Driven by prudent expense management and better-than-expected
Fifth Third Bancorp
) managed to deliver a positive earnings surprise of nearly 9% in
second-quarter 2014. Earnings per share came in at 49 cents,
beating the Zacks Consensus Estimate by 4 cents. However, the
figure compared unfavorably with 65 cents earned in the prior-year
Our proven model predicted that Fifth Third was likely to post an
earnings beat as it did have the right combination of two key
ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or
better. It had a Zacks Rank #3 (Hold) and an Earnings ESP of
Results were supported by lower expenses and increased net interest
income, partially offset by lower non-interest income and higher
provision for credit losses. Improved loan and deposit balances,
and a strong capital position were also among the positives.
Net income available to common shareholders was $416 million, down
29% year over year. Notably, results included a $125 million gain
on the sale of Vantiv shares, positive valuation adjustment of $63
million on the Vantiv warrant and certain other non-recurring
Quarter in Detail
Total revenue for the quarter stood at $1.7 billion, coming ahead
of the Zacks Consensus Estimate of $1.5 billion. However, it was
down 15% year over year, primarily due to lower non-interest
Fifth Third's net interest income (tax equivalent) came in at $905
million, up 2% year over year. The increase was primarily due to
higher balances and yields on investment securities as well as loan
balances, partially offset by the effect of loan repricing.
However, net interest margin was 3.15%, down 18 basis points (bps)
from the prior-year quarter, reflecting the impact of loan
Non-interest income decreased 31% year over year to $736 million
(including certain non-recurring items). The decline was largely
owing to fall in mortgage banking net revenue and other
Non-interest expenses declined 8% from the prior-year quarter to
$954 million. Expenses included $61 million in charges for
litigation reserves against $51 million in first-quarter 2013.
Excluding these items, the year-over-year decline in expenses
reflected decreases in compensation-related expense and benefits
As of Jun 30, 2014, excluding loans held-for-sale, average loan and
lease balances increased 4% year over year to $90.5 billion.
Average total deposits rose 5% from the prior-year quarter to $96.7
Fifth Third's credit quality improved partially in the reported
quarter. Total nonperforming assets including loans held for sale
were $837 million, down 28% from the year-ago quarter. Further,
allowance for loan and lease losses dropped nearly 16% year over
year to $1.5 billion. Net charge-offs stood at $101 million or 45
bps of average loans and leases on an annualized basis against $112
million or 51 bps in the prior-year quarter.
However, provision for loans and leases increased 20% year over
year to $76 million.
Fifth Third remained well-capitalized in the quarter. Tier 1 common
equity ratio increased 12 bps years over year to 9.61%.
Tier 1 risk-based capital ratio stood at 10.80% compared with
11.14% at the end of the prior-year quarter. Leverage ratio was
9.86% versus 10.45% at the end of prior-year quarter.
Capital Deployment Activities
During the quarter, Fifth Third repurchased 6 million common
Fifth Third entered into a share repurchase agreement with a
counterparty on Apr 28, 2014, according to which the bank is to
purchase around $150 million of its outstanding common stock. The
company is expected to settle this forward contract on or before
Jul 28, 2014. For first-quarter 2014, this transaction reduced
Fifth Third's share count by 6.22 million shares on May 1, 2014
while the incremental impact to the average diluted share count in
the second-quarter 2014 was around 9 million shares.
Results reflect a strong quarter for Fifth Third. Going forward,
with a diversified traditional banking platform, Fifth Third
remains well poised to benefit from a recovery in the economy of
regions where it has a footprint. Moreover, the company's efforts
in reducing its nonperforming assets and operating expenses will
serve as growth drivers. Also, the continuous improvement in loans
and deposits reflects its efficient organic growth strategy.
However, continuous decline in non-interest income, a low
interest-rate environment, regulatory issues as well as competitive
pressure remain matters of concern.
Performance of Other Banking Giants
This earnings season kick started with Wall Street banking giants
Wells Fargo & Company
). The company's second-quarter 2014 earning per share of $1.01
came in line with the Zacks Consensus Estimate. However, it showed
) reported yet another impressive quarter with adjusted earnings
per share of $1.24 in second-quarter 2014, outpacing the Zacks
Consensus Estimate of $1.08.
JPMorgan Chase & Co.
) also came out with earnings of $1.59 per share, beating the Zacks
Consensus Estimate of $1.30.
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