Fifth Third at Morgan Stanley Conference: Strategic Growth and Challenges

On Tuesday, 10 June 2025, Fifth Third Bancorp (NASDAQ:FITB) presented at the Morgan Stanley US Financials Conference 2025, outlining its strategic initiatives and financial outlook. The discussion highlighted the company’s Southeast expansion, crypto strategies, and loan growth prospects amidst market volatility and regulatory developments.

Key Takeaways

• Fifth Third plans to open 200 branches in the Southeast, with 140 already operational.
• The company is exploring stablecoin use cases in payments, aiming for efficiency and optimization.
• Loan growth is anticipated in 2025, despite uncertainty from tariffs and tax policies.
• Strong core deposit trends have enabled the payoff of 4 billion dollars in brokered CDs.
• Asset quality is improving, with confidence in resolving non-performing assets.

Financial Results

• NII Performance: Positive performance in the second quarter, aligning with expectations.
• Fees: Uncertainty due to market volatility, though a positive outlook for June.
• PPNR and Charge-offs: Expected to meet expectations with balanced fees and expenses.
• Loan Growth: Optimism for the rest of the year, with potential for outperformance.
• Capital Markets: Slower activity due to uncertainty, but growth is expected to return.

Operational Updates

• Southeast Expansion: 140 branches opened, with 150 locations under contract out of the planned 200.
• Crypto Strategy: Exploring stablecoin applications for payment efficiencies, with partnerships in place.
• Consumer Portfolio: Strong performance, focusing on homeowners and prime/super prime segments.
• Deposits: Strong core deposit trends, with significant brokered CD payoffs.
• Technology: Emphasis on AI adoption and data infrastructure readiness.

Future Outlook

• Loan Growth: Positive outlook for the year, driven by market sentiments.
• NII Growth: Expected from loan growth and fixed-rate asset repricing.
• Capital Markets: Anticipated return to mid to high single-digit growth post-uncertainty.
• Expansion: Continued investment in retail branches over the next three years.
• Talent and AI: Investment in middle market sales force and AI technology.

Q&A Highlights

• Southeast Competition: Confident in capturing market share despite competitive pressures.
• Deposit Strategy: Adjusting pricing across regions to leverage cost opportunities.
• Expense Management: Focus on investing in branches, sales force, and technology.
• Credit Quality: Asset quality improving, with high confidence in resolving NPAs.
• Capital Management: Targeting a CET1 ratio of 10.5%, with 400 to 500 million dollars in buybacks planned.

For further insights, readers are encouraged to refer to the full transcript below.

Full transcript - Morgan Stanley US Financials Conference 2025:

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Morning. I’m Manan Ghisalia, the MidCap Bank’s Analyst here at Morgan Stanley. On behalf of the entire MS Financials team, I’d like to welcome you all to the sixteenth Annual Morgan Stanley Financials Conference. We’ve got a great lineup over the next two days with 125 companies in attendance, so lots to look forward to. I’m going get a quick disclosure out of the way, and that is for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures.

The taking of photographs and use of recording devices is not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that out of the way, kicking off our conference, I’m delighted to have with us today Chief Financial Officer, Brian Preston. Brian, welcome back.

Brian Preston, Chief Financial Officer, Fifth Third: Thank you. Thank you for having us. Good morning, everyone.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So, Brian, I I wanted to start off with your Southeast expansion strategy. You know, I know Fifth Third was one of the early movers into the Southeast, and now you’re accelerating your bill from 25 branches a year to 50. Give us a great update in November. So I thought it would be a great time for you to give us a quick update on your progress there.

Brian Preston, Chief Financial Officer, Fifth Third: Yes. Continuing to progress nicely. We’re very pleased with what we’re seeing out of the Southeast branch investments. We are now have opened about 140 branches in the Southeast. Of the 200 new branches that we announced in November, we have 150 locations under contract in the last 50.

