Fifth Third Bancorp Announces Second Quarter 2010 Earnings

CINCINNATI, July 22 /PRNewswire-FirstCall/ --

• 2Q10 net income of $192 million versus 1Q10 net loss of $10 million
  • 2Q10 net income available to common shareholders of $130 million, or $0.16 per diluted share
  • Per share results include preferred dividends, which reduced net income available to common shareholders by $0.08 per diluted share
• Significantly improved credit results
  • Net charge-off ratio of 2.26 percent, down 75 bps sequentially from 3.01 percent; net charge-offs declined $148 million, or 25 percent, sequentially (lowest level of net charge-offs since 2Q08)
  • Nonperforming assets declined 5 percent and nonperforming loans declined 8 percent sequentially (lowest levels since the first half of 2009)
  • Total delinquencies (includes loans and leases 30-89 days past due and 90 days past due) declined 17 percent sequentially (lowest level since 2Q07)
• Provision expense reflecting $434 million of net charge offs and $109 million reduction in the allowance for loan and lease losses
  • Loan loss allowance of 4.85 percent of loans, 146 percent of nonperforming loans and leases, and more than two times 2Q10 annualized net charge-offs
• Pre-provision net revenue (PPNR)* of $567 million, consistent with strong 1Q10 levels
  • PPNR represented 174 percent of provision expense and 131 percent of net charge-offs
• Liquidity position remains very strong
  • Average loans and leases decreased 2 percent sequentially, due to continued low loan demand
  • Average core deposits up 12 percent year-over-year and up 1 percent sequentially; sequential comparison reflects run-off of lower value institutional public funds
  • Wholesale funding down 40 percent from 2Q09
• Strong capital ratios
  • Tier 1 common ratio of 7.22 percent up 25 bps sequentially, Leverage ratio of 12.21 percent up 21 bps sequentially, Tier 1 ratio of 13.75 percent up 35 bps sequentially, total capital ratio of 18.11 percent up 56 bps sequentially
  • Tangible common equity ratio of 6.55 percent excluding unrealized gains/losses and 6.91 percent including unrealized gains/losses
• Book value per share of $12.65 increased 3 percent sequentially; tangible book value per share of $9.51 increased 4 percent sequentially
• Extended $20 billion of new and renewed credit in the second quarter

* Pre-provision net revenue (PPNR): net interest income plus noninterest income minus noninterest expense.

Fifth Third Bancorp (Nasdaq: FITB) today reported second quarter 2010 net income of $192 million compared with a net loss of $10 million in the first quarter and net income of $882 million in the second quarter of 2009. After preferred dividends, the second quarter 2010 net income available to common shareholders was $130 million or $0.16 per diluted share, compared with a first quarter net loss of $72 million or $0.09 per diluted share, and net income of $856 million or $1.15 per diluted share in the second quarter of 2009.

For comparison purposes, second quarter 2009 results included a pre-tax gain of $1,764 million related to the processing business sale, and a pre-tax charge of $55 million related to the special FDIC deposit insurance fund assessment. Second quarter 2009 net income available to common shareholders also included a $35 million benefit, recorded as a reduction to preferred dividend expense, reflecting the excess of the carrying value of preferred shares over the fair value of the common shares and cash exchanged through our tender offer for Series G preferred stock.

Earnings Highlights

“Second quarter results marked a solid return to profitability, reflecting continued strong pre-provision earnings and significant further improvement in credit results,” said Kevin Kabat, president and CEO of Fifth Third Bancorp.

“Credit trends remained favorable, reflecting the benefit of our actions to aggressively address problems and continued efforts to improve the quality of originations and proactively resolve credit issues. Delinquent loans declined 17 percent to the lowest level since 2007. Nonperforming loans declined 8 percent to the lowest level we’ve seen since mid-2009. The net charge-off ratio of 2.26 percent is at the lowest level experienced since 2008. Net charge-offs declined $148 million, or 25 percent, from last quarter and are down over $300 million, or more than 40%, from their peak in the third quarter of 2009. These positive developments contributed to a reduction in our loan loss reserves. Reserve coverage levels remain very strong relative to peers – reserves were 4.85 percent of loans, and other coverage levels increased, with reserves of 146 percent of nonperforming loans and 2.1 times second quarter annualized net charge-offs. We currently expect provision expense and reserve levels to trend down given our expectation of a stable to improving economic environment and credit trends.

