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Fifth Third Bancorp Reports Third Quarter 2006 Earnings of $0.68 Per Diluted Share
CINCINNATI, Oct. 19 /PRNewswire-FirstCall/ -- Fifth Third Bancorp's (NASDAQ: FITB) third quarter 2006 earnings per diluted share were $0.68 compared to $0.69 in the second quarter of 2006 and $0.71 per diluted share for the same period in 2005. Third quarter net income totaled $377 million compared with $382 million last quarter and $395 million in the same quarter last year. "Third quarter results reflect a net interest margin that has begun to stabilize given moderation of short-term interest rate increases and our disciplined efforts to improve our balance sheet positioning," said George A. Schaefer, Jr., Chairman and CEO of Fifth Third Bancorp. "Additionally, noninterest income growth was within our expectations and expense control was solid, though we continue to invest in better distribution throughout our footprint. Credit costs remained relatively stable with previous quarters, though we recognize at this point in the credit cycle that some modest deterioration over time is to be expected. We remain focused on the long-term interests of our shareholders and believe we are making the right decisions to improve our franchise and position it for sustainable long-term growth." Net Interest Income Net interest income on a taxable equivalent basis increased slightly from last quarter despite a two bps decline in the net interest margin. Earning assets remained relatively flat reflecting an $819 million reduction in the available-for-sale securities portfolio. Margin compression lessened during the quarter on the moderation in short-term rate increases, and was less than initially expected due to better demand deposit trends in the latter part of the quarter. Net interest income decreased three percent compared with the third quarter 2005 on two percent growth in average earning assets, reflecting a 17 bps decline in the net interest margin. Margin compression resulted primarily from the prolonged and significant flattening of the yield curve, decreases in the net interest rate spread associated with increases in rates paid across deposit and other funding categories, and mix shift within the deposit base to higher cost deposit categories. Despite strong loan growth, earning asset growth trends relative to the same quarter last year have been muted by a $3.5 billion reduction in the average available-for-sale securities portfolio. Fifth Third is focused on maintaining recent strong loan growth trends and growing core deposit balances in order to improve the funding mix, more effectively fund future loan growth and improve net interest margin trends. Noninterest Income Noninterest income increased by one percent compared with last quarter and six percent over the same quarter last year. Strong performance in electronic payment processing and corporate banking revenues were mitigated by trends in deposit service charges and mortgage banking revenue. Electronic payment processing (EPP) revenue increased three percent sequentially largely reflecting strong growth in the merchant business, mitigated by the effects of slower consumer spending on EFT revenue. EPP revenue increased 15 percent over the same quarter last year on strong increases in EFT revenue and slower growth in the merchant business. Growth in the merchant business is expected to increase as national merchant contract additions announced throughout 2006 begin to be fully realized. Fifth Third remains confident in the near and intermediate term growth outlook in this business and continues to see significant opportunities in attracting new financial institution customers and retailers. Deposit service revenue was stable compared with last quarter and declined two percent compared with the same quarter last year. Retail deposit revenue increased by four percent sequentially while commercial deposit revenue declined by five percent sequentially. Sequential growth in commercial relationships was more than mitigated by the impact of higher interest rates on earnings credits for compensating balances in deposit accounts. Compared with the same quarter last year, solid retail deposit account growth was offset by lower average balances, and higher earnings credit rates on commercial deposit accounts more than offset new account additions and treasury management product sales. Investment advisory revenue declined eight percent versus a seasonally strong second quarter that reflected annually assessed trust and tax related fees. Results were flat compared with the same quarter last year. Fifth Third continues to focus its efforts on improving execution in retail brokerage and retail mutual funds, and on growing the institutional money management business