Fifth Third Earnings: Net Interest Income Outlook Softens; Shares Still Undervalued

No-moat-rated Fifth Third reported second-quarter earnings per share of $0.82, missing the FactSet consensus and our own estimate of $0.88. The miss was largely driven by weaker net interest income, or NII, of $1.46 billion compared with our estimate of $1.50 billion, along with slightly lower fees and slightly higher expenses. Higher funding costs have been a common pattern for the regional banks this quarter, and Fifth Third was no exception, as it reduced its NII outlook to up 3%-5% from up 7%-10% last quarter and raised its deposit cost estimates. While we were already at the lower end of the previous guidance range, projecting a 7% increase for the full year, we now expect to dial back our NII projections a bit more. As we think ahead, we are hoping that NII will bottom out in the fourth quarter and may even be somewhat resistant to rate cuts in 2024, if they happen.