FIFTH THIRD BANCORP Q1 FY2025 earnings call

• Performance Overview: Earnings per share exceeded consensus, PPNR grew, adjusted ROE was strong, and tangible book value increased. - Loan Growth: Total loans grew 3% year over year, driven by multiple factors like middle market C&I, leasing, and consumer secured lending. - Net Interest Margin: Expanded for the fifth consecutive quarter, and NII grew faster than the balance sheet. - Deposits: Core deposits were stable with growth in household and Southeast regions. - Business Segments: Commercial payments grew 6%, wealth and asset management revenue grew 7% with AUM up 10%, and adjusted fees (excluding securities) grew 1%. - Expense Management: Expenses were flat versus the prior year, with positive operating leverage and continued progress on value streams.

In the quarter, Fifth Third achieved earnings per share of $0.71 or $0.73 excluding certain items, exceeding consensus estimates. PPNR grew 5% year over year, and adjusted return on equity was 11.2%. Tangible book value per share grew 15% over the prior year. Total loans grew 3% year over year, driven by strong middle market C&I production, pickup in leasing activity, and balanced growth across consumer secured lending categories. Net interest income (NII) grew 4% year over year as net interest margins expanded for the fifth consecutive quarter. Adjusted fees excluding securities gains and losses were up 1% versus the prior year. Commercial payments grew 6%, and wealth and asset management revenue grew 7% supported by 10% growth in AUM. Core deposits were stable with 2% total household growth and 5% growth in the Southeast. In terms of revenue contribution, loan growth, NII, and various fee - related segments contributed to the overall financial performance.

• Net Interest Income: Expect full - year NII to increase 5% to 6%, and it can achieve record NII even with no further loan growth and no interest rate cuts. - Loan Growth: Full - year average total loans are expected to be up 4% to 5% compared to 2024, driven by loan production and utilization in C&I and continued growth in auto loans. - Non - Interest Income: Full - year adjusted non - interest income is expected to be up 1% to 3%. - Non - Interest Expense: Full - year adjusted non - interest expense is expected to be up just 2% to 3% compared to 2024. - Credit: 2025 net charge - offs are expected to be in the 48 to 49 basis point range. - Second Quarter Outlook: NII is expected to be up 2% to 3% from the first quarter, average total loan balances to increase 1%, adjusted non - interest income (excluding securities losses) to be up 2% to 6% sequentially, adjusted non - interest expense to be down 5% compared to the first quarter, and charge - offs to be in the 45 to 49 basis point range.

• Economic Uncertainty: Uncertainty in tariff policies and their second - order effects on economic activity, fiscal, and monetary policy are risks. - Capital Markets: Slowdown in capital markets activity due to economic uncertainty impacts wealth and asset management revenue. - Loan Portfolio: Certain ABL loans in the C&I portfolio may pose some risks, but the overall portfolio is being closely monitored.

Q: Tim, can you share with us your interactions with your commercial customers and, you know, since obviously, these changes in the economic environment and the outlook is very uncertain due to the tariffs. Can you talk to us about, you know, how uncertain your clients are, number one? But number two, can you also play into that? Are the customers, your commercial customers, in a better position today because they went through the pandemic? They needed to get lean during the pandemic. And the lessons they learned there can be applied today as we go forward in this uncertain environment?

A: Yeah. That's a great question. I wish I could say I had the crystal ball, and it's the reason we scheduled my travel the way we did. But, ironically, Gerard, I have been in five of our regions since the liberation day announcements. I had the opportunity to speak with something on the order of fifty different business owners, most of which ironically were in, like, materials, manufacturing, transportation logistics, energy. And a few folks in automotive and health care and other sectors. I would say the magnitude of the tariff announcement caught them all by surprise. The base level ten percent reciprocal, the ten percent import tariff wasn't surprising. It was all of the other activity. The magnitude's probably split basically fifty-fifty between those who interpreted the announcement as a negotiating tactic and believe that we're gonna settle out in a much more reasonable place that may actually give American producers better access to foreign markets. And the fifty percent who are really nervous that the tariffs, in particular tariffs that impact major supply chain countries like China, Vietnam, the Pacific Rim, and otherwise, are gonna stick at more elevated levels. I would say, universally, their belief is that the only way they really have to respond in the near to medium term is to push prices. So folks with international supply chains will need to push prices to cover tariffs. They can absorb it in margins. Many of them are tussling with retail distribution partners who are pressuring to absorb some or all of the costs, but they believe that because these are structural changes that manufacturing really do believe they're gonna be able to push the price. What was maybe a little bit interesting to me is that the folks that have domestic supply chains were also saying they have to move prices in the US because they're expecting that if the tariffs hold, they're gonna experience volume losses in foreign markets, and they're gonna need to make up. They require a certain amount of gross margin dollars just to be able to cover overhead and run their businesses. The other thing I would say is most of them are not waiting for the tariff rates to be finalized to start work on pricing. A lot of them require, like, their contracts with their distribution partners require sixty-plus day price change notices. And, therefore, they're gonna have to move. I would tell you that they're probably the folks who are gonna try to figure out how to make changes to supply chain definitely have the benefit of having had COVID as a fire drill. But the winners there, the single biggest shift really were folks diversifying out of China and into countries like Vietnam that now have very high reciprocal tariffs, or in the routing of the logistics. Right? A lot of the goods came out of China and hit a port in Mexico and then were dropped over the border. And if the broader tariff regime sticks, there really isn't gonna be a way to reconfigure your supply chain to avoid it entirely. So what a lot of them are doing is moving on price and then holding on any sort of major structural plans. Because the timeline required to get, like, a plant opened in the US or to move your production so that you're producing Asia for Asia and the US for US and Europe for Europe, it's, like, two to three years once you make the investment before you can even get something open and then five to seven years to get a return on investment. And nobody wants to make an investment like that if they're not convinced that whatever the tariff regime is that is supporting it, isn't durable yet. So, you know, my only, to be honest, I guess, the silver lining here, there wasn't a single client who indicated that they are working on layoffs. Like, it says decline in legal immigration since the beginning of the year has meant there just aren't as many job seekers. So I think we'll see a decline in job openings, but if our clients are any indicator, that unemployment rate may be a little bit more range-bound than some of the economists are thinking. But it does feel like barring a significant change in terms of the proposal versus whatever tariffs become effective in ninety days, we're gonna see inflation pick up. We're gonna see growth come down, but we may see unemployment, you know, in order. So that's what I'm hearing.

