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Fifth Third Bancorp Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 6, 2009 04:57PM
Fifth Third Bancorp (FITB) filed Quarterly Report for the period ended 2009-09-30. Fifth Third Bancorp is a registered financial holding company and a multi-bank holding company. They engage primarily in commercial retail and trust banking data processing services investment advisory services and leasing activities. In addition the company provides credit lifeaccident health and mortgage insurance discount brokerage services andproperty management for its properties. Fifth Third Bancorp has a market cap of $7.33 billion; its shares were traded at around $9.22 with and P/S ratio of 0.9. The dividend yield of Fifth Third Bancorp stocks is 0.4%. Fifth Third Bancorp had an annual average earning growth of 8% over the past 10 years.
Highlight of Business Operations:
During the third quarter of 2009, the Bancorp continued to be affected by a challenging credit environment and the continued economic slowdown. The Bancorps net loss for the quarter was $97 million. Preferred dividends of $62 million for the quarter included $53 million related to the Series F preferred stock held by the U.S. Treasury and $9 million paid to Series G preferred stock holders. Including preferred dividends, the net loss available to common shareholders was $159 million in the third quarter of 2009 compared to a net loss of $81 million in the third quarter of 2008. Diluted net loss per share was $0.20 in the third quarter of 2009 compared to a net loss of $.14 per diluted share in the third quarter of 2008.
Net interest income (FTE) decreased 18%, from $1.1 billion in the third quarter of 2008 to $869 million in third quarter of 2009. Net interest margin was 3.43% in the third quarter of 2009, a decrease of 81 basis points (bp) from the third quarter of 2008. Third quarter 2009 and 2008 results included $27 million and $226 million, respectively, in loan and deposit discount accretion related to
Noninterest income increased 19%, from $717 million in the third quarter of 2008 to $851 million in the third quarter of 2009. Third quarter 2009 results included a $244 million gain from the sale of the Bancorps Visa, Inc. Class B common shares and $38 million in revenue associated with the transition service agreement (TSA) entered into as part of the Processing Business Sale, which involved the sale of a majority interest in the Bancorps merchant acquiring and financial institutions processing businesses. As part of the sale, the Bancorp entered into the TSA, which requires the Bancorp to provide services to the processing business to support its operations during the deconversion period. Third quarter 2008 results included a $76 million gain related to a litigation settlement stemming from a prior acquisition, a $51 million reduction due to other than temporary impairment (OTTI) charges on Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) preferred stock, and a $27 million charge to lower the cash surrender value of a Bank-Owned Life Insurance (BOLI) policy. Excluding these items, and investment securities gains/losses in both periods, noninterest income of $561 million decreased by $199 million, or 26%, from third quarter 2008. The decline was largely driven by the impact of the sale of the processing business, which included the former merchant processing and financial institutions businesses that traditionally drove the majority of card and processing revenue.
Noninterest expense decreased 9%, or $91 million, compared to the third quarter of 2008 which was driven by a reduction in core expenses due to the sale of the processing business as well as broad-based expense control, partially offset by higher provision expense for unfunded commitments. Additionally, third quarter of 2009 results included the release of $73 million in Visa litigation reserves, which included a $44 million reduction in connection with the sale of the Bancorps Class B common shares, along with a $29 million reduction due to Visas funding of an additional $700 million into the litigation escrow account.
The Bancorp does not originate subprime mortgage loans, hold credit default swaps or hold asset-backed securities backed by subprime mortgage loans in its securities portfolio. However, the Bancorp has exposure to disruptions in the capital markets and weakening economic conditions. The housing markets that weakened throughout 2008, remained weak into the third quarter of 2009, particularly in the upper Midwest and Florida, however, home sales have signaled a reversal of their downward trends and home prices have begun to stabilize. Additionally, economic conditions remained weak as overall unemployment rates have continued to rise, putting significant stress on the Bancorps commercial and consumer loan portfolios. Consequently, the provision for loan and lease losses increased to $952 million for the third quarter of 2009 compared to $941 million for the third quarter of 2008. Net charge-offs as a percent of average loans and leases were 3.75% in the third quarter of 2009 compared to 2.17% in the third quarter of 2008. At September 30, 2009, nonperforming assets as a percent of loans, leases and other assets, including other real estate owned (OREO) and excluding nonaccrual loans held for sale, increased to 4.04% from 2.86% at September 30, 2008. Including $288 million of nonaccrual loans classified as held-for-sale in the third quarter of 2009, total nonperforming assets were $3.5 billion compared with $2.5 billion in the third quarter of 2008.David Tepper of APPALOOSA MANAGEMENT LP, Charles Brandes of Brandes Investment, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Lee Ainslie of Maverick Capital, Steve Mandel of Lone Pine Capital, Andreas Halvorsen of Viking Global Investors LP, John Paulson of Paulson & Co., Richard Snow of Snow Capital Management, L.P., Richard Snow of Snow Capital Management, L.P., Michael Price of MFP Investors LLC, David Dreman of Dreman Value Management, George Soros of Soros Fund Management LLC, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, John Keeley of Keeley Fund Management, Richard Pzena of Pzena Investment Management LLC.
Stocks Discussed: FITB,