We have verbal agreement on. We’ve got them identified, and we’re continuing to work through finalization of those deals. So we’re feeling really good about the pacing on that. I think one of the important things for us is that we’re maintaining the disciplines from all the lessons that we’ve learned earlier in the process, finding great locations. We’ve got a good system for how we open the branches, both from a coordination from a talent perspective in the branches, supporting the branches appropriately from a marketing perspective and making sure that we are very present in the markets when we launch these branches continue to see really strong results.

The market share data continues to support these investments. We think from a long term perspective, to really be successful in the industry, you’ve got to be great at consumer deposits. And that’s something that we feel really good about and something that we’re going to you’re going to see us continue to lean into. We actually added a slide in our material you should take a look at, where just using call report data, we have one of the highest concentrations of consumer oriented deposits out of the peer group. And then the other component is we have what we would see as one of the lowest concentrations of non kind of low relationship value deposits.

So think about brokered deposits, non affiliate sweep deposits, collateralized deposits. So I think that’s one of the things that’s probably somewhat underappreciated. Like people feel good about our deposit story from an investment perspective. But we’ve done a lot of work really solidifying the composition of our deposit, and it’s just going to be a strong asset for us as we continue to grow.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So can you talk a little bit about the competitive landscape in the Southeast? Over the past couple of years, several of your competitors have also leaned in there. So talk a little bit about the competitive landscape and how Fifth Third is navigating that.

Brian Preston, Chief Financial Officer, Fifth Third: Yes. I mean banking in every market is highly competitive. And even the new entrants in the Southeast are the same entrants that we have been fighting in the Midwest for our history. So we continue to feel good about our ability to win. I think our investments in analytics, our investments in people, our investments in marketing and locations continue to deliver for us.

I would tell you that from a retail perspective, we’re not really seeing the increased competition yet. It’s going to take some time for them to get branches open. What we’re hopeful that is people are going to make the same mistakes that we made early in the process that they’re trying to go quickly. We see some of that as we don’t necessarily see discipline on location selection, and that really matters. And from a middle market perspective, there have clearly been a lot of new entrants in the market.

But in many cases, that’s really just bankers changing the business card they carry. Certainly, it’s going to continue to be competitive because of the growth nature of those markets. But overall, we feel good about our ability to continue to grow and navigate that competition.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So when you build a branch in a market in Southeast, can you talk a little bit about your go to market strategy and what you do to effectively take share and what you have been doing over the past three years?

Brian Preston, Chief Financial Officer, Fifth Third: Yes, absolutely. One of the key insights that we saw early on and it’s one of the reasons why we started these investments is you need to have the appropriate density. You hear us talk about that a lot. And for us, was 7% to 8% market share. And the idea behind that is in an industry where people don’t wake up every day thinking about where they want to bank, that’s a once in a decade or once in a lifetime decision.

You want to make sure that you are part of the consideration set. And it takes a certain amount of presence in a market to be able to do that. So and foremost, when we thought about going to market, said, all right, how much density do we have to have in these markets to be part of that consideration set? And that’s really where that top five that we talk about comes to play. After that, it’s making sure that you’re in the right locations.

When you think about some of these Southeast markets, the speed of growth that they’ve seen in population over the last ten to twenty years, the locations where you would want to build branches today are very different than the locations where some of the existing branches are from some of the competition, the legacy competition in the Southeast. So that has been a great opportunity for us to build branches where activity is happening today. Then combine that with the marketing, the investments that we’ve done from an analytics perspective, and I think that’s the other thing that’s somewhat underappreciated is everything is really connected. The analytics that underlie the direct marketing also underlies what you see from a presentment from an advertising perspective and your digital experience. It also feeds the dashboards that we utilize in our banking centers where the retail personnel and the calls that they’re making every day, it helps prioritize that.

