01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
Fifth Third Bancorp's 2011 results show a clear recovery year.
Net income attributable to the Bancorp rose to $1.297 billiona from $753 million in 2010, and net income available to common shareholders reached $1.094 billion, or $1.18 per diluted share. The improvement was driven mainly by a sharp drop in the provision for loan and lease losses, which fell to $423 million from $1.538 billion, as net charge-offs declined to 1.49% of average loans from 3.02%. Nonperforming assets fell to 2.23% of loans, leases and other assets, and the ALLL declined to 2.78% of loans from 3.88%.
Pre-tax income of $1.831 billionb was partially offset by a higher effective tax rate of 29.1%, versus 19.8% in 2010. Revenue was under pressure. Net interest income was roughly flat at $3.6 billion, with net interest margin unchanged at 3.66%, as loan yields fell and the Bancorp shifted toward lower-cost deposits.
Noninterest income fell 10% to $2.455 billionc, reflecting the absence of a $152 million 2010 BOLI settlement gain, lower service charges after Regulation E, and reduced mortgage banking revenue. Noninterest expense declined 3% to $3.758 billion, and the efficiency ratio worsened to 62.3% from 60.7%. Capital and funding were materially strengthened during 2011.
The Bancorp raised $1.7 billiond of common equity and issued $1.0 billion of 3.625% senior notes, then used those proceeds to redeem $3.4 billion of TARP Series F preferred stock and repurchase the associated warrant for $280 million. Tangible common equity rose to 8.68% and Tier I common equity to 9.35%, though the Dodd-Frank Act and Basel III remain significant forward risks, including phase-out of trust preferred Tier I treatment beginning in 2013 and an SEC settlement tied to the timing of a trust preferred redemption disclosure.
02—Key points
Key Highlights
- Net income attributable to Bancorp rose to $1.297 billion ($1.18 diluted EPS to common) from $753 million in 2010, a 72% increase, driven largely by lower credit costs.
- Provision for loan and lease losses fell 73% to $423 million, and net charge-offs improved to 1.49% of average loans from 3.02%.
- Pre-tax income of $1.831 billion was partly offset by a 29.1% effective tax rate, up from 19.8%, which included a $26 million non-cash write-off of stock-compensation tax benefits.
- Net interest margin held flat at 3.66% despite a 22 bps decline in asset yields, aided by a 25 bps decline in funding costs and a mix shift toward core deposits.
- Noninterest income declined 10% to $2.455 billion, while the efficiency ratio rose to 62.3%; the 2010 BOLI settlement and Regulation E affected comparability.
- Capital ratios strengthened: Tier I common equity 9.35% (from 7.48%), Tier I capital 11.91%, total risk-based capital 16.09%, all above well-capitalized thresholds.
- Regulatory and legal risks remain elevated, including Dodd-Frank impacts on debit interchange fees, trust preferred phase-out from 2013, an SEC settlement on a trust preferred redemption disclosure, and ongoing Visa-related litigation exposure.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Interest Expense | $661.00M$885.00M | −25.3% |
| Net Income | $1.30B$753.00M | +72.2% |
| EPS (Basic) | $1.20$0.63 | +90.5% |
| EPS (Diluted) | $1.18$0.63 | +87.3% |
| Shares Outstanding (Basic) | 906.46M790.85M | +14.6% |
| Shares Outstanding (Diluted) | 949.55M799.38M | +18.8% |
05—Questions
Frequently Asked Questions
Why did Fifth Third's earnings improve so much in 2011?
The main driver was credit. The provision for loan and lease losses dropped from $1.538 billion to $423 million as delinquencies, nonperforming loans and loss trends improved, and net charge-offs fell to 1.49% of average loans from 3.02%. Net income also benefited from the absence of certain 2009-2010 items, but noninterest income itself declined 10%.
Did Fifth Third's capital position improve, and what happened to the TARP preferred stock?
Yes. In January 2011 the Bancorp raised $1.7 billion of common equity and issued $1.0 billion of senior notes. It used these proceeds to redeem all $3.4 billion of its Series F TARP preferred stock on February 2, 2011, and repurchased the related warrant from the Treasury for $280 million in March. Tier I common equity rose to 9.35% from 7.48%.
What are the main risks to earnings and capital going forward?
Key risks include Dodd-Frank Act effects (debit interchange caps that cut card revenue in late 2011, and the phase-out of trust preferred securities from Tier I capital starting January 1, 2013, affecting about $2.2 billion), potential Basel III capital requirements, continued stress in Michigan and Florida real estate, mortgage repurchase obligations, and the Visa litigation exposure tied to the total return swap. The Bancorp also disclosed an SEC settlement related to a 2011 trust preferred redemption disclosure.
Why did noninterest income decline and how might it trend?
Noninterest income fell $274 million to $2.455 billion, largely because 2010 included a $152 million BOLI litigation settlement gain. Service charges fell $54 million after Regulation E overdraft rules, and mortgage banking net revenue fell $50 million as originations declined. Debit interchange caps effective October 2011 are expected to reduce card revenue further in 2012.
Is the dividend and buyback outlook clear?
The Bancorp declared $0.28 per common share for 2011, up from $0.04 in 2010, and received a non-objection to its 2011 CCAR capital plan. It submitted a 2012 CCAR capital plan on January 9, 2012, with the Federal Reserve's response due by March 15, 2012. No share repurchases were made in 2011, and the Bancorp had 19.2 million shares remaining under its existing authorization.
06—Continue