Fifth Third Bancorp's (FITB) fourth-quarter 2014 earnings per share came in at 43 cents, marginally beating the Zacks Consensus Estimate of 42 cents. The reported figure came inline with the prior-year quarter earnings.
Fourth-quarter results include the impact of positive valuation adjustment of $53 million on the Vantiv warrant, annual payment of $23 million received from Vantiv, charge of $19 million pertaining to the valuation of the total return swap entered into as part of the 2009 sale of Visa, Inc. Class B shares. Also, it included the impact of severance expense of $6 million, charges of $3 million in litigation reserve and $23 million as provision expense related to the transfer of residential mortgage loans classified as troubled debt restructurings to held-for-sale. The prior-year quarter also included certain non-recurring items.
Results were aided by lower expenses, partially offset by decreased revenues 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 fourth quarter, net income available to common shareholders was $362 million, down 6% year over year.
Excluding the significant items mentioned, the company earned 40 cents per share in fourth quarter 2014.
For 2014, earnings per share came in at $1.66, which missed the Zacks Consensus Estimate by a penny. Also it came below the prior-year earnings of $2.02 per share.
For 2014, net income available to common shareholders was $1.41 billion, down 21% from the previous year.
Total revenue for the quarter came in at $1.54 billion, surpassing the Zacks Consensus Estimate of $1.51 billion. However, it decreased 4% year over year. The decline was due to lower net interest income as well as non-interest income.
For 2014, revenues were $6.07 billion, down 11% year over year. However, it surpassed the Zacks Consensus Estimate of $6.00 billion.
Quarter in Detail
Fifth Third’s net interest income (tax equivalent) came in at $888 million, down 2% year over year. The decline was primarily due to the impact of loan repricing and higher interest expense owing to increased long-term debt balances partially offset by higher investment securities balances as well as loan balances. Net interest margin was 2.96%, down 25 basis points (bps) from the prior-year quarter, reflecting the effect of loan repricing.
Non-interest income decreased 7% year over year to $653 million (including certain non-recurring items). The decline was largely owing to a fall in mortgage banking net revenue and other non-interest income. However, revenues from corporate banking, card and processing and investment advisory rose. Excluding significant items, non-interest income decreased 3% year over year.
Non-interest expenses declined 7% from the prior-year quarter to $918 million (including certain non-recurring items). The decline reflected lower salaries, wages and incentives, card and processing expense and other non-interest expense as well. Excluding significant items items, non-interest expenses increased 2% year over year.
As of Dec 31, 2014, excluding loans held-for-sale, average loan and lease balances increased 3% year over year to $91.6 billion. Average total deposits rose 3% from the prior-year quarter to $99.3 billion.
Credit Quality
Fifth Third’s credit quality improved partially in the reported quarter. Total nonperforming assets including loans held for sale were $783 million, down 21% 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 87% year over year to $99 million. Net charge-offs for the quarter stood at $191 million or 83 bps of average loans and leases on an annualized basis against $148 million or 67 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 10.43% at the end of the prior-year quarter. Tier 1 Leverage ratio was 9.66% versus 9.73% at the end of the prior-year quarter.
As of Dec 31, 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 Oct 20, 2014, according to which the bank is to purchase around $180 million of its outstanding common stock. The company settled this forward contract on Jan 5, 2015 and an additional 0.79 million shares were repurchased following completion of the agreement.
Further, the settlement of the forward contract pertaining to the Jul 21, 2014 share repurchase agreement of $225 million occurred on Oct 14, 2014. Following completion of the agreement, an additional 1.90 million shares were repurchased.
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 the 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 mortgage banking revenues, a low interest-rate environment, regulatory issues as well as competitive pressure remain matters of concern.
Performance of Other Major Firms
Wells Fargo & Company’s (WFC) fourth-quarter 2014 results met expectations. The financial bigwig came out with earnings per share of $1.02, meeting the Zacks Consensus Estimate.
Citigroup Inc. (C) reported fourth-quarter adjusted earnings per share of 6 cents, missing the Zacks Consensus Estimate of 9 cents.
Bank of America Corp’s (BAC) fourth-quarter 2014 adjusted earnings of 32 cents per share came a penny ahead of the Zacks Consensus Estimate. However, after considering certain non-recurring items, earnings per share stood at 25 cents compared with 29 cents earned in the year-ago quarter.
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