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Fifth Third (FITB) Q2 Earnings Top Estimates, Revenues Rise

Zacks Equity Research

Fifth Third Bancorp FITB delivered a positive earnings surprise of 7.6% in second-quarter 2019. Adjusted earnings per share of 71 cents surpassed the Zacks Consensus Estimate of 66 cents. However, excluding certain one-time items, the bottom line came in at 57 cents, down 30.5% year over year.

Increase in revenues, aided by expansion of margin and loan growth, was a key positive. Moreover, the company displays a strong capital position. However, escalating expenses, fall in fee income and provisions were undermining factors.

Certain non-recurring items included in the second-quarter results were the impact of a $84-million merger-related items and $17 million related to the valuation of Visa total return swap (post-tax).

Net income available to common shareholders declined 26.3% year over year to $427 million.

Revenues Jump, Costs Up, Loans & Deposits Rise

Total adjusted revenues for the quarter came in at $1.91 billion, up 8% year over year, driven by higher net interest. Also, the top line surpassed the Zacks Consensus Estimate of $1.9 billion.

Fifth Third’s net interest income (tax equivalent) came in at $1.25 billion, rising 22% year over year. This rise primarily reflects higher-yielding consumer loans growth and improved short-term market rates.

Net interest margin expanded 16 basis points (bps) year over year to 3.37%, mainly due to improved short-term market rates, partially offset by higher funding costs and a migration from demand deposits into interest-bearing deposits.

Non-interest income declined 11% year over year to $660 million (including certain non-recurring items). Excluding significant items, non-interest income climbed 18.9% to $674 million. Mortgage banking revenues increased 19%.

Non-interest expenses flared up 24% from the prior-year quarter to $1.24 billion. The upsurge chiefly resulted from higher compensation and benefits, card and processing expenses, technology costs and other non-interest expenses.  Adjusted expenses flared up 14%.

As of Jun 30, 2019, loan and lease balances, including held for sale, climbed 13% sequentially to $111 billion. This upswing mainly stemmed from increased commercial and consumer loans and leases. Average total deposits advanced 13% from the prior quarter to $124.3 billion.

Credit Quality: A Mixed Bag

Provision for credit losses surged year over year to $85 million. Total allowance for credit losses was $1.26 billion, up 4.5% from the prior-year quarter. Total non-performing assets, including loans held for sale, was $560 million, up 16.7%.

However, net charge-offs for the reported quarter were $78 million or 29 bps of average loans and leases on an annualized basis compared with $83 million or 35 bps a year ago.

Strong Capital Position

Fifth Third remained well capitalized during the second quarter. Tier 1 risk-based capital ratio was 10.64% compared with 12.02% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 9.58% compared with 10.91% on Jun 30, 2018. Tier 1 leverage ratio was 9.24%, down from 10.24%.

Our Viewpoint

Fifth Third displayed decent performance in the second quarter. Rise in interest income and loan growth supported revenues. However, the bottom line was marred by lower fee income and higher expenses.

We believe the company, with a diversified traditional banking platform, is well positioned to benefit from recovery in the economies where it has footprint. The company’s steady improvement in loans and deposits highlights its efficient organic growth strategy.

Though several issues, including escalating expenses and competitive pressure, are matters of concern, we expect the company to benefit from its several strategic initiatives.

Fifth Third Bancorp Price, Consensus and EPS Surprise

Fifth Third Bancorp Price, Consensus and EPS Surprise

Fifth Third Bancorp price-consensus-eps-surprise-chart | Fifth Third Bancorp Quote

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

Performance of Other Banks

M&T Bank Corporation MTB witnessed a negative earnings surprise of 9.7% in second-quarter 2019, on account of higher expenses and provisions. Net earnings of $3.34 per share lagged the Zacks Consensus Estimate of $3.70. The bottom line, however, improved 2% year over year.

People's United Financial Inc. PBCT reported second-quarter 2019 operating earnings of 34 cents per share, in line with the Zacks Consensus Estimate. The bottom line improved 6.3% year over year.

Signature Bank SBNY reported second-quarter 2019 earnings per share of $2.72, outpacing the Zacks Consensus Estimate of $2.71. Yet, the bottom line decreased 3.5% from the prior-year quarter’s reported figure.

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