UPDATE: Regional Banks Lifted By Mortgage Boom, Better Credit

U.S. regional banks in the Midwest and Southeast reported improved third-quarter earnings Thursday, mostly from an ongoing boom in mortgage refinancing and an improvement in the health of their loan books.

Two once-troubled Ohio banks--Fifth Third Bancshares Inc. (FITB) in Cincinnati and Huntington Bancshares Inc. (HBAN) in Columbus--improved earnings for the third straight quarter as revenue from originating mortgages rose and problems from loans fell sharply. Both banks also said they grew their portfolios of business loans, car loans and even residential mortgages.

Fifth Third, which has 1,600 branches in 12 states, earned $238 million, or 22 cents a share, in the quarter, a large swing from the lender's loss of $97 million a year ago. Fifth Third was hammered during the financial crisis by credit problems, including busted real estate construction loans, but has more recently showed clear signs it has passed the worst of its loan losses. The bank released $500 million in unneeded reserves for credit costs, and its mortgage-banking income more than doubled to $232 million from $114 million in the second quarter.

Big banks including Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) have said mortgage borrowers are refinancing in droves as interest rates sit at historic lows.

Huntington, which has 600 branches in six states, earned $101 million, or 10 cents a share, up from a loss of $166 million in last year's third quarter. The bank, which like Fifth Third struggled during the crisis under real-estate loan losses, released $65 million in unneeded reserves. Huntington also grew its total loans for the third straight quarter, including an addition in the third quarter of residential and home equity loans.

Both Fifth Third and Huntington sold distressed loans at a discount during the quarter. The two nonetheless turned in profits, evidence of regional banks' improving financial health.

Shares in Fifth Third were recently up 2.7% to $12.73. Huntington's stock was recently up 1.5% to $5.69.

In the Southeast, SunTrust Banks Inc. (STI) reported its second profitable quarter in a row after a long string of quarterly losses. The Atlanta bank, which has 1,700 branches primarily in seven states, earned $153 million in the quarter, or 17 cents a share, a big swing from its loss of $317 million in last year's third quarter. The bank released $65 million in excess loan-loss reserves and reported mortgage-banking income of $133 million after that business turned in three straight quarters of losses.

Stock in SunTrust was recently up 3.4% to $26.32.

PNC Financial Services Group Inc. (PNC), a clear winner of the financial crisis, reported a wider quarterly profit but said it is seeing "tepid" loan demand from borrowers. The Pittsburgh-based lender, which is one of the biggest U.S. regional banks, earned $1.1 billion, or $2.07 a share, in the quarter, up from $559 million a year earlier. PNC booked a lump-sum gain of $328 million from selling an investment-servicing business and released $128 million in unneeded reserves for loan losses.

Shares in PNC were recently up 1.1% to $53.34.

BB&T Corp. (BBT) was the only major regional bank to disappoint investors Thursday after the Winston-Salem, N.C., lender reported earnings of $219 million, or 30 cents a share, up from $157 million a year ago.

The Southeast lender, which has 1,800 branches in 12 states, released $130 million from its loan-loss reserves. Loans past due by less than 90 days grew to $1.7 billion from $1.5 billion in the second quarter, and the company said half of the increase was due to delinquent government-insured loans on which the company has no loss exposure. A spokeswoman said the bank's internal "watch list" of at-risk loans peaked in the spring.

Shares in BB&T were recently down 1.5% to $22.57.

-By Marshall Eckblad, Dow Jones Newswires; 212-416-2156; marshall.eckblad@dowjones.com

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