Fifth Third(FITB) - 2024 Q2 - Quarterly Results

Q2 2024 Earnings Overview Key Financial Highlights Fifth Third Bancorp reported second-quarter 2024 diluted earnings per share of $0.81, demonstrating stable returns driven by a resilient balance sheet and disciplined expense management | Key Metrics | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Diluted EPS | $0.81 | $0.70 | $0.82 | | Net Income (Common) | $561M | $480M | $562M | | Net Interest Income (FTE) | $1,393M | $1,390M | $1,463M | | CET1 Capital Ratio | 10.60% | 10.47% | 9.49% | | Return on Avg. Common Equity | 13.6% | 11.6% | 13.9% | - Reported results for Q2 2024 included a negative $0.05 per share impact from certain items, including the valuation of a Visa total return swap, legal settlements, and an update to the FDIC special assessment[1][7] - Key operational highlights for the quarter include: - Stability: Increased net interest income and margin compared to the prior quarter, driven by loan repricing and moderating deposit costs - Profitability: Strong fee performance in wealth and asset management (up 11% YoY) and disciplined expense management (down 1% YoY) - Growth: Generated 3% consumer household growth compared to 2Q23, with 6% growth in the Southeast[1] CEO's Statement Chairman, CEO, and President Tim Spence emphasized the company's resilient profitability, well-managed liquidity, and diversified revenue streams - The bank's strong liquidity position provides flexibility to navigate uncertain economic and regulatory environments[2] - Continued investments are being made in the Southeast expansion, Commercial Payments, and Wealth and Asset Management businesses, leading to strong new relationship acquisition[3] - The bank executed a $125 million share repurchase in June after achieving its capital targets for the quarter[4] Financial Performance Analysis Income Statement Highlights Net income for Q2 2024 was $601 million, flat year-over-year and up 16% sequentially, with diluted EPS at $0.81 | Condensed Income Statement ($ in millions) | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Net interest income (FTE) | $1,393 | $1,390 | $1,463 | | Provision for credit losses | $97 | $94 | $177 | | Noninterest income | $695 | $710 | $726 | | Noninterest expense | $1,221 | $1,342 | $1,231 | | Net income | $601 | $520 | $601 | | Diluted EPS | $0.81 | $0.70 | $0.82 | Net Interest Income (NII) Net interest income (FTE) was $1.393 billion, slightly up sequentially but down 5% year-over-year, with NIM increasing to 2.88% | NII & NIM Performance | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Net interest income (FTE) | $1,393M | $1,390M | $1,463M | | Net interest margin (NIM) | 2.88% | 2.86% | 3.10% | - Sequentially, NII increased by $3 million, or $8 million excluding customer remediations, due to increased yields on new loans, partially offset by lower commercial loan balances and deposit mix shift[8] - Year-over-year, NII decreased by $70 million, reflecting higher funding costs and deposit mix shift, partially offset by higher loan yields[9] Noninterest Income Total noninterest income was $695 million, decreasing 2% sequentially and 4% year-over-year, with wealth management growth offset by other declines | Noninterest Income Breakdown ($ in millions) | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Service charges on deposits | $156 | $151 | $144 | | Commercial banking revenue | $144 | $143 | $146 | | Mortgage banking net revenue | $50 | $54 | $59 | | Wealth and asset management revenue | $159 | $161 | $143 | | Card and processing revenue | $108 | $102 | $106 | | Total noninterest income | $695 | $710 | $726 | - Compared to the prior quarter, growth in card and processing revenue (+6%) and service charges (+3%) was offset by a decline in mortgage banking revenue (-7%)[12] - Compared to the year-ago quarter, wealth and asset management revenue grew a strong 11% ($16 million), while leasing business revenue declined 19% and other noninterest income fell 50%[13] Noninterest Expense Noninterest expense was $1.221 billion, down 9% sequentially and 1% year-over-year, reflecting disciplined management and seasonal declines | Noninterest Expense Breakdown ($ in millions) | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Compensation and benefits | $656 | $753 | $650 | | Other noninterest expense | $253 | $271 | $266 | | Total noninterest expense | $1,221 | $1,342 | $1,231 | - Excluding certain items, noninterest expense decreased $86 million, or 7%, from the prior quarter, mainly due to a seasonal decrease in compensation and benefits[17] - Compared to the year-ago quarter, noninterest expense excluding certain items was flat, as decreases in leasing and other expenses were offset by increases in compensation and marketing[18] Balance Sheet Analysis Average Interest-Earning Assets Total average portfolio loans and leases were stable sequentially at $116.9 billion but decreased 5% year-over-year due to commercial loan declines | Average Balances ($ in millions) | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Total commercial loans & leases | $72,201 | $72,796 | $77,745 | | Total consumer loans | $44,690 | $44,538 | $45,582 | | Total avg. portfolio loans & leases | $116,891 | $117,334 | $123,327 | | Securities | $56,607 | $56,456 | $57,267 | | Other short-term investments | $20,609 | $21,194 | $7,806 | - Average commercial loans decreased 1% sequentially and 7% year-over-year, primarily due to lower C&I loan balances[19][20] - Average consumer loans were stable sequentially but down 2% year-over-year, with growth in solar energy installation loans partially offsetting declines in other categories[19][20] Average Deposits and Wholesale Funding Total average deposits decreased 1% sequentially to $167.2 billion but increased 4% year-over-year, while wholesale funding declined | Average Deposits ($ in millions) | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Demand | $40,266 | $40,839 | $46,520 | | Interest checking | $57,999 | $58,677 | $50,472 | | Total average deposits | $167,194 | $168,122 | $160,857 | - The period-end portfolio loan-to-core deposit ratio was 72%, compared to 71% in the prior quarter and 77% in the year-ago quarter[28] - Average wholesale funding decreased 6% YoY, mainly due to a 52% decrease in FHLB advances, which was partially offset by a 22% increase in long-term debt[29][30] Credit Quality and Capital Position Credit Quality Summary Credit quality showed improved nonperforming assets but increased net charge-offs, with the ACL remaining strong at 2.08% of total loans | Credit Quality Ratios | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | NPA ratio | 0.55% | 0.64% | 0.54% | | NPL ratio | 0.52% | 0.61% | 0.52% | | Net charge-off (NCO) ratio | 0.49% | 0.38% | 0.29% | | ACL as a % of portfolio loans | 2.08% | 2.12% | 2.08% | - Nonperforming portfolio loans (NPLs) decreased by $102 million sequentially to $606 million[31] - Net charge-offs increased by $34 million sequentially to $144 million. The commercial NCO ratio rose to 0.45% from 0.19% in 1Q24, while the consumer NCO ratio fell to 0.57% from 0.67%[36] Capital Position The CET1 capital ratio strengthened to 10.60%, exceeding regulatory minimums, even after a $125 million share repurchase | Regulatory Capital Ratios | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | CET1 capital | 10.60% | 10.47% | 9.49% | | Tier 1 risk-based capital | 11.90% | 11.77% | 10.73% | | Total risk-based capital | 13.93% | 13.81% | 12.83% | | Leverage | 9.07% | 8.94% | 8.81% | - During Q2 2024, Fifth Third repurchased $125 million of its outstanding stock, reducing common shares by approximately 3.5 million[39] - The preliminary stress capital buffer requirement is 3.2%, effective October 1, 2024. The current CET1 ratio of 10.60% significantly exceeds the regulatory minimum plus this buffer[40] Quarterly Financial Review Financial Highlights This section summarizes key financial data and ratios for the current quarter, prior quarter, year-ago quarter, and year-to-date | Year-to-Date Performance | YTD 2024 | YTD 2023 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | $2,771M | $2,974M | (7%) | | Net income | $1,122M | $1,159M | (3%) | | Diluted EPS | $1.51 | $1.59 | (5%) | Consolidated Statements of Income This section presents detailed consolidated statements of income for the last five quarters and year-to-date, breaking down core components - For Q2 2024, total interest income was $2.620 billion and total interest expense was $1.233 billion, resulting in net interest income of $1.387 billion[60][61] Consolidated Balance Sheets This section