Fifth Third Earnings: A Few Puts and Takes, but No Major Changes to Our Outlook

Key Morningstar Metrics for Fifth Third Bancorp

• Fair Value Estimate: $39.00
• 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 an alright third quarter. Net interest income grew 2% sequentially, which we see as a good result. Fee revenue (excluding the Visa V swaps) was decent, and the firm’s outlook improved. However, expenses came in slightly above our expectations. As we incorporate these results, we do not expect a material change to our fair value estimate of $39 per share.

NII was driven up by a slight rise in net interest margin and balance sheet size, along with the benefit of an additional day in the quarter. We see deposits as a bright spot, as the firm lessened its use of non-core deposits (CDs over $250,000), which have higher rates. In addition, non-interest-bearing deposits only declined modestly (0.6%).

Adjusted fee revenue grew 2%, as service charges and asset-based fees performed well. Leasing business revenue was down as the firm deemphasized the business. We also note that Fifth Third does not have a large investment banking business, so fee revenue is not benefiting much from the pickup in deal activity.

Adjusted non-interest expenses were up 2% sequentially as compensation and technology investment spending offset a decline in marketing expenses. Fifth Third expects fourth-quarter expenses to be flat sequentially, and we view this as in line with prior guidance.

Credit trends were mostly normal. Nonperforming assets as a percentage of the total ticked up to 0.62% from 0.55% at the end of the second quarter, but this was in line with historical averages. Net charge-offs of $142 million were roughly flat sequentially.