Operating results were consistent with those reported in the first quarter. Pre-provision net revenue of $567 million reflected better than expected fee income results and lower expenses, which were partially offset by lower net interest income. Market developments during the quarter, particularly in Europe and in U.S. equity markets, led to an increased level of caution among potential borrowers and investors. This resulted in a substantial decline in market interest rates and a continuation of weak loan demand. As noted, fee income results remained strong. Corporate banking revenue grew 14% and card and processing revenue was up 15% sequentially, partially offset by lower mortgage banking revenue. Total noninterest expenses were down 2% sequentially. Average core deposits were up 12% over 2009 levels and wholesale funding levels were down 40% reflecting our strong liquidity position.

Capital levels remained strong. The Tier 1 common equity ratio was 7.2 percent, Tier 1 capital was 13.8 percent, and Total capital was 18.1 percent. We expect ongoing profitability to produce continued organic growth in capital levels.

The finalization of the financial reform bill is a significant development for the industry. The elements of the bill addressing financial stability are largely focused on issues related to systemic risks and capital markets-related activities. We would not expect these elements to have significant negative effects on Fifth Third, given its traditional regional banking model, although they will involve higher compliance costs. Other elements, particularly the debit interchange legislation, are likely to negatively affect our revenue and earnings although the rules are yet to be written. We expect to adapt to these changes while ensuring that we continue to provide beneficial payment services to our customers and while generating an appropriate return for those services. Additionally, capital treatment of trust preferred securities will be impacted on a phased-in basis in 2013, which we expect to deal with through capital management over time. We look forward to receiving clarity on these issues through rule-making and on changes to the Basel capital framework for financial institutions, which we also would currently expect to be manageable for Fifth Third and to have a relatively lower impact on us given our business model compared with large and global banks.

Ultimately, we believe that the evolution of the financial landscape plays to our strengths, and while capital levels and costs will be higher going forward, we are in a strong position to compete in a setting that places greater emphasis on traditional lending and deposit-taking activities.”

Income Statement Highlights

Net Interest Income

Net interest income of $887 million on a taxable equivalent basis decreased 2 percent from $901 million in the first quarter of 2010. The net interest margin was 3.57 percent, down 6 bps from 3.63 percent in the previous quarter. The decline in net interest income reflected continued weak loan demand, prepayments of securities, the deferral of reinvestment of securities cash flows into our investment portfolio, and resulting excess liquidity held in low-yielding cash equivalents. These negative effects were partially offset by reduced funding costs, a deposit mix shift to lower cost core deposits from higher priced term deposits, and wider Libor spreads. Second quarter 2010 results were negatively affected by $6 million, or 3 bps, of higher premium amortization, including the effect of GSE repurchases of delinquent loans out of mortgage-backed securities. The net interest margin also reflected 2 bps reduction due to a higher day count in the current quarter and 2 bps reduction due to lower purchase accounting accretion on acquired loans.

Compared with the second quarter of 2009, net interest income increased $51 million and the net interest margin increased 31 bps, largely the result of the mix shift from higher cost term deposits to lower cost deposit products throughout the year, which more than offset the effect of a $20 million, or 8 bps, reduction in purchase accounting accretion on acquired loans and lower loan balances.

Average Securities

Average securities and other short-term investments were $20.9 billion as of the second quarter of 2010 compared with $20.6 billion in the previous quarter and $17.8 billion in the second quarter of 2009. The increase from the prior quarter was driven by a $1.1 billion increase in average short-term investments, reflecting excess liquidity, which more than offset an $810 million decrease in investment securities resulting from prepayments and cash flows that were not reinvested. The year-over-year increase was driven by a $3.5 billion increase in average short-term investments.

Average Loans

Average portfolio loan and lease balances declined 2 percent sequentially and 6 percent from the second quarter of 2009.

Average commercial loan and lease balances declined 2 percent sequentially and 9 percent from the second quarter of 2009. Sequential and year-over-year declines were impacted by continued low loan demand and lower commercial line utilization. Commercial and industrial (C&I) average loans were flat sequentially and declined 7 percent from the previous year. Year-over-year comparisons were affected by the addition of $724 million in C&I balances that were consolidated on January 1, 2010 due to an accounting change in U.S. GAAP. Average commercial mortgage and commercial construction loan balances declined by a combined 4 percent sequentially and 14 percent from the same period the previous year, reflecting low customer demand and tighter underwriting standards. Line usage, on an end of period basis for the second quarter, remained fairly stable at 32.1 percent of committed lines versus 32.6 percent in the first quarter of 2010 and 32.7 percent in the fourth quarter of 2009. Line utilization was 38.5 percent in the second quarter of 2009.