So it is a really coordinated system. And then the combination of being in the consideration set and then using marketing to attract more volume is how we’re ultimately taking share.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So talk a little bit more about that coordination because it’s not just deposits, right? It’s also the commercial bank, it’s also wealth management. Can you give us a little bit more color there?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. What we’re finding is that when we bring the whole bank to the market, we’re more successful. And I think we do a really nice job of being a relationship bank. Our middle market banking and our wealth businesses coordinate very well. Our capital markets businesses, half of the activity at least from our capital markets business comes from the core middle market franchise.

It’s not an independent silo that is going out and winning its own business with a separate customer set. So that is a really important point. It’s also interesting to see the value of the branches in terms of creating middle market relationships, because most of these what we’re trying to bank, we’re trying to bank family owned businesses, people that care about the communities that they’re part of, and they want to see a company come and invest in their community. So we see a real synergy when we’re building branches. Even though the middle market customer may not ever use a branch for business purposes, they care that we’re part of their community.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Got it. Brian, before we move into some near term stuff, I wanted to ask another on another topic, which is, Fitbit’s crypto strategy. There’s been some press recently on the bank, exploring more ways to offer services for crypto customers using stablecoins. Can you elaborate on that for us and talk about what FITZAR’s plans are for

Brian Preston, Chief Financial Officer, Fifth Third: the next few years? Yes. We’re always trying to look ahead. And when we think about crypto, we think there are some real use cases, especially in the payment space. And when we use the term crypto, we’re really talking about stablecoin.

We think that there are some interesting places where stablecoin can really create some efficiencies in the commerce space. Think about international payments today, being able to settle activity 20 fourseven in an instantaneous and cost efficient way, it would be a significant advancement from the existing correspondent banking system and coordination through the swift reporting. So, are some real opportunities there from a use case perspective. Another use case we’re thinking about is the ability to really focus on collateral optimization, like the ability to move collateral from market to market around the globe instantaneously as the markets move is an awesome opportunity when you think about people that are trying to deal with global markets 20 fourseven. So, some really interesting use cases.

It’s one that we think from a payments perspective, and it’s no different than the NewLine strategy, where being a part of the infrastructure, we think there’s real value in that. And we think the combination of our NewLine and the technology platform, our capabilities in payments positions us well to be an infrastructure provider in that space. We have banking relationships. They are operational accounts. We’re not doing anything meaningful with crypto today, but we have banking relationships with two of the bigger infrastructure providers in the space.

And it gives us a good partner to talk how that they can coordinate with the banks in delivering crypto and many more use cases.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: And you’ve been looking at this for a while. This is not new. It’s just that the regulations or the rules have been made more clear.

Brian Preston, Chief Financial Officer, Fifth Third: The regulations have made it significantly more clear. Now there’s a lot that has to be done still. We’ve not figured everything out, but there’s clear support that crypto is going to be part of the financial ecosystem in the future. Obviously, significant questions around AML and BSA, so certainly are looking for more clarity on that from a banking perspective. But overall, feel good that this is going to be an advancement that the industry is going to have to figure out how they participate as part of

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Perfect. So maybe pivoting over to some near term stuff. On environment, Tim gave a great overview at earnings and what you’re seeing for both commercial and consumer clients. Can you give us an update on the trends you’ve been seeing more recently?

Brian Preston, Chief Financial Officer, Fifth Third: Yes, absolutely. Earnings was right around Liberation Day. And certainly, everyone was very our clients were very cautious around what was going to happen from a tariff perspective. A lot of questions around are the original Liberation Day tariffs, was that a negotiating tactic? Was this a deeply held policy belief?

Because there were concerns, 35%, 40% tariffs. There’s not a lot of industries that had that kind of margin in their profit in their business to absorb. And so people today post some of the pullbacks and some of the delays, there’s a lot more confidence that we’re going to end up in a better spot. There certainly will be some cost associated with the tariffs. I think most of our customers are trying to figure out a way and recognizing they’re going to have to absorb some of that, but some of that will be passed on to consumers as well.

