Aided by gains from the
) initial public offering,
Fifth Third Bancorp
) has posted improved earnings in the first quarter of 2012. The
company reported net income of $421 million or 45 cents per share
in the reported quarter, ahead of the prior quarter's net income of
$305 million or 33 cents per share and year-ago quarter's net
income of $88 million or 10 cents per share.
Results include a 9 cent per share positive impact from Vantiv.
Excluding that, the company earned 36 cents per share in the
reported quarter that fell short of the Zacks Consensus Estimate of
Quarterly results at Fifth Third reflect a better-than-expected
revenue figure backed by improved non-interest income. Expenses
showed a modest decline. However, a fall in net interest income
coupled with higher loan loss provisions were the downsides.
Total revenue at Fifth Third was $1.67 billion in the first
quarter, above the Zacks Consensus Estimate of $1.52 billion.
Revenue also increased 14% both sequentially and year over year.
The uptick primarily reflects a significant rise in non-interest
U.S.-based Vantiv was formerly known as Fifth Third Processing
Solutions ("FTPS"). FTPS is a payment processing company dealing
with more than 12.9 billion payment transactions valued at $426
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 on March 21, 2012.
Performance in Detail
Fifth Third's net interest income fell 2% sequentially to $903
million. The figure was pulled down sequentially by lower yields on
loans given the current interest rate environment, partially offset
by balance growth in C&I, commercial lease, residential
mortgage and auto loans. Net interest margin of 3.61% was down 6
basis points sequentially because of lower yields.
Excluding loans held-for-sale, average portfolio loan and lease
balances inched up 2% sequentially and 5% year over year. Average
core deposits climbed 1% sequentially and 5% year over year as
transaction deposit growth was partially offset by continued
run-off of other time deposits.
Fifth Third's non-interest income moved up 40% sequentially to
$769 million. Net benefit of Vantiv's IPO, related debt
refinancing, and warrant gains, lower charges on the
) total return swap, as well as higher mortgage banking and
corporate banking net revenue led to the sequential increase.
Fifth Third's non-interest expenses fell 2% sequentially to $973
million. Excluding $23 million of income from an agreement reached
on certain outstanding disputes for non-income tax related
assessments, $13 million in additions to litigation reserves, $9
million in debt termination charges, and $6 million in severance
expense, non-interest expense inched down 1% sequentially.
Credit metrics were somewhat mixed in the reported quarter at
Fifth Third. Net charge-offs were $220 million or 108 bps of
average loans and leases compared with a respective $239 million or
119 bps in the prior quarter. This marked the lowest level since
the fourth quarter of 2007. Though provision for loans and leases
increased 64% sequentially, it fell 46% year over year to $91
Nonperforming assets held-for-investment were $1.7 billion or
2.03% of total loans, leases and OREO. It fell 8% from the prior
quarter due to a fall in nonperforming loans and leases.
Growth in retained earnings attributed to Fifth Third's improved
capital ratios in the reported quarter. Sequentially, the Tier 1
common equity ratio increased 29 bps to 9.64%, while the tangible
common equity to tangible assets ratio was 9.02% (excluding
unrealized gains/losses) and 9.37% (including unrealized
The Tier 1 capital ratio advanced 28 bps to 12.19%. The Leverage
ratio increased 21 bps to 11.31%. Notably, Fifth Third's capital
levels exceed the current U.S. "well-capitalized" standards and
proposed Basel III capital standards.
Fifth Third posted an increase in both book value and tangible
book value per share. As of March 31, 2012, book value per share
was $14.30 and tangible book value per share was $11.64, up from
$13.92 and $11.25, respectively, as of December 31, 2011.
Notably, in March 2012, the Federal Reserve declared that it
does not have any objection to Fifth Third's current common
dividend level, plans to repurchase common shares in an amount
equal to any after-tax gains on the sale of Vantiv shares, and the
potential to redeem $1.4 billion in TruPS, and included an
objection to other plans to increase the common dividend and
initiate additional common share repurchases.
However, the Federal Reserve objected to other elements of its
capital plan, including increases in its quarterly common dividend
and the initiation of common share repurchases other than those
described above. Fifth Third currently expects to resubmit its
capital plan in late May or early June, using updated macroeconomic
scenarios as of March 31, 2012.
We believe that with a diversified traditional banking platform,
Fifth Third remains well poised for future growth. However, a low
interest rate environment as well as regulatory change remains a
challenge. Yet, we expect the company's proactive efforts to help
navigate through the challenge comfortably. Nevertheless, the
recent objection by the Fed to increase dividends and share
buybacks somewhat weakens its competitive position.
Fifth Third retains a Zacks #3 Rank, which translates into a
short-term Hold recommendation. Considering the fundamentals, we
maintain a Neutral recommendation on the stock.
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