Q2 2025 Fifth Third Bancorp Earnings Call

Hello. And thank you for sending by my name is Tiffany and I will be your conference operator. Today at this time I would like to welcome everyone to the Fifth Third second quarter 2025 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad,

Speaker Change: I will now like to turn the call over to Matt curo, senior director of investor relations Mr. Curo please go ahead.

Speaker Change: Good morning everyone. Welcome to Fifth Third second quarter, 2025 earnings call this morning, our chairman CEO, and president Tim Spence and CFO. Brian Preston will provide an overview of our second quarter results and Outlook our chief credit officer. Greg Shrek has also joined for the Q&A portion of the call.

Speaker Change: 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 Gap results. As well as 4 looking statements about fifth third's performance.

Speaker Change: These statements speak only as of July 17th 2025, and Fifth, Third undertakes, no obligation to update them.

Speaker Change: Following prepared remarks by Tim and Brian, we will open up the call for questions with that. Let me turn it over to Tim.

Speaker Change: Thanks Matt and good morning everyone.

Speaker Change: And benign environments.

Speaker Change: But rather by how they navigate uncertain ones.

Speaker Change: In a period of tariff. Negotiations, cross-currents and interest rates and significant regulatory change.

The third continues to deliver excellent. Profitability. Strong credit Trends and accelerating Revenue growth.

Speaker Change: This morning, we reported earnings per share of 88 cents or 90 cents. Excluding certain items outlined on page 2 of the release exceeding. Consensus estimates.

Speaker Change: adjusted revenues grew by 6% year-over-year, led by 7% growth in knee

Speaker Change: adjusted ppnr, increased 10%, and we delivered 250 basis points of positive operating Leverage

Speaker Change: Our third consecutive quarter of positive operating Leverage.

Speaker Change: Our key profitability metrics continue to be very strong. And among the best of all peers, who have reported thus far,

Speaker Change: Our adjusted return on assets was 1.2%, our adjusted return on tangible. Common Equity was 18% and our efficiency ratio was 55.5%.

Speaker Change: our credit metrics were strong and improved as we said they would

Speaker Change: At 45 basis points. Net charge offs were at the bottom of our guidance range and improved over the prior year.

Npas declined. 11% sequentially led by an 18% decline in commercial npas, early stage delinquencies declined again, and are near historical lows.

As a result of our strong financial performance, and the positioning of our balance sheet tangible book. Value per share, increased by 18% over the prior year, and by 5% sequentially,

In a quarter where on the even cni loan demand and a soft housing market made loan growth, tepid for the industry, our Diversified loan origination platforms, produced average loan growth of 5% over the prior year.

Speaker Change: We grew loans in cni, CRA, leasing mortgage Home, Equity Auto, and both our provide and dividends fintech platforms.

Investments, we have made should continue to support strong loan growth and future quarters.

Speaker Change: Commercial relationship manager, headcount increased by 11% year-over-year and provide had record production in the first half of the year.

Speaker Change: In our home equity business. We were number 2 market share in our footprint and first half production. Growth was third, best in the country.

Speaker Change: Both provide and home equity are examples of the benefits. We have achieved from digitally enabled, lending channels combined with 1 Bank collaboration.

Speaker Change: Our investments in the Southeast also continue to produce strong results across business lines.

Speaker Change: Our consumer Bank, grew new households by 6% over the prior year in the South Southeast.

Speaker Change: The granular deposit growth. Those households provide is provided flexibility to continue. The manage deposit costs even as the FED paused on rate cuts.

Speaker Change: In the second quarter, our average cost of consumer and small business deposits in the Southeast was 191 basis points.

Speaker Change: A 250 basis Points Plus spread to Fed funds.

Speaker Change: We have added 10 branches year to date in the Southeast and we'll open another 40 before. Year end, bringing us to nearly 400 branches, across all our Southeast markets.

Speaker Change: In Commercial Banking, our Southeast regions have contributed more than half of total Middle Market, loan growth, over the past year.

Speaker Change: With North Carolina, South Carolina, Georgia, and Alabama, producing the strongest results.

Speaker Change: New Middle Market. Relationship production has also accelerated across the southeast where our teams have added. 50% more new quality relationships year to date than they did. Over the same period last year.

Speaker Change: In wealth management. Our Southeast markets grew assets, under management by 16% year-over-year. To nearly 16 billion in total awe.

Speaker Change: Advisor. Head count is up about 15% in the same markets which should support future growth

Speaker Change: We also continue to see benefits from our investments in Innovative Tech enabled products.

Speaker Change: In consumer JD Power recently, recognized the Fifth, Third mobile app, as number 1 in user satisfaction among Regional Banks.

and we also launched an initiative to provide free wills to every Fifth Third customer through an exclusive partnership with fintech trust and will

Speaker Change: Commercial payments. Our investments, in our new line, embedded payments platform led to 30% Revenue growth compared to last year and an increase of more than 1 billion dollars in commercial deposits, connected to new line services.

Speaker Change: We continue to win more business from existing clients and to see transaction migration from Legacy AC to Modern instant payments rails.

Speaker Change: During the quarter. Rippling selected new line to be their payments infrastructure. Provider joining our existing roster of bluechip fintech customers.

In my annual letter to shareholders this year, I'm reminded readers that the global economy is a complex adaptive system and the complex systems react to change in unexpected ways these days. We are witnessing a lot of change in a short window of time. While we continue to be hopeful about the prospects for the second half of the year. We are also positioned to perform well in a broad range of environments.

Speaker Change: Our business mix is naturally resilient. Our balance sheet is defensively positioned. And we have the flexibility to react quickly as conditions change.

Speaker Change: Brian will provide more detail on our Outlook, but I want to emphasize that we do not need a change in the interest rate environment or a material change in Market, activity, to continue to produce strong, profitability and organic growth. We are raising our full year guidance. On nii given the strong first half performance.

Speaker Change: We remain very confident in achieving record, nii in 2025, even if there are zero rate cuts for the remainder of the year.

Speaker Change: We will deliver 150 to 200 basis points of full year positive operating leverage. Even if the capital markets, do not recover given the strong first half performance and the expense levers, we have at our disposal

Speaker Change: We will resume share repurchases in the third quarter. Our Capital priorities continue to be funding organic growth, paying a strong dividend and share a purchases in that order.

