Fifth Third Bancorp

Hello and welcome to the Q4 2023 5th 3rd Bancorp 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 this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, again, press the star 1. I'll now turn the conference over to Matt Kuro, Director of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to the Fifth Third's Fourth Quarter 2023 Earnings Call. This morning, our Chairman, President, and CEO, Tim Spence, and CFO, Brian Preston, will provide an overview of our fourth quarter results and outlook. Our Chief Operating Officer, Jamie Leonard, and Chief Credit Officer, Greg Schreck, have also joined for the Q&A portion of the call. Please review the cautionary statements in our materials, which can be found in our earnings release and presentations. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results, as well as forward-looking statements about Fifth Third's performance. These statements speak only as of January 19, 2024, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Brian, we will open up the call for questions. With that, let me turn it over to Tim.

Thanks, Matt, and good morning, everyone. At Fifth Third, we believe that great banks distinguish themselves based on how they navigate challenging and uncertain operating environments. 2023 was certainly a challenging year for the industry, but I am very pleased with how we measured up. Our defensive balance sheet positioning, strong execution, and multi-year strategic investments produced top quartile profitability, the best core deposit growth, and the best total shareholder return among all regional peers who did not participate in an FDIC-assisted transaction. We generated an all-time record full-year revenue of $8.7 billion. Deposits grew 5% compared to an industry-wide decline of 3%. Credit performance was strong with net charge-offs remaining below historical averages and, although it would be foolish to expect it to repeat forever, in commercial real estate we experienced zero net charge-offs in 2023 and only two basis points of delinquent loans as of early January. These strong outcomes, combined with our multi-year expense discipline, produced a full-year adjusted return on assets of 1.25%, an adjusted return on tangible common equity, XAOCI, of 15.9%, and an adjusted efficiency ratio of 55.9%, all among the best of our peers. We also continued to take market share organically by growing our customer base and deepening relationships. We grew consumer households by 3% overall, punctuated by 6% growth in the southeast. In commercial, we added a record number of new quality middle market relationships, up 11% over the prior year. As a result, we grew or maintained our deposit market share position in all 40 of our largest MSAs. As we turn the page to 2024, we remain focused on differentiating Fifth Third based on the strength and consistency of our financial performance, by prioritizing stability, profitability, and growth in that order. Brian will take you through the detail on the fourth quarter and our outlook for the year shortly. But before that, I would like to touch on a few points. The first of these is the strength of our balance sheet. Our defensive positioning and decision to move quickly to adapt to proposed regulatory changes have put us in a position to play offense in 2024. Having achieved full Category 1 LCR compliance on August 31st and maintained it since, our liquidity position is very strong. We completed our RWA diet in the fourth quarter and accreted nearly 50 basis points of CET1, putting us on pace to reach a 10.5% CET1 ratio by mid-year 2024. Given our strong earnings profile and the significant rally in interest rates in December, our tangible book value per share grew nearly 30% during the fourth quarter. At the beginning of January, we moved $12.6 billion of securities to held in maturity, representing roughly one-quarter of our AFF portfolio. We expect this move will de-risk potential AOCI volatility to capital by about 30% in the event that market rates rise again. If the economic outlook remains stable and the capital rules are finalized no worse than the current NPR, these actions put us in a position to resume share repurchases of up to $300 to $400 million in the second half of 2024, including $100 to $200 million as early as the beginning of the third quarter. Should the final rules prove less stringent than the initial proposals, we'll have additional flexibility in deploying excess capital and liquidity to further improve profitability and position Fifth Third for growth. The second point I'd like to highlight is profitability. Expense discipline, strong returns, and positive operating leverage remain core areas of focus for Fifth Third. Supported by our technology modernization investments and a focus on leaning out key value streams, we reduced full-time equivalent employee headcount by 4% from our peak in 2023 to the end of the year, without the need for a company-wide expense program. The run rate benefits of these efforts put us in a position to sustain the peer-leading annualized expense growth that we have averaged the past several years, even as we continue to invest for growth. While the carryover effect of the RWA diet makes it unfeasible for the full year, we do anticipate returning to positive operating leverage in the second half of 2024. The third point I'd like to highlight is about growth. Our strategies have been consistent, building out our southeast markets, producing a strong feed to total revenue mix, and leveraging software that differentiates our product offerings and improves productivity. These are multi-year investments that cannot be replicated easily by competitors through one to two years of hiring a few new branches or small token acquisitions. In 2023, we opened 37 new branches concentrated in the southeast, bringing us to 107 opened over the past five years. We plan to open another 31 branches in the southeast in 2024. As a portfolio, these branches have continued to outperform our expectations on both household acquisition and deposit growth, and should provide a tailwind for several years forward. We also continue to invest in treasury management, wealth and asset management, and capital markets. All three of these businesses grew for us in 2023, and we expect mid to high single digit growth in each in 2024. In treasury management, our acquisitions of Rise and Big Data Healthcare and the launch of New Line, our embedded payments business, should continue to support peer leading performance. In wealth and asset management, Global Finance recently named our private bank as best U.S. regional private bank for the fifth consecutive year and best private bank for entrepreneurs globally for the first time. In our capital markets business, we have seen more robust activity levels to start the year, including an M&A pipeline that is one and a half times the full-year revenue target embedded in our guidance. Overall, we expect 2024 to be a solid year of improving revenue trends and continued expense discipline. Given what we believe to be a less certain outlook than the markets would imply, we are positioned to perform well under a range of economic and interest rate scenarios. Before I hand it over to Brian, I want to say thank you to our employees for hustling to deliver great results in 2023 and for the job you do every day to take care of our customers and communities. You make our company the special place it is. That, I'm going to turn it over to Brian to provide additional details on our fourth quarter results and our current outlook for 2024.