Fifth Third Bancorp reports third-quarter profit of $828 million as Comerica conversion completes

Fifth Third Bancorp (FITB) said Monday in a regulatory filing that net income available to common shareholders was $828 million, or $0.90 per diluted share, for the three months ended Sept. 30.

Adjusted earnings per share were $1.13, excluding $0.23 of certain items, the company said in a press release attached to the filing.

Here's how the company did:

• Earnings per share, diluted: $0.90 vs. $0.83 a quarter earlier and $0.91 a year earlier
• Net income available to common shareholders: $828 million vs. $763 million a quarter earlier and $608 million a year earlier
• Total revenue (FTE): $3.28 billion vs. $3.28 billion a quarter earlier and $2.31 billion a year earlier
• Noninterest expense: $2.05 billion vs. $2.11 billion a quarter earlier and $1.27 billion a year earlier

Pre-tax merger-related charges were $225 million in the quarter. The company's adjustments for certain items totaled $0.23 per diluted share.

Net interest income (FTE) rose 3% sequentially to $2.28 billion. The company attributed the increase to higher market rates, continued fixed-rate asset repricing, active investment portfolio management and loan growth.

Those gains were partly offset by higher deposit costs and the migration of former off-balance-sheet Comerica investment sweep balances into interest-bearing deposits. Compared with a year earlier, net interest income rose 49%, mainly reflecting the addition of Comerica Incorporated.

Noninterest income was $1.01 billion, down 5% from the prior quarter and up 29% from a year earlier. Excluding certain items, it rose 1% sequentially to $1.05 billion.

Noninterest expense fell 3% sequentially to $2.05 billion, driven mainly by lower compensation and benefits of $982 million. Technology and communications expense rose 20% to $300 million, which the filing ties to conversion-related technology costs.

Excluding certain items and non-qualified deferred compensation, noninterest expense was $1.82 billion, down 2% sequentially.

The provision for credit losses was $122 million, down from $129 million a quarter earlier and $197 million a year earlier. Net charge-offs were $139 million, or 0.31% of average portfolio loans and leases, compared with 0.30% in the prior quarter.

A year earlier, the net charge-off ratio was 1.09%. According to the filing, that figure included a $178 million asset-backed finance charge-off. Excluding that credit, the year-ago ratio was 0.52%.

Average portfolio loans and leases were $179 billion, up 1% sequentially and 45% from a year earlier. The filing attributes the sequential growth to about $1.5 billion in commercial loan and lease growth, while average consumer loans were broadly stable.

Average deposits rose 3% sequentially to $238 billion, reflecting operational deposit growth, a Southwest retail deposit campaign and the migration of former Comerica sweep balances. Period-end deposits were $239 billion.

The CET1 capital ratio rose to 10.02% from 9.93% in the prior quarter. Fifth Third did not repurchase common shares during the quarter or year to date. Cash dividends were $0.42 per common share, compared with $0.40 in the prior quarter and the year-ago quarter.

Return on average tangible common equity was 16.6%, compared with 15.6% a quarter earlier. Adjusted return on assets was 1.41%, which the company's presentation says is the highest since the fourth quarter of 2022.

Fifth Third Chairman, CEO and President Tim Spence said the quarter "reflected the earnings power of the combined company" and that adjusted returns and the efficiency ratio improved from the second quarter while the company integrated Comerica.

"Multiple sources of low-cost deposits and limited exposure to the borrowers most sensitive to higher rates give us flexibility regardless of the rate environment," Spence said.

The company said it completed the Comerica systems conversion and that the full $850 million expense synergy run-rate is locked in for the fourth quarter. Merger-related charges recognized in noninterest expense totaled about $1.04 billion year to date.

For the fourth quarter, the company's outlook as of Oct. 19 calls for average loans and leases to rise 1% to 2%. It projects net interest income to rise 2.5% to 3.5% from a third-quarter baseline of $2.28 billion, assuming a year-end federal funds rate of 4.25%.

The company also projects noninterest income to rise 2% to 4% from a $1.05 billion baseline, and noninterest expense to fall 2% to 3% from a $1.82 billion baseline. Net charge-offs are forecast at 30 to 35 basis points, and the effective tax rate at 22.5%.

Consumer and Small Business Banking's pre-tax income rose to $656 million from $616 million a quarter earlier. Commercial Banking's fell to $818 million from $840 million, and Wealth and Asset Management's fell to $106 million from $118 million.