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Factors Setting the Stage for Fifth Third's (FITB) Q3 Earnings
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Fifth Third Bancorp (FITB - Free Report) is scheduled to report its third-quarter 2023 results on Oct 19, before the opening bell. Its revenues and earnings are likely to have declined in the to-be-reported quarter on a year-over-year basis.
Before we analyze the factors that are likely to have impacted third-quarter earnings, let’s take a look at Fifth Third’s performance over the last few quarters.
In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate. A rise in the fee income and net interest income (NII) aided revenue growth, while higher expenses acted as an undermining factor.
This Cincinnati, OH-based lender has a decent earnings surprise history. Its earnings beat estimates in two of the trailing four quarters and missed twice, the surprise being 0.88% on average.
The Zacks Consensus Estimate for FITB’s third-quarter earnings of 82 cents per share has been revised 1.2% upward over the past week. Nonetheless, the figure indicates a fall of 11.8% from the year-ago reported number. Our estimate is pinned at 82 cents.
The consensus estimate for revenues is pegged at $2.16 billion, suggesting a decrease of 0.6% from the year-ago reported figure. Our estimate is pinned at $2.14 billion. Management expects a 2-4% sequential decline in adjusted total revenues in the quarter.
Here are the factors expected to have impacted Fifth Third’s quarterly performance.
Loans and NII: Lending activities were muted in the quarter on higher interest rates and an uncertain macroeconomic backdrop. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans improved modestly in the quarter under review, while commercial real estate loans sequentially declined.
Given FITB’s significant exposure to commercial loans, the bank is likely to have witnessed a decline in loan growth in the quarter under review. The company expects total average loans and leases (including held-for-sale loans) to be sequentially down 1-2%. Nonetheless, the Zacks Consensus Estimate of $190.7 million for average interest-earning assets for the quarter indicates a nearly 1% rise from the prior quarter.
The Fed increased rates by 25 basis points in July and then kept the rates unchanged to a 22-year high of 5.25-5.5% during the September FOMC meeting. Successive rate hikes are likely to have limited any further positive impact on the company’s NII.
Hence, with the lower-to-no-positive impact of higher market rates, muted loan growth and an increase in funding costs, the bank’s NII and net interest margin are likely to have been affected in the quarter.
The company expects adjusted NII (FTE basis) to be down 2-3% sequentially. Also, the consensus mark of $1.43 billion for NII (FTE basis) indicates a 2.2% decrease sequentially. Our estimate is pinned at $1.42 billion.
Non-Interest Revenues: Global deal-making witnessed a slight rebound in the third quarter. A host of factors like geopolitical tensions, government shutdown, inflation, higher interest rates and fears of a global macroeconomic slowdown continued to weigh on deal-making. Thus, the deal volume and total value numbers were weak in the third quarter.
With a decrease in mergers and acquisition (M&A) volumes, M&A advisory revenues are expected to have slumped, hindering commercial banking revenues. The Zacks Consensus Estimate for commercial banking revenues is pegged at $146 million, remaining flat from the prior quarter. We project the metric to be $153.4 million.
A likely decline in deposit balances is expected to have hurt service charges on deposits. However, with the bank offering competitive deposit rates, it is expected to have offered some support to service charges on deposits. The consensus estimate for the metric of $145 million suggests a marginal rise sequentially. Our estimate is pegged at $144.7 million.
Mortgage originations, both purchase and refinancing, continued to decline in the third quarter. Mortgage banking revenues have also been facing tough comps from the prior year, which were boosted by lower mortgage rates. In the to-be-reported quarter, mortgage rates continued to rise, with the rate on a 30-year fixed mortgage reaching 7.31% in September, the highest level in nearly 23 years.
Higher mortgage rates, which kept home buyers on the sidelines, led to a smaller origination volume. This is anticipated to have reduced the company’s origination fees. Nonetheless, a favorable change in the valuation of mortgage servicing rights is expected to have aided such fees. The Zacks Consensus Estimate for mortgage banking net revenues is pegged at $61 million, suggesting a 3.4% rise from the prior quarter.
Wealth and asset management revenues are likely to have gained from higher equity market performance in the quarter. The Zacks Consensus Estimate for wealth and asset management revenues is pegged at $145 million, suggesting a 1.4% rise from the prior quarter. Our estimate is pinned at $146 million.
Overall, the Zacks Consensus Estimate for non-interest income is pegged at $722 million, which indicates a marginal fall from the prior quarter. Fifth Third expects adjusted non-interest income to fall 3-4% sequentially. Our estimate is pinned at $724.8 million.
Expenses: Owing to strategic investments aimed at operational efficiencies in technology and marketing and increased minimum wages, the company’s expenses are anticipated to have escalated and impeded bottom-line growth. Nonetheless, on a sequential basis, management expects adjusted non-interest expenses to be down 1-2%.
What the Zacks Model Reveals
According to our quantitative model, the chances of First Third beating the Zacks Consensus Estimate this time are high. This is because it has the right combination of the two key ingredients, a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
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 +0.44%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
Other Banks That Warrant a Look
Cathay General Bancorp (CATY - Free Report) and Pacific Premier Bancorp (PPBI - Free Report) are a couple of other banking stocks that you may want to consider, as these too have the right combination of elements to post an earnings beat in their upcoming releases.
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Factors Setting the Stage for Fifth Third's (FITB) Q3 Earnings
Fifth Third Bancorp (FITB - Free Report) is scheduled to report its third-quarter 2023 results on Oct 19, before the opening bell. Its revenues and earnings are likely to have declined in the to-be-reported quarter on a year-over-year basis.
