Fifth Third Bancorp Reports Operating Results (10-Q)
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 $5.6 billion; its shares were traded at around $9.71 with and P/S ratio of 0.65. The dividend yield of Fifth Third Bancorp stocks is 0.41%. Fifth Third Bancorp had an annual average earning growth of 8% over the past 10 years. Highlight of Business Operations: On June 4, 2009, the Bancorp completed an at-the-market offering resulting in the sale of $1 billion of its common shares. As a result, the Bancorp issued approximately 158 million common shares at an average share price of $6.33. In addition, on June 17, 2009, the Bancorp completed its offer to exchange 2,158.8272 shares of its common stock, no par value, and $8,250 in cash, for each set of 250 validly tendered and accepted depositary shares of its Series G convertible preferred stock. As a result of this exchange, the Bancorp issued approximately 60 million common shares and $230 million in cash for 63% of the outstanding Series G preferred shares. Based upon the difference in the carrying value of the Series G preferred shares and the fair value of the common shares and cash issued, the Bancorp recognized an increase to net income available to common shareholders of $35 million. For further information regarding the Bancorps common and preferred stock, see Note 15 of the Notes to Condensed Consolidated Financial Statements.
On June 30, 2009, the Bancorp completed the sale (herein the Processing Business Sale) of a majority interest in its merchant acquiring and financial institutions processing businesses. The Processing Business Sale generated a pre-tax gain of $1.8 billion ($1.1 billion after-tax) and increased the Bancorps tangible common equity (Non-GAAP) and Tier 1 capital by $1.2 billion. For further information regarding the Processing Business Sale, see Note 19 of the Notes to Condensed Consolidated Financial Statements.
On July 16, 2009, Visa Inc. announced it had deposited $700 million into the litigation escrow account. As a result of this funding, the Bancorp recorded its proportional share of $29 million of these additional funds as a reduction to noninterest expense, which will be recognized by the Bancorp in the third quarter of 2009. Additionally, on July 17, 2009 the Bancorp completed the sale of its Visa Inc. Class B shares for $300 million. As part of this transaction the Bancorp entered into a total return swap in which the Bancorp will make or receive payments based on subsequent change in the conversion rate of Class B shares into Class A shares. As a result of this transaction, the Bancorp will recognize a pre-tax gain of $288 million in the third quarter of 2009. The net impact of the recognition of the additional escrow funding and sale of Class B shares will result in a net after-tax benefit of approximately $206 million. For further information regarding the sale of Visa Inc. Class B shares, see Note 20 of the Notes to Condensed Consolidated Financial Statements.
During the second quarter of 2009, the Bancorp continued to be affected by the economic slowdown and market disruptions. The Bancorps net income for the quarter was $882 million. Excluding the effects of the aforementioned Processing Business Sale, the Bancorps net loss for the quarter was $173 million. Preferred dividends of $26 million for the quarter included $53 million related to the Series F preferred stock held by the U.S. Treasury, $9 million paid to Series G preferred stock holders, partially offset by the $35 million benefit from the conversion of the Series G preferred stock discussed above. Including preferred dividends, the net income available to common shareholders was $856 million in the second quarter of 2009 compared to a net loss of $202 million in the second quarter of 2008. Diluted earnings per share was $1.15 in the second quarter of 2009 compared to a net loss of $.37 per diluted share in the second quarter of 2008.
Net interest income (FTE) increased 12%, from $744 million in the second quarter of 2008 to $836 million in second quarter of 2009. In the second quarter of 2008, net interest income included leveraged lease charges of approximately $130 million due to a projected change in the timing of tax benefits related to certain leveraged lease transactions. Excluding the leveraged lease charges, net interest income recognized in the second quarter of 2009, declined by approximately $38 million, or four percent, largely driven by a shift in deposit mix toward higher priced certificates of deposit (CDs) in the latter part of 2008 and higher interest reversals, partially offset by improved pricing spreads on loan originations. Net interest margin was 3.26% in the second quarter of 2009, an increase of 22 bp from the second quarter of 2008, and a decrease of 31 bp excluding the leveraged lease charges.
Noninterest income increased 258%, from $722 million in the second quarter of 2008 to $2.6 billion in the second quarter of 2009. Excluding the impact of the Processing Business Sale, noninterest income increased 13%, or $97 million, from a year ago due to an increase in mortgage banking revenue, payment processing revenue and gains in the securities portfolio, partially offset by a decrease in investment advisory revenue.
Read the The complete ReportFITB is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Charles Brandes of Brandes Investment, Richard Snow of Snow Capital Management, L.P., David Dreman of Dreman Value Management, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc.