Q4 2024 Earnings Summary
- Strong Loan Growth and Record Pipelines: Fifth Third reported strong loan growth of 3% in the fourth quarter, driven by broad-based improvements in both consumer and commercial lending. The bank has record pipelines in the middle market and notes that clients are more optimistic about 2025, which is expected to support continued loan demand and growth.
- Strategic Expansion in High-Growth Markets: The bank's investments in branch expansion in the Southeast are yielding positive results. With new branches in markets like Nashville, North Carolina, Florida, South Carolina, and upcoming openings in Atlanta, these expansions are expected to drive significant deposit and loan growth, supporting net interest income growth in 2025.
- Strong Performance in Commercial Payments Business: Fifth Third's commercial payments revenue increased 7% year-over-year, driven by an 11% growth in treasury management net fee equivalents. The bank is overweight in this business relative to peers, indicating a strong position that contributes to diversified and growing fee income.
- Potential Increase in Credit Risk: There was an uptick in Commercial and Industrial (C&I) nonaccrual loans this quarter, driven by commercial loans with an average size of $32 million. This increase may indicate a deterioration in credit quality.
- Uncertain Net Interest Margin Growth: The anticipated improvement in net interest margin is heavily dependent on uncertain factors like the cash position and the shape of the yield curve. Any unfavorable changes in these areas could negatively impact NIM growth.
- Labor Shortages Impacting Loan Demand: Labor availability is the single biggest concern among middle-market clients. Structural labor shortages due to demographic trends may limit clients' ability to expand, potentially affecting FITB's loan growth opportunities.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -32% | The steep decrease was driven by compressed net interest margin amid higher funding costs and deposit migration. Additionally, prior-year revenue was elevated by one-time items, amplifying the YoY decline. |
Interest Expense | -11% | The YoY drop reflects stabilizing market interest rates and adjustments to liability management, following the prior year’s surge in deposit repricing. A more favorable deposit mix also contributed to the decrease. |
Net Income | +1,070% | The sharp increase was due to a low base in the prior year, when net income was significantly impacted by elevated provisions and other expenses. Improved credit performance and steady expense management aided this recovery. |
EPS (Basic) | +19% | EPS benefited from higher net income and the effect of ongoing capital actions (e.g., share repurchases), which reduced the share count. This was partially offset by continued pressure on net interest spreads. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Interest Income (NII) | Q4 2024 | Expected to grow 1% sequentially | no current guidance | no current guidance |
Net Interest Margin (NIM) | Q4 2024 | Anticipated to improve | no current guidance | no current guidance |
Loan Balances | Q4 2024 | Stable to up 1% | no current guidance | no current guidance |
Noninterest Income | Q4 2024 | 3% to 4% sequential increase | no current guidance | no current guidance |
Total Adjusted Noninterest Expenses | Q4 2024 | Stable vs Q3 2024 | no current guidance | no current guidance |
Net Charge-Offs | Q4 2024 | Similar or slightly down vs Q3 2024 | no current guidance | no current guidance |
Allowance for Credit Losses (ACL) | Q4 2024 | $20M to $40M build | no current guidance | no current guidance |
Operating Leverage | Q4 2024 | Positive | no current guidance | no current guidance |
Share Repurchases | Q4 2024 | $300M | no current guidance | no current guidance |
Net Interest Income (NII) | Q1 2025 | no prior guidance | Flat vs Q4 2024 | no prior guidance |
Loan Growth | Q1 2025 | no prior guidance | 2% sequentially | no prior guidance |
Noninterest Income | Q1 2025 | no prior guidance | Decline 6%-7% | no prior guidance |
Noninterest Expense | Q1 2025 | no prior guidance | Increases 8% | no prior guidance |
Net Charge-Offs | Q1 2025 | no prior guidance | 45-49 bps | no prior guidance |
Provision for Credit Losses | Q1 2025 | no prior guidance | $10M-$25M | no prior guidance |
Share Repurchases | Q1 2025 | no prior guidance | $225M | no prior guidance |
Net Interest Income (NII) | FY 2025 | no prior guidance | 5% to 6% | no prior guidance |
Loan Growth | FY 2025 | no prior guidance | 3% to 4% | no prior guidance |
Noninterest Income | FY 2025 | no prior guidance | 3% to 6% | no prior guidance |
Noninterest Expense | FY 2025 | no prior guidance | 3% to 4% | no prior guidance |
Revenue | FY 2025 | no prior guidance | 4% to 6% | no prior guidance |
PPNR | FY 2025 | no prior guidance | 6% to 7% | no prior guidance |
Net Charge-Offs | FY 2025 | no prior guidance | 40-49 bps | no prior guidance |
Provision for Credit Losses | FY 2025 | no prior guidance | $50M-$100M | no prior guidance |
Capital (CET1 ratio) | FY 2025 | no prior guidance | ~10.5% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Loan Growth | Consistent growth emphasis across all quarters; Q3 saw highest production in 5 quarters , Q2 expected stable to up 1% , Q1 projected a slight decline for the full year but rebound in Q4. | End-of-period loans +3% sequentially; middle market production 3-year high. | Consistently strong; optimism maintained. |
Pipeline Strength | Continually highlighted; Q3 pipeline at all-time record , Q2 pipeline improving particularly in middle market , Q1 solid middle-market growth. | Record pipelines in middle market, 13 of 15 regions growing. | Remains robust with broad-based optimism. |
Strategic Expansion in Southeastern Markets | Frequent mentions: Q3 front-runner in branch expansion , Q2 strong household growth in Carolinas/Georgia/Florida , Q1 Florida de novo success. | Continued branch expansions; 31 new openings in 2024, 60 planned in 2025. | Consistently a high-growth focus across all quarters. |
