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F500-2021-358-Fifth Third Bancorp

The Cincinnati-based bank has origins dating back to 1858 as the Bank of the Ohio Valley, and today operates more than 1,100 branches in 11 states across the Midwest and Southeastern U.S. Fifth Third slid 33 spots in the rankings in 2020, as the pandemic curbed loan and deposit growth and low interest rates hamstrung its interest income. But its shares rose more than 50% in the first five months of 2021, as its business lines benefited from a broader post-COVID economic recovery.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-325-Fifth-Third-Bancorp

This Cincinnati financial services company continues its rise on the <em>Fortune</em> 500 thanks to a string of acquisitions. It divides its business into four segments: commercial banking, branch banking, consumer lending, and wealth management.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Fifth Third Bancorp, through its holding Fifth Third Bank, offers banking and financial services for consumers and small businesses, including residential mortgages, brokerage services, insurance, and wealth management. It operates over 1,000 banking locations in the Midwest and Southeastern regions of the U.S.

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Q4 2024

Fifth Third Bancorp (FITB): Company Profile, Stock Price, News, Rankings

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Fifth Third Bancorp

fifth third bancorp

and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the 5th Third Bancorp Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

We kindly ask callers to limit themselves to one question and one follow-up. I would now like to turn the conference over to Matt Kiro, Senior Director of Investor Relations. Please go ahead.

Good morning, everyone. Welcome to 5th Third's Q4 2024 earnings call. This morning, our Chairman, CEO and President, Tim Spence and CFO, Brian Preston, will provide an overview of our Q4 results and outlook. Our Chief Credit Officer, Greg Schreck, has also joined for the Q and A portion of the call. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation.

These materials contain information regarding the use of non GAAP measures and reconciliations to the GAAP results as well as forward looking statements about 5th Third's performance. These statements speak only as of January 21, 2025, and 5th Third undertakes no obligation to update them. Following prepared remarks by Tim and Brian, we will open up the call for questions. With that, let me turn it over to Tim.

Thanks, Matt, and good morning, everyone. At 5th Third, we believe great banks distinguish themselves not by how they perform in benign environments, but rather by how they navigate uncertain ones. They achieve this through a diversified business mix, defensive balance sheet positioning and by obsessing over the details in day to day operations while investing for the long term. This morning, we reported earnings per share of $0.85 or $0.90 excluding certain items outlined on Page 2 of the release, exceeding the guidance we provided in our Q3 earnings call. We achieved an adjusted return on equity of 13.7%, the highest among all peers who have reported thus far.

Revenues for the quarter grew 2% sequentially and 2% year over year. Core adjusted PPNR exceeded $1,000,000,000 for the first time in several quarters and our adjusted efficiency ratio improved to 54.7%. The 4th quarter capped the year where the industry outlook for interest rates, loan growth, regulation and capital markets activity all changed significantly. Despite this, we delivered strong and predictable results. Our full year return on assets of 1.17%, return on tangible common equity excluding AOCI of 14%, and efficiency ratio of 57.1%, all finished among the top in our peer group.

We were one of only a few banks to achieve full year guidance for NII, fees, expenses, PPNR and net charge offs that was provided back in January. Our NIM inflected in the Q1 as we said it would, NII inflected in the 2nd quarter as we said it would. We returned to positive operating leverage in the 4th quarter on both a sequential and a year over year basis as we said we would. We resumed share repurchases in the 2nd quarter and raised our dividend in the 3rd quarter. In total for the year, we returned $1,600,000,000 of capital to our shareholders, while also increasing our CET1 ratio by more than 20 basis points.

Competitive barriers are exceedingly difficult to build in the banking business. The only way we know how to build them is to invest continuously in a limited number of strategies over a sustained period of time. Our growth strategies are well known and have been consistent for several years now. Their impact is evident in our 2024 results and reflected in the 3rd party accolades that we received during the year. Our investments to expand our Southeast branch footprint and in our differentiated momentum banking platform continue to drive outsized growth in granular low cost deposits.

For the 2nd consecutive year, 5th Third was number 1 among all large banks in year over year retail deposit growth measured on a cap deposit basis. We generated year over year household growth of 2.3%, punctuated by 6% growth in the Southeast. And we also won J. D. Power's Retail Banking Satisfaction Award for the Florida region.

