Fifth Third Beats as Expenses Decline (Update 2)

• Fifth Third reports second-quarter earnings of 40 cents a share, beating the consensus estimate by a nickel.
• Results include $36 million after-tax gain on sale of Vantiv shares.
• Net interest income flat; noninterest expense down 4% sequentially.

Updated with comment from Jefferies analyst Ken Usdin and FBR analyst Paul Miller and market close information.

NEW YORK (TheStreet) -- Fifth Third Bancorp (FITB) of Cincinnati on Thursday reported second-quarter earnings available to common shareholders of $376 million, or 40 cents a share, beating the 35-cent share consensus estimate, among analysts polled by Thomson Reuters.

The second-quarter results included after-tax gains of roughly $36 million, or four cents a share, on the sale of shares in Vantiv (VNTV), Fifth Third's former payment processing subsidiary, which was spun-off during the first quarter.

Earnings declined from $421 million, or 46 cents a share, during the first quarter, when the company saw after-tax benefits of roughly $82 million, or nine cents a share, from the Vantiv spinoff, but increased slightly from $328 million, or 35 cents a share, in the second quarter of 2011.

Fifth Third's shares rose slightly to close at $13.80.

Second-quarter net interest income declined to $899 million from $903 million the previous quarter, while increasing from $869 million a year earlier. Fifth Third's net interest margin -- the difference between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed by five basis points during the second quarter, to 3.56%, in line with the industry trend in the prolonged low-rate environment.

Second-quarter noninterest income totaled $678 million, declining from $769 million during the first quarter, again mainly reflecting the Vantiv spinoff, and increased from $656 million during the second quarter of 2011. During the second quarter, mortgage banking income totaled $183 million, declining from $204 million the previous quarter, but increasing from $162 million a year earlier.

Second-quarter noninterest expenses totaled 937 million and were "reduced by $17 million related to affordable housing investments and FDIC insurance." Noninterest expenses were $973 million the previous quarter, which included a seasonal spike in compensation and employee benefits and $901 million in the second quarter of 2011.

The second-quarter bottom line was boosted by a $110 million release of loan loss reserves.

The company's second-quarter return on average assets was 1.32%, declining from 1.49% in the first quarter, but increasing from 1.22% in the second quarter of 2011. The second-quarter return on average common equity was 11.4%, declining from 13.1% the previous quarter, and increasing from 11.0% a year earlier.

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