Speaker Change: Our operating priorities will also remain unchanged, stability profitability and growth in that order.

Before I hand it over to Brian, I want to say thank you to our employees for your dedication to your clients.

Your commitment to getting 1% better every day. Is why Fifth Third was recently recognized by USA Today, as a top workplace and by Forbes as best employers for new grants.

Speaker Change: And I love being part of your team.

Speaker Change: With that Brian will provide more detail on the quarter, and our outlook for the second half of the year.

Thanks, Tim, and thank you to everyone joining us today.

Speaker Change: Our second quarter results again reflected the strength and momentum of our company.

Speaker Change: On an adjusted basis Revenue, increase 6%, year-over-year and 5% on a sequential basis, our stable and growing knee remains a strong contributor to our performance.

We continue to realize the benefits of our Diversified balance sheet and business mix through sustained, loan, growth, fixed rate, asset repricing and the flexibility to execute proactive, liability management.

Speaker Change: Our Revenue performance combined with our ongoing expenses, resulted in a 10% increase in pre-provision, net revenue and 250 basis points of positive operating leverage on the adjusted basis compared to the second quarter of last year.

Tangible book value per share. Inclusive of the impact of aoti, group 18% from the prior year and 5% versus the first quarter.

Speaker Change: Our Investment Portfolio philosophy to focus on bullet and locked out Securities in order to have certainty of cash flows continues to pay off.

The unrealized loss in our AFS portfolio improved 6%. Sequentially, despite the 10-year treasury rate being a few basis points higher than the prior quarter end.

Speaker Change: The aspi burndown will continue to benefit tangible book value per share growth as these positions pulled apart.

Now, diving further into the income statement.

Speaker Change: Net interest income grew 7% from the prior year and 4% sequentially, that interest margin expanded 9 basis point sequentially.

Speaker Change: Broad-based long growth. Continued repricing benefits and deposit cost improvements. All contributed to this performance.

Speaker Change: Knee was also favorably impacted by the payoff of a non-performing loan which contributed 14 million to knee and 3 basis points to them in the quarter.

Speaker Change: Excluding that payoff impact.

Speaker Change: Knee still grew by 6% from the prior year and 3% sequentially.

Speaker Change: Which is at the high end of our guided range.

This interest realization is an example of our proactive Credit Management, working with our clients to achieve loss minimization through the workout process.

Tim Spence: As Tim highlighted.

Tim Spence: Average portfolio, loans grew 1% sequentially while period. End loans were stable despite a decrease in commercial utilization.

Consumer loans were up, 3% on a period, end basis and 2% on an average basis from the prior quarter.

Tim Spence: On a period. In basis, we sell growth in every major consumer lending category, led by continued strength in our secured, lending products, such as auto and home equity Lending.

Tim Spence: Commercial loans increased 1% on an average basis and decline 1% on a period end basis.

Tim Spence: As I highlighted is an early.

Tim Spence: Line, utilization peaked around April month and at 37 and a half percent.

Tim Spence: Post April, we have seen a gradual decrease to 36 and a half.

Percent as of June 30th.

Tim Spence: Approximately 40% of the decrease in line, utilization was driven by growth in commitments.

Tim Spence: in addition to the utilization trends,

Tim Spence: period and Loans were impacted by a 400 million sequential decrease in commercial construction, balances

As projects were refinanced into the permanent Market.

Tim Spence: Economic uncertainty impacted client confidence and resulted in the lowest quarter of commercial Loan Production, over the last year.

Tim Spence: There were some bright spots with continued, strong production in Chicago, the Carolinas Georgia and Alabama.

Tim Spence: While utilization has impacted balances commitments continue to grow.

Tim Spence: Middle Market pipelines have also rebounded during the quarter as our third quarter pipeline is up almost 50% from the prior quarter.

Tim Spence: Shifting to the deposits. Average core deposits were stable sequentially as an increase in demand. Deposits was largely offset by a decrease in interest checking

Our strong liquidity profile continues to provide us with the flexibility to actively manage. Our overall funding costs. While executing tactics to grow granular, insured deposits.

Tim Spence: As a result of these efforts interest bearing deposit costs were down 3 basis points, sequentially and 65 basis points. Over the last year while we have continued to grow consumer and small business deposits, which are up 1% versus the prior year.

Tim Spence: Compared to the first quarter demand. Deposit balances were up, 3% on an average and end of period basis. This strong core deposit, performance has allowed us to pay down over 4 billion dollars of higher cost not in relationship. Broker time deposits over the last 2 years.

Tim Spence: We will continue to prioritize high-quality low-cost retail deposits, particularly in the Southeast with our denovo investments.

Tim Spence: The most recent vintages of denovos are significantly outperforming expectations.

Tim Spence: Branches built between 2022 and 2024 are averaging over 25 million dollars in deposit, balances within the first 12 months after opening.

Tim Spence: Significantly outpacing our original expectations.

Tim Spence: We remain on Pace to open 50, branches this year with 10 opened in the first half.

Tim Spence: We have now secured Approximately 80% of the locations. For the additional 200 Southeast branches that we announced in November of last year.

Our deposits along with Investment Portfolio. Positioning

Tim Spence: has allowed us to maintain strong balance sheet liquidity, while growing loans.

And managing deposit costs.

We ended the quarter with full category 1, LCR compliance at 120% and our loan to court. Deposit ratio was 76% up 1% from the prior quarter.

Tim Spence: Moving on to fees.

Tim Spence: Reported non-interest income was up 8% year-over-year.

Tim Spence: These results were impacted by security gains and the impact of certain items detailed on page 4 of the release.

Excluding the impacts of the security gains and the other items adjusted, non-interest income for the quarter increased 3%, compared to the same quarter last year, led by growth and wealth fees which grew 4% over the prior year due to a un growth of 8 billion dollars in consumer banking fees, which were up 6%.

Commercial payments fees, decreased 2 million due to lower commercial card, spend activity and higher earnings credits from increased demand deposit, balances offsetting the increase in Gross fee, equivalent.