The 31 de novo branch locations we opened in 2024 and the 60 new branches we expect to open in the Southeast in 2025 should set us up well to continue to gain market share. On lending, our investments to generate granular diversified loan originations without compromising on pricing or risk gained momentum throughout the year and contributed to a strong finish. On a sequential end of period basis, we grew loans 3%

a bit more than 1% faster than the H8. Growth was balanced between consumer and commercial and across product categories, including from our through the cycle commitment to the auto business, strong C and I production from the middle market and key CIB verticals and continued growth from our provide and dividends in tech platforms. In the middle market, we expanded our relationship manager head count by 25% in the Southeast and in our expansion markets over the course of 2024. 4th quarter middle market loan production reached a 3 year high, increasing over 50% sequentially and over 70% year over year, and we also saw a modest uptick in utilization. Our C and I pipelines in middle market are at record levels heading into 2025, and we expect to add another 5% to 10% to RM headcount over the course of the year.

On fees, our commercial payments business grew fee revenues by 8% in 2024 and we processed $17,000,000,000,000 in volume. Our managed services offerings and NewLine led the way on growth and nearly 40% of all new commercial payments relationships have no credit attached. In addition, CareShield, Global Finance and This Week in FinTech all recognized NewLine with awards for technology innovation. The ramp from new and expanded relationships won during the year, including Stripe and Trustly will give us a head start on the strong 2025. In Wealth and Asset Management, total assets under management grew 17% year over year, up roughly $10,000,000,000 to $69,000,000,000 in total AUM.

Our 5th Third Private Bank, 5th Third Securities and 5th Third Wealth Advisors business units all delivered strong performance and we were recognized for the 6th consecutive year as best private bank by Global Finance. Last, we continued to make good progress on modernizing our operating platform. We completed general ledger and clearing platform conversions during the year and launched term deposits on a modern cloud core. Our cross functional lean value streams have achieved more than $150,000,000 in annualized savings and headcount declined 1% year over year. These initiatives continue to improve execution quality and provide funding for the investments in our growth strategies.

Looking ahead to 2025, there are many reasons to feel optimistic about the banking sector. The underlying economy is solid and most business owners are more optimistic about 2025 than they were about 2024. The combination of front end rates above 0 and some steepness in the yield curve is a more constructive setup than we have had in quite some time. We may also be on the cusp of a shift in the direction of regulation, which could unlock new opportunities. With that said, recent history is a good reminder that things can shift very quickly.

The modern economy is the most complex adaptive system the world has ever seen and complex systems react to change in unexpected ways. Come what will, we are pleased with the positioning of our company. We remain confident in achieving record NII in 2025 and delivering full year positive operating leverage across a range of interest rate environments. Our credit portfolio remains well diversified and proactively managed and the risks are well understood. We will continue to focus on stability, profitability and growth in that order and to stay balanced in our positioning while investing with the long term in mind.

Before I turn it over to Brian, I want to say thank you to our employees for the way you support our customers and our communities and for your commitment to getting 1% better every day. You make our company the special place it is. With that, Brian will provide additional details on the quarter and our outlook for 2025.

Thanks, Tim, and thank you to everyone joining us today. Our 4th quarter results demonstrated the ongoing strength and momentum of our company. With a resilient balance sheet and diversified income streams, we achieved 3% sequential growth in adjusted revenue. That revenue performance combined with our ongoing expense discipline resulted in a 5% sequential pre provision net revenue increase in the 4th quarter on an adjusted basis. As Tim mentioned, our strong profitability allowed us to return over $1,600,000,000 of capital to our shareholders in 2024, including the $300,000,000 share repurchase executed in the Q4.

We delivered $3,000,000,000 of sequential growth in end of period loans and maintained our CET1 ratio consistent with our near term operating target of 10.5%. In addition to the $630,000,000 in stock we repurchased in 2024, our tangible book value per share inclusive of the impact of AOCI increased 6% from the previous year despite the 10 year treasury increasing nearly 70 basis points. The strategy in our investment portfolio to focus on investments with known cash flows through the bullet and locked out securities will continue to benefit us as these positions pull to par. Even with the increase in rates, the securities we maintained and available for sale realized an improvement in their unrealized loss position since the end of last year. Highlighted on Page 2 of our release, our reported results were impacted by certain items.

