The parent of Fifth Third Bank will set aside $54 million to cover investment losses in the third quarter, the Cincinnati bank said Tuesday in a regulatory filing.

        The move — to cover losses in asset-backed securities such as mortgages — will cut Fifth Third Bancorp's third-quarter earnings by four or five cents a share, said Neal Arnold, Fifth Third's chief financial officer.

        He told Bloomberg Business News that the after-tax cost would not affect the bank's earnings forecast for the quarter or rest of this year.

        The bank is expected to earn $2.77 a share this year, according to the average estimate of analysts polled by Thomson First Call.

        Fifth Third had 2001 share earnings of $2.37

        Fifth Third is the nation's 15th largest bank, with assets of $75 billion and 921 branches in seven states. It reported the reserve in a regulatory filing with the United States Securities and Exchange Commission.

        The bank said it's still confident about earnings for this year.

        David George, an analyst at A.G. Edwards & Sons in St. Louis, said he was not too concerned with the filing.

        “Since they don't think it's going to impact numbers, I would expect them to take securities gains to help offset this,” he said.

Banks' profits offset downturn

        U.S. banks posted record second-quarter profits as higher fee income and low interest rates offset a sluggish economy and more problem loans to fuel the growth.

        The nation's banks earned $23.4 billion in April, May and June, up nearly 23 percent from $19.1 billion during last year's second quarter, according to preliminary data from the Federal Deposit Insurance Corp.

        The industry's latest results also surpassed the previous quarterly record of $21.7 billion set in the first quarter of this year.

        The increase came as net interest income, the bank's biggest source of profits, rose 10.5 percent from a year ago to $5.6 billion.

        Fee income for banks rose by $3.6 billion, up 9.1 percent from a year ago.

        But problem commercial loans, which have reduced banks' profits for the past two years, continued to rise.

        Charge-offs of $10.5 billion for those loans were $2.6 billion, or about 33 percent higher, than a year ago.

        The weak economy and last year's terrorist attacks hurt many U.S. companies ability to repay business loans, increasing charge-offs at banks.

        Still, assets for the industry during quarter rose by $245.1 billion, making it the largest quarterly gain in industry assets.

        Much of that gains was fueled by brisk mortgage refinancing activity as many Americans rushed to refinance to take advantage of lower interest rates.

Foreclosure rate sets 50-year rate

        Higher unemployment forced more people to be late on mortgage payments and boosted the foreclosure rate to hit its highest level in about 50 years in the second quarter, according to a trade group.

        The mortgage delinquency rate rose to 4.77 percent in the second quarter, up from 4.65 percent in the first quarter.

        The percentage of mortgages in foreclosure started in the second quarter rose to a record .40 percent, up from the previous record of .37 percent reached in the third quarter of 2001, according to the Mortgage Bankers Association of America, the industry's largest trade group.

        The group also said the percentage of loans in the foreclosure process at the end of the quarter rose 13 basis points from the first quarter to 1.23 percent, while the percentage of conventional loans in foreclosure jumped 6 basis points to .87 percent.

        The news was worse for government-backed loans as the percentage of FHA loans in foreclosure rose 47 basis points to 2.79 percent and percentage of VA loans in foreclosure climbed 31 basis points to 1.72 percent.

        Doug Duncan, MBA's chief economist, he said unemployment averaged 5.6 percent in the first quarter, but rose to average of 5.9 percent in the second quarter.

        Contact Jeff McKinney at 768-8499; fax 564-6991; or e-mail jmckinney@enquirer.com.

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