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Fifth Third (FITB) Q4 Earnings Top Estimates, Provisions Fall

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Fifth Third Bancorp (FITB - Free Report) has reported fourth-quarter 2020 adjusted earnings of 88 cents per share, surpassing the Zacks Consensus Estimate of 69 cents. Also, the bottom line compared favorably with the prior-year quarter’s 68 cents per share.

The company’s performance displays a strong capital position, with rising deposits. Also, 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 fourth-quarter results were the impact of the COVID-19 outbreak of $4 million and net business acquisition and disposition expenses of $21 million, $16 million of branch and non-branch real estate charges and $23 million related to the valuation of Visa total return swap.

After considering these, the company reported net income available to common shareholders of $569 million or 78 cents per share compared with $701 million or 96 cents in the prior-year quarter.

In full-year 2020, net income available to common shareholders totaled $1.32 billion or $1.83 per share, down from the prior year’s $2.42 billion or $3.33 per share.

Revenues & Loans Fall, Expenses Increase

In 2020, revenues were $7.63 billion, down 9% year over year. However, the top line beat the Zacks Consensus Estimate of $7.6 billion.

Total adjusted revenues in the reported quarter were $1.97 billion, down 13% year over year due to lower net interest as well as fee income. However, the figure surpassed the Zacks Consensus Estimate of $1.92 billion.

Fifth Third’s net interest income (tax equivalent) was $1.19 billion, down 4% 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 69 basis points (bps) to 2.58%.

Adjusted non-interest income climbed 12.4% year over year to $814 million. Including significant items, non-interest income slipped 24% to $787 million. Decline in mortgage banking, leasing business and other revenue were partly muted by higher commercial banking revenues, along with net securities gains.

Excluding merger-related expenses, non-interest expenses increased 3.4% from the prior-year quarter to $1.17 billion. The rise chiefly resulted from an increase in compensation and benefits expense, partially offset by lower marketing expense and other noninterest expense. Including merger expenses, costs rose 7%.

As of Dec 31, 2020, average loan and lease balances declined around 4% sequentially to $109.4 billion. The fall mainly stemmed from lower commercial loans and leases. Average total deposits advanced 2% from the prior quarter to $158.6 billion.

Credit Quality: A Mixed Bag

The company reported benefit from credit losses of $13 million compared with provisions of $162 million in the year-ago quarter.

However, net charge-offs for the fourth quarter were $118 million or 43 bps of average loans and leases on an annualized basis compared with $113 million or 41 bps in the prior-year quarter.

Further, total allowance for credit losses more than doubled to $2.63 billion from the prior-year quarter. Total non-performing assets, including loans held for sale, were $864 million, up 27.1% from the year-ago quarter.

Capital Position

Fifth Third was well capitalized during the October-December period. The Tier 1 risk-based capital ratio was 11.83% compared with 10.99% at the end of the prior-year quarter. The CET1 capital ratio (fully phased-in) was 10.34% compared with 9.75% recorded at the end of the year-ago quarter. The Tier 1 leverage ratio was 8.49% compared with the year-earlier quarter’s 9.54%.

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-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

Comerica (CMA - Free Report) delivered a fourth-quarter 2020 positive earnings surprise of 23.1%. Earnings per share of $1.49 easily surpassed the Zacks Consensus Estimate of $1.21. However, bottom line came in lower than the prior-year quarter figure of $1.85.

Aided by higher revenues, Citizens Financial Group (CFG - Free Report) pulled off fourth-quarter 2020 positive earnings surprise of 39.4%. Adjusted earnings per share of $1.04 surpassed the Zacks Consensus Estimate of 91 cents. Also, the bottom line compares favorably with 99 cents in the year-ago quarter.

U.S. Bancorp (USB - Free Report) reported fourth-quarter 2020 earnings per share of 95 cents, in line with the Zacks Consensus Estimate. Results, however, compare unfavorably with the prior-year quarter’s figure of $1.08.

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