Fifth Third posts $72 million loss though credit picture for regional bank improves

Fifth Third posts $72M loss; credit scene improves

CINCINNATI — Fifth Third Bancorp reported Thursday that its loss widened in the first quarter as noninterest income dipped, yet the credit picture brightened for the regional bank.

The company said delinquent loans fell to the lowest level since 2007, and bad loans that were written off fell 18 percent in the quarter, a trend Fifth Third thinks will continue.

“We currently expect to see continued credit improvement in the second quarter, with delinquencies and nonperforming assets remaining relatively stable and charge-offs down another $100 million or so in the second quarter,” CEO Kevin Kabat said in a statement.

Kabat told analysts in a conference call that he believes Fifth Third will continue to see progress both on the credit front and from operating results.

He said that while Fifth Third hasn’t seen a pickup in consumer loan demand yet, “the ratio of decline has slowed considerably.”

Fifth Third is still struggling to overcome a hard-hit housing market, especially in the key states of Florida and Michigan.

The company noted Thursday that in the area of credit, losses overall continue to be “disproportionately affected by commercial and residential real estate loans in Michigan and Florida.”

Together, the two states represented approximately 46 percent of total losses during the quarter and 27 percent of total loans and leases, the company said.

“They are in an area of the country facing economic headwinds, and they are wrestling with that,” said Matthew McCormick, banking analyst and portfolio manager for Bahl & Gaynor Investment Counsel in Cincinnati.

McCormick said the earnings report showed very positive trends that — if continued — hopefully will allow the company to start releasing reserves and help earnings going forward.

“The main thing is that their credit trends are improving, and you are seeing that reflected in the earnings,” he said.

Repaying the $3.4 billion received in 2008 from the government’s Troubled Asset Relief Program also should help, McCormick said.

Kabat said at the annual shareholders meeting this week that the company expects to repay that money this year but wouldn’t give a specific time.

The banking company said it lost $72 million, or 9 cents a share, in the three months ended March 31. A year ago, Fifth Third lost $26 million, or 4 cents a share.

Analysts polled by Thomson Financial expected a loss of 18 cents a share. Those estimates typically exclude one-time gains and charges.

Noninterest income slid 4 percent from the previous quarter, though Fifth Third says mortgage banking results were stronger than expected. Net interest income increased 2 percent.

Shares of Fifth Third fell 19 cents, or 1.3 percent, to close at $14.96 Thursday. Shares have ranged from $2.91 to $15.95 over the past year.

“I think what you’re seeing reflected in today’s share prices is a high level of expectation for some of these regional banks,” McCormick said. “A good release is not enough, you need a great one.”

Cincinnati-based Fifth Third has 16 affiliates with offices in 12 states.

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