Fifth Third Bancorp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Siefers - Piper Sandler - Analyst : Morning, everyone. Thanks for taking the call. Hey, I was hoping you might be able to discuss sort of just the main puts and takes you see in the fourth quarter NII guide, in particular curious about how you're thinking about, the further trajectory of deposit data and sort of how that evolves over time, given that you've had, you've been very transparent about it and have an optimistic outlook there as well.

Question: Scott Siefers - Piper Sandler - Analyst : Okay, perfect. Thank you. Maybe looking at a little further, I know you've discussed generating record NII in 2025, would love to hear any updated thoughts there. I guess including what kind of lending rebound might be required to achieve that. It sounded like, maybe a bit more optimistic on what lending demand might look like given some of the signs of life you referred to in your (inaudible).

Question: Scott Siefers - Piper Sandler - Analyst : Got you. Perfect All. Thank you very much, Bryan.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Hi, Tim, Hi, Bryan.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Can you guys, I posed this question to one of your peers yesterday when I framed it out, part of the response was it was a rosy outlook. So I'll give that as a caveat to you. But can you share with us, I'm curious and, I'm not asking for specific '25 guidance, but if the Fed continues with dropping rates the way they appear to be in terms of the forward curve and their own outlook. And we actually go from an inverted yield curve that we've lived with for over two years now to a positively sloping curve with the front end drops to [3, 3.5], the long end stays around [4 to 4.5]. Can you share with us, what kind of impact that may have on your net interest income growth for '25?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. And then can you guys remind us, you talked about lifting up the buyback a bit in the fourth quarter. Bryan, you talked about how the tangible book value accretion, how it's going to come through just the burn off of that the securities portfolio for the end of '25. Can you remind us in an environment where you know what the (inaudible) end game requirements are, which hopefully we will obviously by this time next year, what should we expect in terms of how much of the capital that you guys are comfortable giving back to shareholders as a percentage of earnings, for example, in dividends and buybacks?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. Thank you, guys.

Question: Mike Mayo - Wells Fargo Securities - Analyst : Hey, just to follow up on the, you said the loan production is the highest in five quarters and then quarter-over-quarter loan growth is flat, right? So if you could just give a little bit more detail, like how much would loans have grown without pay downs? And why are you seeing more of this? That it sounds like you said there's signs of life, but you know, is it bigger than a bread box sort of what you think might come ahead? Thanks.

Question: Mike Mayo - Wells Fargo Securities - Analyst : And as far as, if you had to (inaudible) kind of expectations of, for the next several quarters over the next year, are you willing to give us any number yet? You think it'll be more than 1% or 2% or I mean, I'm sure you're going to--

Question: Mike Mayo - Wells Fargo Securities - Analyst : Great. Thank you.

Question: Erika Najarian - UBS Equities - Analyst : Hi, good morning. My first question is for you, Bryan. So you indicated your deposit beta so far on the recent cuts are in the mid-40s. You know, as we think about the speed of index deposit repricing and then retail, could you give us a sense of what you think the cadence could be as we go through the next five quarters. So a few of your peers have noted that it might not be a straight line, you know, path to the terminal data given how quickly corporate can reprice and you know, retail has sort of been awoken, so to speak in terms of higher rates. So if you could speak to that and maybe speak a little bit too, if you think about your deposits, you know, we haven't seen a neutral rate that's not zero for so long. So maybe help us get a sense of if we get a neutral rate of, you know, two and three quarters or 3% what do you think your natural spread is or natural deposit rate in that environment?

Question: Erika Najarian - UBS Equities - Analyst : Got it. And my second question is for Tim, Tim, the feedback from investors has always been quite positive in terms of the forward-looking way of how you look at the world. And as we think about 2025 I guess it doesn't, it feels like given record and NII, and you know, your, your fee income should benefit if activity levels come back in general in an even bigger way next year. It feels like the expense run rate that you posted year over year this quarter to 3% sounds it feels more appropriate. You know, obviously assuming that revenues grow above that, you know, as we think about 2025 is it right for us to you know, until we get guide from you, put growth in expenses as a placeholder. And as we think about 2025 what are the big projects that you feel like? You're ready to re tackle and revisit that you may have pulled back on in '24 because the NII dollars were coming down.

Question: Erika Najarian - UBS Equities - Analyst : Got it. Thanks so much.

Question: Manan Gosalia - Morgan Stanley - Analyst : Hey, good morning. I wanted to ask about index deposits. Can you talk about how they've behaved over time? So I guess the question is that as rates fall and the rates on those index deposits fall. Is there a chance that some of those move into other deposit products with exception pricing or does that not really happen based on historical experience?