These include costs related to the Visa, Mastercard interchange litigation and a contribution to our foundation, partially offset by benefits related to an updated estimate for the FDIC special assessment and the resolution of a prior period state tax item. Net interest income for the quarter continued its positive momentum, increasing 1% sequentially to $1,400,000,000 with net interest margin improving 7 basis points. Proactive balance sheet management resulted in a 35 basis point reduction in the cost of interest bearing deposits. These actions along with the loan growth and the continued repricing benefit on fixed rate assets more than offset the decrease in yield on our floating rate assets. Loan growth accelerated in December, resulting in a strong period end loan growth of 3% with average loans increasing 1% sequentially.

Period end commercial loans were up 3% and average balances were relatively stable. We saw broad based strength in production across our middle market footprint led by our Chicago, Indiana, Carolinas and Georgia regions, as well as a rebound in our corporate banking verticals. Utilization improved the point, some of which we expect is normal year end seasonality. Average and period end consumer loans were up 2% from the prior quarter, reflecting increases in indirect auto and residential mortgages. Both asset classes also saw sequential increases in yield due to the continued front book, back book repricing benefits on these fixed rate portfolios.

Shifting to deposits. Average core deposits were up 1% sequentially, driven by higher interest checking balances in commercial. This core deposit performance combined with the flexibility provided by our elevated cash position allowed us to meet our expected down rate beta targets and further reduce higher cost short term wholesale borrowings. Interest bearing core deposits peaked at 2.99% in August and were down to 2.49% in the month of December, representing a core deposit beta in the upper 50s. Total core deposits have increased by $1,600,000,000 over that same horizon.

As always, our focus remains on prudently managing total funding costs while maintaining a strong liquidity position. We are very pleased with the 38 basis point sequential decrease in interest bearing liability costs. Our balanced approach will continue to provide us with flexibility needed to continue our NII growth trajectory to a record 2025 as we head into another uncertain rate environment. Demand deposit balances as a percent of core deposits remained at 24% during the quarter, consistent with our expectations. Balances were stable on both an end of period and average basis compared to the Q3.

We believe this balance level will be maintained as short term rates are likely to be relatively stable over the near term. We ended the quarter with full Category 1 LCR compliance at 125% and our loan to core deposit ratio was 73%, up 2% from the prior quarter. Moving to fees. During the Q4, we updated the non interest income captions on our income statement to better align disclosures to our most significant business activities, which includes the addition of commercial payments and capital markets line items. The appendix of our presentation provides more detail on the caption changes.

Excluding the impacts of the securities gains and losses and the Visa total return swap, Adjusted non interest income in the Q4 increased 5% compared to the same quarter last year. Capital markets, wealth and commercial payments all delivered strong fee results, driven by our sustained strategic growth investments in products and sales personnels. Capital markets grew 16% over the prior year with increases in loan syndications, debt capital markets and M and A advisory revenue. We continue to see activity below prior year levels in our customer hedging and institutional brokerage fees. In wealth, fees grew 11% over the prior year to $163,000,000 due to AUM growth and increased transactional activity at 5th Third Securities.

The new commercial payments caption includes TN fees and earnings credits that were previously included in service charges on deposits and commercial card and sponsorship revenue that was previously reported in card and processing revenue. Compared to the prior year, commercial payments revenue increased 7%, driven by treasury management net fee equivalent growth, which was up 11%. We continue to acquire new clients in treasury management products in our managed services and in new line. The securities losses of $8,000,000 were primarily from the mark to market impact of our non qualified deferred compensation plan, which is offset in compensation expense. Moving to expenses.

Excluding the items noted on Page 2 of our release, our adjusted non interest expense was up 1% from the year ago quarter and decreased 1% sequentially. The previously mentioned deferred compensation mark reduced expenses by $7,000,000 for the quarter compared to expense increases of $10,000,000 $13,000,000 in the prior and year ago quarters, respectively. Excluding the impact of the deferred comp mark, year over year expense growth was 2% and sequential expense growth was 1%. While investments in technology, branches and sales personnel have and will continue to drive expense increases, these costs continue to be partially funded through the savings generated by our value stream efficiency programs. Shifting to credit, the net charge off ratio was 46 basis points, in line with our expectations for the quarter and down 2 basis points sequentially.

