Cincinnati regional bank Fifth Third Bancorp (FITB +0.66%) quietly reported third-quarter earnings this week, along with peers Huntington Bancshares (HBAN +0.46%), BB&T Corporation (BBT +0.49%) and M&T Bank (MTB +0.82%). The report wasn't terribly exciting, as the bank presented numbers in line with analysts' estimates. But then again, investors have probably had their fill of "excitement" from banks over the past few years.
One-time items a drain on bottom line
There were some one-time charge-offs that dulled Fifth Third's usually positive income numbers, such as $24 million in mortgage putback requests from government sponsored entities Fannie Mae and Freddie Mac.
Add to that, $26 million in debt retirement expense, as well as a $16 million reduction on the warrant the bank owns for payments company Vantiv (VNTV +0.00%) -- previously valued at $56 million -- and it's not hard to see why earnings were down from $381 million last year, and $376 million last quarter, coming in at $354 million.
Forward motion in lending, and other goodies
The loan picture brightened year over year for Fifth Third, with mortgage originations growing 16%, and commercial and industrial lending perking up 15%. Other regional banks, like M&T Bank and BB&T, also reported increased mortgage activity, though Huntington Bancshares, nervous about the regulatory environment, has cooled its mortgage lending appreciably. Indeed, Credit Suisse recently noted that it expected all these banks to be positively bullish in the mortgage-writing and fee-collecting departments for the third quarter.
Net interest margin pressure was strong, but the bank was able to keep its NIM at a stable 3.56%, unchanged from last quarter, and only slightly down from last year's 3.65%. Fifth Third noted that net interest income increased by $5 million from Q3 2011, thanks to the maturation of higher-priced CDs and higher loan balances. The bank also managed to increase its core deposits by 4% from last year.
In news that shows improvements in the overall credit picture, the percentage of nonperforming loans in Fifth Third's portfolio dropped from 1.93% to 1.38%, while the bank's provision for loan and lease losses dropped by $6 million from last quarter, and a healthy $22 million from one year ago.
Fool's take
The slight bottom-line setback was expected, and not indicative of worrisome issues at the bank. I have no doubt that Fifth Third will continue with its upward profit trend soon, considering its lending push. Another plus for this bank, along with other regionals, is the lack of exposure to Europe's headaches – something that the megabanks have in spades, and can be scary to investors. Fifth Third is a sturdy bank, and I fully expect it return to bottom-line growth, now that this minor reversal is behind it.
