Fifth Third(FITB) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings per share of 71 cents, or 73 cents excluding certain items, exceeding consensus estimates [7] - Pre-provision net revenue (PPNR) grew by 5% year-over-year, with an adjusted return on equity of 11.2% [7] - Tangible book value per share increased by 15% over the prior year, despite the 10-year treasury rate remaining unchanged [8] - Net interest income (NII) grew by 4% year-over-year, with net interest margins expanding for the fifth consecutive quarter [10] Business Line Data and Key Metrics Changes - Total loans grew by 3% year-over-year, driven by strong middle market commercial and industrial (C&I) production and balanced growth across consumer-secured lending categories [9] - Commercial payments revenue increased by 6%, while wealth and asset management revenue grew by 7%, supported by a 10% growth in assets under management (AUM) [10] - Adjusted non-interest income increased by 1% compared to the prior year, driven by growth in wealth and commercial payments [30] Market Data and Key Metrics Changes - Core deposits remained stable, with total household growth of 2% and 5% growth in the southeast [9] - Average core deposits decreased by 2% sequentially, primarily due to normal seasonality and commercial factors [26] - The loan-to-core deposit ratio was 75%, up 2% from the prior quarter [28] Company Strategy and Development Direction - The company aims to achieve record NII within existing guidance, even without rate cuts or further loan growth [16] - Focus on maintaining a resilient business mix and managing the balance sheet defensively to react quickly to changing conditions [12] - Continued investments in southeast branches and growth in commercial payments are expected to enhance operational deposit funding [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering stability, profitability, and growth amid uncertain economic conditions [7] - The company anticipates inflation to rise and growth to slow down, but expects unemployment to remain stable [63] - Management highlighted the importance of maintaining a strong liquidity profile and managing funding costs prudently [28] Other Important Information - The company has a high allowance for credit losses (ACL) coverage ratio of 2.07%, among the highest in its peer group [38] - The CET1 ratio was maintained at 10.5%, exceeding the buffered minimum of 7.7% [39] - The company plans to repurchase $400 million to $500 million of stock during the remainder of 2025, depending on realized loan growth [50] Q&A Session Summary Question: Can you share insights on interactions with commercial customers amid economic uncertainty? - Management noted that clients are generally nervous about tariffs and are planning to push prices to cover costs, with no indications of layoffs among clients [56][62] Question: What areas aside from credit is the company focusing on to navigate a potential slowdown? - Management emphasized the importance of deposit funding and disciplined expense management as key focus areas [68][69] Question: Can you provide details on the increase in non-performing loans (NPLs)? - The increase was primarily due to two ABL loans, but management expressed confidence in the overall health of the portfolio and does not foresee significant increases in NPLs [75][80] Question: How is the company managing costs without impairing growth plans? - Management indicated that cost reductions would come from variable compensation linked to revenue production and disciplined spending on operational activities [95] Question: What is the outlook for the U.S. consumer and associated risks? - Management highlighted that lower-income consumers are under stress, while higher-income individuals are likely to reduce spending, but the middle-income segment remains stable as long as unemployment does not rise significantly [125][132]