Fifth Third Earnings: Solid Quarter and Mostly Healthy Credit Metrics

Key Morningstar Metrics for Fifth Third Bancorp

• Fair Value Estimate: $35.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Fifth Third Bancorp’s Earnings

Fifth Third Bancorp FITB reported a solid end to 2023. Fourth-quarter adjusted earnings per share of $0.99 beat the FactSet consensus estimate of $0.77, and revenue of $2.17 billion was slightly ahead of the consensus estimate of $2.16 billion. We attribute the beat to lower provisioning and a lower tax rate. Fifth Third’s provision in the quarter was $55 million, down from $119 million in the third quarter. Given the slowing macroeconomic environment and commercial real estate exposures, many banks have been increasing their provision for loan losses. The firm’s tax rate of 18.4% benefited from a $17 million favorable tax resolution. Overall, the company’s 2024 revenue outlook was in line with our expectations. As we incorporate fourth-quarter financial results, we do not expect a material change to our fair value estimate of $35 per share.

Net interest income declined 2% sequentially, a decent result and a modest change compared with what some other banks have reported. Noninterest income was up 3% sequentially, as commercial banking revenue and mortgage revenue were partially offset by lower lease revenue. For 2024, net interest income is expected to decline 3% at the midpoint, which implies $5.67 billion, a tad better than our $5.63 billion estimate. However, the firm’s 2024 noninterest income outlook of $3.00 billion was a hair below our $3.05 billion estimate.

Net charge-offs were $96 million, down from $124 million in the prior quarter, driven by commercial loans and partially offset by higher consumer net charge-offs. Overall, the firm’s charge-off ratio declined to 0.32% from 0.41%. We note, however, that the nonperforming loan ratio increased to 0.57% from 0.47%. We view nonperforming loans as a leading indicator for charge-offs.