Fifth Third Bancorp
Q3 2011 Earnings Call Transcript

Published: 20 Oct 2011

[Operator:]

Good morning, my name is Jamie and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp Third Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn our conference call over to Mr. Richardson, Director of Investor Relations. Sir, you may begin your conference.

[Jeff Richardson:]

Thanks, Jamie. Good morning. Today we'll be talking with you about our third quarter 2011 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 those factors in our forward-looking cautionary statement at the end of our earnings release and in 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 T. Kabat:]

Thanks, Jeff. Today, Fifth Third reported third quarter net income to common shareholders of $373 million and earnings per share of $0.40. That EPS result was up 14% sequentially and 82% from a year ago. Our return on assets rose to 1.34% and we generated return on tangible common equity of 15%. Additionally, tangible book value per share of $11.05 increased 5% sequentially and 13% from a year ago. It was a pretty strong result especially considering the slow economic growth, low interest rate environment that we're operating in. In fact, this is the highest quarterly net income we've reported since mid-2006, with the exception of the third quarter of '09, when we booked the processing joint venture gain. Total revenue grew 3% compared with the last quarter. The main driver of the growth was net interest income, which increased $33 million or 4%. Loan growth was solid, increasing $1.2 billion on an end of period basis or 2%. Fee income results were the strongest we've seen in more than 2 years, with mortgage results benefiting from a pickup in refinancing activity given the rate environment. Otherwise, there were a few unusual items that generally offset one another. Expenses were up from unusually low levels in the second quarter but included charges of $28 million related to the termination of debt and hedging transactions during the quarter. We expect expenses to be flat to modestly -- to up modestly in the fourth quarter due to higher expenses related to elevated mortgage volumes, and the potential for pension curtailment expense, which is typically required in the third or fourth quarter. We'll continue to manage expenses very carefully going forward, especially while the direction of the economic environment remains uncertain. Credit trends continue to show substantial improvement with net charge-offs falling to the lowest levels since 2007 and nonperforming assets declining by more than $140 million on a sequential basis to the lowest level since mid-2008. We continue to expect credit trends to improve going forward. Capital levels continue to be very strong and well in excess of regulatory requirements and targeted levels. Tier 1 common is 9.3% under current capital rules and we would estimate a fully phased-in Basel III Tier 1 common ratio of approximately 9.8%. And we believe that would place us among the highest of the top 20 U.S. banks. As a reminder, during the quarter, we increased our dividend by 33% to an annualized rate of $0.32 per share. This is our second dividend increase in 2011, and given our strong capital position and strong levels of profitability, we expect to be well positioned to continue to prudently increase the capital we return to shareholders. In terms of the broader context, the third quarter was extremely volatile. Expectations for economic growth in the U.S. have come down, although headlines recently have been better than expected and interest rates have declined to historically low levels. This is a very difficult rate environment for banking institutions, but as we demonstrated this quarter, we have the ability to generate net interest income growth despite the effects of the rate environment on the margin through the generation of loan growth and the management of liability cost. Developments in Europe dominated headlines in the past several months, and I point out that Fifth Third has very little direct exposure to Europe, particularly the areas of greatest concern. Our total holdings of non-U.S. sovereign debt are just $3 million. We have no sovereign exposure to the 5 European peripheral nations so much in the news. We have less than $200 million in total exposure to companies headquartered in those countries, the vast majority of which is to subsidiaries of those companies here in the U.S. Our total exposure on a gross basis to European banks is less than $300 million. All those numbers are millions within an M, not a B. And we don't have significant trading books that could be negatively affected by the potential sale of assets by European financial institutions. Fifth Third's strengths in traditional banking have driven the solid results we've seen in the past year and should not be significantly impacted by new rules and regulations as they go into effect. Of course, debit interchange legislation will have an initial impact, but we expect over time to mitigate much of the impact through careful work with our customers, ensuring that we continue to provide them with products and services that they find valuable and letting customers choose how to pay for the products and services they use, like our new Duo Card. We have just seen -- we have also just seen a draft of the Volcker Rule, recently released, which we expect will have little impact on our financial results or business activities. We believe the businesses we focused on and our focus on doing the right thing by our customers are very consistent with new legislative and regulatory developments. As a result, we believe we're well positioned to continue to take business from competitors as operating models are reworked to conform to new rules and new capital requirements. Before turning it over to Dan, I'd like to thank our employees for their hard work and thank our customers for their continued dedication to the bank. We're committed to delivering the highest quality banking experience in the country, and I think these results reflect our success in doing that. With that, I'll ask Dan to discuss operating results and give some comments about our outlook.

