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Fifth Third (FITB) Q1 Earnings Top Estimates, Costs Flare Up

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Fifth Third Bancorp (FITB - Free Report) delivered a notable positive earnings surprise of 6.8% in first-quarter 2019. Adjusted earnings per share of 63 cents surpassed the Zacks Consensus Estimate of 59 cents. Further, including certain one-time items, the bottom line came in at $1.12, up 17% year over year.

Increase in revenues, aided by rising loans and deposits were positive factors. Moreover, the company’s performance displays a strong capital position. However, escalating expenses and provisions were undermining factors.

Certain non-recurring items included in the first-quarter results were the impact of a $433-million gain on sale of Worldpay shares and $7 million of GreenSky equity securities gains, partly offset by $84-million merger-related items and $24-million related to valuation of Visa total return swap (post-tax).

Net income available to common shareholders climbed 11% year over year to $760 million.

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

Total adjusted revenues for the reported quarter came in at $1.65 billion, up 6.5% year over year, driven by higher net interest, as well as non-interest income. However, the figure lagged the Zacks Consensus Estimate of $1.66 billion.

Fifth Third’s net interest income (tax equivalent) came in at $1.09 billion, rising 8.7% year over year. This rise primarily reflects higher-yielding consumer loans growth and improved short-term market rates, partly offset by elevated funding costs and transformation from demand deposits into interest-bearing deposits.

Net interest margin expanded 10 basis points (bps) year over year to 3.28%, mainly due to improved short-term market rates.

Non-interest income escalated 21% year over year to $1.1 billion (including certain non-recurring items). Excluding significant items, non-interest income climbed 2.5% year over year, to $567 million. Mortgage banking revenues remained flat, year over year.

Non-interest expenses flared up 9% from the prior-year quarter to $1.1 billion. The upsurge chiefly resulted from higher compensation and benefits, card and processing expense, technology costs and other non-interest expense.  Adjusted expenses flared up 1% year over year.

As of Mar 31, 2019, average loan and lease balances jumped 3% sequentially to $97.8 billion. This upswing mainly stemmed from increased commercial and consumer loans and leases. Average total deposits advanced 2% sequentially to $109.6 billion.

Credit Quality: A Mixed Bag

Provision for credit losses surged significantly year over year to $90 million. Net charge-offs for the reported quarter came in at $77 million or 32 bps of average loans and leases on an annualized basis compared with $81 million or 36 bps in the prior-year quarter.

However, total allowance for credit losses were $1.25 billion, down 3.1% from the prior-year quarter. Total non-performing assets, including loans held for sale, came in at $497 million, down 1.4% from the year-ago quarter.

Strong Capital Position

Fifth Third remained well capitalized during the Jan-Mar quarter. Tier 1 risk-based capital ratio was 10.72% compared with 11.95% posted at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 9.65% as against 10.82% at the end of the year-ago quarter. Tier 1 leverage ratio was 9.94% as compared with 10.11% in the year-earlier quarter.

Share Repurchase

On Mar 27, Fifth Third came with a settlement of repurchase agreement under which the company would purchase common stock worth $913 million. Settlement of the forward contract associated with this agreement is likely to occur on or before Jun 28, 2019.

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.

Though several issues, including escalating expenses as well as competitive pressure remain matters of concern, we remain optimistic with its focus on several strategic initiatives to boost performance.

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Riding on higher revenues, Citizens Financial Group, Inc. (CFG - Free Report) recorded a positive earnings surprise of 4.5% in first-quarter 2019. Adjusted earnings per share came in at 93 cents, beating the Zacks Consensus Estimate of 89 cents. Also, the reported figure improved 19.2% year over year. Results excluded one-time items of $4 million or 1 cent per share.

PNC Financial (PNC - Free Report) reported positive earnings surprise of 0.8% in the Jan-Mar quarter. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflected a 7.4% jump from the prior-year quarter. Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were headwinds.

Comerica (CMA - Free Report) delivered positive earnings surprise of 7.2% in the Mar-end quarter on high interest income. Adjusted earnings per share of $2.08 in the quarter handily outpaced the Zacks Consensus Estimate of $1.94. In addition, earnings were up from the prior-year quarter adjusted figure of $1.54. Including certain non-recurring items, earnings came in at $2.11.

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