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Fifth Third Bancorp (FITB) Q2 2021 Earnings Call Transcript


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Fifth Third Bancorp (NASDAQ:FITB)
Q2 2021 Earnings Call
Jul 22, 2021, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to the Fifth Third Bancorp second-quarter 2021 conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Chris Doll, director of investor relations. Thank you. Please go ahead, sir.

Chris DollDirector of Investor Relations

Thank you, operator. Good morning, and thank you for joining us. Today, we’ll be discussing our financial results for the second quarter of 2021. Please review the cautionary statements on our materials, which can be found on our earnings release and presentation.

These materials contain reconciliations to non-GAAP measures, as well as information pertaining to the use of non-GAAP measures, as well as forward-looking statements about Fifth Third’s performance. We undertake no obligation to update any such forward-looking statements after the date of this call. This morning, I’m joined by our CEO, Greg Carmichael; CFO Jamie Leonard; President Tim Spence; and Chief Credit Officer Richard Stein. Following prepared remarks by Greg and Jamie, we will open the call for questions.

Let me turn the call over to Greg now for his comments.

Greg CarmichaelChief Executive Officer

Thanks, Chris, and thank all you for joining us this morning. Earlier today, we reported second-quarter net income of $709 million or $0.94 per share. On an adjusted basis, we earned $0.98 per share. Once again, our financial results were very strong, continuing the positive momentum from the past several quarters.

During the quarter, we generated sequential PPNR growth of 15% on an adjusted basis and growth of 6% compared to the year-ago quarter. Commercial loan production increased 10% from last quarter, with strengthened middle market across our footprint, as well as in corporate banking. We generated strong consumer household growth of 4% compared to last year, and we also experienced historically low net charge-offs of 16 basis points, reflecting improvement in both our commercial and consumer portfolios. We generated an adjusted ROTCE of nearly 20% for the second consecutive quarter, reflecting strong business and credit results across our franchise.

Our results were supported by our continued improvement in our diversified businesses. In fact, we achieved record results in several of our fee-based businesses, including commercial banking and wealth and asset management. Despite the pressure from low-interest rates, net-interest income increased 3% sequentially, and the underlying NIM increased two basis points. We believe that our disciplined approach to managing the balance sheet, including in our securities and hedge portfolios, will continue to generate differentiated performance relative to peers.

We also continue to maintain our expense discipline, while still investing for long-term outperformance. As a result of our strong revenue growth, combined with our expense management, we generated positive-operating leverage on a year-over-year basis with an adjusted efficiency ratio of 58%. We are prioritizing investments that drive further operational efficiencies to improve our resiliency, generate household growth, and improve the customer experience. To that end, we recently announced an expanded partnership with FIS to modernize our core deposit and wealth systems to the cloud, which will enable us to further our digital transformation.

This will significantly improve the flexibility and scalability of our technology infrastructure and accelerate our speed to market. Combining this agreement with the renegotiation of our existing payment processing relationship allows us to modernize our platform, while maintaining an efficient overall cost structure. From a commercial standpoint, loan production this quarter was the highest since before the pandemic, with significant sequential improvements in technology, renewable energy, and manufacturing. However, our strong production was once again offset by elevated paydowns and PPP forgiveness.

While we continue to retain the customer in their core-banking relationship, loan growth remains muted due to the environment. Our commercial lending production trends, pipelines, and retention of the client relationship all continue to support the potential for improved loan growth once supply and labor constraints normalize. We currently expect our 31% commercial revolver utilization rate to increase 1% by year end. On the consumer side, as I mentioned, we once again generated robust household growth.

This strong performance reflects our ability to acquire new customers, combined with low attrition, both of which were supported by our brands and digital investments. Our recent Southeast de novo branches have helped contribute to our household growth. On the digital side, we continue to leverage technology and data analytics to deliver solutions that improve the customer experience, increase revenue, and drive efficiencies. We recently launched Fifth Third momentum banking across our footprint, a banking value proposition unparalleled in our industry.

Momentum combines the best of a traditional bank offering with several leading fintech capabilities, including Early Pay, which gives customers free access to their paycheck up to two days early, extra time, which allows customers to [Inaudible] until midnight the following business day without a fee, MyAdvance, which gives customers short-term on-demand liquidity advances, smart savings and other features all provided with no monthly fee. Our strategy to keep the customer at the center has significantly reduced our reliance on cumulative consumer deposit fees, including overdraft in ATM fees where Fifth Third had been among the lowest compared to peers for several years. Fifth Third momentum banking accelerates our efforts to help customers avoid unnecessary fees. As I mentioned, during the quarter, we recorded a net benefit to credit losses, reflecting historically low net charge-offs, combined with a stronger economic outlook.

Our strong credit performance reflects disciplined client selection, conservative underwriting, and continue support from fiscal and monetary government stimulus programs. In addition to historical-low credit losses, our criticized assets and NPAs once again improved this quarter. Criticized assets declined another 16%, and our NPA ratio declined 11 basis points sequentially. Our balance sheet and earnings power remained very strong.

Our CET1 ratio of 10.4% was relatively stable compared to last quarter, despite share repurchases of $347 million in the second quarter. As we have said before, we remain focused on deploying capital into organic-growth opportunities, evaluating strategic nonbank opportunities, dividend increases and share repurchases. Additionally, our capital position and earnings capacity supported an increase in our common dividend starting in the third quarter. We currently expect to request a $0.03 increase to our quarterly dividend in September, subject to board approval and economic conditions.

We also expect to execute share repurchases totaling approximately $850 million in the second half of 2021 and continue to target a 9.5% CET1 by June 2022. We recently announced the strategic acquisition of Provide, a fintech healthcare practice finance firm, Provide focuses on the dental, veterinarian, and vision segments and delivers digital capabilities, which supported best-in-class experience and speed to close. Provide previously utilized and originate the cell. As a result, the closing of the acquisition will not include a transfer of loan balances.

However, post close, Fifth Third will retain all loan originations. We currently hold around $400 million in loans generated by Provide and have noncredit relationships with over 70% of these borrowers through deposit and our treasury-management products. The acquisition is expected to close in early August and will utilize approximately 20 basis points of capital. In summary, we believe our balance sheet strength, diversified revenues, and continued focus on discipline throughout the company will serve us well this year and beyond.

We remain committed to generating sustainable long-term value and consistently…


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