[Daniel T. Poston:]

Thanks, Kevin. As Kevin discussed, we had a very strong quarter and maybe the best quarter we've reported in 5 years. To move into the details, I'll start with Slide 4 of the presentation. In the third quarter, we reported net income of $381 million and recorded preferred dividends of $8 million. Net income to common was $373 million, up 14% from last quarter, and diluted earnings per share were $0.40, also up 14% or $0.05 from the second quarter. Return on assets was 1.34% and return on tangible common equity was 15%. Those are pretty strong returns, and we believe that they have room to improve further, particularly when the economy and asset growth begins to pick up. Turning to Slide 5. Net interest income on a fully taxable equivalent basis increased $33 million sequentially to $902 million, which was better than we were expecting coming into the quarter, and net interest margin increased 3 basis points to 3.65%. Balance growth in C&I, residential mortgage, auto and bankcard loans contributed to the increase in NII and partially offset modest yield compression across most loan captions. On the C&I side, the portfolio average yield was down 6 basis points from the prior quarter. We continue to originate loans in the higher end space, and this has had a mixed effect that has naturally put some pressure on our reported yields, in addition to the effect of lower market rates. However, spreads have widened in the market, and to the extent that continues, it should reduce pressure on bank loan yields. Additionally, market volatility has limited corporate refinancing activity in the bond market, and that has benefited asset growth. In the indirect auto portfolio, loan yields have reflected both lower reinvestment rates and additional competition as these assets are attractive from both a loss and a duration standpoint. However, compression in new origination yields has slowed and thus, future portfolio yield trends will be primarily related to portfolio effects related to replacing older, higher-yielding loans with new, lower-yielding loans. NII and NIM also benefited from the continued runoff in the CDs, as well as deposit mix shift in the lower-priced deposits products. Although deposit flows were exceptionally strong this quarter, and that contributed some pressure to the NIM. CD runoff contributed $8 million to sequential growth in NII and 3 basis points to NIM. The full quarter impact of our second quarter TRUPs redemptions contributed about $5 million to NII and 2 basis points to NIM. And hedging effectiveness during the quarter, which was driven by a flattening of the yield curve as well as increased rate volatility, contributed $3 million to NII and 1 basis point to NIM. That effect was a modest negative for us in the prior quarter. And then finally, an extra day in the quarter added about $6 million to NII but reduced NIM by 2 basis points. In the fourth quarter, we currently expect NII to increase modestly from this quarter with growth driven by the benefit of CD runoff as well as loan growth, with those partially offset by yield compression in the securities and loan portfolios from lower reinvestment rates. We also wouldn't expect the recurrence of the benefit that we realized this quarter with respect to hedging effectiveness. In terms of margin, we currently expect NIM to increase a couple of basis points in the fourth quarter, largely due to the benefit of CD runoff. Looking forward from there, the low level of rates across the curve will create asset pricing pressure, and we will naturally see some compression to the net interest margin through 2012 until we see rates begin to move up. However, from an NII standpoint, we expect to be able to generally earn through this NIM compression with earning asset growth. Turning to Slide 6, let's go through the balance sheet in more detail. Average earning assets increased $1.8 billion sequentially, driven by an $860 million increase in total loan balances and a $950 million increase in investment securities balances. The increase in investment securities balances was driven primarily by 2 factors

[Mary E. Tuuk:]

