The paragraph is an introduction to Fifth Third Bancorp's Fourth Quarter 2024 Earnings Conference Call. The call is facilitated by Regina, the conference operator, and remarks will be made by senior executives, including Tim Spence, Chairman, CEO, and President, and CFO Bryan Preston. Matt Curoe, Senior Director of Investor Relations, welcomes everyone and outlines that the session will include a presentation of the fourth-quarter results and future outlook. It also mentions that Chief Credit Officer Greg Schroeck will participate in the Q&A session. Participants are advised about forward-looking statements and non-GAAP measures in the company's announcement materials. Tim Spence starts his remarks by emphasizing the importance of navigating uncertain environments and reports earnings per share that exceed previous guidance.

The company reported its highest adjusted return on equity at 13.7%, outpacing peers. During the quarter, revenues grew 2% both sequentially and year-over-year, while their core adjusted PPNR exceeded $1 billion, and the efficiency ratio improved to 54.7%. Despite significant changes in industry conditions, they delivered strong results, including a top-tier return on assets and equity. They achieved full-year guidance targets for key financial metrics and returned $1.6 billion to shareholders, increasing their CET1 ratio. Their consistent growth strategies and investments, particularly in their Southeast branch expansion and momentum banking platform, contributed to significant increases in low-cost deposits and won third-party accolades in 2024.

For the second year in a row, Fifth Third led large banks in retail deposit growth, with significant household growth in the Southeast and recognition from JD Power for customer satisfaction in Florida. The bank is expanding its branch network in 2024 and 2025 to boost market share, while diversified lending strategies and investments have led to a 3% loan growth, particularly in the middle market and various sectors such as auto and fintech. Middle market loan production hit a three-year high with plans to increase Relationship Managers. The Commercial Payments business saw an 8% growth in fee revenues, processing $17 trillion and receiving multiple awards for technology innovation.

The paragraph discusses the positive outlook for 2025, attributed to new partnerships and strong performance in Wealth and Asset Management, where assets under management grew by 17%. Fifth Third's business units received recognition, and modernization efforts led to significant savings and reduced headcount. There is optimism in the banking sector due to a solid economy, favorable interest rates, and potential regulatory changes, although it's noted that rapid changes can occur. The company feels well-positioned and confident in achieving record net interest income and positive operating leverage, while maintaining a well-managed and diversified credit portfolio.

The company's fourth quarter results showcased strong performance with a 3% increase in adjusted revenue and a 5% rise in pre-provision net revenue, thanks to a resilient balance sheet and diversified income streams. They returned over $1.6 billion to shareholders in 2024, including $300 million in share repurchases during the fourth quarter. The company achieved $3 billion in loan growth and maintained a CET1 ratio of 10.5%. Despite rising treasury rates, their tangible book value per share increased by 6%. Their investment strategy focusing on securities with known cash flows proved beneficial, resulting in an improved unrealized loss position.

The paragraph discusses financial updates for a company, highlighting costs related to Visa/MasterCard litigation and a foundation contribution, offset by benefits from an FDIC assessment and a tax resolution. Net interest income rose by 1% to $1.4 billion with a 7 basis point increase in net interest margin, and the cost of interest-bearing deposits decreased by 35 basis points. Positive loan growth was noted, particularly in commercial loans and consumer loans, with a strong 3% growth at the end of the period. Deposits increased by 1%, driven by higher interest checking balances, allowing the company to reduce short-term wholesale borrowings.

In the period from August to December, interest-bearing core deposit rates decreased from 2.99% to 2.49%, with total core deposits rising by $1.6 billion. The institution remained focused on managing funding costs and maintaining liquidity, achieving a 38 basis point reduction in interest-bearing liability costs. The demand deposit balances represent 24% of core deposits, aligning with expectations, while the loan-to-core deposit ratio increased slightly. The institution achieved full Category 1 LCR compliance at 125%. Non-interest income increased by 5% in the fourth quarter, attributed to strong performances in Capital Markets, Wealth, and Commercial Payments, driven by strategic investments. Capital markets specifically saw a 16% growth, boosted by activity in loan syndications, debt capital markets, and M&A advisory.