Tim Spence: Our embedded payments business, new lines, continued, its strong growth with fees up 30%.

Deposits attached to new line services increased to 3.7 billion dollars up 1.1 billion compared to a year ago, period.

Tim Spence: Capital Market fees were down, 3%, from the prior year. Primarily due to the continued, slowdown in m&a advisory Revenue,

Wrong during June and client appetite for transactional. Activity during Stable Market periods remains robust.

The security gains of 16 million were from the mark-to-market impact of our non-qualified preferred compensation plan, which is offset and compensation expense.

Tim Spence: Moving to expenses.

Tim Spence: Adjusted non-interest expense was up 4% compared to the year ago quarter and decreased 4% sequentially.

Tim Spence: The sequential comparison is impacted by seasonal items. In the first quarter associated with the timing of compensation Awards and payroll taxes.

Tim Spence: The previously mentioned deferred, compensation marked to Market increased expenses by 16 million for the quarter.

Tim Spence: Excluding the impact of the Deferred Comp Mark to Market in the quarter and in Prior periods. Expenses were down 5% sequentially and increase 3%, compared to the prior year.

Tim Spence: The year-over-year increase and expense is due to continued investments in technology, branches and sales Personnel. Partially being offset by the ongoing savings generated by our value stream, efficiency programs.

Shifting the credit.

Tim Spence: The net charge off ratio was 45 basis points at the lower end of our expectations for the quarter and down 1 basis, point sequentially.

Tim Spence: Commercial charge offs were 38 basis points Up, 3 basis, points sequentially consumer charge. Offs were 56, basis, points down, 7 basis points. Primarily due to seasonal Improvement in credit performance in Auto and credit card.

Tim Spence: RNA declined, 11% sequentially as expected led by an 18%, decrease in commercial non-performers,

Tim Spence: The NPA ratio decreased 9 basis points sequentially. The 72 basis points.

Tim Spence: Broad-based credit Trends, remain stable, across Industries and geographies, despite the market and economic volatility.

Tim Spence: Our provision expense for the quarter included, the 34 million bill in our allowance for credit losses.

Tim Spence: This bill was primarily attributable to the deterioration in the Moody's macroeconomic scenarios which now project a half a percent increase in their Baseline unemployment rate projections.

Tim Spence: Which is up to 4.7% by 2027.

Tim Spence: The scenario-driven increases were partially offset by Improvement in the overall risk profile of the portfolio as indicated by the reduction in npas.

Tim Spence: This increase in reserve bill was slightly less than we expected in early, June. As utilization Trends and commercial construction. Pay Downs impacted period and Loan. Balances

Tim Spence: The reserve Bill increased, our ACL coverage ratio by 2 basis, points to 2.09%.

Tim Spence: We made no changes to our scenario waiting during the quarter.

Tim Spence: Moving to Capital.

We ended the quarter with a cet1 ratio of 10.6% and increase of 13 basis points, and consistent with our near-term, targets of 10 and a half percent.

Tim Spence: Our pro-forma cet1 ratio, including the aoci impact of Securities is 8.6% up 60 basis points year-over-year.

Tim Spence: We anticipate continued improvements in the unrealized losses, in our security portfolio, given that approximately 63% of the fixed rate Securities in our AFS portfolio are in bullet or locked out structures, which provide the high degree of certainty to our principal cash flow expectations.

Tim Spence: Moving to our current Outlook.

Tim Spence: With the continued momentum from the second quarter.

Tim Spence: We remain confident in our ability to achieve record and II and 4-year positive operating leverage approaching 2%.

Tim Spence: We now expect full year knee to increase to 5, and a half to 6, and a half percent up from our earlier guide.

Tim Spence: This Outlook uses the forward curve, at the start of July, which assumed 25 basis points, rate Cuts in September, October and December.

Tim Spence: Due to the resiliency of our balance sheet, we expect to achieve record and II and are updated for your guide. With no further loan growth and no rate cuts.

Tim Spence: Full year, average total loans are expected to be up 5% compared to 2024 with the increased primarily driven by cni and auto lending production.

Tim Spence: Our cash position Securities portfolio and Commercial line. Utilization should remain relatively stable throughout the remainder of 2025

Tim Spence: Full year, adjusted non-interest income is expected to be up 1 to 2% as the muted Capital market trends are offset by continued growth and other fee categories.

Tim Spence: interest expense to be up 2 to 2 and a half percent compared to 2024

We will continue to execute our growth plans.

Tim Spence: Southeast Branchville and Salesforce Edition.

Tim Spence: In Middle Market, Commercial payments, and wealth.

In total, our guide implies full year, adjusted Revenue to be up 4 to 4 and a half percent and ppnr to grow around 7%.

Tim Spence: Moving to credit, we are tightening the range for 4 year. Net charge offs to 43 to 47 basis points.

Tim Spence: The timing of charge offs for individual credits, may impact a particular quarter. But the midpoint of our full year, expectations remains consistent with our beginning of the year guide.

Tim Spence: Moving to our outlook for the third quarter. We expect knee to be up 1% from the second quarter due to the benefits from fixed rate, asset repricing and day count.

Tim Spence: We expect average total loan, balances to be stable, to up, 1% due to strengthening cni pipelines and continued, broad-based, momentum and Consumer loans.

Tim Spence: Excluding the impact of the security gains.

Tim Spence: We expect adjusted non-interest income to be up 1 to 4%.

Tim Spence: Third quarter, adjusted. Non-interest expense is expected to be up 1% compared to the second quarter as we continue to invest.

Tim Spence: we expect third quarter charge offs to again be in the 45 to 49 basis, point range,

Tim Spence: Turning to Capital. We will continue to Target our cet1 ratio at 10 and a half percent.

Tim Spence: Based on our current projections for balance sheet growth, we expect to repurchase 4 to 500 million dollars of stock. During the remainder of 2025,

Tim Spence: We continue to prioritize organic loan growth overshare we purchases in order to deliver the best long-term returns for our shareholders.

Tim Spence: In summary, we expect to maintain our momentum in the second half of the year and Achieve record and AI positive. Operating leverage and strong returns in an uncertain environment.

