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Fifth Third Bancorp Reports Operating Results (10-Q)

August 09, 2010 | About:

10qk

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Fifth Third Bancorp (FITB) filed Quarterly Report for the period ended 2010-06-30.

Fifth Third Bancorp has a market cap of $10.09 billion; its shares were traded at around $12.69 with and P/S ratio of 1.07. The dividend yield of Fifth Third Bancorp stocks is 0.32%.FITB is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, Charles Brandes of Brandes Investment, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Chuck Royce of Royce& Associates, James Barrow of Barrow, Hanley, Mewhinney & Strauss, Richard Snow of Snow Capital Management, L.P., Bruce Kovner of Caxton Associates, Pioneer Investments, David Dreman of Dreman Value Management, Richard Pzena of Pzena Investment Management LLC, John Buckingham of Al Frank Asset Management, Inc., Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

During the first half of 2010, credit trends showed signs of improvement. The Bancorps net income available to common shareholders for the quarter ended June 30, 2010 was $130 million, or $0.16 per diluted share, which included $62 million in preferred stock dividends. For the quarter ended June 30, 2009, the Bancorps net income available to common shareholders was $856 million, or $1.15 per diluted share, which included $26 million in preferred stock dividends. The Bancorps net income available to common shareholders for the six months ended June 30, 2010 was $57 million, or $0.07 per diluted share, which included $125 million in preferred stock dividends. For the six months ended June 30, 2009, the Bancorps net income available to common shareholders was $829 million, or $1.18 per diluted share, which included $103 million in preferred stock dividends.

Net interest income (FTE) increased six percent in the second quarter of 2010 to $887 million, compared to $836 million in the same period last year, and increased 11% to $1.8 billion during the six months ended June 30, 2010, compared to $1.6 billion in the same period last year. The primary reason for the increase in net interest income was an increase in the interest rate spread, which increased 33 basis points (bp) from the second quarter of 2009 and increased 46 bp compared to the six months ended June 30, 2009. This was the result of a mix shift from higher cost term deposits to lower cost deposit products throughout 2009 and into the first half of 2010, as well as a decrease in short-term borrowings and long-term debt, partially offset by reduced loan demand. Second quarter 2010 and 2009 results

included $17 million and $37 million, respectively, of net interest income due to the accretion of premiums and discounts on loans and deposits from acquisitions during 2008, while the six months ended June 30, 2010 and 2009 included $38 million and $80 million, respectively, of net interest income due to the accretion of premiums and discounts on loans. Excluding these adjustments, net interest income increased $71 million, or nine percent, from the second quarter of 2009 and increased $213 million from the six months ended June 30, 2009. Net interest margin was 3.57% in the second quarter of 2010 and 3.60% for the six months ended June 30, 2010, an increase of 31 bp from the second quarter of 2009 and an increase of 44 bp from the six months ended June 30, 2009.

Noninterest income decreased 76% to $620 million in the second quarter of 2010 compared to the same period last year and decreased 62% to $1.2 billion in the six months ended June 30, 2010 compared to the same period in 2009. This was driven primarily by the sale of a majority interest in the Bancorps merchant acquiring and financial institutions processing business in June 2009 (hereinafter the Processing Business Sale). Second quarter 2010 results include $13 million in revenue from the Transition Service Agreement (TSA) entered into as part of the Processing Business Sale, while second quarter 2009 results include a $1.8 billion gain generated by the Processing Business Sale. The six months ended June 30, 2010 includes $26 million in revenue from the TSA. Excluding these items, noninterest income declined $212 million from the second quarter of 2009 and declined $295 million from the six months ended June 30, 2009, driven primarily by lower card and processing revenue due to the Processing Business Sale, as well as decreases in mortgage banking net revenue and service charges on deposits, partially offset by growth in investment advisory revenue.

Noninterest expense decreased $86 million, or eight percent, compared to the second quarter of 2009 and decreased $93 million, or five percent compared to the six months ended June 30, 2009, due primarily to a decrease in card and processing expense as a result of the Processing Business Sale in June 2009. In addition, decreases in the provision for unfunded commitments and letters of credit and lower FDIC insurance premiums were partially offset by an increase in expenses related to representations and warranties on residential mortgage loans sold to third-parties. Results for the second quarter of 2010 and the six months ended June 30, 2010 include $13 million and $26 million, respectively, in operating expenses related to the previously mentioned TSA.

The Bancorp does not originate subprime mortgage loans, does not hold credit default swaps and does not 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 weakened economic conditions. Throughout 2009 and into 2010, the Bancorp continued to be affected by high unemployment rates, weakened housing markets, particularly in the upper Midwest and Florida, and a challenging credit environment. Credit trends, however, showed signs of moderation in 2010 and, as a result, the provision for loan and lease losses decreased 69% to $325 million for the three months ended June 30, 2010, compared to $1.0 billion during the three months ended June 30, 2009, and decreased 50% to $915 million for the six months ended June 30, 2010, compared to $1.8 billion during the same period in 2009. Net charge-offs as a percent of average loans and leases decreased to 2.26% during the second quarter of 2010 compared to 3.08% during the second quarter of 2009 and decreased 9 bp in the six months ended June 30, 2010 compared to the same period in 2009. At June 30, 2010, nonperforming assets as a percent of loans, leases and other assets, including other real estate owned (excluding nonaccrual loans held for sale) were 3.87%, compared to 4.22% at December 31, 2009 and 3.48% at June 30, 2009. Refer to the Credit Risk Management section in Managements Discussion and Analysis for more information on credit quality.

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