Fifth Third's Mortgage Revenue Doubles (Update 1)

  • Fifth Third Bancorp reports first-quarter earnings per share of $45 cents.
  • Analysts were expecting EPS of 36 cents.
  • Mortgage banking net revenue doubles to $204 million.
  • Commercial and industrial loans grow 5% sequentially.

Updated with comments from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) - Fifth Third Bancorp ( FITB) on Wednesday reported a 100% year-over-year increase in net mortgage revenue, to $204 million.

The Cincinnati lender reported first-quarter net income available to common shareholders of $421 million, or 45 cents a share, increasing from $305 million, or 33 cents a share, during the fourth quarter, and $88 million, or 10 cents a share, during the first quarter of 2011. The company booked $153 million in discount accretion in the first quarter of 2011 when it redeemed $3.4 billion in preferred stock held by the government, for bailout assistance received through the Troubled Assets Relief Program, or TATP.

The first-quarter earnings came in ahead of the 36 cent EPS estimate among analysts polled by Thomson Reuters.

The company's first-quarter results included a $115 million pretax benefit (roughly $75 million, or eight cents a share, after tax) from gains from the initial public offering of Fifth Third's Vantiv ( VNTV) subsidiary, as well as a $36 million pretax charge ($23 million, or two cents a share, after tax), "from Vantiv debt termination-related charges recorded in equity method earnings."

The first-quarter results also included a "benefit of $46 million pre-tax (approximately $30 million after-tax, or $0.03 per share), from gains on the higher valuation of the warrant Fifth Third holds in Vantiv."

Excluding the above one-time items, first-quarter operating earnings of 36 cents would match the consensus estimate.

Fifth Third's average loan balances increased 2% during the first quarter, from the previous quarter, to $81.5 billion, with average commercial and industrial loans growing 5% during the quarter, to $31.4 million.

The company's net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- was 3.61%, declining from 3.67% in the fourth quarter and 3.71% in the first quarter of 2011.

First-quarter net interest income was $903 million, declining from $920 million the previous quarter, but increasing from $884 million a year earlier, with the sequential decline "primarily attributable to lower yields on loans given the current interest rate environment partially offset by balance growth in C&I, commercial lease, residential mortgage, and auto loans."

Fifth Third CEO Kevin Kabat said "It was a strong earnings quarter for Fifth Third," irrespective of the Vantiv IPO, as the company continued "to see solid growth in commercial lending volumes and fee income results were particularly strong in the mortgage banking, corporate banking, and investment advisory businesses."

The strong mortgage results reflected "higher gain on sale margins and deliveries of previously originated mortgages."

Fifth Third's shares closed at $14.16 Wednesday, returning 12% year-to-date, following an 11% decline return during 2011.

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The shares trade for nine times the consensus 2013 EPS estimate of $1.53. The consensus 2012 EPS estimate is $1.44.

Based on an eight-cent quarterly payout, the shares have s dividend yield of 2.26%.

Jefferies analyst Ken Usdin rates Fifth Third a "Buy," with a $16 price target, and said Thursday that first-quarter "positives include strong loan growth (+1.4% Q-Q) and positive operating leverage," while "negatives include flat liability costs and a sequential decline in mortgage banking production."

The analyst added that excluding one-time items, "operating fees were up $55mm Q-Q, mainly on better mortgage banking results (up $48mm)," and that "better gain-on-sale margins drove the mortgage banking beat as production volume was actually down Q-Q ($6.4B vs. $7.1B last quarter). "

Usdin estimates that Fifth Third will earn $1.35 a share for all of 2012, followed by 2013 EPS of $1.40.

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

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

To contact the writer, click here: Philip van Doorn.

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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 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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