Fifth Third Bancorp Q3 FY2025 earnings call

M&A Strategy

• M&A not a strategy unto itself but a means to achieve strategic objectives, requiring superior cash earn-back, IRR, and NPV of synergies compared to organic alternatives.

Third-Quarter Results

• Reported earnings per share of $0.91, with adjusted results including ~$200M provision for Tricolor fraud. Average loans up 6%, adjusted revenues up 6%, adjusted PPNR up 11%.

Growth Strategy

• Investments in Southeast, adding 13 branches during Q3 with plans to open 27 more by year-end; consumer households in Southeast up 7% y/y. Focus on middle market and wealth, with middle market RM headcount up 8%, new client acquisition up 40%, and average middle market loans up 6%.

Credit and Efficiency

• Commercial nonperforming assets declined 14%, criticized assets down 4%. Headcount down 8% since early 2019 while adjusted revenues up 20%, deploying technology and lean manufacturing for savings.

Average loans increased 6% year over year. Adjusted revenues rose 6% underpinned by 7% improvement in net interest income and 5% growth in fees. Adjusted PPNR increased 11% producing 330 basis points of positive operating leverage. Average core deposits increased 1% sequentially driven by DDA and money market growth. Adjusted noninterest income excluding certain items grew 7% sequentially and 5% over the last year, led by wealth, commercial payments, and capital markets.

Fourth-Quarter Outlook

• Expect NII stable to up 1% due to loan and core deposit growth, assuming 25 bps rate cuts. Adjusted noninterest income expected up 2-3% due to seasonal strength in capital markets and commercial payments growth. Fourth-quarter adjusted noninterest expense expected up 2% due to branch openings and incentive compensation. Full-year adjusted revenue expected up nearly 5%, PPNR growth 7-8%. Q4 net charge offs expected around 40 bps. Pausing share repurchases until Comerica acquisition close.

• Contagion risk in NDFI portfolio, but diversified with low concentration. - Tariff uncertainty impacting commercial clients. - Regulatory compliance challenges related to Comerica deal, including trust business consent order.

Q: Give further updates on the Comerica transaction and regulator feedback?

A: Positive reception internally and from communities, regulators making good progress on filings with plans to complete by end of the month, early engagement with regulators constructive.

Q: What is the contagion risk in the NDFI portfolio?

A: Portfolio is diversified with low concentration (8% of total portfolio), includes REITs, payment processors, subscription facilities, etc., with no significant losses in past and robust monitoring processes.

Q: How is the company balancing organic expansion with the Comerica integration?

A: No disruption in Southeast markets as regional leaders not affected; 85% of Southeast locations secured, resources for expansion and integration not overlapping, with modular retail expansion model.