Fifth Third Earnings Focus on Liquidity and Payments Innovations

This quarter’s bank earnings, like the macro environment, have been mixed and unpredictable.

And the ongoing theme of controlling for what’s controllable held true for Fifth Third Bancorp executives, who told investors during a second-quarter 2024 earnings call on Friday (July 19) that it “continues to be an uncertain economic and interest rate backdrop.”

Against that backdrop, “we’ll continue to maintain flexibility by staying liquid, neutrally positioned, and broadly diversified while investing in the long term,” Fifth Third Chairman, CEO and President Tim Spence said.

One side effect of the higher-for-longer rate environment is the renewed prominence of the treasury and finance departments within organizations.

Fifth Third Executive Vice President and Chief Financial Officer Bryan Preston noted to investors on Friday’s call that the bank’s Treasury Management and Wealth and Asset Management were the strongest contributors to fee income.

The bank’s Treasury Management revenue grew 11% year over year. Commercial and business payments, as well as embedded payments, are also a target area for Fifth Third — and they are going after other bank’s customers, not FinTech audiences.

“Commercial payments revenue grew 12% year-over-year, driven by our investments in our software-enabled managed services and Newline, our embedded payments business. Commercial payments is a scale business for us. In the first half of 2024 alone, we processed more than $8 trillion in volume. And nearly half of all new treasury management relationships we added year-to-date were payments-led and have no credit extended,” said CEO Spence.

“The focus on commercial payments has been about attaching ourselves to this trend in digitization in general, and in particular, the intermediation of these legacy workflows with software,” Spence added.

Read more: Fifth Third and Bottomline Debut Enhanced Payables Tool

Steering Around Challenges and Ahead of Competitors

Along with its peers, Fifth Third stressed to investors that inflation pressures have been evident, and net charge-offs have been rising, although they remain within historical levels.

Per its financial materials, Fifth Third has seen a sequential increase in Net Interest Income (NII), a first since 2022, and for the second consecutive quarter Net Interest Margin (NIM) has improved. Still, the bank noted that it expects NII to decrease 2-4% for the full year, factoring in two rate cuts and no loan growth in the second half of 2024.

The commentary from Fifth Third executives Friday about exercising financial discipline and deploying targeted automation and innovation echoed comments by executives PYMNTS has spoken to throughout the year — underscoring the impact that the ongoing digitization of financial services and banking is having on enterprise roadmaps.

A PYMNTS Intelligence report, “The Treasury Management Playbook: Technology Strategies and Best Practices,” found that, in today’s complex financial and regulatory environment, treasurers are increasingly striving to improve their data and technology strategies.

“We have highlighted the importance of maintaining balance sheet strength and flexibility in an uncertain economic and interest rate environment,” said CFO Preston, noting that Fifth Third had lowered its internal costs by 1% for the quarter through “expense discipline and the ongoing benefits from our process automation efforts.”

Read more: Why There Are No Sacred Cows for Today’s CFOs

“Our investments in the Southeast and middle market expansion markets, in commercial payments and in wealth and asset management continue to produce strong growth and market share gains.,” added Spence.

As PYMNTS reported last week (July 11), Fifth Third Bank recently introduced tools to make changing financial institutions easier.

Research from PYMNTS Intelligence has found younger generations were already primed to switch their banking relationships away from the biggest lenders, as well as from community-based financial institutions.

The research also found that 42% of Generation Z consumers who bank with credit unions have changed their banking relationship in the past 12 months, as have 44% of Gen Z members who had accounts with traditional financial institutions.