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Fifth Third's (FITB) Q4 Earnings In line; Expenses Rise Y/Y

Fifth Third BancorpFITB reported fourth-quarter earnings per share of 79 cents (Including certain one-time items), compared with 43 cents in the prior-year quarter. Excluding one-time items, earnings per share would have been 41 cents for the reported quarter, in line with the Zacks Consensus Estimate.

Results reflected higher revenues, partially offset by increased expenses. Further, the quarter witnessed reduced provisions for loan and lease losses, consistent growth in loan and deposit balances as well as a strong capital position.

Certain non-recurring items included in the fourth-quarter results are the impact of $331 million pre-tax ($215 million after tax) gain on the sale of Vantiv shares, an $89 million pre-tax (~$58 million after-tax) gain on Vantiv warrant actions during the quarter and a charge of $10 million pre-tax (~$7 million after-tax) tied with the valuation of the Visa total return swap. The prior-year quarter also included certain non-recurring items.

Net income available to common shareholders increased a whopping 75% year over year to $634 million.

For 2015, earnings per share came in at $2.01, surpassing the Zacks Consensus Estimate of $1.65. Also, it came ahead of the prior-year figure of $1.66. Net income available to common shareholders was $1.63 billion for the year, up 16% from the previous year.

Performance in Detail

For 2015, revenues were $6.56 billion, up 8% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $6.00 billion.

Total revenue for the fourth quarter came in at $2.01 billion, outperforming the Zacks Consensus Estimate of $1.57 billion. Further, revenues increased 30% year over year driven by higher net interest income as well as non-interest income.

Fifth Third's net interest income (tax equivalent) came in at $904 million, increasing 2% year over year. The rise primarily reflected the impact of higher investment securities balances, partially offset by changes in the company's deposit advance product. Net interest margin was 2.85%, down 11 basis points (bps) year over year, reflecting the impact of the changes to the deposit advance product and loan repricing.

Non-interest income increased 69% year over year to $1.10 billion (including certain non-recurring items). Excluding significant items, non-interest income increased 2% year over year. Notably, the quarter witnessed a rise in revenues including mortgage banking, investment advisory revenues, while corporate banking revenues declined.

Non-interest expenses increased 5% from the prior-year quarter to $963 million. The rise was mainly due to higher costs related to compensation, technology and communications and card and processing expense, reduced employee benefits expense.

As of Dec 31, 2015, excluding loans held-for-sale, average loan and lease balances inched up 3% year over year to $93.6 billion. The rise was driven by increased commercial and industrial (C&I), commercial construction and residential mortgage balances, partially offset by reduced home equity balances, credit card and automobile loans. Average total deposits rose 4% year over year to $103 billion.

Credit Quality

Fifth Third's credit quality improved during the quarter. Total nonperforming assets, including loans held for sale, were $659 million, down 16% from the year-ago quarter. Allowance for loan and lease losses slightly dropped year over year to $1.41 billion.

Further, net charge-offs for the quarter came in at $80 million or 80 bps of average loans and leases on an annualized basis, down from $191 million or 83 bps in the prior-year quarter. Additionally, provision for loans and leases decreased 8% year over year to $91 million.

Capital Position

Fifth Third remained well capitalized in the quarter. Tier 1 risk-based capital ratio was 10.93% compared with 10.83% at the end of the prior-year quarter. Tier 1 Leverage ratio was 9.54% as against 9.66% at the end of the prior-year quarter.

As of Dec 31, 2015, common equity Tier I ratio was estimated at 9.83%.

Share Repurchase

The settlement of the forward contract pertaining to the Sep 9, 2015 share repurchase agreement of $150 million took place on Oct 23. Following the completion of the agreement, an additional 1.45 million shares were repurchased.

Fifth Third entered into another share repurchase agreement on Dec 14, according to which the bank is scheduled to purchase around $215 million of its outstanding common stock.

The settlement of the forward contract pertaining to the Dec 14, 2015 share repurchase agreement of $215 million took place on Jan 14, 2016. Following completion of the agreement, an additional 1.78 million shares were repurchased.

Our Viewpoint

We believe the company, with a diversified traditional banking platform, remains well poised to benefit from a recovery in the economies where it has a footprint. The company's efforts toward reducing its nonperforming assets and maintaining a strong capital position will continue to serve as growth drivers. Moreover, steady improvement in loans and deposits highlight its efficient organic growth strategy.

Further, we remain optimistic as the Ohio-based bank continues with its restructuring measures as part of the plans announced in Jun 2015 to consolidate or sell around 105 branches and around 31 other properties. The proposed actions are likely to be completed by mid-2016 and are expected to result in $65 million in cost savings annually.

However, several issues including a stringent regulatory landscape as well as competitive pressure remain matters of concern.

Currently, Fifth Third carries a Zacks Rank #3 (Hold).

Performance of Other Major Firms

Banking major JPMorgan Chase & Co. JPM kick started the fourth-quarter 2015 earnings season with earnings of $1.32 per share that beat the Zacks Consensus Estimate of $1.26. The figure shows a 10.9% improvement over the year-ago period, which had seen lower-than-usual earnings of $1.19. However, the number indicates the impact of tough market conditions. Weak trading and asset management dented the results, but a decent decline in expenses and increased revenues helped the company see improved earnings on a year-over-year basis.

Driven by effective cost control, Wells Fargo & Company's WFC fourth-quarter 2015 earnings recorded a positive surprise of about 1%. Earnings of $1.03 per share beat the Zacks Consensus Estimate as well as the prior-year quarter's earnings by a penny. Wells Fargo reflected organic growth aided by higher revenues along with strong loans and deposit balances.

The PNC Financial Services Group, Inc. PNC reported another impressive quarter with an earnings surprise of 3.9%. The company's fourth-quarter 2015 earnings per share of $1.87 outpaced the Zacks Consensus Estimate of $1.80. Moreover, the bottom line compared favorably with $1.84 reported a year ago. Better-than-expected results were primarily driven by a fall in expenses, which was, however, partially offset by lower revenues and higher provisions.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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