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Dismal Fee Income to Impact Fifth Third's (FITB) Q2 Earnings

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Fifth Third Bancorp (FITB - Free Report) is scheduled to report second-quarter 2020 results on Jul 23, 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 average negative surprise being 10%.

In the last reported quarter, the bank’s earnings lagged the Zacks Consensus Estimate. Results reflected higher expenses and provisions. Also, the deterioration of credit quality was a headwind. However, an increase in revenues, aided by higher interest income and fee income, was a positive factor.

Here are the factors that are expected to have influenced the company’s performance in the second quarter:

Muted Net Interest Income (NII) Growth: The Fed slashed interest rates to near zero this 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.

A decent lending scenario, particularly in commercial & industrial front, is predicted to have supported NII growth to some extent. Notably, the Zacks Consensus Estimate for average interest earning assets of $166.2 billion for the quarter indicates a 9.9% sequential increase, while the NII is expected to decline 1.1% to $1.22 billion.

Management expects interest-bearing core deposit costs to shrink, based on the Fed rate moves. Thus, NII is expected to have remained stable sequentially excluding purchase accounting accretion, while increase marginally on higher loan outstanding.

NIM is expected to have remain tightened, reflecting the impact of the rate environment, the PPP loans and the amount of short-term liquidity on the balance sheet.

Dismal Non-Interest Revenues: Due to the pandemic, a slowdown in economic activity in the quarter is expected to have strained fee income. Therefore, the consensus estimate of $116 million for corporate banking revenues projects a decline of 6.5% sequentially.

Further, lower consumer spending might have hurt card fees due to the pandemic during the quarter. The Zacks Consensus Estimate for card and processing revenues of $71 million indicates a 17.4% decline from the prior quarter’s reported number.

In addition, the Federal Reserve’s accommodative monetary policy and a decline in mortgage rates during the second quarter drove refinancing activities, while growth in new originations was muted. Notably, the consensus estimate of $103 million for mortgage banking revenues projects a decline of 14.2% sequentially.

The Zacks Consensus Estimate for non-interest income is pegged at $647 million, suggesting a 3.6% decline sequentially.

Notably, management expects fee income to be down in high-single to low-double digits from the adjusted first-quarter 2020 figure,

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

For the second quarter, management expects non-interest expenses to be down in high-single to low-double digits sequentially.

Let’s have a look at what our quantitative model predicts:

Fifth Third does not have 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 -9.59%.

Zacks Rank: Fifth Third currently carries a Zacks Rank of 4 (Sell).

The company’s activities in the second quarter were inadequate to impress analysts. Hence, the Zacks Consensus Estimate for earnings of 29 cents for the quarter has been unchanged over the past 30 days. Also, the figure indicates a 59.2% slump from the year-ago quarter reported number.

The consensus estimate for Fifth Third’s revenues for the quarter is pegged at $1.85 billion, which suggests a 2.8% fall from the year-ago reported figure.

Fifth Third Bancorp Price and EPS Surprise


Stocks That Warrant a Look

Here are a few 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.

The Earnings ESP for CullenFrost Bankers, Inc. (CFR - Free Report) is +6.27% and the stock carries a Zacks Rank of 3 at present. The company is slated to report second-quarter numbers on Jul 30. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Jul 23. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +11.6%.

T. Rowe Price Group, Inc. (TROW - Free Report) is scheduled to release quarterly results on Jul 29. The company has an Earnings ESP of +3.91% and currently sports a Zacks Rank of 1.

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