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Fifth Third (FITB) Beats on Q1 Earnings, Provisions Decline

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Fifth Third Bancorp (FITB - Free Report) reported first-quarter 2018 adjusted earnings per share of 57 cents beating the Zacks Consensus Estimate of 48 cents. The adjusted figure excludes the net positive impact of gains from the Vantiv merger with WorldPay and charges related to the valuation of the Visa total return swap and adjustment to litigation reserves.

Results reflect increase in revenues along with significant decline in provisions. Expanding net interest margin and rising loans balance remain key positives. Strong capital position acted as a tailwind. However, increase in expenses was an undermining factor.

Net income available to common shareholders came in at $689 million or 97 cents per share compared with $290 million or 38 cents per share as of Mar 31, 2017.

Higher Revenues Partly Offset by Rise in Expenses

Total adjusted revenues for the quarter came in at $1.55 billion, in line with the Zacks Consensus Estimate. The reported figure was up 5.2% year over year.

Fifth Third’s net interest income (tax equivalent) came in at $999 million, up 6% year over year. The rise was primarily driven by higher short-term market rates and an increase in investment portfolio balances.

Net interest margin expanded 16 basis points (bps) to 3.18%, mainly due to improved short-term market rates.

However, non-interest income increased 74% year over year to $909 million (including certain non-recurring items). Excluding significant items, non-interest income was up 3% to $553 million. Notably, the quarter witnessed a rise in corporate banking, card and processing fees and mortgage banking revenues.

Also, non-interest expenses climbed 6% year over year to $1.05 billion. Higher compensation expenses, technology and equipment expenses were offset by lower card processing expenses.

As of Mar 31, 2018, average loan and lease balances were almost stable sequentially at $92.3 billion. Average total deposits increased slightly from the previous quarter to $103.5 billion.

Credit Quality Improves

Total non-performing assets, including loans held for sale, were $528 million, down 27.7% from the year-ago quarter. Further, total allowance for credit losses was $1.29 billion, down 7.7% from the prior-year quarter.

Moreover, provision for loan and lease losses decreased 69% year over year to $23 million. Net losses charge-offs for the quarter came in at $81 million or 36 bps of average loans and leases on an annualized basis compared with $89 million or 40 bps in the prior-year quarter.

Strong Capital Position

Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.95% compared with 11.90% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.82% compared with 10.76% at the end of the year-ago quarter. However, tier 1 leverage ratio was 10.11% compared with 10.15% in the prior-year quarter.

Our Viewpoint

Fifth Third’s first-quarter results were impressive. Its revenues continue to get support from growing easing pressure on NIM. Also, steady improvement in loan balance highlights its efficient organic growth strategy. Significant decline in provisions was another tailwind.

Further, the company’s strong balance sheet might drive results in the upcoming quarters with support from lower tax rate and improving economic conditions. However, increasing expenses deter bottom-line growth to some extent.

Fifth Third carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fifth Third Bancorp Price, Consensus and EPS Surprise

Performance of Other Banks

Driven by top-line strength, Northern Trust Corporation’s (NTRS - Free Report) first-quarter 2018 earnings per share of $1.58 compared favorably with $1.09 recorded in the year-ago quarter. The Zacks Consensus Estimate was $1.42.

Comerica (CMA - Free Report) reported adjusted earnings per share of $1.54 in first-quarter 2018, up from the prior-year quarter’s adjusted figure of $1.02 on high interest income. Including certain non-recurring items, earnings came in at $1.59. The Zacks Consensus Estimate was $1.49.

Riding on higher revenues, Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 2.6% in first-quarter 2018. Earnings per share of 78 cents topped the Zacks Consensus Estimate of 76 cents. Also, the reported figure compares favorably with adjusted earnings of 57 cents recorded in prior-year quarter.

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