10-QPeriod: Q3 FY2008

FIFTH THIRD BANCORP Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 7, 2008For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) reported a net loss of $56 million, or $(0.14) per diluted share, for the third quarter of 2008, a significant decline from the $325 million net income, or $0.61 per diluted share, reported in the same quarter of the prior year. This downturn was primarily driven by a substantial increase in the provision for loan and lease losses, which surged to $941 million from $139 million year-over-year, reflecting the deteriorating economic conditions and weakening credit quality, particularly in the real estate and construction sectors in Michigan and Florida. Despite these challenges, the Bancorp experienced growth in net interest income, up 41% year-over-year, aided by acquisitions and a widening net interest margin. Noninterest income also rose 5% due to growth in mortgage banking and service charges on deposits, though it was impacted by other-than-temporary impairment charges on certain preferred stocks. The company's capital position remains strong, with Tier 1 capital ratio at 8.57% and total risk-based capital ratio at 12.30%, exceeding regulatory requirements. Notably, Fifth Third Bancorp received approval to participate in the U.S. Treasury Capital Purchase Program, anticipating an investment of approximately $3.45 billion. The company's overall loan portfolio grew 10% year-over-year, driven by commercial loan growth, while consumer loans saw a slight decrease. Nonperforming assets significantly increased to $2.8 billion, representing 3.30% of total assets, up from 0.92% in the prior year quarter, with concentrations in real estate and construction industries. Net charge-offs as a percentage of average loans and leases also rose sharply to 2.17% from 0.60%. In response to the economic climate, the Bancorp reduced its quarterly dividend on common stock to $0.15 per share and is focusing on strengthening its capital base and managing credit risk.

Financial Highlights

34 data points
Beta

Net Income

-$56.00M

EPS (Diluted)

$-0.14

Total Assets

$116.29B

Free Cash Flow

-$262.00M

Financial Statements
Beta
Interest Expense$485.00M
Net Income-$56.00M
EPS (Basic)$-0.14
EPS (Diluted)$-0.14

Key Highlights

  • 1Reported a net loss of $56 million for Q3 2008, a significant decrease from a net income of $325 million in Q3 2007, primarily due to a large increase in provision for loan losses.
  • 2Provision for loan and lease losses increased dramatically to $941 million from $139 million year-over-year, reflecting worsening credit quality and economic conditions.
  • 3Net interest income grew 41% year-over-year to $1.07 billion, boosted by acquisitions and a higher net interest margin.
  • 4Total assets increased by 12% year-over-year to $114.8 billion, with total loans and leases up 10% to $86.5 billion.
  • 5Nonperforming assets more than tripled year-over-year, reaching $2.8 billion, or 3.30% of total assets, highlighting significant credit quality deterioration.
  • 6Net charge-offs as a percentage of average loans and leases increased from 0.60% in Q3 2007 to 2.17% in Q3 2008.
  • 7Tier 1 capital ratio remained strong at 8.57%, and the company received approval to participate in the U.S. Treasury Capital Purchase Program, expecting a $3.45 billion investment.

Frequently Asked Questions

Fifth Third Bancorp reported a net loss of $56 million, or $(0.14) per diluted share, for the third quarter of 2008. This compares to a net income of $325 million, or $0.61 per diluted share, in the same period of 2007. The significant decline was primarily due to a substantial increase in the provision for loan and lease losses.

The provision for loan and lease losses increased significantly to $941 million in Q3 2008 from $139 million in Q3 2007. This increase is attributed to the deteriorating economic conditions, weakening credit quality, and a notable rise in nonaccrual loans and net charge-offs, particularly in the commercial real estate and construction sectors, impacted by a downturn in housing markets in key states like Michigan and Florida.

Total loans and leases increased by 10% year-over-year to $86.5 billion, driven by commercial loan growth. However, nonperforming assets surged to $2.8 billion, or 3.30% of total assets, compared to $706 million, or 0.92% of total assets, in the prior year's quarter. This reflects increased delinquencies and the impact of economic stress on borrowers.

Fifth Third Bancorp maintains a strong capital position, with its Tier 1 capital ratio at 8.57% and total risk-based capital ratio at 12.30%, both exceeding regulatory 'well-capitalized' guidelines. The company has received approval to participate in the U.S. Treasury's Capital Purchase Program, anticipating an investment of approximately $3.45 billion, which will further bolster its capital base. In response to the economic environment, the Bancorp also reduced its quarterly common stock dividend to $0.15 per share.