Fifth Third, JPMorgan Lead Big Bank Revenue Winners: KBW

NEW YORK ( TheStreet) -- Third-quarter earnings season has been a very rough one for many of the nation's large-cap banks, but there are several that have managed to grow revenue-per-share, depending on how you look at the data.

"It is no secret that revenue growth in the large cap bank industry is tough to come by given net interest margin compression, modest loan growth, declining mortgage banking income, etc.," according to KBW analyst Christopher Mutascio. But most of the big banks have been using "cash to aggressively repurchase shares," and if one-time items are excluded, the analyst has identified two large-cap banks that showed year-over-year growth in revenue-per-share:

First is Fifth Third Bancorp ( FITB) of Cincinnati. The company's core third-quarter revenue was $1.521 billion, declining from $1.571 billion in the third quarter of 2012, according to Mutascio. But Fifth Third's share buybacks over the past year reduced its average share count to 888 million in the third quarter from 945 million a year earlier. Therefore, the company's third-quarter revenue came to $1.71 a share, increasing 3% from $1.66 a share, a year earlier.

Fifth Third reported third-quarter net income available to common shareholders of $421 million, or 47 cents a share, increasing from $354 million, or 39 cents a share, during the third quarter of 2012. Both sets of results included one-time items related to the company's investment in Vantiv ( VNTV). Please see TheStreet's earnings coverage for more on Fifth Third's third-quarter results.

The other large-cap bank showing year-over-year growth in revenue-per-share was Huntington Bancshares ( HBAN) of Columbus, Ohio. The company's third-quarter revenue declined to $682 million from $692 million a year earlier. But Huntington's third-quarter average share count declined to 841 million from 864 million in the third quarter of 2012. So the company's revenue-per-share grew 1.1% to 81 cents in the third quarter from 80 cents a year earlier.

Huntington reported third-quarter earnings of $178.5 million, or 20 cents a share, increasing $167.8 million, or 19 cents a share, during the third quarter of 2012. Please see TheStreet's earnings coverage for details on the company's results and strategy.

Stripping Out the Mortgage Decline

In a note to clients on Tuesday, Mutascio wrote that the large-cap banks were "giving up interest income on earning assets to buy back shares." It may have been worth it. Most of the big banks are continuing to see pressure on net interest margins from the Federal Reserve's policy of keeping the short-term federal funds rate in a range of zero to 0.25%, since late 2008.

The nation's largest banks all saw a weak trading revenue trend in the third quarter, but most were hit even harder by the expected decline in mortgage revenue, as rising long-term rates helped slow the wave of refinancing applications.

The mortgage trend is clear and the big banks can't avoid it.

According to the Mortgage Bankers Association's most recent estimate, third-quarter mortgage loan refinance activity in the United States declined to $189 billion from $342 billion in the third quarter of 2012. The MBA forecasts that total U.S. mortgage production will decline from $1.750 trillion in 2012 to $1.605 trillion in 2013, with a much more significant decline to $1,091 trillion in 2014.

"We are not suggesting that investors should ignore the material drop in mortgage banking income," Mutascio wrote. "However, by backing it out, we can get a sense of how the revenue per share growth is across all other business lines for our banks. It might provide us with some insight as to who will generate greater revenue per share growth when mortgage banking fully normalizes."

According to KBW's data, if mortgage revenue were stripped out, Fifth Third would again be the winner among large-cap banks, with third-quarter revenue of $1.4 billion, increasing from $1.371 billion in the third quarter of 2012. Core revenue, excluding mortgages, rose 8.6% to $1.58 a share in the third quarter from $1.45 a share a year earlier.

JPMorgan Chase ( JPM) ranks second, with revenue, excluding myriad one-time items and mortgage revenue (which was down 65% to $841 million), increasing to $22.431 billion in the third quarter, from $21.623 billion a year earlier. JPMorgan's third-quarter average share count declined to 3.767 billion from 3.821 billion a year earlier. So adjusted revenue came to $5.95 a share in the third quarter, up 5.2% from the third quarter of 2012.

