Why did reported EPS fall short of adjusted EPS in the quarter?

Reported diluted EPS of $0.81 included a $0.05 negative impact from notable items totaling about $37 million after tax: a $18 million after-tax charge tied to the valuation of a Visa total return swap, about $14 million in legal settlements and remediations, and about $5 million from an update to the FDIC special assessment. Adjusted EPS, which excludes these items, was $0.86.

Is the rise in net charge-offs a concern for investors?

The NCO ratio rose to 0.49% from 0.38% in 1Q24, with the commercial NCO ratio increasing to 0.45%, which management noted was within expectations. However, the NCO ratio is still elevated relative to the year-ago level of 0.29%. Nonperforming assets declined meaningfully, and the allowance for credit losses covered nonperforming loans 400%, which provides a cushion, though investors should monitor the commercial credit trend.

How is Fifth Third managing net interest income pressure?

NII was stable sequentially at $1.39 billion, aided by repricing of fixed-rate loans and moderating deposit costs; interest-bearing core deposit costs rose only 4 bps from the prior quarter. Year-over-year, however, NII fell 5% as higher funding costs and mix shift from demand to interest-bearing deposits weighed on margins. Management guided to a 1-2% sequential NII increase in 3Q24, with full-year NII stable to down about 1%.

What did the company do with its capital this quarter?

Fifth Third repurchased $125 million of its common stock in June, reducing common shares outstanding by roughly 3.5 million. CET1 capital ratio increased to 10.60%, well above the regulatory minimum plus stress capital buffer, and the company released a preliminary stress capital buffer requirement of 3.2%, effective October 1, 2024.

What drove the decline in noninterest expense?

Noninterest expense fell 9% sequentially to $1.22 billion, primarily due to seasonal decreases in compensation and benefits, which had been elevated in the first quarter by annual incentive awards. Excluding certain items, expense fell 7%. Year over year, expenses were roughly flat, as declines in leasing expense and other costs offset higher compensation and marketing spending.

FITB 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed July 19, 2024. Cited figures are marked; the original filing is the authoritative source.

Fifth Third Bancorp reported second quarter 2024 diluted EPS of $0.81^a (GAAP), down from $0.82 a year ago and up from $0.70 in the prior quarter.

Net income available to common shareholders was $561 million^b, versus $480 million in 1Q24 and $562 million in 2Q23. Management characterized the quarter as showing resilient profitability and stability, with reported EPS including a $0.05 negative impact from certain items (Visa total return swap valuation, legal settlements and remediations, and the FDIC special assessment update). Adjusted EPS was $0.86 per the earnings presentation.

Net interest income was flat sequentially at $1.39 billion^c (FTE), with NIM up 2 bps to 2.88%, while year-over-year NII fell 5% as funding costs rose. Noninterest income declined 2% sequentially, and noninterest expense fell 9% sequentially (7% excluding certain items), reflecting seasonal compensation patterns. The efficiency ratio improved to 58.5%.

Credit quality showed mixed signals. The net charge-off ratio rose to 0.49% from 0.38% in the prior quarter, driven largely by commercial charge-offs, though nonperforming assets declined to 0.55% from 0.64% and nonperforming loans fell $102 million^d sequentially. The allowance for credit losses stood at 2.08% of portfolio loans.

Capital strengthened, with CET1 rising to 10.60% from 10.47%, and the company repurchased $125 million of common stock during the quarter. Management guided to 2024 full-year net interest income stable to down about 1%, noninterest income down 2-4%, and a net charge-off ratio of 35-45 bps, and expects 3Q24 NII to rise 1-2% sequentially.

02—Key points

Key Highlights

Diluted EPS of $0.81 (GAAP) vs. $0.70 in 1Q24 and $0.82 in 2Q23; adjusted EPS of $0.86 excluding a $0.05 net impact from notable items
Net interest margin rose 2 bps sequentially to 2.88% (2.89% adjusted), though NII was down 5% year-over-year as deposit costs rose
Net charge-off ratio increased to 0.49% from 0.38% in 1Q24, with commercial NCOs at 0.45%, while NPAs declined to 0.55% from 0.64%
CET1 ratio rose to 10.60% from 10.47%, and the company repurchased $125 million of common stock during the quarter
Efficiency ratio improved to 58.5% from 63.9% sequentially, with noninterest expense down 9% on seasonal compensation factors
Average deposits fell 1% sequentially but rose 4% year-over-year; estimated uninsured deposits were about 43% of total deposits
Management guidance for FY2024 calls for NII stable to down ~1%, noninterest income down 2-4%, and a net charge-off ratio of 35-45 bps; 3Q24 NII expected up 1-2% sequentially

03—Questions

Frequently Asked Questions

Why did reported EPS fall short of adjusted EPS in the quarter?
Reported diluted EPS of $0.81 included a $0.05 negative impact from notable items totaling about $37 million after tax: a $18 million after-tax charge tied to the valuation of a Visa total return swap, about $14 million in legal settlements and remediations, and about $5 million from an update to the FDIC special assessment. Adjusted EPS, which excludes these items, was $0.86.
Is the rise in net charge-offs a concern for investors?
The NCO ratio rose to 0.49% from 0.38% in 1Q24, with the commercial NCO ratio increasing to 0.45%, which management noted was within expectations. However, the NCO ratio is still elevated relative to the year-ago level of 0.29%. Nonperforming assets declined meaningfully, and the allowance for credit losses covered nonperforming loans 400%, which provides a cushion, though investors should monitor the commercial credit trend.
How is Fifth Third managing net interest income pressure?
NII was stable sequentially at $1.39 billion, aided by repricing of fixed-rate loans and moderating deposit costs; interest-bearing core deposit costs rose only 4 bps from the prior quarter. Year-over-year, however, NII fell 5% as higher funding costs and mix shift from demand to interest-bearing deposits weighed on margins. Management guided to a 1-2% sequential NII increase in 3Q24, with full-year NII stable to down about 1%.
What did the company do with its capital this quarter?
Fifth Third repurchased $125 million of its common stock in June, reducing common shares outstanding by roughly 3.5 million. CET1 capital ratio increased to 10.60%, well above the regulatory minimum plus stress capital buffer, and the company released a preliminary stress capital buffer requirement of 3.2%, effective October 1, 2024.
What drove the decline in noninterest expense?
Noninterest expense fell 9% sequentially to $1.22 billion, primarily due to seasonal decreases in compensation and benefits, which had been elevated in the first quarter by annual incentive awards. Excluding certain items, expense fell 7%. Year over year, expenses were roughly flat, as declines in leasing expense and other costs offset higher compensation and marketing spending.

04—Continue

← View all 8-K filings