Weak Asset Quality to Hurt Fifth Third's Q4 Earnings, Fee Income to Aid

Core Viewpoint - Fifth Third Bancorp (FITB) is expected to report fourth-quarter 2024 results on January 21, with anticipated revenue growth but a decline in earnings year-over-year [1][17]. Financial Performance - In the last reported quarter, FITB's earnings exceeded the Zacks Consensus Estimate, driven by increased loan balances and strong capital ratios, although net interest income (NII), fee income, and higher expenses negatively impacted results [2]. - The bank has a history of earnings surprises, beating estimates in the last four quarters with an average surprise of 5.77% [2]. Loans and Net Interest Income - The Federal Reserve's interest rate cut of 50 basis points to 4.25-4.5% in the fourth quarter is expected to stabilize funding costs and improve lending conditions [3]. - Lending activities remained strong, supporting average interest-earning assets estimated at $197 billion, with a projected increase to$198 billion [4]. - FITB anticipates total average loans and leases to be flat to up 1% from the previous quarter's $117.4 billion, estimating$118.6 billion [5]. - Adjusted NII is expected to rise 1% from $1.43 billion in the third quarter, with the Zacks Consensus Estimate at$1.44 billion [5]. Non-Interest Revenues - Service charges on deposits are likely to benefit from stabilizing deposit balances, with a consensus estimate of $163.8 million, indicating a 1.8$165.5 million, reflecting a 1.5% sequential increase, while the estimate is $170.9 million [8]. - Mortgage banking income is expected to rise, with a consensus estimate of$52.71 million, suggesting a 5.4% increase from the prior quarter [10]. - Wealth and asset management revenues are projected to increase to $169.4 million, a 4$109.6 million, indicating a 3.4% rise from the prior quarter [12]. - Non-interest income is expected to rise 3-4% from $748 million in the third quarter, with a consensus estimate of$770.3 million, indicating an 8.3% rise [13]. Expenses and Asset Quality - FITB's expenses are anticipated to increase due to investments in technology and marketing, with adjusted non-interest expenses expected to remain flat at $1.2 billion, while total expenses may rise 6.5$1.3 billion [14]. - The bank is likely to set aside significant provisions for potential bad loans, with non-performing assets estimated at $776.9 million, a 5.9$2.2 billion, a 2.4% increase from the previous year [17]. - The Earnings ESP for FITB is -0.08%, indicating low chances of beating the consensus estimate [16].