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Fifth Third 3Q mortgage results positive sign for rest of industry?

Average residential mortgage lending increases 10% year over year

Fifth Third Bancorp’s third quarter results shows that it managed to capture a share of the extra projected growth in the mortgage industry, with its residential mortgage loan portfolio increasing by 10% year over year.

According to the bank’s results, residential mortgage loan portolfio balances for third quarter hit $14.4 billion, up from $14 billion last quarter and $13.1 billion in the third quarter of 2015.

The growth in residential mortgages portfolio balances helped offset decreases in average loan and lease balances in commercial and industrial and automobile loans.

During the third quarter, Fifth Third Mortgage announced a 0% down payment mortgage program for those who qualify. The move came during a time that a lot of lenders were getting into the arena of low down mortgages.

To the bank, the motivation was to make homes affordable to help improve our neighborhoods and build strong communities.

However, it’s not for certain if this new product translated into the bank’s uptick in residential mortgages, especially since the whole mortgage industry is expected to close out the year better than originally expected.

FBR & Co. analysts recently stated that 2016 could be even stronger than they predicted. Driving FBR’s increased projection is a strong 3rd quarter, which could prove to the best for mortgage lending since the 4th quarter of 2007.

In the report, FBR analysts Paul Miller and Tim Hayes state that they currently estimate that mortgage originations will top $600 billion in the third quarter, topping their previous estimate of $565 billion.

While this increase isn’t directly seen in the bank’s mortgage banking net revenue, Fifth Third did post a rise in mortgage originations.  

As a whole, the bank recorded third quarter mortgage banking net revenue of $66 million in the third quarter of 2016, down $9 million from the second quarter of 2016 and down $5 million from the third quarter of 2015.

But as far as only originations, the bank reached $2.9 billion in the current quarter, increasing 7% from last quarter and 27% from the same quarter last year.

Third quarter 2016 originations resulted in $61 million of origination fees and gains on loan sales, compared with $54 million during the previous quarter and $46 million during the third quarter of 2015.

Mortgage servicing dented overall mortgage banking net revenue, with mortgage servicing fees falling to $49 million this quarter, down from $50 million in the second quarter of 2016, and $54 million in the third quarter of 2015.

Mortgage banking net revenue is also affected by net servicing asset valuation adjustments, which include MSR amortization and MSR valuation adjustments (including mark-to-market adjustments on free-standing derivatives used to economically hedge the MSR portfolio).

These adjustments resulted in a negative $44 million in the third quarter of 2016.

Fifth Third, as a whole, reported third quarter 2016 net income of $516 million, up from net income of $333 million in the second quarter of 2016 and $381 million in the third quarter of 2015.

“Our third quarter results were strong despite the tepid economic environment. Higher net interest income, stable underlying fee revenue, and lower expenses helped us achieve improved returns for our shareholders,” said Greg Carmichael, president and CEO of Fifth Third Bancorp.

“During the quarter, we executed on several initiatives which will help us continue to drive improved shareholder returns. While we continue to invest in areas like technology, we plan to improve our operating leverage through an ongoing review of expenses in all business units and staff functions and renegotiations of key vendor contracts,” said Carmichael. “We remain focused on improving our profitability without relying on the expectation that economic conditions will improve. 

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