36.5 billion.
Net securities gains of $3 million offsetting MSR valuation adjustments
were recorded in the first quarter on non-qualifying hedges on mortgage
servicing rights compared with $6 million last quarter.
Net gains on investment securities were $27 million in the first
quarter of 2008 compared with net gains of $7 million last quarter.
Other noninterest income totaled $185 million in the first quarter
compared with a loss of $113 million last quarter and income of $78
million in the same quarter last year. Results in the first quarter of
2008 included a $273 million gain resulting from the Visa IPO and an
estimated charge of $144 million related to the decrease in the cash
surrender value of one of our BOLI policies. Results also included $26
million in losses associated with the sale of auto loans during the
quarter and $15 million in gains on sale from auto securitization
transactions. Last quarter's results included the decrease in value of the
BOLI policy of $177 million as well as a $22 million loss on the
termination of hedges associated with auto loans held for sale during the
fourth quarter of 2007. Also included the fourth quarter of 2007 results
was a $7 million gain on the sale of $53 million of certain non-strategic
credit card accounts
Noninterest Expense
For the Three Months Ended % Change
March December September June March
2008 2007 2007 2007 2007 Seq Yr/Yr
Noninterest Expense
($ in millions)
Salaries, wages and
incentives $347 $328 $310 $309 $292 6% 19%
Employee benefits 85 56 67 68 87 51% (3%)
Payment processing
expense 66 68 65 59 52 (3%) 27%
Net occupancy expense 72 70 66 68 65 3% 10%
Technology and
communications 47 47 41 41 40 - 19%
Equipment expense 31 32 30 31 29 (6%) 5%
Other noninterest
expense 67 339 274 189 188 (80%) (64%)
Total noninterest
expense $715 $940 $853 $765 $753 (24%) (5%)
Noninterest expense of $715 million decreased by $225 million from the
fourth quarter of 2007 and $38 million from a year ago. First quarter
results included the reversal of $152 million in Visa litigation reserves,
$9 million in severance-related costs and $7 million in
acquisition-related expenses. Fourth quarter results included $94 million
in litigation expenses related to the Visa/American Express settlement and
$8 million in acquisition-related expenses. Employee compensation expenses
increased sequentially by $48 million. This increase was the result of
seasonally higher FICA and unemployment expenses, up $18 million; $9
million in severance expense; and approximately $20 million in mortgage
origination costs related to the adoption of FAS 159. Payment processing
expense declined 3 percent sequentially from seasonally strong fourth
quarter levels. Expense growth from a year ago was primarily related to
the FAS 159 mortgage origination costs, volume-related processing expense,
incentive compensation, branch expansion related expenses including RG
Crown, and technology investments.
Credit Quality
For the Three Months Ended
March December September June March
2008 2007 2007 2007 2007
Total net losses charged
off ($ in millions)
Commercial loans ($36) ($48) ($23) ($24) ($15)
Commercial mortgage loans (33) (15) (8) (16) (7)
Commercial construction
loans (72) (12) (5) (7) (6)
Commercial leases - - - - (1)
Residential mortgage loans (34) (18) (9) (9) (7)
Home equity (41) (32) (27) (20) (17)
Automobile loans (35) (30) (25) (15) (16)
Credit card (20) (15) (13) (10) (8)
Other consumer loans and
leases (5) (4) (5) (1) 6
Total net losses charged
off (276) (174) (115) (102) (71)
Total losses (293) (193) (127) (124) (99)
Total recoveries 17 19 12 22 28
Total net losses charged
off ($276) ($174) ($115) ($102) ($71)
Ratios
Net losses charged off as
a percent of average loans
and leases (excluding held
for sale) 1.37% 0.89% 0.60% 0.55% 0.39%
Commercial 1.21% 0.66% 0.33% 0.44% 0.27%
Consumer 1.58% 1.18% 0.93% 0.68% 0.53%
Net charge-offs as a percentage of average loans and
leases were 137 bps in the first quarter, compared with 89 bps in the
fourth quarter of 2007 and 39 bps in the first quarter of 2007. Loss
experience continues to be concentrated in Michigan and Florida and
primarily related to consumer residential real estate loans as well as
loans to residential real estate builders and developers. Michigan and
Florida represented approximately 57 percent of total first quarter net
charge-offs. Residential real estate losses were 27 percent of total net
charge-offs, and losses on loans to residential real estate builders and
developers were 15 percent of total net charge-offs.