Thanks, Dan. Credit quality trends remained positive across all key categories, including delinquencies, NPAs and charge-offs. Starting with charge-offs on Slide 11. Total net charge-offs of $262 million decreased $42 million or 14% from the second quarter. That was 132 basis points of loan and the lowest we've reported since the fourth quarter of 2007. The biggest improvement came from Florida, where charge-offs were down 24% sequentially, and from Michigan, down 28%. Commercial net charge-offs were $136 million in the third quarter, down $5 million sequentially. At 123 basis points of loan, that's the lowest level since the first quarter of 2008. It includes C&I charge-offs of $55 million, down $21 million from the prior quarter. Commercial mortgage charge-offs of $47 million and commercial construction charge-offs of $35 million, up $15 million sequentially due to losses on non-owner occupied properties. Home builder portfolio balances are down to $578 million, less than 20% of peak levels and less than 1% of total loans. Total consumer net charge-offs were $126 million compared with $163 million last quarter. That decline was driven by the large charge-off in other consumer loans that I discussed last quarter. Trends otherwise were generally stable. Residential mortgage net charge-offs of $36 million and home equity net charge-offs of $53 million were both largely consistent with last quarter. Auto net charge-offs increased modestly to $12 million or 41 basis points. And credit card net charge-offs were $18 million, down $10 million. $5 million of the sequential decline was related to recoveries from the sale of delinquent accounts. Looking ahead to the fourth quarter, we would expect total net charge-offs to be relatively stable in both the consumer and commercial portfolios. We expect total charge-offs for the year to be around 150 basis points or about half of the 2010 ratio. Now, moving to NPAs on Slide 12. NPAs, including notes held-for-sale, totaled $2.1 billion at quarter end, down $123 million or 5% from the second quarter. Excluding held-for-sale, NPAs were $1.9 billion, down $144 million or 7%. Overall, Florida and Michigan remain our most challenged geographies from an NPA standpoint and accounted for 41% of NPAs in the commercial and consumer portfolio. However, NPAs in those 2 states were down $50 million sequentially. Commercial portfolio NPAs were $1.5 billion and declined $138 million sequentially. C&I NPAs decreased $51 million. Commercial mortgage NPAs decreased by about $80 million and are at their lowest level since the first quarter of 2009. Commercial construction NPAs declined $3 million. Across the commercial portfolios, residential builders and developer NPAs of $207 million were down $36 million sequentially and represented 14% of total commercial NPAs. Within portfolio NPAs, commercial TDRs on nonaccrual status were flat at $189 million. Commercial accruals TDRs were up $83 million, although they're still fairly low at $349 million. We expect to continue to selectively restructure commercial loans where it makes economic sense for the bank. On the consumer side, NPAs totaled $470 million at the end of the quarter or 1.34% of loans and were down $6 million from the second quarter. Credit card NPAs declined $4 million from last quarter. Home equity and residential mortgage NPAs were both consistent with the second quarter, with mortgage NPAs remaining disproportionately concentrated in Florida, and auto NPAs increased $3 million. Looking ahead to the fourth quarter, we expect NPAs to decline by $50 million to $100 million, give or take. To give an update on the pool of commercial NPAs, carried and held-for-sale. At the end of the third quarter of 2011, we had $197 million of nonaccrual commercial loans held-for-sale. That includes $58 million of newly transferred balances, on which we recorded net charge-offs of $17 million during the quarter. We periodically pursue sales when we believe that a sale of a loan and/or collateral is the optimal disposition strategy and we'd expect to continue to do so. Total portfolio NPAs, commercial and consumer, are being carried at about 59% of their original face value through the process of taking charge-offs, marks and specific reserves recorded through the third quarter. We work to be proactive in addressing problem loans and writing them down to realistic and realizable values. The next slide, Slide 13, includes the roll forward of nonperforming loans. We've presented a lot more granularity in the table, and so the numbers are a little different from the prior tables, but the trends are the same. Commercial inflows at $217 million were down from $340 million in the second quarter. Consumer inflows for the quarter were $201 million versus $214 million last quarter. Total inflows of $418 million were down 25% sequentially, continuing a trend we've experienced pretty consistently for the past 2 years. And you can see from Slide 14 that the level of inflows as a proportion of our loan portfolio also remains relatively low versus peers. Moving on to Slide 15. We provide some data on our consumer troubled debt restructuring. We have $1.8 billion of consumer TDRs on the books as of September 30, of which only $215 million or about 12% were on nonaccrual status. Of the accruing TDRs, over 80% are current, the vast majority of which are not only current but were also restructured more than 6 months ago and have shown successful seasoning. More recent modification vintages have experienced lower redefault rate than loans we restructured earlier in the cycle. As you can see from the slide, while 2008 vintages experienced higher redefault levels, more recent vintages have trended toward a 12-month default frequency in the 25% range. Our modification activities continue to work relatively well, as I think vintage trends demonstrate. Because many of these restructurings were rate concessions, which cannot be cured despite performance, the balances will remain in TDR status. However, you should think of these as a very different situation than a nonperforming loan. As you know, FASB issued new guidance related to TDRs that was implemented with third quarter results. We had no material impact from implementing that guidance. Moving to Slide 16, which outlines delinquency trends. Loans 30 to 89 days past due totaled $474 million, up $5 million from last quarter with consumer up $5 million and commercial flat from last quarter. Loans 90-plus days past due were $274 million, down $5 million from the second quarter with the improvement coming from the commercial portfolio. Total delinquencies of $748 million were essentially flat from last quarter but were down $236 million or 24% on a year-over-year basis and are at very satisfactory level consistent with where we were in 2006. I'd also note that our commercial criticized asset levels have continued to improve, dropping $228 million or 3% sequentially. This marks the sixth consecutive quarter of decline and the lowest absolute level since the fourth quarter of 2008. On to provision in the allowance, which is outlined on Slide 17. Provision expense for the quarter was $87 million and reflected a reduction to the loan-loss allowance of $175 million. Our allowance coverage ratios remained very strong, with coverage of nonperforming loans of 158% and nonperforming assets of 125% and with annualized net charge-off coverage of 2.35%. Given the anticipated trends in credit, we'd expect the loan-loss reserve to continue to decline in coming quarters. Before I wrap up, there's been a lot of news on the mortgage front. We are not a party to the State's Attorney General discussions, but we expect that whatever standards develop with the larger banks will become standard for the rest of the industry. We expect that to be manageable for us. In terms of mortgage put-back risks, we don't have the same exposures as many of the larger banks. For example, unlike many of our peers, we have no exposure to private mortgage securitizations, with only $28 million in a well-performing 2003 HELOC securitization still out there. Most of our activity has been with GSEs, and as Dan mentioned, those claims have moderated and seem to be improving. That concludes my remarks. Jamie, can you open up the line for questions?

