FIFTH THIRD BANCORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Stability and Profitability: Earnings per share were $0.78, return on equity was 12.8%, adjusted efficiency ratio improved to 56.1%, and headcount declined 1% year-over-year despite growth investments.
• Strategic Investments: Continued investments in growth strategies, with 19 de novo branch openings in Q4 and plans to accelerate branch openings in the Southeast through 2028.
• Financial Results: Adjusted revenue grew 3% sequentially, pre-provision net revenue grew 5% sequentially, net interest income was over $1.4 billion with net interest margin improving 2 basis points.
• Credit Quality: Net charge-off ratio was 48 basis points, early stage delinquencies were near decade lows, and NPAs increased but remained below peer median.

Segment Performance

• Consumer Bank: Consumer households grew 2.7% year-over-year, with 6% household growth in the Southeast. Retail deposits grew nearly 16% year-over-year and gained market share in 14 of 15 focused MSAs in the Southeast.
• Commercial Bank: Middle market loan production was the highest in five quarters, led by Southeast markets with 20% sequential growth and over 30% year-over-year growth. Commercial Payments business grew net fee equivalent revenues by 10% year-over-year, processing $4.3 trillion in dollar volume.
• Wealth and Asset Management: Record quarterly revenues grew 12% year-over-year. Total assets under management grew $12 billion to $69 billion, up 21% year-over-year.

Guidance

• Fourth Quarter: Anticipates continued growth in NII and NIM, with NII up 1% sequentially, adjusted noninterest income up 3%-4%, and positive operating leverage in Q4.
• Full Year: PPNR guidance remains in line with January guidance, net interest income trajectory positions for record results in 2025.
• Share Repurchases: Increased share repurchases in Q4 to $300 million, with potential further repurchases based on loan growth.

Risks

• Economic Uncertainty: Crosscurrents such as interest rate reversals, job report volatility, inflation stickiness, and geopolitical uncertainty.
• Credit Risks: Some consumer segments like dividend and RV underperforming, but outperforming securitization indexes.
• Regulatory and Competitive Risks: Impact of other banks' regulatory issues and competition from non-bank lenders like private credit with less structured lending practices.

Question and Answer

Q: Scott Siefers asks about the main points in the Q4 NII guide and deposit betas.

A: Bryan Preston responds that they feel good about the trajectory of NII and deposit betas, with $35 billion of index deposits having their beta realized and $13-14 billion of CDs maturing soon.

Q: Gerard Cassidy inquires about the impact of a normal yield curve on net interest income.

A: Bryan Preston and Tim Spence respond that a normal yield curve would be productive, providing benefit from fixed rate asset spreads, duration in the security portfolio, and swap portfolio over time.

Q: Mike Mayo follows up on loan production being flat despite signs of life.

A: Bryan Preston explains paydowns and revolver utilization headwinds, but expects normalization and improved loan growth ahead.

Q: Ebrahim Poonawala asks about Shared National Credit book runoff and competition from non-bank lenders.

A: Tim Spence and Bryan Preston discuss the inflection point on RWA impact and private credit's less structured lending practices not aligning with Fifth Third's portfolio standards.

Q: Erika Najarian asks about deposit beta pacing and natural deposit rates.

A: Bryan Preston discusses promotional offer guarantee periods, CD maturities, and the potential for maintaining a 150-200 basis point deposit spread.

Q: Christopher Marinac asks about new business opportunities from other banks' regulatory orders.

A: Tim Spence responds that regulatory issues create marginal opportunities for well-positioned banks like Fifth Third.

Q: Mike Mayo follows up on adjusted returns and lower interest rates.

A: Bryan Preston states that a normalized yield curve would be helpful for returns, while a low flat curve is challenging.