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Fifth Third (FITB) to Report Q3 Earnings: Will it Disappoint?

Fifth Third Bancorp FITB is scheduled to report first-quarter 2023 results on Apr 20, before the opening bell. Its quarterly revenues and earnings are expected to have risen from the year-ago reported figure.

Before we analyze the factors that are likely to have impacted first-quarter earnings, let’s 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 on the back of higher net interest income (NII), and improved average loans and lease balances. However, a significant fall in fee income limited revenue growth, while higher provisions for credit losses and lower deposits were undermining factors.

The Cincinnati, OH-based lender has a disappointing surprise history. Its earnings beat estimates in one of the trailing four quarters and missed thrice, the negative average beat being 2.67%.

Fifth Third Bancorp Price and EPS Surprise

 

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

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The Zacks Consensus Estimate for FITB’s first-quarter earnings of 79 cents per share has been revised marginally downward in the past week. Nonetheless, the figure indicates a 14.49% rise from the year-ago reported number. Our estimate is 87 cents.

The consensus estimate for revenues is pegged at $2.22 billion, suggesting growth of 18.26% from the year-ago reported figure. Our estimate is $2.22 billion. The company expects a 4-5% sequential decline in revenues during the quarter.

Here are the factors that are expected to have impacted Fifth Third’s quarterly performance.

NII: Per the Fed’s latest data, residential real estate loans, commercial real estate loans, consumer loans, and commercial and industrial loan growth declined in the quarter under review. The pace of loan growth slowed from the prior few quarters due to an uncertain economic environment, the collapse of the Silicon Valley Bank and heightening recession fears.

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. It expects total average loans and leases (including held-for-sale loans) to be flat. Nonetheless, the Zacks Consensus Estimate of $194.6 million for average interest-earning assets for the quarter indicates a 3.7% rise from the prior quarter’s reported figure.

The Federal Reserve hiked rates by 50 basis points (bps) in the to-be-reported quarter and 25 bps in fourth-quarter 2022. With this, the policy rate reached 4.75-5% in March 2023, the highest since 2008. Successive rate hikes are likely to have limited any further positive impact on the company’s NII.

Hence, with lower-to-no-positive impact of higher market rates, decline in investment portfolio balances and a lower-to-no growth of commercial & industrial loan balances, the bank’s NII and net interest margin (NIM) are likely to have been affected in the quarter.

The company expects NII (on an FTE basis) to be down 1-2% sequentially. Also, the consensus mark of $1.55 billion for the metric indicates a 2.03% decrease sequentially. Our estimate is $1.57 billion.

Non-Interest Revenues: The macro-environment for deal-making is expected to have deteriorated further in first-quarter 2023. Raging inflation, weaker equity markets and fears of an economic slowdown dealt a blow to business sentiments as well as plans for expansion through acquisitions. Thus, deal volume and total value numbers declined during the 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 $141 million, suggesting a 10.76% fall from the prior quarter’s reported number.

Also, the likely decline in deposit balances on the back of deposit run is expected to have hurt service charges on deposits. The consensus estimate of $138 million for the metric suggests a 1.43% decline on a sequential basis.

The purchase mortgage originations are expected to have continued to decline in the first quarter whereas the refinancing originations might have remained almost stable sequentially. Also, mortgage rates during the quarter jumped from the prior-year quarter, with the rate on 30-year fixed mortgage reaching 6.32% in March. The rates have jumped from around 3% in the prior year quarter.

The rise in mortgage rates has taken a toll on the origination market. This is anticipated to have reduced the company’s origination fees. The Zacks Consensus Estimate for mortgage banking net revenues is pegged at $57 million, suggesting a 9.52% fall from the prior quarter’s reported number.

Wealth and asset management revenues are likely to have felt the heat from disappointing equity market performance in the quarter. Nonetheless, the Zacks Consensus Estimate for wealth and asset management revenues is pegged at $140 million, suggesting a marginal rise from the prior quarter’s reported number.

Overall, the Zacks Consensus Estimate for non-interest income is pegged at $674 million, suggesting an 8.29% fall sequentially. Fifth Third expects adjusted non-interest income to be down 11-13% sequentially. Our estimate is $654 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. On a sequential basis, management expects expenses to be up 6-7% (expenses to be up approximately 2% excluding $1 billion of seasonal expenses to be incurred during the quarter). We project a 7.1% sequential rise.

What Our Quantitative Model Predicts:

Our proven model does not conclusively predict an earnings beat for FITB this time around.  The combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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: The Earnings ESP for Fifth Third is -1.96%.

Zacks Rank: Fifth Third currently carries a Zacks Rank of 4 (Sell).

Bank Stocks Worth a Look

Here we present a few bank stocks, which 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.

Independent Bank IBCP is scheduled to release first-quarter 2023 earnings on Apr 27. IBCP is carrying a Zacks Rank #3 at present and has an Earnings ESP of +1.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Peoples Bancorp PEBO is slated to report first-quarter 2023 results on Apr 25. PEBO currently carrying a Zacks Rank #3 and has an Earnings ESP of +1.02%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Fifth Third Bancorp (FITB) : Free Stock Analysis Report

Independent Bank Corporation (IBCP) : Free Stock Analysis Report

Peoples Bancorp Inc. (PEBO) : Free Stock Analysis Report

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