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Fifth Third Shares Pull Back on Lower Guidance

  • Second-quarter net income to common shareholders of $594 million, or 66 cents a share
  • Earnings beat the consensus EPS estimate of 42 cents
  • Excluding Vantiv gain, second-quarter EPS was 49 cents
  • Mortgage revenue up sequentially and year-over-year
  • Average commercial and industrial loans grow 3% sequentially, 15% year-over-year

Uptated with midday market action, Fifth Third's lower pre-provision earnings outlook and comment from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- Fifth Third Bancorp (FITB - Get Report) on Thursday bucked the industry trend and reported sequential and year-over-year growth in mortgage banking net revenue.

The Cincinnati-based regional lender reported second-quarter net income attributable to common shareholders of $594 million, or 66 cents a share, increasing from $413 million, or 46 cents a share in the first quarter, and $376 million, or 40 cents a share, during the second quarter of 2012.

The second-quarter results included an after-tax benefit of roughly $157 million, or 17 cents a share, on the valuation of the company's warrant holds in Vantiv (VNTV - Get Report), Fifth Third's former payment processing subsidiary, which was spun off in 2009. After-tax gains on the Vantiv holdings were $22 million or 2 cents a share in the first quarter, and $36 million, or 4 cents a share, during the second quarter of 2012.

Excluding the Vantiv gain, Fifth Third's second-quarter operating earnings of 49 cents soundly beat the consensus estimate of 42 cents, among analysts polled by Thomson Reuters.

But Fifth Third's shares were down 1.4% in midday trading on an other wise strong day for bank stocks, possibly reflecting investor disappointment with a reduced pre-provision net revenue outlook for 2013.

The provision for credit losses is the amount added to loan loss reserves each quarter. Since this item directly affects pre-tax earnings, banks and analysts often focus on pre-provision net revenue as a better indicator of operating performance, especially when credit quality is improving and provisions are declining.

In its outlook for all of 2013, Fifth Third said it expected pre-provision net revenue to be "consistent with 2012," when the company had previously said pre-provision net revenue would show "moderate growth."

Fifth Third reported second-quarter mortgage banking net revenue of $233 million, increasing from $220 million the previous quarter and $183 million a year earlier, which is an impressive result, considering the overall slowdown in U.S. mortgage lending activity and the lower gains on the sale of new loans, as long-term interest rates rise. The company said its second-quarter mortgage loan originations hit a record $7.5 billion and that it gained $150 million on mortgage sales during the quarter.

Second-quarter tax-adjusted net interest income was $885 million, declining from $893 million in the first quarter and $899 million in the second quarter of 2012. Fifth Third said the net interest income decline reflected "loan repricing and maturities of interest rate floors, partially offset by net loan growth and the benefit of higher yields on investment securities."

The second-quarter net interest margin narrowed to 3.33% from 3.42% the previous quarter and 3.56% a year earlier.

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