Fifth Third Bancorp (FITB) is scheduled to report its third-quarter 2014 results on Oct 16.
Fifth Third managed to deliver a positive earnings surprise of nearly 9% in second-quarter 2014. Earnings per share came in at 49 cents, beating the Zacks Consensus Estimate by 4 cents. Results were supported by lower expenses and increased net interest income, partially offset by lower non-interest income and higher provision for credit losses.
Will Fifth Third miss on earnings this quarter? Let’s see how things have shaped up.
Factors to Influence Q3 Results
The overall banking sector did not witness any significant change in the third quarter from the second. While soft trading volumes, high legal costs, lower fixed income were on the downside, the quarter was characterized by increased mergers and acquisitions (M&A) and IPOs, aggressive cost control measures, and a favorable equity and asset market backdrop.
In the second-quarter 2014 Earnings Conference Call, Fifth Third chief financial officer (CFO) Tayfun Tuzun provided an updated outlook for the full-year 2014.
For full-year 2014 net interest income (NII) is expected to increase about 2% from the 2013 NII of $3.6 billion. The increase is expected to stem from loan growth and higher investment securities balances, partially offset by elevated funding costs and some additional loan spread compression. Moreover, NII is expected to rise throughout 2014.
Net interest margin for the full year is expected to be approximately 315 basis points, to be impacted by lower margin, liquidity coverage ratio (LCR)-related portfolio investments and loan spread compression.
Management expects mid single-digits loan growth for full-year 2014 primary reflecting growth in C&I loans along with commercial real estate loans.
Further, reflecting the current mortgage environment and exit from the broker channel, management expects low-double-digit decline in total fee income in 2014 compared with adjusted fee income in 2013, which includes negative impact from the charges to Vantiv equity method income and bank-owned land totaling $29 million.
Mortgage banking is expected to remain relatively flat versus the second quarter for the remainder of 2014. Excluding mortgage, it expects fees to grow in the mid-single-digits in aggregate in 2014 versus 2013 with growth in all fee categories.
Further, management expects low single-digit growth in deposit fees, although commercial service charges are growing at a mid single-digit pace. Investment advisory revenue growth is anticipated in the mid single-digit range with strong growth in asset management fees and more moderate growth in brokerage income. Moreover, corporate banking revenue growth is expected to be around 10%.
It anticipates 2014 expenses to decline in the mid-single-digits or about 5%, relative to the reported 2013 expenses. Expenses in the third quarter are expected to be up slightly from $893 million core expenses reported in the second quarter, excluding any unforeseen one-time items.
Overall, management anticipates achieving positive core operating leverage in 2014, excluding Vantiv. Moreover, the efficiency ratio is projected to move below 60% in the second half of 2014.
Management expects overall credit trends to remain favorable in 2014. However, the ongoing benefit of improvement in credit results is expected to be partially offset by new reserves related to loan growth.
While apart from expenses, nothing was specifically stated for the third-quarter results, we believe the upcoming release will show progress in achieving its full-year targets.
Activities of Fifth Third during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined slightly to 43 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Fifth Third is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Fifth Third is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 43 cents per share.
Zacks Rank: Fifth Third’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
BB&T Corporation (BBT) has an earnings ESP of +1.41% and carries a Zacks Rank #3. It is scheduled to report results on Oct 16.
Capital One Financial Corporation (COF) has an earnings ESP of +2.08% and carries a Zacks Rank #2. It is scheduled to report results on Oct 16.
CIT Group Inc. (CIT) has an earnings ESP of +3.37% and a Zacks Rank #3. It is slated to report results on Oct 28.
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