Tim Spence: All while continuing to invest for the long term.

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

Matt Curo: Thanks Brian. Before we start Q&A given the time, we have this morning, we ask that you limit yourself to 1 question and 1, follow-up and then return to the queue. If you have additional questions operator please open the call for Q&A.

At this time, if you would like to ask a question, press star, then the number 1 on your telephone keypad to withdraw your question simply press star 1. Again we will pause for just a moment to compile the Q&A roster.

Matt Curo: Your first question comes from Abraham poonawalla with Bank of America. Please go ahead.

Abraham poonawalla: Good morning.

Morning.

Matt Curo: I guess maybe um Tim just thinking about Capital allocation. So heard uh,

Brian talked about the buyback appetite for the back half of the year, but just

Matt Curo: talk to us around, how you're thinking about,

Matt Curo: Deployment of capital. Clearly, we saw 1 of your competitors announced a bank deal uh earlier this week like any sense of like strategically even if we think about an A Bank m&a picking up,

Matt Curo: Are their characteristics. Be it sized beet, markets of a bank that we should be thinking about as shareholders of what 50 could buy? I mean any perspective would be helpful. Thank you. Yeah, I I great great question. So uh, you know, I think from my point of view, the capital priorities of the bank are always going to be organic growth first because a organic growth is completely within our control and B. The thing that makes you a good acquirer is the ability to run your core business effectively. So that the priority here is always going to be to run the company.

Matt Curo: To gain share on an organic basis and to make sure that there's adequate Capital available to that in addition to ensuring that we provide a stable and uh overtime growing dividend and that we're able to support the uh you know the capital return to investors and periods where we have excess Capital through share repurchases. Um

Matt Curo: Fight. An enemy that was 10 times. Our size. You would never march out into an open field, single file, and try to face a larger Army, you would pick your spots. You would try to use the terrain to your advantage, you'd get dents, uh, and you'd obviate the scale advantages that the competitor has. And if you think about the structure of the banking system in the US, I think that is the way to think about, uh, how you win, you know. Uh, we're going to be way more successful building 350 branches in a single region in the US than we would be if we built 3 or 4 branches in the 100s in the US. So the focus for us is always going to be on density. It's going to be on the ability to drive uh, organic growth. Um, by spreading the cost of customer acquisition across multiple product lines. So the relationship value, uh, that you get from the ability to deliver a broad range of products and services to customers is really important uh, to us. Uh, and it's always going to be

Matt Curo: Focused on, uh, ensuring that you have uh, a sort of continuity in that people say culture but really, in the mode of how you operate your business, because there just are a lot of things out there, uh, that operate very differently than we do. So I think appetites the same. We wouldn't have much conviction if 1 deals with changed, uh, our outlook on all that uh uh uh uh on uh how to deploy Capital. Uh, but the focus is going to be on delivering our strategy and the mode that is

Matt Curo: Most effective for shareholders.

Speaker Change: This good color. Thank you. And I guess maybe just a separate question as we think about me, obviously, a charge of range narrowed, but as we think about the impact of the tax bill on the solar residential, solar panel industry, just uh give us how your handicapping, any potential risk tied to your exposure and the business strategy from here, going forward at dividend. Thank you.

Speaker Change: Yeah. Ibrahim is Brian. Thanks for the question. Um, you know, I guess first I just recap, what's happened? The tax bill eliminates the tax credits on the residential, solar lending business, uh, starting in January of 2026 now. So, what does that mean for us first? This has no impact on our existing solar solar portfolio. Our customers have already earned their tax credits. Uh, so no impact on them. From a credit perspective, we believe that the dividend net charge offs have peaked in the second quarter and as you can see from our NPA and delinquency Trends in the first half of the year, the risk profile of the solar portfolio continues to improve.

Speaker Change: All the enhancements. We've done to this business, uh, that we've made to our platform from the installer Management. Program installer Builder coverage joint borrower collections enhancements. It's all helped to drive this credit Improvement.

We expect net solar charge offs to decrease 15 to 20% in the third quarter uh, from the second quarter level and decrease again in 2026 by another 15. To 20%

Speaker Change: Next, uh, the tax bill will impact future originations, uh, as the tax credit associated, with the residential solar leasing product was extended, uh, to the end of 2027. This will create an uneven playing field in the Solar Finance industry for about 2 years. We expect the least panel volume to increase while solar loans will decrease, uh, significantly as a result. We think that our 2026 solar originations are probably down 70 to 80% from 2025 levels. Uh while we were hopeful to have an Level Playing Field in 2026 where both products were treated equally. We'll at least see that occur in 2028.

Speaker Change: Now, how are we responding? We've been innovating to create a home equity product that we expect to launch in the first quarter of 2026 on the dividend platform?

Speaker Change: While this product will not have a tax credit, it will allow borrowers to own their solar panels and generate tax deductible interest which should matter to sell homeowners.

Speaker Change: The home equity product will also improve fifth third's, collateral position from a uccc to a second lean.

This product should also be appealing for other Home Improvement projects.

Speaker Change: Yeah. Just to put a point on 1 of the things Brian said, strategically Ibrahim the the interest we had.

Speaker Change: In Home Improvement is a category 3 Day, the acquisition, the dividend by several years. It's it's always been a home equity bank, but we also did the partnership with green Sky back in 2015 or 16. I don't remember when it was. And I think what we learned, as we spent time in Home Improvement, is that the place that Banks?

Speaker Change: That'll require multiple drawers or that involve involve a prime in a series of subs and that what the fintechs can do in those markets is to finance the windows or the doors that they can't Finance. The whole kitchen. Write a, a full renovation. And uh, so what we liked about dividend in addition to believing in the importance of distributed, power generation and storage. Which by the way, we still believe is an important part of the way that we're going to solve the energy demand that we have. In the US, the fact that solar is 1 of the most complex, uh, Home Improvement installations between the need for their reinforcement of the roofing, the installation of the panels, the high voltage electrical.

