Fifth Third tops estimates despite increased bad loans

Fifth Third Bancorp beat analysts' estimates by posting a second-quarter profit of 5 cents per share this morning.

First Call consensus analysts' estimates called for a break-even quarter.

Fifth Third's (NASDAQ: FITB) profit excludes a charge of 42 cents per share related to the tax treatment of leveraged leases. Including the charge, it lost $202 million, or 37 cents per share.

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Its loan-loss provision increased 32 percent from last quarter, to $719 million, and soared to six times higher than the year-ago provision. Its charge-offs of $344 million rose 25 percent from last quarter and were more than three times the year-ago level.

"While we were disappointed in our overall results for the second quarter, which included a charge related to leveraged leases, they were largely in line with our expectations last month. Absent unexpected events, we anticipate returning to profitability in the third quarter," CEO Kevin Kabat said in a news release.

"Non-performing assets and net charge-offs continued to increase, reflecting weakening economic conditions. Deteriorating credit trends remain disproportionately attributable to commercial and residential real estate loans, particularly in Florida and Michigan, and we continue to be very active in taking steps to address these issues that we and the industry are facing," Kabat said.

Net interest income rose 17 percent, excluding lease litigation charges. Fee-based income that isn't tied to interest rates rose 8 percent from a year ago. Its payment processing system revenues, a big part of Fifth Third's noninterest income, rose 15 percent. Analysts have speculated that unit could be sold after Fifth Third said last month it would look at selling noncore assets.

Fifth Third also improved its capital ratios after cutting its dividend last month and raising $1 billion through a dilutive, convertible preferred stock offering. Its tier I capital rose from 7.7 percent in the first quarter to 8.5 percent this quarter.

Fifth Third's stock opened Tuesday at $13.39 before quickly declining more than 5 percent, or 68 cents, to $12.71 per share.

Fifth Third, headquartered in Cincinnati, is the Dayton-area's largest bank, and has 18 affiliates with about 1,300 banking centers and more than 2,000 ATMs in Ohio, Kentucky, Indiana, Georgia, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, and Missouri.