Average consumer loan and lease balances decreased 2 percent sequentially and 1 percent from the second quarter of 2009. The sequential decline reflected lower demand for consumer loans and leases, while year-over-year declines in residential mortgage loans and home equity loans were partially offset by growth in auto loans. The year-over-year comparisons were impacted by $1.2 billion of securitized auto loans and $263 million of securitized home equity loans that were consolidated on January 1, 2010 due to the previously mentioned accounting change.

Nearly all of Fifth Third’s mortgages are originated to be sold to agencies and are not reflected in portfolio loans or portfolio loan growth. Period end warehoused residential mortgage loans held-for-sale increased to $2.0 billion in the second quarter.

Average Deposits

Average core deposits increased 1 percent sequentially and 12 percent from the second quarter of 2009.  Consumer CDs declined while average transaction deposits increased over these periods.  Average transaction deposits excluding consumer time deposits were up 2 percent from the first quarter of 2010 and increased 21 percent over the prior year quarter.  Sequential growth in demand deposit balances, savings and foreign office deposits was partially offset by lower interest checking balances, primarily in public funds. The year-over-year increase was driven by growth across all transaction deposit account categories.

Retail average transaction deposits increased 5 percent sequentially and 12 percent from the second quarter of 2009 and reflected growth in savings, interest checking, and demand deposit balances.

Commercial average transaction deposits decreased 2 percent sequentially and increased 41 percent from the previous year. Excluding public funds balances, commercial average transaction deposits increased 8 percent sequentially and increased 46 percent from the second quarter of 2009 driven by increased demand deposit, interest checking, and foreign office deposit balances, reflecting excess customer liquidity. Average public funds balances were $6.5 billion, down $1.8 billion sequentially and up $1.5 billion from the second quarter of 2009. The sequential decline was largely due to adjustments in pricing reflecting our excess liquidity position, particularly with single-product relationships that do not contribute appreciably to net interest income. The annual increase reflected the effect of larger peers opting out of the Transaction Account Guarantee Program (TAG) late last year. Given our liquidity position and our opting out of the TAG program on June 30, 2010, we would expect public funds balances to continue to decline in the third quarter.  

Consumer CDs included in core deposits declined 6 percent sequentially and 22 percent year-over-year, reflecting maturities of higher priced, shorter-term CDs largely originated in the second half of 2008 as well as current pricing strategies given our strong liquidity position.

Noninterest Income

Noninterest income of $620 million decreased $7 million, or 1 percent, sequentially and $2.0 billion from a year ago. Sequential growth in corporate banking revenue, card and processing revenue, and deposit fees was more than offset by lower mortgage banking revenue. The decline from a year ago was driven by the $1.8 billion gain from the completion of the processing business sale in the second quarter of 2009 and the inclusion in prior year results of the revenue divested in that transaction.

Noninterest income was impacted by $10 million in positive valuation adjustments on warrants and puts related to the processing business sale, compared with a $2 million negative adjustment in the first quarter. Both the second quarter and first quarter of 2010 results included $13 million in revenue associated with the transition service agreement (TSA) entered into as part of our processing business sale, under which the Bancorp provides services to the processing business to support its operations during the deconversion period. First quarter of 2010 results included a $9 million reduction in income due to the increase in fair value of the liability related to the total return swap entered into as part of the 2009 sale of Visa, Inc. Class B shares. Second quarter of 2009 results included a $1.8 billion gain from the completion of the processing business sale and a $15 million write-down on a facility that we have since vacated. Excluding these items, as well as investment securities gains/losses in all periods, noninterest income decreased $22 million, or 4 percent, from the previous quarter, driven by weaker mortgage banking revenue partially offset by strong corporate banking revenue and card and processing revenue. On the same basis, the $199 million, or 25 percent, decrease from the second quarter of 2009 was largely due to merchant processing and financial institution revenue in the second quarter of 2009 that was included with the processing business sale on June 30, 2009, as well as lower mortgage-related revenue.