[Operator:]

[Operator Instructions] First question comes from the line of Erika Penala with Bank of America Merrill Lynch.

[Erika Penala:]

I guess in light of your very strong Basel III adjusted Tier 1 common ratios, could you give us a sense of what you will be targeting post-CCAR 2012 in terms of a total payout ratio, and also give us a sense of how much of a role buybacks could potentially play?

[Daniel T. Poston:]

Sure. As you mentioned, our capital ratios are pretty strong, and we would expect on a Basel III basis that those ratios would be, on a relative basis, even stronger. So as we mentioned in our prepared comments, we do anticipate the ability to begin to return more capital to shareholders. Obviously, with the CCAR process, there are guidelines and limitations as to what can be done how quickly. So in the short run, we're operating under the guidance that would tend to limit payouts from a dividend perspective, for instance, of about 30%. There is evidence that repurchases could be another 20% or 30%. So those are things that we would consider as we prepare our 2012 capital plan. And then as we go forward, we would anticipate that those guidelines would allow for more flexibility in terms of institutions determining our own payout ratios, and given our capital levels, we would expect that we would take advantage of that flexibility as it develops over the next several years.

[Erika Penala:]

Okay. And just one more follow-up question. For 2012, on the right side of your balance sheet, could you give us a sense of how much in high-cost CDs are set to mature? And at what rate are they rolling off, and at what rate are they repricing to?

[Mahesh Sankaran:]

Yes. We have about $800 million or so of CDs maturing this quarter. They're rolling off at rates of approximately, anywhere from $400 to $450 [ph]. And in terms of renewals, they're coming on at an average rate of somewhere in the 70 basis point range. But the other thing to keep in mind is that all of the CDs that are maturing are not being replaced. So that also adds to the benefit that we get with both NIM and NII.

