Driven by higher mortgage banking revenues, Fifth Third Bancorp (FITB - Free Report) delivered third-quarter 2019 positive earnings surprise of 2.7%. Adjusted earnings per share of 75 cents surpassed the Zacks Consensus Estimate of 73 cents. However, excluding certain one-time items, the bottom line came in at 71 cents, down 16.4% year over year.
Increase in revenues, aided by expansion of margin and fee income growth, was a key positive. Moreover, the company displays a strong capital position. However, escalating expenses and provisions along with fall in loans were the undermining factors.
Certain non-recurring items included in the results were the negative impact of $22-million merger-related items and $8 million related to the valuation of Visa total return swap (post-tax).
Net income available to common shareholders increased 25.9% year over year to $530 million.
Revenues Jump, Costs Up, Loans & Deposits Rise
Total revenues for the quarter came in at $1.99 billion, up 23.4% year over year, driven by higher net interest income (NII). Also, the top line surpassed the Zacks Consensus Estimate of $1.94 billion. Adjusted revenues were up 20.3%.
Fifth Third’s NII (tax equivalent) came in at $1.25 billion, rising 19% year over year. This rise primarily reflects increase in interest earning assets. On an adjusted basis, NII rose 16%. Also, net interest margin expanded 9 basis points (bps) to 3.32%.
Non-interest income climbed 31% year over year to $740 million. Excluding certain items, non-interest income rose 27.3% to $746 million. The rise was mainly due to higher mortgage and corporate banking revenues.
Non-interest expenses flared up 19% from the prior-year quarter to $1.16 billion. The upsurge chiefly resulted from higher compensation and benefits, card and processing expenses, technology costs and other non-interest expenses. Adjusted expenses jumped 16%.
As of Sep 30, 2019, average loan and lease balances declined 1% sequentially to $109.5 billion. This fall mainly stemmed from lower commercial and consumer loans and leases. Average total deposits inched up 1% from the prior quarter to $125.2 billion.
Credit Quality Worsens
Provision for credit losses surged 60% year over year to $134 million. Total allowance for credit losses was $1.3 billion, up 6.3%. Total non-performing assets, including loans held for sale, were $519 million, up 15.8%.
Net charge-offs for the reported quarter were $99 million or 36 bps of average loans and leases on an annualized basis compared with $72 million or 30 bps a year ago.
Fifth Third remained well capitalized during the third quarter. Tier 1 risk-based capital ratio was 10.81% compared with 11.78% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 9.56% compared with 10.67% on Sep 30, 2018. Tier 1 leverage ratio was 9.36%, down from 10.10%.
Fifth Third displayed decent performance in the third quarter. Rise in interest income and fee income growth supported revenues. However, the bottom line was marred by higher expenses.
We believe the company, with a diversified traditional banking platform, is well positioned to benefit from recovery in the economies where it has footprint. Fifth Third’s steady improvement in loans and deposits highlights its efficient organic growth strategy.
Though several issues, including escalating expenses and competitive pressure, are matters of concern, we expect the company to benefit from its several strategic initiatives.
Fifth Third Bancorp Price, Consensus and EPS Surprise
Currently, Fifth Third carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
State Street’s (STT - Free Report) third-quarter 2019 adjusted earnings of $1.51 per share beat the Zacks Consensus Estimate of $1.40. However, the figure was 19.3% below the prior-year quarter level.
Signature Bank (SBNY - Free Report) reported third-quarter 2019 earnings of $2.75 per share, which outpaced the Zacks Consensus Estimate of $2.70. However, the bottom line decreased 3.2% from the prior-year quarter’s reported figure.
Texas Capital Bancshares Inc. (TCBI - Free Report) reported earnings per share of $1.70 in third-quarter 2019, outpacing the Zacks Consensus Estimate of $1.49. Results compare favorably with the prior-year quarter’s $1.65.
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