Service charges on deposits of $149 million increased 5 percent sequentially and decreased 8 percent compared with the same quarter last year. Retail service charges increased 12 percent from the previous quarter and declined 11 percent compared with the second quarter of 2009. The sequential increase was largely driven by seasonal weakness in the first quarter. The year-over-year decline was due to a reduction of NSF fees related to a lower number of occurrences. Commercial service charges decreased 1 percent sequentially and 4 percent versus last year, reflecting higher client use of compensating balances to pay for treasury management services.

Corporate banking revenue of $93 million increased 14 percent from the first quarter of 2010 and was flat compared with the same period last year. Sequential results were driven by growth in foreign exchange revenue, institutional sales and lease termination fees, partially offset by declines in business lending fees and revenue from interest rate derivative sales. On a year-over-year basis, lower foreign exchange and letter of credit fees offset growth in institutional sales and business lending fees.

Mortgage banking net revenue was $114 million in the second quarter of 2010, a decrease of $38 million from the first quarter of 2010 results and a decrease of $33 million from the second quarter of 2009. Second quarter 2010 originations were $3.8 billion, an increase from $3.5 billion in the previous quarter and a decline from strong levels of $7.2 billion in the second quarter of 2009. Second quarter 2010 originations resulted in gains of $89 million on mortgages sold compared with gains of $70 million during the previous quarter and $161 million during the same period in 2009. Net servicing revenue, before MSR valuation adjustments, totaled $29 million in the second quarter, compared with $31 million last quarter and $2 million a year ago. MSR valuation adjustments, including mark-to-market related adjustments on free-standing derivatives used to economically hedge the MSR portfolio, represented a net loss of $4 million in the second quarter of 2010, compared with a net gain of $51 million last quarter and a net loss of $16 million a year ago. The mortgage-servicing asset, net of the valuation reserve, was $646 million at quarter end on a servicing portfolio of $51 billion.

Investment advisory revenue of $87 million declined 4 percent sequentially and increased 10 percent from the second quarter of 2009. The sequential decline was primarily driven by seasonally high tax-related private client services fees in the first quarter partially offset by an increase in institutional trust and mutual fund fees in the current quarter. On a year-over-year basis, growth in brokerage fees, private client services, and institutional trust revenue, primarily due to higher retail trading volumes and market value increases, was offset by lower mutual fund fees.

Card and processing revenue was $84 million in the second quarter of 2010, an increase of $11 million, or 15 percent, from the previous quarter. 2009 results included $169 million in merchant processing and financial institutions revenue which transitioned with the processing business sale. Excluding the divested revenue, card and processing revenue increased by 14 percent from the previous year. The sequential and year-over-year increase was driven by growth in transaction volumes.

Other noninterest income totaled $85 million in the second quarter of 2010 versus $74 million in the previous quarter and $49 million in the second quarter of 2009. Second quarter 2010 results included the $10 million positive valuation adjustment of warrants and puts related to the processing business sale. Current quarter results also included $13 million of TSA revenue and $6 million of revenue from our equity interest in the processing business. First quarter 2010 results included the $9 million reduction in income related to the total return swap entered into as part of the 2009 sale of Visa, Inc. Class B shares, a $2 million decline in the valuation of warrants related to the processing business sale, $13 million of TSA revenue, and $5 million of revenue from our processing business equity interest. Second quarter 2009 results included the $15 million facility write-down. Excluding these items, other noninterest income decreased $11 million from the previous quarter and $8 million from the second quarter of 2009 primarily due to increased credit-related costs. Credit-related costs recognized in noninterest income were $14 million in the second quarter of 2010 versus $1 million last quarter and $8 million in the second quarter of 2009. This quarter, we realized $6 million of net gains on the sale of loans held-for-sale and recorded $7 million of fair value charges on commercial loans held-for-sale and $13 million of losses on the sale of other real estate owned (OREO). First quarter 2010 results included net gains of $25 million on sale of loans held-for-sale, $9 million of fair value charges on commercial loans held-for-sale, and $16 million of losses on the sale of OREO. Second quarter 2009 results included net gains of $11 million on the sale of loans held-for-sale, $6 million of fair value charges on commercial loans held-for-sale, and $13 million of losses on the sale of OREO.

There were no net securities gains on non-qualifying hedges on MSRs in the second quarter of 2010 or in the previous quarter while second quarter 2009 results included net gains of $41 million.

