8-K: Fifth Third Bancorp Reports Mixed First Quarter 2024 Results Amidst Economic Uncertainty

Fifth Third Bancorp's first quarter 2024 earnings were impacted by certain items, but the bank saw growth in deposits and strong fee performance.

Summary

• Fifth Third Bancorp reported a net income of $520 million for the first quarter of 2024, a decrease from $530 million in the previous quarter and $558 million in the same quarter last year.
• Diluted earnings per share were $0.70, down from $0.72 in the prior quarter and $0.78 year-over-year.
• The results included a negative $0.06 impact from certain items, including an update to the FDIC special assessment and litigation matters.
• Average deposits increased by 5% compared to the first quarter of 2023.
• The bank's loan-to-core deposit ratio was 71%.
• CET1 capital increased 15 basis points sequentially to 10.44%.
• Wealth and asset management revenue grew by 10%, and treasury management fees increased by 11% compared to the first quarter of 2023.
• Interest-bearing deposit costs stabilized, increasing by only 1 basis point compared to the previous quarter.
• Expenses increased by 1%, but adjusted expenses decreased by 1% compared to the first quarter of 2023.
• Consumer household growth was 3% compared to the first quarter of 2023.
• Fifth Third Wealth Advisors surpassed $1 billion in assets under management.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are positive aspects like deposit growth and fee income, the decrease in net income and EPS, along with the negative impact from certain items, temper the overall outlook. The bank is navigating a challenging environment, and the results reflect that.

Positives

• Average deposits increased by 5% year-over-year, indicating strong customer confidence and deposit growth.
• Wealth and asset management revenue grew by 10% year-over-year, demonstrating strength in fee-based income.
• Treasury management fees increased by 11% compared to the same quarter last year, highlighting growth in commercial banking services.
• Interest-bearing deposit costs were well-managed, with only a 1 basis point increase compared to the previous quarter.
• The bank's CET1 capital ratio increased to 10.44%, indicating a strong capital position.
• Consumer household growth was 3% compared to the first quarter of 2023, showing success in attracting new customers.
• Fifth Third Wealth Advisors surpassed $1 billion in assets under management, demonstrating growth in wealth management services.
• Net charge-offs, non-performing assets, and delinquencies remain below historical levels, indicating strong credit quality.

Negatives

• Net income available to common shareholders decreased to $480 million, down from $492 million in the previous quarter and $535 million year-over-year.
• Diluted earnings per share decreased to $0.70, down from $0.72 in the previous quarter and $0.78 year-over-year.
• The results included a negative $0.06 impact from certain items, including an update to the FDIC special assessment and litigation matters.
• Commercial banking revenue decreased by 11% year-over-year, reflecting decreases in client financial risk management revenue and M&A advisory revenue.
• Leasing business revenue decreased by 32% year-over-year, reflecting lower operating lease revenue and lease remarketing revenue.
• Mortgage banking net revenue decreased by 18% compared to the previous quarter, primarily due to decreases in MSR net valuation adjustments and origination fees and gains on loan sales.

Risks

• The economic and regulatory environments remain uncertain, which could impact future performance.
• The bank is carrying elevated liquidity, which is impacting net interest margin.
• There are potential impacts from the adoption of real-time payment networks.
• The bank faces competition and changes in the financial services industry.
• There are risks associated with cyber-security and the use of computer systems and telecommunications networks.
• The bank is subject to litigation, investigations, and enforcement proceedings by governmental authorities.
• There are potential impacts from changes in interest rates and the effects of inflation.

Future Outlook

The bank expects total revenue to be down 1-2% for FY2024 compared to FY2023, with net interest income down 1-2% and noninterest income up 1-2%. For Q2 2024 compared to Q1 2024, the bank expects total revenue to be up ~1%, with net interest income up 2-4% and noninterest income up 1-2%. The bank also expects a $75-100 million build in the allowance for credit losses for FY2024 and a $0-25 million build for Q2 2024.

Management Comments

• Fifth Third's financial results once again reflected balance sheet strength, well-managed deposit costs, disciplined credit risk management, and diversified revenue streams.
• Expenses remain well-controlled and were down slightly year-over-year when excluding certain items.
• Our balance sheet positioning and deposit performance provide flexibility in managing through a range of uncertain economic and regulatory environments.
• Our credit metrics remain below historical levels, with net charge-offs for the quarter in line with our expectations.
• We continue to prudently invest in our strategic priorities as highlighted by strong growth in our treasury management fees and wealth and asset management revenue.
• We also extended our track record of strong organic growth, adding net new households in consumer and new quality relationships in commercial.
• While the economic and regulatory environments remain uncertain, we remain well positioned to respond to a range of potential outcomes.
• We will continue to follow our guiding principles of stability, profitability, and growth in that order.

Industry Context

The results reflect a challenging environment for regional banks, with pressures on net interest income due to higher funding costs and deposit mix shifts. However, Fifth Third's strong fee income and deposit growth indicate a resilient business model. The bank's focus on stability, profitability, and growth aligns with industry trends of managing risk and maintaining strong capital positions.

Comparison to Industry Standards

• Fifth Third's CET1 ratio of 10.44% is above the regulatory minimum and compares favorably to peers like KeyCorp (10.2%) and Regions Financial (10.8%).
• The bank's net charge-off ratio of 0.38% is within the range of other regional banks, indicating a similar level of credit risk management.
• The 5% year-over-year deposit growth is a positive sign, as many banks are facing deposit outflows or slower growth.
• The 10% growth in wealth and asset management revenue is a strong performance compared to other banks that may be more reliant on net interest income.
• Fifth Third's efficiency ratio of 63.9% is higher than some of the best-performing banks, indicating room for improvement in expense management.

Legal Proceedings

• The results included a negative impact from interchange litigation matters, including a charge related to the valuation of the Visa total return swap and a charge related to Mastercard litigation.

Stakeholder Impact

• Shareholders will be concerned about the decrease in net income and EPS.
• Employees may be impacted by any changes in strategy or cost-cutting measures.
• Customers will benefit from the bank's strong deposit growth and continued investment in services.
• Creditors will be reassured by the bank's strong capital position and liquidity.

Next Steps

• Fifth Third will host a conference call to discuss these financial results at 9:00 a.m. (Eastern Time) today.
• The bank will continue to focus on stability, profitability, and growth.
• The bank will continue to monitor the economic and regulatory environments and adjust its strategies as needed.

Key Dates

Keywords

earnings, deposits, net income, revenue, capital, credit quality, expenses, wealth management, treasury management, loans, NIM, CET1