Aided by gains on the valuation of warrant that it holds in
Fifth Third Bancorp
) has posted improved earnings in the second quarter of 2012.
Fifth Third reported net income of $376 million or 40 cents per
share in the reported quarter, compared with $328 million or 35
cents in the year-ago quarter. Excluding the gain on the valuation
of the warrant Fifth Third holds in Vantiv, Fifth Third would have
earned 36 cents per share in the reported quarter. This also came
ahead of the Zacks Consensus Estimate of 35 cents.
Moreover, the company experienced a year over year increase in
mortgage banking income. Also provisions for loan losses reported a
Total revenue at Fifth Third was $1.58 billion in the second
quarter, slightly above the Zacks Consensus Estimate of $1.54
billion. Revenue also increased 3% year over year reflecting
increase in the net interest income and non-interest income.
Notably, 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. Notably, Vantiv Inc.
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 $899 million, up 3%
year over year. The uptick 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 6 basis points (bps) from
the year ago period.
Excluding loans held-for-sale, average loan and lease balances
inched up 1% sequentially and 6% year over year. Average core
deposits were relatively stable, increasing slightly sequentially,
and climbed up 5% year over year, as transaction deposit growth was
partly offset by continued run-off of other time deposits.
Fifth Third's non-interest income moved up 3% year over year to
$678 million. Warrant gains in the reported quarter and increase in
mortgage banking income contributed to the increase in non-interest
income. Yet, the positives were partly dwarfed by the impact of
debit interchange legislation on card and processing
However, Fifth Third's non-interest expenses advanced 4% from
the year-ago quarter to $937 million. In the quarter under review,
the company experienced a $9 million reduction to FDIC insurance
expense and an $8 million benefit from the sale of affordable
housing investments. In the yea-ago quarter, expenses included debt
extinguishment gains which reduced other noninterest expense by $6
million. Excluding these items, expenses advanced 5% from the prior
Credit metrics improved in the reported quarter at Fifth Third.
Net charge-offs were $181 million or 88 bps of average loans and
leases compared with a respective $220 million or 108 bps in the
prior quarter and $304 million or 156 bps in the prior year
quarter. This marked the lowest level since the fourth quarter of
Provision for loans and leases descended 21% sequentially and
37% year over year to $71 million. Total nonperforming assets,
including loans held-for-sale, were $1.7 billion or 1.96% of total
loans, leases and OREO. It fell 6% from the prior quarter.
Growth in retained earnings attributed to Fifth Third's improved
capital ratios in the reported quarter. Sequentially, the Tier 1
common equity ratio increased 13 bps to 9.77%. The tangible common
equity to tangible assets ratio was 9.15% (excluding unrealized
gains/losses) and 9.49% (including unrealized gains/losses)
compared with 9.02% and 9.37%, respectively, in the prior
The Tier 1 capital ratio advanced 11 bps sequentially to 12.31%.
The Leverage ratio increased 8 bps to 11.39% and the total capital
ratio moved up 17 bps to 16.24% in the quarter.
Fifth Third posted an increase in both book value and tangible
book value per share. As of June 30, 2012, book value per share was
$14.56 and tangible book value per share was $11.89, up from $14.30
and $11.64, respectively, as of March 31, 2012.
Resubmission of Capital Plan
Notably, following its failure to clear the stress test in March
this year, Fifth Third has resubmitted its capital plan on June 8
and Fed will respond within 75 days after re-submission. Though the
new plan included similar capital actions and distributions as
proposed in the earlier plan, in the newer version, the company has
modified the timing of such moves. To abide by the norms of the
financial reform legislation, the company is also redeeming its
trust preferred securities.
During the quarter under review, the company also bought back
$75 million of common shares with the gains realized in Vantiv's
initial public offering. This move was allowed by the Fed following
its capital plan review during this year stress test.
Among its peers,
Bank of America Corporation
) reported second quarter earnings of 19 cents per share,
marginally outpacing the Zacks Consensus Estimate of 15 cents.
Results were aided by improved noninterest income, substantial
slowdown in provision for credit losses and reduced noninterest
expense. On the flip side was lower net interest income due to a
weak interest rate environment.
), reported earnings per share of 73 cents, comfortably beating the
Zacks Consensus Estimate of 62 cents. The company experienced
growth in its average loans, helped by higher average commercial
loans. Average deposits also advanced in the quarter. However,
lower loan yields partially offset the benefit. Furthermore, the
company experienced growth in fee income. Also, expenses were
The other peer,
SunTrust Banks Inc.
) is scheduled to report its earnings on July 20.
Overall, we have seen the major Wall Street banks reporting
better-than-expected earnings this quarter on lower loan loss
provisions and well-controlled expenses, But robust top-line growth
remains elusive at these banks this quarter reflecting the stressed
macro economic environment and the fundamental pressure on the
sector in particular.
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 serves as a positive catalyst for the
We believe that share buybacks with Vantiv gains are in the best
interest of the company and its shareholders. Yet, a low interest
rate environment, regulatory issues as well as competitive
pressures are the headwinds for the stock.
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 the
BANK OF AMER CP (BAC): Free Stock Analysis
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FIFTH THIRD BK (FITB): Free Stock Analysis
SUNTRUST BKS (STI): Free Stock Analysis Report
VANTIV INC-A (VNTV): Free Stock Analysis Report
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