Consumer net charge-offs of $135 million, or 158 bps, grew
$36 million from the fourth quarter of 2007, driven primarily by losses in
the residential real estate portfolio. Net charge-offs in Michigan and
Florida represented 38 percent of consumer losses in the first quarter, up
from 34 percent in the fourth quarter of 2007. Home equity net charge-offs
of $41 million increased $9 million compared with last quarter, primarily
due to increased losses on brokered home equity loans reflecting borrower
stress and lower home price valuations. Originations of these loans has
been discontinued. Net losses on brokered home equity loans were $23
million, or 55 percent, of first quarter home equity losses. Brokered home
equity loans represented $2.6 billion, or 22 percent, of total home equity
portfolio of $11.8 billion. Michigan and Florida represented 40 percent of
first quarter home equity losses, up from 37 percent in the fourth quarter
of 2007. Net charge-offs within the residential mortgage portfolio were
$34 million, an increase of $16 million, primarily as a result of
declining property values on loans at foreclosure, with losses in Michigan
and Florida representing 64 percent of losses in the first quarter, up
from 58 percent in the previous quarter. Net charge-offs in the auto
portfolio increased $5 million from the fourth quarter to $35 million. The
auto loan charge-off ratio increased due primarily to the movement during
the last several quarters of more recent vintage auto loans from the
portfolio to held for sale, which has resulted in a portfolio consisting
of more mature loans nearer to their peak loss cycle. Prior quarter auto
loan net charge offs also include a $1 million recovery due to a sale of
charged off loans.
Commercial net charge-offs of $141 million, or 121 bps,
increased $66 million compared with the fourth quarter of 2007. Losses
related to residential real estate builders and developers represented $42
million, or 30 percent, of commercial charge-offs. Commercial construction
net charge-offs increased to $72 million from $12 million the previous
quarter, driven by homebuilder and residential development losses.
Michigan and Florida accounted for 89 percent of these losses. Commercial
mortgage net charge-offs increased to $33 million, up $18 million from the
fourth quarter of 2007. Michigan and Florida accounted for 82 percent of
these losses. Net charge-offs in the C&I portfolio were $36 million,
down $12 million from the fourth quarter of 2007.
For the Three Months Ended
March December September June March
2008 2007 2007 2007 2007
Allowance for Credit Losses
($ in millions)
Allowance for loan and lease
losses, beginning $937 $827 $803 $784 $771
Total net losses charged off (276) (174) (115) (102) (71)
Provision for loan and lease
losses 544 284 139 121 84
Allowance for loan and lease
losses, ending 1,205 937 827 803 784
Reserve for unfunded
commitments, beginning 95 79 77 79 76
Provision for unfunded
commitments 8 13 2 (2) 3
Acquisitions - 3 - - -
Reserve for unfunded
commitments, ending 103 95 79 77 79
Components of allowance for
credit losses:
Allowance for loan and lease
losses 1,205 937 827 803 784
Reserve for unfunded
commitments 103 95 79 77 79
Total allowance for credit
losses $1,308 $1,032 $906 $880 $863
Ratio
Allowance for loan and lease
losses as a percent of loans
and leases 1.49% 1.17% 1.08% 1.06% 1.05%
Provision for loan and lease losses totaled $544 million
in the first quarter of 2008, exceeding net charge-offs by $268 million.
The increase in the provision for loan and lease losses and allowance for
loan and lease losses was driven by higher probable losses resulting from
deterioration in residential real estate collateral values and negative
trends in nonperforming and other criticized assets.
