• Fourth-quarter EPS of 43 cents beats the consensus estimate of a 41-cent profit.
  • Mortgage revenue rises 38% sequentially.
  • Period-end total commercial loans increase by 5% sequentially; C&I loans by 8%.
  • Net interest income declines; net interest margin narrows.
  • Fourth quarter ROA of 1.33%, ROTCE of 14.1%, both increasing sequentially and year-over-year.

Updated with midday market action and comments from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- Fifth Third Bancorp ( FITB) of Cincinnati on Thursday announced another quarter of very strong mortgage revenue growth and solid increases in commercial and industrial loan balances.

The company reported fourth-quarter net earnings available to common shareholders of $390 million, or 43 cents a share, increasing from $354 million, or 38 cents a share in the third quarter, and $305 million, or 33 cents a share, in the fourth quarter of 2011.

For all of 2012, Fifth Third reported earnings available to common shares of $1.541 billion, or $1.66 a share, increasing from $1.094 billion, or $1.18 a share, in 2011.

The fourth-quarter results beat the consensus estimate of a 41-cent profit, among analyst polled by Thomson Reuters. The fourth-quarter results reflected a number of one-time items, including a $157 million gain on the sale of Vantiv ( VNTV) shares, which amounted to $102 million after taxes, adding 11 cents a share to earnings. Fifth Third's former payment processing subsidiary completed its initial public offering in March. Fifth Third held a 33% stake in Vantiv as of Dec. 31.

Negative after-tax one-time items for the fourth-quarter included:
  • $87 million, or nine cents a share, for debt extinguishment.
  • $12 million, or a penny a share, on a reduced valuation for a warrant to purchase Vantiv shares.
  • $10 million, or a penny a share, "related to the valuation of a Visa total return swap."
  • $19 million, or two cents a share, to increase mortgage putback reserves, "due to new Freddie Mac (FMCC) guidance for potential 2004-06 repurchase claims."

The net effect of the one-time items was a two-cent reduction in earnings, underlining a solid quarter for Fifth Third.

Fifth Third's shares were up 5% in midday trading, to $16.26, while the KBW Bank Index ( I:BKX) was up slightly to 53.60, with all 24 index components showing gains, except for five, including Bank of America ( BAC), which was down 4% to $11.33, and Citigroup ( C), which was down 3% to $41.25.

Bank of America reported a fourth-quarter profit of $700 million or $.03 a share, beating the consensus EPS estimate by a penny, after the company pre-announced a large mortgage putback settlement with Fannie Mae ( FNMA) and a major contribution to the $8.5 billion foreclosure settlement between federal regulators and the nation's largest loan servicers.

Citigroup reported fourth-quarter earnings of $1.2 billion, or 38 cents a share. Excluding credit valuation and debit valuation adjustments, Citi earned $2.2 billion or 69 cents a share, missing the consensus estimate of 96 cents. Citigroup's earnings were lowered by charges related to its restructuring announced in the fourth quarter, as well as a declining release of loan loss reserves.

Fifth Third's net interest income declined to $903 million during the fourth quarter, from $907 million in the third quarter and $920 million in the fourth quarter of 2011, as the net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to 3.49% from 3.56% the previous quarter and 3.67% a year earlier.

Fifth Third said that "The decline in net interest income was driven by the effect of approximately $10 million in non-recurring benefits recorded in the third quarter. Otherwise, net interest income benefited from a decline in interest expense driven by higher demand deposit balances and continued runoff in consumer CD balances." Fourth-quarter net interest income also benefitted from reduced expenses on borrowings.

Fifth Third CEO Kevin Kabat said that "every caption in fee income was up for the quarter, including mortgage banking revenue up 29 percent and corporate banking revenue up 13 percent sequentially. Net interest income was consistent with third quarter results and stronger than expected."

Mortgage revenue totaled $258 million in the fourth quarter, increasing from $200 million the previous quarter and $156 million a year earlier, as the company continued to take advantage of the mortgage loan refinance boom, in a time of historically low interest rates.

The company's corporate banking revenue increased 13% sequentially and 38% year-over-year to $114 million in the fourth quarter, while service charges on deposit accounts were up 5% quarter-over-quarter to $134 million. Deposit account service charges were down 1% from a year earlier.

Fifth Third's fourth-quarter provision for loan and lease losses was $76 million, increasing from $65 million the previous quarter and $55 million a year earlier, as the company was realizing less benefit from the improvement in credit quality, as expected at this point in the economic recovery. Loan loss reserves declined by $101 million in the fourth quarter, boosting earnings.

The company continued to report strong loan growth, with period-end total portfolio loan balances growing by 3% sequentially to $85.782 billion, while (non-real estate) commercial and industrial (C&I) loans were up 8% from the previous quarter to $36.038 billion, as of Dec. 31.

Fifth Third's fourth-quarter return on average assets was 1.33%, improving from 1.23% in the third quarter and 1.08% in the fourth quarter of 2011. The company's return on tangible common equity during the fourth quarter was 14.1%, increasing from 12.8% the previous quarter and 11.9% a year earlier.

Fifth Third's shares closed at $15.55 Wednesday, trading for 1.3 times their reported Dec. 31 tangible book value of $12.33, and 9.8 times the consensus 2013 EPS estimate of $1.59. The consensus 2014 EPS estimate is $1.66.

Based on a quarterly payout of 10 cents the shares have a dividend yield of 2.57%. The company repurchased roughly $650 million worth of common shares during 2012, including $175 related to gains from sales of Vantiv shares. The company's 2012 capital plan authorized another $125 million in share buybacks for the first quarter of 2013.

Jefferies analyst Ken Usdin in a note following the earnings release called Fifth Third's fourth-quarter results a "solid beat" of the consensus estimate, and said that "forward guidance for 2013 is better than expected and should support the consensus."

Usdin did say that "the outsized growth rate in C&I will likely raise some questions, as the bulk of it appeared to come towards quarter end," adding that the company's planned run-off of commercial real estate loans "is still meaningful, but declines appear to be slowing."

The analyst rates Fifth Third a "Buy," with a $17 price target, estimating that Fifth Third will earn $1.50 a share in 2013.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.