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Fifth Third Bancorp (

FITB

)

Q3 2010 Earnings Call

October 21, 2010 09:00 am ET

Executives

Jeff Richardson - Director of IR

Kevin Kabat - President & CEO

Dan Poston - CFO

Mary Tuuk - CRO

Analysts

Craig Siegenthaler - Credit Suisse

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Betsy Graseck - Morgan Stanley

Paul Miller - FBR Capital Market

Matthew O’Connor - Deutsche Bank

Matthew Burnell - Wells Fargo Securities

Mike Mayo - CLSA

Presentation

Operator

Compare to:
Previous Statements by FITB
» Fifth Third Bancorp Q2 2010 Earnings Call Transcript
» Fifth Third Bancorp Q1 2010 Earnings Call Transcript
» Fifth Third Bancorp Q4 2009 Earnings Call Transcript
» Fifth Third Bancorp Q3 2009 Earnings Call Transcript

Good morning. My name is Tiffany and I will be you conference operator today. At this time, I'd like to welcome everyone to the Fifth Third Bancorp Third Quarter 2010 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

I will now turn the conference over to Jeff Richardson, Director of Investor Relations. Please go ahead.

Jeff Richardson

Hello and thanks for joining us this morning. Today, we’ll be talking with you today about our third quarter 2010 results. This call may contain certain forward-looking statements about Fifth Third 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 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’m joined on the call by several people. Kevin Kabat, our 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’ll turn the call over to Kevin Kabat. Kevin?

Kevin Kabat

Thanks, Jeff. Good morning, and thanks for joining us, everyone. I’ll make some opening comments and then hand the call over to Dan and Mary for a more detailed discussion of our financial and credit performance. We've again posted a presentation on our website to facilitate our discussion.

For the third quarter, we reported strong earnings results which built upon solid second quarter levels. Net income was $238 million, up 24% with $175 million or $0.22 available to common shareholders and that was up 38% sequentially. Third quarter results included the effective credit actions we took during the quarter to further reduce risk in our portfolio. Those actions reduced pre-tax earnings by approximately $175 million in the form of higher provision expenses.

Results also included a positive effect of a net $127 million litigation settlement stemming from one of our BOLI policies that was announced during the quarter. Return on average assets was 84 basis points and the best performance we’ve posted since the first quarter of 2008.

Let me talk a little bit about some high level operating results. Pre-provision net revenue of $760 million increased 34% compared with last quarter driven by very strong mortgage revenue in the BOLI settlement I just mentioned. Excluding the BOLI-related benefit, PPNR was $633 million, 12% better than the second quarter. This was driven by strong mortgage revenue and growth in investment advisory revenue.

Additionally, net interest income increased $29 million and the margin expanded 13 basis points to 370. We continued to benefit from re-pricing of our CD book and the management of deposits in general given our significant excess liquidity. As expected, we also saw some loan growth during the quarter particularly in higher yielding C&I and consumer books which is a good sign. We’ve been pleased with our lending volumes throughout the year, particularly in the C&I, which has always been one of our strengths.

Originations volumes were offset in the first half of the year with higher pay downs than normal. During the third quarter, our C&I origination volumes exceeded pay downs. In fact, C&I originations were more than $1.1 billion per month in the quarter which is the highest we've ever seen, up from just under $1 billion per month of originations last quarter.

Pay downs remain high, but we seem to have reached a point of equilibrium. We're hopeful we're beginning to see the first signs of sustained loan growth. I think this is direct result of continued focus on core business activity by our loan officers and sales people. Originations were broad-based, high quality and diversified both geographically and by asset class, driven particularly by growth in healthcare and manufacturing, two industries that are recovering well. We aimed during the crisis to ensure that we were well-positioned when things begin to turn; I believe we've done just that.

As I noted, third quarter fee income results were also very strong, driven by a significantly higher mortgage banking revenue. Total noninterest income was up 33% sequentially, including the BOLI benefit and excluding this benefit noninterest income was up 9%.

Mortgage banking net revenue of $232 million increased $118 million from last quarter as historically low mortgage rates drove a high level of refinancings during the quarter. Our total originations were $5.6 billion, up nearly $2 billion from last quarter.

Deposit fees were down just 4% despite Reg E, which was a pretty good result and investment advisory revenue was up 4% from the second quarter has improved sales production in better markets resulted in strong net asset and account growth.

Average loans were flat on a percentage basis compared with the quarter. Period end balances grew almost $1 billion before our credit actions at the end of the quarter. Growth in C&I contributed the positive loan momentum as well as auto loans and mortgages.

Average core deposits were down 2% sequentially and up 8% over 2009 levels. As expected, the sequential decline included $1.1 billion in CD runoff and a reduction in non-relationship pub funds deposits of about $1.2 billion. Excluding public funds and CDs, transaction deposits increased 1% sequentially and increased 19% year-over-year.

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