Fifth Third Bancorp (FITB) Earnings & Analysis

Latest quarter

Fifth Third reported third-quarter revenue of $3.28 billion, up 42.7% from a year earlier but 1.74% below the consensus estimate of $3.34 billion. Adjusted earnings per share were $1.13, above the $1.09 consensus; reported diluted earnings per share were $0.90, compared with $0.91 a year earlier.

On the earnings call, CFO Bryan Preston said net interest income rose 3% from the second quarter as loan growth, investment activity and repricing of fixed-rate assets offset some higher deposit costs. He said adjusted noninterest income rose 33% from a year earlier and 1% sequentially, with wealth, commercial banking and mortgage revenue contributing to the quarterly increase.

Preston said adjusted noninterest expense fell 2% sequentially to $1.82 billion as merger synergies reduced compensation and benefits costs. He reported net charge-offs of 31 basis points and said average core deposits increased 3% sequentially to $236 billion.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Tim Spence said Fifth Third had completed the Comerica technical conversion and would focus on organic growth and market share. He said the conversion brought approximately 600,000 accounts and 293 banking centers onto the bank’s systems, while 82 centers were decommissioned. CFO Bryan Preston said the remaining expense synergies would follow through system decommissioning, staffing changes and branch consolidations.

Preston said commercial lending led loan growth, with total commercial loan production double the year-earlier quarter. He said average core deposits funded loan growth and replaced wholesale borrowing, although promotional pricing and the migration of Comerica investment sweeps raised deposit costs. The bank moved those products onto its balance sheet during conversion, he said.

Asked about deposit growth, Spence said the sweep migration accounted for about 45% of the quarter’s increase and that some of those deposits could move into other forms of liquidity. He identified the Southeast, Texas, commercial payments and innovation banking as sources of future deposit growth. Spence said Fifth Third sees innovation banking as a $10 billion deposit opportunity by 2030.

Preston said higher rates weighed on capital markets fees but would support net interest income. He said Fifth Third had begun reducing its sensitivity to further rate changes through securities purchases and cash-flow hedges. In response to a question about clients, he said most were continuing with investment plans, while the bank was paying particular attention to consumer discretionary businesses and interest-rate-sensitive borrowers.

Asked about reinvestment after the acquisition, Preston said Fifth Third had delivered its $850 million synergy target and was using some additional savings for marketing and sales hiring in expanded markets. He said the company wanted to run at a 53% efficiency ratio over the longer term while continuing to invest in growth.

Guidance

Preston said the fourth-quarter outlook puts full-year net interest income and implied pre-provision net revenue at the high end of the ranges Fifth Third gave in January for the combined company. In July, he had raised the full-year net interest income range to $8.74 billion-$8.8 billion.