And that balance is one where it’s giving them more confidence in decisions around future investment. How does it translate into real numbers? In the fourth quarter, we started to see an uptick in utilization. We troughed at about 35.5% in late third quarter from perspective, and that steadily increased through the April. And it peaked at 37.5%, so about a two point cumulative increase through the April.

During the month of May, it stabilized and has now fluctuated kind of within zero five point of that 37.5% peak. So we are seeing behavior changes. And when we talk to our customers, most of them would highlight that, yes, they did do some inventory purchases in the run up to what could have been some of the tariff policies that would come out. And so we are starting to see more comfort that they’re willing to let some of that inventory run down. And we’re also starting to see pipelines pick up again.

At the end of last year, the third quarter, we saw really strong pipelines building. We were getting confident in investment. And then post election, we saw obviously a fairly strong pull through, and that was a great outcome. That’s what drove that end of period loan growth that we had last year, carried through into the beginning of the first quarter. That started to slow down in March and remained slow through most of April.

But we’re starting to see pipelines and middle market pick up again now in May. And it’s pipeline across products and across geographies. So we’re feeling really good about what we’re seeing overall from an activity perspective.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So that’s interesting. So you’re saying that on the inventory side, corporates are willing to let the inventories move lower, but you’re still seeing utilization rates be fairly stable? Fairly stable. So that points to level core demand.

Brian Preston, Chief Financial Officer, Fifth Third: Yes. They’ve come down by about 0.5 at this point, but they’ve fluctuated around there.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Got it. And then with pipelines picking up again, it feels like you’re a lot more comfortable around loan growth.

Brian Preston, Chief Financial Officer, Fifth Third: Yes. So feeling good about what we’re expecting for loan growth for the rest of the There was another aspect that’s beyond tariffs. Tax policy was obviously a big consideration for customers. Heading into the year, I think most of our customers were optimistic about deregulation and tax policy. Obviously, are things that we’re now starting to get to more significantly.

So, that’s creating some more optimism again. But even something as simple as uncertainty around what is going to happen from a depreciation deduction perspective, are we going to have an accelerated bonus depreciation, are we going to have a full write off capability And uncertainty whether or not that was going to be retroactive to the beginning of the year was causing some customers to say, hey, we’re not sure it’s time to make a big investment until we have clarity around that. With the big beautiful bill, it’s clear that that was the view of that is a benefit here that should be retroactive, and that’s giving customers more confidence from a CapEx perspective as well.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Got it. So as you think about your loan growth for 2025, are you starting to be a little bit more optimistic than what you guided to maybe a little a while back in April?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. It’s still I mean, it’s still early, but we’re certainly feeling good about what could happen for the rest of the year. There is the opportunity to have a little bit of outperformance, but there’s a lot of hits in that statement.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Fair enough. You also put out a deck this morning. You reiterated the second quarter guide. Can you unpack that for us a little bit?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. The second quarter has come together nicely. So reiterated the guide from beginning of the quarter. Feeling good about the trends we’re seeing. NII performance, very, very pleased with.

Fees continuing to keep that wide range just from the standpoint there continues to be uncertainty on fees. Capital markets have obviously been impacted by the volatility. A lot of our customers, it’s the hedging businesses and some of the lending businesses as well. Those are areas where a little bit of volatility can be great for those businesses, a lot of volatility can be paralyzing for customers. So waiting and hopeful that we’re going to see a good June.

But overall, what we’re seeing is good broad based performance. PPNR is going to come in right where we expected, maybe a little bit of puts and takes between fees and expenses, but overall feeling good about what we’re seeing. From a charge off perspective, charge off performance, debt in line with what we’re expecting as well. So, continue to feel good about what we’re seeing there.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So higher volatility in June would be better for fees, lower volatility would be? Volatility in the middle, right?

