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Why Is Fifth Third Bancorp (FITB) Down 3.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Fifth Third Bancorp (FITB - Free Report) . Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fifth Third Bancorp due for a breakout? 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 Q3 Earnings Beat Estimates, Revenues Up

Fifth Third 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. NIM 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 increase in demand and savings deposit balances were offset by reductions in money market deposit balances and other time deposit balances.

Credit Quality Strong

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

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%.

Share Repurchase Update

In the third quarter, the company repurchased shares worth $550 million.

4Q21 Outlook

The expectations are on sequential basis and include the impacts of PPP forecast provided.

Average loans and leases are expected to be up 1%. The company expects net interest income to be down 1% and non-interest income to be up 6%. It expects NIM to decline three to four basis points due to compression in loan yields.

Non-interest expenses are expected to be flat to up 1%. Net charge offs are likely to be 10-15 bps. The effective tax rate is projected to be 22 to 23%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Fifth Third Bancorp has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Fifth Third Bancorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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