Fifth Third Bancorp (FITB) has reported a third quarter loss of 20 cents per share. Results are worse than the Zacks Consensus Estimate of a loss of 18 cents. The company incurred a loss of 14 cents a year earlier.
 
Results reflected higher credit costs driven by the continued stress in the commercial, commercial real estate, residential real estate and consumer loan portfolios.
 
Quarterly results included a pre-tax net benefit of $288 million from the sale of its Visa Inc. (V) Class B common shares and the release of additional Visa litigation reserves due to Visa’s supplemental funding of its litigation escrow account. This reduced non-interest expense by $29 million. Earnings were benefited by $317 million or 26 cents by these items.
 
Credit metrics continued to deteriorate in the quarter. Net charge-offs were 375 basis points (bps) of average loans outstanding, up 67 bps sequentially and 158 bps year-over-year. Loss experience overall continues to be driven by commercial and residential real estate loans in Michigan and Florida.
 
Non-performing assets as a percentage of related assets were 4.09%, up 61 bps sequentially and 123 bps year-over-year. Provisions for loan losses were $952 million, compared to $1.0 billion in the prior quarter and $941 million in the year-ago period.
 
Capital ratios also benefited from the Visa stake sale. Fifth Third Bancorp’s Tier 1 capital ratio was 13.23% compared to 12.90% in the prior quarter and 8.57% in the year-ago period. The Tier 1 common equity ratio was 7.03% at Sept. 30, 2009, compared with 6.94% at June 30, 2009, and 5.18% at Sept. 30, 2008.
 
Net interest margin improved by 17 basis points from the prior quarter to 3.43%, driven by improved liability pricing and wider loan spreads, which drove a 5% sequential increase in net interest income to $874 million. Net interest income was, however, down 18% year-over-year from $1.1 billion.
 
Average portfolio loan and lease balances decreased 2% sequentially and declined 5% from the third quarter of 2008. The decline was due to lower demand for consumer and commercial loans and leases as well as higher net charge-offs. However, average core deposits increased 2% sequentially and 11% year-over-year.
 
Non-interest expense decreased 14% sequentially and 9% year-over-year. Results reflected the benefits of cost curtailment initiatives.
 
Competitive market conditions, continuing deterioration in credit quality and collateral values within the company’s geographical footprint and management’s decision to increase the loan and lease loss provisions will pull down results for several quarters to come, in our view. However, the cost containment measures will provide some relief.
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