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Fifth Third's (FITB) Q3 Earnings Beat on Lower Provisions
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Fifth Third Bancorp (FITB - Free Report) delivered a notable positive earnings surprise of 58.5% in the third-quarter 2016. Earnings per share of 65 cents surpassed the Zacks Consensus Estimate of 41 cents. Moreover, the bottom-line improved 44% on a year over year basis. Notably, the reported quarter as well as the prior-year quarter included certain one-time items.
Share of Fifth Third gained more than 1% in the beginning of the trading session today, reflecting investors’ positive sentiments on substantial lower provisions and higher revenues. However, the price reaction during the full trading session will give a better idea.
On the downside, the quarter recorded increased expenses.
Certain non-recurring items included in the third-quarter results were the impact of an $11 million pre-tax (approximately $7 million after-tax) gain on sale of non-branch facility and a $280 million (approximately $182 million after-tax) gain from the termination and settlement of gross cash flows from the existing Vantiv tax receivable agreements. Additionally, an $8 million gain, resulting from certain commercial lease terminations, was also included in the third-quarter results.
Net income available to common shareholders increased 37% year over year to $501 million.
Higher Non-interest Income Drive Revenue Rise
Total revenue for the quarter came in at $1.75 billion, surpassing the Zacks Consensus Estimate of $1.66 billion. Moreover, revenues improved 8.3% year over year, driven by higher net interest income as well as non-interest income.
Fifth Third’s net interest income (tax equivalent) came in at $913 million, increasing 1% year over year. The rise primarily reflected the impact of higher investment securities balances and the Dec 2015 rate hike.
Net interest margin contracted 1 basis point (bps) year over year to 2.88%, mainly due to higher long-term debt balances, lower commercial loan yields, and reduced cash flow hedges. This was partially offset by the rate hike in Dec 2015.
Non-interest income increased 18% year over year to $840 million (including certain non-recurring items). Excluding significant items, non-interest income was up 1% year over year to $596 million. Notably, the quarter witnessed a rise in corporate banking revenues and card and processing revenues, while mortgage banking and wealth and asset management revenues declined.
However, non-interest expenses increased 3% from the prior-year quarter to $973 million. The rise was mainly due to higher compensation expense, resulting from personnel additions in information technology and risk and compliance, as well as the change in provision for unfunded commitments. This was partially offset by lower in card and processing expense.
As of Sep 30, 2016, excluding loans held-for-sale, average loan and lease balances went up slightly year over year to $93.5 billion. The rise was mainly due to increased residential mortgage and commercial construction, partially offset by decreases in automobile and home equity loans. Average total deposits inched up 1% year over year to $102.4 billion.
Credit Quality: A Mixed Bag
Provision for loan and lease losses plummeted 49% year over year to $80 million. Net charge-offs for the quarter came in at $107 million or 45 bps of average loans and leases on an annualized basis, compared with $188 million or 80 bps in the prior-year quarter.
However, total non-performing assets, including loans held for sale, were $783 million, up 28.8% from the year-ago quarter.
Strong Capital Position
Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.26% compared with 10.49% at the end of the prior-year quarter. CET1 capital ratio was 10.16% as against 9.4% at the end of the prior-year quarter.
Share Repurchase
On Aug 5, 2016, Fifth Third initially settled a share repurchase agreement under which the company would buy $240 million of its outstanding common stock.
Our Viewpoint
We believe that the company, with a diversified traditional banking platform, remains well poised to benefit from a recovery in the economies where it has a footprint. The company’s steady improvement in loans and deposits highlights its efficient organic growth strategy. Further, we remain optimistic as the company remains focused on several strategic initiatives to boost performance.
However, several issues, including a stringent regulatory landscape, as well as competitive pressure remain matters of concern.
Among major banks, JPMorgan Chase & Co. (JPM - Free Report) reported third-quarter 2016 earnings of $1.58 per share, outpacing the Zacks Consensus Estimate of $1.40, primarily driven by improved trading and mortgage banking revenues. Notably, the results included a legal benefit of $71 million. Further, higher net interest income, perhaps attributable to the rise in loan, supported its top line. However, higher-than-expected rise in provisions (largely driven by growth in the Card portfolio) hurt results marginally in the quarter.
Comerica Inc.’s (CMA - Free Report) third-quarter 2016 adjusted earnings per share of 92 cents came substantially ahead of the Zacks Consensus Estimate of 79 cents. The adjusted figure excludes a restructuring charge of 8 cents per share. Also, earnings increased 24.3% year over year. The bank witnessed substantial lower provisions and higher revenues during the quarter. However, on the downside, the quarter experienced higher expenses.
Bank of America Corporation’s (BAC - Free Report) third-quarter 2016 earnings of 41 cents per share surpassed the Zacks Consensus Estimate of 34 cents. Also, the figure was 8% higher than the prior-year quarter number. Rise in fixed income sales and trading revenues as well as mortgage banking fees drove the better-than-expected result. However, weakness in equity trading revenues marginally offset these positives. Notably, absence of legal costs and efficient expense management were sufficient to support the bottom line.
