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Fifth Third Announces 2012 Earnings Per Share Of $1.66, Up 41 Percent From 2011

Credit costs related to problem assets recorded as noninterest expense totaled $68 million in the fourth quarter of 2012, compared with $59 million in the third quarter of 2012 and $44 million in the fourth quarter of 2011. Fourth quarter credit-related expenses included provisioning for mortgage repurchases of $44 million, compared with $36 million in the third quarter and $18 million a year ago. (Realized mortgage repurchase losses were $15 million in the fourth quarter of 2012, compared with $15 million last quarter and $17 million in the fourth quarter of 2011.) The increase in mortgage representation and warranty expense was primarily due to an increase in the reserve as a result of additional information obtained from Freddie Mac regarding changes to their selection criteria for future mortgage repurchases and file requests, which now includes 2004 through 2006 vintages. As such, we were able to better estimate the losses that are probable on loans sold to Freddie Mac with representation and warranty provisions. (Freddie Mac loans represent approximately 56 percent of Fifth Third’s mortgage servicing portfolio.) Provision for unfunded commitments was an expense of $3 million in the current quarter, compared with a benefit of $2 million last quarter and a benefit of $6 million a year ago. Derivative valuation adjustments related to customer credit risk were positive $2 million, $2 million, and $5 million for this quarter, last quarter and the year ago quarter, respectively. OREO expense was $5 million this quarter, compared with $6 million last quarter and $8 million a year ago. Other problem asset-related expenses were $19 million in the fourth quarter, compared with $21 million the previous quarter and $28 million in the same period last year.

Credit Quality

  For the Three Months Ended
December   September   June   March   December
2012   2012   2012   2012   2011
Total net losses charged off ($ in millions)
Commercial and industrial loans ($36) ($29) ($46) ($54) ($62)
Commercial mortgage loans (17) (28) (25) (30) (47)
Commercial construction loans (4) (4) - (18) (4)
Commercial leases 1 (1) (7) - -
Residential mortgage loans (23) (26) (36) (37) (36)
Home equity (34) (37) (39) (46) (50)
Automobile loans (9) (7) (7) (9) (13)
Credit card (19) (18) (18) (20) (21)
Other consumer loans and leases   (6)   (6)   (3)   (6)   (6)
Total net losses charged off (147) (156) (181) (220) (239)
Total losses (177) (188) (219) (253) (280)
Total recoveries   30   32   38   33   41
Total net losses charged off ($147) ($156) ($181) ($220) ($239)
Ratios (annualized)

Net losses charged off as a percent of average loans and leases (excluding held for sale)

0.70% 0.75% 0.88% 1.08% 1.19%
Commercial 0.46% 0.53% 0.67% 0.89% 1.00%
Consumer   1.01%   1.04%   1.15%   1.34%   1.43%

Net charge-offs were $147 million in the fourth quarter of 2012, or 70 bps of average loans on an annualized basis, the lowest level since the third quarter of 2007. Net charge-offs declined 6 percent compared with third quarter 2012 net charge-offs of $156 million, and declined 38 percent versus fourth quarter 2011 net charge-offs of $239 million.

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