FIFTH THIRD BANCORP Q1 FY2024 earnings call

Key Points - Earnings per share was $0.70, with adjusted EPS of $0.76 excluding certain charges. - Adjusted return on equity and return on assets were the highest among peers and most stable compared to Q1 2023. - Net interest margin improved due to stabilizing deposit costs. - Treasury management and wealth and asset management fees were strong, with treasury management revenue up 11% YOY and wealth and asset management fees up 10% YOY. - Credit performance was stable, with zero net charge-offs in commercial real estate. - Expenses were well controlled, down 1% YOY. - Southeast de novo branches exceeded expectations, with Florida being the top-performing market and Fifth Third named number one for retail banking customer satisfaction in Florida by J.D. Power.

Net interest income for the quarter was $1.4 billion. Interest-bearing deposit costs increased only 1 basis point sequentially, and net interest margin improved 1 basis point. Treasury management revenue grew 11% year-over-year, driven by software-enabled managed services payments offerings and Newline. Wealth and asset management fee revenues grew 10% year-over-year. End-of-period deposits grew, with 3% annualized consumer household growth and 7% growth in Southeast markets. Loan balances were down 1% compared to the prior quarter, but middle market loan growth was solid in certain regions like Tennessee, the Carolinas, Kentucky, Indiana, and Texas.

Forward-Looking Statements - Full year average total loans expected to be down 2% compared to 2023, primarily due to 2023 RWA diet impact and lower mortgage production. - NII expected to decrease 2% to 4%, with NII and NIM troughs behind us. - Adjusted non-interest income expected to be up 1% to 2% in 2024. - Full year adjusted non-interest expense expected to be up 1% compared to 2023. - Net charge-offs outlook remains in the 35 basis point to 45 basis point range. - Resumes share repurchases of $300 million to $400 million in the second half of 2024, including $100 million to $200 million in the third quarter.

Risks - Potential reacceleration of deposit competition, which could impact NII performance. - Economic and geopolitical uncertainties, including inflation, deficit spending, and green energy investments being inherently inflationary in the medium term, which could affect the overall economic environment and bank performance.

Q: Mike Mayo asks about interest-bearing deposit cost increase of 1 basis point quarter-over-quarter and its sustainability.

A: Bryan Preston responds that the bank early on aggressively grew deposits, viewing it as a long-term strategy, with some costs from promo balances but ability to manage and recycle interest expense, though noting risk of reacceleration of competition.

Q: Scott Siefers inquires about middle market growth and reserve building.

A: Bryan Preston explains that the reserve release this quarter was due to a better economic outlook from Moody's and end-of-period loan decrease, with a guide to zero to $25 million build in the next quarter.

Q: Gerard Cassidy asks about Moody's outlook and time to meet return thresholds for new clients.

A: Tim Spence and Bryan Preston discuss Moody's baseline scenario not expecting significant slowdown in 2024, with payments clients meeting return thresholds quickly and credit clients taking time but with strong discipline.

Q: Ebrahim Poonawala asks about macro outlook and buybacks.

A: Tim Spence states the bank remains cautious on the macro outlook but is confident in capital generation for share repurchases in the second half of 2024.

Q: John Pancari asks about NII outlook and credit migration.

A: Bryan Preston talks about fixed rate asset repricing benefit, and Greg Schroeck mentions credit migration being lumpy with no linear trend.

Q: Ken Usdin asks about fixed rate repricing in 2025 and liquidity rules.

A: Bryan Preston says there will be similar repricing in 2025 and the bank is well positioned for liquidity rules.

Q: Vivek Juneja asks about Southeast deposits and solar loan growth.

A: Bryan Preston discusses Southeast deposits, and Tim Spence and Greg Schroeck talk about solar loan growth and credit performance.

Q: Manan Gosalia asks about deposit competition and business model evolution.

A: Bryan Preston talks about deposit competition trends, and Tim Spence discusses industry consolidation and business model focus.

Q: Christopher Marinac asks about risk grades in criticized and classifieds.

A: Greg Schroeck says it will be lumpy, but the C&I portfolio is behaving well.