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Fifth Third (FITB) Up 2.2% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Fifth Third Bancorp (FITB - Free Report) . Shares have added about 2.2% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Fifth Third's Q4 Earnings Beat, Provisions Fall
Fifth Third delivered a notable positive earnings surprise of 11.6% in fourth-quarter 2016. Earnings per share of $0.48 surpassed the Zacks Consensus Estimate of $0.43. However, including certain one-time items the bottom line declined 38% on a year-over-year basis.
Lower expenses reflected prudent expense management. Further, increase in net interest income and lower provisions were the positive factors. However, lower fee income was an undermining factor.
Certain non-recurring items included in the fourth-quarter results were the impact of an $16 million pre-tax (approximately $10 million after-tax) reduction to net interest income for refunds provided to some bankcard customers and a $9 million (approximately $6 million after tax) gain from the net exercise of the Vantiv warrant. Additionally, a $6 million pre-tax (about $4 million after tax) gain associated with the valuation of the Visa total return swap and a $6 million tax benefit from the early adoption of an accounting standard were also included in the fourth-quarter results.
Net income available to common shareholders plummeted 41% year over year to $372 million.
For 2016, net income available to common shareholders was $1.5 billion or $1.93 per share compared with $1.6 billion or $2.01 per share in 2015. The Zacks Consensus Estimate was $1.89.
Lower Non-interest Income Impacted Revenues
Total revenue for the quarter came in at $1.53 billion, almost in line with the Zacks Consensus Estimate. Revenues plunged 23.9% year over year, driven by lower non-interest income.
Fifth Third’s net interest income (tax equivalent) came in at $909 million, inching up 1% year over year. The rise primarily reflected the effect of higher investment securities balances and improved short-term market rates, partially mitigated by card refunds.
Net interest margin expanded 1 basis point (bp) year over year to 2.86%, mainly due to improved short-term market rates, partially mitigated by card refunds.
Non-interest income slumped 44% year over year to $620 million (including certain non-recurring items). Excluding significant items, non-interest income was down 2% year over year to $608 million. Notably, the quarter witnessed a fall in almost all components of income, partially offset by higher card and processing revenue.
However, non-interest expenses decreased slightly from the prior-year quarter to $960 million. The fall was chiefly due to lower net occupancy expense, along with card and processing expense, partially offset by higher compensation expense and other non-interest expense.
As of Dec 31, 2016, average loan and lease balances edged down 1% year over year to $93.0 billion. The fall was mainly due to decreased consumer loans and leases. Average total deposits advanced 1% year over year to $103.6 billion.
Credit Quality: A Mixed Bag
Provision for loan and lease losses tanked 41% year over year to $54 million. Net charge-offs for the quarter came in at $73 million or 31 bps of average loans and leases on an annualized basis, compared with $80 million or 34 bps in the prior-year quarter.
However, total non-performing assets, including loans held for sale, were $751 million, up 14% from the year-ago quarter. Total allowance for credit losses were $1.41 billion, slightly up from the prior-year quarter.
Strong Capital Position
Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.51% compared with 10.93% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.30% compared with 9.72% at the end of the year-ago quarter. Tier 1 leverage ratio was 9.90% compared with 9.54% in the prior-year quarter.
Share Repurchase
On Nov 7, 2016, Fifth Third settled the forward contract associated with the $240 million share repurchase agreements ended in Aug 2016. Further, an additional 1.1 million shares were repurchased related to the completion of this agreement.
On Dec 20, 2016, Fifth Third initially settled a share repurchase agreement under which the company would buy $155 million of its outstanding common stock.
Outlook
First-Quarter 2017
Compared with fourth-quarter 2016, NII is expected to grow 1.5–2%. NIM is expected to improve by 8–9 bps in the first-quarter 2017 on a sequential basis.
The company expects adjusted noninterest income to be stable, excluding mortgage and fourth-quarter 2016 TRA payment.
Management expects expenses to grow 2% year over year.
For Full-Year 2017
NII is expected to be up by 3.5–5% in 2017, whereas, NIM is expected to grow 2.95–3%.
Further, adjusted noninterest income is expected to grow 3.5–4%. The growth is assumed to exclude mortgage.
NCOs are projected to be range bound with potential quarter variability. Provisions for loans are expected to be dependent on the loan growth.
Also, tax rate is expected to be in mid 25% range assuming no corporate tax reform takes place.
The company expects loan growth to be 2% for 2017.
Regarding expenses, management projects an annual growth of 1% in 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an downward trend in fresh estimates. There have been three revisions lower for the current quarter.
