What Fifth Third Bancorp (FITB) Said on Its Q3 Earnings Call

Key Points

• Fifth Third’s third-quarter performance strengthened: Adjusted EPS was $1.13, adjusted PPNR rose 8% sequentially to $1.5 billion, and the bank completed the major technical conversion related to its Comerica acquisition.
• Merger synergies and fourth-quarter growth remain central: Fifth Third said gross Comerica synergies reached the low $900 million range, exceeding its $850 million target, and expects fourth-quarter adjusted PPNR to increase 9% to 10%, with net interest income up 2.5% to 3.5%.
• Loan, deposit and expansion trends were positive while credit stayed stable: Loans grew 1% and core deposits 3% sequentially, with strong momentum in Texas; net charge-offs remained low at 31 basis points, and the bank plans to repurchase $200 million to $300 million of stock in the fourth quarter.

Fifth Third Bancorp NASDAQ: FITB reported third-quarter earnings per share of $0.90, or $1.13 excluding certain items, as the regional bank completed the technical conversion tied to its acquisition of Comerica and continued to post loan and deposit growth.

Chairman, CEO and President Tim Spence said the Labor Day weekend conversion represented the largest and most complex integration in the company’s 168-year history. The bank onboarded about 600,000 accounts and 293 banking centers while decommissioning 82 locations, following more than 4 million employee hours of conversion preparation, he said.

Adjusted pre-provision net revenue increased 8% from the second quarter to $1.5 billion. Adjusted revenue rose 2% sequentially while adjusted expenses fell 2%, aided by expense-synergy realization. Fifth Third said adjusted return on tangible common equity was 20.6%, adjusted return on assets was 1.41%, and its adjusted efficiency ratio was 54.6%.

Integration advances and fourth-quarter outlook

CFO Bryan Preston said the Labor Day conversion was the final major technical-integration step and that the remaining expense savings from the Comerica transaction are expected to emerge in the fourth quarter. He said the company had delivered on its $850 million synergy target and had exceeded that amount on a gross basis, reaching the “low 900s,” while reinvesting some savings into marketing and hiring.

Fifth Third recorded $215 million in merger-related charges during the quarter, primarily associated with systems conversion, bringing year-to-date merger-related charges to about $1.1 billion. The company continues to expect about $1.3 billion in total merger-related charges, with substantially all remaining charges expected in the fourth quarter.

For the fourth quarter, Fifth Third expects:

• Average loan growth of 1% to 2% sequentially, led by commercial lending.
• Net interest income growth of 2.5% to 3.5% sequentially.
• Adjusted non-interest income growth of 2% to 4%.
• Adjusted non-interest expense to decline 2% to 3%.
• Adjusted PPNR growth of 9% to 10% from the third quarter.
• Net charge-offs of 30 to 35 basis points.

Preston said the fourth-quarter outlook assumes the forward curve at the start of October, including a 25-basis-point interest-rate increase in December. The company expects fourth-quarter net interest margin to be at or above 3.40%.

Fifth Third expects its 2026 exit-rate profitability to meet or exceed the 19% ROTCE and 53% efficiency-ratio targets it outlined when announcing the Comerica deal. The bank plans to provide a full 2027 outlook with fourth-quarter results in January.

Loans, deposits and interest income

Net interest income rose $56 million sequentially to $2.28 billion, driven by organic loan growth, investment portfolio activity and repricing of fixed-rate assets. Net interest margin declined 2 basis points to 3.34%, though Preston said it would have increased about 2 basis points excluding elevated cash related to the conversion of Comerica investment-sweep products onto the balance sheet.

Fifth Third added $2.5 billion to its held-to-maturity securities portfolio at an average yield of 4.9% and added $7 billion of receive-fixed cash-flow hedges during the quarter. The actions were intended to reduce some of the bank’s asset sensitivity following higher market rates, though management said the balance sheet remains asset sensitive and could benefit from further rate increases.