Commercial Payments and Fee Income | Similar strength in prior calls: Q3 +10% YoY , Q2 +12% YoY , Q1 +11% YoY. | Commercial payments grew 8% YoY, treasury management +11%. | Consistent fee revenue driver, stable positive outlook. |
Credit Quality and Nonperforming Loans | Generally stable with mild increases in nonaccruals in Q3 , modest commercial charge-offs in Q2 , well-behaved asset quality in Q1. | Stable with no net CRE charge-offs, ACL build of $43M. | Maintains resilience, only slight variations each quarter. |
Net Interest Margin and Yield Curve Impacts | Ongoing improvements: Q3 potential +15–20 bps if cash is deployed , Q2 up 3 bps , Q1 began showing 1 bp improvement. | NIM up 7 bps, expecting continued modest improvement. | Gradual improvement as rates shift and balance sheet evolves. |
Liquidity Position and Deployment | Persistently robust: Q3 LCR 132% , Q2 137% , Q1 135%. | Strong: LCR at 125%, loan-to-core deposit ratio 73%. | Consistently high liquidity, slight quarter-by-quarter decline in LCR. |
Labor Shortages Affecting Loan Demand | No direct mention in Q3, Q2, or Q1. | Newly discussed factor in middle market optimism and business investment. | New topic in Q4. |
Competition from Big Banks and Non-Bank Lenders | Q3 discussion of non-bank private credit shifting some leveraged business ; no Q2 mention; Q1 recognized aggressive big-bank competition in the Midwest and Southeast. | Intensified competition from both large banks and fintechs; evaluating non-bank acquisitions with strong product fit. | Re-emerged in Q3; remains relevant into Q4. |
Solar Loan Originations | Mentioned in Q2 with focus on renewable energy trends ; Q1 had $1.7–$2B origination targets, anticipating a 30% YoY decline. | Not mentioned in Q4. | No recent discussion after Q2. |
Macroeconomic Uncertainties and Government Policies | Recurrent theme in Q3 around election impact , Q2 referencing geopolitical tensions and fiscal deficits , Q1 highlighting inflation and fiscal policies. | Broad remarks on labor market, regulatory clarity, and economic unpredictability. | Consistently addressed, continuing caution amid uncertainties. |
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Loan Growth Outlook
Q: Are you calling the turn for commercial loan growth?
A: Management is cautiously optimistic about loan demand, noting that the backdrop is more favorable with increased pipelines and client optimism. They expect above-market growth supported by diversified loan origination sources but caution against assuming 12% annualized growth. -
Rate Sensitivity
Q: How would you characterize your rate sensitivity now?
A: The bank is fairly neutral in rate sensitivity and comfortable with its current position. They have flexibility to adjust asset and liability sensitivity depending on the environment, providing stability in various rate scenarios. -
Deposit Rate Outlook
Q: What's your outlook for deposit rates in 2025?
A: Management expects deposit costs to decrease slightly if the Fed is done cutting rates. They anticipate some tailwind in the first quarter due to the full-quarter impact of December cuts and $8 billion in maturing CDs at a weighted average rate of 4.3%, but overall deposit competition could increase if loan growth picks up. -
Capital Management & CET1
Q: Do you have a CET1 target including AOCI?
A: The bank aims to keep CET1 including AOCI above 8% and expects this to increase over time with accretion from the investment portfolio. They feel confident in meeting capital rules and will prioritize organic growth, a strong dividend, and then buybacks based on maintaining a reported CET1 of 10.5%. -
Asset Quality
Q: Can you explain the uptick in C&I nonaccruals?
A: The increase was driven by commercial credits with no specific industry or geographic concentration. The bank remains within a few basis points of its 10-year average in nonperforming assets and expects some of the largest NPA inflows to pay down in the first half of the year. -
Branch Investments Payoff
Q: What is the payoff from new branch investments?
A: The new branches, averaging 3 years in age, are still in early ramp-up stages. Management expects significant deposit growth and customer acquisition from these investments, with increased loan growth supported by sales force additions in new markets, particularly in the Southeast and Atlanta. -
Fee Revenue Growth
Q: How dependent is fee revenue growth on loan growth?
A: Wealth management revenue is not dependent on loans, while commercial payments are partially dependent. Capital markets fees are largely cross-sold to existing clients, and management believes there's room to grow fees faster than the balance sheet by improving penetration with existing customers. -
Commercial Payments vs. Peers
Q: How does your commercial payments business compare to peers?
A: Management believes they are outperforming peers in commercial payments, with higher market share and growth rates. They have a higher turnover ratio and are overweight in this business relative to others, with commercial payments representing 20% of fees and growing 8% year-over-year. -
Risks to Guidance
Q: What are the upside and downside risks to your guidance?
A: The primary risks are loan growth and deposit costs. Net interest income is a concern due to market volatility, and market-based fees could see variability based on market activity. However, management feels good about their trajectory and has built flexibility into their plans. -
M&A Outlook
Q: How are you thinking about M&A?
A: The bank sees value in consolidation but is cautious about pursuing scale at any cost. They prioritize organic growth and have the ability to grow without mergers. They are interested in adding capabilities through nonbank acquisitions in managed services and commercial payments, focusing on proven products lacking distribution.