Why did reported EPS decline year over year, and what drove the gap to adjusted EPS?

Diluted EPS fell 14% to $0.78 from $0.91 a year earlier, mainly because net interest income declined 1% amid higher deposit funding costs, provisions rose 34%, and noninterest expense increased 5%. The $0.07 gap to the $0.85 adjusted figure reflects a $47 million pre-tax charge from the mark-to-market valuation of the Visa total return swap, a $10 million Mastercard litigation expense, and $9 million in restructuring severance costs.

Is the net interest margin recovering?

Sequentially, yes: NIM rose 2 bps to 2.90%, supported by the repricing benefit on the fixed-rate loan portfolio and moderating deposit costs, with interest-bearing liability costs down 1 bp. Year over year, however, NIM fell 8 bps from 2.98%, reflecting higher market rates passed through to deposit pricing and the decision to hold about $25 billion in cash and short-term investments for liquidity.

Is credit quality deteriorating?

Some metrics moved the wrong way but remain within a manageable range. The provision for credit losses increased to $160 million, and nonperforming assets rose to 0.62% of loans and OREO from 0.55%. Net charge-offs were steady at 0.48%, the ACL covered 2.09% of portfolio loans, and 30-89 day delinquencies improved to 0.24% from 0.26%. Investors should watch whether the rise in NPAs continues, particularly given the increase in nonaccrual commercial mortgage loans.

How strong is the capital position after the buyback and dividend increase?

Capital is strong. CET1 rose to 10.75% from 10.62%, driven by profitability, even after repurchasing $200 million of common stock and raising the quarterly dividend to $0.37 per share. Tangible common equity including AOCI improved to 6.52% from 5.80%, as the AOCI loss narrowed to $3.4 billion from $4.9 billion. Management also projects meaningful future AOCI accretion, which should support tangible book value growth.

What is the outlook for the fourth quarter of 2024?

Management expects net interest income to rise 1-2% from the $1.427 billion 3Q24 baseline, noninterest income to rise 3-4% from the $748 million adjusted baseline, and adjusted noninterest expense to remain stable around $1.225 billion. The net charge-off ratio is expected to be 45-49 bps, the effective tax rate 22-23%, and the allowance is expected to build by roughly $20-40 million on loan growth and mix, assuming no change in the macroeconomic outlook.

FITB 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 18, 2024. Cited figures are marked; the original filing is the authoritative source.

Fifth Third Bancorp (FITB) reported third quarter 2024 diluted EPS of $0.78^a (net income available to common shareholders of $532 million), down from $0.81 in 2Q24 and $0.91 in 3Q23.

Excluding $0.07^b per share of notable items (primarily a $47 million pre-tax mark-to-market loss on the Visa total return swap, plus Mastercard litigation and restructuring severance charges), adjusted EPS was $0.85. Sequentially, results improved on the drivers that matter most to the franchise: net interest income rose 2% to $1.427 billion (FTE), net interest margin expanded 2 bps to 2.90%, adjusted noninterest income grew 4%, and the adjusted efficiency ratio improved 70 bps to 56.1%. Year over year, earnings were pressured by a 14% decline in EPS, driven by lower net interest income, higher provisions, and a 5% rise in noninterest expense.

Credit costs ticked up but remain manageable. The provision for credit losses rose to $160 million^c from $97 million, net charge-offs were steady at a 0.48% NCO ratio, and the nonperforming asset ratio climbed to 0.62% from 0.55%, with the ACL covering 2.09% of portfolio loans. Capital strengthened, with the CET1 ratio rising 13 bps to 10.75% after $200 million of share repurchases and a 6% dividend increase to $0.37 per share.

