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Fifth Third's (FITB) Q4 Earnings Beat on Higher Revenues

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Fifth Third Bancorp (FITB - Free Report) delivered a positive earnings surprise of 3% in fourth-quarter 2018. Adjusted earnings per share of 69 cents surpassed the Zacks Consensus Estimate of 67 cents. However, including certain one-time items, the bottom line came in at 64 cents, down 9% year over year.

Increase in revenues, aided by rising loans and deposits, was a driving factor. Moreover, a strong capital position has been depicted. However, higher provisions and lower non-interest income were the undermining factors.

Certain non-recurring items included in the fourth-quarter results were the impact of valuation of Visa total return swap (post-tax), GreenSky equity securities losses and merger- related expenses.

Net income available to common shareholders slumped 14% year over year to $432 million.

For 2018, net income available to common shareholders was approximately $2.12 billion or $3.06 per share compared with $2.11 billion or $2.81 reported a year ago.

Revenues Improve Y/Y, Loans & Deposits Rise

For full-year 2018, total revenues came in at $6.93 billion, down 1% on a year-over-year basis. The figure was in line with the Zacks Consensus Estimate.

Total adjusted revenues for the quarter came in at $1.66 billion, in line with the Zacks Consensus Estimate. However, the top line was up 8% year over year, driven by higher net interest income.

Fifth Third’s net interest income (tax equivalent) came in at $1.09 billion, rising 13% 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 27 basis points (bps) year over year to 3.29%, mainly due to improved short-term market rates.

Non-interest income was marginally down year over year to $575 million (including certain non-recurring items). Excluding significant items, non-interest income climbed 2% to $600 million. Corporate banking revenues increased 69%.

Non-interest expenses increased slightly from the prior-year quarter to $977 million. The upsurge chiefly stemmed from higher salaries, employee benefits, equipment expenses and technology costs.

As of Dec 31, 2018, average loan and lease balances inched up 2% sequentially to $95.4 billion. The upswing mainly resulted from increased commercial loans and leases. Average total deposits advanced 3% on a sequential basis to $107.5 billion.

Credit Quality: A Mixed Bag

Provision for loan and lease losses surged 42% year over year to $95 million. Net charge-offs for the reported quarter came in at $83 million or 35 bps of average loans and leases on an annualized basis compared with $76 million or 33 bps in the prior-year quarter.

However, total allowance for credit losses was $1.1 billion, down 8% from the prior-year quarter. Total non-performing assets, including loans held for sale, came in at $395 million, down 19.2% from the year-ago quarter.

Strong Capital Position

Fifth Third remained well capitalized in the fourth quarter. Tier 1 risk-based capital ratio was 11.32% compared with 11.74% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.24% compared with 10.61% at the end of the year-ago quarter. Tier 1 leverage ratio was 9.72% compared with 10.01% in the prior-year quarter.

Share Repurchase

During the fourth quarter, Fifth Third repurchased 14.9 million shares for a total cost of $400 million.

Our Viewpoint

Fifth Third reported a decent quarter on the back of rising interest income and controlled expenses. 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 about its focus on several strategic initiatives to boost performance.

However, several issues, overall escalating expenses, as well as competitive pressure are matters of concern.

Fifth Third Bancorp Price, Consensus and EPS Surprise

 

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

First Horizon National Corporation (FHN - Free Report) reported fourth-quarter adjusted earnings per share of 35 cents, which lagged the Zacks Consensus Estimate of 36 cents. The figure, however, compares favorably with loss of 20 cents reported in the year-ago quarter.

Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 4.3% in fourth-quarter 2018, riding on higher revenues. Adjusted earnings per share of 98 cents topped the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 38% from the prior-year quarter.

People's United Financial Inc. (PBCT - Free Report) reported fourth-quarter 2018 operating earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, the reported figure improved 16% year over year.

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