[Erika Penala:]

And do you have a disclosed number that's similar for 2012 yet?

[Mahesh Sankaran:]

No, we did not.

[Kevin T. Kabat:]

You should expect it to be much less. The term of the CDs that we issued in late 2008, there are a lot of 3-year CDs that we don't -- there are not a lot of 4-year CDs.

[Operator:]

Your next question comes from the line of Ken Usdin with Jefferies.

[Kenneth M. Usdin:]

Dan, question for you on the margin. Obviously, the quarter was up a little bit; you're pointing to a little bit more of an increase in the fourth quarter. And obviously, with the pressures in the environment, you're talking about a decline from next year, but can you just give us a little bit of color on magnitude and what would be the driver versus Erika's points on the deposit repricing?

[Daniel T. Poston:]

Well, for the fourth quarter, as we said, we expect that NIM will be up a couple of basis points as we benefit from some of the CD repricing that we just talked about and as compression on the asset yield side is managed through both asset growth, as well as continued kind of deposit cost management. Longer term, we haven't really sized the NIM impact. Clearly, based on our comments, we would expect that this kind of a rate environment would create some pressure on the NIM, but we think that will be very manageable and that asset growth in line with the kind of asset growth that we've been seeing in the last couple of quarters would enable us to earn through that. So I think that gives you some idea of the magnitude of what we expect.

[Kenneth M. Usdin:]

Okay. And my second question is on the expense side, there was a pretty sizable FHLB penalty in the third quarter, but you're still talking about flat to higher expenses in the fourth. I'm just wondering what's driving the elevated level of expenses? And I know you guys are more of a continuous improvement company versus a come out with the official plan. But what can you do to kind of control the growth rate of expenses outside of the obvious environmental cost, which we still see as elevated underneath?

[Daniel T. Poston:]

I guess first with respect to the fourth quarter, you're right, we did have about $18 million in expense in the quarter relative to those terminations, which won't repeat. On the flip side in the fourth quarter, 2 main things. One is that even though we expect mortgage banking results overall to be down a bit, most of that is because of our not anticipating continued favorable results from a mortgage hedging perspective. Actual kind of top line mortgage results will continue to improve, and with that, it will bring higher expenses as well related to compensation and related to the fulfillment cost with respect to those mortgages. So that will offset some of the decline from the termination expenses going away. And then as we mentioned, there's potential pension curtailment costs, and the accounting there is a little bit strange in that you take a charge if you have to take a charge in the quarter in which those curtailments reach a certain threshold. In the past, that has happened to us -- for us in the third quarter, sometimes the fourth, I think that it has. We've not tripped that threshold yet. We anticipate that we may trip that threshold in the fourth quarter, and that is embedded in our comments with respect to fourth quarter expectations. Longer term, I think you hit on the key theme which is that we typically manage our expenses pretty consistently and not manage them through huge expense reduction programs. We continue to do that. We think that's reflected in our efficiency ratios, which I think compare pretty favorably with the industry. In terms of what levers we have available to us as we go forward, I think we consistently try to manage our expenses in relationship to our revenue expectations. So as the environment continues to unfold to the extent that there are greater revenue challenges that lie ahead, we will manage our expenses accordingly.

[Operator:]

Your next question is from the line of Craig Siegenthaler with Credit Suisse.

[Craig Siegenthaler:]

Just on your guidance on the loan growth versus the deposit growth and what that kind of embeds for the loan-to-deposit ratio, I'm wondering, how does this impact your liquidity position for Basel III requirements, and is this just something you're looking at yet?

[Mahesh Sankaran:]

We are definitely looking at the Basel III liquidity requirements. That being said, I think there is still a fair amount of uncertainty and I think a fair amount of potential flex in the way those requirements are actually mandated, especially for the non-global banks, so banks of our size in the U.S. So we're monitoring developments; we are trying to make sure that anything we do isn't going to put us at a disadvantage with respect to those liquidity requirements. But as of now, there's not a whole lot that we're actually doing that would change; we're not changing a lot of what we would do with respect to meeting those requirements.

