Fifth Third Bancorp (FITB)

Q4 2012 Earnings Call

January 17, 2013 9:30 am ET

Executives

Jeff Richardson - Director of Investor Relations and Corporate Analysis

Kevin T. Kabat - Vice Chairman, Chief Executive Officer, Member of Finance Committee and Member of Trust Committee

Daniel T. Poston - Chief Financial officer and Executive Vice President

Analysts

Ian Foley - Jefferies & Company, Inc., Research Division

Brian Foran

Ken A. Zerbe - Morgan Stanley, Research Division

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Jessica Levi-Ribner

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Ebrahim H. Poonawala - BofA Merrill Lynch, Research Division

Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good morning. My name is Pamela, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bank Earnings Conference Call. [Operator Instructions] I will now turn the call over to Jeff Richardson, Director of Investor Relations. You may begin.

Jeff Richardson

Thanks, Pamela. Good morning. Today, we'll be talking with you about our full year and fourth quarter 2012 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 some of these factors in our forward-looking cautionary statement at the end of our earnings release and in other materials, and we encourage you to review them. Fifth Third undertakes no obligation and would not expect to update any such forward-looking statement after the date of this call.

I'm joined on the call by several people: our CEO, Kevin Kabat; and CFO, Dan Poston; as well as Greg Schroeck from Credit; Tayfun Tuzun, from Treasury; and Jim Eglseder from 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 T. Kabat

Thanks, Jeff. Good morning, everyone. We know it's a busy morning for you.

Before we go through the quarter, I want to make some comments about 2012 as a whole. While the interest rate and regulatory environment certainly were not favorable, Fifth Third results demonstrated the many core strengths of our company. We worked hard to position ourselves to take advantage of opportunities when they returned and have the infrastructure in place to execute. We focused on the long term when it was difficult to do so. Those results show up in some areas very clearly, such as mortgage banking, where revenue is up 41%, and corporate banking revenue, up 18% this year. Less obvious is the important work we've done in areas where year-over-year revenue is down but where quarterly results are trending up, such as deposit service charges and card processing revenue.

Overall, net income of $1.6 billion, the second highest in the company's history, and net income to common shareholders increased 41% over last year. Earnings per diluted share were $1.66, also up 41% from a year ago. For the year, we posted a return on assets of 1.34% and a return on average top -- tangible common equity of 14.3%, up from 11.4% in 2011. I'm pleased with our ability to produce these results in the midst of a relatively weak economic recovery and significant regulatory changes.

We remain committed to our markets, which is demonstrated through our strong deposit and loan growth results. For the full year, average

transaction deposits increased 8% and loans grew 6%, including a very strong fourth quarter. Credit quality metrics showed continued and significant improvement, the charge-offs for the year down 40% and nonperforming assets down nearly 30%. And we returned nearly $1 billion in capital to shareholders while maintaining and, actually, growing already very strong equity capital levels. We've posted a very good year on nearly all fronts, considering the environment, and we believe that provides the solid foundation to build on as we enter a new year.

Let me talk a little bit about then some highlights of the fourth quarter. Fifth Third reported fourth quarter net income to common shareholders of $390 million and earnings per diluted common share of $0.43, which is up 30% over last year. Earnings results included the impacts of the charges related to the FHLB prepayment and the gain on the Vantiv's share sale and a couple of other items, which Dan will discuss in more detail. Those items net to about a $0.02 negative impact on the quarter. Return on assets was 1.33%, and return on tangible common equity was 14.1%. In addition, tangible book value per share were $12.33, increased 2% sequentially and 10% from a year ago, despite the impact of repurchases and capital returned to shareholders.

Loan growth continue to be solid, with particular strength in C&I loans, up 4% sequentially. Total loan growth from a year ago was 5% despite modest runoff in the commercial real estate and home equity portfolios. C&I and residential mortgage loans increased year-over-year by 15% and 13%, respectively. We feel that our success in growing loans organically is due in large part to the investments we've made in those businesses over the past several years and is a core strength of Fifth Third.

Every caption in fee come -- fee income increased sequentially. Corporate banking revenue of $114 million was up 38% over the fourth quarter last year, so the strongest quarterly result in our history for that group and is reflective of their efforts and our investments over the past few years. Mortgage banking revenue continue to be very strong at $258 million, also a record of 65% over last year and 29% sequentially.

Credit trends continue to improve with net charge-offs down another 6% sequentially and nonperforming assets down $174 million or 12% sequentially. Total delinquencies were at the lowest level since the second quarter of 2004. Capital levels are very strong and well in excess of target levels and regulatory requirements. Tier 1 common was 9.5% under current capital rules, and under the proposed Basel III capital standards, we would estimate a fully phased-in Tier 1 common ratio of 8.8%.

During the quarter, we initiated 2 share repurchase transactions for a total of approximately $225 million of common stock. Most of the impact of those transaction is in the fourth -- is in our fourth quarter capital ratios while just 1/3 of the impact is reflected in our average share count. Our period-end share count was reduced by 38 million shares or 4% during the year. Our capital plan also included the possibility of an additional $125 million in common share repurchases through the end of March 2013. Our ability to generate capital and our strong capital level under Basel I or Basel III give us the ability to retain the capital we need to support balance sheet growth while continuing to return capital to shareholders in a prudent manner.

Read the rest of this transcript for free on seekingalpha.com

Copyright 2013 Seeking Alpha