Net gains on investment securities were $8 million in the second quarter of 2010, compared with securities gains of $14 million in the previous quarter and $5 million in the same period the previous year.

Noninterest Expense

Noninterest expense of $935 million decreased $21 million sequentially and $86 million from a year ago. The sequential decrease was primarily driven by a $36 million decline in credit-related expenses, outlined below, offset by higher salaries, wages and incentives due to higher levels of production and investment in sales force expansion. The decrease from a year ago was primarily driven by lower payments processing expense related to the sale of the processing business and the $55 million FDIC special assessment charge incurred in the prior year. Both the second quarter and first quarter of 2010 results included operating expenses related to the processing business that are offset by revenue under the TSA reported in other noninterest income.

Noninterest expenses incurred related to problem assets totaled $55 million in the second quarter of 2010, compared with $91 million in the first quarter of 2010 and $57 million in the second quarter of 2009. Included within this $55 million were expenses related to mortgage repurchase reserves of $18 million, compared with $39 million in the first quarter of 2010 and $10 million a year ago. (Realized mortgage repurchase losses were $18 million in the second quarter of 2010, compared with $13 million last quarter and $15 million in the second quarter of 2009.) Provision expense for unfunded commitments represented a reduction of expense of $6 million in the second quarter of 2010 versus expense of $9 million last quarter and $9 million a year ago. Derivative valuation adjustments related to customer credit risk resulted in $9 million in expenses this quarter versus $8 million last quarter and $2 million a year ago. OREO expense was $7 million this quarter, compared with $6 million last quarter and $4 million a year ago. Other work-out related expenses were $26 million in the second quarter, compared with $29 million the previous quarter and $32 million in the same period last year.

Credit Quality

Net charge-offs were $434 million in the second quarter of 2010, or 226 bps of average loans on an annualized basis, and declined $148 million from first quarter net charge-offs of $582 million, or 301 bps. The decrease from the prior quarter represents improvement across most geographies, although loss experience continues to be disproportionately affected by commercial and residential real estate loans in Michigan and Florida. In aggregate, Florida and Michigan accounted for $52 million of the sequential net charge-off improvement, but represented approximately 50 percent of total losses during the quarter compared with 26 percent of total loans and leases.

Commercial net charge-offs were $225 million, or 203 bps, in the second quarter of 2010, a decrease of $117 million, or 104 bps, from the first quarter. Michigan and Florida accounted for $42 million of the sequential improvement, but 51 percent of the total commercial losses during the quarter. Within the commercial portfolio, C&I losses were $104 million, a decrease of $57 million from the previous quarter. Within C&I, losses on loans to companies in real estate-related industries were $37 million, a decrease of $14 million from the previous quarter. Commercial mortgage net losses totaled $78 million, a decrease of $21 million from the previous quarter, with Michigan and Florida accounting for 63 percent of losses. Commercial construction net losses were $43 million, a decrease of $35 million from the previous quarter, with Michigan and Florida accounting for 34 percent of losses and $16 million of the sequential improvement.  Across all commercial portfolios, net losses on residential builder and developer portfolio loans totaled $48 million, down $33 million from the first quarter. These homebuilder losses included $22 million on commercial construction loans, $25 million on commercial mortgage loans, and $2 million on C&I loans. Originations of homebuilder/developer loans were suspended in 2007 and the remaining portfolio balance is $1.2 billion, down from a peak of $3.3 billion in the second quarter of 2008.

Consumer net charge-offs of $209 million, or 257 bps, were down $31 million, or 36 bps, from the first quarter of 2010. Net charge-offs within the residential mortgage portfolio were $85 million, a decrease of $3 million from the previous quarter, with losses in Florida representing 61 percent of residential mortgage losses in the second quarter and approximately 27 percent of total residential mortgage loans. Home equity net charge-offs of $61 million declined $12 million sequentially, with Michigan and Florida representing 41 percent of second quarter home equity losses and 29 percent of total home equity loans. Net losses on brokered home equity loans were $24 million, down $5 million sequentially, and represented 40 percent of second quarter home equity losses and 15 percent of the total home equity portfolio. The home equity portfolio included $1.8 billion of brokered loans; originations of these loans were discontinued in 2007. Net charge-offs in the auto portfolio of $20 million decreased $11 million from the first quarter as a result of the combination of seasonality, tighter underwriting standards, and continued strong values received at auction. Net losses on consumer credit card loans were $42 million, down $2 million from the previous quarter.

