Fifth Third Bancorp’s (FITB) third-quarter adjusted earnings per share came in at 44 cents, marginally beating the Zacks Consensus Estimate of 43 cents. This compares favorably with 40 cents earned in the prior-year quarter.
Results exclude the impact from negative valuation adjustment of $53 million on the Vantiv warrant, charge of $3 million pertaining to the valuation of the total return swap entered into as part of the 2009 sale of Visa, Inc. (V) Class B shares and charges of $4 million in litigation reserve. Considering these one-time items, the company reported earnings of 39 cents per share. In the prior-year quarter, including ceratin non-recurring items, the company reported earnings of 47 cents per share.
Results were aided by increased net interest income and lower expenses, partially offset by lower non-interest income and higher provisions for loan and lease losses. Improved loan and deposit balances and a strong capital position were among the other positives.
Including the above mentioned items for the third-quarter, net income available to common shareholders was $328 million, down 22% year over year.
Quarter in Detail
Total revenue for the quarter stood at $1.4 billion, lagging the Zacks Consensus Estimate of $1.5 billion. It was down 13% year over year, primarily due to lower non-interest income.
Fifth Third’s net interest income (tax equivalent) came in at $908 million, up 1% year over year. The increase was primarily due to higher balances and yields on investment securities as well as loan balances, partially offset by the effect of loan repricing. However, net interest margin was 3.10%, down 21 basis points (bps) from the prior-year quarter, reflecting the impact of loan repricing.
Non-interest income decreased 28% year over year to $520 million (including certain non-recurring items). The decline was largely owing to a fall in mortgage banking net revenue and other non-interest income.
Non-interest expenses declined 7% from the prior-year quarter to $888 million. Expenses included $4 million in charges for litigation reserves against $30 million in third-quarter 2013. Excluding these items, the year-over-year decline in expenses reflected decreases in compensation-related expense and benefit expenses.
As of Sep 30, 2014, excluding loans held-for-sale, average loan and lease balances increased 4% year over year to $90.8 billion. Average total deposits rose 2% from the prior-year quarter to $96.5 billion.
Credit Quality
Fifth Third’s credit quality improved partially in the reported quarter. Total nonperforming assets including loans held for sale were $803 million, down 22% from the year-ago quarter. Allowance for loan and lease losses dropped 16% year over year to $1.5 billion.
However, provision for loans and leases increased 40% year over year to $71 million. Net charge-offs stood at $115 million or 50 bps of average loans and leases on an annualized basis against $109 million or 49 bps in the prior-year quarter.
Capital Position
Fifth Third remained well-capitalized in the quarter. Tier 1 risk-based capital ratio stood at 10.83% compared with 11.21% at the end of the prior-year quarter. Tier 1 Leverage ratio was 9.82% versus 10.64% at the end of the prior-year quarter.
As of Sep 30, 2014, under the final capital rule, pro-forma fully phased in Tier I common equity ratio was estimated at around 9.4%.
Share Repurchase
During the quarter, Fifth Third repurchased 10 million common shares.
Fifth Third entered into a share repurchase agreement with a counterparty on Jul 21, 2014, according to which the bank is to purchase around $225 million of its outstanding common stock. The company settled this forward contract on Oct 14, 2014 and an additional 1.90 million shares were repurchased following completion of the agreement.
Further, the settlement of the forward contract pertaining to the Apr 28, 2014 share repurchase agreement of $150 million occurred on Jul 21, 2014. Following completion of the agreement, an additional 1.02 million shares were repurchased.
These two transactions resulted in an incremental impact of around 9.86 million shares on the average diluted share count in third-quarter 2014.
Our Viewpoint
While results does not reflect a strong quarter for Fifth Third, we believe, going forward, with a diversified traditional banking platform, Fifth Third remains well poised to benefit from a recovery in the economy of regions where it has a footprint. The company’s efforts in reducing its nonperforming assets and operating expenses will serve as growth drivers. Also, the continuous improvement in loans and deposits reflects its efficient organic growth strategy.
However, continuous decline in non-interest income, a low interest-rate environment, regulatory issues as well as competitive pressure remain matters of concern.
Performance of Other Banking Giants
Among other major regional banks, Citigroup Inc. (C) reported third-quarter 2014 adjusted earnings per share of $1.15, outpacing the Zacks Consensus Estimate of $1.12.
JPMorgan Chase & Company (JPM) posted third-quarter earnings of $1.62 per share, beating the Zacks Consensus Estimate of $1.39.
Wells Fargo & Company (WFC) earned $1.02 per share in third-quarter 2014, which came in line with the Zacks Consensus Estimate.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment