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Fifth Third Bancorp (FITB) Down 2% Since Earnings Report: Can It Rebound?
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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 2% in the past month, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Fifth Third Posts In-Line Q1 Earnings, Revenues Lag
Fifth Third reported first-quarter 2017 earnings per share of $0.38, in line with the Zacks Consensus Estimate. However, earnings declined 5% from the prior-year quarter.
The results were supported by an increase in net interest income and lower provisions. Improved credit quality was a tailwind. However, lower non-interest income was an undermining factor.
Certain non-recurring items were included in the quarterly results, which did not impact the earnings number. These items include $12 million pre-tax (approximately $8 million after-tax) reduction in net interest income for refunds provided to some bankcard customers and a $13 million pre-tax (about $8 million after-tax) gain associated with the valuation of the Visa total return swap.
Net income available to common shareholders decreased 7% year over year to $290 million.
Lower Non-interest Income Impacted Revenues
Total revenue for the quarter came in at $1.46 billion, lagging the Zacks Consensus Estimate of $1.49 billion. Moreover, revenues dropped 5% year over year due to lower non-interest income.
Fifth Third’s net interest income (tax equivalent) came in at $939 million, up 3% year over year. The rise was primarily driven by higher short-term market rates.
NIM expanded 11 basis points (bps) year over year to 3.02%, mainly due to improved short-term market rates.
Non-interest income slumped 18% year over year to $523 million (including certain non-recurring items). Excluding significant items, non-interest income was down 7% year over year to $536 million. Notably, the quarter witnessed a fall in almost all components of income, partially offset by higher revenues from service charges on deposits as well as wealth and asset management.
However, non-interest expenses were flat year over year at $986 million. The decrease in equipment, card and processing and other expenses was offset by increased employee benefits and technology related expenses.
As of Mar 31, 2017, average loan and lease balances dipped 1% year over year to $93.0 billion. The fall was mainly due to decreased automobile loans. Average total deposits increased 2% year over year to $104.2 billion.
Credit Quality Improves
Provision for loan and lease losses declined 38% year over year to $74 million. Net charge-offs for the quarter came in at $89 million or 40 bps of average loans and leases on an annualized basis compared with $96 million or 42 bps in the prior-year quarter.
Total non-performing assets, including loans held for sale, were $730 million, down 12% from the year-ago quarter. Total allowance for credit losses were $1.40 billion, down 3% from the prior-year quarter.
Strong Capital Position
Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.90% compared with 10.91% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.66% compared with 9.72% at the end of the year-ago quarter. Tier 1 leverage ratio was 10.15% compared with 9.57% in the prior-year quarter.
Outlook
Second-Quarter 2017
Compared with first-quarter 2017, NII is expected to grow 1–1.5% from the adjusted figure. NIM is expected to improve 2 bps in the second quarter from adjusted NIM on a sequential basis.
The company expects adjusted noninterest income to be up 8%, excluding mortgage.
Management expects expenses to be stable year over year.
The effective tax rate is expected to be about 25%.
Full-Year 2017
NII is expected to be up 4–5% in 2017. The higher end of the range is expected if there is a rate hike in September and December.
NIM is expected to be 2.95–3.00% on an adjusted basis. The higher end of the range is expected if there is a rate hike in September and December.
Further, adjusted noninterest income is expected to grow 3%, excluding mortgage.
NCOs are projected to be range bound with potential quarter variability. Provisions for loans are expected to be dependent on the loan growth.
Also, tax rate is expected to be in mid 24% range assuming no corporate tax reform takes place.
The company expects commercial loan growth to be 2% for 2017, including the impact of $900 million of remaining exits in 2017. Further, consumer and mortgage loan portfolio is expected to grow by mid-single digit.
Regarding expenses, management projects an annual growth of 1%.
Project North Star Initiatives
In Sep 2016, Fifth Third launched Project North Star, which laid down several long term financial targets without expecting any improvement in the present economic conditions. The initiatives are expected to enhance revenue growth, lower expenses and optimize balance sheet position.
The project targets to achieve ROTCE of 12–14% and ROA of 1.1–1.3% by the end of 2019. Further, positive operating leverage is expected in 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower.
At this time, Fifth Third's stock has a poor Growth Score of 'F'. However, its Momentum is doing a bit better with a 'D'. The stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value investors based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Fifth Third has a Zacks Rank #3 (Hold). We are looking for an in-line return from the stock in the next few months.
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Fifth Third Bancorp (FITB) Down 2% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Fifth Third Bancorp (FITB - Free Report) . Shares have lost about 2% in the past month, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Fifth Third Posts In-Line Q1 Earnings, Revenues Lag
Fifth Third reported first-quarter 2017 earnings per share of $0.38, in line with the Zacks Consensus Estimate. However, earnings declined 5% from the prior-year quarter.
The results were supported by an increase in net interest income and lower provisions. Improved credit quality was a tailwind. However, lower non-interest income was an undermining factor.
Certain non-recurring items were included in the quarterly results, which did not impact the earnings number. These items include $12 million pre-tax (approximately $8 million after-tax) reduction in net interest income for refunds provided to some bankcard customers and a $13 million pre-tax (about $8 million after-tax) gain associated with the valuation of the Visa total return swap.
Net income available to common shareholders decreased 7% year over year to $290 million.
Lower Non-interest Income Impacted Revenues
Total revenue for the quarter came in at $1.46 billion, lagging the Zacks Consensus Estimate of $1.49 billion. Moreover, revenues dropped 5% year over year due to lower non-interest income.
Fifth Third’s net interest income (tax equivalent) came in at $939 million, up 3% year over year. The rise was primarily driven by higher short-term market rates.
NIM expanded 11 basis points (bps) year over year to 3.02%, mainly due to improved short-term market rates.
Non-interest income slumped 18% year over year to $523 million (including certain non-recurring items). Excluding significant items, non-interest income was down 7% year over year to $536 million. Notably, the quarter witnessed a fall in almost all components of income, partially offset by higher revenues from service charges on deposits as well as wealth and asset management.
However, non-interest expenses were flat year over year at $986 million. The decrease in equipment, card and processing and other expenses was offset by increased employee benefits and technology related expenses.
As of Mar 31, 2017, average loan and lease balances dipped 1% year over year to $93.0 billion. The fall was mainly due to decreased automobile loans. Average total deposits increased 2% year over year to $104.2 billion.
Credit Quality Improves
Provision for loan and lease losses declined 38% year over year to $74 million. Net charge-offs for the quarter came in at $89 million or 40 bps of average loans and leases on an annualized basis compared with $96 million or 42 bps in the prior-year quarter.
Total non-performing assets, including loans held for sale, were $730 million, down 12% from the year-ago quarter. Total allowance for credit losses were $1.40 billion, down 3% from the prior-year quarter.
Strong Capital Position
Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.90% compared with 10.91% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.66% compared with 9.72% at the end of the year-ago quarter. Tier 1 leverage ratio was 10.15% compared with 9.57% in the prior-year quarter.
Outlook
Second-Quarter 2017
Compared with first-quarter 2017, NII is expected to grow 1–1.5% from the adjusted figure. NIM is expected to improve 2 bps in the second quarter from adjusted NIM on a sequential basis.
The company expects adjusted noninterest income to be up 8%, excluding mortgage.
Management expects expenses to be stable year over year.
The effective tax rate is expected to be about 25%.
Full-Year 2017
NII is expected to be up 4–5% in 2017. The higher end of the range is expected if there is a rate hike in September and December.
NIM is expected to be 2.95–3.00% on an adjusted basis. The higher end of the range is expected if there is a rate hike in September and December.
Further, adjusted noninterest income is expected to grow 3%, excluding mortgage.
NCOs are projected to be range bound with potential quarter variability. Provisions for loans are expected to be dependent on the loan growth.
Also, tax rate is expected to be in mid 24% range assuming no corporate tax reform takes place.
The company expects commercial loan growth to be 2% for 2017, including the impact of $900 million of remaining exits in 2017. Further, consumer and mortgage loan portfolio is expected to grow by mid-single digit.
Regarding expenses, management projects an annual growth of 1%.
Project North Star Initiatives
In Sep 2016, Fifth Third launched Project North Star, which laid down several long term financial targets without expecting any improvement in the present economic conditions. The initiatives are expected to enhance revenue growth, lower expenses and optimize balance sheet position.
The project targets to achieve ROTCE of 12–14% and ROA of 1.1–1.3% by the end of 2019. Further, positive operating leverage is expected in 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower.
Fifth Third Bancorp Price and Consensus
Fifth Third Bancorp Price and Consensus | Fifth Third Bancorp Quote
VGM Scores
At this time, Fifth Third's stock has a poor Growth Score of 'F'. However, its Momentum is doing a bit better with a 'D'. The stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value investors based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Fifth Third has a Zacks Rank #3 (Hold). We are looking for an in-line return from the stock in the next few months.