Fifth Third Bancorp Q4 FY2024 earnings call

Key Points

• Earnings per share of $0.85 or $0.90 (excluding certain items) exceeded third quarter guidance. Adjusted return on equity was 13.7%, highest among peers.
• Revenues grew 2% sequentially and 2% year-over-year. Core adjusted PPNR exceeded $1 billion. Adjusted efficiency ratio was 54.7%.
• Full year return on assets was 1.17%, return on tangible common equity (excluding AOCI) was 14%, and efficiency ratio was 57.1%, all top in peer group.
• Loan growth: 3% sequential growth, with commercial loans up 3% and consumer loans up 2%. Deposits: average core deposits up 1%, interest bearing core deposits down.
• Investment portfolio focused on known cash flows through bullet and locked out securities, with unrealized losses improving.

Revenues for the quarter grew 2% sequentially and 2% year-over-year. Core adjusted PPNR exceeded $1 billion for the first time in several quarters. Commercial Payments business grew fee revenues by 8% in 2024, processing $17 trillion in volume. Wealth and Asset Management total assets under management grew 17% year-over-year to $69 billion. Adjusted return on equity was 13.7%, the highest among peers, and the adjusted efficiency ratio improved to 54.7%.

Forward-Looking Statements

• Expect full year NII to increase 5%-6%.
• Full year average total loans expected to be up 3%-4%, driven by C&I and auto growth.
• Adjusted non-interest income expected to be up 3%-6%, reflecting growth in Commercial Payments, Capital Markets, and Wealth and Asset Management.
• Adjusted non-interest expense expected to be up 3%-4%.
• 2025 net charge-offs expected to be between 40-49 basis points.
• First quarter: NII flat with fourth quarter 2024, average total loans up 2%, non-interest income down 6%-7% excluding TRA, adjusted non-interest expense up 8% but flat excluding seasonals.

Risks Discussed

• Economic uncertainty, as the economy is a complex system resistant to prediction and subject to rapid change.
• Labor market challenges, including labor availability and immigration impacts, which can affect loan demand and economic conditions.
• Regulatory changes, which could impact business operations and opportunities.
• Interest rate fluctuations, which can influence net interest income and margin.

Q: Scott Siefers asked about loan demand development.

A: Tim Spence mentioned diversified loan origination sources, a more favorable backdrop, but noted uncertainty due to economic complexity.

Q: Mike Mayo asked about commercial loan growth.

A: Tim Spence said maybe, highlighting the need to watch labor market and regulatory clarity.

Q: Thomas Leddy asked about deposit rates.

A: Bryan Preston said deposit rates may decrease further with loan growth, but competition could tick up.

Q: Ebrahim Poonawala asked about fees and client acquisition.

A: Tim Spence explained Wealth is not balance sheet dependent, Commercial Payments is half-half, and Newline platform isn't reliant on balance sheet.

Q: Manan Gosalia asked about CET1 including AOCI.

A: Tim Spence said CET1 inclusive of AOCI is expected to increase, with no impact on loan growth.

Q: Brian Foran asked about Commercial Payments disclosure.

A: Tim Spence said they're overweight, have a high turnover ratio, and are growing faster than the industry.

Q: John Pancari asked about M&A and returns.

A: Tim Spence talked about M&A focus on tech and distribution, with returns expected to sustain.

Q: Matt O'Connor asked about labor impact on loans.

A: Tim Spence discussed labor challenges in sectors and C&I growth balance between middle market and corporate.

Q: Erika Najarian asked about NIM trajectory.

A: Bryan Preston said NIM is expected to improve, with the potential to reach the 320s.

Q: Christopher Marinac asked about C&I utilization and criticized assets.

A: Bryan Preston said C&I utilization is stable, and criticized assets were down $435 million in the fourth quarter