Average portfolio loans rose 1% sequentially to $179 billion, while period-end loans reached $180 billion. Commercial loan growth was concentrated in commercial and industrial lending and construction. Preston said commercial loan production was double the level recorded a year earlier, with broad-based activity across regions and industry verticals.

Average core deposits increased 3% sequentially to $236 billion. The migration of Comerica investment sweeps onto the balance sheet contributed $3 billion of deposits. Average non-interest-bearing deposits increased slightly and represented 27% of core deposits.

Consumer deposit growth was 5% sequentially in the Southeast and 23% in the Southwest. At Sept. 30, the Southwest represented 10.4% of consumer deposits, up from 7.6% at the end of the first quarter. Total deposit costs increased 9 basis points sequentially to 1.64%, reflecting retail promotional pricing and the investment-sweep migration.

Spence said Fifth Third ranked first in its retail footprint and third nationally for year-over-year retail-deposit growth using a capped-branch deposit methodology. In Dallas and Houston, retail deposits increased more than 20% year over year, and the bank gained more than 40 basis points of market share, he said.

Texas expansion and revenue opportunities

Management highlighted Texas as a major expansion opportunity following the Comerica acquisition. Fifth Third now ranks seventh in Dallas and eighth in Houston, according to Spence, before the planned opening of 150 de novo branches in Texas over the next three years. The first Texas de novo branch is expected to open in the third quarter of 2027.

Spence said the company added roughly 80 to 85 middle-market relationships in Texas since the acquisition closed on Feb. 1. He attributed the pace to additional lending capacity and a broader product set, including equipment leasing, capital-markets products and commercial payments.

Fifth Third also formally launched Innovation Banking, which combines Comerica’s technology and life-sciences business with Fifth Third’s payments, digital, investment banking and wealth-management capabilities. The bank expects the business to represent a $10 billion deposit opportunity by 2030, in addition to other potential revenue sources.

Adjusted non-interest income totaled $1.05 billion, increasing 1% sequentially and 33% from the prior year. Growth in wealth, commercial banking and mortgage revenue offset a 5% decline in capital-markets fees, which fell to $147 million as lower merger-and-acquisition advisory and loan-syndication activity outweighed higher corporate-bond fees.

Credit quality and capital

Credit performance remained stable, with net charge-offs of $139 million, or 31 basis points, up 1 basis point from the prior quarter. The nonperforming loan ratio increased 1 basis point to 59 basis points. The nonperforming asset ratio increased 4 basis points to 64 basis points, though Fifth Third said most of the increase reflected $58 million of consolidated branch and corporate real estate tied to the merger.

The allowance for credit losses was $3.1 billion, or 1.74% of portfolio loans, down 2 basis points sequentially. Management said it remains cautious toward consumer-discretionary businesses, interest-rate-sensitive borrowers, leveraged lending and unproven asset classes. Private-credit exposure represented less than 1% of total loans at quarter-end.

Common equity tier 1 capital ended the quarter at 10%, up 9 basis points and within the company’s 10% to 10.5% operating range. Fifth Third deferred a small share repurchase that had been planned for September due to the sharp increase in longer-term rates, but expects to repurchase $200 million to $300 million of stock in the fourth quarter depending on organic loan-growth levels. The company also raised its quarterly common dividend 5% to $0.42 per share in September.

About Fifth Third Bancorp (NASDAQ:FITB)

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. Its principal subsidiary, Fifth Third Bank, provides banking and financial services to individuals, businesses, government entities and institutional clients.

The company's offerings include checking and savings accounts, consumer and commercial lending, mortgages, credit and debit cards, treasury management, cash management and payment-processing services. Through its wealth and asset management businesses, Fifth Third also provides investment management, brokerage, trust, private banking and financial planning services.

Fifth Third primarily serves customers across the Midwest and Southeast, with a branch and banking-center network spanning states including Ohio, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, South Carolina, Tennessee and West Virginia.

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