[Craig Siegenthaler:]

And then just a question on credit quality here. I'm Just looking at your flattish charge-off guidance for the fourth quarter, and I'm just thinking about, is the low-hanging fruit in terms of credit quality improvement over? And I'm just wondering because it's flattish or is that more of a negative seasonality, the second half? And should we expect more of a step-down in charge-offs in the first half, also due to seasonality?

[Mary E. Tuuk:]

Yes, this is Mary. As you indicated, we did guide to the fourth quarter that we would see charge-offs relatively stable to this quarter. I think probably the most helpful way to look at it is to still put that in the context of overall favorable credit trends. So as you see that overall improvement in that trajectory of improvement, although on a longer-term basis you see the improvement, sometimes the improvement sequentially might look a little bit more uneven and you won't see the same degree of improvement from quarter to quarter. I would point out though that you should take a look again at some of the underlying credit metrics. Our delinquencies right now are at the lowest level since 2006. Our NPAs are at the levels of the beginning part of 2008. So overall, we feel very good still about the trends, and from that standpoint, we're just giving you more granular guidance to the fourth quarter.

[Operator:]

Your next question is from the line of Ken Zerbe with Morgan Stanley.

[Ken A. Zerbe:]

When you guys think about your ROA targets, obviously, you've managed to hit them probably sooner than I think a lot of people expected. But when you look out at the 1.3% to 1.5% going forward in 2012, is it reasonable to assume that you could actually stay within that targeted range given asset growth, given NIM compression? And if so, why would that be? What else do we need to consider?

[Kevin T. Kabat:]

Well, I guess first of all, while we have talked about a 1.3% to 1.5% ROA being achievable on a normalized basis, we've never really said that we expect that to occur in 2012. That being said, I think our overall expectations are that we can continue to post the kind of performance that we're posting now. Clearly, there are some headwinds, but we've commented already with respect to our belief that we can earn through any NIM compression that results from the low rate environment through continued asset growth. And then from a regulatory perspective, obviously, there are headwinds. The impact of the Durbin Amendment in particular creates some challenges, but we believe that we will be able to mitigate the lion's share of that. We've given some guidance with respect to the magnitude of mitigation that we expect to be able to accomplish. And I think those 2 things, along with just continued solid growth and continued success in the marketplace, give us confidence that we can post results that are consistent with what we're seeing right now as we go through 2012.

[Ken A. Zerbe:]

Okay. And then just briefly on the FHLB advances, what was the duration of those that you took out in the quarter? And any way you can reduce those near term, and if so, would that have any material impact on your NIM one way or the other?

[Mahesh Sankaran:]

The investment had a maturity of about 5-year -- remaining maturity of about 5 years or so. We continue to look for opportunities on the liability side. The opportunities with the FHLB advances are probably somewhat limited given [indiscernible] those transaction.

[Jeff Richardson:]

Ken, this is Jeff. I just wanted to circle back; we have given guidance for our ROA for the fourth quarter above 120%, and obviously, we'll discuss 2012 guidance in January.

[Operator:]

Your next question is from the line of Todd Hagerman with Sterne Agee.

[Todd L. Hagerman:]

I just want to follow on a previous question. Mary, on credit, as you alluded to charge-offs relatively flat and we're seeing pretty consistently now among all the banks this quarter delinquency levels kind of flat to generally up, particularly on the consumer side. How should we think about, again, kind of the pace reserve release coverage ratios on the reserve side? I know they're very strong at the company, but when you start to see kind of these early indicators, particularly on the consumer side, going to 2012 on an uncertain environment, can you just give us your thoughts surrounding the pace of ongoing reserve release and kind of coverage levels in an uncertain environment in 2012?

[Mary E. Tuuk:]

Yes. Again, starting with the overall credit trends, what we really are looking at still is a pretty favorable environment on a macro basis. So within that context, given those anticipated trends, we do expect that we'd see the reserve continue to decline in the coming quarters. I think in terms of the pace of decline, we'd want to look at that again in the context of the overall credit trends and make sure that we're well aligned from that perspective.

[Todd L. Hagerman:]

Okay. But for the time being, again, there's nothing necessarily on the horizon that would say we need to take a pause or a break in terms of reserve?

