Fifth Third Earnings: Net Interest Income Shines on Wider Margins

Key Morningstar Metrics for Fifth Third Bank

• Fair Value Estimate: $43.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Fifth Third Bank’s Earnings

Fifth Third Bancorp FITB reported decent second-quarter results. Earnings per share came in at $0.88, up from $0.71 in the first quarter and $0.82 a year ago, driven predominantly by seasonal effects surrounding compensation ratios and revenue acceleration, respectively.

Why it matters: Fifth Third has bolstered its net interest income prospects by upgrading the balance sheet, as positive deposit and loan book trends have culminated in raised guidance on net interest income growth at the midpoint, from 5.5%-6.0%, essentially in line with our forecast. Net interest margin of 3.12% was up from 3.03% in the first quarter.

• While average deposits sequentially fell by less than 1%, non-interest-bearing deposits sequentially grew by 3%, driving non-interest-bearing deposits to 25% of the firm’s mix (up from 24.2% in the first quarter). This has the potential to improve future net interest margins.
• Capital was recycled at higher rates as the loan book grew modestly during the quarter, driving 5 basis points of asset yield improvement, which we viewed favorably, as elevated uncertainty in the business environment has historically muted lending volume.

The bottom line: As we digest these results, we maintain our $43 fair value estimate and view shares of no-moat Fifth Third as fairly valued.

Key stats: Credit trends were a bright spot this quarter, as the credit quality of the balance sheet improved in nearly every key metric.

• Nonperforming and delinquent (30-89 days past due) loans sequentially ticked down by 9 and 8 basis points to 0.70% and 0.23%, respectively, to go along with a net chargeoff ratio that also ticked down further to 0.45%.
• Adjusted non-interest income was up 3.0% in the quarter, and the firm lowered its midpoint outlook for 2025 to 1.5% from 2.0% as capital markets activity remains subdued.