Fifth Third Bancorp (FITB) has reported a fourth quarter loss of 20 cents per share. Results are well ahead of the Zacks Consensus Estimate of a loss of 31 cents. The company had incurred a loss of $3.78 per share a year earlier.

The results were driven by an improvement in credit trends. Charge-offs were low and provisions for loan losses were down. There was also an improvement in interest margin. Excluding the benefits from the Visa Inc. (V) transaction in the prior quarter, the company also reported a 7% sequential increase in non-interest income. However, a stressed economic environment has led to a decline in the demand for loans.

However, for fiscal 2009, Fifth Third reported a net income available to common shareholders of $511 million or 67 cents per share, compared with a net loss of $2.2 billion or $3.91 per share in 2008.

Inside the Headline Numbers

Quarterly results included a pre-tax net benefit of $20 million for the mark-to-market adjustment on warrants related to the Fifth Third Processing Solutions joint venture. This was, however, offset by a $22 million pre-tax litigation reserve accrual for litigation associated with bank card association membership.

Fifth Third’s credit metrics improved in the quarter. Net charge-offs were 362 basis points (bps) of average loans outstanding, down 13 bps sequentially and 388 bps year-over-year. Loss experience overall continues to be driven by commercial and residential real estate loans in Michigan and Florida.

Non-performing assets as a percentage of related assets were 4.22%, up 13 bps sequentially and 184 bps year-over-year. Provisions for loan losses were $776 million, down 18% sequentially and 67% year-over-year.

Capital ratios were mixed. Compared with the prior quarter, the Tier 1 common equity ratio decreased 1 basis point to 7.00%, the Tier 1 capital ratio increased 12 bps to 13.31%, and the total capital ratio increased 5 bps to 17.48%. As of Dec 31, 2009, book value per share was $12.44 and tangible book value per share was $9.26, compared with $12.69 and $9.50, respectively, as of Sep 30, 2009.

Net interest margin improved 12 bps from the prior quarter to 3.55%, driven by a positive funding impact, which was partially offset by lower loan balances combined with a stabilization of spreads on loans originated during the quarter. This drove a 1% sequential increase in net interest income to $882 million. Net interest income was, however, down 2% year-over-year. The prior-year period included a higher loan discount accretion related to the First Charter acquisition.

Average portfolio loan and lease balances decreased 3% sequentially and 10% from the prior-year quarter, primarily due to lower demand for consumer and commercial loans and leases. However, average core deposits increased 3% sequentially and 11% year-over-year.

Fifth Third’s non-interest income of $651 million was down 23% sequentially but up 1% from a year ago. While the company experienced a benefit of $20 million in the reported quarter for the mark-to-market adjustments on warrants related to the Fifth Third Processing Solutions joint venture, the prior quarter’s results included a $244 million gain from the sale of its Visa Inc. Class B common shares. Excluding these items, non-interest income was up 7% sequentially.

Non-interest expense increased 10% sequentially to $967 million and decreased $1.1 billion from a year ago. While the reported quarter results included $22 million of litigation reserve accrual, the prior quarter included $73 million of Visa litigation reserve reversal and $10 million of seasonal pension settlement expense. The year-ago quarter included a $965 million charge to record goodwill impairment. Excluding such items, the company reported a 1% sequential increase and a 10% year-over-year decrease in non-interest expenses.

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