Midwestern regional lender
reported an 89% jump in fourth-quarter profits, but still managed to fall short of Wall Street's expectations due to losses related to consumer bankruptcy filings.
In the quarter, the Cincinnati-based bank earned $332 million, or 60 cents a share, up from $176 million, or 31 cents a share, a year ago. Wall Street analysts, as surveyed by Thomson Financial, were expecting earnings of 63 cents a share.
Fifth Third's earnings were expected to compare favorably to a year ago. In the fourth quarter of 2004, the bank took a hefty $208 million after-tax charge after selling some of its poor performing investments and assets. The asset sale was an attempt by Fifth Third to better position its investment portfolio for a rising interest rate environment.
But a tricky interest rate environment continued to bedevil Fifth Third throughout all 2005. Like many lenders, Fifth Third saw its margins squeezed by the so-called flattening of the yield curve, or the narrowing of the spread between short- and long-term interest rates. That trend continued in the fourth quarter.
The bank said its net interest income fell 2% from a year ago to $735 million. Fifth Third's net interest margin declined a quarter of a percent from a year ago.
Net interest income is the difference between what a bank makes on its investments and loans and the money it pays out to depositors. That's how most regional and small banks make money. Net interest margin is a measure of the profitability of a bank's deposit and investment operations.
"Revenue and net income trends were significantly below our expectations entering the year," said Fifth Third's CEO and President George Schaefer, Jr.
But it wasn't just the flattening yield curve that hammered Fifth Third in the fourth quarter. The bank also got hit hard by a new bankruptcy law that led to a surge in consumer bankruptcy filings by individuals looking to qualify under the old law.
The surge in bankruptcy filings forced the bank to double its quarterly provision for loan losses to $134 million, up from $65 million a year ago. Included in that sum was $27 million set aside for previously announced losses associated with bankrupt commercial airliners.
Overall, 2005 was a difficult year for Fifth Third. Officials at the bank had to scale back earnings forecasts a number of times. And even after those warnings, the bank sometimes still missed its own diminished targets.
In premarket trading shares of Fifth Third were trading down $1.23, or off 3%, to $37.70.