The allowance for loan and lease losses represented 1.49
percent of total loans and leases outstanding as of quarter end, compared
with 1.17 percent last quarter and 1.05 percent in the same quarter last
year.
As of
Nonperforming Assets and March December September June March
Delinquency ($ in millions) 2008 2007 2007 2007 2007
Commercial loans $300 $175 $175 $136 $138
Commercial mortgage 312 243 146 113 107
Commercial construction 408 249 105 65 57
Commercial leases 11 5 5 4 5
Residential mortgage (a) 211 121 74 40 38
Home equity (b) 128 91 61 45 41
Automobile 5 3 3 3 4
Credit card (c) 13 5 - - -
Other consumer loans and leases - 1 - - -
Total nonaccrual loans and
leases $1,388 893 569 406 390
Repossessed personal property 22 21 19 17 9
Other real estate owned (d) 182 150 118 105 95
Total nonperforming assets $1,592 $1,064 $706 $528 $494
Total loans and leases 90 days
past due $539 $491 $360 $302 $243
Nonperforming assets as a percent
of total loans, leases and other
assets, including other real
estate owned 1.96% 1.32% 0.92% 0.70% 0.66%
a) Nonaccrual loans include debt restructuring balances of $73 million
as of 03/31/08, $29 million as of 12/31/07, $6 million as of September
30, 2007 and $2 million as of June 30, 2007.
b) Nonaccrual loans include debt restructuring balances of $86 million as
of 03/31/08, $46 million as of 12/31/07, and $16 million as of
09/30/07.
c) All nonaccrual credit card balances are the result of debt
restructurings.
d) Excludes government insured advances.
Nonperforming assets (NPAs) at quarter end were $1.6
billion, or 1.96 percent of total loans and leases and other real estate
owned ("OREO"), up from 1.32 percent last quarter and 0.66
percent in the first quarter a year ago. Sequential growth in NPAs was
$528 million, or 50 percent, driven by increases related to residential
real estate builders and developers as well as residential real estate
OREO.
Commercial NPAs of $1.1 billion, or 2.20 percent, grew
$363 million or 52 percent in the first quarter of 2008. Commercial NPA
growth was primarily driven by continued deterioration in the commercial
construction and commercial mortgage portfolios, particularly in Michigan
and Florida. NPAs in the C&I portfolio of $305 million increased $126
million from the previous quarter. Commercial construction NPAs were $418
million, an increase of $162 million from the fourth quarter of 2007.
Commercial mortgage NPAs were $325 million, a sequential increase of $70
million. Commercial real estate loans in Michigan and Florida represented
46 percent of our total commercial real estate portfolio. Increases in
NPAs in these states represented 69 percent of commercial real estate NPA
growth and these regions accounted for 66 percent of total commercial real
estate NPAs. Residential real estate builders and developers represented
approximately $309 million in commercial NPAs, an increase of $133 million
from the fourth quarter of 2007.
Consumer NPAs of $534 million, or 1.62 percent, rose $165
million, or 45 percent in the first quarter of 2008. Of the growth, $156
million was experienced in residential real estate portfolios. Residential
mortgage NPAs increased $117 million to $333 million, of which $122
million was in OREO. Of residential mortgage NPAs, $12 million were in
residential construction loans (of which $5 million was OREO). Home equity
NPAs increased $38 million to $162 million, of which $34 million was OREO.
Residential real estate loans in Michigan and Florida represented 71
percent of the growth in residential real estate NPAs, 58 percent of total
residential real estate NPAs, and 26 percent of total residential real
estate loans. Included within consumer NPAs, primarily in residential real
estate loans, were $172 million in troubled debt restructurings, including
$92 million restructured in the first quarter of 2008. These debt
restructurings assist qualifying borrowers in creating workable payment
plans to enable them to remain in their homes.
