Fifth Third Bancorp
) third-quarter 2013 adjusted earnings per share came in at 41
cents, missing the Zacks Consensus Estimate by a penny. However,
results surpassed the prior-year quarter earnings of 39 cents.
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Including the benefit of $85 million pre-tax ($55 million
after-tax, or 6 cents per share) on the sale of shares of Vantiv
and $6 million pre-tax ($4 million after-tax) on the valuation of
the warrant which Fifth Third holds in Vantiv, the company
reported net income of $421 million or 47 cents per share in the
reported quarter. In the prior-year quarter, net income was
reported at $354 million or 38 cents per share.
Though earnings missed expectations, lower net charge-offs and
reduced nonperforming assets were the positives for the quarter.
Moreover, increase in loans and deposits reflect the company's
organic growth. Further, top-line growth and a strong capital
position acted as the tailwinds. Additionally, lower non-interest
expenses depict prudent expense management.
Total revenue for the quarter came in at $1.6 billion, higher
than the Zacks Consensus Estimate of $1.5 billion. Moreover,
revenue surged 2.6% year over year, aided by higher non-interest
Quarter in Detail
Fifth Third's net interest income came in at $898 million, down
1% year over year. Moreover, net interest margin came in at
3.31%, down 25 basis points from the prior-year quarter. These
declines were primarily driven by reduced asset yields, partially
mitigated by elevated average loan balances, lower long-term debt
expense along with run-off in higher-priced CDs.
Non-interest income jumped 7% year over year to $721 million. The
increase was largely attributable to the benefit on the sale of
Vantiv shares and a higher valuation adjustment on the Vantiv
warrant, partially offset by reduced mortgage banking net
Non-interest expenses declined 5% from the prior-year quarter to
$959 million. Expenses included a $30 million rise in litigation
reserves, $5 million in severance expense and $5 million in large
bank assessment fees.
Fifth Third's credit metrics improved in the reported quarter.
Net charge-offs were $109 million or 49 basis points of average
loans and leases on an annualized basis compared with $156
million or 75 basis points recorded in the prior-year quarter.
Total nonperforming assets, including loans held-for-sale, were
$1.0 billion or 1.16% of total loans, leases and other real
estate owned (OREO). It fell 33.3% from the prior-year quarter.
Moreover, provision for loans and leases decreased 22% year over
year to $51 million.
Fifth Third's capital ratios were a mixed bag. The Tier 1 common
equity ratio increased 22 basis points year over year to 9.89%.
The tangible common equity to tangible assets ratio was 9.27%
(excluding unrealized gains/losses) and 9.42% (including
unrealized gains/losses) compared with 9.10% and 9.45%,
respectively, in the prior-year quarter.
Further, the Tier 1 capital ratio increased 30 basis points year
over year to 11.15%. The leverage ratio surged 49 basis points
year over year to 10.58% while the total risk-based capital ratio
declined 40 basis points year over year to 14.36% in the quarter.
Fifth Third posted an increase in both book value and tangible
book value per share. As of Sep 30, 2013, book value per share
was $15.84 and tangible book value per share was $13.09, up from
$14.84 and $12.12, respectively, as of Sep 30, 2012.
Excluding loans held-for-sale, average loan and lease balances
increased 5% year over year to $87.3 billion. Average total
deposits rose 11% year over year to $94.3 billion.
Capital Deployment Activity
Fifth Third entered into a share repurchase agreement with a
counterparty on May 21, 2013, whereby it was scheduled to
purchase around $539 million of its outstanding common stock. On
completing the agreement in Oct 2013, an additional 4.3 million
shares were repurchased. In the reported quarter, this
transaction lessened Fifth Third's average share count by 15
Among other banking giants,
Wells Fargo & Company
Bank of America Corporation
) reported better-than-expected third-quarter results, upholding
the image of the banking sector.
Banks have been reporting strong results, primarily on the back
of favorable macroeconomic elements. Reduced non-interest
expenses and lower provision have been the primary growth drivers
for banks this time around.
Going forward, with a diversified traditional banking platform,
Fifth Third remains well poised to benefit from a recovering
economy along its footprints. Its traditional commercial banking
franchise, diverse revenue mix, declining nonperforming assets
and an enhanced capital position serve as positive catalysts for
the stock. Further, we believe that its capital deployment
activities will boost shareholders' confidence.
However, a low interest-rate environment, regulatory issues as
well as competitive pressures remain looming concerns. Fifth
Third currently carries a Zacks Rank #3 (Hold).