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CINCINNATI (

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Fifth Third Bancorp

(FITB) - Get Fifth Third Bancorp Report

Thursday reported third-quarter net income available to common shareholders of $175 million, or 22 cents a share, beating the consensus of 17 cents among analysts polled by Thomson Reuters.

Earnings available to common shareholders exclude $63 million in dividends on preferred shares, including $3.4 billion held by the Treasury for bailout assistance through the Troubled Assets Relief Program, or TARP.

In comparison, net income available to common shareholders was $130 million, or 16 cents a share, during the second quarter. In the third quarter of 2009, Fifth Third reported a net loss to common shareholders of $159 million, or 20 cents a share.

Fifth Third's provision for loan and lease losses during the third quarter was $457 million, increasing from $325 million the previous quarter but declining considerably from $952 million a year earlier. Net charge-offs -- loan losses less recoveries -- during the third quarter increased to $956 million from $434 million in the second quarter and $756 million in the third quarter of 2009. Third-quarter net charge-offs included $510 million from the transfer of $899 million in nonperforming assets to held-for-sale. This move lowered the company's nonperforming assets -- including nonaccrual portfolio loans and repossessed real estate -- to $2.8 billion or 2.03% of total assets, compared nonperforming asset ratios of 2.41% in June and 2.92% in September 2009.

With third quarter net charge-offs of more than twice the provision for reserves, Fifth Third "released" $499 million in loan loss reserves, which directly affected the bottom line and followed the trend for the largest U.S. bank holding companies, including

Citigroup

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, which released $1.8 billion from loan loss reserves;

Bank of America

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, which also released $1.8 billion from reserves;

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Wells Fargo

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, which released $650 million from reserves; and

JPMorgan Chase

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, which released $1.7 billion from reserves.

Fifth Third's annualized ratio of net charge-offs to average loans for the third quarter was 4.95%, increasing from 2.26% the previous quarter and 3.75% a year earlier. Loan loss reserves covered 4.51% of total loans as of September 30.

Amid overall weakness in industry loan demand, the company reported stronger origination activity in commercial and industrial loans, as well as auto loans.

The net interest margin -- essentially the average yield on loans and investments less the average cost for deposits and borrowings -- for the third quarter was 3.70%, increasing from 3.57% the previous quarter and 3.43% in the third quarter of 2009, as CD deposits continued to run-off and the company underwent "mix shift towards higher-yielding loans, primarily C&I and consumer loans."

Fifth Third said that even without including the TARP money, its capital ratios "exceed Basel III proposed standards." The company's Tier 1 risk-based capital ratio was 13.85%, more than twice the level required for most banks to be considered

well-capitalized

by U.S. regulators. The tangible common equity ratio was 6.70% as of September 30, but Fifth Third said it would have been "7.06 percent including unrealized gains/losses."

CEO Kevin Kabat noted that the company had sold about half of its nonperforming residential mortgages during the third quarter and transferred about one-third of its nonperforming commercial loans to held-for-sale, adding "while the financial landscape and financial regulation continue to evolve, we believe our strengths in traditional lending and deposit-taking activities, and our strong customer service, position us very well to compete and succeed in the future

Fifth Third's shares closed at $12.40 Wednesday, up 27% year to date. Out of 23 analysts covering the company, five have buy ratings, 15 recommend investors hold and three have sell ratings.

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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.