10-QPeriod: Q2 FY2009

FIFTH THIRD BANCORP Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 10, 2009For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) reported a net income of $882 million, or $1.15 per diluted share, for the second quarter of 2009. This result was significantly impacted by a pre-tax gain of $1.8 billion from the sale of a majority interest in its processing businesses. Excluding this gain, the company reported a net loss of $173 million. The bank saw a substantial increase in net interest income, up 12% year-over-year, driven by improved pricing spreads and a favorable shift in deposit mix. However, credit quality deteriorated, with the provision for loan and lease losses increasing by 45% year-over-year, and net charge-offs more than doubling. Nonperforming assets also rose significantly. Capital ratios remained strong, exceeding regulatory "well-capitalized" levels, bolstered by the processing business sale, a common stock offering, and preferred stock exchanges. Key financial highlights include a significant surge in noninterest income driven by the processing business sale. While net interest income improved, the core lending business faced challenges with increased credit losses and higher nonperforming assets, particularly in commercial real estate and construction sectors concentrated in Michigan and Florida. The bank's consumer lending segment experienced strong growth in mortgage originations due to favorable interest rates and government incentives. Management's focus remains on managing credit risk through tightened underwriting standards and active loss mitigation strategies, while also concentrating on growing core deposits to strengthen its funding base. The Bancorp is also navigating evolving regulatory capital requirements following the Supervisory Capital Assessment Program.

Financial Highlights

37 data points
Beta

Net Income

$882.00M

EPS (Diluted)

$1.15

Total Assets

$115.98B

Free Cash Flow

$656.00M

Financial Statements
Beta
Interest Expense$348.00M
Net Income$882.00M
EPS (Basic)$1.35
EPS (Diluted)$1.15
Shares Outstanding (Basic)630.00M
Shares Outstanding (Diluted)718.00M

Key Highlights

  • 1Reported a net income of $882 million for Q2 2009, significantly boosted by an $1.8 billion pre-tax gain from the sale of a majority interest in its processing businesses.
  • 2Excluding the processing business sale gain, the company incurred a net loss of $173 million, indicating ongoing challenges in its core operations.
  • 3Net interest income increased by 12% year-over-year to $836 million, driven by improved loan pricing spreads and a shift towards lower-cost core deposits.
  • 4The provision for loan and lease losses increased by 45% to $1.04 billion, reflecting deteriorating credit quality and increased economic stress on loan portfolios.
  • 5Nonperforming assets as a percentage of total loans and leases (including OREO) rose to 3.48% from 2.26% a year prior, indicating a rise in troubled loans.
  • 6Capital ratios remained robust, exceeding "well-capitalized" regulatory requirements, enhanced by capital actions including a $1 billion common stock offering and the processing business sale.
  • 7Consumer Lending saw strong growth in mortgage originations, up 109% year-over-year, benefiting from lower interest rates and government housing incentives.

Frequently Asked Questions

The primary driver of Fifth Third Bancorp's reported net income of $882 million in Q2 2009 was a significant pre-tax gain of $1.8 billion generated from the sale of a majority interest in its processing businesses. Without this one-time event, the company would have reported a net loss.

Credit quality deteriorated during Q2 2009. The provision for loan and lease losses increased by 45% year-over-year to $1.04 billion. Net charge-offs as a percentage of average loans and leases also rose significantly to 3.08% from 1.66% in the prior year's quarter. Nonperforming assets increased to 3.48% of total loans, leases, and other assets (including OREO), indicating a notable rise in troubled loans.

The sale of a majority interest in the processing business was a significant positive event for the company's capital position. It generated a $1.8 billion pre-tax gain and increased tangible common equity and Tier 1 capital by $1.2 billion, contributing to the Bancorp exceeding its Tier 1 common equity requirements under the Supervisory Capital Assessment Program.

Core deposits grew by 6% compared to the prior year quarter, driven by an increase in other time deposits, particularly consumer certificates of deposit, as the bank offered more competitive rates. This growth helped fund asset growth and improve the funding composition.

The report indicates that economic conditions continued to deteriorate, particularly impacting commercial and consumer loan portfolios, with notable stress in Michigan and Florida due to real estate price declines. Management has tightened underwriting standards and is actively engaged in loss mitigation. However, the substantial increase in the provision for loan losses and nonperforming assets suggests that credit losses are expected to remain elevated in the near term.