Fifth Third (FITB) Q2 Earnings Beat Estimates, Costs Decline

Fifth Third Bancorp FITB has reported second-quarter 2020 adjusted earnings of 30 cents per share, surpassing the Zacks Consensus Estimate of 26 cents. However, results compared unfavorably with the prior-year quarter’s earnings of 71 cents per share.

The company’s performance displays a strong capital position, with escalating loans and deposits. Also, lower expenses came as a tailwind. However, the results were largely affected by higher provisions due to the coronavirus pandemic. Also, a decline in revenues was an undermining factor.

Certain non-recurring items included in second-quarter results were the impact of the COVID-19 outbreak and merger-related expenses of $16 million, $10 million of branch and non-branch real estate charges, and $22 million related to the valuation of Visa total return swap.

Net income available to common shareholders slumped 62% year over year to $163 million.

Revenues Fall, Costs Decline, Loans & Deposits Rise

Total adjusted revenues for the reported quarter were $1.85 billion, down 3% year over year, driven by lower net interest as well as fee income. The figure met the Zacks Consensus Estimate.

Fifth Third’s net interest income (tax equivalent) was $1.2 billion, down 4% year over year. The fall primarily reflects impacts of lower rates, partially offset by elevated average commercial line draws, lower yielding PPP loans and low deposit costs. Net interest margin contracted 62 basis points (bps) year over year to 2.75%.

Adjusted non-interest income declined slightly year over year to $670 million. Including significant items, non-interest income slipped 2% year over year to $650 million. Decline in service charges on deposits along with leasing business, and card and processing revenues were partly muted by higher mortgage banking and commercial revenues on a year-over-year basis.

Excluding merger-related expenses, non-interest expenses decreased 2% from the prior-year quarter to $1.11 billion. The decline chiefly resulted from a fall in almost all components. Including merger expenses, costs fell 10% year over year.

As of Jun 30, 2020, average loan and lease balances jumped around 7% sequentially to $118.5 billion. The upswing mainly stemmed from increased commercial loans and leases. Average total deposits advanced 19% sequentially to $150.6 billion.

Credit Quality: A Concern

Credit metrics deteriorated in the quarter. Provision for credit losses surged significantly to $485 million from $85 million in the year-ago quarter. Net charge-offs for the first quarter were $130 million or 44 basis points (bps) of average loans and leases on an annualized basis compared with $78 million or 29 bps witnessed in the prior-year quarter.

Further, total allowance for credit losses more than doubled to $2.87 billion from the prior-year quarter. Total non-performing assets, including loans held for sale, were $747 million, up 33.4% from the year-ago quarter.

Strong Capital Position

Fifth Third was well-capitalized during the April-June period. The Tier 1 risk-based capital ratio was 10.95% compared with 10.62% posted at the end of the prior-year quarter. The CET1 capital ratio (fully phased-in) was 9.72% as against 9.57% recorded at the end of the year-ago quarter. The Tier 1 leverage ratio was 8.16% as compared with the year-earlier quarter’s 9.24%.

Our Viewpoint

We believe Fifth Third, with a diversified traditional banking platform, remains well-poised to benefit from the 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 initiatives to boost performance is a positive, several issues, including escalating expenses and provisions amid the coronavirus crisis, as well as competitive pressure remains concerning.

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 #4 (Sell).

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

Performance of Other Banks

Northern Trust Corporation NTRS delivered second-quarter 2020 earnings per share of $1.46, surpassing the Zacks Consensus Estimate of $1.37, on higher fee income. However, the reported figure declined 16.6% year over year.

Hancock Whitney Corporation HWC reported a loss per share of $1.36 for second-quarter 2020, in line with the Zacks Consensus Estimate. The figure includes a special provision related to the sale of energy loan.

KeyCorp’s KEY second-quarter 2020 earnings of 16 cents per share surpassed the Zacks Consensus Estimate by a penny. However, the figure compares unfavorably with 40 cents earned in the prior-year quarter.

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