Before we analyze the factors that are likely to have impacted third-quarter earnings, let’s take a look at Fifth Third’s performance over the last few quarters.
In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate. A rise in the fee income and net interest income (NII) aided revenue growth, while higher expenses acted as an undermining factor.
This Cincinnati, OH-based lender has a decent earnings surprise history. Its earnings beat estimates in two of the trailing four quarters and missed twice, the surprise being 0.88% on average.
Fifth Third Bancorp Price and EPS Surprise
Fifth Third Bancorp price-eps-surprise | Fifth Third Bancorp Quote
The Zacks Consensus Estimate for FITB’s third-quarter earnings of 82 cents per share has been revised 1.2% upward over the past week. Nonetheless, the figure indicates a fall of 11.8% from the year-ago reported number. Our estimate is pinned at 82 cents.
The consensus estimate for revenues is pegged at $2.16 billion, suggesting a decrease of 0.6% from the year-ago reported figure. Our estimate is pinned at $2.14 billion. Management expects a 2-4% sequential decline in adjusted total revenues in the quarter.
Here are the factors expected to have impacted Fifth Third’s quarterly performance.
Loans and NII: Lending activities were muted in the quarter on higher interest rates and an uncertain macroeconomic backdrop. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans improved modestly in the quarter under review, while commercial real estate loans sequentially declined.
Given FITB’s significant exposure to commercial loans, the bank is likely to have witnessed a decline in loan growth in the quarter under review. The company expects total average loans and leases (including held-for-sale loans) to be sequentially down 1-2%. Nonetheless, the Zacks Consensus Estimate of $190.7 million for average interest-earning assets for the quarter indicates a nearly 1% rise from the prior quarter.
The Fed increased rates by 25 basis points in July and then kept the rates unchanged to a 22-year high of 5.25-5.5% during the September FOMC meeting. Successive rate hikes are likely to have limited any further positive impact on the company’s NII.
Hence, with the lower-to-no-positive impact of higher market rates, muted loan growth and an increase in funding costs, the bank’s NII and net interest margin are likely to have been affected in the quarter.
The company expects adjusted NII (FTE basis) to be down 2-3% sequentially. Also, the consensus mark of $1.43 billion for NII (FTE basis) indicates a 2.2% decrease sequentially. Our estimate is pinned at $1.42 billion.
Non-Interest Revenues: Global deal-making witnessed a slight rebound in the third quarter. A host of factors like geopolitical tensions, government shutdown, inflation, higher interest rates and fears of a global macroeconomic slowdown continued to weigh on deal-making. Thus, the deal volume and total value numbers were weak in the third quarter.
With a decrease in mergers and acquisition (M&A) volumes, M&A advisory revenues are expected to have slumped, hindering commercial banking revenues. The Zacks Consensus Estimate for commercial banking revenues is pegged at $146 million, remaining flat from the prior quarter. We project the metric to be $153.4 million.
A likely decline in deposit balances is expected to have hurt service charges on deposits. However, with the bank offering competitive deposit rates, it is expected to have offered some support to service charges on deposits. The consensus estimate for the metric of $145 million suggests a marginal rise sequentially. Our estimate is pegged at $144.7 million.
Mortgage originations, both purchase and refinancing, continued to decline in the third quarter. Mortgage banking revenues have also been facing tough comps from the prior year, which were boosted by lower mortgage rates. In the to-be-reported quarter, mortgage rates continued to rise, with the rate on a 30-year fixed mortgage reaching 7.31% in September, the highest level in nearly 23 years.
Higher mortgage rates, which kept home buyers on the sidelines, led to a smaller origination volume. This is anticipated to have reduced the company’s origination fees. Nonetheless, a favorable change in the valuation of mortgage servicing rights is expected to have aided such fees. The Zacks Consensus Estimate for mortgage banking net revenues is pegged at $61 million, suggesting a 3.4% rise from the prior quarter.
Wealth and asset management revenues are likely to have gained from higher equity market performance in the quarter. The Zacks Consensus Estimate for wealth and asset management revenues is pegged at $145 million, suggesting a 1.4% rise from the prior quarter. Our estimate is pinned at $146 million.
Overall, the Zacks Consensus Estimate for non-interest income is pegged at $722 million, which indicates a marginal fall from the prior quarter. Fifth Third expects adjusted non-interest income to fall 3-4% sequentially. Our estimate is pinned at $724.8 million.
Expenses: Owing to strategic investments aimed at operational efficiencies in technology and marketing and increased minimum wages, the company’s expenses are anticipated to have escalated and impeded bottom-line growth. Nonetheless, on a sequential basis, management expects adjusted non-interest expenses to be down 1-2%.
What the Zacks Model Reveals
According to our quantitative model, the chances of First Third beating the Zacks Consensus Estimate this time are high. This is because it has the right combination of the two key ingredients, a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
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 +0.44%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
Other Banks That Warrant a Look
Cathay General Bancorp (CATY - Free Report) and Pacific Premier Bancorp (PPBI - Free Report) are a couple of other banking stocks that you may want to consider, as these too have the right combination of elements to post an earnings beat in their upcoming releases.
The Earnings ESP for CATY is +3.36% and it currently carries a Zacks Rank #3. It is slated to report third-quarter 2023 results on Oct 23. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CATY’s third-quarter earnings has moved marginally south over the past 30 days.
PPBI is scheduled to release its third-quarter 2023 results on Oct 24. It currently has an Earnings ESP of +4.98% and a Zacks Rank #3.
The Zacks Consensus Estimate for PPBI’s third-quarter earnings has been unchanged over the past 30 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.