provides detailed consolidated balance sheets as of the end of the last five quarters, detailing assets, liabilities, and equity | Balance Sheet Items ($ in millions) | Jun 2024 | Mar 2024 | Jun 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $213,262 | $214,506 | $207,276 | | Portfolio loans and leases, net | $114,291 | $114,167 | $119,564 | | Total deposits | $166,768 | $169,587 | $164,128 | | Total Equity | $19,226 | $19,018 | $17,809 | Consolidated Statements of Changes in Equity This section details changes in total equity for the quarter and year-to-date, outlining the impact of net income, dividends, and stock transactions - In Q2 2024, total equity increased from $19.018 billion to $19.226 billion. The increase was driven by $601 million in net income, partially offset by $243 million in common dividends and a $125 million share repurchase[66] Average Balance Sheets and Yield/Rate Analysis This section provides a detailed analysis of average balances for assets and liabilities, along with corresponding yields and rates | Average Yield/Rate Analysis | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Yield on interest-earning assets | 5.43% | 5.38% | 5.04% | | Rate paid on interest-bearing liabilities | 3.39% | 3.36% | 2.72% | | Net interest rate spread (FTE) | 2.04% | 2.02% | 2.32% | Summary of Loans and Leases This section presents a five-quarter summary of the loan and lease portfolio, broken down by commercial and consumer categories - End-of-period total portfolio loans and leases were $116.6 billion, stable from the prior quarter but down from $121.9 billion in the year-ago quarter[72] Regulatory Capital This section provides a five-quarter view of the bank's regulatory capital amounts and ratios, including CET1, Tier 1, and Total risk-based capital - CET1 capital increased to $17.161 billion as of June 2024, up from $16.100 billion in June 2023[73] Summary of Credit Loss Experience This section offers a detailed five-quarter breakdown of credit loss experience, including charge-offs, recoveries, and net charge-offs by loan category - Total net charge-offs for Q2 2024 were $144 million, with $80 million from commercial loans and $64 million from consumer loans[75] Asset Quality This section provides a five-quarter summary of asset quality, detailing the allowance for credit losses, nonperforming assets, and delinquent loans - Total nonaccrual portfolio loans and leases decreased to $606 million from $708 million in the prior quarter, primarily due to a reduction in nonaccrual commercial and industrial loans[77] Non-GAAP Reconciliation This section explains the use of non-GAAP financial measures and provides detailed reconciliation tables to comparable GAAP measures - The report uses non-GAAP measures to provide what management believes is useful information to investors for evaluating operating performance. These include FTE adjustments for tax-favored income and tangible equity measures that exclude intangible assets[80][81][82] Segment Presentation This section presents the financial performance for the bank's primary business segments: Commercial, Consumer, and Wealth and Asset Management | Net Income by Segment ($ in millions) | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Commercial Banking | $320 | $369 | $711 | | Consumer and Small Business Banking | $499 | $527 | $746 | | Wealth and Asset Management | $47 | $46 | $73 | Other Information Tax Rate The effective tax rate for the second quarter of 2024 was 21.3%, compared to 21.1% in the prior quarter and 22.5% in the year-ago quarter - The effective tax rate was 21.3% in Q2 2024, 21.1% in Q1 2024, and 22.5% in Q2 2023[41] Conference Call and Corporate Profile Fifth Third hosted a conference call to discuss its financial results and profiles itself as a bank with a long history of innovation - A conference call and live webcast were held at 9:00 a.m. (Eastern Time) on the day of the earnings release to discuss the financial results[42] Forward-Looking Statements This section contains standard safe harbor language, cautioning investors that future performance is subject to risks and uncertainties - The report includes a standard disclaimer that forward-looking statements are subject to numerous risks and uncertainties, and actual results may differ materially[47][48]