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Will Soft Lending Hurt Fifth Third's (FITB) Q3 Earnings?

Zacks Equity Research

Fifth Third Bancorp FITB is scheduled to report third-quarter 2019 results on Oct 22, before the opening bell. The company’s earnings and revenues are expected to have jumped year over year.

The Cincinnati, OH-based lender has an impressive earnings surprise history. It topped earnings in each of the trailing four quarters, the average positive earnings surprise being 4.7%.

In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate. Results reflected increase in revenues and a strong capital position. However, rise in expenses and provisions were undermining factors.

Fifth Third Bancorp Price and EPS Surprise

Fifth Third Bancorp Price and EPS Surprise

Fifth Third Bancorp price-eps-surprise | Fifth Third Bancorp Quote

The company’s activities in the third quarter were inadequate to impress analysts. Hence, the Zacks Consensus Estimate for earnings of 73 cents for the quarter has remained stable over the past 30 days. However, the figure indicates a 14.1% rise from the year-ago quarter’s reported number.

The consensus estimate for Fifth Third’s revenues for the third quarter is pegged at $1.94 billion, which suggests 21% rise from the year-ago reported figure.

Key Factors

Soft Net Interest Income (NII) Growth: A slowdown in lending — mainly in the areas of commercial and industrial, and commercial real estate — might have hurt the bank’s interest income. This is expected to have adversely impacted interest income.

Moreover, net interest margin is likely to have been affected by the flattening of yield curve, decline in interest rates and steadily rising deposit betas.

Management expects NII to rise 1% sequentially in the third quarter, reflecting the benefits of high earning asset base and day counts, partially offset by persistent market pressure from lower rates.

Higher Fee Income: Fifth Third’s focus on strengthening fee income base through the North Star initiatives is likely to have benefited it. Moreover, the trend of consumer spending was strong during the quarter, which is likely to have boosted the bank’s credit and debit card revenues. Also, pickup in mortgage banking revenues, on account of lower rates during the quarter, is expected to have lent support.

For the third quarter, the company expects non-interest income to be up 2% from the adjusted prior-quarter figure. Corporate banking revenues are anticipated to grow about 7% from the previous quarter.

Controlled Expenses: Fifth Third’s ongoing strategic investments in several areas, such as technology, might have increased expenses. However, the company is expected to have been successful in offsetting this rise through North Star initiatives.

For the third quarter, management expects non-interest expenses to remain flat sequentially on an adjusted basis, excluding the merger-related expenses and CDI amortization expenses.

Here is what our quantitative model predicts:

Our quantitative model doesn’t conclusively predict an earnings beat for Fifth Third this time around. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better increases the odds of an earnings beat, which is not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Fifth Third is -1.41%.

Zacks Rank: The stock currently carries a Zacks Rank of 3.  

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

BOK Financial Corporation BOKF is set to release results on Oct 23. The company has an Earnings ESP of +1.50% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Cullen/Frost Bankers CFR is +0.07% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 24.

Huntington Bancshares Incorporated HBAN is scheduled to release results on Oct 24. The company has an Earnings ESP of +0.60% and carries a Zacks Rank #3.

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Fifth Third Bancorp (FITB) : Free Stock Analysis Report
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