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A month has gone by since the last earnings report for Fifth Third Bancorp (FITB). Shares have lost about 11.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Fifth Third Bancorp due for a breakout? 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 catalysts.
Fifth Third Q1 Earnings & Revenues Miss Estimates
Fifth Third reported first-quarter 2022 earnings (excluding after-tax impacts of certain items) of 69 cents per share, missing the Zacks Consensus Estimate of 70 cents. Including the impacts of these items, earnings per share were 68 cents, indicating a 27% year-over-year decline.
The company’s performance displays a revenue decline primarily due to a fall in the fee income. Margin contraction and capital position deterioration played spoilsports.
The company reported net income available to common shareholders of $474 million compared with the $674 million witnessed in the prior-year quarter.
Revenues Fall on Low Fee Income, Loans & Deposits Rise
Total revenues (on a fully taxable-equivalent or FTE basis) for the reported quarter were $1.88 billion, down 2% year over year due to lower fee income. Also, the revenue figure missed the Zacks Consensus Estimate of $1.93 billion.
Fifth Third’s net interest income (NII) (on an FTE basis) was $1.19 billion, up 2% year over year. It primarily reflects the benefits of higher indirect secured consumer loan balances, higher investment portfolio balances, and a reduction in long-term debt. This was partially offset by lower Paycheck Protection Program (PPP)-related income and a decline in home equity balances. NIM (on an FTE basis) shrunk 3 bps year over year to 2.59%.
Non-interest income fell 9% year over year to $684 million. This was primarily due to a decline in commercial banking revenues, mortgage banking net revenues and leasing business revenues.
Non-interest expenses increased 1% from the prior-year quarter to $1.22 billion. Higher compensation and benefits, technology and communications, and equipment expenses chiefly resulted in the rise.
As of Mar 31, 2022, average loan and lease balances, and average total deposits were at $113.47 billion and $168.66 billion, respectively. Loans increased 4%, whereas deposits improved 1% on a sequential basis.
Credit Quality Improves
The company reported a provision for credit losses of $45 million against the benefits of $173 million seen in the year-ago quarter. Net charge-offs for the first quarter were $34 million or 12 bps of average loans and leases on an annualized basis compared with the $71 million or 27 bps witnessed in the prior-year quarter.
Further, the total allowance for credit losses decreased 12.43% to $2.08 billion from the prior-year quarter. Total non-performing assets were $540 million, down 31% from the year-ago quarter.
Capital Position Declines
Tier 1 risk-based capital ratio was 10.60% compared with the 11.94% posted at the end of the prior-year quarter. The CET1 capital ratio was 9.28%, down from 10.46% recorded at the end of the year-ago quarter. The Tier 1 leverage ratio was 8.32% compared with the year-earlier quarter’s 8.61%.
The expectations are on a sequential basis and include the impacts of the Dividend Finance acquisition.
Average loans and leases (including held for sale loans) are expected to be up 2-3%. The company expects NII to be up 11-13% (assuming a 50-bps rate hike in May and June) and non-interest income to be up 8-9%, backed by a rebound in commercial banking fees. Non-interest expenses are expected to be down 3-4%. Net charge offs are likely to be 20-25 bps. The effective tax rate is projected to be 22 to 23%.
The expectations include the impacts of the Dividend Finance acquisition.
Average loans and leases (including held for sale loans) are expected to be up 5-6%. The company expects NII to be up 13-14% (assuming Fed funds rate of 2.50% as of 2022 end) and non-interest income to be stable to down 1%. Non-interest expenses are expected to be up 1-2%. This incorporates the annualized headwind from increasing its minimum wage to $20 per hour. Net charge offs are likely to be 20-25 bps. The effective tax rate is projected to be 22 to 23%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 5.09% due to these changes.
At this time, Fifth Third Bancorp has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Fifth Third Bancorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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