Fifth Third Bancorp
) first-quarter 2014 earnings per share came in at 36 cents,
missing the Zacks Consensus Estimate by a nickel. Further, the
figure compared unfavorably with 46 cents earned in the
Our proven model predicted that Fifth Third may not post an
earnings beat as it did not 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), but the Earnings ESP was
Results were primarily impacted by lower non-interest income and
higher provisions for credit losses. Further, capital ratios
failed to improve. However, lower expenses and increase in loan
and deposit balances were the positives for the quarter.
Net income available to common shareholders was $309 million,
down 25% year over year. Notably, results included a negative
valuation adjustment amount of $36 million on the Vantiv warrant,
litigation reserve charges of $51 million and certain other
Quarter in Detail
Total revenue for the quarter stood at $1.6 billion, down 10%
year over year, primarily due to lower non-interest income.
However, it came in ahead of the Zacks Consensus Estimate of $1.5
Fifth Third's net interest income came in at $898 million, up 1%
year over year. However, net interest margin was 3.22%, down 20
basis points (bps) from the prior-year quarter due to lower asset
yields. This was, however, partially offset by rise in average
loan balances, lower long-term debt expense resulting from fall
in higher cost average long-term debt and run-off in
Non-interest income decreased 24% year over year to $564 million
(including certain non-recurring items). The decline was largely
owing to fall in mortgage banking net revenue and other
Non-interest expenses declined 3% from the prior-year quarter to
$950 million. Expenses included $51 million in charges made to
litigation reserves and $4 million in severance expense. Looking
back, first-quarter 2013 expenses had included a $9 million gain
from the sale of affordable housing investments, $9 million in
charges to increase litigation reserves, severance expense of $3
million and an amount of $3 million made to the Fifth Third
Foundation. Excluding these items, the year-over-year decline in
expenses reflected decreases in compensation-related expense and
benefits expenses (primarily in the mortgage and retail
As of Mar 31, 2014, excluding loans held-for-sale, average loan
and lease balances increased 4% year over year to $89.5 billion.
Average total deposits rose 9% from the prior-year quarter to
Fifth Third's credit metrics was a mixed bag in the reported
quarter. Total nonperforming assets including loans held for sale
was $949 billion, down 23% from the year-ago quarter. Further,
allowance for loan and lease losses dropped nearly 17% year over
year to $1.5 billion.
However, net charge-offs stood at $168 million or 76 bps of
average loans and leases on an annualized basis, up from $133
million or 63 bps in the prior-year quarter. Moreover, provision
for loans and leases increased 12% year over year to $69 million.
Fifth Third's capital ratios deteriorated in the quarter. Its
Tier 1 common equity ratio decreased 19 bps years over year to
Further, the Tier 1 risk-based capital ratio fell 38 bps from the
year-earlier quarter to 10.45%. Additionally, on a year-over-year
basis, the leverage ratio declined 5 bps to 9.65% while the total
risk-based capital ratio decreased 33 bps to 14.02% in the
Capital Deployment Activity
During the quarter, Fifth Third repurchased 8 million common
Fifth Third entered into a share repurchase agreement with a
counterparty on Jan 28, 2014, according to which the bank is to
purchase approximately $99 million of its outstanding common
stock. For the quarter, this transaction reduced Fifth Third's
share count by 3.95 million shares on the initial transaction
date. The company settled this forward contract on Mar 31, 2014
along with further repurchase of 602,000 shares
Moreover, the settlement of the forward contract related to Nov
21, 2013 and Dec 10, 2013 share repurchase agreements
materialized on Mar 5, 2014 and Mar 31, 2014, respectively and an
additional 3.4 million shares were bought back upon completion of
During the quarter, the company successfully cleared the stress
test and subsequently its capital plan got approved by the
Federal Reserve under the 2014 Comprehensive Capital Analysis and
Under its 2014 capital plan, Fifth Third is allowed to hike its
quarterly common stock dividend to 13 cents per share. Also, the
company got approval for share repurchase of up to $669 million
of its common stock in the period between Apr 2014 and Mar 2015.
Further, if Fifth Third reaps any after-tax gains owing to the
), it can undertake additional share repurchase.
Though Fifth Third started 2014 on a disappointing note, we
remain encouraged owing to a number of decent fundamentals.
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 catalysts for growth. Also, the
continuous growth in loans and deposits enhance its organic
growth strategy. Further, we believe that Fifth Third's capital
deployment activities will boost shareholders' confidence.
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
The first-quarter earnings season kick started with Wall Street
biggies such as
Wells Fargo & Co.
JPMorgan Chase & Co.
). Wells Fargo achieved the seventeenth consecutive quarter of
earnings growth by reporting earnings of $1.05 per share. Results
improved from $1.00 earned in the prior quarter and 92 cents in
the year-ago quarter. Also, results beat the Zacks Consensus
Estimate by 8 cents.
However, JPMorgan failed to override the tough backdrop that
banks have been enduring since the year started and delivered a
negative earnings surprise of 9.2%. The banking giant came out
with earnings of $1.28 per share, missing the Zacks Consensus
Estimate of $1.41 by a wide margin. This is also a massive
deterioration from the year- ago number of $1.59.
FIFTH THIRD BK (FITB): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
VANTIV INC-A (VNTV): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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