Provision for loan and lease losses totaled $325 million in the second quarter of 2010, down $265 million from the first quarter and down $716 million from the second quarter of 2009. The allowance for loan and lease losses represented 4.85 percent of total loans and leases outstanding as of quarter end, compared with 4.91 percent last quarter, and represented 146 percent of nonperforming loans and leases and 212 percent of second quarter annualized net charge-offs.

Nonperforming assets (NPAs) at quarter end were $3.0 billion or 3.87 percent of total loans, leases and OREO, and decreased $160 million, or 5 percent, from the previous quarter. Including $167 million of nonaccrual loans classified as held-for-sale, total NPAs were $3.1 billion and were down $236 million, or 7 percent, compared with the first quarter. In aggregate, Florida and Michigan represented approximately 46 percent of NPAs in the loan portfolio. Total NPAs are currently carried at approximately 56 percent of their original face value through the process of taking charge-offs, purchase accounting marks, and specific reserves recorded through the second quarter.

Commercial NPAs at quarter-end were $2.3 billion, or 5.17 percent of commercial loans, leases and OREO, and declined $140 million, or 6 percent, from the first quarter. Commercial construction portfolio NPAs were $482 million, a decline of $87 million from the previous quarter. Commercial mortgage NPAs were $956 million, a sequential decrease of $47 million. Commercial real estate loans in Michigan and Florida represented 47 percent of total commercial real estate NPAs and 37 percent of our total commercial real estate portfolio, but experienced $66 million of the sequential improvement in commercial real estate NPAs. C&I portfolio NPAs of $792 million were stable, increasing $4 million from the previous quarter. Within the commercial loan portfolio, NPAs in the residential real estate builder and developer portfolio were down $90 million from the first quarter to $431 million, of which $199 million were commercial construction assets, $211 million were commercial mortgage assets and $21 million were C&I assets. Commercial NPAs included $48 million of nonaccrual troubled debt restructurings (TDRs), compared with $39 million last quarter.

At quarter-end, we held $167 million of commercial nonaccrual loans for sale, compared with $243 million at the end of the first quarter. During the quarter, we transferred $10 million of loans from loans held-for-sale to OREO. Loans held-for-sale are carried at the lower of cost or market, and this portfolio is currently recorded at 35 percent of original balances. We recorded negative valuation adjustments of $7 million on held-for-sale loans and we recorded net gains of $6 million on loans that were sold or settled during the quarter.

Consumer NPAs of $695 million, or 2.13 percent of consumer loans, leases and OREO, decreased $20 million, or 3 percent, from the first quarter. Of consumer NPAs, $614 million were in residential real estate portfolios. Residential mortgage NPAs were $549 million, up $28 million from the previous quarter. Home equity NPAs decreased $5 million from last quarter to $65 million. Residential real estate loans in Michigan and Florida represented 59 percent of total residential real estate NPAs and 34 percent of total residential real estate loans. Credit card NPAs declined $37 million from the previous quarter to $64 million due to TDRs returned to accrual status.  Consumer nonaccrual TDRs were $246 million in the second quarter of 2010, compared with $271 million in the first quarter.

First quarter OREO balances included in NPAs were $423 million compared with $375 million in the first quarter of 2010, and included $254 million in commercial real estate assets, $113 million in residential mortgage assets, and $16 million in home equity assets. Repossessed personal property of $16 million largely consisted of autos.

Loans still accruing over 90 days past due were $397 million, down $39 million from the first quarter of 2010. Commercial balances 90 days past due increased $22 million to $142 million in the second quarter of 2010. Consumer balances 90 days past due of $255 million declined by $61 million from the previous quarter. Loans 30-89 days past due of $693 million decreased $185 million, or 21 percent, from the previous quarter. Commercial balances 30-89 days past due declined $124 million, or 31 percent, sequentially and consumer balances 30-89 days past due were down $62 million, or 13 percent, from the first quarter.

Capital Position

Capital ratios remained strong during the quarter. Compared with the prior quarter, the Tier 1 common equity ratio increased 25 bps to 7.22 percent, the Tier 1 capital ratio increased 35 bps to 13.75 percent, and the total capital ratio increased 56 bps to 18.11 percent. The tangible common equity to tangible assets ratio increased 18 bps to 6.55 percent excluding unrealized gains/losses, and increased 30 bps to 6.91 percent including unrealized gains/losses.

