Fee income, profits fall at Fifth Third

Declining fee income dinged third-quarter earnings at Fifth Third Bancorp, although commercial and industrial as well as consumer lending were bright spots for the Cincinnati company.

Net income for the $141.7 billion-asset Fifth Third was $418 million, a 58% decline from the year-earlier quarter. Earnings per share of 61 cents missed the mean estimate of analysts polled by FactSet Research Systems by 2 cents.

“Although market dynamics remained challenging during the quarter, our net interest margin increased and we generated solid loan, deposit, and household growth,” President and CEO Greg Carmichael said in a press release Tuesday. “We continued to diligently manage expenses as we drive toward achieving our long-term efficiency target.”

Some of the earnings decline involved a $14 million pre-tax charge related to a swap transaction and an $8 million pre-tax charge marking to market Fifth Third's equity stake in the point-of-sale lender GreenSky. Another factor was a 64% decline in noninterest income to $563 million, driven by decreases in corporate banking income and mortgage banking revenue.

Net interest income rose 7% to a little over $1 billion. The net interest margin widened 16 basis points to 3.23%.

Average loans held on the bank’s portfolio increased 1% to $93.2 billion. C&I lending increased 3% to $42.5 billion, credit card loans increased 7% to $2.3 billion, and other consumer loans increased 95% to $2.1 billion.

Commercial leases, commercial mortgages and home equity loans fell on a yearly basis, and residential mortgages remained flat.

Total average deposits increased 3% to $104.6 billion in the third quarter. Fifth Third said this growth happened mainly in commercial interest checking deposits and consumer money market deposits.

Noninterest expenses increased 3% to $1 billion, led by higher compensation expenses and technology and communication expenses.

Carmichael emphasized Fifth Third’s progress on its profit-optimization plan, Project North Star. Under that plan, the company intends to achieve a return on tangible common equity between 12% and 14% and push its efficiency ratio below 60%.

Its return on average tangible common equity stood at 13.5% in the third quarter, compared with 30.4% a year earlier. Its efficiency ratio was 62.6%, compared with 38.4% last year. Complicating year-over-year comparisons, the company recorded a $1 billion pre-tax windfall from its sale of shares in the payment processor Vantiv in last year’s third quarter.

Expenses associated with its planned acquisition of Chicago’s MB Financial are also likely to add to the complexity of its expense picture.

Fifth Third increased its provision for loan losses to $86 million from $67 million. Net charge-offs increased about 6% to $72 million, and total nonperforming assets fell 19% to $448 million.