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Fifth Third (FITB) Q3 Earnings Beat Estimates, Revenues Up

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Fifth Third Bancorp (FITB - Free Report) reported third-quarter 2021 earnings (excluding after-tax impact of certain items) of 94 cents per share, beating the Zacks Consensus Estimate of 91 cents. Including the impact of these items, earnings per share came in at 97 cents per share, indicating a 24% year-over-year rise.

The company’s performance displays revenue growth, aided by fee and net interest income. Also, benefit from credit losses was a tailwind. However, marginally higher expenses and soft loan growth played spoilsport.

The company reported net income available to common shareholders of $684 million or 98 cents per share compared with the $562 million or 78 cents witnessed in the prior-year quarter.

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

Total adjusted revenues for the reported quarter came in at $2.03 billion, up 7% year over year, driven by higher fee and net interest income. Further, the revenue figure surpassed the Zacks Consensus Estimate of $1.99 billion.

Fifth Third’s net interest income (tax equivalent) came in at $1.19 billion, up 1.6% year on year. It primarily reflects the benefits of the Government National Mortgage Association (GNMA) forbearance loan buyout purchases, lower deposit costs, a fall in long-term debt, and higher interest income from Paycheck Protection Program (PPP) loans. This was partially offset by lower commercial and industrial, home equity, and credit card balances, and the impact of lower market rates. Net interest margin expanded 1 basis point (bp), year over year, to 2.59%, representing the lower deposit costs, PPP-related income, and a reduction in long-term debt, partially offset by reduced market rates, loan spread compression, and the impact of ample liquidity.

Non-interest income climbed 13% year over year to $794 million (excluding certain non-recurring items). Including significant items, non-interest income jumped 16% year over year to $836 million. Rise in service charges on deposits, mortgage banking revenues, wealth and asset management revenues, card and processing revenues, leasing business revenues and other non-interest revenues were partly muted by a decrease in origination fees, and gains on loan sales and higher rewards.

Excluding merger-related expenses, non-interest expenses flared up 2% from the prior-year quarter to $1.16 billion. This upsurge chiefly resulted from the rise in performance-based compensation expense, reflecting strong business results, increase in travel and entertainment expense, and expenses associated with the GNMA forbearance loan buyout purchases, partially offset by lower card and processing expense. Including merger expenses, costs flared up 1% year over year.

As of Sep 30, 2021, average loan and lease balances and average total deposits at $108 billion and $162.6 billion, respectively. Loans edged down 1%, as a decline in commercial loan and lease balances (primarily due to PPP balance declines) was partially offset by an increase in consumer loans. Deposits were flat, as boost in demand and savings deposit balances were offset by reductions in money market deposit balances and other time deposit balances.

Credit Quality Improves

The company reported benefit from credit losses of $42 million compared with the benefits of $15 million seen in the year-ago quarter. Net charge-offs for the third quarter came in at $21 million or 8 bps of average loans and leases on an annualized basis compared with the $101 million or 35 bps witnessed in the prior-year quarter.

Further, total allowance for credit losses decreased 22% to $2.16 billion from the prior-year quarter. Total non-performing assets, including loans held for sale, came in at $560 million, down 41% from the year-ago quarter.

Capital Position Declines

Fifth Third was not well capitalized during the July-September period. The Tier 1 risk-based capital ratio was 11.27% compared with the 11.64% posted at the end of the prior-year quarter. The CET1 capital ratio (fully phased-in) was 9.85% as against the 10.14% recorded at the end of the year-ago quarter. The Tier 1 leverage ratio was 8.35% as compared with the year-earlier quarter’s 8.37%.

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 rising expenses and low rates prevail.

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..

Performance of Other Major Banks

Bank of America’s (BAC - Free Report) third-quarter 2021 earnings of 85 cents per share beat the Zacks Consensus Estimate of 71 cents. The bottom line compared favorably with 51 cents earned in the prior-year quarter. Results in the quarter included a reserve release of $1.1 billion.

Robust advisory business, reserve release and a modest rise in demand for loans drove JPMorgan’s (JPM - Free Report) third-quarter 2021 earnings of $3.74 per share. The bottom line outpaced the Zacks Consensus Estimate of $3.00.

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 4.4% in third-quarter 2021 on solid top-line strength. Earnings per share of $1.91 surpassed the Zacks Consensus Estimate of $1.83. The bottom line improved 18.6% from the year-ago quarter’s figure.