Brian Preston, Chief Financial Officer, Fifth Third: You need some volatility. Volatility creates opportunity. But when there’s too much volatility, you end up in a scenario where it’s just tough to make a call. Never want to do a trade or be in a position where a trade can look you make you look like either a hero or a fool, and that’s some of what you’re seeing right now.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: All right. Perfect. Maybe digging into loan growth a little bit. has seen some nice C and I growth over the past couple of quarters. You’ve seen strong middle market growth.

Spoke about some of the trends on inventories and that front loading has gone away. Can you talk about the other side, on the consumer side, what are you seeing on auto? What are you seeing in the other parts of the consumer book?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. The consumer portfolio is performing very well. So from a credit perspective, we have been focused on homeowners and prime, super prime. And that our consumers are very, very strong and continue to feel good about the credit performance we’re seeing. Auto has been a really strong business this year, continuing to see very attractive spreads.

We had one of our highest origination months ever, approaching $1,000,000,000 originations in one month at attractive spreads. So continuing to feel good about the auto business. The tailwinds associated with home equity continue to show through, seeing growth again. We would expect to post another quarter of growth from a home equity perspective, given what we’ve seen and stability in the card portfolio. So overall, continue to feel really good from a consumer lending perspective.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: And even as you mentioned earlier that corporates would have to pass on some of the price increases from tariffs to the consumer. So the consumer still looks good and you think still able to absorb those price increases?

Brian Preston, Chief Financial Officer, Fifth Third: In our lending portfolio, absolutely. When we look at consumers that are on the lower end from a FICO perspective or in particular renters, Looking in the deposit data, we’ve talked about this before, but your average or median balances in those lower tier customers are below pre COVID levels. The other trends that we’re watching, and this is one that we talked about back in March, we are seeing continued increase in BNPL activity from a low end consumer perspective. So for us, we have very little subprime exposure, the lowest amongst any of our peers. That is segment that we would have some concern about, but for our portfolio, it’s not an issue.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: All right. Perfect. And then on another part of the loan portfolio, there has been a fair amount of competition from private credit. Can you talk about how Fifth Third is set up to service private credit? Which areas do you partner with them?

Which areas do you compete with them? And how that’s going?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. It’s going it’s one that we’re continuing to evaluate, and it is certainly evolving. I would tell you that our view of private credit and the role that it plays has changed over time. We see some really interesting and good use cases for private credit. We think private credit for takeover transactions from a leverage perspective that they have a very strong product.

Their ability to add a few turns of leverage, their ability to take down large pieces of a deal and their ability to ensure certainty of funding is a very powerful product that it’s a little harder for the banking system to be able to deliver that. So that is a spot that we think that there will always be a place for private credit. I think once we go through a credit cycle, it will be interesting to see how many of the players in the industry survive. But there will be a long term role for private credit in the financial ecosystem. From our perspective, we would basically we would look to long term evaluate whether we would want to partner with a private credit provider, where we could offer a customer if they were interested in having both a traditional bank solution or a private credit solution, because that is one of the things that we’re hearing would be valuable when I talk to our sales force.

We look at it as a broad ecosystem. We look at obviously banking sponsors overall from a private equity and private credit perspective. We look at banking portfolio companies. And one of the interesting things that we found is that even when we might have a customer that was a long time customer that gets purchased by a private equity firm and the financing gets done by private credit, we’re able to maintain the banking relationship. In many cases, that treasury management aspect of the relationship is very valuable.

And so maintaining those partnerships so that those outcomes can continue would be the long term desired structure.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So you keep the fee relationship, you keep the deposit relationship. Got it. Maybe pivoting over to deposits then, can you update us some of the deposit trends you’re seeing in the second quarter?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. We’re seeing one, we’re seeing normal seasonality. So it was a year where I would tell you that tax payments were a little bit higher than prior years, but still within the range of normal seasonality. But long term, what we’re seeing are the normal trends that we would see. So continuing to see good activity out of the consumer sector.