Current Tier 1 and Total capital levels include $3.4 billion of preferred stock, or approximately 3.5 percent of risk weighted assets, issued under the U.S. Treasury’s Capital Purchase Program. Tier 1 and Total capital levels also include $2.8 billion of Trust Preferred Securities, or 2.8 percent of risk weighted assets. Under financial reform recently passed, the securities are scheduled to begin being phased out of Tier 1 capital over three years beginning in 2013. To the extent these securities remain outstanding during and after the phase-in period, they would still be expected to be included in Total Capital. We expect to manage our capital structure, including the components represented by common equity and non-common equity, over time to adapt to the effect of legislation, changes to Bank for International Settlements (BIS) capital rules (also known as “Basel III”), and our goals for capital levels and capital composition as appropriate given any changes in rules.

Book value per share at June 30, 2010 was $12.65 and tangible book value per share was $9.51, compared with March 31, 2010 book value per share of $12.31 and tangible book value per share of $9.16.

Conference Call

Fifth Third will host a conference call to discuss these financial results at 9:00 a.m. (Eastern Time) today. This conference call will be webcast live by Thomson Financial and may be accessed through the Fifth Third Investor Relations website at www.53.com (click on “About Fifth Third” then “Investor Relations”). The webcast also is being distributed over Thomson Financial’s Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through Thomson Financial’s individual investor center at www.earnings.com or by visiting any of the investor sites in Thomson Financial’s Individual Investor Network. Institutional investors can access the call via Thomson Financial’s password-protected event management site, StreetEvents (www.streetevents.com).

Those unable to listen to the live webcast may access a webcast replay or podcast through the Fifth Third Investor Relations website at the same web address. Additionally, a telephone replay of the conference call will be available beginning approximately two hours after the conference call until Thursday, August 5th by dialing 800-642-1687 for domestic access and 706-645-9291 for international access (passcode 81577448#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of June 30, 2010, the Company has $112 billion in assets, operates 16 affiliates with 1,309 full-service Banking Centers, including 102 Bank Mart® locations open seven days a week inside select grocery stores and 2,362 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has a 49% interest in Fifth Third Processing Solutions, LLC. Fifth Third is among the largest money managers in the Midwest and, as of June 30, 2010, had $178 billion in assets under care, of which it managed $24 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the NASDAQ® National Global Select Market under the symbol “FITB.”

Forward-Looking Statements

This news release contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to the risk factors set forth in our most recent Annual Report on Form 10-K. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) general economic conditions and weakening in the economy, specifically the real estate market, either nationally or in the states in which Fifth Third, one or more acquired entities and/or the combined company do business, are less favorable than expected; (2) deteriorating credit quality; (3) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (4) changes in the interest rate environment reduce interest margins; (5) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (6) Fifth Third’s ability to maintain required capital levels and adequate sources of funding and liquidity; (7) maintaining capital requirements may limit Fifth Third’s operations and potential growth; (8) changes and trends in capital markets; (9) problems encountered by larger or similar financial institutions may adversely affect the banking industry and/or Fifth Third (10) competitive pressures among depository institutions increase significantly; (11) effects of critical accounting policies and judgments; (12) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies; (13) legislative or regulatory changes or actions, or significant litigation, adversely affect Fifth Third, one or more acquired entities and/or the combined company or the businesses in which Fifth Third, one or more acquired entities and/or the combined company are engaged; (14) ability to maintain favorable ratings from rating agencies; (15) fluctuation of Fifth Third’s stock price; (16) ability to attract and retain key personnel; (17) ability to receive dividends from its subsidiaries; (18) potentially dilutive effect of future acquisitions on current shareholders’ ownership of Fifth Third; (19) effects of accounting or financial results of one or more acquired entities; (20) difficulties in separating Fifth Third Processing Solutions from Fifth Third; (21) loss of income from any sale or potential sale of businesses that could have an adverse effect on Fifth Third’s earnings and future growth;(22) ability to secure confidential information through the use of computer systems and telecommunications networks; and (23) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity.

You should refer to our periodic and current reports filed with the Securities and Exchange Commission, or “SEC,” for further information on other factors, which could cause actual results to be significantly different from those expressed or implied by these forward-looking statements.

SOURCE Fifth Third Bancorp

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