Tangible book value per share grew to $20.20^d from $17.75 in the prior quarter, though this figure is heavily influenced by the recovery in accumulated other comprehensive loss, which narrowed to $3.4 billion from $4.9 billion. Management guided for 4Q24 net interest income up 1-2% to... [see guidance: NII up 1-2%, noninterest income up 3-4% versus adjusted 3Q24 baseline, noninterest expense stable at the $1.225 billion adjusted baseline, NCO ratio of 45-49 bps, and an effective tax rate of 22-23%]. The company also highlighted fee diversification, with wealth and asset management revenue up 12% year over year and commercial payments revenue up 10%, along with a strong deposit franchise in the Southeast.

02—Key points

Key Highlights

Diluted EPS of $0.78 reported; $0.85 adjusted, excluding $0.07 of notable items (Visa total return swap valuation, Mastercard litigation, restructuring severance).
Net interest income rose 2% sequentially to $1.427 billion (FTE) and NIM expanded 2 bps to 2.90%, though NII fell 1% year over year.
Adjusted noninterest income up 4% sequentially to $748 million (excluding securities gains/losses); wealth and asset management revenue up 12% and commercial payments revenue up 10% year over year.
Adjusted efficiency ratio improved 70 bps sequentially to 56.1%, while reported noninterest expense rose 5% year over year.
Credit deterioration was modest: provision rose to $160 million from $97 million, and the NPA ratio increased to 0.62% from 0.55%, while the NCO ratio held at 0.48%.
CET1 ratio rose to 10.75% (up 13 bps); the company repurchased $200 million of stock and raised its quarterly dividend 6% to $0.37 per share.
Management guided 4Q24 NII up 1-2%, noninterest income up 3-4%, and noninterest expense stable versus the adjusted 3Q24 baseline.

03—Questions

Frequently Asked Questions

Why did reported EPS decline year over year, and what drove the gap to adjusted EPS?
Diluted EPS fell 14% to $0.78 from $0.91 a year earlier, mainly because net interest income declined 1% amid higher deposit funding costs, provisions rose 34%, and noninterest expense increased 5%. The $0.07 gap to the $0.85 adjusted figure reflects a $47 million pre-tax charge from the mark-to-market valuation of the Visa total return swap, a $10 million Mastercard litigation expense, and $9 million in restructuring severance costs.
Is the net interest margin recovering?
Sequentially, yes: NIM rose 2 bps to 2.90%, supported by the repricing benefit on the fixed-rate loan portfolio and moderating deposit costs, with interest-bearing liability costs down 1 bp. Year over year, however, NIM fell 8 bps from 2.98%, reflecting higher market rates passed through to deposit pricing and the decision to hold about $25 billion in cash and short-term investments for liquidity.
Is credit quality deteriorating?
Some metrics moved the wrong way but remain within a manageable range. The provision for credit losses increased to $160 million, and nonperforming assets rose to 0.62% of loans and OREO from 0.55%. Net charge-offs were steady at 0.48%, the ACL covered 2.09% of portfolio loans, and 30-89 day delinquencies improved to 0.24% from 0.26%. Investors should watch whether the rise in NPAs continues, particularly given the increase in nonaccrual commercial mortgage loans.
How strong is the capital position after the buyback and dividend increase?
Capital is strong. CET1 rose to 10.75% from 10.62%, driven by profitability, even after repurchasing $200 million of common stock and raising the quarterly dividend to $0.37 per share. Tangible common equity including AOCI improved to 6.52% from 5.80%, as the AOCI loss narrowed to $3.4 billion from $4.9 billion. Management also projects meaningful future AOCI accretion, which should support tangible book value growth.
What is the outlook for the fourth quarter of 2024?
Management expects net interest income to rise 1-2% from the $1.427 billion 3Q24 baseline, noninterest income to rise 3-4% from the $748 million adjusted baseline, and adjusted noninterest expense to remain stable around $1.225 billion. The net charge-off ratio is expected to be 45-49 bps, the effective tax rate 22-23%, and the allowance is expected to build by roughly $20-40 million on loan growth and mix, assuming no change in the macroeconomic outlook.

04—Continue

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