Fifth Third Bancorp
) third-quarter adjusted earnings of 42 cents per share exceeded
the Zacks Consensus Estimate of 39 cents. Results also came in
ahead of the year-ago earnings of 40 cents.
Better-than-expected results reflected improved net interest and
non-interest income. Moreover, enhanced credit quality was a
positive. However, a decline in the top line is a concern.
Including debt extinguishment costs of 2 cents related to the
redemption of trust preferred securities (TruPS), negative
adjustment on the valuation of Vantiv warrants of one cent,
additional charges of 2 cents associated to an increase in
mortgage representation and warranty reserve gain on the
valuation of the warrant Fifth Third holds in Vantiv as well as
income on the sale of certain Fifth Third funds of a cent, the
company reported net income of $354 million or 38 cents per share
in the reported quarter. In the year-ago quarter, net income was
reported at $373 million or 40 cents.
Total revenue came in at $1.70 billion, substantially higher the
Zacks Consensus Estimate of $1.57 billion. However, revenue
inched down 1% year over year, reflecting a decline in interest
income, partially offset by non-interest income.
U.S.-based Vantiv was formerly known as Fifth Third Processing
Solutions ("FTPS"), a payment processing company. Fifth Third had
spun-off FTPS in 2009 after which a joint venture was initiated
between Advent International and Fifth Third Bank - a subsidiary
of Fifth Third. The company was named Vantiv in June 2011.
) opted for an initial public offering of Class A shares on the
company. The offering was completed in March 2012.
Quarter in Detail
Fifth Third's net interest income came in at $907 million, up 1%
year over year. The improvement was driven by higher average loan
balances, run-off in higher-priced CDs and mix shift to lower
cost deposit products, partially offset by lower asset yields.
Net interest margin came in at 3.56%, down 9 basis points (bps)
from the year-ago period.
Excluding loans held-for-sale, average loan and lease balances
increased 5% year over year. Average core deposits climbed up 4%
year over year.
Fifth Third's non-interest income marginally grew 1% year over
year to $671 million. The increase was attributable to higher
mortgage banking and corporate banking revenues. These positives
were partially mitigated by lesser net gains on investment
securities, card and processing revenue as well as service
charges on deposits.
However, the company's non-interest expenses advanced 6% from the
year-ago quarter to $1.0 billion. In the quarter under review,
the company experienced $26 million of debt extinguishment costs
related to the redemption of TruPS; $22 million of additional
costs associated with the increase in the mortgage representation
and warranty reserve; $5 million benefit from the sale of
affordable housing investments; and $2 million of expenses
related to the sale of Fifth Third funds.
In the year-ago quarter, expenses included $28 million of
costs related to the termination of certain Federal Home Loan
Bank (FHLB) borrowings and hedging transactions. Excluding these
items, expenses advanced 5% from the prior-year period due to
higher compensation costs.
FIFTH THIRD BK (FITB): Free Stock Analysis
VANTIV INC-A (VNTV): Free Stock Analysis
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The company's credit metrics improved in the reported quarter.
Net charge-offs were $156 million or 75 bps of average loans and
leases compared with $181 million or 88 bps recorded in the prior
quarter and $262 million or 132 bps in the prior-year quarter.
This marked the lowest level since the third quarter of 2007.
Provision for loans and leases descended 8% sequentially and 25%
year over year to $65 million. Total nonperforming assets,
including loans held-for-sale, were $1.5 billion or 1.73% of
total loans, leases and other real estate owned (OREO). It fell
11% from the prior quarter and 30% from the prior-year quarter.
Fifth Third's capital ratios were a mixed bag in the reported
quarter. The Tier 1 common equity ratio increased 34 bps on a
year-over-year basis to 9.67%. The tangible common equity to
tangible assets ratio was 9.10% (excluding unrealized
gains/losses) and 9.45% (including unrealized gains/losses)
compared with 8.63% and 9.04%, respectively, in the prior
The Tier 1 capital ratio declined 111 bps year over year to
10.85%. The Leverage ratio increased one bps to 10.09% and the
total capital ratio declined 149 bps to 14.76% in the quarter.
Fifth Third posted an increase in both book value and tangible
book value per share. As of September 30, 2012, book value per
share was $14.84 and tangible book value per share was $12.12, up
from $13.73 and $11.05, respectively, as of September 30, 2011.
Capital Deployment Activity
In August, 2012, Fifth Third entered into a share repurchase
agreement with a counterparty, whereby Fifth Third would purchase
roughly $350 million of its outstanding common stock. During the
reported quarter, this transaction reduced the company's share
count by 21.5 million shares. Fifth Third anticipates the
settlement of this transaction on or before November 26, 2012.
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, improved credit quality and
enhanced capital position serve as positive catalysts for the
stock. Further, we believe that its dividend growth story will
boost shareholders' confidence in the stock.
However, a low interest rate environment, regulatory issues as
well as competitive pressures are the headwinds.
Fifth Third currently retains a Zacks #2 Rank, which translates
into a short-term Buy rating. However, considering the
fundamentals, we maintain a long-term Neutral recommendation on