Fifth Third Earnings: Net Interest Income Will Likely Bottom Soon

Key Morningstar Metrics for Fifth Third Bancorp

• Fair Value Estimate: $35.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Fifth Third Bancorp’s Earnings

Fifth Third Bancorp FITB reported decent third-quarter earnings per share of $0.91, beating the FactSet consensus estimate of $0.82 and our estimate of $0.85. The outperformance was largely driven by lower provisioning, with fees, expenses, and net interest income, or NII, all coming in close to our expectations. After factoring in these results and updated guidance from management, NII is trending toward the midrange of the bank’s previous guidance, flat fees are trending as expected, and expenses are trending toward the high end of the previous guidance range.

These are minor differences, and we would describe current results as meeting expectations. Management now expects NII to trough in the first quarter of 2024, which is better than some regional peers that don’t yet have clarity on when their NII will bottom.

Deposit costs came in within our expectations. Higher funding costs have been a common pattern among the regional banks this quarter, and Fifth Third was no exception. The bank grew deposit balances by 2% sequentially, mostly driven by CDs and money market deposits. A bright spot was that this quarter’s decrease in demand deposit accounts, or DDA, was the smallest since the interest rate hike cycle began, which leads us to believe we are close to some sort of deposit equilibrium in the DDA migration.

As we incorporate these results and management’s updated outlook, we do not expect a material change to our $35 per share fair value estimate. Current exit rates for 2023 NII support our 2024 projections, and while fees are not super strong, we suspect our 2024 expense forecast for 5% growth may be too high. The fourth-quarter guidance update will be more important for 2024 expenses, and we expect the bank will aim to limit expenses due to a lack of expected 2024 NII growth, driven by the rate environment and minimal loan growth. We believe shares remain undervalued and see Fifth Third maintaining reasonable levels of profitability and meeting regulatory requirements over time.