We’ve done at the end of last basically end of last year and into the first quarter, we were obviously doing some cost rationalization, and that was primarily in our commercial portfolio and a little bit from a repricing in our consumer portfolio that allows us to do some reinvestment. But broad strokes deposit trends, especially core customer deposit trends, have been very strong. Year over year, and this is one of the data points that you can see in the results, we’ve been able to pay off almost $4,000,000,000 of brokered CDs from a funding perspective and have been able to use the savings to reinvest in the core franchise. So we feel really good about the core deposit trends. We have not seen a significant uptick in the competitive environment.

I think some of that is just broadly speaking, the lack of broad industry loan growth, I think, has helped keep some rationalization from a deposit competition perspective. But we’re continuing to work ahead and just to make sure that we’re in a strong position from here.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: But it would be a good thing if you actually saw loan growth and saw deposit competition pick up overall from a NIM perspective that would

Brian Preston, Chief Financial Officer, Fifth Third: be

And we’re seeing I mean we’re seeing loan growth and that’s obviously helpful from a NIM perspective. But more loan growth, more activity around kind of economic activity that will drive industry deposit growth. But it does require some reallocation within the industry and that’s where the increased deposit competition comes from.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: And as you think about your deposit pricing strategy across the franchise, we’ve noticed you’ve been adjusting your rates across different regions. Can you talk about how you’re thinking about pricing across different geographies in the Southeast versus the Midwest?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. And it’s really just looking at the competitive landscape. Our multi region footprint really gives us a lot of ability to really dial in a strategy to take advantage of where we see the best cost opportunities. And we also have the ability to do it across businesses. I think we’re really coordinated.

Our treasury team is heavily involved in the balance sheet strategy across the businesses. They meet regularly with the business leaders. So, they’re involved in both commercial and consumer deposit strategies, and also understanding where the loan growth activity, where we’re expecting to see it. And that gives us a good line of sight to really focus on optimization. And we’re able to do things like cycle rates through different markets, take advantage of spots where we’re finding more responsiveness to our marketing campaigns or less competition.

And we really work hard to take advantage of that.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So when you think about bringing those deposit costs down, how do you think about what happens in an environment where rates don’t come down versus what happens an environment where you see a few rate cuts this year? Yes.

Brian Preston, Chief Financial Officer, Fifth Third: I mean our base case in a scenario where rates don’t come down, I think that is likely a scenario where you are going to see some economic activity. So we’re we would be more focused on continuing to grow deposits in that kind of environment, less focus on rates down from here. But we still have the ability to deliver more deposit savings if loan growth were not to show up. But our base case is that we’re more focused on growth from here than trying to rationalize rate down further. It’s been interesting.

We’ve we had our analytics team go back, and we’ve got a lot of good data now from how did all the deposits that we brought in over the rising rate cycle and the deposits that we’ve priced down, how did those campaigns perform? We’re seeing strong retention, stronger retention that we had even seen in prior cycles. There are some of our campaigns we’re seeing north of 75%, 80% retention after pulling rates down. So we’re very, very pleased with what we’ve seen from a deposit performance perspective.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: So maybe bringing that all together for NII, you’ve spoken about being fairly comfortable with your NII guide even without loan growth or rate cuts. And clearly, you are seeing a fair amount of loan growth. Can you walk through what the drivers for NII growth are this year and why you believe it’s so resilient under different scenarios?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. So the beginning of the year, we were still getting some benefits from the deposit repricing. That was really a first quarter impact. Most of that has played out from here. For the rest of the year, the loan growth is really it’s pretty much kind of sorry, the NII growth from here is really fifty-fifty between loan growth and fixed rate asset repricing.

We’re still seeing 4,000,000,000 to $5,000,000,000 a quarter of fixed rate asset repricing. At the current shape of the yield curve, we’re still talking about 100 to 150 basis points of pickup on that repricing. So the combination of those two things as well as a benefit of one extra day, which for us is $10,000,000 for every business day or for every day, calendar day. That creates the NII growth that we’re seeing from here.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Got it. Alright. Perfect. So let’s talk a little bit about fees. Maybe treasury management is a good place to start.

