Fifth Third Bancorp :FITB-US: Earnings Analysis: Q3, 2017 By the Numbers : December 12, 2017

Fifth Third Bancorp reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Fifth Third Bancorp – Huntington Bancshares Incorporated, PNC Financial Services Group, Inc., Wintrust Financial Corporation, TCF Financial Corporation, SunTrust Banks, Inc., Wells Fargo & Company, Bank of America Corporation and LCNB Corp. (HBAN-US, PNC-US, WTFC-US, TCF-US, STI-US, WFC-US, BAC-US and LCNB-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2524 million, Net Earnings of USD 1004 million.
  • Net interest income margins narrowed from 51.83% to 38.43% compared to the same period last year.
  • Net loan assets changed -1.31% compared to same period last year and 0.51% from previous period, total deposits changed 0.18% compared to same period last year and -0.42% from previous period.
  • Year-on-year change in operating cash flow of -18.59% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 2524 1461 1439 1432 1750
Revenue Growth (%YOY) 44.23 1.11 -0.62 -22.68 31.78
Earnings (mil) 1004 363 301 385 511
Earnings Growth (%YOY) 96.48 10 -7.1 -40.86 35.54
Net Margin (%) 39.78 24.85 20.92 26.89 29.2
EPS 1.35 0.45 0.38 0.48 0.65
Return on Equity (%) 6.03 2.07 1.75 2.19 2.96
Return on Assets (%) 2.83 1.03 0.85 1.08 1.42

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Market Share Versus Profits

Revenues History
Earnings History

FITB-US’s change in revenue this period compared to the same period last year of 44.23% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that FITB-US is holding onto its market share. Also, for comparison purposes, revenues changed by 72.76% and earnings by 176.58% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

FITB-US’s earnings rose year-on-year. But this growth has not come as a result of improvement in net interest income margins or any loan loss improvement activities in its operations. Net interest income margins were 38.43% compared to 64.27% in the immediate last period. Net interest income after provisions margins were 35.78% this period compared to 60.71% in the previous period. In addition, loan loss provisions as a percentage of net interest income were 6.91% this period and 8.82% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s decline in net interest income margins came despite the relative increase in the levels of net loan assets. In addition, total deposits as a percentage of equity went from 6.03% to 6.19%. On an absolute basis, net loan assets changed -1.31% compared to the same period last year and 0.51% from the previous period. Total deposits changed 0.18% compared to the same period last year and -0.42% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FITB-US’s change in operating cash flow of -18.59% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating margins from 42.11% to 60.06% and (2) one-time items. The company’s pretax margins are now 58.99%, compared to 39.66% for the same period last year.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

Fifth Third Bancorp engages in the provision of banking and financial services, offers retail and commercial banking, consumer lending services, and investment advisory services through its subsidiary Fifth Third Bank. It operates through the following segments: Commercial Banking, Branch Banking, Consumer Lending, and Wealth and Asset Management. The Commercial Banking segment offers credit intermediation, cash management, and financial services to large and middle-market businesses. The Branch Banking segment includes deposit, loan, and lease products to individuals and small businesses. The Consumer Lending segment comprises of mortgage, home equity, automobile, and indirect lending activities. The Wealth and Asset Management segment provides investment alternatives for individuals, companies, and not-for-profit organizations. The company was founded on October 7, 1974 and is headquartered in Cincinnati, OH.

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