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Can Fifth Third (FITB) Retain Its Beat Streak in Q2 Earnings?

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Fifth Third Bancorp (FITB - Free Report) is scheduled to report second-quarter 2021 results on Jul 22, before the opening bell. The company’s earnings and revenues are expected to have risen year over year.

In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate.The company’s performance displays a solid capital position along with rising revenues, aided by fee income growth. Benefit from credit losses was another tailwind. However, marginally higher expenses, and flat loan and deposit growth played spoilsport.

This Cincinnati, OH-based lender has an impressive earnings surprise history. It topped on earnings in all of the trailing four quarters, the average surprise being 30.4%.

Fifth Third Bancorp Price and EPS Surprise

 

Fifth Third Bancorp Price and EPS Surprise

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

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

Net Interest Income (NII): Despite the reopening of the economy and witnessing substantial growth, overall demand for loans was subdued in the second quarter. Per the Fed’s latest data, the overall lending scenario was soft during the April-June quarter, with weak commercial and industrial loans. Hence, Fifth Third’s interest income is expected to have received lesser support from this avenue in the quarter under review as nearly 64% of its loan portfolio consists of commercial loans.

Low interest rate environment and the flattening of the yield curve are expected to have hurt the company’s net interest margin and NII in the to-be-reported quarter.

The consensus mark of $1.2 billion for NII indicates a slight year-over-year decline.

Nonetheless, the Zacks Consensus Estimate for average interest-earning assets of $185 billion for the to-be-reported quarter indicates a 1.4% increase from the prior quarter’s reported figure.

Management expects NII to be stable to up 1%sequentially.

Non-Interest Revenues: The company has been focusing to grow and diversify its fee revenues over the past few quarters on the back of acquisitions and partnerships. This is likely to have enhanced its fee-based abilities and offset some interest-rate headwinds in the second quarter.

Deposits improved in the second quarter and deposit service charges are likely to have been decent sequentially due to higher number of days. The consensus estimate of $146 million for the same suggests a marginal increase from the previous quarter’s reported figure.

Mortgage rates have been low since the past year. Hence, incentive for refinancing activities is likely to have subsided after strong activity in 2020, while flaring housing pricing is anticipated to have affected purchase origination growth in the second quarter. The factors are expected to have limited Fifth Third’s mortgage banking fee growth in the to-be-reported quarter.

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

The Zacks Consensus Estimate for non-interest income is pegged at $744 million, suggesting a 14.5% year-over-year increase.

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

Ongoing business rationalization and staffing optimization are also likely to have lent support. After closing 36 branches in the first quarter, the company continued with such efforts and closed other seven branches in the second quarter.

On a sequential basis, management expects a 5-7% decline in expenses.

Key Developments During the Quarter

In late June, Fifth Third inked a definitive agreement to acquire Provide, a fintech company that specializes in handling lending and banking for healthcare providers. The acquisition advances Fifth Third’s efforts in the digital innovation front and expands its focus on the healthcare sector by providing a digital platform for healthcare practices, and catering to the lending and banking needs of retail healthcare providers.

The transaction is a strategic fit as it will enable Fifth Third to offer new clients its range of banking solutions and will facilitate it to capture growth opportunities. Moreover, it offers scope to diversify and increase fee revenues. The deal is expected to generate $6 million in revenues and $14 million of expenses in the ongoing year.

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 +0.92%.

Zacks Rank: Fifth Third currently carries a Zacks Rank of 3.

Prior to the second-quarter earnings release, Fifth Third’s quarterly activities were adequate to gain adequate analyst confidence. The Zacks Consensus Estimate for second-quarter earnings has been revised 3.8% upward to 83 cents over the past month. It suggests a significant year-over-year increase.

The consensus mark for second-quarter revenues is pinned at $1.9 billion, indicating a year-over-year rise of 5.1%.

Other Bank Stocks Worth a Look

Here are a few other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

KeyCorp (KEY - Free Report) is slated to report quarterly results on Jul 20. The company has an Earnings ESP of +0.26% and a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited, Inc. (BKU - Free Report) is set to release earnings numbers on Jul 22. The company has a Zacks Rank of 3 and an Earnings ESP of +3.07% at present.

Huntington Bancshares Incorporated (HBAN - Free Report) is slated to report quarterly results on Jul 29. The company has an Earnings ESP of +1.42% and a Zacks Rank of 3, currently.