10-QPeriod: Q3 FY2007

FIFTH THIRD BANCORP Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 9, 2007For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) reported a net income of $325 million, or $0.61 per diluted share, for the third quarter of 2007. This represents a decrease from the $377 million, or $0.68 per diluted share, reported in the same period last year. The decline was attributed in part to a $78 million pretax expense related to the Visa/American Express anti-trust litigation settlement. Net interest income (FTE) saw a 6% increase year-over-year, driven by balance sheet adjustments made in late 2006. However, the net interest margin saw a slight sequential decrease due to share repurchase activity and a reduction in free funding. Noninterest income grew 9% driven by electronic payment processing, service charges on deposits, and corporate banking revenue. Credit quality showed some deterioration, with net charge-offs increasing to 0.60% of average loans and leases, primarily driven by auto and home equity portfolios. Nonperforming assets as a percentage of loans and leases rose to 0.92%, concentrated in Michigan and Florida real estate markets. The Bancorp continued its growth strategy through acquisitions, announcing agreements to acquire R-G Crown Bank and First Charter Corporation, and expanded its branch network by opening 14 new banking centers during the quarter.

Key Highlights

  • 1Net income for Q3 2007 was $325 million, down 14% year-over-year, impacted by a $78 million litigation settlement expense.
  • 2Net interest income (FTE) increased 6% year-over-year to $760 million, while net interest margin decreased slightly sequentially.
  • 3Noninterest income grew 9% year-over-year, driven by strong performance in electronic payment processing, service charges on deposits, and corporate banking.
  • 4Provision for loan and lease losses increased 59% year-over-year to $139 million, reflecting loan growth and increased delinquencies.
  • 5Net charge-offs increased to 0.60% of average loans and leases, primarily due to issues in the auto and home equity portfolios.
  • 6Nonperforming assets as a percentage of total loans, leases and other assets rose to 0.92%, mainly due to weakness in Michigan and Florida real estate markets.
  • 7The Bancorp announced agreements to acquire R-G Crown Bank and First Charter Corporation, continuing its expansion strategy.
  • 8Regulatory capital ratios remained strong, exceeding "well-capitalized" guidelines, with Tier I capital at 8.46%.

Frequently Asked Questions

The primary reason for the year-over-year decrease in net income was a significant pretax expense of $78 million related to the Visa/American Express anti-trust litigation settlement.

Credit quality showed some deterioration. Net charge-offs as a percentage of average loans and leases increased to 0.60%, mainly driven by losses in the auto and home equity portfolios. Nonperforming assets also increased to 0.92% of total assets, primarily concentrated in the Michigan and Florida real estate markets.

The Bancorp continues to grow through a combination of strategic acquisitions, such as the announced agreements to acquire R-G Crown Bank and First Charter Corporation, and de novo expansion, evidenced by the opening of 14 new banking centers during the quarter.

The Bancorp manages interest rate risk centrally using a funds transfer pricing (FTP) methodology that insulates business segments from interest rate volatility. They also employ an earnings simulation model and economic value of equity (EVE) analysis to monitor and manage sensitivity to interest rate changes, operating within Board-approved policy limits.