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Fifth Third (FITB) Up 1.3% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Fifth Third Bancorp (FITB - Free Report) . Shares have added about 1.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fifth Third due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Fifth Third Q4 Earnings Beat on Higher Revenues
Fifth Third delivered a positive earnings surprise of 3% in fourth-quarter 2018. Adjusted earnings per share of 69 cents surpassed the Zacks Consensus Estimate of 67 cents. However, including certain one-time items, the bottom line came in at 64 cents, down 9% year over year.
Increase in revenues, aided by rising loans and deposits, was a driving factor. Moreover, a strong capital position has been depicted. However, higher provisions and lower non-interest income were the undermining factors.
Certain non-recurring items included in the fourth-quarter results were the impact of valuation of Visa total return swap (post-tax), GreenSky equity securities losses and merger- related expenses.
Net income available to common shareholders slumped 14% year over year to $432 million.
For 2018, net income available to common shareholders was approximately $2.12 billion or $3.06 per share compared with $2.11 billion or $2.81 reported a year ago.
Revenues Improve Y/Y, Loans & Deposits Rise
For full-year 2018, total revenues came in at $6.93 billion, down 1% on a year-over-year basis. The figure was in line with the Zacks Consensus Estimate.
Total adjusted revenues for the quarter came in at $1.66 billion, matching the consensus estimate. However, the top line was up 8% year over year, driven by higher net interest income.
Fifth Third’s net interest income (tax equivalent) came in at $1.09 billion, rising 13% year over year. This rise primarily reflects interest-earning assets growth and improved short-term market rates, partly offset by elevated funding costs.
Net interest margin expanded 27 basis points (bps) year over year to 3.29%, mainly due to improved short-term market rates.
Non-interest income was marginally down year over year to $575 million (including certain non-recurring items). Excluding significant items, non-interest income climbed 2% to $600 million. Corporate banking revenues increased 69%.
Non-interest expenses increased slightly from the prior-year quarter to $977 million. The upsurge chiefly stemmed from higher salaries, employee benefits, equipment expenses and technology costs.
As of Dec 31, 2018, average loan and lease balances inched up 2% sequentially to $95.4 billion. The upswing mainly resulted from increased commercial loans and leases. Average total deposits advanced 3% on a sequential basis to $107.5 billion.
Credit Quality: A Mixed Bag
Provision for loan and lease losses surged 42% year over year to $95 million. Net charge-offs for the reported quarter came in at $83 million or 35 bps of average loans and leases on an annualized basis compared with $76 million or 33 bps in the prior-year quarter.
However, total allowance for credit losses was $1.1 billion, down 8% from the prior-year quarter. Total non-performing assets, including loans held for sale, came in at $395 million, down 19.2% from the year-ago quarter.
Strong Capital Position
Fifth Third remained well capitalized in the fourth quarter. Tier 1 risk-based capital ratio was 11.32% compared with 11.74% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.24% compared with 10.61% at the end of the year-ago quarter. Tier 1 leverage ratio was 9.72% compared with 10.01% in the prior-year quarter.
Share Repurchase
During the fourth quarter, Fifth Third repurchased 14.9 million shares for a total cost of $400 million.
Outlook
First-quarter 2019
NII is expected to be down 1.5-2% sequentially, on the basis of day counts and the impact of non-recurring fourth-quarter seasonal items, partially offset by the benefit from the December rate hike and loan growth.
For the first quarter, the company expects non-interest income to be stable with the adjusted fourth-quarter 2018 figure. Corporate banking revenues are anticipated to grow about 25% compared with first-quarter 2018.
The company expects non-interest expenses to increase 1.5-2% sequentially.
Commercial loans and leases are expected to grow 1% sequentially in the first quarter, while consumer loans are likely to remain stable.
Management expects provisions reflective of loan growth in the first quarter.
Full-Year 2019
NIM is projected to be up 2-3 bps. In case of a rate hike in 2019, NIM is expected to expand 1-2 bps.
For 2019, NII will likely be up around 3% in absence of rate hikes.
Non-interest income is expected to increase 2% year over year.
For 2019, non-interest expenses are predicted to be up 1%, year over year on adjusted basis.
Total loans & leases are expected to be up 3-3.5% from 2018.
The effective tax rate is projected to be about 21-22% in 2019.
Project North Star Initiatives
In September 2016, Fifth Third launched Project North Star, which laid down several long-term financial targets without expecting any improvement in the current economic conditions. The initiatives are expected to enhance revenue growth, lower expenses and optimize balance sheet position.