Speaker Change: Uh uh and then working with the power companies to get permission to operate. So it's going to provide a really nice uh, exoskeleton. That's always been the dream to be able to deliver, uh, home equity to a broader range of projects and in fact today, even prior to the sort of expected reduction. And so our volumes that Brian mentioned like 25 30% of new originations uh, or Home Improvement non-solar related. So, there is a good Core Business. Um, what is going to happen? Is the origination volumes are going to fall. And so, I think our our view is the dividends probably uh, going to grow in line with the balance sheet, as opposed to growing at a faster rate. On the go forward basis, meaning call it low to mid single digits, uh, as a point of

Speaker Change: Gets for us. Um, but as Brian said, uh, the credit Trends are incredibly encouraging. Uh, and I think they underline the comments that we've been making about focusing on the best quality installers and on super Prime credit. So we're just not seeing the deterioration that that, you know, folks who were full spectrum lenders. Uh, have had to struggle with.

Speaker Change: Where you comprehensive. Thank you both.

Speaker Change: Your next question comes from Scott, cafres with Piper Sandler, please go ahead.

Speaker Change: Morning guys, thanks for taking the question. Um, Brian wanted to ask on the margin Improvement, you know, even if we adjust for the benefit of the, um, NPA that that you discussed in your prepared remarks, you know, much much better than you had. Articulated might be the case earlier this year. So, you know, I think we can see on slide 5, kind of what's, what's happening between quarters, but I guess, just in your view. You know what's coming in better than you might have anticipated earlier this year? And what are we thinking about the the pace of, um, Improvement opportunity, going ahead, uh, or looking ahead? Um, and then I guess the, the follow-up. Um, I was hoping you might be able in your response to do sort of address what you see, as, uh, competitive Dynamics, um, on both the loan and deposit sides, you know, rationally, irrational, Etc.

Speaker Change: Yeah thanks. Yeah, great question. Uh, you know, I would tell you the big thing that I think was, uh, the outperformance item outside of the NPA payoff was the DDA performance? We've seen, you know, we were expecting to be able to transition back into growth mode on DDA. Now, that the interest rate environment has been stable for a period of time, but we saw it really strong performance this quarter that certainly was a big driver of our success. We continue to feel really good about our ability to have gotten cost out of our deposit book while continuing to improve the composition. I think that's probably an underappreciated thing about what we've been able to do over the last year just how much we've been able to strengthen the deposit base, especially with growth in the consumer small business sector.

Speaker Change: Uh, from a n perspective uh continue to feel like we did earlier this year, which is, you know, 2 to 3 basis, points of them Improvement in each quarter driven by fixed rate asset repricing continuing as well as loan growth.

Speaker Change: It's really just going to be kind of the core blocking and tackling and Improvement of the business over time. So nothing, uh, nothing dramatic there. And like you said, if we adjust for the 3, bits from the interest wreck uh uh recovery uh we'd be more in line with the 309 them uh and that 3 bits of quarter puts us right where we expected to be at the end of the year and that kind of mid teens range. So 315 feels right. Still still very achievable. So feel very good about the trajectory from here from a competitive landscape. Uh, you know, our industry is always very competitive.

Speaker Change: I don't think I would actually really call out much that we're seeing on iOS alone or the deposit side of this point.

Speaker Change: spreads look in line uh with what we've been seeing over the last 6 to 12 months across, almost every asset class on the lending side and deposit competition has been very very rational and we've seen great success in continuing to be able to

Speaker Change: find growth in the right pockets and improving the deposit space.

Speaker Change: Perfect. All right. Good. Thank you very much, Brian.

Speaker Change: Hey, good morning everyone. Hey, long time listener. First time caller is a sports radio talk. Um, I went

Tim, um, you know, maybe outside of the movement in utilization. Um, you know, we're obviously seeing signs of lung growth improving you talked about, you know, Investments to support lung growth, that you know, lenders up 11% Outlook, sounds upbeat. So, maybe just talk more specifically about your expectations for lung growth and as you're out talking to corporates, do you feel? They've gotten, you know, uh, confident enough to start making big Investments decisions and borrowing more. Thank you and have a follow-up.

Speaker Change: Yeah, yeah. Uh

Speaker Change: Great question, so let me take it by category. I think on the consumer side of the equation, the thing that gives us confidence is the diversity of the loan origination platform. So we've got, you know, we have long been Believers that while Residential Mortgages is a really important product for us to offer to Consumers, it wasn't a great balance sheet asset, and the byproduct of that is between what we're able to do in home improvement, what we'll be uh, continued expansion and home equity, which has been an important driver of our growth. And the fact that the risk adjusted spreads in the auto business are great. Uh, right now, like, we just feel very confident in our ability to continue to generate, what will be broad-based, you know, Market. Plus a point or 2 s growth out of the consumer side of the business. Uh, and that provides a lot of balance for us.

Speaker Change: Do you look at the uncertainties that exist in the corporates? I mean, the the positives, when you talk to customers uh on the commercial side of the equation or the at the moment, uh, are 1. There is a sort of General belief that as we continue to navigate uncertainty around, uh, trade and the Tariff levels that there's a value to them and running with a little bit of extra inventory. And that supports utilization, we're not seeing the big buys that we saw in the first quarter that drove up utilization for us. But we do hear from clients that they at the moment are preferring to run. Uh, well on balance with a little bit more inventory than they. Otherwise would have carried just to uh, compensate for any short-term disruptions in Supply chains. Second the uh, bonus depreciation. The accelerated depreciation schedule on Capital Equipment. Uh, is

The customer base generating real interest and replacing equipment. It it felt last year in the second half of the year in particular like the US was under invested a little bit in Capital Equipment purchases. We heard from clients who had rental businesses, a yellow, metal rental businesses. And otherwise that there had been a big boom in rental demand as people tried to buy time, uh, to ensure that they got the benefit uh, of the taxes. So I think that is a positive Catalyst. Uh, you know, the element that just hasn't come through and that's reflected in Middle Market m&a. Activity everywhere is the m&a, uh, driven

Speaker Change: Demand. And

Speaker Change: At some point there, there should be a little bit of a capitulation where either the, uh, sellers accept it with higher interest rates, uh, being maybe a more permanent phenomenon that they need to a seed to, you know, buyer pricing expectations where you have buyers, who have been patient, who conclude that this is the time to go, uh, you know, but that that's really the Third Leg of the stool, uh, between the capital purchases, the inventories, uh, and uh, then eventually some m&a.

