Fifth Third Bancorp (FITB) Chief Executive Kevin Kabat said Thursday that he sees some early improvements in troubled consumer loans, adding that lending will continue to become more profitable. "We expect continued expansion in the net interest margin during the second half of the year," he said.

During a conference call with investors following the Cincinnati bank's second quarter earnings report, he said: "Our current expectation is for loan losses in the third quarter to show a moderate increase from the second quarter, with higher commercial real estate charge offs partially offset by lower consumer real estate charge offs."

"We've seen some deceleration in negative credit trends on the consumer side," Kabat said. "Although the environment remains difficult and signals are mixed, mixed is better than deteriorating everywhere. Housing prices remain under pressure, although recent data show a slowdown in the rate of decline in many markets."

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com