by improving penetration and cross-sell in our large middle market commercial customer base. Corporate banking revenue totaled $79 million in the third quarter, a decline of four percent sequentially, primarily reflecting lower fees associated with letters of credit. Revenue increased 11 percent over the $71 million earned in the same quarter last year, highlighted by increases in institutional fees and other commercial fees. Mortgage banking net revenue totaled $36 million, reflecting $21 million in total origination fees and loan sales and $15 million in net servicing revenue, compared with $41 million last quarter and $45 million a year ago. Mortgage originations were $2.3 billion in the third quarter versus $2.6 billion last quarter and $2.9 billion in the third quarter of 2005. Net servicing revenue included $30 million of gross servicing fees, less $18 million in amortization, plus $3 million in net MSR valuation adjustment. The net MSR valuation adjustment included mark-to-market adjustments, settlement of free-standing derivative financial instruments, and corresponding valuation adjustments, resulting from interest rate volatility and the resulting impact of changing prepayment speeds on the mortgage servicing portfolio. The mortgage servicing asset, net of the valuation reserve, was $498 million at quarter end on a servicing portfolio of $27.8 billion, compared with $483 million last quarter on a servicing portfolio of $27.1 billion. Other noninterest income totaled $87 million in the third quarter, compared with $76 million last quarter and $82 million in the same quarter last year. The increases reflect net gains totaling $10.5 million from the sale of three Indiana branches announced in May 2006 and the sale of $23 million of out-of-footprint credit card receivables, both completed in September. Strength in cardholder and loan fees otherwise offset the effect of runoff in the consumer lease portfolio. Net securities gains totaled $19 million in the third quarter, compared with $14 million last quarter and $8 million in the same quarter last year. Third quarter 2006 net securities gains included a $53 million gain from sale of MasterCard, Inc. shares. Results also included $34 million of losses on investment securities. Noninterest Expense Total noninterest expense increased by $8 million or one percent from second quarter 2006 levels and by five percent over the same quarter last year. Comparisons reflect an $11 million charge in the third quarter associated with the early extinguishment of debt in the form of a $300 million structured repurchase agreement. Sequential comparisons also reflect an additional $8 million of pension settlement expenses, similar to the level experienced in the third quarter of last year. Second quarter expenses included $9 million of expense related to the April 2006 issuance of stock- based awards to retirement-eligible employees. Excluding the above-mentioned items, noninterest expense was flat sequentially and increased three percent compared with last year. The remaining increase versus the year ago quarter primarily reflected higher volume-related bankcard expenditures and occupancy expenditures related to the addition of de-novo banking centers. Fifth Third's efficiency ratio was 55.5 percent in the third quarter compared to 55.3 percent last quarter and 53.5 percent in the third quarter of 2005. Balance Sheet Trends Average core deposits were relatively stable with second quarter levels, declining one percent on lower interest checking, demand and money market deposits, largely offset by growth in retail CDs and savings deposits. Compared with the third quarter last year, average core deposits rose five percent on growth in savings, retail CDs and money market accounts. Fifth Third continues to devote significant focus on attracting new deposit accounts and retaining existing accounts in order to fund loan growth. Average loan and lease balances grew one percent sequentially, or five percent annualized. Average loans and leases increased by $5.4 billion, or eight percent, over third quarter last year. Commercial loans grew ten percent compared with the year ago and consumer loans grew five percent. Excluding run-off in the consumer lease portfolio totaling $524 million, loans and leases grew nine percent versus last year. Credit Quality Net charge-offs as a percentage of average loans and leases were 43 bps in the third quarter, compared with 37 bps last quarter and 38 bps in the third quarter of 2005. Net charge-offs were $79 million in the third quarter, compared with $64 million in the same quarter last year and $67 million in the second quarter of 2006. Gross charge-offs were $96 million, or 53 bps of loans and leases, consistent with levels in the prior two quarters. Recoveries were $17 million in the third quarter, down $12 million from high second quarter recovery levels. Nonperforming assets were 56 bps of total loans and leases and other real estate owned at quarter end, up 7 bps sequentially, with the net increase largely driven by two credits totaling $32 million. Nonperforming assets were 49 bps last quarter and 51 bps in the third quarter a year ago. Overall, the level of nonperforming loans and net charge-offs continues to represent a relatively small percentage of the total loan and lease portfolio. The provision for loan and lease losses totaled $87 million in the third quarter compared with $71 million last quarter and $69 million in the same quarter last year. The allowance for loan and lease losses represents 1.04 percent of total loans and leases outstanding as of quarter end, compared with 1.04 percent last quarter and 1.06 percent in the same quarter last year. Conference Call Fifth Third will host a conference call to discuss these third quarter financial results at 8:30 a.m. (Eastern Time) today. Investors, analysts and other interested parties may dial into the conference call at 877-309-0967 for domestic access and 706-679-3977 for international access (password: Fifth Third). A replay of the conference call will be available for approximately seven days by dialing 800-642-1687 for domestic access and 706-645-9291 for international access (passcode: 7132813#). Corporate Profile Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $105.8 billion in assets, operates 19 affiliates with 1,145 full-service Banking Centers, including 115 Bank Mart(R) locations open seven days a week inside select grocery stores and 2,114 Jeanie(R) ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania and Missouri. Fifth Third operates five main businesses: Commercial Banking, Branch Banking, Consumer Lending, Investment Advisors and Fifth Third Processing Solutions. Fifth Third is among the largest money managers in the Midwest and, as of September 30, 2006, has $215 billion in assets under care, of which it manages $32 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at http://www.53.com/. Fifth Third's common stock is traded through the NASDAQ(R) National Global Select Market System under the symbol "FITB." This report may contain forward-looking statements about the Registrant and/or the company as combined with acquired entities within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. This report may contain certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Registrant and/or the combined company including statements preceded by, followed by or that include the words or phrases such as "believes," "expects," "anticipates," "plans," "trend," "objective," "continue," "remain" or similar expressions or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions increase significantly; (2) changes in the interest rate environment reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (4) general economic conditions, either national or in the states in which the Registrant, one or more acquired entities and/or the combined company do business, are less favorable than expected; (5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) changes and trends in the securities markets; (7) legislative or regulatory changes or actions, or significant litigation, adversely affect the Registrant, one or more acquired entities and/or the combined company or the businesses in which the Registrant, one or more acquired entities and/or the combined company are engaged; (8) difficulties in combining the operations of acquired entities and (9) the impact of reputational risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Bancorp's Annual Report on Form 10-K for the year ended December 31, 2005, filed with the United States Securities and Exchange Commission (SEC). Copies of this filing are available at no cost on the SEC's Web site at http://www.sec.gov/ or on the Registrant's Web site at http://www.53.com/. The Registrant undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report. Fifth Third Bancorp and Subsidiaries
Financial Highlights
$ in millions, except per share data
(unaudited)
For the Three Months Ended % Change
September June September
2006 2006 2005 Yr/Yr Seg
Income Statement Data
Net interest income (a) $719 $716 $745 (3%) -
Noninterest income 662 655 622 6% 1%
Total revenue (a) 1,381 1,371 1,367 1% 1%
Provision for loan and lease
losses 87 71 69 26% 22%
Noninterest expense 767 759 732 5% 1%
Net income 377 382 395 (5%) (1%)
Common Share Data
Earnings per share, basic $0.68 $0.69 $0.71 (4%) (1%)
Earnings per share, diluted 0.68 0.69 0.71 (4%) (1%)
Cash dividends per common share 0.40 0.40 0.38 5% -
Book value per share 17.96 17.13 16.93 6% 5%
Dividend payout ratio 58.8% 58.0% 53.5% 10% 1%
Market price per share:
