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Fifth Third (FITB) Q1 Earnings Disappoint, Provisions Flare Up

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Fifth Third Bancorp (FITB - Free Report) reported first-quarter 2020 adjusted earnings of 13 cents per share, missing the Zacks Consensus Estimate of 23 cents amid the coronavirus scare. Results also compared unfavorably with the prior-year quarter’s earnings of $1.12 per share.

Results exclude provision in excess of net charge-offs of 55 cents and other notable items of 9 cents.

Elevated expenses and provisions negatively impacted the company’s results. However, the increase in revenues was aided by the rising net interest and fee income. Moreover, a stable net interest margin was a positive. Additionally, the company’s performance displays a strong capital position with escalating loans and deposits.

Net income available to common shareholders slumped 96% year over year to $29 million.

Revenues Improve, Costs Flare Up, Loans & Deposits Rise

Total adjusted revenues for the reported quarter came in at $1.93 billion, up 17% year over year, driven by higher net interest as well as fee income. Further, the figure surpassed the Zacks Consensus Estimate of $1.89 billion.

Fifth Third’s net interest income (tax equivalent) came in at $1.2 billion, rising 12% year over year. This rise primarily reflects elevated interest-earning assets, including the impact from the MB Financial acquisition, partially muted by the low-rate environment. Net interest margin remained flat year over year at 3.28%.

Non-interest income climbed 29.1% year over year to $732 million (excluding certain non-recurring items). Including significant items, non-interest income slipped 39% year over year to $671 million. Mortgage banking revenues more than doubled on a year-over-year basis.

Excluding merger-related expenses, non-interest expenses flared up 17% from the prior-year quarter to $1.2 billion. This upsurge chiefly resulted from rise in almost all components.  Including merger expenses, costs flared up 9% year over year.

As of Mar 31, 2020, average loan and lease balances jumped around 1% sequentially to $110.8 billion. This upswing mainly stemmed from increased commercial and consumer loans and leases. Average total deposits advanced marginally sequentially to $126.8 billion.

Credit Quality: A Concern

Credit metrics deteriorated in the quarter. Provision for credit losses surged significantly year over year to $640 million. Net charge-offs for the first quarter came in at $122 million or 44 basis points (bps) of average loans and leases on an annualized basis compared with the $77 million or 32 bps witnessed in the prior-year quarter.

Further, total allowance for credit losses more than doubled to $2.5 billion from the prior-year quarter. Total non-performing assets, including loans held for sale, came in at $709 million, up 42.4% from the year-ago quarter.

Strong Capital Position

Fifth Third was well capitalized during the January-March period. The Tier 1 risk-based capital ratio was 10.56% compared with the 10.67% posted at the end of the prior-year quarter. The CET1 capital ratio (fully phased-in) was 9.36% as against the 9.60% recorded at the end of the year-ago quarter. The Tier 1 leverage ratio was 9.37% as compared with the year-earlier quarter’s 10.32%.

Our Viewpoint

We believe Fifth Third, with a diversified traditional banking platform, remains well poised to benefit from recovery in the economies where it has a footprint. The bank’s steady improvement in loans and deposits highlights its efficient organic growth strategy.

Though the company’s focus on several strategic initiatives to boost performance is a positive, several issues, including escalating expenses and provisions amid the coronavirus crisis, 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 price-consensus-eps-surprise-chart | Fifth Third Bancorp Quote

Currently, Fifth Third carries a Zacks Rank #5 (Strong Sell).

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

Performance of Other Banks

KeyCorp’s (KEY - Free Report) first-quarter 2020 earnings of 12 cents per share surpassed the Zacks Consensus Estimate of 6 cents. The figure takes into account the Current Expected Credit Losses accounting methodology, the impact of coronavirus and market-related valuation adjustments.

The results benefited from lower operating expenses and a higher loan balance. Nevertheless, a lower net interest income and significantly higher provisions were the undermining factors.

Regions Financial Corporation (RF - Free Report) reported adjusted earnings of 15 cents per share, missing the Zacks Consensus Estimate of 19 cents for the March-end quarter. The figure plummeted 59.5%, year over year. Results were affected by lower revenues resulting from a reduction in net interest income on lower rates and a deteriorating fee income. Additionally, elevated provisions were an undermining factor. Yet, lower non-interest expenses were the driving factor. Moreover, rise in loans and deposits reflect a strong capital position.

PNC Financial (PNC - Free Report) delivered earnings per share of $1.95, surpassing the Zacks Consensus Estimate of $1.38 amid coronavirus concerns during the first quarter. The bottom line, however, reflected a 25.3% decline from the prior-year quarter reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. Further, expenses declined. However, rise in provisions was a headwind. In addition, lower net interest margin was another concern.

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