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Fifth Third (FITB) Q1 Earnings Beat on Recapture of Provisions

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Fifth Third Bancorp (FITB - Free Report) delivered a positive earnings surprise of 34.7% in first-quarter 2021. Earnings of 93 cents per share, surpassed the Zacks Consensus Estimate of 69 cents. Results also compare favorably with the prior-year quarter’s earnings of 13 cents.

The company’s performance displays a solid capital position, along with rising revenues, aided by fee income growth. Also, benefit from credit losses was a tailwind. However, marginally higher expenses, and flat loan and deposit growth played spoilsport.

The company reported net income available to common shareholders of $674 million compared with the $29 million witnessed in the prior-year quarter.

Revenues & Non-Interest Income Rise, Costs Flare Up, Loan & Deposits Flat

On a fully-taxable equivalent basis, total revenues for the reported quarter came in at $1.93 billion, up 1.3% year over year, driven by higher fee income. Further, the figure surpassed the Zacks Consensus Estimate of $1.90 billion.
Fifth Third’s net interest income came in at $1.18 billion, down 4% year on year. It primarily reflects lower market rates and weak commercial loan balances, partially offset by soft deposit costs, favorable impact of previously-executed cash flow hedges, and interest income from PPP loans.

Net interest margin shrunk 66 basis points (bps), year over year, to 2.62%, representing the impact of excess liquidity, lower market rates, and lower commercial loan balances, partially offset by lower deposit costs.

Non-interest income climbed 3.7% to $759 million (excluding certain non-recurring items). Including significant items, non-interest income rose 11.7% year over year to $749 million. Rise in wealth and asset management revenues, card and processing revenues, leasing business revenues and other non-interest revenues were partly muted by lower commercial banking revenues, service charges on deposits and mortgage banking revenues.

Excluding merger-related expenses, non-interest expenses flared up 1.9% from the prior-year quarter to $1.22 billion. This upsurge chiefly resulted from rise in compensation and benefits expense and non-qualified deferred expenses compared to the year-ago quarter and servicing expense, partially offset by lower other non-interest expense and marketing expense. Including merger expenses, costs flared up 1% year over year.

As of Mar 31, 2021, average loan and lease balances and average total deposits were flat at $108.9 billion and $158.8 billion, respectively. An increase in indirect secured consumer loans was offset by a decrease in commercial and industrial loan balances. As for deposits, increases in demand and savings deposits were offset by decreases in interest checking, money market, and other time deposits.

Credit Quality Improved

The company reported benefit from credit losses of $173 million against provision expense of $640 million in the year-ago quarter. Net charge-offs for the first quarter came in at $71 million or 27 bps of average loans and leases on an annualized basis compared with the $122 million or 44 bps witnessed in the prior-year quarter. Further, total allowance for credit losses decreased 5.4% to $2.39 billion from the prior-year quarter.

However, total non-performing assets, including loans held for sale, came in at $783 million, up 10.5% from the year-ago quarter.

Strong Capital Position

Fifth Third was well capitalized during the January-March period. The Tier 1 risk-based capital ratio was 11.94% compared with the 10.56% posted at the end of the prior-year quarter. The CET1 capital ratio (fully phased-in) was 10.46% as against the 9.37% recorded at the end of the year-ago quarter. The Tier 1 leverage ratio was 8.62% as compared with the year-earlier quarter’s 9.37%.

Share Repurchase Update

During the first quarter, the company returned $180 million to shareholders, in the form of share repurchases.

Our Viewpoint

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

Though the company’s focus on several strategic initiatives to boost performance is a positive, several issues, including escalating expenses and low rates persist.

Fifth Third Bancorp Price and EPS Surprise

Fifth Third Bancorp Price and EPS Surprise

Fifth Third Bancorp price-eps-surprise | Fifth Third Bancorp 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 Banks

PNC Financial (PNC - Free Report) pulled off first-quarter 2021 earnings surprise of 49.1% on substantial reserves release. Earnings per share of $4.10 surpassed the Zacks Consensus Estimate of $2.75. Also, the bottom line compared favorably with $1.59 in the prior-year quarter.

Citizens Financial Group (CFG - Free Report) reported first-quarter 2021 adjusted earnings per share of $1.41, surpassing the Zacks Consensus Estimate of 97 cents. Also, the bottom line compared favorably with the year-ago quarter’s 9 cents.

Truist Financial’s (TFC - Free Report) first-quarter 2021 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.12. Results excluded restructuring and BB&T-SunTrust Banks merger-related charges, and incremental operating expenses related to the merger. Compared with the previous quarter, the bottom line improved 42%.

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