The paragraph discusses the financial performance and growth in different sectors of the company. Customer hedging and institutional brokerage fees remain below last year's levels. In the Wealth segment, fees grew by 11% to $163 million due to asset management growth and increased transactions at Fifth Third Securities. Commercial Payments revenue increased by 7%, driven by an 11% growth in treasury management fees. The company is acquiring new clients in treasury management and managed services. Securities losses of $8 million were due to a mark-to-market impact, offset by compensation expenses. Adjusted non-interest expenses increased by 1% year-over-year and decreased by 1% sequentially, with deferred compensation affecting these figures. Investment in technology, branches, and sales personnel is causing expense growth, but efficiency programs help offset this. Credit metrics show a net charge-off ratio of 46 basis points, with commercial charge-offs down by 8 basis points.

The paragraph discusses financial metrics and performance indicators for a company in the fourth quarter. Consumer charge-offs increased by 6 basis points due to seasonal trends and maturation of certain portfolios, while early stage delinquencies rose slightly but remained low historically. The non-performing asset (NPA) ratio increased by 9 basis points, with commercial NPAs contributing significantly to this rise. The Commercial Real Estate (CRE) portfolio performed well with stable NPAs and no net charge-offs. There was an 8% reduction in total commercial criticized assets. A $43 million provision expense was recorded due to strong loan growth and minor macroeconomic deterioration. The allowance for credit loss coverage ratio was marginally down, with no changes in scenario weightings. The company's Common Equity Tier 1 (CET1) ratio ended at 10.5%, well above the minimum requirement, with improvements expected in unrealized securities portfolio losses.

The paragraph outlines the company's financial outlook for 2025, highlighting anticipated growth and strategic initiatives. It projects that 18% of the accumulated other comprehensive income (AOCI) related to securities losses will enhance equity, boosting tangible book value per share by 5%. The company reports a share repurchase reduced shares by 6.7 million. Looking ahead, it anticipates a 5% to 6% rise in net interest income (NII), a 3% to 4% increase in average total loans driven by commercial and auto loans, and a stable cash and securities position. It foresees non-interest income growing by 3% to 6% through gains in Commercial Payments, Capital Markets, and Wealth Management, despite challenges in other areas. Non-interest expenses are expected to rise by 3% to 4% due to branch expansion and sales force growth to support strategic goals.

The paragraph outlines financial projections for the first quarter and beyond. It anticipates full-year adjusted revenue growth between 4% and 6%, with PPNR increasing by 6% to 7% and positive operating leverage near 2%. It projects 2025 net charge-offs to be between 40-49 basis points and plans for a provision build of $50 million to $100 million due to loan growth. For the first quarter, NII should remain flat with the previous quarter, average total loan balances are expected to grow by 2%, and non-interest income is expected to decline by 6% to 7% due to seasonal factors. Adjusted non-interest expenses are projected to rise by 8%, attributed to seasonal compensation and payroll taxes. Charge-offs for the quarter are expected to be 45-49 basis points, with an ACL build of $10 million to $25 million. The company plans to execute $225 million in share repurchases, with the CET1 ratio targeted around 10.5%, while awaiting future regulatory clarity.

The paragraph discusses a financial outlook for 2025, highlighting expectations for continued long-term investments, record Net Interest Income (NII), positive operating leverage, and strong shareholder returns, supported by a resilient balance sheet and diversified revenue streams. Matt Curoe invites questions, reminding participants to limit themselves to one question with a follow-up. Scott Siefers from Piper Sandler asks about loan demand. Tim Spence humorously comments on Ohio State's performance, then comments on the positive development of loan pipelines and the impact of diversified loan origination sources, noting their strength even after recent elections.

The paragraph discusses the strong performance of various sectors for the company. The consumer automotive sector performed well throughout the previous year, despite other banks exiting the market. Home equity and fintech sectors also showed growth and are expected to continue moderately. On the commercial side, broad-based growth was noted, with production ramping up after the election and most regions and verticals showing positive results. The company benefited slightly from seasonal factors but also saw above-market growth driven by a strong sales force and high pipeline levels in the middle market. Optimism is rising among clients for 2025, with many planning to accelerate investments and increase credit utilization. There is also increased optimism in mergers and acquisitions, although there are concerns about potential issues.

The paragraph involves a discussion on labor availability being the primary concern for middle-market clients, surpassing issues like inflation, interest rates, or supply chain disruptions. Bryan Preston discusses being content with their current rate sensitivity due to the flexibility and diversification of their loan origination platforms, allowing them to adapt to changing environments. Mike Mayo from Wells Fargo then inquires about the potential positive shift in commercial loan growth for Fifth Third and the industry, expressing curiosity about the confidence level in this change.

In the paragraph, Tim Spence discusses the uncertainty in the economy and the difficulty in predicting its changes due to its complexity. He mentions favorable conditions, such as a 100 basis points benefit in rate cuts for customers and more certainty in regulatory directions. He highlights ongoing discussions about the labor market and immigration, which could lead to further clarity soon. If supply chain disruptions remain minimal, there could be some growth in the C&I portfolio, though he cautions against expecting a 12% annualized growth for Firth Third. Mike Mayo acknowledges Spence's remarks, after which the discussion shifts to Thomas Leddy asking Bryan Preston about the outlook for deposit rates in 2025, assuming the Fed is done with cuts. Preston suggests there could be some cost reductions if the Fed is finished, with a first-quarter tailwind from December's rate cut and flexibility from maturing CDs, but emphasizes that loan growth will ultimately influence the deposit rates.

In the paragraph, the discussion revolves around potential loan growth and the possible increase in deposit competition. The speaker expresses confidence in their position, highlighting the ability to manage loan growth using excess cash and adjust the loan-to-deposit ratio as needed. Greg Schroeck addresses an increase in C&I non-accruals, attributing it to five commercial borrowers with no specific industry or geographic trends. He notes that these credits are evaluated individually, and the largest non-performing asset is expected to be resolved in the first half of the year. The interaction concludes with Thomas Leddy and Ebrahim Poonawala thanking the speakers for their insights.

The paragraph discusses Fifth Third's investments in new branches, particularly in the Southeast, and their strategy for loan and deposit growth. Bryan Preston explains that these branches, averaging around three years old, are still in their early stages but are contributing to significant deposit growth, which supports net interest income (NII) performance. The bank plans to build another 50 branches by 2025. On the asset side, growth is supported by their expanded sales force and a 20% increase in middle market sales headcount. Tim Spence adds that flexibility is a key focus for the bank.

The paragraph discusses the strategic flexibility provided by having online engines, allowing for adjustments between growing deposits and utilizing liquidity to manage margins, based on the needs of the balance sheet and market conditions. It describes the phased expansion of branch locations, initially in areas like Nashville and Southwest Florida, followed by upcoming expansions in the Southeast Coast, South and Central Florida, North Florida, South Carolina, and Birmingham. Additionally, significant growth is anticipated in Atlanta over the next few years. The conversation then shifts to discussing the dependency of revenue growth in Wealth and Commercial Payments on balance-sheeting loans, with Wealth being independent and Commercial Payments having a moderate dependency.

The paragraph discusses the company's strategy regarding its commercial and capital markets activities. Approximately 40% of new relationships last year were payment-driven, with many of them not involving credit. The balance sheet supports moderate growth rates, aided by the Newline platform. In capital markets, much of the business involves cross-selling to existing clients, with a strong focus on middle-market franchises. M&A activities largely originate internally, leveraging existing lending relationships to monetize opportunities. The goal is to enhance capital markets growth beyond the balance sheet's growth rate. Toward the end, Manan Gosalia from Morgan Stanley asks about the company's CET1 target, including AOCI, noting that some peers aim for a range of 9% to 10% amid long-term curve volatility.

The conversation centers around capital management and buyback strategies, with Tim Spence discussing expectations to maintain a Common Equity Tier 1 (CET1) ratio, including Accumulated Other Comprehensive Income (AOCI), above 8%. Over time, this is expected to increase due to improvements in the investment portfolio, which currently has a duration of about 3.8%. The bank is confident in its ability to meet capital requirements and plans to focus on supporting organic growth, maintaining dividends, and executing buybacks, targeting a 10.5% level depending on quarterly loan growth. Spence reassures that they do not foresee events that would hinder loan growth significantly. The discussion then briefly shifts to commercial payments, with Brian Foran thanking them for providing more details on this investment area.

The paragraph discusses a company's superior market performance in the payments sector compared to its peers. Tim Spence explains the company's decision to change its reporting to improve clarity and enable comparison using public data sources like Nacha and Nielsen. The company is described as having a higher turnover ratio, indicating a more payment-centric business model, with 3.5 times the market share in major Commercial Payments compared to C&I lending. The company is growing faster than the industry average, partly due to benefiting from partnerships with third-party software developers, which help it gain market share when traditional financial institutions lose ground to non-bank competitors.

