Fifth Third Bancorp shares hit a 10-year high after earnings top expectations

Fifth Third Bank
Passengers walk by a Fifth Third branch at 29 W Division St, Chicago. Jan.24,2018.(Jinman Li/MEDILL)

By Jinman Li
Medill Reports

Earnings of Fifth Third Bancorp (Nasdaq: FITB), the holding company of the Cincinnati-based regional banking corporation Fifth Third Bank, leapt 31 percent in its fourth-quarter report, topping Wall Street estimates. The results were favorably impacted by Vantiv-related investment throughout 2016 and 2017 and the Tax Cuts and Jobs Act in 2017.

The company earned $486 million in the quarter ended Dec. 31, compared with $372 million of the year-ago quarter. Earnings per diluted share were 67 cents, compared with 49 cents per diluted share in the fourth quarter of 2016. The adjusted earnings per share were 52 cents, beating the analysts’ estimates of 47 cents per share compiled by Zacks Investment Research Inc.

“Some non-core items, including additional benefits from the new tax legislation, resulted in a positive $0.15 impact to reported earnings per share in the quarter,” said Gregory D. Carmichael, president and chief executive officer of Fifth Third, during the earnings call.

Noninterest income declined to $577 million from $620 million in the same period last year. The company’s net charge-offs rose to $76 million from $3 million a year ago, and its provision for loan and lease losses totaled $67 million, up 24 percent compared with the year-ago quarter.

Despite the higher net charge-offs and loan losses provision, the company’s non-performing assets continue to decrease, which proved its strong credit quality, said Gerard S Cassidy, managing director of equity at RBC Capital Markets. The investment bank marked Fifth Third as “outperform” before the release of its fourth quarter results.

“The better performance was due to stronger net interest revenue as well as lower operating expenses,” said Cassidy.

For the full fiscal year, Fifth Third’s net income surged 40 percent to $2.1 billion from $1.5 billion in 2016, with the earnings per diluted share improving from $1.93 to $2.83.

Fifth Third expects its net interest income to be in the range of $4.0 billion to $4.07 billion in fiscal 2018, growing approximately 5 percent from the adjusted 2017 net interest income. The noninterest income is projected to be around $2.4 billion, excluding Vantiv step-up gain.

“Should the U.S. GDP growth accelerate faster than expected, due to the tax law changes, Fifth Third and other banks will probably see stronger loan demanding in the 2018 and 2019, which will possibly help strike the earnings to better than expected,” said Cassidy.

The company stated in the earnings call that it is expecting an approximately $415 million gain from the investment in Vantiv Holding LLC, which will be recorded in the first quarter of 2018. As of Dec. 31, 2017, Fifth Third owned approximately 8.6 percent interest in Vantiv Holding LLC, convertible into shares of Vantiv Inc., a public payment processing firm. The profit will be returned to shareholders in the form of share repurchases and dividend increases, said Tayfun Tuzun, the company’s chief financial officer, during the earnings call.

Fifth Third has reportedly closed 36 branches nationwide in January 2017, including seven in the Chicago area, according to the Chicago Tribune.

The closures, part of a continuing trend in the banking industry, comes as a result of the digitalization of retail banking products, Cassidy said. “We anticipate the profitability for Fifth Third to improve based on their becoming more efficient and the optimization of their branch structure.”

The company’s stock hit a 10-year high of $32.92 on Tuesday, increasing 15 cents, or 0.46 percent.

Photo at top: Pedestrians walk by a Fifth Third branch at 29 W. Division St., Chicago, Jan. 24, 2018.(Jinman Li/MEDILL)