DBRS: Fifth Third’s Adj Earnings Down QoQ, due to Lower Mortgage Income and Deposit Service Charges

Summary:
• For 1Q14, the Company reported net income available to common shareholders of $309 million, down from $383 million in 4Q13, and $413 million in 1Q13.
• Excluding non-core items, Fifth Third’s 1Q14 DBRS calculated adjusted income before provisions and taxes (IBPT) decreased 5.3% sequentially, mostly driven by lower levels of mortgage banking income, and a seasonal decrease in deposit service charges.
• DBRS rates Fifth Third’s Issuer & Senior debt at A (low) with a Stable trend.

In light of the difficult business environment, Fifth Third Bancorp’s (Fifth Third or the Company) 1Q14 earnings were pressured. Nonetheless, DBRS, Inc. (DBRS) notes that a strength of the Company’s banking franchise is its broad set of business lines, which provide stability and diversification to earnings. Overall, DBRS views Fifth Third’s stabilizing asset quality, sequential average loan growth, and solid capital and liquidity profiles as supportive of its rating level.

Overall, Fifth Third’s 1Q14 adjusted IBPT (DBRS calculated) decreased 5.3% sequentially, reflecting a moderate decline in adjusted revenues, partially offset by a slight decrease in adjusted expenses, which remain well managed.

Fifth Third’s asset quality continued to stabilize in 1Q14, reflecting lower, quarter-on-quarter (QoQ), levels of non-performing assets and criticized assets. Meanwhile, net charge-offs were moderately elevated during the quarter, primarily driven by three larger credits. Despite continued reserve releases, which benefit earnings, the Company’s loan loss reserves remain solid at 1.7% of total loans.

Fifth Third’s funding profile remains sound and reflects a sizable core deposit base. Meanwhile, capital is solid, providing sound loss absorption capacity. In general, the Company’s capital metrics were up moderately, QoQ. DBRS notes that the Federal Reserve did not object to Fifth Third’s capital plan submitted as part of the 2014 Comprehensive Capital Analysis and Review process, including the potential increase in the Company’s quarterly common stock dividend to $0.13 per share from $0.12, and the potential to repurchase up to $669 million of common stock. Furthermore, the capital plan incorporated the potential repurchases of common shares in the amount of any after tax gains from the sale of Vantiv, Inc. stock.

DBRS rates Fifth Third Bancorp Incorporated Issuer & Senior debt at A (low) with a Stable trend.

Notes:
All figures are in U.S. Dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]