Fifth Third Q4 Earnings Hurt by Charges; Residential Mortgage Charge-Offs Double

It’s getting tough to write headlines today, because so many mortgage-heavy banks are reporting essentially the same thing. (In a word: ouch.)

Fifth Third Bancorp said today that it earned $38 million ($.07 per share) in the fourth quarter, a drop of 42 percent from year-ago levels and off 88 percent from one quarter earlier. The drop came as the bank absorbed a non-mortgage-related hit to earnings in the form of a $155 million charge associated with an insurance policy.

Looking at the bank’s mortgage banking activities, net revenue in the segment remained flat in the fourth quarter at $26 million. Production decreased to $2.7 billion versus $3.0 billion in the third quarter, but remained up over the $2.3 billion originated in the fourth quarter of 2006.

Net servicing revenue, before mortgage servicing rights valuation adjustments, totaled $14 million in the fourth quarter, compared with $14 million last quarter and $12 million a year ago. Fifth Third maintains a servicing portfolio of $34.5 billion.

A look at mortgage credit quality
Charge-offs in residential mortgage loans doubled during the quarter to $18 million, while home equity loans only saw a modest increase in charge-off activity: $32 million in Q4, versus $27 million in Q3. Total charge-offs reached $174 million during the quarter, compared to $97 million one year ago.

The provision charge trumped charge-offs, however, coming in at $284 million for the fourth quarter. Total loan loss allowances reached $937 million, as a result, up 13 percent from the third quarter.

Non-performing assets jumped from $706 million in Q3 to $1.06 billion in the fourth quarter, driven primarily by emerging weaknesses in commercial real estate; that being said, residential mortgages saw NPAs jump nearly 50 percent in one quarter — shooting up to $91 billion in Q4 from $61 billion just one quarter earlier.

Fifth Third noted that $75 million of a total $212 million in residential and home equity NPAs was tied to “debt restructurings,” which I’m assuming would include loan modificiations and/or forbearance agreements.

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Disclosure: When this post was published, the author held no positions in FITB.