Question: Manan Gosalia - Morgan Stanley - Analyst : Got it. And then, you know, maybe just separately on credit. On slide 28 you're showing NCOS and NPAS reaching normalized levels. And I know you noted that you're not seeing any signs of credit weakening. Can you give us some more color there? You know, what gives you some confidence that things are just normalizing here? Is it that rates are going down? So that helps you on the credit side? Is it just what you're seeing on the road rates. Maybe, you know what helps us this to stabilize from here. Greg Carmichael - Fifth Third Bank National Association Representative Office UK (London Branch) - Chairman of the Board, President, Chief Executive Officer Yeah, it's Greg, I'll take that one. A couple things you look at our delinquencies or delinquencies continue to be at all time. Low levels. Our criticized assets actually went down by $8 million quarter over quarter. We had, we had the, the increase in NPAS. On the commercial side, those were driven by five names and five different industries. We've been very consistent about a very diverse portfolio and it continues to be very diverse. On the consumer side, we're seeing a little bit of softness on dividend, see a little bit of softness in the RV portfolio. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 1:00PM, FITB.OQ - Q3 2024 Fifth Third Bancorp Earnings Call When you look at the '22, '23 origination villages, they're underperforming across many of the consumer asset classes. We see the same thing in the portfolio specifically in dividend and, and RV. But the securitization data from other originators will tell you the same thing we're actually outperforming those indexes that securitization data by almost 50 basis points, 60 basis points. And so I would expect a dividend to be a little bit elevated for the next quarter or two. But, but then I'm highly confident that we'll work through those vintages and it comes back down to more normalized level and that, that 125 level. So we're just not seeing any anything within the portfolios commercial or consumer that's that causing additional concern. It's been pretty stable. Our borrowers have had continued to behave. You see the commercial real estate portfolio. We've got virtually no delinquencies, very, very minimal non-performing assets in that commercial real estate portfolio. So across the board that diversification, that strategic play of building out and through the cycle portfolio has played well for us and I would expect that to continue in the future.

Question: Matt O-Connor - Deutsche Bank - Analyst : Good morning. On slide 10, you've got some pie charts show you showed before just showing the mid shift from the Midwest to being more balanced. And I guess the question is as we look out the next few years, you show the split getting to 50-50 which is still a pretty meaningful re-shift from here. So how do you get there? Is it simply harvesting what you've done? A combination of harvesting and building. Is there a bi-component of that as well?

Question: Matt O-Connor - Deutsche Bank - Analyst : Okay. So that's super helpful. So a lot of maturing of what you've already done, we will move the needle quite a bit. And then just and then just you can see it--

Question: Matt O-Connor - Deutsche Bank - Analyst : Right here and then just separately, I know there's been a lot of discussion on the interest income and kind of drivers of the NIM. And I'm sorry if I missed it, but have you guys talked about this concept of like normalized NIM? Looking at a few years that you get the fixed rate, asset re price and whatever rates do break the flow curve and any concept of normalizing them.

Question: Matt O-Connor - Deutsche Bank - Analyst : Okay. That's helpful. Thank you very much.

Question: Christopher Marinac - Janney Montgomery Stock - Analyst : Thanks. Good morning. I wanted to ask about some of the large banks who have been placed under regulatory orders this year. Does that create new business opportunities for you beyond your already organic pipeline?

Question: Christopher Marinac - Janney Montgomery Stock - Analyst : Great Tim, thank you for that and just a quick follow up on. So I said returns over time. Does lower interest rates help you get your returns or does it make it more challenging,

Question: Christopher Marinac - Janney Montgomery Stock - Analyst : Great. Thank you, Bryan. Appreciate it everybody.

Question: Mike Mayo - Wells Fargo Securities - Analyst : Hey, I was just wondering, this is a big picture question. You guys give the sense that you're investing more for growth than others. Do you have any metric on how much you make in your organic investments? And what sort of returns you get on those? I think I'm thinking about the Southeast branches or wealth or commercial payments. And it kind of goes back to our earlier question, maybe you shouldn't buy back so much stock if you have so many opportunities for growth or you know, high class problem if you get there.

Question: Mike Mayo - Wells Fargo Securities - Analyst : And just to push back on that last point, I mean, it's I hear you if you get those sorts of IRRs and you're accelerating your branch build, but it comes at a time when I think some of the Southeast competitors have, you know, woken up, recovered, like you less unlike securities losses going from defense to offense, you have that change for the last few years. And you also have the likes of some of those big banks that you mentioned with spending so much more in technology and digital. So don't you think it might be tougher in the next few years and it's been in the past few years?

Question: Mike Mayo - Wells Fargo Securities - Analyst : All right. Thank you.