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Fifth Third (FITB) Beats on Q4 Earnings, Fee Income Declines

Zacks Equity Research

Fifth Third Bancorp FITB reported fourth-quarter 2017 adjusted earnings per share of 52 cents beating the Zacks Consensus Estimate of 47 cents. The adjusted figure excludes the impact of tax legislation, gain on the sale of Vantiv shares and charge related to the valuation of the Visa total return swap.

Results reflect increase in net interest income with strong capital position as a tailwind. However, lower non-interest income and increase in provisions for loan losses were the undermining factors.

After considering the impact of Tax Cuts and Jobs Act and non-recurring items, net income available to common shareholders came in at $486 million or 67 cents per share compared with $372 million or 49 cents per share as of Dec 31, 2016.

For full-year 2017, Fifth third reported net income available to common shareholders of $2.1 billion or $2.83 per share compared with $1.5 billion or $1.93 per share as of Dec 31, 2016.

Lower Non-Interest Income Hurts Revenues, Expenses Rise

For 2017, the company reported revenues of $7.05 billion, up 11% on a year-over-year basis. The top line lagged the Zacks Consensus Estimate of $7.09 billion.

Total adjusted revenues for the quarter came in at $1.55 billion, below the Zacks Consensus Estimate of $1.58 billion. However, the reported figure was up 1.4% year over year.

Fifth Third’s net interest income (tax equivalent) came in at $963 million, up 6% year over year. The rise was primarily driven by higher short-term market rates.

Net interest margin expanded 16 basis points (bps) year over year to 3.02%, mainly due to improved short-term market rates and a positive impact from the estimated card refund charge.

However, non-interest income decreased 7% year over year to $577 million (including certain non-recurring items). Excluding significant items, non-interest income was down 3% year over year to $587 million. Notably, the quarter witnessed a fall in corporate and mortgage banking revenues.

Also, non-interest expenses climbed 12% year over year to $1.07 billion. Higher salaries, wages and incentives were offset by lower other expenses.

As of Dec 31, 2017, average loan and lease balances were almost stable sequentially at $92.3 billion. Average total deposits increased 1% from the previous quarter to $102.8 billion.

Credit Quality: A Mixed Bag

Total non-performing assets, including loans held for sale, were $495 million, down 34.1% from the year-ago quarter. Further, total allowance for credit losses was $1.34 billion, down 4% from the prior-year quarter.

However, provision for loan and lease losses increased 24% year over year to $67 million. Net losses charge-offs for the quarter came in at $76 million or 33 bps of average loans and leases on an annualized basis compared with $73 million or 31 bps in the prior-year quarter.

Strong Capital Position

Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.74% compared with 11.50% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.61% compared with 10.39% at the end of the year-ago quarter. Also, tier 1 leverage ratio was 10.01% compared with 9.90% in the prior-year quarter.

Our Viewpoint

Fifth Third’s fourth-quarter results were decent. Its revenues continue to get support from growing net interest income and easing pressure on NIM. Also, steady improvement in loan balance highlights its efficient organic growth strategy. Further, the company’s strong balance sheet might drive results in the upcoming quarters with support from lower tax rate and improving economic conditions.

However, declining fee income due to poor mortgage banking activities remains a concern. Deteriorating credit quality is another headwind.

Fifth Third carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fifth Third Bancorp Price, Consensus and EPS Surprise

Fifth Third Bancorp Price, Consensus and EPS Surprise | Fifth Third Bancorp Quote

Performance of Other Banks

First Horizon National Corporation FHN reported fourth-quarter 2017 adjusted earnings per share of 30 cents, surpassing the Zacks Consensus Estimate of 29 cents by 3.4%. Results exclude tax reform-related adjustments and other one-time items.

Driven by top-line strength, Regions Financial Corporation RF recorded an impressive earnings surprise of 3.8% in fourth-quarter 2017. Reported earnings of 27 cents per share outpaced the Zacks Consensus Estimate of 26 cents. Moreover, results compared favorably with the prior-year quarter’s earnings of 23 cents. Results included certain one-time items of 7 cents per share.

Riding on higher revenues, Citizens Financial Group CFG delivered a positive earnings surprise of 6% in fourth-quarter 2017. Adjusted earnings per share of 71 cents topped the Zacks Consensus Estimate of 67 cents.

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