Fifth Third Bancorp (FITB)

Q4 2010 Earnings Call

January 19, 2011 5:30 pm ET

Executives

Kevin Kabat - Chairman, Chief Executive Officer, President, Chairman of Finance Committee, Member of Trust Committee and Chief Executive Officer of Cincinnati at Fifth Third Bank

Jeff Richardson - Director of Investor Relations and Corporate Analysis

Mary Tuuk - Chief Risk Officer and Executive Vice President

Daniel Poston - Chief Financial Officer and Executive Vice President

Analysts

Brian Foran - Goldman Sachs

Robert Patten - Morgan Keegan & Company, Inc.

Matthew O'Connor - Deutsche Bank AG

Presentation

Operator

Good evening. My name is Daniella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I would now like to turn the call over to Mr. Jeff Richardson, director of Investor Relations. Sir, you may begin your conference.

Jeff Richardson

Thanks. Hello, and thanks for joining us this evening. Today, we'll be talking with you about our full year and fourth 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 these factors in our forward-looking cautionary statement, at the end of our earnings release and on 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 evening and thanks for joining us. We appreciate your time and expect you seeing both that we announced earnings after the market closed today and also that we have announced an offering to issue $1.7 billion in common stock, with the intention of using the proceeds of that offering, a planned senior debt offering and other available funds to fully repay our TARP Preferred Stock of $3.4 billion, subject to notification and approval of the U.S. Treasury. This action would eliminate the annual $170 million reduction to net income to shareholders from the preferred dividend, plus another approximately $11 million in discount accretion that runs through the preferred dividend line every quarter. I'd note that the warrant associated with the TARP investment will remain outstanding after TARP is repaid, but we plan to engage the U.S. Treasury in discussions about their repurchase. If we can't reach agreement on their value, we'd evaluate participating in the auction.

I'll make a few remarks about our plans. But before we continue our discussion of earnings and our outlook, although those remarks will be limited because we've launched a Securities offering. We have discussed with you for the past year or so our thoughts about TARP repayment. We believed it was important that we generate the kind of results that we have been generating and have just reported, that we allow time for the demonstration that economic trends were well-established and that we await more clarity related to capital standards and industry capital levels, clarity that was important for ourselves and also for regulators. We have had ongoing dialogue with regulators on this topic, including these plans. We believe that the conditions we were waiting for now exist and that now is the right time for us to repay TARP. We have carefully considered the size of the capital raise in light of an assessment of our capital needs, industry capital levels, regulatory expectation, the Basel III proposals and the desire for future flexibility in capital management policy and for the opportunities that we expect to be available to us as we emerge from the cycle. These actions are expected to produce the capital position that is in excess of our internal targets and the Basel III fully phased in minimums. Our Tier 1 common equity ratio, pro forma for the offering and TARP repayment would be 9% versus our internal target in the 8% range. We believe this will position us for maximum flexibility in managing capital and pursuing growth opportunities.

We have provided more information about our plans and their pro forma effects in the appendix of this earnings presentation that we'll walk through today. There are many questions you may want to ask us on this call that we won't be able to answer, either because we've launched a Securities offering or we can't answer it for other reasons related to regulatory confidentiality. We try to be pretty open and transparent about our own company, but legal and regulatory considerations limit what I can say about these topics at this time.

Now with that behind us, I'll make some opening comments about fourth quarter and 2010 earnings, and then hand the call over to Dan and Mary for a more detailed discussion of our financial and credit performance and outlook. As I noted, we've posted a presentation on our website to facilitate our discussion. Let's get started on Page 3.

Today we reported full year net income to common shareholders of $503 million or $0.63 per common share, compared with full year 2009 earnings of $511 million, which included a $1.1 billion after-tax gain from the sale of our interest in our processing business. For the fourth quarter, we continued our strong momentum and posted a $0.33 per share profit and ROA approaching 1.2%. Net income was $333 million, up 40% and ROE was 10%. Those were very strong results and show the core earnings power of our company.

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