Fifth Third Bancorp
) fourth-quarter adjusted earnings per share of 45 cents beat the
Zacks Consensus Estimate of 42 cents. The results also came in
ahead of the year-ago earnings of 33 cents.
Including an 11 cents gain on the sale of
) shares, debt extinguishment costs of 9 cents related to the
termination of FHLB (Federal Home Loan Bank) debt, negative
adjustment on the valuation of Vantiv warrants of a penny,
additional charges of 2 cents associated with an increase in
reserve for mortgage repurchase claims as well as charges
associated with the valuation of
) total return swap of a cent, the company reported net income of
$390 million or 43 cents per share in the reported quarter. In
the year-ago quarter, net income was reported at $305 million or
For full year 2012, net income available to common
shareholders came in at $1.5 billion or $1.66 per share. This
surpassed the Zacks Consensus Estimate of $1.63 per share and
were also up by 41% compared with the prior-year earnings of $1.1
billion, or $1.18 per share.
Better-than-expected results reflected improved top line
supported by increased non-interest income. Moreover, enhanced
credit quality was a positive. However, a decline in the net
interest income is a concern.
Total revenue for the quarter came in at $1.78 billion,
substantially higher than the Zacks Consensus Estimate of $1.64
billion. Moreover, revenue climbed 21% year over year. For
full year 2012, total revenue was $6.6 billion, which compared
favorably with the Zacks Consensus Estimate of $6.3 billion.
Further, it increased 10% from 2011.
Quarter in Detail
Fifth Third's net interest income came in at $903 million,
down 2% year over year. The decline was due to lower asset
yields, partially mitigated by higher average loan balances,
run-off in higher-priced certificate of deposits along with
mix shift to lower cost deposit products. Net interest margin
came in at 3.49%, down 18 basis points (bps) from the year-ago
Excluding loans held-for-sale, average loan and lease balances
increased 5% year over year to $83.9 billion. Average core
deposits climbed up 5% year over year to $84.3 billion.
Fifth Third's non-interest income grew substantially by 60%
year over year to $880 million. The increase was largely
attributable to higher mortgage banking and corporate banking
revenues along with a $157 million gain related to the sale of
However, the company's non-interest expenses escalated 17%
from the year-ago quarter to $1.2 billion. Expenses included $134
million of debt extinguishment costs related to the termination
of FHLB debt, $26 million of additional expenses due to the
increase in the representation and warranty reserve and $13
million in charges associated with increased litigation
In the year-ago quarter, expenses included $10 million charges
due to increased litigation reserves, primarily associated with
bankcard association membership. Excluding these items,
non-interest expenses advanced 1% from the prior-year period due
to higher compensation costs.
Fifth Third's credit metrics improved in the reported quarter.
Net charge-offs were $147 million or 70 bps of average loans and
leases compared with $156 million or 75 bps recorded in the prior
quarter and $239 million or 119 bps in the prior-year quarter.
This marked the lowest level since the third quarter of 2007.
Provision for loans and leases increased 17% sequentially and
38% year over year to $ million. Total nonperforming assets,
including loans held-for-sale, were $1.3 billion or 1.49% of
total loans, leases and other real estate owned (OREO). It fell
12% from the prior quarter and 33% from the prior-year
Fifth Third's capital ratios were a mixed bag. The Tier 1
common equity ratio increased 16 bps year over year to 9.51%. The
tangible common equity to tangible assets ratio was 8.83%
(excluding unrealized gains/losses) and 9.10% (including
unrealized gains/losses) compared with 8.68% and 9.04%,
respectively, in the prior year quarter.
However, the Tier 1 capital ratio declined 126 bps year over
year to 10.65%. The Leverage ratio decreased 105 bps to 10.05%
and the total capital ratio declined 167 bps to 14.42% in the
Fifth Third posted an increase in both book value and tangible
book value per share. As of Dec 31, 2012, book value per share
was $15.10 and tangible book value per share was $12.33, up from
$13.92 and $11.25, respectively, as of Dec 31, 2011.
Capital Deployment Activity
Fifth Third entered into a share repurchase agreement with a
counterparty on Nov 6, 2012, whereby it purchased around $125
million of its outstanding common stock. In the reported quarter,
this transaction decreased Fifth Third's share count by 7.7
million shares on the transaction date, which had a 4 million
impact on average share count. Fifth Third anticipates the
settlement of the contract to occur on or by Feb 7, 2013.
Additionally, Fifth Third entered into another share
repurchase agreement with a counterparty on Dec 14, 2012, whereby
Fifth Third purchased roughly $100 million of its outstanding
common stock. For the reported quarter, this transaction reduced
the company's share count by 6.3 million shares on the initial
transaction date, which had a 1 million impact on average share
count. Fifth Third anticipates the settlement of the forward
contract to occur on or by Mar 14, 2013. The company's annual
capital plan had a remaining $125 million in additional potential
repurchases through Mar 31, 2013.
Going forward, with a diversified traditional banking
platform, Fifth Third remains well poised to benefit from a
recovering economy along with 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 capital
deployment activities will boost shareholders' confidence.
However, a low interest rate environment, regulatory issues as
well as competitive pressures are the headwinds.
Fifth Third currently retains a Zacks Rank #2 (Buy).
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