[Mary E. Tuuk:]

No. Again, I think you can anchor that back to the overall credit trends, and we're not seeing anything that would suggest that kind of interruption or a significant change in trend.

[Todd L. Hagerman:]

Okay. And if I could just ask a follow-up to Mahesh. In terms of 2012, Mahesh, you had talked previously about the diminishing CD repricing, if you will, coming through next year, but trust preferreds were a big part of your 2011 capital plan. Can you just remind us in terms of what you have in 2012 in terms of potential to lower your funding costs outside of the CD book?

[Mahesh Sankaran:]

We had a total of about $2.7 billion in trust preferreds. Of that, we've called about, either completed calling or have a notice to call of about $515 million. Our capital plans that we will -- our capital planning included calling of trust preferreds, of a certain portion of those trust preferreds. That is basically what we have remaining. Does that answer your question?

[Todd L. Hagerman:]

Yes. But again, just going back to the previous question, just in terms of the CCAR process for next year and the dividends buyback. Again, I anticipate there will be some discussion or thoughts surrounding redeeming additional trust preferreds, particularly kind of given your liquidity levels.

[Jeff Richardson:]

Yes, this is Jeff. I think we indicated when we announced the results of the CCAR process back in March of this year that we include it in our plan and it was not objected to that we may call certain TRUPs. We -- Mahesh just indicated there are still TRUPs, there's the potential to call, but you're asking questions about things we're not in a position to either act on or discuss. And I just don't think we can really provide any more information on that. The amount of TRUPs we have is publicly disclosed,; the interest rates or coupons on those are publicly disclosed. It's easy to kind of figure out what is available to us, but whether we do anything depends on a variety of factors including that we could end up going into the next CCAR process, and then it has to be approved all over again. So unfortunately, we just can't really slice and dice that too finely for you.

[Operator:]

Your next question is from the line of Brian Foran with Nomura.

[Brian Foran:]

Now that mortgage is kind of a bigger part of the business and you've picked up some nice market share over the past 4 years, can you just remind us how you would account for the business? I mean, it sounds like from the comments, I had thought you booked revenue at funding, but it almost sounds like, the comments, you book revenue at rate lock and you book the expenses when the loan funds. Is that how should we think about the timing of the revenues and expenses?

[Jeff Richardson:]

This is Jeff. I'm not going to probably articulate this properly. I believe we book a portion of the gain that is associated with the coupon on the mortgage relative to market rates at any given time at rate lock, and then we book the majority of the kind of originator gain that you would book through rate cycles at funding.

[Brian Foran:]

Got it. So the spread widening we saw this quarter helped your 3Q revenue, and then your 4Q revenue will be a more normal origination fee offset by origination expense?

[Jeff Richardson:]

I think we may have indicated, we do think, excluding hedging, that with the mortgage revenue will be stronger in the fourth quarter than in the third.

[Brian Foran:]

Okay. And then on the consumer businesses, consumer lending businesses. I mean, I guess if I add up auto card and the other consumer bucket, it's around 1/3 of your interesting income right now. Can you just walk us through kind of what the recent trends have been in terms of yields. I mean, auto, resetting down pretty consistently, or are we near the trough there? Was there anything in particular that made the card yields come down so much? And then, actually, just what is the other consumer loans and leases bucket?

[Mahesh Sankaran:]

Autos are probably the largest portion of that bucket. As far as autos go, I think what we're seeing is relative stabilization of new loan origination yields. As far as portfolio yields go, I think we'll continue to see pressure on portfolio yields because new loan origination yields are still substantially below existing portfolio yields just because of what the market rates have done.

[Brian Foran:]

And in cards, was there anything in particular? Is that -- is there a core yield pressure because you're putting on balance transfers? Or is it just lower revenue suppression or anything in particular that made the yield come down?

[Mahesh Sankaran:]

I said [ph] it's probably a little bit of pressure because we do have some balance transfers, but it's not substantial.

[Brian Foran:]

Any other bucket? I know it's only $500 million, but the yields are -- I'm not sure I understand the yields.

[Jeff Richardson:]

Other consumer loan bucket is other. So consumer leases are in there, our easy access product that provides people access to their funds before -- I can't think of the name.

[Mahesh Sankaran:]

I think that's most of it.

