Before dropping its largely as-expected earnings results on Friday morning, the company's stock slid nearly 6% Thursday, in line with the KBW Regional Banking Index, as concerns about souring loans at regional banks whirled through Wall Street.

But in its third quarter, Fifth Third's bottom line beat the consensus analyst estimate, while some parts of its business, such as fee income, were stronger than others, like credit quality, per the company's Friday morning earnings report.

CEO Tim Spence said in a Friday morning prepared statement that the $212 billion-asset bank's results underscore its "diverse revenue streams and disciplined expense management."

"Our ongoing investments in strategic growth priorities continue to drive robust results," he said. "By focusing on high-quality deposits, diversified loan originations, recurring fee revenue and consistent improvements in operating scalability, we expect to continue to generate strong, stable through-the-cycle returns for our long-term shareholders."

Credit concerns

Last month, Fifth Thirdannounced it would take a roughly $200 million credit hit due to its exposure to Tricolor Holdings, a subprime auto company that filed for bankruptcy amid allegations of fraud. A handful of banks said they would take losses tied to the collapsed company, including JPMorgan Chase, which logged a $170 million charge in its third quarter.

The total impact of Tricolor's fallout is still unfolding in court, and through Department of Justice investigations into the company. On Thursday, after two other midsize banks announced credit exposures to different borrowers alleged to have committed fraud, markets battered the industry.

But all considered, "the whole thing didn't end up costing them that much," wrote Brian Foran, an analyst at Truist Securities, about Fifth Third in a Friday morning note. And the bank logged quarterly improvement in nonperforming loans.

Fifth Third reeled in net income of $608 million in the third quarter, or 91 cents per diluted share, beating the consensus analyst estimate of 86 cents per share. Since Fifth Third's disclosure about Tricolor, the consensus estimate for the bank's earnings had fallen; the pre-loss consensus had been 94 cents per share.

Strategic moves

The company's earnings report comes just weeks after it announced plans to acquire Comerica Bank in Dallas for nearly $11 billion. Spence said in an interview at the time that the deal will unlock a major middle market expansion for Fifth Third across certain states, including Texas, Michigan.

"This is officially the biggest thing we've ever done as a company, by any measure," Spence said then. "So it is number one, two and three for us, in terms of the focus."

Comerica, which also reported third-quarter earnings on Friday, also beat consensus analyst estimates for its bottom line.

"Expenses and provision are a little better, fees are a little worse," Foran said in his note. "Credit looks mostly fine."

For Comerica, the transaction will provide a healthy supply of retail deposits from Fifth Third, which the Ohio bank has worked to build in recent years. Fifth Third said last year that it would build 200 branches by 2028, adding at the time that it was remixing its footprint so that 50% of its locations would be in the Southeast. Last week, the bank said that it would also add at least 150 new branches in Texas before starting to grow its footprint in California.

Many banks have made moves to alter their deposit franchises in recent years, after interest rates rapidly rose in 2022 and 2023 — putting pressure on deposit costs — and the mini banking crisis in Spring 2023 fueled concerns about liquidity.

At Fifth Third, deposits in the latest quarter were up 1% from the prior quarter, driven by growth in money market and demand deposits, while savings and interest checking balances fell. From the prior year, deposits were down 1%, as the bank pared back brokered deposits and certificates of deposit over $250,000.

Although deposit costs for the quarter were up 2 basis points from the prior quarter, that still represents a 60 basis-point decline from a year ago.

The bank has also continued to work on increasing its earnings streams, especially in wealth and asset management, capital markets and commercial payments. Fee revenue made up about one-third of total adjusted revenue in the last year.

Noninterest income of $781 million, up 5% from the prior year, saw boosts from last year in mortgage banking net revenue and wealth and asset management fees. From the second quarter, capital markets fees were up 28%.

Total loans were also up 6% from the prior year, mostly due to growth in commercial and industrial lending and consumer lines like indirect secured consumer lending, home equity and residential mortgage lending.