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Fifth Third (FITB) Q3 Earnings Beat Estimates, Costs Decline

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Fifth Third Bancorp FITB has reported third-quarter 2020 adjusted earnings of 85 cents per share, surpassing the Zacks Consensus Estimate of 59 cents. Also, results compared favorably with the prior-year quarter’s earnings of 75 cents per share.

The company’s performance displays a strong capital position, with rising deposits. Also, lower expenses and benefit from credit losses came as tailwinds. However, the results were largely affected by lower revenues. Also, decline in loans was an undermining factor.

Certain non-recurring items included in third-quarter results were the impact of the COVID-19 outbreak and merger-related expenses of $4 million, $8 million of branch and non-branch real estate charges, and $17 million related to the valuation of Visa total return swap.

Net income available to common shareholders increased 6% year over year to $562 million.

Revenues & Loans Fall, Costs Decline

Total adjusted revenues for the reported quarter were $1.9 billion, down 5% year over year due to lower net interest as well as fee income. However, the figure surpassed the Zacks Consensus Estimate of $1.86 billion.

Fifth Third’s net interest income (tax equivalent) was $1.17 billion, down 6% year over year. The fall primarily reflects impacts of lower rates and fall in commercial loan balances, partly offset by low deposit costs. Net interest margin contracted 74 basis points (bps) to 2.58%.

Adjusted non-interest income declined 5.8% year over year to $703 million. Including significant items, non-interest income slipped 2% to $722 million. Decline in mortgage banking, leasing business and other revenue were partly muted by higher service charges on deposits along with Wealth and asset management revenues.

Excluding merger-related expenses, non-interest expenses decreased marginally from the prior-year quarter to $1.12 billion. The decline chiefly resulted from a fall in almost all components. Including merger expenses, costs rose slightly.

As of Sep 30, 2020, average loan and lease balances declined around 4% sequentially to $113.4 billion. The fall mainly stemmed from lower commercial loans and leases. Average total deposits advanced 4% sequentially to $155.9 billion.

Credit Quality: A Mixed Bag

The company reported benefit from credit losses of $15 million compared with $134 million in the year-ago quarter.

However, net charge-offs for the third quarter were $101 million or 35 bps of average loans and leases on an annualized basis compared with $99 million or 36 bps in the prior-year quarter.

Further, total allowance for credit losses more than doubled to $2.76 billion from the prior-year quarter. Total non-performing assets, including loans held for sale, were $931 million, up 79.4% from the year-ago quarter.

Strong Capital Position

Fifth Third was well capitalized during the July-September period. The Tier 1 risk-based capital ratio was 11.64% compared with 10.81% at the end of the prior-year quarter. The CET1 capital ratio (fully phased-in) was 10.14% compared with 9.56% recorded at the end of the year-ago quarter. The Tier 1 leverage ratio was 8.37% compared with the year-earlier quarter’s 9.36%.

Our Viewpoint

We believe Fifth Third, with a diversified traditional banking platform, remains well poised to benefit from the recovery in the economies where it has a footprint. Steady improvement in its loans and deposits highlights the bank’s efficient organic growth strategy.

Though the company’s focus on several initiatives to boost performance is a positive, several woes like low rates and competitive pressure persist.

Fifth Third Bancorp Price, Consensus and EPS Surprise

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

Navient Corporation NAVI reported third-quarter 2020 core earnings per share of 99 cents that surpassed the Zacks Consensus Estimate of 78 cents. Also, the bottom line was above the year-ago quarter figure of 62 cents.

Regions Financial RF reported third-quarter 2020 adjusted earnings of 49 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, results compare favorably with the prior-year period earnings of 39 cents.

Northern Trust NTRS delivered third-quarter 2020 earnings per share of $1.32, missing the Zacks Consensus Estimate of $1.40, on lower revenues. Also, the reported figure declined 21.9% year over year. Results included certain one-time items.

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