Management expects to generate an annualized return on average tangible common equity (non-GAAP) of above 18%, a return on average assets in the range of 1.55% to 1.65% and an efficiency ratio of low 50% by the end of 2019. These targets include impact of MB Financial acquisition.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, Fifth Third has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Fifth Third has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Fifth Third (FITB) Up 1.3% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Fifth Third Bancorp (FITB - Free Report) . Shares have added about 1.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fifth Third due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Fifth Third Q4 Earnings Beat on Higher Revenues
Fifth Third delivered a positive earnings surprise of 3% in fourth-quarter 2018. Adjusted earnings per share of 69 cents surpassed the Zacks Consensus Estimate of 67 cents. However, including certain one-time items, the bottom line came in at 64 cents, down 9% year over year.
Increase in revenues, aided by rising loans and deposits, was a driving factor. Moreover, a strong capital position has been depicted. However, higher provisions and lower non-interest income were the undermining factors.
Certain non-recurring items included in the fourth-quarter results were the impact of valuation of Visa total return swap (post-tax), GreenSky equity securities losses and merger- related expenses.
Net income available to common shareholders slumped 14% year over year to $432 million.
For 2018, net income available to common shareholders was approximately $2.12 billion or $3.06 per share compared with $2.11 billion or $2.81 reported a year ago.
Revenues Improve Y/Y, Loans & Deposits Rise
For full-year 2018, total revenues came in at $6.93 billion, down 1% on a year-over-year basis. The figure was in line with the Zacks Consensus Estimate.
Total adjusted revenues for the quarter came in at $1.66 billion, matching the consensus estimate. However, the top line was up 8% year over year, driven by higher net interest income.
Fifth Third’s net interest income (tax equivalent) came in at $1.09 billion, rising 13% year over year. This rise primarily reflects interest-earning assets growth and improved short-term market rates, partly offset by elevated funding costs.
Net interest margin expanded 27 basis points (bps) year over year to 3.29%, mainly due to improved short-term market rates.
Non-interest income was marginally down year over year to $575 million (including certain non-recurring items). Excluding significant items, non-interest income climbed 2% to $600 million. Corporate banking revenues increased 69%.
Non-interest expenses increased slightly from the prior-year quarter to $977 million. The upsurge chiefly stemmed from higher salaries, employee benefits, equipment expenses and technology costs.
As of Dec 31, 2018, average loan and lease balances inched up 2% sequentially to $95.4 billion. The upswing mainly resulted from increased commercial loans and leases. Average total deposits advanced 3% on a sequential basis to $107.5 billion.
Credit Quality: A Mixed Bag
Provision for loan and lease losses surged 42% year over year to $95 million. Net charge-offs for the reported quarter came in at $83 million or 35 bps of average loans and leases on an annualized basis compared with $76 million or 33 bps in the prior-year quarter.
However, total allowance for credit losses was $1.1 billion, down 8% from the prior-year quarter. Total non-performing assets, including loans held for sale, came in at $395 million, down 19.2% from the year-ago quarter.
Strong Capital Position
Fifth Third remained well capitalized in the fourth quarter. Tier 1 risk-based capital ratio was 11.32% compared with 11.74% at the end of the prior-year quarter. CET1 capital ratio (fully phased-in) was 10.24% compared with 10.61% at the end of the year-ago quarter. Tier 1 leverage ratio was 9.72% compared with 10.01% in the prior-year quarter.
Share Repurchase
During the fourth quarter, Fifth Third repurchased 14.9 million shares for a total cost of $400 million.
Outlook
First-quarter 2019
NII is expected to be down 1.5-2% sequentially, on the basis of day counts and the impact of non-recurring fourth-quarter seasonal items, partially offset by the benefit from the December rate hike and loan growth.
For the first quarter, the company expects non-interest income to be stable with the adjusted fourth-quarter 2018 figure. Corporate banking revenues are anticipated to grow about 25% compared with first-quarter 2018.
The company expects non-interest expenses to increase 1.5-2% sequentially.
Commercial loans and leases are expected to grow 1% sequentially in the first quarter, while consumer loans are likely to remain stable.
Management expects provisions reflective of loan growth in the first quarter.
Full-Year 2019
NIM is projected to be up 2-3 bps. In case of a rate hike in 2019, NIM is expected to expand 1-2 bps.
For 2019, NII will likely be up around 3% in absence of rate hikes.
Non-interest income is expected to increase 2% year over year.
For 2019, non-interest expenses are predicted to be up 1%, year over year on adjusted basis.
Total loans & leases are expected to be up 3-3.5% from 2018.
The effective tax rate is projected to be about 21-22% in 2019.
Project North Star Initiatives
In September 2016, Fifth Third launched Project North Star, which laid down several long-term financial targets without expecting any improvement in the current economic conditions. The initiatives are expected to enhance revenue growth, lower expenses and optimize balance sheet position.
Management expects to generate an annualized return on average tangible common equity (non-GAAP) of above 18%, a return on average assets in the range of 1.55% to 1.65% and an efficiency ratio of low 50% by the end of 2019. These targets include impact of MB Financial acquisition.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, Fifth Third has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Fifth Third has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.