Fifth Third (FITB) Posts In-Line Q1 Earnings, Revenues Lag

Fifth Third Bancorp (NASDAQ:FITB) reported first-quarter 2017 earnings per share of 38 cents, in line with the Zacks Consensus Estimate. However, earnings declined 5% from the prior-year quarter.

The results were supported by an increase in net interest income and lower provisions. Improved credit quality was a tailwind. However, lower non-interest income was an undermining factor.

Certain non-recurring items were included in the quarterly results, which did not impact the earnings number. These items were an impact of a $12 million pre-tax (approximately $8 million after-tax) reduction in net interest income for refunds provided to some bankcard customers and a $13 million pre-tax (about $8 million after-tax) gain associated with the valuation of the Visa total return swap.

Net income available to common shareholders decreased 7% year over year to $290 million.

Lower Non-interest Income Impacted Revenues

Total revenue for the quarter came in at $1.46 billion, lagging the Zacks Consensus Estimate of $1.49 billion. Revenues dropped 5% year over year due to lower non-interest income.

Fifth Third’s net interest income (tax equivalent) came in at $939 million, up 3% year over year. The rise was primarily driven by higher short-term market rates.

Net interest margin expanded 11 basis points (bps) year over year to 3.02%, mainly due to improved short-term market rates.

Non-interest income slumped 18% year over year to $523 million (including certain non-recurring items). Excluding significant items, non-interest income was down 7% year over year to $536 million. Notably, the quarter witnessed a fall in almost all components of income, partially offset by higher revenues from service charges on deposits as well as wealth and asset management.

However, non-interest expenses were flat year over year at $986 million. The decrease in equipment, card and processing and other expenses was offset by increased employee benefits and technology related expenses.

As of Mar 31, 2017, average loan and lease balances dipped 1% year over year to $93.0 billion. The fall was mainly due to decreased automobile loans. Average total deposits advanced 2% year over year to $104.2 billion.

Credit Quality Improves

Provision for loan and lease losses declined 38% year over year to $74 million. Net charge-offs for the quarter came in at $89 million or 40 bps of average loans and leases on an annualized basis, compared with $96 million or 42 bps in the prior-year quarter.

Total non-performing assets, including loans held for sale, were $730 million, down 12% from the year-ago quarter. Total allowance for credit losses were $1.40 billion, down 3% from the prior-year quarter.

Strong Capital Position

Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 11.90% compared with 10.91% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.66% compared with 9.72% at the end of the year-ago quarter. Tier 1 leverage ratio was 10.15% compared with 9.57% in the prior-year quarter.

Our Viewpoint

We believe that the company, with a diversified traditional banking platform, remains well poised to benefit from a recovery in the economies where it has footprint. Its steady improvement in loans and deposits highlights its efficient organic growth strategy. Further, company’s improving credit quality and strong balance sheet should translate into better results in the upcoming quarters. However, declining non-interest income keeps us apprehensive.

Fifth Third currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fifth Third Bancorp Price and EPS Surprise

Performance of Other Banks

Regions Financial Corporation’s (NYSE:RF) first-quarter 2017 earnings from continuing operations of 23 cents per share surpassed the Zacks Consensus Estimate by a penny. Also, the figure was 15% higher than the prior-year quarter tally.

First Horizon National Corporation (NYSE:FHN) reported first-quarter 2017 earnings per share of 23 cents, in line with the Zacks Consensus Estimate. However, the figure represents an increase of 15% over the year-ago quarter.

Bank of the Ozarks, Inc.’s (NASDAQ:OZRK) first-quarter 2017 earnings of 73 cents per share surpassed the Zacks Consensus Estimate of 71 cents. The figure improved 28.1% on a year-over-year basis.

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