High $40.18 $41.02 $43.99 (9%) (2%)
Low 35.95 35.86 36.38 (1%) -
End of period 38.08 36.95 36.75 4% 3%
Common shares outstanding
(in thousands) 558,066 557,894 554,400 1% -
Average common shares
outstanding (in thousands):
Basic 555,565 554,978 553,855 - -
Diluted 557,949 557,489 557,681 - -
Market capitalization $21,251 $20,614 $20,374 4% 3%
Price/earnings ratio (b) 14.53 13.94 14.76 (2%) 4%
Financial Ratios
Return on average assets 1.41% 1.45% 1.51% (7%) (3%)
Return on average equity 15.1% 16.0% 16.6% (9%) (6%)
Noninterest income as a percent
of total revenue 48% 48% 46% 4% -
Average equity as a percent of
average assets 9.33% 9.09% 9.11% 2% 3%
Tangible equity 7.40% 6.92% 6.84% 8% 7%
Net interest margin (a) 2.99% 3.01% 3.16% (5%) (1%)
Efficiency (a) 55.5% 55.3% 53.5% 4% -
Effective tax rate 27.6% 28.5% 29.2% (5%) (3%)
Credit Quality
Net losses charged off $79 $67 $64 23% 18%
Net losses charged off as a
percent of average loans
and leases 0.43% 0.37% 0.38% 13% 16%
Allowance for loan and lease
losses as a percent of loans
and leases 1.04% 1.04% 1.06% (2%) -
Allowance for credit losses as
a percent of loans and leases 1.14% 1.14% 1.16% (2%) -
Nonperforming assets as a
percent of loans, leases
and other assets, including
other real estate owned 0.56% 0.49% 0.51% 10% 14%
Average Balances
Loans and leases, including
held for sale $73,938 $73,093 $68,556 8% 1%
Total securities and other
short-term investments 21,582 22,439 24,915 (13%) (4%)
Total assets 105,868 105,741 103,699 2% -
Transaction deposits 48,543 49,282 47,568 2% (1%)
Core deposits 59,337 59,731 56,298 5% (1%)
Wholesale funding 33,040 32,903 34,615 (5%) -
Shareholders' equity 9,878 9,607 9,451 5% 3%
Regulatory Capital Ratios (c)
Tier I capital 8.59% 8.52% 8.42% 2% 1%
Total risk-based capital 10.55% 10.45% 10.54% - 1%
Tier I leverage 8.54% 8.38% 7.93% 8% 2%
Operations
Banking centers 1,145 1,138 1,106 4% 1%
ATMs 2,114 2,034 1,996 6% 4%
Full-time equivalent
employees 21,301 21,230 21,674 (2%) -
Fifth Third Bancorp and Subsidiaries
Financial Highlights
$ in millions, except per share data
(unaudited)
Year to Date % Change
September September
2006 2005 Yr/Yr
Income Statement Data
Net interest income (a) $2,154 $2,262 (5%)
Noninterest income 1,934 1,864 4%
Total revenue (a) 4,088 4,126 (1%)
Provision for loan and lease losses 236 197 20%
Noninterest expense 2,257 2,164 4%
Net income 1,123 1,217 (8%)
Common Share Data
Earnings per share, basic $2.02 $2.19 (8%)
Earnings per share, diluted 2.01 2.18 (8%)
Cash dividends per common share 1.18 1.08 9%
Book value per share 17.96 16.93 6%
Dividend payout ratio 58.7% 49.5% 19%
Market price per share:
High $41.43 $48.12 (14%)
Low 35.86 36.38 (1%)
End of period 38.08 36.75 4%
Common shares outstanding
(in thousands) 558,066 554,400 1%
Average common shares outstanding
(in thousands):
Basic 554,985 554,687 -
Diluted 557,440 559,158 -
Market capitalization $21,251 $20,374 4%
Price/earnings ratio (b) 14.53 14.76 (2%)
Financial Ratios
Return on average assets 1.42% 1.59% (11%)
Return on average equity 15.5% 17.6% (12%)
Noninterest income as a percent
of total revenue 47% 45% 4%
Average equity as a percent of
average assets 9.19% 9.04% 2%
Tangible equity 7.40% 6.84% 8%
Net interest margin (a) 3.03% 3.27% (7%)
Efficiency (a) 55.2% 52.4% 5%
Effective tax rate 28.9% 30.1% (4%)
Credit Quality
Net losses charged off $219 $183 20%
Net losses charged off as a percent of
average loans and leases 0.41% 0.37% 11%
Allowance for loan and lease losses as a
percent of loans and leases 1.04% 1.06% (2%)
Allowance for credit losses as a percent
of loans and leases 1.14% 1.16% (2%)
Nonperforming assets as a percent
of loans, leases and other assets,
including other real estate owned 0.56% 0.51% 10%
Average Balances
Loans and leases, including held
for sale $72,896 $66,812 9%
Total securities and other short-term
investments 22,309 25,578 (13%)
Total assets 105,452 102,501 3%
Transaction deposits 48,923 47,591 3%
Core deposits 59,257 55,862 6%
Wholesale funding 33,022 34,089 (3%)
Shareholders' equity 9,696 9,262 5%
Regulatory Capital Ratios (c)
Tier I capital 8.59% 8.42% 2%
Total risk-based capital 10.55% 10.54% -
Tier I leverage 8.54% 7.93% 8%
Operations
Banking centers 1,145 1,106 4%
ATMs 2,114 1,996 6%
Full-time equivalent employees 21,301 21,674 (2%)
(a) Presented on a fully taxable equivalent basis
(b) Based on the most recent twelve-month diluted earnings per share and
end of period stock prices
(c) Current period regulatory capital ratios are estimates
To view complete financial tables, please refer to the Investor Relations section located under "About Fifth Third" at http://www.53.com/. This information may also be accessed via the SEC website at http://www.sec.gov/. Website: http://www.53.com/ |
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