Loans still accruing over 90 days past due were $539
million, up $48 million from the fourth quarter of 2007. Consumer 90 days
past due balances increased 5 percent from the previous quarter and
commercial 90 days past due balances increased 18 percent. Growth in
commercial and consumer 90 days past dues was generally concentrated in
commercial real estate and residential mortgages in the regions noted
earlier.
Capital Position/Other
For the Three Months Ended
March December September June March
2008 (a) 2007 2007 2007 2007
Capital Position
Average shareholders' equity
to average assets 8.43% 8.77% 9.13% 9.53% 10.05%
Tangible equity 6.22% 6.05% 6.83% 6.92% 7.65%
Regulatory capital ratios:
Tier I capital 7.71% 7.72% 8.46% 8.13% 8.71%
Total risk-based capital 11.32% 10.16% 10.87% 10.54% 11.19%
Tier I leverage 8.29% 8.50% 9.23% 8.76% 9.36%
(a) Current period regulatory capital data and ratios are estimated
The tangible common equity ratio increased 17 bps to 6.22
percent due to higher retained earnings and the effect of loan
securitizations. The Tier 1 capital ratio decreased 1 bps to 7.71 percent.
The total capital ratio increased 116 bps due to the aforementioned
factors and the issuance of $1.0 billion on Tier 2 qualifying subordinated
debt during the first quarter.
There were no open market share repurchases during the
quarter and, as of March 31, 2008, there were 19.2 million shares
remaining under our current share repurchase authorization.
On August 16, 2007, Fifth Third Bancorp and First Charter
Corporation signed a definitive agreement for Fifth Third to acquire First
Charter, which operates 57 branches in North Carolina and two in Atlanta.
Fifth Third has received all regulatory approvals and currently expects to
close this transaction in the latter part of the second quarter of 2008
after completion of the election process. This transaction, when
consummated, is expected to reduce capital ratios by approximately 35 bps.
On March 26, 2008, Fifth Third and First Horizon Corporation announced an
agreement was reached on terms for the completion of Fifth Third's
acquisition of nine branches and their deposits in the Atlanta metro area
from First Horizon, originally announced September 25, 2007. Fifth Third
has received all necessary regulatory approvals and the transaction is
expected to close in the second quarter of 2008.
Outlook
The following outlook represents currently expected full
year 2008 growth rates compared with full year 2007 results. The outlook
does not include the effect of our pending acquisitions of First Charter
Bank or the First Horizon branches. Our outlook is based on current
expectations as of the date of this release for results within our
businesses; prevailing views related to economic growth, inflation,
unemployment and other economic factors, and market forward interest rate
expectations. These expectations are inherently subject to risks and
uncertainties. There are a number of factors that could cause results to
differ materially from historical performance and these expectations. We
undertake no obligation to update these expectations after the date of
this release. Please refer to the cautionary statement at the end of this
release for more information.
Category Growth, percentage, or bps range
[change from 2007]
Net interest income Mid-to-high single digits
Net interest margin 3.30-3.40%
Noninterest income* Low teens
Noninterest expense** High single digits
Loans Mid-to-high single digits
Core deposits Mid single digits
Net charge-offs 100-115 bps range
Effective tax rate
[non-tax equivalent] Approximately 32-33%
Tangible equity/
tangible asset ratio 2008 target 6-6.5%; LT target 6.5%
Tier 1 capital ratio 2008 target 7.5-8%
Total capital ratio 2008 target 11-11.5%
* comparison with 2007 excludes $273 million in first quarter 2008 gains
related to Visa's IPO and non-cash charges to lower the cash surrender
value of one of our BOLI policies of an estimated $144 million in the
first quarter of 2008 and $177 million in the fourth quarter of 2007
** comparison with 2007 excludes $152 million in reversals of litigation
reserves in first quarter 2008 related to Visa's IPO, $7 million in
merger-related charges in first quarter 2008, $9 million in severance
expenses in the first quarter of 2008, and, in 2007, $172 million for
charges in potential future Visa litigation settlements and $8 million
of acquisition-related expenses
Source: Fifth Third Bancorp
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