At this time, Fifth Third's stock has a poor Growth Score of 'D', however its Momentum is doing a lot better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is more suitable for momentum than value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Fifth Third (FITB) Up 2.2% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Fifth Third Bancorp (FITB - Free Report) . Shares have added about 2.2% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Fifth Third's Q4 Earnings Beat, Provisions Fall
Fifth Third delivered a notable positive earnings surprise of 11.6% in fourth-quarter 2016. Earnings per share of $0.48 surpassed the Zacks Consensus Estimate of $0.43. However, including certain one-time items the bottom line declined 38% on a year-over-year basis.
Lower expenses reflected prudent expense management. Further, increase in net interest income and lower provisions were the positive factors. However, lower fee income was an undermining factor.
Certain non-recurring items included in the fourth-quarter results were the impact of an $16 million pre-tax (approximately $10 million after-tax) reduction to net interest income for refunds provided to some bankcard customers and a $9 million (approximately $6 million after tax) gain from the net exercise of the Vantiv warrant. Additionally, a $6 million pre-tax (about $4 million after tax) gain associated with the valuation of the Visa total return swap and a $6 million tax benefit from the early adoption of an accounting standard were also included in the fourth-quarter results.
Net income available to common shareholders plummeted 41% year over year to $372 million.
For 2016, net income available to common shareholders was $1.5 billion or $1.93 per share compared with $1.6 billion or $2.01 per share in 2015. The Zacks Consensus Estimate was $1.89.
Lower Non-interest Income Impacted Revenues
Total revenue for the quarter came in at $1.53 billion, almost in line with the Zacks Consensus Estimate. Revenues plunged 23.9% year over year, driven by lower non-interest income.
Fifth Third’s net interest income (tax equivalent) came in at $909 million, inching up 1% year over year. The rise primarily reflected the effect of higher investment securities balances and improved short-term market rates, partially mitigated by card refunds.
Net interest margin expanded 1 basis point (bp) year over year to 2.86%, mainly due to improved short-term market rates, partially mitigated by card refunds.
Non-interest income slumped 44% year over year to $620 million (including certain non-recurring items). Excluding significant items, non-interest income was down 2% year over year to $608 million. Notably, the quarter witnessed a fall in almost all components of income, partially offset by higher card and processing revenue.
However, non-interest expenses decreased slightly from the prior-year quarter to $960 million. The fall was chiefly due to lower net occupancy expense, along with card and processing expense, partially offset by higher compensation expense and other non-interest expense.
As of Dec 31, 2016, average loan and lease balances edged down 1% year over year to $93.0 billion. The fall was mainly due to decreased consumer loans and leases. Average total deposits advanced 1% year over year to $103.6 billion.
Credit Quality: A Mixed Bag
Provision for loan and lease losses tanked 41% year over year to $54 million. Net charge-offs for the quarter came in at $73 million or 31 bps of average loans and leases on an annualized basis, compared with $80 million or 34 bps in the prior-year quarter.
However, total non-performing assets, including loans held for sale, were $751 million, up 14% from the year-ago quarter. Total allowance for credit losses were $1.41 billion, slightly up from the prior-year quarter.
Strong Capital Position
Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.51% compared with 10.93% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.30% compared with 9.72% at the end of the year-ago quarter. Tier 1 leverage ratio was 9.90% compared with 9.54% in the prior-year quarter.
Share Repurchase
On Nov 7, 2016, Fifth Third settled the forward contract associated with the $240 million share repurchase agreements ended in Aug 2016. Further, an additional 1.1 million shares were repurchased related to the completion of this agreement.
On Dec 20, 2016, Fifth Third initially settled a share repurchase agreement under which the company would buy $155 million of its outstanding common stock.
Outlook
First-Quarter 2017
Compared with fourth-quarter 2016, NII is expected to grow 1.5–2%. NIM is expected to improve by 8–9 bps in the first-quarter 2017 on a sequential basis.
The company expects adjusted noninterest income to be stable, excluding mortgage and fourth-quarter 2016 TRA payment.
Management expects expenses to grow 2% year over year.
For Full-Year 2017
NII is expected to be up by 3.5–5% in 2017, whereas, NIM is expected to grow 2.95–3%.
Further, adjusted noninterest income is expected to grow 3.5–4%. The growth is assumed to exclude mortgage.
NCOs are projected to be range bound with potential quarter variability. Provisions for loans are expected to be dependent on the loan growth.
Also, tax rate is expected to be in mid 25% range assuming no corporate tax reform takes place.
The company expects loan growth to be 2% for 2017.
Regarding expenses, management projects an annual growth of 1% in 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an downward trend in fresh estimates. There have been three revisions lower for the current quarter.
Fifth Third Bancorp Price and Consensus
Fifth Third Bancorp Price and Consensus | Fifth Third Bancorp Quote
VGM Scores
At this time, Fifth Third's stock has a poor Growth Score of 'D', however its Momentum is doing a lot better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is more suitable for momentum than value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.