10-QPeriod: Q1 FY2011

FIFTH THIRD BANCORP Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 9, 2011For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) reported a net income of $265 million for the first quarter of 2011, a significant improvement from a net loss of $10 million in the prior year's first quarter. This turnaround was largely driven by a substantial decrease in the provision for loan and lease losses, which fell by 72% to $168 million from $590 million year-over-year, reflecting moderating credit trends and improved delinquencies. Net income available to common shareholders was $88 million, or $0.10 per diluted share, compared to a net loss of $72 million, or $(0.09) per diluted share, in the first quarter of 2010. The Bancorp successfully raised $1.7 billion in new common equity and issued $1.0 billion in senior notes in January 2011, which were used to redeem all $3.4 billion of its Series F Preferred Stock held by the U.S. Treasury under the CPP. This deleveraging action and capital raise significantly strengthened the company's capital position, as evidenced by improved Tier I common equity ratios. While net interest income saw a slight decline due to lower average yields and asset balances, net interest margin improved. Noninterest income declined due to lower mortgage banking revenue, partly offset by growth in investment advisory and corporate banking revenues. Noninterest expenses also decreased year-over-year, primarily due to lower provisions for representation and warranty obligations and unfunded commitments.

Financial Highlights

37 data points
Beta

Net Income

$265.00M

EPS (Diluted)

$0.10

Total Assets

$110.48B

Free Cash Flow

$1.83B

Financial Statements
Beta
Interest Expense$181.00M
Net Income$265.00M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)880.83M
Shares Outstanding (Diluted)894.84M

Key Highlights

  • 1Reported a net income of $265 million for Q1 2011, a significant improvement from a net loss of $10 million in Q1 2010.
  • 2Net income available to common shareholders was $88 million, or $0.10 per diluted share, up from a loss of $72 million, or $(0.09) per diluted share, in Q1 2010.
  • 3Successfully raised $1.7 billion in common equity and $1.0 billion in senior notes in January 2011.
  • 4Redeemed all $3.4 billion of Series F Preferred Stock held by the U.S. Treasury, strengthening capital structure.
  • 5Provision for loan and lease losses decreased by 72% to $168 million, reflecting improved credit quality.
  • 6Net interest margin improved to 3.71% from 3.63% year-over-year.
  • 7Noninterest expenses decreased by 4% year-over-year due to lower provisions and FDIC insurance costs.

Frequently Asked Questions

The primary driver for the improved net income was the significant reduction in the provision for loan and lease losses, which decreased by 72% year-over-year. This reflects moderating credit trends, improved loan delinquencies, and a general improvement in economic conditions impacting the Bancorp's loan portfolio.

Fifth Third Bancorp strengthened its capital position by successfully raising $1.7 billion in new common equity and issuing $1.0 billion in senior notes in January 2011. These proceeds were used to redeem its $3.4 billion Series F Preferred Stock held by the U.S. Treasury, which improved key capital ratios, including the Tier I common equity ratio.

Noninterest income decreased by 7% year-over-year, primarily driven by a 33% decline in mortgage banking net revenue. This was due to lower gains on mortgage servicing rights (MSRs) valuation adjustments and a decrease in origination fees and loan sales. Service charges on deposits also decreased by 13%, partly due to the impact of Regulation E.

The Bancorp manages credit risk through conservative lending practices, diversification, and continuous monitoring. They have identified Michigan and Florida as markets experiencing the most stress due to real estate value declines. The Bancorp has suspended lending for certain high-risk categories like homebuilder and non-owner occupied commercial real estate and has tightened underwriting standards across its loan portfolio to mitigate risk.