Fifth Third Bancorp (FITB) Earnings

Management highlights

• Tim Spence noted Fifth Third prioritizes stability, profitability, and growth. Reported earnings per share of $0.15 or $0.83 excluding certain items. Revenue up 33% y-o-y, adjusted net income up 38%. Credit performance in line with expectations. Closed largest M&A transaction. Adjusted ROA 1.12%, adjusted ROTCE 13.7%. Tangible common equity ratio rose to 7.3% and tangible book value per share increased 1%. • Legacy Fifth Third C&I loan balances grew 6% y-o-y. Commercial payments' Newline revenue up 30%, deposits up $2.7 billion y-o-y. Launched new payment product and advanced preparations for Direct Express platform. • Consumer had 3% household growth and 4% DDA balance growth. Southeast households grew 8%, 10 additional branches opened. Consumer and small business loans grew 7%. • Comerica integration on track with timely regulatory approvals. Focus on people, organizational design and leadership decisions complete. Technology conversion on track. Already building revenue synergy pipeline. • Evaluating impact of global economy on energy, commodities, prices, interest rates, and customer activity.

Guidance

• Updated full year NII outlook to $8.7 billion to $8.8 billion. • Full year average total loans remains in mid $170 billion range. • Full year noninterest income expected to be $4.0 billion to $4.2 billion. • Full year noninterest expense expected to be $7.2 billion to $7.3 billion, including $210 million of CDI amortization and $360 million of net expense synergies. • Guide implies full year adjusted PPNR, including CDI amortization, up approximately 40% over 2025. • Expect full year net charge-offs between 30 and 40 basis points. • Updated CET1 operating target to 10% to 10.5%. • Expect to resume regular quarterly share repurchases in second half of 2026. • Second quarter expected average loans $178 million to $179 million, NIM expanding 3 to 5 basis points, noninterest income $1 billion to $1.06 billion, noninterest expense $1.87 billion to $1.89 billion, net charge-offs 30 to 35 basis points.

Segment performance

In the quarter, revenue was $2.9 billion, up 33% year-over-year. Adjusted net income was $734 million, up 38%. In commercial, legacy Fifth Third C&I loan balances grew 6% year-over-year. Commercial payments' Newline revenue up 30% with deposits up $2.7 billion year-over-year. In Consumer, legacy Fifth Third franchise delivered 3% household growth and 4% DDA balance growth. Southeast households grew 8%. Consumer and small business loans grew 7%. Comerica integration on plan with $360 million net cost savings expected this year and $850 million annual run rate by fourth quarter. Commercial loan growth from relationship-based lending. Commercial payments saw progress with clients interested in moving forward. Consumer deposit campaign in Texas had positive response.

Risks & headwinds

• Tech conversion risk in Comerica integration, as a mistake could lead to service or processing issues. • Potential risks in private credit lending due to structural complexity and hard-to-assess risks through a cycle. • Regulatory arbitrage and competition risks related to capital rules and how different banks opt in or out of certain regulations.

Analyst Q&A

• Q: As you highlighted, this is the biggest acquisition in your firm's history. What's incremental in the last 3 months that you think is maybe going better than expected and where are you seeing snags?

  A: Tim Spence said core integration has gone well with no big surprises. Positive surprise in Texas and Southeast with promotional mailings getting good response. Snag is internal civil war on preferences.

• Q: How do you manage the transition from Comerica accounts to Fifth Third accounts after Labor Day?

  A: Tim Spence said tech conversion is a key risk, but they are mindful and will execute well.

• Q: Speak to the underlying drivers in the core margin.

  A: Bryan Preston said they are asset sensitive, expect additional improvement from fixed rate asset repricing, loan spreads are competitive but not irrational, deposit competition varies by market.

• Q: When looking at utilization trends, give color on legacy Fifth Third and legacy Comerica.

  A: Bryan Preston said utilization is fairly consistent across platforms, middle market customers more active, rebound from corporate bank perspective, and less loan growth from private equity or private capital.

• Q: On credit quality, any color on commercial and industrial and CRE?

  A: Timothy Spence said majority of increase in 30 to 89 delinquency was due to 2 credits where payments got made on April 1.

• Q: Talk about Southeast strategy and branch relevance in Texas 5 years from now.

  A: Bryan Preston said conversion of relationships into core checking accounts is important, and branches play a role in driving response rates to direct marketing with a nonlinear decay function.

• Q: On liquidity rules and EBA, do you think it creates disincentive or negative credit selection?

  A: Bryan Preston said still evaluating if to opt in to era, and it's not a big driver, and there are regulatory arbitrage aspects.

• Q: On full synergies and EPS, do you see upside?

  A: Bryan Preston said there is upside as they are seeing early revenue synergies.

• Q: On repositioning Comerica's balance sheet, how quickly to get back to neutral?

  A: Bryan Preston said moving a little slower due to higher for longer rate environment but with flexibility to accelerate.

• Q: On deposit cost outlook with no Fed cuts?

  A: Bryan Preston said they think they can maintain deposit costs in a normalized growth environment.

• Q: On fee side upside, any outlook?

  A: Bryan Preston said there is opportunity for fee growth as businesses have been doing well and investments are in place.

• Q: On purchase accounting accretion schedule?

  A: Bryan Preston said it's about $12 million in first quarter, will burn down gradually, mainly from commercial portfolio.

• Q: On buyback in second half and CET1?

  A: Bryan Preston said expected normalized buyback run rate of $200 million to $300 million, dependent on organic growth.

• Q: On NBFI reserve allocation?

  A: Bryan Preston said not seeing need to build significant reserves as the portfolio is well secured and performing.