8-KOther Events

FIFTH THIRD BANCORP 8-K Report, Corporate Update (Apr 23, 2008)

Filed April 23, 2008For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) filed a Form 8-K on April 23, 2008, to report its first quarter 2008 financial results and provide an update on litigation. The company reported net income of $292 million, or $0.55 per diluted share, a significant improvement from the $16 million earned in the fourth quarter of 2007, but a decrease from $359 million or $0.65 per share in the first quarter of 2007. These results were substantially influenced by a $273 million pre-tax gain from the redemption of ownership interests in Visa, Inc., related to Visa's IPO, and a reversal of $152 million in previously recorded litigation reserves, also related to Visa's IPO. However, the quarter also included a non-cash charge of $144 million to reduce the cash surrender value of a Bank-Owned Life Insurance (BOLI) policy due to investment underperformance. Credit quality metrics showed a notable increase in net charge-offs, rising to 1.37% of average loans, up from 0.89% in the prior quarter and 0.39% a year ago. This deterioration was concentrated in Michigan and Florida, particularly within residential real estate and construction loans. Nonperforming assets also saw a significant increase, reaching $1.6 billion or 1.96% of total loans, up from 1.32% in the previous quarter.

Key Highlights

  • 1Q1 2008 net income of $292 million ($0.55/share) was significantly higher than Q4 2007 but lower than Q1 2007.
  • 2Results were boosted by a $273 million pre-tax gain from Visa Inc. ownership interest redemption and a $152 million reversal of litigation reserves.
  • 3A $144 million non-cash charge impacted earnings due to a decline in the cash surrender value of a BOLI policy.
  • 4Net charge-offs increased significantly to 1.37% of average loans, with a concentration of losses in Michigan and Florida, primarily in residential real estate.
  • 5Nonperforming assets rose to $1.6 billion (1.96% of loans), driven by commercial construction, commercial mortgage, and residential real estate portfolios.
  • 6The provision for loan and lease losses increased substantially to $544 million, exceeding net charge-offs by $268 million.
  • 7Fifth Third Bancorp is progressing with the acquisition of First Charter Corporation, expecting to close in the latter part of Q2 2008.

Frequently Asked Questions

The primary drivers were a significant pre-tax gain of $273 million from the redemption of ownership interests in Visa, Inc. and a $152 million reversal of litigation reserves, both related to Visa's IPO. These positive items helped offset a substantial non-cash charge of $144 million related to a Bank-Owned Life Insurance (BOLI) policy.

Credit quality has notably worsened. Net charge-offs as a percentage of average loans increased to 1.37% from 0.89% in the prior quarter and 0.39% a year ago. This deterioration is concentrated in Michigan and Florida, affecting residential real estate loans and loans to builders/developers. Nonperforming assets also rose significantly to $1.6 billion.

Fifth Third Bancorp has received all necessary regulatory approvals for the acquisition of First Charter Corporation and expects to close the transaction in the latter part of the second quarter of 2008.

The trial for three 1997 lease-leaseback transactions concluded on April 17, 2008, with a mixed verdict from the jury. The company is awaiting the court's judgment to assess the impact. Fifth Third Bancorp has made deposits of $407 million with the IRS to mitigate potential tax deficiencies.