Got it. And, um, you know, given your comments from before, you know, you talked about identifying 80% of the locations, in the Southeast 150, to 200 base points of operating, leverage, I guess given the success that you're seeing in your business, plus the success in the Southeast, does it make sense to accelerate your efforts here from, you know, an organic perspective and just how are you thinking about the pacing of your growth initiatives from here? Thank you. Yeah.

Speaker Change: I think somewhere Jamie Leonard is grinning like a Cheshire Cat right now because uh we have been running like what the the the years that I was the head of the consumer Bank, many years ago. The best we were ever able to do, was to open 25 or 30, branches in any individual year and they're running at a pace of 50 to 60 a year, uh, at this stage. So we have doubled the effort there. Uh, the other thing that we've invested in, we haven't spent a lot of time talking about, uh,

Love it. Uh it's just what we have been unwilling to do is to compromise on the quality of the locations uh and there then is nothing that we can do as it relates to the pacing on getting through local zoning jurisdictions. Uh and otherwise so uh, if you know, if we have the ability to get 60 done a year, we're going to get 60 done uh, a year for certain

Speaker Change: Got it. Thanks taking the question. Thank you.

Speaker Change: Your next question comes from the line of Gerald Cassidy. Please go ahead.

Hi, good morning. Uh, this is Thomas, Ley standing in for Gerard given all the recent headlines. Can you just give us your thoughts on stable coins and how broader adoption could impact both your payments business and deposit levels?

Yep. Yep. Yep. Happy, uh, happy to do that. I I'm I I happen to be pretty excited about the prospects, uh, for stable coins but maybe not in the same places that are getting a lot of the headlines these days. We we have a little bit of an advantage here and that we've banked a couple of the largest infrastructure providers to the crypto. And in particular the stable coin sector that for a few years now and uh, we've been able to watch uh, the use cases that have evolved on those platforms and get a sense for it. Um, we also have a kind of an interesting asset that a lot of the other Banks don't have uh, in the new line platform, which is really well architected to be able to support

Speaker Change: And both the sort of payments and the uh uh intraday liquidity activity. That's required to make stable coins work, uh, as uh uh, you know, both stores of value and payment rails. Uh, our our, our interests are 1, uh, where there are companies that have the compliance, uh, infrastructure and the operational robustness, uh, to bank them. And there are things that we, we will do, uh, their, uh, whether it relates to reserve accounts or payment rails, uh, and otherwise, but then secondarily, as a user of stable coins, I think, in particular, in some of the cross border payments and then cross-platform uh, uh, settlement applications that are out there. Um, Banks like us, uh, who are us? Domestic banks have been Outsourcing that sort of cross-border payment activity to correspondent Banks. So, that's a green field and anything that we can do,

Speaker Change: Uh even if it's disruptive in terms of the margins uh is a net positive uh for us. So I'm I'm I'm quite excited about that as a potential use case for our clients, I think the thing that's gotten a lot of the attention that I just don't believe in, is the risk that stable coins pose or don't pose to point of sale payments and to domestic um, payments in general. And I think the reason that the media has been wrong on this 1 is that there's been such a focus on the cost of it credit card.

Speaker Change: Acceptance, um, when cash checks, AC and debit are all already price competitive and all already basically universally, uh, you know, accepted. Um, so the the reason that people accept credit cards is because consumers want to use credit cards. And the reason consumers want to use credit cards is because they either need the liquidity that the credit line provides uh, or because they want the rewards and the stable coin rails today, don't offer either of those features and if they get added, they're going to have to increase the cost of acceptance. Uh, you know, in order to offset the cost of providing the liquidity, uh, or or the, you know, the Cash Back Rewards or otherwise,

Speaker Change: So uh, you know, stable coins in markets with uh unstable central banks or not a broad-based banking system, you know. Absolutely an interesting application internationally stable boy, stable coins. For AC cross border payments. Uh, or for collateral on different exchanges, interesting use case uh domestic payments. You know, I think there's probably more smoke than fire on that 1 right now.

Speaker Change: Okay, thank you. That's helpful caller. And then just, lastly, it appears, um, you know, expected regulatory relief for the industry, will potentially have a pretty big impact on at least the money center Banks. Um, evidenced by the recent stress test results in their, uh, resulting uh, stress, Capital buffers. Can you just share your thoughts on the potential benefits specifically for Fifth Third from the expected regulatory relief, you know, we might see over the next year or so.

Speaker Change: Yeah.

Uh,

Speaker Change: think if you asked the 10 SP from 2023 or 2024, uh, if I would regret not voluntarily, uh, submitting to an additional stress test, I would have thought that you were crazy.

Speaker Change: That all banks had undergone the stress test this last time around because it probably would have helped you all to understand the benefits that will accrete to Regional banks. In addition to the Big Money Center guys, uh, the stress testing relief is going to be beneficial for everybody. The opacity, uh, of that process and the models that were used are just not helpful. And we're Believers that transparency is a good thing. And I think you saw that, you know, potential upside that the, the regional banks will get in the form of capital relief, uh, from uh, you know, more rational scenarios and better to models and otherwise and I expect us to see a benefit from that. Um, we obviously will benefit, uh, from the, the a step away from gold plating on bosel 3 from, uh, you know, uh, a sort of a more risk-based view of the liquidity rules that were originally proposed, uh, and I have been quite encouraged by Governor Bowman's.

Speaker Change: Speeches. Uh, as it relates to the evolution of the supervision supervisory approach uh across the bank regulators. And then lastly you mentioned it earlier. But if that was an encouraging sign that 1 of our peers, announced a m&a, transaction and expected a 6-month approval and close like that's evidence of a, you know, well-oiled, uh, regulatory review process

Speaker Change: All that said, I just want everybody to remember that. There's another side to this which is not just, the banks that are seeing regulatory relief. There are a lot of non-bank competitors, uh, who also have a lot of influence in Washington. Some of whom is a category gave 10 times. Uh, in this last election cycle, what all banks in total, uh, gave and and Who as a result, uh, you know, are influential, in policy-making circles, uh, and they want to do a lot of the things that either banks have traditionally done or to have access to things that, you know, banks have traditionally only had access to without being Banks. So there's a lot of work that we are continuing to try to do on Washington. Uh, just to make sure that there's a balanced view on what a Level Playing Field. Looks like I'm, I would love to see more uh, denovo, Chargers approved. Because that would mean that the competitors that uh we have to face in the the in the field every day are playing by

The same set of rules that, that, that we are, uh, but that, you know, it it we, that there is going to be a balance, there's going to be relief for us and increased competition.

