Fifth Third Bancorp is bracing for slower growth in a relatively light but possibly prolonged recession.
Assuming interest rate hikes taper off this year, the Cincinnati bank is forecasting a slower pace of net interest income growth and for noninterest income to stabilize after declining early in the year.
During a fourth-quarter earnings call with analysts Thursday, Fifth Third CEO Tim Spence said the economy might be entering a "slow grind" period of still-elevated interest rates as well as "more tepid" and "below-trend" growth.
"I expect the rate of inflation to moderate," Spence said during an interview following the $206 billion-asset bank's earnings presentation. "But inflation could continue for a longer period of time than what the equity markets appear to be pricing."
After fourth-quarter net interest income rose 32% from the year-ago period to $1.6 billion, Fifth Third set full-year 2023 NII guidance at 13% to 14% growth. Noninterest income is expected to be "relatively stable" after a decline of as much as 7% in the first quarter, while noninterest expenses are projected to rise up to 5% throughout the year.
Fifth Third also forecasted the pace of loan growth to decline in 2023. Average loans grew 11% to $121.4 billion in the fourth quarter compared with the same period last year but is projected to increase by up to 4% this year.
Much of that loan growth is expected to be driven by Fifth Third's portfolio company Dividend Finance, which has expanded over the last year to become the nation's third-largest originator of residential solar loans.
The bank added around $100 million to its allowance for credit losses, which Spence attributed more to Dividend's loan growth than Fifth Third's increase in net charge-offs by eight basis points to 0.22%.
Overall, Fifth Third's total fourth-quarter revenue of $2.3 billion was 16% higher than in the same period last year, while noninterest expenses of $1.2 billion increased 1%.
The bank reported $737 million in net income, an 11% increase from the fourth quarter of 2021, and a net margin expansion of 80 basis points to 3.35%.
Fifth Third's fourth-quarter earnings per share of $1.01 was slightly above the average estimate of $1.00 from analysts surveyed by FactSet Research Systems.