Commercial charge offs were 32 basis points, down 8 basis points. Consumer charge offs were up 6 basis points, which primarily reflects the normal seasonal 4th quarter uptick we see in our indirect auto and card portfolios, as well as the continued seasoning of the 2022 vintages in our solar and RV portfolios. Consistent with broader industry data, the 2022 consumer vintage appears to be a modest underperformer relative to other origination periods. Early stage delinquencies 30 to 89 days past due increased only one basis point and remained near the lowest levels we have experienced over the last decade. Our NPA ratio increased 9 basis points sequentially to 71 basis points.

Commercial NPAs contributed $122,000,000 to the increase from the prior quarter and consumer NPAs were up only $15,000,000 Within commercial, our CRE portfolio continues to perform well with no net charge offs during the quarter and a stable NPA ratio of 46 basis points. Additionally, total commercial criticized assets decreased by $435,000,000 an 8% reduction during the quarter. Our provision expense for the quarter resulted in a $43,000,000 build in our allowance for credit losses. This build was primarily attributable to the strong growth in period end loans and a modest deterioration in the Moody's macroeconomic scenarios. Our ACL coverage ratio was 2.08 percent, down 1 basis point from the 3rd quarter.

We made no changes to our scenario weightings during the quarter. Moving to capital, we ended the quarter with a CET1 ratio of 10.5%, significantly exceeding our buffered minimum of 7.7% and consistent with our near term target. Our pro form a CET1 ratio, including the AOCI impact of the securities portfolio, is 8.1%, up 32 basis points year over year. We anticipate continued improvement in the unrealized losses in our securities portfolio, given that approximately 60% of the fixed rate securities in our AFS portfolio are in bullet or locked out structures, which provides a high degree of certainty to our principal cash flow expectations. Assuming the forward curve is realized, approximately 18% of the AOCI related to the securities losses will accrete back into equity by the end of 2025, increasing tangible book value per share by 5% before considering any future earnings.

During the quarter, our $300,000,000 share repurchase reduced our share count by 6,700,000 shares. Moving to our current outlook. We entered 2025 with strong momentum and a resilient balance sheet and remain confident in our ability to achieve record NII and full year positive operating leverage. We expect full year NII to increase 5% to 6%. This outlook uses the forward curve at the start of January, which assumed 25 basis point rate cuts in March October.

We would not change our NII guidance for 2025 even if we assume that no cuts will occur. We expect full year average total loans to be up 3% to 4% compared to 2024, with the increase primarily driven by the broad based improvement in C and I combined with continued growth in auto loans. We are assuming that the cash position, securities portfolio and commercial revolver utilization all remain relatively stable throughout 2025. Full year adjusted non interest income is expected to be up 3% to 6%, reflecting continued revenue growth in Commercial Payments, Capital Markets and Wealth and Asset Management, partially offset by the continued runoff of the operating lease business, muted mortgage originations given the rate environment and the year over year impact of the final TRA revenue occurring in 2024. We expect full year adjusted non interest expense to be up 3% to 4% compared to 2024.

Our expense outlook assumes accelerated branch openings in high growth Southeast markets and continued sales force additions in middle market, commercial payments and wealth to increase our production capacity to support our strategic growth initiatives. In total, our guide implies full year adjusted revenue to be up 4% to 6%, PPNR to grow in the 6% to 7% range and positive operating leverage closer to 2%. Moving to credit, we expect 2025 net charge offs to be between 40 and 49 basis points. Assuming no changes in macroeconomic forecasts, we expect the provision to build between $50,000,000 $100,000,000 due to loan growth. Moving to our outlook for the Q1.

We expect NII to be flat with the Q4 of 2024 as the benefits of loan growth, fixed rate asset repricing and the continued reduction in the cost of interest bearing liabilities should offset the impact of 2 fewer days. We expect average total loan balances to increase 2% in the Q1 due to continued momentum in C and I and auto. Excluding the impact of the TRA, we expect non interest income to be down 6% to 7% compared to the 4th quarter, mainly due to normal seasonality in card spend, capital markets activity and other commercial banking revenue. 1st quarter adjusted non interest expense is expected to be up 8% compared to the 4th quarter. As is always the case, our first quarter expenses are impacted by seasonal items associated with the timing of compensation awards and payroll taxes.

