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Fifth Third (FITB) Q4 Earnings Top, Revenues Up on Higher NII

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Fifth Third Bancorp (FITB - Free Report) reported fourth-quarter 2022 adjusted earnings per share $1.04, beating the Zacks Consensus Estimate of $1.00. In the prior-year quarter, the company reported EPS of 90 cents.

A significant fall in the fee income limited revenue growth, while higher provisions for credit losses and lower deposits were undermining factors. Nonetheless, higher net interest income (NII) and improved average loans and lease balances were positives.

Management noted, “Our results continue to reflect our disciplined and thoughtful approach throughout the bank. For instance, our key credit quality metrics in both commercial and consumer portfolios remain resilient, reflecting our focus on high-quality relationships and our approach to client selection. Furthermore, strong revenue for the quarter reflects both our balance sheet management discipline as well as the benefits of our fee income diversification.”

The company reported net income available to common shareholders of $699 million, up 11.5% year over year.

Revenues Rise on Higher NII, Expenses Up, Deposits Decline

Total revenues (on a fully taxable-equivalent or FTE basis) in the reported quarter were $2.32 billion, up 16.4% year over year. However, the revenue figure missed the Zacks Consensus Estimate of $2.34 billion.

Fifth Third’s NII (on an FTE basis) was $1.58 billion, up 31.8% year over year. It primarily reflects the benefits of higher market rates and growth in C&I loan balances and investment portfolio balances, partially offset by the deposit mix shift from demand to interest-bearing accounts and lower Paycheck Protection Program-related income.

Net interest margin (NIM) (on an FTE basis) rose 80 basis points (bps) year over year to 3.35%.

Non-interest income fell 7.1% year over year to $735 million. This was primarily due to a decline in commercial banking revenues, wealth and asset management revenues, and leasing business revenues.

Non-interest expenses increased nearly 1% to $1.22 billion. The main reasons for the rise were an increase in technology and communications expense, net occupancy expense and expenses associated with Dividend Finance and Provide, partially offset by a decrease in marketing expenses.

As of Dec 31, 2022, average loan and lease balances and average total deposits were $121.37 billion and $161.06 billion, respectively. Loans increased 1.4% on a sequential basis, whereas deposits decreased 1%.

Credit Quality Deteriorates

The company reported a provision for credit losses of $180 million against the benefits of $47 million in the year-ago quarter. Net losses charged-off in the fourth quarter were $68 million or 0.22% of average loans and leases (on an annualized basis) compared with the $38 million or 0.14% witnessed in the prior-year quarter. The total allowance for credit losses increased 16.2% to $2.41 billion.

Moreover, the total non-performing assets were $539 million, up 2.3% from the year-ago quarter.

Capital Position Weak

Tier 1 risk-based capital ratio was 10.52% compared with the 10.91% posted at the end of the prior-year quarter. The CET1 capital ratio was 9.27%, down from 9.54% recorded at the end of the year-ago quarter. Nonetheless, the leverage ratio was 8.57% compared with the year-earlier quarter’s 8.27%.

Our Viewpoint

The rise in revenues of the company was backed by increased NII. The improvement in NIM was backed by higher rates. However, a decrease in total deposits and a weak capital position were concerning.

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

Citizens Financial Group (CFG - Free Report) reported fourth-quarter 2022 underlying earnings per share of $1.32, surpassing the Zacks Consensus Estimate of $1.30. Also, the bottom line rose from $1.26 in the year-ago quarter.

Results reflect NII growth on solid loan and deposit balances. However, an escalation in expenses, lower non-interest income and a rise in provisions were the undermining factors.

Signature Bank’s (SBNY - Free Report) fourth-quarter 2022 earnings per share of $4.65 lagged the Zacks Consensus Estimate of $4.92. However, the bottom line increased 7.1% from the prior-year quarter. We had projected earnings of $5.42 per share.

Results were hurt by increases in non-interest expenses and provisions. However, higher revenues acted as a tailwind.

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