Fifth Third(FITB) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings per share of $0.78, or$ 0.85 excluding certain items, exceeding previous guidance [3] - Return on equity was 12.8%, the best among peers, with an adjusted efficiency ratio improving to 56.1% [3][4] - Net interest income (NII) for the quarter was over $1.4 billion, increasing 2% sequentially, while net interest margin improved by 2 basis points [12][14] - The common dividend was increased by 6% to$ 0.37 per share, and $200 million in share repurchases were executed [8][11] Business Line Data and Key Metrics Changes - In the consumer bank, consumer households grew by 2.7% year-over-year, with a notable 6% growth in the Southeast [5] - The commercial bank saw a 20% sequential increase in middle market loan production, with a year-over-year increase of over 30% [7] - Wealth and asset management achieved record quarterly revenues, growing by 12% year-over-year, with total assets under management increasing by$ 12 billion to $69 billion [8][16] Market Data and Key Metrics Changes - Retail deposits grew nearly 16% year-over-year, gaining market share in 14 of 15 focused MSAs in the Southeast [6] - The company maintained its number two position in Midwest markets and number six in Southeast markets [6] - Average core deposits were up 1% sequentially, driven by higher money market balances [14] Company Strategy and Development Direction - The company focuses on stability, profitability, and growth, aiming to deliver strong and predictable results despite economic uncertainties [3][9] - Strategic growth investments are expected to provide long-term organic growth that is not dependent on macroeconomic conditions [5] - Plans to open 19 new branch locations in the fourth quarter and accelerate openings through 2028, particularly in the Southeast [6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the near-term economic outlook but acknowledged potential challenges such as interest rate volatility and geopolitical uncertainty [9] - The company expects to deliver NII, fees, expenses, and credit costs within full-year guidance ranges provided earlier in the year [4] - Management remains confident in the ability to manage deposit costs and drive NII performance in the upcoming quarters [14][21] Other Important Information - The company experienced a 200 basis point pickup on front book, back book repricing in the consumer portfolio [13] - Non-performing assets (NPAs) increased by$ 82 million during the quarter, but the NPA ratio remains below peer median levels [18] - The company is actively managing credit risks and does not expect significant impacts from recent hurricanes on losses [19] Q&A Session Summary Question: Discussion on fourth quarter NII guidance and deposit betas - Management remains optimistic about NII trajectory and deposit performance, noting that broker deposits and wholesale funding are expected to decrease [25][27] Question: Expectations for loan growth and NII in 2025 - Management indicated that while loan growth is desired, record NII can be achieved without significant loan growth, with positive signs in consumer lending [28][29] Question: Impact of potential Fed rate cuts on NII growth - A steeper yield curve would benefit NII, with expectations for cost reductions on the liability side of the balance sheet [31][32] Question: Capital allocation strategy regarding buybacks and excess capital - The company aims for a dividend payout ratio of 35% to 45% and will manage buybacks based on organic growth opportunities [35][36] Question: Loan production and growth expectations - Elevated paydowns and decreased revolver utilization impacted loan growth, but management expects stabilization and normalization in the coming quarters [38][39] Question: Competition from non-bank lenders - Management acknowledged increased competition from private credit but emphasized Fifth Third's conservative lending practices [46][47] Question: Credit quality and normalization - Delinquencies remain low, and while some softness is noted in specific consumer portfolios, overall credit quality is stable [63][64]