You have talked about leading with products that don’t require credit extension to win a client relationship. Can you dig more into

Brian Preston, Chief Financial Officer, Fifth Third: the strategy there? Yes. The idea there is how do we use software to solve problems for our customers. Anybody can sell a wire, anybody can sell an ACH. And what we’re trying to create is some differentiated value for our customers.

Big Data Healthcare, which is our receivables automation reconciliation business for large health care systems, is a perfect example. It is a business where you have a very complicated B2B payments reconciliation process when you think about both the individual payer, the insurance payer, Medicare, Medicaid payers and then also payments out to the providers that might have been providing services as part of that. What big data healthcare allows for is very large automated reconciliation capabilities, which have been very powerful for our customers. We’ve got multiple use cases now where customers had, in some cases, 100 plus reconciliation resources that were being utilized offshore and have been able to take that number down into the low mid to low single digits. So, great outcome from an automation perspective.

And the other complement to it is it also allows for additional revenue realization because it’s able to identify and understand what the payment terms are supposed to have been under the contractual relationships. So it’s helping customers capture more revenue that they were losing as part of the process as well. That really has been the main focus for us is how do we attach software to kind of the left and right of a payment transaction and help solve some kind of operational problem and create real cost savings for our customers.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: And then on the other hand, on fees, wealth a big opportunity as well. Can you talk about where that growth is coming from and what your plans are there?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. Growth in the wealth business is it’s two things primarily. One, it’s just the continued growth in the franchise. The biggest feeder for our wealth business is our middle market bank and as well as some upstreaming from our retail bank. The combination of those two businesses contribute 75% of the AUM growth that we see on an annual basis.

So that is part of when we talk about being one thing and being a relationship bank, that is a key part of the strategy. Our investment in and start of our own RIA, FTWA, Fifth Third Wealth Advisors has been another area of growth. And basically, in a three year window, that business has gone from zero to we’re now right around $3,000,000,000 of AUM from a purely startup perspective. So we continue to feel good about what we’re seeing in that space.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: And then to round out the fee conversation on capital markets, can you talk a little bit about both the near term outlook and what do you think the core growth of the business can be over the next few years?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. Long term, we view capital markets and it has for us, it’s proven to have been in the past, mid to high single digit growth business. We’ve compounded that business nicely over the last several years. This is certainly has been a slower year from a capital markets perspective given all the uncertainty in the market. But what we’re hearing is that the transactions aren’t the transactions that are being pushed, they’re not being canceled.

A lot of the customers, either if it’s a refinancing transaction, it has to happen or most of the customers believe that the strategic transaction that they’ve tried to accomplish still makes sense. They just don’t want to execute in a highly volatile market. So continue to feel good that long term that business will come back once we get a little bit more clarity around the economic environment.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Great. So let’s talk a little bit about expenses. You’re guiding to about 2% to 3% expense growth in 2025. What do you see as the most important strategic investments you’re making right now? And where like what innings are you in on those investments?

Brian Preston, Chief Financial Officer, Fifth Third: Okay. The main areas of investment right now, obviously, continued investment in the retail branches. From the current markets we’ve identified, I would tell you we’re in the later innings of those investments, really three years left and we’ll be done. Obviously, we’re going to continue to invest in our middle market sales force and our sales teams. Like those are just opportunities across the footprint where we continue to see an ability to grow.

We’re winning on talent, which is exciting and we feel good about. So that will be an area of focus. And then it comes down to product and technology. I don’t think product and technology investments that you’re ever done. We are continuing to focus heavily on AI, making sure that we are understanding the use cases of AI and that our infrastructure and data are in a place for us to be able to take advantage of it as the technology evolves is an incredible focus of us right now.

