Examining the Bank That Returned 7.4% to Its Shareholders Last Year

Some investors love U.S. Bancorp and Huntington Bancshares, but it turns out that Fifth Third Bancorp was the best at returning the money it made back into the pockets of its shareholders in 2013.

Patrick Morris
Patrick Morris
Jul 17, 2014 at 11:08AM

Fifth Third Bank (NASDAQ:FITB) is a regional bank that often goes undiscussed. But a dive into one trend reveals that big things for its shareholders could be here soon.

The one thing worth watching
At its annual shareholder meeting, one of the fascinating things Fifth Third revealed was how well it did in returning the money it made to its shareholders relative to peers through dividends and share buybacks. As you can see below, it eclipsed not only regional peers like Huntington Bancshares (NASDAQ:HBAN), but also highly regarded Warren Buffett favorite, US Bancorp (NYSE:USB):

Source: Company Annual Shareholder Meeting.

One of the biggest drivers behind this isn't just a strong dividend -- Fifth Third increased its dividend by 31% last year and returned more than $400 million to shareholders through it -- but that it repurchased $925 million worth of its common stock in 2013.

Relative to Huntington Bancshares and US Bancorp, the trend in its shares outstanding during the last year is strikingly different:

Source: Company SEC Filings.

Yet, one of the most interesting things about Fifth Third Bank is that it doesn't appear as though this trend of buying back stock will stop anytime soon.

The trend continues
When the results from the Federal Reserve's annual CCAR process were announced, Fifth Third revealed it had received approval to repurchase up to $669 million in common stock between the beginning of April 2014 to the end of March 2015. In addition, when its latest announcement of its reduction of its stake in Vantiv was made in May, Fifth Third also added another $81 million to its repurchase budget, bringing the total to $750 million.

Source: Flickr / Tyler Merbler.

This coincides with the news from earlier in the year that Fifth Third had received explicit approval from its board of directors to repurchase up to 100 million shares. And in its latest SEC filing, we learned it didn't just do that in the first quarter of the year; at the end of April, it "entered into an accelerated share repurchase transaction," and was seeking to buy back 6.2 million shares for $150 million.

The key takeaway
With earnings season just around the corner, it will be very interesting to learn the direction of the repurchases in the second quarter, as the stock price of Fifth Third fell by nearly 15% from the beginning of April to the middle of May. If it truly believed the stock was a worthwhile purchase, one has to think it would've aggressively bought back more stock as the price plummeted.

More work needs to be done to determine if the management team is making a correct move by buying more shares, as its price to tangible book value of 1.8 undeniably wouldn't be considered "cheap." But there is the possibility it may be a good value.

And one way to determine this is to learn what the management team itself thinks.