The paragraph features a discussion between Brian Foran and Tim Spence regarding a company's financial position and guidance for 2024. Tim Spence addresses potential upside and downside risks, such as loan growth and deposit costs, while expressing confidence in their trajectory, despite some volatility in capital markets. The conversation touches on treasury management, mentioning high penetration rates with lending customers. Brian Foran acknowledges the company's guidance accuracy compared to other banks. John Pancari from Evercore then shifts the discussion to the company's capital deployment priorities, emphasizing organic growth followed by dividends and buybacks.

Tim Spence discusses the outlook on mergers and acquisitions (M&A) in the banking sector amidst changing regulatory dynamics in Washington. He notes that the U.S. banking system is the least consolidated in the world, and predicts inevitable consolidation. Treasury Secretary Bessent has highlighted the need for more competition among large banks. Spence believes that his organization could have completed a deal prior to this year, and their stance remains unchanged. They value market density, diversification, and the ability to leverage tech innovation. While recognizing the evolving regulatory environment as favorable, Spence emphasizes that they will not pursue growth solely through M&A but have alternative growth strategies.

The paragraph discusses a company's strategy and performance. It mentions their focus on making the right decisions as opportunities arise, specifically in managed services and Commercial Payments, rather than making large acquisitions. They prefer acquiring businesses with proven products that need better distribution. Tim Spence expresses pride in the company's strong execution and performance, noting high returns on tangible common equity (18%-19%) and a mid-50s efficiency ratio. Looking towards 2025 and beyond, he is confident in achieving returns that exceed their cost of equity due to their strategic approach.

The paragraph discusses the company's satisfaction with its current return targets and business stability, highlighting predictability, profitability, and growth. It mentions that no significant work is required, with a neutral ALM position and a defensive approach to credit. The discussion notes improved fourth-quarter production and a comfortable profitability level, anticipating operating leverage if the year goes as expected. The focus is on sustaining current return levels and growing tangible book value per share. Additionally, a question from John Pancari mentions middle market customers facing labor challenges, possibly impacting loan demand, and queries if there's optimism about resolving these issues.

Tim Spence discusses how different sectors are addressing labor challenges with technology and other strategies. In manufacturing and logistics, there is optimism about using technology, such as robots, to improve productivity. In healthcare, there's hope that more graduates from nursing schools will eventually reduce reliance on traveling nurses, though Spence is less optimistic about this. In sectors like services, construction, and retail, there is concern due to a declining birth rate and more retirements than new workforce entrants. Spence suggests that boosting productivity with technology is essential, as current labor trends aren't showing signs of cooling.

The paragraph discusses the impact of labor pressures on different market segments and outlines Fifth Third's strategy for growth. Matt O'Connor asks if large corporate or middle market segments are more affected by labor pressures and which will drive Commercial and Industrial (C&I) growth. Tim Spence highlights that Fifth Third aims for balanced growth, with an expectation that the middle market might grow slightly faster than corporate banking. Bryan Preston adds that larger companies are better able to navigate labor pressures due to their investment capacity, flexibility in labor markets, and pricing power, which may allow corporate banking to have a slight advantage despite the focus on balance.

In the paragraph, during a financial discussion, Erika Najarian of UBS asks Bryan Preston about Fifth Third's net interest income and net interest margin outlook, particularly if a 4% neutral rate is applied. Bryan responds that he expects a steady improvement in margins, potentially reaching the 320s, influenced by cash positions and the shape of the interest rate curve. Erika then asks Tim Spence about revisiting Fifth Third's stress capital buffer, which was 3.2% last year. Tim explains that revisiting it off-cycle isn't necessary as it's not currently a constraint, and he looks forward to more transparency from stress tests following recent actions by the Fed and the VPI.

The paragraph features a Q&A session during a financial earnings call, discussing the stability and performance of commercial and industrial (C&I) loan utilization and trends in criticized and classified loans. Bryan Preston reports that C&I utilization is stable at around 36% and is expected to remain so. Tim Spence highlights a reduction in criticized loans by $435 million in the fourth quarter, with 90% of the portfolio staying current, indicating positive asset quality. The conversation concludes with Tim Spence expressing support for people in California affected by wildfires and pride in the growth of their commercial banking presence in the state.

The paragraph discusses a personal connection to the Altadena Pasadena area, highlighting its significance to the speaker due to family ties. It mentions that Fifth Third is committed to aiding in the community's rebuilding efforts. The call concludes with Matt Curoe expressing gratitude and inviting follow-up questions through the Investor Relations department before the operator ends the call.

This summary was generated with AI and may contain some inaccuracies.