Excluding the seasonal items of approximately $100,000,000 expenses would be flat in the Q1. We expect Q1 charge offs to be in the 45 basis point to 49 basis point range and expect the ACL build will be $10,000,000 to $25,000,000 due to loan growth. Finally, we expect to execute $225,000,000 in share repurchases in the Q1, with future quarter share repurchases dependent on the level of loan growth. We will continue to target our CET1 ratio around 10.5% while we await more clarity around the future of the capital rules and other regulations. In summary, with our resilient balance sheet, diversified revenue streams and disciplined expense and credit risk management, 2025 is set to be a year of continuing long term investments, record NII, positive operating leverage and strong returns for our shareholders.

With that, let me turn it over to Matt to open the call for Q and A.

Thanks, Brian. Before we start Q and A, given the time we have this morning, we ask that you limit yourself to one question and one follow-up and then return to the queue if you have additional questions. Operator, please open the call for Q and A.

Our first question will come from the line of Scott Siefers with Piper Sandler. Please go ahead.

Good morning, guys. Thanks for taking the question. Maybe Tim or Brian, I was hoping you could just provide a little more context as to how you see loan demand developing through the year. Your commentary, I'd say recently has been much more encouraging. You discussed things like the robust commercial line, commercial pipelines, etcetera.

So just maybe some additional color on how you see things developing?

Yes. No problem. Scott, I know this will a little bit like salt in the wound for a Miami grad, but we just needed to demonstrate that it isn't only Ohio State that can put points up on the Board early in the year. I mean, look, we were happy with the 4th quarter, obviously, largely because we could see a building in the pipeline for a while. We just needed to get through the election to start to see some of it pull through.

And I think it, along with the sort of as sales force additions, continued activity are going to set us up nicely. Like we've talked a lot about the importance of having diversified loan origination sources because sometimes some channels would work when others didn't. I think in the Q4, most of the channels did. On the consumer side of the equation, auto was strong for us all year last year. I think we were asked a lot when there were several other banks getting out of the business, why we were committed to it and we talked about the fact that it's cyclical, but it can be great at certain points in the cycle and we're at one of those points where it's quite beneficial.

So we think we'll have good things there. Home equity, both the FinTech platforms had a strong finish to the year and I think we'll continue to grow moderately coming into this year. On the commercial side of the equation, the growth that we saw was really broad based. We got about quarters worth of production in the 6 weeks following the election as the backlog and the pipeline started to clear. On a sequential basis, 13 of the 15 regions in a 2 out of 3 verticals roughly showed growth during the quarter.

And while we did get a little bit of a benefit from seasonality, in particular in areas like mortgage warehouse and trade finance, I think the underlying characteristics would support above market growth. We're still sitting on a record pipeline level in the middle market. That is definitely supported by the sales force additions that we made last year. You can see that in the numbers. And we got a 1% pickup in utilization, which I just think is encouraging.

And we asked clients, we got to talk to about 2 dozen clients following the election just about how they feel about the year. More than 80% of them indicated they were more optimistic for 2025 than they were 2024. About half of them indicated they were accelerating planned investments, about a third of those said they were going to support those investments through increased credit utilization or new facilities. There's definitely a lot more optimism on the M and A front. The flies in the ointment here since that's what I always worry about.

Labor availability is the single biggest concern that we hear from middle market clients more so than inflation or interest rates at this point or even supply chain issues tied to tariffs. So overall, I think it's an encouraging outlook. Just as the game last night reminded us with Notre Dame's late rally, you don't want to declare victory at the end of Q1 either.

Perfect. Thank you. And like all the analogies in there, so thanks. And then, Brian, I think you had suggested you wouldn't change the guide based on more or fewer cuts implies you're, I guess, pretty agnostic to changes in rates. How would you characterize your rate sensitivity now versus where you'd like it to be?

I'm guessing it's pretty much where you want it, but would just appreciate any thoughts.

Yes. We're pretty happy right where we are. We're fairly neutral right now. And as Tim talked about, the diversification of our loan origination platforms as well as the inherent flexibility that the liquidity on our balance sheet provides, it gives us a lot of levers to be modest a little bit asset sensitive or a little bit liability sensitive depending on what the environment provides. So we like that positioning in this environment right now.