Because the ability to be able to move rapidly, especially in the context of being able to get expense saves out of the company that we can then turn around and reinvest in growth, we think will be very powerful and transformational for us and the industry.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Got it. Perfect. I’m going to turn to the audience in just a sec, but I do want to cover credit before I do that. Can you talk about how credit is holding up in the second quarter? I know you reiterated the NCO guide.

Are there any areas of stress that you’re particularly focused on?

Brian Preston, Chief Financial Officer, Fifth Third: No. Broadly speaking, asset quality trends the asset quality is improving, and we feel really good about what we’re seeing on that front. Like I said, I reiterated the charge off guide. I would tell you that the things we’re seeing from a criticized asset ratio perspective, that has been an improvement story for us over the last several quarters, and there’s nothing that we’re seeing right now that would cause us to think anything different for this quarter. And then we continue to have high confidence in resolution of the handful of NPAs that were ABL related.

We feel good that we understand the loss content of those. Our ABL business historically has only averaged about six basis points of losses. So we feel like the risk is well understood from an NPA perspective, and that 40% plus resolution of the existing population over the next two quarters, we continue to have high confidence on. I would tell you the one thing that we continue to watch closely is the economic scenario projections that go into CECL. We are a Moody’s shop.

Moody’s scenarios for May have deteriorated from March. Unemployment rate on a weighted average basis is about 50 basis points higher. Most of that is in their baseline scenario. Their baseline unemployment rate now is peaking closer to 5%. From a purely mechanical perspective, looking at the March 31 balance sheet, that kind of scenario might add, a couple points, maybe three basis points to coverage.

So it is a consideration that we’ll all have to think about from an industry perspective, but overall credit quality has been very strong.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: Got it. The other point I wanted to touch on the credit side is Shared National Credits. They’re about 27% of the total loan portfolio. It’s been coming down a little bit over the past couple of years. But what are you seeing in that book?

Any signs of stress there? Anything that we should be considering as investors and analysts?

Brian Preston, Chief Financial Officer, Fifth Third: No. We continue to feel good about the performance we’re seeing out of the Shared National Credit portfolio. That is a portfolio that we focus on being a relationship lender. It is one where I would tell you that the composition of a shared national credit today in that portfolio looks different than it did prior to the great financial crisis in particular. We actually put a little bit of this data in our presentation today.

The composition of leveraged lending has come down meaningfully in that portfolio. Ten years ago, leveraged lending was 8% of our total loan portfolio. Today, it’s 2%. So the composition of what a shared national credit today looks a lot different than it used to. And I think that’s one of the factors that continues to give us confidence.

We underwrite these credits ourselves, and these are customers that we have real relationships with.

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: All right. Perfect. Any questions in the room? So, Brian, maybe to end here, a question on capital. You’ve talked about targeting about 400,000,000 to $500,000,000 of buybacks for the rest of the year, mostly in the half of the year.

How are you thinking about managing capital levels given the volatility that we’re seeing in the long end of the curve?

Brian Preston, Chief Financial Officer, Fifth Third: Yes. We continue to believe 10.5% is the right target for us. We look at the portfolio and we stress and we do a lot of analysis to evaluate those levels and continue to be very, very comfortable. The aspect of the long end volatility, the bullet lockout structures of our investment portfolio continues to pay off. That portfolio is continuing to mature, continuing to pull to par over time.

We’re still seeing about a little bit over $1,000,000,000 of cash flows every quarter. 60% of the fixed rate exposures are in those bullet locked out structures, and we’re continuing to see it pull into the curve. If you look year over year, reduction in our unrealized loss on our AFS portfolio in an environment where the ten year treasury rate was unchanged. That really is the evidence of that structure working. And we feel very good about the confidence of knowing that those securities are going to pay off over the next several years.

All

Manan Ghisalia, MidCap Bank Analyst, Morgan Stanley: right. Perfect. With that, we’re out of time. Brian, thanks so much for joining us.

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