Q: Ebrahim Poonawala of Bank of America asked about the two ABL credits that drove NPLs higher and the solar panel lending business. Can you talk about the ABL loans and the solar lending business?

A: Greg Schroeck responded: Yeah. Yeah. It's Greg. I'll take that and thanks for the question. Obviously, something I pay a lot of attention to is NPAs. As Bryan mentioned in the opening remarks, it was two credits, two ABL loans that primarily drove our NPA increase. Our ABL portfolio is a traditional ABL portfolio lending against receivable inventory and the like. We did very little over formula advance. Advances and it's very minimal. So we're well secured. We stay within assets. It's a portfolio that over the last six years, we've had very minimal loss content. Like six basis points on average per annual loss rate. But as you know, as we work through borrowers that are experiencing financial difficulty, sometimes that means agreeing to work out plans that put these loans into non-accrual status. However, that often leads to borrowers regaining financial stability and can ultimately lead to reduced losses. I'll also add each of the credits in our NPA portfolio is individually evaluated. Financial risk assessment has already been captured in our results through recognized charge-offs or specific reserves that are included in the quarter-end allowance for loan credit losses. So I'm not overly concerned with the increase. We obviously pay a lot of attention to it, but also, as Bryan mentioned, we're not changing the charge-off guide for the second quarter. We're not changing it for the year. We're gonna work through these credits. We've got good visibility on about 40% of our total NPAs that we think will see resolution over the next couple of quarters. So we're making good progress. Bryan mentioned our criticized assets are down for the second consecutive quarter. You know, that tends to be a pipeline into NPAs. So given the current environment, I'm not seeing anything that would lead me to be concerned that we're gonna continue to see increases in this NPA portfolio. And as I said, we got about 40% visibility on the NPA portfolio that we think gets resolved in a relatively short period of time. The overall portfolio remains in excellent shape. Bryan mentioned our criticized assets, 87% of our criticized assets, including NPAs, are current. So I feel good about that. Our consumer portfolio continues to perform very well. Net charge-offs, 30 to 89-day delinquencies, 90-day delinquencies, NPA, all the consumer book down for the quarter. So overall, I feel good about the overall health and performance of the portfolio. Regarding the solar panel lending business, Tim Spence said: Yes. Maybe one point, Greg, and then Greg should address the credit risk. The policy risk in the solar lending portfolio is on future origination volumes. It's not on existing credit performance. The tax credits on any solar panels that were installed previously and are generating energy have been awarded. So, you know, we're mindful of where the investment tax credit settles out. We have the ability because we're a bank and we are the bank, the largest bank in the market to do some things with home equity product structures that should help us on the originations fund. But it's less a policy question on existing credit performance than it is just how we're running the business operationally and the improvements that Jamie and team have been able to make. Okay? Maybe talk about it. Greg Schroeck: I agree. I was gonna say the same thing. Jamie and his team are making good progress. Improving effectiveness of cost getting customers to PTO. As Bryan mentioned, we had about a $34 million decrease in NPAs in the solar book in this quarter. So indicative of some of that progress. And we'll definitely bend the curve on charge-offs in the solar portfolio this year. It'll be the second half of the year. We've gotta work through some of the 2022 - 2023 vintages. We're still outperforming the market in those vintages. However, we know we're gonna have to work through those. But I'm highly confident that we're gonna see better loss content in the second half of the year. Jamie and team will continue to select the right installers. We're continuing to work with the consumer to get them to PTO, and that's why you're seeing some of the overall asset quality improvement. And Ebrahim, as Bryan, from a production perspective, we're seeing relatively stable production still in that business year over year.