JPMorgan Chase posted a third-quarter net loss of $380 million, or 17 cents a share, springing from $9.15 billion in extraordinary expenses, which came to $7.2 billion or $1.85 after tax. The company is expected soon to enter into a settlement of mortgage related investigations with the Justice Department, the Federal Housing Finance Agency, other federal regulators and states' attorneys general, with the total figure climbing as high as $13 billion, according to media reports. The Wall street Journal on Wednesday reported that a group of investors, including BlackRock ( BLK) and Neuberger Berman are seeking "at least $5.75 billion" from JPMorgan Chase, to recover losses on mortgage-backed securities sold to them by the bank.

JPMorgan reported that its legal reserves as of Sept. 30 stood at $23 billion. That's an impressive figure, but if the media reports are accurate, investors could see a rough fourth-quarter bottom line. Still, JPMorgan's shares rose 2% from Oct. 10 -- the day before the third-quarter net loss was announced -- through Tuesday's close at $53.62. The shares trade for just 8.9 times the consensus 2014 EPS estimate of $6.01, among analysts polled by Thomson Reuters, which is one of the cheapest valuations among large-cap banks.

Huntington ranks third among large banks for core revenue with mortgage revenue excluded. Adjusted revenue-per-share came to 78 cents in the third quarter, increasing 4.3% from a year earlier.

In fourth place is Bank of America ( BAC), with adjusted core revenue, excluding mortgage revenue, of $20.049 billion in the third quarter, increasing from $18.299 billion in the third quarter of 2012, according to KBW. Bank of America's third-quarter average share count increased to 11.482 billion from 10.776 billion in the third quarter of 2012, according to KBW. Still, revenue-per-share was up 2.8% to $1.75 in the third quarter from $1.70 a year earlier.

Please see TheStreet's earnings coverage for much more on Bank of America's third-quarter results.

Wells Fargo ( WFC) is in fifth place, with adjusted third-quarter core revenue, excluding mortgage revenue, of $19.071 billion, increasing from $18.561 billion a year earlier, according to KBW. The company's share count declined to an average of 5.382 billion in the third quarter from 5.355 billion in the third quarter of 2012, according to KBW's data. Wells Fargo's adjusted core revenue rose 2.3% to $3.54 a share in the third quarter from $3.47 a share a year earlier.

Wells Fargo reported third-quarter earnings of $5.6 billion, or 99 cents a share, increasing from $4.9 billion, or 88 cents a share, in the third quarter of 2012.

Regions Financial ( RF) of Birmingham, Ala., is next, with adjusted core revenue, excluding mortgage revenue, increasing to $1.254 billion in the third quarter from $1.245 billion a year earlier. The company's average share count during the third quarter declined to 1.405 billion from 1.423 billion in the third quarter of 2012, so adjusted third-quarter revenue-per-share grew 2.0% to 89 cents from 87 cents a year earlier.

Regions reported third-quarter earnings of $285 million, or 20 cents a share, declining from $301 million, or 22 cents a year earlier. Please see TheStreet's coverage detail on several positive trends for the bank.

The last large-cap showing year-over-year core revenue growth, excluding mortgage revenue, is U.S. Bancorp ( USB) of Minneapolis. The company's adjusted third-quarter revenue was $4.566 billion, declining from $4.659 billion a year earlier. But the company's average third-quarter share count declined to 1.843 billion from 1.897 billion in the third quarter of 2012. So adjusted revenue-per-share came to $2.48, increasing from $2.46 a year earlier.

U.S. Bancorp reported third-quarter earnings of $1.468 billion, or 74 cents a share, compared to $1.474 billion, or 74 cents a share, a year earlier. The company also reported solid growth of average loans during the third quarter.

Mutascio wrote that "over the past 12 months it does not appear that revenue per share generation is a good predictor of stock outperformance," but added that "At some point when the loan loss reserves are bled dry and cost cutting has run its course, we think revenue per share growth may be a better predictor of share price gains."

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

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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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