Fifth Third Earnings: Solid Net Interest Margin, but Loan Demand Softens

Key Morningstar Metrics for Fifth Third Bancorp

• Fair Value Estimate: $37.00
• 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 decent second-quarter results. Net interest income held up as growth in net interest margin offset modest balance sheet shrinkage. Overall, there was little in the release that would alter our long-term view of the firm. We will maintain our no-moat rating and fair value estimate of $37 per share.

Net interest income was up 1% sequentially. Net interest margin of 2.89% was up from 2.86% in the first quarter and the recent low of 2.85% in the fourth quarter. Deposit cost pressures are easing, and loan mix changes and rate repricing are helping on the asset side. Partially offsetting NIM expansion was balance sheet shrinkage. Average interest-earning assets declined by 0.4%. Customer demand for credit remains subdued, though interest-rate cuts may help this. Fifth Third still expects net interest income to be down 2%-4% in 2024, but it now expects average loans to decrease 3% versus a previous expectation of 2%.

Adjusted noninterest income was flat sequentially as higher service charges and interchange revenue were offset by lower mortgage banking revenue. Fifth Third tweaked its outlook for 2024 noninterest income to be stable to down 1% versus a previous expectation of up 1%-2%, partly due to softening credit demand resulting in lower fees.

Credit trends were generally healthy and mostly showed improvement from the first quarter. Nonperforming loans declined sequentially, and the percentage of loans 30-89 days past due declined. While net charge-offs rose in the quarter, this ratio can be lumpy, and the increase was due to two specific commercial loans. Consumer charge-offs declined. Fifth Third still expects net charge-offs to be 0.35%-0.45% for the year, which feels reasonable.