[Jeff Richardson:]

Yes.

[Operator:]

Your next question comes from the line of Paul Miller with FBR.

[Paul J. Miller:]

I just want to follow up on Brian's question on the mortgages. Because I think I -- did I hear you right that you said that you're guiding down on mortgage banking into this fourth quarter or guiding up on mortgage banking in the fourth quarter?

[Jeff Richardson:]

Overall, mortgage banking will be down, but excluding the effect of hedging, mortgage delivery income will be up.

[Paul J. Miller:]

Okay. And that hedging is on the MSR, right?

[Daniel T. Poston:]

That's correct.

[Paul J. Miller:]

And the other issue is just the more, take a step back, 10,000-foot view on mortgage banking. We have seen a lot of the bigger players exit this market. Bank of America talked about closing down their correspondent lending. There's a lot of room to grow capacity in this space, but yet again, there's a lot of legal issues in growing capacity in this space. What's your view of the overall mortgage market and how Fifth Third is going to fit into this?

[Kevin T. Kabat:]

Yes, Paul, I'll talk to that. This is Kevin. For the most part, the way we've always viewed our mortgage business was in aggregate in terms of our total consumer relationships. So for the most part, we view that along as a key product offering for our clients, and for the most part, we almost double the revenue in terms of our mortgage sales and footprint by selling them the rest of our consumer package and products

[Paul J. Miller:]

Okay. And then the sub that you put on, I mean, you did grow; you did have some decent mortgage growth in your portfolio, and I know a lot of people have -- the mortgage banking has been -- not mortgage banking, the mortgage portfolio, that your portfolio has been a drag. Has that mainly been jumbos that you've been portfolio-ing? What type of yields are you putting them on your books for?

[Kevin T. Kabat:]

Well, some of that is jumbos. But frankly, more of it is a streamlined refinance product that we sell through our branch system. Often, those loans tend to be higher quality loans, lower loan-to-value ratios. And that's a nonconforming product, so the yields are a little better than the 30-year conforming product. And given that a large section of the customers to which that product appeals are customers that have been in their homes for a while, paid down their mortgage pretty significantly. Oftentimes they're lower, and they have shorter terms as well. So what we're putting on our balance sheet is 15- and 20-year mortgages primarily to fit that description that I just had, and they have slightly higher yield than you would see on conforming loan products.

[Operator:]

Your next question comes from line of Chris Mutascio with Stifel, Nicolaus.

[Christopher M. Mutascio:]

Thanks for taking my question. But it was already asked by Brian, it was on the mortgage recognition. I appreciate it.

[Operator:]

Your last question comes from the line of Chris Gamaitoni with Compass Point.

[Christopher Gamaitoni:]

Can you just give us an idea of the total origination rates that you're putting on for commercial lending right now and auto lending? You gave a kind of relative base, but do you know what the actual rates are?

[Mahesh Sankaran:]

In average terms on C&I, our yields are somewhere -- somewhat north of $350 million. As far as autos go, our CRE, they're actually fairly similar there, somewhere in between $330 million to $350 million range.

[Christopher Gamaitoni:]

And then just on the mortgage side, looking at the positive guidance for the fourth quarter and kind of more positive guidance for 2012. If I look at origination forecast for the industry, they're supposed to be down 24% quarter-over-quarter and 18% '11 -- or '12 versus '11. Are you gaining market share? Or how do I reconcile those industry trends with more positive quarter origination income?

[Kevin T. Kabat:]

Yes, Chris, I think your assumption is correct. We feel we're taking share. I think that shows up relative to what we're anticipating or what we've been doing. And I think that shows up in the numbers, and we think we can continue doing that.

[Jeff Richardson:]

Although obviously, we are producing great results this quarter, we expect good results next quarter. I think our peers are producing good results. There's a lot of refi activity going on, and even taking share, it would be difficult to sustain these levels of mortgage revenues in an environment like you just described in 2012.

[Operator:]

Ladies and gentlemen, we have reached the end of our allotted time for question-and-answer session. Speakers, are there any closing remarks?

[Jeff Richardson:]

No, thank you. Appreciate everyone being on the call.

[Operator:]

Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.