Fifth Third Bancorp — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are generally against December 31, 2023. Fifth Third is a Cincinnati-based diversified financial services company with $214.5 billion in assets and operations across 11 states. Its segments are Commercial Banking, Consumer and Small Business Banking, and Wealth and Asset Management.
Key financial results
| Metric | Q1 2024 | Comparable period / change |
|---|---|---|
| Net interest income, GAAP | $1.384 billion | $1.517 billion; down 9% year over year |
| Net interest income, FTE | $1.390 billion | $1.522 billion; down 9% |
| Net interest margin, FTE | 2.86% | 3.29%; down 43 basis points |
| Noninterest income | $710 million | $696 million; up 2% |
| Total revenue, FTE | $2.100 billion | $2.218 billion; down 5% |
| Provision for credit losses | $94 million | $164 million; down 43% |
| Noninterest expense | $1.342 billion | $1.331 billion; up 1% |
| Net income | $520 million | $558 million; down 7% |
| Net income available to common shareholders / diluted EPS | $480 million / $0.70 | $535 million / $0.78 |
| Operating cash flow | $386 million | $1.321 billion |
FTE measures are non-GAAP. The efficiency ratio, also FTE-based, was 63.9%, versus 60.0% a year earlier. Return on average assets was 0.98% versus 1.10%; return on average common equity was 11.6% versus 13.7%.
Balance sheet, credit, liquidity and capital
- Loans and leases: $116.5 billion in portfolio loans at March 31, down about $749 million from year-end. Average loans and leases were down 5% year over year, including a $4.9 billion decrease in average commercial and industrial loans.
- Deposits: $169.6 billion, up $675 million from year-end. Core deposits were $164.4 billion. Deposit mix continued to shift from demand and lower-rate products toward interest-bearing accounts and certificates of deposit.
- Funding costs: Average interest-bearing core deposit cost rose to 2.91% from 1.67% a year earlier. Total borrowings were $18.6 billion, down $877 million from year-end; long-term debt was $15.4 billion.
- Credit quality: Nonperforming assets were $748 million, up from $689 million at year-end; nonperforming portfolio assets were 0.64% of portfolio loans and leases plus OREO, versus 0.59%. Net charge-offs were 0.38% of average loans, compared with 0.26% a year earlier. The allowance for credit losses was $2.47 billion, including $2.32 billion for loans and leases and $154 million for unfunded commitments; ACL was 2.12% of portfolio loans.
- Capital: CET1 ratio was 10.47%, Tier 1 risk-based capital 11.77%, total risk-based capital 13.81%, and leverage ratio 8.94%. The company reported that capital ratios exceeded its stress capital buffer requirements.
- Liquidity: Management reported more than $100 billion of available liquidity. The parent company said it could meet contractual obligations and preferred and common dividends for 37 months without capital-market access or upstream bank dividends.
Material changes and notable items
- Higher funding costs and deposit migration weighed on net interest income, despite higher asset yields and increased short-term investments. Management expects NIM to modestly increase over the next several quarters, supported by fixed-rate asset repricing and deposit growth, but cited deposit competition, margin compression, and elevated cash balances as potential offsets.
- In January, Fifth Third transferred $12.6 billion of securities from available-for-sale to held-to-maturity to reduce potential capital volatility. The transferred securities had $994 million of pretax unrealized losses at transfer; those losses remain in AOCI and will be amortized over the securities’ remaining lives. Available-for-sale unrealized losses were $4.6 billion at quarter-end.
- The FDIC special-assessment estimate increased by $33 million in Q1, recorded as expense, on top of the $224 million estimate recognized in 2023. The assessment is expected to be paid over eight quarterly periods beginning in Q1 2024 and remains subject to revision.
- Fifth Third issued $1.0 billion of fixed-to-floating-rate senior notes due 2032. The notes pay 5.631% through January 2031 and then compounded SOFR plus 1.840% until maturity.
- Segment net income declined year over year: Commercial Banking $369 million versus $580 million; Consumer and Small Business Banking $527 million versus $659 million; Wealth and Asset Management $46 million versus $74 million. General Corporate and Other loss narrowed to $422 million from $755 million.
- Consumer credit losses increased: consumer net charge-offs were 0.67% of average consumer loans versus 0.42% a year earlier. Solar loan balances rose to $3.9 billion from $2.4 billion a year earlier; three largest installers represented about 24% of solar balances.
Outlook, risks and contingencies
Management described resilient economic growth but persistent inflation, restrictive monetary policy, uncertain timing and scale of potential rate cuts, and elevated geopolitical risks. It warned that prolonged tight policy, tighter banking-sector credit conditions, or weaker investment, employment, and consumer spending could impair economic conditions. Interest-rate changes, deposit competition and migration, credit deterioration, securities values, and liquidity and funding conditions are key sensitivities. Proposed Basel III capital and long-term debt rules could raise requirements for large banks; their final impact on Fifth Third is not yet determined.
Legal and regulatory matters include the CFPB’s account-opening case, consumer fee litigation, Visa/Mastercard interchange litigation, a CFTC record-keeping investigation, and state investigations concerning solar lending practices. The company estimated reasonably possible legal and regulatory losses of up to approximately $102 million in excess of accruals where it could estimate a range; some possible losses cannot currently be estimated. Mortgage representation-and-warranty losses could be up to approximately $8 million above the $7 million reserve. Management stated that no material risk-factor changes were made during the quarter. Disclosure controls were assessed as effective; implementation of a new general ledger system was not expected to materially affect internal controls over financial reporting.
Important facts for investors to verify
- Whether deposit costs and deposit mix stabilize, and whether management’s expected modest NIM improvement materializes.
- Trends in nonperforming assets, consumer and commercial charge-offs, criticized commercial credits, and the adequacy of the ACL under weaker economic scenarios.
- How the $12.6 billion securities reclassification and remaining unrealized losses affect reported AOCI, capital, and future interest income.
- The final FDIC special assessment and the status and potential financial exposure of significant litigation, regulatory investigations, and solar-lending matters.
- Whether capital and liquidity remain adequate as proposed regulatory capital and long-term debt requirements are finalized.