5/3 3Q
Fifth Third Bancorp /quotes/comstock/15*!fitb/quotes/nls/fitb (FITB 12.56, -0.16, -1.26%) today reported third quarter 2010 net income of $238 million compared with net income of $192 million in the second quarter and a net loss of $97 million in the third quarter of 2009. After preferred dividends, the third quarter 2010 net income available to common shareholders was $175 million or $0.22 per diluted share, compared with second quarter net income of $130 million or $0.16 per diluted share, and a net loss of $159 million or $0.20 per diluted share in the third quarter of 2009.
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As noted, we took action to sell about half of our residential mortgage nonperforming loans in the quarter. We also transferred approximately a third of our commercial nonperforming loans – largely loans tied to real estate – to loans held-for-sale. These loans represented situations where we believed a near-term sale was a better solution than the prospects for workout or rehabilitation of the relationship. Disposing of these loans further reduces Fifth Third’s exposure to future real estate losses in what is anticipated will be a slow recovery in that sector. The recognition of these losses will have a beneficial impact on charge-offs in the fourth quarter of 2010 and in 2011. We currently expect fourth quarter net charge-offs will be less than $400 million with improving trends, which would represent less than 2 percent of loans on an annualized basis, given our current expectations for credit trends and the economy.
Nonperforming assets and loans held-for-investment declined by almost $900 million, largely as a result of these actions. The third quarter NPA ratio was 2.7 percent and the NPL ratio was 2.0 percent of loans – the lowest levels we’ve reported since 2008. Nonaccrual inflows declined for the fourth straight quarter. Loan loss reserves of 4.20 percent of loans were reduced by reserves associated with the loans sold or transferred as well as to reflect improvement in the underlying characteristics of the remaining portfolio. Reserve coverage levels remain strong, at 202 percent of NPLs and 153 percent of NPAs. We currently expect provision expense in the fourth quarter to be less than half that recorded this quarter and for reserve levels to continue to trend down, given our expectation of a stable to improving economic environment and credit trends.
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