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Fifth Third's (FITB) Q3 Earnings Beat on Lower Provisions
Fifth Third Bancorp (FITB - Free Report) delivered a notable positive earnings surprise of 58.5% in the third-quarter 2016. Earnings per share of 65 cents surpassed the Zacks Consensus Estimate of 41 cents. Moreover, the bottom-line improved 44% on a year over year basis. Notably, the reported quarter as well as the prior-year quarter included certain one-time items.
Share of Fifth Third gained more than 1% in the beginning of the trading session today, reflecting investors’ positive sentiments on substantial lower provisions and higher revenues. However, the price reaction during the full trading session will give a better idea.
On the downside, the quarter recorded increased expenses.
Certain non-recurring items included in the third-quarter results were the impact of an $11 million pre-tax (approximately $7 million after-tax) gain on sale of non-branch facility and a $280 million (approximately $182 million after-tax) gain from the termination and settlement of gross cash flows from the existing Vantiv tax receivable agreements. Additionally, an $8 million gain, resulting from certain commercial lease terminations, was also included in the third-quarter results.
Net income available to common shareholders increased 37% year over year to $501 million.
Higher Non-interest Income Drive Revenue Rise
Total revenue for the quarter came in at $1.75 billion, surpassing the Zacks Consensus Estimate of $1.66 billion. Moreover, revenues improved 8.3% year over year, driven by higher net interest income as well as non-interest income.
Fifth Third’s net interest income (tax equivalent) came in at $913 million, increasing 1% year over year. The rise primarily reflected the impact of higher investment securities balances and the Dec 2015 rate hike.
Net interest margin contracted 1 basis point (bps) year over year to 2.88%, mainly due to higher long-term debt balances, lower commercial loan yields, and reduced cash flow hedges. This was partially offset by the rate hike in Dec 2015.
Non-interest income increased 18% year over year to $840 million (including certain non-recurring items). Excluding significant items, non-interest income was up 1% year over year to $596 million. Notably, the quarter witnessed a rise in corporate banking revenues and card and processing revenues, while mortgage banking and wealth and asset management revenues declined.
However, non-interest expenses increased 3% from the prior-year quarter to $973 million. The rise was mainly due to higher compensation expense, resulting from personnel additions in information technology and risk and compliance, as well as the change in provision for unfunded commitments. This was partially offset by lower in card and processing expense.
As of Sep 30, 2016, excluding loans held-for-sale, average loan and lease balances went up slightly year over year to $93.5 billion. The rise was mainly due to increased residential mortgage and commercial construction, partially offset by decreases in automobile and home equity loans. Average total deposits inched up 1% year over year to $102.4 billion.
Credit Quality: A Mixed Bag
Provision for loan and lease losses plummeted 49% year over year to $80 million. Net charge-offs for the quarter came in at $107 million or 45 bps of average loans and leases on an annualized basis, compared with $188 million or 80 bps in the prior-year quarter.
However, total non-performing assets, including loans held for sale, were $783 million, up 28.8% from the year-ago quarter.
Strong Capital Position
Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.26% compared with 10.49% at the end of the prior-year quarter. CET1 capital ratio was 10.16% as against 9.4% at the end of the prior-year quarter.
Share Repurchase
On Aug 5, 2016, Fifth Third initially settled a share repurchase agreement under which the company would buy $240 million of its outstanding common stock.
Our Viewpoint
We believe that the company, with a diversified traditional banking platform, remains well poised to benefit from a recovery in the economies where it has a footprint. The company’s steady improvement in loans and deposits highlights its efficient organic growth strategy. Further, we remain optimistic as the company remains focused on several strategic initiatives to boost performance.
However, several issues, including a stringent regulatory landscape, as well as competitive pressure remain matters of concern.
FIFTH THIRD BK Price, Consensus and EPS Surprise
FIFTH THIRD BK Price, Consensus and EPS Surprise | FIFTH THIRD BK Quote
Currently, Fifth Third carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
Among major banks, JPMorgan Chase & Co. (JPM - Free Report) reported third-quarter 2016 earnings of $1.58 per share, outpacing the Zacks Consensus Estimate of $1.40, primarily driven by improved trading and mortgage banking revenues. Notably, the results included a legal benefit of $71 million. Further, higher net interest income, perhaps attributable to the rise in loan, supported its top line. However, higher-than-expected rise in provisions (largely driven by growth in the Card portfolio) hurt results marginally in the quarter.
Comerica Inc.’s (CMA - Free Report) third-quarter 2016 adjusted earnings per share of 92 cents came substantially ahead of the Zacks Consensus Estimate of 79 cents. The adjusted figure excludes a restructuring charge of 8 cents per share. Also, earnings increased 24.3% year over year. The bank witnessed substantial lower provisions and higher revenues during the quarter. However, on the downside, the quarter experienced higher expenses.
Bank of America Corporation’s (BAC - Free Report) third-quarter 2016 earnings of 41 cents per share surpassed the Zacks Consensus Estimate of 34 cents. Also, the figure was 8% higher than the prior-year quarter number. Rise in fixed income sales and trading revenues as well as mortgage banking fees drove the better-than-expected result. However, weakness in equity trading revenues marginally offset these positives. Notably, absence of legal costs and efficient expense management were sufficient to support the bottom line.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>