Fifth Third Earnings: Mostly Solid Start to 2024

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 a decent start to 2024. First-quarter revenue was 1% above the FactSet consensus estimate. GAAP earnings of $0.70 per share beat the FactSet consensus estimate of $0.67. Noncore items were a $0.06 drag, by our calculations, so we view the EPS beat as closer to $0.09 than $0.03. We think net interest income was healthy, and we would also note that the net interest margin ticked up slightly to 2.86% from 2.85% in the fourth quarter, after several quarters of declines. Adjusted expenses declined 1%, highlighting management’s focus on increasing efficiency. If there was one blemish, it was credit trends, which we think were still healthy even though they worsened.

Fifth Third largely maintained its 2024 outlook of an NII decline of 2%-4% and adjusted noninterest income increasing 1%-2%. We are maintaining our fair value estimate of $37 per share and view the company’s stock as fairly valued.

NII declined 2% sequentially, driven by lower average assets and there being one fewer day in the quarter. Noninterest income was down 5% sequentially but up 2% from the year-ago period. Amid muted acquisition activity, commercial banking revenue has been soft, while higher mortgage rates have softened mortgage banking revenue. On the positive side, higher markets relative to prior periods are helping wealth and asset management revenue.

While credit quality is not yet overly concerning, credit metrics did worsen in the quarter. Nonperforming loans increased to 0.61% from 0.55% in the fourth quarter. In addition, net chargeoffs increased to 0.38% from 0.32% in the previous quarter and 0.26% in the year-ago period. Interestingly, the increase in nonperforming assets was driven by senior living and retail. Fifth Third still expects 2024 net chargeoffs to be between 0.35% and 0.45%, which seems reasonable to us.