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Low Interest Rates to Mar Fifth Third's (FITB) Q1 Earnings?

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Fifth Third Bancorp (FITB - Free Report) is scheduled to report first-quarter 2021 results on Apr 20, before the opening bell. The company’s earnings and revenues are expected to have risen year over year.

This Cincinnati, OH-based lender has an impressive earnings surprise history. It topped on earnings in three of the trailing four quarters and missed in the other, the average surprise being 10.88%.

In the last-reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate. The company’s performance displayed a strong capital position. Also, benefit from credit losses came as tailwind. However, the results were largely affected by lower revenues. Also, decline in loans was an undermining factor.

Here are the factors that might have influenced the company’s quarterly performance:

Net Interest Income: Similar to 2020, demand for commercial and industrial loan remained soft during the first quarter of 2021 while consumer loan portfolios offered some support.

This, along with the low interest rate environment, is likely to have hurt Fifth Third’s net interest yield and NII in the quarter, while steepening of the yield curve (the difference between short- and long-term interest rates) might have offered some support.

Also, the Zacks Consensus Estimate for average interest-earning assets of $184 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 net interest margin to contract 3-4 bps sequentially. First-quarter NII is expected to decline 3%, assuming no deployment of excess liquidity.

Non-Interest Revenues: Per the Fed’s data, deposits improved during the first quarter but deposit service charges are likely to have been softer sequentially due to fewer days and lower incidence fees, given extra money from stimulus checks. The consensus estimate of $145 million for the same suggests a marginal decline from the previous quarter.

Low mortgage rates might have continued to fuel demand for new mortgages in the to-be-reported quarter. Relaxed lockdown measures and gradually improving economic conditions are likely to have resulted in prospective homebuyers entering the housing market to take advantage of the low rates. However, as rates gradually increased, refinancing activities are not expected to have been great. Thus, owing to decent mortgage-banking business performance, Fifth Third’s mortgage banking fees might have gained support.

Card fees are likely to have improved on higher consumer spending owing to decreased unemployment level, consumer optimism on a new stimulus package, as well as extensive vaccination drives.

The Zacks Consensus Estimate for non-interest income is pegged at $731 million, suggesting a 7.1% fall sequentially.

The company expects non-interest income to be down 9-10%, reflecting seasonal impacts such as the lack of TRA revenues and lighter other non-interest income, partially offset by the seasonal uptick in wealth revenues from tax preparation fees in the first quarter, and significantly stronger mortgage revenues.

Mortgage revenues are expected to rise $30 million to $35 million in the first quarter from  fourth-quarter 2020.

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

On a sequential basis, excluding seasonal items, management expects expenses to be down 3% to 4%.

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 -0.40%.

Zacks Rank: Fifth Third currently carries a Zacks Rank of 2 (Buy).

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 Zacks Consensus Estimate of 69 cents per share for quarterly earnings implies a substantial rise on a year-over-year basis. Additionally, the sales projection of $1.9 billion suggests a marginal rise.

Stocks to Consider

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

BankUnited (BKU - Free Report) is scheduled to release earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.64%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Invesco (IVZ - Free Report) is +1.13% and it carries a Zacks Rank #1 at present. The company is slated to report quarterly numbers on Apr 27.

Capital One Financial Corporation (COF - Free Report) is slated to report quarterly results on Apr 27. The company currently has an Earnings ESP of +1.47% and a Zacks Rank of 3.

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