Speaker Change: Okay, great, thank you for the color and thank you for taking my questions. Why?

Next question.

From Erica nagger.

Speaker Change: With hi, good morning. Um, but I had a few questions just on, um, you know, balance sheet, mix from here. And I'm looking at sort of the period end data, the, you know, the period end data. Looked a little bit soft for commercial and very strong for Consumer, you know, given Tim and your comments about, um, you know, you know, commercial clients and activity levels for the second half of the year. Should we expect that mix of growth to change or is there a dynamic where you can continue to see strong consumer growth in the back, half of the year in addition to a pickup and cni growth?

Speaker Change: No, I would expect. Uh, I would actually expect to see a pretty balanced growth in the second half of the Year Erica. Um, you know, certainly the utilization Trends which we had a very strong fourth quarter and first quarter. And it was 1 of the things that I think we've talked about previously, which was, you know. Hey, there is a risk. You can see a little bit of a pullback. We do think, you know, that we continue to hear that inventory. Builds was a significant theme for the utilization pickup and that is certainly reversed some. Uh, but we still feel good about growth from here. It's part of the reason why we actually increase our full year. Average balance long guide uh, because of the strength that we're seeing

Speaker Change: I mentioned in prepared remarks that pipelines and Commercial were up 50%. They're actually pipelines. Are now in line with where pipelines were a year ago and that led to a pretty strong, uh, end of the year last year. So even though that little bit of a pullback in utilization, as well as the couple pay Downs that we saw on commercial construction, we feel we still feel pretty positive that we're going to be able to see some nice commercial growth in the second half to to supplement. What we think is going to be continued broad-based growth from consumer perspective.

Uh, total deposits were down a smidge, or, or flat? Um, I guess like you know, as we think about the second half of the year, how are you? Balancing optimizing. Your mix. Um, versus Gathering more deposits for funding, you know, or do you have enough, you know, cash, I think at 13 billion at period end that could, you know, help fund that incremental loan growth. Um, and sorry for the compound question and what are the advantages for? Um, you know, deposit costs in the in, in the second half of the year.

Speaker Change: Yeah, we're we're at this point. We are, uh, we feel very good about our balance sheet positioning, and we are going to be focused on continuing to be core deposit funded. Uh, we've done what we've needed to do from a rate cut perspective. We do think that, um, while our our forecasts based off of forward rates, uh, assumes 3 Cuts, you know, we are somewhat at a higher for longer Camp right now and we are definitely more focused on balanced growth, uh, and probably cost stabilization if not maybe a basis point or 2 higher as we grow uh, from a from a funding cost perspective, uh, but it's always going to be dependent on overall.

Speaker Change: What she needs.

Uh, so we are we do uh, plan to be in a more balanced growth mode at this point. Uh, as long as it's constructive from an ni then perspective.

Got it. Thank you.

Speaker Change: Your next question comes from Mike Mayo with Wells. Fargo, please go ahead.

Hey I'm going to stick with the uh the metaverse uh, analogy here. And this time it's a little bit different but I'm not really sure which Camp you're in. I hear what you're saying, but this commercial loan growth back,

Speaker Change: To the industry, or is it not back and I'll let you choose call Mae, or column B here? Um, it's back. If you look at the, the biggest banks its back that more Capital markets, you guys 5% loan growth of the year. That's pretty high. Uh, the Middle Market pipelines up, 50% as you said, but and then the knot back column. Um, you talked about the last commercial loan growth in the second quarter, others talked about being temporary due to tariffs. That it's a relationship. Banking is muted just in time. Borrowing, you mentioned the utilization down, I guess 50 basis points core extra growth in commitment.

Speaker Change: um,

And um, you know, if you're your Guide to the year does not imply much growth left. Um so yeah, you're talking like hey things are back. But then your guide you're kind of all you're close to that God through your phones. Don't grow much more. So, um, it is loan growth back. Or is it not? Or is it still TBD? Thanks.

Speaker Change: Yeah, uh I appreciate you. Holding up the mirror, Mike because if I did say all those things in sequence, I can understand why you're

Speaker Change: The.

Speaker Change: I think the you you hit on a really important point at the beginning there that I just want to emphasize and then I'm going to answer your, as a back or is it not back question, which is, it depends a little bit on the universe that you're in. Right? We we, we don't play, uh, in the, you know, upper end of the markets businesses. Right. You see activity at the money center banks at the investment banks that just doesn't exist in our that's a different Universe. Our universe is Main Street banking, uh, it's principally privately owned businesses, uh, or businesses, that were privately owned and are now owned by sponsors, um, and I think in that Universe loan growth is back, it just may not be back at the level that, uh,

Speaker Change: The people said loan growth was going to be back that everybody thought about that. The amount of uncertainty you have to navigate. Uh, if you are a manufacturer of materials, provider is massive, in this environment, like having spent a lot of time out with clients, uh, this quarter, uh, it it just like I every time, I walk away from 1 of these manufacturing ecosystems, I think to myself, there's just no way to understand the complexity unless you're involved in it. I get some time with, uh, you know,

Speaker Change: Online for aluminum in the US, we couldn't even need half the demand 1 of our aluminum clients, uh, told me the other day.

Speaker Change: So so then, you know, there are places where you could add but if you're going to add capacity to the US like you got to have real confidence in what the Tariff levels are going to be over time. And most of these deals have not been settled out yet. Uh you know and then in other cases like if you need refrigerant for an HVAC unit or something like that, like the refining processes are dirty enough that they don't comply with EPA standards and therefore you got to rely on China uh for for stuff like that. So there are good reasons to borrow and we are seeing people exercise good reasons to borrow but it's in the context.

