Fifth Third Bancorp Q1 Earnings Preview: Higher Rates Could Boost Guidance (Rating Upgrade)

seekingalpha04-16

Fifth Third Bancorp's Q4 results were strong, beating estimates and showing stable deposits and moderate credit costs.Investors will be focused on net interest income, deposit levels/costs, and loan ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2427829696?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458955825/image_458955825.jpg","is_english":true,"pubTime":"2024-04-16 20:29","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2427829696","market":"hk","top_or_hot":-1,"title":"Fifth Third Bancorp Q1 Earnings Preview: Higher Rates Could Boost Guidance (Rating Upgrade)","media":"seekingalpha","content":"<div>\n<p>Fifth Third Bancorp's Q4 results were strong, beating estimates and showing stable deposits and moderate credit costs.Investors will be focused on net interest income, deposit levels/costs, and loan ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683983-fifth-third-bancorp-q1-earnings-preview-higher-rates-boost-guidance-rating-upgrade\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Fifth Third Bancorp Q1 Earnings Preview: Higher Rates Could Boost Guidance (Rating Upgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nFifth Third Bancorp Q1 Earnings Preview: Higher Rates Could Boost Guidance (Rating Upgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-16 20:29 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4683983-fifth-third-bancorp-q1-earnings-preview-higher-rates-boost-guidance-rating-upgrade><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Fifth Third Bancorp's Q4 results were strong, beating estimates and showing stable deposits and moderate credit costs.Investors will be focused on net interest income, deposit levels/costs, and loan ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683983-fifth-third-bancorp-q1-earnings-preview-higher-rates-boost-guidance-rating-upgrade\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0170899867.USD","symbol_name":"EASTSPRING INVESTMENTS WORLD VALUE EQUITY  \"A\" (USD) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4683983-fifth-third-bancorp-q1-earnings-preview-higher-rates-boost-guidance-rating-upgrade","article_id":"2427829696","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458955825/image_458955825.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2427829696","pubTimestamp":1713270566,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Fifth Third Bancorp's Q4 results were strong, beating estimates and showing stable deposits and moderate credit costs.Investors will be focused on net interest income, deposit levels/costs, and loan l","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0170899867.USD":"EASTSPRING INVESTMENTS WORLD VALUE EQUITY  \"A\" (USD) ACC","BK4211":"区域性银行","NYCB":"纽约社区银行","NIM.AU":"NIMY RESOURCES LTD","BK7095":"多种金属与采矿","BK4207":"综合性银行","BK4195":"互助储蓄与抵押信贷金融服务","NIM":"纽文精选市政基金","FITB":"五三银行","BK4585":"ETF&股票定投概念","IEF":"债券指数ETF-iShares Barclays 7-10年","BK4588":"碎股"},"translate_title":"Fifth Third Bancorp Q1收益预测：加息可能提振指引（评级上调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FITB":1,"IEF":1,"NIM":1,"NIM.AU":1,"NYCB":1,"US6M.BOND":0.6,"US30Y.BOND":0.6,"US7Y.BOND":0.6,"US912796CX52.BOND":0.6,"US912797FH58.BOND":0.6,"US912797FS14.BOND":0.6,"US912797GB79.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HH31.BOND":0.6,"US5Y.BOND":0.6,"US3Y.BOND":0.6,"US2Y.BOND":0.6,"US12M.BOND":0.6,"US10Y.BOND":0.6},"content_text":"Fifth Third Bancorp's Q4 results were strong, beating estimates and showing stable deposits and moderate credit costs.Investors will be focused on net interest income, deposit levels/costs, and loan losses in Q1 results.Higher rates may be a capital headwind for the company, but they are likely an earnings tailwind, due to higher net interest income.At 10x earnings, FITB shares are attractive.   RiverNorthPhotographyShares of Fifth Third Bancorp (NASDAQ:FITB) have recovered meaningfully from levels seen last year in the wake of Silicon Valley’s failure, though they have been stuck around $34 for essentially all of 2024. Since rating shares a hold in January, FITB has basically tread water while the S&P has rallied modestly. With Q1 earnings set to be released on Friday April 19th, now is an opportune time to preview the release and determine how to trade shares. I am increasingly optimistic. Seeking AlphaFifth Third Bancorp's Q4 results were strong Before turning to what we expect, it is worth remembering what Fifth Third most recently reported. The company beat estimates by $0.09, earning $0.99 in adjusted EPS. The bank’s net interest margin (NIM) continued to compress, but at only 13bp, the pace of compression is getting better, suggesting we could be near a bottom.   Fifth Third BancorpImportantly, FITB has been a major outperformer on the deposit front, growing deposits 3% from last year, even as the industry saw deposits decline. I have viewed stable deposits as a prerequisite for investing in the sector, given how critical deposits are to a bank’s funding profile. This is one test FITB passes well, aided by its Sunbelt exposure, where growth has been faster. Of course, these deposits cost much more, at 3%, rising 24bp sequentially.   Fifth Third BancorpFinally, credit quality was strong with charge-offs ticking down to 32bp from 41bps. Nonperforming loans though did tick up to $649 million. However, FITB has been well reserved for losses with $2.5 billion in provisions. At nearly 4x coverage, FITB is well situated relative to the ~250% coverage ratio I view as sufficient. Across the board, these were encouraging results. The worst of the pressure on NIM has been felt, deposits are stable, and credit costs are moderate. On top of this, it guided to $300-400 million in share repurchases during the second half of the year, given the strength in results. While these results were impressive and buyback came sooner than I expected, I felt shares were largely pricing this in, which is why I rated FITB a “hold,” which has proven a fair rating over the past three months What to look for in FITB's Q1 earnings results Currently, analysts are expecting FITB to earn $0.72 in adjusted EPS in Q1. In January, I estimated FITB had $3.20 in earnings power, and consensus currently sits at $3.21. Below you can see the company’s initial guidance for the year. I believe investors will be most focused on three items: net interest income, deposit levels/costs, and loan losses. Given how much the macro environment has shifted, there are likely some fears about losses and hopes for interest income. Fifth Third BancorpLet me begin with where I have the least concern, and that is credit quality. The issues at New York Community Bancorp (NYCB) have heightened worries that have been longstanding about commercial real estate (CRE). Office in particular is worth less than pre-COVID, and higher rates are also reducing valuations further. I expect the banking industry to face losses as a result, but I believe FITB is relatively well positioned here. Fifth Third BancorpFITB has just $11 billion (~9%) of non-owner occupied CRE and just 14% of its loans are in commercial real estate overall. 30% of this is multifamily, largely in the Southeast, which I am comfortable with as an asset class given favorable population dynamics. While the NYC rent-controlled multifamily market faces challenges due to new legislation, this is a local issue, not relevant to FITB’s portfolio. With 1% of loans to office, even a meaningful default rate here would be manageable. With reserves already elevated, I expected another solid quarter on the credit quality front. I view NIM and deposits as intrinsically related, since deposits are the primary source of funding. In Q1, deposits often fall, as they tend to rise in December due to year-end window dressing and associated activity, and then they normalize in Q1. I would view deposit growth sequentially as a very impressive result, and ~$1 billion in deposit outflow as in keeping with seasonal trends. A bigger outflow would be disappointing. A key question is deposit costs. At the start of the year, it seemed like the Fed could cut rates 4-6 times, and now 0-2 appears the likeliest outcome. This may mean deposit costs stay higher for longer. Still with Fed holding rates flat, we should see the pace of deposit cost increases slow materially. After a 24bp rise in Q4, I would view an 8-12bp rise as the key benchmark. If we see that, NIM should compress by less than 5bp from Q4 levels, and likely be at or 1 quarter away from a bottom. This will tell us whether guidance for a 2-4% drop in net interest income for the year will need to change. FITB should, in my view, see a net benefit from higher rates. While it has a $57 billion fixed-rate securities portfolio and $11 billion in fixed rate swaps, its loan book is largely floating rate. Assuming a 1/3 beta to rates on its deposits, FITB has a net exposure of about $40-50 billion to floating rates. If the Fed funds rate is 40bp higher this year on average, that should be a ~$125-150 million benefit to net income, or about $0.20 a share. As such, I see risks skewed to FITB raising its net interest income guidance alongside results. The leading reason why this would not happen is if it is having to raise deposit rates substantially faster than I expect, offsetting the higher interest income on its loan book. That is why I view deposits as so important and why I expect FITB to boost guidance. Capital will come into focus While higher rates are a benefit for the company’s earnings power, in my view, they are likely to be a capital headwind. As such, I will be closely listening for any changes to share repurchase guidance. FITB had 10.3% CET1 in Q4 from 9.8% Q3. It targeted 10.5% by midyear, which would allow it to do buybacks. However, these calculations exclude accumulated other comprehensive income (AOCI). As a bank with over $100 billion in assets, FITB needs to begin phasing this into its calculations at the end of 2025. As noted above, FITB has a $57.4 billion securities portfolio. Because it bought these bonds at lower yields, it has a $4.1 billion loss. If this were to be included in capital calculations today, its CET1 would be 7.7%, quite low. As you can see below, given maturities and the pull to par as bonds near maturity, at the 12/31/23, forward curve, this loss would shrink to $2.8 billion by the end of next year, leaving it with 8.5% in capital. If rates stayed flat, the loss would shrink by $300 million less, leaving it with 8.2-8.3% in capital. Of course, it can also retain earnings to build capital on top of this. Fifth Third BancorpIn reality, bond yields have risen so far this year. This means, its AOCI loss is likely to stay larger for longer. I would note though that yields have been rising since 3/31. As you can see, the 7-10 year treasury (IEF) has lost nearly 5% of its value YTD, but this was down just 2% during Q1. Seeking AlphaIn other words, FITB’s reported 3/31 AOCI loss is likely smaller than where it currently sits today. I emphasize this because FITB is building extra capital (going to 10.5%) in order to prepare for this phase-in of AOCI. If AOCI is larger than previously assumed, FITB will need to hold more ex-AOCI capital for longer, which could delay share repurchases by a quarter or two. Fifth Third’s prior guidance of “second half” repurchases of $300-400 million is fairly wide, and so I would not expect the company to materially shift it, particularly as rates could fall again. Additionally, higher net interest income helps to offset some of these losses. Still, there is a risk that FITB cautions buybacks could be slower if rates continue to move higher. I expect it to continue to guide to 2024 buybacks though, even if language softens somewhat. Regardless, I view its 4% dividend as safe. Conclusion  I expect FITB to raise net interest guidance but potentially caution about capital returns. If I am correct on this guidance change, FITB could be positioned to earn $3.30-$3.40 this year from $3.20 previously. That leaves shares just above 10x earnings, which I view as relatively cheap given it strong deposit base and benefit from higher rates. After consolidating at $34-36, I believe earnings could be a catalyst to push shares higher. With most regional banks trading 10-12x earnings, I can see FITB moving toward the top end of this range or closer to $39, providing 12.5% upside and a 16-17% total return including dividends. As such, I am upgrading shares to a buy ahead of earnings.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2427829696"}