Merger costs eat into Fifth Third’s 2Q profit

Fifth Third Bancorp in Cincinnati reported a noisy second quarter, as merger-related expenses took a bite out of its bottom line.

Net income fell 25% from the same quarter last year to $453 million. Earnings per share of 57 cents missed the mean estimate of analysts surveyed by FactSet Research Systems by 8 cents.

The second quarter included $109 million in expenses related to Fifth Third’s integration of MB Financial in Chicago, which it bought in March. Had that not been a factor, earnings per share would have come in at 71 cents, the company said.

Fifth Third
"We've been in a more defensive position for probably nine months now as it relates to deposits," Fifth Third CEO Tim Spence says. "We believed that we were reaching the point in the cycle where deposit funding really mattered."

Net interest income rose 22% year over year to $1.2 billion. The net interest margin expanded 16 basis points to 3.37%.

Loans and leases held on the bank’s portfolio increased 19% to $110.1 billion, as the merger added to Fifth Third’s balance sheet. Commercial loans and leases rose 25% to $71.7 billion, while consumer loans grew 9% to $38.3 billion.

Average deposits climbed 20% to $124.3 billion, largely because of the merger.

Noninterest income fell 11% to $660 million. Many fee income categories, including corporate banking revenue and mortgage banking revenue, grew on a yearly basis, but other noninterest income fell 63% to $93 million. This was mainly because the company had recorded a $200 million gain from selling part of its stake in the payments processor Worldpay in the year-ago quarter.

Noninterest expenses increased 24% from the same period last year to $1.2 billion. The two biggest drivers were compensation and benefits, which rose 17% to $641 million, and technology and communications, which more than doubled to $136 million. Most of that was also related to the MB Financial acquisition.

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Regional banks Earnings M&A Expense management Fifth Third Bancorp
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