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

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Fifth Third Bancorp (FITB - Free Report) delivered a notable positive earnings surprise of 1.6% in third-quarter 2018. Adjusted earnings per share of 64 cents surpassed the Zacks Consensus Estimate by a penny. However, including certain one-time items, the bottom line came in at 61 cents, down 55% year over year.

Increase in revenues, aided by rising loans and deposits were positive factors. Moreover, a strong capital position has been depicted. However, escalating expenses and provisions were undermining factors.

Certain non-recurring items included in the third-quarter results were the impact of a $14 million related to valuation of Visa total return swap (post-tax) and $6 million of GreenSky equity securities losses.

Net income available to common shareholders slumped 58% year over year to $418 million.

Revenues Improve Y/Y, Costs Flare Up, Loans & Deposits Rise

Total adjusted revenues for the quarter came in at $1.63 billion, in line with the Zacks Consensus Estimate. However, the revenue figure was up 5.2% year over year, driven by higher net interest, as well as non-interest income.

Fifth Third’s net interest income (tax equivalent) came in at $1.05 billion, rising 7% year over year. This rise primarily reflects interest-earning assets growth and improved short-term market rates, partly offset by elevated funding costs.

Net interest margin expanded 16 basis points (bps) year over year to 3.23%, mainly due to improved short-term market rates.

Non-interest income plummeted 64% year over year to $7563 million (including certain non-recurring items). Excluding significant items, non-interest income climbed 3%, year over year, to $586 million. Mortgage banking revenues dipped 22% year over year.

Non-interest expenses flared up 3% from the prior-year quarter to $1 billion. The upsurge chiefly stemmed from higher salaries, employee benefits, equipment expense, technology costs and other non-interest expense.

As of Sep 30, 2018, average loan and lease balances inched up 1% year over year to $93.2 billion. The upswing mainly resulted from increased commercial and consumer loans and leases. Average total deposits advanced 3% year over year to $104.7 billion.

Credit Quality: A Mixed Bag

Provision for loan and lease losses surged 28.4% year over year to $86 million. Net charge-offs for the reported quarter came in at $72 million or 30 bps of average loans and leases on an annualized basis compared with $68 million or 29 bps in the prior-year quarter.

However, total allowance for credit losses were $1.2 billion, down 14.3% from the prior-year quarter. Total non-performing assets, including loans held for sale, came in at $448 million, down 19.3% from the year-ago quarter.

Strong Capital Position

Fifth Third remained well capitalized in the Jul-Sep quarter. Tier 1 risk-based capital ratio was 11.78% compared with 11.72% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.67% as against 10.59% at the end of the year-ago quarter. Tier 1 leverage ratio was 10.10% as compared with 9.97% in the prior-year quarter.

Share Repurchase

During the third quarter, Fifth Third repurchased 16.9 million shares, for a total cost of $500 million.

Our Viewpoint

We believe the company, with a diversified traditional banking platform, remains well poised to benefit from recovery in the economies where it has a footprint. The company’s steady improvement in loans and deposits highlights its efficient organic growth strategy. Furthermore, we remain optimistic with its focus on several strategic initiatives to boost performance.

Nevertheless, several issues, escalating expenses, as well as competitive pressure, remain matters of concern.
 

Fifth Third Bancorp Price, Consensus and EPS Surprise

Fifth Third Bancorp Price, Consensus and EPS Surprise | 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

Driven by stellar revenues, PNC Financial (PNC - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Moreover, the bottom line reflected a 30.6% jump from the prior-year figure. Continued easing of pressure on net interest margin led to higher net interest income during the reported quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth. Lower provisions remained another tailwind. However, escalated costs hurt results to some extent.

Riding on higher revenues and lower provisions, U.S. Bancorp’s (USB - Free Report) third-quarter earnings per share of $1.06 outpaced the Zacks Consensus Estimate of $1.04. Also, the results came ahead of the prior-year earnings of 88 cents. Higher revenues along with loan growth and lower provisions were recorded in the quarter. Though lower mortgage banking revenues and escalating expenses were disappointing, easing margin pressure on rising rates and overall higher fee income acted as tailwinds.

Northern Trust Corporation’s (NTRS - Free Report) third-quarter 2018 earnings per share of $1.58 missed the Zacks Consensus Estimate of $1.60, owing to high costs. Earnings compared favorably with $1.20 recorded in the year-ago quarter. Escalating operating expenses acted as a headwind in the reported quarter. However, higher revenues and strong capital position were positives. Additionally, the third quarter registered a rise in assets under custody, as well as assets under management. Moreover, credit metrics mostly marked a significant improvement.

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