FITB

Fifth Third Bancorp (FITB)

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Fifth Third Bancorp (FITB)

Q3 2009 Earnings Call

October 22, 2009 08:00 AM ET

Executives

Kevin Kabat - Chairman, President and Chief Executive Officer

Dan Poston - Chief Financial Officer

Mary Tuuk - Chief Risk Officer

Mahesh Sankaran - Treasurer

Jim Eglseder - Investor Relations

Analysts

Paul Miller - Friedman, Billings, Ramsey & Co.

Brian Foran - Goldman Sachs

Betsy Graseck - Morgan Stanley

Matthew Burnell - Wells Fargo Security

Operator

Good morning, my name is Hamilton and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp Third Quarter 2009 Earnings Call. (Operator Instructions). I will now turn the conference over to Mr. Jeff Richardson.

Jeff Richardson

Hello, and thanks for joining us this morning. We will be talking with you today about our third quarter 2009 results. This call may contain certain forward-looking statements about Fifth Third Bancorp pertaining to our financial condition, results of operations, plans and objectives. These statements involve certain risks and uncertainties.

There are a number of factors that could cause results to differ materially from the historical performance in these statements. We’ve identified a number of those factors in our forward-looking cautionary statement at the end of our earnings release and in other materials and we encourage you to review those factors.

Fifth Third undertakes no obligation and would not expect to update any such forward-looking statements after the date of this call. I am joined on the call by several people, Kevin Kabat, our Chairman, President and CEO, Chief Financial Officer, Dan Poston, Chief Risk Officer, Mary Tuuk, Treasurer, Mahesh Sankaran and Jim Eglseder of Investor Relations.

During the question and answer period, please provide your name and that of your firm to the operator. With that I will turn the call over to Kevin Kabat. Kevin?

Kevin Kabat

Thanks Jeff. Good morning everyone and thanks for joining us. Today I will make a few opening comments before I hand the call over to Mary and Dan for a more detailed discussion of our credit and financial performance. This morning we reported a third quarter net loss of $0.20 per share, which was in line with our expectations.

That included $0.26 of benefit related to our sale of Visa shares and the release of Visa litigation reserves. High levels of credit costs continue to more than offset solid core operating results. In addition to current levels of charge-offs, results also include $0.16 of provision in excess of net charge-offs and approximately $0.12 of credit related costs.

These include provision for un-funded commitments, loan workout costs and credit write downs within operating revenue and expense. Dan will provide more color on the scope of these costs and where the show up.

Commercial credit continues to be challenging, but we've seen some positive signs on the consumer front. I think it’s too early to predict a trend from that, but it’s encouraging. Early stage consumer delinquencies were down slightly this quarter, after also being down pretty significantly in the second quarter.

Consumer 90 plus delinquencies were also down, primarily in Florida, another positive sign. Commercial 90 plus delinquencies were up, but a good number of those are administrative. Customers whose loans are still current, but the notes have matured and we haven’t extended them.

We expect many of those to be resolved in the fourth quarter and these don’t change our views with respect to NPA or charge-offs in the fourth quarter, which is reflected in our outlook that Mary will discuss.

Early stage commercial delinquencies, 30 to 89 days pass due were down $200 million, which also suggest the pipeline for 90 plus growth next quarter will be lower. As a result we expect 90 plus commercial delinquencies to be down substantially in the fourth quarter.

I know that this is the first quarter in a year and a half that early stage delinquencies in both consumer and commercial portfolios were down sequentially. Net charge-offs were $756 million, an increase of $130 million from the second quarter, but a bit lower than we were expecting last month.

Commercial net charge-offs were up $158 million, that included the effect of 95 million of charge-offs on shared national credits versus $17 million last quarter. Commercial charge-offs were up $80 million otherwise driven by continued real estate and construction loses as we discussed last month.

Consumer loses improved $28 million sequentially as we expected. NPA growth was 13% in line with our expectations with commercial NPAs up 16 and consumer NPAs up five.

The provision for loan loses exceeded net charge-offs by a $196 million this quarter increasing the reserve to loan ratio to 4.69%. We continue to have one of the highest reserved to NPL covered ratios in the industry at 125%.

We continue to work aggressively to mitigate risk in our loan portfolio and as a result we are experiencing elevated cost as we work through those credits and deal with them appropriately. Mary will talk about our outlook for the fourth quarter in her remarks.

Let me give some high level operating results. We continue to good momentum in most of our businesses in a challenging environment. We saw significant improvement in the net interest margin, up 17 basis points from the second quarter.

Improved liability pricing and wider loans spreads to over 5% sequential increase in net interest income. NII growth was otherwise subdued to extremely weak loan demand. That sequential decline in loan balance was due to lower line utilization.

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