Fifth Third Bancorp (NASDAQ: FITB) — 2023 Form 10-K
Business context and reporting period. Fifth Third Bancorp is a Cincinnati-based bank holding company operating primarily across the Midwest and Southeast. Its businesses are Commercial Banking, Consumer and Small Business Banking, and Wealth and Asset Management. This filing covers the fiscal year ended December 31, 2023; the supplied text does not provide a complete standalone fourth-quarter income statement.
Key financial results
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $214.6 billion | $207.5 billion |
| Total revenue, FTE basis | $8.733 billion | $8.391 billion |
| Net interest income, GAAP | $5.827 billion | $5.609 billion |
| Net interest income, FTE basis | $5.852 billion | $5.625 billion |
| Net income | $2.349 billion | $2.446 billion |
| Net income available to common shareholders | $2.212 billion | $2.330 billion |
| Diluted earnings per share | $3.22 | $3.35 |
| Net interest margin, FTE | 3.05% | 3.02% |
| Efficiency ratio, FTE | 59.6% | 56.2% |
| Return on average assets | 1.13% | 1.18% |
| Cash and due from banks, year-end | $3.142 billion | $3.466 billion |
Other balance-sheet and capital measures. Year-end deposits were $168.9 billion, up from $163.7 billion; portfolio loans and leases were $117.2 billion, down from $121.5 billion. Total borrowings were $19.4 billion versus $18.7 billion, including $16.4 billion of long-term debt. The allowance for loan and lease losses was $2.322 billion, or 1.98% of portfolio loans; total allowance for credit losses, including unfunded commitments, was 2.12%. Bancorp CET1, Tier 1, total risk-based capital and leverage ratios were 10.29%, 11.59%, 13.72% and 8.73%, respectively.
Cash flow. Net cash provided by operating activities was $4.509 billion, compared with $6.428 billion in 2022. Investing activities used $9.488 billion, while financing activities provided $4.655 billion. The resulting decrease in cash and due from banks was $324 million.
Changes versus 2022
- FTE revenue rose about 4%, but net income fell about 4% and diluted EPS declined from $3.35 to $3.22. Net interest income increased $227 million, while noninterest income rose $115 million.
- Interest expense climbed to $3.933 billion from $978 million, reflecting higher rates paid on deposits and wholesale funding. Net interest margin edged up, but net interest rate spread fell to 2.24% from 2.72% as liability costs rose faster than asset yields.
- Noninterest expense increased $486 million to $5.205 billion. A $224 million FDIC special assessment was a major contributor; compensation, technology and other costs also rose. The efficiency ratio worsened to 59.6% from 56.2%.
- Credit performance weakened: net charge-offs rose to 0.32% of average portfolio loans from 0.19%, and nonperforming portfolio assets rose to 0.59% from 0.44%. Provision for credit losses nevertheless decreased to $515 million from $563 million.
- Deposit balances shifted toward higher-cost products. Noninterest-bearing deposits fell to $43.1 billion from $53.1 billion, while interest-bearing deposits increased. Average core deposits declined 2%.
- Available-for-sale securities had $5.4 billion of net unrealized losses at year-end, down from $6.0 billion. In January 2024, the Bancorp transferred $12.6 billion of securities to held-to-maturity; $994 million of pretax unrealized losses on those securities remained in AOCI.
- Capital ratios strengthened year over year; the Bancorp’s CET1 ratio increased to 10.29% from 9.28%. Common dividends declared rose to $1.36 per share from $1.26.
Outlook, risks and notable items
- Management said net interest margin was expected to decrease modestly in the next quarter, citing higher cash balances and continued liability repricing, partly offset by asset repricing. The filing does not provide broader quantified earnings guidance.
- Management described 2023 economic growth as resilient, while flagging persistent inflation, elevated rates, tighter banking-sector liquidity, geopolitical uncertainty and recession risk. The filing’s downside credit scenario assumed a recession beginning in early 2024; this is a stress scenario, not company guidance.
- Liquidity: the Bancorp reported more than $100 billion of available liquidity and approximately $60.2 billion of Bank secured borrowing capacity. The parent company said it could meet contractual obligations and common and preferred dividends for 33 months without capital-market access or upstream Bank dividends. Deposit competition, outflows, funding costs and rating actions remain risks.
- Regulatory proposals could increase capital and long-term debt requirements for banks of Fifth Third’s size; potential impacts were still under evaluation. The FDIC special assessment is expected to be paid over eight quarters starting in 2024, and its estimate may change.
- Legal matters include the CFPB case concerning alleged unauthorized accounts, which remained in discovery, and merchant interchange litigation. Management estimated reasonably possible legal and regulatory losses of up to approximately $107 million above recorded accruals where estimable; it noted other matters could not be estimated. Mortgage representation-and-warranty losses were reasonably possible up to about $10 million above reserves.
- Other sensitivities include rising consumer credit losses, commercial borrower stress, commercial real estate conditions, deposit migration, interest-rate exposure, mortgage servicing-right valuations, cybersecurity and third-party failures. Management reported no cybersecurity incident known as of year-end that had materially affected or was reasonably likely to materially affect the company.
- The company issued $1.25 billion of senior notes in July 2023 and completed a $1.5 billion automobile-loan securitization. It also reported executive leadership changes effective January 2024. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether deposit mix, balances and funding costs stabilize, and how they affect net interest income and margin.
- Whether consumer and commercial credit deterioration continues, particularly in other consumer lending and commercial and industrial loans, and whether the allowance remains adequate.
- How the January 2024 securities reclassification affects reported AOCI, capital sensitivity and future net interest income.
- The final FDIC special assessment, its payment schedule and any further changes in deposit-insurance costs.
- Developments in the CFPB, interchange, solar-lending and other legal or regulatory matters, including any losses above recorded reserves.
- The impact and timing of proposed capital and long-term debt rules, and the company’s capital distributions, debt maturities and funding needs.
- Standalone fourth-quarter 2023 results, which are not clearly presented in the supplied filing text.