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Will Muted Lending Hurt Fifth Third's (FITB) Q4 Earnings?

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Fifth Third Bancorp FITB is scheduled to report fourth quarter and 2019 results on Jan 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 5%.

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 the undermining factors.

Fifth Third Bancorp Price and EPS Surprise

The company’s activities in the fourth quarter were inadequate to impress analysts. Hence, the Zacks Consensus Estimate for earnings of 73 cents for the quarter has been stable over the past 30 days. However, the figure indicates a 5.8% rise from the year-ago quarter’s reported number.

The consensus estimate for Fifth Third’s revenues for the quarter is pegged at $2.08 billion, which suggests 25.7% rise from the year-ago reported figure.

Key Factors

Soft Net Interest Income (NII) Growth: A slowdown in lending, mainly in the area of commercial and industrial (accounting for roughly 65% of total loan portfolio), might have hurt the bank’s interest income. This is expected to have adversely impacted interest income.

Moreover, net interest margin (NIM) is likely to have been affected by decline in interest rates and steadily rising deposit betas.

Management expects NII to fall 1% sequentially in the fourth quarter, reflecting the NIM impact and the relatively stable loan growth outlook. Also, commercial loans and leases are expected to be stable sequentially, while average consumer loans are likely to jump 1-2%.

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.

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 fourth quarter, management expects non-interest expenses to be flat to down sequentially on an adjusted basis, including the impact of $3 raise in minimum wage from $15 to $18 effective at the end of October.

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 -0.49%.

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.

Bank of Hawaii Corporation BOH is set to release results on Jan 27. The company has an Earnings ESP of +0.37% and carries a Zacks Rank of 2 (Buy), 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 - Free Report) is +0.18% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jan 30.

TD Ameritrade Holding Corporation AMTD has an Earnings ESP of +0.39% and at present, holds a Zacks Rank of 3. It is scheduled to report quarterly figures on Jan 21.

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