High Expenses to Hurt Fifth Third's Q3 Earnings, Fee Income to Ail

Fifth Third Bancorp FITB is scheduled to report third-quarter 2024 results on Oct. 18 before the opening bell. Quarterly revenues are expected to have registered growth in the to-be-reported quarter, while earnings are likely to have declined on a year-over-year basis.

In the last reported quarter, the bank's earnings surpassed the Zacks Consensus Estimate. Results benefited from a fall in expenses and provisions for credit losses, along with strong capital ratios. However, a decline in net interest income (NII), and lower loan and deposit balances were major headwinds.

This Cincinnati, OH-based lender has an impressive earnings surprise history. Its earnings beat estimates in the trailing four quarters, the surprise being 7.91%, on average.

Fifth Third Bancorp Price and EPS Surprise

Loans & NII: On Sept. 18, the Federal Reserve cut interest rates by 50 basis points to 4.75-5% for the first time since March 2020. While the rate cut is not expected to significantly affect FITB's NII in the quarter under review, greater clarity on the Fed's rate cut path, along with a stabilizing macroeconomic environment, is likely to have aided the lending outlook. 

Per the Fed's latest data, lending activities continued at a decent pace in the third quarter. This is expected to have supported the company's average interest-earning assets in the third quarter of 2024.

The Zacks Consensus Estimate for average interest-earning assets of $195 billion for the quarter indicates marginal growth from the prior quarter's actual. Our estimate suggests the metric to be $194.21 billion.

FITB expects third-quarter total average loans and leases to be unchanged from the second quarter's reported figure of $117.3 billion. We estimate the metric to be $117.1 billion, hinting at a marginal rise from the prior quarter's reported figure.

The company expects adjusted NII to rise 2% from the $1.39 billion reported in the second quarter of 2024. The consensus mark for NII of $1.42 billion indicates a 2.7% sequential rise. Our estimate is pegged at $1.44 billion.

Non-Interest Revenues: The stabilizing deposit balance is likely to have supported FITB's service charges on deposits. The consensus estimate for the metric of $156.4 million suggests a marginal sequential increase. Our estimate is pegged at $149.6 million.

Global mergers and acquisitions (M&As) showed signs of improvement in the third quarter of 2024 after subdued performances in 2023 and 2022. Both deal value and volume were decent in the quarter, driven by a solid financial performance, higher chances of a soft landing of the U.S. economy, buoyant markets and interest rate cuts. 

With increased M&A volumes, advisory revenues are expected to have improved, positively impacting commercial banking revenues.

The Zacks Consensus Estimate for commercial banking revenues is pegged at $156.1 million, indicating an 8.4% sequential increase. We project the metric to be $149.9 million.

As the central bank lowered the rates, mortgage rates started to come down. The rates declined to 6.2% by the end of the third quarter. 

Though mortgage origination volume remained subdued in the third quarter, refinancing activities witnessed a significant surge, supported by lower mortgage rates. This is likely to have supported FITB's mortgage banking income. The Zacks Consensus Estimate for the metric is pegged at $55 million, suggesting an increase of 10% from the prior quarter's reported figure. We estimate the metric to be $56.2 million.

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 $159.7 million, increasing marginally from the prior quarter's actual. Our estimate is pinned at $152.1 million.

The Zacks Consensus Estimate for card and processing revenues is pegged at $108.9. million, indicating a marginal rise from the prior quarter's reported figure. Our estimate is pinned at $104.3 million.

Management expects non-interest income to rise 3-4% in the quarter to be reported, whereas it reported $717 million in the second quarter. The Zacks Consensus Estimate for non-interest income is pegged at $735.3 million, which indicates a 5.8% rise from the prior quarter. Our model estimates the metric to be $711 million.

Expenses: The company's expense base is anticipated to have escalated due to investments aimed at operational efficiencies in technology and marketing, higher compensation and benefits expenses, and initiatives such as branch digitization and marketing expenses. 

On a sequential basis, management expects adjusted non-interest expenses to rise 1% from the $1.2 billion reported in the second quarter. We estimate total expenses to rise 6.5% on a sequential basis to $1.3 billion.  

What the Zacks Model Reveals for FITB

According to our quantitative model, the chances of Fifth Third beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of two key ingredients, a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: The Earnings ESP for Fifth Third is -0.24%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

The Zacks Consensus Estimate for FITB's third-quarter earnings of 82 cents per share has been unchanged in the past seven days. The figure indicates a fall of 10.9% from the year-ago reported number.

The consensus estimate for revenues is pegged at $2.6 billion, suggesting a rise of 0.09% from the year-ago reported figure. Management expects total revenues to increase 2-3% in the third quarter from $2.2 billion in second-quarter 2024.

Stocks That Warrant a Look

Here are some bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post earnings beat this time around.

PNC Financial's PNC Earnings ESP is +0.89% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2024 results on Oct. 15.

PNC's quarterly earnings estimates have revised upward by 1.5% to $3.29 per share over the past month.

First Horizon Corporation FHN has an Earnings ESP of +3.18% and a Zacks Rank #3 at present. The company is scheduled to release its third-quarter 2024 earnings on Oct. 16.  

FHN's quarterly earnings estimates have been unchanged at 38 cents over the past month.

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