CINCINNATI ( TheStreet) -- Fifth Third Bancorp.'s ( FITB) CEO Kevin Kabat acknowledged the bank's capital levels are very strong Thursday, but wouldn't commit to a timeline to pay back the $3.4 billion in bailout funds it still owes the government.

"I don't really have any updates on TARP repayment," Kabat said on a conference call to discuss the bank's second-quarter results. "Obviously our results are progressing more favorably than we expected and we are building capital."

He continued: "Our aim is a result that is anchored to an appropriate level and composition of capital and that makes sense for us and our shareholders as well as the regulators. We had said that we thought a resolution in the second half of 2010 seemed reasonable and that remains the case. That said, we are willing to be patient."

Kabat's non-committal answer came as the bank reported second-quarter net income of $192 million. After the payment of preferred dividends, Fifth Third earned $130 million, or 16 cents a share, in the June period, beating Wall Street expectations for a 2-cent profit.

Kabat has a good reason to be cautious. There is still considerable uncertainty in the credit market even though Fifth Third was able to bulk up profits this quarter with the release of $109 million in loan loss reserves, according to BMO Capital, which has an outperform rating and $17 price target on the stock.
Fifth Third Stock Rating Report
(FITB) Rating and Financial Analysis

Continued improvement in credit quality likely holds the key to the timing of Fifth Third's TARP payback, along with the economy's health. Whether or not the bank needs to embark on a capital raise in order to clear its bailout tab also remains to be seen as banks are still waiting for the government to provide clarity on capital requirements. The impact of new financial reform laws on the bank will also be a factor.

The stock was up nearly 11% to $12.51 in late afternoon trades as investors cheered the strong second-quarter results. Volume of 21.5 million was well beyond the issue's trailing three-month daily average of 15.8 million as the session wound down.

" It is the troubled-credit outlook that is most critical to FITB's market valuation, in our opinion, and it appears management's 'tough-love' approach to difficult credits in prior quarters now is paying off," wrote Miller Tabak analyst Thomas Mitchell in a note to clients following the report.

-- Written by Maria Woehr in New York

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