Mergers cost 3 Michigan banks, but Fifth Third's earnings climb.

Three Michigan financial institutions posted merger-related declines in profitability on Friday, but a fast-growing Ohio bank bucked that trend.

Cincinnati-based Fifth Third Bancorp boosted earnings by 16%, to $62.8 million, while lifting its return on assets 5 basis points to 1.77%.

Meanwhile, Kalamazoo-based First of America Bank Corp. posted an 11% earnings decline to $56.4 million, citing recent thrift acquisitions and insufficient revenue growth.

Standard Federal Bank, a thrift holding company based in Troy, delivered flat earnings of $30.2 million and saw its return on assets fall 18 basis points to 1.05%. It too cited recent acquisitions.

On a much milder note, Old Kent Financial Corp., Grand Rapids, boosted net income by 4.8%, to $35.5 million, but saw its ROA slide 8 basis points to a stillrespectable 1.37%. The company cited a mortgage banking slowdown and the effects of an acquisition in Illinois.

Separately, Omaha-based Firstier Financial Inc. posted third quarter earnings of $13 million, a 6.4% increase from a year ago. Annualized, return on average assets equaled 1.67%, up 4 basis points from last year's third quarter. Higher capital levels, however, lowered the bank's return on equity by 48 basis points to 16.31%.

The $14.3 billion-asset Fifth Third boosted performance from the outstanding levels of a year ago, outpacing acquisition-related expense growth with revenue gains. The banking company's return on average equity leaped by 100 basis points, to 18.9%.

A 10.4% expansion of average loans, combined with a whopping 46.1% growth in securities investments, helped boost net interest income by 11.4%, Fifth Third said. This was combined with a 3.8% rise in fee income, while operating expenses rose 8.5%.

Old Kent saw its profitability slip as acquisition-related expense growth partially offset revenue gains. A mortgage banking slowdown also held fee revenues flat. Annualized returns equaled 1.37% on average assets, down 8 basis points from a year ago; and 16.36% on average equity, down 96 basis points.

The $10.5 billion-asset banking company said the acquisition of Chicago-based EdgeMark Financial helped boost average loans 22.6% from a year ago, and that a concurrent widening of the margin helped boost net interest income by 11.6%. Noninterest expenses rose by 10.2%, however, and fee income was flat at $39 million.

Analysts' fears about First of America were confirmed as recent thrift acquisitions contributed to a profitability decline at the $23.6 billion-asset company. Returns on average assets equaled an annualized 0.96%, down 26 basis points from a year ago; and returns on average equity declined 251 basis points, to 15.06%.

Daniel R. Smith, First of America's chairman and chief executive, said revenue growth "continued to fall short of expectations," but he predicted that it would rebound in the fourth quarter.

McDonald & Co. analyst Fred Cummings said, "I don't expect a sharp rebound," citing greater-than-expected margin compression at the company.

Standard Federal, with $11.8 billion of assets, also saw acquisitions depress results as expenses grew faster than revenues.

Although post-provision net interest income rose 19.5%, a lapse in gains from mortgage sales. lowered fee income by 11.2%, while noninterest expenses climbed 33.1%.

Annualized, the thrift's returns equaled 1.05% on average assets, down 18 basis points from a year ago; and 15.68% on average equity, down 247 basis points.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER