Fifth Third Bancorp Q1 2010 Earnings Call Transcript

Fifth Third Bancorp Q1 2010 Earnings Call Transcript
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Fifth Third Bancorp (FITB)

Q1 2010 Earnings Call

April 22, 2009 9:00 am ET

Executives

Jeff Richardson - SVP, Investor Relations

Kevin Kabat - Chairman, President and CEO

Dan Poston - CFO

Mary Tuuk - Chief Risk Officer

Mahesh Sankaran - Treasurer

Analysts

Kevin St. Pierre - Bernstein

Craig Siegenthaler - Credit Suisse

Paul Miller - FBR Capital Markets

Brian Foran - Goldman Sachs

Bob Patten - Morgan Keegan

Presentation

Operator

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Good morning. My name is Ashley and I'll be you conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp first quarter 2010 Earnings Call. (Operator Instructions). Mr. Jeff Richardson, you may begin.

Jeff Richardson

Hi everyone and thanks for joining us this morning. We'll be talking with you today about our first quarter 2010 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 historical performance in these statements.

We've identified a number of these factors in our forward-looking cautionary statement at the end of our earnings release and 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 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'll turn the call over to Kevin Kabat. Kevin?

Kevin Kabat

Thanks, Jeff. Good morning and thanks for joining us. I’ll make some opening comments and then hand the call over to Mary and Dan for more detailed discussion of our credit and financial performance.

Overall results continue to show good progress in both credit trends and continued operating momentum. Credit results were significantly better in the first quarter, following improved results in the fourth quarter as well.

On a sequential basis, net charge-offs were $582 million, down $126 million from last quarter. NPAs were down $115 million and loans 90 days past due were down $131 million.

Commercial NPL inflows of $405 million fell roughly $200 million on a sequential basis. The consumer inflows of $137 million fell by $15 million, so good positive momentum in all three of the key credit metrics.

Our current expectation is for net charge-offs to be down again next quarter by another $100 million or so, with $15 million to $20 million of that coming from consumer and the rest in commercial.

Our outlook for the year, generally, is for stable to improving credit results although we may see particular credit metrics bounce around from quarter-to-quarter; let assume the economy continues to cooperate.

Our reserve position remained strong at 4.9% of loans and 139% of NPLs. Given the trajectory of delinquency and loss trends, we currently expect loan loss reserves to decline beginning in the second quarter.

Obviously, we'll have to evaluate reserves in the context of actual credits trends at the end of the quarter, the modeling of reserves is fairly complex as you know and the results of that exercise is not something that I can really predict as we stand here today.

We'd expect the need for reserves to decline over time, provided that loss content in the portfolio continues to improve and assuming economic conditions remain consistent with our current outlook.

Let me give you some high level operating results. Our pre-tax, pre-provision net revenue came in better than expected, rising $6 million on a sequential basis to $568 million. PPNR is up 11% on a reported basis from the first quarter a year ago. That growth was 15% excluding revenue and expenses. We deconsolidated in the processing transaction of $54 million pre-tax BOLI charge last year and securities gains and losses from both periods. That’s a strong result over a pretty challenging time period.

We currently expect second quarter PPNR to be consistent with the first quarter and Dan will talk more about the components of our operating expectations in his remarks.

The net interest margin increased 8 bps sequentially coming in at 3.63% and net interest income increased $19 million sequentially.

Fees of $627 million were down $24 million sequentially. That reflects typical seasonality as well as a number of moving parts, which Dan will outline. Underlying fee trends, however, remained favorable.

Average transaction deposits were up 9% on a sequential basis with about $700 million of growth in DDA balances and $3.2 billion of growth in interest checking. Our strong deposit growth and muted asset trends have created a lot of liquidity. Wholesale funding was down $1.9 million sequentially and $14.7 billion on a year-over-year basis.

Credit related cost recognized in revenue and expenses remained elevated. They totaled $92 million this quarter, compared with $103 million last quarter and $155 million in the third quarter of '09. We built our reserves for mortgage repurchases by about $25 million this quarter, which was offset by gains on loan sales.

Otherwise, credit costs were down modestly this quarter, and Dan will discuss those moving parts in more detail.

We continued to make progress on our customer satisfaction initiatives. Survey results put our satisfaction at the top of the industry. I think we are seeing tangible results from these improvements. We are now averaging more than four products per retail customer compared to less than three a couple of years ago.

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