Will Fee Income Support Fifth Third's (FITB) Q3 Earnings?
Fifth Third Bancorp FITB is scheduled to report third-quarter 2020 results on Oct 22, before the opening bell. The company’s earnings and revenues are expected to have declined year over year.
This Cincinnati, OH-based lender has an unimpressive earnings surprise history. It topped earnings in two of the trailing four quarters and missed in the other two, the negative surprise being 8.05%, on average.
In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate. Results reflected lower expenses and rise in loans and deposits balances. However, deterioration of credit quality was a headwind. Also, decrease in revenues due to lower interest income was a headwind.
Factors at Play
Lower Net Interest Income (NII): The Fed has kept interest rates at near zero since March to shield the U.S. economy from the coronavirus outbreak-related mayhem. This is likely to have substantially hurt the company’s net interest margin and NII. However, low deposit costs might have been an offsetting factor for margins.
Also, a muted lending scenario, particularly in commercial & industrial front, is predicted to have hurt NII to some extent. Notably, the Zacks Consensus Estimate for average interest earning assets of $175.6 billion for the quarter indicates a slight decrease from last quarter’s reported figure. The consensus mark of $1.16 billion for NII indicates 3.1% fall.
Management expects NII to decline 3% from the last quarter, assuming no benefits from accelerated amortization of PPP fees.
Higher Non-Interest Revenues: Fifth Third’s fee income might have witnessed support from higher service charges on deposit accounts due to rise in deposits during the quarter. The consensus estimate of $134 million for the same suggests a rise of 9.8% sequentially.
Gradual reopening of business activities, which led to rise in consumer spending, might have supported card fees during the quarter. The Zacks Consensus Estimate for card and processing revenues of $85 million indicates a 3.7% rise from the prior quarter’s reported number.
In addition, the Federal Reserve’s accommodative monetary policy and a decline in mortgage rates during the third quarter drove refinancing activities and originations. The consensus estimate of $102 million for mortgage banking revenues implies a decline of 3% sequentially.
The Zacks Consensus Estimate for non-interest income is pegged at $687 million, suggesting 5.7% growth sequentially.
Notably, management expects fee income to be up 2% sequentially, with support from rise in service charges on deposits revenues in the low-double-digit range. Also, it expects card and processing revenues to increase in the low-to-mid-single-digit range.
Controlled Expenses: Fifth Third’s ongoing investments in several areas, such as technology, might have raised expenses. However, the company is expected to have been successful in offsetting the rise through North Star initiatives.
For the third quarter, management expects non-interest expenses to be up 2% sequentially.
Let’s have a look at what our quantitative model predicts:
Fifth Third has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Fifth Third is +5.76%.
Zacks Rank: Fifth Third currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for earnings of 59 cents for the quarter has been revised upward over the past 30 days. However, the figure indicates a 21.3% slump from the year-ago quarter reported number.
The consensus estimate for Fifth Third’s revenues for the quarter is pegged at $1.86 billion, which suggests a 6.3% fall from the year-ago reported figure.
Fifth Third Bancorp Price and EPS Surprise
Other Stocks That Warrant a Look
Here are a few other stocks you may want to consider, as according to our model these too have the right combination of elements to post an earnings beat this quarter.
CullenFrost Bankers, Inc. CFR is scheduled to release quarterly earnings on Oct 29. The company, which carries a Zacks Rank #3 currently, has an Earnings ESP of +1.57%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BankUnited, Inc. BKU is set to release quarterly results on Oct 28. The company currently has an Earnings ESP of +6.10% and a Zacks Rank of 3.
The Earnings ESP for Affiliated Managers Group, Inc. AMG is +0.15% and the company presently carries a Zacks Rank #3. It is scheduled to report quarterly numbers on Oct 26.
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Fifth Third Bancorp (FITB): Free Stock Analysis Report
Affiliated Managers Group, Inc. (AMG): Free Stock Analysis Report
BankUnited, Inc. (BKU): Free Stock Analysis Report
CullenFrost Bankers, Inc. (CFR): Free Stock Analysis Report
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