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Fifth Third (FITB) Lowers Q2 NII, Loan & Deposit Guidance
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Fifth Third Bancorp (FITB - Free Report) presented weaker-than-expected second-quarter 2023 guidance for adjusted net interest income (NII) at the Morgan Stanley US Financials, Payments & CRE Conference.
Management stated that adjusted NII is anticipated to be down 4-5% sequentially in the current quarter. This overrides the adjusted NII guidance of a decline of around 1% reported during the first-quarter earnings conference call.
Further, management lowered its full-year adjusted NII expectations. Currently, it anticipates growth in the metric in the range of 3-5%, which is below the prior expectation of a rise of 7-10%.
On the earnings conference call in April, management forecast adjusted total revenues to be stable sequentially during second-quarter 2023. However, now the metric is estimated to decline in the range of 2-3% sequentially.
Nonetheless, FITB reiterated its guidance regarding total non-interest income, which is expected to grow 2-3% sequentially. We believe that the projected decline in adjusted revenues is most likely due to the slump in NII.
Apart from top-line guidance revisions, Fifth Third has moderately reduced its average loan and deposit growth expectations for the current quarter. Per management, average loans and leases as well as average deposits are anticipated to remain stable during the quarter, weakening its earlier guidance of stable to up 1% for both metrics.
Though Federal Reserve kept interest rates unchanged in the latest Federal Open Market Committee meeting, rates are expected to remain high (currently the Fed Fund rates are at a 15-year high of 5-5.25%) in the near term.
In the first quarter of this year, FITB witnessed a rise in NII and margins, supported by growth in loan balances and higher interest rates. However, while interest rates are expected to remain high, loan growth is likely to slow down owing to lower consumer spending. Given the muted growth in loans and a rise in deposit costs, the company’s NII is not expected to be positively impacted.
Following the banking crisis and hovering recession fears, growth in deposits seems challenging. In fact, during first-quarter 2023, average deposits declined sequentially.
Given these challenges, FITB recapitulates creating an allowance for credit losses of approximately $100 million.
Despite the tough operating backdrop, Fifth Third is likely to get support from its diversified revenue sources. Over the years, the company has expanded its fee-income base on strategic acquisitions.
Over the past three months, shares of FITB have declined 2% against the industry’s rise of 3.7%.
Amid the current challenging economic environment, most banks are providing bleak near-term outlook.
Recently, at the Morgan Stanley U.S. Financials, Payments & CRE Conference, KeyCorp (KEY - Free Report) presented weaker-than-expected second-quarter guidance for NII.
KEY’s CEO Chris Gorman noted that NII will come much lower than previously expected. NII is anticipated to slide 12% sequentially, which is substantially below the 4-5% fall guided on the first-quarter earnings conference call.
Truist Financial (TFC - Free Report) management projected a modest decline in NII on higher deposit and funding costs. At the Bernstein Strategic Decisions Conference in May-end, TFC’s CEO Bill Rogers commented that deposit costs are turning out to be a bit higher than previously expected.
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Fifth Third (FITB) Lowers Q2 NII, Loan & Deposit Guidance
Fifth Third Bancorp (FITB - Free Report) presented weaker-than-expected second-quarter 2023 guidance for adjusted net interest income (NII) at the Morgan Stanley US Financials, Payments & CRE Conference.
Management stated that adjusted NII is anticipated to be down 4-5% sequentially in the current quarter. This overrides the adjusted NII guidance of a decline of around 1% reported during the first-quarter earnings conference call.
Further, management lowered its full-year adjusted NII expectations. Currently, it anticipates growth in the metric in the range of 3-5%, which is below the prior expectation of a rise of 7-10%.
On the earnings conference call in April, management forecast adjusted total revenues to be stable sequentially during second-quarter 2023. However, now the metric is estimated to decline in the range of 2-3% sequentially.
Nonetheless, FITB reiterated its guidance regarding total non-interest income, which is expected to grow 2-3% sequentially. We believe that the projected decline in adjusted revenues is most likely due to the slump in NII.
Apart from top-line guidance revisions, Fifth Third has moderately reduced its average loan and deposit growth expectations for the current quarter. Per management, average loans and leases as well as average deposits are anticipated to remain stable during the quarter, weakening its earlier guidance of stable to up 1% for both metrics.
Though Federal Reserve kept interest rates unchanged in the latest Federal Open Market Committee meeting, rates are expected to remain high (currently the Fed Fund rates are at a 15-year high of 5-5.25%) in the near term.
In the first quarter of this year, FITB witnessed a rise in NII and margins, supported by growth in loan balances and higher interest rates. However, while interest rates are expected to remain high, loan growth is likely to slow down owing to lower consumer spending. Given the muted growth in loans and a rise in deposit costs, the company’s NII is not expected to be positively impacted.
Following the banking crisis and hovering recession fears, growth in deposits seems challenging. In fact, during first-quarter 2023, average deposits declined sequentially.
Given these challenges, FITB recapitulates creating an allowance for credit losses of approximately $100 million.
Despite the tough operating backdrop, Fifth Third is likely to get support from its diversified revenue sources. Over the years, the company has expanded its fee-income base on strategic acquisitions.
Over the past three months, shares of FITB have declined 2% against the industry’s rise of 3.7%.
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Currently, Fifth Third carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Amid the current challenging economic environment, most banks are providing bleak near-term outlook.
Recently, at the Morgan Stanley U.S. Financials, Payments & CRE Conference, KeyCorp (KEY - Free Report) presented weaker-than-expected second-quarter guidance for NII.
KEY’s CEO Chris Gorman noted that NII will come much lower than previously expected. NII is anticipated to slide 12% sequentially, which is substantially below the 4-5% fall guided on the first-quarter earnings conference call.
Truist Financial (TFC - Free Report) management projected a modest decline in NII on higher deposit and funding costs. At the Bernstein Strategic Decisions Conference in May-end, TFC’s CEO Bill Rogers commented that deposit costs are turning out to be a bit higher than previously expected.