Fifth Third Bancorp posted a second straight quarterly profit on Thursday, coming off a string of losses, as the bank benefited from a legal settlement but also took more defensive action against troubles in the mortgage market.
The Cincinnati-based company reported net income available to common shareholders of $175 million, or 22 cents per share, for the three months that ended Sept. 30. That compares to a loss of $159 million, or 20 cents per share, a year ago.
Analysts surveyed by Thomson Reuters expected earnings of 17 cents a share. Those estimates typically exclude one-time gains and charges.
Its shares rose 50 cents, or 4 percent, to $12.90 in morning trading.
Fifth Third's net interest income _ which measures the difference between what a bank makes on lending money and what it costs the bank to borrow money _ rose 5 percent to $916 million, from $874 million a year ago.
The company said its earnings for the quarter included a $127 million pre-tax benefit from the settlement of litigation related to a bank-owned life insurance policy.
Meanwhile, the bank said it sold off about half of its nonperforming residential mortgage loans during the quarter and transferred to held-for-sale status about a third of its nonperforming commercial loans, which also were largely tied to real estate. Those actions amounted to charge-offs of $510 million, out of $956 million in net charge-offs during the quarter, the company said.
"Disposing of these loans further reduces Fifth Third's exposure to future real estate losses in what is anticipated will be a slow recovery in that sector," said Kevin Kabat, president and CEO.
The company was hit hard during the recession by the sharp housing decline in key markets such as Michigan and Florida.
Noninterest income, including fees and the legal settlement, fell 3 percent, to $827 million from $851 million in the year-ago quarter, when the bank saw a $288 million benefit before taxes from a sale of stock in Visa Inc.
Retail service charges for the quarter dropped 24 percent largely due to new federal restrictions on debit card overdraft fees that took effect July 1, but other fee income rose amid loan growth.
"Originations were broad-based, high quality and diversified, both geographically and by asset class, driven particularly by growth in health care and manufacturing, two industries that are recovering well," Kabat told analysts on a conference call. He said the bank is hopeful the growth will be sustained.
Fifth Third has 16 affiliates with offices in 12 states.