Fifth Third Bancorp ( FITB Quick Quote FITB - Free Report) is scheduled to report fourth-quarter 2020 results on Jan 21, before the opening bell. While its earnings are expected to have improved year over year, revenues might have declined.
This Cincinnati, OH-based lender has a decent earnings surprise history. It topped earnings in two of the trailing four quarters and missed in the other two, with the positive surprise being 2.28%, on average.
In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate. Results reflected lower expenses and rise in deposits balances. Also, benefit from credit losses came as a tailwind. However, decrease in revenues due to lower interest income was an undermining factor.
Factors at Play Lower Net Interest Income (NII): The Fed has kept interest rates at near zero since March 2020 to shield the U.S. economy from the pandemic-related concerns. This along with a muted lending scenario, particularly in commercial & industrial front, is predicted to have hurt NII to some extent.
Also, the Zacks Consensus Estimate for average interest earning assets of $179.7 billion for the quarter indicates a marginal fall from prior quarter’s reported figure.
The consensus mark of $1.17 billion for NII indicates slight decline.
Management expects NII to remain stable sequentially, 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 $145 million for the same suggests a rise of nearly 1% 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 $93 million indicates a 1.1% rise from the prior quarter’s reported number.
Also, historically low mortgage rates during the fourth quarter drove refinancing activities, along with growth in new originations. Thus, these factors are expected to have supported Fifth Third’s mortgage banking fees.
The Zacks Consensus Estimate for non-interest income is pegged at $760 million, suggesting 5.3% growth sequentially.
Notably, management expects fee income to be up 7-8%, including the recognition of TRA income of approximately $70 million.
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 efficiency initiatives.
For the fourth quarter, management expects non-interest expenses to be flat to slightly up, on a sequential basis.
Let’s have a look at what our quantitative model predicts:
Fifth Third does not 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 -3.29%. Zacks Rank: Fifth Third currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate of 69 cents for quarterly earnings implies a 1.5% rise on a year-over-year basis. However, the sales projection of $1.92 billion suggests a 15.1% decline.
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