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Fifth Third Continues Strong Commercial Loan Growth (Update 1)

First-quarter gains on the sale of mortgage loans totaled $169 million, declining from $239 million in the fourth quarter, and $174 million in the first quarter of 2012.

Noninterest expense totaled $978 million in the first quarter, declining from $1.163 billion in the fourth quarter, but increasing slightly from $973 million in the first quarter of 2013. The fourth-quarter figure included $134 million in pretax expenses from the prepayment of $1.0 billion in FHLB loans, along with $26 million in mortgage repurchase expenses.

Excluding these and other special items, Fifth Third said that it noninterest expenses declined 1% from the fourth quarter.

The major first-quarter highlight for Fifth Third was its strong loan growth. Average total portfolio loans grew by 2% during the quarter and 4% year over year, to $85.9 billion. Average non-real estate commercial and industrial loans grew 6% quarter-over-quarter and 16% year-over-year, to $36.4 billion. Commercial mortgage and construction loan balances continued to decline, as planned.

Fifth Third's first-quarter return on average assets was 1.41%, increasing from 1.33% in the fourth quarter, but declining slightly from 1.49% in the first quarter of 2012. The first-quarter return on average tangible common equity was 12.5%, increasing from 11.5% the previous quarter, but declining from 13.1% a year earlier.

Jefferies analyst Ken Usdin said in a note to clients after the earnings announcement that "overall, we believe the quarter looks good as FITB is one of the only banks in our universe that actually beat our net interest income forecast."

Usdin was also pleased to see Fifth Third adjust its 2013 guidance for a slightly better improvement in credit quality, with net loan charge-offs expected to decline between $200 million and $225 million. Fifth Third's original 2013 outlook called for full-year neat charge-offs to decline by $200 million.

When discussing the mortgage results, Usdin said "fees were better-than-expected as mortgage banking came in about $20mm higher than our forecast. Most of the [positive surprise] is a result of better hedging this quarter."

The analyst rates Fifth Third a "buy," with a $19 price target.

Investors were pleased, sending Fifth Third's shares up 1.4% in afternoon trading, to $16.01.

Fifth Third's stock closed at $15.80 Wednesday, returning 5% this year, following a 23% return during 2012. The shares trade for 1.3 times their reported March 31 tangible book value of $12.62, and for 9.4 times the consensus 2014 EPS estimate of $1.69. The consensus 2013 EPS estimate is $1.64.

Following the completion of the Federal Reserve's annual stress tests, Fifth Third in March raised its quarterly dividend to 11 cents a share from 10 cents, for a yield of 2.78%, based on Thursday's closing share price.

Fifth Third's board of directors in March authorized a new 100 million share repurchase program.

FITB ChartFITB data by YCharts

Interested in more on Fifth Third Bancorp? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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