3 Reasons Fifth Third Bancorp's Earnings Were Better Than You Think

Fifth Third Bancorp (FITB 1.50%) reported its fourth-quarter earnings this morning, and judging from the early market reaction, they were pretty good. How good? Let me count the ways:

1. Net interest revenue and margin
Surprisingly, despite a slight decrease in both net interest revenue and margin, Fifth Third managed to tick up slightly this morning after releasing earnings. Why did this happen? For starters, the bank was able to find revenue from elsewhere in its banking business, thus limiting the direct impact of the decline in net interest revenue.

If we look a bit deeper at the actual numbers, we see a decrease of $17 million in net interest revenue from the fourth quarter last year, from $920 million to $903 million. During the same time frame, noninterest income improved from $550 million to $880 million. Despite an increase in noninterest expense of 17% over the year, net income increased by 28% from the fourth quarter last year, helped mainly by the aforementioned increase in noninterest income. Looking at these numbers, it's easy to see where the additional income came from and why the bank didn't retreat on news of declining net interest revenues.

2. More one-time charges
I mentioned in yesterday's preview that investors should be wary of the $66 million in one-time charges that affected the bank's performance in the third quarter. While there were more one-time events this quarter, they helped boost the bank's income. The main driver of additional income this quarter was the gain of $157 million from the sale of Vantiv shares during the quarter. All told, these one-time events helped boost fourth-quarter revenue 30% over the third quarter, and 41% from the previous year.

3. Improving asset quality
As was the case with Comerica and its earnings release yesterday, Fifth Third has seen drastic improvement in its nonperforming assets ratio over the past year. At the end of the fourth quarter of 2011, its nonperforming asset ratio was 2.23%, which is not terrible, but leaves some room for improvement. The bank did just that, decreasing the ratio by 74 basis points over the course of the year, ending 2012 at 1.49%.