Our next question comes from the line of Mike Mayo with Wells Fargo. Please go ahead.

Hi. I'm going to ask a long question, just looking for a really short answer.

look, you're talking about record pipelines in middle market, 1% higher loan utilization, 13 to 15 markets have picked up, 2 or 3 verticals have picked up. It seems like your customers are more positive. Are you calling the turn for commercial loan growth for 5th Third? Are you calling it for the industry? Are you calling it for both?

And what's your confidence level around that?

If you want a short answer, then my answer is maybe. Mike, it's the thing that I always worry about is uncertainty, right? I think I said in my prepared remarks, the economy is a pretty complex system. It's a simulation and it can change pretty unpredictably. The backdrop is more favorable than it has been.

Like if you're a customer, you have 100 basis points benefit in rate cuts. You have more certainty over the direction of travel on regulation. I think we're going to have to watch that a lot of the discussions we had on the labor market and labor availability related to questions on immigration, deportations and otherwise. We're going to have much more clarity there in relatively short order. And I think if those things come about and we don't see big supply chain disruption, chain disruption, yes, we should continue to see some expansion on the C and I portfolio.

Just don't bake in 12% annualized growth, please, into your models for 5th 3rd.

Our next question comes from the line of Gerard Cassidy with RBC. Please go ahead.

Hi, good morning. This is Thomas Leddy standing in for Gerard. You saw a good drop in deposit rates in the Q4. Could you just give us a little more color on what your outlook is for deposit rates in 2025 assuming the Fed is finished cutting?

Yes. We'll continue to get a little bit of cost out if the Fed is done at this point. We have a little bit of 1st quarter tailwind benefiting in this space as we'll get some full quarter impact of the December cut. Additionally, we have almost $8,000,000,000 of CDs maturing in the Q1. That's at a weighted average rate of about 4.3% right now.

That's going to give us some flexibility as well. Beyond that, it's really going to be dependent on loan growth. If it becomes a more robust loan growth year potentially, we do think deposit competition could tick up a little bit. But in general, we feel good about our positioning. With the cash position, we're in a spot where if we needed to, we could actually take down our loan to improve our loan to deposit ratio a little bit and fund some of that loan growth with that excess cash like we did this quarter.

But we have a lot of flexibility to navigate those costs.

Okay. Thank you. That's helpful. And then just quickly, can you give us any color on the uptick we saw in C and I non accruals this quarter?

Yes, it's Greg. So, increase was really driven by 5 commercial borrowers, about an average loan size of $32,000,000 no discernible industry or geographic trends, no concentrations among these borrowers. We remain within a few basis points above our 10 year commercial average. So relatively flat from a 10 year average perspective. And as you know, each of these credits, NPA credits get individually evaluated.

We assess those based on the financial risk and those results are captured in our financial results, either through a specific reserve or a charge off. The largest of the MPA inflows this quarter is expected to pay off or pay down within the first half of the year, either through debt reduction or I guess that the full payoff. And it's a great example of how we're working with borrowers experiencing stress to reach outcomes that are mutually beneficial.

Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please go ahead.

Hey, Tim. I guess maybe just going back to the very start in terms of consistent investments in branches, Southeast, just remind us around the payoff that you had from branches open 2, 3, 4 years ago. As we think about means, again, if loan growth picks up for the industry, that's great. Should we think of 5th Third as someone that outperforms on loan and deposit growth given these investments? So give us a sense of what the payoff has been as you measure these investments?

And maybe even talk about like any specific markets areas where the new the growth for 2025 is planned? Thanks.

Yes. I'll take the second half of that. I'll let Brian talk to the payoff the first half of this.

Yes. The weighted average age of our Southeast branches now, especially the new builds are still in the early innings, right? It's nearly 3 years on average is where we are right now and we're going to build another 50 in 2025. And so we're still in the early ramp periods from an average balance perspective. So it puts us in a position from a customer acquisition perspective where we can drive and continue to drive significant deposit growth similar to what you've seen from us over the last couple of years.

And that will be a big driver then of the NII performance. On the asset side of the sheet, it's more related to the sales force additions that we've been making, the teams that we've hired in new markets as well as just the 20% increase in middle market headcount that we've middle market sales headcount that we've increased over the last couple of years. So those will be all will be strong tailwinds for us from an NII perspective.