Speaker Change: Of a big cloud with the question mark, uh, on how to think about your supply chain, whether it's materials or component manufacturers uh, and on what you can push through and uh you know, in terms of prices because there's a tug of war going on behind the scenes, uh, with most of the major distribution Partners right now, on what percentage of any sort of a tariff needs to be absorbed where, uh, in the supply chains, and the result is you're seeing people make decisions but it's not like a wild animal spirits risk on sort of an environment. So, uh, do I think that there's a possibility, we could do better on the loan growth front. Absolutely. But I also think there's a possibility where the second half of the Year could be.

Speaker Change: In all sorts of uncertainty and we're not Believers in providing guidance, that we're not able to that requires some Market externality, uh, to achieve like we are believers in putting guidance out and putting plans together, uh, that we believe we can deliver under a broad range of scenarios. And if the market backdrops better then it's always easier to scale up to support more activity than it is to do an online. If uh, you overly optimistic and it doesn't come through

Speaker Change: I guess that goes to your point about, you know, changes to complex systems and difficulty, and predicting those, um, like I thought our world was complex and then you sit in some of these supply chain discussions and it's way more hard to difficult to sort of take apart than an outcome meeting. It's the third

Speaker Change: Got it. All right. Thank you so much. Thank you.

Your next question comes from Chris, McGrady with KBW, please go ahead.

Chris McGrady: Oh great. Good morning everybody.

Speaker Change: Hey, Chris.

Speaker Change: Um, Tim maybe following up on the loan growth, I mean, any comments on credit, spreads right? You you've seen a lot of peers, talk a little bit more optimistically about growth in the quarter. What have you seen? If anything on credit spreads

Speaker Change: Hey Chris, it's Brian uh Chris spreads have actually been pretty stable. Um you know in general we're seeing uh spreads in line with what we've seen honestly for the last uh, handful of quarters. So nothing that we would call out on that front. I mean, the only thing that we're seeing from time to time is that, uh, some folks are getting a little bit irrational on protecting house accounts, uh, every now and then and it's more about, uh, defending business, uh, versus uh, seeing unreasonable credit spreads, as people are trying to grow.

Speaker Change: Okay perfect. And then my follow-up would be on credit. You know, the Improvement in in classifies in in non-accruals just quarter and tighten up the charge off guy.

Speaker Change: The back half of the year. I mean um maybe a little bit more detail on what you're seeing in the resolution process. Um, that gives you confidence. Um, borrower conversations, you know, inflow activity stuff like that would be great.

Speaker Change: Doing what we said. We said last quarter, we had good visibility into the resolution of 40% of our commercial mpas over the next few quarters. We hit 18% of that this quarter and I feel good about

Speaker Change: 40% over the next couple quarters based on what based on what we're seeing. I I think to your question, too. Um, not only did we make great uh progress on the existing npas? Our inflows at npas dropped. 77% from last quarter. So we're not seeing the inflows that we that we had the prior quarter. Um, so it's it's a good reflection of of improved overall credit performance and just our ongoing proactive portfolio management.

Speaker Change: Very helpful. Thanks a lot.

Speaker Change: Your next question comes from Steve. Alexa pulis with TD Cohen, please go ahead.

Speaker Change: Hi everybody.

Hey Tim. I want to go I want to go back to your um,

Speaker Change: Stable.

Speaker Change: your customers right strike who's talking about adopting their own stable Point potentially

Speaker Change: What does it mean for?

Business right? Do as relevant to a company like that if they have their own stable coin, could could you unpack that for us?

Yeah, that the, uh, I mean, the, the, the narrow answer is for a company like a stripe, right? Or a company like a fire block or some of these others that, uh, we are have been fortunate to do business with the propagation of these Technologies is a good thing and it probably on balance creates more business opportunity for Fifth Third. Okay. Because the the in, in order to buy a stable coin, you have to on-ramp currency from Fiat and we're in that business and in order to convert a stable coin back into a dollar post-transaction, you have to offer rampid and we're in that business and you got to be able to hold the value in the reserve account somewhere, and manage intraday liquidity. So the minting and burning of coins throughout the day. And we're a good provider of instant payments, uh, rails. Uh that you know, they that they essentially can develop directly into their existing code bases. So, you don't have a Recon process that has to get done, uh, the way that you would, uh, you know,

Speaker Change: You were using some other infrastructure. So I I think that is an encouraging. What what I will say though is if you look at the stripes and you look at the uh you know, the robin hoods and some of the others who have been uh more vocal and active about what they would do with stable coins. A lot of the focus is still on cross-border activity, right? Stripe gets both bills and collects payments from companies all over the world. Uh, and then has to pay for uh, hosting and a variety of services and all sorts of jurisdictions around the world. That's the perfect sort of an ecosystem for a stable coin because you can move currency on chain and then transact in an instantaneously or near instantaneously across borders in places, where there isn't interoperability and the domestic payment schemes today. So, so I think I'm, I'm quite optimistic about what that means for us. Uh, the the wild card would be if you saw people move money out of banks,

Speaker Change: And into stable coins in the US for domestic payments or domestic cash management. That feels highly unlikely to me, we have digital money. That provides a a, you know, a a yield which stable coins don't in the form of all of these online banks and money market funds that already, uh, exist. Uh, and we have low cost.

Uh, you know, you back with us. Uh, and, uh, you know, already embedded, uh, instant or near instant payment schemes that, uh, you know, if there's a sort of a good enough tasks that you have to run on this stuff,

Okay, that was my question. Thank you.

Speaker Change: Great. I think I'm I'm glad I I was gonna say I understand from Matt that, that was the last of our questions and before we want to close it out, I just want to give a quick shout out uh to our friends at Skyline Chili down the road who were just named the best Regional restaurant chain in the US. Just went more evidence to my belief that the best Regional business is bloom in Cincinnati. So congratulations guys. Thanks Tim and and thanks Stephanie and thanks everyone for your interest in Fifth Third, please contact the investor relations department. If you have any follow-up questions, Tiffany, you may now disconnect the call.

Speaker Change: Ladies and gentlemen, that concludes today's call, thank you all for joining. You may now disconnect