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Fifth Third Continues Strong C&I Growth, Beats Q4 EPS Estimate (Update 1)

Updated from 8:26 a.m. ET with market reaction and comment from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- Fifth Third Bancorp (FITB - Get Report) on Thursday reported fourth-quarter results that came in slightly ahead of analysts' expectations, with continuing growth of its commercial and industrial loan portfolio and a small sequential increase in mortgage revenue.

The bank's fourth-quarter net income available to common shareholders was $383 million, or 43 cents a share, slightly above the consensus earnings estimate of 42 cents a share, among analysts polled by Thomson Reuters.  In comparison, the company's net income available to common shareholders was $421 million, or 47 cents a share, during the third quarter, and $390 million, or 43 cents a share, during the fourth quarter of 2012.

As usual, Fifth Third's fourth-quarter results included many moving parts:

  • A positive valuation adjustment of $91 million on the company's stake in Vantiv (VNTV), its former payment processing subsidiary that was spun-off through a public offering during 2012
  • A $9 million payment from Vantiv "pursuant to a tax receivable agreement"
  • An $18 million charge related to the valuation of a total return swap as part of the bank's sale of Visa (V) Class B shares during 2009
  • $69 million in charges to increase litigation reserves
  • $8 million in costs associated with the redemption of trust preferred securities
  • A charitable contribution of $8 million
  • $8 million in severance payments
The biggest sequential difference in extraordinary items was that the bank added $30 million to litigation reserves during the third quarter.

For all of 2013, Fifth Third's net income available to common shareholders came to $1.799 billion, or $2.02  a share, increasing from $1.541 billion, or $1.66 a share, during 2012.

The bank's return on average assets (ROA) for the fourth quarter was 1.24%, down from 1.35% the previous quarter and 1.33% a year earlier.  The return on average common equity (ROCE) declined to 10.8% in the fourth quarter from 12.1% in the third quarter and 11.5% during the fourth quarter of 2012.

ROA for all of 2013 was 1.48%, increasing from 1.34% the previous year.  ROCE was also up for the year, to 13.1% in 2013 from 11.6% in 2012.

The company ended 2012 with a Tier 1 common equity ratio of 9.38%, down from 9.51% a year earlier.

Fifth Third's net mortgage revenue totaled $126 million during the fourth quarter, reversing a three-quarter decline.  Mortgage revenue was up from $121 million in the third quarter, although it was down from $258 million a year earlier, in line with the industry as rising long-term interest rates curtailed mortgage refinancing application volume.

The bank's average portfolio loans rose 1% sequentially and 5% year-over-year to $87.895 billion during the fourth quarter.  Average commercial and industrial loans grew 2% during the fourth quarter and 13% year-over-year to $38.835 billion.  Average commercial real estate loan balances were down 3% during the fourth quarter and 12% from a year earlier to $8.047 billion. 

Average balances for most consumer loan types were down, but credit card loan balances, which rose 3% during the fourth quarter and 9% year-over-year to an average of $2.202 billion during the fourth quarter.

The bank reported fourth-quarter net interest income of $905 million, increasing slightly from $898 million in the third quarter and $903 million in the fourth quarter of 2012.  The net interest margin narrowed to a tax-adjusted 3.21% from 3.31% the previous quarter and 3.49% a year earlier.

Fifth Third's noninterest expense totaled $989 million during the fourth quarter, compared to $959 million in the third quarter and $1.163 billion during the fourth quarter of 2012.  The prior-year period included $134 million in costs associated with the prepayment of $1 billion in Federal Home Loan Bank borrowings.  The bank's efficiency ratio -- overhead expenses as a percentage of revenue -- was 61.5% during the fourth quarter, increasing from 59.2% the previous quarter but improving from 65.2% a year earlier.

"We continued to prudently and actively manage our capital position, reducing our share count by 3 percent, inclusive of the additional 35.5 million shares attributable to the conversion of our Series G preferred stock to common stock during the year," Fifth Third CEO Kevin Kabat said in the company's earnings press release. "We also increased our annual dividends to $0.47 per share, up 31 percent from 2012. Despite these substantial returns, shareholders' equity increased 4 percent from a year ago. Fifth Third performed very well in 2013, and we feel the Company is well positioned to succeed as we enter 2014," he added.

Shares of Fifth Third were down 2.4% in late morning trading, to $21.50.

Jefferies analyst Ken Usdin rates Fifth Third a "buy," with a $23 price target, and wrote in a client note on Thursday that the bank's fourth-quarter operating earnings looked "closer to $0.41 excluding a number of one-timers."

The 2014 outlook looks decent, however, as guidance looks supportive of current estimates. Key drivers include: mid-single loan growth, modest NII growth, down mid-single fees, down  mid-single expenses, and lower charge-offs," Usdin added.

The following table shows the performance of Fifth Third's stock against the KBW Bank Index (I:BKX) and the S&P 500 (^GSPC) since the end of 2011:

FITB Chart data by YCharts


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

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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