Yes. And I think the call back here is what we talk about a lot is the degree to which we price flexibility. The nice thing about having these engines online is it really does give us the ability to toggle between growing deposits when we want to do that or leveraging the fact that we have great liquidity to manage margins. So we make those decisions based on the environment, what the needs of the balance sheet are, as Brian was saying. In terms of the markets, you can sort of think about that what we've done in a few waves here.

The first wave, the new branch builds were disproportionately concentrated in Nashville, North Carolina and Southwest Florida. The next wave here when you look at this branch is coming online this year and next year. The Southeast Coast, so not Dade County, but Broward North, Central Florida and North Florida will all see material increase in branch activity along with South Carolina, and I think we get our 1st branch open in Birmingham this year. The other big driver in a 2 to 3 year timeframe less so in 2025 is that we're going to see a nice pickup in Atlanta. And in the Atlanta area, we have several branches that will be coming online there.

Got it. That's helpful. And I guess maybe just one quick one on the fees. Maybe you don't have kind of as deep of a capital markets franchise as some of your peers, but just give us a sense of when we look at Slide 7, wealth payments markets, how dependent is that revenue growth on actually balance sheeting loan growth or loans? And are those should we view any of those as tools for client acquisition?

Yes. Okay. Great question. I'll just take it by business. So wealth not dependent on balance sheeting loans.

We have like $7 in AUM for every $1 in deposits and it's what $15 or something like that in AUM for every $1 in loans. It really is a wealth management sort of fiduciary focused franchise. It is not balance sheet dependent at all. Commercial payments, it's sort of half half, right? I gave the number there that 40% of the new relationships we added last year were payments led.

Say that in other direction, we added almost one new commercial payment relationship that had no credit attached to it for every relationship that we did. But certainly, the balance sheet supports what has been high single digit, low double digit growth rates. It's just not reliant on it. And the NewLine platform, in particular, is an important driver there. On the capital market side of the equation, much more of what we do in that space is essentially cross selling to existing commercial banking clients.

We built a really strong middle market franchise. The hedging activity is great there. That would happen principally to clients who make use of the balance sheet. The M and A activity, our M and A franchise, half the engagements roughly come from inside the house as opposed to being independent, which is what we want, right? That's the mechanism for monetizing the attachment point that you get out of the commercial lending business.

And certainly, as it relates to the CIB strategy, the focus on capital markets growth there really does link. I just believe we have a long way to go to get to full penetration inside our existing book of business. So I'm pretty confident in our ability to continue to grow capital markets fees at a rate that exceeds the balance sheet by a healthy margin.

Your next question comes from the line of Manan Gosalia with Morgan Stanley. Please go ahead.

Hi, good morning. On capital, I hear you on keeping the reported CET1 at 10 0.5%. The question was how are we thinking about CET1 including AOCI? I know some of your peers are operating or looking to operate in that 9% to 10% range. There is some volatility here on the long end of the curve.

So I guess the question is, do you have a target for CET1 including AOCI? And how are you thinking about buybacks and capital management from here?

Yes. We do the expectation would be to keep CET1 inclusive of AOCI north of 8% right now, but we would expect that to continue to increase over time with the pull to par on the investment portfolio. The AFS portfolio is actually right now on the belly of the curve. The duration of that portfolio is below 4. It's about 3.8 right now.

And if you look at the price sensitivity of the portfolio, it has moved in significantly. So we feel really good about the AOCI accretion that we should be seeing over the next couple of years, which gives us confidence that depending on whatever the capital rules may be, we're going to have no issues with meeting that over time. From a buyback perspective from here, our capital priorities are going to continue to be supporting organic growth, maintaining a strong dividend and then buybacks. And so the ultimate level of buybacks will be around that 10.5 percent level and where that triangulates with the end of period loan growth we deliver each quarter.

Got it. So on the I hear you that you'll keep that you'll accrete through that CD1, including AOCI. Is there any level at which it will it could impact loan growth and drive RWA diets at some stage?

We don't see anything at this point that would create a situation where we would pull back meaningfully from a loan growth perspective.

Fifth Third Bancorp (FITB) Q4 2024 Earnings Call Transcript

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